Petitioners Reply Brief — GM Leasing Corp. v. United States

BOR ARGUMENT

P< teem Comrt, Uv. & 7

FitEQD

SEP 27 i976

In the Supreme Court pecrgee es

United States

OctTosBerR TERM, 1975

G. M. LEASING CORP., et al.,

Petitioners,

v,

UNITED STATES OF AMERICA, et al.

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE TENTH CIRCUIT

REPLY ‘BRIEF FOR PETITIONERS

RICHARD J. LEEDY

2795 Comanche Drive

Salt Lake City, Utah 84108

Attorney for Petitioners

For 593-1467

;

TABLE OF CONTENTS

Page

OPINIONS BELOW oun ececsececseeees 1

PIE, sensicssstntrnlaniibasneaicindainiusignalineiiniasniits 2

QUESTIONS PRESENTED |... 2

STATEMENT ............. ssileniliasidaasiadaniieiiaianinlicians 2

PT, <svsestcssiedicinisiitaiopsiiteiinioiiaiiigibaiaibadibadaliigiliibaili 7

THE REASONS THAT RESPONDENTS

ASSERT FOR DENYING THE AP-

PLICABILITY OF THE FOURTH

AMENDMENT TO TAX SEIZURES

ARE NOT VALID 0cccccccssssecscsccccccccssscsesceeeee 7

RECENT CASES HAVE BEEN

DECIDED SUPPORTING

III ihc a a a an 21

PETITIONER IS ENTITLED TO THE

RELIEF IT SEEKS ........0...0.000000000 29

SUNN Liciceiccicncscrcchc ste ciliccnisdtesitliin decal tiacoee —,

CITATIONS

Cases

Bivens v. Six Unknown Fed. Narcotics Agents,

403 U.S. 388 2000000... Linsigingiheiieiipdiaiiidaiaddidamiliadiiadanilieidia 31

Boyd v. United States, 116 U.S. 616 (1886) _ 20... 9

Bull v. United States, 295 U.S. 247 occ ccceceeeeeee. 11

Chambers v. Maroney, 399 U.S. 42 0.0.00 .eeccecececeeeee 19

Commissioner v. Shapiro, No. 74-744

decided March 8, 1976 ... 14, 22, 23, 24, 27, 28, 30

Ti

Page

Coolidge v. New Hampshire,

eee 10, 16

Davis v. United States, 328 U.S. 582 -...........0......-.-.. 11

Laing v. United States,

96 U.S. Ct. 473 (1976) -......... RRS SRE CEO wr 23, 28

Mapp v. Ohio, 376 U.S. 643 (1961) 0. 29

Murray's Lessee v. Hoboken Land and

Improvement Corp., 18 ee : » ae 9, 11

One 1958 Plymouth Sedan v. Pennsylvania,

380 U.S. 693 (1965) -_... pusienaiddeelioniadealdcsldaadeadhiiieidtini 10, 30

Phillips v. Commissioner, 283 U.S. 589 (1931) .... 22, 28

United States v. Hall, 96 U.S. Ct. 473 (1976) _........ 23

United States, et al, v. Janis, No. 76-958

decided July 6, 1976 ....... aciiosiineicpenaaamiakeione 29

United States v. Johnson, 333 U.S. 10 20... 16

United States v. Martinez Fuerte, et al..

No. 74-1560, decided July 6, 1976 ................ 27, 28

Weeks v. United States, 232 U.S. 383 (1941) ........ 29

Wong Sun v. United States, 371 U.S. 471 (1963) .. 30

Other Authorities

Black’s Law Dictionary, 4th Ed. page 1785

citing 1 Maddox Hist. Ex. Ch. 675 ..0000000......... 15

Rosenthal Jeopardy and Termination Assessments

After Laing and Hall: Jeopardizing the

Fourth Amendment,

31 Tax L.. Rev. 317 (1976) ......................... (ae 32

in the Supreme Court of the

United States

Ocroser TERM, 1975

No. 75-235

G. M. LEASING CORP., et al.,

Petitioners,

v.

UNITED STATES OF AMERICA, et al.

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE TENTH CIRCUIT

REPLY BRIEF FOR PETITIONERS

OPINIONS BELOW

The findings of fact and conclusions of law of the

district court (Pet. App. A-14 to A-21), are not re-

ported. The opinion of the court of appeals (Pet. App.

A-1 to A-14) is reported at 514 F. 2d 925.

2

JURISDICTION

The judgment of the court of appeals was entered’

on May 1, 1975 (Appendix C, infra, pp. 16a-17a). On

June 17, 1975, the court denied a petition for rehearing

by G. M. Leasing Corporation and also denied its sug-

gestion of rehearing en banc (Appendix D, infra, pp.

18a-19a). The petition for a writ of certiorari was filed

on August 13, 1975, and was granted on December 15,

1975, with respect to Question 2 (A.14). The juris-

diction of this Court rests on 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

The grant of certiorari was limited to a single ques-

tion (.A.14), which is:

Whether tax agents of the United States acted

illegally in seizing automobiles and documents of

‘ petitioner in violation of its constitutional

rights when said seizures were made pursuant

to an Internal Revenue jeopardy assessment.

STATEMENT

The respondents’ statement of fact is slanted and

not entirely supported by the record.

Throughout its brief, respondent implies that the

taxpayer in this case, George I. Norman, Jr., was a de-

linquent and recalcitrant taxpayer who would take any

steps to avoid paying his just taxes. Such is simply not

the case.

