U.S. v. Vetco Inc., s. 79-3756
| Decision Date | 22 October 1981 |
| Docket Number | Nos. 79-3756,s. 79-3756 |
| Citation | 691 F.2d 1281 |
| Parties | 81-1 USTC P 9428 UNITED STATES of America and Robert R. Handley, Special Agent of the Internal Revenue Service, Petitioners-Appellees, v. VETCO INC., formerly Vetco Offshore Industries and Subsidiaries; Ronald G. Cullis, Financial Vice President and/or Larry R. Langdon, Secretary, Respondents-Appellants. UNITED STATES of America and Robert R. Handley, Special Agent of the Internal Revenue Service, Petitioners-Appellees, v. DELOITTE HASKINS & SELLS, Certified Public Accountants, Respondent-Appellant. to 79-3758, 79-3786, 80-5276 and 80-5327. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Craig B. Jorgensen, Kindel & Anderson, Alfred I. Rothman, Loeb & Loeb, Los Angeles, Cal., for respondents-appellants.
Libero Marinelli, Jr., Tax Div., Washington, D.C., argued for petitioners-appellees; M. Carr Ferguson, Asst. Atty. Gen., Washington, D.C., on brief.
Appeal from the United States District Court for the Central District of California.
Before SKOPIL and NELSON, Circuit Judges, and EAST, * District Judge.
INTRODUCTION
In October 1977 the Internal Revenue Service ("IRS") issued summonses to Vetco, Inc. ("Vetco"), its accountants, Deloitte Haskins & Sells ("DH&S"), and its lawyers, Kindel & Anderson. The summonses requested the books and records of Vetco and its overseas subsidiaries for 1971-1976, and tax accounting reports prepared by DH&S.
DH&S and Vetco resisted the summonses on the ground that compliance would require them to violate Swiss law. The district court enforced the summonses. When DH&S and Vetco did not comply, the district court imposed contempt sanctions. DH&S and Vetco appeal from both the enforcement and sanctions orders. We affirm.
Vetco is an American corporation manufacturing offshore drilling equipment. Vetco International, A.G. ("VIAG"), is a wholly-owned Swiss subsidiary of Vetco. DH&S is an American firm of certified public accountants, which was retained by Vetco to audit its accounts. Deloitte Haskins & Sells, A.G. ("DH&S Zurich") is the Swiss affiliate of DH&S.
In the early 1970's VIAG became a wholly-owned subsidiary of Vetco. This rendered Vetco subject to Subpart F of the Internal Revenue Code ("the Code") with respect to the reporting of VIAG's income. See I.R.C. Secs. 951-64. 1 The IRS asserts that Vetco attempted to avoid the application of Subpart F. Instead of shipping its products to VIAG for sale, Vetco shipped them to two Swiss corporations, Wiedex, A.G. and Zanora, A.G. Those companies transferred the goods to VIAG for sale. Under this arrangement, Vetco avoided Subpart F income because VIAG's income was no longer derived from transactions with a related corporation located outside Switzerland. The IRS alleges that Wiedex and Zanora served no non-tax commercial function.
DH&S conducted a comprehensive tax survey for Vetco in 1976. It concluded that Vetco might have been required to report Subpart F income for the tax years 1971-1976. It recommended voluntary disclosure to the IRS. Kindel & Anderson provided certain information to the IRS in August and September 1976.
The information revealed led the IRS to bring its Criminal Investigation Division into the case to investigate the possibility of fraud. Relations between the IRS and Vetco deteriorated. In the absence of voluntary disclosure, the IRS issued summonses to Vetco, DH&S, and Kindel & Anderson. Pursuant to I.R.C. Sec. 7609(b)(2), Vetco ordered DH&S and Kindel & Anderson not to comply with the summonses.
The IRS moved to enforce the summonses. The district court ruled that the summonses had been issued for proper purposes and ordered DH&S to produce its tax accrual records. It held that Kindel & Anderson was not required to produce the DH&S tax survey. 2 In November 1979, following special briefing and hearings on the effect of Swiss law, the district court ordered Vetco and DH&S to produce their Swiss records. The court did not enter findings of fact or conclusions of law. Vetco and DH&S filed notices of appeal. The district court refused to stay its order pending appeal.
Vetco and DH&S did not comply with the district court's order. In December 1979 the IRS moved to have them held in contempt and to have sanctions imposed. The district court issued a show cause order. After hearings, in March 1980 the district court ordered Vetco and DH&S to produce the Swiss records in Los Angeles by April 11, 1980, or be fined $500 per day as a sanction. This court consolidated the appeals of Vetco and DH&S from both the enforcement and sanctions orders and granted a stay pending appeal. 3
1. Did the district court err in failing to enter findings of fact and conclusions of law?
2. Does the Swiss-U. S. tax treaty preclude the use of IRS summonses to obtain records of Swiss subsidiaries?
3. Does possible criminal liability in Switzerland preclude enforcement of the summonses and imposition of contempt sanctions?
