Martin Doherty v. Turner Broadcasting Systems, Inc. ( 2023 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 4, 2023 Decided June 30, 2023
No. 22-7072
MARTIN DOHERTY,
APPELLANT
v.
TURNER BROADCASTING SYSTEMS, INC.,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:20-cv-00134)
Martin Doherty, pro se, argued the cause and filed the
briefs for appellant.
Victoria Scott Kingham, Student Counsel, argued the
cause as amicus curiae in support of appellant. With her on the
briefs were Erica Hashimoto, Director, and Tiffany Yang,
Supervising Attorney, both appointed by the court, and
Madeline Terlap, Student Counsel.
Denise E. Giraudo argued the cause for appellee. With her
on the brief was Christopher R. Williams.
2
Before: WILKINS and WALKER, Circuit Judges, and
SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: Martin Doherty injured himself
on the job while working as a photojournalist for media
corporation Turner Broadcasting Systems, Inc. In the
following years, while he was unable to work, Turner paid him
for his leave. Doherty claims that because his injury was job-
related, Turner paid him workers’ compensation, while Turner
claims that it paid him according to a separate disability policy.
This distinction has legal significance because income earned
as workers’ compensation is non-taxable, while disability
payments are taxed. Turner reported the compensation as part
of Doherty’s taxable income on the W-2s it filed with the IRS.
Doherty sued Turner under 26 U.S.C. § 7434 for willfully
filing fraudulent information returns (the W-2s in question) on
his behalf. He contends that his 2014, 2015, and 2016 W-2s
were false because they overstated his taxable income, and that
Turner’s actions were fraudulent and willful because Turner
either knew or should have known that the payments were in
fact workers’ compensation. Following discovery, the District
Court granted summary judgment for Turner. First, it found
that the W-2s were not false because they accurately reflect the
total amounts that Turner paid Doherty in each of the taxable
years. Second, it found that no reasonable jury could conclude
Doherty was being paid under the D.C. Workers’
Compensation Act. Third, it found that as a matter of law
Turner lacked the scienter (mental state) required under the
statute, willfulness, which the District Court determined was
akin to specific intent.
3
We reverse. Under § 7434, a plaintiff must show: (1) the
defendant filed an information return on his or her behalf, (2)
the return was false as to the amount paid, and (3) the defendant
acted willfully and fraudulently, which here is equivalent to
knowingly or recklessly. The parties agree that the W-2s
qualify as information returns, and Doherty has raised a dispute
of material fact as to the second and third elements. As to
falsity, Doherty’s injury was job-related, and a reasonable jury
could therefore conclude that the W-2s were inaccurate
because they overstated his taxable income by including
workers’ compensation. And as to scienter, several pieces of
evidence including the language of Turner’s own policies as
well as communications between Doherty and Turner could
lead a factfinder to conclude that Turner knew or should have
known the actual nature of these payments.
I.
Plaintiff Martin Doherty worked as a photojournalist for
Defendant Turner Broadcasting Systems, Inc., a media
conglomerate, for over fifteen years. In late 2012, he injured
himself loading camera equipment while at work. As a result,
he needed medical treatment and was unable to perform his job.
Turner compensated him in lieu of his wages for those injuries.
Turner apparently has two policies for compensating its
employees for leave due to an injury. 1 First, it has a workers’
1
As described, Turner has a workers’ compensation policy, J.A.
388–89, and a short-term disability leave policy, J.A. 383–84. There
are facial differences between these policies, such as that the former
applies to “job-related” injuries or illnesses, J.A. 388, while the latter
applies to leave for an employee’s “own medical needs[,]” J.A. 383.
The former also pays more than 60% in weeks 17 through 26 where
required by state law. However, and somewhat confusingly, Turner
cites to the policies interchangeably, referring only to the “STD
4
compensation policy for an employee’s “job-related injury or
job-related illness[.]” J.A. 388–89. Under that policy, a
qualifying employee remains on Turner’s payroll for 26 weeks,
and is paid, as a percentage of the employee’s base salary, as
follows:
Weeks 1-10: 100%
Weeks 11-16: 80%
Weeks 17-26: 60%*
J.A. 388. The asterisk indicates that where an applicable state
workers’ compensation law requires pay at a higher rate for
weeks 17 through 26, Turner will comply with state law. Any
difference is paid by Turner’s workers’ compensation insurer,
ESIS, which also pays any legally required compensation after
week 26. By the policy’s terms, “[p]ayments made under this
policy are intended to fulfill [Turner’s] Worker’s [sic]
Compensation obligations.” Id.
