U.S. v. Bright, No. 07-17027.

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Fisher
• Citation: 596 F.3d 683
• Parties: UNITED STATES of America, Petitioner-Appellee, v. Cherie J. BRIGHT; Benjamin Bright, Respondents-Appellants. United States of America, Petitioner-Appellee, v. Cherie J. Bright, Respondent-Appellant, and Benjamin Bright, Respondent. United States of America, Petitioner-Appellee, v. Benjamin Bright, Respondent-Appellant, and Cherie J. Bright, Respondent.
• Decision Date: 26 February 2010
• Docket Number: No. 08-16913.,No. 08-16912.,No. 07-17027.

596 F.3d 683 UNITED STATES of America, Petitioner-Appellee,
v.
Cherie J. BRIGHT; Benjamin Bright, Respondents-Appellants.
United States of America, Petitioner-Appellee,
v.
Cherie J. Bright, Respondent-Appellant, and
Benjamin Bright, Respondent.
United States of America, Petitioner-Appellee,
v.
Benjamin Bright, Respondent-Appellant, and
Cherie J. Bright, Respondent. No. 07-17027. No. 08-16912. No. 08-16913. United States Court of Appeals, Ninth Circuit. Argued and Submitted October 15, 2009. Filed February 26, 2010.

[596 F.3d 688]

Christopher J. Cannon (argued), Suzanne M. Morris, San Francisco, CA, Michael Jay Green, Honolulu, HI, for respondents-appellants.

Carol A. Barthel (argued), Robert W. Metzler, John A. Dudeck, Jr. and David I. Pincus, Tax Division, Department of Justice, John Dicicco, Acting Assistant Attorney General, Gilbert S. Rothenberg, Acting Deputy Assistant Attorney General, Richard T. Morrison, Deputy Assistant Attorney General, Nathan J. Hochman, Assistant Attorney General, Washington, DC, and Edward Kubo, Jr., United States Attorney, Honolulu, HI, for petitioner-appellee.

Appeal from the United States District Court for the District of Hawaii, Alan C. Kay, District Judge, Presiding. D.C. Nos. CV-07-00311-ACK, 1:07-cv-00311-ACK-KSC.

Before: ROBERT R. BEEZER, SUSAN P. GRABER and RAYMOND C. FISHER, Circuit Judges.

FISHER, Circuit Judge:

The Fifth Amendment protects individuals from having to disclose documents when the very act of production would constitute self-incrimination. Cherie and Benjamin Bright (the Brights), subjects of an Internal Revenue Service investigation concerning past tax liability, jointly appeal the district court's order enforcing IRS summonses requiring production of documents, including those relating to offshore accounts. The Brights invoked their Fifth Amendment privilege and refused production. They also separately appeal the district court's subsequent order finding them in contempt for failing to produce the documents. We hold that the district court acted properly in enforcing the IRS summonses and finding the Brights in contempt, although we modify the conditions necessary to purge the contempt.

BACKGROUND

Cherie Bright is a co-owner of Bright Enterprises, a tax consulting business. In 2007, the Department of Justice filed a civil fraud action against Bright Enterprises and its owners, accusing them of promoting tax shelters. Before bringing that action, the IRS investigated Cherie and

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her business partner's personal returns, seeking information concerning the same shelters that would appear in the fraud complaint. Specific to this appeal, on June 19, 2006, the IRS issued and served identical summonses to Cherie and her husband, Benjamin Bright, directing them to appear before an IRS Revenue Agent to address suspected past tax liability. The summonses also directed the Brights to bring numerous categories of documents—including records relating to two credit cards identified with the Brights that were linked to offshore accounts and "any other offshore credit cards." The Brights failed to appear or to produce any documents.

The government then filed an enforcement petition in the United States District Court for the District of Hawaii, which ordered the Brights to show cause why they should not be compelled to comply with the summonses. The Brights appeared and each asserted an "intention to evoke all rights afforded to" them, including the Fifth Amendment right against self-incrimination. The district court granted the IRS's petition on September 11, 2007, ruling that the Brights' privilege claim failed because they had not specified which portions of the summonses requested privileged documents or what facts supported a privilege claim. The court specifically found that

t]he IRS knows the name and location of the[offshore] banks, the credit card numbers, and that the [Brights] used and maintained these cards. Thus the existence of the offshore credit card accounts is a foregone conclusion, and the production of the records relating to these credit card accounts has no testimonial significance.

After denying the Brights' motion for reconsideration, the district court entered an enforcement order (the enforcement order), and the Brights jointly and timely appealed.

The IRS then established a new schedule for the production of documents. On the day the documents were due, however, the Brights unsuccessfully moved for a stay in the district court. This court also denied a stay.

