United States v. Kessler
| Decision Date | 05 September 1973 |
| Docket Number | Civ. No. 71-286. |
| Parties | UNITED STATES of America and Richard C. Pfeiffer, Special Agent, Internal Revenue Service, Petitioners, v. Berry L. KESSLER, Secretary, Brittany Builders, Inc., Respondents. |
| Court | U.S. District Court — Southern District of Ohio |
W. Robinson Watters, Asst. U. S. Atty., Columbus, Ohio, Ralph A. Romano, Tax Div., Dept. of Justice, Washington, D. C., for petitioners.
Joseph F. Dillon, Detroit, Mich., Terry P. Pugh, Columbus, Ohio, for respondents.
This matter is before the Court on the United States' application for judicial enforcement of an Internal Revenue Service summons, issued pursuant to Section 7602 of the Internal Revenue Code of 1954, 26 U.S.C. § 7602. The factual circumstances surrounding the issuance of that summons, and the nature of the investigations being conducted by the Service, were set forth in some detail in our opinion in United States v. Kessler, 338 F.Supp. 420 (S.D. Ohio E.D.1972) and will not be repeated at this time. That decision was subsequently reversed by the Sixth Circuit on a procedural matter having nothing to do with the merits,1 and the case was remanded for further discovery and evidentiary hearing. See United States v. Kessler, 474 F.2d 995, 996 (C.A. 6 1973); see also Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L. Ed.2d 580 (1971); United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L. Ed.2d 112 (1964).
The mandate of the Circuit Court has now been satisfied. Discovery was undertaken and an evidentiary hearing held. Both from the evidence presented at such hearing and the developing post-Donaldson case law,2 there appeared little reason to alter the original decision to grant enforcement of the summons. The respondent, neither by evidence produced via depositions nor through evidence adduced in open court at the evidentiary hearing, was able to carry his burden by a preponderance of the evidence on the points in dispute. See United States v. Powell, supra at 58, 85 S.Ct. at 248; United States v. Weingarden, supra at 461. The Sixth Circuit in Weingarden held that ". . . the burden of proof is upon the respondent to establish by a preponderance of the evidence that the sole purpose of the summons was to obtain evidence for a criminal prosecution." This, it may be added parenthetically, is perfectly consistent with the Powell rule.3 Reluctantly, however, for the reasons which follow below, the Court must find that petitioners have prevented the very decision sought by them.
Prior to the evidentiary hearing, counsel for the respondent issued subpoenas duces tecum against several agents of the Internal Revenue Service, including Fleming Deal, K. L. Leggett, Richard C. Pfeiffer, David Smucker, and the District Director. These subpoenas sought, inter alia, these agents' working papers, fraud referral reports, and files as they pertained to tax investigations purportedly being conducted into the affairs of respondent, Dr. and Mrs. Carl Neufeld, and various corporate entities, including Brittany Builders, in which Kessler had an interest. The Court did not rule immediately on the enforceability of these subpoenas but instead put the respondent to his burden of producing evidence within his control.
At the close of the evidentiary hearing, we requested that the petitioner United States submit to the Court, for in camera inspection, the material sought by respondent through his subpoenas. It was understood that if these materials failed to support the respondent's contentions, the record would remain closed; the I.R.S. summons would be quashed or enforced on the strength of the record as it stood at the close of the hearing; and the subpoenaed records would be returned to petitioner without being viewed by the respondent. If on the other hand these materials in any way supported respondent's claim, we suggested that the subpoenas would be enforced and the record of the evidentiary hearing reopened for the taking of further evidence derived from petitioner's files.
Counsel for the petitioner noted an immediate objection to the proposed procedure and argued that it was possibly in violation of I.R.S. policy. However, the hearing was adjourned and petitioner's counsel promised that the Court would be promptly notified as to the position of the Office of the General Counsel of I.R.S.
