Williams v. Kunze

• Decision Date: 24 December 1986
• Docket Number: No. 85-1784,85-1784
• Parties: -401, 87-1 USTC P 9160 Ronald WILLIAMS, et al., Plaintiffs-Appellants, v. Robert KUNZE, IRS Agent, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 594

806 F.2d 594

59 A.F.T.R.2d 87-401, 87-1 USTC P 9160

Ronald WILLIAMS, et al., Plaintiffs-Appellants, v. Robert KUNZE, IRS Agent, et al., Defendants-Appellees.

No. 85-1784.

United States Court of Appeals, Fifth Circuit.

Dec. 24, 1986.

Lawrence N. Bazrod, MacPherson & McCarville, Donald W. MacPherson, Phoenix, Ariz., for plaintiffs-appellants.

William A. Whitledge, Atty., Roger M. Olsen, Acting Asst. Atty. Gen., Michael L. Paup, Chief, Appellate Sec., and Charles E. Brookhart, Tax Div., U.S. Dept. of Justice Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GARZA, DAVIS and JONES, Circuit Judges.

GARZA, Circuit Judge.

Sometime before May of 1984, the Criminal Investigation Division of the Internal Revenue Service conducted an investigation of the activities of several allegedly fraudulent tax shelter schemes organized and operated from the Cayman Islands by United States Tax Planning Services, Ltd. ("USTPS"). The USTPS schemes involved the use of offshore entities and transactions to put funds beyond the reach of the IRS for the purpose of evading income taxes. USTPS is marketed through entities licensed by USTPS. The Plaintiff-Appellant, Worldwide Capital Management Corporation ("WCM"), a tax shelter planning consultant, was a licensee of USTPS.

Special Agent Robert Kunze, Defendant-Appellee, was assigned to determine whether WCM's activities violated the Internal Revenue Code. Under Kunze's direction, another agent acted in an undercover role as a broker and contacted WCM. Plaintiff-Appellant Ronald Williams, vice-president of WCM, allegedly told this agent that WCM operated to create deductions for insurance expense that did not exist through the use of offshore trusts and bank accounts. Williams also showed this agent and another agent acting as a client, the offices and records of WCM and further explained the mechanics of the illegal scheme.

Based on the information uncovered during the undercover operation, Kunze applied to a United States Magistrate for a warrant to search WCM's offices and to seize various records. The application was supported by Kunze's affidavit and the affidavit of Special Agent George Scott. Scott had previously coordinated the nationwide investigation of USTPS. The magistrate issued a warrant authorizing Kunze to search the premises of WCM and to seize eight categories of documentary evidence. ¹ In essence, the Scott affidavit listed documents pertaining to the establishment of offshore entities or bank accounts, documents relating to commodity straddles, records reflecting fund transfers from or credit card transactions with offshore entities, records of insurance premiums paid to foreign corporations, client files identified with coded numbers, client prospect files and portfolio packets, and documents reflecting transactions with named individuals and entities, including each of the Appellants.

On May 8, 1984, fourteen special agents and other IRS personnel conducted a search of WCM's offices and seized 50,000 to 60,000 documents pursuant to the warrant. Approximately 85% of the documents were client files. A small number of personal items were erroneously seized and were subsequently returned to Appellants. The search lasted from approximately 10:00 a.m. until 5:30 p.m.

Appellant Williams was given a copy of the warrant as the agents entered WCM's offices. The warrant did not have the affidavits physically attached to it. However, at the completion of the search, copies of the affidavits, together with a copy of the inventory of items seized, were left on Williams' desk. Williams was read his non-custodial Miranda rights. Williams and his attorney were on the premises during the search. Plaintiff-Appellant, James Hearn, the president and sole shareholder of WCM, was not on WCM's premises during the search.

Appellants filed a complaint in the district court on May 22, 1984, seeking the return of the seized property, injunctive relief, and the suppression of evidence. Appellants later amended their complaint seeking Bivens-type damages based on constitutional tort theories, specifically first, fourth, fifth and ninth amendment violations. On October 15, 1985, the court granted Appellees' motion for summary judgment. The court held that Appellants' fourth amendment claim did not overcome the agents' qualified immunity. Alternatively, it ruled that the individual defendants, Hearns and Williams, did not have standing to assert a fourth amendment claim because, as independent contractors, they had no expectation of privacy in WCM's offices. As to the first, fifth, and ninth amendment claims, the court found them to be without either factual or legal basis. On December 12, 1985, Appellants filed a timely notice of appeal.

