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KENNEDY v. RUBIN

May 20, 1966

EDWARD F. KENNEDY, SPECIAL AGENT, PLAINTIFF,
v.
WILLIAM H. RUBIN, DEFENDANT.



The opinion of the court was delivered by: Marovitz, District Judge.

This action arises pursuant to Sections 7402(b) and 7604(a) of the Internal Revenue Code, under which petitioner seeks to enforce three Internal Revenue Service summonses issued to respondent. Upon the filing by respondent of a jury demand and notice to take the deposition of petitioner, this Court ordered the parties herein to submit briefs with regard to whether this proceeding is governed by the Federal Rules of Civil Procedure, and, if so, whether respondent is entitled to the rights and privileges demanded.

Any inquiry on this subject must begin with Rule 81(a)(3) of the Federal Rules of Civil Procedure, which provides in pertinent part:

  "These rules apply * * * to proceedings to compel
  the giving of testimony or production of
  documents in accordance with a subpoena issued by
  an officer or agency of the United States under
  any statute of the United States except as
  otherwise provided by statute or by rules of the
  district court or by order of the court in the
  proceedings * * *."

It is clear, initially, that the statutes at issue, Sections 7402(b) and 7604(a), provide only that the United States District Court for the district in which respondent resides shall have jurisdiction by appropriate process to compel appearance, testimony and/or production. There is no indication that the Federal Rules would not apply to such an enforcement proceeding. In the absence of a clear negative statutory pronouncement, or compelling circumstances requiring a contrary order by this Court, it would seem apparent under our reading of Rule 81(a)(3) that the Federal Rules generally applicable to civil proceedings must be utilized. Indeed, this approach has been indicated to be correct by the Supreme Court of the United States in United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), where the Court stated in footnote 18 at page 58, 85 S.Ct. at page 255:

  "Because § 7604(a) contains no provisions
  specifying the procedure to be followed in invoking
  the court's jurisdiction, the Federal Rules of
  Civil Procedure apply. Martin v. Chandis Securities
  Co., 9 Cir., 128 F.2d 731."

In Chandis, supra, the Court of Appeals for the Ninth Circuit held similarly that, inasmuch as the Internal Revenue Code contains no provision specifying what procedure is to be followed, the Federal Civil Rules must be applied. See also Falsone v. United States, (5th Cir., 1953) 205 F.2d 734, 742, cert. den. 346 U.S. 864, 74 S.Ct. 103, 98 L.Ed. 375 (1953).

At best, petitioner may prevail only upon a strong showing of extraordinary circumstances which might justify suspension of the customarily applicable federal rules. Petitioner's arguments relating to its need for "swift summary adjudication" do not meet this burden. Respondent has raised important defenses to the enforcement action instituted herein. While often the proverbial wheels of justice must grind slowly, it is just such deliberation, resulting from formal procedure, which insures each party an orderly hearing and concordant full protection of the laws. Petitioner has demonstrated no instances of dilatory tactics indulged in by respondent which could indicate a need for deviation from normal procedure. Aid for petitioner's plight concerning exhaustion of the criminal statute of limitations must come from Congress in the form of an act tolling said statute. In the absence of such an enactment, however, we cannot summarily dispose of respondent's defenses where summary treatment is not otherwise in order.

We are not impressed with petitioner's further argument that the Internal Revenue Code of 1954 provides for such summary procedure, and thus, that this case must fall within the exception noted in Rule 81(a)(3). A close reading of Sections 7402(b) and 7604(a) reveals that Congress included no inference whatsoever, and, a fortiori, no express statement to the effect that the Federal Rules are inapplicable. While petitioner relies heavily on Goodyear Tire and Rubber Co. v. N. L. R. B., (6th Cir., 1941) 122 F.2d 450, 136 A.L.R. 883, it must be noted that said case was decided well before Powell, Chandis and Falsone, supra, and of more importance, was founded upon the language in the statute there at issue calling for an "application" rather than a "petition," and an "order" rather than a "judgment." (See 122 F.2d at p. 451). Section 7604(a), under which this action is brought, unlike the statute before the Court in Goodyear, and Section 7604(b), dealing with contempt proceedings before the commissioner, speaks of "appropriate process." While petitioner urges that Section 7604(b) must be read in pari materia with Section 7604(a), and thus, that the latter is governed by the reasoning in Goodyear, we cannot agree. There exists a very real distinction between Section 7604(b) actions which are in the nature of contempt proceedings against persons who "wholly made default or contumaciously refused to comply," (Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964)), and actions brought merely to enforce an Internal Revenue Summons. That is, while there is justification to support "summary" handling of persons who "contemptuously" ignore a summons and flaunt authority (See United States v. Barnett, 376 U.S. 681, 84 S.Ct. 984, 12 L.Ed.2d 23 (1964)), a good faith challenge of validity submitted to a District Court for decision should be afforded full protection of the rules that have been developed for the orderly determination of civil suits. Petitioner's "in pari materia" gloss cannot stand. By petitioner's own reasoning, a distinction between "application" and "appropriate process" must be drawn, and we must assume that Congress intended that its chosen words would be given meaning.

