Petition — DiVivo v. United States

(wens ee ee ———

IN THE JAN 14 1980!

Supreme Court of the Unjted States.

+

OCTOBER TERM, 1979

No.€9-1098

VICTOR DIVIVO

Petitioner

Vv.

UNITED STATES OF AMERICA

and

W. DONALD BELL

Respondents

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MARVIN J. GARBIS

ALLEN L. SCHWAIT

PAULA M. JUNGHANS

Garbis and Schwait, F.A.

6 1001 Keyser Building

e Baltimore, Maryland 21202

Attorneys for Petitioner

TABLE OF CONTENTS

Opinions NN ee eae Re ee ole

ct nee ae wee bi ee hole Wee

GCusstions PESGOREOG. o's kc bo é% ces tecuwcveceed

Rules And Statutes Involved.......eeeeeee +4

Reasons For Granting The Writ.......-.e-eee+7

Statement Of The | EAD SRA Es SALE Ry

A. Statement Of The Proceedings.....7

B. Statement Of The Facts.......---ll

REGUMORE - O6 a Co vc. wh awe e OSELEMES 0 KO eee eeae

A. A Taxpayer Who Makes Out

A Prima Facie Showing Of

Bad Faith In An Internal

Revenue Service Investi-

gation, As Petitioner Has,

Must Be Afforded An Evi-

dentiary Hearing On The

Tess OF Bae Par! ccccsviscvcacssekS

B. Petitioner Has Standing

To Assert Defenses To

Enforcement Of The In-

ternal Revenue Service

ES REE OE GAO EE EP TOY

ee a OR o teen wee

I ia ts Cig bee ae ee

ne re er ree rey |

A. Transcript of Proceedings

In The United States Dis-

trict For The District Of

MAEVIONG sc cwcccceevvesceccccecses lO

B. Opinion Of The United States

Court Of Appeals For The |

Fourth Circuit, dated

CORBY B05 297 ood cs 6000 cc 0s oe e 458

TABLE OF AUTHORITIES

CASES

In Re Oceana International, Inc.,

9 -F.Rid. 329 (8.Bi WF BOTG) vec t ce a2

Pepsico, Inc. v. F.T.C., 472 F.2d 179

(2nd Cir. 1972) cert. denied

6 ae Me a ee ee eee ere ee ee ee tS

Reisman v. Caplin 375 U.S. 440 (1964)....18

Spangler v. United States, 415 F.2d

Dae CPE. Car s DRO i wdiebae Pelee e bee bene

United States v. Barrett, 505 F.2d

put RY iy ok Be ae Se he ) re are 2 grr

United States v. Donaldson, 400

ie is RT LASER OEP ERE SAREE 1 Chew 6 bed .16

United States v. Equitable Trust Co.,

__F.2d__, 44 AFTR 2nd 79-5794...15,22,23

United States v. LaSalle National Bank,

98 §.Ct.. 2357 (1978)... ...27,9,16,18,19,20

United States v. McCarthy, 514 F.2d

we CER Rohe. ROOT CANN 0 06e 0 be bce ep ees ad

United States v. Powell, 379 U.S. 48

CRO Coke tak ocbe sad Cewek CAwe ce ht peers?

United States v. Wright Motor Co., Im.,

536 F.2d 1090 (Sth Cir. 1976) ....ss:00-18

STATUTES, RULES AND PUBLISHED PROCEDURES

26 F.O1G CTLASLR «hbase 4s hee cemeeee

26 Te «Ge SFOs Uk eee eee CHES ROR R OT

ii

a —

ry Ee TL oR be) AL a ere are,

PO er oP es és ab occa bean Ces wae osOe ties

Be ke oe EEG 6 ok eda CeO KR ROS Sehae eee ae

SE Gk BAA OLEAE Chae co Ke ROR E DS 60 ORS be Cea

Federal Rule of Civil Procedure

SOUL Ch 4a oh OES CO OS Che aes bee, 2a0e4

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), §9131.........20

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), §9382.2.......20

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), §9383.1.......2l

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), §9384.2....20,21

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), Special

Agents Handbook, §242.132.............21

Internal Revenue Manual, CCH, Vol. 5,

Part IX (Intelligence), Special

Agents Handbook, §243.2.......e22+22e21

OTHER AUTHORITIES

3B Moore's Federal Practice,

SPO GEOLBE ost belo eek sobs Eee be Rad aweaQoand

Shapiro, "Some Thoughts On Interven-

tion Before Courts, Agencies and

Arbitrators," 81 Harv. L. Rev. 721

ee ar eee ep ee ee eS ee eet

Wright and Miller, Federal Practice and

PLOCHGUTS?. CLVLL ELIZSs sc ivcconacevveds

iii.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1979

NO.

VICTOR DIVIVO

Petitioner

Vv.

UNITED STATES OF AMERICA

and

W. DONALD BELL

Respondents

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Petitioner, Victor DiVivo ("DiVivo")

prays that a writ of certiorari issue to re~

view the judgment herein of the United States

Court of Appeals for the Fourth Circuit.

OPINIONS BELOW

The opinion of the Court of Appeals

(App. B, infra) is reported at F.2d __,

44 AFTR 2d 79-5794, and was decided <n Oc-

tober 16, 1979. No memorandum opinion of

the District Court was issued. The repor-

ter's transcript of proceedings of the “Dis-

trict Court on December 15, 1978 (App. A,

infra) contains the District Court's oral

opinion.

JURISDICTION

The judgment of the Court of Appeals

was entered on October 16, 1979. The time

for filing of this petition is the 90 day

period prescribed by 28 U.S.C. §2101 for

civil cases.

The jurisdiction of this Court is in-

vokes under 28 U.S.C. §1254.

-2-

eee

Eo ———————

QUESTIONS PRESENTED

I. Whether an Internal Revenue Ser-

vice summons may be enforced without af-

fording intervening taxpayer an evidentiary

hearing after he has made out a prima facie

case of bad faith in the tax investigation

pursuant to which the summons was issued.

II. Whether an Internal Revenue Ser-

vice investigation of a taxpayer undertaken

for the primary purpose of pressuring him

to give evidence against another taxpayer

is an investigation conducted in bad faith.

III. Whether Petitioner, who had been

permitted to intervene as a matter of right

under 26 U.S.C. §7609 and Federal Rule 24(a)

in an Internal Revenue Service summons en-

forcement proceeding against a bank, lacked

standing to contest the good faith of the

tax investigation pursuant to which the

summons was issued.

RULES AND STATUTES INVOLVED

Rule 24(a), Federal Rules of Civil

Procedure.

“=

INTERVENTION

(a) Intervention of Right. Upon

timely application, anyone shall be permit-

ted to intervene in an action: (1) whena

statute of the United States confers an un-

conditional right to intervene; or (2) when

the applicant claims an interest relating to

the property or transaction which is the sub-

ject of the action and he is so situated

that the disposition of the action may as

a practical matter impair or impede his

ability to protect that interest, unless the

applicant's interest is adequately represen-

ted by existing parties.

ee "

26 U.S.C. §7609 (in pertinent part)

§7609. Special procedures for third-

party summonses.

4

(a) Notice. --

(1) In general. -- If --

(A) any summons described

in subsection (c) is served on

any person who is a third-party

recordkeeper, and

(B) the summons requires

the production of any portion of

records made or kept of the busi-

ness transactions or affairs of

any person (other than the person

summoned) who is identified in

the description of the records

contained in the summons,

then notice of the summons shall be

given to any person so identified

within 3 days of the day on which

such service is made, but no later than

the 14th day before the day fixed in

the summons as the day upon which such

records are to be examined. Such no-

tice shall be accompanied by a copy of

the summons which has been served and

shall contain directions for staying

compliance with the summons under sub-

section (b) (2).

(b) Right to intervene; right to

stay compliance. --

(1) Intervention. -- Notwith-

standing any other law or rule of law,

any person who is entitled to notice

of a summons under subsection (a) shall

have the right to intervene in any pro-

ceeding with respect to the enforcement

of such summons under section 7604.

(2) Right to stay compliance. --

Notwithstanding any other law or rule

of law, any person who is entitled to

notice of a summons under subsection

(a) shall have the right to stay compli-

ance with the summons if, not later than

the 14th day after the day such notice

is given in the manner provided in sub-

section (a) (2) --

(A) notice in writing is

given to the person summoned

not to comply with the summons,

and

(B) a copy of such notice

not to comply with the summons

is mailed by registered or cer-

tified mail to such person and

to such office as the Secretary

may direct in the notice re-

ferred to in subsection (a) (1).

ee

_

REASONS FOR GRANTING THE WRIT -

This case raises serious questions

concerning the manner in which a taxpayer

who intervenes in an Internal Revenue Service

summons enforcement proceeding may assert de-

fenses based upon the alleged bad faith of

the Internal Revenue Service. Although this

Court's decision in United States v. LaSalle

National Bank, 98 S.Ct. 2357 (1978) disposed

of long-debated issues with respect to sum-

mons enforcement proceedings, it raised new

questions concerning procedures to be fol-

lowed and standards to be met in such cases,

which require further clarification from

this Court.

STATEMENT OF THE CASE

A. Statement of the Proceedings

This case arises out of an Order of the

United States District Court for the District

of Maryland (Hon. C. Stanley Blair), grant-

a, Pe

ing a Petition to enforce Internal Revenue

Summons. The United States filed a Petition

to Enforce Internal Revenue Summons in the

District Court against the Equitable Trust

Company, after Equitable Trust declined to

comply with an Internal Revenue Service sum-

mons issued to it by a Special Agent of the

Criminal Investigation Division of the In-

ternal Revenue Service for certain bank re-

cords pertaining to Angelo DiBiasi ("Di-

Biasi") and Petitioner DiVivo. Attached to

the Petition was an affidavit of Special

Agent W. Donald Bell. (The Special Agent

had sent a copy of this summons to DiBiasi

and DiVivo, pursuant to Title 26 U.S.C.

§7609, and DiVivo had sent a written request

for non-compliance to Equitable Trust.) Di-

Vivo, having been served with a copy of the

Petition to Enforce by the Internal Revenue

Service, filed a Motion to Intervene and pro-

posed Response which alleged that the DiBi-

au

asi investigation was being conducted in

bad faith. Attached to the propose Re-

sponse was an affidavit of Michael Schwarz,

counsel for DiBiasi, setting forth facts in

support of DiVivo's allegations.

At the hearing before the District

Court on December 15, 1978, the Court

granted DiVivo's Motion to Intervene, with-

out objection from the Government. The

Government then put Special Agent Bell on

the witness stand to supplement his affida-

vit with respect to several matters required

by the Supreme Court's decision in United

States v. LaSalle National Bank, 98 S.Ct.

2357 (1978). However, che Special Agent

did not rebut any of the factual allegations

of bad faith made by DiVivo. Nor did the

Government present any other evidence to

rebut DiVivo's allegations.

The Court permitted DiVivo's counsel to

begin his cross-examination of the Special

= Qa

Agent, but sustained various objections made

a

by Government counsel and then terminated the

cross-examination before counsel was able to

develop any testimony in support of DiVivo's

allegations of bad faith. The Court did not

allow DiVivo to present .ny other evidence,

although DiVivo was prepared to do so. Nor

had the Court permitted DiVivo any pre-hear-

ing discovery as requested in DiVivo's Re-

sponse.

The Court then held, in response to the

Government's oral motion, that DiVivo had no

standing to raise his defenses to enforcement

of the summons, and entered an Order granting

the Petition. DiVivo noted an appeal to the

United States Court of Appeals for ti. Fourth

Circuit and, upon application to the Honor-

able Harrison L. Winter of the Fourth Cir-

cuit, an Order of Stay was entered, pending

disposition of the appeal.

The appeal was argued before the United

-10-

States Court of Appeals for the Fourth Cir-

cuit (Judges Winter and Hall, and United

States District Judge Frank A. Kaufman, sit-

ting by designation) on March 14, 1979. On

October 16, 1979, the Fourth Circuit issued

its opinion (from which Judge Winter dissen-

ted) affirming the Order of the District

Court.

