U.S. v. Kow

Decision Date21 June 1995
Docket NumberNo. 94-10258,94-10258
Citation58 F.3d 423
PartiesUNITED STATES of America, Plaintiff-Appellant, v. Stephen KOW; Helen Kim Noi Soo; and Hong Tho Luu, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Joseph Douglas Wilson, U.S. Dept. of Justice, Washington, DC, for plaintiff-appellant.

Doron Weinberg, Weinberg & Wilder, San Francisco, CA, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before FLETCHER, REINHARDT, and NOONAN, Circuit Judges.

FLETCHER, Circuit Judge:

The government appeals the district court's suppression of evidence seized pursuant to a search warrant. We have jurisdiction under 18 U.S.C. Sec. 3731 and affirm.

FACTS

On October 15, 1990, FBI agents entered the offices of the defendants' business, Hong Kong T.V. Video Program, Inc. ("HK Video"), and seized essentially all of the business's records, computer hardware and software, files, ledgers, and invoices pursuant to a warrant issued by a magistrate judge based on the affidavit of FBI Special Agent John Gordon.

HK Video enjoys an almost exclusive license to distribute within the United States video cassettes from Hong Kong TVB ("HK T.V."), a television company in Hong Kong. Gordon's affidavit alleged that HK Video maintained multiple sets of accounting records, paid falsified invoices submitted by phony corporations, and paid employees under the table, all for the purpose of defrauding the Internal Revenue Service and HK T.V., sending the skimmed profits to fictitious companies in Hong Kong. The affidavit also alleged that when HK Video learned that its license with HK T.V. was in jeopardy and might be awarded instead to H.K. Video's competitor, Shaw Home Entertainment ("Shaw"), Shaw's employees became the targets of threatened and actual violence until Shaw notified HK T.V. that it was no longer interested in the license.

A substantial portion of Gordon's affidavit summarizes various threats and criminal acts for and against people associated with Shaw and HK Video. With regard to HK Video's bookkeeping procedures, Gordon summarized information provided by two informants who claimed that HK Video maintained multiple sets of accounting books to avoid paying income taxes. Gordon's more detailed information came from the second informant ("CI-2"), who, for instance, reported that HK Video also falsified its invoices to avoid paying taxes and that the profits of the scheme often were wired through the Bank of Trade to J & P Studios, Ltd., a dubbing business involved with HK Video, or to Ever Spring, a fictitious company sharing the same address as J & P Studios. CI-2 also described where agents could find incriminating documents within H.K. Video's offices.

The warrant authorized the seizure of:

A. Bank statements, cancelled checks, deposit slips, wire transfer records, cashier's checks, money orders, checkbooks or check registers, and other records relating to bank transactions;

B. Journals or records reflecting funds received or funds disbursed;

C. Ledgers or other records summarizing financial transactions;

D. Journals or other records listing adjustments to the ledgers or books of account;

E. Balance sheets, income statements or other financial statements;

F. Contracts, invoices, titles, or other documents evidencing their receipt and disposition of funds or income;

G. Records relating to the preparation of Federal Tax Returns for the years 1983 through the present, including but not limited to work papers, Forms 1099, retained copies of Form 1040 and 1120, and Employee Wage Statement Forms W-2, Payroll Tax Returns, including quarterly Forms 940 and 941, and Sales Tax Returns filed with the California State Board of Equalization;

H. Correspondence, policies, billings, invoices, claims, notes and records relating to insurance, finances, or corporate activities reflective of false or fraudulent financial transactions;

I. Records relating to any fake or fraudulent transactions between or among Jack Soo, Helen Soo, Stephen Kow, and Hong. T. Luu;

J. Records of all loans received or granted by or for [HK Video] and records of payments;

K. Computers, magnetic floppy disks or diskettes, including 3 1/2 inch, 5 1/4 inch, or 8 inch sizes, compact disks, magnetic tapes, including cassettes, cartridges, streaming tape, video tape, hard disk units (with attached control card), magnetic cards, and any other electronic data processing storage medium;

L. Articles of Incorporation, corporate resolutions, corporate minute books, and corporate stock books;

M. Records and documents relating to [HK Video's] business dealings and transactions with Rainbow Video and any and all video stores and businesses sub-licensed by [HK Video] to do business;

N. Notes, memorandae, schedules, and written recollections reflecting any disparity between income earned and income officially reported.

