Burlington Northern v. Office of Inspector General, Civ. A. No. 4-90-676-A

• Decision Date: 18 July 1991
• Docket Number: 4-90-702-A.,Civ. A. No. 4-90-676-A
• Citation: 767 F. Supp. 1379
• Parties: BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff, v. OFFICE OF INSPECTOR GENERAL; Railroad Retirement Board; Attorney General of the United States; and United States of America, Defendants.
• Court: U.S. District Court — Northern District of Texas

767 F. Supp. 1379

BURLINGTON NORTHERN RAILROAD COMPANY, Plaintiff, v. OFFICE OF INSPECTOR GENERAL; Railroad Retirement Board; Attorney General of the United States; and United States of America, Defendants.

Civ. A. Nos. 4-90-676-A, 4-90-702-A.

United States District Court, N.D. Texas, Fort Worth Division.

July 18, 1991.

Thomas Joseph Knapp, Lawrence Michael Stroik, Charles W. Shewmake, Burlington Northern R. Co., Fort Worth, Tex., for plaintiff.

Richard C. Stearns, Karen Stewart, Dept. of Justice, Federal Programs Branch, Civ. Div., Washington, D.C., for defendants.

R. Wayne Hughes, Jr., U.S. Atty.'s Office, N.D. Tex., Fort Worth, Tex., for U.S.

MEMORANDUM OPINION AND ORDER

McBRYDE, District Judge.

I. Issues that are Immediately Before the Court

William J. Doyle III, in his capacity as Inspector General of the Railroad Retirement Board ("Doyle"), has sought summary enforcement of a subpoena duces tecum directed to the "Keeper of Records" of "Burlington Northern Railroad Corporation" sic. The subpoena required the recipient to appear before Doyle at a specified time, date and place

in connection with an audit review relating to programs and operations of the Railroad Retirement Board; to wit: To determine the accuracy of compensation and creditable service reports for coverage under the Railroad Retirement Tax Act and the Railroad Unemployment Insurance Act....

and "to bring ... and produce and provide" at the specified time, date and place a large number of documents described in the subpoena.¹ Doyle alleges that the subpoena was authorized by, and issued pursuant to the authority of, § 6 of the Inspector General Act of 1978 ("the Act").²

Burlington Northern Railroad Company ("Burlington") resists enforcement of the subpoena on the grounds that the Act grants only limited oversight authority to Doyle in respect to the Railroad Retirement Board ("Board") and its programs and operations, that Doyle lacks the statutory authority to conduct the audit of Burlington of which the subpoena is an integral part, and that the subpoena and audit are for an improper purpose and, therefore, should not be enforced.

By order signed April 2, 1991, the court directed Doyle to permit discovery sought by Burlington on matters thought by the court to be relevant to this action. Doyle and the United States of America sought and obtained a writ of mandamus from the Fifth Circuit directing that the court vacate the discovery order and promptly address and decide the action for enforcement of the subpoena.³ The opinion of the Fifth Circuit authorized this court to evaluate whether Burlington is to be permitted a limited, measured amount of discovery in the enforcement action.⁴ On June 4, 1991, the court ordered Burlington to advise the court of any proposed discovery it wished to conduct on issues related to the enforcement feature of the litigation. Burlington submitted proposed limited discovery requests, to which Doyle has filed opposition.

The evidentiary record before the court consists of affidavits and other documents filed by Doyle, Burlington, and Association of American Railroads (which, with leave of court, filed an amicus curiae brief in CA4-90-702-A prior to its consolidation into CA4-90-676-A), respectively. Facts related in this memorandum opinion and order are based on this evidentiary material.

II. Explanations Doyle Initially Gave for the Nature and Conduct of the Audit to Which the Subpoena is Related

Doyle's first overt step in setting in motion the audit activity of which the subpoena was an integral part was a letter dated March 21, 1990, from one of his assistants to the controller of Burlington in which the nature and purpose of the audit were explained as follows:

The purposes of this letter are to (1) inform you about the Office of Inspector General at the Railroad Retirement Board and (2) advise you of our plans to audit limited aspects of the Burlington Northern Railroad Company.

....

