United States v. Galloway, 1:14-cr-00114-DAD-BAM

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
Docket NumberNo. 1:14-cr-00114-DAD-BAM,1:14-cr-00114-DAD-BAM
Decision Date23 February 2017


No. 1:14-cr-00114-DAD-BAM


February 23, 2017


(Doc. No. 67)

Defendant Michael Galloway is charged by way of indictment with four counts of attempting to evade and defeat payment of tax in violation of 26 U.S.C. § 7201. (Doc. No. 1.) On September 2, 2016, counsel on behalf of defendant Galloway filed a motion to suppress all evidence obtained as the result of an allegedly illegal search and seizure of his business records obtained by Internal Revenue Service (IRS) agents from defendant's certified public accountant (CPA), Carl Livsey. (Doc. No. 67.)1 Alternatively, defendant Galloway moved to exclude all evidence obtained by the government as a result of alleged violations of 26 U.S.C. §§ 7603 and 7609 by IRS Special Agent Brian Applegate.

On October 11, 2016, the court held a hearing on the motion. (Doc. No. 76.) Assistant United States Attorneys Michael Tierney and Megan Richards appeared on behalf of the

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government. Assistant Federal Defenders Erin Snider and Ann McGlenon appeared on behalf of defendant. (Id.) The court heard oral argument and the motion was taken under submission for decision. For the reasons set forth below, defendant Galloway's motion will be denied.

I. The Evidence

As noted above, the defendant did not request an evidentiary hearing in connection with the pending motion to suppress evidence. Instead, defendant has filed with the court four exhibits in support of his motion. (Doc. No. 67-1.) In support of its opposition to the pending motion the government has submitted six exhibits. (Doc. Nos. 69-1, 69-2, 69-3, 69-4, 69-5, and 69-6.) In support of his reply, defendant has submitted the supplemental declaration of defense investigator Victor D. Gonzalez. (Doc. No. 72-1.) Collectively, the declarations and exhibits submitted by the parties in connection with the pending motion reflect the following.

In a letter dated November 2, 2006, the IRS informed defendant Galloway that his 2003 federal income tax return had been selected for audit and requested that he provide a variety of tax related documents. (Doc. No. 69-2 at 7-11.) In the midst of this audit, Galloway's CPA, Carl Livsey, sent defendant a letter dated August 13, 2007, notifying him that he was terminating the provision of all accounting and tax services immediately due to Galloway's non-payment of fees in connection with services previously rendered. (Doc. No. 69-2 at 5.) In that letter CPA Livsey also advised defendant that the IRS audit was still in progress and that he needed to engage the services of another accountant to represent him and his company. (Id.) On August 7, 2008, defendant's case was approved for criminal investigation by the IRS Criminal Investigation Division (CID). (Id. at 3.) A March 30, 2009 entry in Special Agent Applegate's IRS criminal investigation daily diary notes that he "[a]nalyze[d] quickbooks." (Doc. No. 67-1 at 2.)

On April 9, 2009, IRS CID Special Agent Kulbir Singh Mand and Applegate went to the office of defendant's business, Catholic Online, in Bakersfield, California. (Doc. No. 67-1 at 20.)2 When the agents approached the front door to the business, an unidentified male locked the door and informed the agents that he was calling the police. (Id.) The agents called the

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Bakersfield Police Department dispatch and informed them that they were two plain clothed and armed federal agents waiting for the arrival of police. (Id.) Prior to the police arrival, an individual identifying himself as Nick Leyendecker exited the building and approached the agents. (Id.) The agents informed him that they wanted to provide Michael Galloway with some information. (Id.) Leyendecker went back inside Catholic Online and shortly thereafter came out and provided the agents with the contact information for Galloway's attorney. (Id.) Bakersfield police later arrived at the scene and the IRS CID agents departed. (Id.)

After visiting the Catholic Online on April 9, 2009, agents Mand and Applegate served CPA Livsey with a summons requiring the production of records relating to his former client, defendant Galloway. (Doc. No. 69-4 at 2.)3 In his memorandum of activity dated that same day Agent Applegate wrote:

In light of the fact that this contact with MICHAEL GALLOWAY's employees made a previously covert investigation overt, I decided that it was important to serve Carl Livsey with the summons as soon as possible in order to obligate Livsey to maintain the records and ultimately provide them to me. I handwrote the summons using a blank summons from, FORM 2039, that I had with me. I do not recall making or maintaining any copies of the summons before serving the summons on Livsey.

(Id. at 2.)

