US v. Gertner

• Decision Date: 13 January 1995
• Docket Number: Civ. No. 94-11667.
• Parties: UNITED STATES of America, Petitioner, v. Nancy GERTNER and Jody L. Newman, personally and in their representative capacities as partners/officers of Dwyer, Collora and Gertner, Respondents.
• Court: U.S. District Court — District of Massachusetts

873 F. Supp. 729

UNITED STATES of America, Petitioner, v. Nancy GERTNER and Jody L. Newman, personally and in their representative capacities as partners/officers of Dwyer, Collora and Gertner, Respondents.

Civ. No. 94-11667.

United States District Court, D. Massachusetts.

January 11, 1995.

Judgment January 13, 1995.

COPYRIGHT MATERIAL OMITTED

George P. Eliopoulos, U.S. Dept. of Justice, Tax Div., Washington, DC, for petitioner.

Jody L. Newman, Dwyer & Collora, Thomas E. Dwyer, Jr., Dwyer, Collora & Gertner, Boston, MA, Gerald B. Lefcourt, Lefcourt & Dratel, P.C., New York City, for Nancy Gertner.

Gerald B. Lefcourt, Dwyer & Collora, Boston, MA, for Jody Newman.

Andrew Good, Silverglate & Good, Boston, MA, Judith H. Mizner, Newburyport, MA, for Massachusetts Ass'n of Criminal Defense Lawyers.

Francis S. Moran, Jr., Boston Bar Ass'n, Boston, MA, for Boston Bar Ass'n.

Sheryl E. Reich, Gerald B. Lefcourt, Lefcourt & Dratel, P.C., J. Bruce Maffeo, Bernstein & Maffeo, New York City, for John Doe # 1.

Benjamin Fierro, III, Massachusetts Bar Ass'n, Boston, MA, for Massachusetts Bar Ass'n.

ORDER AND MEMORANDUM OF DECISION

BRODY, District Judge.

This case presents an issue of first impression in this Circuit, namely, whether the Internal Revenue Service may require an attorney to disclose the identity of a client from whom the attorney received more than $10,000 in cash without violating the client's constitutional rights, the attorney-client privilege, or the attorney's ethical duty to keep client secrets confidential. The Court concludes that, under the special circumstances presented in this case, the information demanded by the IRS is privileged and need not be disclosed.

I. Background

In 1981, according to Congressional estimates, underreported income in the United States resulted in an estimated $55 billion in lost tax revenues. United States v. Goldberger & Dubin, P.C., 935 F.2d 501, 505 (2d Cir.1991) (citing General Explanation of the Revenue Provisions of the Joint Comm. on Taxation, 98th Cong., 2d Sess. 491). Congress also determined that an additional $9 billion in lost tax revenue resulted from unreported income connected with illegal activities. Id. In response, Congress enacted 26 U.S.C. § 6050I, as part of the Deficit Reduction Act of 1984, which provided the Internal Revenue Service (IRS) with means to identify taxpayers with large cash incomes. Specifically, the legislation requires "any person ... engaged in a trade or business" to report any cash transaction that exceeds $10,000. 26 U.S.C. § 6050I. The provision also requires the disclosure of information such as: the name, address, and tax identification number of the person from whom the cash was received; and the date and nature of the transaction. Id.

The disclosure required by § 60501 is made on a form prepared by the IRS known as "Form 8300." Doe v. United States, 777 F.Supp. 590, 592 (E.D.Tenn.1991) (citing 26 C.F.R. §§ 1.6050I-1, 1.6050-1T), aff'd sub nom., United States v. Ritchie, 15 F.3d 592 (6th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 188, 130 L.Ed.2d 121 (1994). The IRS states, in the directions to Form 8300, that: "Often smugglers and drug dealers use large cash payments to launder money from illegal activities ... thus compliance with the law provides valuable information that can stop those who evade taxes and those who profit from the drug trade and other illegal activities." Samuel J. Rabin, Jr., A Survey of the Statute and Caselaw Pertaining to 26 U.S.C. § 6050I, 68 Fla.Bar J. 26 (1994) (quoting Form 8300) (hereinafter "Rabin, 68 Fla.Bar J. at ___").

Nancy Gertner and Jody Newman, attorneys at the law firm of Dwyer, Collora & Gertner, represent an unidentified client, referred to in this proceeding as John Doe. Doe was charged in a narcotics case "relating to years prior to 1991 and 1992" and "there are still pending criminal charges against him." (Newman Aff.Ex. G at 2.)

From June 1991 to April 1992, Doe paid Gertner and Newman in four cash transactions of $25,000, $17,260, $15,000, and $25,000. (Pet.Ex. A-3 to A-6.) Gertner and Newman reported the transactions to the IRS on four separate Forms 8300 dated June 25, 1991; August 5, 1991; November 14, 1991; and April 30, 1992; respectively.¹ Id. Respondents refused, however, to include any identifying information about Doe or the nature of the transaction. Respondents included with the forms, a statement explaining that "the information requested violates the attorney client privilege, conflicts with the broader ethical obligation of an attorney, ... and violates the First, Fifth and Sixth Amendment rights of attorneys and their clients." (Pet.Ex. A-3.)