Turner also has a short-term disability leave policy, which
compensates employees “absent from work due to [their] own
medical needs[,]” i.e., any “illness or injury” that makes it
“medically necessary” for an employee to miss work for longer
than seven days. J.A. 383–84. Under that policy, Turner pays
the same percentages as above, without the caveat applicable
to weeks 17 through 26. Turner receives federal tax deductions
for payments it makes under the disability policy.
In Turner’s view, it compensated Doherty under the
latter—its disability policy—although it also, and somewhat
perplexingly, asserts that it “fulfills its workers’ compensation
obligation” through that policy. Appellee Br. 4. (In its actual
[short-term disability] Plan.” E.g., Appellee Br. 4 (citing to J.A. 384
(short-term disability policy) as well as J.A. 388 (workers’
compensation policy) when discussing the “STD Plan”).
5
written policies, Turner states that the “Workers’
Compensation” policy is how it fulfills its workers’
compensation obligation. J.A. 388.) In any event, in Doherty’s
view, Turner paid him workers’ compensation, to which he
believes he was entitled under D.C. law. Accordingly, Doherty
filed a claim with the D.C. Office of Workers’ Compensation
for his 2012 injury. Turner received notice of that claim in
August 2013. In subsequent rulings in 2014 and 2016, that
Office found that the injury was work-related. In 2016, the
Office specifically found that Doherty was entitled to 66 and
2/3% of his average salary under D.C.’s workers’
compensation law.
The W-2s that Turner filed on Doherty’s behalf for tax
years 2014, 2015, and 2016 included as part of Doherty’s gross
taxable income all of his injury-related compensation.
Doherty sued Turner in D.C. Superior Court, and Turner
removed to federal district court. He sought damages under 26
U.S.C. § 7434, alleging that Turner willfully filed fraudulent
W-2s on his behalf, as well as under various state law theories.
The District Court dismissed the state law claims, and they are
not before us on appeal. After discovery, the District Court
granted summary judgment for Turner on the § 7434 claim and
denied Doherty’s cross-motion for summary judgment and
motion to strike. Doherty timely appealed. For the reasons that
follow, we reverse.
II.
We review a decision granting summary judgment de
novo. Lopez v. Council on American-Islamic Rels. Action
Network, Inc., 826 F.3d 492, 496 (D.C. Cir. 2016). “Summary
judgment is appropriately granted when, viewing the evidence
in the light most favorable to the non-movants and drawing all
reasonable inferences accordingly, no reasonable jury could
6
reach a verdict in their favor.” Id. There must be “no genuine
dispute as to any material fact[,]” and the movant must be
“entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).
A.
1.
The Internal Revenue Code creates a private cause of
action if “any person willfully files a fraudulent information
return with respect to payments purported to be made to any
other person[.]” 26 U.S.C. § 7434(a). The parties primarily
dispute the statute’s scienter requirement. As far as we are
aware, neither the Supreme Court nor our Court has construed
this provision, so we write on a largely blank slate.
“[W]e start, as always, with the language of the statute.”
Universal Health Servs., Inc. v. United States ex rel. Escobar,
579 U.S. 176, 187 (2016). Here, Congress defined neither
“willfully” nor “fraudulent,” terms that both relate to a
hypothetical defendant’s state of mind. “But it is a settled
principle of interpretation that, absent other indication,
Congress intends to incorporate the well-settled meaning of the
common-law terms it uses.” Id. (internal quotation marks and
alterations omitted); see also Safeco Ins. Co. v. Burr, 551 U.S.
47, 58 (2007) (describing the “general rule that a common law
term in a statute comes with a common law meaning, absent
anything pointing another way”).
The Supreme Court has described “willfully” as a “word
of many meanings whose construction is often dependent on
the context in which it appears[.]” Safeco, 551 U.S. at 57(quoting Bryan v. United States, 524 U.S. 184, 191 (1998)).
That said, the “common law usage” of willfulness encompasses
actions taken either knowingly or in “reckless disregard of the
law[.]” Safeco, 551 U.S. at 57 (internal quotation marks
7
omitted). The Supreme Court and lower courts have adhered
to that traditional definition particularly where, as here,
“willfulness is a statutory condition of civil liability[.]” Id.; see
also United States v. Rum, 995 F.3d 882, 888–89 (11th Cir.
