Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-00504/USCOURTS-caed-1_06-cv-00504-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 26:7609 IRS: Petition to Quash IRS Summons

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GEORGE AND RITA SERBAN, CASE NO. CV F 06-504 OWW DLB

FINDINGS AND RECOMMENDATIONS ON

Plaintiff, PETITION TO QUASH IRS SUMMONS AND

GOVERNMENT’S MOTION TO DISMISS

vs. PETITION TO QUASH IRS SUMMONS AND

TO COUNTER PETITION TO ENFORCE

IRS SUMMONS

FRED CHYNOWETH, Revenue (Docs. 1, 3.)

Agent,

Defendant.

 /

INTRODUCTION

The United States of America (“Government”) seeks to dismiss a petition to quash Internal

Revenue Service (“IRS”) summonses, demand for bill of particulars, request for injunction and claim

for personal damages filed by George and Rita Serban (“Petitioners”) and to enforce the IRS summonses

issued to Bakersfield Santa Fe Federal Credit Union (“Bakersfield Santa Fe”), Charles Schwab and

Company Inc. (“Charles Schwab”), Ticor Title, and Washington Mutual Bank. The Government further

seeks to substitute itself in place of defendant Revenue Agent Fred Chynoweth (“Agent Chynoweth”)

as the real party in interest. 

The Government set the hearing on the motion to dismiss for August 11, 2006. Petitioners have

not filed an opposition to the motion to dismiss. Pursuant to Local Rule 78-230(c), (h), this Court

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considered the Government’s motions on the record and without oral argument or the August 11, 2006

hearing, which was vacated. On August 14, 2006, Petitioners filed an “objection” to the motion to

dismiss arguing that the summons and complaint had not yet been served. For the reasons discussed

below, this Court RECOMMENDS to:

1. DISMISS Agent Chynoweth and substitute the United States of America in his place;

2. DENY the petition to quash the IRS summonses to Bakersfield Santa Fe, Charles

Schwab, Ticor Title, and Washington Mutual Bank; and

3. GRANT the Government’s motions to dismiss the petition and to enforce the IRS

summonses to Bakersfield Santa Fe, Charles Schwab, Ticor Title, and Washington

Mutual Bank.

BACKGROUND

Agent Chynoweth is investigating Petitioners’ tax liabilities for the tax years 2002, 2003 and

2004. On April 7, 2006, Agent Chynoweth served third party record-keeper summonses on Bakersfield

Santa Fe, Charles Schwab, Ticor Title, Washington Mutual Bank, MidFirst Bank, National Financial

Services LLC and Pershing LLC for records relating to Petitioners’ accounts and transactions for the

relevant tax years. Bakersfield Santa Fe, Charles Schwab, Ticor Title and Washington Mutual Bank are

located within this Court’s jurisdiction. In contrast, MidFirst Bank, National Financial Services LLC

and Pershing LLC are not located within this Court’s jurisdiction (Chynoweth Dec. ¶ 17) and therefore

the summonses to these entities cannot be challenged in a petition to quash filed in this district. On

April 7, 2006, Agent Chynoweth served Petitioners notice of the summonses to Bakersfield Santa Fe,

Charles Schwab, Ticor Title, Washington Mutual Bank by certified mail.

The Government represents that Charles Schwab and Ticor Title have not provided the requested

records. The Government further represents that Bakersfield Santa Fe and Washington Mutual Bank

have produced records but aside from verifying the production, it has not further reviewed the records

pending the Court’s ruling on the petition to quash.

On April 27, 2006, Petitioners filed a “Petition to Quash Summonses, Demand for a Bill of

Particulars, Request for Injunction, Claim for Personal Damages” (“Petition”) to challenge validity of

the IRS summonses and service. The Petition names Agent Chynoweth in his individual capacity as

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the sole defendant. Agent Chynoweth received the petition bymail on August 28, 2006 and has not been

personally served. Neither the United States Attorney nor the Attorney General have been served with

the petition. The Court notes that Petitioners argue in their objection filed August 14, 2006 that they

have until August 24, 2006 to complete service of the summons and complaint. As of the date of this

recommendation, no further proof of service has been filed. 

