United States v. Mercurio

• Decision Date: 30 October 1969
• Docket Number: No. 27341.,27341.
• Citation: 418 F.2d 1213
• Parties: UNITED STATES of America and John P. Grady, Petitioners-Appellees, v. Joseph J. MERCURIO and Acme Circus Operating Company, Inc., Respondents, v. Kevin L. DONALDSON, f/k/a Merton H. Sweet, Intervenor-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

418 F.2d 1213 (1969)

UNITED STATES of America and John P. Grady, Petitioners-Appellees, v. Joseph J. MERCURIO and Acme Circus Operating Company, Inc., Respondents, v. Kevin L. DONALDSON, f/k/a Merton H. Sweet, Intervenor-Appellant.

No. 27341.

United States Court of Appeals Fifth Circuit.

October 30, 1969.

Robert E. Meldman, Louis L. Meldman, Milwaukee, Wis., Edward H. Heller, Tampa, Fla., for intervenor-appellant.

Edward F. Boardman, U. S. Atty., Tampa, Fla., Johnnie M. Walters, Asst. Atty. Gen., Tax Division, Lee A. Jackson, John P. Burke, Joseph M. Howard, Attys., Dept. of Justice, Washington, D. C., for petitioners-appellees.

Before TUTTLE, WISDOM and BELL, Circuit Judges.

TUTTLE, Circuit Judge:

We have here for consideration against phase of the problem arising when a United States District Court is asked by an Internal Revenue special agent to enforce a subpoena requiring the production of records affecting a taxpayer.

The enforcement procedures were commenced under the authorization of Title 26, U.S.C.A. §§ 7602 and 7604.¹

The issue was raised in the following manner: (There are actually two cases involved here). On November 25, 1968, petitioners, United States of America and John P. Grady filed a petition to enforce Internal Revenue Service summons against respondent, Joseph J. Mercurio, and against Acme Circus Operating Company, Inc., two former employers of the taxpayer, Kevin L. Donaldson, formerly known as Merton H. Sweet, the taxpayer and the appellant here. Following the issuing by the trial court of its order to show cause, on December 9, 1968, intervenor Donaldson filed his motion to intervene as a respondent and to file an answer. On December 13, respondents filed their answers in which they stated that they were prepared to answer the subpoenas but for the granting of a temporary restraining order which had previously been issued by the trial court "until such time as an order of a court of competent jurisdiction has been issued requiring such compliance." On January 10, 1969, petitioners, United States of America and Grady, filed their opposition to the motion to intervene. On that date, a hearing was had on Donaldson's motion to intervene as respondent. Memoranda of law were filed in support of and in opposition to the motion and the matter was continued until January 16, 1969. On that date the court entered its order denying Donaldson's motion to intervene, and entered its order directing respondents to comply with the Internal Revenue summons. This order was later stayed pending appeal. Notice of appeal was filed on the same day and the matter is here now for our consideration.

It may clarify the discussion here to begin by stating what is not involved. We do not have a case in which a subpoena has been issued at the instance of a special agent of the Internal Revenue Service against a taxpayer himself, seeking access to his records and papers and the right to take his testimony, such as was the case in United States v. Cohen, 9 Cir., 1967, 388 F.2d 464; nor is it a case in which the subpoena seeks to obtain records of the taxpayer in the hands of his attorney or accountant, which the courts have deemed the same as if they were in the possession of the taxpayer himself. See Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L. Ed.2d 459, and this court's recent decision in Stuart v. United States et al., 5 Cir., 416 F.2d 459; nor is it a case in which records actually belonging to the taxpayer are subpoenaed while in possession of some third person, but where no privilege exists.

To the contrary, what we have here is a subpoena served on two former employers of the taxpayer demanding the production of their own records, not the records of the taxpayer.

It would seem, upon the most casual observance of this situation, that if the United States were seeking to obtain these records in support of an actual prosecution, following indictment, appellant would have no basis for seeking to have the indictment quashed on the ground of a violation either of Fourth or Fifth Amendment rights, since there would have been no unreasonable search or seizure nor any compulsion of the taxpayer's giving evidence against himself. The issue that is here presented, therefore, depends solely upon the appellant's argument that the court's power to require a response to the subpoena must depend upon the validity of the original subpoena itself; that the Internal Revenue Code authorization for the issuing of a subpoena is restricted to the obtaining of records and testimony where no criminal prosecution is in prospect or in contemplation. By alleging, in its petition to intervene, that the subpoena was not truly issued for one of the purposes authorized under Section 7602, appellant claims he was entitled to intervene to raise this issue, since the employers were not concerned about protecting any rights of appellant.

