United States v. Mierzwicki

• Decision Date: 06 November 1980
• Docket Number: Crim. No. JH-80-0152.
• Parties: UNITED STATES of America, Plaintiff, v. Anthony J. MIERZWICKI, Defendant.
• Court: U.S. District Court — District of Maryland

500 F. Supp. 1331

UNITED STATES of America, Plaintiff, v. Anthony J. MIERZWICKI, Defendant.

Crim. No. JH-80-0152.

United States District Court, D. Maryland.

November 6, 1980.

Russell T. Baker, Jr., U.S. Atty. for the State of Maryland, Edward M. Norton, Jr., and Stephen J. Immelt, Asst. U.S. Attys., Baltimore, Md., for plaintiff.

Allen L. Schwait, Paula M. Junghans, and Garbis & Schwait, P.A., Baltimore, Md., for defendant.

MEMORANDUM AND ORDER

HOWARD, District Judge.

Pending before the Court in this income tax evasion case is the defendant's Motion to Quash Indictment and to Suppress Evidence. Because of the novelty of this matter, the Court will present a somewhat detailed account of the factual and procedural background of this case.

I. Factual and Procedural Background

On April 8, 1980, Anthony J. Mierzwicki was indicted on six counts of income tax evasion and filing false tax returns. The indictment alleged that Mierzwicki underreported his income for the 1973, 1974 and 1975 tax years. The defendant allegedly failed to report kickbacks he received for awarding painting contracts to Charles J. Muffoletto.

In 1969, Mierzwicki was hired as a manager of residential apartments by Monumental Properties, Inc.; his duties included supervising the maintenance of several thousand apartment units. In 1971, Muffoletto, a self-employed painting contractor, began to bid on painting jobs for Monumental. Shortly after Muffoletto began contracting with Monumental, he began to bestow gratuities upon Mierzwicki. These ranged from initial gifts of whiskey and small amounts of cash to alleged payments of about $10,400, $8,800 and $6,400 in 1973, 1974 and 1975, respectively.

On February 24, 1977, Muffoletto was interviewed by Special Agent Paul W. Miller of the Intelligence Division of the Internal Revenue Service ("IRS"). Agent Miller informed Muffoletto that he was under investigation for failing to report all of his income on his 1973 through 1975 tax returns. As the interview progressed, "Muffoletto stated that he was becoming ... upset ... and that perhaps he should see his lawyer, Dave Preller, before continuing the interview." Defendant's Hearing Exhibit 1 (Memorandum of Interview, dated February 24, 1977) at 4.

The following day, Muffoletto executed a power of attorney appointing Bernard S. Aiken (an attorney) and Donald B. Greenberg (an accountant) as attorneys-in-fact to represent him before the IRS; the power of attorney was received in the Baltimore office of the IRS on March 4, 1977. Government Hearing Exhibit 4.

On April 18, 1977, Mierzwicki filed amended returns for the 1973, 1974 and 1975 tax years; these returns reported the payments he had received from Muffoletto. Subsequently, on April 29, 1977, Agent Miller placed a telephone call to Greenberg during which he indicated to Miller that an unnamed individual was involved in the matter. Government Hearing Exhibit 4 (Memo of telephone conversation, April 29, 1977).

On May 6, 1977, during a meeting with Agent Miller, Greenberg revealed Muffoletto's payments to Mierzwicki and other details of the kickback scheme. In June, Special Agent William Prochownik took over the Muffoletto investigation. Almost three months later, on August 29, Prochownik interviewed Mierzwicki, advised him of his right to representation by an attorney, and questioned him about the kickback allegations; Mierzwicki indicated he wanted the advice of counsel and the interview was terminated.

Approximately two weeks later, on September 14, Mierzwicki designated David Preller and George Christian as his attorneys-in-fact to represent him before the IRS. On December 22, during a recorded IRS interview, Mierzwicki acknowledged the receipt of "commissions" from Muffoletto; at this interview, Prochownik learned that David Preller represented Muffoletto in certain civil matters.

On January 20, 1978, Prochownik initiated the formal investigation of Mierzwicki. Subsequently, on March 10, Muffoletto was interviewed by Prochownik; also present were Greenberg, Aiken and Preller. Prochownik conducted a similar interview with Mierzwicki on April 6, at which he was represented by Christian and again acknowledged the receipt of payments from Muffoletto.

On January 2, 1979, Muffoletto was indicted for income tax evasion. Mierzwicki subsequently revoked the power of attorney of Preller and Christian and designated his current counsel to represent him before the IRS. On March 1, Muffoletto entered into a plea agreement with the government, and he pled guilty pursuant to that agreement on March 13, 1979. On May 10, 1979, Muffoletto was sentenced.