Petitioner cannot find support, in our view, in its additional suggestion that the Federal Rules do not apply to an action commenced by the filing of a Petition rather than a Complaint as contemplated by Rule 1. Such self-serving choice of nomenclature cannot alter the character of a proceeding. It would be absurd to hold that a party, by attaching a label of its own choosing to a pleading, could thwart the clear wording of Rule 81(a)(3), which provides, in the absence of enumerated alternatives, for application of the federal rules to all proceedings to compel production of documents in accordance with a subpoena issued by an officer or agency of the United States. Indeed, in one of petitioner's own cases, in which access to the federal rules was denied, proceedings were commenced by the filing of a "Complaint." See United States v. Vivian, (7th Cir., 1955) 224 F.2d 53.

Finally, we cannot accept petitioner's assertion that the Supreme Court erred in Powell when it cited Chandis, a case decided before Rule 81 was amended. Such an argument may more properly be addressed to the Supreme Court should appeals in this action ever reach that juncture. It is sufficient for us to conclude that the "law of the land" as stated in Powell is clear to the effect that the instant proceedings are to be governed by the Federal Rules of Civil Procedure. Until instructed by a higher court to the contrary, we must proceed as heretofore directed.

We shall turn then to the specific questions before us, whether respondent is entitled to conduct pretrial discovery under the Federal Rules, and, further, whether a jury demand filed herein must be honored.

We are convinced, pursuant to respondent's argument, that denial to him of the opportunity to conduct pretrial discovery would render meaningless his right to challenge the summonses issued herein. Once we have decided to make use of orderly procedural principles calculated to insure fair adjudication of issues, and to deny application of summary procedure sought by petitioner, it would be defeating to deny respondent a very basic element thereof, and to reintroduce "surprise" into federal litigation. Indeed, it would seem mandatory to hold that no action falling under the Federal Rules should be exempt from discovery machinery. See Moore, Federal Practice, (2d Edit., 1963) Vol. 4, p. 1073; Boeing Airplane Co. v. Coggeshall, (1960) 108 U.S.App.D.C. 106, 280 F.2d 654; F. T. C. v. Bowman, (D.C.Ill., 1957) 149 F. Supp. 624, 629-630, affd. (7th Cir., 1957) 248 F.2d 456. If as the Supreme Court stated in Reisman v. Caplin, supra, a respondent to an enforcement petition is entitled to a "completely protected" hearing to judicially determine the merits of his challenges to the summons, pretrial discovery would seem essential. To suspend discovery would be to reinstate the "summary" procedure which we have just refused to apply, and to make the "protected" hearing demanded by the Supreme Court a meaningless shell of formalism. See Fusco for and on Behalf of N. L. R. B. v. Richard W. Kaase Banking Co., 205 F. Supp. 459 (D.C.Ohio, 1962); United States v. 300 Cans, etc. of Black Raspberries, (D.C.Ohio, 1947) 7 F.R.D. 36; Madden for and on Behalf of N. L. R. B. v. Milk Wagon Drivers Union Local 753, (D.C.Ill., 1964) 229 F. Supp. 490. While we will not permit such discovery to be used in a dilatory manner to postpone trial, we cannot withhold from respondent its meaningful request for pretrial discovery. If, as petitioner concedes, under Reisman, supra, respondent is entitled to "vigorously contest the Government's right to inquiry," respondent must be permitted to determine in advance of trial the facts on which he intends to rely.

Accordingly, we shall permit respondent to depose petitioner herein in open court on Thursday, June 2, 1966, limiting such discovery to the following issues ...


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