Izen v. Catalina

United States Court of Appeals

Fifth Circuit

F I L E D

REVISED JANUARY 26, 2005

January 25, 2005

IN THE UNITED STATES COURT OF APPEALS

Charles R. Fulbruge III

FOR THE FIFTH CIRCUIT Clerk

_______________

No. 02-21182

_______________

JOE ALFRED IZEN, JR.; KAREN SUTER IZEN,

Plaintiffs - Appellants,

VERSUS

TERRANCE CATALINA, Special Agent, Individually;

JAMES CLIMER, Special Agent, Individually;

UNITED STATES OF AMERICA,

Defendants - Appellees.

Appeal from the United States District Court

for the Southern District of Texas, Houston

OPINION ON REHEARING

(Opinion August 23, 2004, 5th Cir., 2004, ____ F.3d ___)

Before JONES, MAGILL,* and SMITH, Circuit Judges.

PER CURIAM:

Plaintiff-Appellant Joe Alfred Izen, Jr., a Texas

attorney, appeals the district court’s order granting summary

judgment in favor of IRS agents Terrance Catalina and James Climer.

Izen’s Bivens action alleges that Catalina and Climer engaged in

malicious prosecution and retaliation in violation of the Fourth

*

Circuit Judge of the United States Court of Appeals for the Eighth

Circuit, sitting by designation.

and First Amendments, respectively, when they investigated and

prosecuted him for money laundering. The district court, acting on

remand from this court in Izen v. Catalina, 256 F.3d 324 (5th Cir.

2001) (“Izen I”), granted summary judgment in favor of the agents

on Izen’s Fourth Amendment malicious prosecution claim on the

ground that Izen did not meet the common law elements of that tort.

It granted the agents’ motion for summary judgment on Izen’s First

Amendment retaliation claim for the same reason, and held in

addition that Izen had not raised a genuine issue of material fact

as to the agents’ retaliatory motive. The court also granted the

United States’ motion for summary judgment on Izen’s Federal Tort

Claims Act claims of malicious prosecution, false arrest,

intentional infliction of emotional distress, and negligence. Izen

appeals. We have jurisdiction pursuant to 28 U.S.C. § 1291. We

affirm the district court’s grant of summary judgment as to all

claims.

I.

Izen is a tax attorney. He has long represented tax

protestors and other defendants in criminal tax cases. In August

1989, IRS agent Catalina received a referral from the Waco, Texas,

IRS collection office alleging that Izen had not filed income tax

returns for tax years 1986, 1987, and 1988. The referral contained

allegations from a third party informant that Izen was involved in

money laundering, including allegations that Izen was involved in

2

the failure of a private bank and had accounts in foreign

countries. Catalina soon deemed the informant unreliable. Izen

alleges the informant was Michael J.B. Easton, who had an

indictment pending against him at the time and, according to Izen,

aided Izen’s ex-wife in surreptitiously withdrawing a large sum of

money from an account of Izen’s.

In October 1989, Catalina accepted the referral for

investigation of the charge of failure to file tax returns. He

determined there was insufficient basis to investigate Izen for

money laundering, but recommended opening a criminal income tax

investigation for the years 1986 through 1988 based on the missing

returns. Catalina also recommended including 1985 in the investi-

gation, though a return had been filed. Catalina’s tax investi-

gation was soon derailed by the fact that Izen ultimately filed his

1986 return in September 1989, and filed his 1987 and 1988 returns

in April 1990, even receiving refunds approved by Catalina.

Although Catalina dropped the income tax investigation,

he then embarked on a money laundering investigation. Izen alleges

that the impetus for the investigation was a desire to retaliate

against him for his history of association with tax protestors, his

representation of criminal tax defendants, and his representation

of taxpayers utilizing foreign trusts to reduce their federal

income tax. See, e.g., United States v. Dahlstrom, 713 F.2d 1423

(9th Cir. 1983) (reversing the convictions of foreign tax shelter

promoters, one of whom was represented by Izen). Izen’s contention

3

finds support in IRS investigative reports that prominently mention

both Izen’s association with tax protestors as well as his

successful representation of tax clients. Catalina in turn alleges

that the investigation was prompted by his review of various

reports concerning a client of Izen’s, Nassau Life Insurance

Company Limited (“NLIC”), and persons and banks related to or doing

business with that entity.