The Brights finally began producing documents, but none concerning offshore accounts or many other categories of documents. This refusal prompted the government to seek a contempt order from the district court. Meanwhile, the Brights continued to produce some documents. They also submitted declarations outlining their attempts at compliance with the document requests and their purported lack of possession or control of any relevant documents not yet produced.

After affording the Brights additional time to finish production, the district court instituted contempt proceedings. Rather than produce documents related to offshore accounts, Cherie reasserted her Fifth Amendment privilege, and Benjamin contended that he had produced all documents in his possession or control. Cherie eventually filed a substantial declaration detailing compliance—with the exception of offshore accounts—and Benjamin's lack of involvement in the family finances or "in any of the activities" that were the subjects of the specific document requests.

In an August 20, 2008 order (the contempt order), the district court found both Cherie and Benjamin Bright in contempt of the enforcement order, making five key findings and conclusions:

1. The Fifth Amendment privilege could not be relitigated in contempt proceedings.

2. The enforcement order's requirement that the Brights produce documents related to "any other offshore credit cards" mandated production

[596 F.3d 690

of documents concerning two additional offshore accounts not specifically named in the summonses, even though the government did not discover the connection between these accounts and the Brights until after entry of the enforcement order. However, the failure to produce these particular documents was not necessary to the finding of contempt.

3. The government had established that other documents remained outstanding.

4. The Brights were not in substantial compliance because they had engaged in extensive delaying tactics and had failed to argue during the enforcement proceeding that relevant documents were not in their possession or control.

5. The Brights had failed to provide evidence establishing that Benjamin did not have custody or control of the requested documents.

The court imposed a $500 daily fine until the Brights "either fully comply with the summonses or sufficiently establish that they are unable to do so," as well as a $11,593.59 compensatory sanction. The court further noted that "[a] satisfactory response would include a more definitive declaration by [the Brights] that documents do not exist, or documentation showing that despite making all reasonable efforts to comply, they have a present inability to do so." Benjamin and Cherie Bright separately and timely appealed the order of contempt.

JURISDICTION

The United States brought its petition under 26 U.S.C. § 7604(b), and the district court had jurisdiction under 26 U.S.C. § 7604(a). The Brights' appeals have been consolidated pursuant to Federal Rule of Appellate Procedure 3(b)(2), and we review under 28 U.S.C. § 1291.

DISCUSSION

I. Entry of the Enforcement Order

The Brights first assert that the district court erred in granting the enforcement order. They advance two parallel contentions. As a matter of procedure, they argue that the district court erred by issuing a "blanket denial" of their assertion of a Fifth Amendment privilege as to the production of all responsive documents. As a matter of substance, they argue that the district court erred by finding that the production of records concerning offshore bank accounts had no testimonial significance, foreclosing a privilege claim.

We review de novo a district court's application of the Fifth Amendment privilege against self-incrimination. See United States v. Chase, 340 F.3d 978, 981 (9th Cir.2003) (privileges generally); United States v. Rubio-Topete, 999 F.2d 1334, 1338 (9th Cir.1993) (Fifth Amendment). Whether the existence of documents is a foregone conclusion is a question of fact, which we review for clear error. United States v. Norwood, 420 F.3d 888, 895 (8th Cir.2005) (citing United States v. Doe, 465 U.S. 605, 613-14, 104 S.Ct. 1237, 79 L.Ed.2d 552 (1984)). We affirm, although we narrow the scope of the enforcement order to encompass only records whose existence was known to the government at the time the IRS issued the summonses.

A. Procedure: Applying Privilege to Document Requests

"A claim of Fifth Amendment privilege may be asserted if there are `substantial hazards of self-incrimination that are real and appreciable, not merely imaginary and unsubstantial,' that information sought in an IRS summons might be used

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to establish criminal liability." United States v. Drollinger, 80 F.3d 389, 392 (9th Cir.1996) (per curiam) (quoting United States v. Rendahl, 746 F.2d 553, 555 (9th Cir.1984)). "`[A] proper application of this standard requires that the Fifth Amendment be raised in response to specific questions propounded by the investigating body.'" Id. (quoting United States v. Pierce, 561 F.2d 735, 741 (9th Cir.1977)); accord United States v. Bodwell, 66 F.3d 1000, 1001 (9th Cir.1995) (per curiam). The privilege is not limited to oral questioning; an individual may refuse to provide documents to an investigative body if the act of production would be testimonial. See, e.g., In re Grand Jury Subpoena, Dated April 18, 2003, 383 F.3d 905, 909 (9th Cir.2004). The...