US v. Darwin Const. Co., Inc.

• Decision Date: 04 February 1988
• Docket Number: Civ. No. Y-86-67.
• Citation: 679 F. Supp. 531
• Parties: UNITED STATES of America, et al. v. DARWIN CONSTRUCTION COMPANY, INC.
• Court: U.S. District Court — District of Maryland

679 F. Supp. 531

UNITED STATES of America, et al. v. DARWIN CONSTRUCTION COMPANY, INC.

Civ. No. Y-86-67.

United States District Court, D. Maryland.

February 4, 1988.

Breckinridge L. Willcox, U.S. Atty., for the State of Md., and Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., for petitioners; Frederic Baker, Washington, D.C., of counsel.

Price O. Gielen, Baltimore, Md., Randall J. Turk and R. Stan Mortenson, Washington, D.C., for the respondent and intervenor.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

At this fourth hearing regarding Darwin Construction Company's noncompliance with an Internal Revenue Service summons,¹ the Court granted respondent Darwin's motion to vacate the government's writ of execution because the writ was issued before there was a judgment regarding the violation of the Court's final contempt order. The hearing then proceeded on the merits of the government's allegation that Darwin failed to comply with that order for nine days and therefore should be fined $5,000 per day according to its prescription. The Court finds that respondent Darwin was not in substantial compliance with the Court's order for six days and therefore renders a final judgment that Darwin must pay the Court $30,000.00.

BACKGROUND

On May 2, 1985, the Internal Revenue Service ("IRS") served a summons demanding that Darwin Construction Company appear before it and produce to Special Agent Gail Kohorst its corporate business records in support of the IRS investigation into the possible criminal liability of Darwin's president and sole shareholder Lester J. Robinson. The summons for production on May 31, 1985, was served upon Robinson and specifically listed 25 types of financial and general corporate information to be produced, but the inclusive language of the demand was broader: "all business records or documents pertaining to the ... corporation. The periods for which this request is made are 1980-1983, inclusive." On January 6, 1986, the government and Agent Kohorst filed this petition against Darwin to enforce the IRS summons. Robinson moved to intervene so that he could assert his right against self-incrimination. Robinson had asserted this Fifth Amendment right as to all documents in his possession or under his control when he appeared at the IRS offices on May 31, 1985. Darwin, in its response to the petition, also asserted that compliance with the summons would involve testimonial acts of production protected because of the incriminating nature of the documents. The Court held a "show cause" hearing on March 25, 1986, and directed respondent Darwin to comply with the summons and production of financial records. The Court's Memorandum and Order dated April 16, 1986, confirmed this ruling and granted Robinson's intervention motion based on an analysis of United States v. Doe, 465 U.S. 605, 104 S.Ct. 1237, 79 L.Ed.2d 552 (1984) and Fisher v. United States, 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976). On April 25, Judge Murnaghan of the Fourth Circuit Court of Appeals denied a stay, concluding, as did this Court, that enforcement of the order would not violate Robinson's Fifth Amendment rights.

On May 6, Darwin and Robinson filed a submission in compliance and request for amendment of the order, arguing that Darwin, through its comptroller Stanley Skweres, was able to produce only copies of the company's financial statements and corporate tax returns for the years 1980-83, without the assistance of Robinson. The Court then held a second show cause hearing on June 10, and again directed Darwin to produce the documents or to appear in court on June 23. At the third hearing June 23, 1986, the Court found Darwin in civil contempt and ordered: that it pay into the Registry of the Court $5,000 per day² on a weekly basis, and refrain from dissipating its assets, and that its motion for stay pending appeal be denied.

Respondent Darwin and intervenor Robinson appealed. In a panel decision issued April 27, 1987, 818 F.2d 30 (table), the Fourth Circuit Court of Appeals upheld the order and finding of contempt, and affirmed the Court's analysis, noting that the Fourth Circuit "has acknowledged that the act-of-production doctrine does affect the collective entity rule" but, reaffirming that "`the corporation must comply with the summons through some other person.'" Slip Opinion at 4 (quoting United States v. Lang, 792 F.2d 1235, 1241 (4th Cir.), cert. den., ___ U.S. ___, 107 S.Ct. 574, 93 L.Ed.2d 578 (1986)).

