United States v. Summe

• Citation: 208 F. Supp. 925
• Decision Date: 05 August 1962
• Docket Number: No. 1008.,1008.
• Parties: UNITED STATES, Plaintiff, v. Joseph L. SUMME, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

208 F. Supp. 925

UNITED STATES, Plaintiff, v. Joseph L. SUMME, Defendant.

No. 1008.

United States District Court E. D. Kentucky, Covington Division.

August 5, 1962.

B. T. Moynahan, Jr., U. S. Atty., Moss Noble, George I. Cline, Asst. U. S. Attys., Lexington, Ky., for plaintiff.

Frank J. Richter, James T. Dewan, Cincinnati, Ohio, for defendant.

SWINFORD, District Judge.

On June 23, 1960 Richard DeVoto, special agent for the Internal Revenue Service issued a summons for defendant to appear at the Federal Building in Covington on July 5, 1960 to testify about the 1957 and 1958 tax returns of Henry and Freda Kottmyer and to bring with him all books and papers which he used in the preparation of the returns or which might explain the entries on them. The purpose of the investigation contemplated by this summons is to determine whether the Kottmyer returns are fraudulent. Defendant appeared before agent DeVoto on July 1, 1960 but refused to identify certain of the books and papers and to answer certain of the questions on the ground that he is an attorney for the Kottmyers and the questions were directed at confidential communications.

The present action has been filed pursuant to 26 U.S.C.A. § 7402(b) by the United States Attorney who seeks an order of the court compelling full compliance by defendant with the summons.

Agents of the Internal Revenue Service are empowered by section 7602 of the Code to issue process for the production of books, papers, notes, memoranda, worksheets, and other data and to require the presence of taxpayers and others for the purpose of testifying pertinent to tax liability. It is upon this section that Agent DeVoto relied in issuing the summons.

The government seeks to prevail on the broad proposition that the attorney-client privilege has no application to an examination under section 7602 and is supported to some extent in this thesis by the character of the proceedings under this section. It is not the purpose of one of these hearings to determine the rights and liabilities of the parties but only to secure information. Torras v. Stradley, N.D.Ga.1952, 103 F.Supp. 737. Moreover the case of Falsone v. United States, 5th Cir. 1953, 205 F.2d 734, was decided upon a theory that would support the government. There an accountant relying on a Georgia statute making communications between client and accountant privileged refused to answer certain questions at a hearing similar to the one involved here. The court held that privilege inapplicable to the tax investigation on the ground that there is no common law privilege as to communications of this sort, that the only way of reaching Georgia law on the subject is through rule 43(a), F.R.Civ.P. 28 U.S.C.A. which makes state rules of evidence applicable to federal court proceedings in certain cases and that since the tax investigation is not a court proceeding, there is no basis for applying rule 43(a).

At the outset the question of the government's right to examine the taxpayers' books can be eliminated from the case. There is no privilege with respect to the books or associated papers. In re Blumenburg, S.D.N.Y.1960, 191 F. Supp. 904. But as to the right of Agent DeVoto to compel the defendant's testimony uninhibited by the attorney-client privilege there is considerable doubt.

First of all the attorney-client privilege is derived from the common law and does not depend upon the existence of a statute. 58 Am.Jur., Witnesses sec. 461. Accordingly the logic underlying the Falsone case as it proceeds from the statutory origin of the accountant-client privilege cannot be translated to this case. What must first be determined is whether the federal courts recognize the attorney-client privilege in cases in which they are not following the law of some other jurisdiction and it seems fairly clear that they do. See Baldwin v. Commissioner of Internal Revenue, 9th Cir. 1942, 125 F.2d 812, 141 A.L.R. 548; United States v. United Shoe Machinery Corporation, D.Mass.1950, 89 F.Supp. 357; Securities and Exchange Commission v. Harrison, D.C.D.Col.1948, 80 F. Supp. 226. Accordingly if the testimony of defendent were being sought in this court, the privilege would receive full play. This is not a complete answer however for as the court in Falsone pointed out, the fact that the power of this court to compel attendance is sought does not of itself carry all of the evidentiary rules of the federal courts into the statutory hearing. See also F. T. C. v. St. Regis Paper Co., 7th Cir. 1962, 304 F.2d 731. Consequently it must be ascertained whether and to what extent the privilege operates in the investigative proceeding independently of how it might operate in the court.

The closest holding on the question of privilege at a 7602 investigation is in the case of Chapman v. Goodman, 9th Cir. 1955, 219 F.2d 802. The court there approved an order of the district court permitting an attorney to invoke the privilege as to specific questions asked at the investigation with the expectation that the internal revenue agent would thereafter refer the question of privilege to the court for rulings on the propriety of individual questions. The reasoning of the decision begins with the premise that the source of law on questions of privilege at a section 7602 proceeding is reached through the Civil Rules. Baird v. Koerner, 9th Cir. 1960, 279 F.2d 623, asserts that a lawyer testifying at an internal revenue investigation may decline questions on the ground of privilege but holds that the particular question was not within the privilege. The rationale here is that the attorney-client privilege is an incident of the power of the state to create lawyers and that the application and scope of the privilege is therefore governed by state law. The court reinforces this conclusion with the observation that the civil rules govern questions of evidence at a 7602 hearing and that these refer to the state law. Gretsky v. Basso, D.Mass.1955, 136 F.Supp. 640, seems to intimate that privilege can only be found in state law and concludes that state evidentiary restrictions do not apply to a federal administrative proceeding. The decision in the case of In re Albert Lindley Lee Memorial Hospital, N.D.N.Y.1953, 115 F.Supp. 643, is that privilege is governed by state law and turns upon a finding that the particular questions asked are not guarded by any privilege under the state law. In view of the cases recognizing the attorney-client privilege as a part of the federal common law, it seems unnecessary to solve any choice of law problem. Possibly the cases which get into...