Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-95-05174/USCOURTS-ca10-95-05174-0/pdf.json

Nature of Suit Code: 875
Nature of Suit: Customer Challenge 12 USC 3410
Cause of Action: 

---

. FILED 

l1D1ted Slates Court or Appeals 

Tatb Circuit 

PUBLISH SEP 1 3 1996 

UNITED STATES COURT OF APPEALS PATRICK FISHER 

Clerk 

TENTH CIRCUIT 

PEGGY NEECE and BUEL H. NEECE, ) 

) 

Plaintiffs-Appellants, ) 

) 

V. ) 

) 

INTERNAL REVENUE SERVICE OF THE ) 

UNITED STATES OF AMERICA; UNITED ) 

STATES OF AMERICA; and FIRST ) 

NATIONAL BANK OF TURLEY, N.A., ) 

) 

Defendants-Appellees. ) 

No. 95-5174 

Appeal from the United States District Court 

for the Northern District of Oklahoma 

(D.C. No. 88-C-1320) 

E. John Eagleton (James R. Eagleton, also of Eagleton, Eagleton & Harrison, with him on 

the briefs), Tulsa, Oklahoma, for Plaintiffs-Appellants. 

David English Carmack, Attorney, Tax Division (John J. McCarthy, Attorney, Tax 

Division, with him on the brief), Department of Justice, Washington, D.C., for 

Defendants-Appellees United States of America and Internal Revenue Service. 

Jerry Reed, Tulsa, Oklahoma (Joseph R. Farris and Jody R. Nathan, of Feldman Hall 

Franden Woodard & Farris, Tulsa, Oklahoma, with him on the brief) for DefendantAppellee First National Bank of Turley. 

Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 1 
Before KELLY, ENGEL* and LOGAN, Circuit Judges. 

LOGAN, Circuit Judge. 

Plaintiffs Buel and Peggy Neece, husband and wife, appeal from the district 

court's judgment denying as damages attorney's fees they assert they incurred because of 

defendants', the Internal Revenue Service (IRS) and First National Bank ofTurley 

(bank), violation ofthe Right to Financial Privacy Act of 1978 (RFPA), 12 U.S.C. 

§§ 3401-3422. 

I 

This case is before us for the third time. In 1986 a jury found Buel Neece guilty of 

income tax evasion for the years 1979, 1980 and 1981. Before the IRS filed any civil 

deficiencies, Buel Neece discussed some potential transactions and provided documents 

to defendant bank's president, Mikel Hoffman, which aroused his suspicions. Hoffman 

contacted an IRS agent, Gary Benuzzi, related his conversations with Buel Neece, and 

gave Benuzzi copies of some ofthe Neeces' financial documents. One ofthe documents 

indicated that many of the Neeces' real estate holdings had been transferred to a revocable family trust. Soon thereafter the IRS filed a jeopardy assessment against plaintiffs, 

• The Honorable Albert J. Engel, Senior United States Circuit Judge, United States 

Court of Appeals for the Sixth Circuit, sitting by designation. 

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seizing some of their property. See 26 U.S.C. § 6861 (a jeopardy assessment allows the 

IRS, under specific circumstances, to seize property of taxpayers before a determination 

of tax liability). Plaintiffs filed a complaint challenging the jeopardy assessment. After a 

hearing the district court concluded that an investigation of the family trust "would have 

revealed that the government was in no worse position relative to the subject properties 

than without the [t]rust," thus the jeopardy assessment was unreasonable. V App. tab 80. 

Meanwhile plaintiffs received the notice of deficiency required under 26 U.S.C. 

§ 6861 (b) to be issued within sixty days after a jeopardy assessment. Taxpayers challenged that deficiency in the Tax Court. Plaintiffs also filed a petition for voluntary 

bankruptcy in an attempt to consolidate their tax litigation. 

