Smith v. Eggar
| Citation | 655 F.2d 181 |
| Decision Date | 16 September 1981 |
| Docket Number | No. 74-1149,74-1149 |
| Parties | 81-2 USTC P 9646 C. Arnholt SMITH, British Columbia Investment Company and Westward Realty Company, Plaintiffs-Appellees, v. Roscoe L. EGGAR, Commissioner of Internal Revenue, and William H. Connett, District Director of Internal Revenue, Defendants-Appellants. . Originally |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Thomas Sheridan, Simon, Sheridan, Murphy, Thornton & Hinerfeld, Los Angeles, Cal., for plaintiffs-appellees.
Appeal from the United States District Court for the Southern District of California.
Before CHAMBERS and GOODWIN, Circuit Judges and TAYLOR, District Judge. *
On August 1, 1973, the Internal Revenue Service filed a jeopardy assessment in excess of twenty-two million dollars, for the single tax year of 1969, against C. Arnholt Smith. Two days later, specific and general levies were served on many persons and entities, including one on the United States National Bank (hereafter "the Bank"), covering the contents of a safety deposit box and of a room-sized depository in the Bank's vault area 1. It is clear from what has developed that this area of the Bank contained documentary material that could in no way be considered as evidence of "assets" subject to levy. It is also very probable that the area contained "assets" which did not belong to Smith, but instead belonged to others.
All of this was done with considerable publicity. Smith's actual or threatened difficulties with the Securities and Exchange Commission, the Comptroller of the Currency, federal and State taxing authorities, and perhaps others as well, were the subject of much comment in the press and in business circles. The IRS jeopardy assessment, in this seemingly bizarre amount, and the levies, only added fuel to the fire.
On August 7, 1973, Smith (now joined by two companies in which he had a controlling interest) responded to the assessment and levies by filing this district court action against the Commissioner of Internal Revenue and the District Director 2, alleging that they had exceeded their statutory authority, that they were depriving plaintiffs of their property without due process of law, and that they were jeopardizing existing litigation and causing irreparable harm. The plaintiffs also immediately filed a motion for preliminary injunction and noticed a hearing on the order to show cause. With the district court's encouragement, however, the hearing was postponed to permit the interested parties to meet and under court monitoring, to discuss a resolution of the matters related to the assessment and levies.
On August 10, 1973, prior to any answer or other response to the plaintiffs' complaint, those involved in the negotiations agreed to an Agreement of Security (hereafter "the Agreement"), by which Internal Revenue agreed to subordinate its lien and to lift levies, in order to permit Smith to refinance large indebtednesses, many of which involved lending institutions. The Agreement, inter alia, included the following language:
"All levies upon the United States National Bank are to be withdrawn; Smith, however, shall cause the United States National Bank to provide the District Director with copies of the monthly bank statements on all accounts of Smith."
That same day (Friday, August 10), the parties presented the Agreement to the district judge and a consent order was filed, based on the stipulation of the parties, discontinuing appellees' motion for the preliminary injunction, ordering certain of the documents sealed, and concluding:
"That unless further application for relief is made to this Court on or before 60 days from the date hereof, this action shall as of that further date be dismissed without prejudice."
On Monday, August 13, Smith and one of his attorneys, named O'Sullivan, went to the depository and met with Bank officials. A telephone call was placed to the Tax Division attorney who had taken a leading role in the negotiations. He confirmed that the Agreement was in effect and that documents withdrawing the levies would be delivered shortly.
Smith and O'Sullivan entered the vault area, removed the seals, and removed papers from the safety deposit box and the depository (Depository "SO") and placed them in a suitcase and two briefcases. Smith also handed a bundle of papers to the president of Westgate-California, saying they were securities of Westgate and should be placed in a vault. Smith and O'Sullivan then took the papers to a law office in the Bank building, obtained a filing cabinet, and locked the papers in it. O'Sullivan kept possession of the key until he obtained a safety deposit box in which to keep the key. There is testimony that Smith, while they were awaiting delivery of the filing cabinet, reentered the vault and may have removed a folder.
That same day, the Commissioner learned that Smith had entered the vault area and removed papers. He charged that Smith had violated the Agreement and that this entitled him to rescind it. On August 15, steps were taken to initiate a grand jury investigation of Smith's activities relating to the entry and removal of the papers. The filing cabinet was placed near the vault area; appellees could not place it back inside the area as IRS had reseized and resealed the safety deposit box and the depository. The filing cabinet was, in time, seized and sealed.
From the outset the Commission has demonstrated a strong interest in retaining the assets and papers in this Bank area under seal and subject to the levy. Smith's position, from the outset, has been that the levy was not excluded from the Agreement, and was thus to be treated as any of the other levies that were withdrawn pursuant to the broad language of the Agreement. Smith is obviously interested not only in the assets that are located within the sealed area, but in his right to the privacy of the documents that are there and which are not "assets" subject to any levy by IRS. IRS admits that it would have no access to such documents by means of search warrant or subpoena over Smith's claim of the Fifth Amendment or over his reliance on the attorney-client privilege. IRS also admits that it cannot accomplish by jeopardy assessment and levy what it cannot do otherwise. But we would be naive not to acknowledge that there is great interest in the content of those papers. Surely the district judge seems to have recognized this.
On August 20, appellees made a motion to the district court asking that the Agreement be enforced. Extensive arguments were made, and evidence was submitted, but Smith declined to testify asserting his rights under the Fifth Amendment. The Commissioner found this frustrating but there was not much he could do about it. At the conclusion of the hearings, the district judge found that:
"... the entry of plaintiff C. Arnholt Smith, and his counsel, Thomas E. O'Sullivan, Esquire, into Room SO in the vault space of the United States National Bank on August 13, 1973, and the removal of papers and property therefrom was not in violation of the Agreement of Security of August 10, 1973, and was not a sufficient basis for any rescission of that Agreement."
The Court ordered compliance with the provisions of the Agreement and ordered the parties and their agents to:
"... comply with, enforce, execute, and carry out the terms of said...
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