Opinion ID: 369230
Heading Depth: 1
Heading Rank: 2

Heading: the genser claim

Text: 5 Although the defendants contend that they need additional discovery in order fully to present their case respecting the alleged abuse of the IRS civil subpoena power, many of the facts respecting the pre-indictment investigation were developed in an evidentiary hearing and found by the trial court. That investigation can, for purposes of this appeal, be divided into two phases: (1) April 1974 to April 23, 1975; and (2) April 23, 1975 to January 22, 1976, the date when the last IRS summons was issued.
6 In April of 1974 Special Agent Richard T. Gilbert, assigned to the narcotics group of the Intelligence Division of the IRS in Philadelphia, received from the Federal Drug Enforcement Administration (DEA) and the Organized Crime Unit of the Philadelphia Police Department information suggesting that Serubo was involved in loansharking and in financing of narcotics transactions, and was linked with organized crime. About the same time Gilbert received from an unnamed confidential informant of the Federal Bureau of Investigation (FBI) similar allegations about Serubo. After evaluating the information, and without communicating with the United States Attorney, Gilbert sought authorization from the IRS National Office to conduct a joint civil and criminal investigation of Serubo, to determine if the allegations of loansharking and narcotics trafficking were true, and if so, whether the proceeds of these activities had been reported to the government for tax purposes. An IRS internal committee in Washington, D.C., concerned with expediting the investigation of income tax liability of narcotics traffickers, considered Gilbert's request, and on June 6, 1974, authorized a joint civil-criminal investigation of Serubo. 7 Revenue Agent Louis Berkowitz and Special Agent Gilbert were assigned to the case on June 19, 1974. Berkowitz was replaced, in September 1974, by Revenue Agent Edward Marsh. At least in Phase I, the investigation was conducted by Gilbert and the two revenue agents as a joint civil-criminal investigation, with equal participation by the revenue agents and the special agent. Between June 19, 1974 and April 23, 1975, Gilbert, pursuant to 26 U.S.C. § 7602, issued twenty-two administrative subpoenas to various third parties seeking information bearing upon Serubo's tax liability. During that period Gilbert had not formed a commitment to recommend prosecution under the internal revenue laws, and did not transmit any of the evidence obtained by use of the subpoenas to the DEA, the FBI, the United States Attorney, or the Philadelphia Police Department. No evidence was introduced with respect to Phase I suggesting an abandonment of a civil purpose, or an unexplained delay, after a decision to recommend prosecution, used as a subterfuge for a continued investigation. Later, evidence obtained by use of IRS subpoenas issued during the first phase of the investigation was presented to the grand jury, and was intended to be used by the government at defendants' trial.
8 In November of 1974 Joel M. Friedman, an attorney in charge of the Philadelphia Office of the Organized Crime and Racketeering Section of the Justice Department (Philadelphia Strike Force) learned, during a review of Strike Force files, of a 1973 FBI report suggesting that the Plachter-Serubo Cadillac dealership had been infiltrated by organized crime. The Strike Force was then unaware of the IRS investigation. Friedman requested further investigation by the FBI and also asked the Department of Justice to seek disclosure from the IRS of any information it might have pertinent to the infiltration allegations. On April 3, 1975 the Philadelphia Office of the IRS was authorized to disclose to the Strike Force information concerning its Serubo income tax investigation. Disclosure of information to the Strike Force began on April 23, 1975 at a conference between Friedman, representatives of the FBI, and representatives of the IRS. Thereafter the investigations of Serubo by the Department of Justice and the Treasury Department were coordinated under the leadership of a Strike Force attorney. FBI agents and IRS agents conducted joint interviews of Brown. IRS Special Agent Gilbert, in June of 1975, suggested the issuance of a grand jury subpoena to Brown for the contents of his briefcase, which was issued on June 9, 1975 and served by Gilbert. Shortly thereafter the district court granted the government's motion, pursuant to Fed.R.Crim.P. 6(e), for disclosure of grand jury matters to IRS personnel, who were assisting in the grand jury investigation. Between June 10, 1975, and January 22, 1976, Special Agent Gilbert and Special Agent Donald Watkins, who succeeded Gilbert in the Serubo investigation in July, 1975, issued thirteen administrative subpoenas to third parties. In October, 1975 Plachter became a target of the government's investigation, and in September, 1976, so did Brown. Although from April 23, 1975, the IRS Agents were participating in a Strike Force investigation, and from June 9, 1975, in a grand jury investigation, Agent Watkins did not recommend criminal prosecution until January 27, 1977, and the Regional Counsel of the IRS did not submit a formal recommendation of prosecution to the Department of Justice until November 9, 1977. Agent Watkins testified that none of the evidence obtained through the use of the thirteen administrative subpoenas used during the second phase was presented to the grand jury or would be used directly or indirectly to obtain evidence intended for use at trial.
