U.S. v. Administrative Enterprises, Inc., 94-2548

• Decision Date: 02 February 1995
• Docket Number: No. 94-2548,94-2548
• Citation: 46 F.3d 670
• Parties: -843, 95-1 USTC P 50,083 UNITED STATES of America, Petitioner-Appellee, v. ADMINISTRATIVE ENTERPRISES, INCORPORATED, Principal Services, Incorporated, Zion Ventures, Incorporated, et al., Respondents-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 670

46 F.3d 670

75 A.F.T.R.2d 95-843, 95-1 USTC P 50,083

UNITED STATES of America, Petitioner-Appellee, v. ADMINISTRATIVE ENTERPRISES, INCORPORATED, Principal Services, Incorporated, Zion Ventures Incorporated, et al., Respondents-Appellants.

No. 94-2548.

United States Court of Appeals Seventh Circuit.

Argued Dec. 8, 1994.

Decided Feb. 2, 1995.

Gary R. Allen, William Patton (argued), Dept. of Justice, Tax Div., Appellate Section, Douglas W. Snoeyenbos, Dept. of Justice, Tax Div., Appellate Section, Washington, DC, for petitioner-appellee.

Ramune R. Kelecius, Office of U.S. Atty., Civ. Div., Harvey M. Silets (argued), Karyn G. Gershon, Nicole N. Auerbach, Katten, Muchin & Zavis, Chicago, IL, for respondents-appellants.

Before POSNER, Chief Judge, and REAVLEY ^* and COFFEY, Circuit Judges.

POSNER, Chief Judge.

In 1990 the Internal Revenue Service, pursuant to 26 U.S.C. Sec. 7602(a) (on which see generally Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964)), issued a summons to Principal Services, Inc., seeking documents relating to transactions with Burton and Naomi Kanter, whose tax liability the IRS was investigating. Principal Services did not respond, but it was not until three and a half years after the issuance of the summons that the United States got around to asking for an order enforcing it. 26 U.S.C. Sec. 7402(b); Reisman v. Caplin, supra, 375 U.S. at 445-46, 84 S.Ct. at 511-12. The district court issued the order, and shortly afterward, dissatisfied with Principal Services' compliance, a second order, this one under the authority of 26 U.S.C. Sec. 7604(b), holding Linda Gallenberger, the president of Principal Services, in civil contempt and threatening her with criminal sanctions if she did not produce additional documents, which she did. (Other summonses were issued against entities related to Principal Services and were enforced by the district court in similar fashion, but for simplicity we shall pretend that Principal Services was the only recipient of the summons.) She and Principal Services appeal from the orders, the appealability of which is confirmed by Church of Scientology v. United States, --- U.S. ----, ---- n. 11, 113 S.Ct. 447, 452 n. 11, 121 L.Ed.2d 313 (1992). Gallenberger's compliance with the district court's orders does not render the case moot. It is not too late to give the appellants meaningful relief, for example in the form of an order directing the government to return the documents and all copies it has made of them. Id.; see also In re Envirodyne Industries, Inc., 29 F.3d 301, 304 (7th Cir.1994).

The principal ground on which the appellants opposed the enforcement of the summons in the district court was that the government is misusing the summons power to circumvent limitations on discovery in the Tax Court, before which a proceeding to determine the Kanters' tax liability is pending. The appellants argue, and the government does not seriously deny, that the reason it decided years after the summons had been issued to reactivate it in effect by obtaining an order enforcing it was that Principal Services was holding documents relating to the Kanters' tax liability that the government had mistakenly thought it could obtain from the Kanters directly and now wanted to get from Principal Services. Principal Services is in the business of retaining documents, and preparing tax returns, for taxpayers--and its main clients, it appears, are the Kanters.

