Petition — Rosenblum v. United States

Supreme Court, v. i

a FILED .~

| APR 20 )9T7

: MICHAEL RODAK, JR., CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1976

No. Z 6 =j 4 7 Q

STANLEY M. ROSENBLUM, ROBERT S. GOLDENHERSH, MERLE L.

SILVERSTEIN, GENE M. ZAFFT, JACK M. MAZUR and RONALD J. RABEN,

d b a ROSENBLUM, GOLDENHERSH, SILVERSTEIN & ZAFFT, a Partner-

ship, and EDWARD YAWITZ, FLORENCE YAWITZ, and CLARDEL DRUG

COMPANY, a Corporation,

Petitioners,

VS.

UNITED STATES OF AMERICA.

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

STANLEY M. ROSENBLUM

MERLE L. SILVERSTEIN

= GOLDENHERSH, SILVERSTEIN &

7777 Bonhomme, Suite 1414

Clayton, Missouri 63105

(314) 726-6868

Attorneys for Petitioners

St. Louls Law Printing Co., Inc.. 812 Olive Street 63101 314-241-4477

——EEE ——- ew

Page

SE ED concucedcoccsctbetedecsevesveness 2

PEE Dedoccosceennsacecedaddesedscdbwines 2

ED su cca cavneede eed eehiuccaeuaee 2

Statutory Provisions Involved .................60055: 3

Se ED cucccdche cvesecctebeeesasseses 3

Reasons for Granting the Writ ..... 2... 0.666. 00005. 6

REE. nuGUee cddedbsrecdvscdecceccéodanucses 11

Appendix A—Opinions Below ................4... A-l

Appendix B—Judgments Below ...............055. A-17

Ce GED acne ducdntueceveccuevecesens A-20

Authorities

Cases:

Barrows v. Jackson, 346 U.S. 249 ©... 06. 6-7

Commissioner v. Shapiro, 424 U. S. 614 ............ 8,9

Bissnstad: v. Baied, 405 U. S$. 436 .. 0... 2c ccccccess 6

Griswold v. Connecticut, 381 U. §. 479 ............ 5, 6,7

Human Engineering Institute v. Commissioner, 61 T. C.

re Tee ee eee TET Tee 5, 10

Phillips v. Commissioner, 283 U.S. 589 .............. 8,9

Statutes:

Title 26, United States Code, Section 7426 ... .2, 3, 6, 7,9, 10

Title 28, United States Code, Section 1254(1) .......... 2

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1976

Et

STANLEY M. ROSENBLUM, ROBERT S. GOLDENHERSH, MERLE L.

SILVERSTEIN, GENE M. ZAFFT, JACK M. MAZUR and RONALD J. RABEN,

d b/a ROSENBLUM, GOLDENHERSH, SILVERSTEIN & ZAFFT, a Partner-

ship, and EDWARD YAWITZ, FLORENCE YAWITZ, and CLARDEL DRUG

COMPANY, a Corporation,

Petitioners,

VS.

UNITED STATES OF AMERICA

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

The Petitioners, STANLEY M. ROSENBLUM, ROBERT S.

GOLDENHERSH, MERLE L. SILVERSTEIN, GENE M.

ZAFFT, JACK M. MAZUR, RONALD J. RABEN, d/b/a

ROSENBLUM, GOLDENHERSH, SILVERSTEIN & ZAFFT,

a Partnership, and EDWARD YAWITZ, FLORENCE YA-

WITZ, and CLARDEL DRUG COMPANY, a Corporation, re-

spectfully pray that a Writ of Certiorari issue to review the judg-

ment and opinion of the United States Court of Appeals for the

Eighth Circuit entered in this proceedings on February 2, 1977.

OPINIONS BELOW

The opinions of the District Court and the Court of Appeals

have not yet been reported, and are reproduced in Appendix

A to this petition.

JURISDICTION

The Judgment of the Court below (Appendix B, infra, p.

A-17) was entered on February 2, 1977. The jurisdiction of

this Court is invoked under the provisions of 28 U.S.C. Section

1254(1),

QUESTIONS PRESENTED

1, Whether the Government, after an income tax deficiency

case is pending in the United States Tax Court, deprives the

taxpayer of his constitutional due process rights by instituting

a huge jeopardy assessment and levy thereon, the effect of which

is to totally seize all of taxpayer's assets including monies previ-

ously paid pursuant to a prior contract to counsel for legal

representation in the pending Tax Court case, and thus to pre-

vent him from obtaining the effective assistance of counsel of

his choice in said case.

2. Whether taxpayer's attorneys, as plaintiffs, can assert the

violation of taxpayer's due process rights to demonstrate that

a levy is wrongful.

3. A. Whether attorneys for a taxpayer may proceed under

Section 7426, Title 26, United States Code, to recover monies

paid to them pursuant to a prior contract by taxpayer for at-

torney fees, but thereafter seized by the government (pursuant

— om

to jeopardy assessment and levy) under circumstances which

demonstrate a violation of taxpayer's due process rights.

B. Whether a levy is “wrongful”, and subject to attack under

Section 7426, Title 26, United States Code, if it totally seizes

all of a taxpayer's assets and prevents him from obtaining coun-

sel for the Tax Court litigation.

STATUTORY PROVISIONS INVOLVED

Title 26, United States Code, Section 7426, set forth in

Appendix C (infra, p. A-20).

STATEMENT OF FACTS

This is an action filed pursuant to Section 7426(a)(1) of Title

26, United States Code, to recover money allegedly wrongfully

levied upon by the Internal Revenue Service. The Complaint be-

low was in two Counts: Count | pertained to money seized under

a jeopardy assessment and levy against taxpayers Edward Yawitz

and Florence Yawitz (husband and wife); Count II pertained

to money seized under a jeopardy assessment and levy against

taxpayer Clardel Drug Company, a corporation. The allega-

the taxpayers who were the targets of the assessment and levy.

