United States v. Stonehill

• Citation: 274 F. Supp. 420
• Decision Date: 16 October 1967
• Docket Number: No. 65-127.,65-127.
• Court: U.S. District Court — Southern District of California
• Parties: UNITED STATES of America, Plaintiff, v. Harry S. STONEHILL, Robert P. Brooks, Tierra Ranch, Inc., Contracts Discount, Inc., John E. Fort, Julius Baer & Co., Title Insurance and Trust Company, Sam Steinberg, Murray M. Otstott, Herminiz Otstott, and Joe Steinberg, Defendants.

274 F. Supp. 420

UNITED STATES of America, Plaintiff, v. Harry S. STONEHILL, Robert P. Brooks, Tierra Ranch, Inc., Contracts Discount, Inc., John E. Fort, Julius Baer & Co., Title Insurance and Trust Company, Sam Steinberg, Murray M. Otstott, Herminiz Otstott, and Joe Steinberg, Defendants.

No. 65-127.

United States District Court S. D. California.

October 16, 1967.

William M. Byrne, Jr., U. S. Atty., Loyal E. Keir, Asst. U. S. Atty., Chief, Tax Div., Los Angeles, Cal., for plaintiff.

Bertram H. Ross, Los Angeles, Cal., for defendants Stonehill and Brooks.

ORDER DENYING MOTION TO SUPPRESS

WESTOVER, District Judge.

Defendants Harry S. Stonehill and Robert P. Brooks, in quest of fame and fortune after the war, went to the Philippines. So eminently successful were they in ascending the ladder of finance that they brought themselves and their activities to the attention of the Philippine authorities and to the attention of the United States Internal Revenue Service.

In 1960 the tax return of defendant Stonehill for the year 1958 was sent for audit to Mr. Robert Chandler, the United States Internal Revenue Service representative in the Philippines. Because of lack of personnel in his office, Mr. Chandler notified Washington that it was not possible to audit the return and requested assignment of agents to conduct the audit.

Harry S. Stonehill and Robert P. Brooks owned, were officers of, or controlled many companies and corporations. Among the corporations they owned or controlled was United States Tobacco Corporation which allegedly had obtained monopoly of tobacco sales in the Philippine Islands. Menhart Speilman was a trusted employee of the United States Tobacco Corporation but was discharged from his employment by Stonehill and Brooks. His discharge was effected in such manner that Speilman left his employment with a spirit of vengeance and, prior to his departure, had copied and photographed certain documents and records of the United States Tobacco Corporation which he felt disclosed wrong-doing on the part of defendants' corporation.

Mr. Speilman went to Agent Robert Hawley of the United States Federal Bureau of Investigation who was assigned to the American Embassy in Manila; Speilman displayed the copies of records and documents he had obtained from the files of United States Tobacco Corporation and related to Agent Hawley alleged unlawful activities of the corporation and of Stonehill and Brooks.

In evaluating the copies of documents and records together with Mr. Speilman's story so presented to him, Agent Hawley concluded that if the United States Government had any interest in defendants' activities, such interest would arise out of violation of United States tax laws; consequently, Agent Hawley took Mr. Speilman to Robert Chandler of the Internal Revenue Service.

Mr. Chandler looked at the documents and records so presented to him, heard Mr. Speilman's story, and came to the conclusion that the information might be of interest to the Philippine authorities; hence, Mr. Speilman was referred to the Philippine National Bureau of Investigation, and an appointment was arranged for him to be interviewed by Colonel Lukban who was in charge of the Philippine National Bureau of Investigation.

For some time before Colonel Lukban's interview with Mr. Speilman, the Philippine National Bureau of Investigation had been engaged in gathering evidence concerning the activities of Stonehill and Brooks, which evidence was for use in deportation proceedings against them to remove them from the Philippine Islands as undesirable aliens. Stonehill and Brooks were later deported.

During the deportation investigation, Colonel Lukban determined that a raid should be made upon premises occupied by Stonehill and Brooks and the various corporations which they owned, controlled, or of which they were officers.¹ Colonel Lukban mentioned the contemplated raid to Robert Chandler, and Robert Chandler negated any procedure which included raiding. Nevertheless, the Philippine National Bureau of Investigation consummated raid plans, and meetings were held to determine the modus operandi of conducting the raid. As Colonel Lukban and Robert Chandler were friends, some of the meetings were held in the home of Robert Chandler.

