Stonehill v. I.R.S.

• Decision Date: 06 March 2009
• Docket Number: No. 08-5060.,08-5060.
• Citation: 558 F.3d 534
• Parties: Pauline STONEHILL, Co-Executor and Co-Special Administrator of the Estate of Harry S. Stonehill, Appellant v. INTERNAL REVENUE SERVICE, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

558 F.3d 534

Pauline STONEHILL, Co-Executor and Co-Special Administrator of the Estate of Harry S. Stonehill, Appellant v. INTERNAL REVENUE SERVICE, Appellee.

No. 08-5060.

United States Court of Appeals, District of Columbia Circuit.

Argued December 4, 2008.

Decided March 6, 2009.

Appeal from the United States District Court for the District of Columbia (No. 06cv00599).

Robert E. Heggestad argued the cause and filed the briefs for appellant.

Jonathan S. Cohen, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Nathan J. Hochman, Assistant Attorney General, Jeffrey A. Taylor, U.S. Attorney, and Bethany B. Hauser, Attorney. John A Dudeck Jr., Attorney, entered an appearance.

Before HENDERSON, ROGERS and GRIFFITH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

The issue in this appeal is whether an agency may withhold documents under Exemption 5 of the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552(b)(5), when it did not invoke the same underlying privilege claims in an ongoing discovery dispute in a different, non-FOIA case in which those documents were withheld as irrelevant. Harry S. Stonehill, through his estate, maintains that the waiver rule requiring all FOIA exemptions to be raised at the same time in the original district court FOIA proceedings, see, e.g., Maydak v. Dep't of Justice, 218 F.3d 760, 764 (D.C.Cir.2000), should be extended to apply to contemporaneous proceedings involving the same documents and parties and equally applicable privileges. However, Stonehill's suggestion to extend the FOIA waiver rule to discovery proceedings overlooks critical differences between the two information-gathering regimes such that the extension would not necessarily advance the policy goals underlying the waiver rule. Accordingly, we affirm the grant of summary judgment to the IRS.

I.

This FOIA case is intertwined with Stonehill's effort to obtain vacation of a judgment foreclosing tax liens on his property. He seeks through civil discovery and FOIA to obtain documents that would show that United States law enforcement officials, in resisting a motion to suppress evidence, misrepresented the United States' involvement in a 1962 raid on Stonehill's offices in the Philippines by Philippine law enforcement authorities. See United States v. Stonehill, 53 Fed. Appx. 470, 471 (9th Cir.2002) (unpublished) ("Stonehill III"); United States v. Stonehill, 702 F.2d 1288, 1292 (9th Cir.1968) ("Stonehill II"); Stonehill v. United States, 405 F.2d 738, 743-46 (9th Cir.1968) ("Stonehill I"); Appellant's Br. at 7-8. The Ninth Circuit has suggested that suppression of the seized evidence, consisting of thirty-five truckloads of documents, would have been required under the Fourth Amendment if United States agents had conducted the raids. Stonehill I, 405 F.2d at 743.

Stonehill initially filed a FOIA request with the IRS on July 10, 1998, on behalf of himself and his business associate Robert P. Brooks. He requested all records pertaining to Stonehill and Brooks, including particular documents regarding the early 1960s investigation of their Philippines businesses. The IRS responded that only five responsive documents could be found after "thorough research." Letter from Stephen H. Flesner, Disclosure Officer, Internal Revenue Service, to Robert E. Heggestad, Heggestad & Weiss, PC (undated). On January 5, 1999, Stonehill requested additional information regarding IRS materials referenced in documents he had obtained from the State Department. The IRS responded that the documents could not be located and suggested that the Justice Department might be able to provide more helpful documents. Stonehill filed an administrative appeal and the IRS repeated that the documents could not be located.

On October 2, 2000, based on documents he had received from other agencies in response to his FOIA requests, Stonehill filed a motion pursuant to Federal Rule of Civil Procedure 60(b) in the Central District of California to vacate the tax judgment on the ground it was procured through a fraud on the court. He also renewed his FOIA request with the IRS on March 15, 2001. The IRS initially stayed review, responding only on October 16, 2001, after the district court had denied Stonehill's Rule 60(b) motion on August 28, 2001. The IRS informed Stonehill that approximately 90 boxes containing responsive documents had been located. On November 26, 2002, the IRS issued a final response to Stonehill's FOIA request, stating that some documents had been provided to him and others were being withheld or redacted pursuant to FOIA Exemptions 3, 5, 7(C), and 7(D). On June 17, 2003, the IRS General Appeals office issued a partial determination of Stonehill's appeal, affirming the disclosure officer's decision that certain exemptions applied while reserving judgment on certain documents withheld under Exemption 3 that were not yet available for review. On September 5, 2003, that office advised Stonehill that it was suspending review of the remaining Exemption 3 documents while the discovery litigation was ongoing in the district court following a remand by the Ninth Circuit, see Stonehill III, 53 Fed.Appx. 470; the office noted that if Stonehill prevailed in the district court, his FOIA appeal would appear to be rendered moot.

