U.S. v. Rubin, 92-55367

• Decision Date: 18 August 1993
• Docket Number: No. 92-55367,92-55367
• Parties: , 62 USLW 2120 UNITED STATES of America, Plaintiff-Appellee, v. Israel RUBIN, as President of I.D. Enterprises, Inc.; I.D. Enterprises, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 974

2 F.3d 974

15 ITRD 1847, 62 USLW 2120

UNITED STATES of America, Plaintiff-Appellee, v. Israel RUBIN, as President of I.D. Enterprises, Inc.; I.D.

Enterprises, Defendants-Appellants.

No. 92-55367.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 4, 1993.

Decided Aug. 18, 1993.

John N. Politis, Elon A. Pollack, Politis, Pollack & Doram, Los Angeles, CA, for defendants-appellants.

Robert I. Lester, Asst. U.S. Atty., Los Angeles, CA, for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California, David W. Williams, District Judge, Presiding.

Before: NOONAN, FERNANDEZ and KLEINFELD, Circuit Judges.

NOONAN, Circuit Judge:

This case is one of first impression as to the subpoena powers of the United States Customs Service (Customs). Invoking 19 U.S.C. Sec. 1510, the United States sought enforcement of an administrative subpoena issued by the Customs under authority of 19 U.S.C. Sec. 1509 and directed to I.D. Enterprises, Inc. and its president, Israel Rubin (here collectively I.D.). The district court ordered enforcement. I.D. appealed. We reverse and remand.

FACTS

I.D. is a wholesaler of watches, most of which are imported. It imports more than 250,000 watches every month, most of which are either quartz or mechanical. The great bulk of the watches come by air; there are also occasional shipments by sea. I.D. places its orders abroad by telephone, or in person, or sometimes by letter.

In I.D.'s fiscal year 1989, the year in question, I.D. employed Norman Krieger, Inc., a customs broker licensed by the Customs, to prepare and submit necessary documents to Customs. When the goods arrived by air the Customs documents were delivered directly to Krieger by the importing carrier. The documents for ocean shipments came either to Krieger, I.D. or I.D.'s bank. Krieger would prepare a Customs Entry and Entry Summary and attach them to a copy of the invoice, packing list and bill for each particular transaction, and file these documents with Customs.

PROCEEDINGS

Customs began a routine audit of I.D. with an administrative summons, dated March 28, 1991, for certain records relating to I.D.'s importation of merchandise for its fiscal year August 1, 1988-July 31, 1989. The summons listed twenty categories of records that I.D. was asked to produce. I.D. responded by supplying a portion of the records asked. On December 18, 1991 the United States filed this action in the district court to enforce the summons. On January 2, 1992 the district court issued an order to show cause why the summons should not be enforced.

In support of its complaint, the government filed the declaration of Timothy Strinden, an auditor with the Audit Division of Customs. Strinden stated that since January 17, 1991 he had been conducting an audit of I.D. to verify that I.D. had submitted accurate, complete and current information to the Customs relating to its imports for its fiscal year 1989. His declaration stated why in his view the documents that summarize the numerous import transactions, such as the general ledger and the complete financial statements, were "indispensable." He stated that these "summary records" were indispensable because the documents that related specifically to particular transactions could not be "audited in a vacuum." The summary documents in his view provided "important clues" as to whether the importer had complied with Customs laws. In his experience it was "not unusual" for an importer seeking to evade duties to provide one invoice for Customs and keep another directly reflecting the transaction. It was also not unusual for an importer to hide certain dutiable expenses, such as assistance to foreign manufacturers, in accounts apparently related solely to domestic transactions. He also maintained that without the summary documents it was impossible to determine whether the importer had in fact produced all the documents that had been subpoenaed.

Strinden's declaration then called attention to what had awakened suspicion in the response of I.D. to Customs' first request. A letter from I.D.'s counsel of January 23, 1991 had promised to make available for inspection I.D.'s "purchase journal"; but now I.D.'s bookkeeper, Vida Falatoon, had filed a declaration stating: "We have no purchase journal." Again, the D/P (Draft Payment) control record of I.D. carried the legend on the bottom of each page "accounts payable ledger"; but Vida Falatoon's declaration stated that I.D. "does not maintain accounts payable ledgers." Moreover in certain of I.D.'s records, contrary to accepted accounting methodology, debits and credits were reversed with the establishment of a financial obligation being shown as a debit and payment being shown as a credit. This practice seemed odd, particularly since I.D. employed I.D. responded to the Strinden declaration in two ways. It filed objections to the admissibility of his declaration, challenging his personal knowledge of the facts asserted. It also requested the opportunity to cross-examine. The request to cross-examine was withdrawn two days after it was filed.

an outside accountant who "would normally quickly detect and correct this error."

On February 3, 1992 the district court conducted a hearing on the government's complaint. The government said that the "key issue" was what documents "pertained" to importations within the meaning of the statute authorizing the summons. The court said that it would order the government to submit an order setting out what "had to be produced that has not been produced. I just can't give you a blank order and say go in there and make yourself at home." Counsel for I.D. offered an explanation of the apparent discrepancy as to the purchase journal. Counsel also indicated that I.D. would like to take discovery. The court said the matter would be continued two weeks and it would "have to find out what your problems are in the meantime."

A second hearing was held on February 18, 1992. By this time the government had reduced the list of documents that it wanted and stated them to be as follows: correspondence, including faxes and facsimiles, relating to importation; all contracts, whether transaction specific or relating to the price of a year's importation; purchase orders; debit notes; credit notes; inventory records; records relating to assists to foreign suppliers; sight drafts; complete bank statements; letters of credit; wire transfers; a complete Cash Disbursements Journal; a complete statement of income; a complete balance sheet; the General Ledger; the General Ledger...