Grand Jury Subpoenas, In re

• Decision Date: 05 April 1978
• Docket Number: No. 77-1599,77-1599
• Citation: 573 F.2d 936
• Parties: 78-1 USTC P 9413 In re April 1977 GRAND JURY SUBPOENAS. GENERAL MOTORS CORPORATION, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 936

573 F.2d 936

78-1 USTC P 9413

In re April 1977 GRAND JURY SUBPOENAS.

GENERAL MOTORS CORPORATION, Appellant, v. UNITED STATES of America, Appellee.

No. 77-1599.

United States Court of Appeals,

Sixth Circuit.

Argued Dec. 5, 1977.

Decided April 5, 1978.

George J. Moscarino, Hugh Calkins, Robert C. Kahrl, Paul M. Pohl, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Julius L. Russu, Otis M. Smith, General Motors Corp., Detroit, Mich., for appellant.

James K. Robinson, U. S. Atty., Detroit, Mich., Willard C. McBride, Tax Div., Dept. of Justice, Washington, D. C., M. Carr Ferguson, Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D. C., Ernest J. Brown, Robert E. Lindsay, Charles E. Brookhart, James A. Bruton, Washington, D. C., for appellee.

Before WEICK, CELEBREZZE and MERRITT, Circuit Judges.

WEICK, Circuit Judge.

General Motors Corporation (GM) has perfected an interlocutory appeal to this Court from an order of the District Court denying GM's motion for a protective order seeking inter alia the disqualification of Meno W. Piliaris, an Internal Revenue Service (IRS) attorney, from participating in the conduct of a grand jury proceeding investigating alleged income tax evasions by GM. GM contends that such participation by Piliaris is unlawful and creates a conflict of interest or an appearance of such a conflict.

I THE FACTS

During a 1975 audit by IRS of GM's 1972 income tax returns questions arose concerning the propriety of GM's deductions from income of the cost of expense materials when purchased. ¹ IRS was of the view that expense materials which were on hand and unconsumed at the end of the tax year on December 31, 1972 should have been treated as inventory; and that if such materials were treated as expenses when purchased the expense should have been decreased by the amount of expense materials on hand or unconsumed on December 31, 1972, thereby increasing the amount of taxable income. IRS requested GM to determine its inventory of expense materials as of December 31, 1975; and this figure was to be extrapolated back to 1972 to arrive at an estimated inventory for that year.

GM conducted the survey. IRS, however, questioned its accuracy. GM contends that agents of IRS began a series of visits to the plants of GM, and they berated GM employees, using abusive tactics and improper behavior. GM filed affidavits with IRS relative to this misconduct, but GM asserts that IRS made no investigation. IRS, believing that GM employees had falsified the survey, stopped routine audit functions and the case was referred to the Intelligence Division of IRS for an investigation to determine whether false or fraudulent statements were made to it, in violation of 18 U.S.C. § 1001.

Special agents of the Intelligence Division made several requests for the production of records and documents. When certain records were not produced, a recommendation was made to the Justice Department that a grand jury investigation be made to determine possible violations of the criminal laws by GM.

In February 1977 such an investigation was approved. Willard McBride and Robert Forrest, attorneys from the Tax Division, Department of Justice, were appointed as special attorneys to conduct the grand jury investigation. They in turn sought the assistance of Piliaris, who was an attorney and accountant employed the Office of Regional Counsel, Internal Revenue Service in Cincinnati, Ohio, and who was familiar with the GM income tax investigation. He had drafted the letter from the Regional Counsel to the Justice Department recommending a grand jury investigation. The letter stated that at the appropriate time IRS would request an order from the Court authorizing the disclosure of grand jury information to IRS. Piliaris also drafted a memorandum describing a meeting in which he participated and in which IRS planned its handling of the GM matter in coordination with the proposed grand jury proceedings. He was also familiar with the nature of the criminal investigation. On April 15, 1977 Piliaris was designated by Acting Associate Attorney General Modlin Numerous grand jury subpoenas were served on GM and on GM employees. GM responded by filing motions to quash and for a protective order which asked the District Court to prohibit the disclosure of grand jury evidence to IRS employees. As a result of these motions the Government suspended the grand jury investigation to await the District Court's ruling on the motions. Subsequently GM learned of the contemplated use of IRS attorney Piliaris as a special attorney before the grand jury. GM then filed a motion seeking an order prohibiting Piliaris from participating in conducting the proceeding, or scrutinizing grand jury materials.

as a special attorney for the United States, empowered to assist in conducting the proceeding before the grand jury, although counsel admitted that he remained on the payroll of IRS.

