Application of
Statute

7213- Criminal
Penalties for Unauthorized Disclosure of Information: Application of
Statute
[91-1
USTC ¶50,072] In re Grand Jury Subpoena.
United States of America
, Plaintiff-Appellee v. Under Seal, Defendant-Appellant
(CA-4),
U.S. Court of Appeals, 4th Circuit, 89-5619, 89-5632--89-5634,
12/6/90
, Affirming an unreported District Court decision
[Code Sec.
7213 ]
Unauthorized disclosure of information: Search warrants: Grand jury
subpoenas.--An IRS intelligence officer investigating criminal tax
fraud did not violate federal rules of criminal procedure when she
released certain documents obtained by valid search warrants to IRS
civil agents preparing audits of the involved corporations and
employees. Although the applicable corporate records were the subject
matter of both IRS search warrants and contemporaneous grand jury
subpoenas, the records were in fact first obtained pursuant to the
search warrants, not the subpoenas. The intelligence officer was careful
not to release those corporate records obtained subsequently pursuant to
the subpoenas to the IRS civil agents. Although the tax fraud
investigation was pursued simultaneously by both the IRS and the grand
jury, the IRS-initiated corporate investigation remained essentially
independent of the grand jury procedures.
Breckinridge
L. Wilcox, United States Attorney, Martin Stanley Himeles, Jr.,
Assistant United States Attorney, Baltimore, Md. 21201, for
plaintiff-appellee. James Allen Rothschild, Anderson, Coe & King,
201 N. Charles St., Baltimore, Md. 21201, James P. Ulwick, Kramon &
Graham, P.A., 20 S. Charles St., Baltimore, Md. 21201, for
defendant-appellant.
Before
SPROUSE and CHAPMAN, Circuit Judges, and WARD, Senior United States
District Judge for the Middle District of North Carolina, sitting by
designation.
SPROUSE,
Circuit Judge:
This
appeal concerns information developed by a tax fraud investigation
initiated by the Internal Revenue Service (IRS) and pursued by both the
IRS and a federal grand jury. The investigation targeted appellants--a
parent corporation, its subsidiaries, and several individual employees
of the corporations. Records of two of the corporations were seized by
IRS agents pursuant to search warrants and records of the other
corporations by grand jury subpoenas. The records seized pursuant to
search warrants were subsequently shown to agents in the Civil Division
of the IRS. The IRS also served a grand jury subpoena requesting the
records of the parent corporation, but the latter refused to comply.
Contending
that an IRS intelligence agent violated Rule 6(e)(2) of the Federal
Rules of Criminal Procedure 1 by making
the documents available to IRS civil agents, the corporations and the
individual employees who were targets of the investigation moved for the
return of material seized by the two search warrants, and requested an
evidentiary hearing on the matter. On appeal, appellants also attack the
validity of the search warrants. In addition, the parent corporation
moved to quash the subpoena issued for its records. The district court
denied all motions. We affirm.
I.
John
Doe 2 was a tax
accountant who prepared returns for the corporate and individual grand
jury targets. The corporations owned a number of cemeteries and were
principally involved in selling and maintaining cemetery plots. In June
1986, Doe was caught violating certain criminal tax laws in an IRS
"sting" operation. Doe turned government informant and
provided information that a vice-president of the parent corporation for
the cemeteries and officers of the various subsidiaries were
purposefully understating income and overstating expenses on their tax
returns. In addition, Doe related under-the-table payments from the
parent corporation to employees of subsidiaries, a scheme to defraud
customers by selling them cemetery plots already owned by others, the
creation of fraudulent receipts to support nonexistent expenses, the
preparation of false "1099" forms to indicate lower payments
of income from the corporation to individuals, the submission of false
tax returns and financial statements to lending institutions, the
falsification of sales reports in order to justify higher commissions,
and the "laundering" of large sums of cash through individual
bank accounts and returning the cash by false loans.
After
Doe's admissions, the IRS conducted surveillances of the businesses and
of the residences of individual employees. In September 1986, a grand
jury also was convened to investigate the matter. On
September 24, 1986
, IRS agents obtained warrants to search the offices of two of the
subsidiary cemetery corporations (hereinafter cemeteries A and B). The
affidavit supporting the search warrant application was based on the
investigation of Doe and the information he later provided. The search
warrants were executed the following day,
September 25, 1986
, and the records of cemeteries A and B were simultaneously searched by
numerous IRS agents, who, after a day's search, seized numerous boxes of
records. On that same day, grand jury subpoenas also were served on
cemeteries A and B. 3 The
subpoenas requested the same records seized pursuant to the search
warrants. Since the seizure of records pursuant to the search warrant
was comprehensive, no property was produced in response to the grand
jury subpoenas from cemeteries A and B.
Four
other cemetery corporations, all subsidiaries of the parent corporation,
were also served with grand jury subpoenas on
September 25, 1986
. Each of these four corporations timely produced the records identified
in the subpoenas. 4
All
the documents were maintained in the same IRS storage building. Special
Agent Mary Bowe of the Criminal Investigation Division of the IRS, who
had been assigned to assist the grand jury investigation, assumed
custody of all the documents. She testified that she segregated those
documents obtained by search warrants from those obtained pursuant to
the grand jury subpoenas. In October of 1986, Bowe made available to
agents in the Civil Division of the IRS for civil purposes the documents
obtained pursuant to the warrants.
The
investigation of appellants proceeded slowly. Some two years later, on
December 15, 1988
, the government served the parent corporation with a grand jury
subpoena requesting production of its records. It declined to honor the
subpoena. In January 1989, the parent corporation filed a motion to
quash the grand jury subpoena issued to it. On that same day, it filed a
motion in the district court to enforce compliance with Rule 6(e) of the
Federal Rules of Criminal Procedure, alleging that Bowe had improperly
disclosed grand jury materials to civil IRS personnel. After a
nonevidentiary hearing, the district court denied both motions. The
court later denied subsequent motions for reconsideration of its rulings
and motions by cemeteries A and B for the return of their seized
property. On
June 23, 1989
, the court, on the initiative of the government, held the parent
corporation in contempt for not producing its records, but stayed the
imposition of sanctions pending this appeal.
II.
The Search Warrants
Appellants
first attack the validity of the search warrants, contending that they
were constitutionally deficient as overly broad and were issued without
probable cause. We disagree. The warrants authorized searches for the
following items:
Books,
records and documents relative to the financial transactions of
[cemetaries A and B], their officers and employees, specifically: Forms
W-2 and 1099; Forms 940, 941 and 1120 tax returns; workpapers, balance
sheets and financial statements; interest and expense ledgers and/or
records; accounts receivable and payable ledgers and/or records; general
ledgers; invoices, billing statements; cash receipts posting machine
and/or journal; payroll checking accounts, workpapers and/or records;
plot location files and/or records; checking and saving accounts,
statements, checks and deposit tickets; sales contracts; notes and loan
receivable and payable ledgers and/or records; and any and all documents
reflecting the cost of goods for the businesses operated at [cemetaries
A and B], the profits received from the sale of those goods, and all
records reflecting the manner in which income is received, federal
income tax evaded, monies laundered or income hidden.
Appellants
contend that the warrants failed to specify the documents sought with
the requisite particularity. Consequently, appellants contend that the
warrants authorized "a general exploratory rummaging" in
violation of settled law regarding the constitutional requisites of a
search warrant. See Coolidge v.
New Hampshire
, 403
U.S.
443, 467, 91 S.Ct. 2022, 2038, 29 L.Ed.2d 564 (1971);
United States
v. Owens, 848 F.2d 462, 463 (4th Cir. 1988).
The
legality of a search warrant, of course, is not governed by a
bright-line test. Rather, the inquiry is fact specific and the
permissible nature of the search is, to a degree, dependent on the
legitimate scope of the underlying investigation. As we stated in United
States v. Torch, 609 F.2d 1088 (4th Cir. 1979), cert. denied,
446 U.S. 957, 100 S.Ct. 2928, 64 L.Ed.2d 815 (1980):
[T]he
test for the necessary particularity is a pragmatic one: "The
degree of specificity required when describing the goods to be seized
may necessarily vary according to the circumstances and type of items
involved. . . . [T]here is a practical margin of flexibility permitted
by the constitutional requirement for particularity in the description
of items to be seized."
Id.
at 1090 (quoting
United States
v.
Davis
, 542 F.2d 743, 745 (8th Cir.), cert. denied, 429
U.S.
1004, 97 S.Ct. 537, 50 L.Ed.2d 616 (1976)). Moreover, in United
States v. Shilling, 826 F.2d 1365 (4th Cir. 1987), cert. denied,
484
U.S.
1043, 108 S.Ct. 777, 98 L.Ed.2d 863 (1988), we again emphasized that the
validity of the warrant depends to a degree on the underlying
investigation, stating:
Here,
the warrant was issued by a Magistrate and contains a two-page list of
items for the search. Although the warrant uses generic terms (such as
books, records, bank statements, etc.) without detailed descriptions, we
consider this to be acceptable, since the Government could hardly have
known in detail what precise business records were maintained by the
defendant. Likewise, there is no flaw in the fact that the documents
covered by the warrant did not have specific time periods attached. The
dates of specific documents could not have been known to the Government,
and, as for income tax violations, documents from an earlier time may
have bearing on the tax violations alleged in a later year.
Id.
at 1369. Here, the investigation is aimed at a number of employees of
several suspected cemetery corporations as well as the corporations
themselves. The allegations, if true, would indicate various criminal
practices ranging across and through several corporations--encompassing
numerous business activities on the part of the individuals and
corporations. Therefore, while the search warrants for both cemeteries A
and B listed numerous items, we are persuaded that the descriptions were
sufficiently particularized considering the wide-ranging nature of the
criminal activities under investigation.
Nor
do we find merit to appellants' contention that the warrants were issued
without probable cause. Appellants correctly state that a magistrate
must have a "substantial basis" for concluding that probable
cause exists. However, the existence of probable cause vel non is
determined on the "totality of the circumstances" analysis.
Illinois
v. Gates, 462
U.S.
213, 238, 103 S.Ct. 2317, 2332, 76 L.Ed.2d 527 (1983). In Gates,
the Supreme Court established the parameters for making such a probable
cause determination, stating:
The
task of the issuing magistrate is simply to make a practical,
commonsense decision whether, given all the circumstances set forth in
the affidavit before him, including the "veracity" and
"basis of knowledge" of persons supplying hearsay information,
there is a fair probability that contraband or evidence of a crime will
be found in a particular place. And the duty of a reviewing court is
simply to ensure that the magistrate had a "substantial basis for .
. . conclud[ing]" that probable cause existed.
Gates,
462 U.S. at 238-39, 103 S.Ct. at 2332, (quoting Jones v. United
States, 362 U.S. 257, 271, 80 S.Ct. 725, 736, 4 L.Ed.2d 697 (1960), overruled
on other grounds, United States v. Salvucci, 48 U.S. 83, 100 S.Ct.
2547, 65 L.Ed.2d 619 (1980)). Appellants argue that the affidavit failed
to establish probable cause under the Gates criteria. We
disagree. A twenty-eight-page affidavit by Agent Bowe supported the
application presented to the magistrate. It detailed the information
provided by Doe which implicated the corporations, officers, and
individual employees. Doe, among other things, had related that he
participated in many of the tax crimes at the direction of corporate
officers and employees who subsequently became targets of the
investigation. Appellants, however, attack Doe's credibility, stressing
that his cooperation with the IRS was induced by his admitted guilt and
expected immunity from prosecution. Doe's information, however, was
corroborated by an affidavit of the undercover agent principally
responsible for apprehending him and independent information in IRS
files which included documents seized from Doe's residence when he was
under investigation as well as information obtained by surveillance. In
our view, the affidavit easily satisfied the Gates criteria for
establishing probable cause.
III. Rule 6(e)(2)
Appellants
next contend that the district court erred in denying its motion to
"enforce compliance with . . . Federal Rule of Criminal Procedure
6(e)." In a separate argument, appellants contend that the district
court erred by refusing to conduct an evidentiary hearing on this
motion. We think the court ruled properly in both instances.
After
IRS agents at both cemeteries A and B had identified and seized the
materials requested pursuant to the search warrants of
September 24, 1986
, the materials were removed to an IRS building. None of the records of
A and B were obtained by the IRS pursuant to the grand jury subpoenas
because the same records for which the subpoenas were issued had been
seized under the aegis of the search warrants. There were, however,
records and materials furnished by four sister subsidiary cemetery
corporations pursuant to grand jury subpoenas. The records of A and B
and the records of the four other subsidiary corporations were
eventually maintained in the same IRS storage room. The A and B records,
however, were physically segregated from the records of the other four
cemeteries. Agent Bowe invited agents from the IRS Civil Division to
examine the A and B records but it is undisputed that they had no access
to records which had been obtained pursuant to the grand jury subpoenas.