The principal plaintiffs in each count were Stanley M. Rosen-

blum, Robert $. Goldenhersh, Merle L. Silverstein, Gene M.

Zafft, Jack M. Mazur and Ronald J. Raben, doing business as

Rosenblum, Goldenhersh, Silverstein & Zafft, a law partnership.

The taxpayers also joined as parties plaintiff.

Each count of the petition alleges that taxpayers, prior to

September 11, 1974, contracted with the law firm to represent

—

the taxpayers in civil tax litigation then pending in the United

States Tax Court. On September 13, 1974, the government filed

jeopardy assessments and levies against the taxpayers. On Oc-

tober 8, 1974, the taxpayers paid legal fees and expenses to the

law firm for legal representation in the Tax Court cases ($22,-

486.05 by the Yawitzs and $19,625.00 by Clardel). These

funds were deposited in the law firm's bank account, but were

levied upon by the government on November 8, 1974, and were

surrendered to the government by the law firm on November

13, 1974. A request by the law firm for return of the money

as having been wrongfully levied upon was submitted by the law

firm on November 25, 1974, but was disallowed by Internal

Revenue Service on February 20, 1975.

totally without resources to obtain and compensate counsel if

the seized funds are not returned to the law firm; that the cases

pending in the Tax Court are complicated and involve sophis-

ticated and involved theories of law and fact, and require the

services of experienced and competent tax specialists if tax-

Payers are to be effectively represented; that taxpayers will be

denied due process of law under the Fifth and Sixth Amend-

ments if the government is permitted to seize and retain the

very funds used to obtain counsel; and that the result of the

government's levy and seizure is to totally deny taxpayers the

Opportunity to be represented by competent and effective coun-

sel (Complaint, pp. 3-4).

‘The prayer in each Count seeks an order of court that the

seized funds be returned to the law firm (Complaint, p. 4).

In response, the government filed a Motion to Dismiss and

ae eae

“1. This Court lacks subject matter jurisdiction over the

action.

= =

2. The Complaint fails to state any claim upon which

relief may be granted.”

Thereafter, the district court entered its “Memorandum and

Order” (infra, p. A-1), dismissing the complaint “without preju-

dice”, on the basis that the relief sought must be obtained

in the Tax Court. In so holding, the court below obviously be-

lieved that some relief for taxpayers was in order, but that the

“The hard-nosed attitude of the Government in the pres-

ent case is difficult to comprehend. However, much as we

extend to the grant of the relief here prayed for... A

separate proceeding in this Court to protect the litigating i

taxpayers against an asserted violation of their constitu-

tional rights is not permissible under the instant facts.”

(Memorandum and Order, infra, p. A-!).

The Eighth Circuit Court of Appeals thereafter affirmed the

District Court. The Court recognized that the problem was “a

serious one”, and gave trouble to the Tax Court in Human

Engineering Institute v. Commissioner, 61 T. C. 61, 64-68.

Nevertheless, it held that relief could not be granted in this

case because (1) the “wrongfulness” mentioned in Section 7426

(a)(1) must relate to the third party claiming the funds, and

not to the taxpayer (despite Griswold v. Connecticut, 381 US.

479), and (2) in any event, the due process claims of the tax-

payer arising out of the deprivation of counsel can be appro-

priately litigated in the Tax Court (infra, p. A-4).

REASONS FOR GRANTING THE WRIT

1. The Opinion Below, Refusing to Allow Attorneys,

Plaintiffs in This Action, to Assert the Deprivation of the Des

Process Rights of Their Client, Directly Conflicts With Gris-

wold v. Connecticut, 381 U.S. 479.

_ The key holding of the opinion below is simply that peti-

tioners, as attorneys for the taxpayer, cannot assert taxpayer's

due process rights in order to demonstrate that the jeopardy as-

ag ep bg Section 7426 (a)(1) allows a third

taxpayer) to recover property “wrongfully

levied upon”, and the Court below limits that term to mean

wrongful only as to the third party, and not wrongful as to the

taxpayer. This interpretation imposes a narrow restriction on

the statute's application which is nowhere expressed by the stat-

utory language itself, moreover, and of far greater consequence,

it openly rejects the rule established in Griswold v. Connecticut

381 U. S. 479, and reemphasized and extended in Eisenstadt

v. Baird, 405 U. S. 438.

Griswold, of course, announced that a doctor, because of the

of his patients. The Eighth Circuit attempts to distinguish this

with aiding and abetting the principals (his patients) in the

commission of a crime, and hence was virtually in the same legal

Position as the patients, whereas in the instant case the law firm

was bringing an action (under Section 7426) which its clients

were precluded from bringing. This so-called distinction is a

relationship of doctor-patient, in and of itself and with nothing

Sree a atuat to give the physicien standing to assert

constitutional deprivations regarding the patient, just as the

vendor-vendee relationship was sufficient in Barrows v. Jackson,

=

346 U. S. 249. The additional element of principal-accessory

was discussed in Griswold only as the basis for the giving the

matter a “case or controversy” status under Article Ill of the

Constitution.’ Substantively, therefore, the instant case is not

distinguishable from Griswold, for certainly the lawyer-client

relationship is of equal professional status to that of doctor-

patient. On that basis, a levy which is “wrongful” as to a tax-

payer because of due process deprivation is subject to a Section

7426 attack by taxpayer's attorney under the circumstances of

the instant case.

This is not a situation that can, or should be, resolved by

resort to procedural technicalities or fine distinctions, as the

court below attempted to do in avoiding the Griswold mandate.

