Jones v. Berry
| Decision Date | 24 October 1983 |
| Docket Number | No. 81-5922,I-X,81-5922 |
| Citation | 722 F.2d 443 |
| Parties | 83-2 USTC P 9653 William E. JONES and Gladys A. Jones, husband and wife, and Acme Meat Company, Inc., an Arizona corporation, Petitioners-Appellees, v. Prescott A. BERRY, District Director, Internal Revenue Service; David C. Arnell, Chief, Criminal Investigation Division, Internal Revenue Service; Bernice Yost, Group Manager, Criminal Investigation Division, Internal Revenue Service; John M. Manning, Special Agent, Criminal Investigation Division, Internal Revenue Service; James E. Mason, Special Agent, Criminal Investigation Division, Internal Revenue Service; John Doe, inclusive, and Jane Doe, inclusive, Respondents-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Stephen E. Silver, Burch & Cracchiolo, P.A., Phoenix, Ariz., for petitioners-appellees.
Robert Lindsay, U.S. Dept. of Justice, Washington, D.C., for respondents-appellants.
Appeal from the United States District Court for the District of Arizona.
Before SKOPIL and FLETCHER, Circuit Judges, and McNICHOLS, * District Judge.
The Internal Revenue Service (IRS) appeals from the district court's grant of appellee's pre-trial motion to suppress evidence. The IRS challenges the holding that appellees' fourth amendment rights were violated by IRS undercover agents who elicited incriminating information from them by false pretences. Our court's jurisdiction rests on 28 U.S.C. Sec. 1291 (1976). We reverse and remand. 524 F.Supp. 645.
In May of 1977, IRS Special Agent John Manning requested approval for an undercover operation designed to discover tax fraud by owners of businesses offered for sale. Manning proposed examining the tax returns of businesses that were for sale to determine the potential for skimming income 1 from the business. Where skimming appeared possible, special agents, posing as prospective purchasers of the business, would meet the business sellers, gain their confidence, and then attempt to obtain evidence of skimming for use in subsequent tax prosecutions. The project, known as the Business Opportunity Program (BOP), was approved by the Arizona District IRS Special Agent Manning initiated the BOP by checking newspaper advertisements of businesses for sale. On January 10, 1981, he visited the offices of a business broker, telling the broker that he and his partner were looking for businesses to purchase in the Phoenix area. Though skimming was not openly discussed, Manning suggested subtly that he was particularly interested in businesses with a cash flow susceptible to skimming. The broker mentioned that he knew a company that might suit Manning's purpose. Whether skimming was actually occurring at the company was never discussed but the characteristics of the business that would make it susceptible to skimming were discussed.
Director in June of 1977 and by the National Director in January of 1981. 2
On February 7, 1981, the broker identified to Manning the business he had in mind as Acme Meat Co. After Manning executed an agreement providing for confidentiality of all information he received about the company, the broker permitted him to examine Acme's corporate income tax returns for 1976, 1977, and 1978. After reviewing the tax returns, Manning and the broker visited the premises of Acme where they met William Jones, the owner and toured the business. Manning's discussion with Jones regarding skimming did not go beyond hints and suggestions, but Manning gained the impression that Jones was skimming. At the close of the February 7 meeting, Manning indicated he was interested in the business and would like to see the books and records.
At a second meeting arranged for April 4, Manning and the broker met Jones at his personal residence. Manning examined the cash receipts and disbursements ledger, invoices, certain other business records, and the general corporate ledger. Manning was not supplied any records that would constitute "documentable proof" of unreported income under the BOP guidelines. But Manning persisted seeking another meeting which took place on April 25, 1981.
Manning, accompanied by Special Agent Mason, met Jones at the Acme Meat Company factory. Mason blatantly suggested that he and Manning were interested in purchasing a business that could generate substantial skimming. They demanded to see records supporting Acme's purported skim. Jones led the agents to his home where Mrs. Jones produced records which substantiated the skim. The agents left, promising to contact the Joneses promptly about their decision.
