U.S. v. B & D Vending, Inc., 03-6008.

• Citation: 398 F.3d 728
• Decision Date: 25 October 2004
• Docket Number: No. 03-6008.,03-6008.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. B & D VENDING, INC.; James Clay Boyd, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

398 F.3d 728

UNITED STATES of America, Plaintiff-Appellee, v. B & D VENDING, INC.; James Clay Boyd, Defendants-Appellants.

No. 03-6008.

United States Court of Appeals, Sixth Circuit.

Argued July 29, 2004.

Decided and Filed October 25, 2004.

ARGUED:

Frederick G. Irtz II, Frederick G. Irtz II, Attorney at Law, Lexington, Kentucky, for Appellants. Robert J. Branman, United States Department of Justice, Washington, D.C., for Appellee.

ON BRIEF

: Frederick G. Irtz II, Frederick G. Irtz II, Attorney at Law, Lexington, Kentucky, Patrick F. Nash, Lexington, Kentucky, for Appellants. Robert J. Branman, Frank P. Cihlar, United States Department of Justice, Washington, D.C., for Appellee.

Before: MOORE and SUTTON, Circuit Judges; and ADAMS, District Judge.^*

OPINION

MOORE, Circuit Judge.

Defendants-Appellants B & D Vending, Inc. ("B & D") and James Clay Boyd ("Boyd") appeal the district court's enforcement of an Internal Revenue Service ("IRS") administrative summons for B & D's corporate records during the period of November 1, 1998 through December 31, 1999. On appeal, defendants argue that (1) the actions of a magistrate judge were invalid and void because of a delayed formal order of referral by the district court, and (2) the documents of a corporation that are generated after its administrative dissolution become personal documents, permitting Boyd to assert a Fifth Amendment privilege against their disclosure. For the reasons set forth below, we AFFIRM the district court's judgment and remand for further proceedings consistent with this opinion.

I. BACKGROUND

B & D, a business venture of Boyd and his wife, was incorporated under Kentucky state law on June 26, 1997. Boyd was designated president. The Secretary of State administratively dissolved B & D's corporate status on November 3, 1998, after the company failed to file an annual report as required by state law. See Ky.Rev.Stat. Ann. § 271B.14-210 (Banks-Baldwin 1998). Nevertheless, Boyd operated B & D as if it continued to exist as a corporation. B & D continued to file quarterly payroll tax returns under its corporate name. It similarly conducted advertising, banking, and record keeping using the B & D corporate identification.

As part of an IRS investigation of Boyd's federal individual income tax liability, Special Agent J. Trent Tyson ("Agent Tyson") issued an administrative summons pursuant to 26 U.S.C. § 7602 on November 5, 2001. The summons directed B & D to produce all corporate books, papers, records, and other data concerning its tax liability for tax years between 1996 and 1999, and was served on Boyd, his wife, and his attorney. On November 29, 2001, Boyd produced corporate records from March 26, 1997 through October 31, 1998 only. He refused to deliver records from (1) the first quarter of 1997, prior to B & D's incorporation, and (2) after October 31, 1998, pertaining to the period after the company had been administratively dissolved by the Secretary of State. Boyd argued that the records were personal records, and asserted various privileges under the Fifth Amendment, including an "act of production" privilege, contending that disclosure may incriminate him.

The United States filed a complaint against B & D and Boyd in the U.S. District Court for the Eastern District of Kentucky on July 17, 2002 to enforce the summons. On August 14, 2002, the magistrate judge appointed Agent Tyson to serve upon B & D and Boyd both the complaint and an Order to Show Cause issued by the magistrate judge directing B & D and Boyd to answer the complaint. The magistrate judge subsequently conducted a show-cause hearing on September 24, 2002. However, the district court did not issue a specific order formally referring the matter to the magistrate judge until December 3, 2002.

On February 26, 2003, the magistrate judge issued his initial report and recommendation as well as an order regarding certain documents. After both parties lodged objections, he entered a "Superseding Proposed Findings of Fact and Recommendation and Order" (hereinafter "final R & R") on June 13, 2003. The magistrate judge found that B & D "continued to hold itself out to the public as a corporation" and thus "continue[d] to exist as a corporation." Joint Appendix ("J.A.") at 86. Relying on United States v. Theodore, 479 F.2d 749 (4th Cir.1973), he concluded that B & D was estopped from asserting that it no longer existed as a corporation; B & D was serving an intended business function and was engaged in business. Because B & D retained its corporate status, the magistrate judge determined that B & D was required to produce its corporate records and that Boyd, as a representative of B & D, had no standing to assert a Fifth Amendment claim as to B & D's corporate records. The magistrate judge, however, recommended against enforcement of the summons as to B & D's pre-incorporation records, concluding that they were personal rather than corporate and thus outside the scope of the IRS summons. In sum, the magistrate judge recommended that the district court enforce the summons as to B & D's post-corporate dissolution records only.

