Pacific Fisheries, Inc. v. U.S.

• Citation: 539 F.3d 1143
• Decision Date: 21 August 2008
• Docket Number: No. 06-35718.,06-35718.
• Parties: PACIFIC FISHERIES INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

539 F.3d 1143

PACIFIC FISHERIES INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 06-35718.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 11, 2008.

Filed August 21, 2008.

Robert J. Chicoine, Cori Flanders-Palmer, Cory L. Johnson, Chicoine & Hallett, P.S., Seattle, WA, for the plaintiff-appellant.

Jonathan S. Cohen, David M. Katinsky, Gretchen M. Wolfiner, U.S. Department of Justice, Tax Division, Washington, DC; John McKay, U.S. Attorney for the Western District of Washington, Seattle, WA, (on briefs) for the defendant-appellee.

Appeal from the United States District Court for the Western District of Washington; James L. Robart, District Judge, Presiding. D.C. No. CV-04-02436-JLR.

Before: B. FLETCHER, RICHARD A. PAEZ, and N. RANDY SMITH, Circuit Judges.

BETTY B. FLETCHER, Circuit Judge:

Pacific Fisheries, Inc. ("Pacific Fisheries") appeals the district court order granting summary judgment to the Internal Revenue Service ("IRS") on its claim that the IRS improperly withheld or redacted certain documents responsive to Pacific Fisheries' Freedom of Information Act ("FOIA") request. See 5 U.S.C. § 552. We reverse in part, affirm in part, and remand to the district court to determine whether the treaty exemption applies and whether factual portions of certain documents subject to the deliberative process privilege were properly segregated and disclosed.

I

This case arises out of a tax investigation by the Russian government of Mr. Konstantin Voloshenko ("Voloshenko"), a Pacific Fisheries employee. Pursuant to the Convention between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital ("Tax Treaty"), the Russian authorities requested the U.S. government's assistance in the investigation. On April 23, 2004, in furtherance of the Russian authorities' request, the IRS issued two third-party summonses to Bank of America, seeking records relating to Pacific Fisheries and Voloshenko. Pacific Fisheries notified the IRS that the summonses were defective, but the government refused to withdraw them. Pacific Fisheries then filed a petition to quash the summonses for various reasons, including bad faith, relevance, and timeliness. The IRS subsequently withdrew the summonses and did not defend the action.

Pacific Fisheries made several attempts to obtain the documents that served as the basis for the issuance of the summonses. These included a discovery request in the district court, which the government opposed as moot after withdrawing the summonses, and a FOIA request dated July 27, 2004. In its FOIA request, Pacific Fisheries asked for all documents related to the issuance of the summonses, as well as "[a]ny and all tax returns, tax information or other documents which may have been provided by the Internal Revenue Service to Russian authorities concerning Pacific Fisheries, Inc."

On August 23, 2004, the IRS Seattle Disclosure Office notified Pacific Fisheries that it had transferred the FOIA request to the IRS Headquarters FOIA Office in Washington, D.C. On October 12, 2004, not having received a response, Pacific Fisheries submitted a follow-up request for documents to the Washington, D.C. office. On November 10, 2004, the IRS informed Pacific Fisheries that it needed additional time to determine whether it would produce the documents. As of December 9, 2004, no documents had been produced. Pacific Fisheries then filed this FOIA action in the district court seeking a court order requiring the IRS to produce the requested documents.

The government filed its answer on March 2, 2005, asserting that all documents responsive to the FOIA request were exempt from disclosure. The government cited FOIA exemption three, which applies to documents that are "specifically exempted from disclosure by statute," 5 U.S.C. § 552(b)(3), and two provisions of the Internal Revenue Code prohibiting disclosure of tax-convention information and third-party tax return information.

