UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
July 12, 2005
UNITED STATES OF AMERICA
THURSTON PAUL BELL, APPELLANT
On Appeal from the United States District Court for the Middle District of Pennsylvania. D.C. Civil Action No. 01-cv-02159. (Honorable Christopher C. Conner).
The opinion of the court was delivered by: Scirica, Chief Judge.
Argued January 25, 2005
Before: SCIRICA, Chief Judge, RENDELL and FISHER, Circuit Judges
At issue is whether a permanent injunction barring defendant Thurston Paul Bell from promoting and selling unlawful tax advice is permissible under the First Amendment. We will affirm the injunction with modifications.
Thurston Paul Bell is a professional tax protester who ran a business and a website selling bogus strategies to clients endeavoring to avoid paying taxes. In the 1980s, he worked for Save-A-Patriot, an entity dedicated to the proposition that "American citizens are not liable for the income tax." Bell later started his own organization, Tax-gate, and a website, www.taxgate.com, where he drafted letters and pleadings to the Internal Revenue Service and state tax agencies on behalf of clients. Bell charged for advice and services in preparing various tax filings. Bell subsequently founded another group, the National Institute for Taxation Education ("NITE"), and the related website www.nite.org., with the mission of providing "income tax help, solutions and strategies that work for Citizens of the United States to legally declare their gross income to be Zero."
Substantively, Bell's main rationale for avoiding the income tax is known as the "U.S. Sources argument" or the "Section 861 argument."*fn1 This method has been universally (emphasis supplied). Section 861 states that certain "items of gross income shall be treated as income from sources within the United States...." 26 U.S.C. § 861(a). According to the U.S. Sources argument, domestically earned wages of U.S. citizens are not taxable because such wages are not specifically mentioned in the list of items of gross income that "shall be treated as income from sources within the United States." See 26 U.S.C. § 861(a). Bell concedes that section 861 itself does not exempt domestically earned wages of U.S. citizens. No doubt Bell makes this concession because section 861 plainly provides that "[c]ompensation for labor or personal services performed in the United States ..." shall be treated as income from sources within the United States. 26 U.S.C. § 861(a)(3). Nevertheless, he argues that such wages are not taxable because certain regulations promulgated under section 861 (i.e. 26 C.F.R. §§ 1.861-8(a)(4), discredited. See, e.g., Great-West Life Assurance Co. v. United States, 678 F.2d 180, 183 (Ct. Cl. 1982); Loofbourrow v. Comm'r, 208 F. Supp. 2d 698, 709-10 (S.D. Tex. 2002); Williams v. Comm'r, 114 T.C. 136, 138-39 (2000). Still, several of Bell's clients obtained unwarranted tax refunds by filing returns according to his methods. From May 2000 until February 2002, over 400 clients paid Bell approximately $60,000 through the internet payment system PayPal.
The United States requested a preliminary injunction against Bell under 26 U.S.C. §§ 7402 and 7408.*fn2 Granting the motion, the District Court enjoined Bell from "directly or indirectly, by means of false, deceptive, or misleading commercial speech . . . organizing, promoting, marketing or selling . . . the tax shelter, plan or arrangement known as the 'U.S. Sources argument' . . . or any other abusive tax shelter, plan or arrangement that incites taxpayers to attempt to violate the internal revenue laws," and from assisting others in such violations. Bell, 238 F. Supp. 2d at 705-07. The District Court also ordered Bell to communicate by mail with all persons he assisted with the preparation of tax filings, to whom he gave or sold tax materials related to the U.S. Sources argument, or who contacted him about such matters. The letter was to inform those persons of the court's injunction, the fraudulent nature of the U.S. Sources argument, their potential liability for filing frivolous tax returns, and the possibility that the government may seek to recover erroneous refunds and impose other penalties. Id. The District Court ordered Bell to maintain his principal website, www.nite.org, during the pendency of the preliminary injunction, to remove "false commercial speech, and materials designed to incite others to violate the law (including tax laws)," and to post the court's order on the website while removing all the materials about the U.S. Sources argument. Id. The order also required Bell to inform the government of the identities of all persons whom he had helped file tax returns.*fn3
Id. The preliminary injunction was converted to a permanent injunction on January 29, 2004.