A series of letters between the IRS and Respondents ensued. Respondents informed the IRS, among other things, that there were criminal charges pending against Doe and that Respondents were currently representing him in those proceedings. Nevertheless, the IRS issued summonses demanding that Respondents appear on February 22 and 24, 1993 accompanied by certain records and other information. (Pet.Ex. A-1.) In part, the IRS sought the complete name, address, business or occupation, social security or taxpayer identification number, passport number, alien registration number and any other identifying data for the client involved in each of the transactions.² (Id.) Neither Respondent appeared as directed by the summonses.

On March 16, 1994, Respondents sought guidance from the Massachusetts Bar Association Committee on Professional Ethics. (Newman Aff. at Ex. I.) The Committee responded citing Disciplinary Rule 4-101 which provides that "a lawyer shall not knowingly ... reveal a confidence or secret of his client" unless the client consents; the disclosure is permitted under the Disciplinary Rules; or the disclosure is "required by law or court order." (Id. at 1.) The opinion concluded:

Given your client's refusal to consent to disclosure, the Committee believes that, if you have any doubt about the lawfulness of Section 6050I's disclosure obligations as they impinge on your obligations under DR 4-101, you should continue to resist disclosure of the client's identity, and require the Government to obtain a court order mandating disclosure.

(Id.) Both Respondents have continually refused to provide the information requested by the summonses.

The Government filed a Petition to Enforce the IRS Summonses in this Court on March 28, 1994. In support of its Petition, the Government provided the affidavit of Sophia Ameno, an Internal Revenue Agent. Ameno asserted that she was investigating "the compliance by the law firm with Section 6050I of the Code, and its potential liability under Section 6721 through 6723 of the Code."³ (Ameno Decl. ¶ 7.) She also alleged that the information sought by the summonses was relevant and not already in the IRS's possession. (Id. ¶¶ 10-11.) Finally, she averred that the appropriate administrative procedures had been followed. (Id. ¶ 12.) This Court concluded that the Government, through the Ameno affidavit, made the prima facie showing of good faith required by United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-255, 13 L.Ed.2d 112 (1964). (4/20/94 Order at 4.) Accordingly, the Court issued an Order directing Respondents to show cause why the summonses should not be enforced. (Id.)

Subsequently, the Court granted a Motion on the part of the unidentified client, John Doe, to intervene in the proceeding. (6/1/94 Order.) The matter has now been thoroughly briefed and argued, including amici curiae appearances by the Boston Bar Association, the Massachusetts Association of Criminal Defense Lawyers, and the Massachusetts Bar Association.

II. Discussion

Respondents and Amici argue that § 6050I, when applied to attorneys, violates the First, Fifth, and Sixth Amendments of the United States Constitution. They also argue that the disclosures required by § 6050I are protected by the doctrine of attorney-client privilege and that compliance with § 6050I would violate their ethical obligations, pursuant to Massachusetts Disciplinary Rule 4-101, to keep client secrets confidential. Finally, they argue that the summonses are void and unenforceable because the Government failed to provide the procedural protections required for issuing a "John Doe" summons under § 7609 of the Code.

A. Procedure Followed by Government

The Court first addresses Respondents' argument that the Government failed to comply with the procedural requirements of § 7609(f) of the Internal Revenue Code.⁴ Section 7609 governs summonses served, not on the taxpayer personally, but rather on third-party recordkeepers, such as banks, accountants, brokers, and attorneys. See 26 U.S.C. § 7609(a)(1)-(3). A summons served on a third-party recordkeeper may or may not "identify the person with respect to whose liability the summons is issued." 26 U.S.C. § 7609(f). A summons that does not identify the taxpayer under investigation is referred to as a "John Doe" summons. Id. Advance notice to the unnamed taxpayer, by the Government, is generally impossible in these situations. In order to protect the interests of the unnamed taxpayer, therefore, Congress requires prior judicial approval for the issuance of John Doe summonses. Id. No such prior judicial approval was either sought or obtained in this case.

The Government argues that it was not required to obtain prior approval because the summonses in this case were not John Doe summonses.⁵ Instead, the Government asserts that the summonses in this case identified the taxpayer under investigation — the law firm. Agent Ameno, in her Affidavit, alleged that her investigation was intended "to ascertain the correctness of Forms 8300" filed by Gertner and Newman, and to determine "the liability, if any, of the law firm for penalties imposed by Sections 6721 through 6723 of the Code." (Pet.Ex. A at 1.)

Respondents argue, however, that the Government's assertion, that the law...