U.S. v. Dynavac, Inc.

• Decision Date: 08 October 1993
• Docket Number: 91-56539,Nos. 91-56376,s. 91-56376
• Parties: -6305, 93-2 USTC P 50,622 UNITED STATES of America; Ronald Sheresh, Revenue Agent, Internal Revenue Service, Plaintiffs/Petitioners/Appellees, v. DYNAVAC, INC.; Donald J. Helmer; and Morgan T. Wright, Defendants/Respondents/Appellants. UNITED STATES of America; Ronald Sheresh, Revenue Agent, Internal Revenue Service, Plaintiffs/Petitioners/Appellees, v. Curtis J. CORN, Defendant/Respondent/Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1407

6 F.3d 1407

72 A.F.T.R.2d 93-6305, 93-2 USTC P 50,622

UNITED STATES of America; Ronald Sheresh, Revenue Agent, Internal Revenue Service, Plaintiffs/Petitioners/Appellees, v. DYNAVAC, INC.; Donald J. Helmer; and Morgan T. Wright,

Defendants/Respondents/Appellants.

UNITED STATES of America; Ronald Sheresh, Revenue Agent, Internal Revenue Service, Plaintiffs/Petitioners/Appellees, v. Curtis J. CORN, Defendant/Respondent/Appellant.

Nos. 91-56376, 91-56539.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 4, 1993.

Decided Oct. 8, 1993.

James A. Bruton, Acting Asst. Atty. Gen.; Gary R. Allen, Charles E. Brookhart, Joel A. Rabinovitz, Attys., Tax Div., Dept. of Justice, Washington, DC, for plaintiffs/petitioners/appellees U.S. of America and Ronald Sheresh.

Donald Helmer, Morgan T. Wright, Dynavac, Inc., in pro per.

Robert K. Smith, La Jolla, CA, for defendant/respondent/appellant Curtis J. Corn.

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

Before: KOZINSKI, SUHRHEINRICH ^* and T.G. NELSON, Circuit Judges.

SUHRHEINRICH, Circuit Judge:

In this consolidated appeal, Dynavac, Inc., Donald J. Helmer, and Morgan T. Wright (91-56376) and Curtis J. Corn (91-56539) (collectively "respondents") appeal the district court's orders enforcing summonses of the Internal Revenue Service ("IRS" or "government"), pursuant to 26 U.S.C. Secs. 7601 and 7602, to examine their business records which are being held by the United States Attorney. The principal issue we consider is whether these business records, previously submitted to the grand jury as part of a criminal investigation, are "matters occurring before the grand jury" under Federal Rule of Criminal Procedure 6(e) and therefore protected from subsequent disclosure in a civil tax investigation. The district court permitted disclosure without a showing that the request was "preliminary to or in connection with a judicial proceeding" under United States v. Baggott, 463 U.S. 476, 103 S.Ct. 3164, 77 L.Ed.2d 785 (1983), or whether the IRS had shown "particularized need" as required by United States v. Sells Engineering, Inc., 463 U.S. 418, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983).

I.

The Internal Revenue Service is presently investigating the federal income tax liability of Dynavac, Inc. (formerly Allied Tank Cleaning, Inc.), for the taxable years ending September 30, 1979, September 30, 1980, September 30, 1981, and September 30, 1982. As part of this investigation, IRS Agent Ronald Sheresh issued administrative summonses to Corn (Case No. 91-56376), and to Helmer and Wright, the current owners of Dynavac, and to Dynavac, seeking that company's business books and records for the years in question. Respondents resisted, contending that the requested materials were "matters occurring before the grand jury" not subject to disclosure because they had been previously disclosed to the grand jury during a 1983 criminal investigation of Corn.

In the criminal investigation, the books and records of three corporations in which Corn was the sole or majority shareholder, Transambient Corporation, Commercial Cleaning Corp. and Allied Tank Cleaning, Inc. (now known as Dynavac, Inc.), were turned over to the grand jury. Corn was later indicted on twenty-three counts of conspiracy, income tax evasion, and the filing of fraudulent claims with the United States Navy, and eventually pled guilty to three of the counts. At the plea hearing Corn also purportedly agreed to waive his rights (but not those of any other individual or entity) under Rule 6(e) and agreed to let the IRS have any and all information by the grand jury in the criminal case for the purpose of its making a "tax assessment" against Corn. Corn's criminal attorney later transmitted to the United States Attorney the special agent's report ("SAR") prepared as part of the criminal tax investigation of Corn, which included a number of references to the substance and results of the grand jury's inquiry.

After Corn pled guilty, Revenue Agent Reginald Curtis ("Curtis"), took over the federal civil tax audits of Corn and the three corporations. Curtis reviewed Corn's criminal file which contained the indictment, the transcript of the guilty plea, and the sentencing report; requested documents; and made a preliminary determination of the taxpayers' (Corn and his companies) tax deficiencies.

