Ungaro v. Desert Palace, Inc., No. CV S 88-838 RDF.

• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada
• Writing for the Court: ROGER D. FOLEY, Senior
• Citation: 732 F. Supp. 1522
• Decision Date: 17 November 1989
• Docket Number: No. CV S 88-838 RDF.
• Parties: Mark C. UNGARO, individually and on behalf of all other Dealer/Employees, etc., Plaintiffs, v. DESERT PALACE, INC., a Nevada corporation, doing business as Caesars Palace, and Unknown Agents of Caesars Palace, et al., Defendants.

732 F. Supp. 1522

Mark C. UNGARO, individually and on behalf of all other Dealer/Employees, etc., Plaintiffs,
v.
DESERT PALACE, INC., a Nevada corporation, doing business as Caesars Palace, and Unknown Agents of Caesars Palace, et al., Defendants.

No. CV S 88-838 RDF.

United States District Court, D. Nevada.

November 17, 1989.

732 F. Supp. 1523

George P. Kelesis, Las Vegas, Nev., for plaintiffs.

William A. Maddox, U.S. Atty., Las Vegas, Nev., and Thomas D. Sykes and Mark G. Fraase, Trial Attys., Tax Div., U.S. Dept. of Justice, Washington, D.C., for all defendants except Desert Palace, Inc., Dan Cassella, Patrick Cruzen, Bruce Aguilera and Brian Menzell.

Paul R. Hejmanowski of Lionel, Sawyer & Collins, Las Vegas, Nev., for defendants Desert Palace, Inc., Dan Cassella, Patrick Cruzen, Bruce Aguilera and Brian Menzell.

ORDER GRANTING MOTIONS OF DESERT PALACE, INC., DAN CASSELLA, BRUCE AGUILERA, BRIAN MENZELL, AND PAT CRUZEN TO DISMISS

ROGER D. FOLEY, Senior District Judge.

INTRODUCTION

This order concerns Defendants Desert Palace, Inc., a Nevada corporation dba Caesars Palace Hotel & Casino ("Caesars"), and Dan Cassella, Bruce Aguilera, Brian Menzell, and Pat Cruzen (collectively referred to as "Caesars' Employees"), and their motions (motions # 1 and # 9)¹ to

732 F. Supp. 1524

dismiss Plaintiff's First Amendment to Complaint for Damages (deemed by the court to be First Amended Complaint) ("Complaint") for failure to state a claim upon which relief may be granted. (See Docs. Nos. 5, 24.)

This order also concerns Defendants Dick Jones, Kenneth Green (collectively referred to as "individual federal defendants") and their motions (motions # 5 and # 10) to Dismiss with Prejudice for Failure to State a Claim or in the Alternative for Partial Summary Judgment (see Docs. Nos. 15, 29).

FACTS

On October 20, 1988, Plaintiff, a former employee of Caesars, filed suit against Caesars and Caesars' Employees (hereinafter referred to collectively as "Caesars") for producing certain information pursuant to a summons they received from co-defendant Internal Revenue Service ("IRS"). The IRS allegedly used the information obtained to monitor a 1981 dealer amnesty program. In turn, that monitoring is alleged to have led to prosecution of a number of dealers. Plaintiff asserts that he and all dealers prosecuted by the IRS for violation of tax laws have been injured by Caesars' compliance with the IRS summons.

Plaintiff alleges that on or about September 3, 1981, the IRS issued a courtesy summons to Caesars requesting the names, addresses and social security numbers of dealers. On or about September 23, 1981, the IRS served Caesars an Information Document Request stating that the information requested was for an employment tax audit of Caesars. Pursuant to the issuance of this summons and document information request, Caesars supplied information to the IRS.

Plaintiff argues that by responding to the IRS summons, Caesars: (a) violated 26 U.S.C. § 7609 (which establishes procedures for the IRS in issuing third-party tax summonses); (b) conspired and continued to conspire to violate that statute (cause of actions one and two); (c) violated the Racketeer Influenced and Corrupt Organization Act ("RICO") by committing and conspiring to commit mail and wire fraud under Title 18 of the United States Code (causes of action five and six) (d) violated 26 U.S.C. § 6103 by disclosing confidential information from a tax return (cause of action four), and (e) violated the Fourth Amendment protection against unreasonable search and seizure and the Fifth Amendment Due Process Clause of the U.S. Constitution (cause of action three).

DISCUSSION

I. Standard of Review

On a motion to dismiss for failure to state a claim, the court must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the non-moving party. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). The issue is not whether the plaintiff will ultimately prevail, but whether he is entitled to offer evidence to support his claim. Id. The trial court may not grant a motion to dismiss for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set facts in support of his claim which would entitle him to relief." Id.

This court will apply this standard for dismissal of complaint to Plaintiff's various causes of action.