Respondents began their scenario by implying that

3

the reason for the revenue service audit of Mr. Norman

was based on his conviction of a felony of aiding and

abetting the willful misapplication of bank funds, (Res.

brief, page 3). In truth and in fact, Mr. George I.

Norman, Jr., the taxpayer, had been audited for many

years from 1964 until 1971 because he had substantial

income and substantial deductions (R. Vol. I, pg. 25.

As to substantial deductions, see A-26). Internal Rev-

enue audits were more or less an ongoing occurrence

in the taxpayer's business. rather than a result of the

events which respondents have pointed out in its brief.

Throughout its brief, respondents state that the

taxpayer was uncooperative and the agent was required

to make a jeopardy assessment purely on third-party

sources. In so asserting, and again attempting to dis-

tort the view of the taxpayer, Norman, respondents

state:

“In conducting his audit, Clayton received no

information or cooperation from Norman and,

therefore, had to rely upon third-party sources,

including the records of stock brokerage firms.”

(Res. brief, page 4).

There is absolutely no evidence tat agent Clayton ever

requested assistance from the taxpayer or his represent-

atives who had filed powers of attorney with the In-

ternal Revenue Service. No summons were ever issued;

(R. Vol. I, pg. 14), no subpoenas were ever served.

The inference is just as clear that the election to make

his audit from third-party sources was Internal Revenue

agent's own election. He proceeded to do his audit,

4

much to the consternation of the taxpayer, by contact-

ing business associates and brokerage firms with whom

the taxpayer did business.

In trying to stretch the taxpayer's image from that

of a reluctant or non-cooperative taxpayer to a taxpayer

who actively hid his assets in an attempt to defeat

collection, the respondents state :

“Taxpaver'’s attempt to outwit the system consisted

of failing to file returns. refusing to cooperate with

an audit and seeking to defeat collection by con-

cealing some of his assets in a sham corporation,

such as petitioner” (Res. brief. page 23).

Respondents have never produced one iota of evidence

that Norman’s assets, standing in his own name, are

not sufficient to pay the taxes due and owing. There is

no evidence that the taxpayer has transferred all of his

assets into “sham corporations”. It might be noted that

the assets of petitioner were originally seized by re-

spondents not only on the basis that petitioner was an

alter ego of George I. Norman, Jr., but also on the

basis that it was a transferee (A. 71-72). The Internal

Revenue Service was unable to produce any evidence

that the taxpayer was insolvent or transferred his assets

to petitioner for insufficient consideration and, there-

fore, the claim that petitioner was a transferee was dis-

missed and was not raised on this appeal. At any rate,

to allege that the collection of taxes was in jeopardy

because taxpaver had hidden all of his assets in sham

corporations is simply unsupported by the evidence.

5

In an attempt to support their jeopardy determin-

ation the respondents imply that the Normans or their

agents were attempting to hide propery from the In-

ternal Revenue Service after the assessment (See brief

on page 10). They assert that persons were removing

boxes of material from the cottage office used by Nor-

man and petitioner. The respondents state:

“because these events indicate unknown persons

were puttiig property believed to belong to Nor-

man beyond the reach of the Internal Revenue

Service, collection officers decided to seize the

cottage, etc.” (Res. brief, page 10).

The implication that Norman had anything to do with

the removal of assets from the “cottage” is completely

unsupported by the record. The inference is just as

clear that the revenue agents who apparently were

keeping the cottage under surveillance, (See Res. brief,

page 10), observed a burgulary occuring and failed to

take any action to prevent it.

The respondents assert that there was a danger

posed to the collection of taxes because of Norman’s

fugitive status. Again, the respondents failed to prove

and there is no evidence in the record that the taxpayer

did not leave ample assets behind with his family to

pay any taxes which were justly due and owing. In

fact, large holdings of real estate were liened by the

respondents. If Norman were a fugitive, he could not

very well conceal the assets he left behind.

Pespondents, in their statement, acknowledge that

6

Norman paid $280,000 in taxes for the year 1970, (n

reality, the sum was closer to $290,000) (A-27). Then

in attempting to support the image that the taxpayer

Norman would not pay his tax and that collection was

in jeopardy, respondents assert that Norman submitted

to the Internal Revenue Service a check that was later

dishonored for $405,125 in payment of his 1971 tax

liability. For support of such assertion, respondents

cite defendants’ exhibit 11 (.\-103). A reading of the

record will show that defendant’s exhibit 11 or A-103

was never received in evidence aud that respondents

assertion is, therefore, unsupported by the record. (R.

Vol. 1, pg. 137-139).

Respondents then try to transfer the image of the

recalcitrant or delinquent taxpayer from Norman to his

wife by saying that she, after being informed of the

jeopardy assessment, and demand for payment being

made, refused to pay the tax assessments (Res. brief,

page 5). Such is simply not true. Mrs. Norman, being

merely a housewife, and not accustomed to the business

world nor the business of her husband, merely suggested

to the agents that they should speak to her husband's

attorney rather than her (A-56). Rather than speak

to her attorney, the Internal Revenue Service agents

merely began to seize assets.

The image attempted to be portrayed by the re-

spondents, that the taxpayer, George I. Norman, Jr.,

was a delinquent and recalcitrant taxpayer who would

take any steps to defeat collection of tax is a distortion.

