Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-mc-80270/USCOURTS-cand-3_15-mc-80270-5/pdf.json

Parties Involved:
Maxcrest Limited
Petitioner
United States of America
Respondent

Document Text:

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MAXCREST LIMITED,

Petitioner,

v.

UNITED STATES OF AMERICA,

Respondent.

Case No.15-mc-80270-JST 

ORDER GRANTING PETITIONER 

MAXCREST LIMITED’S MOTION FOR

STAY PENDING APPEAL

Re: ECF No. 52

Before the Court is Petitioner Maxcrest Limited’s Motion for Stay Pending Appeal. ECF 

No. 52. For the reasons set forth below, the Court grants the motion.

I. BACKGROUND

This case began with the Russian Federation making an “exchange of information request” 

to the United States regarding the tax liabilities of NefteGasIndustriya-Invest (“NGI”), specifically 

for information regarding Platten Overseas Ltd. (“Platten”). ECF No. 33 ¶ 11. The Russian 

Federation’s request was made pursuant to Article 25 of the Convention Between the United 

States of America and the Russian Federation for the Avoidance of Double Taxation and the 

Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (“the Convention”). 

Pursuant to the Russian Federation’s request, the IRS issued two third-party summonses 

directed to Google Inc. (“Google”) regarding the email account information of Platten Overseas 

(“Platten”). Platten dissolved, but prior to its dissolution Maxcrest Limited (“Maxcrest”) held all 

of Platten’s voting shares. Id. ¶ 10. Maxcrest asserts it is the successor in interest to Platten’s 

interests and sought to quash both summonses. ECF No. 1; ECF No. 33. 

The IRS withdrew the first summons after Maxcrest filed a petition requesting that this

Court quash the first summons due to procedural violations. ECF No. 22. On the basis of its first 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 1 of 9
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Petition to Quash, Maxcrest then sought discovery to pursue its claim that the Government acted 

in bad faith in issuing the first summons. ECF No. 23. The Government moved to dismiss 

Maxcrest’s petition to quash the first summons, arguing that the Petition had become moot since 

the first summons was withdrawn. ECF No. 22. Subsequently, the United States served a second, 

substantially similar summons on Google and served notice on Maxcrest, thereby cleansing the 

second summons of the procedural defects alleged against the first summons by Maxcrest in its 

initial Petition to Quash. ECF No. 32; ECF No. 33, ¶ 34. 

Magistrate Judge Laporte issued a Report & Recommendation (“R&R”) in which she

recommended granting the Government’s motion to dismiss Maxcrest’s petition with leave to 

amend to challenge the second summons. ECF No. 29. The parties subsequently agreed that 

Maxcrest could file an amended petition to quash the second summons. ECF No. 32. Maxcrest 

filed an amended petition, ECF No. 33, and the Government moved to dismiss the amended 

petition, ECF No. 43. 

In its last order, this Court granted the Government’s Motion to Dismiss the Amended 

Petition on two grounds. ECF No. 50. First, the United States met its burden of showing that the 

elements of the Powell test were satisfied in relation to the second summons. Id. at 10. Second, 

Maxcrest had not plausibly shown an abuse of process or lack of good faith on the part of the IRS

in issuing the second summons. Id. Consequently, the Court dismissed the amended petition and 

granted the IRS the authority to enforce the second summons. 

Maxcrest has since appealed the order granting the United States’ motion to dismiss the 

amended petition, and it now seeks a stay of that order pending appeal to the Ninth Circuit. 

II. LEGAL STANDARD

A court’s “power to stay proceedings is incidental to the power inherent in every court to 

control the disposition of the causes on its docket with economy of time and effort for itself, for 

counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). A stay is “an 

exercise of judicial discretion, and the propriety of its issue is dependent upon the circumstances 

of the particular case. The party requesting a stay bears the burden of showing that the 

circumstances justify an exercise of that discretion.” Nken v. Holder, 556 U.S. 418, 433–34 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 2 of 9
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

(2009) (internal alterations, citations, and quotations omitted).

To decide whether a stay pending appeal is warranted, district courts consider four factors: 

(1) whether the movant has made a strong showing that it is likely to succeed on the merits; (2) 

whether the movant will be irreparably injured absent a stay; (3) whether a stay will substantially 

injure other parties to the proceeding; and (4) the public interest implicated by the grant or denial 

of the stay. Id. at 434; see also Leiva–Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011).

III. DISCUSSION

A. Likelihood of Success on the Merits 

The Court finds that Maxcrest has made a sufficient showing that its appeal raises a legal 

question of first impression—namely, whether a taxpayer may rely on allegations of bad faith 

related to an earlier withdrawn summons to establish that the IRS acted in bad faith with respect to 

a second, reissued summons. This factor therefore weighs in favor of granting the stay. 