We have jurisdiction under 28 U.S.C. § 1291 to review the District Court's grant of a permanent injunction. We review the decision to grant or deny an injunction for abuse of discretion. Chao v. Rothermel, 327 F.3d 223, 225 (3d Cir. 2003). We review findings of fact for clear error, and conclusions of law de novo. Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 170 (3d Cir. 2001).
Bell contends the District Court erred in concluding the materials on www.nite.org were false commercial speech unprotected by the First Amendment. He also argues the injunction is overbroad because it prospectively bars him from advocating resistance to the tax laws -- speech he claims is protected because it does not incite imminent lawless action. He also contends the requirements to post the injunctive order on his website and turn over his list of clients to the government are unconstitutional forced speech. Because Bell makes no argument with respect to either the legality of the U.S. Sources argument or the District Court's application of the standard for injunctive relief under 26 U.S.C. § 7402(a) or Fed. R. Civ. P. 65, we limit our discussion to the First Amendment issues.*fn4
Permanent injunctions like the one here are "classic examples of prior restraints" on speech, Alexander v. United States, 509 U.S. 544, 550 (1993), and prior restraints are generally presumed unconstitutional.*fn5 New York Times Co. v. United States, 403 U.S. 713 (1971) (per curiam). Prior restraints, however, are not unconstitutional per se, and may be permissible depending on the type of speech at issue. Southeastern Promotions, 420 U.S. at 558; see also Near v. State of Minnesota ex rel. Olson, 283 U.S. 697, 716 (1931). First Amendment protection does not necessarily attach "merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written or printed." Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 502 (1949) (Black, J.); see also Ohralik v. Ohio St. Bar Ass'n, 436 U.S. 447, 456 (1978) (noting that regulation of information regarding securities, corporate proxy statements, price information, and statements by employers to employees is constitutionally permissible in various contexts).
The District Court found Bell's bogus tax advice enjoys no First Amendment protection and may be restrained because it is false commercial speech. Bell, 238 F. Supp. 2d at 703-04. We have defined commercial speech as "expression related to the economic interests of the speaker and its audience, generally in the form of a commercial advertisement for the sale of goods and services." U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914, 933 (3d. Cir.1990). To determine whether speech is commercial, courts should consider whether: (1) the speech is an advertisement; (2) the speech refers to a specific product or service; and (3) the speaker has an economic motivation for the speech. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66-67 (1983); In re Orthopedic Bone Screw Prods. Liab. Litig.,193 F.3d 781, 793-794 (3d Cir. 1999). An affirmative answer to each question indicates "strong support" for the conclusion that the speech is commercial. Id.
In concluding the materials on Bell's website were predominantly commercial speech, the District Court made a factual finding that his website was the internet version of "a television infomercial" made to entice visitors to join Bell's organization and pay him for tax advice. Bell, 238 F. Supp. 2d at 703. This finding is uncontradicted. From May 2000 to February 2002, Bell received approximately $60,000 in internet payments from more than 400 clients. The www.nite.org website invited visitors to pay a $195 annual fee for membership, which would give them access to tapes and documents to instruct them how to use the U.S. Sources rationale to file zero federal income tax returns. The website included an itemized schedule of fees charged by Bell for personalized assistance in completing IRS forms. Bell also recruited apprentices, known as "Senior Fellows," who, for a $3,500 fee, could receive training on how to market the U.S. Sources strategy to their own clients. As the District Court noted, the website was imbued with the unmistakable rhetoric of advertising. Id. (citing record). For example, Bell claimed on www.nite.org that "[u]nlike others who peddle arguments that may sound similar on the surface, our strategies have proven success, as the Internal Revenue Service (IRS) itself (as well as U.S. Attorneys and Federal Judges) has accepted NITE's arguments as valid."The website also referred to specific products and services, including forms, letters and assistance in preparing them. As noted, Bell profited from this scheme, and his profit motive was the driving force behind the enterprise.
In disputing the false commercial speech ruling, Bell argues the website also contained "important information concerning history, economic systems, monetary systems, judicial systems, politics and opinions." But even if true, this fact does not undermine the well-supported finding that the website's primary function was to sell fraudulent and illegal tax advice and services. Bell contends that because his website includes this additional information, it is not "pure" commercial speech which merely proposes a commercial transaction. See Bolger, 463 U.S. at 66. Rather, Bell claims his commercial speechis "inextricably intertwined" with protected political expression. See Riley v. Nat'l Fed'n of the Blind of N.C., Inc., 487 U.S. 781, 796 (1988) ("Where . . . the component parts of a single speech are inextricably intertwined, we cannot parcel out the speech, applying one test to one phrase and another test to another phrase. Such an endeavor would be both artificial and impractical. Therefore, we apply our test for fully protected expression.").