Although petitioner does not condone the fugitive status

>

of Norman, nor would petitioner suggest that Norman

would pay more than was justly due and owing, peti-

tioner believes that a fair statement of the facts should

be presented to the Supreme Court. Norman was a

businessman who made a very substantial income. He

also had extremely high deductions and business ex-

penses. He had always paid his taxes, but had been

audited for many years by the Internal Revenue Serv-

ice. In fact, the same agent of the Internal Revenue

Service, Phillip Clayton, made the audits from 1964 to

1971. And it is based upon this premise that peti-

tioner would suggest that the Court disregard the re-

spondent’s slanted and distorted statement of fact in

favor of the petitioner's statement in its opening brief.

ARGUMENT

THK REASONS THAT RESPONDENTS

ASSERT FOR DENYING THE APPLIC-

ABILITY OF THE FOURTH AMEND-

TO TAX SEIZURES ARE NOT VALID.

The respondents put forth four arguments to sup-

port its position and the Fourth Amendment is not vio-

lated when the Internal Revenue Service seizes prop-

erty pursuant to a jeopardy assessment. Petitioner will

rebut each one of these propositions.

Respondents first argument is: that this court has

previously sustained the validity of such seizures and,

therefore, on the basis of state decisis and the rationale

of previous cases, such seizures should be upheld.

8

However, respondent fails to distinguish between

a seizure pursuant to a normal assessment and a seizure

pursuant to a jeopardy assessment. It is petitioner's

position that a taxpayer or a person in petitioner's status

is entitled to either a hearing or an independent mag-

istrate’s decision prior to the seizure of his property.

Petitioner would refer the court to the authority cited

in support of this proposition in its opening brief. As-

suming that lifth Amendment due process requires

some sort of a hearing before a person may be deprived

of his property, or, at least, immediately thereafter, and

that generally the Fourth Amendment requires an in-

dependent magistrate’s determination of probable cause

before a seizure. Petitioner contends that there is great

distinction between a seizure pursuant to a normal as-

sessment and a seizure pursuant to a jeopardy assess-

ment. Assuming the normal assessment situation, the

taxpayer generally has had an opportunity to confer

with the Internal Revenue Service concerning his taxes,

and assuming that such conference has been unpro-

ductive or uncompromising, thereafter the taxpayer is

sent a notice of deficiency which the taxpayer may

contest in tax court and receive a tax court determina-

tion and no seizure would occur until after these events.

Therefore, in the normal situation, the taxpayer has

ample notice and opportunity for hearing, not only

within the system, but by the tax court. However, in

the jeopardy situation, the seizure takes place immedi-

ately, and there is no notice with the exception of the

simultaneous demand for payment and seizure of assets,

nor is there an opportunity for a hearing.

9

Respondents assert that the case of Murray's

Lessee v. Hoboken Land and Improvement Corp., 18

How, 272 contains this court’s support of a proposition

that a tax seizure does not violate the Fourth Amend-

ment. Petitioner contends that the Murray's Lessee

situation is more close to the normal tax assessment

situation where there is notice and opportunity for

hearing. The distress warrant issued by the Treasury

in the Murray's Lessee case was only issued after a

hearing and decision and judgment and notice of sale.

Such a case can hardly be supportive of the jeopardy

situation where properties are taken without notice.

The second case relied upon by the respondents,

Boyd v. United States, 116 U.S. 616 (1886) is also

distinguishable. That case was treated in petitioner's

opening brief. The Court's language in the Boyd case,

as pointed out in the opening brief, supports the peti-

tioners position, rather than respondent's position. The

Court in Boyd stated, “it is our opinion, therefore, that

a compulsory production of a man’s private papers, . . .

to torfeit his property is within the scope of the Fourth

Amendment to the Constitution in all cases in which a

search and seizure could be... .” (116 U.S at 622).

This statement brings to mind the situation in the in-

stant case where the revenue agents searched the tax-

payers and petitioner's office for the stated purpose of

seizing records to find taxpayer's property (A. 24-25).

Respondents then attempt to gain support from

recent cases of this Court regarding the search and

seizure of automobiles. It should be recalled that this

10

case also involves the seizure of several luxury auto-

mobiles as well as the corporate records of petitioner.

Respondents cite several of this Court's cases (see page

34 of Res. brief), to support the proposition that there

is less expectation of privacy in an automobile than in

a home and. therefore, there is a “constitutional diff-

erence” between a house and a car. While the respond-

ents would not quarrel with this position with regards

to a search or examination for evidence, petitioner can-

not see the difference or a valid distinction between

the two with respect to a seizure or dispossession of the

owner of his interest therein. Respondents attempt to

assert that a seizure by tay agents merely deprived a

person of his proprietary interest in the property seized

and there is no invasion of privacy interest protected

by the Fourth Amendment. (See respondent's brief,

page 35). Such a position cannot be supported. Ob-

viously, th right of privacy. inch les the right to be let

alone from government interference and must also in-

clude the right to be secure in one’s property and not

have it taken, es well as merely. searched. See, One

1958 Plymouth Seean v. Pennsylvania, 380 U.S. 693

(1965): Coolidge v. New Hampshire, 403 U.S. 443

(1973).

As further rationale for its position, respondents

attempt to argue that by virtue of the tax lien the gov-

ernment itself has a proprietary interest in the property

of taxpaver. Therefore, they argue, that the merely

taking of possession is to protect its own proprietary

interest, and, therefore, further leeway should be given

to the government and no warrant required (Res. brief,

ll

page 35-36). The respondents cite Davis v. United

States, 328 U.S. 582.

Petitioner again responds that such a “bootstrap”

doctrine is not acceptable in light of constitutional stan-

dards. It is not only the seizure, but the jeopardy as-

sessment which allowed the seizure that petitioner con-

tends violates the Fourth Amendment. It is no answer

to such to say that because the jeopardy assessment

creates a lien, therefore, the seizure is proper unless

one examines the validity of or probable cause for the

jeopardy assessment either by hearing or by an inde-

pendent magistrate’s finding of probable cause.

