Petition — GM Leasing Corp. v. United States

Supreme Ceurt, U. $.

FILED

AUG 13 1975

In the Supreme Cord gdeetiges econ

United States

October Term 1974

G.M. LEASING CORP., and

GEORGE I. NORMAN, III,

Petitioners,

V.

THE UNITED STATES OF AMERICA, DE-

PARTMENT OF THE TREASURY, INTERN-

AL REVENUE SERVICH, ROLAND V. WISE,

District Director, JAMES M. LIVSEY, JOEIN W.

HAACKE, GLENN S. HILTON, KEITH E.

FINLEY, JR. CLARK BD. HOLFELTZ, JOS-

KPH J. WHITE, CLESSE S. ITILTON, BURT

C. APPLEGATE, ROLAND P. HARRINGTON,

TIM W. ELISON, LAWNIE C. MAYHEW,

THOMAS IL. HARKNESS and PHILIP J.

CLAYTON,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

LOR THE TENTH CIRCUIT

RICHARD J. LEEDY

309 Newhouse Building

Salt Lake City, Utah 84111

Attorney for Petitioners

TABLE OF CONTENTS

Page

Sn = a . 2

PERRIER ae nat a NRT er Reg Ne 2

QUESTIONS PRESENTED .............0.0.0000........ ay

STATUTORY PROVISIONS INVOLVED .... 3

STATEMENT OF THE CASE ........0...00...........0 6

REASONS FOR GRANTING THE WRIT .... 10

1 THE DECISION OF THE TENTH

CIRCUIT COURT OF APPEALS IS

IN CONFLICT WITH DECISIONS OF

OTHER CIRCUITS AS TO THE PRE-

SUMPTIVE EFFECT OF AN IN-

TERNAL REVENUE SERVICE

JEOPARDY ASSESSMENT ....0000000...... 10

Lh

THE DECISION BELOW REGARD-

"5 ING THE CONDUCT OF THE RE-

SPONDENTS IS CONTRARY TO THE

FOURTH AMENDMENT OF THE

CONSTITUTION OF THE UNITED

STATES AND RELEVANT DE-

CISIONS OF THIS COURT ....... 14

11

Page

3. THE DECISION OF THE TENTH

CIRCUIT COURT OF APPEALS THAT

THE PETITIONER WAS THE ALTER

EGO OF THE TARGET TAXPAYERS

AND THE JUDGMENT RENDERED

THEREON SHOULD BE REVERSED

WITH AN OPPORTUNITY FOR THE

PETITIONERS TO PRESENT ADDI-

TIONAL EVIDENCE ON THE ISSUE .. 17

IEE Picccanciciidmiinnsiniinrmaminice ssa 6% . 19

APPENDIX (Opinion of Court of Appeals,

Findings of Fact, Corclusions of Law, and

Judgment of the District Court) .........00.00..02.2.04 4-]

CITATIONS

CASES:

Bar L. Ranch, Inc. v. Phinney,

GOO FOG GOB (OE Cir. WOO) nccenceccceccececccctccccscesess 13

Bevins v. Six Unknown Named Agents,

Se Ee eR es 14

United States v. Bischeglia, ........ od aS :

I Us SU II saci cal ccscitsliectatiineeeepesilicaianaenalionel 16

Camara v. The Municipal Court of San Francisco,

ik Sa ks patisenn eels etal sem mn 15

Coolidge v. New Hampshire,

srs A le 15

Foster v. CIR, 391 F.2d 727 (4th Cir. 1968) .......... 11

Fuentes v. Shevin, 407 U.S. 67 (1972) ou... 16

411

Page

United States v. Lease,

346 F.2d 696 (2nd Cir. 1965) oo... cece ceeeeees 12, 13

North Georgia Finishing, Inc. v. Di-Chem, Inc.,

‘ciate US. 0... 95 S.Ct. 719 (1975) cceccecceeseeeseee 16

Phelps v. United States, ........ | Gea

“yh eS eT eee 16

United States v. Rexach,

Ue Eh , | eee 12

United States v. Rindskopf,

ee eae 11

See v. City of Seattle, 387 U.S. 541 (1967) .............. 15

Silverthorne Lumber Co., Inc. v. United States,

251 U.S. B85 (1920) ...cecccecescceccecccsessoesncccecsesceeceseees 16

Sniadach v. Family Finance Corp.,

i WW a ceeaniaeeniiotrnnmenacsinaaioneen 16

Wong Sun v. United States, 371 U.S. 471 (1962) .... 16

STATUTORY MATERIAL

Federal Rules of Appellate Procedure

ERI Sst YR SE I 2

Federal Rules of Civil Procedure

Saeco 18

United States Code, Title 26

7 oes peammsisaiesiantigniniatinasnansnsenenoens 3

ST GRE ern ee 3, 15, 16

NN as A 4, 10

iv

Page

$ 7403 (a) (b) { ) EERE 5

Ei) OM | | pe 6

United States Code, Title 28

$1254 (1) ceccece. <asoutevsststiesnsmmaisiiemsani 2

United States Constitution

eS 14, 15

1

in the Supreme Court of the

United States

October Term 1974

ae

G. M. LEASING CORP., and

GEORGE I. NORMAN, III,

Petitioners,

Vv

THE UNITED STATES OF AMERICA, DE-

PARTMENT OF THE TREASURY, INTERN-

AL REVENUE SERVICE, ROLAND V. WISE,

District Director, JAMES M. LIVSEY, JOHN W.

HAACKE, GLENN 5S. HILTON, KEITH E.

FINLEY, JR.. CLARK D. HOLFELTZ, JOS-

EPH J. WHITE, CLESSE S. HILTON, BURT

C. APPLEGATE, ROLAND P. HARRINGTON,

TIM W. ELISON, LAWNIE C. MAYHEW,

THOMAS L. HARKNESS and PHILIP J.

CLAYTON,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

The petitioners G. M. Leasing Corporation and

George 1. Norman, III, respectfully pray that a writ

2

of certiorari issue to review the judgment and opinion

of the United States Court of Appeals for the Tenth

Circuit entered in this proceeding on May 1, 1975.

OPINION BELOW

The opinion of the Court of Appeals has been pub-

lished in 514 F.2d 935 and appears in Appendix hereto.

No opinion was rendered by the District Court for the

District of Utah. The Findings of Fact, Conclusions

of Law, and Judgment of the District Court appear in

the Appendix hereto.

JURISDICTION

The judgment of the Court of Appeals for the

Tenth Circuit was entered on May 1, 1975. A timely

petition for rehearing was filed pursuant to Rule 40,

Federal Rules of Appellate Procedure and suggestions

for rerearing en banc on May 13, 1975. The petition for

rehearing and suggestions for rehearing en banc were

denied on June 17, 1975, and this petition for certiorari

was filed within 90 days of that date. This Court's juris-

diction is invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. Whether assessments and tax levies made by

the United States against a taxpayer should have been

voided.

2. Whether tax agents of the United States acted

3

illegally in seizing automobiles and documents in viola-

tion of the petitioner G. M. Leasing Corporation's

Fourth Amendment rights under the Constitution of the

United States.

3. Whether the petitioner G. M. Leasing Corpor-

ation was the alter ego of a non-party taxpayer where

property was seized from G. M. Leasing Corporation

to satisfy taxpayers’ alleged liabilities.

STATUTORY PROVISIONS INVOLVED

United States Code, Title 26:

§ 6321. Lien for taxes.