After FBI agents executed the warrant, a grand jury returned a 26-count indictment charging the defendants with corporate tax evasion, individual tax fraud, and profit skimming. Judge Lynch, the district court judge, in a careful and thorough opinion holding that the warrant was not sufficiently specific, suppressed the evidence seized incident to the execution of the warrant. We review his decision de novo. United States v. Spilotro, 800 F.2d 959, 963 (9th Cir.1986).

DISCUSSION

The government claims that the warrant was sufficiently particular and, to the extent that the warrant was more broad than most, the breadth was justified because Gordon's affidavit established probable cause to believe that nearly all of HK Video's records were likely to evidence criminal activity. The government alternatively contends that, at most, only some sections of the warrant are overbroad and that we should sever these invalid portions and uphold the remainder of the warrant, suppressing only evidence seized under the invalid portion. Finally, the government argues that, even if the warrant was unconstitutionally overbroad, it was not so facially invalid as to preclude good faith reliance upon it by FBI agents executing the warrant. We reject each of the government's arguments and affirm.

I. Specificity

To determine whether a warrant lacks sufficient specificity, we must examine both the warrant's particularity and its breadth. See In re Grand Jury Subpoenas, 926 F.2d 847, 857 (9th Cir.1991).

A. Particularity

The warrant authorized the seizure of virtually every document and computer file at HK Video. To the extent that it provided any guidance to the officers executing the warrant, the warrant apparently sought to describe every document on the premises and direct that everything be seized. The government emphasizes that the warrant outlined fourteen separate categories of business records. However, the warrant contained no limitations on which documents within each category could be seized or suggested how they related to specific criminal activity. By failing to describe with any particularity the items to be seized, the warrant is indistinguishable from the general warrants repeatedly held by this court to be unconstitutional. E.g., Center Art Galleries-Hawaii, Inc. v. United States, 875 F.2d 747, 750 (9th Cir.1989); United States v. Stubbs, 873 F.2d 210, 211 (9th Cir.1989) (warrant invalid "because of the complete lack of any standard by which an executing officer could determine what to seize").

" '[G]eneric classifications in a warrant are acceptable only when a more precise description is not possible.' " United States v. Cardwell, 680 F.2d 75, 78 (9th Cir.1982) (quoting United States v. Bright, 630 F.2d 804, 812 (5th Cir.1980)). The government could have made the warrant more particular. Most obviously, the warrant could have specified the suspected criminal conduct. Except for vague references to "fraudulent" transactions and possible disparities between actual and reported income, the warrant failed to give any indication of the alleged crime to which the seized documents pertained. We have criticized repeatedly the failure to describe in a warrant the specific criminal activity suspected. See, e.g., Center Art Galleries, 875 F.2d at 750; Stubbs, 873 F.2d at 212; Cardwell, 680 F.2d at 77.

The government did not limit the scope of the seizure to a time frame within which the suspected criminal activity took place, 1 even though Gordon's affidavit indicates that the alleged criminal activity began relatively late in HK Video's existence. Furthermore, although Gordon's affidavit summarized in detail the various locations within HK Video where officers could find relevant documents, this information was excluded from the warrant. See Stubbs, 873 F.2d at 211 ("The IRS knew both what the seizable documents looked like and where to find them, but this information was not contained in the warrant"). Here the government did not contain the scope of the warrant by reference to limiting descriptions in the affidavit such as HK Video's tax identification number, HK Video's account number at the Bank of Trade, or the names of the foreign companies allegedly receiving the proceeds of the defendants' profit-skimming, to wit Ever Spring and J & P Studios. As drafted, the warrant simply was not sufficiently particular.

B. Breadth

A generalized seizure of business documents may be justified if the government establishes probable cause to believe that the entire business is merely a scheme to defraud or that all of the business's records are likely to evidence criminal activity. See generally United States v. Offices Known as 50 State Distrib. Co., 708 F.2d 1371, 1374 (9th Cir.1983), cert. denied, 465 U.S. 1021, 104 S.Ct. 1272, 79 L.Ed.2d 677 (1984). The government acknowledges that the warrant authorizes the seizure of essentially every business record in HK Video's offices, but it maintains that this widespread seizure did not...

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