U.S. v. Rizzo

• Decision Date: 24 September 1976
• Docket Number: No. 75-3455,75-3455
• Citation: 539 F.2d 458
• Parties: 76-2 USTC P 9711 UNITED STATES of America and Edwin Chandler, III, Special Agent of the Internal Revenue Service, Plaintiffs-Appellees, v. Virgil R. RIZZO, M.D., P.A., and Virgil R. Rizzo, as President of Virgil R. Rizzo, M.D., P.A., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 458

539 F.2d 458

76-2 USTC P 9711

UNITED STATES of America and Edwin Chandler, III, Special Agent of the Internal Revenue Service, Plaintiffs-Appellees, v. Virgil R. RIZZO, M.D., P.A., and Virgil R. Rizzo, as President of Virgil R. Rizzo, M.D., P.A. Defendant-Appellant.

No. 75-3455.

United States Court of Appeals Fifth Circuit.

Sept. 24, 1976.

Robert S. Zack, E. Louis Fields, Fort Lauderdale, Fla., for defendant-appellant.

Robert W. Rust, U. S. Atty., Mary-Ella Johnson, Asst. U. S. Atty., Miami, Fla., Scott P. Crampton, Gilbert E. Andrews, Crombie J. D. Garrett, William A. Whitledge, Tax Div., Dept. of Justice, Washington, D. C., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before DYER, SIMPSON and RONEY, Circuit Judges.

SIMPSON, Circuit Judge:

Dr. Virgil R. Rizzo, individually and as president of Virgil R. Rizzo, M.D., P.A., (hereinafter referred to in the singular, as appellant or Dr. Rizzo) appeals from a September 3, 1975 order of the district court which held him in contempt and fined him $21,950 for failure to produce certain records sought by the Internal Revenue Service in compliance with a prior court order. In addition, Dr. Rizzo was ordered jailed until the records sought were produced. We reverse.

Dr. Rizzo is a physician practicing as a professional association under Florida law. ¹ His fiscal year begins August 1 and ends July 31 of each calendar year.

Under Rizzo's record-keeping system a "patient payment card" was made for each patient upon that patient's first visit to the doctor's office. When the doctor saw a patient, a record of the services rendered was first recorded on that patient's chart. This information was then transferred to the patient payment card, either by the doctor or his office manager. The office manager entered the standard charge for the treatment performed on the card, and billed the patient on that basis. The office manager attended to the billing and record-keeping functions of the practice. Appellant did not concern himself with these matters. At the time in question Dr. Rizzo maintained between 10,000 and 15,000 patient cards. Cards for individuals no longer patients were kept in inactive folders with the former patient's other records. Cards for current patients were divided into two groups: cards for those patients with an outstanding balance were kept in an accounts receivable file, while cards on patients owing no money were kept in a separate file.

In August of 1973, an Internal Revenue Service aide was assigned to transcribe data from the patient payment cards for use in an audit of Dr. Rizzo's 1972 income tax returns. She was dictating information from those cards onto a tape recorder when she was interrupted by a member of Dr. Rizzo's staff and asked to leave, allegedly because of errors she was making in recording the information from the cards. On May 8, 1974, Edwin Chandler, III, special agent of the I.R.S., issued an I.R.S. summons ² to Dr. Rizzo which required that he produce business records of his practice including an appointment book, copies of receipts given patients, journals, ledgers, bank records including cancelled checks, deposit tickets, payroll records and patient payment cards. Rizzo complied with the summons, producing the requested items except a number of patient payment cards.

Agent Chandler on August 23, 1974, filed a petition in the United States District Court to enforce the summons and require the production of the remaining patient payment cards. On October 15, 1974, following a hearing, the district court ordered Rizzo to produce all the missing cards.

On October 24, 1974, agent Chandler went to appellant's office. He there microfilmed those cards sought for which there was a current balance outstanding. He also obtained from Dr. Rizzo sixteen bundles of cards. Chandler compared the cards he had microfilmed and the cards he had obtained with the other records he had previously obtained, and also with the data the I.R.S. aide had originally taped when she visited Dr. Rizzo's office in August, 1973, and thereafter transcribed. Chandler determined that there were at least 130 cards missing. In order to obtain these cards, the United States and agent Chandler on March 27, 1975, filed a petition to enforce the court's prior order, and to hold taxpayer in contempt and fine him in an amount equal to the government's expenses.

