Shannahan v. I.R.S.
Decision Date | 27 April 2009 |
Docket Number | No. C08-452JLR.,C08-452JLR. |
Parties | William P. SHANNAHAN, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant. |
Court | U.S. District Court — Western District of Washington |
David John Lenci, Michael K. Ryan, Samuel R. Castic, K & L Gates LLP, Seattle, WA, for Plaintiff.
Nicole Maria Elliott, Carmen M. Banerjee, U.S. Department of Justice, Washington, DC, Robert Patrick Brouillard, U.S. Attorney's Office, Seattle, WA, for Defendant.
This matter comes before the court on Defendant Internal Revenue Service's ("IRS") motion for summary judgment (Dkt.# 32). Having reviewed the papers submitted by the parties and heard the argument of counsel, for the reasons that follow, the court directs the clerk to renote the motion for summary judgment for July 17, 2009, and directs the parties to proceed as described herein.
This is a dispute under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552. It arises against the backdrop of civil enforcement and criminal proceedings against Steven N.S. Cheung and Linda Su, a.k.a. Linda Cheung ("the Cheungs"), in connection with their alleged failure to report taxable income generated by West Coast International Limited ("WCI") and West Coast International (Parking) Limited ("WCIP") (collectively, "the Entities").
The United States Attorney's Office ("USAO") for the Western District of Washington initiated a criminal investigation of the Cheungs in the 1990s. (Declaration of Janet Freeman ("Freeman Decl.") (Dkt.# 32-6) ¶ 4.) In November 1998, the USAO requested assistance from the IRS in the criminal investigation. (Declaration of Caesar White ("White Decl.") (Dkt.# 32-4) ¶ 3.) On January 28, 2003, a grand jury returned an indictment against the Cheungs. (Freeman Decl. ¶ 7.) The Cheungs failed to appear for their initial appearance and arraignment, and the court issued warrants for their arrest. (Id. ¶¶ 10, 12-13.) The criminal charges remain pending in United States v. Cheung, Case No. CR03-037RSL (W.D.Wash.). (Id. ¶¶ 8, 12.) The USAO believes the Cheungs presently reside in the People's Republic of China. (Id. ¶¶ 11, 14.) The IRS continues to assist the USAO in investigating the Cheungs, "although the process has been somewhat stalled because of the Cheungs' failure to appear for their arraignment." (White Decl. ¶ 8.)
The IRS commenced a civil examination of the Cheungs prior to the conclusion of the criminal proceedings. (White Decl. ¶ 10.) The IRS explains that while it ordinarily will not commence a civil examination until after the completion of criminal proceedings, it did so with respect to the Cheungs because the criminal prosecution had been stalled by the Cheungs's failure to appear. (Id.) On July 27, 2007, the IRS sent 4549-A Income Tax Discrepancy Adjustment Forms, commonly referred to as Revenue Agent Reports ("RAR"), to the Cheungs, reflecting the IRS's determination that the Cheungs owed additional taxes, as well as penalties and interest, of close to $17 million. RARs include facts and conclusions that are typically drawn from documents in the possession of the IRS. On behalf of the Cheungs, Plaintiff William P. Shannahan, counsel for both the Cheungs and the Entities, protested the RARs and requested the factual and investigative documents cited and relied upon in the issuance of the RARs. The IRS denied Mr. Shannahan's request.
In January 2003, the Entities provided original business documents ("Original Documents") to IRS Agent Molly Mahoney. (Declaration of William P. Shannahan ("Shannahan Decl.") (Dkt.# 37) ¶ 4.) The documents include "original copies of account and transaction documents for WCI for the years 1993-1996, business documents for WCI for the years 1997-1999 business ledgers for [WCIP] for the years 1992-1993, and account activity detail reports for [WCIP] for 1995-1998. . . ." (Id.) The Entities did not make copies of the Original Documents. (Id.) The Entities allege that they need the documents in order to operate their businesses and in the event of an audit. (Id. ¶ 6.) The Entities requested the return of the Original Documents, and the IRS denied the request. (Declaration of David J. Lenci ("Lenci Decl.") (Dkt.# 38) ¶ 8.)
On October 16, 2007, Mr. Shannahan filed two FOIA requests with the IRS. (Declaration of Meghan Mahaney ("Mahaney Decl.") (Dkt.# 32-3) ¶ 4.) Mr. Shannahan filed the first request ("the Entity Request") on behalf of the Entities. (Shannahan Decl. at 10-12.) He filed the second request ("the Cheung Request") on behalf of the Cheungs. The Entity Request seeks six categories of documents:
1. The original balance sheets, profit and loss statements, and the general ledger account of retained earnings for West Coast International Limited ("WCI") for the years of 1993 through 1999 inclusive which were delivered to Special Agent Mahoney in January of 2003, as per Attachment B.
2. A copy of any analysis, memorandum or other documents in the possession of the Internal Revenue Service computing the earnings and profits of WCI.
3. Any and all documents reflecting all wire transfers referenced in the RAR regarding WCI . . . .
4. The balance sheets, profits and loss statements, and the general ledger account of retained earnings for West Coast International (Parking) Limited ("WCIP") for the years 1993 through 1999 inclusive which were delivered to Special Agent Mahoney in January of 2003 as per Attachment D.
. . . . .
5. A copy of any analysis, memorandum or other documents in possession of the United States and its agencies computing the earnings and profits of WCIP.
6. Any and all documents reflecting all wire transfers referenced in the RAR regarding WCIP per Attachment B.
(Id.) The categories of documents requested pursuant to the Entity Request are the same as the first six categories of documents requested pursuant to the Cheung Request. The IRS denied the Entity Request. (Id. at 13-15.) Mr. Shannahan appealed the denial. (Id. ¶ 16.) The IRS appeals office denied the appeal. (Id. at 18-20.)
On March 20, 2008, Mr. Shannahan filed four FOIA actions. The actions on behalf of Mr. Cheung and Ms. Su, Case Nos. C08-561JLR and C08-560JLR, respectively, were consolidated under Case No. C08-560JLR while the actions on behalf of WCI and WCIP, Case Nos. C08-452JLR and C08-562JLR, respectively, were consolidated under Case No. C08-452JLR. On December 3, 2008, the IRS filed a motion for summary judgment (Dkt.# 32) in Case No. C08-452JLR.1 The IRS argues that it satisfied its obligations under FOIA and properly withheld responsive documents pursuant to Exemptions 3, 5, 6, 7(A), 7(C), and 7(D). (Mot.(Dkt.# 32) at 9-22.) In the alternative, the IRS contends that the fugitive disentitlement doctrine supports dismissal. (Id. at 22-25.)
The IRS states that it has located 5,088 pages of documents, as well as an electronic database consisting of 373 files and 35.7 megabytes of information, responsive to the Entity Request. (Mot. at 3.) The IRS released 316 pages of documents to Mr. Shannahan, leaving a total of 4,772 pages of documents, as well as the electronic database, at issue in this case. The IRS characterizes the responsive documents as falling within five categories:
(1) Examination Workpapers Documents (42 pages): (Mahaney Decl. ¶ 16.)
(2) Agents' Working Papers (4,721 pages): These documents consist of "revenue agents' and special agents' notes, categorizations, analysis, research, calculations, and summaries." (Id. ¶ 17.)(A) (Id.) (B) (Id.)
(3) Interview Notes, Third Party Contacts, and Contact Sheets (2 pages): These documents consist of "interview notes for interviews and agendas conducted with third party witnesses and proposed interview questions for the Cheungs." (Id. ¶ 18.) (Id.)
(4) Internal Correspondence (7 pages): These documents...
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