While
the procedure utilized by the IRS agent is no doubt routine and
permissible in investigations where records are seized solely by search
warrant, 5 the
circumstances present here are unique not only because some of the
information stored in the same room was obtained by grand jury
subpoenas, but because the search warrants were obtained during the
pendency of a grand jury investigation and executed on the same day that
the grand jury subpoenas were served.
After
a lengthy and careful colloquy between appellants' counsel and the
district court, the court found that no evidentiary hearing was required
as the Rule 6(e) issue raised no question of fact. The government
candidly admitted that the civil agents had access to A and B's records
at the invitation of its supervising intelligence agent. The district
court found that there was no basis to believe that the civil agents had
access to any of the material which had been obtained pursuant to grand
jury subpoenas. Thus, we agree that there was no need for an evidentiary
hearing on this question, and the court correctly refused to conduct
one.
There
remains only the legal issue of whether, under the undisputed
circumstances of this case, the IRS supervisory intelligence agent
violated the secrecy requirements of Rule 6(e)(2) by making available to
IRS civil agents the materials obtained from locations A and B by search
warrrants. Rule 6(e)(2) prohibits the disclosure of "matters
occurring before the grand jury." Therefore, the critical question
before us is whether the materials obtained by the two search warrants
are "matters occurring before a grand jury" and, accordingly,
entitled to the secrecy protection of Rule 6(e)(2). 6 We hold that
they are not. 7
While
recognizing that the records and materials of cemeteries A and B were
obtained by search warrant, appellants contend that since there was an
ongoing grand jury investigation the documents are effectively grand
jury material. They correctly point out that Bowe, the IRS intelligence
agent directing the criminal investigation, was assisting the United
States Attorney in the grand jury investigation and that grand jury
subpoenas were effected for the same records and materials that were
obtained by the search warrants. Although presenting a close question,
we cannot agree that the circumstances surrounding the seizure of the
corporate records and materials compel the conclusion that the IRS
investigation and the grand jury investigation were integrated.
The
substantive content of "matters occurring before the grand
jury" can be anything that may reveal what has transpired before
the grand jury. In re Grand Jury Matter (
Catania
), 682 F.2d 61, 63 (3d Cir.1982); In re Grand Jury Investigation,
610 F.2d 202, 216-217 (5th Cir.1980). However, Rule 6(e)(2) protects
from disclosure "only the essence of what takes place in the grand
jury room, in order to preserve the freedom and integrity of the
deliberative process." 8 Catania,
682 F.2d at 63. At least two of our sister circuits have held that
information produced by criminal investigations paralleling grand jury
investigations does not constitute matters "occurring before the
grand jury" if the parallel investigation was truly independent of
the grand jury proceedings. Catania, supra; Anaya v. United States
[87-1 USTC ¶9267 ],
815 F.2d 1373 (10th Cir. 1987).
In
Catania
, the United States Attorney's Office and the Federal Bureau of
Investigation conducted an investigation into possible voter fraud. A
federal grand jury was convened, but no indictment resulted. Afterwards,
the United States Attorney sought authorization, pursuant to a grand
jury request, to make available to a state prosecuting attorney
information that had been uncovered in the investigation. The
information in question had been developed by FBI agents and had not
been generated by the grand jury. The district court found that the
materials "were the product of an FBI investigation, were not
generated by the grand jury . . .," and, therefore, granted the
government permission to release the information.
Catania
, 682 F.2d at 64. The Third Circuit affirmed, stating that
"disclosure
of information obtained from a source independent of the grand jury
proceeding, such as a prior government investigation, does not violate
Rule 6(e)." The information developed by the FBI, although perhaps
developed with an eye toward ultimate use in a grand jury proceeding,
exists apart from and was developed independently of grand jury
processes.
Catania
, 682 F.2d at 64 (quoting In re Grand Jury Investigation,
610 F.2d 202, 217 (5th Cir. 1980)) (citation omitted).
In
Anaya, the Tenth Circuit reviewed a ruling by the district court
that investigative information uncovered by agents of the FBI and made
available to agents of the IRS was not grand jury information protected
by Rule 6(e). During the course of the FBI investigation, matters
relating to the target of the investigation were brought to the
attention of the federal grand jury. FBI agents later made some of the
information available to IRS agents for assistance in their independent
tax investigation. The taxpayers, moving for relief under Rule 6(e),
argued that although none of the material given to the IRS by the FBI
was presented to the grand jury "[it] was so closely related to
what was presented that it must fall within the shadow of
6(e)."
Id.
at 1379 (emphasis in original). Further, the taxpayers contended that
disclosure of any information which would reveal the identities of
witnesses, the substance of their testimony, the strategy of the
investigations, and the deliberations of the grand jury would violate
the rule. The Tenth Circuit disagreed, holding that
revelation
of information that has not been submitted to the grand jury does not
vitiate those protections for the simple reason that the information was
not part of what transpired in the grand jury room.
.
. .
The
IRS was in pursuit of a legitimate investigation, and revelation of
information learned by other governmental agencies in a parallel
investigation without disclosure of what had been submitted to the grand
jury was not improper.
Id.
at 1379-80 (citations omitted); see also In re Subpoena to Testify
Before Grand Jury, 864 F.2d 1559, 1564 (11th Cir. 1989).
Appellants
here, however, urge that the records from cemeteries A and B were not
obtained independently of the grand jury investigation. They asserted
below and reiterate on appeal that the search warrant was simply a
contrivance by the IRS to obtain the documents to further the grand jury
investigation while circumventing Rule 6(e)(2) restrictions so that it
could make the documents available for structuring civil tax audits of
the grand jury targets. The government, with equal force, denies such
villainous motive. The government also insists that, as long as a search
warrant is served before a grand jury subpoena, forthcoming records and
materials must be considered as derived independently of the grand jury
process.
The
instant case presents a closer question that those presented in Anaya
and
Catania
. However, reviewing the totality of the circumstances, we are
ultimately persuaded that the same result should obtain. We reach this
conclusion even though we are not persuaded by the government's argument
that service of the search warrants before service of the grand jury
subpoenas obviates any further inequity. 9 The
government's view, which the district court apparently adopted, is that
such temporal consideration alone insulates the material obtained by the
search warrant from Rule 6(e)(2) requirements because the material ipso
facto takes on characteristics of information obtained independently
of the grand jury. We think not. Easily visualized are circumstances
where a government investigatory agent may, in pursuing an
investigation, as here, become an agent of the grand jury. In such
scenarios, sequence of service would make little difference if search
warrants and grand jury subpoenas were used indiscriminately to obtain
the targeted information. Therefore, we would caution investigatory
agencies that the procedures such as those utilized in this case might,
under slightly varying circumstances, jeopardize an entire
investigation.
However,
we are persuaded that the initial IRS investigation and the grand jury
investigation were not indiscriminately merged but that the initial IRS
investigation was conceived and initiated without any connection to a
grand jury proceeding. The investigation, ongoing from June until the
latter part of September, included the debriefing of informants and
surveillance on the targeted residence, and culminated in the
application for the search warrant supported by two affidavits detailing
the investigation which was either earlier than or apart from the grand
jury proceedings.
As
we have stated, the protective purposes of Rule 6(e) are many, but they
coalesce to protect the integrity of the grand jury process by shielding
witnesses and erroneously accused citizens as well as guarding against
the compromising of legitimate prosecutorial objectives. The Supreme
Court in United States v. Baggot [83-2 USTC ¶9438 ],
463 U.S. 476, 103 S.Ct. 3164, 77 L.Ed.2d 785 (1983), has instructed that
revealing grand jury material to civil agents of the IRS for use in
auditing violates these purposes. The Court in Baggot held that
the information-gathering authority of the grand jury cannot be utilized
to obtain evidence or information merely for use in civil proceedings.
Here, in our view, however, the records of A and B were obtained as a
result of an IRS investigation that was essentially independent of the
grand jury proceedings. Moreover, there is no question but that
materials obtained by grand jury subpoenas were carefully denied to IRS
civil agents. Therefore, while we do not agree with the district court
that the sequence of service of a search warrant and of a grand jury
subpoena is necessarily determinative of the question of whether the
search warrant is a de facto grand jury process, we agree in the
discrete circumstances of this case with its conclusion that the search
warrant was not a part of the grand jury process. The materials obtained
pursuant to it therefore were not subject to Rule 6(e) restrictions.
IV.
The 1988 Subpoena
The
final issue we consider is that raised by the parent corporation
contending that the district court erred in refusing to quash the 1988
grand jury subpoena issued to it and in holding it in contempt for
failing to produce its records. The parent corporation advances
arguments similar to those advanced in the search warrant context. In
addition to reiterating the Rule 6(e)(2) contention, it asserts that the
1988 subpoena failed to meet the prerequisites of Rule 17(c) of the
Federal Rules of Criminal Procedure because it was not relevant to the
grand jury investigation and did not define targeted documents with
particularity, and that the request for documents spanned an
unreasonable period of time. The parent corporation complains that the
subpoena is misdirected as the underlying investigation is concerned
primarily with individuals employed by its subsidiaries, that the
subpoena of its records was unreasonable in scope and that to the extent
it calls for the records of "all subsidiaries" is overbroad on
its face. Again, we disagree.
A
presumption of "regularity" accompanies a subpoena duces
tecum. See
Beverly
v.
United States
, 468 F.2d 732, 743 (5th Cir. 1972). Additionally, we are mindful of
the admonition that a court should not intervene in the grand jury
process absent a "compelling justification."
United States
v. (Under Seal), 714 F.2d 347, 350 (4th Cir.), cert.
dismissed sub nom. Doe v.
United States
, 464
U.S.
978, 104 S.Ct. 1019, 78 L.Ed.2d 354 (1983). The grand jury subpoena,
dated
December 6, 1988
, listed 16 categories of books and records of the parent corporation
and all subsidiaries for the period
January 1, 1982
, through
January 31, 1988
. 10 Our
examination of the items demanded in the subpoena does not reflect the
kind of abuse which must be demonstrated in order to overcome the
presumption of regularity and for a target of a grand jury subpoena to
succeed on a motion to quash. See United States v. Gurule, 437
F.2d 239, 241 (10th Cir. 1970), cert. denied, 403 U.S. 904, 91
S.Ct. 2202, 29 L.Ed.2d 679 (1971). The parent corporation overlooks the
critical fact that it is a target of investigation and alleged to be
involved with most, if not all, of the suspected individual employees.
The same consideration leads us to conclude that the naming of all the
subsidiaries in this instance is likewise not abusive.
In
view of the above, the judgment of the district court is affirmed.
AFFIRMED.
1
Rule 6(e), in pertinent part, states:
(e)
Recording and Disclosure of Proceedings
(2)
General Rule of Secrecy. ... [A]n attorney for the government, or any
person to whom disclosure is made under paragraph (3)(A)(ii) of this
subdivision shall not disclose matters occurring before the grand jury,
except as otherwise provided for in these rules. No obligation of
secrecy may be imposed on any person except in accordance with this
rule. A knowing violation of Rule 6 may be punished as a contempt of
court.
(3)
Exceptions.
(A)
Disclosure otherwise prohibited by this rule of matters occurring before
the grand jury, other than its deliberations and the vote of any grand
juror, may be made to--
(i)
an attorney for the government for use in the performance of such
attorney's duty; and
(ii)
such government personnel (including personnel of a state or subdivision
of a state) as are deemed necessary to assist an attorney for the
government in the performance of such attorney's duty to enforce federal
criminal law.
(B)
Any person to whom matters are disclosed under subparagraph (A)(ii) of
this paragraph shall not utilize that grand jury material for any
purpose other than assisting the attorney for the government in the
performance of such attorney's duty to enforce federal criminal law.
Fed.R.Crim.P.
6(e)(2)-6(e)(3).
2
The grand jury investigation is ongoing and the court records are still
sealed.
3
The subpoenas were returnable on
October 9, 1986
.
4
There were no search warrants issued in connection with those records.
5
As appellants concede, it is generally accepted that related IRS
criminal and civil proceedings may be pursued simultaneously and that
information may be shared between the divisions, absent a showing of bad
faith on the part of the IRS. See United States v. Krauth [85-2 USTC ¶9602 ],
769 F.2d 473, 478 (8th Cir.1985); United States v. Amerada Hess Corp.
[80-1 USTC ¶9160 ],
619 F.2d 980, 985 (3d Cir.1980); see also United States v. Kordel,
397
U.S.
1, 11, 90 S.Ct. 763, 769, 25 L.Ed.2d 1 (1969).
6
For purposes of Rule 6(e)(2), a civil tax audit is not "preliminary
to or in connection with a judicial proceeding" and therefore grand
jury materials covered by Rule 6(e)(2) may not be disclosed under the
Rule 6(e)(3) exceptions for use by IRS "civil" personnel
pursuant to court order. United States v. Baggot [83-2
USTC ¶9438 ], 463 U.S. 476, 103 S.Ct. 3164, 77 L.Ed.2d 785
(1983).
