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United States v. First State Bank and Christ Troupis

decided: October 12, 1982.

UNITED STATES OF AMERICA AND ROBERT C. ROWE, SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONERS-APPELLEES,
v.
FIRST STATE BANK AND CHRIST TROUPIS, RESPONDENTS, AND E. H. STAMBERGER, INTERVENOR-APPELLANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 80 C 2347 -- Joel M. Flaum, Judge.

Swygert, Senior Circuit Judge, Eschbach, Circuit Judge, and Doyle, Senior District Judge.*fn* Doyle, Senior District Judge, dissenting.

Author: Swygert

SWYGERT, Senior Circuit Judge.

The facts pertinent to this appeal may be summarized as follows. In January 1978, the Internal Revenue Service ("IRS") commenced an investigation of E. H. Stamberger's tax liabilities for the years 1975 and 1976. The investigation involved agents of both the Examination Division (civil division) and the Criminal Investigation Division of the IRS. The investigation was assigned to Revenue Agent Terrence Catalina and Special Agent William Bruton. In November 1979 Bruton was replaced by Special Agent Robert Rowe. In March 1980 Catalina was replaced by Revenue Agent Louis Van De Voorde.

Between October 1978 and August 1979 the IRS issued twenty-one summonses to various individuals or institutions regarding Stamberger's tax returns for 1975 and 1976. Stamberger received notice for only six of these summonses. In November 1979 Rowe issued the two summonses involved in this appeal. The first summons was issued to the First State Bank of Mendota, Illinois and its president, R. N. Shaffer, and the second was issued to Christ Troupis, Stamberger's personal attorney. Pursuant to section 7609 of the Internal Revenue Code, Stamberger caused the bank and Troupis to refuse to comply with the summonses.

In May 1980 the IRS instituted proceedings to compel enforcement of the two summonses. Stamberger intervened pursuant to section 7609(b) (1) of the Code. Stamberger's answer opposing enforcement alleged that: (1) the investigation concerning his civil tax liability for 1975 and 1976 had already been completed by the IRS and the summonses had been issued pursuant to an improper criminal investigation purpose; (2) the IRS had already possessed the information from the bank; (3) the documents held by Troupis were personal papers protected by the privilege against self-incrimination (personal papers privilege) and the attorney-client privilege; and (4) the summonses were issued pursuant to a second examination in violation of section 7605(b) of the Code.

In addition to opposing enforcement of the order, Stamberger requested discovery from the IRS. Stamberger served interrogatories upon the IRS and sought production of his entire IRS file. At this point, the case was referred to a United States magistrate. The magistrate ordered the IRS to answer the interrogatories but denied Stamberger's motion to compel production of the IRS file.

In October 1980 an evidentiary hearing was held before the magistrate. Rowe and Van De Voorde testified for the IRS. In addition to testifying on his own behalf, Stamberger called Troupis and Bruton. During the hearing, Stamberger attempted to introduce evidence showing that the documents held by Troupis were protected by the attorney-client and personal papers privileges. The magistrate refused to allow this testimony. The magistrate also refused to allow Stamberger to question the IRS agents concerning the twenty-one summonses which were issued between October 1978 and August 1979.

Following the hearing, the magistrate issued his findings of fact and recommendations. The magistrate specifically found that the investigation had not been completed, that there were both civil and criminal reasons for the issuance of the summonses, and that the summonses were properly issued in all other respects. He accordingly recommended that the summonses be enforced.

Upon de novo review, the district court adopted the magistrate's recommendations. Stamberger appeals from the final order of the district court. He has raised five issues on appeal:

(1) Stamberger was erroneously denied the right to prove at the enforcement hearing that the documents held by Troupis were protected by privilege;

(2) Stamberger was erroneously denied the opportunity at the enforcement hearing to inquire into the twenty-one summonses issued between October 1978 and August 1979;

(3) Based on the evidence produced at the enforcement hearing, the district court should have refused enforcement or, alternatively, permitted additional discovery by Stamberger;

(4) The district court erred in failing to award Stamberger the costs of subpoenaing Special Agent Bruton to testify ...


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