Court Opinion

ID: 8915936
Source: CourtListenerOpinion
Date Created: 2022-11-27 05:02:46.640198+00
Date Added: 2024-06-11T17:08:59.133951
License: Public Domain

JAMES E. DOYLE, Senior District Judge,
dissenting.
I draw from the court’s opinion the understanding set forth in the following paragraph.
With respect to an IRS summons requiring the production of documents, it is always open to the taxpayer to appear before the IRS representative and to raise the claim of privilege with particularity, document by document. The taxpayer is free, alternatively, to raise the claim of privilege in the district court in response to an enforcement petition. In this way he or she can obtain a district court adjudication of the merits of the claim of privilege without running the risk of contempt proceedings. But the taxpayer may forego this opportunity without forfeiting the opportunity thereafter to raise the claim on the occasion of the judicially compelled conference with the IRS representative. When a taxpayer elects to raise a claim of privilege in the course of the enforcement proceeding, he or she must serve and file affidavits of a certain kind with his or her answer to the IRS petition. If he or she does not comply with this judicially imposed procedural requirement, the opportunity to obtain district court adjudication of the merits of the claim of privilege in the enforcement proceeding is waived. Only that opportunity is waived. The opportunity to raise the claim later before the IRS representative is preserved, as is the opportunity to obtain from the district court an adjudication of the merits of the claim in any contempt proceeding which may ensue. The merits of the claim of privilege will be evaluated no less favorably to the taxpayer in the course of such a contempt proceeding than they would have been evaluated in the course of the summons enforcement proceeding.
I concur in the promulgation of this set of procedural opportunities and requirements. I concur also in the majority’s expressed desire that in the future taxpayers be apprised of these requirements. Most particularly, it is desirable that in the future each taxpayer be fairly warned that he or she will waive the opportunity for an adjudication of the merits of a claim of privilege during the enforcement proceeding unless a very precise and judicially created procedural requirement is met: namely, that the answer to the enforcement petition raise the claim of privilege and be accompanied by an affidavit or affidavits setting forth the specific facts on which the claim of privilege is based, document by document.
As against this broad area of agreement, the members of the majority and I disagree on a point of no significance to anyone but this particular taxpayer. The record on appeal contains no showing that he was fairly warned. In the absence of fair warning, I think it too harsh to deprive this particular taxpayer of his opportunity to obtain, in the enforcement proceeding, an adjudication of the merits of his claim of privilege. The majority opinion does not address whether this particular taxpayer was warned and, if not, whether the result is too harsh.
The record on appeal encompasses two separate IRS enforcement proceedings in *337the district court, both involving an IRS investigation into the tax affairs of E. H. Stamberger. One proceeding was to obtain district court enforcement of an IRS summons directed to a bank which was a “third-party record keeper,” 26 U.S.C. § 7609(a)(3), and the other an IRS summons directed to Christ Troupis as a third-party record keeper. Troupis is a lawyer who had had dealings with Stamberger in connection with Stamberger’s taxes for the years in question. But for the purposes of the IRS summons, his position is comparable to that of the bank, as a third-party record keeper. That is, the IRS summons was not directed to Troupis as a current attorney or alter ego of Stamberger. A copy of the IRS summons to Troupis was mailed by IRS to Stamberger, as required by § 7609(a)(1). Stamberger exercised his right to stay compliance by Troupis and Troupis did not appear at the time and place specified in the IRS summons addressed to him. On May 9, 1980, the IRS filed in the district court a petition in a proceeding in which only Troupis, the summoned third-party record keeper, is named as respondent. On June 3, 1980 IRS filed a motion for an order to show cause and such an order was entered the same day. It ordered Troupis, not Stamberger, to appear in district court at a time not specified to show cause why Troupis should not be compelled to obey the earlier IRS summons. Among other things, the order to Troupis stated that:
within five (5) days of service of a copy of this Order and the petition, exhibits and declaration upon them, the respondent, Christ Troupis, shall file and serve a written response to the petition supported by appropriate affidavits), as well as any motions the respondent desires to make. Only those issues raised by motion or brought into controversy by the responsive pleading supported by affidavit(s) will be considered at the return of this Order and any uncontested allegations in the petition will be considered as admitted.
The record on appeal does not show whether a copy of this order to Troupis was served on Stamberger. However, on June 9, 1980, attorneys (not Troupis) for Stamberger filed in district court a motion for an order granting Stamberger leave to intervene in the enforcement proceeding, as permitted by § 7609(b)(1). That motion included an allegation in rather general terms that Stamberger enjoyed a privilege with respect to some or all of the documents which Troupis had been summoned by IRS to produce. There is nothing to show that the motion for leave to intervene was ever acted upon. However, on July 8, 1980, Stamberger’s attorneys filed an answer to the IRS petition for enforcement, raising as defenses, in rather general terms, an attorney-client privilege and a “personal papers” privilege. Thereafter, Stamberger was treated by the district court as a party who had been granted leave to intervene.