Rather it is a case involving substantial and far-reaching prin-

ciples which should be decided in a manner consistent with de-

isional precedents dealing with constitutional law and due

process. The author of the opinion below actually recognized

this, for the opening line of his opinion (after a recitation of the

facts) reads:

“The question of whether the IRS may, agreeably with the

due process clause, seize all of a taxpayer's money and

property on the basis of a jeopardy assessment and thereby

render the taxpayer financially unable to adjudicate his tax

liability in the Tax Court or otherwise is a serious one.”

(Opinion below, Appendix A-9-A-10).

For this reason alone, certiorari should be granted so that this

Court can carefully examine the substantive constitutional issues

involved and resolve them in a manner consistent with Griswold

v. Connecticut, and thereby eliminate the weakening of that

1 Here there can be no ion but that the law firm has a jus-

ticiable interest to litigate, since the funds in question were actually

id to the firm pursuant to a prior contract to provide legal services

the Taxpayers.

2. The Opinion Below, Deferring the Entire Issue to a Later

Determination by the Tax Court, Contravenes Commissioner

v. Shapiro, 424 U.S. 614, and Undercuts the Due Process Re-

quirements in Jeopardy Assessment Cases First Announced in

Phillips v. Commissioner, 283 U. S. 589.

Both the District Court and Court of Appeals below recognized

the gravity of the situation, but each court, apparently with

some reluctance, deferred the matter to the Tax Court. The

district judge, for example, commented that “much as we sympa-

thize with taxpayers’ plight, our authority does not extend to

the grant of the relief here prayed for” (Appendix A, infra,

p. A-1), and the Eighth Circuit echoed this belief by con-

cluding that “we will repeat and emphasize that the taxpayers

are free to advance their due process claim in the Tax Court”

(Appendix A, infra, p. A-4). But this type of summary de-

ferral to the Tax Court was the very concept which was rejected

by this Court in Commissioner v. Shapiro, 424 U. S. 614, in

which it was recognized that there may well be a seizure of assets

under circumstances where the injury to the taxpayer “cannot

be adequately remedied by a Tax Court judgment in his favor.”

In the instant case the circumstances are even more compelling

than in Shapiro, for here, without an immediate remedy in the

district court, the taxpayers are foreclosed from a favorable Tax

Court judgment because they will have no advocate before that

court. This whole procedure thus utterly defies the due process

requirements in regard to jeopardy assessments, as first laid

down in sen v. Commissioner, 283 U. S. 589, wherein such

assessments subsequent levies were held permissible

where “adequate opportunity is afforded for '« later judicial

determination of the legal rights.” In the instant case, where

the totality of the levy deprives the taxpayer of effective repre-

sentation by counsel, no adequate opportunity for later judicial

become reality. P “

=

The opinion below, therefore, demonstrates a radical departure

from the due process requirements heretofore established by this

Court in jeopardy assessment matters. It relegates the taxpayer

to a much later Tax Court trial at which he will have no effective

counsel, because the very Internal Revenue Service procedure

which would be the subject matter of the litigation will have al-

ready deprived him of any ability to obtain counsel. Such a ju-

dicial proceeding can by no stretch of the imagination be consid-

ered “adequate” (see Phillips), nor does it satisfy the due process

requirements of a “predeprivation or prompt post-deprivation

hearing” as emphasized in Shapiro. Petitioners therefore urge

that the Eighth Circuit decision be reviewed so that these stark

inconsistencies can be eliminated, explained, or otherwise reme-

died.

3. The Decision Below Should Be Reviewed as an Important

Matter in the Ever Expanding Area of Jeopardy Assessments

and Levies, to Determine Whether IRS Shall Retain the Omnip-

otent Power to Destroy Any Taxpayer by the Methods Here

Involved.

Quite apart from the obvious conflicts with existing Supreme

Court authorities, the instant case is one which urgently re-

quires review by this Court because of the tremendous impact

it will have in the field of tax collection, and particularly be-

cause of the unfettered power it extends to the Internal Revenue

Service. This Court has recognized and turned its attention in

Laing v. United States, 423 U. S. 161, and Shapiro to the awe-

some possible abuses of power given the Internal Revenue

Service by the jeopardy assessment. In the Tax Reform Act

of 1976 Congress has exhibited its concern in enacting new

Code Section 7429 “Review of Jeopardy Assessment Proce-

dures.” That concern and attention should be further addressed

by this Court which should take the opportunity to teach that

what is “reasonable” and “appropriate” under the “circum-

a= 10 =

stances” is and has always been subject to constitutional guaran-

tees of due process—both before and after the adoption of Sec-

tion 7429 of the Tax Reform Act of 1976. If the decision

below is allowed to stand, any taxpayer targeted by the service

can be totally destroyed by a jeopardy assessment and levy

sufficient to attach all of his assets and prevent him from hiring

effective counsel to resist and litigate the tax charges. A stamp

of approval on this sort of procedure reduces the due process

guarantees to empty and meaningless words, and elevates the

Internal Revenue Service to a super-power status with the

capability of stripping any taxpayer litigant of the legal resources

to resist its demands.

This problem was certainly recognized by the Tax Court in

Human Engineering Institute v. Commissioner, 61 T. C. 61,

referred to in the opinion below, wherein great concern was

expressed for a taxpayer left defenseless by a huge jeopardy

assessment and levy, but the issue was moot because there the

taxpayer was able to borrow funds to retain counsel. But what

of the taxpayer who does not have that ability? Must he appear

in the Tax Court defenseless, and hope that the court of its

own initiative (for taxpayer will not have counsel to raise the

issues) will assert and consider his due process and other de-

fenses?

Petitioners thus submit that the possible consequences flow-

ing from the decision below strike at the very roots of our

judicial processes, and a Supreme Court review is essential to

define the real limits which the due process clause mandates

in jeopardy procedures.

CONCLUSION

For these reasons, a Writ of Certiorari should issue to review

the judgment and opinion of the Eighth Circuit Court of

Appeals.

