United States v. Habig, 17409.

• Decision Date: 05 September 1969
• Docket Number: No. 17409.,17409.
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Arnold F. HABIG and Jerome M. Schroering, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

413 F.2d 1108 (1969)

UNITED STATES of America, Plaintiff-Appellant, v. Arnold F. HABIG and Jerome M. Schroering, Defendants-Appellees.

No. 17409.

United States Court of Appeals Seventh Circuit.

July 28, 1969.

Rehearing Denied September 5, 1969.

Mitchell Rogovin, Joseph M. Howard, Richard B. Buhrman, Attys., Dept. of Justice, Johnnie M. Walters, Asst. Atty. Gen., Washington, D. C., K. Edwin Applegate, U. S. Atty., Indianapolis, Ind., for plaintiff-appellant.

Fred P. Bamberger, Evansville, Ind., John W. Houghton, Alan W. Boyd, Anton Dimitroff, Indianapolis, Ind., for appellees, Bamberger, Foreman, Oswald & Hahn, Evansville, Ind., Barnes, Hickam, Pantzer & Boyd, Indianapolis, Ind., of counsel.

Before FAIRCHILD and CUMMINGS, Circuit Judges, and GRANT, District Judge.¹

CUMMINGS, Circuit Judge.

This case arises on the Government's appeal under 18 U.S.C. § 3731 from an order suppressing certain evidence. In August 1966, defendants were indicted for attempting to evade the income taxes of four corporations and for aiding and assisting in the preparation of a fifth corporation's² false income tax return, in violation of Sections 7201 and 7206(2) of the Internal Revenue Code. Two years after the filing of the indictment, the defendants filed a motion to suppress the records of the five corporations that "were photocopied by agents of the Internal Revenue Service during the investigation by them of possible criminal violations of federal income tax laws by the defendants," and seeking the return of the photocopies. The ground for the motion was that the items were "illegally seized without search warrant, summons or subpoena being served upon or against either defendant." The supporting affidavits of each defendant asserted that:

"approximately two years prior to the August 12, 1966 date of the return of the indictments in this cause, agents of the Internal Revenue Service were seeking to obtain evidence for the purpose of criminally prosecuting him, but at no time was he ever informed or advised by any such agent that he was being investigated for criminal violations of the federal tax laws."

The Government denied the first of these allegations and also filed an affidavit of Revenue Agent Charles E. Lawrence. This affidavit disclosed that Lawrence was assigned to investigate the income tax returns of these five corporations in the early part of 1963. The affidavit also disclosed that the case was "subsequently" referred (by Lawrence) to the Intelligence Division of the Internal Revenue Service and that Special Agent Russell C. Hicks was assigned to the case. The date of his assignment was not revealed. The first meeting between Messrs. Hicks, Lawrence, and defendant Schroering (the comptroller of the corporations) occurred on September 21, 1964, and Schroering was then advised that Hicks was a special agent "assigned to determine if there was any criminal tax fraud in connection with the returns being examined." A representative of the accounting firm for the corporations was also present at the meeting. The examination and photocopying of the corporate records were always pursuant to "the consent of a corporate officer or representative."

After the filing of these affidavits, the district court held an evidentiary hearing at which defendant Habig, the chairman of the boards of the five corporations, and Revenue Agent Lawrence were witnesses. At the hearing and again at oral argument before this Court, the Government conceded that the defendants had standing to question the copying of the corporate records. The district court found in substance as follows:

Internal Revenue Service agents obtained certain records of the five corporations containing evidence material to the prosecution of the indictment against the defendants. These records were obtained without a search warrant, summons or subpoena. In March 1963, Revenue Agent Lawrence was assigned to examine the income tax returns of the five corporations "for civil liability." Through the public accounting firm representing the corporations, he was referred to defendant Schroering with respect to his dealings with the corporations.

In late 1963, Lawrence referred the matter to the Intelligence Division of the Internal Revenue Service because he suspected criminal violations. Special Agent Hicks was subsequently assigned to make a criminal investigation of the returns, but the date of his assignment is unknown.³ Lawrence did not advise the corporations or their accounting firm of his referral to the Intelligence Division. Hicks and Lawrence called on defendant Schroering and a representative of the accounting firm in late September 1964. At this meeting, the corporations first learned that their returns were being criminally investigated. The district court inferred that Lawrence fulfilled his duty to disclose to Hicks the evidence and leads acquired between late 1963 and September 1964. The court also inferred that the corporations\' and defendants\' consent to examine and copy corporate records after September 1964 would not have been given if the agents had "disclosed their conduct from late 1963 to September 1964."

On these findings, the trial court concluded that the records and leads were obtained while the Government was conducting a criminal investigation "during the period from late 1963 to September of 1964 but while the defendants and said corporations believed plaintiff was conducting a civil tax investigation due to the agent's apparently Revenue Agent Lawrence representations and his failure to advise them otherwise." The court further found that "defendants and the said corporations never consented to the search for the evidence for criminal investigation purposes during the period from late 1963 to September 1964." Accordingly, the court suppressed the photocopies of the corporate documents discovered by the Government during the one year period preceding the September 1964...