Upon reviewing the reports concerning Izen’s client,

Catalina, with the permission of his superiors, commenced an

undercover investigation of Izen himself which lasted from 1990 to

1992. Climer was the undercover agent assigned to the investiga-

tion. Climer posed as a client seeking to create a foreign trust

in which to deposit proceeds from the sale of purportedly stolen

oil. Numerous conversations between Izen and Climer were appa-

rently taped, though the agents have not placed any of the

recordings in the record.1 Catalina testified before a grand jury

in May 1995, and it returned a four-count indictment of Izen for

conspiracy to commit money laundering and aiding or abetting or

attempting money laundering. Izen alleges that the indictment was

secured in part due to alleged misrepresentations made by Catalina

to the grand jury.2 In May 1996, for undisclosed reasons, the

1

Izen placed in the record those portions of the recordings which he

argues are exculpatory.

2

Only a small fraction of Catalina’s grand jury testimony is in the

record. Because of Izen’s allegations, the district court did not rely on the

indictment.

4

United States moved to withdraw the presentment of the indictment

and all criminal charges against Izen were dismissed.

Izen brought suit in 1997, alleging various constitu-

tional and non-constitutional torts. The district court dismissed

all of Izen’s claims. Izen appealed the dismissal of his Fourth

Amendment malicious prosecution claim, his First Amendment

retaliation claim, his Fifth Amendment claim, the denial of his

motion for disclosure of grand jury materials, and the grant of

summary judgment in favor of the agents based on their qualified

immunity defense.

In Izen I we reversed the dismissal of the malicious

prosecution and retaliation claims, holding that the district court

had misconstrued the applicable law on both. In addition, we held

that a genuine issue of material fact existed as to whether Izen

was investigated and prosecuted in retaliation for representing

criminal tax defendants. We affirmed the dismissal of Izen’s Fifth

Amendment claim as well as the denial of his motion for disclosure.

On remand, Izen filed a second amended complaint in which

he added a Federal Tort Claims Act cause of action against the

United States. The district court again granted summary judgment

in favor of the agents and United States on all claims. Izen

appeals the grant of summary judgment on his malicious prosecution

claim, his retaliation claim, and his Federal Tort Claims Act cause

of action.

5

II.

This court reviews a grant of summary judgment de novo.

Chriceol v. Phillips, 169 F.3d 313, 315 (5th Cir. 1999). We may

affirm a grant of summary judgment on grounds other than those

offered by the district court. Id. The moving party bears the

burden of showing that there is an absence of evidence to support

the nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S.

317, 325 (1986). If this burden is met, then the nonmoving party

must set forth specific facts showing a genuine issue for trial

remains. FED. R. CIV. P. 56(e).

A. Malicious Prosecution

We affirm the district court’s order granting summary

judgment on Izen’s claim of malicious prosecution, though on

different grounds. In this circuit, plaintiffs no longer allege a

constitutional violation by satisfying the state law elements of

malicious prosecution alone. Castellano v. Fragozo, 352 F.3d 939,

942 (5th Cir. 2003) (en banc), cert. denied, 125 S. Ct. 33 (2004).3

Because Izen’s complaint does not state a claim under the Fourth

3

Though the claim in Castellano was brought under § 1983 while Izen

invokes Bivens, we have held that the constitutional torts authorized by each are

coextensive. Evans v. Ball, 168 F.3d 856, 863 n.10 (5th Cir. 1999) (“A Bivens

action is analogous to an action under § 1983SSthe only difference being that §

1983 applies to constitutional violations by state, rather than federal,

officials.”), overruled on other grounds by Castellano, 352 F.3d at 948-49 &

n.36. Thus, we do not distinguish here between Bivens claims and § 1983 claims.

6

Amendment directly, the district court properly granted the agents’

motion for summary judgment.4

B. Federal Tort Claims Act

Izen’s second amended complaint alleges claims under the

Federal Tort Claims Act based on the state torts of malicious

prosecution, false arrest, intentional infliction of emotional

distress, and negligence. The district court held that each of

these claims failed for lack of exhaustion under 28 U.S.C. § 2675.

Section 2675 provides that a would-be plaintiff must first present

his claim to the appropriate federal agency. While Izen did so,

the district court held that the scope of the claims stated in his

second amended complaint went far beyond his administrative

complaint. Because Izen has not contested this holding, we affirm.

C. First Amendment Retaliation

The Retaliation Standard

Izen alleges that Catalina launched the sting operation

and prosecuted him in retaliation for his history of representing

criminal tax defendants. “[T]he First Amendment prohibits not only

direct limitations on speech but also adverse government action

against an individual because of her exercise of First Amendment

4

Further, the record does not support a claim directly under the

Fourth Amendment, rendering remand fruitless.