Appellants urge several grounds for reversal. First, they argue that the warrant was invalid because it operated as a general warrant. The warrant allegedly failed to sufficiently limit the discretion of the executing officers to evidence relating to offshore entities. Second, the warrant was allegedly defective because it was overly broad. Appellants contend that although the Kunze and Scott affidavits may have established probable cause for the seizure of documents relating to offshore activities, it did not establish cause for the seizure of client files and other documents relating to domestic activity or personal items. Third, Appellants suggest that the execution of the warrant was constitutionally defective. They base this suggestion on the fact that the executing officers failed to deliver a copy of the affidavits supporting the search warrant at the commencement of the search. Fourth, the affidavits supporting the search were made in a reckless manner according to Appellants. They assert that they were entitled to a preliminary hearing on the issue of whether or not the affidavits were false or made with a reckless disregard for the truth pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978).

Fifth, Appellants state that Appellees' conduct violated clearly established constitutional rights, thus abrogating any qualified immunity of Appellees. It is argued that the agents had no reasonable expectations that the personal items and domestic tax planning activities would fall within the scope of the warrant. Sixth, Appellants Hearn and Williams maintain that they had standing to assert a fourth amendment claim. They believe that they maintained reasonable expectations of privacy in their business and personal effects and can assert the rights of the corporation because they acted as officers.

Finally, Appellants challenge the district court's grant of summary judgment regarding the first, fifth and ninth amendment claims. Appellants claim a violation of their right to freely associate. The seizure of personal records, notes to associates and a corporate newsletter allegedly violated associational rights as well as the right to exercise free speech and press. The basis for Appellants' fifth amendment claim is that records were seized which were outside the scope of the warrant, and therefore a violation of due process occurred. Additionally, in acting outside the scope of the warrant, Appellees allegedly violated rights of privacy protected not only by the fourth amendment, but as well by the ninth amendment. We address these tenuous arguments in order.

The search of WCM's offices and the seizure of 50,000 to 60,000 documents was legal and was not violative of Appellants' fourth amendment protections. The warrant in this case did not operate as a general warrant. The fourth amendment proscribes search warrants that permit "a general, exploratory rummaging in a person's belongings." Coolidge v. New Hampshire, 403 U.S. 443, 467, 91 S.Ct. 2022, 2038, 29 L.Ed.2d 564 (1971). The items to be seized must be described with sufficient particularity such that the executing officer is left with no discretion to decide what may be seized. Marron v. United States, 275 U.S. 192, 196, 48 S.Ct. 74, 76, 72 L.Ed. 231 (1927). However, in circumstances where detailed particularity is impossible "generic language suffices if it particularizes the types of items to be seized." United States v. Webster, 734 F.2d 1048, 1055 (5th Cir.1984).

The Kunze and Scott affidavits identified eight specific categories of documents involved in the alleged unlawful evasion of United States taxes. The warrant described the items to be seized with sufficient particularity such that the executing officers did not have discretion in the type of material to be seized. The warrant limited the documents which could be seized to seven specifically described categories of documents which recorded activity "in furtherance of the types of schemes made out in the accompanying affidavit," and other documents specifically described in the Scott affidavit. The majority of WCM's business records consisted of its client files. Over 90% of the documents seized were client files. These documents were specifically authorized to be seized in the search warrant.

Additionally, the warrant does not indicate a distinction between offshore and domestic tax planning strategies. The warrant particularly described the documents to be seized as involving Appellants' use of offshore entities and transactions to defraud the United States. That description of the documents was sufficiently particular to permit the seizure of any documents relating to those schemes, regardless of whether the offshore connection was apparent on the face of the document. The Tenth Circuit, in Voss v. Bergsgaard, 774 F.2d 402 (10th Cir.1985), held that a warrant that authorized the officers to search for all evidence of a conspiracy...