Meantime, service of the petition and order to show cause had not been effected as to Troupis. A new order to Troupis was entered on July 13, 1980, requiring him to appear on July 28, 1980 to show cause why he should not be compelled to obey the IRS summons. It contained the language quoted above to the effect that Troupis had five days after service within which to serve and file a written response to the petition, supported by affidavits. Apparently, service on Troupis was accomplished and the matter proceeded through several delays and postponements, attributable principally to disputes over the extent of discovery to which Stamberger was entitled.
When the evidentiary hearing before the magistrate occurred on October 21, 1980, and Stamberger’s attorney adverted to possible privilege, government counsel objected on the ground that Stamberger had not supported by affidavit the privilege defense, as required by the June 3 order to Troupis to show cause, but also on the ground that the enforcement hearing was too early a point at which to raise the claim of privilege. The magistrate agreed that it was premature to raise the claim in the hearing in the course of the enforcement proceeding. The magistrate then recommended entry of an order compelling Troupis to respond to the IRS summons. *338Stamberger filed objection to the magistrate’s report and recommendation on the ground, among others, that the magistrate had improperly refused to entertain the claim of privilege. The government’s response to this objection was that the June 3, 1980 order to show cause, “which was binding upon the taxpayer by virtue of his intervention in the suit,” required Stamberger’s response to be accompanied by affidavits, and also that the enforcement hearing was too early a time to raise the claim. The district court agreed that the attempt to raise the claim had been premature and ordered Troupis to comply with the IRS summons.
I appreciate that we might well surmise that Troupis, Stamberger, and Stamberger’s then counsel were in close touch with one another throughout the sequence. We might well surmise that the June 3, 1980 order to Troupis to show cause was served at that time on Stamberger. When we are engaged in the task of adjudication, I think we should not indulge in such surmise. But even if we were to do so, today’s majority opinion also requires us to conclude that Stamberger was fairly warned by the June 3, 1980 order to Troupis that Stamberger was also bound to respond with affidavits within five days of service. More particularly, today’s majority opinion requires us to conclude that Stamberger was fairly warned that within five days of service upon him of the June 3,1980 order directed expressly only to Troupis, Stamberger was required to gather, serve, and file whatever affidavits were appropriate to show, by the recital of specific facts, that the claim of privilege was valid as to this document and that document, although perhaps not as to some other document.
Service upon Stamberger of a copy of the June 3, 1980 order to Troupis, if such service did occur, was the first occasion on which Stamberger could have been formally notified that IRS had commenced a proceeding in district court. Once that proceeding had been commenced, but only when it had been commenced, under § 7609(b)(1) he enjoyed “the right to intervene in any proceeding with respect to the enforcement of such summons under section 7604.” It remained his- option for some interval thereafter (an interval not specified in the statute) to move for leave to intervene or not so to move. Once he had chosen to move for leave to intervene, intervention was not automatic. Although the step seems to have been omitted somehow in this case, it is necessary for the district court to decide whether a particular person who seeks leave to intervene as of right is indeed entitled to do so. Rule 24(a) and (c), Fed.R.Civ.P. Form 23 of the Appendix of Forms is a model motion to intervene, embodying the suggestion that the motion be accompanied by a proposed answer to the complaint. A form of a proposed answer is a.lso provided in the Appendix and, of course, it does not include an assortment of specific facts and it is not accompanied by affidavits. In this perspective, I cannot join the majority in its apparent acceptance of the government’s argument in the district court that the June 3, 1980 order to Troupis — with its five-day requirement and its requirement of affidavits to accompany the response — “was binding upon the' taxpayer by virtue of his intervention in the suit.”
About 14 months after Stamberger’s answer to the IRS petition was prepared, this court enunciated a set of procedural rules for IRS enforcement proceedings. United States v. Kis, 658 F.2d 526 (7th Cir. 1981). Even then, the procedural scheme was not fine-tuned to third-party record keeper proceedings in which taxpayers seek and are granted leave to intervene. Today’s decision is the occasion for such fine-tuning. In my view, it is far too strained and severe to attempt to apply to the summer of 1980 these subsequently shaped requirements. I would reverse the order of the district court and remand for further proceedings in which the claim of privilege is entertained.
As for the procedure to be required in the future, I suggest that a time be set, following notice to the taxpayer that the enforcement proceeding has been commenced, within which the taxpayer must move for intervention, and that the order granting *339intervention include the explicit requirement that the answer to the enforcement petition allege specific facts and be accompanied by appropriate affidavits.