Synanon Church v. U.S.

• Decision Date: 05 June 1987
• Docket Number: No. 84-5164,84-5164
• Citation: 820 F.2d 421,261 U.S. App. D.C. 13
• Parties: , 60 A.F.T.R.2d 87-5062, 87-1 USTC P 9347 SYNANON CHURCH, Appellant, v. UNITED STATES of America.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 421

820 F.2d 421

261 U.S.App.D.C. 13, 60 A.F.T.R.2d

87-5062, 87-1 USTC P 9347

SYNANON CHURCH, Appellant, v. UNITED STATES of America.

No. 84-5164.

United States Court of Appeals District of Columbia Circuit.

Argued March 26, 1987.

Decided June 5, 1987.

Sherman L. Cohn, Washington, D.C., for appellant.

Gary Gray, Atty., Dept. of Justice, with whom Roger M. Olson, Atty. Gen., Michael L. Paup, Robert S. Pomerance, Attys., Dept. of Justice and Joseph E. diGenova, U.S. Atty., Washington, D.C., were on the brief, for appellee.

Before RUTH BADER GINSBURG and WILLIAMS, Circuit Judges, and HAROLD H. GREENE, ^* District Judge.

Opinion for the Court filed by District Judge HAROLD H. GREENE.

HAROLD H. GREENE, District Judge:

This is an appeal from the dismissal by the District Court of an action brought by appellant Synanon Church, Inc., in which Synanon sought a declaratory judgment that it qualifies as a tax-exempt organization under section 501(c)(3) ¹ of the Internal Revenue Code of 1954. 26 U.S.C. Sec. 7428 (1982). ² That dismissal was based upon a holding that Synanon had committed a fraud on the court, a holding which was based, inter alia, on the preclusive effect the court accorded to a finding by the Superior Court of the District of Columbia in a prior case that Synanon had willfully destroyed evidence. See Synanon Foundation, Inc. v. Bernstein, No. 7189-78 (D.C.Sup.Ct. October 12, 1983), aff'd, 503 A.2d 1254 (D.C.App.1986). ³ Synanon Church v. United States, 579 F.Supp. 967, 972-76 (D.D.C.1984). Synanon argues that the doctrine of issue preclusion ⁴ could not support the dismissal on the facts of this case.

I

Discussion of Synanon's challenge to the dismissal of its action must begin with a review of the Superior Court's decision in Bernstein. That case involved a claim by Synanon that the owner of an apartment building located in the District of Columbia breached his contract with Synanon by refusing to sell the building to the organization. The owner defended on the basis that the property in question was zoned for use exclusively by non-profit organizations and that, as he understood it, Synanon was not a non-profit corporation. While discovery was proceeding, the defendant moved to dismiss the action on account of an alleged fraud on the court. Specifically, it was asserted that certain officers of Synanon had destroyed relevant documents and tapes, thereby precluding compliance with legitimate discovery requests. According to the defendant, the destroyed documents and tapes dealt, inter alia, with "violence, money, purchase of guns, legal terror tactics, Holy War, changing partners and love match." Bernstein, No. 1789-78, slip op. at 54a.

After an eleven-day evidentiary hearing, Judge Braman of the Superior Court granted the motion to dismiss, upon his conclusion that "the evidence clearly and convincingly establishes a willful, deliberate and purposeful scheme to destroy ... extensive amounts of evidence and discoverable materials which probably would have had a dispositive bearing upon Synanon's complaint, that is its non-profit status...." Id. at 63a. ⁵ Finding the destroyed documents and tapes to be relevant to the issues presented in the case, the court held that these documents bore on Synanon's status as a non-profit corporation inasmuch as they contained information regarding the advocacy of violence and the deflection by Synanon of corporate monies to private use. ⁶ Id. at 41a, 53a-54a, 59a. ⁷ The court also stated that the destroyed evidence would have been "the best evidence to show that Synanon did not qualify as a non-profit corporation, id. at 57a, and that the destruction was prejudicial to defendant. Id. at 60a. ⁸ Ultimately, the court found that the cover-up by Synanon of its scheme to destroy material documents and tapes, various disingenuous discovery responses, and false testimony given by Synanon's legal department to aid that cover up constituted a "gross fraud upon the Court." Id. at 61a-64a. Citing abuse of the discovery process and fraud on the court, Judge Braman dismissed the complaint. Synanon appealed.

