Opinion ID: 466454
Heading Depth: 1
Heading Rank: 2

Heading: the grand jury issues

Text: 9 After the present indictment was filed, the Tax Court scheduled an evidentiary hearing in the case of Abrams v. Commissioner, No. 17465-82. The purpose of the hearing was to determine whether the I.R.S. had utilized grand jury materials in connection with the preparation of a deficiency notice sent to Abrams, who was an investor in one of defendants' cable television tax shelters. Subpoenas were issued for two witnesses: Walter Pagano, a former I.R.S. Agent; and Robert Conrad, an I.R.S. Agent. 10 The government first sought to have the Tax Court hearing postponed. When that failed, the government applied ex parte to the district court for an order restraining Pagano and Conrad from testifying until the issue of grand jury secrecy could be resolved by the district court. The district court entered a temporary restraining order to enforce the secrecy requirements of Fed.R.Crim.R. 6(e) while it considered the issue further. As a result, Pagano and Conrad did not testify in the Tax Court. 11 The district court then held a hearing to determine whether it should hold its own evidentiary hearing on the Rule 6(e) issue or, instead, permit Pagano and Conrad to testify in the Tax Court. All counsel in this case, plus the attorney representing Abrams in the Tax Court, were present at this hearing. The government argued, apparently without opposition, that the district court was the appropriate forum to determine the Rule 6(e) issue. The defendants did object, however, to the government's prior ex parte presentation to the district court, and requested an evidentiary hearing into what transpired during the ex parte application. The district court denied this request. 12 The district court did decide, however, to hold a hearing concerning defendants' allegations that Pagano had disclosed grand jury information to Conrad in violation of Rule 6(e). After hearing testimony from Pagano and Conrad, the district court found, without discussion, that there had been no violation of grand jury secrecy. After the trial, the district court again took testimony on this issue, this time from I.R.S. Special Agent Alan Rebovich. Once again, the district court found, this time with Findings of Fact and Conclusions of Law, that there had been no violation of grand jury secrecy.
13 Skulsky and Pozner first argue that their convictions must be reversed because the district court refused to conduct an evidentiary hearing concerning the ex parte communication. The government, on the other hand, argues that the ex parte communication did not, and in fact could not, infringe defendants' rights; alternatively, the government argues that even if the ex parte communication was improper, it did not prejudice the defendants in any way. Defendants argue that our standard of review of the district court's decision not to hold an evidentiary hearing in such circumstances is plenary; the government argues that it is for abuse of discretion. We will assume, without deciding, that our review is plenary. 14 Initially we observe that the ex parte communication did not directly implicate the defendants. They were not parties to the Tax Court action, nor did they issue the subpoenas involved. The ex parte proceeding and resulting restraining order directly affected only Abrams, the litigant in the Tax Court. Under these circumstances, we question whether defendants even had standing to be heard on the question of which forum, the district court or the Tax Court, was the preferable one in which to resolve the underlying substantive question of whether the secrecy of the grand jury had been breached. 15 Defendants suggest, however, that the government may have imparted factual information to the district court during the ex parte proceeding with respect to the alleged violations of Rule 6(e), and that this entitled them to be present at the proceeding, or at least to an evidentiary hearing to determine whether the government did impart such information. After reviewing the record of the subsequent hearing in the district court on whether it should hold an evidentiary hearing on the alleged abuses, we believe that this suggestion is unfounded. At that hearing, the district court, in response to defendants' request to cross-examine the Assistant United States Attorney involved, stated that: 16 Gentlemen, there was no transcript of last week's proceeding. There was a submission to the Court ex parte of the papers which you have, nothing more or less. 17 A review by my chambers of the papers, some consideration within chambers without counsel of the posture, the manner, what appeared to be involved. 18 Counsel was invited in to explain the papers again. I heard what was in the papers, an explanation of what was in the papers, and determined to sign the papers. That's all there was. 19 This statement, as well as others made by the district court during the course of the same hearing, affirmatively negates any suggestion that the merits of the underlying question were discussed. Instead, the ex parte application was appropriately limited to the procedural question of which forum should determine whether Rule 6(e) had been violated. Under these circumstances, the ex parte proceeding could not prejudice the defendants. 20 We hold, therefore, that the district court properly denied defendants' request for an evidentiary hearing on this issue. We note, however, that in the future the district court would be well advised to have such proceedings transcribed to prevent misunderstandings like that at issue here.