Respondents assert that Bull v. United States, 295

U.S. 247 supports its position and the holding in Mur-

rays Lessee, supra (Res. brief, page 38). However,

the Bull case points out that prior to the seizure or re-

tention of property by the government, the taxpayer

normally has an administrative agency to which he may

turn prior to assessment and normally the taxpayer is

given certain notice of the amount due at a date prior

to its due date. See Bull v. United States, supra at

259-260.

The respondents assert that the decision of the

United States Supreme Court and other federal courts

favoring the Internal Revenue Service are based upon

the rationale that

“the very existence of government depends upon

the prompt collection of the revenues. (Res.

brief, puge 38) . . . And if as those decisions

12

indicate, the collection of taxes by summary ad-

ministrative proceedings without a_preseizure

judicial hearing is constitutionally justified be-

cause of the government's urgent need to secure

its revenue.” (Res. brief, page 39).

Petitioner agrees that this rationale is often repeated

in tax cases. Petitioner, however, would take issue. In

this day and age of huge budget deficits and the theory

of deficit spending to encourage the economy, petitioner

contends that there is no “urgent need” for the govern-

ment to hastily collect its revenue. .\t least, the need of

the government to collect its revenues is no more urgent

than the government's need to seize evidence from nar-

cotics offenders, gamblers, or any other criminal suspect

whom the Fourth Amendment protects.

It is therefore, petitioner's position that previous

United States Supreme Court cases do not support

respondents’ position with respect to seizures pursuant

to jeopardy assessment.

Respondents second argument, sub-paragraph (c)

of respondents brief, asserts that the history of England

and America would support warrantless seizures of de-

linquent taxpayers property without regard to the

Fourth Amendment. In rebuttal to this proposition of

respondents, the petitioner will rely on its opening brief

and further, simply state that a history of long standing

abuse does not necessarily make it right.

Respondents third argument in sub-paragraph (d)

of its brief is that the Fourth Amendment was not in-

13

tended to prohibit general seizures of property without

warrant, hearing or notice for tax pu’ poses. lor an

opposing view regarding the framer’s intent, petitioner

refers the Court to its opening brief.

Respondents do admit that t:e Fourth Amend-

ment was intended by its framers to prohibit general

writs of assistance (Res. brief. page 55). Petitioner

contends there is very little difference between a gen-

eral writ of assistance and a jeopardy assessment to-

gether with a lien and levy on all taxpayer property

and seizure pursuant thereto.

In an attempt to distinguish between writs of

assistance and a tax levy, respondents in their brief

state:

“The vices of the writs of assistance which he de-

scribed bear no resemblance to the collector's

seizure of a taxpayers property. Unlike the

broad sanctions for investigatory searches con-

ferred by writs of assistance, a tax levy is not

investigatory in nature. but proceeds upon the

existence of a specified data which the taxpayer

is well aware, since demand for payment has

already been made upon him. Moreover, the

collector does not act with unbridled discretion,

but is empowered to seize only an amount of

properties sufficient to satisfy the debt.” (Res.

brief, page 58).

If such were true, the respondents position may have

some substance. But in reality such a statement is not

true. While a tax assessment is definite in amount, the

value of property seized is ofien difficult of exact ascer-

14

tainment. In the present case, the Internal Revenue

Service has seized over five luxury automobiles of peti-

tioner, real estate, boats, and other personalty of tax-

payer. As yet, no dollar value has ever been placed

on this personalty to determine if the amount of the tax

assessment has been reached.

Additionally, tax assessments such as in this case

are often so high they bear little relationship to the

taxes due and owing. Petitioner recognizes the holding

in Commissioner vt. Shapiro. No. 74-744 (March 8,

1976) allowing the taxpayer whose property has been

seized to challenge whether any basis in fact, underlies

the assessment. Such a limited challenge is not suf-

ficient in a case such as the instant case. The 1970 tax

assessment in the instant case showed liability of

$280,000. Penalties and interest were assessed on that

amount at $120,305.75. The total 1970 assessment was

$406,099.37. The assessment has no relation to the

amount due. Petitioner had paid $290,000.00 for which

he had been given no credit. Substantial income was in-

correctly added (A-27). No expenses or deductions

allowed (A-26). Penalties and interest were com-

pounded as if no payment was made. Consequently,

the actual amount due was very small; yet thousands

of dollars in value of real estate, luxury automobiles and

other assets were seized.

It is difficult to rationalize the respondents’ state-

ment that the seizure was not investigatory at page 58

of its brief with page 74 wherein respondents state:

15

“As the agents testified . . . they seized these

records (petitioner's records) in order to ascer-

tain whether they contained any sizable assets

themselves (such as stock certificates) or any in-

formation concerning the location of other assets

of the taxpayers.”

IIo can respondents in good faith contend that the

seizure was not investigatory when they themselves

assert that one of the items that was seized was for the

purpose of attempting to locate other assets of peti-

tioner. Also, as was pointed out in the opening brief

(page 17), Internal Revenue Service Intelligence

agents participated in the seizures and the F°.B.1. was

made privy to the records seized.

On page 65 of respondents’ brief, they assert:

“Finally, the Court has explained the require-

ments for a judicial warrant, particularly de-

scribing the thing to be seized . . . but this prin-

ciple has little force in a case where the collec-

tion agents are directed by Section 6331 of the

Code to ‘levy upon all property and rights to

property ... beloning to such a person on which

there is alien... .”