On these facts, Bell's argument is meritless. Packaging a commercial message with token political commentary does not insulate commercial speech from appropriate restrictions.*fn6 Riley is distinguishable because it involved legally-required commercial and political speech (a state law requiring disclosure of charitable contributions). See Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 474 (1989) (distinguishing Riley on that ground). In Fox, the Court held a policy banning tupperware parties at a state university did not hinder petitioner's ability to convey a noncommercial message (encouragement of home economics) independently of its commercial message (selling tupperware). Likewise, an appropriately drafted injunction in this case would curtail Bell's promotion of tax evasion but would not prevent him from advocating against the tax laws generally.
Restrictions on commercial speech are subject to intermediate scrutiny. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm. of N.Y., 447 U.S. 557, 566 (1980). The Supreme Court has explained the standard:
In commercial speech cases, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.
Id. The threshold inquiry is whether the commercial speech involves unlawful activity or is misleading. If so, the government may restrict it and the inquiry ends. See In re R.M.J., 455 U.S. 191, 203 (1982) ("Misleading advertising may be prohibited entirely."); Bates v. State Bar of Ariz., 433 U.S. 350, 384 (1977) ("Advertising concerning transactions that are themselves illegal obviously may be suppressed").
Here, the District Court found that Bell's speech was both misleading and that it promoted unlawful activity. Like the several other courts faced with similar claims from tax protesters, the District Court found that Bell's "U.S. Sources" interpretation of the tax code is "nonsensical" and frivolous, rests "purely on semantics" and "takes the regulations promulgated under Section 861 [of the Internal Revenue Code] out of context." Bell, 238 F. Supp. 2d at 700. The court found that Bell's website invited visitors to violate the tax code, and sold them materials instructing them how to do so. These findings are not contradicted by the record. The District Court properly concluded the false commercial speech on Bell's website was not protected by the First Amendment. Bell, 238 F. Supp. 2d at 703-04 (citing Castrol, Inc. v. Pennzoil Co., 987 F.2d 939, 949 (3d Cir. 1993)).
Bell also invokes the general principle of First Amendment law that prior restraints, as opposed to criminal penalization, bear a heavier presumption against their constitutional validity. See Southeastern Promotions, 420 U.S. at 558-59. But this principle does not apply to restrictions on unprotected speech, including false or unlawful commercial speech. See, e.g., Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 697-99 (1978) (upholding injunction against publication of ethical canon violating antitrust laws); Pittsburgh Press Co. v. Pittsburgh Comm. on Human Relations, 413 U.S. 376, 389-90 (1973) (upholding injunction against publication of employment advertisements violating gender discrimination laws). Addressing similar facts, the courts of appeals have repeatedly upheld injunctions against abusive tax schemes like Bell's on false commercial speech grounds. See, e.g., United States v. Schiff, 379 F.3d 621, 629 (9th Cir. 2004); United States v. Estate Pres. Servs., 202 F.3d 1093, 1106 (9th Cir. 2000); United States v. Buttorff, 761 F.2d 1056, 1066-68 (5th Cir. 1985). We will affirm the injunctioninsofar as itrestricts Bell's false commercial speech.
Bell argues the injunction improperly curtails his First Amendment right to engage in protected political speech. Specifically at issue are certain of the order's provisions, based on Brandenburg v. Ohio,395 U.S. 444, 447 (1969) (per curiam), that forbid Bell from engaging in speech inciting others to violate the tax laws. On these facts, we believe the injunction should be grounded on aiding and abetting violations of the tax laws and on false commercial speech rather than on incitement of illegal activity. Therefore, we will construe the injunction narrowly.
Although profit-seeking material promoting the sale of bogus tax advice predominated, Bell's website also featured a sampling of his views on the tax system and other topics. In his brief, Bell contends his website "embarks on a rather interesting study of the Constitution and the Internal Revenue Code . . . and discusses his own experiences with the IRS and federal judiciary and outlines his theories about federal income tax." The record indicates the website contained some political speech protesting the tax laws generally.