B. Statement of the Facts

The following statement is based on the

pleadings, including the uncontroverted af-

fidavit of Michael Schwarz, Esquire, which

was attached to DiVivo's Response, and on

the proceedings before the District Court at

the hearing of December 15, 1978.

The summons in issue was dated Septem-

ber 8, 1978, and was issued in the Internal

Revenue Service criminal investigation of

Angelo DiBiasi, who is a business associate

of Petitioner DiVivo. DiVivo is also under

hd

investigation by the Criminal Investigation

Division of the Internal Revenue Service.

(On June 1, 1979, the Criminal Investigation

Division of the Internal Revenue Service

made a recommendation to the District Coun-

sel of the Internal Revenue Service that Di-

Vivo be prosecuted for evasion of his indi-

vidual income taxes for the years 1974, 1975,

and 1976. To the best of Petitioner's know-

ledge, District Counsel has not yet acted on

that recommendation.) The summons requested

the Equitable Trust Company to produce cer-

tain bank records of DiBiasi, including

records relating to DiVivo, and DiVivo was

named in the summons.

As the affidavit of Michael Schwarz

stated, the investigation of DiBiasi and

four other business associates of DiVivo be-

gan after they had voluntarily given Q & A's

(deposition-like statements under oath) to

the Internal Revenue Service in the investi-

03 Dn

PT APE UES OIE Y MOR - > + —

a

gation of DiVivo. None of these witnesses

(also subjects of investigation) was informed

at the time of his Q & A that he was a target

or potential target of an Internal Revenue

Service investigation, although it appears

that the Internal Revenue Service may have

had incriminatory information with respect

to DiBiasi, et al at the time of their

Q & A's. Following the Q & A's, and follow-

ing the sending of notices to each indivi-

dual that the Internal Revenue Service was

investigating him individually, Mr. Schwarz

was called by Neil Spearing, the Special

Agent in charge of DiVivo's investigation.

The Special Agent indicated that it would be

to the individuals' benefit to cooperate in

the investigation of DiVivo. The subject of

immunity was discussed and the possibility

of an immunity grant was mentioned. Fur-

ther, the Special Agent indicated that he

was aware that two of the individuals under

aide

.

investigation were resident aliens. Subse- ARGUMENT

quent to this telephone conversation, Mr. | 7

A. A Taxpayer Who Makes Out a Prima

Facie Showing of Bad Faith In An

Internal Revenue Service Inves-

tigation, As Petitioner Has, Must

Be Afforded An Evidentiary Hear-

ing On The Issue of Bad Faith.

Schwarz was advised by Special Agent Spear-

ing that other Special Agents had been as-

signed to the investigation of his clients,

but that it was proper for Mr. Schwarz t

ign f ss Although the District Court originally

speak with Spearing regarding those investi- :

» » gibt ° granted enforcement of the summons in issue

ations. After this second telephone conver- oe ‘

- . on the ground that DiVivo lacked standing to

sation, Mr. Schwarz requested a conference : :

J q contest the summons, the Fourth Circuit

with the Internal Revenue Service to com-

found that DiVivo had standing, but had not

plain of the conduct of the Special Agent. a p p

made a sufficient showing of bad faith to

That conference was held and the Internal ; ; ; ‘ : P

justify a full evidentiary hearing on the is-

Revenue Service continued to maintain that tees

sue. However, Petitioner contends, as Judge

its investigation of DiBiasi and the others i p . h , ‘

Winter in his dissenting opinion agreed:

was proper.

DiVivo has alleged that the IRS

undertook its investigation of

DiBiasi and issued the summons

A : in question for the purpose, if

not the primary purpose, of per-

suading DiBiasi into cooperating

with the investigation of DiVivo

by giving evidence against him.

If it is proved that the primary

purpose of the investigation and

the summons was to force DiBia-

si's cooperation in the DiVivo

BMP yore vee =

«tin

at A Sos

investigation, then I think

Powell requires that enforce-

ment of the summons be denied.

It is difficult to conceive

of an example of bad faith

that would better qualify as

“an improper purpose...."

In LaSalle, supra, this Court attempted

to define the “good faith" limits of an In-

ternal Revenue Service investigation and the

standards for judicial enforcement of Inter-

nal Revenue Service summonses, in view of

differing interpretations by the circuit

courts of its decision in United States v.

Donaldson, 400 U.S. 517 (1971).

The Court in LaSalle set forth several

requirements that must be met before an In-

ternal Revenue Service summons should be en-

forced. The Court stated:

D. In summary, then, several

requirements emerge for the enforce-

ment of any internal revenue summons.

First, the summons must be issued

before the Service recommends to the

Department of Justice that a crimi-

nal prosecution, which reasonably

would relate to the subject matter

-16-

: —— ' en.

a

of the summons, be undertaken. Se-

cond, the Service at all times must

use the summons authority in good

faith pursuit of the congression-

ally authorized purposes of §7602.

This second prerequisite requires

the Service to meet the Powell

standards of good faith. It also

requires that the Service not aban-

don in an institutional sense, ...

the pursuit of civil tax determi-

nation or collection. Id.at 2368.

The standards set forth in United States

v. Powell, 379 U.S. 48 (1964), adopted by, La-

Salle, were the following:

{The Service] must show that

the investigation will be conduc-

ted pursuant to a legitimate pur-

pose, that the inquiry may be

relevant to the purpose, that the

information sought is not already

within the Commissioner's posses-

sion, and that the administrative

steps required by the Code have

been followed...[A] court may not

permit its process to be abused.

Such an abuse would take place if

the summons had been issued for

an improper purpose, such as to

harass the taxpayer or to put pres-

sure on him to settle a collateral

dispute, or for any other purpose

reflecting on the good faith Bf

the part cular investigation. Id.

at 57, 58. (Emphasis added).

et he

The Court in LaSalle indicated that the

above-quoted requirements were not intended

to be exclusive and that "[f]Juture cases may

well reveal the need to prevent other forms

of agency abuse of congressional authority

and judicial process." Note, 20, Id. at

2368. Petitioner submits that the case at

bar is such a case.

Further, while LaSalle sought to clari-

fy the standards for enforcement of Internal

Revenue Service summonses, it did not change

the pre-LaSalle requirement that where a

taxpayer or other person with standing to

challenge the enforcement of a summons

raises prima facie defenses to enforcement,

the Court should hold an evidentiary hearing

(and perhaps permit discovery) to determine

whether or not enforcement is proper. Reis-

man v. Caplin, 375 U,S. 440 (1964); United

States v. Powell, supra; United States v.

Wright Motor Co., Inc., 536 F. 2d 1090 (5th

-18-

—

ee

Cir.1976); United States v. McCarthy, 514 F.

2d 368 (3rd Cir. 1975).

In the case at bar, DiVivo made the

strongest possible showing of bad faith on

the part of the Internal Revenue Service

imaginable in advance of discovery and a

hearing. That showing was not based on

unsupported allegations but, rather, was

based on the affidavit of an attorney which

contained detailed, specific allegations of

improper conduct on the part of the Internal

Revenue Service.

The not so subtle threats and promises

and other conduct of the Special Agent set

forth above not only violated the good faith

requirements of LaSalle, supra, and, more

particularly, the prohibition of harassment

noted in Powell, supra, but they also con-

travened several applicable provisions of

the Internal Revenue Manual and Special

Agents Handbook, both of which regulate the

~19-

conduct of Special Agents.

A Special Agent's primary purpose is

to investigate alleged criminal tax viola-

tions, and, where appropriate, to recommend

to the Internal Revenue Service, which in

turn can recommend to the Department of Jus-

tice, that a taxpayer be prosecuted. See,

generally, the discussion of the Special

Agent's role in Donaldson v. United States,

400 U.S.517 (1971) ,834, and LaSalle, supra, at

2363-67. See also Internal Revenue Manual,

CCH, Vol. 5, Part IX (Intelligence. ("Man-

ual") It is not part of a Special Agent's

duties, and he is specifically prohibited

by the Manual and the Special Agents Hand-

book (a part of the Manual) from pressuring

the subjects of an investigation into cooper-

ating, from making threats of prosecution or

using other forms of intimidation, and from

promising or implying offers of immunity.

Manual,§§9131, 9382.2, 9384.2; Special Agents

-20-

Handbook, §242.132. When interviewing a wit-

ness who is a potential target of a tax in-

vestigation because of incriminatory informa-

tion known to the Internal Revenue Service,

the Special Agent is required to advise the

witness of his Fifth Amendment rights. Man-

ual, §§9383.1, 9384.2; Special Agents Hand-

book, §243.2.

Given these prima facie, factual allega-

tions of bad faith, an evidentiary hearing

was required in order to fully develop Pe-

tioner's allegations. And, Petitioner should

have been afforded pre- or post-hearing dis-

covery, which might have obviated the need

for the lengthy proceedings abhorred by both

the District Court and the Fourth Circuit.

That the conduct of the Special Agents

(sanctioned by the tetocuns Revenue Service

institutionally at the conference held to

discuss the conduct) did, in fact constitute

bad faith should not be debatable. The point

=2i=

was expressed succinctly by Judge Winter

his dissenting opinion:

The majority seeks to justify

the purpose attributed by DiVivo

to the IRS by citing the authority

granted to the IRS under I.R.C.

§7122(a) to compromise any civil or

criminal tax case, prior to refer-

ral to the Department of Justice.

In United States v. Barrett, 505

F. 2d 1091, 1100-03 (7 Cir. 1974),

cert. denied, 421. U.S. 964 (1975),

§7122(a) was relied upon to permit

the grant of civil tax immunity to

the accomplice of a bribery defen-

dant, with respect to the income

tax owed by the accomplice on bribes

which passed through his hands, in

exchange for the accomplice's tes-

timony against the defendant. But

the power of the IRS to compromise

tax cases has no bearing on the

question before us. DiVivo does

not deny that if the IRS had under-

taken an investigation of DiBiasi

in good faith for the primary pur-~

pose of determining and collecting

DiBiasi's tax liability, then the

IRS could properly issue summonses

pursuant to that investigation and

could ultimately compromise DiBi-

asi's case in exchange for his

testimony against DiVivo. Rather,

DiVivo alleges that the investiga-

tion of DiBiasi was undertaken in

bad faith as a pressure tactic to

force DiBiasi to cooperate in the

investigation of DiVivo. Nothing

a

in

:

ee

in §7122(a) or Barrett authorizes

the IRS to undertake or pursue an

investigation for such a primary

purpose.

B. Petitioner Has Standing To Assert

Defenses To Enforcement Of The

Internal Revenue Service Summons.

As noted above, the District Court's

finding that Petitioner lacked standing to

assert defenses to the Internal Revenue Ser-

vice summons in issue was rejected by the

Fourth Circuit. However, in anticipation

of Respondent's re-assertion of the argu-

ment that Petitioner lacks standing, Peti-

tioner submits the following on the issue

of standing. |

Petitioner's original Motion to Inter-

vene was based on 26 U.S.C. §7609 (" §7609")

and Rule 24(a) of the Federal Rules of Civil

Procedure, the pertinent portions of which

have ‘been set forth above. §7609(b) (1) pro-

vides that "{nJotwithstanding any other law

-23-

or rule of law, any person who is entitled

to notice of a summons under subsection (a)

shall have the right to intervene in any pro-

ceeding with respection to the enforcement of

such summons...." (Emphasis supplied). Fur-

ther, Rule 24(a) provides for intervention

of right when a statute of the United States

“confers an unconditional right to intervene."

Therefore, there should be no issue that Di-

Vivo was entitled to intervene in the pro-

ceedings brought for enforcement of the sum-

mons. And, at least initially, the United

States did not object to such intervention

of the part of DiVivo.

However, the mere conclusion that Di-

Vivo is entitled to intervene does not dis-

pose of the matter. The more serious ques-

tion raised is whether an intervenor of

right may be restricted in the nature of

his participation in the proceedings. Pe-

tioner suggests that no significant restric-

a, oe

—— :

ee

«

should be imposed. See, e.g. Spangler v.