The District Court on June 30th entered orders denying GM's motions with respect to the subpoenas and the disqualification of Piliaris, and granted in part GM's motion for a protective order with regard to the disclosure of grand jury evidence to IRS agents assisting the investigation.

GM filed both a notice of appeal and a motion for a stay of the grand jury proceeding pending appeal. The District Court denied the motion for a stay; and GM immediately filed in this Court a motion to stay the grand jury proceeding. Circuit Judge Engel denied the motion for a stay on the ground that no final appealable order had been entered.

The grand jury investigation then resumed with Piliaris's active participation.

GM filed a motion requesting the District Court to amend the orders of June 30th to include a statement allowing an interlocutory appeal pursuant to 28 U.S.C. § 1292(b). This motion was denied with respect to all of the Court's orders except the one denying GM's motion to disqualify Piliaris from conducting the grand jury proceeding. The District Court accordingly amended its order of June 30th so as to provide:

The undersigned is of the opinion that this order involves a controlling question of law as to which there is substantial ground for difference of opinion, and that an immediate appeal from this order as authorized by 28 U.S.C. § 1292(b) may materially advance the ultimate termination of this litigation.

This Court granted the Government's motion to dismiss GM's direct appeal of the District Court's orders on the ground that the orders were not appealable. In the same order we granted leave to GM to appeal under 28 U.S.C. § 1292(b) from the order denying GM's motion to disqualify Piliaris from acting as a Government attorney in the presentation of the case before the grand jury.

II JURISDICTION

At the outset the Government contends that we have no jurisdiction of the interlocutory appeal under Section 1292(b). It asserts that this section by its express terms applies only to civil actions, and that a grand jury investigation is a criminal proceeding and is not a civil action. The Government has not cited a single case to us which so holds. Interlocutory appeals under Section 1292(b) were allowed in the following cases: In Re Grand Jury Impaneled Jan. 21, 1975, 541 F.2d 373 (3d Cir. 1976); In Re Grand Jury Investigation, 338 F.Supp. 1379 (W.D.Pa.1972).

A grand jury proceeding constitutes "a judicial inquiry." Cobbledick v. United States, 309 U.S. 323, 327, 60 S.Ct. 540, 84 L.Ed. 783 (1940). It is a grand inquest with powers of investigation and inquisition. The function of the grand jury is to determine whether there is probable cause to believe that a crime has been committed and to protect citizens against unfounded criminal prosecutions. United States v. Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1974), aff'g 455 F.2d 750 (6th Cir. 1972); Wood v. Georgia, 370 U.S. 375, 390, 82 S.Ct. 1364, 8 L.Ed.2d 569 (1962). The proceeding becomes criminal as to a defendant when the grand jury returns Merely because a witness has been subpoenaed to testify and to bring his records before a grand jury, does not involve the witness in a criminal action. If the witness refuses to answer a question on the ground that it tends to incriminate him, and the Court finds him guilty of contempt, he has the right to a direct appeal under Section 1291. In Re Grand Jury Impaneled Jan. 21, 1975, supra.

an indictment against him. Post v. United States, 161 U.S. 583, 587, 16 S.Ct. 611, 40 L.Ed. 816 (1896).

Where the witness files a motion to quash a subpoena duces tecum on Fifth Amendment grounds, the Court, instead of finding him guilty and punishing him for contempt, from which a direct appeal could be taken, may certify an interlocutory appeal under Section 1292(b). In Re Grand Jury Investigation, supra.

Even in a criminal case where a witness had been served with a subpoena duces tecum to bring his tapes and other records, and the Court denied a motion to quash, the Supreme Court held that the witness was entitled to a direct appeal from the order rather than to be subjected to a contempt charge. United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974). ² Cf. Perlman v. United States, 247 U.S. 7, 38 S.Ct. 417, 62 L.Ed. 950 (1918) (1st Syl.).

The proceedings before the grand jury thus far have been protracted. They should not be converted into a minitrial. If we hold that GM has no right of appellate review GM and the Government could be subjected to a protracted trial and considerable unnecessary expense if an indictment results and the trial court or this Court, on review, holds that the procedure followed was unlawful. Judicial supervision should prevent a wrong before it occurs.

But we need not determine this issue anew because another panel of this Court has considered the Government's motion to dismiss GM's direct appeal under Section 1291 and GM's petition for leave to file an interlocutory appeal under Section 1292(b). The issues...