2021) (Safeco’s approach to willfulness reflects the “general
consensus among courts” in civil contexts).
In § 7434, Congress reinforced “willfully” with
“fraudulent,” which “is a paradigmatic example of a statutory
term that incorporates the common-law meaning of fraud.”
Universal Health Servs., 579 U.S. at 187; see also United
States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391, 1400
(2023) (explaining that the False Claims Act reinforces the
term “fraudulent” with “knowingly” and defines the latter in a
way that “track[s] the common-law scienter standards for
fraud”); Neder v. United States, 527 U.S. 1, 22 (1999). That
traditional meaning encompasses false statements made with
one of three states of mind, consistent with the definition of
“willfully” explained above. SuperValu Inc., 143 S. Ct. at
1400. As articulated by a “widely cited” 1889 English
decision: “Fraud is proved when it is shewn that a false
representation has been made (1) knowingly, or (2) without
belief in its truth, or (3) recklessly, careless whether it be true
or false.” Id. (alteration omitted) (quoting Derry v. Peek [1889]
14 App. Cas. 337, 374 (HL)); accord RESTATEMENT (SECOND)
OF TORTS § 526 cmt. e (1977) (“[F]raud is proved if it is shown
that a false representation has been made without belief in its
truth or recklessly, careless of whether it is true or false.”).
That common law definition is echoed by modern dictionary
definitions. See Fraud, Black’s Law Dict. (11th ed. 2019)
(“fraud n. (14c) 1. A knowing misrepresentation . . . 2. A
reckless misrepresentation made without justified belief in its
truth . . .”).
8
In sum, 26 U.S.C. § 7434 requires a plaintiff to show that
(1) the defendant filed an information return on his or her
behalf, (2) the return was false as to the amount paid, and (3)
the defendant acted knowingly or recklessly.
2.
Turner offers a different interpretation of the statute’s
scienter requirement, but we are unpersuaded. In its view,
“fraud” in this context “requires ‘intentional wrongdoing’ and
an ‘intent to deceive.’” Appellee Br. 16–17, 32. Building upon
that argument, Turner argues that the statute’s use of
“willfulness” cannot encompass “mere recklessness,” pointing
back to the statute’s use of the term “fraudulent.” Appellee Br.
28–30.
That reading is flawed for several reasons. To start, it does
not explain, based on either the text or structure of the statute,
why we should depart from the common law definition of the
terms “fraudulent” and “willful.” “There being no indication
that Congress had something different in mind, we have no
reason to deviate from [that] understanding[.]” Safeco, 551
U.S. at 69. Another basic problem with this interpretation is
that Turner essentially reads the word “willfully” out of the
statute—its entire argument appears to rely on defining the
word “fraudulent”—but we “must give effect, if possible, to
every . . . word of a statute.” Liu v. SEC, 140 S. Ct. 1936, 1948
(2020).
Turner’s error is made clear by the fact that its proffered
interpretation matches the mens rea required in criminal tax
fraud cases, where “willfully” connotes “a voluntary,
intentional violation of a known legal duty.” Cheek v. United
States, 498 U.S. 192, 200–01 (1991); cf. Bryan, 524 U.S. at 191(“[W]hen used in the criminal context, a ‘willful’ act is one
undertaken with a ‘bad purpose.’”). The District Court made
9
the same mistake, and while Turner does not cite Cheek in its
briefing, it relies on an unpublished Sixth Circuit opinion that
uses the Cheek standard in discussing § 7434’s scienter
requirement. See Vandenheede v. Vecchio, 541 F. App’x 577,
580 (6th Cir. 2013) (“[W]illfulness in this context connotes a
voluntary, intentional violation of a legal duty.” (internal
quotations omitted)). But as Cheek acknowledged, this
definition of willfulness is “an exception to the traditional
rule.” 498 U.S. at 200. The reason for this “special treatment
of criminal tax offenses” is to prevent turning a “bona fide
misunderstanding” into criminal conduct, especially given “the
complexity of the tax laws.” Id. (emphasis added). For that
reason, “Congress . . . softened the impact of the common-law
presumption by making specific intent to violate the law an
element of certain federal criminal tax offenses.” Id. A statute
with civil penalties does not carry the same risk, and we
therefore find Cheek’s specific intent requirement inapplicable
to statutes that create a civil cause of action. See Lefcourt v.