On July 5, 2006, the Government filed its papers to:

1. Dismiss all claims against Agent Chynoweth and to substitute the Government as

defendant;

2. Dismiss the petition on the following grounds:

(a) Lack of subject matter jurisdiction in that Petitioners failed to serve its petition

within 20 days after Petitioners received notice of the IRS summons; 

(b) The APA does not apply to Petitioners’ claims;

(c) Lack of subject matter jurisdiction as to MidFirst, National Financial and

Pershing; and 

3. Enforce the IRS summons.

Agent Chynoweth’s supporting declaration states:

1. The IRS does not possess the summoned records;

2. The summoned records are necessary “to investigate petitioners’ financial information

and examine petitioners’ federal tax liabilities for the tax years 2002 and 2003.”

3. “All administrative steps required by the Internal Revenue Code for issuance of

summons have been taken”; and

4. To the present, there is no “criminal referral to the Department of Justice in effect with

respect to petitioners, as defined in Section 7602(d) of Title 26, U.S.C., for tax years

2002, 2003 or 2004.”

DISCUSSION

Real Party In Interest

The Government claims it is the real party in interest to be substituted as defendant in place of

Agent Chynoweth in that Agent Chynoweth acted in his official capacity to issue the IRS summons. The

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Unless otherwise indicated, all further statutory references will be to the Internal Revenue Code, 26 U.S.C. 1

§ 1, et seq.

4

Government is correct. “When an action is one against named individual defendants, but the acts

complained of consist of actions taken by defendants in their official capacity as agents of the United

States, the action is in fact one against the United States.” Atkinson v. O’Neill, 867 F.2d 589, 590 (10th

Cir. 1989). “[A] suit against IRS employees in their official capacity is essentially a suit against the

United States.” Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9 Cir. 1985); see Hawaii v. Gordon, 373 th

U.S. 57, 58, 83 S.Ct. 1052 (1963); Burgos v. Milton, 709 F.2d 1, 2 (1 Cir. 1983); English v. Krubsack,

st

371 F.Supp.2d 1198, 1200 (E.D. Cal. 2005) (dismissing revenue agent and substituting Government as

real party in interest in action to quash IRS summons). Moreover, Agent Chynoweth is immune from

individual liability for his revenue agent actions. See Ryan v. Bilby, 764 F.2d 1325, 1328 (9 Cir. 1985). th

As such, the Government is the proper defendant to warrant dismissal of Agent Chynoweth and

substitution of the Government in his place.

Untimely Service of Petition

The Government contends that this Court lacks subject matter jurisdiction in that Petitioners

failed to comply with 26 U.S.C. § 7609(b)(2)(B) to serve the petition upon the summoned parties within 1

20 days after notice of the IRS summonses. Under the doctrine of sovereign immunity, the Government

“is immune from suit unless it has expressly waived such immunity and consented to be sued.” Gilbert,

756 F.2d at 1458. The Government consents to petitions to quash IRS summonses when a challenging

taxpayer files and serves “by registered or certified mail” on the summoned parties and the IRS, through

its revenue agent designated in the notice of summons, a petition to quash no later than 20 days after the

IRS provided notice of summons to the taxpayer. See 26 U.S.C. § 7609(b)(2)(A), (B); Travis v. Miki,

394 F.Supp.2d 1277, 1280 (D. Hi. 2005). Section 7609(b)(2)(A)’s 20-day filing requirement is

jurisdictional. Ponsford v. United States, 771 F.2d 1305, 1309 (9 Cir. 1985); see, e.g., Fogelson v. th

United States, 579 F.Supp. 573, 574 (D. Kan. 1983); Grishman v. United States, 578 F.Supp. 73, 74

(S.D. N.Y. 1983); Bilodeau v. United States, 577 F.Supp. 234, 235 (D. N.H. 1983); Riggs v. United

States, 575 F.Supp. 738, 741-742 (N.D. Ill. 1983). “[T]he twenty-day limit must be strictly construed

because it is a condition precedent to the waiver of sovereign immunity.” Ponsford, 771 F.2d at1309.

