Fahey, In re, S.F. 22906

Citation8 Cal.3d 842,505 P.2d 1369,63 A.L.R.3d 465,106 Cal.Rptr. 313
Decision Date13 February 1973
Docket NumberS.F. 22906
CourtUnited States State Supreme Court (California)
Parties, 505 P.2d 1369, 63 A.L.R.3d 465 In re John Joseph FAHEY, Jr. on Suspension of License. In Bank

Richard H. Foster, San Francisco, for petitioner.

F. LaMar Forshee, Herbert M. Rosenthal and Ronald W. Stovitz, San Francisco, for respondent.

BY THE COURT.

Respondent attorney, an active member of the State Bar, was convicted of wilfully failing to file his federal income tax returns for the years 1960, 1961 and 1962. (26 U.S.C., § 7203.) Following his conviction we referred the matter to the State Bar for a hearing, report and recommendation on whether his offense, or the circumstances surrounding its commission, involved moral turpitude and, if so, on the appropriate discipline to be imposed. (See Bus. & Prof.Code, §§ 6101, 6102; Cal.Rules of Court, rule 951(c)--(d); In re Hallinan (1954) 43 Cal.2d 243, 272 P.2d 768.) A special administrative committee conducted hearings and concluded that no moral turpitude was involved. The State Bar Disciplinary Board, after reviewing the record of the hearings, concluded that moral turpitude was involved and recommended that respondent be suspended from practice for three months.

Although respondent has the burden of showing that the disciplinary board's findings are not supported by the evidence, or that its recommendations are erroneous or unlawful, this court must exercise its independent judgment on the weight and sufficiency of the evidence (Lee v. State Bar (1970) 2 Cal.3d 927, 939, 88 Cal.Rptr. 361, 472 P.2d 449) and on the legal question of moral turpitude (In re Higbie (1972) 6 Cal.3d 562, 569, 99 Cal.Rptr. 865, 493 P.2d 97). We must resolve all reasonable doubts in favor of the accused respondent in deciding whether a particular crime or act involves moral turpitude. (Himmel v. State Bar (1971) 4 Cal.3d 786, 793--794, 94 Cal.Rptr. 825, 484 P.2d 993.) Our review of the record in the present case persuades us that although respondent knowingly and unlawfully failed to file the tax returns, his failure to do so was not for the purpose of personal financial gain or with intent to avoid ultimate payment of his tax obligations and that his offense did not involve acts of deception or disregard of professional standards in his practice of law. We conclude accordingly that respondent's offense and the circumstances of its commission did not involve moral turpitude within the meaning of Business and Professions Code sections 6101--6102 and that this proceeding should be dismissed.

We have before us the information and judgment of conviction in the United States District Court, the transcript of the hearing and exhibits before the administrative committee, the findings of that committee and the hearing transcript and findings of the disciplinary board. The committee exhibits include the trial transcript, findings and memorandum of decision in the criminal proceeding and the opinion affirming respondent's conviction on appeal. (United States v. Fahey (9th Cir. 1969) 411 F.2d 1213, cert. den. (1969) 396 U.S. 957, 90 S.Ct. 430, 24 L.Ed.2d 422.)

The criminal proceeding was commenced on April 13, 1967, by the filing of an information charging respondent with wilfully failing to file his income tax returns for the years 1960, 1961 and 1962 within the time required by law. He pleaded not guilty. At the nonjury trial he freely admitted that he knew he was required to file the returns and knew the criminal penalties for not doing so. He testified that he did not file the returns because of pressures arising from his practice and domestic difficulties, and because of his failure to keep adequate books and records. A psychiatrist testified that respondent's derelictions resulted from an obsessive compulsive reaction that prevented him from taking proper care of his own affairs even though he knew the nature, quality and wrongfulness of his acts.

After the receipt of all testimony the trial judge stated, 'I don't think for a minute that Mr. Fahey ever had the slightest intent to cheat his government out of anything. I don't think that. That, nevertheless, is not an answer to the charges that have been made against him.' In his memorandum decision the trial judge wrote that '(t)he Government has failed to establish that the defendant intended to defraud the Government of tax revenues due it,' but that 'such is not a requisite element of the misdemeanor defined in Section 7203. . . .' A formal finding was made that respondent knew of the criminal penalties for failure to file his tax returns and that such failure was in each instance 'a voluntary, deliberate, intentional and purposeful act on his part, and with bad purpose in that . . . the Defendant was aware that there were no reasonable or justifiable grounds for failure to timely file such tax returns.' (Id., at p. 1213, fn. 1.)