On October 29, 1979, Mierzwicki's current counsel met with representatives of the Tax Division of the Justice Department. At that meeting, the defendant's attorney indicated that Mierzwicki had received far less from Muffoletto than was reported on the defendant's amended returns. Groff Affidavit at 3. The matter of Preller's representation of both Muffoletto and Mierzwicki was discussed at that time.

On April 12, 1980, Mierzwicki was charged, in a six-count indictment, with violations of 26 U.S.C. §§ 7201 (income tax evasion) and 7206(1) (wilfully subscribing to false tax returns). On May 14, 1980, the defendant filed this Motion to Quash Indictment; the motion was filed ex parte in an attempt to avoid the waiver by the attorney-client privilege.

In deference to the defendant's concern, the Court sealed the motion pending its resolution of the privilege issue. At a conference on July 3, the defendant's counsel agreed to serve his motion on the government. An evidentiary hearing on the motion was held on July 17, 1980.

II. Discussion

A. Waiver of the Attorney-Client Privilege

The defendant adopted extraordinary procedures in filing his ex parte motion because of his unwillingness to waive the attorney-client privilege with respect to his amended returns and communications between him and Preller. As will become apparent, the defendant had waived this privilege prior to filing his ex parte motion.

Any examination of the attorney-client privilege should begin with the observation that privileges are not favored in the law and are seen as a hindrance to litigation. See McCormick, Evidence § 77 at 156 (2d Ed.) (privileges serve only to "shut out the light"), and Weinstein & Berger, Evidence ¶ 50302 at 503-15 (courts have insisted on narrow construction of privilege). Mierzwicki's claims of privilege are vulnerable on several bases:

1) Prior disclosure;

2) Amended returns are not confidential statements within contemplation of the privilege;

3) Supposedly privileged matter has been injected into the case; and

4) The defendant has impugned the good faith of his counsel.

It is fairly well established that disclosure of a privileged communication is a waiver of the privilege. See In Re Weiss, 596 F.2d 118 (4th Cir. 1979). Accordingly, statements made by Mierzwicki in the IRS interviews of August 29 and December 12, 1977, and April 6, 1978 are not shielded by the attorney-client privilege.

Additionally, statements made by counsel, acting on defendant's behalf, may be deemed waivers of the privilege. The uncontested affidavit of Joseph H. Groff, Justice Department Tax Division lawyer, indicates that he met with the defendant's attorney, Allen Schwait, who disclosed that amended returns were filed by the defendant on advice of former counsel. Schwait apparently went into some detail in outlining the content of the consultations between Preller and the defendant.¹

Although the attorney-client privilege is personal to the client, it may be waived by counsel acting with the authority of the client. McCormick, Evidence § 93 at 194. This waiver is not restricted to words or conduct expressing an intent to relinquish a known right, but may be by conduct which would make maintenance of the right unfair. Id. Thus Mierzwicki's authorization of Schwait to deal with the Justice Department to effect a favorable conclusion of the investigation may be deemed a waiver of the privilege with respect to disclosures by Schwait.

Although the defendant maintains that his amended tax returns should be excluded, the returns are not confidential statements within the contemplation of Fed.R.Evid. 501. A confidential communication is one "not intended to be disclosed to third persons other than" counsel. Weinstein & Berger, supra, at 503-11.

It would require imaginative reasoning to argue that defendant's amended tax returns were not intended for disclosure to third parties. Indeed, such reasoning would be contrary to authority. See, e. g., United States v. Schoeberlein, 335 F.Supp. 1048 (D.Md.1971) (information intended to be disclosed on tax forms not protected by attorney-client privilege), and United States v. Cote, 456 F.2d 142 (8th Cir. 1972) (disclosure, on amended returns, waives privilege with respect to data on returns as well as underlying data). Nor may Mierzwicki claim that his communications with Christian, who prepared the amended returns, are privileged; no accountant-client privilege is recognized by the Court in this federal tax case.^1a In light of the strong policy reasons for restricting claims of privilege, the common law rule will be followed. See Weinstein & Berger, Evidence ¶ 503(a)(3)01 at 503-24. To be privileged, such communications must come within the protection of the attorney-client privilege (accountant must be a "representative of a lawyer").

As Christian's assistance was apparently limited to the preparation of the amended returns, under the rationale of Schoeberlein and Cote, supra, no privilege attaches to either the returns, underlying documentation, or testimony thereon. Accordingly, no privilege may be claimed with respect to the returns which were submitted to the IRS.²

The defendant seeks to explain the additional income reported on his amended returns by his reliance on Preller's advice. It is well established that when...