United States v. Newman
| Decision Date | 14 April 1971 |
| Docket Number | No. 28046.,28046. |
| Citation | 441 F.2d 165 |
| Parties | UNITED STATES of America and James M. Bittman, Petitioners-Appellees-Cross Appellant, v. Roger NEWMAN, as President of Imperial Hotel, Inc., and Imperial Hotel, Respondents-Appellants-Cross Appellees, v. Donald A. POLLACK, Intervenor-Appellant-Cross Appellee. UNITED STATES of America and James M. Bittman, Petitioners-Appellees-Cross Appellants, v. Gene SNYDER, individually, etc., et al., Respondents, v. Donald A. POLLACK, Intervenor-Appellant-Cross Appellee. UNITED STATES of America and Ronald L. Pomerantz, Petitioners-Appellees-Cross Appellants, v. Ruth ROTHMAN, Respondent, v. Donald A. POLLACK, Intervenor-Appellant-Cross Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Paul P. Lipton, Robert E. Meldman, Milwaukee, Wis., for appellants.
Johnnie M. Walters, Asst. Atty. Gen., John P. Burke, Lee A. Jackson, Joseph M. Howard, Attys., H. D. Shapiro, Trial Atty., Dept. of Justice, Washington, D. C., William A. Meadows, Jr., U. S. Atty., Morton Orbach, Asst. U. S. Atty., Miami, Fla., for appellees.
Talianoff, Waller & Berger, Miami Beach, Fla., Wilson, Abramson & Rosenthal, Miami, Fla., for other interested parties.
Before JOHN R. BROWN, Chief Judge, and COLEMAN and CLARK, Circuit Judges.
This case presents aspects of the procedures used to enforce an internal revenue summons. It involves not only the rights of the nontaxpayer witnesses summoned but those of the intervenor taxpayer as well. To wipe out an already worn out cliche, the slate is clean, but not because of a lack of learning earlier recorded. Rather the slate has been wiped clean of a good deal — including, undoubtedly, some of our own declarations in this prolific field. What brings this all about is the decision we have been waiting for in Donaldson,1 which affirmed our Mercurio decision.2
In August 1968, the IRS was conducting an investigation into the tax liability of Taxpayer Donald Pollack for the years 1963-65. It served summonses under the authority of 26 U.S.C.A. § 76023 to compel the production of records in the possession of Ruth Rothman,4 Ethel and Gene Snyder,5 and Roger Newman as president and on behalf of the Imperial Hotel, Inc.6
In December 1968 the IRS sought judicial enforcement of the summonses under 26 U.S.C.A. § 7402(b) and § 7604 (a).7 To each petition was appended an affidavit that Special Agent Bittman (Agent) was conducting an investigation to determine the correctness of Taxpayer's returns, the failure of the summoned parties to respond, and the necessity of these records to ascertain the tax liability of Taxpayer.
To this, perhaps out of a nostalgic hope that a federal court would heed state pleading practices, he threw in for good measure a blunderbuss denial of all that he had not expressly admitted or qualified.
Taxpayer sought leave to intervene. In the proposed answer to the petition for enforcement, Taxpayer alleged that Agent was in bad faith in issuing summonses, that he was simply looking for evidence to use in a criminal proceeding, that the summons to Newman was overly broad and lacking in relevance to Taxpayer's liability, that Agent lacked personal knowledge of the records requested in the summons, and that the summons would violate the Fourth and Fifth Amendment rights of Taxpayer.
The District Court granted each petition to enforce the summonses. As for the intervention of Taxpayer, the Court allowed intervention and then prescribed what was described as a limited appearance in the proceedings before Agent, although this appearance turned out to be one giving Taxpayer a ringside seat, in which Taxpayer could not only see, look, and listen, but also could speak though no one was bound to listen and certainly not to act.10
Taxpayer and Newman — this always includes the hotel — appeal from the decree of enforcement,11 and the Government cross appeals from the Judge-imposed surveillance rights under Paragraph 2 (see note 10, supra).
