U.S. v. Hefti

• Decision Date: 17 August 1989
• Docket Number: 88-2088,Nos. 88-1838,s. 88-1838
• Citation: 879 F.2d 311
• Parties: -5139, 89-2 USTC P 9413 UNITED STATES of America, Brenda Kessel, Revenue Agent, I.R.S., Appellees, Agent, I.R.S., Appellees, v. Charles R. HEFTI and Marion Hefti, Appellants. UNITED STATES of America and R. Michael Williamson, Revenue Agent, I.R.S., Appellees, v. Charles R. HEFTI and Marion Hefti, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 311

879 F.2d 311

64 A.F.T.R.2d 89-5139, 89-2 USTC P 9413

UNITED STATES of America, Brenda Kessel, Revenue Agent, I.R.S., Appellees, Agent, I.R.S., Appellees, v. Charles R. HEFTI and Marion Hefti, Appellants.

UNITED STATES of America and R. Michael Williamson, Revenue

Agent, I.R.S., Appellees, v. Charles R. HEFTI and Marion Hefti, Appellants.

Nos. 88-1838, 88-2088.

United States Court of Appeals Eighth Circuit.

Submitted March 13, 1989.

Decided June 29, 1989.

Rehearing and Rehearing En Banc Denied Aug. 17, 1989.

Charles M. Shaw, Clayton, Mo., for appellants.

Calvin C. Curtis, Washington, D.C., for appellees.

Before FAGG and BEAM, Circuit Judges, and DUMBAULD ^*, Senior District Judge.

DUMBAULD, Senior District Judge.

The present appeals ¹ involve the propriety of orders of the District Court for the Eastern District of Missouri holding appellants in contempt for failure to comply with prior orders requiring production of appellant's original records for examination by the IRS pursuant to 26 U.S.C. Sec. 7602. ² For reasons hereinafter elaborated, we affirm.

From the declaration of purposes set forth in the opening words of Sec. 7602(a) it is clear that the authorization conferred upon the IRS by subsections (1) and (2) thereof "to examine" books, papers, records, or other data, ³ and to require their custodians "to produce" them and to "give ... testimony" relevant to the inquiry, contemplates utilization of such documents and testimony for the declared purposes, namely the correct calculation and collection of tax liability. Hence the obligation imposed upon taxpayers by Sec. 7602(a) is not satisfied unless the information supplied pursuant thereto is provided in such form and in such manner as will enable the IRS to utilize it effectively in fulfillment of the declared purposes, namely the calculation and collection of the correct tax liability of the taxpayers.

Present at the IRS office on May 15, 1988, were the appellants Charles and Marion Hefti, with their enrolled agent Joel Loewenstein, as well as an IRS attorney Robert Burbank, and Richard Gluck, a revenue agent. ⁴ The Heftis brought three briefcases (one for each of the tax years involved). Two tape recorders memorialized the meeting, one operated by the Heftis and one by the IRS.

As Loewenstein read off from the summons each item called for, the Heftis would hold up an envelope said to contain the material responsive to that item, and would hold up documents taken from the envelope, and then replace them. The IRS men could not see what was in the envelopes. ⁵

The Heftis refused to turn over their records to the IRS, but were willing to have them examined in their presence, at that time, or to return later for further examination or photostating in their presence. At no time did the IRS ever have possession of the papers or an opportunity to utilize them meaningfully in any manner to determine the Heftis' tax liability.

The chief bone of contention, for the sake of which the Heftis were willing to face incarceration to prevent the issue from becoming moot, is whether the word "produce" in 26 U.S.C. Sec. 7602(a) means "make available" or means "turn over" to the IRS. ⁶

However, we do not need to resolve that question ⁷ to dispose of the case at bar. It suffices to say that it was made perfectly clear to the Heftis that the District Court interpreted it as meaning "turn over" and did not accept the contrary Hefti position. The repeated rulings of the District Court constituted the law of the case; and if the Heftis chose not to acquiesce, their proper course was to appeal from, not to flaunt, the decisions of the District Court. ⁸

Even before his memorandum and order of April 6, 1988, following the March 25, 1988, hearing requiring the Heftis to show cause why they should not be held in contempt, Judge Filippine was quite explicit in informing the Heftis that in his judgment "to produce" meant "to turn over" to the IRS their original records called for by the summons under 26 U.S.C. Sec. 7602(a). In the memorandum he explained:

The Court then ordered respondents to turn over their original documents to the petitioners and otherwise comply with the November 13, 1987 orders before April 11, 1988. The Court clearly indicated that failure to comply would result in a finding of contempt and the imposition of a fine. ⁹ The Court further found that respondents still have not complied with this Court's November 13, 1987 orders. According to the case law respondents are required to physically turn over the original documents and records requested, and not merely "present" the records. Therefore the actions of the respondents on March 15, 1988 did not constitute compliance [with 26 U.S.C. 7602] and 26 U.S.C. Sec. 7605 does not apply. Furthermore, their willingness to return with the records subsequently to the IRS office, is simply not practical. ¹⁰