If any person liable to pay any tax neglects or

refuses to pay the same after demand, the amount

(including any interest, additional amount, addi-

tion to tax, or assessable penalty, together with

any costs that may accrue in addition thereto)

shall be a lien in favor of the United States upon

all property and rights to property, whether real

or personal, belonging to such person.

§ 6331. Levy and distraint

(a) Authority of Secretary or delegate.—If

any person liable to pay any tax neglects or re-

fuses to pay the same within 10 days after notice

and demand, it shall be lawful for the Secretary

or his delegate to collect such tax (and such fur-

ther sum as shall be sufficient to cover the ex-

penses of the levy) by levy upon all property

and rights to property (except such property as

is exempt under section 6334) belonging to such

person or on which there is a lien provided in

this chapter for the payment of such tax. Levy

4

may be made upon the accrued salary or wages

of any officer, employee, or elected official, of

the United States, the District of Columbia. or

any agency or instrumentality of the United

States or the District of Columbia, by serving a

notice of levy on the employer (as defined in

section 3401(d)) of such officer, employee, or

elected official. If the Secretary or his delegate

makes a finding that the collection of such tax is

in jeopardy, notice and demand for immediate

payment of such tax may be made by the Secre-

tarv or his delegate and, upon failure or refusal

to pav such tax, collection thereof by levy shall

be lawful without regard to the 10-day period

provided in this section.

(b) Seizure and sale of property. — The term

‘levy as used in this title includes the power of

distraint and seizure by any means. A levy shall

extend only to property possessed and obligations

existing at the time thereof. In any case in which

the Secretary or his delegate may levy upon

property or rights to property, he may seize and

sell such property or rights to property (whether

real or personal, tangible or intangible).

3 6861. Jeopardy assessments of income, estate,

and gift taxes.

(a) Authority for Making.—If the Secretary

or his delegate believes that the assessment or

collection of a deficiency, as defined in section

6211, wil be jeopardized by delay, he shall, not-

withstanding the provisions of section 6213 (a),

immediately assess such deficiency (together

with all interest, additional amounts, and addi-

tions to the tax provided for by law), and notice

and demand shall be made by the Secretary or

his delegate for the payment thereof. .

5

§ 7403. Action to enforce lien or to subject prop-

erty to payment of tax.

(a) Filing.—In any case where there has been

a refusal or neglect to pay any tax, or to dis-

charge any liability in respect thereof, whether

or not levy has been made, the Attorney Gen-

eral or his delegates, at the request of the Sec-

retary or his delegate, may direct a civil action

to be filed in a district court of the United

States to enforce the lien of the United States

under this title with respect to such tax or liabil-

ity or to subject any property, of whatever nature,

of the delinquent, or in which he has any right,

title, or interest, to the payment of such tax or

liability.

(b) Parties.— All persons having liens upon

or claiming any interest in the property involved

in such action shall be made parties thereto.

(c) Adjudication and Decree. — The court

shall, after the parties have been duly notified

of the action, proceed to adjudicate all matters

involved therein and finally determine the merits

of all claims to and liens upon the property,

and, in all cases where a claim or interest of

the United States therein is established, may

decree a sale of such property, by the proper

officer of the court, and a distribution of the

proceeds of such sale according to the findings

of the court in respect to the interests of the

parties and of the United States. If the prop-

erty is sold to satisfy a first lien held by the

United States, the United States may bid at the

sale such sum, not exceeding the amount of such

lien with expenses of sale, as the Secretary or his

delegate directs.

6

§ 7426. Civil actions by persons other than tax-

payers.

(a) Actions permitted.—

(1) Wrongful levy—If a levy has been

made on property or property has been sold pur-

suant to a levy, any person (other than the per-

son against whom is assessed the tax out of which

such levy arose) who claims an interest in or

lien on such property and that such property was

wrongfully levied upon may bring a civil action

against the United States in a district court of

the United States. Such action may be brought

without regard to whether such property has

been surrendered to or sold by the Secretary or

his delegate.

STATEMENT OF THE CASE

G. M. Leasing Corporation, petitioner, brought suit

against the respondents for alleged wrongful levy and

seizure of assets of G. M. Leasing Corporation seeking

multiple forms of relief. The United States counter-

claimed for forfeiture of the seized property. The facts

giving rise to petitioners complaint and findings of the

trial court which support the granting of this petition

are set forth below.

On March 19, 1973, the respondents made assess-

ments of income tax due and owing for the years 1970

and 1971 against George I. Norman, Jr., and Frances

M. Norman, neither of whom are parties to this action

(II-R-66). On the same day, it was determined that

the collection of taxes against the named individuals was

in jeopardy and an assessment was issued (II-R-66-67).

-

Thereafter, some of the respondents entered the garage

and building at 4751-53 Holladay Boulevard, Salt

Lake County, State of Utah. They did not have a search

warrant or summons. The offices were those of G. M.

Leasing Corporation and the residence of George I.

Norman, Iil, who later intervened in this action (1-R-

14, 46 and 49). The respondents gained admission to

the garage and house at the above address by breaking

locks (I-R-15, 16). The respondents subsequently be-

came concerned that they were exceeding their author-

ity and left the premises (I-R-19-21). Two days later,

the respondents made a decision to again enter the

premises and did so searching the premises and seizing

assets and books of G. M. Leasing Corporation and the

mentioned named taxpayers (I-R-19-22). Subsequent-

ly, eight automobiles and a bank account belonging to

G. M. Leasing Corporation and certain stock belong-

ing to the intervenor, George I. Norman, III, were

seized (I-R-22, 31-34). That portion of the judgment

of the Tenth Circuit upholding the trial court’s deter-

mination that 7,000 shares of seized stock should be re-

turned to the intervenor is not in issue. Subsequently,

respondents went to the home of the intervenor and

through threats and intimidation gained entrance and

searched the premises (I-R-50-51). After the filing of

the suit in the instant case, books and records seized

belonging to the plaintiff and intervenor were returned

but photostated copies were made and retained (I-R-

34). Further, the photostats were apparently turned

over to the F.B.1. for investigative purposes (Supple-

mental Memorandum of Appellants, 10th Circuit, p.

2).

8

Trial on petitioner's complaint, complaint and inter-

vention, and the United States’ counterclaim was heid

in the United States District Court for the District of

Utah. The trial court found that the plaintiff, a Utah

corporation, and the individual intervenor were entitled

to judgment against the named defendants. The trial

court found that on the 23rd day of March, 1973, the

named employees of the Internal Revenue Service

forced entry of the premises at 4751-53 Holladay Boule-

vard, Salt Lake County, for the purpose of searching

for books and records as evidence against the aforemen-

named taxpayers, not parties to the instant action, and

that a second search and seizure took place on the 25th

day of March, 1973. The Court also found, which is not

in dispute, that no search warrant for such entry nor

summons was issued, and that the entry was intentional

with the defendants knowing full well that they were

violating the rights of G. M. Leasing Corporation and

the intervenor. The District Court also found that cer-

tain automobiles and stock were seized and that the

seizures were pursuant to the jeopardy assessment made

by the Internal Revenue Service against George I.

Norman, Jr., and Frances Norman. The District Court

further found and the Tenth Circuit agreed that the

reason for the seizures was the respondents’ belief that

the petitioners were alter egos, nominees, and _trans-

ferees of the taxpayers previously mentioned. The Dis-

trict Court found that the assessment did not include

proper credits for tax payments, business expenses, and

9

included income not attributable to the before-men-

tioned non-party taxpayers and that the assessment was

erroneous and no liability for Federal income taxes of

the taxpayers was proven. The District Court further

determined that petitioner, G. M. Leasing Corporation,

was not the alter ego of the taxpayers. The District

Court ordered the return of the seized records, destruc-

tion of duplicated copies of records, return of the seized

automobiles and ordered an award of punitive damages

against the defendant, Philip J. Clayton, leaving the

amount to be subsequently determined. A_counter-

claim for foreclosure of the United States was ordered

dismissed.

