United States v. Shotwell Manufacturing Company

• Decision Date: 18 August 1955
• Docket Number: No. 11108-11111.,11108-11111.
• Citation: 225 F.2d 394
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. THE SHOTWELL MANUFACTURING COMPANY, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Byron A. CAIN, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Frank J. HUEBNER, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Harold E. SULLIVAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

225 F.2d 394 (1955)

UNITED STATES of America, Plaintiff-Appellee, v. THE SHOTWELL MANUFACTURING COMPANY, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Byron A. CAIN, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Frank J. HUEBNER, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Harold E. SULLIVAN, Defendant-Appellant.

Nos. 11108-11111.

United States Court of Appeals Seventh Circuit.

June 15, 1955.

As Amended on Denial of Rehearing August 18, 1955.

COPYRIGHT MATERIAL OMITTED

George B. Christensen, Vincent O'Brien, Howard Ellis, William T. Kirby, Chicago, Ill., Edward J. Wendrow, Richard L. Wattling, Chicago, Ill., Robert H. Klugman, Chicago, Ill., Kirkland, Fleming, Green, Martin & Ellis, McAdams & Kirby, Winston, Strawn, Black & Towner, Defrees, Fiske, O'Brien & Thomson, Chicago, Ill., of counsel, for defendant-appellants.

H. Brian Holland, Asst. Atty. Gen., Joseph M. Howard, Atty., U. S. Dept. of Justice, Washington, D. C., Ellis N. Slack, John H. Mitchell, Washington, D. C., for the United States.

Before LINDLEY, SWAIM and SCHNACKENBERG, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

Shotwell Manufacturing Company, a corporation (sometimes herein referred to as Shotwell) and Byron A. Cain, Frank J. Huebner and Harold E. Sullivan, its officers, were indicted on two counts on March 14, 1952, for allegedly wilfully and knowingly attempting to defeat and evade a large part of the income taxes due and owing by Shotwell to the United States of America for the calendar years 1945 and 1946, in violation of section 145(b) of the Internal Revenue Code,¹ in that defendants filed and caused to be filed false and fraudulent tax returns for said corporation.

After trial on pleas of not guilty, the jury found all of the defendants guilty on both counts. Judgments of conviction were entered on the verdict, Shotwell was fined $10,000 on each count, the individual defendants were sentenced to three years' imprisonment on each count (to run concurrently), Cain was fined $5,000 on each count, Huebner was fined $5,000 on each count, and Sullivan was fined $2,500 on each count. The defendants have severally appealed.

The errors relied on arise out of the alleged insufficiency of the evidence to support the verdict; the failure of the court to sustain defendants' motions to dismiss; the failure of the court to sustain motions to suppress documents and information prepared or furnished by defendants for the government during an alleged disclosure; certain rulings on evidence and instructions; and denial of motions for new trial.

1. The trial court was correct in denying defendants' two motions to dismiss the indictment, in the nature of special pleas in bar. These motions were based on the theory that defendants had acquired immunity from criminal prosecution by making a "voluntary disclosure", in reliance upon an announced policy of the Treasury Department not to prosecute in cases where such a disclosure had been made.

There was no statutory basis for the alleged promises of immunity announced by the various Treasury Department officials.² Thus the making of a voluntary disclosure by the defendants was no legal bar to a criminal prosecution. Only an act of Congress could create such immunity. In the absence of statute, a defendant cannot enforce such a promise and "cannot by law plead such facts in bar of any indictment against him, nor avail himself of it upon his trial, * *" In re Whiskey Cases, 99 U.S. 594, 25 L. Ed. 399, 400.

Defendants contend, however, that there is a statutory basis for the voluntary disclosure policy in the power of the Secretary of the Treasury to compromise any civil or criminal case under § 3761 of the Internal Revenue Code of 1939.³ This same argument was squarely met and disposed of in United States v. Lustig, 2 Cir., 163 F.2d 85, 89^3a where the court said:

"The compromise statute⁴ affords no shield to one who has violated the tax laws unless there has actually been a compromise. See Botany Worsted Mills v. United States, 278 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379. It is not even claimed here that there was more than an offer to make a compromise. None of the formalities prescribed by the statute and treated by the Supreme Court as necessary to effect a compromise were observed. Botany Worsted Mills v. United States, supra, 278 U.S. at pages 288-289, 49 S. Ct. 129, 73 L.Ed. 379. There was no issue of fact for court or jury as to whether a contract of compromise had been made. Accordingly there is no merit in the defense of immunity."