United States, et al, 415 F.2d 1242 (9th

Cir. 1969) (reversing District Court's or-

der denying the United States as intervenor

of right in discrimination case against pub-

lic high schools permission to assert a

charge of discrimination against entire

school system); Pepsico, Inc. v. F.T.C., 472

F.2d 179 (2nd Cir. 1972), cert.denied 414

U.S. 876; In Re Oceana International, Inc.,

49 F.R.D. 329 (S.D. N.Y. 1970) (on motion

for reargument: intervenor/purchase of pro-

perty subject of original suit held not sub-

ject to any restrictions on its interven-

tion); Wright and Miller, Federal Practice

and Procedure: Civil §1922, at 625; 3B

Moore's Federal Practice, 424.16[4], at 631

(2d Ed. 1978); Shapiro, "Some Thoughts On

Intervention Before Courts, Agencies and

Arbitrators," 81 Harv. L. Rev. 721, 755,

756 (1968).

-25-

CONCLUSION

For these reasons this Court should

issue a writ of certiorari to review the

judgment and opinion of the Fourth Cir-

cuit in this case.

Respectfully submitted,

MARVIN J. GARBIS

ALLEN L. SCHWAIT

PAULA M. JUNGHANS

Garbis and Schwait,P.A.

1001 Keyser Building

Baltimore, Maryland

21202

CERTIFICATE

I hereby certify that on this 14th day

of January, 1980, three copies of the fore-

going Petition for Certiorari were mailed,

postage prepaid, to Hon. Wade H. McCree,

Jr., Solicitor General, Department of Jus-

tice, Washington, D.C. 20530.

MARVIN J. GARBIS

~26=

etintacein Yobiotaienta 2 ——

AIT” Tey

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

UNITED STATES OF AMERICA )

and )

W...DONALD BELL, SPECIAL )

AGENT, INTERNAL REVENUE )

SERVICE )

) Case No.

vs. ) B78-2313

)

THE EQUITABLE TRUST )

COMPANY )

Baltimore, Maryland

December 15, 1978

PROCEEDINGS

THE COURT: Good morning, gentlemen,

ladies.

MR. HYLAND: Your Honor, this is the

matter of the United States of America v.

Equitable Trust Company, B78-2313, John Hy-

land on behalf of the United States, and

with me is Dan Wiles, Office of the District

Counsel here in Baltimore.

THE COURT: Say that again.

MR. WILES: Wiles, WILE S.

MR. REICH: Kenneth Reich and Allen

Schwait here, Your Honor.

THE COURT: Good morning. Gentlemen,

I talked to Mr. Reich yesterday. I am aware

that he has strong views with respect to dis-~-

covery being necessary or desirable in this

case. I told him that I wanted to proceed

this morning to hear what you had. Are you

having difficulty hearing me?

MR. HYLAND: No, I can hear you, Your

Honor.

THE COURT: I asked him to bring the

witnesses that he could get, and I assume

you have gotten them.

MR. REICH: Yes, sir.

THE COURT: I will then decide if there

is anything further that should be done in

the way of hearing, and if so, granting that

opportunity; if not, rule. Mr. Hyland.

MR. HYLAND: Thank you, Your Honor.

MR. REICH: Your Honor, if I might, just

before we begin. There are two preliminary

matters. First of all, I didn't know if Your

Honor wanted to rule at the outset on the

order of the motion requesting intervention

to get that disposed of.

THE COURT: Is there anything to rule

on?

MR. HYLAND: We have no objection to

the intervention, Your Honor.

MR. REICH: Secondly, we would request

that the witnesses who plan to testify to-

day be sequestered.

THE COURT: You know who they are, and

I don't know who they are. Mr. Hanson,

would you take over? Would you help him by

telling him who the witnesses are? Because

he doesn't know and I don't know.

-2a-

Ta

OE LLL OE:

MR. REICH: Yes, sir. All the gentlemen

in the back row.

THE COURT: Mr. Hyland.

MR. HYLAND: Thank you, Your Honor. As

the Court is aware, we are here today concern-

ing the Government's request to enforce the

Internal Revenue Service summons served on

the Equitable Trust Bank. As far as that

particular summons is concerned, it indicates

right on its face that this particular sum-

mons served on the bank is in the matter of

the tax liability of Angelo DiBiasi.

THE COURT: Yes, I read that.

MR. HYLAND: As far as the argument that

is being raised by the Intervenor, we feel

that the Court need not reach those arguments

because there is a question of standing.

Even aside from the question of whether there

is any merit whatsoever to the points about

the alleged bad faith, we feel that the only

party who could raise such an argument would

be Mr. Angelo DiBiasi and not Mr. DiVivo, so

I feel that the Court need not reach any of

the questions that have been raised by the

Intervenor as far as the question of good

faith by the Internal Revenue Service. For

the purposes of supplementing the affidavit

submitted by the Special Agent in this case,

Your Honor, the Special Agent working on

the matter of Mr. DiBiasi, we would ask the

Court to put Mr. Don Bell, the Special Agent,

on the stand just for the purpose of supple-

menting his affidavit, and we would ask to

restrict his testimony to certain areas.

MR. REICH: Your Honor, if I might just

respond to Mr. Hyland's argument? At the out-

-3a-

set, the Court asked if there was any ob-

jections to our intervening. Mr. Hyland

indicated no objections, therefore, I think

he has waived any argument he might have as

to Mr. DiVivo's standing. Mr. DiVivo is now.

a party to the action by order of the Court,

and under Section 7609 he certainly has a

right to object if he has a valid objection,

which he does, to enforce the summons for

any reasons that would invalidate the inves-

tigation. I don't see the argument that Mr.

Hyland has as having any merit whatsoever.

THE COURT: We can get to that. I un-

derstand your position. Could I hear from

whoever you want to present?

MR. HYLAND: We would like to call Mr.

Don Bell. He is one of the gentlemen that

has just been sequestered.

Whereupon --

WILLIAM DONALD BELL JR.

A WITNESS, CALLED FOR EXAMINATION ON BEHALF

OF THE UNITED STATES, HAVING BEEN FIRST

DULY SWORN, WAS EXAMINED AND TESTIFIED AS

FOLLOWS :

THE CLERK: Please state your name and

spell your last for the record.

THE WITNESS: William Donald Bell, Jr.

BELL.

THE COURT: Go right ahead, and the

faster we go the better we will be. At 10:30

I will have to interrupt because we have a

rearraignment.

MR. HYLAND: Thank you, Your Honor.

-4a-

op PANE

DIRECT EXAMINATION

BY MR. HYLAND:

Q. Mr. Bell, you are an investigator of

the Internal Revenue Service?

Ax. Fee. Bir:

Q. In the performance of your duties,

were you assigned to conduct the investiga-

tion of Angelo DiBiasi?

A. Yes, sir.

Q. If you recall, approximately when

were you given this assignment, sir?

A. Around March of 1978.

Q. In the performance of your duties,

did you have occasion to issue a summons to

the Equitable Trust Company on or about Sep-

tember 8, 1978?

A. Yes, sir.

Q. Are you aware today whether or not

any recommendations have been made by the

Internal Revenue Service to the Department

of Justice for criminal prosecution of Mr.

Angelo DiBiasi?

A. No, sir, there hasn't.

Q. Is it not true that you as the case

special agent would initiate any criminal

recommendation from the Internal Revenue

Service to the Department of Justice?

A. Yes, sir.

-5a-

Q. Is it true that you would do that by

writing what is called an S.A.R. or a Special

Agent's Report?

A. Yes, sir.

Q. Have you at this time begun writing

that Special Agent's Report?

A. No, sir.

Q. Have you for any reason delayed the

beginning of the writing of your Special

Agent's Report so as to prolong the use of

the summons authority?

A. No, sir.

Q. Are you aware that anyone else has

made any recommendation to the Department of

Justice in this matter for criminal prosecu-

tion?

A. No, sir.

Q. In the performance of your duties,

sir, and specifically in the drafting and

service of this particular summons to the

Equitable Trust Company, did you follow all

administrative and procedural steps re-

quired by the Internal Revenue Code?

A. Yes, sir.

Q. And to the best of your recollec-

tion could you briefly tell the Court what

you did in following those administrative

and procedural steps in the issuance of this

summons?

A. Okay. I would have taken the sum-

mons to the bank and served it on the bank

-6a-

ft

representative, and then when I returned to

the office I take the steps necessary to send

notices out to the respective people per the

summons. Do you want me to tell you who they

would be on the summons?

Q. Yes, please, tell us who you did

send this information to.

A. I am certain on this particular sum-

mons it would be Mr. Angelo DiBiasi, his at-

torney, who is Michael Schwarz, and Mr. Vic-

tor DiVivo.

THE COURT: You did what with respect to

Mr. DiVivo?

THE WITNESS: I would send him a copy

of the summons.

THE COURT: Why?

THE WITNESS: It is required by the In-

ternal Revenue Code that on third party sum-

mones to banks that I send out notice to the

taxpayer, his representative, and then any-

body else that I might mention in the summons

if I am asking for records that might be

pertaining to them.

THE COURT: Go ahead.

BY MR. HYLAND:

Q. Prior to the issuance of this sum-

mons, did you have to obtain approval of any

of your superiors?

A. Yes, sir, I did.

Q. Did you do that?

-Ja-

A. Yes, sir.

Q. From whom did you obtain approval?

A. It would have been by group manager,

who is Michael Daley.

Q. If you recall, is Mr. DiVivo any-

where mentioned in the body of the summons

that you served on Equitable Trust Company?

A. I think he is. .

MR. HYLAND: Your Honor, nothing further

of this particular witness.

We would petition the Court that based

on the original affidavit of this Special

Agent, Mr. Bell, supplemented by his testi-

mony here today, Your Honor, this would be

sufficient evidence for the Court to rule so

as to enforce the summons requested.

THE COURT: Mr. Reich.

MR. REICH: Does Your Honor have any ob-

jection if I stay seated while I examine the

witness?

THE COURT: Not at all.

CROSS-EXAMINATION

BY MR. REICH:

Q. Mr. Bell, how long have you been an

agent?

A. Approximately six years.

@Q. Now, are you involved at all in the

investigation of Mr. DiVivo?

-8a-

PF OE etree.

MR. HYLAND: Objection, Your Honor?

THE COURT: Tell me what your reason is.

MR. HYLAND: It would be beyond the scope

of anything that I asked Mr. Bell on direct

examination, and we feel it is beyond the

scope of this particular hearing as to whe-

ther or not a summons was directed to Mr. Di-

Vivo.

THE COURT: Overruled.

BY MR. REICH:

Q. Mr. Bell, your answer to that ques-

tion, please, as to whether you were involved

in the DiVivo summons?

A. You might have to clarify what you

mean by being involved.

Q. Have you had any: investigative du-

ties or functions related to that investiga-

tion?

A. I have probably accompanied some-

body as a witness, if that is what you mean.

Q. Who have you accompanied as a wit-

ness?

A. The agent that is working on the

Q. Who is that?

A. I guess Mr. Spearing.

Q. SPEARING?

A. Right.

-9a-

©

Q. Do you know for a fact that he is

the agent that is in charge of that inves-

tigation?

A. I believe he is.

THE COURT: What is the name?

THE WITNESS: Neil Spearing.

THE COURT: Would you spell it for me?

THE WITNESS: It is, SPEARING.

THE COURT: Special Agent?

THE WITNESS: Yes, sir.

BY MR. REICH:

Q. Are there any other agents involved

in that investigation to your knowledge?

A. I don't know how to answer your

question because Mr. Spearing -- if he goes

and interviews somebody he is liable to take

anybody available.

Q. Are there any other agents working

actively on that investigation with him?

A. Not that I know of.

Q. You had indicated you had accom-

panied him on on interview?

A. Yes.

Q. Was that of the third-party wit-

ness?

A. Yes.

-10a-

a Bi

THE COURT: Third-party what?

MR. REICH: Witness.