On appeal, the Tenth Circuit determined that the

findings that the petitioner, G. M. Leasing Corporation,

was not the alter ego of the taxpayers was erroneous.

It was further determined that a jeopardy assessment

was properly made and was presumptively correct and

the petitioners had the continuing full burden to prove

the error of the assessment. The court further found

that the seizure of the items was not unconstitutional

and voided the award of punitive damages against the

aforementioned named defendant. The Court of Appeals

in effect voided the trial court's findings on three major

issues: First, the petitioner G. M. Leasing Corporation

was not the alter ego of the jeopardy taxpayers; second,

that the jeopardy assessment, although admittedly con-

taining error, was entitled to stand; and third, that the

actions of the named defendants did not violate any con-

stitutional rights of the petitioners.

10

REASONS FOR GRANTING THE WRIT

1 THE DECISION OF THE TENTH CIR-

CUIT COURT OF APPEALS IS IN CON-

FLICT WITH DECISIONS OF OTHER

CIRCUITS AS TO THE PRESUMPTIVE

EFFECT OF AN INTERNAL REVENUE

SERVICE JEOPARDY ASSESSMENT.

The Internal Revenue Service made a jeopardy

assessment under 26 U.S.C. § 6861 and then moved to

levy and foreclose against the property of G. M. Leas-

ing Corporation in aid of its jeopardy assessment against

George I. Norman, Jr. and Frances M. Norman, tax-

payers. The Internal Revenue Service contended G. M.

Leasing was the alter ego of the Normans. The trial

court found that petitioners had oftered sufficient evid-

ence to establish material error in the assessment and

concluded that the assessment of income taxes, penalties

and interest against the taxpayers for 1970 and 1971 was

erroneous. The trial court found a failure of the assess-

ment to take into consideration payment made by

George I. Norman, Jr., in the sum of $289,800; that the

assessment had included items of income which were not

in fact income, including $115,000 in alleged income

from a sale of securities which was not a sale of secur-

ities; failed to credit taxpayers with any business ex-

penses; and gave a zero base to certain stock sales which

would have provided income to the taxpayers. Petition-

ers contended in the trial court that these deficiencies of

the respondents shifted the burden of proof as to the cor-

rectness of the assessment back to the government and

that the government did not meet its burden. This posi-

11

tion was adopted by the trial court. The Tenth Circuit

reversed stating that the assessment established a prima

facie case of liability and that the burden was upon

petitioners of going forward with evidence and, also,

the burden of ultimate persuasion.

In United States v. Rindskopf, 105 U.S. 418

(1881), this Court noted that an assessment made by

the Commissioner of Internal Revenue on distilled

spirits was merely prima facie evidence. Various Cir-

cuit Courts of Appeals have taken the position that the

Court has left open the question as to the extent of per-

suasion a taxpayer must bear before it has been estab-

lished that the government's assessment is no longer

credible. The Court of Appeals apparently adopted the

position that petitioners had not met their burden even

though the assessment contained the defects the District

Court found including an admitted concession of inac-

curacies in the assessment of including $115,000 of in-

come. The Court of Appeals relied in part upon Foster

v. CIR, 391 F.2d 727 (4th Cir. 1968). The Foster case

is not proper authority to support the Tenth Circuit's

position. The case came before the Fourth Circuit on

review from the tax court which had individually con-

sidered each item and found against the plaintiff. The

Fourth Circuit Court of Appeals concluded that the

taxpayer had met his burden to overcome the presump-

tion of correctness when he produced evidence that he

did not receive the income assessed in the deficiency

and upon such a showing the burden shifts back to the

government to prove the correctness of the assessment.

The court did say that a mere inaccuracy for one year

12

would not affect the presumption with reference to the

cot > deficiency where the items were separable. The

Tenth Circuit Court's position seems to be an extension

of the Foster case by no longer requiring that the erron-

eous assessments be separable before a substantial error

can override a jeopardy assessment.

In, United States v. Rexach, 482 ¥'.2d 10 (1st Cir.

1973), the Court of Appeals for the First Circuit said

that with reference to a deficiency assessment, the tax

payer has the burden of showing the assessment is

wrong and the burden remains upon the taxpayer and

does not shift back to the United States. The Tenth

Circuit cited to the Rexach case with approval. See,

e.g., 514 F.2d 935, 941.

The Second Circuit Court of Appeals has appar-

ently taken a different position. United States v. Lease,

346 F.2d 696 (2nd Cir. 1965). In the Lease case, the

Second Circuit stated:

Burden is therefore on the taxpayer in the first

instance to disprove the computations by the

commissioner by a fair preponderance of the

credible evidence . . .

Should vou find that the defendant has shown

error, with respect to a particular item the pre-

sumption of correctness of the computations by

the commissioner and assessment with respect to

that item disappears and then the burden shifts

to the Government to prove whether any defici-

ency exists and if so in what amount. (Emphasis

added).

13

It is not incumbent . . . upon the taxpayer under

these circumstances to prove that he owed no

taxes or that the correct amount of the tax which

he did owe or the correctness of the item con-

cerned.

The Fifth Circuit Court of Appeals has also adopted

the Second Circuit's position. In Bar L. Ranch, Inc.

v. Phinney, 426 F.2d 995 (5th Cir. 1970), the court

stated :

We therefore agree with the conclusion of the

Inited States v. Lease, Supra, that a taxpayer

defending a collection suit need only show that

the Government assessment was arbitrary and

that the burden is then on the Government to

show whether any deficiency exists, and if so,

in what amount.

Consequently, it would appear that the Tenth Circuit

and First Circuit's positions are not in harmony with

those taken by the Fifth and Second Circuits and that

the Fourth Circuit Court of Appeals has taken a posi-

ton somewhat akin to that of the Second and Fifth Cir-

cuits but with some modifications. It is therefore sub-

mitted that with the Circuit Courts of Appeals taking

differing positions and this Court having not articulated

with specificity the burden that a taxpayer must meet

in overcoming the presumption of validity of an assess-

ment of the Internal Revenue Service that this Court

should accept jurisdiction and establish a standard that

would be of uniform application in the administration

of the tax laws of the United States.

14

2. THE DECISION BELOW REGARDING

THE CONDUCT OF THE RESPONDENTS

IS CONTRARY TO THE FOURTH

AMENDMENT OF THE CONSTITUTION

OF THE UNITED STATES AND RELE-

VANT DECISIONS OF THIS COURT.

The trial court found that on the 23rd day of

March, 1973, respondents as employees of the Internal

Revenue Service made forced entry into the premises

of the petitioners in Salt Lake County, Utah, for the

purpose of searching for books and records to be used

as evidence against taxpayers George I. Norman, Jr.

and Frances M. Norman. The court also found a sim-

ilar entrance was made on the 25th day of March,

1973. No search warrant was obtained for entry into

the premises and seizure of records. The records were

duplicated and kept by the United States. The trial

court further found the entry was intentional and with

full knowledge of the respondents that they were violat-

ing the rights of petitioners. Further, certain motor

vehicles which were assets of the petitioner G. M.

