U.S. v. First Nat. State Bank of New Jersey, s. 79-1707
| Decision Date | 13 February 1980 |
| Docket Number | 79-1708,Nos. 79-1707,s. 79-1707 |
| Citation | 616 F.2d 668 |
| Parties | 80-1 USTC P 9217 UNITED STATES of America and John R. Cassie, Jr., Special Agent, Internal Revenue Service, Petitioner, v. FIRST NATIONAL STATE BANK OF NEW JERSEY, Respondent, Perry Levey, Intervenor. UNITED STATES of America and John R. Cassie, Jr., Special Agent, Internal Revenue Service, Petitioner, v. BERKELEY FEDERAL SAVINGS AND LOAN ASSOCIATION, Respondent, Perry Levey, Intervenor. UNITED STATES of America and John R. Cassie, Jr., Special Agent, Internal Revenue Service, Petitioner, v. HUDSON CITY SAVINGS BANK, Respondent, Perry Levey, Intervenor. UNITED STATES of America and John R. Cassie, Jr., Special Agent, Internal Revenue Service, Petitioner, v. LIVINGSTON NATIONAL BANK, Respondent, Perry Levey, Intervenor. |
| Court | U.S. Court of Appeals — Third Circuit |
M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Charles E. Brookhart (Argued), William A. Whitledge, Attys., Tax Div., Dept. of Justice, Washington, D. C., for appellants in No. 79-1707 and appellees in No. 79-1708; Robert Del Tufo, U. S. Atty., Eric Chase, Asst. U. S. Atty., Newark, N. J., of counsel.
Herbert L. Zuckerman, Zuckerman, Aronson & Horn, Newark, N. J., for appellees in No. 79-1707 and appellants in No. 79-1708.
Before GIBBONS, ROSENN and GARTH, Circuit Judges.
In these cross-appeals, we are again presented with a challenge to the enforcement of Internal Revenue Service (I.R.S.) summonses directed to third-party recordkeepers. The taxpayer-intervenor (Levey) appeals at No. 79-1708 from the district court's order which granted enforcement with respect to most of the documents requested. The Government appeals at No. 79-1707 from the district court's refusal to order production of retained copies of forms 1099 and 1087. In light of our recent opinion in United States v. Garden State National Bank, 607 F.2d 61 (3d Cir. 1979), we hold that Levey's challenge to enforcement must fail and we therefore affirm enforcement in No. 79-1708. In the Government's appeal at No. 79-1707, however, we hold that the district court erred in exempting the subpoenas for forms 1099 and 1087 from enforcement, and accordingly reverse that portion of the district court's order.
The salient facts of this case are simple and follow the familiar Garden State pattern. I.R.S. Special Agent John Cassie was investigating the tax liabilities of Perry, Vicki, Myron, and Heidi Levey, jointly referred to as "Levey." In aid of his investigation, he issued several summonses to banks, 1 under the authority of I.R.C. §§ 7602, 7604, for the production of records relevant to the years 1973 through 1976. Levey caused the summonses to be stayed under I.R.C. § 7609(b)(2), and the Government and Cassie instituted enforcement proceedings against the banks, who took no position on supporting or opposing enforcement. Levey intervened under I.R.C. § 7609(b)(1), opposing enforcement. The petitions for enforcement of all of the summonses were consolidated in the district court.
Levey answered the enforcement petition by asserting that the summonses had been issued in bad faith. The district court heard oral argument, inspected Special Agent Cassie's files in camera, and enforced the summonses, except as to the banks' retained copies of forms 1099 and 1087. 2 United States v. First National State Bank, 469 F.Supp. 612 (D.N.J. 1979). The district court refused to deny enforcement generally. Essentially it held, as it did in the Keech appeal in Garden State, see 607 F.2d at 66, that as it understood United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), no taxpayer could ever prove "institutional bad faith" as required by LaSalle. 469 F.Supp. at 616-19. 3 But the district court held that forms 1099 and 1087 were already in I.R.S.' possession and therefore could not be obtained by summons under United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254, 255, 13 L.Ed.2d 112 (1964). While acknowledging that it might be difficult for I.R.S. to retrieve these forms from its files, it held that this burden could not, and should not, be shifted to the banks. 469 F.Supp. at 615-16.
