DONALDSON, FKA SWEET v. UNITED STATES ET AL.
No. 65
Supreme Court of the United States
Argued November 19, 1970—Decided January 25, 1971
400 U.S. 517
Robert E. Meldman argued the cause for petitioner. With him on the briefs was Louis L. Meldman.
Lawrence G. Wallace argued the cause for the United States et al. On the brief were Solicitor General Griswold, Assistant Attorney General Walters, Deputy Solicitor General Springer, Samuel Huntington, Joseph M. Howard, and John P. Burke.
MR. JUSTICE BLACKMUN delivered the opinion of the Court.
We are here concerned with problems arising in connection with the issuance and judicial enforcement of an internal revenue summons directed to someone other than the individual taxpayer.
Kevin L. Donaldson, formerly known as Merton H. Sweet, apparently was once employed by, or was a performer for, Acme Circus Operating Co., Inc., dba Clyde Beatty-Cole Bros. Circus.1 Mr. Donaldson (sometimes referred to herein as the “taxpayer“) is an individual whose income tax returns for the calendar years 1964-1967, inclusive, are under investigation by the Internal Revenue Service.
On September 12 and 13, 1968, Special Agent John P. Grady, purportedly acting under the authority of
Shortly prior to the issuance of these summonses, the United States District Court for the Middle District of Florida, upon petitions filed by the taxpayer, issued tem-
On November 25, 1968, the United States and Agent Grady, pursuant to
Mercurio and Acme, on their part, also filed responses to the orders to show cause. Each alleged that “were it not for” the preliminary injunction or temporary restraining order theretofore entered, “the Respondent would have complied with the summons.”5
The orders to show cause were returnable before Judge Lieb. After the submission of memoranda and argument, but without the introduction of testimony, the court denied the motions to intervene and ordered Mercurio and Acme to appear before Grady and to produce
Certiorari was granted, 397 U. S. 933 (1970), because the case appeared to raise important questions relating to the administration and enforcement of the revenue laws, and because the courts of appeals have differed in their reading of Reisman v. Caplin, 375 U. S. 440 (1964).6
I
Despite the contrary intimations in the motions to intervene, there is now no constitutional issue in the case. The taxpayer on oral argument so conceded.7 In any event, that question appears to have been settled long ago when the Court upheld, against Fourth Amendment challenge, an internal revenue summons issued under the Revenue Act of 1921 and directed to a third-party bank. First Nat. Bank v. United States, 267 U. S. 576 (1925), aff‘g 295 F. 142, 143 (SD Ala. 1924). See also United States v. First Nat. Bank, 274 F. Supp. 283, 284 (ED Ky. 1967), aff‘d sub nom. Justice v. United States, 390 U. S. 199 (1968), and United States v. Shlom, 420 F. 2d 263, 266 (CA2 1969), cert. denied, 397 U. S. 1074 (1970).
II
We emphasize initially, as did Judge Tuttle in his opinion for the Court of Appeals, 418 F. 2d, at 1214, that what is sought here by the Internal Revenue Service
III
Mr. Justice Clark, in Part II of his opinion for a unanimous Court in Reisman, 375 U. S., at 445-446, reviewed the statutory structure that Congress has provided for the issuance and enforcement of an internal revenue summons. It will perhaps be rewarding for us to outline that structure once again.
Section 7601 of the 1954 Code,
Section 7602 authorizes the Secretary or his delegate for “the purpose of ascertaining the correctness of any return . . . determining the liability of any person for any internal revenue tax . . . or collecting any such liability . . . [t]o summon the person liable for tax . . . or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax . . . or any other person the Secretary or his delegate may deem proper, to appear . . . and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry. . . .”
Section 7603 provides for service of the summons. There is no provision for personal enforcement of the summons by the Secretary or his delegate. If enforcement is desired, he must proceed under
Then, as Mr. Justice Clark pointed out, 375 U. S., at 446:
“Any enforcement action under this section [
§ 7402 (b) ] would be an adversary proceeding affording a judicial determination of the challenges to the summons and giving complete protection to the witness. In such a proceeding only a refusal to comply with an order of the district judge subjects the witness to contempt proceedings.”
Finally,
Thus the summons is administratively issued but its enforcement is only by federal court authority in “an adversary proceeding” affording the opportunity for challenge and “complete protection to the witness.”