Leasing Corporation were seized as well as stock which

was later determined to be the property of the inter-

venor George I. Norman, III, petitioner. Petitioners

relied for their damage cause of action against respond-

ents for the illegal search and seizure on this Court's

decision in Bevins v. Six Unknown Named A gents, 403

U.S. 388 (1971). The Tenth Circuit Court of Appeals

stated that it was clear from the record that appellants

conducted a valid statutory levy rather than an illegal

search and seizure even though records were duplicated

and kept by the United States.

15

It is submitted that the Tenth Circuit Court's con-

clusion that the statutory authority for levy and distraint

contained in Title 26 U.S.C. § 6331 (a) and (b) does

not satisfy Fourth Amendment standards. Assuming

that there are valid reasons for the Internal Revenue

Service having the authority to seize property, there is

still the need even in administrative seizures for the

warrant process. Camara v. The Municipal Court of

San Francisco, 387 U.S. 523 (1967); See v. City of

Seattle, 387 U.S. 541 (1967). The interests of a citizen

in having his property reasonably free from unwarranted

seizure at the whim and caprice of tax officials can only

be accomplished through the warrant process where the

determination is made by some form of neutral official.

Coolidge v. New Hampshire, 403 U.S. 443 (1971).

The decision of the Tenth Circuit in effect leaves the

process of seizure of property to the judgment of inter-

ested persons and provides no warrant process as re-

quired by the Fourth Amendment to the Constitution.

I'urther, the seizure of books and records can only

be justified in aid of satisfying any tax liability. There

would be no need to retain photocopies of the books

and records of the petitioner, G. M. Leasing Corpora-

tion, for purposes of the tax levy. It is apparent that

items were seized for their potential use in a criminal

proceeding. The trial court found that certain of the

agents, respondents who conducted the search in the in-

stant case, were members of the Intelligence Division

of the Internal Revenue Service seeking information

for criminal prosecution. Books and records were dupli-

cated and the duplicated records kept by the United

16

States. Such conduct flies in the face of this Court's

decision in Silverthorne Lumber Co., Inc. v. United

States, 251 U.S. 385 (1920). Nor can it be said that

petitioners have an adequate remedy for suppression of

the evidence if and when any criminal charges are

brought. The fruit of the poisonous tree concept, Wong

Sun v. United States, 371 U.S. 471 (1962), may, in

some instances, provide a remedy to suppress evidence

that the government has directly or indirectly obtained

for the purposes of criminal prosecution. But because

of the narrowness of the discovery process in criminal

proceedings, it is often most difficult to determine the

real source of evidence. Consequently, the suppression

hearing provides incomplete protection for the petition-

ers who have been the subject of an illegal search and

seizure. Current process available to the Internal Rev-

enue Service provides an adequate basis for the discov-

ery of criminal! activity without sanctioning warrantless

searches. United States v. Bischeglia, ........ + Se ;

95S. Ct. 915 (1975).

In addition the levy and distraint process of 26

U.S.C. § 6331 (a) and (b) are contrary to standards

this Court has imposed on state process in similar situ-

ations. Fuentes v. Shevin, 407 U.S. 67 (1972); Snia-

dach v. Family Finance Corp., 395 U.S. 337 (1969) ;

North Georgia Finishing, Inc. v. Di-Chem, Inc., ........

U.S........., 95 S.Ct. 719 (1975). Recently, in Phelps v.

United States, ........ 1: , 95 S.Ct. 1728 (1975),

this Court did discuss the levy process of 26 U.S.C.

$ 6331 (a). However, the Court did not consider the

matter in the context of the conduct involved in this

17

case. The Tenth Circuit Court of Appeals reversed the

trial court as to any claim of damages against the re-

spondents or punitive damages and also rejected the

trial court's order for the destruction of the books and

records in the possession of the respondents and allowed

the use of photostats of said books and records. The

decision of the Tenth Circuit Court of Appeals if left

to stand places the stamp of approval on conduct in a

similar historical context which led to the American

Revolution. This Court should accept jurisdiction to de-

termine the correctness of the Tenth Circuit's conclu-

sions.

3. THE DECISION OF THE TENTH CIR-

CUIT COURT OF APPEALS THAT THE

PETITIONER WAS THE ALTER EGO OF

THE TARGET TAXPAYERS AND THE

JUDGMENT RENDERED THEREON

SHOULD BE REVERSED WITH AN OP-

PORTUNITY FOR THE PETITIONERS

TO PRESENT ADDITIONAL EVIDENCE

ON THE ISSUE.

The District Court found that G. M. Leasing Corp-

oration was not the alter ego of the taxpayers, George

I. Norman, Jr. and Frances M. Norman. The Tenth

Circuit Court of Appeals viewed the evidence to the

contrary and held the trial court's findings to be clearly

erroneous.| The court from its opinion apparently as-

sumed the burden of showing non-alter ego status was

on the petitioners. The Tenth Circuit reversed the trial

18

court on this point without affording petitioners an op-

portunity to present evidence as a part of its case in

chief on the issue. In the pretrial order (R. 61), it was

stipulated that the respondents, United States, etc., had

the burden of proof to show that G. M. Leasing Corpor-

ation was the alter ego of the named taxpayers. At the

time of trial, the petitioner, G. M. Leasing Corporation,

moved for a directed verdict or for a judgment of the

evidence pursuant to Rule 41 (b) and (c) Federal

Rules of Civil Procedure. The motion was made at the

close of respondents’ evidence. The petitioners were

prepared with additional witnesses and evidence to sup-

port their contentions, but had no opportunity to do so

because the District Court granted petitioners’ motions.

Thus, the Tenth Circuit Court of Appeals should not

have reversed the case outright, but, if it was of the opin-

ion that respondents had sustained their burden of

proof, should have remanded the case for further evid-

ence from the petitioners. By not allowing the petition-

ers to present their side of the case, the Court of Ap-

peals unilaterally determined the matter purely on the

government's evidence as well as rejecting the trial

court's findings. This Court should grant the petition

for certiorari for the purposes of remanding the matter

to the District Court with an opportunity for the peti-

tioners to present evidence on the question of whether

G. M. Leasing Corporation was, in fact, the alter ego

of the taxpayers.

19

CONCLUSION

For the three reasons presented, a writ of certiorari

should issue to review the judgment and opinion of the

Tenth Circuit Court of Appeals.

Respectfully submitted,

RICHARD J. LEEDY

309 Newhouse Building

Salt Lake City, Utah 84111

Attorney for Petitioners

APPENDIX

(Opinion of the Court of Appeals, Findings of Fact,

Conclusions of Law, and Judgment of the District

Court)

A-l

APPENDIX A

G. M. LEASING CORP..,

Plaintiff-Appellee,

V.

The UNITED STATES of America et al.,

Defendants-Appellants,

George I. Norman, III, Intervenor.

No. 74-1436.

United States Court of Appeals,

Tenth Circuit.

Submitted Jan. 24, 1975.

Decided May 1, 1975.

HILL, Circuit Judge.

This appeal results from an allegedly wrongful levy

and seizure by Internal Revenue Service agents of a

corporation's assets to satisfy the income tax liability of

an individual taxpayer.

Appellants are the United States, Department of

the Treasury, Internal Revenue Service (IRS), and a

district director and several agents of the IRS. Appel-

lee G. M. Leasing Corp., is a Utah corporation alleg-

edly engaged in a luxury car leasing business in Salt

Lake City, Utah.