Meanwhile, respondent Darwin attempted to comply with the Court's final order of June 23, 1986. In its motion to vacate the writ of execution, Darwin recounts how it produced nine file boxes of financial records to the IRS within 24 hours of the Court's final order of June 23, and how it promptly provided additional documents on June 30 after Agent Kohorst indicated that certain items were missing from the June 24 production. Darwin claims that these items "had inadvertently been omitted from the production on June 24, 1986." Motion to vacate at 3. The government asserts the final production did not occur until July 2, 1986, and thus claims that Darwin was in contempt for nine days.³ The factual issue now in dispute and the subject of the Court's ruling is whether Darwin's attempt amounted to substantial compliance with the order. The Court finds that it did not. First, however, the Court will review the basis of its vacation of the writ of execution.

WRIT OF EXECUTION IMPROVIDENTLY ISSUED

On August 4, 1986, the government requested a writ of execution on $45,000 and the writ was issued by the Clerk on August 5. Within thirty days of the issuance of the writ, respondent Darwin filed the motion to vacate this writ of execution as improperly issued and not warranted by the facts.

Fed.R.Civ.P. 69(a), as amended March 2, 1987, governs the execution upon judgment of the Court:

Process to enforce a judgment for the payment of money shall be a writ of execution, unless the court directs otherwise. The procedure on execution ... shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought....

The applicable Maryland statute (for Maryland circuit courts) assumes that there has already been a sum certain adjudged due.

Upon the written request of a judgment creditor, the clerk of the court where the judgment was entered or is recorded shall issue a writ of execution directing the sheriff to levy upon property of the judgment debtor to satisfy a money judgment.

Md. Rule 2-641. Thus, until the Court finds that Darwin violated the June 23, 1986 order and must pay $5,000 per day for some or all of the nine day period of alleged contempt, there is no judgment which can be "executed." See International Controls v. Vesco, 535 F.2d 742, 744 (2nd Cir.1976) (execution is issued upon a final judgment). Thus, respondent's motion to vacate the writ of execution was granted as improvidently issued.

EVIDENCE REGARDING THE PERIOD OF NONCOMPLIANCE

As the moving party, the government has the burden of showing by clear and convincing proof that respondent failed to comply with the Court's final order. N.A. Sales Co., Inc. v. Chapman Industries Corp., 736 F.2d 854, 857 (2nd Cir.1984) (violation of injunction). Upon meeting this initial burden, the respondent has the burden of raising a defense on an appropriate ground.⁴ Darwin asserts that it acted in good faith and in substantial compliance with the June 23, 1986 order. Respondent has not argued that the imposition of a $5,000 per day fine would be unreasonable or arbitrary. See N.A. Sales Co., supra, 736 F.2d at 857. Indeed, coercive fines of this amount have been held within a district court's discretion. Perfect Fit Industries v. Acme Quilting Co., 673 F.2d 53, 57-58 (2nd Cir.), cert. den., 459 U.S. 832, 103 S.Ct. 73, 74 L.Ed.2d 71 (1982). Darwin had more than adequate notice of the Court's intentions and it had more than the usual number of opportunities to purge itself from contempt before the final order.⁵

There were only two witnesses at the fourth hearing: co-petitioner Agent Kohorst and Darwin Construction Company's comptroller Stanley Skweres. IRS Agent Kohorst testifed that Skweres and Darwin's counsel Stan Mortenson delivered the nine file boxes of documents on June 24, 1986, and did not wait for Agent Kohorst to check the documents against the summons list. Rather than identifying or explaining the order of these documents, they left, asking only that she mail them a general receipt for the lot. According to her diary entry for June 25 (Respondent's Exhibit 2), Agent Kohorst "spent the day looking through records submitted by Darwin." She testified that she had been told to contact Darwin's counsel if there were any problems. Her diary entry also contains a notation that she made a telephone call to Mr. Turk on June 25, but that he was "not in." Agent Kohorst completed the inventory of documents the next day. On Friday, June 27, she talked to Mr. Turk by phone informing him that she had complied a list of missing documents which she would include in her letter to Darwin of the same date. Specifically, she found missing from the June 24 production the following categories of documents requested in the IRS summons:

1. general ledger for 9-30-80, 9-30-81 and 9-30-83;

2. accounts receivable ledgers for all years;

3. Accounts payable ledgers, 1980 and January to September, 1981;

4. cash receipts book, 1980 and January — February, 1981;

5. voucher register for all years;

6. check books for all years;

7. savings account books for all years;

8. charter;

9. bank statements, July to December, 1983;

10. cancelled checks, July to December, 1983;

11. IOU or loan records for all years;

12. list of employees and termination dates 1978, 1979 and 1983.

Petitioner's Exhibit 1 (letter to Darwin dated June 27, 1986).

On June 30, Darwin produced bank statements and cancelled checks for...