4. Does the district court's production order deny DH&S due process?
DH&S contends that the district court erred in failing to make findings of fact and conclusions of law supporting its order enforcing the summonses. We disagree.
Even if rule 52(a) of the Federal Rules of Civil Procedure requires findings and conclusions in summons enforcement and contempt proceedings, the district court could have modified that requirement by issuing an order. Fed.R.Civ.P. 81(a)(3). See United States v. Church of Scientology of California, 520 F.2d 818, 821 (9th Cir. 1975). We find no reason in this case for requiring the district court to carry out the formality of issuing an order. See Brunswick Corp. v. Doff, 638 F.2d 108, at 110-111 (9th Cir. 1981).
The function of findings and conclusions is to permit informed appellate review. 5A Moore's Federal Practice, p 52.06 at 2706 (2d ed. 1980). There is virtually no factual dispute in this case. The question of whether the use of summonses is prohibited by treaty is a question of law. Swiss law is also determined as a question of law. Fed.R.Civ.P. 44.1; Kalmich v. Bruno, 553 F.2d 549, 552 (7th Cir.), cert. denied, 434 U.S. 940, 98 S.Ct. 432, 54 L.Ed.2d 300 (1977). The few factual inquiries in the case are either immaterial or adequately addressed by the district court's on-the-record statements. Compare South-Western Publishing Co. v. Simons, 651 F.2d 653 at 656 n.2 (9th Cir. 1981) and Richmond Elks Hall Ass'n v. Richmond Redevelopment Agency, 609 F.2d 383, 385-86 (9th Cir. 1979) and Swanson v. Levy, 509 F.2d 859, 861 (9th Cir. 1975) with Lumbermen's Underwriting Alliance v. Can-Car, Inc., 645 F.2d 17, 18 (9th Cir. 1980). The district court did not err in failing to make findings of fact and conclusions of law.
Vetco argues that the Swiss-U.S. Tax Treaty precludes the use of IRS summonses to obtain records held in Switzerland. It further contends that IRS regulations provide that treaty information-exchange provisions are the exclusive means of obtaining such records.
Article XVI of the Swiss-United States Tax Treaty provides in pertinent part:
"(1) The competent authorities of the contracting States shall exchange such information (being information available under the respective taxation laws of the contracting States) as is necessary for carrying out the provisions of the present Convention or for the prevention of fraud or the like in relation to the taxes which are the subject of the present Convention .... No information shall be exchanged which would disclose any trade, business, industrial or professional secret or any trade process.
....
(3) In no case shall the provisions of this Article be construed so as to impose on either of the contracting States the obligation to carry out administrative measures at variance with the regulations Convention on Double Taxation of Income, September 27, 1951, United States-Switzerland, 2 U.S.T. 1751, 1760-61, T.I.A.S. No. 2316.
and practice of either contracting State or which would be contrary to its sovereignty, security or public policy or to supply particulars which are not procurable under its own legislation or that of the State making application."
I.R.C. Sec. 7852(d) renders Code provisions inapplicable where their application "would be contrary to any treaty obligation of the United States in effect on the date of enactment of this title." See Samann v. Commissioner, 313 F.2d 461, 463 (4th Cir. 1963). 4
There is nothing in the treaty barring the use of summonses by the IRS to gather information. The treaty does not state that its procedures for the exchange of information are intended to be exclusive. There is no such indication in the treaty's legislative history. A statute and a treaty are to be read to be consistent to the greatest possible extent. United States v. Lee Yen Tai, 185 U.S. 213, 221-22, 22 S.Ct. 629, 632-633, 46 L.Ed. 878 (1902). See also Washington v. Washington State Commercial Passenger Fishing Vessel Assoc., 443 U.S. 658, 690, 99 S.Ct. 3055, 3077, 61 L.Ed.2d 823 (1979); Kimball v. Callahan, 590 F.2d 768, 775 (9th Cir.), cert. denied, 444 U.S. 826, 100 S.Ct. 49, 62 L.Ed.2d 33 (1979).
IRS Regulations contemplate use of summonses in international tax investigations. I Audit, Internal Revenue Manual (CCH) p 4022. (10)3(2) provides, in pertinent part:
"(c) Before any contact with a foreign organization or before any summons or presummons letter is issued to obtain information from a foreign organization which is not doing business in the United States ... the matter must be referred to the Office of International Operations (CP:IO) for advice and assistance in accordance with IRM 42(10)(10)."