7
Thus, we do not reach a potentially complicating separate question
concerning the quantum of protection afforded to documents that are
concededly grand jury documents as opposed to the quantum of protection
afforded to other information gathered by the grand jury process. See
Nervi, FRCrP 6(e) and the Disclosure of Documents Reviewed by a Grand
Jury, 57 U.Chi. L.Rev. 221 (1990).
8
The purposes of grand jury secrecy are several: (1) to prevent the
escape of a person against whom indictment may be sought; (2) to insure
that the grand jury has freedom of deliberation; (3) to prevent
subornation of perjury or tamerping with witnesses who may later appear
at trial; (4) to encourage full disclosure by witnesses; and (5) to
protect the innocent accused from publication of the fact that they have
been under investigation. In re Subpoena to Testify, 864 F.2d
1559, 1562 n. 2 (11th Cir.1989).
9
The search warrants and subpoenas were served on the same day--the
search warrants hours earlier than the subpoenas.
10
At the corporation's request, the Assistant United States Attorney
agreed to condense the period to that of
January 1, 1983
, through
January 31, 1987
.
[91-1
USTC ¶50,055]
United States of America
, Plaintiff-Appellee v.
Lawrence
M. Richey, Defendant-Appellant
(CA-9),
U.S. Court of Appeals, 9th Circuit, 88-3276,
1/23/91
, 924 F2d 857, Affirming an unreported District Court decision
[Code Sec.
7213 ]
Criminal penalties: Unauthorized information disclosure: First
Amendment.--The prosecution and conviction of a former IRS agent for
the willful public disclosure of a federal judge's tax return
information did not violate the agent's First Amendment rights. Since
First Amendment rights are not without constraint, the government may
properly limit speech when compelling government interests outweigh the
free expression of the speaker. After retiring from the IRS, the former
agent was indicted for conspiring to defraud the government. An attorney
who the defendant once audited was the presiding judge. After the trial,
the convicted defendant mentioned the audit and the potential bias of
the judge, thus violating the duty of confidentiality. Although the
former agent had a substantial interest in a fair trial and a right to
comment upon matters of public concern, such as judicial bias, this did
not outweigh the compelling government interest to provide a
confidential and workable tax system.
Carroll
D. Gray, Assistant United States Attorney,
Spokane
,
Wash.
99210
, for plaintiff-appellee. Christopher S. Tait,
230 S. 2nd St.
,
Yakima
,
Wash.
, for defendant-appellant.
Before
WRIGHT, REINHARDT and O'SCANNLAIN, Circuit Judges.
OPINION
O'SCANNLAIN,
Circuit Judge:
We
are asked to decide whether prosecution and conviction of a former
Internal Revenue Service employee, for willfully disclosing to the
public information about a certain federal income tax return, violates
his first amendment right to freedom of expression.
I
Lawrence
Richey was an Internal Revenue Service ("IRS") agent for
approximately twenty-five years. In 1970, he audited Alan McDonald, who
was then an attorney in private practice. After Richey examined
McDonald's income tax returns for the years 1967-69, the IRS assessed
$1,033.33 in additional taxes. McDonald paid the assessment.
After
retiring from the IRS in 1981, Richey joined a private tax preparation
service. He soon became involved in a tax shelter scheme and was
indicted in 1985 for conspiracy to defraud the government and for aiding
and assisting in the preparation of false and fraudulent tax returns.
Richey's
case came to trial before a jury in 1987. Presiding as judge was the
same Alan McDonald, who had become a United States District Judge for
the Eastern District of Washington. Richey did not bring a motion to
recuse Judge McDonald nor did Judge McDonald recuse himself. The jury
found Richey guilty as charged.
Judge
McDonald sentenced Richey to a term of probation. As a condition of
probation, Judge McDonald enjoined Richey from making derogatory remarks
about the
United States
government.
Richey's
probation condition attracted local press attention. Bill Morlin, a
reporter for the Spokesman-Review and Spokane Chronicle
newspapers, called Richey and asked him why he thought Judge McDonald
had imposed the controversial condition of probation upon him. Morlin
would later testify that Richey responded with the following
explanation: "Well, I'll tell you why. When I worked for the IRS I
once audited Alan McDonald's taxes and further, that [sic] I
found discrepancies in his tax returns." Morlin further testified
that Richey said: "I kind of get the feeling that [Judge McDonald
wanted] retribution." Morlin used Richey's statements in a news
article, which was published on the front page of both the Spokesman-Review
and the Spokane Chronicle on
October 7, 1987
.
On
the same day that the newspaper article appeared, Richey spoke to two
other people in the local press about his "retribution"
theory. Robert Lowery, News Director for KBBO and KSRE radio stations in
Yakima
,
Washington
, testified that Richey stated, in an interview on
October 7, 1987
, that he had audited Judge McDonald. Rodney Lyle Smith of KNDO
television in
Yakima
also testified that Richey stated that he had audited Judge McDonald
some fifteen years earlier and assessed some additional taxes upon him.
On
June 15, 1988
, a federal grand jury filed a three-count indictment, charging Richey
with willfully disclosing tax return information in violation of I.R.C. §7213 . Prior to trial,
Richey filed a motion to dismiss the indictment on the grounds that,
among other things, section
7213 violated his first amendment right to freedom of
expression. Richey also filed a motion to remove the Assistant United
States Attorney assigned to prosecute the case. The district court
denied both motions. After a bench trial before Judge Hupp of the
Central District of California, sitting by designation in the Eastern
District of Washington, Richey was found guilty of violating section 7213 .
Meanwhile,
Richey appealed his earlier conviction for conspiracy to defraud the IRS
and aiding and assisting in the preparation of false and fraudulent tax
returns. Richey claimed, among other things, that the probation
condition violated his first amendment right to free speech and that
Judge McDonald had abused his discretion by not recusing himself sua
sponte. This court concluded that the probation condition issue was
moot by the time the case reached us because Richey had been resentenced
to a new term of probation that did not include the condition. See United
States v. Richey, No. 87-3083 (9th Cir.
June 5, 1989
) (memorandum disposition). We also determined that Judge McDonald did
not abuse his discretion by not recusing himself sua sponte from
Richey's case.
Id.
Richey
now appeals from his conviction for violation of section 7213 . We have
jurisdiction under 28 U.S.C. §1291
.
II
Richey
contends that the district court erred by denying his motion to dismiss
the indictment because section
7213 , as applied, violated his first amendment right to
freedom of expression.
A
The
first amendment's guarantee of freedom of speech encompasses a broad
spectrum of form and type of expression. While a "major purpose of
[the] Amendment [is] to protect the free discussion of governmental
affairs," Mills v.
Alabama
, 384
U.S.
214, 218 (1966), the amendment also protects an individual's interest in
self-expression. See Consolidated Edison Co. v. Public Serv. Comm'n,
447
U.S.
530, 534 n.2 (1980). The fact that the majority of a community may find
an idea politically, intellectually, or morally offensive does not
shield the idea from first amendment protection. See, e.g., Wooley v.
Maynard, 430
U.S.
705, 715 (1977). Accordingly, we protect expression as diverse and
unique as burning of the American flag, see Texas v. Johnson, 109
S. Ct. 2533, 2536 (1989), public announcement of boycott violators, see NAACP
v. Claiborne Hardware Co., 458 U.S. 886, 909-10 (1982), and live
entertainment including nude dancing, see Schad v. Borough of Mount
Ephraim, 452 U.S. 61, 66 (1981).
However,
first amendment rights are not without some constraints. The government
may properly limit speech when compelling government interests outweigh
the free expression interests of the speaker. See, e.g., Landmark
Communications, Inc. v.
Virginia
, 435
U.S.
829, 841 (1978). Our task, therefore, is to identify the relevant
interests, and then to determine, under established first amendment
principles, whether governmental interests outweigh those of the speaker
in this case.
B
1
We
discern three relevant interests in the present case. First, Richey has
an undisputed interest in a fair trial, which includes the right to have
an unbiased judge. See Tuney v. Ohio, 273 U.S. 510, 523 (1927)
("it certainly violates the Fourth Amendment, and deprives a
defendant in a criminal case of due process of law to subject his
liberty or property to the judgment of a court the judge of which has a
direct, personal, substantial, pecuniary interest in reaching a
conclusion against him in his case"); see also Aetna Life Ins.
Co. v. Lavoie, 475 U.S. 813 (1986); Ward v. Village of
Monroeville, 409 U.S. 57 (1972). 1
In Lavoie, a civil case, the Supreme Court concluded that Aetna's
due process rights were violated when an Alabama Supreme Court justice
participated in an appeal of an
Aetna
case while the justice had two lawsuits pending against other insurance
companies, involving similar issues, at the same time. See Lavoie,
475
U.S.
at 824-25. Here, in a criminal trial, Richey's due process interest was
clearly substantial. 2
2
Richey
also has an interest, as a citizen, in commenting upon matters of public
concern. See
Pickering
v. Board of Educ., 391
U.S.
563, 568 (1968). "[S]peech on public issues occupies the 'highest
rung of the hierarchy of First Amendment values' and is entitled to
special protection." Connick v. Myers, 461
U.S.
138, 145 (1983) (quoting NAACP v. Claiborne Hardware Co., 458
U.S.
886, 913 (1982)).
The
potential bias of a judge is clearly a matter of public concern. See Landmark
Communications, Inc. v. Virginia, 435
U.S.
829, 835-37 (1978). There, the Virginian Pilot, a Landmark
newspaper, published an article about a pending investigation of a state
judge by the Virginia Judicial Inquiry and Review Commission. The
article identified the state judge under investigation. Landmark was
subsequently indicted, convicted, and fined for the article, as the
identification of a judge under investigation was a violation of
Virginia
state law. The Supreme Court reversed the conviction. "Whatever
differences may exist about interpretations of the First
Amendment," the Court observed, "there is practically
universal agreement that a major purpose of that Amendment was to
protect the free discussion of governmental affairs."
Id.
at 838 (quoting Mills v. Alabama, 384
U.S.
214, 218 (1966)). This includes the operation of the courts and judicial
conduct of judges; indeed, such topics are "matters of utmost
public concern."
Id.
at 839. 3
There can be no doubt that, in the case at hand, the public would be
concerned about any potential judicial bias, and thus the topic was one
in which Richey had a cognizable interest in discussing.
Richey
also invokes the public's interest in being informed as a justification
for his statements to the press. Indeed, "[b]y protecting those who
wish to enter the marketplace of ideas from government attack, the First
Amendment protects the public's interest in receiving information."
Pacific Gas & Elec. Co. v. Public Utilities Comm'n, 475
U.S.
1, 8 (1986). The public's interest must indeed be considered in any
first amendment calculus. This interest carries particular weight when
invoked by the media or persons charged with informing the public. See Landmark
Communications, 435 U.S. at 839 ("The operation of the Virginia
Commission, no less than the operation of the judicial system itself, is
a matter of public interest, necessarily engaging the attention of the
news media."). Nevertheless, when invoked by persons privy to
sensitive material as a result of their position, the public's interest
in being informed carries far lesser weight in the balancing process. Cf.
id. at 837 (Court expressly disavowed taking a position on the
constitutionality of an attempt by
Virginia
"to punish participants for breach of [the confidentiality]
mandate") (emphasis added). 4
3
The
final interest at issue is that of the government and taxpayers in
protecting the confidentiality of private tax information. 5
See generally Church of Scientology v. IRS [87-2
USTC ¶9604 ],
484 U.S. 9 (1987); see also Johnson v. Sawyer [86-2
USTC ¶9677 ],
640 F. Supp. 1126, 1131 (S.D. Tex. 1986) (barring disclosure of
information pertaining to deficiencies, penalties, and interest due); Cliff
v. Internal Revenue Serv. [80-2
USTC ¶9596 ],
496 F. Supp. 568, 571-72 (S.D.N.Y. 1980) (prohibiting disclosure of IRS
memoranda that discuss the impact of IRS regulations on specific
taxpayer liability). Richey concedes that the government has an interest
in protecting the confidentiality of private tax information. However,
since we are asked to balance competing interests, the magnitude of the
interest must be carefully evaluated.
The
government's interest in the confidentiality of tax information has two
components. First, confidentiality is necessary to ensure compliance
with federal tax laws. The American tax structure is unique in that it
is based on a system of self-reporting. United States v. Bisceglia
[75-1
USTC ¶9247 ],
420 U.S. 141, 145 (1975). "There is legal compulsion, to be sure,
but basically the Government depends upon the good faith and integrity
of each potential taxpayer to disclose honestly all information relevant
to tax liability."
Id.
In enacting the statutory provisions guaranteeing confidentiality,
including section
7213 ,
Congress observed that "the question [has been raised] whether the
public's reaction to this possible abuse of privacy would seriously
impair the effectiveness of our country's very successful voluntary
assessment system which is the mainstay of the Federal tax system."
Sen. Rep. No. 94-738, Part I, reprinted in 1976 U.S. Cong. Code
& Admin. News 3439, 3747.