IV
Reisman was an action, instituted by attorneys for a husband and wife, for declaratory and injunctive relief against the Commissioner of Internal Revenue and an accounting firm which had been working on the taxpayer-couple‘s financial records at their request. The Commissioner had issued summonses to the accounting firm for the production of work papers and correspondence. It was contended that the enforced production of the papers was an unlawful appropriation of the attorneys’ work product and trial preparation. The Court concluded that the petitioner-attorneys possessed an adequate remedy at law and that the complaint, therefore, was subject to dismissal. In reaching this conclusion, the Court emphasized the employment of the accounting firm by the attorneys “to assist them in connection with certain civil and criminal tax proceedings arising from the alleged tax liability of the” taxpayers; that the products of the joint work of the accountants and the attorneys “were kept separate in the accounting firm‘s files and labeled as the property of” the attorneys; that at the time of the service of the summonses “there were four civil tax cases pending in the Tax Court contesting alleged deficiencies” and, in addition, “a criminal investigation of Mr. Bromley on the tax matters was in progress.”
The Court noted that the petitioners made no claim that
Ten months later the Court decided United States v. Powell, 379 U. S. 48 (1964), and its companion case, Ryan v. United States, 379 U. S. 61 (1964). These concerned, respectively, internal revenue summonses issued to the president of a corporate taxpayer and to an individual taxpayer with respect to re-examinations and tax years for which assessments would be barred except for fraud. The Court was primarily concerned with the standards the Internal Revenue Service must meet in order to obtain judicial enforcement of its orders. It held that probable cause to suspect fraud was not required under the statutes and that the Commissioner need show only “that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner‘s possession,
V
With all this as background, our central inquiry here is as to Donaldson‘s right to intervene in the summons proceedings. Donaldson had obtained preliminary relief (in the form of a temporary restraining order and, as to Mercurio, in the form of the succeeding preliminary injunction as well) in his self-instituted actions to restrain Mercurio‘s and Acme‘s voluntary compliance with Grady‘s request. But when the enforcement proceedings were instituted by the United States and Grady, the taxpayer was not successful either as to intervention or as to relief by way of restraint.
In his motion to intervene, and here (but apparently not at oral argument in the Court of Appeals, see 418 F. 2d, at 1215), Donaldson would take comfort from the provisions of
In our view, however, the taxpayer‘s argument goes too far in its reading of Rule 24 (a) (2) and of the quotations from Powell and from Reisman. The Civil Rules, of course, do have an application to a summons proceeding. Rule 81 (a) (3) expressly so provides.11 But the Civil Rules are not inflexible in this application. Rule 81 (a) (3) goes on specifically to recognize that a district court, by local rule or by order, may limit the
Similarly, the Reisman language set forth in n. 10, supra, does not guarantee intervention for the taxpayer. Certainly it recites that the proposed witness “or any interested party” may attack the summons before the hearing officer, as well as before the District Court in any ensuing enforcement proceeding, and certainly it recites that the party summoned and one “affected by a disclosure may appear or intervene” before the court. But this language, as well as subsequent comments in Reisman,12 is permissive only and is not mandatory.
We, thus, are not in agreement with the holdings or implications in United States v. Benford, 406 F. 2d 1192, 1194 (CA7 1969); United States v. Bank of Commerce, 405 F. 2d 931 (CA3 1969); and Justice v. United States, 365 F. 2d 312, 314 (CA6 1966), to the effect that, under Reisman, a taxpayer may intervene as of right simply because it is his tax liability that is the subject of the summons. Instead, we agree with the opposing conclusion reached by the Fifth Circuit here, 418 F. 2d, at 1218, and in In re Cole, 342 F. 2d 5, 7-8 (CA2), cert. denied, 381 U. S. 950 (1965), and O‘Donnell v. Sullivan, 364 F. 2d 43, 44 (CA1), cert. denied, 385 U. S. 969 (1966).
VI
We turn, then, to Donaldson‘s particular situation. The material sought, as has been noted, consists only of Acme‘s routine business records in which the taxpayer has no proprietary interest of any kind, which are not the work product of his attorney or accountant, and which enjoy no established attorney-client or other privilege. Donaldson‘s only interest—and of course it looms
This asserted interest, however, is nothing more than a desire by Donaldson to counter and overcome Mercurio‘s and Acme‘s willingness, under summons, to comply and to produce records.
