United States v. Phillips Petroleum Co.

• Decision Date: 05 July 1977
• Docket Number: Crim. No. 76-CR-117-B.
• Citation: 435 F. Supp. 610
• Parties: UNITED STATES of America, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Stanley Learned, William F. Martin, William W. Keeler, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

435 F. Supp. 610

UNITED STATES of America, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Stanley Learned, William F. Martin, William W. Keeler, Defendants.

Crim. No. 76-CR-117-B.

United States District Court, N. D. Oklahoma.

July 5, 1977.

Jack Cotton, David V. Capes, Thomas M. Atkinson, Dept. of Justice, Tax Division, Washington, D. C., Charles W. Muller, III, Asst. U. S. Atty., San Antonio, Tex., for U. S.

Boris Kostelanetz, John J. Tigue, Jr., Lawrence S. Feld, Kostelanetz & Ritholz, New York City, L. K. Smith, Reuben Davis, Boone, Ellison & Smith, Tulsa, Okl., Edward

J. Fauss, Phillips Pet. Co., Bartlesville, Okl., for Phillips Pet. Co.

John M. Imel, Donald P. Moyers, Tulsa, Okl., for Stanley Learned.

Edward Bennett Williams, John L. Vardaman, Jr., Washington, D. C., for William F. Martin.

Richard B. McDermott, David McKinney, Boesche, McDermott & Eskridge, Tulsa, Okl., for William W. Keeler.

FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO DEFENDANTS' MOTION TO DISMISS THE INDICTMENT FOR ABUSE OF THE GRAND JURY

BARROW, Chief Judge.

The Court having heard the arguments of counsel and received evidence on the Motion to Dismiss the Indictment for Abuse of the Grand Jury, and the parties having submitted their briefs, the Court, having carefully perused the entire file, including segments of the Grand Jury transcript, makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. On September 2, 1976, an indictment was filed in this Court, Case No. 76-CR-117, and naming as defendants Phillips Petroleum Company, Stanley Learned, William F. Martin and William W. Keeler.

2. A summary of Count I of the indictment is found in Finding No. 2 of the Findings of Fact and Conclusions of Law with respect to the Motion to Dismiss Count I for Breach of the Plea Agreement.

3. Counts II, III and IV of the indictment charge violations of 26 U.S.C. § 7206(2) in that William F. Martin did willfully and knowingly aid and assist in, and counsel, procure, and advise the preparation and presentation to the Internal Revenue Service of a corporate income tax return filed in the name of Phillips Petroleum Company which was false and fraudulent in that commission income paid by Triton Shipping Company to and for the use and benefit of Phillips Petroleum Company was omitted from and unreported in said returns, when the said Defendant well knew and believed Phillips had commission income from Triton. Such acts are charged: in Count II, on or about September 16, 1970, in regard to commission income in the amount of $146,977.10, for the calendar year 1969; in Count III, on or about September 1, 1971, in regard to commission income in the amount of $98,285.00, for the calendar year 1970; in Count IV, on or about September 15, 1972, in regard to commission income in the amount of $104,077.95, for the calendar year 1971.

4. Counts V, VI and VII of the indictment charge Phillips Petroleum Company with violations of 26 U.S.C. § 7206(1) in that the Company made and subscribed United States Income Tax Returns for Phillips which were verified by a written declaration that they were made under penalties of perjury, and filed with the IRS which the Corporation did not believe to be true and correct as to the material matters in that the return failed to report commission income and technical service fee income, which the Defendant well knew and believed had been received. Such acts are charged: in Count V, on or about September 16, 1970, for the calendar year 1969, in regard to unreported commission income in the amount of $146,977.10, paid by Triton Shipping Company and technical service fee income in the amount of $440,000.00, from Cochin Refineries, Ltd.; in Count VI, on or about September 1, 1971, for the calendar year 1970, in regard to unreported commission income in the amount of $98,285.00, paid by Triton Shipping Company and technical service fee income in the amount of $440,000.00, from Cochin Refineries, Ltd.; in Count VII, on or about September 15, 1972, for calendar year 1971, in regard to unreported commission income in the amount of $104,077.95, paid by Triton Shipping Company, and technical service fee income in the amount of $440,000.00 from Cochin Refineries, Ltd.