Q. Who is that person?

MR. HYLAND: Your Honor, we would object

that this would -- for the witness to answer

this particular question to acquire from the

third party the tax information.

MR. REICH: If it involves the DiVivo

investigation, we certainly would waive any

objection under the Code.

THE COURT: Let them confer on what they

are going to do.

MR. HYLAND: Your Honor, in additior we

feel that the Intervenor is attempting to use

this forum as a method of discovery of any-

thing that might be going on during the in-

vestigation of this particular matter.

THE COURT: Yes.

MR. REICH: Your Honor, if the IRS pre-

fer the witness to tell the Court in camera,

we have no objection.

THE COURT: What good would that do?

Are you going to put it together some way

with other matters?

MR. REICH: I think it is important to

know what Mr. Bell and the other agents, what

their relationship is to the DiVivo investi-

gation. Our point is that this investigation

and the others are all related to DiVivo, .

and is all part of one investigation. I

think it is entirely relevant to know to

what capacity Mr. Bell is involved in the

-lla-

DiVivo investigation.

THE COURT: Overruled. What is the

answer? Do you remember the question?

THE WITNESS: I think the question was

who I might have been involved with inter-

views on.

THE COURT: Was it a person or persons?

MR. REICH: He indicated one. If there

is more than one, I would like to know.

THE WITNESS: There might have been a

couple of people that I have gone out with

in the last nine months or longer as a wit-

ness, but to give you names and -- you know

-- without me checking my records, the peo-

ple don't mean anything to me.

THE COURT: Is your answer you don't

know?

THE WITNESS: I do not recall the names

of people that I have talked to. Not neces-

sarily talked to, but accompanied Mr. Spear-

ing.

MR. REICH: I don't want to prolong this.

Q. Mr. Bell, you indicated that without

your records you have no knowledge. I have

subpoenaed you , have I not, to this hear-

ing?

A. I guess you did.

Q. Did you receive a subpoena?

A. I got a copy of one.

-~l2a-

Q. Didn't that subpoena request that

your bring with you records relating to the

DiVivo investigations?

A. I guess it did.

Q. Did you bring those files or records

with you?

A. I don't have any records with me.

MR. HYLAND: Your Honor, the witnesses

have receive various disclosure authorities

from the Secretary of the Treasury. That

disclosure authority does not go to any of

the documents that they might have amassed

during their investigation.

THE COURT: You know, I have a problem

with that. I had a problem with the IRS once

before in this respect. I do not understand

it to be the IRS's role to make a unilateral

determination as to what the Court may or may

not do or see. Are you going to give me

some law?

MR. HYLAND: There is a provision, it

is 6103 Section 8 of Title 26, if I could

just locate that for the moment, Your Honor.

THE COURT: What does that have to do

with whatever it says to the obedience of a

subpoena? Having the records is one thing,

and being required to produce them is some-

thing else.

MR. HYLAND: There is some language here

in Section 6103 Number 4. It says, "However

such return or return information shall not

be disclosed as provided until the Secretary

of the Treasury determines such disclosure

would identify a confidential informant or

-l13a-

seriously impair a civil or criminal tax

investigation."

Pty ATL Ree .

We feel here wo do have an ongoing

joint criminal, civil tax investigation

going.

THE COURT: He doesn't have the re-

cords in response to the subpoena as I un-

derstand it. I had that problem once be-

fore. I do not understand it to be the

Commissioner's or the IRS's right to over-

ride a subpoena; do you?

MR. HYLAND: No, Your Honor.

THE COURT: That is production, having

available, present in the courtroom. I had

that happen one other time, but counsel

frankly told me we didn't bring them be-

cause we were afraid you would require us

to present them.

MR. HYLAND: Your Honor, the particular

points that the Intervenor has raised and is

now trying to get, these documents and papers,

were just served on the Government a day and

a half ago. If the Court would desire to get

into that area, the Government would ask for

some additional time to respond in writing,

Your Honor, and to also submit additional

affidavits to the Court.

THE COURT: I am not even addressing

that. I am talking about if you received a

court subpoena you come with the material.

Whether you have to turn it over is another

matter. It is not here; is that correct?

MR. HYLAND: Your Honor, we have it

across the street, and it could be produced

in the court.

-14a-

MR. REICH: Your Honor, I would request

that they produce that --

THE COURT: What is it that you want?

MR. REICH: Your Honor, I have a number

of questions that I am going to address to

this witness and to others.

THE COURT: Well, you address them with-

out it at the moment, we don't have them here,

so let's see where we go from there. The

Equitable subpoena which I was looking for

and didn't seem to find in the file -- I am

sorry, I am looking at the subpoena of Mr.

Bell. Is the subpoena of the Equitable Trust

Company filed as pa~t of this?

MR. REICH: Your Honor, I have the ori-

ginal. The summons is attached to the Peti-

tion as an exhibit.

THE COURT: I think I have it right here,

I am not sure. Is it in here?

MR. REICH: It is attached to the Peti-

tion as one of the exhibits.

THE COURT: It is the back side of the

page. I see it now. Are you able to pro-

ceed?

MR. REICH: Yes, subject, of course, to

having available the documents later.

THE COURT: Well, subject to my determi-

nation.

BY MR. REICH:

Q. Mr. Bell, you indicated that you had

‘-15a-

accompanied Mr. Spearing on several trips to

visit or interview witnesses. Where were

these witnesses located, if you can recall?

A. I have been, I believe, to a place

in New Jersey. The town I don't know.

Q. That is all right. New Jersey, and

anywhere else?

A. I think possibly in Delaware.

Q. Do you remember when you took these

trips to interview the witnesses?

A. Some time within the last year.

Q. Was it before or after the investi-

gation of Mr. DiBIasi and the other business

associates of Mr. DiVivo began? Was it be-

fore or after approximately March of '78?

A. It might have been both. I am not

saying that I have gone since that time, but

I could have been with him on occasions prior

to that time. I just don't remember.

Q. Would your records reflect precisely

when you took these trips?

A. Yes, they would.

Q. Are you aware that Angelo DiBiasi is

under investigation by the IRS?

A. Yes, I am.

Q. Are you handling that investigation?

A. Yes, I am.

-l6a-

ee ie ee —

ERA IEE FOE IEP pe

SS i. .—

Q. Are you aware that Mr. Colavita is

under investigation?

MR. HYLAND: Objection, Your Honor.

THE COURT: I don't understand who he is,

let alone rule on your objection. What is it?

MR. HYLAND: Your Honor, again we are

getting into --

MR. REICH: Let me explain so we can get

background --

THE COURT: Let's back off here and go

to the rearraignment. We are obviously not

going to get very far with this. Let me see

counsel up here, please. You can step down,

Mr. Bell.

(DISCUSSION OFF THE RECORD AT THE BENCH)

THE COURT: You can get your witnesses

out of the room, and we will resume in half

an hour.

(RECESS -- 10:30 A.M.)

(AFTER RECESS -- 11:30 A.M.)

THE COURT: Gentlemen, I see your files.

MR. HYLAND: Yes, Your Honor.

THE COURT: Don't open them yet. Where

were we?

MR. HYLAND: Your Honor, we had Special

Agent Bell on the stand.

THE COURT: Resume the witness stand,

please.

-17a-

Whereupon --

WILLIAM DONALD BELL, JR.

A WITNESS, CALLED FOR EXAMINATION ON BEHALF

OF THE UNITED STATES, HAVING PREVIOUSLY BEEN

DULY SWORN, RESUMED THE STAND AND TESTIFIED

FURTHER AS FOLLOWS:

THE COURT: Mr. Reich, you were asking

questions, I believe, weren't you?

MR. REICH: Yes, Your Honor. Could the

Court reporter read my last question, please?

THE COURT: Yes.

MR. REICH: I think we were into the

question of records that he had, whether

they reflected any trips that he had taken.

THE COURT: Yes, he said Delaware, I re-

call, and New Jersey.

MR. REICH: - I recall New Jersey, but not

Delaware. I asked him whether he could spe-

cify the time that’ he went, and he said not

specifically, but he could look at the re-

cords.

THE COURT: Have you, by the way?

THE WITNESS: No, sir.

THE COURT: Do you know now?

THE WITNESS: I know of one thing. My

records would show that I went with the other

Special Agent, it probably would show where

I went, but it wouldn't necessarily show who

he interviewed. I don't keep records on

other taxpayers.

-18a-

BY MR. REICH:

Q. Would it show the date?

A. I would be able to determine the

dates based on records that I have. That

record would be my diary.

THE COURT: Do you have your diary?

THE WITNESS: No. I don't think my

diary was asked for in the subpoena. It is

more or less my time report which would in-

clude a lot more than just the matters re-

lated here.

MR. REICH: Why don't we go on.

Q. I asked you whether you were aware

that Mr. DiBiasi was under investigation?

A. I said yes.

Q. Are you aware that Mr. Colavita was

under investigation?

MR. HYLAND: Objection, Your Honor.

THE COURT: I have no idea who he is or

how he fits in.

MR. REICH: Let me explain, Your Honor.

There are five individuals who are business

associates of Mr. DiVivo who are simultane-

ously under investigation by the Internal

Revenue Service, including Mr. DiBiasi. It

is our point that the investigation of these

individuals was begun solely or principally

as a subterfuge to get information against

Mr. DiVivo, and furthermore these individuals

were interviewed in formal sessions known as

-19a-

Q & A's at a time when the IRS had informa-

tion incriminatory to them. The IRS did not

inform them of their rights, but went ahead

and took these Q & A's, got their informa-

tion, and then subsequently brought the inves-

tigation.

I believe these investigations were

brought in bad faith, therefore, it is im-

portant for the Court to know precisely what

individuals are under investigation, and how

their investigation relates, if at all, to

the DiVivo investigation. That is the thrust

of our points this morning, Your Honor. I

might say to the Court, we are not interested

in discovery in the DiVivo case. That is not

the purpose of the intervention. What we are

interested in finding out is why these other

individuals are being investigated, and whether

the IRS has any good faith purpose to investi-

gate. We have presented the affidavit of Mr.

Schwarz, and he is available in the court-

house today to testify that based on his cun-

versation with Special Agents, and based on

his representation of these five individuals,

that the IRS did not proceed in good faith.

THE COURT: That is his belief, you say.

MR. REICH: It is also based on factual

evidence which is contained in his affidavit

concerning conversations he had with the

Special Agents.

THE COURT: Mr. Hyland, we seem to be

going around. Here we go again.

MR. HYLAND: Your Honor, as I mentioned

before, the legislative history of the Tax

Reform Act concerning intervention makes

clear, Your Honor, that the intervention un-

‘-20a-

est IT I

eeyreyeter aot

der the Tax Reform Act did not expand the

subsequent rights of intervenors other than

already existed at law at that particular

time. We feel that this intervenor of Mr.

DiVivo has no standing to go into these ar-

eas whatsoever.

THE COURT: I know you do, and I guess

what I am doing there is reserving that.

First because I doubt your position, and

secondly, even if you are right, which you

seem to be, that in the even -- I am not

making a determination by saying this --

but in the event that I find, for example,

adverse to their position that it is in fact

a good faith investigation, then it is sort

of subsumed into the whole thing, it would

seem to me, and make no difference. The

point is as I see it that the records of Mr.

DiVivo are integral to the summons that is

served on Equitable. They are in there. I

understand he is not the taxpayer that has

been named.

MR. HYLAND: That is correct. In ob-

taining records pertaining to Mr. DiBiasi

there may be some matters in the Equitable

Trust records that may also relate to Mr.

DiBiasi, but the Special Agent who issued

that summons was conducting the investiga-

tion of Mr. DiBiasi, not of Mr. DiVivo.

THE COURT: That goes to the good

faith aspect of it. DiVivo is named, isn't

he?

MR. HYLAND: That is correct. He is

named in the summons as far as certain re-

cords, but those records that Mr. Bell was

summonsing from the Equitable Trust Bank per-

-2la-

taining to Mr. DiBiasi were of a partner-

ship that did --

THE COURT: If you are able to show me

that -- notwithstanding the position that

you have just taken, if you are able to show

me that the matter is under investigation in

good faith and otherwise complies with the

requirements of the case law, they are going

to lose and you are going to win. Are we not

progressing on that basis?