The appellants are reluctant to acknowledge that obtaining documents for use in a Tax Court proceeding is a legitimate purpose of an IRS summons. Discovery in Tax Court proceedings is traditionally informal and noncoercive, and there is concern that allowing the IRS to use the summons power as a discovery tool would unfairly tip the balance of procedural advantages against the taxpayer. (For divergent views within the Tax Court, compare Westreco, Inc., TC Memo 1990-501, p 90,501 PH Memo TC, with Ash v. Commissioner, 96 T.C. 459 (1991).) We need not weigh that concern here. For the appellants pitch their case for reversal on different grounds. The first is that the summons is "stale." Enforcement was not sought until three and a half years after it was issued. No reported case has involved such a long interval between the issuance of the summons and the filing of the petition to enforce it. The appellants argue that at some point during this period they came reasonably to believe that the summons would never be enforced--that the government had lost interest--and they discarded documents arguably within the scope of the summons and as a result now face possible sanctions.

The government argues that the appellants knew perfectly well it was still interested in the documents, and that the delay was due to the Kanters' foot-dragging in turning over copies of the same documents in the Tax Court case. We do not have to resolve the dispute. The summons carried no expiration date. No statute of limitations applies to a petition to enforce a summons--on the contrary, after six months failure to comply with a summons tolls all relevant tax statutes of limitations. 26 U.S.C. Sec. 7609(e)(2). No one suggests that we should borrow a statute of limitations from some other law, and we have not found a case involving an IRS summons in which that was done. When there is no statute of limitations in the picture, the law, including federal common law, relies upon the doctrine of laches to protect the recipient of the summons from unreasonable delay in enforcement. This versatile, flexible, and serviceable doctrine, originally equity's counterpart to statutes of limitations (which were not applicable to suits in equity), is a ground for dismissing a suit if the defendant can show that the plaintiff delayed unjustifiably in filing and that as a result the defendant was harmed, either by being hampered in his ability to defend or by incurring some other detriment. NLRB v. P*I*E Nationwide, Inc., 894 F.2d 887, 893-94 (7th Cir.1990); EEOC v. Vucitech, 842 F.2d 936, 942-43 (7th Cir.1988); A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1033 (Fed.Cir.1992). There is no defense of "staleness," despite a dictum in United States v. Gimbel, 782 F.2d 89, 93 (7th Cir.1986), on which the appellants rely. Laches is a legal doctrine; it has structure; "staleness" is an epithet.

A threshold question concerning the application of the doctrines of laches in this case is whether it can ever be invoked against the federal government. Some courts regard the question as completely unsettled. E.g., JANA, Inc. v. United States, 936 F.2d 1265, 1269 (Fed.Cir.1991). There is no dearth of statements that laches cannot be used against the government, see, e.g., Costello v. United States, 365 U.S. 265, 281, 81 S.Ct. 534, 542-43, 5 L.Ed.2d 551 (1961); 14 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure Sec. 3652, p. 169 (2d Ed.1985), yet both P*I*E and Vucitech involved suits by the government, and the availability of laches in at least some government suits is supported by Supreme Court decisions, notably Occidental Life Ins. Co. v. EEOC, 432 U.S. 355, 373, 97 S.Ct. 2447, 2458, 53 L.Ed.2d 402 (1977); Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 60-61, 104 S.Ct. 2218, 2224, 81 L.Ed.2d 42 (1984), and Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96, 111 S.Ct. 453, 457-58, 112 L.Ed.2d 435 (1990), that refuse to shut the door completely to the invocation of laches or estoppel (similar doctrines) in government suits. Other cases besides P*I*E and Vucitech in which our court has entertained the possibility of a defense of laches against the government include United States v. Lindberg Corp., 882 F.2d 1158, 1163 (7th Cir.1989); In re Lapiana, 909 F.2d 221, 223 (7th Cir.1990), and Martin v. Consultants & Administrators, Inc., 966 F.2d 1078, 1090-91 (7th Cir.1992).

One possibility, suggested by both Heckler and Lindberg, is that only the most egregious instances of laches can be used to abate a government suit. Another would be to confine the doctrine to suits against the government in which, as in this case, there is no statute of limitations. (We toyed with that possibility in Martin v. Consultants & Administrators, Inc., supra, 966 F.2d at 1091.) Still another possibility--supported by Clearfield Trust Co. v. United States, 318 U.S. 363, 369, 63 S.Ct. 573, 576, 87 L.Ed. 838 (1943), which held that laches was a defense to the government as a holder of commercial paper--is to draw a line between government suits in which the government is seeking to enforce either on its own behalf or that of private parties what are in the nature of private rights, and government suits to enforce sovereign rights, see ...