To sustain his right to intervene, the appellant, in his brief, cites Rule 24(a) of the Federal Rules of Civil Procedure.² However, in oral argument, appellant relied for his right to intervene solely on Reisman v. Caplin, supra. He claims that he should be given the relief of intervention as a matter of right. In order to test this question, since the trial court did not conduct an evidentiary hearing, we must look to the pleading by which appellant sought to intervene. Once again, it is necessary to point out what the petition does not contend: (1) It does not contend that the papers sought to be obtained from the former employer were his papers; (2) he does not contend any confidential relationship which under the rules of privilege would entitle him to prevent a disclosure by his former employer of any facts that might be relevant to the inquiry being made. In effect, the petition alleges that he has an interest in the subject matter of the investigation, which, of course, he has, that is, whether or not there has been a deficiency in the tax returns or tax payments made by the taxpayer and/or whether or not such deficiency is of such a nature as to warrant recommendation of prosecution for a crime against the revenues. However, it does not allege any fact which, if found in his favor, would warrant the trial court's quashing the subpoena against the third party.

The petition of the United States and John P. Grady was supported by an affidavit by special agents Miller and Grady as follows:

"In his capacity as special agent, he is assisting in the conduct of an investigation for the purpose of ascertaining the correct income tax liability of Merton H. Sweet, also known as Kevin L. Donaldson, for the years 1964 through 1967 inclusive."

In his motion to intervene, appellant alleges:

"Petitioner John P. Grady, special agent, and Bruce B. Miller, special agent, New Orleans, Louisiana, are guilty of bad faith both with the court and the intervenor in asserting that they have been conducting an investigation to ascertain the correct income tax liability of Kevin L. Donaldson, for the calendar years 1964, 1965, 1966 and 1967.

"John P. Grady is a special agent assigned to the intelligence division, Internal Revenue Service, Tampa Florida, and Bruce B. Miller is a special agent assigned to the Intelligence Division, Internal Revenue Service, New Orleans, Louisiana.

"The function of the Intelligence Division is to enforce the criminal statutes applicable to tax laws by developing information concerning alleged criminal violations thereof.

"Special Agent Bruce B. Miller was assigned the investigation of Kevin L. Donaldson for the calendar years 1964, 1965, 1966 and 1967 for the express and sole purpose of obtaining evidence concerning any violations of the criminal statutes applicable to the tax laws of the United States and special agent John P. Grady is assisting special agent Miller in this investigation."

These, then, are the allegations of the complaint upon which the appellant bases his contention that the issuance of a subpoena in support of such an investigation is beyond the authority contained in Section 7604. In making this contention, appellant relies heavily upon language of the Supreme Court in Reisman v. Caplin, supra. The particular language relied upon is as follows:

"Furthermore, we hold that in any of these procedures before either the district judge or United States Commissioner, the witness may challenge the summons on any appropriate ground. This would include, as the circuits have held, the defenses that the material is sought for the improper purpose of obtaining evidence for use in a criminal prosecution, Boren v. Tucker, 9 Cir., 239 F.2d 767, 772-773, as well as that it is protected by the attorney-client privilege, Sale v. United States, 8 Cir., 228 F.2d 682. In addition, third parties might intervene to protect their interests, or in the event the taxpayer is not a party to the summons before the hearing officer, he, too, may intervene. See In re: Albert Lindley Lee Memorial Hospital, supra, and Corbin Deposit Bank of Corbin, Ky. v. United States, supra 6 Cir., 244 F.2d 177 * * *."

Appellant contends that since the function of the special agents is to investigate to see whether a crime has been committed, no subpoena can be issued under the authority of Section 7602 because of the language of the Reisman opinion "this would include, as the circuits have held, the defenses that the material is sought for the improper purpose of obtaining evidence for use in a criminal prosecution," citing Boren v. Tucker, supra.

This argument goes too far. In the first place, it will be noted that under the express language of the Act, the subpoena may be served upon the taxpayer himself or upon any other person having records relevant to the inquiry. It is also apparent that there is no express limitation on the face of the statute that the power to make the investigation to — ascertain "the correctness of any return, making a return where none has been made, determining the...