Court Opinion

ID: 9480536
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:50:49.184176+00
Date Added: 2024-06-11T17:47:44.919400
License: Public Domain

POSNER, Circuit Judge,
with whom EASTERBROOK, RIPPLE, and MANION, Circuit Judges, join, dissenting.
There is neither material ambiguity in the district court’s opinion nor any possible ground on which to deny enforcement of the government’s summons. We should, as the panel did, reverse outright. (I attach the panel’s opinion as an appendix to this dissent.) The remand throws a monkey wrench into the machinery for the investigation of tax violations and in the course of doing so commits a serious error in the interpretation of the tax-summons statute. A fishing expedition into the government’s motives, such as the court invites the district judge to conduct, is inconsistent with the summary nature of pro*756ceedings to enforce tax summonses. United States v. Kis, 658 F.2d 526, 535 (7th Cir.1981); Alphin v. United States, 809 F.2d 236 (4th Cir.1987). Worse, the court allows the district judge to troll for fish in an area that Congress has placed beyond judicial authority.
The Internal Revenue Service issued a summons directing the Michauds to appear and be fingerprinted and give handwriting exemplars. They refused to cooperate and the government therefore petitioned for enforcement of the summons under 26 U.S.C. § 7604. The district judge refused to enforce the summons on three grounds: the IRS agent’s affidavit in support of the petition had stated falsely that the Michauds had failed to appear (they had appeared, but had refused to be fingerprinted or to complete the handwriting exemplars); the IRS had been “heavy-handed” in demanding that the Michauds appear at a police station for these purposes rather than at a federal office; and the fingerprints and handwriting exemplars were not germane to the stated purpose of the investigation, which was to determine the tax liabilities not of the Michauds but of their corporation, suggesting that the real object of the investigation might have been to nail the Michauds for criminal violations. The relative weight that the district judge gave to each of these grounds for refusing enforcement is uncertain, but this uncertainty is irrelevant; none of the grounds, whether singly or in combination, justified the refusal.
To refuse to enforce a summons because the government has made an immaterial mistake (saying the Michauds had failed to appear, rather than that they had failed to cooperate) violates the principle that courts do not punish governmental misconduct by dismissing valid cases. United States v. Hasting, 461 U.S. 499, 103 S.Ct. 1974, 76 L.Ed.2d 96 (1983). And if there was an impropriety (never shown, by the way) in ordering the Michauds to appear at a police station rather than at a federal office, the proper response would have been to order them to appear elsewhere rather than to excuse them from appearing anywhere.
Finally and most important, the fact that the government may have wanted to use the summons procedure to obtain evidence for use in a criminal proceeding against the Michauds is not an authorized ground for refusing to enforce the summons. The statute could not be clearer. “The purposes for which [the IRS may issue and execute a tax-investigation summons] include the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws.” 26 U.S.C. § 7602(b). See also S.Rep. No. 494, 97th Cong., 2d Sess. 584 (1982), U.S.Code Cong. & Admin.News 1982, 1356; United States v. Abrahams, 905 F.2d 1276 (9th Cir.1990); Moutevelis v. United States, 727 F.2d 313 (3d Cir.1984). The only exception is “if a Justice Department referral is in effect with respect to such person,” which it is if the IRS “has recommended to the Attorney General a grand jury investigation of, or the criminal prosecution of, [the recipient of the summons] for any offense connected with the administration or enforcement of the internal revenue laws.” §§ 7602(c)(1), (2)(A)(i). Since no such recommendation has yet been made, no referral is in effect and the IRS is entitled to use the summons to investigate the potential criminal liability of the Michauds.