How much more general can a writ of assistance be

than the tax levy’ The ancient writ of assistance,

which respondents admit was underlving the prohibi-

tions of the Fourth Amendment is a form of process

issued hy a Court to transfer the possession of property

to enforce the payment of the King’s debt or due and

is issued without notice. See Black's Law Dictionary,

tth Ed. page 1785, citing 1 Maddox Hist. Ex. Ch.

16

675. Petitioner sees little distinction between the jeop-

ardy assessment and seizure and the writ of assistance

which respondents admit were prohibited by the Fourth

Amendment.

Respondents’ fourth and final argument against the

Fourth Amendment applicability is that the reasons

underlying the search warrant are not present in the

jeopardy assessment tax seizure situation.

Petitioner argued in its main brief that the same

reasons underlying the requirement for a search war-

rant are especially present in the situation of property

seizure pursuant to a jeopardy tax assessment. As

pointed out in the opening brief, one person was con-

trolling in the entire events leading from assessment,

jeopardy recommendation, recommendation that the

petitioner was the alter ego of taxpayr and, finally the

seizure (pages 29, 30, 31 of opening brief). Petitioner

alleges that this particular agent acted with malice and

the trial court agreed, although the appellate court re-

versed. There can be no question that the Internal

Revenue Service agent was, at least, caught up in the

“competitive business” of the enforcement of tax laws.

It was this similar situation which the United States

Supreme Court discussed when asserting the need for a

detached and neutral magistrate’s judgment rather than

one who is caught up in the “competitive business” of

law enforcement. Coolidge v. New Hampshire, supra,

at 494 quoting United States v. Johnson, 333 U.S. 10.

Respondents contend that the situation in the in-

17

stant case presented exigent circumstances of the type

which would normally dispense with the requirment

of a search warrant. Respondents cite three separate

facts which it claims produces those exigent circum-

stances. First, respondent asserts that the taxpayer re-

fused to cooperate with an audit, (Res. brief, page 61).

As pointed out in this reply brief’s statement of fact,

there is absolutely no evidence that the taxpayer was

ever requested to cooperate or assist in the audit and

that, in fact, the use of third party records by the In-

ternal Revenue Service agent was his own election,

rather than requesting assistance from the taxpayer.

Secondy, respondents point out that the taxpayer

had concealed some of his assets in petitioner, a sham

corporation. Petitioner presumes that such a statement,

while completely at odds with the trial court's finding,

may be in accord with the Tenth Circuit's statement

that the petitioner had no separate existence apart from

the taxpayer. Petitioner does quarrel with the state-

ment that taxpayer concealed his assets and that peti-

tioner was a “sham” corporation. Tetitioner was a

‘start up’ corporation who had yet to commence busi-

ness (see petitioners opening brief, pages 10 and 11).

While taxpayer transferred some assets to petitioner,

there is no evidence that he “concealed” those assets or

that G. M. Leasing did not pay valuable consideration

therefor. Be that as it may, it is again pointed out,

as it was in the statement of facts, that there is abso-

lutely no evidence in the record that the taxpayer does

no have sufficient assets available to satisfy his just

taxes without the assets of petitioner corporation.

18

inally, the third argument respondents give for

claiming exigent circumstances is the fact that the tax-

payer is a fugitive. The petitioner would think, on the

contrary, that if a taxpayer were not present, he would

have little ability to hide his assets.

With respect to the exigent circumstances claim,

the respondents again bring out that material was re-

moved from the building during the evening prior to

the day of the seizure. Again, it must be assertel that

there is absolutely no evidence that petitioner f tax-

payer had anything to do with the removal of property

from the premises that was seized as distinguished from

the Internal Revenue Service observing a burgulary.

Respondents argue because of the above three facts,

they had insufficient time to obtain a warranj. That

argument is nonsense. Taxpayers fugitive status had

occurred weeks before the seizure. Taxpayer's alleged

non-cooperation had proportedly been occurring months

before the seizure. The removal of boxes from petition-

ers and taxpayer's offices occurred two evenings before

the date of seizure (.\. 82-83) There was ample time

to obtain a detached and neutral determination.

Next, respondents claim that exigent circumstances

were present because of the movable nature of taxpayer's

and petitioner's property (See page 62 of Res. brief).

This Court has spoken of dispensing of a search

warrant and the delay in obtaining a warrant when the

evidence is movable and easily destroyed. This occurs

primarily in the search of car cases which are relied

19

upon by respondents. However, it is the evidence or

the contraband that may be lest during the delay in ob-

taining a warrant, not the car. See Coolidge v. New

Hampshire, 403 U.S. 443, at 460 (1971); citing

Chambers v. Maroney, 399 U.S. 42. Respondents can-

not seriously contend that petitioner would destroy its

own luxury automobiles worth many thousands of dol-

lars. These automobiles consisting of Stutz’s and Rolls

Royces and one Jaguar are difficult to sell because of

the purchase price involved. .\ssuming that respondents

were so fearful, their lien would protect them from

transfer. Since automobiles are transferred by title, a

lien could effectively be filed. Then, if respondents

feared the concealing of the cars, they would simply

have to summon or subpoena a corporate officer or

family member who, under oath, would be required to

disclose its whereabouts. Respondents argue that the

summons method would not work in this case because

Norman was a fugitive; however, it is clear he be-

came a fugitive without taking the cars with him. There-

fore, it would be the corporate officers or Norman fam-

ily members who would be knowledgable about the

whereabouts of the automobiles.

