Barrett v. US

• Decision Date: 08 December 1995
• Docket Number: Civil Action No. H-83-6929.
• Citation: 917 F. Supp. 493
• Parties: Bernard M. BARRETT, Jr., M.D. and Plastic & Reconstructive Surgeons, P.A., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Texas

917 F. Supp. 493

Bernard M. BARRETT, Jr., M.D. and Plastic & Reconstructive Surgeons, P.A., Plaintiffs, v. UNITED STATES of America, Defendant.

Civil Action No. H-83-6929.

United States District Court, S.D. Texas, Houston Division.

December 8, 1995.

Edward D. Urquhart, Houston, TX, Stuart D. Gibson, Trial Atty. Tax Division, Washington, DC, for Bernard M. Barrett, Jr., Plastic & Reconstructive Surgeons, P.A.

Robert Alton Shults, Sheinfeld Maley & Kay, Houston, TX, Michael K. Kelly.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

HARMON, District Judge.

The following constitute this court's Findings of Fact and Conclusions of Law on the damage issue remanded to this court by the Fifth Circuit Court of Appeals in its April 20, 1995 decision, Barrett v. United States, 51 F.3d 475 (5th Cir.1995).

In the above referenced action, Plaintiff Dr. Bernard M. Barrett, Jr. has asserted unlawful disclosure of tax return information during a civil and criminal investigation by the Internal Revenue Service ("IRS") in violation of 26 U.S.C. ? 6103(k)(6)¹ and ? 7431.² Barrett seeks to recover $8,629,208.00 in actual damages and $25,887,624.00 in punitive damages, for a total sum of $34,516,832.00.³

The trial of this case focused on a very narrow issue, mandated by the 1986 opinion of the Fifth Circuit Court of Appeals, which reversed the granting of a summary judgment in favor of the United States by the Honorable Gabrielle McDonald. The Fifth Circuit found that there was a triable fact issue presented by the two "interdependent" questions of "whether the disclosures of Dr. Bernard M. Barrett, Jr.'s taxpayer information were necessary, and whether the information sought was otherwise reasonably available." Barrett v. United States, 795 F.2d 446, 449 (5th Cir.1986).

At trial Barrett's position was two-fold. First, he argued that the information being sought by the letters was "otherwise reasonably available" to the IRS in that it was contained in the records, particularly the bank records, of Barrett and his professional association, Plastic & Reconstructive Surgeons, P.A. (PARS). Second, he argued that even if the information was not otherwise reasonably available, the letters unnecessarily disclosed "return information." This disclosure was accomplished first by typing the words "Criminal Investigation Division of the Internal Revenue Service" at the top of the letter, and second, by informing the recipients in the body of the letter that Barrett "is currently under investigation by the Criminal Investigation Division of the Internal Revenue Service." This court found for the United States on both issues. On appeal the Fifth Circuit concluded that it was not necessary for the IRS to disclose in the letters that the taxpayer was being criminally investigated, that the IRS Special Agent Michael O. Hanson, the author of the letters, acted in bad faith in mailing the circular letters containing that disclosure, and that the IRS is liable for damages to Barrett pursuant to 26 U.S.C. ? 6103.

The IRS conceded at trial that, although the sending of the letters was approved by Agent Hanson's superior, Charles T. Fanssen, then Group Manager of the Criminal Investigation Division, Houston, Texas, there was no evidence that Fanssen had approved the contents of the circular form letters that Agent Hanson mailed to Barrett's patients. Nor did the language of the letters follow completely the form for such letters suggested in Section 347.2 of The Handbook for Special Agents, in effect at the time.

In determining whether Hanson acted in good faith in making the disclosures in the letter, the Fifth Circuit recited the standard set forth in Huckaby v. United States Department of Treasury, Internal Revenue Service, 794 F.2d 1041, 1048 (5th Cir.1986), which is "whether a reasonable IRS agent would have known of the rights provided by ?? 6103 and 7431 and of his own agency's applicable regulations and internal rules interpreting the statutes." Following Huckaby's conclusion that a reasonable IRS agent can be expected to know the statutory provisions and their clarification by IRS regulations and interpretations, id. at 1049, the Fifth Circuit concluded that "a reasonable IRS agent can be expected to know statutory provisions governing disclosure, as interpreted and reflected in IRS regulations and manuals. An agent's contrary interpretation is not in good faith citations omitted." Barrett, 51 F.3d at 479. Since Hanson admitted at trial that he did not review ? 6103 or the applicable IRS manual provisions prior to mailing the circular letters and, although he was aware of the handbook provision that he do so, did not obtain the required approval of the content of the letters by the Chief of the Criminal Investigation Division, the Fifth Circuit concluded that Hanson had not acted in good faith in mailing the particular letters he mailed. Id., citing C. 347.2 of the IRS Handbook for Special Agents.

