U.S. v. Hodge and Zweig
| Decision Date | 16 February 1977 |
| Docket Number | No. 74-3374,74-3374 |
| Citation | 548 F.2d 1347 |
| Parties | 77-1 USTC P 9263 UNITED STATES of America, and Richard Christopher, Special Agent, Plaintiffs- Appellees, v. HODGE AND ZWEIG, a partnership, Richard A. Hodge, a partner, and Robert M. Zweig, a partner, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Gary K. Shelton, Asst. U. S. Atty., San Francisco, Cal., Charles E. Brookhart, argued, App. Section, Tax Div., Dept. of Justice, Washington, D. C., for plaintiffs-appellees.
Appeal from the United States District Court for the Northern District of California.
Before BROWNING, Chief Judge, and SMITH * and KENNEDY, Circuit Judges.
The principal issues on this appeal are whether information demanded by an Internal Revenue Service subpoena is protected by the attorney-client privilege, by the fifth amendment privilege against self-incrimination, or by the rule which prohibits issuance of an IRS summons for an improper purpose.
Messrs. Richard A. Hodge and Robert M. Zweig, appellants here, are both members of the State Bar of California and are partners in the practice of law. From all indications in the record, they acted ethically and professionally throughout this matter. This decision may provide further guidance for the proper discharge of their professional responsibilities.
In November 1973, Special Agent Christopher of the IRS issued a summons pursuant to 26 U.S.C. § 7602 directed to appellants, individually and as a law partnership. The summons directed the attorneys to produce various business records pertaining to a client, one Joseph Ernest Sandino, Jr., for the calendar years 1970, 1971, and 1972. The requested information pertains to: (1) payments received by the attorneys from Sandino for legal services rendered to him; (2) payments received from Sandino for services rendered to Rena Sandino Joseph, Cindy Purdy, and Stephen Purdy; (3) payments received from Sandino on behalf of any other person; (4) payments received from any other person on behalf of Sandino. The attorneys refused to comply with the summons. The United States thereupon petitioned the district court for enforcement. The court directed compliance, and the attorneys appeal. 1
About the same time as the IRS inquiry into Sandino's financial affairs, a protracted grand jury investigation centering around alleged drug activities of Sandino and some of his confederates was in progress. In order that we may properly consider appellants' claims in this case, it is useful to summarize the chronology of these two investigations.
In 1971, a federal grand jury in Nevada began an inquiry into an alleged conspiracy to import drugs by a group that government prosecutors sometimes called "the Sandino Gang." Hodge and Zweig represented several witnesses and suspects called before the grand jury, including Joe Sandino, Rena Joseph, Cindy Purdy, Bernard See, and Robert Gordon. The record before us does not indicate whether Stephen Purdy was a target of the drug investigation. In January 1972, Hodge was called before the grand jury and was asked to disclose information pertaining to fee arrangements and retainer agreements with clients who were being investigated by the grand jury. Zweig was subpoenaed by the grand jury in April 1972 and was asked similar questions. On each occasion, the attorneys refused to answer, invoking both the attorney-client privilege and the fifth amendment privilege against self-incrimination on behalf of themselves and their clients. See and Gordon were subsequently tried for various drug related offenses, including conspiracy to import marijuana, and were found guilty. We affirmed their convictions on appeal. United States v. See, 505 F.2d 845 (9th Cir. 1974).
In March 1974, Sandino and several of his associates were charged with conspiracy to import marijuana. In the indictment, the Government alleged that as part of the conspiracy, the conspirators had agreed to provide bail and legal services for participants who were apprehended by law enforcement officials in the course of the criminal activities. Sandino, Rena Joseph, Cindy Purdy, and others eventually pleaded guilty to conspiracy charges and were sentenced. 2
While the above criminal prosecution was pending, the IRS was continuing its tax investigation. Appellants failed to comply with the IRS summons of November 1973, and in August 1974, the district court ordered that the summons be enforced. This appeal followed. In light of this background, we turn to the contentions of the parties.
