2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 11-8-2005 

# U SA v . G ipp ett i P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 04-4122

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Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

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w . vi ll anova . e du/thir dc ir c uit_2005/252NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N o. 04- 4122 UNI TE D ST ATE S OF AM ERI CA

v. JE R O M E G IP P E T T I, A ppel l ant APP EAL F ROM THE UNI TE D ST ATE S DI S TRI CT C OURT

FOR TH E DI STRI CT O F NEW J ERSEY D . C . C i vi l 04- cv- 00522 D i s tr i ctJ udge: T he H onor abl e K athar i ne S. H ay den

A r gued: Sept ember13, 2005 B efor e: SL O V I T E R , B A R R Y , and SM I T H , C i r cui tJ udges

( O pi ni on Fi l ed: N ovember8, 2005)

R i char d J . Sapi ns ki , E s q. ( A r gued) St even R. R ow l and, E s q. S i l l s, C um m i s, E pst ei n & G ross O ne R i ver fr ontPl aza N ew ark, N J 07102 C ouns el forA ppel l antA m ong otherthi ngs , the s um m ons r equi r ed hi m t o pr oduce, forthe y ear s 1999 and 1 20 00 , accou nt appl i cat i on s, l oan app l i cat i on s, m on thlyor peri od i c ban k st at em ents , pas s books , and ca ncel l ed che cks forthe C N B acc ount , as w el l as the ca r d appl i cat i on, m onthl yorper i odi c cha r ge s t at ement s , char ge r ece i pt s , and ca s h advanc e conf i r m at i ons f o r, b u t n o t li m ited to , a C N B iss u e d M a ste r C a rd . In iti a lly , the IR S w a s a w a re o f o n ly o n e C N B M a s te r C a rd , b u t la te r d is c o v e re d a s e c o n d C N B M a s te r C a rd . 2 R andol ph L . H ut t er , E s q. ( A r gued) G i l bertS. R othenber g, E s q. Paul a K . Speck, E s q. Fr ank P. C i hl ar , E s q. U ni t ed St at es D epart m entof J us t i ce T ax D i vi s i on P. O . B ox 502 W as hi ngt on, D . C . 20044 C ouns el forA ppel l ee

OP I NI ON

B A R R Y , C i r cui tJ udge A c iv il i n v e stig a tio n w a s c o m m e n c e d b yth e In ter n a l R e v e n u e S e rv ice (“ IR S ” ) in to th e 1 9 9 9 a n d 2 0 0 0 f

e d e ra l in c o m e tax liab ili ties o f a p p e llan t Je ro m e G ip p e tti a n d h is la te w if e . O n F e b ru a ry6 , 2 0 0 3 , the IR S iss u e d a su m m o n s d e m a n d in g th a t M r. G ip p e tti a p p e a r b e f

o re a n IR S a g e n t to p ro v id e tes tim o n ya n d p ro d u c e re c o rd s p e rta in in g to h is bank and c r edi tcar d acc ount s w i th the C aym an N at i onal B ank, L t d ( “C N B ”) . A ft er 1 G ip p e tti f

a ile d to c o m p ly, th e IR S in itia te d th is a c tio n to e n f o rc e th e s u m m o n s .S e e In te rn a l R e v e n u e S e rv ic e , 2 ht tp: //w w w . i r s . gov/pr i vacy/ art i cl e/0, , i d=131233, 00. h tm l (las t v isited S e p t. 19 , 2 0 0 5 ). “O C C P is a n in iti a tiv e a im e d a t b rin g in g b a c k in to compl i ance w i th U . S. t ax l aw s part i ci pant s w ho us ed ‘ offs hor e’ paym entcar ds orother offs hor e fi nanci al arr angement s t o m as k ors hel t erthei ri ncome. T he I R S use d j udi ci al J o h n Do e s u mm o n s e s t o r e q u e s ti n f o r ma t i o n f