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The notice is given under section 7609, and the 20-day period begins to run on the date the IRS gives,

sends or mails notice of the summons to the taxpayer, not until its receipt by the addressee. Stringer v.

United States, 776 F.2d 274, 275-276 (11 Cir. 1985); Franklin v. United States, 581 F.Supp. 38 (E.D. th

Mich. 1984); Bilodeau, 577 F.Supp. 234; Riggs, 575 F.Supp. at 741.

Here, Agent Chynoweth served Petitioners on April 7, 2006 by certified mail notice of the

summonses. Petitioners have not established that they timely served the petition to quash on the

summoned parties. Petitioners have failed to comply with section 7609(b)(2)(B) to serve the petition

on the summoned parties within 20 days and in turn to invoke this Court’s jurisdiction to hear the

Petition. See Chapple v. Internal Revenue Service, 1996 WL249351, p. 1 (D. Id.) (petition to quash IRS

summons dismissed for lack of subject matter jurisdiction due to failure to comply strictly with section

7609(b)(2)(B) to send copy of petition to issuing revenue agent within 20 days of notice of IRS

summons); Dame v. United States, 643 F.Supp. 533, 534-535 (S.D.N.Y. 1986) (dismissal for lack of

subject matter jurisdiction for failure to serve petition to quash on summoned party within 20 days);

Shipley v. United States, 1994 WL 731541, p. 1-2 (dismissal for lack of subject matter jurisdiction for

failure to file and serve petition to quash IRS summons within 20 days). In the absence of subject matter

jurisdiction, the Petition must be dismissed.

The record reveals further deficiencies as to petition service on the United States Attorney

General and the United States Attorney for this district. Service of process on the Government is

effectuated:

(A) by delivering a copy of the summons and of the complaint to the United

States attorney for the district in which the action is brought or to an assistant United

States attorney or clerical employee designated by the United States attorney in writing

filed with the clerk of the court or by sending a copy of the summons and of the

complaint by registered or certified mail addressed to the civil process clerk at the

office of the United States attorney and

(B) by also sending a copy of the summons and of the complaint by registered

or certified mail to the Attorney General of the United States at Washington, District

of Columbia, and

(C) in any action attacking the validity of an order of an officer or agency of the

United States not made a party, by also sending a copy of the summons and of the

complaint by registered or certified mail to the officer or agency.

F.R.Civ.P. 4(i)(1)(A) – (C) (Bold added).

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F.R.Civ.P. 12(b)(5) authorizes a motion to dismiss for “insufficiency of service of process.” If

service of process is not accomplished within 120 days of filing an action, this Court is empowered to

dismiss the action. See F.R.Civ.P. 4(m); Reynolds v. United States, 782 F.2d 837, 838 (9 Cir. 1986). th

Petitioners have failed to file a proof to show service of the petition on the U.S. Attorney’s Office for

the Eastern District of California and the U.S. Department of Justice. Petitioners’ failure to serve these

offices further supports dismissal of its petition.

Moreover, with respect to the IRS summonses issued to MidFirst, National Financial and

Pershing, the petition to quash must be dismissed for lack of subject matter jurisdiction as these entities

are not located within the Court’s jurisdiction. See Fortney v. United States, 59 F.3d 117, 119 (9 Cir. th

1995)[jurisdiction over a petition to quash lies in the United States District Court for the district within

which the person to be summoned resides or is found.] 

