LOCAL 174, ETC. v. United States
| Decision Date | 08 November 1956 |
| Docket Number | No. 14746.,14746. |
| Citation | 240 F.2d 387 |
| Parties | LOCAL 174, INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA and Nugent La Poma, Appellants, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Bassett, Geisness & Vance, Samuel B. Bassett, Seattle, Wash., for appellants.
Charles P. Moriarty, U. S. Atty., William A. Helsell, Asst. U. S. Atty., Seattle, Wash., for appellee.
Before HEALY, POPE and JAMES ALGER FEE, Circuit Judges.
This is a proceeding to obtain discovery as to certain transactions between Local 174 and one Frank Brewster, which are claimed to be pertinent to an examination into the liability of Brewster and his wife for income tax during the years 1943 to 1953, inclusive. Since results obtained by administrative subpoena were unsatisfactory, this case was initiated in the District Court.
Frank Brewster has been for many years an employee and officer of Local 174, having acted as secretary-treasurer from 1947 through 1953 and subsequently as president. During the years 1943 to 1947, Brewster filed separate income tax returns. In 1948 he was married to Dorothy Brewster, and in the years 1948 through 1952 husband and wife filed joint income tax returns.
In January, 1954, a special agent of the Bureau of Internal Revenue was assigned to audit all such returns. A summons was issued by him to the Local and Nugent La Poma pursuant to § 7602 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7602, directing them to bring all records and books of account of the Local "which in any way refer or relate to transactions between the said Local 174 and Frank W. Brewster, Dorothy Brewster or any other person acting for Frank W. Bewster and Dorothy Brewster or either of them." At the time required in the summons, Bassett, attorney for Local 174, Nugent La Poma, alias George Cavano, secretary-treasurer, and Laurite Thayer Agapoff, bookkeeper and accountant for the Local, together with two other officials of the Local, appeared and produced what was claimed to be an abstract from the records together with certain original records of the Local. The Local, through its officials and employees, apparently claiming a right to be the judges of what was relevant to the inquiry then being made by the special agent, refused to produce any other records. No examination of individuals under oath as to materiality or relevancy of all the books in the possession of the Union was held either by the administrative agency or at the proceedings in the District Court. In any event, the results were not deemed to be in accordance with the subpoena, and thereupon on February 8, 1955, a complaint was filed in the United States District Court, alleging that the records were necessary to ascertain the correctness of the returns of Frank W. Brewster which were being examined. It was alleged there was reason to believe that certain disbursements by the Local to or for the benefit of Brewster were not reported on these returns and that, after examination of the books and records, additional taxes might be found to be owed by Brewster and his wife. This complaint was supported by an affidavit of the special agent, which showed that Brewster, during the years 1943 to 1950, had received $35,500.00 in addition to salary designated on the summary of account furnished by the Local as loans which were unsecured. Since the returns do not show any payments of interest on these returns, it is claimed that the records of the Local should be investigated. Another claim was that disbursements were made to Brewster by check for expenses in December, 1952, totalling $1,748.65, and $1,500.00 to Dorothy Brewster in November, 1952, for the purchase of an automobile. The tax returns and the financial report of the Union brought to the administrative officials do not reflect these transactions. From the salary records produced, Brewster apparently received from the Local "other comp" as follows:
1951 $780.00
1952 810.00
1953 780.00
These were not reflected in the tax returns. There are other items claimed by the petition as follows: On July 10, 1953, a 1948 GMC horse van was repaired by a Seattle garage and paid for by the Local. In 1951, a Chrysler automobile was repaired by a Seattle garage and paid for by the Local. Brewster purchased a home in California, on which $4,000.00 was paid from funds of the Local. Brewster's personal bill at a club was paid for by the Local in 1952 and 1953. An affidavit shows that the records produced by the Union and the income tax returns do not reflect these transactions.
The District Court issued an order as follows:
In order that jurisdiction of a United States court to hear and decide a particular proceeding be established, there must be a In attempting to gain access to papers and documents by judicial process, the secretary or his delegate must first summon a person "having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax."1 The purpose of this section of the statute was to confer authority upon the tax officials to summon such persons and to conduct such an inquiry. The impact of the enactment is specifically on the taxpayer and not on an independent third party such as the Local. Only through the taxpayer can the Local or its employees be summoned. Access to Local depended upon proof of the factors set up therein connecting it with the taxpayer.
Since such a proceeding is in the nature of a search and seizure which has constitutional overtones, especially when directed to a third person, enforcement is not placed in the hands of the executive. It is obvious that the third person has rights of his own. Here a union which has aspects of a secret order may have economic secrets or plans which it does not wish to disclose to agents of the federal government. Such a demand, to be constitutional, must constitute a reasonable exercise of the power granted. A third party is within his rights to refuse such a demand and test the matter in court.
Where the response to the administrative officials is unsatisfactory, then the federal court "shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data."2 The Internal Revenue agent, as delegate of the Secretary, is required to file a case in the federal court. In this manner, in the course of a justiciable controversy, issues are presented as to whether the demand is reasonable and within the scope of the authority granted by Congress to the executive agent and whether there is a violation of the fundamental right of a third party to privacy.
The burden is upon the revenue agents in the first instance at such a judicial hearing to show that the demand is reasonable under all the circumstances and to prove that the books and records which they demand are relevant or material to the tax liability of the person liable therefor and the third party is possessed of books or records which contain items relating to the business of the person liable to the tax.
The fundamental error here affected both parties. Neither seems to have conceived that this proceeding is just another lawsuit. The tax officials assumed that all that was required upon their part...
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