A-2

The controversy centers around the income tax

liability of George I. Norman, Jr. (taxpayer), a fugi-

tive from justice.’ He neglected to file a 1970 or a

1971 income tax return. Subsequently, in October, 1972,

IRS agent Philip Clayton was assigned to investigate

taxpayers possible income tax libaility. Clayton re-

ceived no information or cooperation from taxpayer and

necessarily had to base any income tax deficiency upon

an examination of third party records. This investigation

resultgd in deficiency assessments against taxpayer and

his wife on March 19, 1973, in the respective amounts

of $951,409.93 and $154,138.54. Jeopardy assessments

were issued the next day and IRS agents went to tax-

payers residence in Salt Lake City, Utah, to collect

the tax. They informed taxpayer's wife of the jeopardy

assessments and made a demand for the tax due. She

refused and the agents left. Federal tax liens were filed

and levies were placed on taxpayer's bank account.

While at taxpayer's residence the IRS agents had

observed several automobiles in taxpayer's driveway. A

subsequent check with the state motor vehicle depart-

ment revealed that these automobiles were registered

to appellee and another corporation organized and con-

trolled by taxpayer, and that taxpaver owned no auto-

mobiles. After further investigation it was determined

that appellee was taxpayer's alter ego or transferee and

that its assets should be seized to satisfy taxpayer's tax

liability.

1 Taxpayer became a fugitive from justice after being convicted

of violating 18 U.S.C. §§ 656 and 2. See United States v. Cooper,

464 F.2d 648 (10th C’r. 1972.)

A-3

On March 21, 1973, the IRS agents went to ap-

pellee‘s premises to seize assets. This was also the loca-

tion of taxpayer's other offices and was owned by one

of taxpayer's other corporation. Additionally, taxpayer's

son, George I. Norman, III (intervenor), was using

the premises as a personal residence. With the aid of

locksmiths, the agents succeeded in gaining entry into

the building. At this point intervenor arrived on the

scene and asked what the agents were doing. They told

him that they were contemplating seizing assets, and

they entered the building. They left a short time later

without seizing anything, being unsure as to whether

the building was a personal residence or a business

office.

The agents returned to appellee's premises on

March 23, 1973, to seize assets and documents. They

again used locksmiths to gain entry. They seized, inter

alia, documents and placed them in boxes, which were

loaded on a moving van. It was thought that the docu-

ments might be, or could indicate the location of, money

and stock certificates. These documents were photo-

copied and the originals were subsequently returned to

appellee. The agents also seized appellee's bank account

and automobiles. Subsequently, they determined that

intervenor was taxpayers alter ego and seized 7,143

shares of Emdeko stock in intervenor’s name.

On May 3, 1973, appellee filed suit against appel-

lants in the United States District Court for the District

of Utah. A second amended complaint, filed on Oc-

tober 17, 1973, alleged, inter alia, that the jeopardy as-

sessments were arbitrary, capricious and without found-

A-4

ation; that the determination that appellee was taxpay-

ers alter ego was arbitrary and capricious; that IRS

agents illegally entered appellee's office, thus violating

appellee's and taxpayer's constitutional right of privacy;

and, that IRS agents conducted an illegal search and

seizure of appellee's premises.

The complaint requested, as relief, the return or

destruction o! the photocopies of the documents seized ;

return of the automobiles levied on and seized; suppres-

sion of evidence obtained from the seized documents

and an order barring appellants from ever again obtain-

ing such evidence by any means; suppression of the

seizure of the automobiles as evidence and an order

barring appellants from ever again seizing said auto-

mobiles; release of all levies filed by appellants against

appellee's property; and, $525,000 damages for appel-

lants’ violation of appellee's constitutional rights.

Intervenors motion for intervention was granted

and he filed a complaint alleging that he was the owner

of the Emdeko stock seized by the IRS agents. The

complaint requested a determination that intervenor

was not taxpayers alter ego, return of the stock, and

money damages in an undetermined amount.

Appellants answered on November 1, 1973, and

also counterclaimed for foreclosure of its tax liens. After

a nonjury trial the trial court entered findings of fact

and conclusions of law, including the following: appellee

was not taxpayer's alter ego; the seizure of appellee's

assets and documents constituted an illegal search and

seizure; appellant Clayton maliciously participated in

A-5

the search and seizure of appellee’s premises; the assess-

ments against taxpayer and his wife for 1970 and 1971

were erroneous and they have no liability for federal

income tax for those years; and intervenor was the

owner of 7,000 shares of Emdeko stock but was tax-

payer's alter ego with respect to 143 shares thereof.

The trial court entered judgment for appellee and

intervenor on May 24, 1974. The judgment (1) gave

appellee and intervenor money damages in an undeter-

mined amount against the individual IRS agents; (2)

gave appellee and intervenor punitive damages in an

undetermined amount against appellant Clayton; (3)

suppressed any use of the seized documents or photo-

stats thereof; (4) dismissed appellant's counterclaim

with prejudice; (5) ordered the return to appellee and

intervenor of all seized assets; (6) ordered the return

of 7,000 shares of Emdeko stock to intervenor and the

return of 143 shares of Emdeko stuck to taxpayer, his

wife, “or any other rightful claimant”; (7) removed all

levies and liens against said assets; and (8) gave ap-

pellee an undetermined amount of money damages for

assets disposed of by appellants.

{1} Appellants first challenge the trial court's find-

ing that appellee was not taxpayer's alter ego. This find-

ing is presumptively correct and must be left undis-

turbed on appeal unless it is clearly erroneous. Quarles

v. Fuqua Industries, Inc., 504 F.2d 1358 (10th Cir.

1974). A finding is clearly erroneous when, although

there is evidence to support it, the reviewing court is

left with the definite and firm conviction that a mistake

has been committed. See, e.g., Kelson v. United States,

A-6

503 F.2d 1291 (10th Cir. 1974); Clancy v. First Nat]

Bank, 408 F.2d 899 (10th Cir. 1969), cert. den'd 396

U.S. 958, 90 S.Ct. 430, 24 L.Ed.2d 422.

We are convinced that the trial court's alter ego

finding is, as appellants contend, clearly erroneous. The

evidence overwhelmingly indicates that appellee had no

separate or independent existence and that it was tax-

payer's alter ego. Appellee was one of four corporations

whose existence was initiated by taxpayer. He was not

an incorporator, director or officer of appellee, but served

only as its general manager. He nevertheless exerted

substantial, if not exclusive, control over appellee.

Although appellee had three directors they were

nothing more than figureheads. They made no business

decisions, had no duties, attended no directors meetings,

and were paid no salaries. One of the directors was tax-

payer's parttime secretary. She became an incorporator-

director at taxpayers request but was not told what

duties and responsibilities these positions would involve

and was not informed of the nature of appellee's busi-

ness. She did not participate in running the affairs of

appellee except to write a check when told to do so by

taxpayer. She continued to work as taxpayer's secretary

while serving as a director and, although she is not

presently associated with appellee, never officially term-

inated her position.

Another incorporator-director, the attorney who

prepared the legal work for appellee's incorporation,

testified that appellee was merely a shell or alter ego of

taxpayer and that “it had no assets or property of its

own. He also testified that certain people acted as

A-7

officers of appellee in connection with one or two trans-

actions but that appellee actually had no officers. A

third director, who also was a director of taxpayer's

other corporations, testified that taxpayer controlled the

affairs of the corporation “along with discussion of other

people.”

Taxpayer's dealings with appellee's assets is another

factor indicating appellee had no separate existence.

Some of appellee's assets, luxury automopiles worth

thousands of dollars each, were owned by taxpayer and

transferred to appellee. There is no evidence in the

record that these transfers were for consideration. The

record does suggest that appellee did not have sufficient,

if any, funds to acquire these assets. Moreover, the rec-

ord discloses that these automobiles were not transferred

to appellee until several months after its incorporation.