The language of the Lustig opinion is fully applicable to the case at bar. The Treasury Department officials did not have the power to confer immunity on persons making voluntary disclosures, defendants' voluntary disclosure was not a statutory compromise of a criminal case and did not entitle them to immunity, and the motions to dismiss the indictment were properly denied.

2. A timely motion by defendants, supported by affidavits, and later amended, was made before trial to suppress certain evidence in the possession of the government. The motion averred that the evidence had been produced by defendants in reliance on a promise of immunity. More specifically, it averred that the Bureau of Internal Revenue, through the Secretary of the Treasury, the Commissioner of Internal Revenue, and other responsible treasury officials thereunto duly authorized, publicly offered and held out to all of those whose income tax returns contained omissions or misstatements, that there would be immunity from criminal prosecution in any case where the taxpayer who filed such return would come forward before investigation had been initiated and acknowledge the existence in such return of omissions for misstatements, and the Treasury Department in such case would merely assess such unpaid tax, interest, civil penalties, if any, as might thereafter be determined to be due, and that said offer was and had been in full force and effect. The motion likewise set forth that such timely acknowledgment was made to a responsible officer or agent of the Treasury Department in January, 1948 of the returns of Shotwell for the years mentioned in the indictment; that the defendants informed said agents of the Treasury Department, among other things, that said returns contained omissions and misstatements in that they intentionally failed to include, under the heading of gross sales, all or part of the sums received by Shotwell through sales of goods, and they failed also to include under the heading of "costs of goods sold", various payments made by defendants for said goods, which receipts and payments were in excess of the ceiling prices⁵ as set by the laws and regulations of the United States at the time such goods were purchased. It was also stated in the motion that the defendants at said times stated that Shotwell, through its officers, was ready, able and willing to pay such unpaid tax, interest and civil penalties, if any, as might be determined to be due after inspection and investigation by the agents of the Bureau of Internal Revenue. The motion also set forth that, at the time of the disclosure, Shotwell's over-the-ceiling payments for raw material were not deductible as a part of the cost of goods sold, under the rulings of the Commissioner.

The motion also averred that the officers and agents of the Treasury Department acknowledged the sufficiency and timeliness of the disclosure, and that the defendants, at the request of said officers, caused to be made available to them the books and records of Shotwell, and the individual defendants communicated to them information in their possession materially related to said omissions and misstatements and not available to such officers and agents through said corporate books and records, which information could not have been obtained from the individual defendants in any manner in view of their constitutional privilege and rights, and also that the defendants caused certain accountants to be employed to assist the said agents in obtaining the facts. Shotwell thus incurred and paid auditing charges in excess of $20,000.

The motion also set forth in substance that in pursuance of the foregoing, the Treasury officials examined the corporate books, records and data, and made copies thereof continuously over a period of more than four years preceding the return of the indictment, and did not advise the defendants that said disclosure was untimely or insufficient, or that criminal prosecution was or had been contemplated, or that it might be recommended; that, notwithstanding the foregoing, said officials shortly before the proceedings before the grand jury which resulted in the indictment herein, repudiated the said offer so relied and acted upon by the defendants, without granting to them any hearing or conference, and without communicating to them the amount which, upon such inspection, the Bureau of Internal Revenue had determined to be due, and without affording Shotwell or said officers on its behalf, an opportunity to pay such amount. The motion charged that the said actions of the Bureau of Internal Revenue constituted an improper inducement of a confession or admission of facts upon which a criminal prosecution might be based and an illegal search and seizure of the books, papers and records of the defendants, and that, in consequence, the admission in evidence of all books, records, papers and statements so obtained, and any copies thereof or data procured therefrom as a result of information obtained therefrom, would violate the rights of the defendants under the fourth and fifth amendments to the constitution of the United States.

A hearing was held on the motion to suppress. The following is a statement of the facts proved, including only those facts shown by the government's evidence wherever there was a conflict.

Leon J. Busby, a certified public...