At one of the various meetings of members of the Philippine National Bureau of Investigation (at which Robert Chandler was also present) the premises to be raided were mentioned, and Robert Chandler inquired whether the Army and Navy Building was included on the list of premises; and when informed that the Army and Navy Building was not on the list, he suggested that the building be included. When the raid was conducted the Army and Navy Building was among the premises searched.

Sometime during the investigation of defendants Stonehill and Brooks by the Philippine National Bureau of Investigation a diagram of the premises occupied by the Evening News and the United States Tobacco Corporation was drawn by Robert Chandler Exhibit J in evidence, together with a memorandum relative to the Goodrich Building Exhibit I. The diagram and the memorandum thereafter came into possession of the Philippine National Bureau of Investigation.

To conduct the raid of defendants' premises the Philippine National Bureau of Investigation obtained search warrants, and just prior to the raid a copy of one of the search warrants was shown to Robert Chandler who, upon examining the document, stated that he knew nothing about search warrants but that the copy appeared to be all right.

In the course of the various meetings, Colonel Lukban had promised Robert Chandler that he, Chandler, would be permitted to examine and copy documents and records which the Philippine National Bureau of Investigation obtained in connection with defendants' activities and the activities of their various corporations.

On March 3, 1962—the day of the raid—Robert Chandler and two agents (sent by Washington to audit the Stonehill return for 1958), at approximately one o'clock in the afternoon, were stationed at or near a small, temporary structure owned by the Philippine National Bureau of Investigation. Mr. Chandler and the two agents waited there until about ten o'clock of that evening, at which time Colonel Lukban contacted them and requested that they come to his office. Chandler and the two agents went to Colonel Lukban's office, saw the documents and records seized by the Philippine National Bureau of Investigation in its raid upon defendants' premises and, when Chandler requested permission to copy or photograph some of the records and documents, his request to copy or photograph them was denied.

Permission to copy or photograph was denied on the ground that no copying or photographing could be done by anyone until after the Philippine National Bureau of Investigation completed an inventory of the items seized by it. On the following day arrangements were made to permit Robert Chandler to copy or photograph the records and documents seized.

Shortly after seizure of the records and documents belonging to the defendants as individuals, or owned by corporations controlled or owned by them, an action was filed in the Manila court by Harry S. Stonehill, Robert P. Brooks, John J. Brooks and Karl Beck, in which action they demanded return of all documents seized by the Philippine National Bureau of Investigation on the ground that the items seized were obtained under unlawful search warrants.

The Philippine Constitution, Article III, Section 3 (Bill of Rights) states:

"The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized."

Rule 126, Section 3, of the Rules of Court of the Supreme Court of the Philippines, provides as follows:

"Sec. 3. Requisites for issuing search warrant.—A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined by the judge or justice of the peace after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the person or things to be seized.

"No search warrant shall issue for more than one specific offense.

The search warrants used by the Philippine National Bureau of Investigation were the same form (42 warrants) except for description of the premises to be searched and the signatures of the complaining witnesses. The warrants described the offenses of defendants as

"Violation of Central Bank Laws, Tariff and Custom Laws, Internal Revenue Code and Revised Penal Code."

The search warrant affidavits stated, in part:

"This application is founded on confidential information received by the undersigned as peace officer and information which I have personally investigated and found to be as follows:

"The said office has been observed to be the meeting place or accommodation office where various individuals meet in connection with illegal transactions for the purpose of defrauding the government."

The raid hereinbefore discussed was conducted by the Philippine National Bureau of Investigation on March 3, 1962. Thirty-four months later—on January 5, 1965—the United States Government filed with this court the above-entitled action. The complaint alleges that a delegate of the Commissioner of Internal Revenue assessed income tax deficiencies against defendant Harry S. Stonehill for the calendar years 1958 through 1961 in the sum of $13,613,721.51 and against Robert P. Brooks, defendant herein, in the total sum of $11,182,966.73. The...