The District Court correctly recognized that its injunctive order must be narrowly drawn to separate protected speech from unprotected speech. Bell, 238 F. Supp. 2d at 704. But to the extent any materials on Bell's website were non-commercial in nature, the District Court held this content could be banned "where such advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action." Id. (emphasis in original) (quoting Brandenburg, 395 U.S. at 447). The accompanying injunctive order roughly tracked the language from Brandenburg, and compelled Bell to desist from promoting or selling any plan "that incites taxpayers to attempt to violate the internal revenue laws" and to remove "materials designed to incite others to violate the law (including tax laws)." Id. at 705, 706.*fn7
Because the District Court's reliance on Brandenburg to model the injunction is a purely legal question, our review is plenary. Brandenburg grew out of a line of well known Supreme Court cases addressing government restrictions on radical political advocacy. See, e.g., Schenk v. United States, 249 U.S. 47, 52 (1919) (Holmes, J.); Gitlow v. New York, 268 U.S. 652, 673 (1925) (Holmes, J., dissenting); Whitney v. California, 274 U.S. 357, 377 (1927) (Brandeis, J., concurring); Dennis v. United States, 341 U.S. 494 (1950). A unanimous Supreme Court struck down Ohio's Criminal Syndicalism Act, which aimed to punish "persons who advocate or teach the duty, necessity, or propriety of violence as a means of accomplishing industrial or political reform; or who publish or circulate or display any book or paper containing such advocacy; or who justify the commission of violent acts with intent to exemplify, spread or advocate the propriety of the doctrines of criminal syndicalism; or who voluntarily assemble with a group formed to teach or advocate the doctrines of criminal syndicalism." Brandenburg, 395 U.S. at 448 (internal quotation marks omitted). The indictment charged that the defendant, a leader at a Ku Klux Klan cross-burning rally, "did unlawfully by word of mouth advocate or teach the necessity, or propriety of crime, violence, or unlawful methods of terrorism as a means of accomplishing political reform." Id. at 449 n.3. In striking down the statute the Court concluded that "we are confronted with a statute which, by its own words and as applied, purports to punish mere advocacy . . . . Such a statute falls within the condemnation of the First and Fourteenth Amendments." Id. at 449.The Court pronounced the rule that only advocacy "directed to inciting or producing imminent lawless action and is likely to incite or produce such action" may be proscribed.*fn8
Id. at 447.
Although it has been employed by some courts, we believe Brandenburg is the wrong tool for tailoring the injunction in this case.*fn9 The statute declared unconstitutional in Brandenburg addressed the danger of advocacy provoking violence. Its breadth of language aside, the case does not support an affirmative ban of material posted on a website advocating against the income tax.*fn10 Moreover, the offending portions of Bell's speech may be restricted adequately on other grounds, including false commercial speech (as discussed in Part IIIA, supra) and aiding-and-abetting violations of the tax laws, without raising constitutional questions or distorting Brandenburg. Other courts have worded injunctions against tax protesters like Bell without reliance on Brandenburg. See, e.g., Schiff, 379 F.3d at 629 ("Because we can uphold the injunction as an appropriate restriction on fraudulent commercial speech, we do not need to address the alternate [basis] cited by the district court to support the injunction, inciting imminent lawless behavior."); Estate Pres. Servs., 202 F.3d at 1106; Buttorff, 761 F.2d at 1066-68 (5th Cir. 1985).*fn11
Promoters of tax fraud who, like Bell, provide detailed instructions and techniques to avoid paying taxes have been prosecuted on aiding and abetting grounds in several cases notwithstanding asserted First Amendment defenses. See United States v. Freeman, 761 F.2d 549, 552 (9th Cir. 1985) (Kennedy, J.) (holding aiding-and-abetting liability possible even if the speech "spring[s] from the anterior motive to effect political and social change"). In this case, an injunction could be just as effective and avoid raising constitutional questions if it were written to ban false commercial speech and aiding and abetting violations of the tax laws rather than Brandenburg incitement. Furthermore, wording the injunction to forbid aiding and abetting would be more consistent with the District Court's finding that Bell's materials were used to assist tax violations, not merely advocate them.