r o m th r e e c r e d i tc a r d c o mp a n i e s ( VI S A, M a ste rC a rd , an d A m e ric a n E x p re ss ) re g a rd in g in d iv id u a ls w h o m a yh a v e p a rticip a ted in o f f sh o re c re d it ca rd sc a m s. T h e IR S a lso su m m o n e d in f o rm a tio n f

ro m a F lo rid a c re d it c a rd p ro c e s s o r, C re d o m a tic , th a t s e rv ic e s b a n k s lo c a te d in C a ri b b e a n ta x h a v e n c o u n tr ie s . T he goal i s t o i dent i fyU S per s ons fr om offs hor e ca r d tr ans act i ons . A vendorquer i es t he dat a and c om par es i tagai ns tN ame Sear ch Faci l i ty( N SF) a nd I nform at i on R eturn M as t er F ile (I R M F ) d a ta. If

a T a x p a y e r Id e n tific a tio n N u m b e r (T IN ) is f o u n d , the d a ta is se n t in a n E x c e l s p re a d s h e e t th ro u g h e n c ryp te d e m a il to th e P h ila d e lp h ia c a m p u s , O C C P U n it. T he s pr eads heeti s pr i nt ed outand us ed byO C C P U ni tper s onnel . ” 3 G i ppett i had r eport ed i nt er es ti ncome fr om the C N B acc ounton the 1999 and 2000 f e d e r a l i n c o me t a x r e tu r n s , a n d h a d d i s c l o s e d th e e x i s t e n c e o f th e a c c o u n to n f

o r ms e n t i t l e d “ Re p o r t s o f

F o r e i g n Ba n k a n d F i n a n c i a l Ac c o u n t s ” f i l e d wi th th e I RS . Th e I RS b ec am e a w are o f G ipp ett i’ s tw o C N B cre d itca rd a cc o u n ts as a re su lto f it s O ff sh o re C r edi tC ar d Pr oj ect . W hi l e G i ppett i di d notdi s put e the exi s t ence of thes e ac count s , he 2 d e n ied th a t h e p o ss e ss e d o r h a d c o n tro l o v e r th e re c o rd s s o u g h t b yth e IR S . M o re o v e r, in a so m e w h a t in c o n sis ten t ar g u m e n t, G ip p e tti a rg u e d th a t an yc o m p e lled p ro d u c tio n b yh im ( of r ecor ds he cl ai m ed he c oul d not , i n anyevent , pr oduce) w oul d cons t i tut e a t es t i m oni al

“ a c t o f p ro d u c tio n ” w h ic h w o u ld in f ri n g e u p o n h is F if

th A m e n d m e n t r ig h ts . T he D i s tr i ctC our thear d ar gum enton A pr i l 19, 2004, and, on A ugus t2, 2004, i s s ued an or derr equi r i ng G i ppett i t o “pr oduce the document s r el at i ng t o thos e bank a nd cre d itca rd a cc o u n ts atthe [ C N B ] th at th e p arti es d o n o t dispu te are [ G ipp ett i] ’s acc ount s . ” A pp. 2. T he C our tor der ed thatG i ppett i m ake thi s pr oduct i on “byw hat everF o r re a so n s th a t ar e u n c lea r, th e A u g u st 6 o rd e r w a s n o t en ter e d o n to th e d o c k e t u n til 3 A u g u s t 2 7 . A lth o u g h th e D istric t C o u rt a lso d e n ied c e rta in re lief re q u e ste d b yth e g o v e rn m e n t, 4 th e g o v e rn m e n t h a s n o t c ro s s -a p p e a le d . T hi s r es pons e w as appar ent l yant i ci pat ed bythe governm ent , and l i kel ybyG i ppett i as 5 w e ll. D u rin g th e A p ril 1 9 a rg u m e n t, th e g o v e rn m e n t n o ted th a t “w e d o n o t w a n t a c o n se n t d ire c tiv e . . . T h e b a n k is u n d e r n o c o m p u lsio n to re sp o n d . W e d o n ’t w a n t it beca us e the bank – be caus e w e don’ thave a nyj ur i s di ct i on overthe off s hor e bank. ” A pp. 3 0 . 4 m eans . ” Id . I tfur thernot ed, i n a s om ew hatcrypt i c r emar k, that“[t ] her e i s no i s s ue for the C ou rtt o resol ve regardi ng peti t i on er’ s Fifth A m end m ent r i gh t s. ” A pp . 3. O n A ug ust 6, 2004, the C our ti s s ued a de t ai l ed fi nal or der . T hi s appea l fol l ow ed. 3 4 S u b se q u e n t to th e iss u a n c e o f th e D istric t C o u rt’s f