Railroads contribute a significant percentage of the total revenues of the Railroad Retirement Board which are in turn used to pay various types of benefits to railroad workers and their families. It is important that each railroad know the others are properly paying their share. Thus, we have started on a program to audit tax contributions and compensation reported under the Railroad Unemployment Insurance and Railroad Retirement Acts.⁵

Burlington, through its employees, and Doyle, through his assistant, had an entry conference on April 17, 1990, at which time the assistant, Mr. Santella, elaborated on Doyle's intent and purpose in conducting the audit:

Mr. Santella stated that although the OIG Doyle had completed 14 audits of other railroads, BN Burlington would be the first railroad to experience the combined efforts of the OIG and the IRS Internal Revenue Service in that regard. He stated that even though the IRS would have someone working with the OIG audit, the IRS was still a separate agency and the OIG audit would not be considered as an IRS audit. Mr. Santella listed the following areas as the principle sic focus of the audit: proper and timely payment of taxes; proper employee relationships (that is, proper employer and employee status treatment); and proper employer compensation and withholding of Tier I and Tier II railroad retirement taxes, which he said they would tie back to the CT-1 reports BN files. Mr. Santella also stated that the OIG final report would be given to the IRS for any assessment of taxes against BN.⁶

By letter dated April 30, 1990, to Mr. Santella, Burlington sought clarification "as to the authority, scope, objectives and procedures in regard to the current Inspector General audit being conducted in our St. Paul office."⁷ Doyle responded by letter of May 4, 1990, to Burlington, giving the following explanations of the purpose and objectives of the audit and of the use to be made of the audit results:

1. The Inspector General of a government agency conducts audits and investigations relating to administration of agency programs as deemed necessary. In this regard, the Office of Inspector General RRB entered into an agreement with the Internal Revenue Service to conduct reviews relating to railroad employers' compensation reports, and the Forms CT-1, Employers's sic Annual Railroad Retirement and Unemployment Repayment Tax Return.

This memorandum constitutes an agreement voluntarily entered into by the Assistant Commissioner (Examination), Internal Revenue Service (IRS) and the Office of Inspector General (OIG), Railroad Retirement Board (RRB). It is recognized that the cooperative efforts of both the IRS and the OIG will be directed at examining/reviewing employment taxes of railroad employers.

2. Our primary objectives of the audit are to determine: (1) proper and timely payment of tax contributions for all employees eligible to be covered under the RUIA and RRA, and (2) the accuracy of compensation and service reports for both RUIA and RRA coverage. This would include the accuracy in reporting creditable compensation, and identifying tax non-compliance as it relates to the RRTA and RUIA.

....

4. Preliminary findings will be discussed on an ongoing basis. In addition, a draft report will be provided by the OIG and the railroad will have an opportunity to respond to the findings and recommendations in writing. Copies of the final report will also be distributed within the RRB and to the IRS. Other copies of our report provided to outside government agencies do not identify the railroad employer by name. Information provided during the course of the audit is protected from disclosure except as provided by law. The RRB has the authority to assess any additional taxes relating to the RUIA and to require compensation adjustment reports as needed. The IRS will report and assess any additional taxes relating to the RRTA based on our examination. Appeal rights relating to the RRTA are as provided in the IRS Code.⁸

The agreement/memorandum between Doyle and Internal Revenue Service to which Doyle referred is a memorandum of understanding that was entered into between Doyle and IRS in late 1989.⁹ This memorandum outlines its purpose and policy and the responsibilities of Doyle and IRS as follows:

PURPOSE

This agreement is to establish policy for the IRS and the OIG Doyle, RRB Railroad Retirement Board with regard to referral and audit of matters of mutual interest.

....

POLICY

This memorandum acknowledges both the role of the IRS and the statutory mandate imposed by the Inspector General relating to RRB programs and operations.

The spirit of this memorandum is to effect review responsibilities so as to most efficiently utilize the limited resources which are available. To that end, it is recognized that the cooperative efforts of both the IRS and the OIG will be directed at examining/reviewing employment taxes of railroad employers.

RESPONSIBILITIES OF THE OIG

1. The OIG will furnish the IRS with a copy of their annual work plan relating to railroad employer reviews.

2. The OIG will conduct reviews relating to railroad employers' compensation reports and the Forms CT-1, Employer's Annual Railroad Retirement and Unemployment Repayment Tax Return. These reviews, by the OIG, are not an examination in the same meaning as an examination by an IRS examiner.

3. The OIG will request technical assistance from the IRS as needed.

4. The OIG will furnish the IRS Railroad Industry Specialist a copy of each final report.

RESPONSIBILITIES OF THE IRS

1. The IRS will designate a coordinator for OIG railroad employer review activities. This coordinator will be the IRS' Railroad Industry Specialist, located in the St. Louis District. Mr. Gary Kuper currently holds this position and can be contacted at (314) 279-3093.

2. The IRS will provide technical assistance to the OIG in conjunction with their railroad employer review activities. The technical assistance will be requested through the railroad

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