A party seeking to prevent the enforcement of an IRS summons bears a heavy burden. 

Crystal v. United States, 172 F.3d 1141, 1144 (9th Cir. 1999). “The courts’ role in a proceeding to 

enforce an administrative subpoena is extremely limited.” RNR Enterprises, Inc. v. S.E.C., 122 

F.3d 93, 96 (2d Cir. 1997). And the Ninth Circuit will only reverse this Court’s decision to 

enforce the IRS summons if it was clearly erroneous. See U.S. v. Kersting, 891 F.2d 1407, 1410 

(1989) (citing Ponsford v. United States, 771 F.2d 1305, 1307 (9th Cir.1985)), rev’d on other 

grounds, U.S. v. Carter, 117 F.3d 396 (9th Cir. 1994).

Despite its heavy burden and this deferential standard of appellate review, Maxcrest argues 

that it is likely to succeed on the merits of its claim because the following allegations lead to a 

plausible inference of bad faith by the government: (1) When giving Platten notice of the first 

summons, the IRS did not include the statutorily required form notifying Platten of its right to 

challenge the summons; (2) the IRS took thirty-five days to respond to Google’s request to send a 

copy of the first summons to Maxcrest, during which time the twenty-day period to challenge the 

summons had expired; and (3) the IRS used U.S. Mail service to send notice to Platten in the 

British Virgin Islands. ECF No. 52 at 4-5; ECF No, 61 at 5. Although all of these alleged

deficiencies relate to the first summons that the IRS has since withdrawn, and not the second 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 3 of 9
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

summons at issue in this amended petition, Maxcrest argues that the IRS should not be able to 

“simply reissue an identical summons once litigation has begun and wash away all negative 

inferences that can be drawn from its prior deficient notice.” ECF No. 52 at 7. At the very least, 

Maxcrest argues, its appeal presents a serious legal question of first impression that warrants 

granting a stay. Id. at 6-7. The Court agrees as to this last point. 

As noted in the Court’s order granting the motion to dismiss, neither party has cited, and 

the Court has been unable to locate, any case addressing whether a reissued summons is 

unenforceable based on allegations of bad faith that relate only to an earlier withdrawn summons. 

See ECF No. 50 at 9; ECF No. 60 at 6. Although this Court found Maxcrest’s fruit-of-thepoisonous-tree argument “unpersuasive” in its order dismissing the petition, it acknowledges that 

Maxcrest’s appeal raises a novel legal issue of first impression in the Ninth Circuit.

1

 ECF No. 50 

at 9. And “unsettled questions of law present serious legal questions so as to demonstrate 

sufficient likelihood of success on a motion to stay.” Gray v. Golden Gate Nat. Recreational Area, 

No. C 08-00722 EDL, 2011 WL 6934433, at *1–2 (N.D. Cal. Dec. 29, 2011) (internal citations 

omitted). 

Although it is unclear whether the Ninth Circuit will ultimately agree with Maxcrest,

2

the 

 

1

Two district courts in Michigan suggest that “the fruit of the poisonous tree” doctrine does not 

apply in the context of IRS summonses. See Charles v. United States, No. 13-50937, 2014 WL 

1464459, at *7 (E.D. Mich. Apr. 15, 2014) (finding that the “fruit of the poisonous tree” doctrine 

does not apply where the IRS “utilized a ‘no notice’ summons in April 2013 to obtain information 

the IRS referenced in the June Summons” and petitioner argued a lack of good faith in issuing the 

June Summons); Charles v. United States, No. 1:13-MC-46, 2013 WL 6404632, at *4 (W.D. 

Mich. Aug. 22, 2013) (same). The District of Idaho similarly refused to consider “whether to 

suppress [a second] summons under the . . . ‘fruit of the poisonous tree’” doctrine because 

“nothing in Petitioners’ arguments related to the [first summonses] indicate[d] that the IRS had a 

hidden, irrelevant, or bad-faith purpose that can be attributed to the [second summons].” Marcon 

Inc. v. United States, No. MC 08-6562-S-EJL-REB, 2009 WL 5557512, at *4 (D. Idaho Nov. 19, 

2009). However, because these district court opinions do not have binding precedential value, 

they do not refute Maxcrest’s claim that there is a serious legal question for the Ninth Circuit on 

appeal. 

2

The Ninth Circuit has suggested that courts should excuse procedural errors related to notice 

where they are “clearly harmless.” See United States v. Richey, 632 F.3d 559, 564–65 (9th Cir. 