in a l o rd e r, G ip p e tti v o lu n tar ily exec ut ed and s entt o C N B a w r i t t en “c ons entdi r ect i ve” i n w hi ch he r eques t ed copi es of the C N B r ecor ds the governm entw as s eeki ng; ther e i s no s ugges t i on thatthe cons ent di r ect i ve w as compel l ed. I n hi s l ett erof A ugus t16, 2004, G i ppett i s t at ed thathe w as m ak ing the re q u est i n o rde r t o co m p lyw ith the A u g u st 2, 20 0 4 o rde r of the D istri ct C o u rt thathe pr oduce thos e r ecor ds . H e adde d thathe “c urr ent l y ” di d nothave a nyof the r ecor ds i n hi s pos s es s i on and di d nothave them i n hi s pos s es s i on anyt i m e s i nce the s um m ons w as s erved on hi m . A pp. 204. B yl ett erdat ed A ugus t27, 2004, C N B r efus ed G i ppett i ’ s r eques ton the gr ound t hata “‘ cons ent ’ underpai n of pena l s anct i on( s ) does not cons t i tut e cons entw i thi n t he meani ng of” Caym an I s l ands l aw . A pp. 205- 06. 5 DI S CU S S I ON5

G i ppett i cal l s thi s an “a ctof pr oduct i on” ca s e, buts ay s he does nothave the r ecor ds the governm entw ant s hi m t o pr oduce a nd has no contr ol overgett i ng them from C N B , as evi dence d m os tr ece nt l ybyC N B ’ s r ej ect i on of the cons entdi r ect i ve he s ubm i t t ed t o i t . Par enthet i cal l y , he does notdi s put e, norcoul d he r eas onabl ydo s o, that b a n k s, in c lu d in g C N B , g e n e ra te a n d , ind e e d , se n d to th e ir c u sto m e rs m o n th lysta tem e n ts and the li ke an d d oes no targue t hat, i n 1 99 9 an d 2 00 0, he d i d n ot, i n fac t , recei ve those s ta te m e n ts a n d s o m e o r a ll o f th e o th e r r e c o rd s s o u g h t b yth e g o v e rn m e n t. G i ppett i r ai s ed the def

ens e of l ack of

pos s es s i on and/ orcontr ol i n the enf or cement p ro c e e d in g . See U

ni t ed Stat es v. Rylander , 4 6 0 U .S . 7 5 2 , 7 5 7 (1 9 8 3 ) (“ [ A ] p ro c e e d in g to enfo rce an IR S sum m on s i s an adv ers aryproceed i ng i n w hich the d efen dan tm aycon t est the s um m ons ‘ on anyappr opr i at e gr ound. ’ [L]a ck of pos s es s i on orcontr ol of the r ecor ds i s s ur el ys uch a gr ound . . . . ”) ( ci t at i ons om i t t ed) . T he D i s tr i ctC our t , how ever , di d not expl i ci t l ydeci de the i s s ue, al though i t s fi nal or dernece s s ar i l ycont ai ned an i m pl i ed f in d in g th a t a n yd e f

e n s e o f la c k o f p o s s e s s io n o r c o n tr o l h a d n o t b e e n s u s ta in e d . M or e, how ever , w as r equi r ed. G i ven the enf or cementor der , a ci vi l cont empt act i on can a nd pr obabl yw i l l ens ue i f G i ppett i does notpr oduce the r ecor ds he w as o rd e re d to p ro d u c e . H e c a n n o t, ho w e v e r, in a c o n tem p t p ro c e e d in g , li tig a te o r re lit ig a te the i s s ue of w hetherhe pos s es s ed orhad contr ol overthe r el evantr ecor ds atthe t i m e of th e o rd e r t o p ro d u c e . Rylander , 460 U . S. at456- 57. A s the C our tof A ppeal s forthe S e c o n d C ir c u it e x p la in e d ,6