On May 1, 1981, armed with a search warrant, several IRS agents went to the Jones home. Two of the agents approached Mrs. Jones in the front yard of her home. Noting the home was for sale, they announced that they were realtors interested in viewing the premises. Once inside, they informed Mrs. Jones that they were Internal Revenue Service special agents with a search warrant. A thorough search of the house ensued. A second residence owned by the Joneses was also searched pursuant to Mrs. Jones' consent. During the search, IRS agents seized 16 boxes of papers, records and books. In addition to business records the agents seized a file cabinet, an adding machine, rubber bands, pencils, stamps, paperclips and other office supplies, a popcorn popper warranty and a book on body building. Three thousand items were taken from the Joneses' two residences. 3
At least two requests were made for the return of all or part of the items seized. Finally, on May 27, 1981, the Joneses and Acme Meat Co. filed a motion under Rule 41(e) of the Federal Rules of Criminal Procedure seeking the return and suppression of the seized records. Following an evidentiary hearing, the district court granted the relief requested.
The district court found that although the undercover operation might have been valid if performed by a different law enforcement agency seeking evidence of a different kind of crime, it was an unreasonable search when done by the IRS and violated appellees' fourth amendment rights. Jones v. Berry, 524 F.Supp. 645, 652 (D.Ariz.1981). Finding that the information for the search warrant had been obtained as a result of impermissible undercover activities, the court suppressed the evidence obtained by the IRS. Id. As to the items seized at the second house, the trial court held that, even absent a finding of a fourth amendment violation as to the search for and seizure of those items, the IRS should return all items seized at the second residence because the Joneses had effectively withdrawn their consent to the search by requesting the return of the documents. Id. at 654.
The analytic framework for determining whether law enforcement activities constitute a search within the meaning of the fourth amendment is found in Katz v. United States, 389 U.S. 347, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967), particularly in Justice Harlan's concurring opinion. In Katz, government agents eavesdropped on conversations in a telephone booth by means of an electronic listening device attached to the top of the booth. Holding that "the Fourth Amendment protects people, not places," id. at 351, 88 S.Ct. at 511, the Court discarded the trespass analysis applied in prior cases to determine whether a fourth amendment search occurred. Id. at 351-53, 88 S.Ct. 511-512. The Court concluded that, despite the absence of a physical intrusion into the telephone booth, the agents' actions "violated the privacy upon which [the defendant] justifiably relied while using the telephone booth and thus constituted a 'search and seizure' within the meaning of the Fourth Amendment." Id. at 353, 88 S.Ct. at 512. As stated more explicitly by Justice Harlan, the Court in Katz recognized two requirements for the existence of a privacy interest protected by the fourth amendment: "first that a person have exhibited an actual (subjective) expectation of privacy and, second, that the expectation be one that society is prepared to recognize as 'reasonable.' " Id. at 361, 88 S.Ct. at 516 (Harlan, J., concurring). Where both prongs of the test are met, law enforcement activity that intrudes upon the privacy interest is considered a search within the meaning of the fourth amendment. We turn to an application of the Katz test to the facts of the case before us. 4
The district court, after its review of the facts "conclude[d] that the orchestrated ruse employed by the [IRS agents] on April 4 and April 25 constitute[d] a search in violation of petitioners' Fourth Amendment rights." 524 F.Supp. at 652. In its view, undercover activities, while often necessary to effective law enforcement, should not be sanctioned when employed by the IRS because such operations "would interfere with the IRS' reliance on voluntary assessment and compliance by taxpayers." Id. Indeed, the court found that "the IRS is [not] identical, or even substantially similar, to the FBI for purposes of analyzing the effect of undercover operations on Fourth Amendment rights." While we agree with the district court that the BOP, even if implemented in conformity with the National When the Katz standard is applied to the facts presented by this case, we conclude that the IRS activities with respect to the Joneses and Acme Meats, however unwise and shortsighted they may have been, did not constitute a search within the meaning of the fourth amendment. The first part of the Katz test asks whether the Joneses exhibited by their conduct an intention to preserve as private the evidence of skimming obtained by the IRS agents. See Smith v. Maryland, 442 U.S. 735, 740, 99 S.Ct. 2577, 2580, 61 L.Ed.2d 220 (1979). Pertinent to answering this question are the decisions of the Supreme Court in Hoffa v. United States, 385 U.S. 293, 87 S.Ct. 408, 17 L.Ed.2d 374 (1966), and Lewis v. United States, 385...
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