2011) (holding that, although “[t]he administrative process was not completely followed because 

[the petitioner] was served by certified mail rather than by personal service,” the district court 

erred by quashing the summons because “[the petitioner] had actual notice of the summons, there 

was no prejudice to the Taxpayers who timely intervened, and the Government acted in good faith 

when it tried to effect service by certified mail.”). However, Richey is arguably distinguishable 

from this case for two reasons. First, Maxcrest does not just allege bad faith stemming from 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 4 of 9
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Court finds that Maxcrest has met its burden by showing that its appeal raises a serious legal 

question warranting a stay. See Leiva-Perez v. Holder, 640 F.3d 962, 967–68 (9th Cir. 2011). 

B. Irreparable Injury to the Party Requesting Stay

The irreparable injury prong of the test “requir[es] the applicant to show . . . that there is a 

probability of irreparable injury if the stay is not granted.” Lair, 697 F.3d at 1214 (emphasis in 

original). “In other words, [a petitioner’s] burden with regard to irreparable harm is higher than it 

is on the likelihood of success prong, as she must show that an irreparable injury is the more 

probable or likely outcome.” Leiva-Perez, 640 F.3d at 968. The threshold for the second factor is 

higher than that of the first factor because, while “a court often cannot reasonably determine 

whether the petitioner is more likely than not to win on the merits, [] typically it is easier to 

anticipate what would happen as a practical matter following the denial of a stay.” Leiva-Perez, 

640 F.3d at 968. 

Maxcrest argues that it will suffer two kinds of irreparable harm if it is required to produce 

the requested information pending appeal. First, Maxcrest argues that turning over this 

information now would moot its appellate rights because the Russian Federation is unlikely to 

comply with a court order to return the summoned information should the Ninth Circuit rule in 

Maxcrest’s favor and quash the summons at issue. See ECF No. 52 at 7-8; ECF No. 61 at 7-9. 

Second, Maxcrest argues that its privacy interests will be violated if the IRS obtains its Google 

account user information through an unenforceable summons and subsequently passes that 

information on to the Russian Federation. Id. 

As a legal matter, Maxcrest’s appeal will not be rendered moot if this Court denies the 

motion to stay. “[I]f an event occurs while a case is pending on appeal that makes it impossible 

for the court to grant ‘any effectual relief whatever’ to a prevailing party, the appeal must be 

dismissed” as moot. Church of Scientology of California v. United States, 506 U.S. 9, 12 (1992)

 

procedural defects; it also alleges that the IRS engaged in other conduct, such as waiting thirtyfive days to respond to Google’s request to notify Maxcrest of the summons. Second, Richey did 

not involve the reissuance of a summons after a motion to quash had already been filed and 

allegations of bad faith had already been pleaded.

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 5 of 9
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

(quoting Mills v. Green, 159 U.S. 651, 653 (1895)). If, on the other hand, “the parties have a 

concrete interest, however small, in the outcome of the litigation, the case is not moot.” Chafin v. 

Chafin, 133 S. Ct. 1017, 1023 (2013) (internal quotation marks and citations omitted). 

The Supreme Court has held that a party who turns over requested information pursuant to 

an IRS summons enforcement order retains a concrete interest sufficient to avoid mootness on 

appeal. See Church of Scientology, 506 U.S. at 11-13. In Church of Scientology, the Court

explained that, although it would be “too late to prevent, or to provide a fully satisfactory remedy 

for, the invasion of privacy that occurred when the IRS obtained the information,” the appellate 

court could still “effectuate a partial remedy” by ordering the IRS to destroy or return the records 

that were still in its possession. Id. Such a remedy would provide “some form of meaningful 

relief” by addressing the taxpayer’s ongoing possessory interest in their records and, as a result, 

the appeal was not moot. Id. (emphasis in original). At least one district court has held that this 

partial remedy is equally available where the court could order the IRS to request that a foreign 

sovereign return the produced information. See Villarreal v. United States, No. 2:11-CV-1594 

JCM GWF, 2013 WL 3200084, at *5 (D. Nev. June 21, 2013) (noting that, although the district 

court and the appellate court “could not require a foreign country’s government to destroy or 

return the summoned materials,” “the court’s order mandating that the IRS return or destroy the 

summoned materials would satisfy the partial remedy guaranteed by Church of Scientology.”). 

As in Church of Scientology, Maxcrest will retain a possessory interest in its records 

sufficient to avoid mootness on appeal even if this Court does not stay its Order. Although it is 

uncertain whether the Russian Federation would actually comply with a request to return or 

destroy the records as a practical matter,

3

“such uncertainty does not typically render cases moot”

 

3 Maxcrest has pointed to evidence that the Russian Federation’s compliance with its treaty 

obligations is “not consistent or guaranteed.” ECF No. 61 at 8; see also ECF No. 62, Ex. B (U.S. 