MR. HYLAND: Your Honor, we feel that

under the tests set down in LaSalle that the

affidavit of the Special Agent coupled with

the supplemental testimony on direct of Spe-

cial Agent Bell complies with the tests under

LaSalle and that the good faith issuance of

the summons have been proven.

THE COURT: Well, that doesn't take us

back beyond LaSalle, and it doesn't permit

much inquiry into the good faith aspect of

it at all. It leaves me with the position

of the prima facie showing, and the state-

ment in fact that I am acting in good faith.

MR. HYLAND: Yes, Your Honor, but we

feei if anyone could raise the argument it

should be Mr. DiBiasi, and he is so con-

cerned about it that he is not present, Your

Honor.

THE COURT: I understand that, and I

said if I agreed with you I would say fine,

that would be the line, and I would cut it

off right now. I am not sure I am going to

agree with you on that.

MR. HYLAND: Your Honor, we feel that

although Other people are going to be inves-

-22a-.

ee as

.

tigated simultaneously with Mr. DiBiasi and

Mr. DiVivo, they certainly are entitled to

their privacy rights not to have the disclo-

sure of that fact.

MR. REICH: Let me also indicate to the

Court that Mr. Schwarz who is in the court-

house today does represent four of the five

other individuals. He did represent the

fifth up to and through the time when he was

first notified he was under investigation.

THE COURT: The fifth is who?

MR. REICH: Mr. Colavita.

THE COURT: Oh.

MR. REICH: He does not represent him,

but did up until a few months ago.

MR. HYLAND: Your Honor, if I can just

cite some language to the Court. In the

LaSalle case the case of United States v.

Morgan Guaranty and Trust --

THE COURT: What do you have there?

MR. HYLAND: It appears at 572 F.2d

page 36, and there is a footnote I think that

is very important. It is footnote number --

it appears to be footnote number 9 in the

Morgan Guaranty Trust case, Your Honor. If

I can just briefly read this. It says, “The

burden of showing the abuse of the Court's

process is on the taxpayer. It is thus

clear that the taxpayer must make a substan-

tial preliminary showing before even limited

discovery can be ordered."

We feel that this is clearly relevant

to the situation that we are in right now,

-23a-

that even aside from the standing question

that this particular intervenor had made no

substantial preliminary showing whatever.

THE COURT: I guess the obvious thing is

he can't make that kind of showing unless I

give him some opportunity.

MR. HYLAND: I think that the decisions

indicate that the party has to make a showing

even prior to being entitled to the discovery.

In this particular instance it is merely an

attempt at a fishing expedition, Your Honor.

MR. REICH: We made a very good showing,

Your Honor.

THe COURT: May I suggest -- and you can

do anything you like, you can continue to ob-

ject or continue to argue. May I suggest that

if I got some facts before me, I would be much

better armed to make a deCision than simply

to accept what I understand your position to

be, but to accept it in a vacuum, and I do not

feel inclined to do that.

MR. HYLAND: Your Honor, just to reiter-

ate. It is the Government's position that it

has complied with the tests of LaSalle, and

that the intervenor has not done anything to

shake that so that the Court would have evi-

dence in the record right now such as to sup-

port the findings in our favor. If the Court

wants to hear additional evidence?

THE COURT: I really think I have to.

To that extent I am disagreeing with you, and

I understand what you are saying, but it

amounts, as I see it, to my handing over to

you to make a determination of what the an-

swer is in the case. I would be+willing to

do that under most circumstances, but cer-

-24a-

Sn —

tainly not this morning. Could you just let

me get some evidence subject to your objec-

tion?

MR. HYLAND: Yes, Your Honor.

BY MR. REICH:

Q. Mr. Bell, I had asked you whether

you were aware that Mr. Colavita was under

investigation.

A. I don't understand whether you over-

ruled the objection or what?

THE COURT: He has given you a question

and I haven't said anything.

THE WITNESS: All right, I am sorry.

THE COURT: Go ahead.

A. Am I aware that he is under investi-

gation?

Q. Yes.

A. Yes, I am.

Q. Are you aware that Mr. Fabi, FABI

is under investigation?

A. Yes, I am.

Q. Are you aware that Mr. Gialanella,

GIALANELL A, was also under investi-

gation by the Criminal Investigation Service?

A. Yes, I am.

Q. Are you aware that Mr. DiPaola, and

I believe that is DI PAOLA, is also un-

-25a-

: A. I don't know the exact date. It

der investigation? m= would have been some time in the beginning

A. Yes, I am.

R : Q. Would it have been around the same

Q. Do you know who these individuals time that the DiBiasi investigation began?

are?

A. I believe so.

A. Yes, I guess so.

Q. That was, according to your testi-

Q. Do they have any relationship to mony, in March of 1978?

Mr. DiVivo, to your knowledge?

A. Yes, sir.

A. I don't know how to answer that.

Q. Now, did you know that these inves-

tigations began after these witnesses had

Q & A's before the Internal Revenve Service

in the DiVivo investigation?

Q. Are they partners or business asso-

ciates of Mr. DiVivo?

A. I think some of them are.

THE COURT: Would you resta

Q. Aren't in fact all of them? y state that?

Q. Are you aware that these witnesses

A. At this time? had Q & A's in the DiVivo investigation?

Q. At any time relevant to the sum-

mons which was during the period 1974 through

1977? Q. Did those Q & A's take place prior

to the time that the IRS began its investiga-

tion of them individually?

A. Yes, I am.

A. Was the question were they partners

or --

: ' A. I believe so.

Q. Partners or associated in business |

with Mr. DiVivo? : res Q. Now, do you know what was the ori-

A. I think they were gin of these five cases?

R in :

‘ ‘ A. Do I personally know what the ori-

Q. Now, do you know when the investi- gin was? No.

gation of these various individuals began?

» me : : i 4

A. Of all of them, the exact date? MR LAND: Objection, Your Honor

Q Yes, the exact date, if you know? THE COURT: Well, I assume your objec-

» ’ ’

-27a-

-26a-

PRET

tion would be to the next question.

MR. HYLAND: Your Honor, we feel that

this would compromise an --

THE COURT: A yes or no. He is only

asking if he knows. Go ahead. Do you know?

THE WITNESS: Do I know if that is --

can he ask --

THE COURT: Is it within your knowledge

as to what the origin of the investigation

was, not what it is? Yes or no.

THE WITNESS: I would say no, other

than the fact that I am assigned the case.

BY MR. REICH:

Q. Do you know what allegations, if

any, were made concerning the DiBiasi case

to which you were assigned?

A. Yeah, I know certain allegations.

W. What types were made?

MR. HYLAND: Objection, Your Honor.

THE COURT: Sustained.

MR. REICH: Your Honor, if I might? I

think it is important for the Court to know

precisely what the purpose of these criminal

investigations of these witnesses are in or-

der for the Court to evaluate the relation-

ship of those investigations to the investi-

gation of Mr. DiVivo.

THE COURT: Congress really came up with

-28a-

a winner when they put this package together,

I must say. It is still sustained.

Incidentally, is the lady from Equitable

needed for any purpose? I suspect that Equi-

table's position would be, as it always is,

if they are ordered to turn over the records

they will turn over the records.

MR. HYLAND: She has the records with

her, Your Honor. Actually, if the Court

would rule in favor of the Government, the

Government would be interested in getting

those records as quickly as we could.

THE COURT: Well, leap right over the

rail and grab her. I hate to see her incon-

venienzted for no good reason. What do you

have, ma'am? Do you have a handful of them

or a boxful?

THE SPECTATOR: No, Your Honor, I just

have a --

THE COURT: Is Equitable's situation,

to your knowledge, if you are able to answer

it, that you will abide by any order of this

Court?

THE SPECTATOR: My position is just to

produce the records.

THE COURT: May I just do this? See if

chis would cause you any pain or problem with

your employer. Could I direct that you file

them with this Court now? I will seal them

and then they will be given to the Government

if I agree, and if not, they will be returned

to Equitable. Would that be agreeable, Mr.

Hyland?

MR. HYLAND: That is perfectly agreeable.

-29a-

THE COURT: I hate to see people wait-

ing around and listening to something if it

makes no sense to them.

For the record, your name is?

THE SPECTATOR: Rita Kuchursa, K UC H

URS A.

THE COURT: Your job is what?

THE SPECTATOR: Legal prospect secre-

tary.

THE COURT: Thank you for appearing,

and have a good day.

All right, where were we?

MR. REICH: I think you were ruling on

the objection.

THE COURT: And I have.

BY MR. REICH:

Q. Mr. Bell, besides Mr. DiBiasi, are

you assigned to any other investigation of

one of the five individuals?

A. Yes, I am.

Q. And which investigation is that?

A. Mr. Gialanella.

THE COURT: Is he one of the ones you

mentioned a moment ago?

THE WITNESS: Yes.

BY MR. REICH:

-30a-

oP ee TOP

Q. Have any allegations been made re-

garding Mr. DiBiasi or Mr. Gialanella that

relate to their possible involvement with Mr.

DiVivo in addition to tax crimes?

MR. HYLAND: Objection, Your Honor.

THE COURT: What is the reason?

MR. HYLAND: Again we feel that this goes

to the specifics of the investigation, and it

may well compromise an ongoing investigation.

MR. REICH: He hasn't even answered yes

or no.

THE COURT: I know, Mr. Hyland is very

cautious. He wants to get that in one ques-

tion before so there is no mistake. You can

answer the question yes or no, can't you?

THE WITNESS: The question was again

whether -- could he --

THE COURT: Have any allegations been --

BY MR. REICH:

Q. Have any allegations been made that

link Mr. DiBiasi and/or Mr. Gialanella to Mr.

DiVivo in connection in the commission of

tax crimes?

A. My investigation is with Mr. DiBi-

asi and Mr. Gialanella. I don't know what

he means by linking people together. I am

not investigating Mr. DiVivo.

Q. That was not the question. The

question was whether when you were handed

this case any allegations were made that

-3la-

would show that Mr. DiBiasi and Mr. Gialanel-

la had a possible involvement with Mr. DiVi-

vo in the commission of tax crimes?

A. Based on how I understand

question, no. alma

Q. There was nothing in the fi j

any reference that was eames to ge Crit

case was opened that indicated that Mr. DiBi-

asi and Mr. Gialanella were involved with Mr

DiVivo in tax crimes, including omission of ;

income or wrongly stated expenses or any

other crimes under your jurisdiction?

i A. The way I understand the question,

MR. REICH: Your Honor, I think i

point we really must require that se a curd

Agent refresh his recollection from the re-

cords so we be entitled, and the Court be

entitled, to take a look at the original do-

cument to open up this case.

THE COURT: All right, before we do

anything further, tell me what your theory

oe oe exactly so that I can understand it,

nd whoever reviews it upstairs i i

understand it. ‘3 sh ig Sai

MR. REICH: Our theory is at

backed up by an eetiaeeit. and fenueitie

backed up by the testimony of these agents

that the Internal Revenue Service began the

investigation of Mr. DiVivo -- at the time

it began its investigation of Mr. DiVivo

some time after that I became aware that Mr

DiVivo had other business associates or

partners. These were the ones listed by Mr.

Bell. The Internal Revenue Service after

-~32a-

doing preliminary investigations contacted

these various individuals. They contacted

them and asked them to come in for the so-

called Q & A's. The individuals came in

with their attorney, Mr. Schwarz, and were

questioned about various transactions and

various involvements with Mr. DiVivo. In

the course of the questioning, as the Q &

A's would show, and we have them here, in

the course of the questioning there were

questions that were asked that would indi-

cate that the IRS had some information re-

garding these individuals themselves in the

commission of tax crimes by them. There was

certainly information that indicated that

the IRS was looking at a pattern of connec-

tions, a flow of income, expenses, and so

forth between Mr. DiVivo and his individual

associates. After the Q & A's were taken,

the IRS apparently made a determination to

investigate these individuals formally, and

had opened up the investigation. Around the

time the investigation was opened Mr. Spear-

ing, who is a Special Agent assigned to the

DiVivo investigation, and who is not as~

signed to any of the other investigations,

say perhaps one, contacted Mr. Schwarz. Mr.