The
government also has an interest, asserted on behalf of its taxpayers, to
ensure each individual taxpayer's right to privacy. A tax return and
related information contains many intimate details about the taxpayer's
personal and financial life. An individual's tax return will contain, in
addition to the nature and source of income, information about the
taxpayer's family, political affiliation, health data, and union
membership. Likewise, a corporate tax return will contain detailed
financial information which could potentially be abused by competitors.
See, e.g., Association of American Railroads [74-1
USTC ¶9263 ],
371 F. Supp. 114, 116 (D.D.C. 1974) ("The policy of confidentiality
for income tax data encourages the full disclosure of income by
taxpayers in that the individual or corporate taxpayer is assured that
his neighbor or competitor will not be apprised of the intimate details
of his financial life."); see generally Benedict & Lupert, Federal
Income Tax Returns--The Tension Between Government Access and
Confidentiality, 64 Cornell L. Rev. 940, 943-47 (1979) (discussing
the importance of maintaining the confidentiality of tax returns).
Clearly, individual taxpayers desire to keep this information
confidential.
C
Our
remaining task is to balance these competing interests. We begin by
noting that we have previously found the government's interest in
maintaining a workable tax system to be "compelling." See Bradley
v. United States [87-1
USTC ¶9336 ],
817 F.2d 1400, 1405 (9th Cir. 1987). There, we considered Martin
Bradley's first amendment challenge to I.R.C. §6702
,
which forbids the filing of "frivolous" tax returns. Bradley
submitted a Form 1040 to the IRS which contained only his name,
address, social security number, and a statement, printed in large
letters, condemning the
United States
' involvement in
Central America
. Even though Bradley owed no taxes and was thus under no obligation to
submit a tax return, the IRS imposed a $500 penalty upon Bradley for
filing a frivolous tax return.
We
rejected Bradley's first amendment challenge to the application of section
6702 .
See id. at 1404-05. After assuming for the sake of argument that
Bradley's conduct contained "speech elements entitled to first
amendment protection," we nonetheless observed that an
"important government interest" could override Bradley's free
expression rights.
Id.
at 1405. The "Government's compelling interest in
maintaining a sound and administratively workable tax system" was
just such an overriding interest.
Id.
(emphasis added).
In
contrast to the government's "compelling" interest, Richey's
personal interest in having an unbiased judge preside at his trial could
hardly be advanced by his gratuitous remarks to the media, particularly
given they were made after the trial. Although convicted and
sentenced in the trial court, Richey still had an avenue for relief in
the court of appeals. Conversely, the media offered no practical hope to
Richey, as media commentary has no impact or, certainly, should have no
impact, on judges as they reach their decisions.
See
Bridges
v.
California
, 314
U.S.
252, 289 (1941) (Frankfurter, J., dissenting) ("[judges] by
tradition will not respond to public commentary"). Thus, while
Richey's interest is concededly substantial, the relationship between
the interest and the statements at issue is, at best, tenuous. 6
Richey's
interest as a citizen in commenting upon matters of public concern is
also substantial, but it must give way to the government's interest in
this case. Even speech dealing with matters of public concern can be, in
some instances, subject to governmental regulation. Allen v.
Scribner, 812 F.2d 426, 432 (9th Cir. 1987); see also Cox v.
Louisiana, 379
U.S.
536, 558 (1965). When the government has a legitimate interest in
regulating speech, reasonable time, place, and manner restrictions are
permissible. See Allen, 812 F.2d at 432. Here, the government
seeks to restrict disclosure of private tax information to the press,
where the result sought to be accomplished by such disclosure could be
accomplished by less deleterious means. Given the compelling
governmental interest in maintaining a workable tax system, it is
difficult to say that this regulation is unreasonable. See, e.g.,
Connick v. Myers, 461 U.S. 138, 154 (1983) (government employee's
"limited First Amendment interest" was trumped by action which
might "disrupt the office, undermine [supervisor's] authority, and
destroy close working relationships"); Snepp v. United States,
444 U.S. 507, 509 n.3 (the government's "compelling interest in
protecting both the secrecy of information important to our national
security and the appearance of confidentiality so essential to the
effective operation of our foreign service" enabled the CIA to
"impos[e] reasonable restrictions on employee activities that in
other contexts might be protected by the First Amendment"). This is
particularly true here where Richey failed even to attempt other less
intrusive means of disclosing the sensitive information. 7
In
sum, there can be no doubt that Richey violated the duty of
confidentiality imposed upon him by section
7213 .
Richey's self-serving comments to the press--made in full knowledge that
they were in violation of section
7213 --are
not transmogrified into speech worthy of first amendment protection
simply because they touched upon a matter of public concern. The
district court did not err in denying the motion to dismiss the
indictment on first amendment grounds.
III
Richey
contends that the district court erred by not granting his motion for
removal of the assistant United States Attorney. Richey's contention
appears to be that the assistant United States Attorney might himself
have violated section
7213 by
disclosing in the indictment Judge McDonald's tax return information.
Richey views such disclosure as a basis for removal of the assistant
United States Attorney.
This
argument is meritless. The record indicates that the disclosure in the
indictment in this prosecution was made with Judge McDonald's consent. A
taxpayer may disclose his own tax information. See
United States
ex rel Carthan v. Sheriff of
New York
, 330 F.2d 100, 101 (2d Cir.), cert. denied, 379 U.S. 929
(1964); see also I.R.C. §6103(a)
(taxpayer
not prohibited from disclosing his own tax return information).
Moreover, tax information may be disclosed to a grand jury. See Lampert
[88-2
USTC ¶9463 ],
854 F.2d at 337 (tax information disclosed in an information); In re
Grand Jury Investigation, 696 F.2d 449, 450-51 (6th Cir. 1982).
AFFIRMED.
1
In Richey's prior appeal, we concluded that Judge McDonald was not, in
fact, biased. See United States v. Richey, No. 87-3083 (9th Cir.
May 5, 1989
) (memorandum disposition) ("In the conduct of the trial, [Judge
McDonald] was eminently fair."). However, since the events at issue
in this appeal occurred prior to our resolution of the earlier appeal,
we give Richey the benefit of any doubt and assume, for purposes of this
appeal, that Richey had at least a colorable claim of potential bias by
Judge McDonald.
2
Excluding its otherwise strident emotional rhetoric, the dissent asserts
that Richey's interest in obtaining an unbiased judge has no place in a
first amendment balancing process, but rather, should be considered only
in relation to a due process or recusal statute violation. Post
at 719 n.6. Paradoxically, the dissent prays for a "narrow
exception" to the commands of section
7213 to
those who believe they are "victim[s] of judicial bias." Post
at 727. Isolating such purported victims necessarily involves
identifying members of the class.
The
consequences of removing the "due process" component from the
first amendment calculus are drastic. Presumably, any person
otherwise constrained by section
7213 would
be free to disseminate--unchecked except for time, place, and manner
restrictions--such information merely if the information creates
inferences of judicial bias. Moreover, while judicial bias is
indisputably a matter of great public concern, so is malfeasance by any
public servant. So applied, the "narrow exception" becomes a
gaping hole.
In
any event, we have clearly identified the interest as one of "due
process." Given that Richey's objectives in speaking to the press
may have included an attempt to advance this interest, the government's
reasons for limiting this speech must be shown to be all that more
compelling in order to defeat such interest.
3
To the extent that Richey's statements simply involved Judge McDonald's
audit, the statements cannot be "fairly characterized as
constituting speech on a matter of public concern." Connick v.
Myers, 461
U.S.
138, 148 (1983). Private tax return information is not "a
traditionally public source of information." Seattle Times Co.
v. Rhinehart, 467
U.S.
20, 33 (1984). Private tax return information is, moreover, not a matter
upon which "free and open debate is vital to informed decision
making by the electorate." Pickering, 391
U.S.
at 571-72. However, the disclosure of tax information cannot be viewed
in isolation; in context, the disclosure was merely the factual
predicate for a larger proposition, that of the alleged bias of Judge
McDonald.
4
"Participants" was defined to include (1) members and staff of
the Virginia Judicial Inquiry and Review Commission, and (2) witnesses
or putative witnesses. 435
U.S.
at 837 n. 10.
5
Private tax information, as used in 26 U.S.C. §7213
,
specifically includes tax deficiencies, over-assessments, and whether a
taxpayer's return has been audited. 26 U.S.C. §6103(b)
.
6
Ironically, Richey claims that he did not move to recuse Judge McDonald
in part because he feared violating section
7213 by
making such a motion. Certainly if section
7213 extends
to revelations made in the course of a judicial proceeding, the section
encompasses statements made outside of the courtroom.
The
dissent suggests that we treat Richey's failure to move to recuse Judge
McDonald as a bar to his first amendment claim. Of course, this failure
to move for recusal cannot be a bar to Richey's claim; rather, it is
merely a factor to consider in performing the balancing of interests
where the first amendment is implicated. In hindsight we know that Judge
McDonald did recognize Richey as the IRS agent who audited him
some seventeen years before. Nevertheless, without Richey's having moved
for recusal--and thus establishing a factual predicate--his allegations
of bias were even more speculative than they might at first appear. As
the correlation between the matter of public concern (judicial bias) and
the subject matter of the speech at issue (earlier tax audit) becomes
more attenuated, the interest of the speaker diminishes in relation to
the government's compelling interest.
7
If Richey had revealed the audit in court, presumably the press could
have discovered and reported the information from this source. That the
information was otherwise discoverable is, however, irrelevant. In United
States v. Posey, 864 F.2d 1487 (9th Cir. 1989), the defendant,
George Posey, was convicted of supplying nonclassified technical
information to South Africa, in violation of the Comprehensive
Anti-Apartheid Act, 22 U.S.C. §5067
,
and the Arms Export Control Act, 22 U.S.C. §2778 ("Acts").
Posey contended that because the information was readily available to
virtually anyone in the world, the first amendment prohibited
application of the Acts to dissemination of such information. We
rejected this argument, holding that the government's national security
interests permitted restriction of such information, even if the
information were otherwise readily discoverable. See id. at
1496-97. Similarly, in the present case, the government's interest in
maintaining a workable tax system permits restrictions on disclosures
even if the information might otherwise become known.
Moreover,
public confidence in the tax system is less likely to erode if
disclosure is made during the course of a judicial proceeding, rather
than at the whim of a former IRS agent. Richey's offhand comments to the
press suggest to the public that no restrictions of such information
exist. Cf Lampert v. United States [88-2
USTC ¶9463 ],
854 F.2d 335, 338 (9th Cir. 1988) ("once return information is
lawfully disclosed in a judicial forum, its subsequent disclosure by
press release does not violate the Act"), cert. denied. 109
S. Ct.
1931 (1989).
Dissenting
Opinion
REINHARDT,
Circuit Judge
Lawrence
Richey's odyssey through the courts constitutes a sad chapter in this
circuit's performance of its judicial duties. Twice now, we have
severely stretched the limits of legal reasoning in order to avoid a
serious issue regarding judicial conflict of interests. Twice now,
significant violations of Richey's first amendment rights have
occurred--each time with the active participation of the judiciary.
While Richey's original complaints of actual judicial bias may well have
been wholly without merit--and I think it reasonable to assume that they
were--his allegations raise a serious question whether the district
judge failed to recuse himself as required by 28 U.S.C. §455
(1982).
Moreover, the subsequent actions of this court have given rise to an
even more serious question--whether the judiciary is willing to protect
free speech when its own self-interest is involved. I should state at
the outset that I do not believe that there is any judicial conspiracy
to silence or punish Richey, or even any deliberate exercise of judicial
ill-will toward him. There is, however, a remarkable judicial
blindness--or perhaps a remarkable judicial insensitivity to the first
amendment--that appears to stem from an inability to grasp the import of
free speech when criticisms of the judiciary are involved.
I.
The
Richey saga undoubtedly originated with a district judge's
determination to perform his duties fully and fairly and to carry out
the obligations imposed on him by his oath of office. Nevertheless, that
judge's decision to preside over Richey's first trial led, perhaps
inevitably, to the constitutional controversy that today confronts us.
As an I.R.S. agent, Richey audited the tax returns of an attorney named
Alan McDonald and assessed additional taxes against him. Several years
later, Richey, now in private business as a tax advisor, found himself
the defendant in a criminal trial, with the same Alan McDonald, now a
United States District Judge, presiding. Following Richey's conviction
on charges involving the preparation of fraudulent tax returns, Judge
McDonald sentenced him to a substantial term of imprisonment but
suspended service of the sentence and placed him on probation for five
years subject to a number of conditions. One of those conditions was the
remarkable and patently unconstitutional requirement that Richey not
make disparaging remarks about the
United States
government. Because of this unprecedented gag order, Richey faced the
threat of criminal sanctions if he exercised his first amendment rights.
