Hampers, In re, 81-1159

• Decision Date: 20 May 1981
• Docket Number: No. 81-1159,81-1159
• Citation: 651 F.2d 19
• Parties: 8 Fed. R. Evid. Serv. 733 In re L. Joyce HAMPERS, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 19

651 F.2d 19

8 Fed. R. Evid. Serv. 733

In re L. Joyce HAMPERS, Appellant.

No. 81-1159.

United States Court of Appeals, First Circuit.

Argued April 6, 1981.

Decided May 20, 1981.

Barbara A. H. Smith, Asst. Atty. Gen., Chief, Crim. Appellate Div., Boston, Mass with whom Francis X. Bellotti, Atty. Gen., Stephen R. Delinsky, Chief, Crim. Bureau, and Roberta Thomas Brown, Asst. Atty. Gen., Boston, Mass., were on brief, for appellant.

Ernest DiNisco, Sp. Atty., Dept. of Justice, Washington, D. C., with whom Edward F. Harrington, U. S. Atty., Jeremiah T. O'Sullivan, Sp. Atty., Dept. of Justice, and Douglas P. Woodlock, Asst. U. S. Atty., Boston, Mass., were on brief, for appellee.

Francis V. Dow, Asst. Atty. Gen., Albany, N. Y., with whom Robert Abrams, Atty. Gen., and Shirley Adelson Siegel, Sol. Gen., Albany, N. Y., were on brief, for the Attorney General of the State of New York, amicus curiae.

Paul M. Stein, Boston, Mass., with whom Edward F. Hines, Jr., George A. Berman and Choate, Hall & Stewart, Boston, Mass., were on brief for the Boston Bar Ass'n, amicus curiae.

Richard E. Mastrangelo, Associate Counsel, Boston, Mass., on brief for the Associated Industries of Massachusetts, amicus curiae.

Kenneth W. Bergen and Bingham, Dana & Gould, Boston, Mass., on brief for the Massachusetts Society of Certified Public Accountants, amicus curiae.

Robert Abrams, Atty. Gen., Albany, N. Y., and Wilson L. Condon, Atty. Gen., Juneau, Alaska, on brief of the Attorneys General of the States of New York, Alaska, Connecticut, Minnesota, New Mexico, North Dakota, Oregon and South Dakota, amici curiae.

Before COFFIN, Chief Judge, CAMPBELL and BREYER, Circuit Judges.

COFFIN, Chief Judge.

A federal Special Grand Jury, investigating an arson-insurance fraud scheme, and deeming the burning of one restaurant and lounge suspicious, desired to probe the motives of the owner. An Alcohol, Tobacco and Firearms investigation had assertedly revealed that the restaurant and lounge at the time of the fire owed the Commonwealth of Massachusetts a substantial amount of meals and beverage taxes which it was unable to pay. ¹ Accordingly, the grand jury issued a subpoena duces tecum to appellant, the Commissioner of Revenue for Massachusetts, ordering her to appear and testify before the grand jury and bring documents relating to the sales tax on meals and beverages for the corporate owner of the restaurant for the period from October 1977 to October 1978.

Such documentation is subject to the provisions of Mass.Gen.Laws c. 62C, §§ 21 and 22, prohibiting disclosure of tax return information filed with the Commissioner except under certain specified circumstances, the most relevant of which are tax determination or collection proceedings and certain state criminal prosecutions. Violation is punishable by fine, imprisonment, and disqualification from office. Citing this statute and alleging the subpoena to be oppressive, obstructive of the Commonwealth's taxing functions, and violative of an asserted privilege covering such documents under Rule 501 of the Federal Rules of Evidence, appellant moved to quash the subpoena. This motion was denied but appellant continued in her refusal to comply. The United States moved to compel production and after a hearing the district court ordered production.

Appeal from this order was dismissed by us for lack of appellate jurisdiction, there being no contempt adjudication. Subsequently appellant, continuing her non-compliance, added the argument that enforcement of the subpoena would compel her to incriminate herself, in violation of the Fifth Amendment. The district court found her in contempt, holding that even if the Massachusetts law would not recognize an exception covering disclosure to a federal grand jury investigation, the Supremacy Clause commands the state law to give way; this being so, compliance with the federal subpoena would not subject appellant to criminal prosecution and the Fifth Amendment is not implicated.