Notwithstanding this initial refusal to disclose any responsive documents, on March 27, 2006, the day that dispositive motions were due in the district court, the government released (in whole or in part) 313 of 465 responsive documents. At that time, the government also filed a motion for summary judgment asserting that all other responsive documents were exempt from disclosure either under FOIA exemption three and the Internal Revenue Code or under FOIA exemption five, which incorporates both the executive deliberative process privilege and the attorney work-product privilege. In support of its motion the government filed a declaration from Helene R. Newsome of the Office of Chief Counsel, Disclosure & Privacy Law, of the IRS ("Declaration I") stating which exemption or exemptions applied to each document that was withheld in whole or in part. Withheld documents were identified by page number and a general description such as "letter" or "email." Declaration I grouped documents together according to these general descriptions, and did not include identifying details such as dates or authors.

That same day, Pacific Fisheries filed its own motion for summary judgment, arguing that the government had failed to carry its burden of demonstrating that the withheld documents were exempt. Pacific Fisheries also took issue with the fact that the government did not disclose the documents until the day that dispositive motions were due, a delay that was unnecessary, in violation of the statute and regulations, and which deprived Pacific Fisheries of the opportunity to review the documents and claimed exemptions before filing its motion for summary judgment.

On April 24, 2006, after reviewing the disclosed documents and Declaration I, Pacific Fisheries filed its opposition to the government's motion for summary judgment. In its opposition, Pacific Fisheries specifically challenged the government's failure to segregate and disclose factual portions of the documents that were withheld pursuant to the deliberative process privilege. In response, the government submitted a second declaration from Helene Newsome ("Declaration II") reiterating the previous description of the document search, stating that Newsome "attempted to make all reasonably segregable non-exempt portions of documents available to plaintiff," and noting that many documents are covered by more than one exemption, a factor that could affect the segregability analysis.

Finally, on May 5, 2006, Pacific Fisheries filed its reply to the government's opposition to Pacific Fisheries' motion for summary judgment. Pacific Fisheries continued to argue that the government failed to demonstrate the adequacy of its search or to produce all relevant documents. Additionally, and for the first time, it challenged the government's assertion that the tax-convention information is exempt from disclosure under 26 U.S.C. § 6105(c)(1)(E), arguing that the government's position was based on an erroneous interpretation of the law because the requested information was not confidential vis-à-vis Pacific Fisheries.

On June 1, 2006, the district court filed its order denying Pacific Fisheries' motion for summary judgment and granting the government's motion. The court first concluded that the IRS's search for responsive documents was reasonable. Next, the court concluded that Declaration I was sufficiently thorough to permit Pacific Fisheries to "intelligently advocate release of the withheld documents."

Turning to the specific exemptions, the district court rejected Pacific Fisheries' arguments regarding segregation of factual portions of documents withheld pursuant to FOIA exemption five because Pacific Fisheries had failed to explain why it believed that some of the redacted materials might contain factual portions that must be segregated and disclosed, and because the attorney work-product privilege extends to factual material contained in work product. The court therefore concluded that the IRS had sustained its burden of showing that the documents were properly redacted or withheld. The court also rejected Pacific Fisheries' tax convention information argument. Although the court noted that Pacific Fisheries "inexplicably" waited until its reply brief to raise the issue, thus depriving the IRS of the opportunity to respond, the court rejected the argument on the merits, concluding that Pacific Fisheries had not created any question of fact over whether the IRS properly withheld treaty information.

Finally, the district court ordered the government to show cause why the court should not impose sanctions. The court opined that the IRS "unreasonably and vexatiously multiplied proceedings" by refusing to disclose documents for almost two years and then producing the disclosed documents on the day that dispositive motions were due. The court ordered the parties to attempt to negotiate a settlement on the issue of appropriate compensation for Pacific Fisheries and ordered the IRS to file a pleading in response to the order to show cause if the parties were unable to reach an agreement.

On June 22, 2006, Pacific Fisheries filed a notice of settlement with the district court. The government agreed to pay Pacific Fisheries $17,274.10 as reimbursement for attorneys' fees. Both parties reserved the right to appeal the district court's order with respect to any issue other than sanctions. That same day, the district court dismissed the case. Pacific Fisheries timely appealed.

II

The Freedom of Information Act is premised on the theory that in order for democracy to function properly, citizens must have access to government information, particularly where access might be "needed to check against corruption and to hold the governors accountable to the governed." John Doe Agency v. John Doe Corp., 493 U.S. 146, 152, 110 S.Ct. 471, 107 L.Ed.2d 462 (...