520 F.2d 818 (9th Cir. 1975), 74-1487, United States v. Church of Scientology of California

Docket Nº:74-1487.
Citation:520 F.2d 818
Party Name:UNITED STATES of America, and Robert H. Cluberton, Internal Revenue Agent, Internal Revenue Service, Petitioners-Appellees, v. CHURCH OF SCIENTOLOGY OF CALIFORNIA and Henning Heldt, Vice President, Respondents-Appellants.
Case Date:June 26, 1975
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 818

520 F.2d 818 (9th Cir. 1975)

UNITED STATES of America, and Robert H. Cluberton, Internal

Revenue Agent, Internal Revenue Service,

Petitioners-Appellees,

v.

CHURCH OF SCIENTOLOGY OF CALIFORNIA and Henning Heldt, Vice

President, Respondents-Appellants.

No. 74-1487.

United States Court of Appeals, Ninth Circuit

June 26, 1975

Page 819

[Copyrighted Material Omitted]

Page 820

James Q. Fisher (argued), Encino, Cal., for respondents-appellants.

Alfred S. Lombardi, Atty. (argued), Tax Div., U. S. Dept. of Justice, Washington, D. C., for petitioners-appellees.

OPINION

Before DUNIWAY and ELY, Circuit Judges, and JAMESON, [*] District Judge.

DUNIWAY, Circuit Judge:

The Church of Scientology of California appeals from the district court's order enforcing a summons issued by an Internal Revenue Service agent under § 7602 of the Internal Revenue Code of 1954, 26 U.S.C. § 7602, and denying the Church's request for pre-enforcement discovery. We reverse and remand for further proceedings.

I. Facts.

On February 8, 1973, agent Cluberton of the Service's Audit Division issued a summons to Henning Heldt, then vice president of the Church of Scientology of California, requiring Heldt to appear on February 20, 1973, to testify and to produce for examination certain records of the Church bearing on its federal income tax liability for 1968 and 1969. Heldt appeared at the appointed time, apparently willing to testify, but without the required records. Heldt said that he was no longer an officer of the Church and that he had neither control nor possession of the records because he had resigned as director and vice president of the Church four days earlier, on February 16, 1973. The agent noted Heldt's appearance but did not examine him. In the course of two years of negotiations preceding the issuance of the summons, Heldt had consistently held himself out to the agent as the representative of the Church in charge of its books and records, and never stated that he was contemplating resigning.

On September 5, 1973, the Service petitioned the district court to enforce the summons against Heldt and the Church under 26 U.S.C. §§ 7402(b) and 7604(a), both of which somewhat redundantly gave the district courts jurisdiction "by appropriate process" to compel compliance with such summonses. The district court issued an order requiring Heldt and the Church to show cause why they should not be required to comply with the summons.

Heldt and the Church then filed a notice of taking depositions of agent Cluberton and two other Service officials and a demand for the production of Service files relating to the Church. The Service moved to quash this discovery. Then Heldt and the Church responded to the order to show cause by alleging, inter alia, that the Service had issued the summons for the bad faith purpose of harassing the Church. More specifically, the Church asserted that the instant

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summons was part of a concerted nationwide Service strategy to harass various churches of Scientology, which are in the Church's words "doctrinal cousins" but separate entities. According to the Church, the Service has followed a pattern of initiating investigations and administrative and judicial proceedings, but nonetheless resisting definitive determination of the tax exempt status of those churches all, the Church alleges, for the purpose of applying pressure to the churches to settle the issue of their claimed tax exemptions and of eliminating Scientology organizations. The Church sought to take the depositions of Service officials to attempt to uncover evidence to support these allegations.

The district judge held a hearing on the order to show cause and on the Service's motion to quash discovery, listening to oral argument by counsel, but without the presentation of testimony or other evidence other than affidavits already on file. Concluding that the "allegation of harassment is not supported by the record," the judge entered orders (1) quashing the notice of taking of depositions and (2) enforcing the summons against the Church. At the request of the Church, the judge stayed enforcement of the summons pending appeal, on the condition that the Church deposit with the court all of the books and records sought by the summons. The Church did so, filling 23 trunks with records, and brought this appeal.

We have jurisdiction under 28 U.S.C. § 1291. Reisman v. Caplin, 1964, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459; D. I. Operating Co. v. United States, 9 Cir., 1963, 321 F.2d 586.

II. Summons Enforcement Proceedings in General.

We begin with a review of a few basic, settled principles.

An internal revenue summons is "administratively issued but its enforcement is only by federal court authority in 'an adversary proceeding' affording the opportunity for challenge and 'complete protection to the witness.' " Donaldson v. United States, 1971, 400 U.S. 517, 525, 91 S.Ct. 534, 539, 27 L.Ed.2d 580; Reisman v. Caplin, 1964, 375 U.S. 440, 446, 84 S.Ct. 508, 11 L.Ed.2d 459. The Federal Rules of Civil Procedure apply to a summons proceeding. Fed.R.Civ.P. 81(a)(3); United States v. Powell, 1964,379 U.S. 48, 58, n. 18, 85 S.Ct. 248, 13 L.Ed.2d 112; Martin v. Chandis Securities Co., 9 Cir., 1942, 128 F.2d 731, 734. But the...

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