The United States first asserts that the state statute might be construed to allow such disclosure. The Commonwealth argues that its statute cannot be read to imply an exception for grand jury investigations, citing the legislature's elimination, in 1923, of permissible disclosure "by proper judicial order", St.1923, c. 402 § 1. See Leave v. Boston Elevated Railway, 28 N.E.2d 483, 306 Mass. 391 (1940); Finance Commission of Boston v. Commissioner of Revenue, Mass.Adv.Sh. (1981) 593, --- Mass. ----, 417 N.E.2d 945 (March 3, 1981). This proposition not being refuted by the United States, and being generally consistent with the rest of the statutory scheme, we accept it for our analysis.

We therefore turn to the issues presented if the statute cannot be read to allow disclosure. The Commonwealth invests considerable effort in its belated Fifth Amendment argument. This, we feel, is misdirected. While indeed the authority invoked by the Commonwealth, Murphy v. Waterfront Commission, 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678 (1964), recognized that the possibility of incrimination under state law could prevent federal compulsion of testimony absent a grant of immunity from state prosecution, the possible incrimination in Murphy lay in the facts to be revealed by testimony and not in the fact of testifying itself. When compliance with a federal subpoena compelled by the Supremacy Clause is at the same time the only act which could be a violation of state law, there remains no room for state law sanction. See In re Grand Jury Subpoena, May, 1978 at Baltimore, 596 F.2d 630, 632 (4th Cir. 1979); In re Grand Jury Subpoena for the Production of Certain New York State Sales Tax Records, 382 F.Supp. 1205 (W.D.N.Y.1974).

The Commonwealth's remaining argument is that its nondisclosure statute creates a privilege which should be recognized in federal court, one "governed by the principles of common law as they may be interpreted by the Courts of the United States in the light of reason and experience." Rule 501, Federal Rules of Evidence. ² It stresses, as countervailing weights against the federal interest in disclosure, the following:

The long standing confidential nature of state tax returns, an attribute conferred on such data by many other states, said to be a critical factor in stimulating voluntary compliance with the tax laws (unlike the after-the-fact, bizarre effort to seal records containing putative evidence of actions violative of individuals' constitutional rights found in American Civil Liberties Union of Miss. v. Finch, 638 F.2d 1336 (5th Cir. 1981)).

The federal statutory scheme established in 26 U.S.C. § 6103(i)(1), which permits disclosure of tax return information in non-tax criminal investigations only on the order of a district judge, which is to be issued only if an applicant has shown (i) reasonable cause to believe a crime has been committed; (ii) reason to believe the information is probative of a matter in issue concerning the criminal act, and (iii) that the information "sought to be disclosed can not reasonably be obtained from any other source" or (even if it can be so obtained) the information "constitutes the most probative evidence" of a matter in issue, and which subjects disclosure to the added veto of the Secretary of the Treasury if he determines that a confidential informant would be identified or a tax investigation would be impaired by the disclosure. Appellant points out that if a federal grand jury or prosecutor can obtain tax information by the simple expedient of serving a subpoena on a state tax commissioner, the safeguards of § 6103 can be ignored and circumvented.

The availability of another source of the information, e. g., the taxpayer itself (who can obtain disclosure under Section 21 of c. 62(C)), and the absence of any efforts by the United States to exhaust such sources.

The United States argues that compelled disclosure is warranted by deference to the grand jury, by virtue of the "mantle of confidentiality" governing grand jury proceedings under Fed.R.Crim.P. 6(e), by the need to avoid delaying tactics, and by a restrained approach to expanding any bars to disclosure of evidence. ³ It rehearses the small but consistent body of case law discussed below, refusing to accord a privilege in federal criminal cases to claims based on state confidentiality statutes. And it minimizes the "generalized interest" in confidentiality as an inducement to voluntary tax declaration that the Commonwealth articulates in support of its claimed privilege.

Both the Commonwealth and the United States, however, join in recognizing the relevance of American Civil Liberties Union of Miss. v. Finch, supra, for its analytical approach. The reason for this unusual concord on process, leading to dramatically opposite arguments, is that Finch did not accord privileged status to records sealed by state law in a federal civil case a fact seized upon by the United States but emphasized that the state law involved was a last minute effort to blot out records of actions violating individuals' constitutional rights facts...