One of taxpayer's employees, whose duties included such

things as taking care of these luxury automobiles for

taxpayer, testified that taxpayer used the automobiles

in his individual business and that they were part of his

advertising campaign.

The record also indicates that taxpayer purchased

a new Jaquar in appellee's name and paid ivr it with

a check drawn on appellee's bank account, but that tax-

payer's wife used the car as her personal vehicle. And,

a gas station that stored some of appellee's luxury auto-

mobiles for taxpayer was paid by checks drawn on Com-

mercial Properties. another of taxpayer's corporations,

with only a couple of bills being paid by appellee.

Other evidence indicating that appellee is taxpay-

er's alter ego is the fact that appellee was supposedly

A-8

engaged in the automobile leasing business but that it

leased no automobiles; it had no employees, paid no

wages, paid no state sales or use tax, issued no stock and

had no stockholders’ meetings. Appellee contends that

stock was issued but has presented no stock certificates,

minutes of stockholders’ meetings or other documentary

evidence to substantiate its allegations.

[2] Based upon this evidence we think it is clear

that appellee was taxpayer's alter ego. Accordingly, we

must hold that the trial court’s finding to the contrary

was error.

{3} Relying on Rule 52, F.R.Civ.P.,’ appellants

2 Rule 52, F.R.Civ.P., provides:i

“(a) Effect. In all actions tried upon the facts without a

jury or with an advisory jury, the court shall find the facts

specially and state separately its conclusions of law thereon,

and judgment shall be entered pursuant to Rule 58, and in

granting or refusing interlocutory injunctions the court shall

similarly set forth the findings of fact and conclusions of law

which constitute the grounds for its action. Requests for

findings are not necessary for purposes of review. Findings

of fact shall not be set aside unless clearly erroneous, and

due regard shall be given to the opportunity of the trial court

to judge of the credibility of the witnesses. The findings of a

master, to the extent that the court adopts them, shall be

considered as the findings of the court. If an opinion or mem-

orandum of decision is filed, it will be sufficient if the find-

ings of fact and conclusions of law appear therein. Findings

of fact and conclusions of law are unnecessary on decisions

of motions under Rules 12 or 56 or any other motion except

as provided in Rule 41(b).

“(b) Amendment. Upon motion of a party made not later

than 10 days after entry of judgment the court may amend its

findings or make additional findings and may amend the judg-

ment accordingly. The motion may be made with a motion

for a new trial pursuant to Rule 59. When findings of fact

are made in actions tried by the court without a jury, the

question of the sufficiency of the evidence to support the

findings may thereafter be raised whether or not the party

raising the questions has made in the district court an ob-

jection to such findings or has made a motion to amend them

or a motion for judgment.”

A-9

next contend the trial court erred because it entered no

independent findings of fact or conclusions of law but

merely accepted those prepared by appellee. We agree.

This practice of the same trial judge has been twice con-

demned. See United States v. El] Paso Natural Gas

Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12

(1964) ; Kelson v. United States, supra. “The mechan-

ical adoption of a litigant’s findings is an abandonment

of the duty imposed on trial judges by Rule 52, F.R.-

Civ.P., because findings so made fail to ‘reveal the dis-

cerning line for decision. ...’” Kelson v. United States,

supra at 1294.

Appellants next contend that the trial court erred

in holding that appellee's documents and automobiles

were illegally seized, and in ordering the return of the

automobiles and the suppression of the documents.

Again, we agree.

{4} Part of the basis for the trial court's ruling in

this regard appears to be a finding that appellant Clay-

ton’s participation in the search and seizure was of a

malicious character. There is no evidence in the record

to support this finding, and we must hold that it is

clearly erroneous.

{5} It is clear from the record that appellants con-

ducted a statutorily valid seizure. A jeopardy assess-

ment was made on March 19, 1973. Notice and demand

for immediate payment were made the following day,

A-10

as authorized by 26 U.S.C. § 6331(a).’ The refusal to

pay authorized appellants to collect the tax by levy, and

this included the power of “seizure by any means.”

Thus appellants were acting pursuant to statute and did

not commit an illegal search. The trial court's order

returning the assets and suppressing the documents is

improper.

Appellants next contend that the trial court erred

in voiding the tax assessments and in dismissing their

lien foreclosure counterclaim. Appellee, on the other

hand, contends the trial court's actions were proper be-

cause the unrebutted evidence showed that the assess-

ments were erroneous.

{6, 7} When the government undertook to prove

its counterclaim, it offered into evidence documents

showing a presumptively correct tax assessment’ and

326 U.S.C. § 6331(a) provides in part:

“If any person liable to pay any tax neglects or refuses to

pay the same within 10 days after notice and demand, it shall

be lawful for the Secretary or his delegate to collect such tax.

.. . If the Secretary or his delegate makes a finding that the

collection of such tax is in jeopardy, notice and demand for

immediate payment of such tax may be made by the Secretary

or his delegate and, upon failure or refusal to pay such tax,

collection thereof by levy shall be lawful without regard to

the 10-day period provided in this section.”

$26 U.S.C. § 6331(b) provides in part:

“The term ‘levy’ used in this title includes the power of

distraint and seizure by any means.”

*‘ These documents were Defendants Exhibit 8, Notice of Federal

Tax Lien Under Internal Revenue Laws, and Defendants Ex-

hibit 10, Levy. We also consider Defendants Exhibit 11, Certifi-

cate of Assessments and Payments. The trial court refused to

admit this document into evidence. We find no valid basis for

excluding it and believe it should have been admitted.

A-ll

thereby established a prima facie case of liability. See,

e.g., Psaty v. United States, 442 F.2d 1154 (4rd Cir.

1971); Adams v. United States, 358 F.2d 986, 175 Ct.

Cl. 288 (1966); 9 Mertens L. Fed Income Tax. § 49.218

(Zimmet rev. 1971). This placed upon appellee the

burden of going forward with the evidence and the

burden <f ultimate persuasion. See, e.g., United States

v. Rexach, 482 F.2d 10 (1st Cir. 1973), cert. den'd 414

U.S. 1039, 94 S.Ct. 540, 38 L.Ed.2d 330.

Appellee contends it met this burden of proof by

showing that the assessment was erroneous in that it (1)

did not give taxpayer credit for $289,800 which tax-

payer paid; (2) gave taxpayer no credit for business

expenses; (3) gave taxpayer a zero basis in some stock;

and (4) included as income a $115,000 stock sale which

was not a sale. Appellee contends this evidence shifted

the burden of proof back to appellants to show what de-

ficiency, if any, existed and that appellants failed to

prove any deficiency. We disagree.

[8, 9} The fact that taxpayer's assessment was not

lessened by business expenses does not vitiate the assess-

ment. The burden of proof to establish a deduction and

the amount thereof is upon the taxpayer. Bishop v. CIR,

342 F.2d 757 (6th Cir. 1965). Here, taxpayer is not a

party to the proceedings and he did not supply the IRS

with any evidence of a business expense or with any

documentation to substantiate a claim for a business ex-

pense deduction. Since no deduction was established

the assessment's failure to reflect such a deduction was

proper.

A-12

{10, 11} Nor does the fact that taxpayer was given

a zero basis in some stock make the assessment erron-

eous. A taxpayer bears the burden of proving the cost

or other basis of property. If he fails to do this the basis

of such property is deemed to be zero. See, e.g., Factor

v. CIR, 281 F.2d 100 (9th Cir. 1960), cert. den'd, 364

U.S. 933, 81 S.Ct. 380, 5 L..Ed.2d 365.

