U.S. v. Arthur Andersen & Co., 79-1411

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Writing for the Court: Before COFFIN, Chief Judge, CAMPBELL and BOWNES; COFFIN
• Citation: 623 F.2d 720
• Parties: 80-1 USTC P 9360 UNITED STATES of America and Francis W. Murphy, Special Agent, Internal Revenue Service, Petitioners, Appellees, v. ARTHUR ANDERSEN & COMPANY, Respondent, Appellant, and Good Hope Industries, Inc., Intervenor, Appellee.
• Docket Number: No. 79-1411,79-1411
• Decision Date: 31 March 1980

Page 720

623 F.2d 720 80-1 USTC P 9360 UNITED STATES of America and Francis W. Murphy, Special
Agent, Internal Revenue Service, Petitioners, Appellees,
v.
ARTHUR ANDERSEN & COMPANY, Respondent, Appellant,
and
Good Hope Industries, Inc., Intervenor, Appellee. No. 79-1411. United States Court of Appeals,
First Circuit. Argued Dec. 3, 1979.
Decided March 31, 1980.

Page 721

Frederic W. Hickman, Chicago, Ill., with whom John L. Conlon, Michael M. Conway, Wm. Carlisle Herbert, Hopkins, Sutter, Mulroy, Davis & Cromartie, Chicago, Ill., J. Read Murphy, John T. DelNegro and Murtha, Cullina, Richter & Pinney, Hartford, Conn., were on brief, for respondent, appellant.

Carleton D. Powell, Atty., Tax Division, Dept. of Justice, with whom M. Carr Ferguson, Asst. Atty. Gen., Washington, D. C., Edward F. Harrington, U. S. Atty., Boston, Mass., Gilbert E. Andrews and Robert E. Lindsay, Attys., Tax Division, Dept. of Justice, Washington, D. C., were on brief, for petitioners, appellees.

Kenneth J. Bialkin, Louis A. Craco, Howard C. Buschman, III., Michael P. Zweig and Willkie, Farr & Gallagher, New York City, on brief for American Institute of Certified Public Accountants, amicus curiae.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

COFFIN, Chief Judge.

This is an appeal from an order of the United States District Court for the District of Massachusetts enforcing an Internal Revenue Service summons issued to the appellant, Arthur Andersen & Co. ("Andersen"). Andersen's appeal asserts that this summons did not meet the relevance requirement of 26 U.S.C. § 7602. ¹ The IRS,

Page 722

in addition to arguing the propriety of the district court's order enforcing its summons, filed a motion to dismiss Andersen's appeal as moot. Because we find the question of mootness dispositive, we do not reach the merits of Andersen's appeal.

The summons at issue in this case was served upon Andersen in the course of an IRS investigation of Good Hope Industries, Inc., ("Good Hope"), for whom Andersen had acted as auditor and tax advisor for the fiscal years ending July 31, 1973 through 1976. The IRS directed Andersen to produce and to testify about various records and workpapers related to its auditing and tax planning work for Good Hope. Andersen resisted producing its audit work programs, tax planning papers, and tax accrual audit workpapers. ² The district court, after holding an evidentiary hearing, ordered Andersen to comply with all aspects of the summons. ³ Motions for a stay of the court's enforcement order were denied first by the district court and then by this court. ⁴ After filing its notice of appeal from the district court's order, ⁵ Andersen complied with the summons by producing all the documents requested by the IRS. In this appeal, Andersen has challenged only that part of the order requiring the production of the tax accrual workpapers prepared in conjunction with its audit of Good Hope.

Since Andersen has produced all of the documents forming the subject matter of this appeal, the controversy presented to this court appears, on its face, to be moot. See United States v. Lyons, 442 F.2d 1144 (1st Cir. 1971) (dismissing as moot an appeal by a taxpayer of an order enforcing an IRS summons that had been complied with). See also Barney v. United States, 568 F.2d 116 (8th Cir. 1978); United States v. Carpenter, 425 F.2d 264 (5th Cir. 1970). Andersen seeks to avoid the preclusive effect of the mootness doctrine by invoking the "capable of repetition yet evading review" exception recognized by the Supreme Court in Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911). An action falls within this exception if "(1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there (is) a reasonable expectation that the same complaining party (will) be subjected to the same action again." Weinstein v. Bradford, 423 U.S. 147, 149, 96 S.Ct. 347, 349, 46 L.Ed.2d 350 (1975). ⁶

Page 723

We are satisfied that this case meets the latter prong of the exception that the controversy be sufficiently likely to be repeated. In May of 1979, the Chief Counsel of the IRS stated in an address to the Federal Tax Division of the American Institute of Certified Public Accountants that the IRS would actively seek access to accountants' workpapers in connection with its investigations and that recurring litigation over summonses of the type at issue in this case was likely. Andersen is one of the nation's largest accounting firms; one or more of its clients is likely to be subjected to tax investigations in which the IRS would demand from Andersen its tax accrual workpapers for that client. ⁷ The likelihood of recurrence here is at least as great as in other cases in which the Supreme Court has found the "capable of repetition yet evading review" exception applicable. See, e. g., Gannett v. DePasquale, 443 U.S. 368, 377-378, 99 S.Ct. 2898, 2904-05, 61 L.Ed.2d 608 (U.S. June 26, 1979) (sufficient likelihood that newspaper will again be enjoined from publishing aspects of criminal proceeding); United States v. New York Telephone Co., 434 U.S. 159, 165, 98 S.Ct. 364, 368, 54 L.Ed.2d 376 (1977) (sufficient likelihood that telephone company will again be ordered to assist FBI in performing pen register surveillance).

The basic requirement of the exception that the question be one that will otherwise evade review presents a more difficult problem. Andersen argues that the strong policy opposing delays in the enforcement of IRS summonses makes it unlikely that a district court would set a compliance date that would allow time for a prior appeal. Cf. United States v. Salter, 432 F.2d 697, 700-01 (1st Cir. 1970) (public policy militates against permitting taxpayer to engage in discovery in proceeding for enforcement of IRS summons since delay would "jeopardize the integrity and effectiveness" of the investigation). Andersen argues further that the difficulty in meeting the "likelihood of success" and "irreparable harm" requirements for a stay pending appeal make this an equally unavailable avenue for obtaining review of an enforcement order prior to compliance. Finally, since Andersen is not likely to be a party to any judicial proceeding arising out of Good Hope's tax deficiency, it will have no future opportunity to...