United States v. Omni Intern. Corp.

• Citation: 634 F. Supp. 1414
• Decision Date: 15 May 1986
• Docket Number: Crim. No. B-84-00101.
• Parties: UNITED STATES of America v. OMNI INTERNATIONAL CORPORATION (formerly known as Omni Investment Corporation), Wayne J. Hilmer, Evan T. Barnett, Thomas A. Westrick, Jr., and Joseph P. Bornstein.
• Court: U.S. District Court — District of Maryland

634 F. Supp. 1414

UNITED STATES of America v. OMNI INTERNATIONAL CORPORATION (formerly known as Omni Investment Corporation), Wayne J. Hilmer, Evan T. Barnett, Thomas A. Westrick, Jr., and Joseph P. Bornstein.

Crim. No. B-84-00101.

United States District Court, D. Maryland.

May 15, 1986.

J. Frederick Motz, Former U.S. Atty., D. Md., and Elizabeth H. Trimble, Catherine C. Blake, John G. Douglass, Ty Cobb, and Steven A. Allen, Asst. U.S. Attys., Baltimore, Md., and John R. Maney, Jr. and Ronald Allen Cimino, Attys., Tax Div., U.S. Dept. of Justice, Washington, D.C., for Government.

Paula M. Junghans and Garbis & Schwait, Baltimore, Md., for defendant, Omni Intern. Corp. (formerly known as Omni Inv. Corp.).

Marvin J. Garbis and Garbis & Schwait, Baltimore, Md., for defendant, Wayne J. Hilmer.

Cono R. Namorato, Bernard S. Bailor, and Caplin & Drysdale, Washington, D.C., for defendant, Evan T. Barnett.

Brendan V. Sullivan, Jr., Barry S. Simon, and Williams & Connolly, Washington, D.C., for defendant, Thomas A. Westrick, Jr.

James E. Merritt, John W. Spiegel, and Morrison & Foerster, Washington, D.C., for defendant, Joseph P. Bornstein.

WALTER E. BLACK, Jr., District Judge.

On March 13, 1984 a grand jury returned a seven-count Indictment against Omni International Corporation, formerly known as Omni Investment Corporation, Wayne J. Hilmer, Evan T. Barnett, Thomas A. Westrick, Jr., and Joseph P. Bornstein. The five defendants each were charged with conspiracy to defraud the Internal Revenue Service, conspiracy to commit income tax evasion, five counts of income tax evasion for the years 1976-1980, inclusive, and aiding and abetting. The Government alleges that Hilmer was the majority owner of Omni and its chief executive officer, and president of Euro Air (a subsidiary of Omni), that Barnett was vice president of Omni and Euro Air, and that Westrick was president of Omni. The Government further alleges that Bornstein, a certified public accountant, prepared or supervised the preparation of the federal income tax returns for Omni.

The defendants promptly filed numerous pretrial motions. All defendants except Bornstein (hereinafter collectively referred to as the Omni defendants) filed motions jointly. Bornstein filed his own motions and also joined in the majority of the Omni defendants' motions. On April 27, 1984, the Omni defendants filed a motion to dismiss the indictment, disqualify government counsel and investigators, and suppress evidence based on violations of the attorney-client privilege (hereinafter referred to as the motion to dismiss). The Government answered this motion on May 11, 1984. Somewhat contemporaneously, Bornstein filed a related motion to dismiss the indictment based, in part, on governmental misconduct. Additional supplemental memoranda have been received in connection with these motions.

A hearing—which would ultimately require twenty-eight days over an extended period—commenced on June 11, 1984 on all then-pending motions. The immediate focus of the hearing became the Omni defendants' motion to dismiss. Bornstein participated in the hearing in connection with his own motion. Following legal argument on June 11, proffers by the Omni defendants at that time in court and in their pleadings, and the testimony of two witnesses for the Omni defendants on June 12, the Court held an evidentiary hearing on the Omni defendants' motion to dismiss, with testimony before the Court as finder of fact occurring over the course of twenty-eight days between June, 1984 and March, 1985. The record consists of hundreds of exhibits and over 5,500 pages of testimony.

During the course of the hearing the defendants repeatedly asserted that the Government had deliberately set out to breach the attorney-client privilege, and later tried to conceal its actions by misrepresentation, obstruction of justice, and perjury. According to the defendants, subsequent to the Indictment, an Assistant United States Attorney (AUSA) and two agents of the Internal Revenue Service attempted to thwart the Court's inquiry into their misconduct by creating, altering, and suppressing documents, by making misrepresentations to the Court and defense, and by repeatedly lying under oath. For this alleged deliberate, flagrant and repeated misconduct the defendants seek dismissal of the Indictment.