9 Reviewing this record in light of the standards announced in United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), the district court concluded that the defendants had failed to make even a colorable showing that the twenty-two subpoenas issued during Phase I of the investigation were issued in bad faith. He therefore denied both the defendants' motions for further discovery regarding the first phase of the investigation, and their motion to suppress the evidence gathered in that phase. United States v. Serubo, 460 F.Supp. at 698-99. Regarding the thirteen subpoenas issued during Phase II, the court stated that it would be inclined to hold that the summonses dated after April 25, 1975, were issued in bad faith and therefore to suppress the evidence derived from them. Id. at 699. It found it unnecessary to do so, however, because it credited Agent Watkins' testimony that none of the evidence obtained as a result of the Phase II subpoenas was presented to the grand jury or was scheduled for presentation at trial. The court also denied the defendants' request to dismiss the indictment on the basis of abuse of the summons procedure.
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11 In United States v. Genser, 582 F.2d 292 (3d Cir. 1978) (Genser I ), relying upon statements to that effect in Donaldson v. United States, 400 U.S. 517, 531, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971), and United States v. Friedman, 532 F.2d 928, 931 (3d Cir. 1976), we held that a defendant in a criminal case could assert that evidence obtained pursuant to 26 U.S.C. § 7602 solely for a criminal rather than a civil investigative purpose was illegally obtained and should be suppressed. In this case we apply the standards for determining IRS compliance with section 7602 announced by the Supreme Court in United States v. LaSalle National Bank, 437 U.S. 298 (1978), as elaborated in the context of a suppression motion by an indicted defendant in United States v. Genser, 595 F.2d 146 (3d Cir. 1979) (Genser II ). 12 LaSalle National Bank, establishes two important limitations upon the validity of an IRS civil summons. First, the summons must be issued before the IRS recommends to the Justice Department that a criminal prosecution be undertaken. Second, prior to that date, the IRS at all times must use the summons authority in good-faith pursuit of the congressionally authorized purposes of § 7602. 437 U.S. at 318, 98 S.Ct. at 2368. (B)ad faith abuse of the powers granted by section 7602 occurs when the Service . . . abandon(s) in an institutional sense . . . the pursuit of civil tax determination or collection. Id. Because the goals of determining liability for civil fraud penalties and determining the existence of a basis for criminal prosecution are normally inseparable, Id. at 314, 98 S.Ct. 2357, the party opposing the summons bears the heavy burden of disproving the existence of a valid civil tax determination or collection purpose on the part of the IRS. Id. at 316, 98 S.Ct. at 2367. The IRS rarely will be found to have acted in bad faith for pursuing solely criminal matters. Id. 13 The LaSalle Court specified two instances where bad faith might be shown. The Court refused to countenance delay in submitting a recommendation to the Justice Department when there is an institutional commitment to make the referral and the Service merely would like to gather additional evidence for the prosecution, since such a delay would be tantamount to the use of the summons authority after the recommendation . . . . Id. at 316-17, 98 S.Ct. at 2368. Bad faith is also shown when the IRS becomes an information-gathering agency for other departments, including the Department of Justice. Id. at 317, 98 S.Ct. at 2367, 2368. 14 Genser II places a further gloss on the LaSalle standards. There we held that the test of the validity of an IRS summons was not the existence of a general civil purpose for the investigation, but rather the purpose of the individual summons at issue. If any one . . . (summons) . . . were issued solely for a criminal purpose, the fruits of that summons would have to be suppressed, even in the face of an overwhelmingly civil purpose of the investigation as a whole. 595 F.2d at 150. This standard, however, does not require a district court to examine every summons issued in every investigation. Id. at 151. Since LaSalle requires institutional abandonment of a civil collection purpose, and since, under LaSalle, the intent of a single agent cannot be imputed to the institution as a whole, we reasoned that summonses issued by an investigating agent before that agent recommended prosecution would be presumptively valid. But that presumption could be overcome by a showing that the agent had issued summonses at the request of the United States Attorney or delayed his recommendation at the request of his superiors solely to further a criminal investigation. Id. 15 In Genser II, we placed the burden upon the defendant to overcome the presumption of validity attaching to prerecommendation subpoenas. At the same time, we recognized that the evidence needed to meet that burden was in the hands of the government. To give meaning to the suppression remedy, we established standards for discovery against the government: 16 At a minimum, the taxpayer should be entitled to discover the identities of the investigating agents, the date the investigation began, the dates the agent or agents filed reports recommending prosecution, the date the district chief of the Intelligence Division or Criminal Investigation Division reviewed the recommendation, the date the Office of Regional Counsel referred the matter for prosecution, and the dates of all summonses issued under 26 U.S.C. § 7602. Furthermore, the taxpayer should be entitled to discover the nature of any contacts, relating to and during the investigation, between the investigating agents and officials of the Department of Justice. 