Respectfully submitted,

STANLEY M. ROSENBLUM

MERLE L. SILVERSTEIN

ROSENBLUM, GOLDENHERSH,

SILVERSTEIN & ZAFFT

7777 Bonhomme, Suite 1414

Clayton, Missouri 63105

[314] 726-6868

Attorneys for Petitioners

APPENDIX

anil as

APPENDIX A

In the United States District Court

Eastern District of Missouri

Eastern Division

Stanley M. Rosenblum, et al., )

Plaintiffs,

- . No. 75-731C (2).

United States of America,

Defendant.

Memorandum and Order

(Filed February 23, 1976)

Following the September 9, 1974 conviction of plaintiff

Edward Yawitz on charges of evasion of federal income taxes,

the Internal Revenue Service made jeopardy tax assessments

totalling several hundreds of thousands of dollars against Ya-

witz, his wife, and Clardel Drug Company (collectively re-

ferred to as taxpayers). Demand for payment was given and

on September 16, 1974 notice of federal tax liens were duly

filed. Litigation is now pending in the United States Tax

Court with respect to the tax assessments.

On about September 11, 1974, taxpayers contracted with

the law firm of Rosenblum, Goldenhersh, Silverstein and

Zafft (collectively referred to as the law firm) to represent

them in the Tax Court litigation and any subsequent appeals.

About a month later, the taxpayers paid law firm sums ag-

gregating in excess of $40,000 in payment of agreed fees for

representing taxpayers in the tax litigation and the anticipated

costs in connection therewith. The moneys were deposited in

—_ A-2 —

special bank accounts. Law firm notified IRS, whereupon

levies were served on law firm on November 8, 1974, and on

November 13, 1974, the money was surrendered to an agent

of the IRS in response to the levies. Requests for the return

of the moneys were disallowed.

Alleging that the combination of the jeopardy assessments,

tax lien notices and levies, whereby the Government seized

the moneys they paid for counsel fees and expenses, has ef-

fectively deprived taxpayers of an opportunity to defend their

property interests in the tax litigation, in violation of the Fifth

and Sixth Amendments to the Constitution of the United

States, this suit was filed for the return of the moneys to the

law firm. The Government has moved to dismiss and for sum-

mary judgment.

There can be no question but that the law firm received

the moneys in November, 1974, fully encumbered by the fed-

eral tax liens, and that insofar as the law firm is concerned,

it has no protectable interest in the moneys which were seized

by the IRS. See Sections 6321 and 6323(a), 26 U.S.C. Prior

to the receipt of the moneys and the levies, the law firm was

simply a contract creditor, a status which gave it no rights

to the funds subsequently paid to it. No facts are alleged

(and the law firm asserts only the constitutional claims of tax-

payers) to support the conclusory allegation that the moneys

were “wrongfully” collected. And insofar as taxpayers are

concerned, the sole basis of their claims is that by virtue of

the totality of the government's seizure of their assets, they

will have been rendered helpless to prosecute the Tax Court

proceedings unless funds are released to enable them to com-

pensate competent counsel such as plaintiff law firm. These

facts are not disputed by the Government.

In this situation what was said in Human Engineering In-

stitute v. Kopas, 61 T.C. 61, 64-65, is appropos:

—Y =

“A taxpayer who is faced with a trial of a claim against

him by the Federal Government for alleged unpaid taxes

and whose total assets have been subjected to a jeopardy

assessment by that same Government, is in a difficult

position. In such a situation, the judicial mind instinc-

tively wonders how such taxpayer can be protected in

terms of the trial and about the extent to which his con-

stitutional guarantees, particularly under the due process

clause of the fifth amendment, are involved. That won-

der is broadened where the taxpayer also asserts that the

Commissioner of Internal Revenue has acted arbitrarily

and capriciously in respect of the jeopardy assessment

and/or the deficiency notices in violation of claimed con-

stitutional rights.”

The hard-nosed attitude of the Government in the present

case is difficult to comprehend. However, much as we sympa-

thize with taxpayers’ plight, our authority does not extend to

the grant of the relief here prayed for. In Human Engineering,

the Court noted (lc. 67-68) that situations may exist “where

some action by the trial judge may be indicated to avoid plac-

ing an undue burden on the court or to protect the integrity

of the judicial process.” Whether such action is appropriate

in the circumstances of the present case is, however, for the

Tax Court to determine. A separate proceeding in this Court

to protect the litigating taxpayers against an asserted violation

of their constitutional rights is not permissible under the in-

stant facts. It follows that the complaint should be dismissed

Dated this 23rd day of February, 1976.

/s/ JOHN K. REGAN

United States District Judge

—_Y

APPENDIX A

United States Court of Appeals

For the Eighth Circuit

No. 76-1241

Ronald J. Raben, d/b/a Rosen-

blum, Goldenhersh, Silverstein &

Zafft, a Partnership, and Edward

Yawitz and Florence Yawitz, his

wife, and Clardel Drug Company . Court for the

a Corporation, ; Eastern District of

Mi i.

Aggeiian, issouri

v.

United States of America,

Appellee. °

Before Van Oosterhout, Senior Circuit J

ley, Circuit Judges ams Cun”, saney and lee-

Henley, Circuit Judge.