Schwarz is the attorney who represents or

did represent these five individuals. He

called him, which in itself is unusual. He

called him after a date when letters had gone

out already to the individuals asking them to

contact the various Special Agents named in

the letters to see about coming in for an in-

terview. Mr. Spearing contacted Mr. Schwarz

and asked him in effect if these individuals

wouldn't be willing to cooperate in the Di-

Vivo investigation; whether they wouldn't be

willing to come in and review their Q & A's

and perhaps change them. The subject of im-

-33a-

munity came up during that discussion, the

subject of in fact several of the individu-

als were resident aliens: who could possibly

be deported if they were eventually convic-

ted came up. Again, Mr. Spearing mentioned

to Mr. Schwarz that it would be a good idea

if these witnesses would cooperate in the

investigation of Mr. DiVivo. All of this

taking place after the IRS supposedly opened

up its own independent investigations of

these witnesses, and all of this taking

palce through a phone conversation from an

agent who wasn't even involved in these

other investigations.

After that Mr. Schwartz had another

conversation with Mr. Spearing, this time

initiated by Mr. Schwarz, and in the course

of that conversation Mr. Spearing again in-

dicated the cooperation that might be called

for. Mr. Schwarz then asked for a meeting

with the IRS to complain about what he con-

sidered to be an abuse of the investigatory

process in connection with his own clients.

He had such a meeting and repeated the con-

versation he had with Mr. Spearing and fur-

ther indicated that in his opinion the IRS

must have had information incriminatory of

his clients at the time they took the Q & A's

based on what he knew and the questioning of

the Q & A's, and that in his opinion the IRS

by not informing these witnesses at the time

was abusing its authority. The IRS said that

they saw nothing wrong with their investiga-

tion, and they were going to continue them.

Now, based on our knowledge of what has

taken place in these investigations so far,

and based on our knowledge of the DiVivo in-

vestigation since we represent him, it is

crystal clear to us, Your Honor, that these

agents are not on a full-scale investigation

-34a-

AOC EIIIR A So

of these individuals. They are on an in-

vestigation of these individuals only inso-

far as they relate to Mr. DiVivo, and only

insofar as they can make a case against Mr.

DiVivo, and that is simply not part of the

Special Agent's job. As my memorandum in-

dicated, the Special Agent is at the lowest

level of the criminal investigatory process.

He is not an FBI agent, he is certainly not

an assistant U.S. attorney. He has no right

to talk about immunity, to talk about cooper-

ation, or to do anything that suggests that

he is doing anything other than simply inves-

tigating a taxpayer. :

All of that constitutes bad faith un-

der what standard, LaSalle, Powell -- Powell

speaks about harassment. If this isn't har-

assment, I don't know what it is. When Mr.

Hyland says we haven't made a prima facie

case, Your Honor, I don't know how we could

have made a more prima facie case than we

have. We have an affidavit from an attorney

that is detailed, it is specific, and it re-

lates to specific conversations and specific

improprieties on the part of the Special

Agent. That certainly gives us enough room

to get in here. It is enough for the Court

to rule without hearing any further evidence.

THE COURT: If I ruled without hearing

any further evidence, I am going to rule for

the Government without any question.

MR. REICH: That is why we want this

examination.

THE COURT: I am almost inclined to do

that right now having heard what you said,

because none of that convinced me very much.

MR. REICH: Your Honor, if you would

~35a-

look at the decision in Powell --

THE COURT: I have it right here.

MR. REICH: Powell was quoted in LaSalle.

THE COURT: I know it is. What would you

have me take from it, the fact that LaSalle

preserves the Powell standards?

MR. REICH: LaSalle preserves the Powell

standards. I have the 98 Supreme Court.

THE COURT: I have it here.

MR. REICH: Section C.

THE COURT: Section C, not D?

MR. REICH: Section C of Roman numeral

three. It is a quotation from Powell.

THE COURT: What would you have me get

from that, the good faith aspect?

MR. REICH: Beyond the good faith. They

actually define good faith in there halfway

down the quotation. The Court indicated that

an abuse of process would take place if a

summons had been issued for an improper pur-

pose such as to harass the taxpayer or to

put pressure on him, or for any other pur-

poses reflected under good faith in a particu-

lar investigation.

THE COURT: Speaking of the summons as

we have the summons here for Equitable?

MR. REICH: Yes. And as LaSalle indi-

cated, the good faith factors in Powell are

not conclusive. In footnote 19 and 20 the

-36a-

Court explicitly disagreed with the Govern-

ment's position that there was nothing to

talk about if a recommendation for prosecu-

tion did not yet make the Department of Jus-

tice.

THE COURT: If I let you run your course,

who are you going to be presenting to me?

MR. REICH: Mr. Bell, who is a Special

Agent involved in several of the cases, Mr.

Spearina, who is the Special Agent assigned

to the DiVivo case, and also assigned to

one of the other cases, Mr. Sapp, who is as-

signed to two of the other individual cases,

Mr. Daley who is the group supervisor, and

who was present when this meeting took place,

Mr. Furman, who is a civil agent who I know

is assigned to the DiVivo case, and if he is

assigned to the investigation of these others,

I would think that he would lend further cre-

dence to our argument, and Mr. Schwarz, who

I have already mentioned.

THE COURT: All right.

MR. REICH: Let me indicate to the Court

that we have no desire to sit here for days

upon days --

THE COURT: We are not going to.

MR. REICH: This is one of the reasons

we asked for the right to do a little preli-

minary discovery to narrow the issues.

THE COURT: All right. The Government's

position, again, and I am going to given you

an answer right now, with respect to whether

the Government has shown enough right and

-37a-

shouldn't go any further.

MR. HYLAND: Your Honor, the Government's

position is that under the tests of LaSalle

that the testimony and the affidavit of the

Special Agent do show that the Government has

complied with LaSalle , with Powell, and that

the summons was issued in good faith, Your

Honor, that it was for materials that were

relevant and necessary to a tax investigation,

that those materials were not already in the

possession of the Government and that the

Government is entitled to the enforcement of

the summons.

THE COURT: Were you also in the posi-

tion to stand?

MR. HYLAND: Yes, Your Honor, if anyone

could raise an argument about harassment, it

would not be Mr. DiVivo, it would have to be

Mr. DiBiasi. I take it he is arguing that

Mr. DiBiasi is the one who was harassed. He

is not here to make that argument, and Mr.

DiVivo would not be entitled to make that

argument as an intervenor, Your Honor.

THE COURT: Mr. Reich, I am going to let

you take this up to Judge Winter.

MR. REICH: Could I be heard before you

rule finally?

THE COURT: Yes.

MR. REICH: I think if Your Honor would

take a close look at LaSalle, a close look --

THE COURT: Well, here is LaSalle, and

it is not my first exposure to it.

MR. REICH: A close look at the Fourth

-38a-

ee ee

Circuit case that came down in the Maryland

Lumber and Union Trust --

THE COURT: I don't have Maryland Lumber

out here, but Maryland Lumber as I recall -

when did that come down?

MR. REICH: Last week, the week before.

THE COURT: That was a washout, wasn't

it, when there was no issue left on appeal?

MR. REICH: According to the concurring

opinion there was no issue left on appeal,

but the facts are different. What I think

that case stands for is that if a respondent

raises by affidavit, by some evidence some-

thing to show that there is a lack of good

faith on the part of the Government, that

he is entitled to have a full hearing into

the enforcement of the summons.

THE COURT: It seems to say something

to that effect.

MR. REICH: I have the slip here.

THE COURT: I have the slip back on the

desk, so I am familiar with the case you are

talking about, I think, to the extent that

the issue was moved. The records had been

turned over in the interim, and there is a

question as to whether it was ripe for an

appeal to start with, I believe.

MR. REICH: That issue might have been

raised but wasn't discussed in the opinion.

I think one issue that was discussed is

whether or not the fact that there had been

a prior hearing in the case related to these

records was res judicata. Be that as it may,

-39a-

the Court clearly did not quarrel with La-

Salle, and supports our position that if |

you come in with the kind of evidence that

we have come in with, and may I say that we

have participated in a number of cases in-

volving these types of issues and at least

in my experience this is the strongest show-

ing that we have ever made, and I don't know

how we could make a stronger showing, at

least on a prima facie basis, once you have

made that kind of showing you have to have a

hearing. Powell requires it, Reisman v. Cap-

lin, the Supreme Court requires it, the Mc-

Carthy case which is cited in the Fourth Cir-

cuit opinion, all require something more than

simply the -- a couple of sentences in an

affidavit by the Special Agent and conclu-

sory testimony. We simply raised too much

to be foreclosed at this point, and if Your

Honor --

THE COURT: I don't know where you'll

go, quite frankly. The opportunity now is

available apparently to any person feeling

aggrieved or feeling under threat of prose-

cution, as it is obvious here, to frustrate

in one way or another the intend of these

records endlessly. These cases are coming

before us with increasing frequency, and I

gathered from what you have said here that

you have days of testimony, or at least it

appears that way, that you would like to

present, all of which will result in, you

hope, keeping the records of the Equitable

Trust Company from the Internal Revenue

Service to determine whether these third-

party records reveal something in the way of

tax information or bearing on tax information.

I told you before how I felt about it.

MR. REICH: Your Honor, in an absolutely

-40a-

ae

pure world I would agree with you. We have

a statute of 7609 which does allow this in-

tervention.

THE COURT: Yes, it does. You are here.

MR. REICH: The Congressional wisdom can

be questioned.

Y

THE COURT: It is.

MR. REICH: The point is that we do have

a law that allows the intervention in certain

circumstances. We submit we are entitled to

intervene here and raise our objection, and

once we have raised prima facie evidence the

way we have we should be entitled to at least

a full hearing on those objections.

THE COURT: What I am going to do is

the following, and you can get your hearing

if Judge Winter disagees and chooses to send

it back, and it is simply this: The records

that are sought are those of DiBiasi, those

records being with Equitable Trust Company,

DiBiasi has made no objection to those re-

cords. The fact that they appear to, and by

description in the summons apparently do,

bear on the record-keeping by Mr. DiBiasi --

is that who he is?

MR. REICH: DiBiasi.

THE COURT: No, this gentleman?

MR. REICH: DiVivo.

THE COURT: I am going to go back to

the original position of the Government and

say you don't have any standing. I will stay

the Order, however, to give you the opportun-

-4la-

ity to take it up within -- how long do you

want?

MR. REICH: Are we talking about a

direct appeal?

THE COURT: No, no. I don't know what

you are talking about, that is going to be

up to you.

MR. REICH: Bear with me for a second,

I am trying to think off the top of my head

to what procedure we are talking about. If

we were to enforce the summons to the peti-

tion but order a stay, that would be a final

judgment which I can make an appeal. I am

interested in expediting obviously, so I will

take my appeal as soon as possible. If there

is another procedure for having this heard

quicker than by appeal, I am not aware of it

at the present. I would be enlightened by —

the Court.

THE COURT: I didn't have anything in

mind. I was assuming that you would --

I guess what it would be is you would be

seeking a stay up there when I give my order.

MR. REICH: If you would issue a stay we

certainly --

THE COURT: If I issue the stay the

only thing is that it will be on appeal for

a period of time, and gosh knows how long

that would be which would end any prospect

for a lengthy period of time of getting the

records, assuming that I am right which, of

course, is a position that you wouldn't mind

at all.

MR. WILES: Your Honor, the problem with

a long time on appeal is that the investiga-

-42a-

At OEE ce

—

et cate ETT...

tion of Mr. DiBiasi is not stayed in the

sense that the statute of limitations still

runs, because he is not a party to this pro-

ceeding, and he did not intervene. Normally

7609, 16 U.S.C. provides that any interven-

tion of the taxpayer will stay the statute

for the length of the proceeding. Mr. Di-

Biasi has not intervened and, therefore,

under the statute is not stayed.

