Gavosto v. Commissioner
| Decision Date | 03 October 1994 |
| Docket Number | Docket No. 9099-93. |
| Citation | 68 T.C.M. 827 |
| Parties | Philip C. Gavosto and Barbara J. Gavosto v. Commissioner. |
| Court | U.S. Tax Court |
Neal J. Hurwitz, 1370 Ave. of the Americas, New York, N.Y., for the petitioners. William J. Gregg, for the respondent.
This case is before us on petitioners' motion to suppress evidence on the ground that it is grand jury material received by respondent illegally, and in violation of Rule 6(e) of the Federal Rules of Criminal Procedure (Rule 6(e)), and to vacate the deficiency.
Some of the facts have been stipulated for the purposes of this motion and are found accordingly. The stipulation of facts and the stipulated exhibits are incorporated herein by this reference.
From approximately 1985 to 1988, Mr. Gavosto was a subject of a grand jury investigation conducted by the U.S. Attorney for the Eastern District of New York. The investigation involved alleged kickbacks to Mr. Gavosto while he was employed by Mobil Corporation. Internal Revenue Service Agent Donald Merz assisted the U.S. Attorney in connection with this criminal investigation. He was directly involved in the development of evidence submitted to the grand jury and had access to such materials. On February 23, 1988, in the United States District Court, Eastern District of New York, Mr. Gavosto waived indictment and pleaded guilty to willfully making, subscribing, and filing a false joint Form 1040, U.S. Individual Income Tax Return, for the year 1981.
At a sentencing hearing, on June 10, 1988, the Assistant U.S. Attorney called Mr. Merz as a witness and through him various documents and testimony considered by the grand jury (hereinafter "grand jury materials") were admitted into evidence. Mr. Merz was cross-examined at some length by Mr. Gavosto's counsel, Neal J. Hurwitz, who is petitioners' counsel herein. On September 20, 1988, the sentencing hearing continued, and both petitioners testified. On October 5, 1988, Mr. Gavosto was given a 3-year suspended sentence and sentenced to 3 years' probation, a $5,000 fine, 500 hours of community service, and 6 months at a community treatment center. Mr. Hurwitz appeared as Mr. Gavosto's counsel at those hearings. At none of the three hearings did Mr. Hurwitz seek to limit the potential use of the grand jury materials beyond the sentencing process.
On February 5, 1993, respondent issued a notice of deficiency for 1979 and another notice of deficiency for the 1980, 1981, and 1982 taxable years. On March 7, 1993, petitioners filed a petition with this Court contesting, among other things, the reliability and credibility of the witnesses upon which respondent relied in preparing the notices of deficiency. In her answer, filed on June 11, 1993, respondent replied that the determination of the omission of income by petitioners was corroborated, in part, by the grand jury testimony of three witnesses. In their reply, filed on August 30, 1993, petitioners inquired whether respondent was in possession of certain grand jury testimony that is now before us as part of the grand jury materials. In her request for admissions, filed on March 14, 1994, respondent again referred to corroborating grand jury testimony. In their response to respondent's request for admissions, petitioners referred to the grand jury testimony identified in the request and asked for copies thereof.1
Although the Court had received some indication of a problem involving grand jury materials about 10 days before the case was called for trial at a trial session of the Court scheduled to commence in New York, New York, on April 11, 1994, it was not until the case was called for trial on that date that petitioners' motion was filed. At that time, respondent stated on the record that if petitioners' motion to suppress was granted, respondent conceded the deficiency.2
Petitioners ask this Court to suppress the grand jury materials relied upon by respondent, and to vacate the deficiency. Initially, we note that respondent's concession obviates the need for us to consider that portion of the motion requesting that we vacate the deficiency. In any event, invalidation of a notice of deficiency is not the proper remedy where respondent illegally uses grand jury material. Graham v. Commissioner [Dec. 41,012], 82 T.C. 299, 310-311 (1984), affd. [85-2 USTC ¶ 9657] 770 F.2d 381 (3d Cir. 1985). Thus, the disposition of petitioners' motion turns upon whether respondent's use of the grand jury materials would violate Rule 6(e). Berkery v. Commissioner [Dec. 44,934], 91 T.C. 179, 188 (1988), affd. without published opinion 872 F.2d 411 (3d Cir. 1989). The foundation of petitioners' position is United States v. Sells Engineering, Inc. [83-2 USTC ¶ 9439], 463 U.S. 418 (1983), and United States v. Baggot [83-2 USTC ¶ 9438], 463 U.S. 476 (1983).