The nature of the “interest” urged by the taxpayer is apparent from the fact that the material in question (once we assume its relevance) would not be subject to suppression if the Government obtained it by other routine means, such as by Acme‘s independent and voluntary disclosure prior to summons, or by way of identifiable deductions in Acme‘s own income tax returns, or through Mercurio‘s appearance as a trial witness, or by subpoena of the records for trial. This interest cannot be the kind contemplated by Rule 24 (a) (2) when it speaks in general terms of “an interest relating to the property or transaction which is the subject of the action.” What is obviously meant there is a significantly protectable interest. And the taxpayer, to the extent that he has such a protectable interest, as, for example, by way of privilege, or to the extent he may claim abuse of process, may always assert that interest or that claim in due course at its proper place in any subsequent trial. Cf. United States v. Blue, 384 U. S. 251 (1966).
We therefore hold that the taxpayer‘s interest is not enough and is not of sufficient magnitude for us to conclude that he is to be allowed to intervene. Were we to hold otherwise, as he would have us do, we would unwarrantedly cast doubt upon and stultify the Service‘s every investigatory move.
VII
This conclusion could dispose of the case, for our main concern here is with the taxpayer‘s asserted right to intervene in the particular enforcement proceedings.
The argument centers in the above-mentioned dictum in Reisman, 375 U. S., at 449:
“[T]he witness may challenge the summons on any appropriate ground. This would include, as the circuits have held, the defenses that the material is sought for the improper purpose of obtaining evidence for use in a criminal prosecution, Boren v. Tucker, 239 F. 2d 767, 772-773, as well as that it is protected by the attorney-client privilege . . . .”
We note initially that, despite the dictum, the courts of appeals in opinions issued since Reisman was decided, appear uniformly to approve the use of a summons in an investigation that is likely to lead to civil liability as well as to criminal prosecution.13 The use of a summons also has been approved, even where it is alleged that its purpose is to uncover crime, if no criminal prosecution
It is precisely the latter situation—where the sole object of the investigation is to gather data for criminal prosecution—that is the subject of the Reisman dictum. This is evident from the fact that the dictum itself embraces the citation of Boren v. Tucker, 239 F. 2d 767, 772-773 (CA9 1956), an opinion in which, at the pages cited, the Ninth Circuit very carefully distinguished United States v. O‘Connor, 118 F. Supp. 248 (Mass. 1953), a case where the taxpayer already was under indictment. The Reisman dictum is to be read in the light of its citation of Boren, and of Boren‘s own citation of O‘Connor; when so read, the dictum comes into proper focus as applicable to the situation of a pending criminal charge or, at most, of an investigation solely for criminal purposes.
Any other holding, of course, would thwart and defeat the appropriate investigatory powers that the Congress has placed in “the Secretary or his delegate.” When
We bear in mind that the Internal Revenue Service is organized to carry out the broad responsibilities of the Secretary of the Treasury under
Congress clearly has authorized the use of the summons in investigating what may prove to be criminal conduct. The regulations are positive. Treas. Regs.
We hold that under
Affirmed.
MR. JUSTICE BRENNAN, believing that under the facts of this case petitioner has established no right to intervene, concurs in the result.
MR. JUSTICE DOUGLAS, concurring.