Plaintiffs then filed the instant suit against the IRS and the bank, alleging a 

violation ofthe RFPA. The RFPA prohibits a financial institution from disclosing a 

customer's financial records--defined in 12 U.S.C. § 3401(2) as an original, a copy of or 

"information known to have been derived from" any record held by the bank pertaining to 

the customer's relationship with the bank--to a governmental authority "unless either the 

customer authorizes the disclosure of such information or the government obtains a valid 

subpoena or warrant." United States v. Frazin, 780 F.2d 1461, 1465 (9th Cir.), cert. 

denied, 479 U.S. 844 (1986). The RFPA provides, however, that an officer ofthe bank 

can notify a governmental authority that they have information that may be relevant to a 

possible criminal violation; but such information is limited to identifying "the individual, 

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corporation, or account involved [] and the nature of any suspected illegal activity." 12 

U.S.C. § 3403(c). The RFPA also allows an exemption for "disclosure of financial 

records in accordance with procedures authorized by Title 26." Id. § 3413(c). The 

district court granted summary judgment in favor of defendants, reasoning that the bank's 

cooperation with the IRS was a "procedure" under Title 26 and thus an exemption under 

12 U.S.C. § 3413(c). 

On appeal we reversed and remanded, holding that the bank and the IRS were "not 

exempted under 12 U.S.C. § 3413(c) from [the] procedural requirement merely because 

the financial institution voluntarily chooses to allow the IRS, pursuant to 26 U.S.C. 

§7602(a)(l), to examine financial records pertaining to a taxpayer." Neece v. IRS, 922 

F.2d 573, 578 (lOth Cir. 1990). On remand the district court found that defendants 

violated the RFP A. It imposed the $1 00 statutory penalty against both defendants and 

awarded $15 80 actual damages for the plaintiffs' personal property seized pursuant to the 

jeopardy assessments, plus costs and reasonable attorney's fees for the RFPA action. The 

district court denied as actual damages plaintiffs' attorney's fees incurred in the jeopardy 

assessment action, stating that those fees were denied in the jeopardy assessment action 

and that decision was res judicata as to those fees. 

Plaintiffs appealed again, and we held, inter alia, that the district court's denial of 

the attorney's fees incurred in the jeopardy assessment abatement proceeding as barred by 

res judicata was erroneous because the record did not reflect any order in that abatement 

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Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 4 
proceeding denying a request for attorney's fees. Therefore, we reversed and remanded 

on this issue with instructions for the district court to determine whether to award as 

damages the attorney's fees in the abatement proceeding as well as those in the Tax Court 

and bankruptcy actions, if plaintiffs claimed those fees in the district court. Neece v. 

Internal Revenue Serv., 41 F.3d 1396, 1400 & n. 2 (lOth Cir 1994). 

This brings us to the district court decision now before us. On remand the district 

court addressed whether defendants' violation of the RFP A proximately caused plaintiffs' 

attorney's fees in any of the three legal proceedings. The district court's factual finding 

included the following: 

2. Bank President Mikel Hoffman testified that, previous to turning 

over the [plaintiffs'] file, he became concerned over certain transactions 

that Mr. Neece was wanting to enter into. He called IRS agent Gary 

Benuzzi, and told him that Mr. Neece had sought information about mortgaging his homestead as additional collateral for a commercial loan with the 

bank, and that Mr. Neece stated that the purpose of the proposed mortgage 

was to enable hi[m] to take an interest deduction for his commercial loan 

under the home equity law. Mr. Hoffman also told agent Benuzzi that Mr. 

Neece had told him that the IRS was getting ready to move against Mr. 

Neece and therefore, he wanted to have a mortgage on his homestead. 

3. Mr. Hoffman informed agent Benuzzi that Mr. Neece had told 

another bank employee that the loan was for the purpose of paying the 

Internal Revenue Service, but that the loan application stated that the loan 

was for debt consolidation. Mr. Hoffman requested that the agent keep his 

contact confidential. 

4. Subsequently, agent Benuzzi visited Mr. Hoffman and requested 

Mr. Hoffman's file which was turned over without a subpoena. The file 

turned over to agent Benuzzi contained 1) a copy of the recorded mortgage 

on the Neece Homestead, 2) a memo by Mr. Hoffman dated November 18, 

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Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 5 
1987 to Bank personnel advising them not to put credence in the Neece 

homestead mortgage, 3) the residential loan application of Mr. Neece, 4) an 

unsigned financial statement for Mr. Neece [which included reference to a 

family trust]; and 5) a letter by Mr. Hoffman of April 25, 1988 denying the 

loan application. 