In United States v. Sells Engineering, Inc., supra, the Department of Justice sought to disclose grand jury material to attorneys and support staff in its Civil Division at the conclusion of its criminal investigation under Rule 6(e)(3)(A)(i).3 The Supreme Court held that Rule 6(e)(3)(A)(i) applied only to "those attorneys who conduct the criminal matters to which the materials pertain." Id. at 427. The Court explained, "This conclusion is mandated by the general purposes and policies of grand jury secrecy, by the limited policy reasons why Government attorneys are granted access to grand jury materials for criminal use, and by the legislative history of Rule 6(e)." Id. at 427. The Court concluded that attorneys in the Civil Division must secure a court order under Rule 6(e)(3)(C)(i)4 to obtain disclosure, which requires a showing of "particularized need". Id. at 442-443.
In United States v. Baggot, supra, following a plea by the defendant, the Internal Revenue Service (IRS) sought disclosure of grand jury transcripts and documents, under Rule 6(e)(3)(C)(i)1 for use in its audit to determine the taxpayer's civil tax liability. The Supreme Court determined that an IRS investigation to determine a taxpayer's civil tax liability is not "preliminarily to or in connection with a judicial proceeding" within the meaning of Rule 6(e)(3)(C)(i) and denied disclosure.
It is clear that, under Baggot and Sells Engineering, respondent could not, without a Rule 6(e) order or some other justification, utilize the grand jury materials herein.
Respondent maintains that the grand jury materials were admitted into evidence at the sentencing hearing and are therefore now public, so that Sells Engineering and Baggot do not apply. Petitioners dispute this, arguing that no waiver occurred at the sentencing hearing, that they received no notice, implied or otherwise, of intended disclosure of the grand jury materials to the civil attorneys and that, while the grand jury materials were marked at the sentencing hearing for use by the witness, Mr. Merz, and for use by the court in sentencing, there was no public disclosure and no authorization for such disclosure. We find no merit in petitioners' various arguments.
It is well established that, once grand jury material has been admitted as evidence in a criminal trial, it becomes part of the public record and thus is not subject to Rule 6(e). In re Special February 1975 Grand Jury, 662 F.2d 1232, 1236-1237 n. 10 (7th Cir. 1981), affd. sub nom. United States v. Baggot [83-2 USTC ¶ 9438], 463 U.S. 476 (1983); Sisk v. Commissioner [86-1 USTC ¶ 9433], 791 F.2d 58, 60 (6th Cir. 1986), affg. an unpublished order of this Court; Bell v. Commissioner [Dec. 44,763], 90 T.C. 878, 903-904 (1988).5 The question then becomes whether a sentencing hearing should be treated the same as the rest of a criminal trial. An affirmative answer to this question has been given in the context of the right of the public to know through use by the media of information admitted into evidence at a sentencing hearing. In re Washington Post Co., 807 F.2d 383, 389 (4th Cir. 1986)(Sentencing "clearly amounts to the culmination of the [criminal] trial."); see also Application of The Herald Co., 734 F.2d 93, 98 (2d Cir. 1984)(In discussing the public observation of a pretrial suppression hearing, the court stated, "It makes little sense to recognize a right of public access to criminal courts and then limit that right to the trial phase of a criminal proceeding").
In a narrow context not involving the right of the public to know, the Court of Appeals for the Fourth Circuit in United States v. Manglitz [85-2 USTC ¶ 9723], 773 F.2d 1463, 1467 (4th Cir. 1985), stated in connection with the need for a Rule 6(e) order with respect to the disclosure of information at a Rule 11 (guilty plea) hearing:
We believe that a prosecutor, in performing his duty to enforce the criminal laws of the United States, is not required to obtain a court order prior to disclosing grand jury material at a Rule 11 hearing as long as the material introduced is relevant to the question of guilt or if it will assist the Court in sentencing the defendant. * * * [Emphasis added.]
The Fourth Circuit did, however, include a warning that this might not be the case where there is evidence that such disclosure was the result of deliberate action by the Government in bad faith, i.e., involving "a pretextual use of the grand jury material that was designed to circumvent the prohibitions announced in Sells and Baggot." United States v. Manglitz, supra at 1468.6 There is not the slightest evidence of any such bad faith in the instant case.
Petitioners rely heavily on United States v. Alexander, 860 F.2d 508 (2d Cir. 1988). In that case, the defendant sought a reversal of his sentence on the ground that the submission of grand jury materials in a presentencing memorandum of the government, which became part of the public record, had resulted in unfavorable publicity in the media and thereby produced an inappropriate sentence. Although the Court of Appeals for the...
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