Curtis and his group manager Jim Thibault received word from the United States Attorney's office in San Diego, which had been involved in the grand jury investigation, that the SAR could be used in the civil tax audit so long as it was received from the taxpayer. Sometime after receiving the SAR, Curtis issued a summons for the books and records of Dynavac. The district court refused to enforce the summons, however, because of Curtis's use of the report, and the government withdrew its enforcement petition. Thibault thereafter directed Curtis to purge all references of the SAR from Curtis's papers, which Curtis did. Thibault physically took the Dynavac files away from Curtis and sent them to the chief of the examinations branch for reassignment to a group that was outside of Thibault's branch. Curtis eventually finished the audit of Corn and the other two corporations, excluding Dynavac, Inc.

The Dynavac civil tax audit was reassigned to Sheresh, who issued the administrative summonses which are the subject of the current enforcement proceeding. Sheresh is an agent in the general program of the IRS examination division. The file which he received contained only Dynavac's tax returns for the years 1979 through 1982, Corn's indictment, the transcript of Corn's plea, and portions of an Internal Revenue manual. No one contends that Sheresh has had any improper contact with Curtis or Thibault concerning the SAR.

In June of 1989, the IRS district counsel in charge of civil audits of Corn and one of his corporations, Transambient Corporation, June Bass, obtained a Rule 6(e) order for the grand jury transcripts and the SAR. Bass also obtained a change of custody order regarding the books and records of all three companies, including Dynavac, which were being held by the custodian of the grand jury. The records were transferred to the local federal building. Bass testified that she made copies of the records she needed but did not take physical possession of the records.

The government filed petitions in the district court to enforce the internal revenue summonses issued by Sheresh. After conducting an evidentiary hearing, the district court concluded that the materials, Dynavac's books and records, were not "grand jury material," because they existed prior to the issuance of the grand jury subpoena. The court also found that there was a violation of Rule 6(e) when Curtis obtained the SAR, but that it was subsequently cured after the file was purged and the case transferred to Sheresh. The district court therefore declined respondents' request to quash the summonses. This appeal followed.

II.

A.

With certain exceptions, Rule 6(e) imposes a general rule against disclosure of "matters occurring before the grand jury" on government attorneys. Fed.R.Crim.P. 6(e)(2). ¹ This long-established policy of nondisclosure seeks to: (1) prevent the escape of prospective indictees, (2) insure the grand jury of unfettered freedom in its deliberations, (3) impede the subornation of perjury and tampering of witnesses by targets of the investigation, (4) encourage forthrightness in witnesses without fear of retaliation, and (5) act as a shield for those who are exonerated by the grand jury. Proctor & Gamble Co., 356 U.S. 677, 681 n. 6, 78 S.Ct. 983, 986 n. 6, 2 L.Ed.2d 1077; Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 219, 99 S.Ct. 1667, 1673, 60 L.Ed.2d 156 (1979), cert. denied, 454 U.S. 1098, 102 S.Ct. 672, 70 L.Ed.2d 639 (1981); United States Indus., Inc. v. United States Dist. Ct., 345 F.2d 18, 22 (9th Cir.), cert. denied, 382 U.S. 814, 86 S.Ct. 32, 15 L.Ed.2d 62 (1965). When government attorneys seek grand jury information for use in related civil proceedings, the concerns are that disclosure will increase the risk of inadvertent or illegal further release of the information to unauthorized persons, the integrity of the grand jury process itself will be compromised, and possible subversion of the limits otherwise placed on the government's investigative and discovery powers in the civil context. United States v. John Doe, Inc. I, 481 U.S. 102, 111, 107 S.Ct. 1656, 1662, 95 L.Ed.2d 94 (1987); United States v. Sells Engineering, Inc., 463 U.S. 418, 432-33, 103 S.Ct. 3133, 1342-43, 77 L.Ed.2d 743 (1983); In re Grand Jury Proceedings, 851 F.2d 860, 864 (6th Cir.1988). However, Rule 6(e) "is intended only to protect against disclosure of what is said or takes place in the grand jury room ... it is not the purpose of the Rule to foreclose from all future revelation to proper authorities the same information or documents which were presented to the grand jury." United States v. Interstate Dress Carriers, Inc., 280 F.2d 52, 54 (2d Cir.1960). Thus, if a document is sought for its own sake rather than to learn what took place before the grand jury, and if its disclosure will not compromise the integrity of the grand jury process, Rule 6(e) does not prohibit its release. Id. See also DiLeo v. Commissioner, 959 F.2d 16 (2d Cir.) (reaffirming Interstate Dress's status as the law of the circuit), cert. denied, --- U.S. ----, 113 S.Ct. 197, 121 L.Ed.2d 140 (1992).

When the grand jury investigation is already terminated and an indictment has been issued, only "institutional" concerns are implicated by the documentary disclosure. See generally Nervi, FRCrP 6(e) and the Disclosure of Documents Reviewed by a Grand Jury, 57 U.Chi.L.Rev. 221, 230 (1990). The fear of compromising future grand jury proceedings is further reduced when the request is for business records created for purposes...