[12] Appellee also asserts that the assessment was

erroneous because it was not lessened or offset by a

$289,800 payment made by taxpayer. This payment was

attached to an estimated tax return and sent to the IRS

on November 15, 1971, before any investigation of tax

liability had been conducted or any assessment made.

The money was placed in a suspense account to be ap-

plied against the assessment. In accordasce with IRS

policy this money could not, at the time the assessment

was being made, be applied as an offset or credit. The

record discloses that taxpayer's account was subsequent-

ly credited with this payment. This method of handling

a payment did not make the assessment erroneous.

[13, 14] Appellants concede that the assessment in-

cluded $115,000 of income that was not income, and

appellee contends this error vitiates the entire assess-

ment. We are not persuaded that it does. Merely show-

ing an inaccuracy in one item in the deficiency deter-

minations does not defeat the presumption of correctness

in favor of the Commissioner with respect to the entire

deficiency. See e.g., Foster v. CIR, 391 F.2d 727 (4th

Cir. 1968).

{15} Appellee, then, has not proven the assessment

A-13

to be erroneous. Under these circumstances the trial

court erred in voiding the assessment and not decree-

ing the requested foreclosure of the lien upon the prop-

erty lawfully seized.

The final issue concerns the disposition of certain

stock. Appellants levied on 7,143 shares of Emdeko

stock, of which intervenor claimed to be the owner. The

trial court found that 7,000 shares of this stock belonged

to intervenor and ordered it returned to him. However,

it found that intervenor was taxpayer's alter ego with

respect to the remaining 143 shares of stock, and it

ordered these shares returned to taxpayer, his wife, or

any other rightful claimant.

{16} Appellants do not contest the trial court's de-

termination of the 7,000 shares but they do contend that

the remaining 143 shares should not be returned to tax-

payer. We agree. Appellants seized the stock as part

of its leyy on taxpayer's property. The tria! court should

have allowed appellants to keep the 143 shares, which

it found were owned by taxpayer, to satisfy taxpayer's

tax liability.

In sum, we affirm the trial court's judgment inso-

far as it orders the 7,000 shares of Emdeko stock re-

turned to intervenor. We reverse the judgment insofar

as it (1) awards appellee and intervenor money dam-

ages against all appellants:'(2) awards appellee and

intervenor punitive damages against appellant Clayton;

(3) orders the destruction of the books and records in

the possession of appellants; (4) orders that any use of

photostats of said books and records is illegal; (5) dis-

A-14

misses appellants’ counterclaim; (6) orders appellants

to return all seized assets to appellee and intervenor;

(7) removes all levies and liens against said assets; and

(8) awards appellee judgment for the value of two

automobiles disposed of by appellants. We also con-

clude, as a matter of law, that at the time of the seizure

the government had a valid existing lien upon all of the

property involved herein in an amount in excess of the

value of the property seized. Judgment will be entered

accordingly.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

CENTRAL DIVISION

G. M. LEASING CORPORATION, Findings

Of Fact

Plaintiff, And

VS. \ Conclusions

THE UNITED STATES OF Of Law

AMERICA, et al., Civil No.

Defendants.’ C-189-73

Trial on this matter came on regularly on the 10th

day of May, 1974; the plaintiff and intervenor were

represented by counsel, Richard J. Leedy, Attorney at

Law; the defendants were represented by counsel,

Michael B. Andolina, Esq., Durrell Nielsen, Esq., C.

Garold Sims, Esq., James M. Dunn, Esq., and C. Nel-

son Day, U.S. Attorney; the plaintiff and intervenor

A-15

presented evidence supporting their claims; and the de-

fendant presented evideiice supporting its claim that the

plaintiff and intervenor were alter-egos, nominees, or

transferees of George I. Norman Jr., and Frances M.

Norman and further evidence to support its counter-

claim for foreclosure on the assets of plaintiff and inter-

venor and, after resting, the plaintiff and intervenor

moved for Judgment and Dismissal pursuant to Rule

41 of the Federal Rules of Civil Procedure and the

court, after reviewing the evidence and the memoran-

dums and responsive memorandums submitted by each

party and arguments of counsel and, based thereon,

makes the following:

FINDINGS OF FACT

1. Plaintiff isa Utah Corporation.

2. Intervenor is an individual residing in Salt

Lake County, Utah.

3. 4751-4753 Holladay Boulevard were the of-

fices of plaintiff G. M. Leasing Corporation and the

residence of intervenor, George I. Norman ITI.

4. On the 23rd day of March, 1973, employees

of the Internal Revenue Service forced entry and en-

tered the premises at 4751-4753 Holladay Boulevard,

Salt Lake City, Utah, for the purpose of searching for

books and records to be used as evidence against George

I. Norman Jr. and Frances M. Norman.

A-16

5. On the 25th day of March, 1974, employees of

Internal Revenue Service again forced entry and search-

ed the premises at 4751-4753 Holladay Boulevard, Salt

Lake City, Utah, and seized books and records belong-

ing to plaintiff and others to use as evidence against

George I. Norman Jr. and Frances M. Norman.

6. That the employees of the Internal Revenue

Service committing said search and seizure were de-

fendants James M. Livsey, John W. Haacke, Glen S.

Hilton, Keith E. Finley, Jr., Clark D. Holfeltz, Josph

J. White, Clesse S. Hilton, Burt C. Applegate, Ronald

P. Harrington, Tim W. Elison, Lawnie C. Mayhew,

Thomas L. Harkness and Philip J. Clayton.

7. The defendants did not obtain a search warrant

for the entry into 4751-4753 Holladay Boulevard for

search and seizure of records nor did they obtain or serve

a summons for seizing the books and records.

8. That the above named defendants did inten-

tionally commit said forced entry, search and seizure

knowing full well that they were violating the rights of

G. M. Leasing Corporation, intervenor and others.

9. Two of the individual defendants were em-

ployed in the IRS Intelligence Division for conducting

criminal investigations.

10. Defendant Philip Clayton maliciously com-

mitted said forced entry, and search and seizure.

11. After the commencement of this action, the de-

A-17

fendants returned the books and records that had been

seized at 4751-4753 Holladay Boulevard but photo-

stated said books and records and now retain said photo-

stats.

12. The defendants levied upon and seized all of

the assets of G. M. Leasing Corp, which include, to

wit: one Stutz automobile, Serial No. 276571A172678;

one 1972 Stutz automobile, Serial No. 276571A172863;

one Rolls Royce Phantom V Limousine, Serial No.

5LUA59; one 1930 Rolls Royce Phintom, Serial No.

21649; one 1971 four-door Stutz Salon, Serial No. 2765-

79P364856; one 1971 Stutz, Serial No. 276571A155699;

one Jaguar, Serial No. UC1L67176 BW; and a bank

account at Zions First National Bank in Salt Lake City,

Utah.

13. The defendants disposed of two Stutz automo-

biles; one 1971 four-door Stutz Salon, Serial No. 2765-

79P364856; and one 1971 Stutz, Serial No. 276571A1-

55699; the remaining automobiles owned by G. M.

Leasing Corp., are under seizure and being stored by

the defendants at 50 West 300 South, Salt Lake City,

Utah.

14. The defendants seized Certificate = S1L012905

of Emdeko International, Inc., bearing 7,143 shares of

its common stock from intervenor.

15. All seizures took place pursuant to a jeopardy

assessment for federal income taxes, penalties, and in-

terest allegedly owed by George I. Norman Jr. and

Frances M. Norman for the years 1970 and 1971.

A-18

16. The seizures were based on defendants deter-

mination that plaintiff and intervenor were alter-egos,

nominees, or transferees of George I. Norman Jr. and

Frances M. Norman.