7

freedoms.” Colson v. Grohman, 174 F.3d 498, 508 (5th Cir. 1999).5

Subjecting an attorney to criminal investigation and prosecution

with the substantial motivation of dissuading him from associating

with and representing clients opposing the IRS would violate the

First Amendment.

In the criminal prosecution context, plaintiffs must

establish three elements in order to make out a retaliation claim.

Keenan v. Tejeda, 290 F.3d 252, 258 (5th Cir. 2002). Plaintiffs

must show that “(1) they were engaged in constitutionally protected

activity, (2) the defendants’ actions caused them to suffer an

injury that would chill a person of ordinary firmness from

continuing to engage in that activity, and (3) the defendants’

adverse actions were substantially motivated against the

plaintiffs’ exercise of constitutionally protected conduct.” Id.

This court further requires plaintiffs in the prosecution context

to establish each of the common law malicious prosecution elements

in addition to those three derived from the First Amendment. Id.

at 260; see also Johnson v. La. Dep’t of Agric., 18 F.3d 318, 320

(5th Cir. 1994) (same).6 “One of these standards is an absence of

5

See also Smith v. Plati, 258 F.3d 1167, 1176 (10th Cir. 2001) (“‘Any

form of official retaliation for exercising one’s freedom of speech, including

prosecution, threatened prosecution, bad faith investigation, and legal harass-

ment, constitutes an infringement of that freedom.’”) (quoting Worrell v. Henry,

219 F.3d 1197, 1212 (10th Cir. 2000)).

6

To this end, Izen’s assertion that Wilson v. Thompson, 593 F.3d 1375

(5th Cir. 1979) controls is incorrect. That case involved an attempt to enjoin

a criminal prosecution brought with retaliatory intent. See id. at 1387.

Because the criminal proceedings in Wilson had not yet terminated, plaintiffs

could not be required to prove the elements of malicious prosecution, which

8

probable cause to prosecute.” Keenan, 290 F.3d at 257; see

also Mozzochi v. Borden, 959 F.2d 1174, 1180 (2d Cir. 1992) (“An

individual does not have a right under the First Amendment to be

free from a criminal prosecution supported by probable cause that

is in reality an unsuccessful attempt to deter or silence criticism

of the government.”). For purposes of malicious prosecution,

probable cause means “the existence of such facts and circumstances

as would excite the belief, in a reasonable mind, acting on the

facts within the knowledge of the prosecutor, that the person

charged was guilty of the crime for which he was prosecuted.” Kerr

v. Lyford, 171 F.3d 330, 340 (5th Cir. 1999) (quoting Moore v.

McDonald, 30 F.3d 616, 620 n.2 (5th Cir. 1994)).7

The district court applied the Johnson standard and

granted summary judgment on behalf of the agents, reasoning in part

that Izen had not established the common law elements of malicious

prosecution. Izen v. Catalina, 251 F. Supp. 2d 1327, 1340-41 (S.D.

includes among its elements proof that the criminal action was terminated in

plaintiffs’ favor (see Keenan, 290 F.3d at 257).

7

This standard, which we share with the Second, Third, Eighth, and

Eleventh Circuits, differs from that used in the Sixth, Seventh, Tenth, and D.C.

Circuits. See Moore v. Hartman, 388 F.3d 871, 879 (D.C. Cir. 2004) (discussing

the circuit split and that circuit’s standard, which does not include the

requirement that a plaintiff prove a lack of probable cause to succeed in a

retaliatory prosecution claim); compare Mozzochi v. Borden, 959 F.2d 1174, 1180

(2d Cir. 1992) (requiring a plaintiff to prove the absence of probable cause to

go forward on a retaliatory prosecution claim); Merkle v. Upper Dublin Sch.

Dist., 211 F.3d 782, 796-97 (3d Cir. 2000) (same); Smithson v. Aldrich, 2335 F.3d

1085, 1063 (8th Cir. 2000) (same); Redd v. City of Enterprise, 140 F.3d 1378,

1383-84 (11th Cir. 1998) (same) with Greene v. Barber, 310 F.3d 889, 897-98 (6th

Cir. 2002) (refusing to require proof of lack of probable cause for a retaliatory

prosecution claim); Poole v. County of Otero, 271 F.3d 955, 961 (10th Cir. 2002)

(same); Haynesworth v. Miller, 820 F.2d 1245, 1257 (D.C. Cir. 1987) (same).

9

Tex. 2002). In particular, the court held that Izen had not raised

an issue of material fact as to whether the agents lacked probable

cause to prosecute. A court determines whether probable cause

existed as of the time the government instituted criminal

proceedings. Gordy v. Burns, 294 F.3d 722, 728, overruled on other

grounds by Castellano v. Fragozo, 352 F.3d at 948-49. Although

Catalina’s initial information about Izen came from a potentially

unreliable informant, Catalina received verifiable, independent

information concerning Izen’s questionable activities that amounted

to probable cause before seeking an indictment.