Respondent unsuccessfully argued on Appeal from the judgment of conviction that an intent to defraud the government is a necessary element of the offense. Respondent was given concurrent sentences of one year on each of the three counts. The sentences were later reduced to four months and have been served.

The agent assigned by the Internal Revenue Service to investigate respondent's tax obligations for the years in question first conferred with respondent on December 2, 1963. The returns for 1960 and 1962 were thereafter filed on December 23, 1963, and the 1961 return was filed on April 2, 1964. There were additional years for which respondent's returns were filed late. For 1959 and some other prior years, respondent had failed his returns late and had incurred resultant penalties. His returns for the years 1963 through 1966 were not filed until March 1968. His California income tax returns for 1960 through 1966 were also filed late. When he appeared before the administrative committee on July 20, 1971, all his federal income tax returns had been filed except an estimated tax return for 1971.

Respondent's returns for the three tax years involved in his conviction were audited and showed the following amounts of tax due, exclusive of penalties and interest: $2,590.45 in 1960, $1,745.79 in 1961; $5,318.78 in 1962 (total: $9,655.02). The record contains only inexact estimates of his income for these years and of his income and tax liability for other years in which his returns were late. Before the returns for 1960, 1961 and 1962 were prepared, respondent told a special agent of the Internal Revenue Service that his income for those years 'roughly grossed in excess of $30,000' for each year 'on the average.' 1

All of respondent's federal income tax obligations, including penalties and interest, were paid through 1959, but for later years the record shows substantial amounts still owing. At the administrative hearing on July 20, 1971, respondent testified that he probably still owed $30,000 on his federal income taxes for the period 1960 to 1970; that his best recollection was he had paid $1,000 on his tax liability for such period; and that he would have paid more if he had had the money to do so. In his written objections to the State Bar recommendations respondent declared that in November 1971 he entered into an arrangement with the Internal Revenue Service to pay $200 a month on his tax liability and has made the payments thus required.

Respondent has made other efforts to pay his tax obligations. At the criminal trial a special agent of the Internal Revenue Service testified that he met with respondent on December 23, 1963, at which time respondent submitted his returns for 1960 and 1962 and told the agent that he had $5,000 in his wallet, planned to borrow an additional $10,500 and would use such funds to pay his taxes. The agent advised respondent that he was not required to make payment at that time and that if he did submit a payment the money would be held in a suspense account pending completion of criminal proceedings. Respondent testified that he did not then make any payment and that his conversation with the agent caused him to refrain from doing so. At the administrative committee hearing on July 20, 1971, respondent testified that he had assigned a $25,000 promissory note to the Internal Revenue Service; that he believed the note to be collectible at the time he assigned it, but that he seriously doubted it was still collectible.

At his trial in the federal court respondent conceded that during the years 1960--1962 he invested between $9,500 and $10,000 out of current income in two business ventures, both of which lost money. This was the same time period in which his proposal to pay an immediate $5,000 in cash and another $10,500 in borrowed funds on his tax obligations was withdrawn because of the aforementioned statement by the Internal Revenue Service agent. Respondent testified at the committee hearing that there was no other time from 1960 to 1970 during which he had the means to pay his tax obligations.

There is no evidence of any deficiency in respondent's discharge of his professional responsibilities to his clients. Respondent has been engaged in the practice of law, principally in criminal matters, since his admission to practice in 1931, and there is no record of any previous State Bar disciplinary proceeding against him. The psychiatrist who appeared as a witness for respondent at the federal trial testified that although respondent's psychoneurotic condition substantially impaired his ability to handle his personal financial affairs it did not affect his ability and willingness to serve his clients. Two judges testified at the trial that respondent's professional conduct in representing clients was diligent and of high character. The disciplinary board found: 'During all material times, respondent discharged his obligations to his clients in a professional manner.' The administrative committee made a similar finding.

Respondent is subject to discipline...

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