Petition of United States for Disclosure, etc., 80-Misc. 40.

• Decision Date: 23 June 1981
• Docket Number: No. 80-Misc. 40.,80-Misc. 40.
• Citation: 518 F. Supp. 163
• Parties: Petition of the UNITED STATES FOR the DISCLOSURE OF GRAND JURY MATTERS (MILLER BREWING COMPANY).
• Court: U.S. District Court — Eastern District of Wisconsin

518 F. Supp. 163

Petition of the UNITED STATES FOR the DISCLOSURE OF GRAND JURY MATTERS (MILLER BREWING COMPANY).

No. 80-Misc. 40.

United States District Court, E. D. Wisconsin.

June 23, 1981.

COPYRIGHT MATERIAL OMITTED

Thomas E. Martin, Asst. U.S. Atty., Joseph P. Stadtmueller, U.S. Atty., Milwaukee, Wis., for U.S.

Gimbel, Gimbel & Reilly by Stanley P. Gimbel, Milwaukee, Wis., for plaintiff.

Quarles & Brady by Thomas J. Donnelly, Milwaukee, Wis., for defendant.

DECISION and ORDER

MYRON L. GORDON, District Judge.

The government has petitioned for disclosure of certain grand jury matters, pursuant to Rule 6(e)(3)(C)(i), Federal Rules of Criminal Procedure. The petition is opposed by the Miller Brewing Co., the target of the grand jury, and four individual intervenors. The background of this proceeding is set out in an earlier decision in this case, reported at 510 F.Supp. 585 (E.D.Wis.1981), and need not be repeated here.

Pursuant to my earlier order, the government has provided the material it seeks to disclose for in camera inspection. Three questions await resolution. 1) Was the grand jury conducted in good faith solely for the purpose of a criminal tax investigation? 2) Has the government demonstrated a particularized need for the grand jury materials? 3) Is the petition properly authorized and in a correct form?

I. IMPROPER USE OF THE GRAND JURY

In my earlier decision, I determined that this court is the appropriate forum in which to assess the government's use of the grand jury, 510 F.Supp. at p. 589. See In re Grand Jury Subpoenas, April 1978, 581 F.2d 1103, 1110 (4th Cir. 1978) (dicta); In re December 1974 Term Grand Jury Investigation, 449 F.Supp. 743, 747 (D.Md.1978). The grand jury is an institution with immense powers; those powers should be used only "to conduct investigations that are in their inception exclusively criminal." United States v. Doe, 341 F.Supp. 1350, 1352 (S.D. N.Y.1972) (emphasis in the original). Use of a grand jury "to elicit evidence in a civil case ... flouts the policy of the law." United States v. Procter & Gamble Co., 356 U.S. 677, 78 S.Ct. 983, 2 L.Ed.2d 1077 (1958).

Before I address the question of alleged grand jury abuse, I will consider two procedural arguments raised by Miller. Miller first contends that an evidentiary hearing is necessary to permit full development of its objections to the government's conduct, especially in light of my earlier decision denying Miller access to the grand jury material which is the subject of this proceeding. Secondly, Miller contends that it has been unfairly restricted in its analysis of the government's use of the grand jury because it has not been given access to Appendix 1 of the affidavit of Gerald Kramschuster, filed December 5, 1980.

The legislative history to Rule 6(e)(2)(C)(i) states that "the judicial hearing in connection with an application for a court order by the government under subparagraph (3)(c)(i)sic should be ex parte so as to preserve, to the maximum extent possible, grand jury secrecy." S.Rep.No.95-354, 95th Cong., 1st Sess. 8 (1977); rpt. in 1977 U.S.Code Cong. & Ad.News 527, 532. The court of appeals for the ninth circuit recently considered the meaning of the above passage and concluded that Congress did not intend to preclude a court from hearing objections to disclosure from a party such as Miller. Sells, Inc. v. United States, 642 F.2d 1184 (9th Cir. 1981). The Sells court reversed a district court decision permitting the release of grand jury material in a situation similar to the case at bar. While the court of appeals in Sells directed the district court to consider the objections to disclosure, it left to the district court the determination of what format should be used to consider the objections.

I am not persuaded that an oral hearing is necessary in the case at bar. Both sides have presented their positions in detail, and I do not believe an oral hearing would add anything to the presentations. The materials in question are available to the court for inspection, and the questions that have been raised can be answered by direct reference to the materials.