Respondents, after deciding that there were exigent

circumstances, goes on to explain the three constitu-

tional requirements laid down by this court for searches

in the inspection context. They list: the demand of

privacy, the public need for warrantless searches, and

the standards to be employed in issuing the warrants.

They then argue (Res. brief, page (6), that all three

criteria are met in the tax levies and seizure situation.

20

Petitioner contends the opposite. Again, the respond-

ents have argued that the petitioner's interest in the

automobiles seized is a proprietary one, rather than a

privacy interest which the Fourth Amendment protects.

As pointed out before the right to privacy or the right

to be let alone includes the right not to have ones’ prop-

erty interfered with or taken as well as merely examined.

The second criteria pointed out by the respondents

is whether or not the burden of obtaining a warrant is

likely to frustrate the governmental purpose behind the

suit. Again, petitioner quarrels with respondents view

that they had insufficient time to obtain a warrant. In

the present case the revenue officer who entered the

offices of petitioner on March 21, 1973(.A-19), and

returned two days later and made the seizure that is

the subject matter of this lawsuit (.\-23). It certainly

seems that sometime during those two days there would

have been sufficient time to obtain a warrant without

frustrating the purpose behind the search. The third

consideration discussed in Camera and outlined by the

respondents’ brief (pages 68 and 69 of Res. brief), was

the standards for determining whether or not to issue

warrants. In connection with this matter, the respond-

ents siate:

“Thus. the only factors for deciding whether to

make such a levv is whether the taxpayer's re-

fused to meet his obligation and whether he has

property which could be used to satisfy the out-

standing assessments. There are accordingly, al-

most no questions of disputed fact in a tax seizure

with respect to which the antecedent evaluation

of a magistrate would be required.”

21

Respondents position is almost so broad that everyone

would be subject to seizure. Petitioner suggests that

there are several matters which an independent magis-

trate should examine and evaluate:

(1) Whether or not there is probable cause to be-

lieve there is a deficiency in the taxpayer's taxes,

(2) Whether or not the collection of those taxes

is in jeopardy.

(3) In this case, whether or not the entity having

ownership of such assets is an alter ego, nominee, or

transferee of taxpaver,

(4) Whether the assessment is so excessive to bear

any relation to the taxes due and owing.

Contrary to respondents’ position, the requirements

and rationale of the Fourth Amendment are particu-

larly applicable to jeopardy tax seizures as much as any

other search and seizure.

RECENT CASES ITAVE BEEN DECIDED

SUPPORTING PETITIONER.

Since the grant of certiorari in this case, several

cases have been decided in the United States Supreme

Court that have some bearing on the instant case.

On January 13, 1976, the Supreme Court decided

the case of Laing v. United States, which was consoli-

dated with United States v. Hall, 96 U.S. Ct. 473

22

(1976). That case involved two separate situations of

jeopardy assessment and subsequent seizures. The ma-

jority of the Supreme Court held with the taxpayer in

each instance and ordered a return of the taxpayer's

property on the theory that the Internal Revenue Serv-

ice had failed to follow the proper procedural steps

involved in a jeopardy assessment seizure. Mr. Justice

Brennan in a concurring opinion applies the due pro-

cess clause of the Fifth Amendnient to jeopardy tax

seizures. As Justice Brennan correctly points out, due

process requires a hearing prior to a seizure unless the

governmental interest at stake justifies postponing the

hearing until after the seizure. If such a governmental

interest is at stake and the seizure occurs prior to the

hearing, then the hearing must be afforded promptly.

Mr. Justice Brennan observes that the hearing provided

by the assessment and statutory period for filing in tax

court and subsequent trial do not meet the constitu-

tional requirements of a prompt hearing. Mr. Justice

Blackmun with whom Chief Justice Burger and Mr.

Justice Rehnquist joined in dissenting on the basis that

due process does not apply to require a hearing because

of the overriding governmental need for prompt action

in collection of taxes. Again, petitioner would urge the

Court to reexamine the rationale of the government’s

urgent need for the prompt collection of revenue. This

rationale has little validity or weight in this day and age.

The second pertinent tax case is Commissioner v.

Shapiro, decided March 8, 1976. The majority of the

Supreme Court in Shapiro distinguished the facts in

Phillips v. Commissioner, 283 U.S. 589 (1931), which

23

was relied upon by the dissenting opinion in Laing and

Hall. In Shapiro, the majority stated:

“It is true that in Phillips v. Commissioner supra,

this Court sustained against constitutional chal-

lenge, the statutory scheme created by congress

for the litigation of tax disputes and in so doing

referred both to the jeopardy assessment provis-

ion and the anti-injunction act... . However

the Phillips case itself did not involve a jeopardy

assessment and the taxpayer's assets could not

have been taken or frozen in this case until he

either had, or waived his right to a full and final

adjudication of his tax liability before the tax

court (then the Board of Tax Appeals).

The United States Supreme Court in Shapiro decided

that although the anti-injunction act would normally

prohibit a taxpayer from suing the Internal Revenue

Service, the taxpayer does have the right, in a jeopardy

assessment and seizure situation, to challenge whether

or not there is a basis in fact for the assessment. The

Court stated:

“Finally, it seems apparent that if the facts do

not even disclose ‘probable cause’ (citing cases)

. to support the assessment, the government

would certainly be unable to prevail at trial.

Thus the Williams Packing is consistent with the

applicable constitutional standard.”

Thus, it seems that the Supreme Court has attached

constitutional standards to the jeopardy seizure of prop-

erty and recognized the need for a prompt post-judicial

hearing to determine whether or not the seizure had

any basis in fact.