17. The assessment of income taxes failed to take

into consideration a $289,800.00 payment by George I.

Norman Jr. and the penalties and interest were also

assessed without consideration of the $289,800.00 pay-

ment.

18. The assessment included items of income which

were not in fact income, including $115,000.00 in al-

leged income from an alleged sale of securities which

was not a sale of securities and was not income.

19. The assessment did not give credit for business

expenses incurred by George I. Norman Jr. and Frances

M. Norman, and George I. Norman Jr. and Frances

M. Norman had extraordinarily high business expenses.

20. The assessment of income taxes, penalties, and

interest against George I. Norman Jr. and Frances M.

Norman for the years 1970 and 1971 was erroneous.

21. No income or liability for federal income taxes,

penalties or interest for George I. Norman Jr. or Frances

M. Norman was proven.

22. George I. Norman Jr. and Frances M. Norman

have no liability for federal income taxes, penalties or

interest for the years 1970 and 1971.

A-19

23. G. M. Leasing Corp. was formed and incorp-

orated for the legitimate business purpose of leasing

automobiles.

24. The assets of G. M. Leasing Corp. were not

transferred to it by George I. Norman Jr. or Frances

M. Norman for insufficient consideration.

25. G. M. Leasing Corp. was not undercapitalized

at its formation.

26. G. M. Leasing Corp. was not set up for fraudu-

lent purposes or for the purposes to contravene law or

contract.

27. G. M. Leasing Corp. had a board of directors

and officers.

28. G. M. Leasing Corp. has engaged in substan-

tial business activity in preparation for its business pur-

pose of leasing automobiles.

29. G. M. Leasing Corp. was not solely controlled

by George I. Norman Jr. or Frances M. Norman.

30. G. M. Leasing Corp. was not a transferee of

George I. Norman Jr. or Frances M. Norman.

31. G. M. Leasing Corp. was not an alter-ego of

George I. Norman Jr. or Frances M. Norman.

32. G. M. Leasing Corp. was not a nominee of

George I. Norman Jr. or Frances M. Norman.

A-20

33. With respect to 7,000 shares of the 7,143 share

certificate of Emdeko International, Inc. common stock

seized from intervenor George I. Norman III, George

I. Norman III, owned 7,000 shares and was not an

alter-ego, nominee, or transferee of George I. Norman

Jr. or Frances M. Norman.

34. With respect to 143 shares of Emdeko Inter-

national, Inc. common stock seized from George I. Nor-

man III, George I. Norman III, was acting as alter-

ego, nominee, or transferee of George I. Norman Jr.

and Frances M. Norman.

From the above findings of fact, the court makes

the following.

CONCLUSIONS OF LAW

1. The defendants James M. Livsey, John W.

Haacke, Glen S. Hilton, Keith E. Finley, Jr., Clark

D. Holfeltz, Joseph J. White, Clesse S. Hilton, Burt

C. Applegate, Ronald P. Harrington, Tim W. Elison,

Lawnie C. Mayhew, Thomas L. Harkness and Phillip

J. Clayton, committed an illegal search and seizure of

the offices of plaintiff and the residence of intervenor in

violation of the 4th Amendment to the United States

Constitution and plaintiff and intervenor are entitled to

Judgment for damages against those defendants for the

invasion of their privacy in an amount yet to be deter-

mined and the photostats of all illegally seized books and

records now in the possession of the defendants should

A-21

be destroyed and any use of those photostats of books

and records would be illegal.

2. Plaintiff and intervenor are entitled to a Judg-

ment for punitive damages from the defendant Philip J.

Clayton in an amount yet to be determined.

3. The defendants counterclaim for foreclosure

should be dismissed with prejudice.

4. The defendants should be ordered to return all

of the seized assets of G. M. Leasing Corp. and inter-

venor; which are: one 1972 Stutz automobile Serial No.

276571A172678; one 1972 Stutz automobile, Serial No.

276571A172863; one Rolls Royce Phantom V Limou-

sine, Serial No. 5I,U A59; one 1930 Rolls Royce Phan-

tom, Serial No. 21649; one Jaguar, Serial No. UC1IL-

67176 BW; without cost for storage in the same condi-

tion as said assets were at the time of said illegal seizure

and 7,000 shares of Emdeko International, Inc. stock

to intervenor together with 143 shares of Emdeko Inter-

national, Inc. stock to G. I. Norman Jr., Frances M.

Norman or any other rightful claimant. All levies and

liens against said assets should be removed and Judg-

ment against the defendant United States of America

in favor of plaintiff should be awarded in an amount

yet to be determined for the value of two automobiles

disposed of by defendants.

Dated this 24th day of May, 1974.

By The Court:

/s/ WILLIS W. RITTER

Honorable Willis W. Ritter

A-22

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

CENTRAL DIVISION

G. M. LEASING CORPORATION, |

Plaintiff, Judgment

Civil No.

THE UNITED STATES OF C-189-73

AMERICA, et. al,

VS.

Defendants.

Trial on this matter came on regularly on the 10th

day of May, 1974; the plaintiff and intervenor were

represented by counsel, Richard J. Leedy, Attorney at

Law; the defendants were represented by counsel,

Michael B. Andolina, esq., Durrell Nielsen, Esq., C.

Garold Sims, Esq., James M. Dunn, Esq., and C. Nel-

son Day, U. S. Attorney; the plaintiff and intervenor

presented evidence supporting their claims; and having

previously made finding of fact and conclusions of law,

and based thereon:

IT IS HEREBY ORDERED that the plaintiff

and intervenor have judgment for damages in an amount

yet to be determined against the defendants James M.

Livsey, John W. Haacke, Glen S. Hilton, Keith FE.

Finley, Jr., Clark D. Holfeltz, Joseph J. White, Clesse

S. Hilton, Burt C. Applegate, Ronald P. Harrington,

Tim W. Elison, Lawnie C. Mayhew, Thomas L. Hark-

ness and Philip J. Clayton.

A-23

IT IS FURTHER ORDERED that the plain-

tiff and intervenor have Judgment for punitive dam-

ages from the defendant Philip J. Clayton in an amount

yet to be determined.

IT IS FURTHER ORDERED that all illegally

seized books and records now in the possession of the

defendants be destroyed and any use of those photo-

stats of books and records is illegal.

IT IS FURTHER ORDERED that the de-

fendants counterclaim for foreclosure is dismissed with

prejudice.

IT IS FURTHER ORDERED that the defend-

ants return all of the seized assets of G. M. Leasing

Corp. and intervenor; which are: one 1972 Stutz auto-

mobile Serial No. 276571A172678; one 1972 Stutz auto-

mboile, Serial No. 276571A172863; one Rolls Royce

Phantom V Limousine, Serial No. 51.UA59; one 1930

Rolls Royce Phantom, Serial No. 21649; one Jaguar,

Serial No. UC1L67176 BW., without cost for storage

in the same condition as said assets were at the time of

said illegal seizure and 7,000 shares of Emdeko Inter-

national, Inc., stock to intervenor together with 143

shares of Emdeko International, Inc., stock to G. I.

Norman Jr., Frances M. Norman or any other rightful

claimant.

IT IS FURTHER ORDERED that all levies

and liens against said assets are removed.

A-24

IT IS FURTHER ORDERED that the plaintiff

have Judgment in an amount yet to be determined for

the value of the two automobiles disposed of by de-

fendants.

DATED this 24th day of May, 1974.

BY THE COURT:

/s/ WILLIS W. RITTER

Honorable Willis W. Ritter