The court disagrees. From the statement in United States v. Stuart, 489 U.S. 353, 109 S.Ct. 1183, 1189, 103 L.Ed.2d 388 (1989), that in enacting section 7602(c) Congress “apparently shared our concern [expressed in an earlier decision] about permitting the IRS to encroach upon the rights of potential criminal defendants,” my brethren infer that the IRS is not permitted to use the summons procedure after the Service “has abandoned any proper civil purpose,” even if there has been no referral to the Justice Department. This misunderstands Stuart; it also misunderstands section 7602(c) and its interplay with 7602(b). All the passage quoted from Stuart means is that subsection (c) defines the forbidden encroachment as occurring when the case is referred to the Justice Department. At that point the recipient of the summons becomes a potential criminal defendant *757upon whose rights the IRS may not encroach. Before that happens, however, the Service’s powers are defined by subsection (b), which expressly authorizes the use of the summons procedure to investigate criminal offenses and says nothing about requiring a civil purpose. Nothing in Stuart is to the contrary. The rule our court adopts today in the text of the opinion (and then questions in the last sentence of footnote 2) — that even if no referral has taken place (and it has not in this case) enforcement can be denied upon a showing that the IRS has no remaining civil purpose for the investigation and has made up its mind to refer the case to the Justice Department — was the rule, or rather standard, before section 7602 assumed its present form. It is no longer. A fuzzy standard, requiring a degree of factual inquiry infeasible in a summary enforcement proceeding, has been replaced by a bright-line rule.
Judge Coffey is quite right that “Congress did not intend section 7602(b) to apply to criminal discovery.” But what this means, as the passage he quotes from the legislative history makes clear, is that the Justice Department may not use the statute to assist it in its criminal prosecutions; nor may it enlist the IRS to use the summons power in aid of the Department’s prosecutions. But all this is after referral, which is clearly and carefully defined in section 7602(c). Before referral, the IRS is free to use the summons procedure to investigate potential criminal liability. That is what section 7602(b) says, and that is what it means.
Perhaps it is time the Supreme Court made all this crystal clear, for we are not the only court to have been confused by Stuart. See Hintze v. Internal Revenue Service, 879 F.2d 121, 128 n. 8 (4th Cir.1989).
Since the government’s entitlement to enforcement of the summons is plain, United States v. Abrahams, supra, no purpose can be served by remanding the ease to the district judge for further findings or the taking of evidence. We should reverse with directions to enforce the summons.
Appendix to Dissent: The Panel’s Opinion
Argued November 30, 1989.
Decided March 8, 1990.
Amended April 13, 1990.
Before POSNER, COFFEY, and EASTERBROOK, Circuit Judges.
POSNER, Circuit Judge.
The government appeals from an order quashing a summons (actually, several summonses, but for simplicity’s sake we shall pretend there was only one) directing the respondents, Mr. and Mrs. Michaud, to appear in a Green Bay police station to be fingerprinted and give handwriting exemplars in connection with the Internal Revenue Service’s investigation of the tax liability of a corporation of which the Michauds are shareholders, directors, and officers. For reasons wholly unclear to us, the agent of the Internal Revenue Service who issued the summons is named as a petitioner (plaintiff) and appellant along with the government; the practice is common, but we can find no ground or reason for it.
In addition to quashing the subpoena, Judge Evans ordered the government to pay the Michauds’ attorney’s fees, precipitating a second appeal, the disposition of which follows automatically from our disposition of the first.
The Michauds, accompanied by their lawyer, had come to the Green Bay police station as the summons directed them to do, but they refused to be fingerprinted. And although Agent Hill asked each of them to fill five pages with their handwriting, each refused, on the advice of their lawyer, to write more than a page and a half. The lawyer’s position was that a page and a half was enough for the government’s purpose and anything more would be oppressive.
The government petitioned for enforcement of the summons under 26 U.S.C. § 7604. The petition was in the form of an affidavit by Agent Hill in which he stated that he was investigating the corporation “to verify the correctness of [its] federal *758employment and unemployment tax returns and to determine its correct tax liabilities. If it is determined that the [corporation’s] tax returns are incorrect or that additional taxes are due and owing, I will also determine whether any of the criminal provisions of the Internal Revenue Code have been violated, [and] whether James Michaud, Mary Michaud, or others will be recommended to the United States Department of Justice [for prosecution].” But, the affidavit adds, “as of the date of this declaration, the Internal Revenue Service has not recommended criminal prosecution of the taxpayer or either [Mr. or Mrs. Mi-chaud] to the United States Department of Justice.” Then, after summarizing the summons and explaining how it was served, the affidavit states that “on March 23, 1988 [the return date in the summons, and the date on which the Michauds appeared at the Green Bay police station], the [Michauds] failed to appear before me, or to comply with the summons by providing handwriting exemplars and allowing fingerprints to be taken of them.” The affidavit goes on to explain that the fingerprints and handwriting exemplars are necessary to determine whether the Michauds filled out or handled the corporation’s tax returns and other pertinent documents. The use of the summons authority to compel handwriting exemplars has been held to be proper. United States v. Euge, 444 U.S. 707, 100 S.Ct. 874, 63 L.Ed.2d 141 (1980).