24

The instant case involves the identical situation as

in the Shapiro case, although that question is not in-

volved in the present grant of certiorari. In Shapiro,

the government refused to answer interrogatories con-

cerning the basis underlying the tax assessment. The

Supreme Court said that they must so answer to deter-

mine whether or not there is a basis for the assessment

and, if not, the anti-injunction act would not apply. In

the present case, petitioner proceeded by way of de-

position, rather than interrogatories and deposed the

witness Roland Wise, who is the Director of the In-

ternal Revenue for the State of Utah. The following

interchange occurred:

(. And when did this assessment first come to

your attention /

MR. ANDOLINO, (Government's Attorney) :

Ill object to that question on the grounds

it is immaterial and irrelevant to any issue

presented in this case and not reasonably

calculated to lead to admissible evidence

insofar as assessments made against George

and Frances Norman are conclusively pre-

sumed to be valid in an action for the re-

turn of property allegedly. wrongfully seized

by the provisions of Section 7426 (c) of the

Internal Revenue Code of 1954.

l’urther, insofar as such questions seek dis-

closure of Federal tax liability of a third

party not involved in this suit. said inform-

ation is privileged, pursuant to the provisions

of Section 7213 (a) of the Internal Rev-

enue Code.

25

(It is anamolous to note that the government would

refuse to disclose information concerning the tax liability

of George I. Norman, Jr., on the grounds that he was

a third party not involved in this suit, but would seize

all of his property on the grounds petitioner was his

alter ego. )

1 will therefore instruct the witness not to

answer that question.

MR. LEEDY: For the purpose of the record,

may I point out that the suit is also for

restraint of collection of taxes, which my

understanding of the standard nut case in-

dicates that an arbitrary assessment is

grounds to give a Federal District Court

jurisdiction.

I also further point out for the record that

Dr. red Norman is present, who has the

power of attorney for George I. Norman,

Jr., and would waive, right now, any priv-

ilege that George I. Norman, Jr., has to

disclosure of that.

Is that correct, Dr. Norman /

DR. NORMAN: Indeed so.

MR. ANDOLINO: Can we go off the record

for a minute‘

(Whereupon counsel discussed the matter off

the record. )

. * * *

MR. ANDOL.INO: The government takes the

position in its Motion to Strike that the al-

26

leged jurisdiction of this action is 7426,

which is a suit for wrongful levy. Under

7426, the issue which can be brought be-

fore the Court is verv narrow, in that it

only determines the ownership of the prop-

erty involved. There has been no other

basis for jurisdiction stated. Insofar as an

injunction, the injunctive relief would be

specifically prohibited by Section 7421 (a),

Internal Revenue Code of 1954.

Q. (By Mr. Leedy) Your answer, sir/

MR. ANDOLINO: I have instructed the wit-

ness not to answer.

Q. (By Mr. Leedv) Are you not going to

answer under counsel's .dvice /

A. That's correct.

Q. Would vou also refuse to answer any ques-

tions concerning the assessment of taxes

against George I. Norman, Jr.’

A. That's correct.

Q. Did you, Mr. Wise, make a determination

that the collection of taxes against George

I. Norman, Jr., was in jeopardy.

MR. ANDOLINO: I will repeat my objections

stated before, and instruct the witness not

to answer.

Q. (By Mr. Leedy) Would any questions 1

asked you regarding the determination of

whether or not the collection of taxes was in

jeopardy be the same’

27

MR. ANDOLINO: I have instructed the wit-

ness not to answer the question.

(. (By Mr. Leedy) For the record, what is

the answer /

A. I will not respond to that on the advice of

counsel.

Q. Now, would your answer with respect to all

questions concerning the determination of

jeopardy on the collection of taxes against

George I. Norman or Frances M. Norman

be the same‘ :

A. Yes, | would not answer on advice of coun-

sel.

(Deposition of Roland V. Wise, pages 3-5.)

Thus, the very identical situation which the court up-

held the taxpayer in Shapiro was present in the instant

case.

Several cases were decided last term concerning

the Fourth Amendment and the requirement for search

warrants. The most illuminating case is United States

v. Martinez Fuerte, et al., No. 74-1560, decided July

6, 1976. In that case the Court discussed the exigent

circumstances that were required for dispensing with

the warrant requirement of the Fourth Amendment.

The Court holds that to dispense with the warrant re-

quirement in a search and seizure situation, there must

be a balancing of public verses private interest. The

public interest must outweigh the private interest to

determine the weight to be given to the private interest.

Inquiry should be made to determine whether the in-

28

ference with the Fourth Amendment interest involved

was modest and whether the inquiry served significant

needs. In the present case, the private interest affected

is very substantial, much more substantial than that out-

lined in Martinez Fuerte, supra. In the present case

involving the seizure of all of the assets of petitioner

we have the deprivation of those assets, the right to use

those assets and essentially to do business, dealing the

death knell to the petitioner. In Martinez Fuerte, et

al., there was a brief, approximately five minute stop

and observation. With respect to the public interest,

while it has been often said that there is a substantial

public interest in the prompt collection of revenue, the

petitioner does not feel such an interest is any more

significant than stopping narcotics smuggling. Further,

it is difficult to see how the smal! delay that would

occur in obtaining a neutral and detached determina-

tion of probable cause would in any way significantly

interfere with the government's process. The present

case is not a case involving liquid assets or a taxpayer

who is about to leave the country. This case involves

luxury automobiles for which there is no ready market

which are not readily disposable, and a taxpayer who

has already fled leaving behind such assets.