In 1989, the IRS learned the following about Izen from

the informant: (1) Izen was personally involved in the failure of

the Chilton Private Bank in Chilton, Texas; (2) Izen was closely

tied to Robert Chappell, the founder of NLIC, a tax shelter

operating out of the Bahamas; (3) Izen engineered large transfers

of money from Chilton Private Bank to offshore banks before the

Chilton Private Bank failed; and (4) Izen had deposited $4-5

million dollars in the Isle of Man. R. 798. Additionally, the IRS

learned the Izen had a great deal of knowledge about offshore

banking and the working of NLIC, and he had a “close personal

relationship” with Robert Chappell. R. 797. This information,

coupled with Izen’s failure to file tax returns for the years 1986,

1987, and 1988, led Catalina to conclude that opening a criminal

investigation into Izen’s affairs was warranted. The Chief

10

Criminal Investigation officer approved this investigation. No

charges were filed at this time.

Initial inquiries, including a deposition given by Izen,

indicated irregularities with Izen’s financial transactions for the

1985 tax year (in which he did file a tax return). Catalina,

however, concedes that he was not aware that Izen eventually filed

tax returns for the missing years. The returns were filed in

September of 1989, after the investigation was officially opened.

In any event, after Catalina’s initial review of the documents

indicated suspicious activity, and in light of the procedural

benefits (mainly the ability to enforce summonses) afforded by a

grand jury, Catalina requested a grand jury investigation.8 The

Department of Justice approved this request. Catalina thought an

undercover operation would assist in the case. Catalina’s

supervisor approved the operation. In early 1990, Catalina began

to corroborate some of the information provided by the initial

informant. Catalina learned independently that: (1) Izen had been

representing NLIC since 1983; (2) the president and founder of

NLIC, Robert Chappell, was a fugitive from a mail fraud conviction;

(3) Chappell and his organization attracted numerous “anti-

government” individuals; (4) several fugitives were apparently

8

This use of a grand jury for investigative purposes is distinguished

from a prosecutor’s use of a grand jury to seek an indictment. See generally

Sara Sun Beale et al., Grand Jury Law and Practice § 1.7 (2d ed. 1997). Catalina

was not required to have probable cause to indict Izen when he requested the

grand jury investigation.

11

living and working with Chappell in the Bahamas; (5) two of the

fugitives, both of whom were considered armed and dangerous, fled

the country on tax charges, and were believed to be in charge of

NLIC’s foreign operations; (6) another NLIC executive was a

fugitive on state income tax evasion charges in California;

(7) NLIC used Chilton Private Bank in Chilton, Texas for some

transactions; and (8) there had been over one hundred cases and

thirty-one convictions numbered on taxpayers involved with NLIC.

R. 791. Catalina verified an employment contract between Izen and

NLIC, and that two Houston residents used Izen’s office address for

their Cayman Island bank accounts. Furthermore, Catalina learned

that Izen: (1) attempted to establish offshore banks on numerous

occasions; (2) visited several tax haven countries; (3) agreed to

set up a foreign trust; (4) had a bank account in the Bahamas that

he did not declare in his 1985 tax return.

Additionally, the undercover operation gleaned more

information about potential money laundering. For example, one

suspect explained that Chilton Private Bank could be used to

launder money. When, acting undercover, Climer contacted Izen and

asked him to set up an offshore trust, he offered to do so. Izen

also helped Climer launder the money by establishing offshore

accounts and foreign trusts, and using tax haven country banks.

Izen violated domestic tax law through these actions. Izen also

disobeyed other American law requirements, such as failing to file

a Form 8300 after receiving a $15,000 cash payment from Climer.

12

All of this evidence, taken in its entirety, demonstrates

probable cause as a matter of law. By the time the government

presented information to the grand jury, it had significant,

independently verifiable information that Izen was in fact guilty

of money laundering. Even assuming arguendo that Izen could create

a triable issue of fact as to the remaining elements of the

retaliatory prosecution claim, because he is unable to create a

triable issue of fact as to whether probable cause existed when he

was indicted, the district court thus properly granted summary

judgment to Catalina on the retaliation claim.9

III.

For the foregoing reasons, we AFFIRM the district court’s

order granting summary judgment to the defendants as to all claims.

9

We therefore need not reach the qualified immunity issue raised by

Catalina.

13