5. Agent Benuzzi then recommended a Jeopardy Assessment and 

certain ofthe Neece's [sic] assets were seized by the IRS. The IRS informed the Neeces that it was making the jeopardy assessment because: 

1) Mr. Neece had recently been convicted of tax evasion for the years 1979, 

1980, and 1981; 2) Mr. Neece had previously converted checks to cash to 

conceal flow of funds, used a fictitious name and a nominee trust to conceal 

assets and income; 3) Mr. Neece had attempted recently to encumber 

valuable assets by granting a mortgage against his home; 4) Mr. Neece had 

recently attempted to convert into cash real assets valued at $350,000. 

I App. tab 2 at 2-4. 

The district court stated that "[t ]hese reasons for making the jeopardy assessment 

were not based on the documents produced in violation of the RFP A, but rather upon the 

oral information provided by Mr. Hoffman." Id. at 4. The district court thus impliedly 

found that disclosure of the oral information was not a violation of the RFP A. The 

district court then concluded that "the oral tip by Mr. Hoffman, among other things 

known by the IRS (i.e., Mr. Neece's conviction for tax evasion) was the cause of the 

jeopardy assessment." l!L at 5. The district court also stated that the jeopardy assessment 

was set aside because the IRS had failed to fully investigate the revocable family trust. 

The court concluded that "the violation of the RFPA was not the cause of either the 

jeopardy assessment or its abatement, and thus, was not the proximate cause of the 

attorney's fees incurred in the jeopardy assessment proceeding." Id. 

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The district court also found that the Tax Court case was the result of plaintiffs' 

failure to pay taxes, rejecting plaintiffs' claims that the jeopardy assessment foreclosed 

reaching a settlement on their tax liability before going to Tax Court. The court cited the 

ongoing difficulties with the IRS in rejecting plaintiffs' assertion that the Tax Court case 

was proximately caused by the RFPA violation. Finally, the district court concluded the 

bankruptcy was not proximately caused by the RFP A violation. 

On appeal plaintiffs challenge the district court's findings that the documents the 

IRS obtained from the bank in violation ofthe RFPA were not the proximate cause of(a) 

the jeopardy assessment; (b) the Tax Court proceeding; or (c) the bankruptcy case. 1 

II 

A 

We review the trial court's factual findings for clear error and its legal conclusions 

de novo. Anderson v. Bessemer City, 470 U.S. 564 (1985). The question of proximate 

cause is generally one for the fact finder (here the district court), see Bannister v. Town of 

Noble. Okla., 812 F.2d 1265, 1267 (lOth Cir. 1987), although "the question becomes an 

issue of law when there is no evidence from which a [fact finder] could reasonably find 

the required proximate, causal nexus between the careless act and the resulting injuries." 

Henry v. Merck & Co., 877 F.2d 1489, 1495 (lOth Cir. 1989) (citations omitted). Under 

1 Plaintiffs also challenge the court's holding that the oral statements of the bank 

officer to the IRS agent did not violate the RFP A. In view of our analysis and disposition 

this is an issue we need not reach. 

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Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 7 
the RFPA, damages are to be ascertained under the tort law ofthe state whose law 

applies. See Beesley v. United States, 364 F.2d 194, 196 (lOth Cir. 1966). Under 

Oklahoma law "[t]he proximate cause of an event is that which in a natural and continuous sequence, unbroken by any independent cause, produces the event and without which 

the event would not have occurred." Butler v. Oklahoma City Pub. Sch. Sys., 871 P.2d 

444,446 (Okla. Ct. App. 1994). 

Plaintiffs argue that the jeopardy assessment flowed directly and naturally from the 

illegal disclosure of the written documents. They dispute, as clearly erroneous, the 

district court's finding that Agent Benuzzi based his recommendation for a jeopardy 

assessment upon only the oral information. 

At an evidentiary hearing on September 12, 1988, Benuzzi testified about his 

contacts with the bank and his recommendation for the jeopardy assessment. When asked 

whether he relied upon "the documents [he] obtained from the bank, the letters and the 

mortgage ... in recommending the jeopardy assessment," Benuzzi replied "Yes." I App. 

tab 5 at 47. Further, he stated he attached the documents to the recommendation. Thus, 

although Benuzzi may have relied in part upon the oral statements by the bank president, 

his sworn testimony unequivocally states that he also relied upon the documents in 

recommending the assessment. See also III App. tab 44 at 261-67. We cannot uphold the 

district court's factual finding to the contrary. The district court's finding of no proximate cause also appears to be inconsistent with its earlier award of$1580 damages for 

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Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 8 
injuries to plaintiffs' properties seized in the jeopardy assessment. Because that award 

was made in this action for violation of the RFPA, presumably the court had to find the 

RFP A violation was the proximate cause of the jeopardy assessment. 