There is always the temptation to strike out on the "big issue" but we resist this importunity, not because we would lessen the words for posterity, but rather because the little issues shrink the big ones to like size.
Newman12 asserts that before the summons can be enforced, he must be afforded an evidentiary hearing conducted under the Federal Rules of Civil Procedure at which he must be allowed discovery. We reject these contentions and hold that the show cause procedures used to enforce the summonses were adequate, proper, and reveal nothing requiring judicial exploration.
Of course Powell13 requires the Government14 to "show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed — in particular, that the `Secretary or his delegate,' after investigation, has determined the further examination to be necessary and has notified the taxpayer in writing to that effect." 379 U.S. at 57-58, 85 S.Ct. at 255, 13 L.Ed.2d at 119. But that is a long way from saying as did the discredited Local 17415 momentarily16 that the summoned witness (or taxpayer) can grind it all to a halt if he simply challenges the summons in the enforcement proceeding.
Before the Government is called upon to make this showing, the summoned party must raise in a substantial way the existence of substantial deficiencies17 in the summons proceedings. Only when so raised is there any need for an evidentiary hearing or — in anticipation of it — the traditional pretrial discovery mechanisms which Roundtree18 recognizes with appropriate limitations.
To ascertain whether there is any basis for questioning the summons, the traditional show cause order is an effective and appropriate procedural tool. Indeed, it harmonizes procedure with the substantive principle that puts the burden on the summoned party "of showing an abuse of the court's process," Powell (note 17, supra). In no way does its use extinguish the adversary proceeding which the decisions call for. Rather it is a principal means by which the enforcing Court can determine whether there is anything to "hear" and if so to give proper scope and direction to an orderly, but expeditious, adjudication of the points in controversy. And contrary to the contention of both Newman and Taxpayer, that its use somehow destroys the jurisdiction of the enforcing Court,19 the show cause device is proper and in keeping with the Federal Rules of Civil Procedure since F.R.Civ.P. 81(a) (3) expressly recognizes that in enforcement proceedings the rules apply "except as otherwise provided by statute or by rules of the district court or by order of the court in the proceedings" (emphasis added). And Donaldson spells out that the District Court "may limit the application of the Federal rules in a summons proceeding." 400 U.S. at 528-529, 91 S.Ct. at 541, 27 L.Ed.2d at 588.
Here the response to the show cause order was a juridical blank. The answer admitted all save the inconsequential "lack of knowledge" allegations. Not even in the most conclusory terms did Newman attack the summons proceedings along the Powell lines (see note 17, supra) by charging that there was an improper purpose behind the summons, that there was any harassment, that there was any lack of good faith, or that the summons was overreaching or vague.20 Nor was there even any claim that the summons to supply the documents (see note 6, supra) was overreaching, imposed unreasonable burdens on the producer, or would be difficult or impossible to comply with.
Newman did not raise a single issue. If the objection of the witness is to be helpful to the taxpayer the witness must bear the dual burden of raising and establishing the claimed deficiencies. Otherwise it is the hand of Esau but the voice of Jacob.
The District Court's order enforcing the summons as to Newman is correct and affirmed.
Taxpayer appeals from the order enforcing the summons as to each of the named witnesses. Basic to this is the question of Taxpayer's right to be in the case at all as an intervenor. The Government urges on cross appeal (i) that the District Court erred in permitting intervention in the judicial enforcement proceeding and (ii) Taxpayer should not have granted Paragraph 2 surveillance rights in the agency proceedings. We uphold the Government expressly on (i) and by so doing extinguish Paragraph 2 of the order.
In the hearing to determine intervention in the enforcement proceedings, Taxpayer disclaimed any doctor-patient, attorney-client, or accountant-client relationship with the respondents. His only alleged interest in the records owned and possessed by the respondents is that the records related to his tax liability and that the investigation has the potential of the recommendation of a criminal prosecution of Taxpayer.
In granting intervention we are clear from the language of the motion21 and from the terms of the order22 that the District...
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