Some
time after the imposition of the sentence, Bill Morlin, a reporter for
the Spokesman-Review and the Spokane Chronicle newspapers,
telephoned Richey to ask him about the prohibition against criticizing
the government. Morlin identified himself and asked Richey why he
believed Judge McDonald had imposed the obviously unconstitutional
condition. According to Morlin, Richey responded that when he had worked
for the I.R.S., he had audited then-attorney McDonald's tax returns and
found discrepancies in travel and entertainment expenses. He stated in
response to a question that he did not remember the amounts involved.
When asked again why he thought the judge had issued the
unconstitutional gag order, Richey responded: "I kind of get the
feeling that it was retribution; that he did remember; that he did
remember the tax audit. . . . I think the judge thought, 'Now we've got
this smart aleck.' He got me, all right."
Morlin
published Richey's comments the next day. Based upon this article,
Robert Lowery, the news director for the Yakima Broadcasting Company
radio station, telephoned Richey and asked him to verify that he had
audited Alan McDonald. Richey confirmed that he had conducted the audit
but refused to say when or to reveal the outcome. Lowery broadcast this
information twice on AM and twice on FM frequencies.
The
same day, Rodney Smith, a reporter/editor for KNDO Television, initiated
a videotaped interview with Richey concerning the gag order. Smith asked
Richey why he thought Judge McDonald had imposed the restraint, and
Richey responded: "I thought it was rather malicious. I may have
rubbed him the wrong way in my frequent letters to the editors; I don't
know. I also remember interviewing him as an agent about fifteen years
ago and assessing some additional tax . . . ." Two months later,
Smith aired this tape on television.
For
having responded to the press inquiries as he did, Richey was charged
with three felony counts, and convicted on all three. He was sentenced
to three years of supervised probation. He was also charged with having
violated the terms of his original probation. His original probation was
revoked and he was sentenced to a new probationary term; however the new
order did not include a provision similar to the unconstitutional gag
order. 1
II.
Richey
first appealed from his conviction on the original tax preparation
charges and from the sentence of probation imposed by Judge McDonald. We
affirmed. Strangely, we decided that our disposition was not worthy of
publication. See United States v. Richey, No. 87-3083 (9th Cir.
June 5, 1989) (unpublished memorandum disposition). In our unpublished
disposition, we rejected Richey's claim that Judge McDonald should have
recused himself sua sponte, saying: "We are reluctant to lay
down a rule that every judge in his circumstances is automatically
disqualified from presiding." That analysis strikes me as
exceedingly odd. One wonders how many judges such a rule would have
affected. Is it really common, as our unpublished memorandum hints, for
federal judges to preside over criminal trials of individuals who have
previously been responsible for the assessment of tax delinquencies
against them? I would hardly think so. More important, it seems evident
that Judge McDonald did violate, perhaps unwittingly, the rule requiring
a federal judge to recuse "himself in any proceeding in which his
impartiality might reasonably be questioned." 2
While the prior relationship may not have actually affected Judge
McDonald's attitude toward Richey, that is not the test under the
statute. The test involves the "appearance" and not the
actuality of bias. See Liljeberg v. Health Servs. Acquisition Corp.,
486
U.S.
847 (1988). 3
In addition, although we noted in our unpublished disposition that the
gag order was an "odd provision" which was "not
defensible," we held that Richey's appeal as to this condition was
moot.
Today,
this court has had a second opportunity to review Richey's treatment at
the hands of the judiciary. This time we were asked to review the three
felony convictions to which Richey was subjected for his statements
explaining why he believed Judge McDonald was biased against him.
Unfortunately, once again we have failed to engage in a reasoned
discussion regarding either judicial conflicts of interest or the
public's right to know. Instead, the majority wholly ignores the first
subject and treats the second by a perfunctory balancing of interests
followed with a conclusory holding that Richey's three felony
convictions must be affirmed. The majority's determination that Richey
had no first amendment right to speak as he did is especially ironic in
light of the fact that the critical comments for which he was punished
related to a federal court order that itself flagrantly violated his
right to freedom of speech.
Richey
does not dispute that his statements were in violation of the facial
provisions of 26 U.S.C. §7213
.
Rather, he challenges the constitutionality of that statute as applied
to the speech in which he engaged. The majority holds that Richey was
properly convicted because the first amendment does not protect the
comments in which he criticized the conduct of the court. I dissent.
III.
A
public employee or former employee's free speech rights may be limited
in ways that other persons' rights may not. Because Richey is a former
employee of the I.R.S., we apply the two-part test of Pickering v.
Board of Educ., 391
U.S.
563, 568 (1968). 4
Under this test, the first question is whether Richey's speech was on a
matter of public concern. See Connick v. Myers, 461
U.S.
138, 146 (1983); Pickering, 391
U.S.
at 568. The second question is whether Richey's interest in free speech
outweighs the government's interest in protecting the privacy of tax
return information. See Connick, 461
U.S.
at 147. This two-part balancing test involves a fact-specific inquiry.
See id. at 150-51. The majority correctly concludes that Richey's
speech was on a matter of public concern but erroneously holds that the
government's interest in maintaining a workable tax system outweighs
Richey's interest in communicating information regarding judicial
misconduct. In my opinion, the latter holding constitutes serious
constitutional error.
As
the majority acknowledges, there can be little question that Richey's
speech involved a matter of public concern. In reaching this conclusion,
a court must examine the content, form, and context of the speech. See Connick,
461
U.S.
at 147-48. The content is undisputed: Richey revealed information
pertaining to Judge McDonald's prior tax returns. In itself, this
information would not ordinarily be of public concern. Nevertheless, in
context, the speech was not about private tax information.
Rather, it was about bias in the judiciary. The tax information was
merely evidence to support the charge of bias. In short, although
private tax information is not in itself a subject of public concern,
the same is not true when the tax information is relevant to the
question whether a judge should have recused himself. There is a strong
public interest in discussing the types of considerations that
justify--or require--recusal, as well as in discussing the question
whether a judge violated the recusal statute in a particular case.
Indeed, "[t]he administration of justice by an impartial judiciary
has been basic to our conception of freedom ever since Magna Carta. It
is the concern not merely of the immediate litigants. Its assurance is
everyone's concern . . . ." Bridges v. California, 314
U.S.
252, 282 (1941) (Frankfurter, J., dissenting). For this reason,
"[t]he operations of the courts and the judicial conduct of judges
are matters of utmost public concern." Landmark Communications,
Inc. v. Virginia, 435
U.S.
829, 839 (1978). The form of Richey's speech also supports a finding of
public concern. Richey responded to inquiries from reporters, and the
media generally found his comments worthy of dissemination. His
statements were broadcast on television and radio and were printed in
the newspaper. The interest that attached to Richey's comments supports
the conclusion that he spoke on a matter of public importance.
While
the answer to the public concern issue is self-evident, the next issue,
the balancing of interests, requires more rigorous analysis. Two strong
interests conflict. Richey had a compelling interest in speaking out on
a matter of public concern. 5
On the other hand, it is undisputed that the government has a weighty
interest in protecting the privacy of tax return information. See Lampert
v. United States [88-2
USTC ¶9463 ],
854 F.2d 335 (9th Cir. 1988), cert. denied, 109 S.Ct. 1931
(1989). In order to foster public confidence in the privacy of
individual returns, Congress prohibited government employees and former
employees from disclosing information relating to them. See Stokwitz
v. United States [87-2
USTC ¶9606 ],
831 F.2d 893, 894 (9th Cir. 1987), cert. denied, 485
U.S.
1033 (1988). The statute specifically sought to end the I.R.S.'s
practice of serving as a "lending library" to other government
agencies.
Id.
(quoting 122 Cong. Rec. 24,013 (1976) (remarks of Sen. Weiker)). The
Supreme Court has emphasized the statute's "primary purpose of
limiting access to tax filings." Church of Scientology v. IRS
[87-2
USTC ¶9604 ],
484 U.S. 9, 16 (1987). Thus, in order to resolve whether Richey's
comments were protected speech, we must determine which of these
competing interests weighs most heavily. 6
IV.
The
majority initially denigrates the strength of Richey's free speech
interest in three ways. First, my colleagues minimize the importance of
the public's interest in being informed. Second, they state that Richey
failed to exhaust his "avenue for relief in the court of
appeals." Finally, they suggest that Richey's failure to move to
recuse Judge McDonald significantly undermines his claim. All of these
arguments are based on erroneous assumptions. None has any bearing on
the proper outcome of this case.
The
claim that the public's interest in being informed is of less importance
"when invoked by persons privy to sensitive material as a result of
their position" finds no support in the law, as evidenced by the
majority's exclusive reliance on an opinion that expressly declined to
address this issue. See Ante at--(citing Landmark
Communications, Inc. v. Virginia, 435
U.S.
829, 837 (1978)). To the contrary, the public has a weighty first
amendment interest in hearing whistleblowers speak out when their
communication exposes government corruption. See Brockell v. Norton,
732 F.2d 664, 668 (8th Cir. 1984). It should be self-evident that the
public's interest in learning of governmental wrongdoing depends only on
the nature of the information, not the occupation of the source. In
weighing the public interest in the
Pickering
balance, we have always asked whether the "subject was 'a
matter of legitimate public concern.' " Connick, 461
U.S.
at 145 (quoting
Pickering
, 391
U.S.
at 571-72) (emphasis added). We consider the speech, not the speaker.
Thus, the majority errs by understating the importance of the public's
right to know. 7
The
majority's claim that Richey should have exhausted his judicial remedies
is equally without merit. A reversal in the court of appeals would not
have accomplished Richey's goal of informing the public about the
existence of judicial bias. People have a first amendment right to
criticize the judiciary when they believe a wrong has occurred. There is
no obligation to delay speaking out in hopes that the judicial system
will itself ultimately recognize a wrong and may even take action to
correct it--someday. Courts are not above the law--or above criticism.
Moreover, even if it is ultimately determined that there has been no
judicial misconduct, what matters for purposes of the first amendment is
not whether the criticism is correct; what matters is that a person who
believes that an injustice has been done has a right to say so publicly.
The first amendment right to speak does not evaporate merely because a
criticism may be factually or legally in error. The right to appellate
review is simply irrelevant to the exercise of the first amendment right
to criticize the district court.
The
majority's final point is that Richey should have moved to recuse Judge
McDonald. That he did not do so, however, is of no legal significance
for first amendment purposes. 8
Under the statute, it is the duty of the judge to recuse himself whether
or not a challenge is made. 9
Two legal issues were raised by Richey's criticisms: first, whether, by
presiding over his case, Judge McDonald violated the applicable rules
and thus acted improperly, and second, whether the judge's conduct, even
if it was not covered by a rule, was unfair and prejudicial. Either way,
Richey had a compelling interest in bringing his complaint of
shortcomings in the judiciary to the public's attention. If the recusal
law covered the circumstance of Richey's trial before Judge McDonald,
Richey had a strong interest in communicating the fact of Judge
McDonald's failure to recuse himself. If, on the other hand, judges are
not presently required to recuse themselves in cases in which defendants
have previously imposed financial penalties on them, Richey may have had
an even more compelling justification for "going public" with
a case for reform of the current rules.
The
majority's erroneous denigration of the strength of Richey's free speech
interest skews the balance in favor of the government. Richey's interest
in communicating on a matter of serious public concern cannot be so
lightly dismissed. 10
V.
The
balancing of interests in which my colleagues engage can perhaps most
generously be characterized as skimpy and confused. The majority refers
to time, place, and manner restrictions, thereby suggesting that Richey
could have made the statements for which he was convicted in a different
time, place, or manner. It of course does not identify the time, place,
and manner "regulation" it purports to uphold, nor does it
identify when, where, or how Richey could have spoken. The plain fact
is, of course, that there is no time, place, or manner
regulation--solely a content proscription. Further my colleagues state
that Richey's disclosure to the press could have been "accomplished
by less deleterious means," but they shed little light on the means
of which they might approve. Given their earlier comments that Richey
could have moved for recusal or exhausted his judicial remedies in the
court of appeals, one might think that they would permit him to make his
disclosure in court. Yet, they carefully refrain from asserting that
Richey would be protected against a criminal prosecution if he had
chosen a judicial forum in which to raise his complaints initially. 11
Most important, even if choosing a judicial forum might facilitate
reversal of Judge McDonald's rulings, but see United States v.
Richey, No. 87-3083 (9th Cir. June 5, 1989) (unpublished memorandum
disposition), doing so would not as directly or as effectively fulfill
the function of informing the public. The remedies simply do not serve
the same purpose and are not mutually exclusive.
As
my colleagues recognize, once Richey made a disclosure in court, the
press would be free to disseminate the information, see Lampert v.