Summons Enforcement

The Government seeks to enforce the IRS summonses to Bakersfiled Santa Fe, Charles Schwab,

Ticor Title and Washington Mutual. The IRS has broad investigatory powers under the Internal Revenue

Code. See 26 U.S.C. §§ 7601-7613. Under section 7602(a)(1), the IRS is empowered to issue a

summons to compel examination of “books, papers, records or other data which may be relevant or

material” to an inquiry for purpose of “ascertaining the correctness of any return, making a return where

none has been made” and “determining” and “collecting” tax liability. The relevance requirement under

section 7602 is whether the requested material “might have thrown light upon the correctness of the

return.” United States v. Arthur Young & Co., 465 U.S. 805, 813-815 & n. 11, 104 S.Ct. 1495, 1501 &

n. 11 (1984); David H. Tedder & Associates, Inc. v. United States, 77 F.3d 1166, 1169 (9 Cir. 1996). th

The IRS may issue a summons to investigate “merely on suspicion that the law is being violated, or even

because it wants assurance that it is not.” United States v. Powell, 379 U.S. 48, 57, 85 S.Ct. 248 (1964)

(quoting United States v. Morton Salt Co., 338 U.S. 632, 642-643, 70 S.Ct. 357 (1950)).

Under section 7608(a) and (b), IRS agents are authorized to “serve subpoenas and summonses

issued under authority of the United States.” Section 7602(a)(2) provides the IRS is not limited to

issuing summonses to taxpayers under investigation and is authorized to summon “any person having

possession, custody, or care of books of account” relating to the taxpayer or to summon “any other

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person the Secretary may deem proper” to produce such information and testimony under oath relevant

and material to inquiry. A summons may be directed to almost anyone. See, e.g., Chen Chi Wang v.

United States, 757 F.2d 1000, 1002 (9 Cir. 1985) (statute provides IRS with “broad powers to summon th

information relevant to determining the liability of any taxpayer.”) The summons power must be

construed broadly since it is “critical to the investigative and enforcement functions of the IRS.” Arthur

Young & Co., 465 U.S. 805, 104 S.Ct. at 1501.

Under section 7609(a)(1), a summons may be issued to a third party (not the taxpayer) and

require the third party to give “testimony on or relating to, the production of any portion of records made

or kept on or relating to, or the production of any computer software source code . . . with respect to, any

person (other than the person summoned) who is identified in the summons . . .” Section 7609(i)(1)

obligates a summoned party “to assemble the records requested” and to “be prepared to produce the

records pursuant to the summons on the day on which the records are to be examined.” 

Section 7609(b)(2)(A) authorizes the IRS to “seek to compel compliance with [an IRS]

summons.” Section 7604(a) grants this Court jurisdiction to enforce an IRS summons. To enforce an

IRS summons, the IRS must establish a prima facie case (“Powell requirements”) to demonstrate its

“good faith” that the summons: (1) is issued for a legitimate purpose; (2) seeks information relevant for

that purpose; (3) seeks information that is not already within IRS possession; and (4) satisfies all

administrative steps required by the United States Code. Powell, 379 U.S. at 57-58, 85 S.Ct. at 254-255;

Fortney v. United States, 59 F.3d 117, 119 (9 Cir. 1995). th

In Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9 Cir. 1985), the Ninth th

Circuit Court of Appeals explained:

To establish a need for judicial enforcement, this showing need only be minimal. This

is necessarily true because the statute must be read broadly in order to ensure that the

enforcement powers of the IRS are not unduly restricted. United States v. Balanced

Financial Management, Inc., 769 F.2d 1440, 1443 (10 Cir. 1985). Assertions by th

affidavit of the investigating agent that the requirements are satisfied are sufficient to

make the prima facie case. United States v. Samuels, Kramer & Co., 712 F.2d 1342,

1345 (9 Cir. 1983); United States v. Kis, 658 F.2d 526, 536-37 (7 Cir. 1981), cert. th th

denied, 455 U.S. 1018, 102 S.Ct. 1712, 72 L.Ed.2d 135 (1982). 

The Ninth Circuit has further commented: “The government’s burden is a ‘slight one’ and typically is

satisfied by the introduction of the sworn declaration of the revenue agent who issued the summons that

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the Powell requirements have been met.” Fortney, 59 F.3d at 119 (citing United States v. Dynavac, Inc.,

6 F.3d 1407, 1414 (9 Cir. 1993)); United States v. Gilleran, 992 F.2d 232, 233 (9 Cir. 1993)). th th

Agent Chynoweth’s declaration satisfies the Powell requirementsto establish a prima facie case

that he issued the summonses in good faith. In his declaration, Agent Chynoweth explained that he

issued the summons legitimately in that the summoned records are necessary “to investigate petitioners’

financial information and to examine petitioners’ federal tax liabilities for tax years 2002 and 2003."