21 Skulsky and Pozner next argue that Conrad improperly disclosed material gained in the course of his civil audit of the Cable/Tel companies to the grand jury, and that the district court's finding to the contrary is clearly erroneous. 2 They also argue that the district court erred in not conducting a full and complete evidentiary hearing on this issue. 22 Admittedly, the I.R.S. may not gather evidence for a criminal prosecution through the consensual civil audit process by affirmatively misrepresenting its intentions. See, e.g., United States v. Irvine, 699 F.2d 43, 45-46 (1st Cir.1983). In the present case, however, the district court conducted three days of hearings on this issue, two before trial and one after trial, after which it found, inter alia, that the criminal investigators had not used the civil audit inquiries being conducted by Conrad as a stalking horse for the Grand Jury investigation. Instead, the testimony indicated that Conrad's assignment was to conduct a civil audit of the corporate tax returns of the corporations utilized by the defendants to market and operate the cable television tax shelters. As a result, Conrad, pursuant to I.R.S. guidelines, made several fraud referrals to the I.R.S.'s criminal investigation division, which resulted in his meeting with Rebovich on several occasions to discuss the referrals. 23 After reviewing the record concerning this issue, we hold that the district court's finding that [t]here is no showing that Conrad was used either directly or indirectly to gain information for the Grand Jury is not clearly erroneous. We also reject defendants' contention that the district court committed an abuse of discretion in limiting the scope of the evidentiary hearing on this issue. The record indicates that defendants were given substantial latitude to investigate and develop their allegations on the merits.
24 Finally, Skulsky and Pozner assert that the indictment was defective in that it was returned by a grand jury whose term was unconstitutionally extended. The crux of this argument involves the claim that the eighteen-month limit on the tenure of a grand jury under former Rule 6(g) was a substantive constitutional or statutory right. 3 As such, they argue that Rule 6(g) could not constitutionally be amended by the report and wait provisions of 18 U.S.C. Secs. 3771 and 3772; instead, they claim that such a change could be effected only by Congress through express enactment followed by presidential approval. Our review of this issue is plenary. 25 At the outset, we acknowledge that defendants have a substantive constitutional right to be indicted by a grand jury that is independent of prosecutorial control. Similarly, we generally agree with the observation that laymen from the vicinage, traditionally acting as a screening device to protect their fellow citizens from unwarranted criminal charges by over-eager prosecutors might by dint of longer service become themselves arms of the state instead of representatives of the citizenry. United States v. Fein, 504 F.2d 1170, 1178-79 (2d Cir.1974). However, we fail to perceive how it follows from these two assumptions that the eighteen-month limitation of former Rule 6(g) is a substantive, not procedural, right. 26 First, it is clear that the eighteen-month limitation is not constitutionally mandated. See United States v. Schwartzbaum, 527 F.2d 249, 256 (2d Cir.1975) (upholding validity of 18 U.S.C. Sec. 1331, which permits term of grand jury impaneled pursuant to the Organized Crime Control Act to be extended up to thirty-six months), cert. denied, 424 U.S. 942, 96 S.Ct. 1410, 47 L.Ed.2d 348 (1976). Second, there is nothing in the legislative history to demonstrate that former Rule 6(g) or any of its predecessors was meant to protect the underlying constitutional right, or to create an additional substantive statutory right. United States v. Pisani, 590 F.Supp. 1326, 1339 (S.D.N.Y.1984), rev'd in part on other grounds, 773 F.2d 397 (2d Cir.1985). 27 Instead, we believe that the many changes in both the grand jury's tenure and the method of determining its tenure: 28 emphasize the procedural nature of the rule. The purpose of each change was to articulate a rule that would enhance judicial efficiency. Nowhere in the legislative history is there an indication that Congress intended, by setting any of these various limits, to create a substantive right for criminal defendants. 29 Pisani, 590 F.Supp. at 1339; accord United States v. Pisani, 773 F.2d 397, 405 (2d Cir.1985) (Its very nature ... demonstrates the procedural character of the amendment to rule 6(g), which was adopted after a history of congressional experimentation with grand jury tenure.). 30 Finally, it is perhaps worth noting that former Rule 6(g), which established the eighteen-month term upon which defendants seek to rely, was itself adopted by the very same report and wait procedure used to enact the challenged 1983 amendment. We find it at least somewhat perplexing that the rule governing the tenure of the grand jury cannot be amended in the manner by which it was enacted. Accord Pisani, 773 F.2d at 405. 31 Under these circumstances, we think that defendants have mischaracterized Rule 6(g) as a substantive, rather than procedural, right. Thus, we agree with the Second Circuit that defendants' indictment by a grand jury whose tenure had been extended pursuant to the 1983 amendment of rule 6(g) was not invalidated by the manner in which the amendment authorizing that extension had been adopted. 4 Pisani, 773 F.2d at 405.