Rizzo responded by affidavit to the government's petition, alleging that he had instructed his office manager to gather all the cards. He stated that he had not examined the cards himself, nor personally searched the files. He further asserted The district court held a hearing on May 15, 1975. At that time appellant produced a further 201 cards. The court warned taxpayer that if he failed to produce any remaining cards, he would be incarcerated until he complied with the court's order. At the government's request, the court imposed a civil contempt fine of $250 on Dr. Rizzo, for failure to turn over the cards initially. The court expressly noted that plane fare from Washington and one day's expense for the government tax attorney approximated that amount. This order was not appealed.

that if any cards were in fact missing, and in his possession, they had been overlooked because of "excusable neglect".

After examining the 201 cards that Rizzo had produced at the hearing, the government filed on May 29, 1975, a "Second Petition to Enforce Order of This Court". The government alleged that examination of the 201 cards produced showed that 39 of the cards did not concern the year under investigation, 67 cards were cards of which Chandler had no prior knowledge, 31 cards had been previously microfilmed, with only 64 cards being among those sought. 66 cards which the I.R.S. had demanded were thus still not produced.

The court issued an order requiring that appellant show cause why he should not be held in contempt. A hearing was held July 28, 1975. The government, by agent Chandler, introduced into evidence a "schedule" in which the 1,929 cards the government received on October 23, 1974, the 201 cards produced on May 15, 1975, and 15 cards turned over in June, 1975, together with those cards microfilmed in October, 1974, were compared against names listed on Dr. Rizzo's appointment book, information obtained from the I.R.S. aide in her partial audit, entries on appellant's deposit slips, and a schedule of Blue Cross and Medicare payments made to Dr. Rizzo's patients for reimbursement of his fees. From this schedule, Chandler concluded that at least 143 cards had not been produced as ordered by the court on October 23, 1974.

Dr. Rizzo testified that he felt that patient payment cards had not been made for every patient; that some of the people listed on the schedule were relatives and friends whom he did not charge for his services; and that in complying with the court's order he did not himself gather the cards, but that he instructed his office manager to locate and turn over to the I.R.S. all the cards. He further testified that he had eventually gone through his files himself and could find no further cards called for in the summons and court order, and that to his knowledge, no card had been concealed or destroyed.

Joan Dunn, office manager for Dr. Rizzo, testified that she habitually made a card for every patient; that the cards were her record of billings, and that no cards were ever destroyed. She stated that no cards had been removed from the office, and that every card prepared should be in the office. She explained that some cards might be misfiled, and thus "lost", somewhere within the office.

At the conclusion of the hearing the district judge made extensive findings of fact. The court was convinced that the government's evidence was creditable, and that the cards existed. The court held Dr. Rizzo in contempt and ordered him to produce 134 cards.

In response to the court's order, appellant submitted 147 cards to the I.R.S. on August 1, 1975. At a hearing September 3, 1975, Dr. Rizzo admitted that most of those cards had been made or reconstituted from his patient's charts specifically to comply with the court's order. The district judge observed that "dummying up" a card was not compliance with his order, and found as follows:

"The Court specifically finds that Dr. Virgil R. Rizzo is in contempt of court; has failed to comply with the order of the Court of October 15, 1974, and intervening orders of the Court and only partially complied with . . . the last order of the Court finding Dr. Rizzo, M.D. and P.A. and Virgil R. Rizzo as President of The Court finds that only when Dr. Rizzo is brought to a court hearing and ordered to show cause does he make grudging compliance with the orders of the Court and with the subpoena of the Internal Revenue Service. The Government has gone to great effort and detail . . . and as I pointed out in my order of July 29th in trying to show exactly which cards should be produced.

Virgil R. Rizzo, M.D. and P.A. in contempt of court. . . .

There has been no evidence produced by the Respondent at this hearing to justify failure to comply fully with the Court's order of October 15th and July 29th, 1975. There has been no evidence even that the twelve names of the eighteen that Mrs. Carter testified about have been produced.

The Court specifically finds that dummying up a card just by putting a name on it because that's set forth in the Court's order is not compliance with the Court's order.

There has been evidence presented before the Court that the cards were made up from an examination of medical records. The Court finds that some of the cards have nothing more than what is set forth in Government's Exhibit 1.

Such grudging and almost insolent production of records is clearly contempt of court. I don't know why I should give you another minute. I never put up with this kind of...