This is an action brought in the United States District

Court

for the Eastern District of Missouri against the United States

pursuant to 26 U.S.C. § 7426(a) by the members of the Clayton,

Missouri law firm of Rosenblum, Goldenhersh, Silverstein &

—_* =

Zafft (hereinafter Rosenblum), and by Edward Yawitz and Flor-

ence Yawitz, his wife, and Clardel Drug Company, a corpora-

tion (hereinafter taxpayers). The purpose of the suit is to re-

cover from the government approximately $42,000.00 that was

paid to Rosenblum by taxpayers as an attorney's fee and to

defray expenses in connection with Rosenblum’s agreement to

represent the taxpayers in litigation pending in the Tax Court

of the United States; prior to the payment of the money to

Rosenblum, the Commissioner of Internal Revenue had made

a jeopardy assessment of income taxes against the taxpayers

and had filed notices of tax liens, after the payment had been

made, the Internal Revenue Service levied on all of the assets

of the taxpayers and also levied upon the moneys paid to

Rosenblum. A demand on the IRS for release of the money

was refused, and this action was instituted. Subject matter

jurisdiction is predicated upon 26 U.S.C. §§ 1346(a1) and

1346(e)."

The theory of the plaintiffs is that the “totality” of the seizure

by the IRS, including the seizure of the money paid to Rosen-

blum, has deprived the taxpayers of their alleged constitutional

right to be represented by competent tax counsel in the litiga-

tion that taxpayers have pending in the Tax Court, which litiga-

tion plaintiffs describe as being complicated and technical.’

! The complaint also makes reference to 28 U.S.C. § 2410, that

section does not appear to us to be pertinent.

2 Plaintiffs refer to both the fifth and sixth amendments to the

Constitution of the United States. We call attention to the fact that

the sixth amendment is limited in application to cnminal prosecu-

uons.

onfifies

On February 23, 1976 the district court* filed a memorandum

opinion and entered a judgment dismissing the complaint with-

out prejudice. The view of the district court was that Rosenblum

had no protectable interest in the moneys that were seized, and

that the constitutional claim of the taxpayers would have to be

raised in the Tax Court and could not be adjudicated in the

district court. Disagreeing with the district court in both re-

spects, plaintiffs filed a timely notice of appeal.

The facts of the case are mostly undisputed.

Edward Yawitz and Florence Yawitz are husband and wife,

and they reside in St. Louis County, Missouri. It is inferable

that they are interested in and probably control the third tax-

payer, Clardel Drug Company.

It seems clear that for a number of years prior to September,

1974 the taxpayers had been in controversy with the IRS with

respect to their income tax liabilities, including civil fraud penal-

ties and that they had cases pending in the Tax Court. Appar-

ently, there were six of those cases, three instituted by the in-

dividual taxpayers and three instituted by the corporate

taxpayer. Judging from Tax Court docket numbers appearing

in the complaint, it may be inferred that the Tax Court pro-

ceedings were instituted in 1972, 1973 and 1974.

On September 9, 1974 Mr. Yawitz entered a plea of guilty in

federal court to a charge of fraudulent evasion of federal income

taxes due with respect to calendar year 1968. Immediately

thereafter the Commissioner made jeopardy assessments against

the taxpayers covering all asserted income tax liabilities on

their part. Demand for payment was made on the taxpayers

with which demand there was no compliance, and on September

16, 1974 the IRS filed notices of tax liens.

* The Honorable John K. Regan, United States District Judge.

—_* =

In the meantime, on September 11, 1974, taxpayers employed

Rosenblum to represent them in the litigation pending in the

Tax Court. The individual taxpayers agreed to pay Rosenblum

a fee of $20,000.00 and to advance expenses of litigation

amounting to $2486.05. The corporate taxpayer agreed to pay

a fee of $19,625.00. Those sums were in fact paid over to

Rosenblum not later than October 8, 1974, and were deposited

in three separate special bank accounts in a Clayton, Missouri

bank. When the payments were made, Rosenblum was on

constructive notice of the government's tax liens, and it is quite

possible that Rosenblum had actual knowledge that the liens

had been perfected.

Between October 8 and November 8, 1974 Rosenblum noti-

fied the IRS that it had received the payments from the tax-

payers.

On November 8, 1974 the IRS served a notice of levy on

Rosenblum calling upon it to turn over to the IRS the moneys

that it had received from the taxpayers. On November 13, 1974

Rosenblum complied with the demand and surrendered the

money. On November 25, 1974 Rosenblum requested the IRS

by letter to return the moneys to the law firm; that request was

denied by letter on February 20, 1975. This action was com-

menced on August 18 of that year.

The complaint is in two counts. The first count sets out

the claim of Rosenblum and of the individual taxpayers for a

return of the $22,486.05 paid by those taxpayers to Rosen-

blum. The second count sets out the claim of Rosenblum and

the corporate taxpayer for the return of the $19,625.00 paid to

Rosenblum by that taxpayer. Aside from differences in parties

and amounts, the two counts are essentially identical.

Count I of the complaint alleges‘ that the cases of the in-

dividual taxpayers in the Tax Court are complicated and are

* Comparable allegations appear in Count II.

— A-& —

based on sophisticated theories of law and fact and that the

individual taxpayers are required to refute allegations of fraud,

to establish the status of Mrs. Yawitz as an “innocent spouse,”

and to sustain the burden of proof on the non-fraud issues in

the cases which involve substantial amounts of money.’ It is

said that in order to properly present the cases the taxpayers

require the assistance of competent, expert and experienced tax

counsel who will be required to work on the cases for many

hours, and that at the present time the IRS has requested pre-

trial and administrative conferences at which the taxpayers will

requre vigorous and skilled representation.

It is further alleged that the taxpayers will not be able to ob-

tain competent counsel unless they are able to compensate such.

counsel; that the taxpayers believe that Rosenblum is com-

petent to represent them properly and has requested it to do so;

that Rosenblum is willing to represent the taxpayers “but is un-

willing to do so without fair compensation.”

