Lucia v. United States

• Decision Date: 23 August 1971
• Docket Number: No. 30342.,30342.
• Citation: 447 F.2d 912
• Parties: Joseph P. LUCIA, Plaintiff-Appellant, v. UNITED STATES of America et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

447 F.2d 912 (1971)

Joseph P. LUCIA, Plaintiff-Appellant, v. UNITED STATES of America et al., Defendants-Appellees.

No. 30342.

United States Court of Appeals, Fifth Circuit.

August 23, 1971.

Charles Alan Wright, Austin, Tex., John G. Heard, Harry M. Reasoner, Thomas P. Marinis, Jr., Donald F. Wood, Vinson, Elkins, Searls & Connally, Houston, Tex., W. Dean Hester, Heath, Davis & McCalla, Austin, Tex., for plaintiff-appellant.

Meyer Rothwacks, John M. Dowd, Joseph M. Howard, and John P. Burke, Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, Attys., Tax Div., U. S. Dept. of Justice, Washington, D. C., Seagal V. Wheatley, U. S. Atty., Hugh P. Shovlin, Asst. U. S. Atty., San Antonio, Tex., for defendants-appellees.

Before COLEMAN, SIMPSON and RONEY, Circuit Judges.

SIMPSON, Circuit Judge:

Joseph P. Lucia, having successfully invoked his Fifth Amendment privilege against self-incrimination, as applied in Marchetti v. United States, 1968, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889, and Grosso v. United States, 1968, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906, to nullify his convictions for violations of the federal wagering excise tax laws, now seeks extension of that privilege so as to bar the tax collector from proceeding with a jeopardy assessment pursuant to Title 26, U.S.C. 6862.¹ The assessment was for $3,913,761.74 for wagering taxes and interest claimed to be due and owing to the United States under Title 26, Section 4401(a)². The district court dismissed Lucia's complaint for injunctive relief. We reverse and remand for further proceedings.

I. The Criminal Litigation

Lucia was indicted in the Southern District of Texas on September 18, 1964, on various counts for violations of provisions of the federal statutory scheme for taxing illegal wagers. He first pleaded not guilty to all counts of the indictment, but at a rearraignment on January 18, 1965, he changed his plea to guilty as to Count 12³ of the indictment. The court dismissed the remaining counts.

Later that day the United States Attorney filed a criminal information⁴ charging Lucia and others with conspiring willfully to fail to pay the federal excise tax on gambling imposed by Title 26, U.S.C., Section 4401, in violation of Title 18, U.S.C., Section 371. The defendant again plead guilty. The court sentenced Lucia to consecutive terms of six months on the conspiracy charge and five years on the evasion charge. It also imposed a $10,000.00 fine on each count. The court suspended execution of the five year sentence and put Lucia with respect to it on probation. The two fines were paid and Lucia served the six month sentence.

On January 29, 1968, the Supreme Court decided Marchetti and Grosso. Asserting that these decisions should be given retroactive effect, Lucia filed a motion, in the nature of a writ of error coram nobis, to vacate and set aside the judgments and sentences. The district court ruled that Marchetti and Grosso had not voided the statutes under which Lucia had been convicted, but had merely provided a defense to them. Such a defense, reasoned the district court, could not be applied retroactively. In addition, the district court held that Lucia's guilty pleas had waived all defenses, including any defense based upon his privilege against self-incrimination. On appeal, this Court reversed and set aside the convictions, by giving Marchetti and Grosso retroactive effect. United States v. Lucia, 5 Cir. 1969, 416 F.2d 920. This court en banc adhered to the panel decision that Marchetti and Grosso should be applied retroactively to Lucia's motion. United States v. Lucia, 5 Cir. 1970, 423 F.2d 697. The government's petition for writ of certiorari was denied. United States v. Lucia, 1971, 402 U.S. 943, 91 S.Ct. 1607, 29 L.Ed.2d 111.