I find no merit in Miller's suggestion that it should be granted access to Appendix 1. Mr. Kramschuster is the internal revenue service special agent who initiated the request for this grand jury. Appendix 1 contains his original request for the grand jury investigation. As such, it is a detailed document that sets forth the origin of the investigation and the allegations developed, the basis for the allegations, the results of the investigations previous to the request, the reasons why a grand jury investigation was needed, and recommendations for the course of the grand jury investigation. Granting Miller access to Appendix 1 would directly infringe the grand jury's secrecy that Congress expressly stated should be preserved in proceedings such as this one. Appendix 1 is a virtual blueprint of the government's investigation and use of the grand jury, and its secrecy should be maintained.

It should be noted that for a brief time Miller had access to Appendix 1; when the Kramschuster affidavit was filed, the government served Miller with it, including the appendices. As a courtesy, the government also served the affidavit on the various third parties affected by this proceeding. At Miller's insistence, an emergency hearing was held regarding the distribution of Appendix 1 to the third parties; at the hearing, the government agreed to retrieve all copies of the appendix. Miller states: "It was Miller's understanding that if the government intended to rely on Appendix 1, it would serve another copy of the Appendix on Miller." Miller then states that the government has refused to serve Miller with a copy.

I find the government's refusal justified. Miller does not state where it got its understanding; none is apparent in the record of the emergency hearing. Miller has stated various reasons why it believes the grand jury was abused. These matters will be discussed below. Granting Miller access to Appendix 1 would permit the target of a grand jury to be privy to a complete synopsis of the government's investigation. The congressional intent is clear, and I believe that intent would be subverted if the grand jury target were permitted unlimited license to fish in the waters of the investigation. The government erred when it originally gave Miller access to the appendix; that error has been corrected. I see no reason to commit the error again.

The government must demonstrate that its use of the grand jury was to pursue a criminal investigation. This showing is particularly important when the grand jury did not return an indictment, as is the case here. In re Grand Jury Subpoenas, April 1978, 581 F.2d at 1110. However, the mere fact that an indictment was not returned does not mean that the government misused the grand jury.

"It is true that no indictment was returned in the present case. But that is no reflection on the integrity of the prosecution. For all we know, the trails that looked fresh at the start faded along the way. What seemed at the beginning to be a case with a criminal cast apparently took on a different character as the events and transactions were disclosed. The fact that a criminal case failed does not mean that the evidence obtained could not be used in a civil case." Procter & Gamble, 356 U.S. at 683-84, 78 S.Ct. at 987.

The government has filed several affidavits of individuals involved in the investigation, including the December 5, 1980, affidavit of agent Kramschuster. Mr. Kramschuster avers that he requested a grand jury investigation because there was reason to believe that Miller had violated certain criminal provisions of the internal revenue code. Kramschuster affidavit of December 5, 1980, ¶ 2. Appendix 1 sets out at length the factual basis for this belief. The appendix also includes numerous reasons why the grand jury investigation was necessary. Appendix 1, pp. 15-23. Agent Kramschuster further avers that the request for the grand jury was approved by the appropriate officials and sets out the sequence of the approval. Kramschuster affidavit, ¶¶ 3-5.

On October 14, 1980, Miller filed an affidavit of its counsel, Thomas Donnelly, in which Mr. Donnelly stated various reasons why Miller believes the grand jury was abused. Similar arguments are contained in Miller's brief filed March 16, 1981. These arguments can be grouped into two general categories: 1) Miller argues that the government abused the grand jury by issuing subpoenas for documents that related to years in which no criminal charges could be brought; and 2) that the government also subpoenaed records from third parties that had no relationship to any charges that could be brought.

I believe that the government has set forth reasons for its actions that adequately address Miller's contentions. The government requested the grand jury to investigate charges that Miller had violated 26 U.S.C. §§ 7206(1) and (2). These subsections provide criminal penalties for filing or assisting in the filing of false or fraudulent tax returns, affidavits, or other documents.

The government explains that it was necessary to conduct a wide-ranging examination of the data underlying the suspect filings. Appendix 1 reveals the specific areas of concern were various sales promotions. The examination included comparisons with data from years prior to the suspected years, and data from subsequent years, to determine if similar transactions were being treated differently. The affidavit of Thomas Martin, filed December 5, 1980, also explains that the investigation was broadened to involve other suspected violations. I find the government's explanations credible, and I reject any contention by Miller that the subpoenas for material relating to years other than those for which criminal charges were possible are evidence that the grand jury was abused.

I have also...