After the Court heard all testimony relevant to the proceedings which the litigants wished to present, proposed findings of fact and conclusions of law were submitted by the Omni defendants and the Government. Bornstein adopted almost all of the Omni defendants' submissions, as well as submitting his own. The Court heard oral argument on the motion to dismiss on June 25, 1985, and the matter was taken under advisement. This opinion constitutes the Court's findings of fact and conclusions of law.

I. Attorney-Client Privilege

The basis of the Omni defendants' motion, as originally filed and undoubtedly as originally contemplated by the defendants, was that the Government breached the attorney-client privilege in presenting its case to the grand jury and, thereafter, in preparing for the motions hearing and trial. The requested sanctions for the alleged deliberate breaches are dismissal, disqualification, or suppression. The Government has consistently disputed whether an attorney was even involved in the case, given the fact that the privilege related primarily to communications to defendant Bornstein and his dual role as a certified public accountant as well as attorney; whether any confidential communications were breached; and whether any defendant other than Omni is entitled to claim the privilege in any case. The Government has always maintained that the thrust of the motion relates solely to attorney-client privileges which defendants have failed to prove.

A. Background

In order to appreciate the arguments raised by counsel at this juncture of the proceedings, the Court will briefly discuss the underlying criminal tax case. Omni, a domestic corporation, buys, sells and leases aircraft world-wide. Hilmer is the majority owner and Chairman of the Board. Westrick, a certified public accountant, is President of the company, and Barnett, also a certified public accountant, is financial Vice President. Bornstein, an attorney as well as a certified public accountant, was Omni's outside counsel and tax advisor. For the years in question, 1976-1980, inclusive, Bornstein signed the relevant Omni tax returns.

The Government investigated Omni for a period of years prior to the return of the Indictment, considering various alleged crimes before focusing on tax issues. Enormous manpower and resources were devoted to the effort; the case consumed more than 2000 man-days and required the full-time attention of several investigators. The primary Internal Revenue agents who were involved in the investigation, especially in late 1983 and 1984, will be referred to throughout this opinion as the Special Agent and the Revenue Agent. This Special Agent directed the entire investigation as it drew to a close and prosecutorial decisions were being made. The primary function of the Revenue Agent was to assist the Special Agent. The IRS, through many agents, conducted interviews on three continents. The other principal Government representative involved is the Assistant United States Attorney (AUSA) who supervised the investigation and presented the case to the grand jury. This individual will be referred to as the AUSA throughout the opinion.

The investigation focused ultimately on Omni's wholly-owned Bermuda subsidiary, Euro Airfinance, Ltd (hereinafter referred to as Euro Air). The Government contends that income reported on Euro Air's information returns was properly taxable to Omni and that tax should have been paid in the year that the income was earned. According to the Government, the defendants evaded taxes by falsely reporting income in the name of Euro Air, when the income in fact belonged to Omni, a domestic corporation. Omni allegedly has not paid taxes on millions of dollars of income passed along improperly to Euro Air.

As the Government put its case together against Omni, the attorney-client privilege issue surfaced. Omni claimed the privilege based on its relationship with Bornstein. In particular, in the Fall of 1983 the Government sought production of Bornstein's invoices to Omni in order to trace expenses and tie Bornstein to particular transactions. Omni asserted that those invoices were not producible pursuant to subpoena because they were subject to the privilege. The AUSA filed a motion to compel their production. On November 8, 1983, Judge Joseph H. Young of this District ruled that there was a privileged attorney-client relationship between Bornstein and Omni and that the invoices need not be produced because "statements or correspondence showing the nature of the legal services performed are covered by the attorney-client privilege," and the invoices would reveal the "type of work performed by Bornstein for the client and the particular legal matter which Bornstein worked on." (emphasis in original) This was the first—and only—ruling relative to the subject of attorney-client privilege in these proceedings. It is significant that Judge Young considered Bornstein to be an attorney and found that the invoices were privileged. The evidence before the Court is overwhelming that Bornstein acted as Omni's attorney.

At least from that point on, Omni vigorously asserted the privilege. Yet the Government recognized that discussions between Omni and its lawyers were significant with regard to the tax theory of prosecution and undertook to obtain all the information it could. The Government, particularly the Special Agent and the Revenue Agent, attempted to circumvent the privilege. In pursuing their goal, the agents interviewed numerous attorneys who had represented Omni. Notes taken by the agents prior to at least one...