5. All defendants have moved that the indictment in this case be dismissed on the basis of abuse of the Grand Jury 6. One such alleged abuse is that the prosecutors withheld from the Grand Jury exculpatory evidence which was obtained from the Grand Jury witness, James R. Akright. The evidence withheld consists of the evening recorded testimony of Akright given to U. S. Justice Department Special Prosecutors Messrs. Charles Muller (formerly with the Department of Justice) and Thomas Atkinson and IRS Special Agent, John Gillette, without the presence of the Grand Jury. Defendants contend that this testimony which was withheld from the Grand Jury was exculpatory and explanatory of a remark which Akright had made earlier the same day within the presence of the Grand Jurors.

The Court became aware of the evening testimony of Akright during the hearing of the Defendants' Motion to Dismiss the Indictment for Abuse of the Grand Jury of February 15, 1977. The record shows that the Court — and defense counsel — became aware of the alleged abuse almost inadvertently:

"MR. WILLIAMS: ... We have pursuant to Your Honor's order been given the Grand Jury testimony of the witnesses save the Internal Revenue agent who testified at the end. One of those witnesses was a lawyer for the Phillips Company, named Akright. Akright testified. First of all he testified before Your Honor had conferred immunity on him, and he refused and then he was given immunity and he testified all one afternoon, specifically on the afternoon of February 12, just almost a year ago, and three days more than a year ago, and then, Your Honor, he gave evidence at night. The Grand Jury was allowed to go home and I am not sure of these facts so I have to recite to you, I believe them to be true, but I believe that Mr. Akright's lawyer wanted to get back to his home base and he asked the prosecutors to go forward at night and they acceded, but when they did the following happened. They said to the witness this: `All right, Mr. Akright' — and this is on the evening of February 12th, '76 — `for the record, for the record, this is Mr. Muller speaking, this is a continuation of Mr. Akright's Grand Jury testimony by agreement between his counsel, Mr. Martin and myself, Mr. Muller. This will be considered part of the Grand Jury records and will be under the same conditions of use immunity we have previously extended through order of the Court.'

So, we go on and we read that this continuation of the Grand Jury testimony went on with an agent of the IRS conducting a substantial part of the interrogation of the witness and with the witness' lawyer present. Two unauthorized persons. Certainly the secrecy of the Grand Jury completely and totally invaded.

THE COURT: Let me make for sure you are saying that this testimony is before the Grand Jury at night?

MR. WILLIAMS: No. What they did, Your Honor, as I understand it, is they said, `This is a continuation, Mr. Witness, of your Grand Jury testimony.' All right. And all the same rules obtain, he was under oath and he had testified all afternoon. But then in the continuation of his Grand Jury testimony there were present Mr. Martin, the witness' lawyer, Mr. Muller, Government attorney, Mr. Gillette of the IRS and the court reporter. And Mr. Gillette participates in a substantial portion of the interrogation of the witness as shown in the record here.

Now, I say this to Your Honor because I think you have here the tip of the iceberg. The tip of the iceberg being indicative of the fact that throughout these proceedings by virtue of the nature of the proceedings that were being conducted, namely the subversion of a Grand Jury to the use an sic agency of the Executive Branch of Government, that the evidence before the Grand Jury was on a regular basis made available to IRS Agents Talley and Gillette in contravention of Your Honor's order of August 28, 1975, and in contravention, Your Honor, of the rules of secrecy that historically safeguard Grand Jury proceedings under Rule 6(e) of the Federal Rules of Criminal Procedure and under the case law that has surrounded the Constitution of the United States from its inception insofar as Grand Jury proceedings are concerned.

THE COURT: Let me say this is the first time that has ever been called to my attention, that this occurred, first of all on the immunity, granted Mr. Akright was before the Grand Jury.

MR. WILLIAMS: It is the first time, Your Honor. I would have called it to your attention the moment it came to my attention but it didn't come to my attention until I got this Akright testimony, I would say 96 hours ago, because this testimony was not turned over to us until we requested it. All of the other testimony was turned over to us, of all of the witnesses, I believe, except the IRS agent who testified; and it was quite clear from the Akright testimony that there had been a continuation of it and when it was turned over to us it became apparent to us that it had taken place at night, it had taken place as part of the Grand Jury proceedings but without the Grand Jury and that the interrogation had been run by an IRS agent, named Gillette, in substantial part and that it had been run in the presence of two unauthorized persons, Mr. John Martin and Mr. John Gillette." Proceedings of February 15, 1977, Tr. 42-45.

7. The Court finds that the facts surrounding this alleged abuse of the Grand Jury are as follows:

8. The technical service fees referred to in Counts I, V, VI and VII of the indictment were paid by Cochin Refineries, Ltd. (CRL), a refinery in southern India which is partially owned by Phillips. They were paid pursuant to the Technical Services Agreement dated September 28, 1963,...