The district judge refused to enforce the summons on a combination of grounds: the affidavit was false in stating that the Mi-chauds had not appeared on March 23; the government had been “heavy-handed” in demanding that the Michauds be fingerprinted at a police station rather than at an Internal Revenue Service office or some other federal office; the fingerprints and handwriting of the Michauds were not germane to the stated purpose of the investigation, which was to determine their corporation’s tax liabilities. At oral argument, the Michauds’ counsel acceded to a description of the implicit standard used by the district judge to quash the subpoena as an “aroma test,” and argued that it is the right test to use in these cases.
It may be the right test in some ultimate ethical or political sense, but it is not the statutory test, and judges are obliged to enforce constitutional statutes. The only express statutory ground for quashing a tax summons is that the Internal Revenue Service has referred the matter under investigation to the Justice Department for criminal prosecution. 26 U.S.C. § 7602(c). Agent Hill denied that there had been such a referral, and the judge accepted the denial. Since a summons is process, and abuse of process is a tort, the issuance of a tax summons may also be resisted — courts have said — if the summons was issued in bad faith, that is, “for an improper purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral dispute.” United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964). See also United States v. Millman, 822 F.2d 305, 308-09 (2d Cir.1987); Groder v. United States, 816 F.2d 139, 144 (4th Cir.1987); United States v. Author Services, Inc., 804 F.2d 1520, 1524-25 (9th Cir.1986); Pickel v. United States, 746 F.2d 176 (3d Cir.1984). Moreover, we may assume without having to decide that since an order to enforce a summons is a form of injunction, the courts retain their normal powers to withhold the issuance of an injunction that would violate the principles of equity because the injunction had been sought in bad faith (but this just duplicates the abuse of process ground), or because the injunctive process was being used to harass the defendant with redundant litigation (ditto) or would impose unnecessary costs on innocent third parties, or because the injunction has a broader sweep than can be justified. (Of course the fact that an order is equitable in character does not mean that it necessarily is appealable as an injunction without regard to finality. 28 U.S.C. § 1292(a)(1); Conticommodity Services, Inc. v. Ragan, 826 F.2d 600, 601 (7th Cir.1987).)
But the fact that ah application for enforcement contains an immaterial mistake *759or that the government (or other plaintiff or petitioner) is acting “heavy-handed” in some undefined sense will not do. These derelictions do not constitute abuse of process. And the equitable discretion of a modern federal judge is not the uncanal-ized discretion of a medieval Lord Chancellor. Okaw Drainage District v. National Distillers & Chemical Corp., 882 F.2d 1241, 1245 (7th Cir.1989). Moreover, tax summons proceedings, being summary, Alphin v. United States, 809 F.2d 236 (4th Cir.1987); United States v. Kis, 658 F.2d 526, 535 (7th Cir.1981), are not the right occasion for free-wheeling inquiries into the motives and methods of the tax authorities. Cf. In re Grand Jury Proceedings, 894 F.2d 881, 884 (7th Cir.1990). All the talk about abuse of process and equitable defenses may be, in the tax-summons setting, just that. The cases in which an appeal to equitable discretion or an invocation of the tort concept of abuse of process will actually defeat the issuance of the summons may well constitute a null set. Cf. Alphin v. United States, supra; Pickel v. United States, supra, 746 F.2d at 183-85.