Department of State Report expressing concerns about Russia’s failure to comply with 

international arms control, nonproliferation, and disarmament agreements); ECF No. 62, Ex. C at 

65 (Congressional testimony from the Deputy Assistant Secretary of Defense in which he explains 

that Russia “has demonstrated a blatant disregard for its international obligations and 

commitments, both to other countries and to its own citizens”). And, although the United States 

suggests that Russia would comply with such a request based on “general principles of 

international comity,” it concedes that “it is not completely certain that the United States could 

effect the return or destruction of the summoned material” from the Russian Federation. ECF No. 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 6 of 9
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

from a legal perspective. Chafin, 133 S. Ct. at 1025 (holding that uncertainty regarding whether 

Scotland would actually comply with a court order pursuant to an international treaty did not 

render the case moot because the parties still had a concrete interest, no matter how small, in 

securing the order, despite the “potential difficulties in enforcement”). After all, “[c]ourts often 

adjudicate disputes where the practical impact of any decision is not assured,” and this is 

particularly true with respect to cases involving foreign nations because “[their] choices to respect 

final rulings are not guaranteed.” Id. 

In sum, the central question regarding mootness is whether Maxcrest would continue to 

have a concrete interest in the outcome of this litigation such that a partial remedy would be 

available to either this Court or the Ninth Circuit, not whether such a remedy would be guaranteed

as effective. See Church of Scientology, 506 U.S. at 13 (“[A] court does have power to effectuate 

a partial remedy by ordering the Government to destroy or return any and all copies it may have in 

its possession. The availability of this possible remedy is sufficient to prevent this case from being 

moot.”). The Supreme Court’s decision in Church of Scientology makes clear that Maxcrest does 

have such an interest in these circumstances and, as a result, Maxcrest’s appeal would not be 

mooted if this Court refuses to stay its Order pending appeal. 

The Court agrees with Maxcrest, however, that it would likely suffer irreparable harm to its 

privacy interests absent a stay. Unlike Maxcrest’s possessory interest, which could potentially be 

redressed if the Ninth Circuit rules in Maxcrest’s favor, any harm to Maxcrest’s privacy interests

would be irreparable because “there is nothing a court can do to withdraw all knowledge or 

information that IRS agents may have acquired by examination of the [the requested information]”

once that information has already been divulged. See id. at 12 (noting that “it is now too late to 

prevent, or to provide a fully satisfactory remedy for, the invasion of privacy that occurred”). 

Maxcrest has shown that, absent a stay of the Court’s order, it will likely suffer irreparable 

injury to its privacy interests. The “irreparable harm” factor thus weighs in favor of a stay.

 

60 at 8. 

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 7 of 9
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

C. Substantial Injury to Other Parties Interested in the Proceeding and Public 

Interest

The third and fourth factors for granting a stay merge when the government is the opposing 

party, as is the case here. Leiva-Perez, 640 F.3d at 970. 

The government’s arguments with respect to this factor focus exclusively on the fact that a 

stay will further delay these proceedings. ECF No. 60 at 10-11. Specifically, the government 

argues that “further delay here will prejudice the Russian Federation’s ability to determine the 

income tax liabilities of NefteGasIndustriya-Invest under Russian law.” Id. The IRS’ delay of 

almost a year before acting on the information exchange request deprives this argument of its 

persuasive force. ECF No. 50 at 1-2. Any hardships that the Russian Federation will face as a 

result of delay are at least as attributable to the IRS’ delay in processing the Russian Federation’s 

request for information as they would be to a stay of this Court’s order pending appeal. 

In addition, although summons enforcement proceedings are meant to be summary in 

nature, this expediency interest must be “balance[d]” against a noticee’s right to contest 

enforcement in federal court under 26 U.S.C. § 7609. See Clarke, 134 S. Ct. at 2367 (noting that 

prior cases have struck a balance between these two interests). Thus, while the IRS’ ability to 

issue and enforce summonses is broad, it is not without limit. Additionally, the IRS’ ability to 

issue summonses is predicated on the assumption that summonses assist the IRS in its 

investigative responsibilities; here, the IRS is not conducting an investigation of Maxcrest, Platten, 

or any other related party. To the extent that the IRS is claiming hardship based on the Russian 

Federation’s inability to assess Platten’s tax liability, its claim of hardship is attenuated. 

In sum, Maxcrest has the better argument regarding the balance of hardships and the public 

interest, and therefore both of these factors also counsel in favor of granting a stay. 

/ / /

/ / /

/ / /

/ / /

/ / /

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 8 of 9
9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

CONCLUSION

Because Maxcrest has shown that all four factors weigh in favor of granting a stay, the 

Court grants Maxcrest’s motion to stay this Court’s order pending appeal to the Ninth Circuit. 

IT IS SO ORDERED.

Dated: November 7, 2016

______________________________________

JON S. TIGAR

United States District Judge

Case 3:15-mc-80270-JST Document 66 Filed 11/07/16 Page 9 of 9