While its appeal was pending before the District of Columbia Court of Appeals, Synanon filed the present action in the District Court under 26 U.S.C. Sec. 7428 seeking a declaratory judgment that it qualifies as a tax-exempt "religious or charitable" organization. ⁹ The Internal Revenue Service maintained in defense that Synanon did not operate exclusively for tax-exempt purposes within the meaning of section 501(c)(3); that Synanon's corporate earnings inured to the benefit of private individuals; and that ranking Synanon officials routinely incited and perpetrated violent and illegal acts, in contravention of the principle set forth in Bob Jones University.

In response to discovery demands made by the government, Synanon failed to produce many of the requested documents, advising the court upon inquiry that it had never concealed from or misrepresented to the IRS any relevant documents or facts. ¹⁰ The government, which learned of Synanon's earlier project to destroy tapes and documents, moved that Synanon be required to account for the missing evidence or face dismissal of the complaint. On August 17, 1983, the court ordered Synanon to produce "[a] complete and detailed record and accounting of all tape recordings and related documents and records destroyed or altered by Synanon." Joint Appendix at 144. Synanon responded by stating that it had already produced all the responsive documents it had in its possession, and it explained that any other materials requested had been "consistently stolen, borrowed or recycled" through no fault of its own. Id. at 151.

The court found this response to be unsatisfactory, and at a hearing held on October 21, 1983, it directed Synanon's counsel to produce immediately any "information that was either secreted, hidden or otherwise treated in that manner," together with any "inventory or record" of materials already destroyed. Synanon's response again denied any knowledge of any items that were destroyed, and it complained that unethical acts by the government had frustrated its efforts to identify the documents.

Upon the government's motion, the District Court dismissed the complaint, holding that Synanon had committed a fraud on the court by, inter alia, willfully and systematically destroying and altering an extensive number of documents and tapes relevant to a determination of Synanon's tax-exempt status. Synanon Church, 579 F.Supp. at 972. It was the court's reasoning that the Superior Court's decision in Bernstein precluded Synanon from arguing that it had not willfully destroyed discoverable materials.

Two years later, the D.C. Court of Appeals affirmed the Superior Court's decision in Bernstein. After noting that Judge Braman's dismissal order was predicated both on abuse of the discovery process and on fraud on the court, the court stated that its affirmance rested only upon the theory of fraud on the court. The majority found "ample evidence in the record" to support the Superior Court's conclusion that the involvement of the Synanon executives and attorneys in the fraud, their subornation of perjury, and their own false statements to the court constituted a fraud on the court warranting dismissal of the complaint. Synanon Foundation, 503 A.2d at 1262.

According to the appellate court, the fraud perpetrated by the Synanon executives and attorneys involved the "sponsorship and supervision of a massive program to destroy damaging and incriminating information contained in the Synanon archives." Id. at 1262-64. The court also noted that Synanon's attorneys made false statements to the trial court regarding the availability of relevant evidence, indicating that the documents and tapes sought for discovery merely could not be found when, in fact, the attorneys had themselves been involved in the destruction of the very documents and tapes that had been requested.

The present appeal was filed after the D.C. Court of Appeals had issued its decision in Synanon Foundation. Synanon asserts here that since the D.C. Court of Appeals affirmed the Superior Court only on the basis of fraud on the court, the Bernstein trial court's finding of willful destruction of evidence carried no preclusive effect. Alternatively, Synanon contends that, even if issue preclusion is appropriate here, the Superior Court's finding of willful destruction cannot constitute a basis for dismissal by the District Court because of that court's failure to make certain findings. See Part IV, infra.

II

The doctrine of issue preclusion holds that once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive against a party to the prior proceeding in a subsequent suit based on a different claim. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649, n. 5, 58 L.Ed.2d 552 (1979); Carr v. District of Columbia, 646 F.2d 599, 602 (D.C.Cir.1980). On this basis, Judge Braman's decision in the Superior Court regarding Synanon's document destruction clearly would have carried preclusive effect in the District Court with respect to the destruction issue but for the D.C. Court of Appeals' decision. However, if a trial court decides a matter on alternative grounds, and an appellate court affirms on only one of these grounds, the preclusive effect is limited to the ground of affirmance. United States v. $149,345, 747 F.2d 1278, 1280-82 (9th Cir.1984); United States Gypsum Co. v. Schiaro, 668 F.2d 172, 184 (3d Cir.1981), cert. denied, 456 U.S. 961, 102 S.Ct. 2038, 72 L.Ed.2d 485 (1982); Stebbins v. Keystone Insurance Co., 481 F.2d 501, 507 n. 13 (D.C.Cir.1973).

It is on this refinement of the preclusion doctrine that Synanon relies. Synanon contends that, since the D.C. Court of Appeals...