Agent Hill should not have said that the Michauds had not appeared, since they did appear. But from the government’s standpoint, appearing and refusing to be fingerprinted or to give handwriting exemplars was the functional equivalent of nonappearance, so it is possible that the agent was innocently if ineptly interpreting “appear” rather than trying to mislead the court. A more important point is that if there was misrepresentation, deliberate or otherwise, it was immaterial. The dismissal of a proceeding is an excessive sanction for a mistake that, being immaterial, could not have harmed the defendant; the days when courts dismissed proceedings to express displeasure with governmental conduct even when there was no prejudice to defendants are over. United States v. Hasting, 461 U.S. 499, 103 S.Ct. 1974, 76 L.Ed.2d 96 (1983); Bank of Nova Scotia v. United States, 487 U.S. 250, 108 S.Ct. 2369, 101 L.Ed.2d 228 (1988). Nor is there any basis for Michaud’s argument that the request for a five-page exemplar was so burdensome as to constitute an abuse of process. Maybe handwriting experts would testify that five pages were more than enough; but Michaud offered no such testimony — and it was just as well, since even if five pages are unnecessary, the burden of filling five pages with one’s handwriting is not an onerous one.
As for the government’s “heavy-handedness” in ordering the Michauds to appear at a police station to give their fingerprints and handwriting exemplars, we cannot agree that it is a ground for quashing the summons. The summons procedure is a lawful method of criminal investigation, 26 U.S.C. § 7602(b); United States v. Millman, 822 F.2d 305, 308 (2d Cir.1987); Pickel v. United States, 746 F.2d 176, 183-84 (3d Cir.1984), and the Green Bay police station is a proper site at which to conduct it. It would be different if the government had gratuitously ordered the Michauds to appear at an inconvenient location, or an indecorous one (for example, a prison). It did not do so, and therefore we need not decide whether the district judge would have the power to impose reasonable conditions in the order enforcing the summons. If he did have this power, then even if the police station was not a proper site at which to direct the Michauds to appear, all that would follow is that the judge should have directed them elsewhere; he should not have quashed the summons altogether unless persuaded on adequate evidence that the government was deliberately harassing the Michauds.
United States v. Author Services, Inc., 804 F.2d 1520, 1525 (9th Cir.1986), holds that district courts do have power to impose conditions in orders enforcing tax summonses. United States v. Barrett, 837 F.2d 1341, 1349-51 (5th Cir.1988) (en banc) (per curiam), however, is to the contrary; and we are distressed that the government, rather than acknowledging the holding of Barrett (the government cited Barrett, but on a different issue), assured us in its brief — citing a decision that Barrett appears to have overruled — that the judge *760can impose reasonable conditions. In so arguing, the government made no effort to distinguish the position, apparently contrary, that it had taken in both Barrett and Author Services. We expect more straightforward advocacy from the government, and we begin to understand Judge Evans’ distress at what he believed to be misrepresentations in Agent Hill’s affidavit.
The issue of a conditioning power may have little practical significance. If the judge turns down a request for enforcement on grounds that could be cured by changes in the subpoena, the government will be back before him with a revised subpoena, and it will be as if the judge had granted the request conditionally. The court in Barrett seems to have been concerned with conditions that might enmesh the court in the tax investigation if the taxpayer complained that a condition was not being honored. 837 F.2d at 1349. That problem is unlikely to arise if all the court is doing is directing the taxpayer to appear at one location rather than another.
Turning to the district judge’s last ground, we point out that the investigation was not limited to determining the corporation's tax liabilities, contrary to the judge’s suggestion. As the first passage that we quoted from Agent Hill’s affidavit makes clear, another — and entirely lawful — object of the investigation was to determine whether the Michauds should be recommended to the Justice Department for prosecution, presumably for filing false returns on behalf of the corporation. (The statute bars the use of the summons procedure for criminal investigation only after the decision to prosecute" has been made. 26 U.S.C. § 7602(b).) To this arm of the investigation the fingerprints and handwriting exemplars were directly pertinent.
There was no basis for quashing the summons on the record before the district judge, but at argument the Michauds’ lawyer advised us without contradiction from the government’s lawyer that another officer of their corporation has been prosecuted for criminal violations of the federal tax laws and has pleaded guilty. We therefore asked the government to advise us whether the government had yet recommended that the Michauds be prosecuted. By letter dated December 7, 1989, the government responded “that no recommendation for prosecution of the Michauds has been made, and that the special agent who issued the summons still requires the handwriting exemplars and fingerprints for his investigation.”
The judgment quashing the summonses is reversed and the case remanded with directions to enforce them. The award of attorneys’ fees to the Michauds is also reversed. Circuit Rule 36 shall apply on remand.
REVERSED AND REMANDED, WITH DIRECTIONS.