Agent Chynoweth confirmed he complied with IRS summons requirements by serving the summonses

by certified mail to Bakersfield Santa Fe, Charles Schwab, Ticor Title, and Washington Mutual Bank.

Agent Chynoweth also confirmed that he served notice of the summonses by certified mail on

Petitioners. In addition, he declared that the IRS lacks possession ofthe records sought by the summons

and that there has been no referral for criminal prosecution for the tax years 2002 and 2003. 

Merits of the Petition

The Government contends that Petitioners’ challenges to the IRS summons lack merit and that

Petitioners fail to meet their heavy burden to quash the summons. After the Government establishes a

prima facie case of an IRS summons’ good faith, “a ‘heavy’ burden falls upon the taxpayer to show an

abuse of process” or “the lack of institutional good faith.” Dynavac, Inc., 6 F.3d at 1414; Anaya v.

United States, 815 F.2d 1373, 1377 (9 Cir. 1987); Liberty Financial, 778 F.2d at 1392. A taxpayer th

challenging an IRS summons “must allege specific facts and evidence to support his allegations.”

Liberty Financial, 778 F.2d at 1392. IRS “summons enforcement proceedings should be summary in

nature.” United States v. Stuart, 489 U.S. 353, 369, 109 S.Ct. 1183, 1193 (1989) (quoting legislative

history).

Petitioners offer nothing to substantiate its heavy burden to quash the IRS summonses to

Bakersfield Santa Fe, Charles Schwab, Ticor Title, and Washington Mutual Bank.

Controlling Organic Law

In the petition, Petitioners challenge IRS authority under section 7602 to issue a summons on

grounds that the “organic and controlling summons authority is § 3173 of the Revised Statutes,” which

purportedly “impeaches” such section. Such challenge is meritless in that section 7602 grants the IRS

broad summons powers. “Under 26 U.S.C. § 7602, the IRS has broad powers to summon information

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relevant to determining the liability of any taxpayer.” Chen Chi Wang, 757 F.2d at 1002. Section

7602(a) empowers the IRS to “obtain such information from the taxpayer himself, or it may require

production from ‘any person’ holding records ‘relating to the business of the person liable for tax’ or

‘any other person the Secretary or his delegate may deem proper.’" Chen Chi Wang, 757 F.2d at 1002

(quoting 26 U.S.C. § 7602(a)). The IRS may issue a summons for the purposes set out in section 7602,

including "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."

26 U.S.C. § 7602(a); Crystal v. United States, 172 F.3d 1141, 1143 (9 Cir. 1999). th

The IRS was authorized to issue the summonses to Bakersfield Santa Fe, Charles Schwab, Ticor

Title, and Washington Mutual Bank.

Delegation of Authority

Petitioners assert that Agent Chynoweth lacks delegated authority to issue the summonses under

26 U.S.C. § 7602 and asserts that only Alcohol Tobacco and Firearms agents have such authority. This

argument lacks merit in that section 7804(a) authorizes the IRS to employ revenue agents “for the

administration and enforcement of the internal revenue laws,” including those regarding IRS

summonses. Under 26 C.F.R. § 301.7602-1 and IRS Delegation Order No. 4 (Revision 22), the duties

of issuing and serving administrative summonses are delegated to IRS agents, such as Agent Chynoweth.

As noted above, the IRS has broad authority to summon records from third parties. Petitioners fail to

demonstrate Agent Chynoweth lacked authority to issue the summonses to Bakersfield Santa Fe, Charles

Schwab, Ticor Title, and Washington Mutual Bank. 