While one might argue the delay in obtaining a

warrant in the situation such as in Shapiro where the

taxpayer is about to leave the country to stand trial in

Israel or in Laing where a suitcase containing more

than $300,000 in cash was about to be taken across the

border which would frustrate the collection of taxes.

such frustration cannot be claimed in the instant case.

29

PETITIONER IS ENTITLED TO THE RE-

LIKE IT SEERS.

On pages 76 through 81 of respondents’ brief, it

argues that petitioner is not entitled to the relief it

seeks. It argues that to require the return of the auto-

mobiles to the petitioner would be an exercise in futility

as the government would simply seize again the auto-

mobiles and hold them for the tax liability of George

I. Norman, Jr. Petitioner has several arguments in

rebuttal to that position. The standard relief for viola-

tion of one’s Fourth Amendment right is three-fold.

Iirst, the illegally seized information cannot be used in

evidence. See Weeks v. United States, 232 U.S. 383

(1914) and Mapp v. Ohio, 367 U.S. 643 (1961). Thus,

the relief sought by petitioner for suppressions of any

evidence obtained as a result of the illegal seizure is

supported by the case law. The suppression theory was

somewhat restricted last term with the Supreme Court's

decision in United States, et al v. Janis, No. 74-958

(July 6, 1976). In the Janis case, the Court refused

to suppress evidence obtained by a state police officer

in a federal, civil, tax trial. The Court reasoned that the

suppression theory was to act as a deterrent to police

officers engaging in unconstitntional conduct. It con-

cluded that the police officer never contemplated a sub-

sequent civil tax proceeding at the time of his search

and, therefore, suppression in such a case would have

no deterrent effect. The opposite situation is present in

the instant case. The officers involved were Internal

Revenue Service officers and the case involved is a

30

case against those officers and the Internal Revenue

Service.

Petitioner seeks return of the property which was

illegally seized. Such is also a standard relief for an

illegal seizure, see One 19.58 Plymouth Sedan v. Penn-

sylvania, supra. Respondent argues that such a relief

would be futile inasmuch as the Internal Revenue Serv-

ice would merely seize again the automobiles. Peti-

tioner would argue on the contrary that the respondents

should not profit from its illegal conduct, Wong Sun v.,

United States. 371 U.S. 47! (1963). Further. assum-

ing a magistrates hearing or other hearing in accord

with the requirement in Shapiro, there may be no

necessity for seizure of the automobiles of petitioner.

While the respondents have argued that the Tenth

Circuit case has disposed of the factual matters, peti-

tioner argues that it never had an opportunity to pre-

sent its side of the case as noted in petitioner’s Petition

for Rehearing in the United States Court of Appeals

for the Tenth Circuit. Petitioner never had an oppor-

tunity to present its side of the case. The burden of

proof on both the assessment and the alter ego question

was deemed to be on the government. At the end of

the government's presentation of evidence, the petitioner

moved for a judgment pursuant to the Federal Rules.

That judgment was granted without petitioner giving

forth its evidence. Thus, upon presentation of its evid-

ence, it may be clear that the assessment was without

basis in fact, and arbitrary and capricious and that the

petitioner is not the alter ego, nominee, or transferee

of taxpayer.

31

linally, respondents argue that there can be no

claim for damages as the Tenth Circuit Court of Ap-

peals has already decided that the Internal Revenue

agent, defendant, did not act with malice. There is no

question that Bivens v. Six, Unknown Fed. Narcotics

Agents, 403 U.S. 388 allows a claim for damages based

on a violation of plaintiffs Fourth Amendment rights.

Respondent argues that “even assuming arguendo,” the

agent's conduct violated the Fourth Amendment, peti-

tioner would not be entitled to money damages if the

agents acted in good faith. (Res. brief, page 80). Peti-

tioner argued in the lower court and the trial court

agreed that the agents had not acted in good faith and,

in fact. the agent Phillip Clayton had acted with malice.

This argument and finding was based upon the agent's

derogatory statement to third persons about taxpayer:

his participation in the seizures when such was not his

job, and his initiation and control of all the events that

occurred, Also taken into consideration on such find-

ing was the completely excessive and erroneous assess-

ment that he prepared against taxpaver.

The Tenth Circuit Court of Appeals reversed the

trial court’s finding of malice but even the Tenth Cir-

cuit failed to find that the agents acted in good faith,

as distinguished from acting maliciously and, wierefore,

there is still an issue of fact to be determined for

damages. Furthermore, during the course of the pro-

ceedings, the Internal Revenue Service allowed two

of the seized automobiles to be sold by a creditor of

petitioner. The petitioner sued for damages for the

market value of those two automobiles, less what the

ww

~

creditor gave petitioner credit for. This would also be

a claim for damages against the government.

Therefore, petitioner claims the damage issue is not

moot: that there are and is substantial relief that can be

afforded by this court.

CONCIU SION

It is petitioners positiou thai its constitutional

rights were violated by the scizure of its assets without

notice, hearing, or a determination of probably cause by

a neutral and detached magistrate. It is further peti-

tioner’s position that there is a remedy for such a con-

stitutional violation of its rights and that such rights

should be substantial for a general treatinent of the

subject see Rosenthal Jeopardy aud Termination As-

sessments after Laing and Hall: Jeopardizing the

l’ourth Amendment, 31 Tax I. Rev. 317 (1976).

meeeeneyy submitted S

"Led, wy pp “se i oe

Richard J. Leedy

—