And Paragraph 13 of Count I alleges:

(13) That unless the aforesaid sum of Twenty-Two Thou-

sand Four Hundred Eighty-Six Dollars and Five Cents

($22,486.05) is released by the Internal Revenue Service,

plaintiffs Yawitz will be unable to retain competent coun-

sel, and to pay said necessary costs and expenses, and will

suffer adversely therefrom, and will be deprived of their

property without due process of law in contravention of the

Fifth and Sixth Amendments to the Constitution of the

United States. Plaintiffs Yawitz are denied due process

when the defendant United States (respondent in said pend-

ing civil tax cases) is permitted to seize the very money

which plaintiffs Yawitz used to secure counsel to defend

5 The district covrt stated that the amounts of the assessments

made by the Commissioner total several hundreds of thousands of

dollars.

—_

their property interests. The defendant has heretofore

levied and seized upon the money and property which

plaintiffs Yawitz paid to retain said Rosenblum and for

said necessary expenses to protect said property interests

as aforesaid; the result of said levy and seizure is that

plaintiffs Yawitz are totally and effectively denied the op-

portunity and right to be represented by competent and re-

tained counsel and denied the opportunity for an adequate,

full, adversary and fair hearing, all contrary to the afore-

said amendments to the Constitution of the United States.

The government does not deny the factual allegations that

have been mentioned, and for present purposes we will accept

them as true. The government, of course, does not admit the

validity of the conclusions of law that are alleged in the two

counts of the complaint. And we are not required to accept

those conclusions. Specifically, the government does not ad-

mit, nor do we necessarily accept, the validity of plaintiffs’ al-

legations that the seizure of the money was wrongful and that

unless the money is returned to Rosenblum the taxpayers will

be denied due process of law in connection with the proceedings

in the Tax Court.®

The question of whether the IRS may, agreeably with the

due process clause, seize all of a taxpayer's money and property

whe Ay hy tne - Dy p wy ft —F

internal revenue taxes are not e of the due process clause of

the fifth amendment so long as the taxpayer has a post-collection

Peee Saaky Chamy Se Sy le os equate of his tax

— A-10 —

on the basis of a jeopardy assessment and thereby render the

taxpayer financially unable to adjudicate his tax liability in the

Tax Court o: otherwise is a serious one. And it gave trouble

to the Tax Court in Human Engineering Institute v. Commis-

sioner of Internal Revenue, 61 T.C. 61, 64-68 (1973), the

opinion in which case was referred to by the district court in

this case. While the Tax Court raised the question and ex-

pressed concern about it, the court found it unnecessary to de-

cide the question because the taxpayers had in fact been able

to raise funds to finance their Tax Court litigation.

While the constitutional question just mentioned is serious,

the precise question before us at the moment is whether the

plaintiffs were entitled to litigate the constitutional issue in the

district court within the framework of this case.

We agree with the district court that plaintiffs were not so

entitled.

United States district courts are courts of limited jurisdic-

tion, and it is necessary to look at the pertinent jurisdictional

statutes.

Under 28 U.S.C. § 1346(a)(1) the district courts have juris-

diction of suits brought agains: the United States to recover

internal revenue taxes and penalties erroneously or illegally as-

sessed or collected. And § 1346(e) gives the district courts

specific jurisdiction with respect to suits brought under 26 U.S.C.

§ 7426, which is the statute invoked by plaintiffs in this case.

However, 26 U.S.C. § 7421(a), which is often called the anti-

injunction statute, prohibits, with certain exceptions including

suits brought under § 7426(a)(1) and (6), suits by taxpayers to

— A-ll —

restrain the assessment or collection of any tax imposed by the

internal revenue laws. The constitutionality of that section is

established and is not questioned here.

Section 7426(a)(1) is as follows:

(a) Actions permitted.—

(1) Wrongful levy.—lIf a levy has been made on prop-

erty or property has been sold pursuant to a levy, any per-

son (other than the person 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 wrong-

fully 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.

Section 7426(b), insofar as here pertinent, provides:

(b) Adjudication.—The district court shall have juris-

diction to grant only such of the following forms of relief

as may be appropriate in the circumstances:

(1) Injunction.—If a levy or sale would irreparably in-

jure rights in property which the court determines to be

superior to rights of the United States in such property, the

court may grant an injunction to prohibit the enforcement

of such levy or to prohibit such sale.

(2) Recovery of property.—If the court determines that

such property has been wrongfully levied upon, the court

may—

(A) order the return of specific property if the United

States is in possession of such property;

(B) grant a judgment for the amount of money levied

upon; or

DLS

— A-12 —

(C) grant a judgment for an amount not exceeding the

amount received by the United States from the sale of such

property.

We think that the complaint in the case may fairly be con-

strued as actually setting out two separate and distinct claims

for relief.

One of those claims is that of Rosenblum in its own right.

It contends that the money in question belonged to it and that

it was wrongfully seized by the IRS. The only jurisdictional

basis for that claim is § 7426(a)(1).

The other claim is the personal claim of the taxpayers which

amounts to an assertion that they have a personal right to have

the seized moneys returned to Rosenblum to compensate that

law firm for representing plaintiffs in the Tax Court. That claim

obviously cannot be maintained under § 7426(a)(1) because

the remedy provided by that statute is not available to taxpayers.

And prosecution of the claim is barred by § 7421(a) unless the

taxpayers fall within a narrow exception to the applicability of

that section which exception we will mention in due course.

Ill

In order for Rosenblum to prevail on its own § 7426 claim

it must appear that it claims an interest in the money, which it

does, and that the seizure of the money by the government was

“wrongful.”