II. The Wagering Excise Tax Assessment

On July 25, 1969, the Internal Revenue Service assessed a wagering excise tax liability in the amount of $2,653,640.00, together with interest of $1,260,121.74, against Lucia for the period March 1, 1959, through November 21, 1963. The assessment was based upon a projection of the period's betting "handle" from betting slips taken from the possession of Lucia when he was arrested in 1962.⁵ The computational process employed in this projection was set out in an affidavit filed in this case by the District Director of Internal Revenue, Austin, Texas:

"The agent had available one day\'s bet slips accepted during the 1962 football season. His calculations based upon those betting slips produced a total of $28,780.00 in bets accepted for that day. Based upon the proposition the wagers in the Houston area were accepted on a six-day per week basis and using $28,780.00 computed from the seized bet slips the Revenue Agent computed gross wagers accepted of $2,244,840.00 as being applicable to bets accepted during a 13-week football season. This sum represents 40% of gross wagers during an entire year. The Revenue Agent projected this figure into annual gross wagers accepted of $5,612,100.00. By eliminating one day per week, the Agent then determined that bets were accepted on 313 days annually. The annual gross wagers of $5,612,100.00 was converted into a daily amount of $17,930.00. Using this daily gross wager figure, the Agent then determined the number of days each month that wagers would be accepted and computed gross wagers on a monthly basis resulting in a tax liability totaling $2,653,640.00 for the period March 1, 1959, through November 21, 1963."

III. Lucia's Complaint for Injunctive Relief

Lucia, on June 4, 1970, filed this suit in the United States District Court for the Western District of Texas, seeking to restrain the United States from proceeding with the assessment and from levying upon his property in accordance with the lien created by the assessment. The complaint alleged that the assessment was without factual foundation; that the assessment was barred by the statute of limitations; that the levy on his property would result in his bankruptcy; that he was without financial resources to pay the assessment; and that he was without an adequate legal avenue for relief.

On June 9, 1970, the United States moved to dismiss the complaint for lack of subject-matter jurisdiction, citing Title 26, U.S.C., Section 7421(a).⁶ By order dated June 23, 1970, the district court ordered the United States to proceed no further on the basis of its jeopardy assessment until such time as Lucia had an opportunity to complete discovery with respect to the tax assessment. On June 24, 1970, again citing Title 26, U.S.C., Section 7421(a), the government filed an amended motion to dismiss the complaint for lack of jurisdiction. Two days later, June 26, 1970, Lucia's motion for expedited discovery was granted.

Following the grant of Lucia's motion for expedited discovery, several skirmishes took place between the parties with respect to Lucia's efforts to depose officials of the Internal Revenue Service and his efforts to obtain a judicially-ordered stay of the assessment and levy pending final disposition of his suit for injunctive relief. On July 6, 1970, the district court granted the government's amended motion to dismiss the complaint for lack of jurisdiction, and denied Lucia's request for an injunction pending appeal to this Court. In so doing it noted that the Internal Revenue Service had indicated that there would be no levy pending appeal. The judge stated the case "was pretty much the garden variety, plain vanilla, of refund case to me". Our view differs. By an order dated July 20, 1970, the district court dismissed Lucia's complaint with prejudice and recited the interim arrangement between the parties regarding levy pending appeal. Lucia filed his notice of appeal on July 27, 1970.

IV. The Parties' Appellate Arguments

Lucia first argues in this Court that the method employed by the government to compute the alleged wagering excise tax liability was arbitrary, capricious, and without factual foundation. In support of this proposition he places heavy reliance upon the Second's Circuit's decision in Pizzarello v. United States, 1969, 408 F.2d 579 cert. denied, 1969, 396 U.S. 986, 90 S.Ct. 481, 24 L.Ed.2d 450. The appellee argues that the method and process of computation were entirely proper, pointing to this Court's decisions in Pinder v. United States, 5 Cir., 1964, 330 F.2d 119, and Mersel v. United States, 5 Cir., 1969, 420 F.2d 517.

The second point raised by Lucia on this appeal is that the assessment is barred by the three year statute of limitations embodied in Title 26, U.S.C., Section 6501.⁷ The United States rejoins by citing Title 26, U.S.C., Section 6501(c) (3),⁸ which permanently tolls the statute of limitations "in the case of failure to file a return". Lucia's answer to this argument is the proposition that under the Grosso ruling he was under no duty to file wagering excise tax returns and may not be deprived of his defense of the expiration of the limitation period for having failed to file.

Thirdly, Lucia argues that the district court improperly granted the government's motion to dismiss the complaint without first giving the taxpayer leave to amend his complaint or to prove the truth of the allegations contained in the complaint. The appellee's response is that "Taxpayer did not inform the district court how he proposed to amend so as to nullify the effect of the record facts, and makes no such offer at this time."

As it did in the district court, the United States strenuously argues in this Court that Title 26, U.S.C., Section 7421 (a) prohibits this suit for injunctive relief from a tax assessment. Lucia, as he must to avoid the impact of Section 7421 (a), attempts to bring his case within the exception set forth in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), where it is stated:

"Nevertheless, if it is clear that under no circumstances could the Government ultimately prevail, the

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