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April 29, 1969


The opinion of the court was delivered by: Robert D. Morgan, District Judge.


This litigation began on August 20, 1968 with the filing by "Merton K. Sweet, a/k/a Kevin L. Donaldson" (now apparently correctly known as Kevin L. Donaldson and hereinafter called "Donaldson") of a Petition and Motion for Restraining Order, as Case No. RI-248 in this Court, against David A. Learner, President, Learner's Sales and Service, Rock Island, Illinois, his agents and attorneys, to enjoin compliance with a "Summons" (IRS Form 2039A) issued to Learner by Ralph H. Bergstrom, Special Agent of the United States Treasury Department, Internal Revenue Service, "until such time as an order of a court of competent jurisdiction has been issued requiring the respondent's compliance with said summons." The said summons called for appearance on August 26, 1968, with company records concerning automobile sales, trade-in and financing transactions with Donaldson for the years 1964 through 1967. Donaldson asserted under oath that any such papers are copies of papers he has, that it is his tax liability which is being investigated, that the material is not relevant or material to a lawful subject of inquiry, and that he is informed and believes that "the information sought by the Internal Revenue Service is for use in a criminal prosecution relating to the Internal Revenue laws."

This court, based on dictum in Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964), issued such temporary restraining order on one day's notice to respondent Learner and on the filing of a $500 surety bond.

Subsequently, on January 6, 1969, without reference to the prior and pending action, the government and Mr. Bergstrom filed a verified Petition to Enforce Internal Revenue Summons, as Case No. RI-259 in this court, against the same Mr. Learner, and this court on that day entered an order directing Mr. Learner to show cause, on February 11, 1969, why he should not be compelled to obey the summons. By direction of the court, counsel for Donaldson were given notice of such hearing.

Mr. Learner, the respondent in both actions, appeared in both by counsel on January 13, 1969, and filed and served a motion to dismiss or, in the alternative, to consolidate the two cases, pointing out, quite understandably, that the only reason he was not in compliance with the summons was that he had been directed by order of the court not to comply therewith.

Under date of January 30, 1969, Donaldson appeared in RI-259 and filed and served a motion to intervene as respondent, an answer to the petition, and notice that the motion would be called up for hearing on February 11, at the time of the hearing on order to show cause. The answer denied the statutory basis for the enforcement proceeding, denied that the investigation was to determine tax liability, denied that the records sought were essential to determination of tax liability, and denied "each and every allegation contained in the Petition not heretofore expressly admitted, qualified or denied." Donaldson's answer further alleges affirmatively that the investigation is really "for the express and sole purpose of obtaining evidence concerning any violations of the criminal statutes * * *," and that, as the subject of a criminal investigation, he is entitled to protection from unreasonable searches and seizures and cannot be required to produce testimony or documents which might tend to incriminate him.

On February 3 and 4, respectively, the government filed and served written "oppositions" to respondent's motion to dismiss or consolidate and to Donaldson's motion for intervention.

At the hearing on February 11, 1969, after hearing arguments of counsel and considering memoranda of law filed by the government and Donaldson, this court allowed the motion of respondent Learner to consolidate the two cases and denied the motion of Donaldson to intervene in the enforcement proceeding. The announced reasons for this action were that the parties in interest were the government and Donaldson, that it was apparent that whatever legitimate contest existed was between them, that Learner was willing to abide the result of that contest and should be as free from harassment as possible, and that consolidation would place the whole matter before the court, and any reviewing court, better than intervention by Donaldson in number RI-259. It was made clear by the court that this disposition was intended to make Donaldson a party to the consolidated case and that he would be permitted to participate in the show cause hearing. Evidence was then heard from the IRS agents concerning the open investigation of Donaldson's tax liability and the need for documents and records of Learner's automobile transactions with Donaldson. Counsel for Donaldson cross-examined the agents but offered no other witnesses or evidence.

Thereupon the Court announced dissolution of the temporary restraining order in Case No. RI-248, denied Donaldson's oral motion for unspecified discovery, and directed respondent Learner to comply with the prior summons on February 20, 1969. These decisions were incorporated in a written order drafted by the government and approved as to form by counsel for Donaldson.

On February 18, 1969, on motion of Donaldson, Chief Judge Omer Poos of this court, during the temporary absence to the undersigned from the District, entered an order staying the effective date of this court's order of February 11, 1969, "pending this court's reconsideration of applicant's motion for intervention and discovery," in the light of the decision in United States v. Benford, 406 F.2d 1192, handed down on February 11 by the Court of Appeals for the Seventh Circuit.

Donaldson argues strenuously that, especially on the basis of the Benford decision, he should have been permitted to intervene in the summons enforcement proceeding and thereafter to have discovery as provided in the Federal Rules of Civil Procedure. There can be no doubt that Benford stands for the unqualified proposition, on the basis of Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459, and United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112, that a taxpayer has a right to intervene in an IRS summons enforcement proceeding in order to "be afforded a meaningful adversary hearing of legitimate challenges" to such summons. While it appears here that such hearing has been afforded by the notice to the taxpayer of the enforcement proceeding, his presence at the hearing thereon and the consolidation of his injunction suit therewith, it seems equally clear that intervention in addition under those circumstances could do no harm. Accordingly, the denial of Donaldson's motion to intervene here should be vacated and such motion should be allowed nunc pro tunc as of February 11, 1969, lest some technical distinction which escapes this court, between consolidation and intervention in these circumstances, might confuse the real issues here. The general applicability of the F.R.C.P. has not been questioned here. This does not mean that Donaldson is entitled to extended discovery under those rules without stating useful or legitimate goals thereof. As recognized in Benford, Rule 81(a)(3) is part of the F.R.C.P., and under that rule the court in a proper case may bar discovery which would clearly serve no useful purpose in resolution of the issues before it.

From literally thousands of words of argument and quotation submitted on his behalf, this court can glean only that Donaldson believes his desired discovery will disclose that the very presence of an IRS "Special Agent" turns the investigation entirely into one seeking evidence for criminal prosecution, that this means disclosure of the Learner records involving him to IRS would violate his Fourth Amendment rights to be secure in his papers against unreasonable searches and seizures (because he has copies of some of Learner's said records, i.e., invoices, etc., concerning his own automobile transactions), and that thus he would be compelled in a criminal case to be a witness against himself in violation of the Fifth Amendment. Thus stated, the false premises and compound non-sequitur seems self evident, and this court does not believe that any "legitimate challenge" to the IRS summons here has been stated or even suggested.

By his Motion to Take Depositions and for Production of Documents, Donaldson seeks authority to depose four IRS officers and agents in Milwaukee, Wisconsin, and New Orleans, Louisiana, and an order for production of materials and "any and all writings of any kind" relating to the Donaldson investigation and its purpose, including manuals and pamphlets of the Treasury Department dealing with the classification and assignment of IRS agents. In support of this motion, the court is told by affidavit of counsel that these documents and depositions will show the "intention and purposes" of IRS in this matter is "to secure evidence for use in a criminal prosecution," because otherwise Special Agents could not be on the scene. Yet no criminal charges have been made, there is no criminal case pending against Donaldson, and the whole objection seems to ...

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