While § 7421, the anti-injunction statute, is an old statute,

what is now § 7426(a)(1) and (b) came into the Internal Reve-

nue Code as part of the Federal Tax Lien Act of 1966. And the

purpose of the statute was to give a judicial remedy to a person

whose property is wrongfully seized to satisfy the tax liability of

someone else. Senate Report No. 1708, 89th Congress, 2d Ses-

-~_-

— A-13 —

sion, 1966, U. S. Code Congressional & Administrative News,

p. 3751; Rosenbaum v. United States, 346 F Supp. 872, 873

(D. Md. 1972); Sylk v. United States, 331 F.Supp. 661, 664

(E.D. Pa. 1971). As a matter of fact, the statute appears to be

in effect a codification of the decisional rule laid down in eariler

cases that a suit to enjoin a wrongful taking of the property of

one person to satisfy another's tax obligation was not barred by

the anti-injunction statute itself. See, e.g., Moore v. Hanson,

325 F.2d 784 (Sth Cir. 1964); Holland v. Nix, 214 F.2d 317

(Sth Cir. 1954); Tomlinson v. Smith, 128 F.2d 808 (7th Cir.

1942); Rothensies v. Ullman, 110 F.2d 590 (3d Cir. 1940).

It is clear that as between the taxpayers and Rosenblum legal

title to the money passed to the latter when it was paid over by

the former. We are satisfied, however, that Rosenblum’s title to

the money was subject to the prior tax lien of the government,

and that Rosenblum is entitled to a return of the money only on

the theory that the seizure was wrongful.

Rosenblum’s claim of a “wrongful” seizure is based on the

proposition that the seizure deprived the taxpayers of their al-

leged constitutional right to be represented by competent counsel

in the Tax Court proceedings.

We do not think that the Rosenblum claim can be sustained

on that theory. In our view the term “wrongfully levied upon”

used in § 7426(a)(1) means seized wrongfully in relation to

the third person who is bringing the suit and not merely wrong-

ful in relation to a taxpayer who may suffer from the collateral

effects of the seizure. In other words, the “wrong” contemplated

by the statute is that suffered by the third person when his prop-

erty is taken to satisfy the tax obligation of another, and not

some “wrong” that the taxpayer may suffer because the govern-

ment has seized property which the taxpayer has transferred to

the third person.

2 eee

— A-14—

We consider inapposite the case of Griswold v. Connecticut,

381 U.S. 479 (1965), cited by plaintiffs. That case holds that

a person charged with aiding and abetting the violation of a

criminal statute may rely as a defense on the fact that the statute

is unconstitutional as to the principals involved. It does not fol-

low that a firm of tax lawyers may use an alleged deprivation of

a constitutional right of its taxpayer clients as a sword for the

purpose of maintaining a suit against the government which the

taxpayers themselves are lawfully precluded from bringing.’

IV

It has been observed that taxpayers themselves cannot main-

tain this action unless they fall within an exception to § 7421(a)

other than the exceptions mentioned in that section.

The unmentioned exception relied on by the taxpayers here

is that § 7421(a) is not applicable where the Commissioner's

assessment is so baseless that the Commissioner has no chance of

prevailing ultimately in the controversy and where to permit the

assessment and levy to stand in advance of final adjudication of

the taxpayer's liability would subject the taxpayer to irreparable

harm. That exception was recognized in Miller v. Standard Nut

Margarine Co., 284 U.S. 498 (1932); and in Enochs v. Williams

Packing & Navigation Co., 370 U.S. 1 (1962). It was recog-

nized most recently in Commissioner of Internal Revenue v.

Shapiro, 424 U.S. 614 (1976), a case decided a few days after

the district court decided the instant case and on which decision

plaintiffs lay a good deal of stress.

7 While it does not appear that the government in resisting

Rosenblum claim makes any argument based on § 7426(

attention to the fact that the subsection just cited provides

purposes of a suit § 7426 the i ae &

conclusive presumption is indulged with respect to the statutory

claim of Rosenblum, then the taxpayers’ claims in the Tax Court

are

without merit, and they stand in no need of representation in that

court

Ps

SSSks

— A-15 —

No useful purpose would be served by outlining the rather un-

usual facts that were presented in the Shapiro case or undertak-

ing to compare them in detail with the facts in the instant case.

Suffice it to say that in our opinion this case does not present the

urgent situation that was presented in Shapiro, and it does not

appear to us that to leave the levy in question undisturbed would

work such irreparable harm to the taxpayers as to call for the

exercise of the equity jurisdiction of the court to grant relief

despite the prohibition of § 7421(a).

The civil tax controversy between the taxpayers and the gov-

ernment is before the Tax court, and the taxpayers are free to

contend before that court that it is a violation of due process

for the government to impose ruinous assessments upon them

while at the time time stripping them of the financial means

necessary to enable them to litigate the assessments effectively.

As has been seen, the Tax Court has been concerned with the

problem presented by a case like this, and we will not presume

that the Tax Court is either unable or unwilling to grant the

taxpayers any appropriate relief to which they may be entitled,

or that the Tax Court will not afford we taxpayers a fair and

adequate hearing in connection with the proceedings in that

court. It should be kept in mind that assuming arguendo that

the taxpayers have a constitutional right to be represented by

competent counsel in connection with the Tax Court proceed-

ings, it does not follow that they have a constitutional right to

be represented by a particular law firm for a particular fee agreed

upon in advance.

Apart from the question of irreparable harm, there is the ques-

tion of whether the assessments of the Commissioner are so base-

less that he has no chance of prevailing in the ‘1 ax Court. We

think it highly doubtful that that question could be answered

favorably to the taxpayers, particularly in view of the plea of

guilty entered by Mr. Yawitz to a charge of criminal tax evasion.

In conclusion, we will repeat and emphasize that the taxpay-

— A-16 —

ers are free to advance their due process claim in the Tax Court.

The government so concedes. If that court fails to give the tax-

payers relief with respect to their financial difficulties, and if the

ultimate decision of the Tax Court is adverse to the taxpayers,

that decision will be subject to review here, and we can then

consider whether in the proceedings before the Tax Court the

taxpayers were denied due process of law.

The judgment of the district court is affirmed.

A true copy.