Significant to the inquiry here, however, is that the Fifth Circuit did not find that the information sought by Hanson in mailing the letters was "otherwise reasonably available."⁴ In other words, Hanson was found to have violated the statute not by mailing circular letters, but by disclosing in the circular letters taxpayer information unnecessary to obtain the information he sought. Barrett, 51 F.3d at 480. Although the Handbook directs the sender of the letter to identify himself as a "special agent, Criminal Investigative Division," the Fifth Circuit found that it was unnecessary and therefore an unauthorized disclosure for Agent Hanson to tell the letters' recipients, in the body of the letter, that Barrett was under a criminal investigation. The determination left to this court is what actual damages, if any, has plaintiff proved were inflicted by the disclosure of the criminal investigation in the circular letters.⁵ Barrett emphasizes that, as noted by the Fifth Circuit, his evidence of his actual damages was "uncontradicted" at trial. Barrett, 51 F.3d at 480. He contends that he is entitled to an award of at least $8,629,208 in actual damages and requests an award of punitive damages under 26 U.S.C. ? 7431(c)(1)(B). The United States opposes the requested actual and punitive damages award, pointing out that it vigorously contested Plaintiffs' damage claims at trial on cross examination, and that it did not brief the damages issue on appeal because this court did not reach the question since it found the IRS was not liable. The United States maintains that Barrett did not suffer any economic loss as a result of the disclosure and is entitled to recover only statutory damages in the amount of $260,000, in accordance with 26 U.S.C. ? 7431(c)(1)(A).⁶

The Court has reviewed the transcripts of the testimony of all five of the damage witnesses brought forth by Barrett at the trial. These witnesses were Karl M. Johnson, C.P.A., plaintiff's expert who presented a damage model, and four physicians, including plaintiff. This testimony points to a decline in the number of patients seen by Barrett beginning in 1986 and a possibility that this decline was caused by a delayed reaction to the circular letters, which were sent in March of 1983.

Barrett's argument is that, but for the circular letters, his practice would have been more substantial. The patients of a plastic surgeon are particularly concerned that their privacy be maintained. If one day such a patient receives a letter from the IRS telling him that his plastic surgeon is the subject of a criminal investigation, he may have two impressions. First, he may believe that the IRS has obtained information from his plastic surgeon that he was a plastic surgery patient ?€” a violation of his privacy that he may not realize was not breached voluntarily by the doctor. Second, he is now, unambiguously, aware that his plastic surgeon is suspected of criminal activity by the IRS, which is likely to reflect negatively on the plastic surgeon. Barrett argues that when his 260 patients received this letter, they would have become angry with Barrett because their privacy had been breached, since someone besides Barrett and his staff would know they had been treated by Barrett. Second, when the patients read that Barrett was under criminal investigation, they would have thought less of Barrett as a law abiding citizen. Barrett maintains that both these circumstances would render the patients disinclined to return to him for further plastic surgery and to recommend him to their friends. Although there was some discussion in the testimony that the letters could cause other physicians not to refer patients to Barrett, there was no evidence that any physician had, in fact, not referred patients because of the letters. In fact the testimony of the physicians among the witnesses all emphasized that Barrett enjoys an excellent reputation as a surgeon.

Barrett's argument ignores an important aspect of the Fifth Circuit's decision, which did not determine that the letters themselves were not necessary to obtain the information being sought. The patients who received these letters would have had the same impression of breach of privacy whether Special Agent Hanson wrote his letter by the Handbook and made no unauthorized disclosure or whether he ignored the Handbook and included in the letter disclosures unnecessary to obtain the information being sought. In this case, any actual damages must have arisen from the disclosure to the patients of the criminal investigation itself and not from the concern of the patients that their privacy had been breached.

Although there is factual evidence to demonstrate a decline in the number of patients Barrett saw from 1986 to 1988, and there is no dispute that the letters were sent to 260 patients, there is little but speculation to support the conclusion that the decline was caused by the letters. Although the United States did not put on any independent evidence to support...