MR. REICH: Aren't the years '74 through

'77? So the six years would run up in 1981;

is that correct?

MR. WILES: Yes, I don't know how long

a period we are talking about.

THE COURT: I am not talking abcut any.

MR. HYLAND: Could I suggest that the

stay be granted for no more than one week?

THE COURT: That is what I had in mind.

MR. HYLAND: To give the Intervenor the

opportunity to determine what, in addition,

he is going to do.

THE COURT: That is what I had in mind.

All right, Mr. Hanson, we will enter it.

Staying for a period of seven days from to-

day, and I will let counsel for the Interve-

nor determine in that period of time what ac-

tion you want to take.

MR. REICH: We will go directly to Judge

Winter and have him enter this thing.

THE COURT: I rather expect you will.

I will leave that up to him. That is as far

-43a-

as I am going with it absent directions and

instructions from him.

Thank you, gentlemen.

(THEREUPON, AT 12:15 P-M., THE HEARING WAS

CONCLUDED. )

-44a-

TSE EERE ce

U.S. and W. Donald Bell, Special Assistant

Internal Revenue Service, APPELLEES v. THE

EQUITABLE TRUST COMPANY, DEFENDANT and

Victor DiVivo, Appellant, U.S. Court of

Appeals, Fourth Circuit, No. 78-1093, Oct.

16, 1979. Years 1974-1977. District Court

affirmed. Decision for taxpayer.

1. INTERNAL REVENUE SERVICE -

Discovery of liability and enforcement of

tax-examination of books and witnesses-

authority in general-extent of authority.

District court erred in denying "full hearing"

on issue of IRS' bad faith. IRS issued

summons for production of records in

furtherance of tax investigation of tax-

payer's business associate. Evidence that

primary purpose of investigation was "pressure

tactic" to force business associate to

cooperation in investigation of taxpayer

was sufficient to raise question of IRS'

good faith. Reference: 1979 P-H Fed.

§39,643(20).

Kenneth A. Reich, Allen L. Schwait,

Garbis & Schwait, P.A., Attys. for

. Appellant.

Daniel F. Ross, Gilbert E. Andrews,

Charles E. Brookhart, Attys., M. Carr

Ferguson, Asst. Atty Gen., Tax Div.,

Dept of Justice, Russell T. Baker, Jr.,

U.S. Atty., John Hyland, Asst. U.S. Atty.,

for Appellees.

Appeal from the United States District

Court for the District of Maryland, at

Baltimore, C. Stanley Blair, District Judge.

Before WINTER and HALL, Circuit Judges

and KAUFMAN, District Judge.

-45a

KAUFMAN, District Judge S

(1) This case involves an adminis-

trative summons issued by the Internal Rev-

enue Service (IRS) pursuant to 26 U.S.C.

§7602 to require the Equitable Trust Company

(Equitable), a Baltimore banking institu-

tion, to provide all records held by the

latter relating to a mortcage loan made by

it to DiVivo, Intervenor herein, and DiVivo's

business associate, DiBiasi, in their

capacities as individuals trading as Italian

Delight Restaurant. The summons is sought

in furtherance of a tax investigation of

DiBiasi, not DiVivo, but specifically

refers to "records *** with respect to a

mortgage loan made by and between Angelo

DiBiasi ard Victor DiVivo, T/A Italian

Delight Restaurant at 115-117 East Baltimore

Street and the Equitable Trust Company ***".

The facts, giving Intervenor DiVivo the bene-

fit of all inferences which may reasonabl

flow from the evidence produced to date and

the evidence proffered by Intervenor, are

as follows:

Beginning in 1977, Intervenor became

the subject of a tax investigation by the

Criminal Investigation Division of the

Internal Revenue Service (IRS).1 In

December 1977, DiBiasi and four other

persons were directed by the IRS to appear

before the IRS Special Agent in charge of

the tax investigation of DiVivo to answer

questions under oath relating thereto.

Neither DiBiasi nor any of the others was

informed that he was a target or a potential

target of any IRS investigation, civil or

criminal. 2

-46a-

Oa ee

Ss aia ee

-~

In April, 1978, some four months after they

were so questioned, DiBiasi and the four

others were officially notified by the IRS

that each was a target of a tax investigation.

On April 13, 1978, the special agent assigned

to the DiVivo investigation telephoned the

attorney representing DiBiasi and also one

or more of the other four persons. The

agent suggested to that attorney that one

or more of the latter's clients cooperate

with the IRS in the DiVivo investigation.

During that conversation the subject of

immunity for those clients was discussed.

The agent stated that his office within the

IRS could not provide immunity to a witness,

but that immunity could be secured in an

appropriate case. The agent indicated that

two of those whose cooperation was sought

were resident aliens whose ability to remain

in the United States might be adversely

affected by a continuing tax investigation.

The agent also mentioned that he was aware

that DiBiasi had consulted DiVivo's attorney

regarding representation of DiBiasi by

that attorney. The agent expressed the

view that representation by one attorney of

both DiVivo and DiBiasi would create a

conflict of interest. DiBiasi's attorney

formed the impression from that telephone

conversation that the IRS was attempting

to pressure DiBiasi and the others to coop-

erate with the IRS in its investigation of

DiVivo3 and that the IRS had possessed

information adverse to DiBiasi at the time

in 1977 when DiBiasi and the others had

been questioned in connection with the

DiVivo investigation.

During a second telephone conversation

-47a-

between DiBiasi's attorney and the agent

in charge of the DiVivo investigation, that

agent told DiBiasi's attorney that the in-

vestigations of DiBiasi and the four others

would not be handled by him but instead

by other special agents of the IRS, but

nevertheless advised DiBiasi's attorney to

continue to deal directly with him on the

questions of voluntary cooperation and that

he would coordinate with the other IRS

agents.

On June 13, 1978, at a meeting attended

by the agent in charge of the DiVivo inves-

tigation, the two agents in charge of the

DiBiasi investigation, and the group super-

visor of all three agents, DiBiasi's attorney

complained about the tax investigations of

his clients which he stated had been initi-

ated by the IRS solely to gain cooperation

from his clients in the tax investigation of

DiVivo. The agents replied that they

believed the investigations had been properly

initiated and conducted.

On September 8, 1978, the summons in

the instant case was issued by the IRS in

furtherance of its investigation of DiBiasi.

The latter has not opposed Equitable's

compliance with the summons. However,

DiVivo, exercising his right under 26

U.S.C. §7609(b) (2), instructed Equitable

not to comply. Equitable followed that

instruction. Thereafter, the IRS initiated

this action to compel compliance. DiVivo

intervened pursuant to 26 U.S.C. §7609(b) (1)

and Federal Civil Rule 24(a). The District

Court held an evidentiary hearing in which

-48a-

- LLL OLE LE DN 9

it heard direct testimony from the special

agent investigation DiBiasi and permitted

some cross-examination of that witness.

However, the District Court terminated that

cross-examination before it was completed,

concluding that DiVivo lacked standing to

mount his challenge to the IRS summons.

Before so doing, Judge Blair expressed doubts

as to whether the totality of the evidence

proffered by counsel for DiVivo would, in

any event, constitute a basis for denying

enforcement of the summons.

26 U.S.C. §7609(b) (1) provides that any

person named in a summons directed to a

"third-party recordkeeper" is entitled to

intervene in an action brought to enforce

the summons. He therefore had a right to

intervene even though the summons is issued

in connection with the DiBiasi investiga-

tion. DiVivo's right of intervention is,

however, procedural , not substantive.

"(T]he purpose of this procedure [i.e., the

procedure provided by what has since

become §7609(b)(1)] is to facilitate the

opportunity of the noticee to raise defenses

which are already available under the law

(either to the noticee or to the third-

party witness) [;]*** these provisions are

not intended to expand the substantive rights

of these parties." S. Rep. No. 938, 94th

Cong., 2d Sess. 370-371, reprinted in,

and Administrative News 3800; J.R. Rep.

658, 94th Cong. 2d Sess. 309, reprinted in

[1976] United States Code Congressional

and Administrative News 3205. Thus,

§7609(b) (1) does not displace traditional

principles of standing and does not permit

a litigant to invoke rights belonging to

someone else. Accordingly, DiVivo lacks

-49a-

standing to complain of yiolations of the

Fifth Amendment rights of anyone else re-

sulting from the failure of any IRS agent

to warn DiBiasi or anyone else before such

person answered questions asked in the

course of the DiVivo investigation and in

that regard may complain that the District

Court should not permit its process to be

abused by the issuance of a summons in a

bad-faith civil tax investigation of

DiBiasi.6

The within case was commenced by the

United States of America and W. Donald

Bell, a special agent of the IRS, by the

filing of a petition to enforce the IRS

summons issued to Equitable. Therein,

petitioners state that "Bell is conducting

an investigation of the federal tax liabil-

ities of Angelo DiBiasi for the tax years

ending 1974 through 1977 inclusive. Mr.

Angelo DiBiasi is part owner of several

Italian Delight Restaurants in Baltimore,

Maryland."7 Petitioners also allege:

"It was and now is essential to the deter-

mination of the tax liabilities of Angelo

DiBiasi for the years 1974 through 1977,

inclusive, "8 that the records sought by the

summons be produced. Mr. Bell, in an affi-

davit filed with the petition, states that

"in his capacity as a special agent, he is

assigned to investigate the tax liabilities

of Angelo DiBiasi for the tax years 1974

through 1977, inclusive."9

In his response to the petition, DiVivo

an intervenor, admits that DiBiasi was "a

part owner of several Italian Delight

-50a-.

Restaurants in Baltimore, Marylnad (the

metropolitan area, i.e.), but denies the

allegations that Special Agent Bell is

conducting a proper investigation of Angelo

DiBiasi and states that said "alleged

investigation has as one of its purposes,

if not the primary purpose, to pressure

Angelo DiBiasi into cooperating with the

Internal Revenue Service in its_investiga-

tion of Intervenor-Respondent."19, (Emphasis

supplied). Also, in his response, DiVivo

takes the following position: "To the extent

that the Internal Revenue Service investi-

gation of Angelo DiBiasi, inter alia, has

as one of its purposes to pressure him to

cooperate in the Government's investigation

of Victor DiVivo, said investigation has

an improper payors and/or is being conducted

in bad faith."11 (Emphasis of all but inter

alia supplied). :

In a memorandum filed December 13,

1978, p. 2.12 in support of his opposition

to the summons, DiVivo reiterates that “one

of the purposes of this investigation, if

not the primary purpose, is to pressure

DiBiasi into cooperating with the Internal

Revenue Service in its invesitgation of

DiVivo***." (Emphasis supplied).

During the hearing held on December

15, 1978 before Judge Blair, Agent Bell

testified that he was "assigned to conduct

the invesigation of Angelo DiBiasi***

around March of 1978," that no recommenda-

tions had been made by IRS to the Depart-

ment of Justice for criminal prosecution of

-51a~-

DiBiasi, 13 and that before he had taken

steps to have issued the summons in question

in this case, he had obtained approval from

his "group mananger."14 On cross-examina-

tion, Mr. Bell testified that he had accom-

panied, as a witness, an agent working on

the DiVivo investigation when one or more 15

certain other persons had been questioned.

During the hearing before Judge Blair,

counsel for DiVivo stated that "five indivi-

duals and business associates of Mr. DiVivo

*** are simultaneously under investigation

by the Internal Revenue Service including Mr.

DiBiasi" and that DiVivo contends that "the

investigation of these individuals was begun

solely or principally as a subtey fuge to get

information against Mr. DiVivo," that the .

IRS questioned those persons without advising

them of their rights and "then subsequently

brought the investigation of them, and that

"[w]hat we are interested in finding out is

why those other individuals are being investi-

gated, and whether the IRS hag any good faith

purpose to investigate" them. 7 (Emphasis —

supplied). Earlier during the hearing coun-

sel for DiVivo suggested that perhaps infor-

mation concerning the identity of persons

other than DiVivo and DiBiasi might be given

by Bell "in camera." Presumably the in cam-

era technique would have been used to enable

the District Court to have learned some de-

tails of the reasons of the IRS to investgate

DiBiasi and/or others in addition to DiVivo.