United States, 125 F.3d 79, 83 (2d Cir. 1997) (declining to
apply Cheek “in the context of [] civil tax penalties”).
Lastly, to be sure, we agree with Turner’s contention that
a defendant’s “mere negligence or error” cannot establish
fraud. Appellee Br. 17. Our interpretation of “fraudulent” and
“willfully”—which here includes reckless conduct—is
consistent with that view. “While ‘the term recklessness is not
self-defining,’ the common law has generally understood it in
the sphere of civil liability as conduct violating an objective
standard: action entailing ‘an unjustifiably high risk of harm
that is either known or so obvious that it should be known.’”
Safeco, 551 U.S. at 68 (quoting Farmer v. Brennan, 511 U.S.
825, 836 (1994)). That risk must be greater than mere
carelessness or negligence. Id. at 69. Section 7434 certainly
does not hold defendants liable for mere error in filing
information returns.
10
B.
Turning to the facts here, we first note that the parties agree
that Doherty’s W-2s qualify as information returns. The two
questions before us are therefore whether Doherty has raised a
genuine dispute of material fact that (1) the returns were false
as to the amount paid, and (2) Turner filed them knowing they
were false or with reckless disregard. We conclude that he has
for both.
1.
The federal tax code excludes workers’ compensation
payments from an employee’s taxable gross income. 26 U.S.C.
§ 104(a)(1) (“[G]ross income does not include— . . . amounts
received under workmen’s compensation acts . . .”); see also
26 C.F.R. § 1.104-1(b). Thus, if Turner included workers’
compensation payments on Doherty’s W-2s as part of his
taxable gross income, each W-2 by definition contained a
misrepresentation as to the amount paid. 26 U.S.C.
§ 104(a)(1). Had Turner properly excluded Doherty’s
workers’ compensation, the amount of taxable gross income on
his W-2’s would have been different. See Liverett v. Torres
Advanced Ent. Sols. LLC, 192 F. Supp. 3d 648, 653 (E.D. Va.
2016) (“[Section] 7434(a) creates a private cause of action only
where an information return is fraudulent with respect to the
amount purportedly paid to the plaintiff.”).
Drawing inferences in Doherty’s favor, as we must, a
reasonable jury could easily conclude that the injury-related
compensation Turner paid Doherty was workers’
compensation, regardless of whatever label Turner now
attaches to it. Doherty filed a claim for workers’ compensation
in 2013, of which Turner was aware. The D.C. Office of
Workers’ Compensation concluded that Doherty’s injuries
arose from a work-related incident. Turner did not dispute that
11
finding. Even in this litigation, Turner “does not dispute that,
at various times from 2014-2016, [Doherty] was out of work
on leaves of absence due to alleged workplace injuries.” J.A.
543 (Turner’s Response to Doherty’s Statement of Material
Facts). By its own terms, Turner’s Workers’ Compensation
policy plainly covers such payments for a “job-related
injury[.]” J.A. 388. And in Turner’s own words, payments
made under that policy “are intended to fulfill the Company’s
Worker’s [sic] Compensation obligations.” Id. If all that were
not enough, one of Turner’s own employees told Doherty as
early as 2013 that his compensation at that time was “coded as
WC pay.” J.A. 501 (March 14, 2013 email from a Turner
Human Resources employee to Doherty).
Turner does not seriously dispute any of the above but
instead resorts to a different line of attack. It argues that the
W-2s were not inaccurate because they did not misstate the
total amount of compensation that Doherty received. This
argument is unpersuasive because Doherty does allege that
Turner overstated the amount paid. A W-2 conveys the taxable
wages paid to an employee. See Internal Revenue Service,
General Instructions for Forms W-2 and W-3 (2023),
https://perma.cc/A9GB-Z8BL (“Box 1—Wages, tips, other
compensation. Show the total taxable wages, tips, and other
compensation that you paid to your employee during the
year.”). Thus, if an employer includes non-taxable
compensation in an employee’s taxable income, the W-2
necessarily overstates the amount of taxable income the
employee was paid. Apply that here. Workers’ compensation
is not a taxable wage. See 26 U.S.C. § 104(a)(1). Therefore, if
Doherty proves at trial that Turner paid him workers’
compensation, that income should not have been reported as
part of his gross taxable income on his W-2s, making them
incorrect as to the amount paid.
12
In sum, there is a factual dispute as to whether Turner
overstated Doherty’s taxable income on his W-2s.