In the operative portion of the order itself Judge Filippine unequivocally ordered that "Respondents are directed to produce for examination, by turning over the originals, the items requested in the summonses dealing with the calendar year ending December 31, 1985, on or before April 11, 1988." [Italics supplied] The order went on to provide that each respondent, in the event of failure to comply "will be in contempt of Court and will be fined the sum of $50 per day" until such time as she or he complies with the order. ¹¹

Judge Gunn was no less explicit in his order of July 13, 1988. The Heftis were there "directed to obey the summonses issued on July 15, 1986" relating to the tax years 1983 and 1984 within ten days. To forestall any further equivocation, the order specifically went on to provide that "Said compliance shall consist of producing for examination the items described in the summonses by turning over to the Internal Revenue Service the relevant ledgers, journals, summaries, books of entry, and other records." ¹² [Italics supplied]

What further demonstration could the Heftis ask for in order to realize that the District Court, with respect to all three taxable years involved, had adopted the IRS interpretation of 26 U.S.C. Sec. 7602(a) and rejected the interpretation so vehemently urged by the Heftis? Obviously it was the obligation of the Heftis to appeal to this Court if they were unwilling to acquiesce in the unequivocal rulings of the District Court.

The taxpayers were not free to disregard and ignore the court's decision and to behave in accordance with their own notions about the proper interpretation of the statutory language. U.S. v. United Mine Workers of America, 330 U.S. 258, 291-94, 300-03, 67 S.Ct. 677, 694-96, 699-701, 91 L.Ed. 884 (1947). Such private usurpation of the judicial function can not be countenanced. This is a long-recognized principle of law.

It remains to consider some subsidiary arguments advanced by appellants. Lack of jurisdiction is urged; but service of an order to show cause suffices to establish jurisdiction for contempt in an enforcement proceeding under 26 U.S.C. Sec. 7604(b). U.S. v. Miller, 638 F.2d 39, 40 (8th Cir.1980). Nor does issuance of a deficiency notice to prevent operation of the statute of limitations terminate the validity of a summons under 28 U.S.C. Sec. 7602(a) which was valid when issued. Couch v. U.S., 409 U.S. 322, 329, 93 S.Ct. 611, 616, 34 L.Ed.2d 548 (1973). The fact that Judge Gunn left the bench after warning Mrs. Hefti that he would terminate the hearing if she persisted in disregarding his rulings as to relevance, does not indicate prejudice or unfairness towards appellants. ¹³ Likewise there is no merit in appellants' contention that a civil contempt fine of $38,000 is invalid because it exceeds the $1000 criminal fine prescribed by 26 U.S.C. Sec. 7210 for failure to comply with a summons. Appellants were not being prosecuted criminally. It is an elementary rule that in civil contempt the sanctions are coercive (to encourage compliance), not punitive. Lamb v. Cramer, 285 U.S. 217, 220-21, 52 S.Ct. 315, 316-17, 76 L.Ed. 715 (1932); U.S. v. United Mine Workers of America, 330 U.S. 258, 300, 67 S.Ct. 677, 699, 91 L.Ed. 884 (1947).

A more dramatic claim is presented by the argument that Mrs. Hefti was wrongly taken into custody in the courtroom when she was there in connection with another of her tax cases. Of course there really does not exist any unconditional privilege that a person in court for one case cannot be subjected to execution of judicial process in another case.

The Supreme Court made clear in Lamb v. Schmitt, 285 U.S. 222, 225, 52 S.Ct. 317, 318, 76 L.Ed. 720 (1932), that:

The general rule that witnesses, suitors, and their attorneys, while in attendance in connection with the conduct of one suit are immune from service of process in another, is founded, not upon the convenience of the individuals, but of the court itself.... As commonly stated and applied, it proceeds upon the ground that the due administration of justice requires that a court shall not permit interference with the progress of a cause pending before it, by the service of process in other suits, which would prevent, or the fear of which might tend to discourage, the voluntary attendance of those whose presence is necessary or convenient to the judicial administration in the pending litigation.

After quoting a passage from Parker v. Hotchkiss, ¹⁴ the Court went on to conclude:

It follows that the privilege should not be enlarged beyond the reason upon which it is founded, and that it should be extended or withheld only as judicial necessities require.

An earlier case, Stewart v. Ramsay, 242 U.S. 128, 130-31, 37 S.Ct. 44, 45-46, 61 L.Ed. 192 (1916), likewise makes plain that exemption from process is accorded only to non-residents not normally subject to suit in the jurisdiction. ¹⁵ But the Heftis lived in St. Louis, within the jurisdiction of the District Court; hence clearly Mrs. Hefti was not entitled to immunity.

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