United States [88-2
USTC ¶9463 ],
854 F.2d 335, 338 (9th Cir. 1988), cert. denied, 109 S.Ct. 1931
(1989)--although, as noted, according to the majority Richey might be
subject to criminal prosecution for that disclosure. However, Richey's
reason for speaking to the press was to inform the public of his
allegations of judicial bias. No logical or legal reason exists that he
should be required to file papers in court and await the possibility
that some enterprising journalist will discover the conflict and decide
independently to publicize it. 12
Richey's first amendment interest is in his own speech; that the
media might discover the conflict following a disclosure in court
filings and communicate it to the public does not diminish Richey's
right to speak to the press and public directly. Disturbingly, my
colleagues seem to suggest that because Richey's comments were
newsworthy and the courthouse press might have picked them up, his
interest in direct communication was less deserving of protection. This
conclusion makes no sense.
VI.
The
majority is absolutely correct that the government's interest in
maintaining a workable tax system is "compelling." See Bradley
v. United States [87-1
USTC ¶9336 ],
817 F.2d 1400, 1405 (9th Cir. 1987). 13
Confidentiality of tax return information is a critical component of a
tax system based on self-reporting of income. See United States v.
Bisceglia [75-1
USTC ¶9247 ],
420 U.S. 141, 145 (1975). But this only serves to establish the validity
of the statute in general. It does not tell us when an exception is or
is not warranted in order to preserve constitutional principles. Here,
we are faced with a specific factual situation and asked to make an
extremely narrow exception to the statute. There is no reason to think
that the narrow exception Richey seeks would jeopardize the entire tax
system or result in wholesale disclosure of citizens' tax returns. While
we must remain aware of the importance of the government's general
interest in nondisclosure and proceed cautiously, where countervailing
first amendment interests exist the Constitution obligates us to look
carefully at the particular harm to the individual involved as well as
the general harm to first amendment values that would result from
suppression of the specific speech at issue.
Richey's
limited disclosure of tax return information was the means by which he
raised an important question regarding judicial bias--a subject that
"lies near the core of the First Amendment." Landmark
Communications, 435
U.S.
at 838. Moreover, it was the taxpayer whose conduct, albeit
well-intentioned, precipitated the disclosure. Judge McDonald presided
over a criminal trial of an individual who had previously assessed tax
delinquencies against him, and he imposed a wholly unprecedented and
unconstitutional gag order upon that individual. Thus, Richey's
disclosure was provoked, and not gratuitous. Further, it was
appropriately limited in scope. His responses to press inquiries
communicated his belief that Judge McDonald had violated the recusal
laws by presiding over his trial. By supporting his claim with specific
facts, Richey was able to bring to the public's attention the
information necessary to an evaluation of his allegation of judicial
misconduct. As the courts have recognized in the context of libel,
"The protection of the public requires not merely discussion, but
information." New York Times Co. v. Sullivan, 376
U.S.
254, 272 (1964) (quoting Sweeney v. Patterson, 128 F.2d 457, 458
(D.C. Cir.), cert. denied, 317 U.S. 678 (1942)). Richey therefore
had a strong interest in being able to bring the relevant facts to the
public's attention.
In
this case, the harm that resulted from disclosure was not great. Judges
have life tenure and can readily shrug off unpleasant publicity.
Moreover, little or no hard tax information was actually revealed. All
that was disclosed was that Judge McDonald had failed to calculate the
amount due properly and had been assessed an additional sum. No
confidential information regarding business or personal transactions was
made public. The information related primarily to governmental
enforcement action rather than to the content of the taxpayer's return. 14
The purpose of Richey's disclosure was not to demonstrate that Judge
McDonald had done something wrong with respect to the payment of his
taxes but rather to show that the judge had a conflict of interest
regarding a case over which he had presided. Further, identical
disclosure could lawfully have been, and in fact was, made shortly
afterwards in material filed with this court. Subsequently, the facts
were discussed in a disposition we issued. Thus, the only harm was that
a small amount of tax related information was disclosed prematurely. The
government's general interest in prohibiting disclosure of the contents
of tax returns was breached to only the slightest degree.
After
all the factors are analyzed, three considerations appear preeminent.
First, bias on the bench is a matter involving a breach of public trust.
Second, an individual who believes he is the victim of judicial bias
should not be silenced by the state. Third, the disclosure of
confidential tax information was minimal in nature. In light of all of
the circumstances of the case before us, I have little difficulty in
concluding that under the
Pickering
balancing test, Richey's free speech rights are paramount.
I
would hold that, given the narrow exception we are asked to make,
Richey's specific first amendment interest and that of the public
clearly outweigh the government's general interest in protecting the
operation of its tax reporting system. Accordingly, I would find the
statute unconstitutional as applied to Richey and reverse his three
felony convictions.
1
Judge McDonald's involvement with the case ended after the original
trial and sentence. Two other judges handled the subsequent proceedings.
2
28 U.S.C. §455
(1982)
provides in pertinent part:
(a)
Any justice, judge, or magistrate of the
United States
shall disqualify himself in any proceeding in which his impartiality
might reasonably be questioned.
3
Whether, in light of Judge McDonald's failure to recuse himself, Richey
would have been entitled to a reversal of his conviction is another
matter. Richey's failure to make a "timely" motion would be a
factor to be considered in determining the legal consequences that would
result from the court's violation of §455(a)
.
Id.
at 868.
4
The majority purports to apply a general test under which "[t]he
government may properly limit speech when compelling government
interests outweigh the free expression interests of the speaker."
However, this general rule is modified in the case of public employees
"to accommodate the dual role of the public employer as a provider
of public services and as a government entity operating under the
constraints of the First Amendment." Rankin v. McPherson,
483
U.S.
378, 384 (1987). Thus, when the government attempts to restrict the
speech of public employees, the proper analysis is first, whether the
employee's speech was on a matter of public concern, and second, if it
was, then whether the employee's interest in making the statement
outweighs the government's interest as an employer in promoting the
efficiency of its public services. Pickering v. Board of Educ.,
391
U.S.
563, 568 (1968).
Although
my colleagues fail to discuss specifically the distinction between the
general test and the test applied to public employees, I note that they
correctly cite
Pickering
, mention Richey's status as a public employee, and hold that
Richey's speech was on a matter of public concern. Only then do they
balance Richey's interest in speech against the government's interest in
promoting the efficiency of tax collection. Because they end up properly
applying the two-part
Pickering
test, any purported application of the general law is of no consequence
in this case.
5
To determine the strength of Richey's interest, a court must again look
to the content, form, and context of his speech. See Connick, 461
U.S.
at 150-52. The Supreme Court has stated that the balancing of interests
requires an examination of the "manner, time, and place" of
the speech. Rankin v. McPherson, 483
U.S.
378, 388 (1987); Connick, 461
U.S.
at 152. Despite the variation in the Court's language, the
considerations that must be weighed when balancing the interests are
essentially the same as those involved in determining whether the
statement relates to a matter of public concern. It would make no sense
to ignore the content of the speech or the strength of the public's
interest in it when performing the balancing function. Moreover, a time,
place, and manner inquiry cannot be separated from a form and context
examination.
The
time, manner, and place of the communication may serve to support or
detract from the free speech side of the argument. In the case before
us, had Richey made his statements regarding Judge McDonald's tax
returns to an individual engaged in a civil dispute with the judge
rather than to the press, and had those statements been made during the
course of a cocktail party, the balancing of the interests might well
justify the result the majority reaches. However, those are hardly the
circumstances with which we are faced.
6
The majority suggests that there is a third interest to be
weighed--Richey's interest in obtaining an unbiased judge. The majority
then quickly concludes that this interest is insufficient given the
other circumstances of the case. I fail to understand why the majority
raises this issue at all, let alone as a part of its first amendment
balancing process. Clearly, the only method of obtaining a new judge is
through judicial procedures, and it is quite evident from the record
that Richey's statements to the press were made for different reasons.
More important, Richey's interest in obtaining a fair trial, as
opposed to his interest in publicizing the facts relating to his
allegedly unfair treatment, is not a factor to be considered when
performing our first amendment balancing function. It is only Richey's
interest in speech--and the public's right to know--that may be weighed
against the government's interest in silencing him. Richey's interest in
obtaining a fair trial is more appropriately considered in relation to a
claim that he was deprived of his due process rights or that the recusal
statute was violated.
7
Of course, the fact that the public's right to know is being asserted by
a former I.R.S. employee rather than the news media is not irrelevant to
the balance that must be struck here. That fact is relevant to the
weight of the governmental interest that we must balance against the
public's interest. As already noted, the government may have a
legitimate interest in regulating public employee speech under
circumstances in which it could not prohibit the media from speaking.
However, it is surely incorrect to say, as the majority does, that
because Richey is a former government employee rather than a
representative of the news media, the public's interest in the content
of his speech is in any way diminished. To do so results in
double-counting of the government's interest: the majority uses it once
to reduce the weight of the public interest and again to increase the
countervailing weight of the governmental interest. Neither logic nor
precedent supports this improper loading of the scales.
8
As pointed out supra note 3, the only relevance of Richey's
failure to file a recusal motion is with respect to the remedy to be
imposed for a recusal violation, not with respect to whether a violation
occurred.
9
A judge must recuse himself "in any proceeding in which his
impartiality might reasonably be questioned." 28 U.S.C. §455 (1982). It is not
necessary that the judge be conscious of the circumstances creating an
appearance of partiality for the recusal statute to apply. See Liljeberg
v. Health Servs. Acquisition Corp., 486
U.S.
847 (1988). As long as the public could reasonably believe that the
judge is aware of these circumstances, the statute is applicable.
Id.
Here, the coincidence that Richey had previously audited Judge McDonald
would certainly appear to have been enough to allow reasonable persons
to question the judge's impartiality. Moreover, although actual
knowledge is not required, Judge McDonald's deposition strongly suggests
that, when Richey appeared before him as a criminal defendant, he was
aware that Richey had conducted an audit of his tax returns. In any
event, that we subsequently failed to overturn Judge McDonald's action
because of a reluctance to adopt a general rule disqualifying all judges
in similar circumstances does not affect the fact that Richey spoke out
publicly on a matter of overwhelming public importance.
10
The majority cites four cases as justification for its balancing of the
interests in favor of suppressing Richey's speech. None of the cases
remotely supports the majority's conclusion. Cox v.
Louisiana
, 379 U.S. 536 (1965), involved one statute that was
unconstitutionally broad and another that was an unconstitutional time,
place, and manner restriction on free speech. Allen v. Scribner,
812 F.2d 426 (9th Cir. 1987), reversed a grant of summary judgment for
the defendants, holding that a public employer cannot limit an
employee's speech based on a bare assertion that the speech would
interfere with efficient governmental operations. Connick v. Myers,
461 U.S. 137 (1983), involved statements made on a questionnaire that a
public employee distributed to her co-workers; the Court upheld a
limitation on the employee's free speech rights because the statements
were of only limited public concern and were reasonably likely to
disrupt the office. Finally, Snepp v. United States, 444 U.S. 507
(1980) (per curiam), involved national security concerns. The only
relevance of the cited cases is that they support the undisputed
proposition that public employee speech may be limited under some
circumstances. See supra part III. The cases may provide an
introduction to the general issues involved but they are of little
assistance in resolving the specific question before us.
11
The majority leaves open the question whether §7213 extends to
disclosures made in the course of judicial proceedings. In my view,
there is no question that as a part of his appeal from his original
conviction Richey was entitled to place on the public record the facts
supporting his claim that Judge McDonald erred in failing to recuse
himself sua sponte. There exists a great need for public
accountability in criminal proceedings, as openness "discourage[s]
. . . decisions based on secret bias or partiality." See Richmond
Newspapers, Inc. v. Virginia, 448
U.S.
555, 569 (1980). Open judicial proceedings also have "a significant
community therapeutic value."
Id.
at 570. These aspects of open justice are particularly important when
courts consider issues of recusal, where allegations of bias have been
raised, and especially so when recusal issues arise in the context of a
criminal trial. "To work effectively, it is important that
society's criminal process 'satisfy the appearance of justice,' and the
appearance of justice can best be provided by allowing people to observe
it."
Id.
at 571-72 (quoting Offutt v. United States, 348
U.S.
11, 14 (1954)).
12
My colleagues state that "public confidence in the tax system is
less likely to erode if disclosure is made during the course of a
judicial proceeding, rather than at the whim of a former IRS
agent." This statement reveals the weighted scales with which they
balance the competing interests in this case. The balancing here is not
about permitting the destruction of the entire tax reporting system in
order to appease the "whims" of a former I.R.S. agent. Rather,
it is about whether the unquestionably important governmental interest
in promoting a workable tax system would be unduly compromised by a
narrow exception permitting disclosure of limited tax information when
such information is directly relevant to allegations of judicial bias.