I s s uance of an e nfor cementor dercons t i tut es an adj udi cat i on thatthe r es pondentpos s es s es and i s abl e t o pr oduce the s um m oned document s at the t i m e the or deri s i s s ued. T her eaf t er , the r es pondentm us tpr oduce the document s orfac e cont empt pr ocee di ngs i n w hi ch he i s for ecl os ed fr om cl ai m i ng nonpos s es s i on atthe t i m e of the enf or cementor der . . . B eca us e of i t s pot ent i al l ydr as t i c cons equenc es , how ever , an enf or cementor deri n a cont es t ed pr ocee di ng s houl d notr es ton a det erm i nat i on of pos s es s i on that i s m er el yi m pl i ci t . B efor e or der i ng pr oduct i on on penal tyof cont empt , the di s tr i ctcourts houl d expr es s l ydet erm i ne thatthe r es pondentpos s es s es the s u m m o n e d d o c u m e n ts . U n itedS ta tes v . B a rth , 745 F. 2d 184, 187 ( 2d C i r . 1984) ( ci t at i on om i t t ed) . Fi ndi ng t hat the i s s ue of pos s es s i on i s compl ex and f act - s ens i t i ve, the C our tvaca t ed the r el evant por t i on of the enf

or cementor derand r emanded the pr ocee di ng t o enabl e the D i s tr i ct C o u rt to ru le e x p lic itly o n th e d e f e n s e o f n o n p o s s e s s io n . W e , to o , b e lie v e th a t a n e x p re s s d e te rm in a tio n o f p o s s e s s io n o r c o n tr o l is re q u ir e d . I f the D i s tr i ctC our tdet erm i nes thatG i ppett i does notpos s es s orhave c ontr ol overthe r ecor ds the governm enti s s eeki ng – and i ti s G i ppett i ’ s bur den – enf or cements houl d be den i ed. If, ho w ever, the C ou rtdeterm i nes t hat he do es possess orhav e con trol ov er tho se re c o rd s , f

a ilu re to p ro d u c e th e re c o rd s w ill b e o n p a in o f c o n te m p t. I n ant i ci pat i on, how ever , of a r enew ed “a ctof pr oduct i on” def ens e i f, on r emand, pr oduct i on i s or der ed, w e off erthe fol l ow i ng obs ervat i ons . T her e ca n be no ques t i on – an d G ipp ett i do es n o t seri o u slyd ispu te – th at m o st or all o f th e C N B rec o rds a t i ssu e h ere exi s t , thatthe governm entknow s theyexi s t , and thattheyar e l ocat ed atC N B . I ndeed, G i ppett i has acknow l edged thathe mai nt ai ns the s peci fi c bank a ccountati s s ue and the cr edi tcar ds t i ed t o t hatacc ount , as evi dence d byhi s r eport ed i nt er es ti ncome, form s he7