By letter dated August 21, 1973, this Court was informed by Scott P. Crampton, Assistant Attorney General of the Tax Division of the Department of Justice, and by John J. McCarthy, Chief of the General Litigation Section of that Division, that the Court's proposed procedure was, because of departmental policy, unacceptable to the petitioner.4
The Department of Justice is assuredly entitled to promulgate and abide by whatever policies it may, in its wisdom, deem necessary to the efficient discharge of its functions. It is not, however, entitled to Court sanction when such policies depart from basic notions of due process and full disclosure. As Justice White noted recently in Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551 (1972):
The establishment of prompt efficacious procedures to achieve legitimate state ends is a proper state interest worthy of cognizance in constitutional adjudication. But the Constitution recognizes higher values than speed and efficiency. Indeed, one might fairly say of the Bill of Rights in general, and the Due Process Clause in particular, that they were designed to protect the fragile values of a vulnerable citizenry from the overbearing concern for efficiency and efficacy that may characterize praiseworthy government officials no less, and perhaps more, than mediocre ones (footnotes omitted).
405 U.S. at 656, 91 S.Ct. at 1215; also see Weaver v. O'Grady, 350 F.Supp. 403 (S.D.Ohio E.D.1972) and cases cited at 411. It is thus our unique and particularly juridical task to see that precious individual rights are not trampled in the federal bureaucracy's headlong scramble towards ever higher levels of efficiency.
The Supreme Court was careful to note in Donaldson, supra at 522-523, 535-536, that the only reason constitutional rights under the Fourth and Fifth Amendments are not squarely jeopardized by every Section 7602 summary proceeding is because the Government in these cases is, in effect, warranting that it is proceeding in good faith and prior to a formal recommendation for criminal prosecution. Cf. United States v. Billingsley, supra at 1210. But in the instant case, where the respondent has directly placed in issue the bona fides of petitioner's conduct, as they bear on Donaldson standards, the Government's response is, surprisingly, to refuse to allow this Court to conduct an in camera inspection of its investigatory files which may bear directly upon this issue.
We are at a loss to understand the logical underpinnings of petitioner's asserted position. If respondent's claims are totally without merit, then what has petitioner to lose by consenting to this Court's inspection of its files? Federal courts are fairly adept at this type of procedure, having practiced it in a broad spectrum of cases, both criminal, see United States v. United States District Court, 407 U.S. 297, 92 S.Ct. 2125, 32 L.Ed.2d 752 (1972); Jencks v. United States, 353 U.S. 657, 77 S.Ct. 1007, 1 L. Ed.2d 1103 (1957); and civil, see New York Times Co. v. United States, 403 U. S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971). This procedure is one of the basic functions of federal courts under evolving principles of civil discovery as embodied in Rules 26 through 37 of the Federal Rules of Civil Procedure and as followed in this judicial district and elsewhere in too many cases to require citation.5
On the other hand, if respondent's claims are meritorious, if only in part, and if this became apparent during an in camera inspection of the Government's files then, at the very least, petitioner would not be entitled to obtain judicial assistance for the enforcement of its summons. See Donaldson, supra at 531-536; United States v. Powell, supra at 57-58.6 If this were, in fact, the case, then the petitioner's agents would have committed a fraud upon the Court and would be liable for abuse of process and subject to the imposition of contempt powers.
We note with great reluctance that, in view of petitioner's present position, the universal teachings of human nature and the common law of evidence tend to make the latter, unhappily, more likely than the former. As the great Wigmore has commented on the operation of this inference:
The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavorable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions . . . but the propriety of such an inference in general is not doubted.
2 Wigmore, Evidence § 285 at 162 (3d ed. 1940); see also McCormick, Evidence § 77 at 155-156 (2d ed. 1972); Armory v. Delamirie, 1 Strange 505 (1722); Halliday v. United States, 315 U.S. 94, 62 S.Ct. 438, 86 L.Ed. 711 (1942); Interstate Circuit v. United States, 306 U.S. 208, 59 S.Ct. 467, 83 L. Ed. 610 (1939); Phillips v. Chase, 201 Mass. 444, 480, 87 N.E. 755 (1909), writ of error dism'd 216 U.S. 616, 30 S.Ct. 577, 54 L.Ed. 639 (1910).
This rule has been recognized in its various permutations by the Sixth Circuit, both in tax cases, see Wilkie v. C.I.R., 127 F.2d 953 (C.A.6 1942), cert den. 317 U.S. 659, 63 S.Ct. 58, 87 L. Ed. 530 (); Mayson v. C.I.R., 178 F.2d 115 (C.A.6 1949) (...
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