U.S. v. Nordbrock, 90-15668

• Decision Date: 12 August 1991
• Docket Number: No. 90-15668,90-15668
• Citation: 941 F.2d 947
• Parties: -5394, 91-2 USTC P 50,391, 20 Fed.R.Serv.3d 377 UNITED STATES of America, Plaintiff-Appellee, v. Neil T. NORDBROCK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 947

941 F.2d 947

68 A.F.T.R.2d 91-5394, 91-2 USTC P 50,391,

20 Fed.R.Serv.3d 377

UNITED STATES of America, Plaintiff-Appellee, v. Neil T. NORDBROCK, Defendant-Appellant.

No. 90-15668.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 12, 1991.

Decided Aug. 12, 1991.

William A. Cohan, Cohan & Greene, Encinitas, Cal., for defendant-appellant.

William A. Whitledge, Tax Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the District of Arizona.

Before HUG, SCHROEDER and WIGGINS, Circuit Judges.

HUG, Circuit Judge:

Neil T. Nordbrock appeals from (1) an order of the district court granting an injunction prohibiting him from preparing tax returns, and (2) a judgment of the district court sustaining statutory penalties against him for failure to disclose a list of tax returns which he prepared. He argues that he was entitled to a jury trial and that the district court erred in finding that he willfully failed to produce the tax return list. We reverse and remand.

I.

From 1978 to 1981, Neil Nordbrock was in the business of preparing income tax returns, and, during that time, he prepared approximately 1,800 federal returns. Nordbrock was a member of the American Law Association (ALA) and prepared returns for some ALA members. The ALA was allegedly part of an illegal tax shelter scheme. The IRS served Nordbrock with a request for information pursuant to 26 U.S.C. § 6107(b). Section 6107(b) requires (1) that a tax preparer retain either copies of all returns filed or a list of taxpayers for whom he has prepared returns, and (2) that the preparer make the copies or list available for inspection upon demand. ¹

Upon receiving the IRS request, Nordbrock retained as counsel Donald MacPherson. After consultation with MacPherson, Nordbrock decided not to comply with the IRS's request. He instead objected on the grounds that production of the tax return information would violate his rights under the First, Fourth, Fifth, Ninth, and Tenth Amendments to the Constitution. Pursuant to 26 U.S.C. § 6695(d), the IRS sought penalties against Nordbrock for his failure to produce the tax documents. ² Nordbrock was given the maximum penalty, $25,000, for each of the three years for which the IRS sought tax return information under section 6695(d). Nordbrock paid a portion of the $75,000 penalty and sought a refund of the payment and an abatement of the remainder.

This appeal involves two actions, both arising from Nordbrock's failure to produce the tax documents. The first is an action by the Government for an injunction, pursuant to 26 U.S.C. § 7407, to enjoin Nordbrock from engaging in the business of preparing tax returns (the "injunction action"). The second is an action initiated by Nordbrock, in which he seeks a refund of that portion of the section 6695(d) penalty he paid and an abatement of the remainder of the penalty (the "refund action"). The actions, consolidated for trial and this appeal, were originally handled by separate district judges. In the injunction action, the district court granted summary judgment for the Government, finding that Nordbrock acted willfully under section 6695(d) in refusing to deliver the tax documents. In the refund action, because the dispositive issue was the same (willful failure to deliver documents), the district court relied on the res judicata doctrine and granted summary judgment for the Government.

In a consolidated appeal, a panel of this court reversed both the refund and injunction actions, holding that a material issue of fact existed as to whether Nordbrock acted willfully in refusing to produce the requested documents. United States v. Nordbrock, 828 F.2d 1401, 1404 (9th Cir.1987). This court held that reliance on the advice of counsel is a valid defense to a charge of willfulness, and that affidavits from Nordbrock and MacPherson created a material issue of fact regarding Nordbrock's reliance on MacPherson's advice. Id.

On remand, the injunction and refund actions were consolidated and a bench trial was conducted on the issue of willfulness. The evidence necessarily focused on Nordbrock's alleged reliance on MacPherson's advice in refusing to comply with the IRS's request. The court found that Nordbrock's failure to produce the documents constituted "willful interference with the proper administration" of the tax code. United States v. Nordbrock, 734 F.Supp. 908, 911 (D.Ariz.1990). It therefore enjoined Nordbrock from preparing returns and sustained the $75,000 in penalties against him. Id. Nordbrock timely appeals.

II.

Nordbrock argues that he was entitled to a jury trial on the issue of willfulness. The Government contends that, although Nordbrock originally requested a jury trial in the refund action, he waived his request by signing the pretrial order which set the consolidated case for a bench trial.

The Seventh Amendment guarantees a jury trial to determine liability in a Government action seeking civil penalties. See Tull v. United States, 481 U.S. 412, 417-25, 107 S.Ct. 1831, 1835-40, 95 L.Ed.2d 365 (1987). (Seventh Amendment guarantees jury trial for determination of liability for civil penalties under the Clean Water Act); McLaughlin v. Owens Plastering Co., 841 F.2d 299, 300-01 (9th Cir.1988) (employer entitled to jury trial where Secretary of Labor sought back pay under the Fair Labor Standards Act).

After the original remand from this court, the...