13
Although I agree with this principle, the majority attaches far too much
significance to Bradley. Bradley involved the failure of a person
who had submitted a tax return to provide the required information on
that return, in violation of a statute. We held that the statute did not
violate the first amendment "because it penalizes a taxpayer's conduct
of filing a return based on a frivolous position, not the expression
of views." Bradley [87-1
USTC ¶9336 ], 817 F.2d at 1405 (emphasis in original). We
then went on in dicta to balance the government's interest in
maintaining the tax system against Bradley's purported first amendment
interest. We found that the government's interest in the filing of
accurate tax returns outweighed Bradley's interest in asserting a
frivolous position as a justification for his failure to pay taxes. The
balancing that we did in that case was a far different matter than the
balancing that we do here. In the case before us, we weigh the public's
interest in learning of judicial bias against the injury to the system
that could result from disclosure that a judge had once been assessed a
delinquency. By relying so heavily on Bradley, the majority
significantly overstates the government's interest and improperly
trivializes Richey's free speech rights.
14
The disclosure was, in fact, minimal compared to the disclosure that
judges are required to make under the Ethics Reform Act of 1989, 2
U.S.C. §701 et. seq.
(requiring judges to file forms disclosing income and assets and
providing the public with a right to obtain copies of such disclosure
documents).
[77-2
USTC ¶9498]Paul C. Maggio, Barbara Maggio and Bernard Horwitz,
Plaintiffs v. Charles J. Hynes, Deputy Attorney General of the State of
New York, Defendant
U.
S. District Court, East. Dist. N. Y., Docket No. 76 C 2119,
12/10/76
[Code Secs. 6103, 7602 and 7213--result unchanged by '76 Tax Reform Act]
Examination of books and records: Income tax returns held by
accountant: Summons: Self-incrimination privilege.--Taxpayers'
motion to enjoin a state attorney general's office from enforcing a
subpoena issued for the purpose of obtaining copies of their 1974 U. S.
joint income tax return from their accountant was denied. Disclosure of
the return was not prohibited by Code Sec. 6103(a)(2) or 7213(a),
because the restrictions contained therein apply only to the
dissemination of returns by the government. Taxpayers' argument that
their Fifth Amendment rights would be violated also did not prevent such
disclosures by their accountant.
Hull
, Black & Grundfast,
8 Mawr Road, P. O. Box 623
,
Smithtown
, N. Y. 11787, for plaintiffs. Charles J. Hynes, Deputy Attorney
General, Hauppage, N. Y. 11787, pro se.
Memorandum
and Order
PRATT,
District Judge:
By
motion argued
December 3, 1976
plaintiff seeks to enjoin the Deputy Attorney General of the State of
New York, Charles J. Hynes, from enforcing a subpoena duces tecum issued
pursuant to NY Executive Law §63(8). Plaintiffs' motion for a
preliminary injunction is denied.
Defendant,
the Special State Prosecutor for Nursing Homes, has attempted to obtain,
by means of a subpoena duces tecum issued to the personal accountant of
the plaintiffs, the joint tax returns filed by them for the year 1974.
Plaintiffs seek a declaration that the subpoena is violative of their
rights to privacy and to be free from compulsory self-incrimination, and
that it contravenes the federally recognized privilege prohibiting the
disclosure of tax returns. Moreover, plaintiffs by this instant motion
make application for preliminary relief restraining the Special
Prosecutor from seeking to enforce the subject subpoena and from issuing
additional subpoenas seeking the production of plaintiffs' joint tax
returns.
Relying
primarily upon the dissent of Judge Chambers in Heathman v. U. S.
District Court, 503 F. 2d 1032 (CA 9 1974), plaintiff urges that the
Internal Revenue Code (IRC) §§ 6103 and 7213 proscribes disclosure of
plaintiffs' tax returns to the Special Prosecutor. Plaintiff concedes,
however, that the Heathman majority found that IRC sections
6103(a)(2) and 7213(a), which restrict the publicity of tax returns and
the disclosure of information as to persons filing income tax returns,
do not make copies of tax returns totally privileged, since the
restriction applies only to the dissemination of tax returns by the
government. 503 F. 2d at 1035. Accepting this majority view, the copy of
plaintiffs' tax return in the possession of their accountant is not
privileged.
In
joining with Judge Chamber's dissenting view, plaintiffs point to his
discussion of St. Regis Paper Co. v. United States, 368 U. S. 208
(1961), which held that a similar restriction on government
dissemination of census data did not apply to copies of census reports
retained by the reporting party. Since "Congress quickly overruled
the decision by amending §9 to provide that copies of census reports
retained by individuals are immune from legal process and inadmissible
as evidence without the reporting party's consent," 503 F. 2d at
1036, the dissent argues, the same policy of recognizing the adverse
effect discovery may have on the Census Bureau's ability to gather
complete and accurate data, should also be applied to the Internal
Revenue Service's ability to gather complete and accurate tax returns.
The
argument fails, however, since it was Congress and not the courts that
determined the census data should be privileged. Similarly here, it is
for Congress and not the courts to weigh the competing public
considerations and to determine the national policy on discovery of
copies of tax returns which are in the possession of private citizens.
To date, Congress has not seen fit as it did in St. Regis, to
disturb the Heathman holding, nor does this court.
The
Heathman decision is helpful as well in determining the
constitutional claims of the plaintiffs since there, as here, the
parties also argued
that
the discovery of their copies of their tax returns violates their right
of privacy and their right to be free from unreasonable search and
seizures. * * * There is no merit in these constitutional claims. See Couch
v. United States [73-1 USTC ¶9159], 1973, 409
U. S.
322, 93 S. Ct. 611, 34 L. Ed. 2d 548. 503 F. 2d at 1035.
Finally,
in Couch v.
United States
, supra, the Supreme Court held that a taxpayer's fifth amendment
privilege against self-incrimination does not bar production of records
by one's accountant. See also Fisher v. United States [76-1 USTC
¶9353], 96
S. Ct.
1569 (1976). Nor can the accountant himself claim a fifth amendment
privilege for a copy of a document whose original he voluntarily
prepared and forwarded to the Internal Revenue Service.
Accordingly,
plaintiff has shown neither the probable success on the merits nor the
serious, difficult questions going to the merits required for threshhold
consideration of preliminary relief, see Gresham v. Chambers, 501
F. 2d 687 (CA 2 1974); Sonesta International Hotels Corp. v.
Wellington Associates, 483 F. 2d 247 (CA 2 1973). The motion for a
preliminary injunction is therefore denied.
[2004-1 USTC ¶50,171] Edward James Schwartz and Sharon Diane Schwartz, Plaintiffs v. Donald A.
Kempf, Carol A. Emery, John Doe, Supervisor of Donald A. Kempf, John
Doe, Director of IRS, 20 John/Jane Does, Commissioner Charles A.
Rossotti, and Internal Revenue Service, Defendants.
U.S.
District Court, West. Dist.
Mich.
, So. Div.; 4:02-cv-198,
January 22, 2004
.
[ Code
Sec. 7402]
Constitutional provisions: Constitutional arguments: Bivens actions:
Jurisdiction of courts: District court: Sufficiency of complaint:
Official immunity. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. To the extent
the taxpayers sued IRS employees in their individual capacities for
damages, Bivens did not provide a waiver of sovereign immunity.
Even if the taxpayers had alleged a colorable constitutional violation,
federal courts have consistently declined to create Bivens
remedies for claims arising from administration of tax laws. The
availability of other statutory remedies, including a refund suit for
improperly collected taxes, foreclosed the taxpayers' damages action.
The district court also denied the taxpayers leave to amend their
complaint to add allegations of another Bivens-based First
Amendment claim. The taxpayers contended that the IRS had retaliated
against them, since the filing of their suit, by serving additional
summonses on other parties without notice to the taxpayers, effectively
depriving them of the opportunity to move to quash under Code
Sec. 7609. Because Bivens does not provide remedies
for claims arising from administration of tax laws, however, the
proposed amendment would not have provided a basis for subject matter
jurisdiction.
[ Code
Sec. 7402]
Jurisdiction of courts: District court: Federal Tort Claims Act:
Consent by government. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. The Federal
Tort Claims Act did not provide a basis for jurisdiction over any claims
for money damages because it does not waive sovereign immunity for
claims arising out of the assessment of taxes.
[ Code
Sec. 7433]
Civil suits: Damages for unauthorized collection actions: Exhaustion
of remedies: Jurisdiction. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. Code
Sec. 7433(a) applies to collection, not assessment actions.
Additionally, the statute provides only a limited waiver of sovereign
immunity, and the taxpayers neither alleged nor showed that they had
exhausted their administrative remedies. Consequently, the district
court lacked jurisdiction over any claims they might have sought to
bring under the "Taxpayer Bill of Rights."
[ Code
Sec. 7852]
Application of law: Other applicable rules: Privacy Act. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. The Privacy
Act, which does not apply to assessing the possibility of a tax
liability, did not provide subject matter jurisdiction for the
taxpayers' claim that IRS agents improperly contacted persons regarding
their tax situation. Moreover, the provisions of the Privacy Act were
overcome by Code
Sec. 6103.
[ Code
Secs. 7602 and 7609]
Examination of books and witnesses: Jurisdiction: Summons to
nontaxpayers: Jurisdiction, district court. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. Even assuming
that the government failed to notify the taxpayers that it was
contacting third parties to investigate the taxpayers' liability,
neither Code
Sec. 7602 nor Code
Sec. 7609 provided a waiver of the government's sovereign
immunity to allow the taxpayers to seek declaratory relief or damages.
[ Code
Sec. 7213]
Crimes: Unauthorized disclosure of information: Application of
statute. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. Their apparent
allegation that the IRS violated Code
Sec. 7213(a)(1) by disclosing return information did not
authorize them to bring a civil cause of action against either the
United States
or its employees. Thus, it did not provide a basis for subject matter
jurisdiction.
[ Code
Sec. 6103]
Returns: Confidentiality: Inspection of returns: Disclosure upheld.
--
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes. The taxpayers
neither alleged nor showed that the limited disclosure of return
information that the IRS made was unnecessary. Consequently, Code
Sec. 6103(b) did not provide the district court with subject
matter jurisdiction over the taxpayers' claims.
[ Code
Sec. 7402]
Jurisdiction of courts: District court: Declaratory judgment. --
The
government was entitled to dismissal of individuals' suit alleging that
IRS agents engaged in wrongful attempts to collect taxes from them. They
were not entitled to a declaratory judgment that their rights had been
violated, because the Declaratory Judgment Act expressly exempts federal
tax disputes from its terms.
ORDER
ON PENDING MOTIONS
MILES, Senior District Judge: The pro se plaintiffs filed this
action against the Internal Revenue Service ("IRS") and
miscellaneous other federal defendants, complaining that the IRS and its
agents engaged in certain alleged wrongful attempts to collect taxes.
The matter is currently before the court on the following motions:
Defendants' Motion to Dismiss (docket no. 32); Plaintiffs' Motion for
Leave to File Amended Complaint (docket no. 39); and Plaintiffs' Motion
for Summary Judgment (docket no. 42). For the reasons to follow, the
court DENIES plaintiffs' motions and GRANTS the defendants' motion.
I
In their complaint, plaintiffs allege that they have been "assessed
monies from prior tax years[,]" which include 1996, 1997, and 1998.
Complaint, ¶1. Plaintiffs further allege that in an attempt to collect
the taxes they allegedly owe, defendant Donald Kempf, an IRS agent, has
been "harassing" them and their business customers, using
"extortionate means, "intimidation," and
"outrageous" tactics, including "issuing summons,
subpoenas for records and issuing false statements."
Id.
, ¶s 2-4. Plaintiffs allege that these actions have harmed them and
their business, and damaged their reputations and their relationships
with friends, business suppliers and/or customers, and others who have
been contacted regarding plaintiffs' tax problems.
Plaintiffs' complaint does not identify the specific alleged collection
activities at issue. However, attached to a proposed "Amended
Complaint" which plaintiffs have submitted with their "Motion
for Leave to Amend Complaint" are IRS summonses not for the
tax years 1996, 1997, and 1998 --years for which plaintiffs allege taxes
have already been assessed --but for the years 1999, 2000, 2001 --years
for which the government contends no assessment has yet been made.
Copies of IRS letters which plaintiffs have submitted indeed reflect
that the IRS was in the process of investigating the tax years 1999
through 2001. None of the summonses which plaintiffs have submitted
reflect attempts to collect taxes assessed for the years 1996 through
1998.
Plaintiffs' complaint alleges that the actions of Kempf and the various
other defendants violate plaintiffs' rights under the Fourth Amendment,
the Privacy Act, various provisions of the Internal Revenue Code --26
U.S.C. §§7602,
7213,
and 6103
--as well as state common law. As relief, plaintiffs seek not only a
declaratory judgment that their rights were violated, but also $20
million in damages.
Defendants moved to dismiss the complaint based on Fed.R.Civ.P.
12(b)(1), (2), (3), (5), and (6). Plaintiffs subsequently filed a
written response to the motion, in addition to filing their own
"Motion for Summary Judgment" and "Motion for Leave to
File Amended Complaint."
II
Jurisdiction
One basis for the defendants' motion is Fed.R.Civ.P. 12(b)(1) --lack of
subject matter jurisdiction. "Whenever it appears by the suggestion
of the parties or otherwise that the court lacks jurisdiction of the
subject matter, the court shall dismiss the action." Fed.R.Civ.P.
