McGarry's, Inc. v. Rose, 6420.

• Decision Date: 03 May 1965
• Docket Number: No. 6420.,6420.
• Citation: 344 F.2d 416
• Parties: McGARRY'S, INC., et al., Respondents, Appellants, v. Frank E. ROSE, Special Agent, Internal Revenue Service, Petitioner, Appellee.
• Court: U.S. Court of Appeals — First Circuit

344 F.2d 416 (1965)

McGARRY'S, INC., et al., Respondents, Appellants, v. Frank E. ROSE, Special Agent, Internal Revenue Service, Petitioner, Appellee.

No. 6420.

United States Court of Appeals First Circuit.

May 3, 1965.

Louis Bender, New York City, with whom John Warren McGarry, Boston, Mass., and Lloyd A. Hale, New York City, were on brief, for appellants.

Joseph M. Howard, Atty., Dept. of Justice, with whom Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and John M. Brant, Attys., Dept. of Justice, W. Arthur Garrity, Jr., U. S. Atty., and Murray H. Falk, Asst. U. S. Atty., were on brief, for appellee.

Before WOODBURY, Chief Judge, ALDRICH, Circuit Judge, and CAFFREY, District Judge.

CAFFREY, District Judge.

This matter (under a changed name) is before this court for a second time upon consolidated appeals from an order entered by the district court on September 18, 1964 directing the enforcement of five administrative summonses caused to be served by appellee, pursuant to 26 U.S.C. § 7602, on March 19, 1964. The summonses required compliance therewith approximately ten days later. The district court ordered production pursuant to the Internal Revenue Service summonses of some of the same books, records, and papers which it previously found had been illegally seized and which it later ordered to be returned to appellants.

The factual background of this matter is set out in the opinion of the district court reported under the name of Lord v. Kelley, 223 F.Supp. 684 (D.Mass.1963), and in the opinion of this court reported at 334 F.2d 742 (1964), cert. denied 379 U.S. 961, 85 S.Ct. 650, 13 L.Ed.2d 556 (1965). The earlier opinion of this court dismissed the appeal in Lord v. Kelley because of lack of appellate jurisdiction.

The summonses involved in the instant appeal require the production of corporate books, records, and papers of McGarry's, Inc., J. E. Poor Co., Inc., M. J. Toomey Corp., and Ye Olde Brown Jug, Inc., and also work papers, correspondence, and memoranda of Alfred H. Lord and Donald R. Lord, accountants, relative to preparation of state and federal income tax returns, investments, and financial transactions of S. Leo and Louise C. Swartz for the years 1952 through 1961.

The five summonses involved herein indicate that the books and documents sought to be obtained thereby are substantially the same books and documents as those described in the summonses involved in the case of Lord v. Kelley. Appellee Rose filed the instant enforcement petitions in the district court on July 15, 1964, upon appellants' failure to produce or turn over the material described in the summonses, and a show cause order returnable September 14, 1964 was entered by the district court. A hearing on that show cause order was held September 18, 1964, about two months after the filing of the petition. At the conclusion of the hearing the district court directed the appellants to comply with all five summonses. The order requiring compliance with the summonses was stayed by this court pending appeal on October 19, 1964.

The following contentions were raised in and disposed of by the district court adversely to appellants:

(1) that the summonses were invalid in that they required the production of the same books and records which were the subject of an unlawful search and seizure on April 18, 1962;

(2) that the required production might tend to incriminate the appellants in violation of the Fifth Amendment;

(3) that the required production was in support of an investigation of tax liabilities barred by the 3-year statute of limitations (i. e., barred except in the case of false or fraudulent tax returns);

(4) that enforcement of the summonses would violate the Fourth Amendment because the summonses are unduly broad, vague and lacking in speciality;

(5) that the summonses were invalid in that they failed to show that the respective papers, books, and records related to transactions with the taxpayers, Bernard G. McGarry and Marie G. McGarry.

Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1963) squarely holds that an order of the type entered by the district court is appealable, as was held in O'Connor v. O'Connell, 253 F.2d 365 (1 Cir. 1958).

The recent decision of the Supreme Court in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964) is dispositive of appellants' contention that portions of the summonses were barred by the ordinary three-year statute of limitations. Likewise, appellants' contentions that the initiation of the enforcement proceedings was invalid, and that the petitions filed in the enforcement proceedings failed to state a claim upon which relief could be granted find no support in the record nor comfort in Reisman v. Caplin, supra, or United States v. Powell, supra, where the Court said (at p. 52, 85 S.Ct. at p. 252) "we think it would be holding too strictly to the forms of pleading to require the suit to be recommenced, and therefore treat the enforcement proceeding as having been brought under §§ 7402(b) and 7604(a)."

The record in the instant case shows that appellants were served with orders to show cause and petitions to enforce summonses, each of which fully apprized them of the nature of the relief sought by appellee. In the two-month interval between the issuing of the show cause order and the actual hearing thereon, appellants and their counsel had ample time to evaluate and study the petitions and show cause orders, and to file both short and lengthy motions to dismiss, as well as an answer, all of which put in issue before the district court the contrary positions of the parties on this matter. A reading of the opinion in United States v. Powell, supra, leaves no doubt that the thrust thereof is to insure that a taxpayer obtain an adversary-type hearing in the district court prior to his being forced to comply with an administrative summons which he challenges in good faith. That the procedure followed in the instant case fully complies with the essential requirements of the Powell decision appears so clearly from the record herein as to preclude any need for further discussion of appellants' contentions with reference thereto.

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