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United States v. Habig

decided: January 24, 1973.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,
v.
ARNOLD F. HABIG AND JEROME M. SCHROERING, DEFENDANTS-APPELLEES



Swygert, Chief Judge, and Kiley and Fairchild, Circuit Judges.

Author: Swygert

SWYGERT, Chief Judge.

This appeal is from an order by the district court suppressing the use of certain evidence in a criminal tax evasion prosecution. The evidence was obtained by Government agents during the preindictment investigation. Entered pursuant to a motion under Fed.R.Crim.P. 41(e), the order followed an evidentiary hearing and was based on findings of fact and conclusions of law made by the district judge. The hearing was conducted in conformity with the remand ordered by this court in an earlier appeal. United States v. Habig, 413 F.2d 1108 (7th Cir., 1969).

The issues in this appeal differ materially from those presented when the case was before us initially. The Government now contends that the decision in United States v. Dickerson, 413 F.2d 1111 (7th Cir., 1969), does not control the disposition of the issues here despite its earlier concession to the contrary. This shift of position requires that we first decide a corollary issue: whether the "law of the case" doctrine precludes our resolution of the main issue. A separate question relates to whether any fourth amendment violations occurred during the Government's investigation which would require suppression of the questioned evidence. It was not necessary for us to reach this last issue in the earlier appeal because we were of the view that an application of the Dickerson rule was sufficient to resolve the question.

Briefly, the relevant facts developed at the hearing are as follows. On February 15, 1963 Charles E. Lawrence, an agent of the Internal Revenue Service, was assigned the routine civil audit of a consolidated income tax return filed by the Jasper Corporation for the year ending June 30, 1961. The consolidated return covered eleven corporations, ten of them subsidiaries of the Jasper company.*fn1 The agent was also assigned the civil audit of the separate tax returns of three of the subsidiary companies for the year ending June 30, 1960. During its progress, the audit was expanded to include other fiscal years.

On the recommendation of a firm of independent certified public accountants which had prepared the returns, Seidman & Seidman, the agent in February 1963 visited Jerome M. Schroering, the comptroller of the Jasper company and each of its subsidiaries. After identifying himself and stating his assignment, Lawrence secured Schroering's cooperation for an examination of the records of Jasper and its subsidiaries at their respective offices.

Lawrence spent from March to July of 1963 examining the records of Jasper and four subsidiary companies. As a result of his examination, Lawrence discovered certain discrepancies which led to his belief that a tax fraud had been perpetrated through records of fictitious intercompany sales of lumber. Lawrence thereupon submitted a referral report "for potential fraud cases" to his group supervisor, and at the end of March, 1964 the case was accepted by the Intelligence Division of the Internal Revenue Service for a full-scale investigation. Special Agent Russell C. Hicks was assigned to conduct the investigation with the aid of agent Lawrence. The district judge found that the investigation "from its inception was upon Arnold F. Habig and Jerome M. Schroering." Habig was the largest single stockholder of the corporations and their chief executive officer. After Hicks' assignment, Lawrence at Hicks' direction obtained and examined numerous corporate records. On September 21, 1964 Hicks and Lawrence met by appointment with Schroering at the Jasper corporation offices. Hicks, upon being introduced to Schroering, stated: "I am a Special Agent with the Intelligence Division; Mr. Kelly knows what my job is. I am here to determine if there is [sic] any criminal aspects involved in the case." Hicks then requested and received permission from Schroering to examine additional books and records of the corporations, which the agents subsequently spent considerable time examining. They also copied some of the documents being examined.

The investigation continued into 1965, when Hicks requested that Schroering provide him with additional documents. Schroering complied, and had the assembled records delivered to the offices of the Evansville company where Hicks and Lawrence examined them. During September 1965 the two agents met with Schroering and Habig in the offices of the Intelligence Division of the IRS. At the meeting, which was Habig's first personal contact with either of the agents, both Habig and Schroering were interrogated regarding the affairs under investigation. The district court found that no warnings of constitutional rights were given nor was either defendant advised that he was the subject of a criminal investigation. Subsequently, between November 1965 and February 1966, the agents copied numerous documents and records of the corporations. The district court found that this copying was undertaken in a secretive manner and without the consent of either Schroering or Habig. In August an indictment was returned against these two defendants.

The district judge found that the agents had acted improperly in their conduct of the investigation after January, 1964:

The plaintiff's agents after February 11, 1964 had the duty upon the first contact with defendants to advise them of their constitutional rights and advise them that they were the subject of a criminal investigation. The statements, information and leads to evidence obtained by the plaintiff's agents from the defendants after February 11, 1964 were illegally obtained by reason of the failure of the plaintiff's agents to fulfill such duty as the criminal investigation was focused on the two (2) defendants from and after February 11, 1964.

Moreover, the district judge inferred "that the corporations and the defendants would not have consented to the criminal investigation had they known of the deceit practiced by plaintiff's agents prior to September 21, 1964," in failing to warn the defendants of the changed nature of the ongoing investigation.

I

The "law of the case" doctrine comes typically to bear when an appellate court has before it for a second time a controversy in which it has previously made a ruling of law. Strictly applied, the doctrine serves to bar an attack on the prior ruling by either party to the suit, much like the doctrine of res judicata. This court, however, has not adhered to a rigid application of the doctrine. Many years ago, Judge Evans wrote:

The view that appeals to us, and which we adopt, merely recognizes the law of the case as one of public policy and private peace, and one to be followed generally, and departed from rarely. It is, however, not an inexorable rule, and should not be applied where the law as announced is clearly erroneous, and establishes a practice which is contrary to the best interests of society, and works a manifest ...


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