12(h)(3). Because the court must first be convinced of its jurisdiction
before taking any other action in the case, the court will address the
issue of subject matter jurisdiction at the outset.
Sovereign immunity bars an action against the
United States
unless specifically abrogated by an act of Congress.
United States
v. Testan, 424
U.S.
392, 399, 96 S.Ct. 948, 953-54 (1976). The
United States
may be sued only insofar as it consents to be sued, and the terms of
that consent to be sued in any court define that court's jurisdiction to
entertain the suit. United States v. Dalm [ 90-1
USTC ¶50,154; 90-1
USTC ¶60,012], 494 U.S. 596, 608, 110 S.Ct. 1361, 1368
(1990). A suit against the IRS or its officers or employees in their
official capacity is essentially a suit against the
United States
and is barred by sovereign immunity absent statutory consent. Atkinson
v. O'Neill, 867 F.2d 589, 590 (10th Cir. 1989); Gilbert v. Da
Grossa, 756 F.2d 1455, 1458 (8th Cir. 1985). Therefore, substitution
of the
United States
as the sole defendant is proper.
Plaintiffs have the burden of showing a waiver of sovereign immunity and
establishing the court's subject matter jurisdiction over their claim. Whittle
v. United States, 7 F.3d 1259, 1262 (6th Cir. 1993); Baker v.
United States, 817 F.2d 560, 562 (9th Cir. 1987); see Kokkonen
v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct.
1673, 1675 (1994) ("It is to be presumed that a cause lies outside
[federal courts'] limited jurisdiction ... and the burden of
establishing the contrary rests upon the party asserting
jurisdiction"); Rogers v. Stratton Indus., Inc., 798 F.2d
913, 915 (6th Cir. 1986) ("where subject matter jurisdiction is
challenged under Rule 12(b)(1) ... the plaintiff has the burden
of proving jurisdiction in order to survive the motion"). If the
United States
has not consented to the suit, subject matter jurisdiction is lacking
and the complaint must be dismissed.
United States
v. Mitchell, 463
U.S.
206, 212, 103 S.Ct. 2961, 2965 (1983). "General jurisdiction
statutes such as 28 U.S.C. §1331 and 28 U.S.C. §1340 do not waive
sovereign immunity and therefore cannot be the basis for jurisdiction
over a civil action against the federal government." Berman v.
United States [ 2001-2
USTC ¶50,609], 264 F.3d 16, 20 (1st Cir. 2001) (citations
omitted).
A
Bivens
Plaintiffs's complaint asserts that the court has jurisdiction over this
action under Bivens v. Six Unknown Federal Narcotics Agents, 403
U.S.
388, 91 S.Ct. 1999 (1971). To the extent that plaintiffs sue IRS
employees in their individual capacity for damages, 28 U.S.C. §1331
--the source of so-called Bivens jurisdiction --is not a waiver
of sovereign immunity. Section 1331 only gives the district court
jurisdiction to hear federal claims not otherwise barred. Arvanis v.
Noslo Eng'g, 739 F.2d 1287, 1290 (7th Cir. 1984). Even if plaintiffs
had alleged a colorable constitutional violation, federal courts have
consistently declined to create Bivens remedies in the context of
claims arising from the administration of the tax laws. See, e.g.,
Judicial Watch, Inc. v. Rossotti [ 2003-1
USTC ¶50,202], 317 F.3d 401, 409-413 (4th Cir. 2003); Vennes
v. Unknown Number of Unidentified Agents, 26 F.3d 1448, 1453-54 (8th
Cir. 1994), cert. denied, 513 U.S. 1076, 115 S.Ct. 721
(1995); McMillen v. United States Dept. of Treasury, 960 F.2d
187, 191 (1st Cir. 1991); Wages v. IRS, 915 F.2d 1230, 1235 (9th
Cir. 1990), cert. denied, 498 U.S. 1096, 111 S.Ct. 986
(1991). The remedies provided by Congress, particularly the right to sue
the government for a refund of taxes improperly collected, foreclose a
damages action under Bivens against the individual defendants. 1
Plaintiffs also seek leave to amend their complaint, ostensibly to add
allegations of another Bivens-based First Amendment claim: that
the IRS has "retaliated" against plaintiffs, since the filing
of this lawsuit, by serving additional summonses on other parties
without notice to plaintiffs, effectively depriving plaintiffs of the
opportunity to move to quash under 26 U.S.C. §7609
(more about this below). However, even if plaintiffs's proposed amended
pleading could be construed to allege a colorable First Amendment
violation, the law has not recognized creation of a Bivens remedy
in the context of administration of the tax laws. Under the
circumstances, the proposed amendment would be futile insofar as it
would not provide a basis for subject matter jurisdiction.
B
Federal
Tort Claims Act
The Federal Tort Claims Act ("FTCA") likewise does not provide
a basis for jurisdiction over any claims for money damages here. The
plaintiffs claims arise out of the assessment of taxes, and the FTCA
does not waive immunity for such claims. 28 U.S.C. §2680(c); Fishburn
v. Brown [ 97-2
USTC ¶50,742], 125 F.3d 979, 982 (6th Cir. 1997).
C
Taxpayer
Bill of Rights
The court has also considered whether 26 U.S.C. §7433
may provide a basis for jurisdiction. This statute, known as the
"Taxpayer's Bill of Rights," provides in relevant part as
follows:
If,
in connection with any collection of Federal tax with respect to a
taxpayer, any officer or employee of the Internal Revenue Service
recklessly or intentionally, or by reason of negligence disregards any
provision of this title, or any regulation promulgated under this title,
such taxpayer may bring a civil action for damages against the United
States in a district court of the United States. Except as provided in section
7432, such civil action shall be the exclusive remedy for
recovering damages resulting from such actions.
26 U.S.C. §7433(a).
However, §7433(a),
by its express terms, only applies to collection activities, and
not to actions undertaken during the assessment process. Wise v.
Comm'r of Internal Revenue [ 2001-1
USTC ¶50,294], 168 F.Supp.2d 649, 653 (S.D. Tex. 2001). In
addition, §7433
provides only a limited waiver of sovereign immunity in suits by
taxpayers for unauthorized collection activities. Even where the statute
applies, exhaustion of administrative remedies is a jurisdictional
prerequisite to suit thereunder. 26 U.S.C. §7433(d);
Fishburn [ 97-2
USTC ¶50,742], 125 F.3d at 982; Devore v.
United States
[ 2001-2
USTC ¶50,675], 110 F.Supp.2d 1320, 1323-1324 (D. Nev. 2000).
2 Because
plaintiffs have neither alleged nor shown that they have exhausted their
administrative remedies, the court has no jurisdiction over any claims
plaintiffs might have sought to bring under §7433.
D
Privacy
Act
Plaintiffs generally allege that the IRS violated the Privacy Act by
contacting persons regarding plaintiffs' tax situation. The Privacy Act,
5 U.S.C. §§552a et seq., "regulates the collection,
maintenance, use, and dissemination of information concerning
individuals." Cardamone v. Cohen, 241 F.3d 520, 524 (6th
Cir. 2001) (quotations omitted). The Act "attempts to strike a
balance between the government's need to collect and maintain
information and the privacy interests of the person to whom such
information pertains."
Id.
However, the Internal Revenue Code plainly states that the provisions of
the Privacy Act do not apply, either directly or indirectly, to
assessing the possibility of a tax liability. 26 U.S.C. §7852(e);
United States v. McAnlis [ 84-1
USTC ¶9187], 721 F.2d 334, 336 (11th Cir. 1983) (compliance
with Privacy Act not a prerequisite to enforcement of IRS summons), cert.
denied, 467 U.S. 1227, 104 S.Ct. 2681 (1984); Pham v. United
States [ 99-2
USTC ¶50,801], 84 A.F.T.R.2d 99-5760 (N.D. Ohio 1999). In
addition, the provisions of the Privacy Act are in this instance trumped
by the more specific provisions of the Internal Revenue Code found in 26
U.S.C. §6103.
See, e.g., Gardener v. United States [ 2000-1
USTC ¶50,520], 213 F.3d 735, 740-742 (D.C. Cir. 2000)
(Internal Revenue Code preempts Privacy Act for remedies for disclosure
of tax information). Under the circumstances of this case, the Privacy
Act does not supply a source of subject matter jurisdiction.
E
26
U.S.C. §7602
Plaintiffs also allege that the IRS violated violated [ sic]
section 26 U.S.C. §7602
by contacting third parties without giving plaintiffs proper advance
notice. IRS contends that section
7602(c) has no application to this case. Section
7602(c) provides in pertinent part as follows:
(c)
Notice of Contact of Third Parties. --
(1)
General notice. --An officer or employee of the Internal Revenue Service
may not contact any person other than the taxpayer with respect to the
determination or collection of the tax liability of such taxpayer
without providing reasonable notice in advance to the taxpayer that
contacts with persons other than the taxpayer may be made.
(2)
Notice of specific contacts. --The Secretary shall periodically provide
to a taxpayer a record of persons contacted during such period by the
Secretary with respect to the determination or collection of the tax
liability of such taxpayer. Such record shall also be provided upon
request of the taxpayer.
Assuming
that plaintiffs's allegation that they were not provided with the notice
required in §7602,
neither that statute, nor §7609
(applying to third-party summonses), provides waives the
United States
' sovereign immunity to the extent contemplated by plaintiffs' claims in
this action. A close reading of both §§7602
and 7609
reveals that if proper notice if not provided, the taxpayer has the
right to intervene in any proceeding involving enforcement of the
summons, see §7609(b)(1),
and may also begin a proceeding to quash the summons. §7609(b)(2)(A).
Nothing in either statute gives a taxpayer the right to seek a
declaratory judgment or damages based on the failure to provide notice
of the issuance of a summons to investigate the taxpayer's liability. 3 The
statutes do not provide a waiver of sovereign immunity allowing parties
to seek declaratory relief and damages. Therefore, in this instance
neither §7602
nor §7609
provides a basis for subject matter jurisdiction over this action.
F
26
U.S.C. §7213
Plaintiffs's complaint seemingly alleges that the IRS has violated 26
U.S.C. §7213(a)(1),
which makes it unlawful for any United States employee "willfully
to disclose to any person," except as authorized in Title 26,
"any return or return information (as defined in section
6103(b))." However, this is a criminal statute. Nothing
in this statute authorizes plaintiffs to bring a civil cause of action
against either the
United States
or its employees. Section
7213(a)(1) does not provide a basis for subject matter
jurisdiction.
G
26
U.S.C. §6103
Plaintiffs have also, in their complaint, relied on 26 U.S.C. §6103,
seemingly as support for their position that "return
information" is not subject to disclosure by the IRS. However, 26
U.S.C. §6103(k)(6)
permits the IRS to disclose return information "to the extent that
such disclosure is necessary in obtaining information, which is not
otherwise reasonably available, with respect to the correct
determination of tax, liability for tax, or the amount to be
collected[.]" Plaintiffs have neither alleged nor shown that the
limited disclosure made by the IRS was unnecessary. Section
6103(b) does not provide the court with subject matter
jurisdiction over plaintiffs' action.
H
Declaratory
Judgment
Finally, plaintiffs seek a declaratory judgment that their rights have
been violated. However, as the defendants have correctly observed, the
Declaratory Judgment Act, 28 U.S.C. §2201, expressly exempts federal
tax disputes from its terms. See Flora v. United States [ 60-1
USTC ¶9347], 362 U.S. 145, 164-165, 80 S.Ct. 630 (1960). In
any event, "[t]he Declaratory Judgment Act does not create an
independent basis for federal subject matter jurisdiction." Heydon
v. MediaOne of Southeast Michigan, Inc., 327 F.3d 466, 470 (6th Cir.
2003). Therefore, the court does not have jurisdiction under the
Declaratory Judgment Act to grant declaratory relief in this case.
Conclusion
For the reasons discussed, the court GRANTS the motion to dismiss. The
court also denies plaintiffs' motion to amend and motion for summary
judgment. This action is DISMISSED without prejudice for lack of subject
matter jurisdiction.
So ordered.
1 In
addition, issuance of the summonses did not violate the Fourth Amendment
in any event because plaintiffs could have no reasonable expectation of
privacy in documents which are in the possession of a third party. Reimer
v. United States [ 99-1
USTC ¶50,454], 43 F.Supp.2d 232, 237 (N.D. N.Y. 1999)
(citing cases).
2 Title 26
U.S.C. §7433(d)(1)
provides as follows:
A judgment for damages shall not be awarded under subsection (b) unless
the court determines that the plaintiff has exhausted the administrative
remedies available to such plaintiff within the Internal Revenue
Service.
3 Insofar
as plaintiffs' seek a declaratory judgment --an equitable remedy --this
remedy would not be available to plaintiffs in any event; a petition to
quash provides an adequate remedy at law.