The petitioner is the subject of an investigation by the Intelligence Division of the Internal Revenue Service which seeks to obtain information regarding financial transactions between the petitioner-taxpayer and the Acme Circus Operating Co. Summonses have been served on Acme and its accountant, Mr. Mercurio, in order to obtain testimony and to review records relating to petitioner. The petitioner is attempting to prevent Acme and Mercurio from complying with the summonses and to prevent the Federal District Court from enforcing those summonses. He sought to intervene in the enforcement proceedings, alleging that he has a vital interest in the litigation and that the summonses are not enforceable because they were issued improperly, to gather information for a criminal prosecution. The Government challenged his right to intervene. The District Court denied his motion to intervene and enforced the summonses but stayed its mandate. The Court of Appeals affirmed but continued the stay pending dis-
On these facts, I concur with the Court‘s decision. There is nothing in the language of
The taxpayer may, however, protect his interests in any hearings held pursuant to
The traditional federal method for gathering such information is the grand jury. Before that body there is no right to counsel and confrontation, but other protections are present, none of which exist here. The Court in a five-to-four decision relied on the analogy to the grand jury in In re Groban, 352 U. S. 330, 333 (1957), ruling that a person has no right to counsel when ordered to testify before a fire marshal. MR. JUSTICE BLACK stated, I think, the correct view in his dissent:
“[A]ny surface support the grand jury practice may lend disappears upon analysis of that institution. The traditional English and American grand jury is composed of 12 to 23 members selected from the general citizenry of the locality where the alleged crime was committed. They bring into the grand jury room the experience, knowledge and viewpoint of all sections of the community. They have no axes to grind and are not charged personally with the administration of the law. No one of them is a prosecuting attorney or law-enforcement officer ferreting out crime. It would be very difficult for
officers of the state seriously to abuse or deceive a witness in the presence of the grand jury. Similarly the presence of the jurors offers a substantial safeguard against the officers’ misrepresentation, unintentional or otherwise, of the witness’ statements and conduct before the grand jury. The witness can call on the grand jurors if need be for their normally unbiased testimony as to what occurred before them. “[T]he Fire Marshal‘s interrogation is, and apparently was intended to be, an important and integral part in the prosecution of the persons for arson or a similar crime. The rights of a person who is examined in connection with such crimes should not be destroyed merely because the inquiry is given the euphonious label ‘administrative.‘” 352 U. S., at 346-347, 349.
In Anonymous v. Baker, 360 U. S. 287 (1959), another five-to-four decision, the Court upheld the power of a judge in New York, acting as a one-man grand jury, to interrogate a witness without benefit of counsel, again relying on the distinction between investigation and prosecution. Id., at 294. MR. JUSTICE BLACK again stated the correct view in his dissent that this procedure allowed a state official to lay the groundwork for a future prosecution without the protection of the presence of counsel.
In Hannah v. Larche, 363 U. S. 420 (1960), registrars who were accused of racial discrimination asked to be allowed to confront and cross-examine witnesses appearing before the Commission on Civil Rights. A majority found no such right because the Commission did not “adjudicate” or “issue orders” but only found facts. That criminal prosecutions might follow was “purely conjectural.” The Solicitor General relies on this case
My view has not changed:
“There is . . . only one way the Chief Executive may move against a person accused of a crime and deny him the right of confrontation and cross-examination and that is by the grand jury.” 363 U. S., at 497.
“[The grand jury is] the only accusatory body in the Federal Government that is recognized by the Constitution. I would allow no other engine of government, either executive or legislative, to take [its] place—at least when the right of confrontation and cross-examination are denied the accused as is done in these cases.” Id., at 499.
In Jenkins v. McKeithen, 395 U. S. 411 (1969), the Court dealt with another state investigative commission. There, however, the authority of the commission was limited to ascertaining facts regarding violations of criminal law and reporting its findings for criminal prosecution. There was no right to cross-examination for nonwitnesses and the right was limited for witnesses. The Court held that the commission exercised an accusatory function and was empowered to brand people as criminals. Id., at 427-428. Therefore, due process required the commission to afford a person being investigated the right to confront and cross-examine the witnesses against him.
Given the identity of purpose of the investigations in Jenkins and this case, the rule of Jenkins clearly applies to the taxpayer in this suit. The requirements of procedural due process do not become more lax when federal rather than state criminal investigations are involved.
The proceeding contemplated in the summonses served on Acme and Mercurio is a criminal investigation. The
Notes
“For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . . or collecting any such liability, the Secretary or his delegate is authorized—
“(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;
“(2) To summon the person liable for tax . . . or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax . . . or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and
“(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.”
An exception is made where the taxpayer asserts a privileged relationship with the person summoned, such as attorney-client.“(b) To enforce summons.—If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data.”
Ҥ 7604. Enforcement of summons
“(a) Jurisdiction of district court.—If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data.”
“INTERVENTION
“(a) INTERVENTION OF RIGHT. Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant‘s interest is adequately represented by existing parties.”
“APPLICABILITY IN GENERAL
“(a) TO WHAT PROCEEDINGS APPLICABLE
“(3) . . . These rules apply . . . to proceedings to compel the giving of testimony or production of documents in accordance with a subpoena issued by an officer or agency of the United States under any statute of the United States except as otherwise provided by statute or by rules of the district court or by order of the court in the proceedings.”
“(a) Powers and duties of Secretary.—Except as otherwise expressly provided by law, the administration and enforcement of this title shall be performed by or under the supervision of the Secretary of the Treasury.”