Defendants argue that even if Benuzzi relied on the documents, there is no "but 

for" causation because the IRS would have made the jeopardy assessment in any event. 

Defendants reason that Hoffman was entitled under the RFP A to contact the IRS, identify 

plaintiffs and notify the IRS of his concern that pl~intiffs might be breaking the law, 12 

U.S.C. § 3403(c); further, "[t]he IRS had a duty to investigate the tip from the bank 

official concerning plaintiffs," Neece, 922 F.2d at 577 n.5. Defendants assert the IRS 

would have obtained the documents during an investigation, and made a jeopardy 

assessment. We do not agree. If the IRS had investigated the tip by following proper 

procedures, plaintiffs would have been provided with notice and an opportunity to notify 

the bank not to release the documents. See 26 U.S.C. § 7609. Had the IRS sought 

enforcement of a summons in federal court, plaintiffs could have intervened. In that 

proceeding plaintiffs would have had the opportunity to explain the legal effect of the 

revocable trust, and the IRS should not have issued the jeopardy assessment because it 

would have known that the trust did not jeopardize the IRS' position or interest. 

Defendants alternatively argue that even if the jeopardy assessment would not 

have occurred except for the RFP A violation, the IRS determination to initiate the 

jeopardy assessment constituted a supervening cause of the assessment. "Under Okla9 

Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 9 
homa law, for an intervening act to be deemed a supervening cause, it must meet a threeprong test: 'it must be ( 1) independent of the original act, (2) adequate of itself to bring 

about the result and (3) one whose occurrence was not reasonably foreseeable."' Henry 

v. Merck & Co .. Inc., 877 F.2d at 1494 (quoting Strong v. Allen, 768 P.2d 369, 371 

(Okla. 1989) (further quotations omitted)). "Where the negligence complained of only 

creates a condition which thereafter reacts with a subsequent, independent, unforeseeable, 

distinct agency and produces an injury, the original negligence is the remote rather than 

the proximate cause thereof' even if"the injury would not have occurred except for the 

original act." I d. (citations omitted). 

The IRS decision to issue a jeopardy assessment was based in large part upon the 

information Benuzzi gained in violation ofthe RFPA; therefore it was not "independent 

of the original act." Thus, the IRS determination to initiate the jeopardy assessment was 

not a supervening cause of the assessment. The district court erred in denying plaintiffs' 

attorney's fees in the jeopardy assessment proceeding as part of plaintiffs' RFP A 

damages. 

B 

Plaintiffs also assert that their Tax Court attorney's fees were proximately caused 

by defendants' violation of the RFP A and the ensuing jeopardy assessment. The district 

court found, however, that the Tax Court case was necessitated by the taxes plaintiffs 

owed for 1979, 1980 and 1981. We agree. Plaintiffs were required to pay the taxes or 

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Appellate Case: 95-5174 Document: 01019279758 Date Filed: 09/13/1996 Page: 10 
litigate in the Tax Court whether or not the jeopardy assessment had occurred. Although 

the jeopardy assessment, which required a sixty-day notice of deficiency, may have 

accelerated the litigation, the RFP A violation and the resulting jeopardy assessment were 

not the proximate cause of the Tax Court case. 

c 

Finally, we agree with the district court that the bankruptcy court case was not 

proximately caused by the violation of the RFPA. Again, although the jeopardy assessment may have caused some additional financial hardship that accelerated the bankruptcy 

filing, the Neeces' tax liability itself no doubt was the cause of the bankruptcy. 

The district court on remand is to determine the amount of attorney's fees plaintiffs reasonably incurred in litigating the jeopardy assessment abatement action, and the 

amount for which each defendant is liable. 

AFFIRMED IN PART, REVERSED IN PART and REMANDED for further 

proceedings in accordance with this opinion. 

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