U.S. v. Asay

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Before GOODWIN, WALLACE, and SKOPIL; SKOPIL
• Citation: U.S. v. Asay, 614 F.2d 655 (9th Cir. 1980)
• Decision Date: 21 February 1980
• Docket Number: 3431,Nos. 76-3164,s. 76-3164
• Parties: 80-1 USTC P 9242 UNITED STATES of America and James T. Caffey, Special Agent, Internal Revenue Service, Petitioners-Appellants, v. Clifford H. ASAY, Jr., an accountancy corporation, and Clifford H. Asay, Jr., as President of Clifford H. Asay, Jr., an accountancy corporation, Respondents, and Arnold L. Kimmes; William B. Feinberg; M & G Amusement Company; Cavalier Mobile Estates, Inc.; and Mortco Financing, Inc., Intervenors-Appellees. UNITED STATES of America and James T. Caffey, Special Agent, Internal Revenue Service, Petitioners-Appellees, v. Clifford H. ASAY, Jr., an accounting corporation, and Clifford H. Asay, Jr., as President of Clifford H. Asay, Jr., an accountancy corporation, Respondents- Appellants, and Arnold L. Kimmes; William B. Feinberg; M & G Amusement Company; Cavalier Mobile Estates, Inc.; and Mortco Financing, Inc., Intervenors.

Page 655

614 F.2d 655

80-1 USTC P 9242

UNITED STATES of America and James T. Caffey, Special Agent, Internal Revenue Service, Petitioners-Appellants, v. Clifford H. ASAY, Jr., an accountancy corporation, and Clifford H. Asay, Jr., as President of Clifford H.

Asay, Jr., an accountancy corporation, Respondents,

and

Arnold L. Kimmes; William B. Feinberg; M & G Amusement

Company; Cavalier Mobile Estates, Inc.; and Mortco

Financing, Inc., Intervenors-Appellees.

UNITED STATES of America and James T. Caffey, Special Agent, Internal Revenue Service, Petitioners-Appellees, v. Clifford H. ASAY, Jr., an accounting corporation, and Clifford H. Asay, Jr., as President of Clifford H.

Asay, Jr., an accountancy corporation,

Respondents- Appellants,

and

Arnold L. Kimmes; William B. Feinberg; M & G Amusement

Company; Cavalier Mobile Estates, Inc.; and Mortco

Financing, Inc., Intervenors.

Nos. 76-3164, 3431.

United States Court of Appeals Ninth Circuit.

Feb. 21, 1980.

William A. Whitledge, Tax Div., Washington, D. C., argued, for U. S. A. and Caffey.

William A. Whitledge, Washington, D. C., argued, Myron C. Baum, U. S. Dept. of Justice, Washington, D. C., on brief, for respondents.

Appeal from the United States District Court for the Southern District of California.

Before GOODWIN, WALLACE, and SKOPIL, Circuit Judges.

SKOPIL, Circuit Judge.

INTRODUCTION

These appeals arise from an attempt to examine the books and records of a taxpayer. In the case docketed as No. 76-3164 the appellants, United States of America and James T. Caffey, Special Agent, Internal Revenue Service (IRS), appeal from an order denying their motion to compel the intervening taxpayers, Arnold L. Kimmes, William B. Feinberg, M & G Amusement Company, Cavalier Mobile Estates, Inc., and Mortco Financing, Inc., to produce books and records returned to them by their accountant, Clifford H. Asay, Jr., an accountancy corporation, and Clifford H. Asay, Jr., as President of Clifford H. Asay, Jr., an accountancy corporation (Asay), the appellees. In the case docketed as No. 76-3431 the appellants (Asay) appeal from an order adjudging them in contempt for failing to produce taxpayers' books and records pursuant to IRS summonses. The appeals have been consolidated.

FACTS

Before August 1975 IRS had been investigating the income tax liabilities of taxpayers Arnold L. Kimmes, William B. Feinberg, and related business entities. On August 12, 1975 IRS issued six summonses to taxpayers' accountant. They were directed to "Clifford H. Asay, Jr., as President Clifford H. Asay, Jr., An Accountancy Corporation." The summonses required Asay to appear before Special Agent Caffey on August 26, 1975 to testify. He was also requested to produce for examination his records and all books and records of the taxpayers in his possession.

Asay consulted his attorney and the attorney for the taxpayers. He was advised to return to the taxpayers all books and records not prepared by the accounting firm. On August 25, 1975, one day before the return date of the summonses, Asay returned taxpayers' books and records to them.

On the return date Asay appeared before Caffey. He refused to testify or produce any documents. He explained that he had returned the taxpayers' documents to them. He delivered a letter to Caffey specifying the reasons for his refusal to testify and produce the remaining requested documents. ¹

On January 21, 1976 IRS petitioned the district court to enforce its summonses. A show cause order was issued to Asay. Asay filed a responsive pleading and memorandum. The grounds for resisting the summonses were the same as outlined in Asay's letter of August 26, 1975. The defense of impossibility was not mentioned. The affidavits and filed transcripts revealed that the taxpayers' records had been returned to them.