Failure to Follow all Administrative Steps

Petitioners complain that Agent Chynoweth failed to provide the reasonable notice in advance

on the proper form that the IRS intended to contact third-party record keepers as required at 26 U.S.C.

§ 7602(c)(1). Petitioners’ complaint has no merit because Agent Chynoweth served notice of the IRS

summonses on March 31, 2006 in advance of the service of the summonses on April 7, 2006. See 26

U.S.C. § 7602(c)(1), 26 C.F.R. § 301.7602-2(d).

Particular Liability

Petitioners’ next claim that since it filed tax returns for the years in question and self determined

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a “particular liability” of which the IRS has information, the IRS has no ability to take any further

verification action. Petitioners also argue that the summonses were required to state with more

specificity the “particular liability” subject to examination by the IRS.

Clearly, the IRS is authorized to investigate Petitioners’ tax liability. Section 7602(a)(1)

empowers the IRS to examine “books, papers, records or other data which may be relevant or material”

to an inquiry for “ascertaining the correctness of any return, making a return where none has been made”

and “determining” and “collecting” tax liability. The relevance requirement under section 7602 is

whether the requested material “might have thrown light upon the correctness of the return.” Arthur

Young & Co., 465 U.S. at 813-815 & n. 11, 104 S.Ct. at 1501 & n. 11 (1984); David H. Tedder &

Associates, 77 F.3d at 1169. The IRS may issue a summons to investigate “merely on suspicion that the

law is being violated, or even because it wants assurance that it is not.” Powell, 379 U.S. at 57, 85 S.Ct.

248 (1964) (quoting Morton Salt Co., 338 U.S. at 642-643, 70 S.Ct. 357). Agent Chynoweth was

authorized to issue the IRS summonses to Bakersfield Santa Fe, Charles Schwab, Ticor Title, and

Washington Mutual Bank to investigate Petitioners’ tax liability despite whether Petitioners’ selfdetermined its tax liability. The summonses seek records for the tax years 2002 and 2003, the years he

was investigating. Agent Chynoweth correctly notes that the IRS lacks the information sought from

Bakersfield Santa Fe, Charles Schwab, Ticor Title, and Washington Mutual Bank.

Perjury Statement

Petitioners assert that section 6065 requires the IRS summons to be signed under penalty of

perjury. Petitioners’ reliance on section 6065 is erroneous because it applies to tax returns and related

documents submitted to the IRS, not to IRS summonses. See Morelli v. Alexander, 920 F.Supp. 556,

558 (S.D.N.Y. 1996); Villella v. United States, 2000 WL 968773, p. 6 (S.D.N.Y. 2000). 

CONCLUSION

For the reasons discussed above, this Court RECOMMENDS to:

1. DISMISS named defendant IRS Revenue Agent Fred Chynoweth and substitute the

United States of America in his place;

2. DENY the petition to quash the IRS summonses to Bakersfield Santa Fe, Charles

Schwab, Ticor Title, and Washington Mutual Bank; 

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3. GRANT the United States of America’s motion to dismiss the petition and to enforce the

IRS summonses to Bakersfield Santa Fe, Charles Schwab, Ticor Title, and Washington

Mutual Bank; and

4. DIRECT this Court’s clerk to enter judgment in favor of defendant United States of

America and against plaintiffs George and Rita Serban and to close this action.

These findings and recommendations are submitted to the district judge assigned to this action,

pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 72-304. Within 15 days of service of

this recommendation, any partymay file written objections to these findings and recommendations with

the Court and serve a copy on all parties and the magistrate judge and otherwise in compliance with this

Court’s Local Rule 72-304(b). Such a document should be captioned “Objections to Magistrate Judge’s

Findings and Recommendations.” The district judge will review the magistrate judge’s findings and

recommendations, pursuant to 28 U.S.C. § 636(b)(1)(C). The parties are advised that failure to file

objections within the specified time may waive the right to appeal the district judge’s order. Martinez

v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

 IT IS SO ORDERED. 

Dated: October 19, 2006 /s/ Dennis L. Beck 

3b142a UNITED STATES MAGISTRATE JUDGE

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