2.
Doherty has also raised a factual question as to scienter,
i.e., whether Turner either knowingly or recklessly overstated
Doherty’s taxable income. As recounted above, as early as
2013 Turner had not only ample notice but actual knowledge
that Doherty’s injuries were job-related and that related
payments therefore fell under its workers’ compensation
policy. And though it is not evidence, Turner’s briefing on
appeal underscores its own belief regarding the true nature of
these payments by claiming that the company “fulfills its
workers’ compensation obligation, in part, through the STD
Plan[.]” Appellee Br. 4. We cannot reconcile that statement
with the notion that no reasonable jury could conclude that
Turner knew, or ought to have known, that it was paying
Doherty workers’ compensation from 2014 to 2016
(notwithstanding however Turner labeled the payments at the
time under its internal policies).
As we have explained, Doherty does not need to show
specific intent for his claim to ultimately succeed. But it is
worth noting that he would likely survive summary judgment
even under that higher standard; in other words, there is also a
factual question whether Turner knew that those payments
were not taxable income. At least one of Turner’s Risk
Management employees told Doherty as much in writing. J.A.
458 (January 8, 2016 email from Turner’s employee to Doherty
stating: “Workers’ compensation benefits are not considered
taxable income at the state or federal level.” (emphases
omitted)). Not only that, a reasonable jury could infer that
Turner intentionally misreported the payments as disability for
the purpose of evading taxes, as it had a financial motive for
13
doing so because it received tax deductions as a result. J.A.
508 (Turner’s Response to Requests for Admission). Finally,
Doherty began alerting Turner to the taxability of his injury-
related payments by October 2015 at the latest, and on several
occasions thereafter. J.A. 482 (October 6, 2015 email from
Doherty to Turner stating that he is owed payments “tax free”);
J.A. 459 (January 8, 2016 email from Doherty to Turner
employee stating that “WC benefits are not taxable”); J.A. 487
(April 19, 2016 email from Doherty to Turner’s Payroll email
requesting a corrected 2016 W-2 because it erroneously
includes “Workers Compensation [that] is non-taxable[]”);
J.A. 518 (May 23, 2016 email from Doherty to Turner
employee with extensive calculations regarding this issue). He
even filed a substitute W-2 with the IRS for tax year 2015. J.A.
429. Thus, contrary to Turner’s assertions, even under a
heightened scienter standard a reasonable jury could conclude
that Turner knew it was including non-taxable workers’
compensation in his W-2s—especially for tax year 2016
following Doherty’s repeated communications about that issue.
Finally, Turner falls back on the argument that it paid
Doherty directly under the disability plan all along. Because
disability payments are taxable under 26 U.S.C. § 104(a)(3),
the logic goes, Turner maintained a good faith belief that
Doherty’s W-2s were accurate, “even if [the] payments were
more properly classified as workers’ compensation[.]”
Appellee Br. 26. 2 Perhaps Turner will be able to persuade a
jury about its good faith belief that it was not paying Doherty
workers’ compensation, despite the fact that it acknowledges
Doherty’s injuries were job-related, and in light of its own
policies plus its assertion now that it somehow fulfills its
2
Along the same lines, Turner also states, without citation, that “it is
not uncommon for employers to remit taxable [disability] payments
after a workplace injury.” Appellee Br. 26 n.11. Even if true, that
would not render the practice lawful.
14
workers’ compensation obligations through that disability
policy. But for the reasons stated, we cannot credit that
conclusion as a matter of law, and summary judgment is
therefore unwarranted on that basis.
* * *
In conclusion: (1) Doherty’s 2014, 2015, and 2016 W-2s
are information returns, (2) there is a factual question as to
whether they were false as to the amount paid, and (3) there is
a factual question whether Turner acted in relevant part
knowingly or recklessly. Thus, Doherty’s § 7434 claim
survives summary judgment.
III.
Doherty raises several other challenges on appeal,
identified as Issues III through VII in his opening brief. He
argues that the District Court denied him due process in various
ways, including by granting Turner’s motion to dismiss and
denying his motion for leave to file a surreply, denying his
motion to compel, denying him a meaningful opportunity to be
heard during a status conference, and for several other similar
reasons. None of these amount to a deprivation of judicial
process, let alone due process.
IV.
For these reasons, Doherty’s § 7434 claim is reinstated.
We reverse and remand for further proceedings consistent with
this opinion.
It is so ordered.