After de novo review of the portions of the magistrate judge's final R & R as to which objections were filed, the district court entered an order and opinion on July 2, 2003 adopting the magistrate judge's proposed findings of fact and recommendations and enforcing the summons with regards to B & D's post-dissolution records. The district court first rejected defendants' objections to the magistrate judge conducting the show-cause hearing prior to the district court's formal order of referral. The district court then found that, under applicable Kentucky law, B & D continued to exist as a corporate entity after administrative dissolution by the state. It rejected Boyd's argument that B & D's dissolved corporate status meant that the records of the corporation created post-dissolution were personal records qualifying for a Fifth Amendment privilege, noting that the issues of "post-dissolution tort and/or contract liability" and "the nature of post-dissolution documents as personal or corporate" were independent of each other. The district court also accepted the magistrate judge's recommendation that the administrative summons did not apply to B & D's pre-incorporation records. Defendants filed a timely notice of appeal from the district court's judgment.

The district court had jurisdiction to enforce the IRS summons pursuant to 28 U.S.C. §§ 1340, 1345 and 26 U.S.C. §§ 7402(b), 7604(a). We have jurisdiction pursuant to 28 U.S.C. § 1291, providing for appellate review of a district court's final orders.

II. ANALYSIS

On appeal defendants raise two primary issues. First they contend that the magistrate judge lacked the power to act in this case. Second, they argue that after the administrative dissolution of B & D, the corporation ceased to exist, and that all records created after dissolution relating to the business became personal records, which were not within the scope of the IRS summons and which were protected by Boyd's Fifth Amendment privilege against self-incrimination. We see no merit in these contentions.

A. Magistrate Judge's Authority

The scope of a magistrate judge's statutory authority is a question of law, requiring us to undertake a de novo review. See, e.g., Banks v. United States, 614 F.2d 95, 96-98 (6th Cir.1980).

Upon designation by the district court, a magistrate judge may conduct hearings and submit proposed findings of fact and recommendations for disposition of a variety of pretrial motions in civil and criminal cases. 28 U.S.C. § 636(b)(1)(B). Defendants challenge the authority of the magistrate judge to conduct the September 24, 2002 show-cause hearing, arguing that the district court had not properly referred the matter pursuant to § 636(b)(1)(B) prior to the hearing. Defendants also argue that because of this defect, the actions of the magistrate judge are invalid and void.

As a predicate matter, we note that defendants first raised their concern regarding the referral to the magistrate judge in a "Motion for Clarification of Referral" which they filed on October 7, 2002, shortly after the show-cause hearing was held by the magistrate judge. J.A. at 46. Noting that there was not a specific order of referral in the case at that time, defendants sought "clarification ... as to the parameters of the referral of this case to" the magistrate judge. J.A. at 46. After the district court's formal order of December 3, 2002, referring the action to the magistrate judge "to conduct hearings and submit proposed findings of fact and recommendations on all dispositive motions, pursuant to 28 U.S.C. § 636(b)(1)(B)," the defendants did not object to the magistrate judge's actions until they filed their objections on June 23, 2003 to the magistrate judge's final R & R. The essence of the objection on this matter was that the defendants "question the ability of the Magistrate Judge to issue his [R & R] and hereby object to the entry of those documents on the ground that the events occurred without prior direction from the" district court. J.A. at 99 (Defs. Obj. to R & R).

The government argues that defendants waived their right to complain about the district court's referral procedure and about the pre-referral hearing held by the magistrate judge by their failure to object between the district court's formal referral and the magistrate judge's final R & R, a period of approximately six months' duration. Moreover, we note that the defendants neglected to raise this matter when they filed their objections to the initial R & R filed by the magistrate judge on February 26, 2003. The failure of defendants to raise promptly the issue of the magistrate judge's authority to hold the show-cause hearing, at a time when corrective action could be undertaken, if any might be warranted, is troubling. Also vexing is that the defendants waited until the...