On June 22, 2010, IRS CID Special Agents Mark Silva and Applegate interviewed CPA Livsey at his place of business. (Doc. No. 69-3 at 2.)4 Livsey had prepared most of defendant Galloway's tax returns and identified Galloway's 2003, 2004, and 2005 tax returns as among those he prepared. (Id.) Livsey stated that he used profit and loss statements printed from

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Quickbooks and provided to him by Galloway's bookkeeper and wife to prepare Galloway's tax returns. Livsey was not provided with bank records in preparing the returns and did not review the returns with Galloway. (Id. at 2-3.) The IRS audited Galloway's 2003 tax returns. (Id. at 3.) During that audit, Livsey obtained an additional Quickbooks print to use to assist his analysis during the audit. (Id.) Livsey noticed that the newly obtained Quickbooks print reflected dollar amounts that did not match the Quickbooks print that he had used to prepare the 2003 tax return for Galloway. (Id.) During the audit, Livsey showed the auditor the Quickbooks printout showing the additional information. (Id.) Livsey did not know who provided him with the additional Quickbooks information. (Id.) Livsey also reviewed the payroll tax information and concluded that the IRS was correct in that regard and that it appeared Galloway owed payroll taxes. (Id.) Livsey did not prepare the payroll tax returns and did not know who did. (Id.) Livsey told Galloway about the audit of his 2003 return. (Id.)

On March 31, 2016, defense investigator Gonzalez and Assistant Federal Defender McGlenon went to the IRS to review discovery in this case. (Doc. No. 72-1 at 1.)5 McGlenon told Agent Applegate that although they would review the boxes of discovery that the agent had set up on tables and mark items for copying, they really only wanted to see the summons for the CPA records. Agent Applegate stated that he had looked in his file, but could not find the summons, and then showed investigator Gonzalez and Assistant Federal Defender McGlenon the box of records obtained from CPA Livsey, which also did not contain the summons. (Id.) Agent Applegate reported that he had checked with the agent who had accompanied him when he went to see CPA Livsey but that agent did not have a copy of the summons either. (Id.)

On September 13, 2016, Assistant U.S. Attorney Megan Richards interviewed Livsey over the telephone with Assistant U.S. Attorney Michael Tierney and IRS CID Special Agent Michele Casarez also on the call. (Doc. No. 69-3 at 5.)6 During that interview Livsey stated as follows.

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In general when he "receives a request for certain documents regarding the tax years under audit, he will give his client the letter and take whatever documents the clients provides him and submit them to IRS. The client is aware he is giving the documents to IRS as part of the audit." (Id.) Each of Livsey's clients would also sign a power of attorney form on file. (Id.) Galloway gave Livsey a disk with Quickbooks records for 2003-2005. (Id.) An IRS special agent issued Livsey a summons for Galloway's records and an agent then picked up those records. (Id. at 5-6) Livsey, however, did not remember if he told Galloway about the summons; however, his normal practice was to call a client about an audit or a summons. (Id. at 6.)

On September 14, 2016, AUSA Richards interviewed Agent Applegate. (Doc. No. 69-4 at 4.)7 Applegate stated that he served Livsey with a summons asking for records relating to the preparation of tax returns for the tax years 2003 through 2006 for Galloway and any of his businesses. (Id.) The summons was handwritten. (Id.) In the last ten years, Agent Applegate does not recall ever preparing a handwritten summons with the exception of the one he served on Livsey. (Id. at 5.) IRS Special Agent Kulbir Mand was with Applegate when he physically served the summons on Livsey. (Id. at 4.) Agent Applegate stated he would have sent a copy of the summons to Galloway after serving it on Livsey. (Id. at 5.) He also would have given a copy of the summons to Galloway's attorney after he received a power of attorney signed by Galloway and his attorney. (Id.) Agent Applegate said he would have written a due date on the summons for at least twenty-three days after the date of service to allow Galloway an opportunity to quash the summons. (Id.) Applegate kept all of the summonses issued in the case in a folder in his office. (Id.) However, at the time of the interview, a copy of the summons issued to Livsey could not be found in this paperwork. (Id.)

On September 15, 2016, AUSA Richards telephonically interviewed Special Agent Mand. (Doc. No. 69-5 at 2.)8 Agent Mand recalled being with Agent Applegate on April 9, 2009 for the

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attempted interview of defendant Galloway at the offices of Catholic Online and the subsequent issuing of the summons to CPA Livsey. (Id.) Agent Mand explained "they did not initially expect to be issuing a summons that day however considering the reaction of the employees [at Catholic Online], the agents felt it was necessary to contact the CPA and preserve records." (Id.) Agent Mand had a blank summons...

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