See...
To continue reading
Request your trial
-
Laker Airways Ltd. v. Sabena, Belgian World Airlines, s. 83-1280
...475 (1983) (applying interest balancing to conclude that lower court erred in dismissing on jurisdictional grounds); United States v. Vetco, Inc., 691 F.2d 1281 (9th Cir.), cert. denied, 454 U.S. 1098, 102 S.Ct. 671, 70 L.Ed.2d 639 (1981); Daishowa Int'l v. North Coast Export Co., 1982-2 Tr......
-
Sohappy v. Hodel
...v. Ringrose, 788 F.2d 638, 643 n. 2 (9th Cir.), cert. denied, 479 U.S. 1009, 107 S.Ct. 650, 93 L.Ed.2d 705 (1986); United States v. Vetco Inc., 691 F.2d 1281, 1285 (9th Cir.), cert. denied, 454 U.S. 1098, 102 S.Ct. 671, 70 L.Ed.2d 639 (1981). This is true even when the rights of Indians are......
-
Gerling Global Reinsurance Corp. of America v. Low, 01-17023.
...have emphasized that a foreign-law prohibition will not always excuse compliance with a discovery order."); United States v. Vetco, Inc., 691 F.2d 1281, 1287 (9th Cir.1981) ("Societe Internationale did not erect an absolute bar to summons enforcement and contempt sanctions whenever complian......
- Microsoft Corp. v. United States (In re a Warrant to Search a Certain E–Mail Account Controlled & Maintained by Microsoft Corp.)
-
Big 4 Ban Raises Challenging Conflict-Of-Law Issues
...party relying on foreign law has the burden of showing that such law bars compliance with a court order.") (citing U.S. v. Vetco Inc., 691 F.2d 1281, 1289 (9th Cir. 1981). 6 Bigio v. Coca-Cola Co., 448 F.3d 176, 178 (2d Cir. 2006) 7 See, e.g. Hilton v. Guyot, 159 U.S. 113, 164 (1895); Socié......
-
Vitamin C Ruling May Trigger Comity Defense Resurgence
...not exhaustive. Id. at 1475. The Richmark court also appeared to pull these additional factors from Accord United States v. Vetco, Inc., 691 F.2d 1281, 1788 (9th Cir. 1981) (quoting the Restatement (Second) of Foreign Relations Law ' 40). Id. 9. Richmark, 959 F.2d at 1475-76. 10. Id. at 147......
-
Vitamin C Ruling May Trigger Comity Defense Resurgence
...not exhaustive. Id. at 1475. The Richmark court also appeared to pull these additional factors from Accord United States v. Vetco, Inc., 691 F.2d 1281, 1788 (9th Cir. 1981) (quoting the Restatement (Second) of Foreign Relations Law ' 40). Id. 9. Richmark, 959 F.2d at 1475-76. 10. Id. at 147......
-
Antitrust and International Commerce
...a court to consider for noncompliance is the entry of adverse fact findings. Id. § 442(b). 580. See, e.g., United States v. Vetco Inc., 691 F.2d 1281, 1288 (9th Cir. 1981) (“Courts must balance competing interests in determining whether foreign illegality ought to preclude enforcement of an......
-
Table of Cases
...Practices Litig.), 874 Vesta Corp. v. Amdocs Mgmt., 129 F. Supp. 3d 1012 (D. Or. 2015), 263, 266, 381, 639 Vetco, Inc.; United States v., 691 F.2d 1281 (9th Cir. 1981), 1371 Vezina v. United States, 2008 U.S. Dist. LEXIS 24437 (W.D. La. Mar. 27, 2008), 1591 Viacom Int’l v. Time, Inc., 785 F......
-
Assessment of Foreign Law Restricting Discovery
...particularized analysis of the respective interests of the 21 . Id . at 212-13. 22 . Id. at 208. Compare United States v. Vetco, Inc., 691 F.2d 1281 (9th Cir. 1980), cert. denied , 454 U.S. 1098 (1981); United States v. Field, 532 F.2d 404 (5th Cir.), cert. denied , 429 U.S. 940 (1976); In ......
-
Anand Sithian, ?but the Americans Made Me Do It!?: How United States v. Ubs Makes the Case for Executive Exhaustion
...Bank of Nova Scotia (In re Grand Jury Proceedings) (Bank of Nova Scotia I), 691 F.2d 1384 (11th Cir. 1982); United States v. Vetco Inc., 691 F.2d 1281 (9th Cir. 1981); In re Grand Jury Subpoena Dated Aug. 9, 2000, 218 F. Supp. 2d 544 (S.D.N.Y. 2002).See First Nat’l City Bank, 396 F.2d 897; ......