On February 17, 1976 the show cause hearing was held. The taxpayers intervened and opposed summons enforcement. On February 20 the district court ordered the summonses enforced. Asay was directed to comply. No appeal was taken. On March 16, 1976 Asay appeared before Caffey and produced for inspection all summoned documents still in the possession of the accounting firm.

On April 23, 1976 IRS petitioned the court, requesting that Asay show cause why he should not be held in contempt for failure to produce all the documents summoned. Also an order was requested requiring taxpayers to identify and produce for inspection all papers in their possession that had been in Asay's hands at the time the summonses were served. On April 29, 1976 show cause orders were issued to Asay and the taxpayers.

Asay argued he had fully complied with the court's enforcement order. The taxpayers argued that the issuance of the summonses by IRS was a part of an illegal second investigation. The taxpayers also contended that the court lacked jurisdiction to compel them to produce their books and records. An IRS summons had never been issued and directed to the taxpayers. They insisted that to invoke the court's jurisdiction it was necessary that IRS exhaust its administrative remedies, and it was essential that IRS issue summonses to the taxpayers.

On June 14, 1976, at the show cause hearing, the court found Asay in contempt. Before a compensatory fine was imposed on Asay, IRS was directed to submit affidavits of its costs. On June 25, 1976 IRS filed its affidavits and application for reimbursement of expenses. In opposition Asay contended that the expenses claimed were unreasonable. The court disallowed certain expenses of IRS. As a compensatory fine for his contempt, Asay was ordered to pay $2,205.57.

On September 8, 1976 the court entered its amended findings of fact and conclusions of law. An amended judgment was entered against Asay. A timely notice of appeal was filed.

On July 2, 1976 an order was entered denying government's motion to compel taxpayers to produce the summoned documents in their possession. A timely notice of appeal was filed.

ASAY'S APPEAL

I. Jurisdiction

Asay insists that the district court was without jurisdiction to enter the contempt judgment. He cites 26 U.S.C. § 7401, requiring authorization from the Secretary of the Treasury for commencement of any civil action for the collection of taxes or any fine, penalty, or forfeiture. The government never made a showing of such authorization.

This argument is without merit. The fine imposed by the court was not one arising under the Internal Revenue Code. It was a compensatory fine for civil contempt. It was imposed under the court's inherent contempt power. Authorization from the Secretary of the Treasury was not required for the court to exercise this power. It is the responsibility of the court to provide a fair, effective, and orderly judicial process. That responsibility cannot be dependent upon authorization from any outside source.

II. Nature of the Contempt Proceeding

Asay argues the contempt proceeding against him was criminal in nature. He contends the court order was too vague to support a criminal contempt judgment. Furthermore, the court failed to follow the procedures set forth in Fed.R.Crim.P. 42(b).

To distinguish criminal from civil contempt it is necessary to determine the nature and purpose of the sanction sought and imposed. This is especially true where, as here, the contumacious act may be either criminal or civil. See In re Stewart, 571 F.2d 958 (5th Cir. 1978); Latrobe v. United Steelworkers, 545 F.2d 1336 (3d Cir. 1976); and Shakman v. Democratic Organization of Cook County, 533 F.2d 344 (7th Cir. 1976), cert. denied sub nom. Chicago v. Shakman, 429 U.S. 858, 97 S.Ct. 156, 50 L.Ed.2d 135.

Under the sanction test if the purpose of the relief is to compel the respondent to comply or to compensate the petitioner for the refusal, the contempt proceeding is civil in nature. If the purpose is to punish the respondent and vindicate the court, the proceeding is criminal.

The district court imposed a fine intended to compensate IRS for failure to comply with the summonses and enforcement order. The proceeding was for civil contempt. Because Asay may have been unable to comply with the summonses and order at the time the contempt judgment was issued does not mean the fine was for criminal contempt. There are three types of contempt sanctions: punitive, compulsory, and compensatory. The first is a criminal contempt sanction. The latter two are civil. This was a compensatory, civil fine. The district court was not required to follow the procedure outlined in Fed.R.Crim.P. 42(b).

Asay argues that the enforcement order is too vague and indefinite to support a judgment of contempt. We disagree. The order referred to the summonses, ordered them enforced, and directed Asay to comply. It was neither vague nor indefinite. Asay understood it. He appeared before Special Agent Caffey to testify and produce those documents remaining in his possession.

III. Impossibility Defense

Asay asserts that he cannot be held in contempt for an act committed prior to the issuance of any court order. Because the district court knew when the enforcement order was entered that some of the papers sought had been returned to the taxpayers, Asay characterizes the proceedings below as an effort to punish an anticipatory contempt.

This argument is an attack on the underlying enforcement order. Asay did not appeal from the enforcement order.

Finality is a required condition to review. In Steinert v. U. S., 571 F.2d 1105 (9th Cir. 1978), this court discussed finality for purposes of appeal from an order enforcing an IRS summons. Finality occurs when the district court has made a determination on the merits as to the validity of the summoned person's defenses to each question asked and each document requested. When the defense is a fifth amendment privilege, as in Steinert, finality can occur only when a determination on the merits has been made as to the validity and applicability of the privilege to each question...