Bell's case is not the first where the breadth of an injunctive order against a tax protester has skirted constitutional limits. See Kaun, 827 F.2d at 1150. In Kaun, the Court of Appeals for the Seventh Circuit construed an injunctive order narrowly rather than remand to the district court to write a new order. We will do the same here. See Ideal Toy Corp. v. Plawner Toy Mfg. Corp.,685 F.2d 78, 83 (3d Cir. 1982). We will construe paragraph 1(a) of the order to mean that Bell may only be found in contempt for violating the order where the evidence demonstrates that he advertised, marketed or sold false tax advice, or aided and abetted others, directly or indirectly, to violate tax laws. Cf. Kaun, 827 F.2dat 1151-52.*fn12 We will also construe the language in paragraph 3 ordering Bell to remove "materials designed to incite others to violate the law (including the tax laws)" as an order to remove materials aiding and abetting violations of the tax laws.*fn13 The remainder of the order will be affirmed. Bell is free to criticize the tax system. Based on grounds of false commercial speech and aiding and abetting violations of the Internal Revenue Code, the order prohibits him from further violation of the tax laws without raising constitutional issues.
Bell claims the District Court's order to place the injunctive order prominently on his website is forced speech prohibited by the First Amendment. See Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557 (1995) (holding unconstitutional under the First Amendment a state law requiring private citizens who organized a parade to include a group that wished to convey an unwanted message). Bell also cites Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622 (1994). Among other differences, however, these cases do not involve speech principally dedicated to selling fraudulent and unlawful products and services.
In a commercial setting, the government may impose reasonable regulations on content to prevent deception of customers. Zauderer v. Office of Disciplinary Counsel of the Supreme Ct. of Ohio, 471 U.S. 626, 650-51 (1985). Likewise, we have held that mandatory disclosure of factual, commercial information does not offend the First Amendment. See Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 165 (3d Cir. 2001) (upholding injunction ordering health insurer to publish corrective advertisement); see also Lorain Journal Co. v. United States, 342 U.S. 143, 155 (1951); Envtl. Def. Ctr., Inc. v. EPA, 344 F.3d 832, 849-51 (9th Cir. 2003), cert. denied, 124 S.Ct. 2811 (2004). In a case involving a tax protester website and facts similar to this one, the Court of Appeals for the Ninth Circuit upheld the requirement that the injunction be posted on the website. Schiff, 379 F.3d at 630 -631 (9th Cir. 2004).
Posting the preliminary injunction on the website gives notice to readers that Bell's tax advice is bogus and unlawful. Without this information, Bell's readers could expose themselves to criminal and/or civil liability for failure to declare income and pay taxes. The First Amendment is not implicated by this disclosure. We see no abuse of discretion.
Bell contends the order's requirement that he furnish the government with a list of customers who bought his products or services violates his First Amendment rights of free association. The argument is meritless.
As noted, the record demonstrates that Bell's operation was primarily a commercial enterprise, not a political group. Producing a customer list does not offend the First Amendment because commercial transactions do not entail the same rights of association as political meetings. See IDK, Inc. v. County of Clark, 836 F.2d 1185, 1193-95 (9th Cir. 1988) (holding escort/client relationship not protected). Bell relies on a number of cases involving advocacy groups, including NAACP v. Alabama ex rel. Patterson, 357 U.S. 449 (1958) (reversing compelled disclosure of membership list) and Gibson v. Fla. Leg. Investigative Comm., 372 U.S. 539, 544 (1963), but they do not fit the facts here. The one decision cited by Bell involving tax protesters, In re First Nat'l Bank, Englewood, Co., 701 F.2d 115 (10th Cir. 1983), is inapposite. The groups in that case made a prima facie showing that they were primarily engaged in advocacy of tax reform, not the sale of tax evasion strategies, and so the court remanded for an evidentiary hearing regarding whether the government had a compelling need for the records. Id. at 118. The courts that have considered this issue have held that the government's interest in enforcement of the tax laws outweighs rights of association that may be implicated by disclosure. See Kerr v. United States, 801 F.2d 1162, 1164 (9th Cir. 1986); St. German of Alaska E. Orthodox Catholic Church v. United States, 840 F.2d 1087, 1093-94 (2d Cir. 1988). Here, the government has a compelling interest, among other things, in determining whether Bell's customers filed fraudulent returns in violation of the Internal Revenue Code. See First Nat'l Bank of Tulsa v. Dep't of Justice, 865 F.2d 217, 220 (10th Cir. 1989).
In sum, the District Court did not abuse its discretion in ordering Bell to disclose his customer list.
Subject to our construction of the injunctive order in part III.B, we will affirm the judgment of the District Court.