Appellants raise three grounds for reversing the district court's order enforcing the IRS summons. They first argue that the summons was issued solely to gather information in aid of the pending criminal prosecution, and as such was issued for an improper purpose. Second, appellants assert that the fifth amendment bars enforcement of the summons, since compelled disclosure of the requested information would violate their own privilege against self-incrimination and that of their clients. Finally, they claim that the requested information is protected by the attorney-client privilege. We consider these contentions in order.
Purpose for Issuing Summons.
Appellants argue that the IRS issued the summons solely to gather information in aid of the ongoing narcotics investigation, and as such violated the rule enunciated by the Supreme Court in Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971). In Donaldson the Court stated that enforcement of an IRS summons would be denied where it is issued in the context of "a pending criminal charge or, at most, of an investigation solely for criminal purposes." Id. at 533, 91 S.Ct. at 544, citing Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964); Boren v. Tucker, 239 F.2d 767, 772-73 (9th Cir. 1956); and United States v. O'Connor, 118 F.Supp. 248 (D.Mass.1953). The Court emphasized that the authority to issue a summons plays a critical role in enabling the IRS to carry out its broad responsibilities to enforce the tax laws. It expressly held that issuance of a summons was proper "in investigating what may prove to be criminal conduct." 400 U.S. at 585, 91 S.Ct. at 544. The Court concluded that "under § 7602 an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to a recommendation for criminal prosecution." Id. at 536, 91 S.Ct. at 545.
Appellants charge that the summons in this case was not issued in good faith and that its sole purpose was to aid the unrelated criminal prosecution for narcotics violations. They conclude, therefore, that the district court should have refused to enforce the summons under Donaldson. The district court specifically found, however, that "the summons was issued in the ordinary course of an investigation of Sandino to determine his tax liability," and therefore not for the sole purpose of assisting in the criminal investigation. We cannot conclude that this determination was clearly erroneous. Fed.R.Civ.P. 52(a); see United States v. Hart, 546 F.2d 798, 801-02 (9th Cir. 1976) (en banc).
Appellants nevertheless argue that the Donaldson case precludes enforcement of the summons because agent Christopher had recommended criminal prosecution of Sandino for violation of the Internal Revenue laws. That recommendation was approved by the District Director and forwarded to the Regional Counsel, who requested a continuation of the investigation. The instant summons was issued at some point thereafter, but before the IRS formally recommended prosecution to the Justice Department.
An IRS summons may not be issued after a "recommendation" for prosecution. United States v. Zack, 521 F.2d 1366, 1368 (9th Cir. 1975); United States v. Cromer, 483 F.2d 99, 101 (9th Cir. 1973). But the Supreme Court in Donaldson failed to identify which recommendation is critical when testing the enforceability of an IRS summons: the initial recommendation of the special agent, the ultimate recommendation of the IRS to the Justice Department, or some intermediate recommendation. The question has not as yet been resolved in this circuit.
In our view, the formal recommendation from the Internal Revenue Service to the Justice Department is the operative recommendation under Donaldson. 3 The recommendation to the Justice Department is a formal indication that the civil and criminal aspects of an investigation have begun to diverge. 4 Absent an independent showing of bad faith or an improper purpose, therefore, enforcement of an IRS summons under the Donaldson rule should be denied only if the summons is issued after the IRS has made a formal recommendation to the Justice Department for criminal prosecution. 5 Since appellants have failed to show that the summons in this case was issued in bad faith or after a recommendation to the Justice Department for prosecution, their reliance on Donaldson is misplaced. 6
Self-Incrimination.
Appellants, asserting their own rights and the rights of Sandino, argue that disclosure of the requested records would violate the fifth amendment privilege against self-incrimination. 7 They contend that disclosure would subject them and Sandino to prosecution for various drug violations that were being investigated at the time the summons was issued.
As to appellants' assertion of the privilege on their own behalf, the trial court, citing Zicarelli v. New Jersey State Commission of Investigation,406 U.S. 472, 478, 92 S.Ct. 1670, 32 L.Ed.2d 234 (1972), concluded that appellants had "not demonstrated such a real danger of prosecution as would justify quashing the summons on the ground of fifth amendment protection." We cannot say that the court's determination is clearly erroneous. See United States v. Hart, 546 F.2d at 801-02.
Neither is disclosure of the information at issue...
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