Attest:

Clerk, U. S. Court of Appeals, Eighth Circuit

— A-17 —

APPENDIX B

In the United States District Court, Eastern District

of Missouri, Eastern Division

Stanley M. Rosenblum, et al., )

Plaintiffs,

= . No. 75-731C (2)

United States of America,

Defendant.

JUDGMENT

(Filed February 23, 1976)

The Court having this day entered its Memorandum and

Order herein,

Now Therefore, in accordance therewith, It Is Hereby Or-

dered and Adjudged that this action be and the same is hereby

dismissed without prejudice.

Dated this 23rd day of February, 1976.

/s/ JOHN K. REGAN

United States District Judge

—_t =

United States Court of Appeals for the Eighth Circuit

No. 76-1241 September Term, 1976

Stanley M. Rosenblum, Robert S. |

Goldenhersh, Merle L. Silver-

stein, Gene M. Zafft, Jack M.

Mazur, Ronald J. Raben d/b/a

Rosenblum, Goldenhersh, Silver-

stein & Zafft, Edward Yawitz,

Florence Yawitz, and Clardel -

Drug Co.,

(Filed February 24, 1977)

This cause came on to be heard on the original designated

record of the United States District Court for the Eastern Dis-

trict of Missouri and briefs of the respective parties and was

argued by counsel.

On Consideration Whereof, it is now here ordered and ad-

judged by this Court that the judgment of the said District

Court in this cause be and the same is hereby affirmed.

February 2, 1977

— A-19 —

Costs taxed in favor of Appellee:

Costs of printing 10 copies of brief: $66 00

Total costs of Appellee for recovery from

Appellants in the U. S. District Court: $66.00

A true copy.

Attest: Robert C. Tucker

Clerk, U. S. Court of Appeals, 8th Circuit.

February 23, 1977

—_—e

APPENDIX C

Title 26, United States Code

§ 7426. Civil actions by persons other than taxpayers

(a) Actions permitted.—

(1) Wrongful levy.—If a levy has been made on prop-

erty or property has been sold pursuant to a levy, any

person (other than the person 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.

(2) Surplus proceeds.—I{ property has been sold pursu-

ant to a levy, any person (other than the person against

whom is assessed the tax out of which such levy arose) who

claims an interest in or lien on such property junior to that

of the United States and to be legally entitled to the sur-

rlus proceeds of such sale may bring a civil action against

the United States in a district court of the United States.

(3) Substituted sale proceeds.._If property has been

sold pursuant to an agreement described in section 6325(b)

(3) (relating to substitution of proceeds of sale), any person

who claims to be legally entitled to all or any part of the

amount held as a fund pursuant tv such agreement may

bring a civil action against the United States in a district

court of the United States.

— A-21 —

(1) Injunction.—If a levy or sale would irreparably in-

jure rights in property which the court determines to be

superior to rights of the United States in such property, the

court may grant an injunction to prohibit the enforcement

of such levy or to prohibit such sale.

(2) Recovery of property.—If the court determines that

such property has been wrongfully levied upon, the court

may—

(A) order the return of specific property if the

United States is in possession of such property;

(B) grant a judgment for the amount of money

levied upon; or

(C) grant a judgment for an amount not exceeding

the amount received by the United States from the sale

of such property.

For the purposes of subparagraph (C), if the property was

declared purchased by the United States at a sale pursuant

to section 6335(e) (relating to manner and conditions of

sale), the Unted States shall be treated as having received

an amount equal to the minimum price determined pursu-

ant to such section or (if larger) the amount received by the

United States from the resale of such property.

(3) Surplus proceeds.—If the court determines that the

interest or lien of any party to an action under this sec-

tion was transferred to the proceeds of a sale of such

property, the court may grant a judgment in an amount

equal to all or any part of the amount of the surplus pro-

ceeds of such sale.

(4) Substituted sale proceeds.—If the court determines

that a party has an interest in or lien on the amount held

to grant only such of the following forms of relief as may be

appropriate in the circumstances:

as a fund pursuant to an agreement described in section

6325 (b) (3) (relating to substitution of proceeds of sale),

eeeneeees |

— A-22 —

the court may grant a judgment in an amount equal to all or

any part of the amount of such fund.

(c) Validity of assessment.—For purposes of an adjudication

under this section, the assessment of tax upon which the interest

or lien of the United States is based shall be conclusively pre-

sumed to be valid.

(d) Limitation on rights of action.—No action may be main-

tained against any officer or employee of the United States (or

former officer or employee) or his personal representative with

respect to any acts for which an action could be maintained

under this section.

(e) Substitution of United States as party.—If an action, which

could be brought against the United States under this section,

is improperly brought against any officer or employee of the

United States (or former officer or employee) or his personal

representative, the court shall order, upon such terms as are just,

that the pleadings be amended to substitute the United States as

a party to such officer or employee as of the time such action

was commenced upon proper service of process on the United

States.

(f) Provision inapplicable.—The provisions of section 7422(a)

(relating to prohibition of suit prior to filing claim for refund)

shall not apply to actions under this section.

(g) Interest.—Interest shall be allowed at the rate of 6 percent

per annum—

(1) in the case of a judgment pursuant to subsection (b)

(2B), from the date the Secretary or his delegate receives

the money wrongfully levied upon to the date of payment

of such judgment, and

(2) in the case of a judgment pursuant to subsection (b)

(2(C), from the date of the sale of the property wrongfully

levied upon to the date of payment of such judgment.

— A-23 —

Title 28, United States Code

§ 1654. Appearance personally or by counsel

In all courts of the United States the parties may plead and

conduct their own cases personally or by counsel as, by the

rules of such courts, respectively, are permitted to manage and

conduct causes therein. June 25, 1948, c. 646, 62 Stat. 944;

May 24, 1949, c. 139, § 91, 63 Stat. 103.