On December 20, 2005, the California district court granted Stonehill's motion to compel production of documents and rejected the IRS's claims that the attorney-client privilege and work product doctrine barred production. The district court ordered the government to "turn over documents regarding the 1966 Tax Division investigation into the government's role in the 1962 raids." United States v. Stonehill, No. CV 65-127-PA, at 8 (C.D.Cal. Dec. 20, 2005) ("Stonehill IV").¹ The district court also denied the motion to compel production of documents involving third-party taxpayer information and some treaty obligation information, as well as some confidential informant information redacted by the Central Intelligence Agency. Id. at 4-8. Although the IRS produced some documents pursuant to the discovery order, those documents were redacted on relevance grounds; other documents were withheld as irrelevant.

On March 31, 2006, Stonehill filed his FOIA complaint in the district court here, seeking production of IRS records from the Stonehill files regarding his former attorney. In an amended complaint he requested additional documents responsive to his 1998 FOIA request. The IRS produced a Vaughn index, invoking Exemptions 3, 5, 6, and 7(C), and moved for summary judgment. In opposing summary judgment, Stonehill argued the IRS was collaterally estopped from raising the same privileges in the FOIA litigation as it raised in the Rule 60 proceeding, and was barred from invoking for the first time the deliberative process privilege as to 172 documents, as the IRS had not opposed disclosure of any documents based on the deliberative process privilege in the Rule 60 discovery proceeding. He further argued that the IRS could not raise the attorney work product doctrine as to 681 documents, or 26 U.S.C. § 6103, protecting confidentiality of tax information, as a justification for withholding 157 documents under FOIA Exemption 3, because the IRS had not asserted those grounds for nondisclosure with respect to those particular documents in the Rule 60 proceeding.

The D.C. district court agreed that the IRS was collaterally estopped with respect to documents for which it had claimed the same justifications for nondisclosure in discovery. The California district court's December 2005 decision had applied the same criteria in assessing the claimed privileges as apply under Exemption 5 and the issue had been fully and fairly litigated then. However, the district court rejected Stonehill's waiver argument with regard to new privilege claims and granted summary judgment for the IRS.

II.

On appeal, Stonehill urges adoption of a rule that where parallel FOIA and non-FOIA proceedings are pending contemporaneously involving the same documents, the same reviewing body or officer, and the same, equally applicable privileges, failure to raise a privilege in one proceeding will constitute a waiver in the parallel proceeding, absent compelling circumstances. See Appellant's Br. at 27. Alternatively, he urges this court to hold that waivers occurred in his case because by not raising the deliberative process and attorney work product privileges in the parallel discovery proceeding, the IRS intentionally relinquished its right to assert them in this FOIA proceeding. Specifically, he points out that despite earlier opportunities to invoke privileges, the IRS delayed its review and production of documents and conducted unnecessary duplicative document reviews in response to his FOIA request, with the result that his effort to gain access to information has been unduly delayed. Now, over a decade after his initial FOIA request, he is confronted with newly invoked FOIA exemptions involving privileges that could have been asserted earlier in resisting discovery.

The requirement for an agency, as a general rule, to invoke all FOIA exemptions "`at the same time, in the original district court proceedings,'" August v. FBI, 328 F.3d 697, 699 (D.C.Cir.2003) (quoting Maydak v. Dep't of Justice, 218 F.3d 760, 764-65 (D.C.Cir.2000)), is premised on two policy goals: (1) "the interest in judicial finality and economy, which has `special force in the FOIA context, because the statutory goals—efficient, prompt, and full disclosure of information—can be frustrated by agency actions that operate to delay the ultimate resolution of the disclosure request,'" id. (quoting Senate of Puerto Rico v. Dep't of Justice, 823 F.2d 574, 580 (D.C.Cir.1987)), and (2) preventing the government from playing cat and mouse by "withholding its most powerful cannon until after the [d]istrict [c]ourt...