fi l ed w i th t he I R S, and the cons entdi r ect i ve he vol unt ar i l ys i gned. H e al s o conce des t hat the cons entdi r ect i ve w as non- t es t i m oni al beca us e i tas ked C N B , nothi m , “t o l ocat e, r etr i eve a nd col l ect ” the r el evantr ecor ds . ( A pp. B r . at26) . H e ar gued, how ever , that beca us e C N B r efus ed hi s r eques tand the governm entcannotobt ai n the r ecor ds thr ough i n d e p e n d e n ts o u r c e s , r e q u i r i n g h i m “ t o l o c a t e , r e tr i e v e a n d c o l l e c t ” th e m w o u ld be t es t i m oni al beca us e he w oul d be r equi r ed t o do the I R S’ s “l eg- w or k and thi nki ng. ” A pp. R e p ly B r. a t 2 3 . It h a s lo n g b e e n e sta b lish e d th a t “th e F if th A m e n d m e n t d o e s n o t in d e p e n d e n tly pr os cr i be the compel l ed pr oduct i on of eve rys or tof i ncr i m i nat i ng evi dence butappl i es o n lyw h e n th e a c c u se d is c o m p e lled to m a k e a tes tim o n ial c o m m u n ica tio n th a t is i ncr i m i nat i ng. ” F is herv. U ni t ed Stat es , 425 U . S. 391, 408 ( 1976) . T hi s cas e i s m uch l i ke F is her , i n w hi ch the C our tr ej ect ed the t axpay er ’ s cl ai m thatw orki ng paper s pr epar ed by the tax p ay er’s ac co u n tant that the IR S k n ew w ere in the p o sses sion o f th e tax p ay er’s a tto rn e yw e re p ro tec ted b yth e F if th A m e n d m e n t. T he pape r s bel ong t o t he ac count ant , w er e pr epar ed byhi m , and ar e the k in d u su a llyp re p a re d b ya n a c c o u n tan t w o rk in g o n th e tax re tu rn s o f h is cl i ent. . . T he exi s t ence and l ocat i on of the pape r s ar e a f or egone concl us i on and the t axpay eradds l i t t l e ornothi ng t o the s um t ot al of the G o v e rn m e n t’ s in f

o rm a tio n b yc o n c e d in g th a t h e in f a c t h a s th e p a p e rs . 4 2 5 U .S . a t 4 1 1 . S o , too , h e re , itw ill in v o lv e n o th in k in g b yG ip p e tti o r re v e a l an yc o n ten ts o f h is mi n d t o s i mp l ytu r n o v e rt o th e g o v e rn me n twh a t e v e rr e c o r d s CNB we r e t o g i v e t o h i m,W hetherthe governm entcan otherw i s e authent i cat e the r ecor ds has no bear i ng on 6 w h e th e r G ip p e tti h a s a v a lid F if th A m e n d m e n t c la im . G i ven thi s concl us i on, w e nee d notr eac h the i s s ue of w hetherG i ppett i w ai ved any 7 F if th A m e n d m e n t c la im a s to th e C N B re c o rd s . 8 a n d m e re tu rn o v e r w ill s u re ly n o t a u th e n tic a te th e m . See D oe v. U ni t ed Stat es , 48 7 U. S. 201, 218 ( 1988) ( “[T] he onl yfac tual s t at ementm ade byany one w i l l be the b a n k’s im p licit d e c lar a tio n , b yits a c t o f p ro d u c tio n . . ., th a t it

bel i eves the ac count s t o be p e tit io n e r’s ” ) (e m p h a sis in o rig in a l)); s ee als o F is her , 425 U . S. at413 ( “[P] r oduct i on w oul d expr es s nothi ng m or e than the t axpay er ’ s bel i ef thatthe pape r s ar e thos e des cr i bed i n the s ubpoena . . . T he t axpay erw oul d [notbe] compet entt o authent i cat e the a c c o u n tan t’s w o rk p a p e rs o r re p o rts . . . T h e tax p a y e r d id n o t p re p a re th e p a p e rs a n d c o u ld notvouch forthei racc ur acy ”) . St at ed s om ew hatdi ffe r ent l y , forG i ppett i t o pr oduce the 6 C N B re c o rd s w o u ld h a v e n o tes tim o n ial s ig n if ica n c e , an d a n yF if

th A m e n d m e n t cla im w o u ld b e w ith o u t m e rit. 7 CO NC L US I ON T hatpartof the or derof the D i s tr i ctC our tent er ed on A ugus t27, 2004 enfor ci ng the s um m ons w i l l be vac at ed and thi s m att err emanded forfur therpr ocee di ngs cons i s t ent w ith th is O p in io n .