17 Where this information or other evidence introduced by the taxpayer reveals (1) that the IRS issued summonses after the investigating agents recommended prosecution, (2) that inordinate and unexplained delays in the investigation transpired, and (3) that the investigating agents were in contact with the Department of Justice, the district court must allow the taxpayer to investigate further. In proper cases, this investigation could include the opportunity to examine the IRS agents or officials involved, or to discover documents. Such examination/discovery, however, should be carefully tailored to meet the purpose of the inquiry. On the other hand, where this information indicates that none of these three conditions are present, the district court need inquire no further. 18 Id. at 152. 19 Applying the standards of Genser II to this case, we conclude that the trial court's ruling with respect to the Phase I subpoenas can be approved, but that it was error to rule on the Phase II subpoenas without additional discovery. 20 The 22 subpoenas issued during Phase I were issued long before a decision respecting prosecution was made by the IRS, institutionally, or even by the agent in charge of the investigation. There is no evidence in this phase of unexplained delay as a subterfuge for a continued criminal investigation. Nor is there evidence of contact between the IRS and the Strike Force until the Strike Force initiated such contact in April, 1975. There is some evidence of contact between the IRS and the DEA, but the testimony of Agent Gilbert is that no evidence was passed on to that agency. The defendants object that the trial court did not make an individual determination as to the purpose of each of the 22 subpoenas. But for summonses issued prior to the agent's recommendation of prosecution Genser II does not require an individual determination. See 595 F.2d at 151. The defendants also point out that the recommendation of prosecution was delayed until 1977, two years after the issuance of the initial subpoenas. But the concern expressed in Genser II is not with delay itself, but with the issuance of subpoenas during a delay occurring after a decision has been made to recommend prosecution. In Genser II nine subpoenas issued after the special agent had completed his investigation and was preparing a report recommending prosecution. None of the 22 subpoenas issued in Phase I presents a similar issue. Finally, the defendants contend that they were entitled to additional documentary discovery to probe the credibility of the agents' testimony regarding the absence of a decision on prosecution and the absence of contacts between the IRS agents and prosecutorial agencies. While such discovery certainly would have been permissible under Genser II, the trial court's conclusion that the information available in this record sufficed was not an abuse of discretion. The minimum discovery required by Genser II was satisfied, and if only Phase I was at issue we would not require further proceedings. 21 With respect to Phase II, however, the problem is quite different. After April 23, 1975, the IRS agents were acting under the supervision of a Strike Force attorney in an ongoing criminal investigation. It therefore appears that there was a real likelihood that the IRS was used (as) an information-gathering agency for other departments, in violation of the LaSalle standard. 437 U.S. at 317, 98 S.Ct. at 2368. With respect to the 13 subpoenas issued during this phase, individual determinations of non-criminal purpose were clearly required. The trial court did not pursue that inquiry, however, and denied further discovery as well, because he accepted Agent Watkins' representation, fortified only by the government's brief, that none of the resulting information was used by the grand jury or as a lead to any information which would be used at trial. Thus the trial court's ruling assumed that there was a Donaldson-LaSalle violation, but accepted the agent's representation of absence of taint without affording the defendants access to the wherewithall to conduct an effective cross-examination. In Genser I, 582 F.2d at 310-11, we held that the government had the burden, after a Donaldson-LaSalle violation was established, of showing a taint-free basis for the evidence it relied on in the criminal prosecution. Certainly that burden cannot be met by an agent's unsupported conclusion. Even assuming the agent's utmost good faith, he may not be permitted to substitute what amounts to his legal conclusion for a meaningful judicial determination of taint made upon a fully developed record. The absence of discovery with respect to Phase II precluded that judicial determination. The defendants were entitled to discover what information was gathered as a result of the Phase II subpoenas, how the information was handled after it was gathered, and how it relates to the information gathered during Phase I, which concededly was presented to the grand jury, and was intended for use at trial. A remand for this purpose is required. Moreover, since there may well be questions bearing on taint about the relationships between the Phase I information and the Phase II information, the trial court should reconsider the denial of discovery respecting Phase I as well.