II. Applicability of 26 U.S.C. § 7609 to the Instant Action

Although Plaintiff alleges several causes of action against Caesars, the critical element of the complaint is that Defendants violated 26 U.S.C. § 7609 by complying with an IRS summons issued in violation of procedural requirements under that section. Plaintiff's first two causes of action involve allegations of a conspiracy and continuation of the conspiracy to "violate" and

732 F. Supp. 1525

"circumvent" the provisions of 26 U.S.C. § 7609. Caesars asserts that neither § 7609(a) nor (f) procedural requirements are applicable to this case

A. § 7609(a)

When an IRS summons is served on a "third-party record keeper," the taxpayer to whom the records named in the summons relate is entitled to notice of summons, and may institute a proceeding to quash the summons or intervene in the enforcement proceeding. 26 U.S.C. § 7609(a)-(b) (Supp.1988). The Ninth Circuit has held that "third-party records are those containing data about transactions between the taxpayer and parties other than the summoned party. Rapp v. C.I.R., 774 F.2d 932, 934 (9th Cir.1985).

The summons in question was issued to Defendant Caesars and sought employment records: the name, address and social security numbers of Caesars Palace dealer/employees. These data pertain to transactions between Plaintiff and the summoned parties. These data are not "third party records" within the meaning of section 7609(a). See Rapp, 774 F.2d at 934 (IRS summons seeking records pertaining to taxpayer's employment and transactions between him and summoned parties were not "third-party records," within meaning of 26 U.S.C. § 7609(a)).

Section 7609(a) procedures, therefore, are inapplicable to Plaintiff's case.

B. § 7609(f)

Under § 7609(f), the IRS cannot serve a summons seeking information on the tax liability of unnamed taxpayers without obtaining prior judicial approval at an ex parte proceeding. Tiffany Fine Arts, Inc., et al. v. United States, 469 U.S. 310, 313, 105 S.Ct. 725, 726, 83 L.Ed.2d 678 (1985). The IRS, in this case, did not obtain prior judicial approval. Defendant argues that the statute and legislative history indicate that § 7609(a)(3) "third-party record keeper" definitional requirements apply to the § 7609(f) John Doe provisions as well as to § 7609(a). If Defendant's contention is correct, § 7609(f) does not apply in this case because Caesars is not a "third-party record keeper."

Defendant's contention, however, does not logically follow from the statutory language. Section 7609(a) outlines the notice requirements which apply to any summons which meets the description in § 7609(c) and is served on "third party record keepers." Subsection (f) describes a John Doe summons as "any summons described in subsection (c) which does not identify the person with respect to whose liability the summons is issued (emphasis added)." 26 U.S.C.A. § 7609(f) (Supp.1988). Subsection (c) includes "summons ... issued under paragraph (2) of section 7602(a)," a section under which the Secretary of the IRS is authorized to summon "any ... person the Secretary may deem proper." 26 U.S.C.A. § 7602(a)(2) (Supp.1988). No statutory language explicitly states that § 7609(f) cases are limited to cases included under § 7609(a) or those involving "third party recordkeepers." The first sentence of subsection (a)(3) reads: "For purposes of this subsection, the term `third-party record keeper' means —." Congress' use of the words "this subsection" in subsection (a)(3) indicates to some extent that the definitional requirements were intended to be applicable only to subsection (a) and not subsection (f).

The few courts which have had occasion to rule on the issue have concluded that issuance of John Doe summonses by the IRS is not restricted to third-party recordkeepers defined under § 7609(a)(3). United States v. Mobil Corp., 543 F.Supp. 507 (N.D.Tex.1981); United States v. Brigham Young University, 485 F.Supp. 534, (D.Utah 1980); rev'd on other grounds, 679 F.2d 1345 (10th Cir.1982) (Issue regarding whether 3rd Party recordkeeper requirement applied to § 7609(f) was not raised on appeal); United States v. Reprints, Inc., 79-1 U.S.T.C. § 9108, 1978 WL 1238 (N.D.Ga.1978).

In Mobil Corp., a case involving the right of the IRS to inspect company employment records, the court observed that the company was not a third-party recordkeeper for the purpose of notice requirements under 26 U.S.C.S. § 7609(a) but stated that the IRS nontheless had to comply with the "John Doe" summons requirements

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of § 7609(f). 543 F.Supp. at 516, fnte. 7. The court made the above-mentioned statutory analysis and concluded that

... the language of Section 7609 indicates that the third party notice provisions in 7609(a) and the "John Doe" provisions are separate requirements.... This interpretation of section 7609 is supported by its legislative history because the House report explaining 7609 does not indicate that John Doe summonses are merely a sub-species of summonses for records held by "third party recordkeepers," but rather the report gives separate treatment to the two types of summonses.

Id.

Defendant cites Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 105 S.Ct. 725, 83 L.Ed.2d 678 (1985) and United States v. Samuels, Kramer and Company, 712 F.2d 1342 (9th Cir.1983). These cases, however, did not deal with the specific issue of whether § 7609(f) requirements are limited to summonses issued to "third party recordkeepers." Defendant also contends that...