The district court determined that Levey could not appeal effectively without access to the sealed materials examined in camera, and so ordered their release to counsel on the condition that counsel not disclose them to Levey. But the district court stayed that order pending action thereon by this court, and on June 19, 1979 we refused to grant counsel access to the sealed materials.
Levey argues that the district court's conclusion that I.R.S. was not guilty of "institutional bad faith" was clearly erroneous. Levey points to three items which he claims to be indicative of "institutional bad faith" or of abandonment of a civil tax-collection purpose:
(1) the fact that the I.R.S. Deputy Commissioner wrote two letters denying a request under the Freedom of Information Act for reopening memoranda and continuation sheets on the ground that disclosure would disturb an ongoing criminal investigation;
(2) a personal attitude of one I.R.S. official that he desired that the case be referred to the Justice Department for criminal prosecution; and
(3) a refusal by I.R.S. to negotiate a compromise of the civil aspects of the case.
These items cannot either individually or collectively justify a denial of summons enforcement.
The parties stipulated that the Service has not referred this case to the Justice Department for criminal prosecution. 469 F.Supp. at 614. Levey has not challenged and our examination of the record, including the sealed transcript, does not contradict the Government's representation that the investigating agent has not yet recommended prosecution to his superiors within I.R.S. The taxpayer's burden of proof in challenging enforcement is therefore virtually insurmountable under Garden State, 607 F.2d at 70. We have concluded that the evidence in this case does not satisfy this burden of proof. Nor does it indicate that the investigating agent was acting as a conduit for the United States Attorney or that a recommendation for prosecution was being withheld to facilitate a criminal investigation, two situations cited in Garden State as circumstances where if proved, a taxpayer would succeed in a challenge to enforcement.
The Deputy Commissioner's letters are Levey's strongest evidence, 4 and they fall short of the mark. One letter reads in full as follows:
This is in response to your letter on behalf of Perry and Vicki Levey, dated April 5, 1979, in which you appealed the decision of the Newark District Director to deny access to certain documents you requested pursuant to the Freedom of Information Act (hereinafter cited as FOIA), 5 U.S.C. § 552.
We are affirming in part and reversing in part the determination of the District Director. We are enclosing a copy of a portion of the Reopening Memorandum, however the remainder is exempt from disclosure pursuant to subsections (b)(3) and (b)(7)(A) of the FOIA.
Subsection (b)(3) protects information which is:
specifically exempted from disclosure by statute (other than section 552b of this title), provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld.
The statute relied upon under subsection (b)(3) is I.R.C. § 6103(e)(6) which provides Return information with respect to any taxpayer may be open to inspection by or disclosure to any person authorized by this subsection to inspect any return of such taxpayer, if the Secretary determines that such disclosure would not seriously impair Federal tax administration.
Your clients are the subject of a current criminal investigation. A determination has been made that the disclosure of the documents you requested would seriously impair Federal tax administration.
Furthermore, subsection (b)(7)(A) of the FOIA exempts from disclosure the documents you requested. Subsection (b)(7)(A) provides an exemption from disclosure for:
investigatory records compiled for law enforcement purposes . . . to the extent that the production of such records would interfere with enforcement proceedings.
As previously stated, your clients are the subject of a current criminal investigation, therefore disclosure of these documents would reveal the direction of the investigation and result in a premature release of the government's case. Hence, disclosure of the documents not enclosed herewith would constitute an interference with enforcement proceedings.
Under the provisions of the FOIA, you are entitled to judicial review of this decision. You may file a complaint pursuant to 5 U.S.C. § 552(a)(4) in the United States District Court in the district in which the complainant resides, or has a principal place of business, or in which the agency records are located, or in the District of Columbia. The documents you requested which are not enclosed are located in the Newark Office.
App. at 80-81 (emphasis supplied). An identical letter was sent with regard to Myron and Heidi Levey. App. at 82-83. Undoubtedly, as Levey contends, the attitude of the Deputy Commissioner is indicative of the institutional posture of I.R.S., as contrasted with the views of an agent, which are irrelevant on this score, see, e. g., LaSalle, 437 U.S. at 316 n.17, 98 S.Ct. at 2367 n.17; Garden State, 607 F.2d at 68 n. 10. But these letters 5 prove no more than that there was a criminal investigation as of the time they were both written, June 27, 1979. They do not imply that there was a criminal investigation under way when the summonses were served, August 10, 1978, or when enforcement was sought, December 19, 1978. Moreover, given the organizational structure of I.R.S.,...
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