22 In Genser II the appellants before us had been convicted after a trial. In those circumstances we remanded for a reconsideration of the taint issue, retaining jurisdiction over the appeal for the obvious purpose of considering whether, if suppression were appropriate with respect to some of the evidence presented, a new trial might be necessary. In this case, because of the Zudick plea, there is only a partial trial record in Serubo's case, and none in the other cases. Thus the issue here is not whether the convictions are the result of tainted evidence, but whether suppression motions should have been granted. The difference in procedural posture requires a consideration of remedies. 23 The defendants moved both to suppress evidence obtained as a result of Donaldson-LaSalle violations and to quash the indictment. If after further proceedings the district court should conclude that such evidence obtained through IRS subpoenas issued during Phase II of the investigation was used by the government in obtaining the indictment or was likely to have been relied upon in a trial, all such evidence should, of course, be suppressed. At that point the defendants would, at the very least, be entitled to withdraw their guilty pleas and plead anew, after consideration of the strength of the government's case absent the suppressed evidence. Whether the additional relief of quashing the indictment should be granted is a more difficult question. 24 As Judge Biggs pointed out in Genser I, 582 F.2d at 308-09, we deal here with a statutory policy of confining Internal Revenue Service subpoenas to non-criminal purposes. It is hardly a necessary interpretation of 26 U.S.C. § 7602 that it requires suppression of evidence not only at trial (an established remedy), but in a grand jury proceeding as well. In Gelbard v. United States, 408 U.S. 41, 92 S.Ct. 2357, 33 L.Ed.2d 179 (1972), the Supreme Court considering an analogous statutory policy embodied in Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510-2520, held that a grand jury witness was entitled to refuse to answer questions based upon information seized in violation of that statute. But Gelbard expressly noted that even under Title III a defendant had no standing to contest the illegal provenance of evidence presented to the grand jury. The Court recognized the continuing authority of United States v. Blue, 384 U.S. 251, 84 S.Ct. 1416, 16 L.Ed.2d 510 (1966), Lawn v. United States, 355 U.S. 339, 78 S.Ct. 311, 2 L.Ed.2d 321 (1958), and Costello v. United States, 350 U.S. 359, 76 S.Ct. 406, 100 L.Ed. 397 (1956), for the general rule that the quality of the evidence presented to the grand jury is not relevant to the validity of an indictment. 408 U.S. at 60, 92 S.Ct. 2357. The Blue-Lawn-Costello rule was reaffirmed in United States v. Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1974), which held that the fourth amendment exclusionary rule does not apply to evidence presented to a grand jury. Given these authorities, we would have to find strong evidence of a Congressional intention to apply the suppression remedy in a grand jury context on account of a Donaldson-LaSalle violation. No such evidence has been called to our attention. Thus we conclude that if after discovery the defendants establish grounds for the suppression of evidence obtained as a result of issuance of the Phase II administrative subpoenas, the only relief to which they would be entitled is the opportunity to withdraw their guilty pleas and plead anew. 25