The Government position, in response, was

that "the burden of showing the abuse of the

Court's process is on the taxpayer" and that

the latter "must make

- 2a-

a substantial preliminary showing before

eyen limited discovery can be ordered."19

The reference to "discovery" seemingly

related to the unrewarded desire of counsel

for DiVivo, expressed before the évidentiary

hearing commenced, to engage in discovery

before the hearing was held. 20

During the cross~-examination before

Judge Blair, Bell also testified that one or

more other "parties of associate[s] in

business with Mr. DiVivo" were under inves-

tigation and that their investigations began

"sometime in the beginning of 1978."21

Sell's cross-exmaination was interrupted

when Government counsel objected on several

occasions to inquiries, which such counsel

stated, were related "to the specifics

of the investigations" and which he feared

might "compromise an ongoing investigation."

Judge Blair then asked DiVivo's counsel to

state his "theory."22 In response, after

reviewing the historical facts largely set

forth supra in this opinion, counsel for

DiVivo stated that in the course of

questioning, in the presence of their

counsel, certain individuals other than

DiVivo, an IRS agent had asked questions

"that would indicate that the IRS had some

information regarding these individuals

themselves in the commission of tax crimes

by them" and that the "IRS was looking at

a pattern of connections, a flow of income,

expenses, and so forth between Mr. DiVivo

and his individual associates” and that

subsequently "the IRS apparently made a

determination to investigate these individuals

-53a-

formally***."23 (Emphasis supplied) .

Counsel expressed the conlcusion that the

IRS was not involved ina "full-scale

investigation" of anyone other than DiVivo

and was investigating the others "only inso-

far as they relate to Mr. DiVivo, and only

insofar as they can make a case against Mr.

DiVivo*** "24 Judge Blair's comment, after

the lenghty presentation of DiVivo's

"theory" by the latter's counsel was: "If

I ruled without hearing any further evidence,

I am going to rule for the Government with-

out any question."25 However, as indicated

supra, in the end, Judge Balir denied the

relief soughtby DiVivo because of the lack

of standing.

In United States v. Powell, 379 U.S.

48 {14 AFTR 2d 5942] (1964), Mr. Justice

Harlan, for six members of the Court,

reversed the Third Circuit's refusal to

enforce an IRS summons pursuant to 26

U.S.C. §7602 and held (at 51) that in order

to obtain judicial enforcement of its

orders" (footnote omitted) the IRS "need

make no showing of probable cause to sus-

pect fraud unless the taxpayer raises a

substantial question that judicial enforce-

ment of the administrative summons would

be an abusive use of the court's process

**e*." Additionally, the Justice wrote

(at57-58):

{The IRS] must show that the

investigation will be conducted

pursuant to a legitimate purpose,

that the inquiry may be relevant

-54a-

ye eR oe

ge

to the purpose, that the

information sought is not

already within the Commissioner's

possession, and that the admin-

istrative steps required by the

Code have been followed***, It

is the court's process which is

invoked to enforce the adminis-

trative summons and a court may

not permit its process to be

abused. Such an abuse would

take place if the summons had

been issued for an improper

purpose, such as to harass the

taxpayer or to put pressure on

him to settle a collateral

dispute, or for any other

purpose reflecting on the good

faith of the particular inves-

tigation. The burden of showing

an abuse of the Court's process

is on the taxpayer***. [Footnote

omitted].

In Donaldson v. United States, 400

U.S. 517, 536 [27 AFTR 2d 71-482], Mr. Jus-

tice Blackmun, for seven members of the

Court, concluded:

We hold that under §7602 an internal

revenue summons may be issued in

aid of an investigation if it is

issued in good faith and prior to

a recommendation for criminal

prosecution.

Earlier the Justice had commented (at

-55a-

535):

This demonstrates that the special

agent may well conduct his inves-

tigation jointly with an agent from

the Audit Division; that their

combined efforts are directed to

both civil and criminal infractions;

and that any decision to recommend

prosecution comes only after the

investigation is complete or is

sufficiently far along to support

appropriate conclusions. The fact

that a full scale tax fraud inves-

tigation is being made does not

necessarily mean that prosecution

ensues when tax liability becomes

apparent.

Congress clearly has authorized the

use of the summons in investigating

what may prove to be criminal conduct.

[Footnote omitted.]

Mr. Justice Blackmun also authored the

majority opinion in United States v.

LaSalle National Bank, 437 U.S. 298 [42

AFTR 2d 78-5198], 98 S.Ct. 2357, 57 L.

Ed. 2d 211 (1978) in which the Supreme

Court remanded for further proceedings a

case in which the Seventh Circuit had

affirmed the District Court's refusal to

enforce a §7602 summons. The four dissent-

ers would have reversed and directed the

courts below to enforce the summons without

any further proceedings. In his opinion,

Mr. Justice Blackmun framed the issue as

follows (437 U.S. at 307-08):

-56a-

i

eevee CONNOR se

The present case requires us to

examine the limits of the good-

faith use of an Internal Revenue

summons issued under §7602. As the

preceding disucssion demonstrates,

ponaldson does not control tne facts

now before us. There, the taxpayer

has argued that the mere potentiality

of criminal prosecution should have

precluded enforcement of the summons.

400 U.S. at 532, 27 L.Ed. 2d 580, 91

S.Ct. 534. Here, on the other hand,

the District Court found the Special

Agent Olivero was investigating

Gattuso "solely for the purpose

of unearthing evidence of criminal

conduct." 76-1 USTC, at 84,073, 37

AFTR 2d, at 76-1240. The question

then becomes whether this finding

necessarily leads to the conclusion

that the summonses were not issued

in good-faith pursuit of the con-

gressionally authorized purposes of

§7602.

In LaSalle, Mr. Justice Blackmun

concluded (at 316-317);

As in Donaldson, then, where we

refused to draw the line between

permissible civil and impermissible

criminal purposes at the entrance

of the special agent into the

investigation, 400 U.S., at 536

27 L.Ed. 2d 580, 91 S.Ct. 534, we

cannot draw it on the basis of the

-57a-

agent's personal intent. To do so

would unm:cessarily frustate the

enforcement of the tax laws by

restricting the use of the summons

according to the motivation cof a

single agent without regard to

the enforcement policy of the

Service as an institution. Fur-

thermore, the inquiry into the criminal

enforcement objectives of the agent

would delay summons enforcement

proceedings while parties clash over,

and judges grapple with, the thought

processes of each investigator.17

See United States v. Morgan Guaranty

Trust Co. [572 F.2d 36[41 AFTR 2d

78-644] (2d Cir. 1978),supra. This

obviously is undersirable and unre-

warding. As a result, the question

whether an investigation has solely

criminal purposes must be answered

only by an examination of the insti-

tutional posture of the IRS. Contrary

to the assertion of respondents, this

means that those opposing enforcement

of a summons do bear the burden to

disprove the actual existence of a

valid civil tax determination or

collection purpose by the Service.

After all, the purpose of the

good-faith inquiry is to determine

whether the agency is honestly

pursuing the goals of §7602 by issuing

the summons. [Emphasis supplied.]

| Rewer

Without doubt, this burden is a heavy

-58a-

ae ee LA ITE

one. Because criminal and civil

fraud liabilities are coterminous,

the Service rarely will be found to

have acted in bad faith by pursuing

the former. On the other hand, we

cannot abandon this aspect of the

good-faith inquiry altogether.18

We shall not countenance delay in

submitting a recommendation to the

Justice Department when there is

an institutional commitment to make

the referral and the Service merely

would like to gather additional

evidence for the prosecution. Such

a delay would be tantamount to the use

of the summons authority after. the

recommendation and would permit the

Government to expand its criminal

discovery rights. Similarly, the

good-faith standard will not permit

the IRS to become an information

gathering agency for other depart-

ments, including the Department of

Justice, regardless of the status

of criminal cases.19

At oral argument before us, government

counsel indicated that the taxpayer's burden

to show lack of good faith is so great

that a district court need seldom if ever

hold an evidentiary hearing before enforcing

a §7602 summons. We reject that position,

as did the Supreme Court in LaSalle (n.17,

n.19), because there are instances in

which such a hearing will clearly be required.

Such was the case in United States v.

-59a-

McCarthy, 514F2d 368 (3rd Cir. 1975) in

which defendants stated with sufficient

particularity factual support for their

allegations that the IRS "had no intention

of Pyxsuing any civil remedies" (Id. at

375)26 and also that the IRS, having made

one inspection of the records sought, was

harassing the defendants in seeking a second

inspection (Id. at 375-76). And see, in

a different context, Lord v. Kelly, 223 :

F. Supp. 684. 689 [13 AFTR 2d 985] (D. Mass.

1963), appeal dismissed on other grounds,

334 F.2d 742 [14 AFTR 2d 5429] (lst Cir.

1964) in which Judge Wyzanski in the

District Court wrote (223 F. Supp. at

689-690):

When a special agent of the Internal

Revenue Service tells an accountant

who, so far as appears, is quite

innocent of wrongdoing, that unless

he turns oyer his client's records

and cooperates with the Internal

Reyenue Services the accountant

will be in trouble, the agent is

close to extortion.

In United States v. McGuirt, 588

F.2d 419 [42 AFTR 2d 78-6318] (4th Cir.

1978), the District Court, after conducting

an evidentiary hearing, refused to enforce

a §7602 summons. Reversing, Judge Hall

wrote (at 422) that “inconvenience is not

harrassment" and did not, in McGuirt, add

up to bad faith. In this case, no recom-

“mendations have seemingly been made bv

IRS to the Department of Justice for crim-

-60a-

ncn cere

inal prosecution of any of the persons under

investigation. There are no allegations

that the IRS is not interested in the civil

aspects of the tax liability of DiBiasi

and the four persons questioned with him.

There we only allegations of bad faith

because of the failure to warn targets or

potential targets, and because of the

discussion of immunity, all according to

DiVivo in violation by the IRS of its own

regulations. ~The failure to warn DiBiasi

and the four others hardly in and of itself

shows any bad faith. The violation by the

IRS of- its own ‘regulations, which at trial

does not necessarily provide a basis for the

application of the exclusionary rule in

the absence of a deliberate or prejudicial

violation or the denial of a constitutional

or statutory right, see United States v.

Caceres, 59 L.Ed 2d 733, 744, 745 [43

AFTR 2d 79-872] (1979), is also not proof

by itself of bad faith in a tax investiga-

tion. As to the immunity discussion, the

attorney for DiBiasi, in an affidavit, has

stated that during the telephone conversa-

tion on April 13, 1978, "the subject of

immunity arose."27 Even assuming that the

IRS agent in charge of the DiVivo investi-

gation first raised the subject of immunity

and even noting that the IRS Manual

instructed agents in terms of "conduct to

be avoided" they are to refrain from "state-

ments or questions which may be construed

as offers of immunity or attempts to settle

civil liabilities in pending criminal cases,"28

the IRS is expressly provided with authority

to allow both criminal and civil immunity

-6la-

in return for testimony against another.

See United States v. Barrett, 505 F.2d 1091,

1101-02 [35 AFTR 2d 75-858] (7th Cir. 1975)

in which 18 U.S.C §6002 re criminal immunity

and 26 U.S.C. §7122 were discussed. While

it is true that in Barrett, the immunity

arrangements were made after reference to

the Attorney General for prosecution, the

parties to the discussions apparently

believed that IRS approval was required.

In Barrett, Judge Sprecher wrote (at 1102):

The significance of section 7122

for defendant is that the end the

government was seeking to accomplish-

Meyers' exemption from civil tax

liability-was authorized by law.

If the government can excuse

criminal or civil liability in

settling a criminal case, surely it

can use that power of compromise to

obtain guilty pleas or to procure tes-

timony in other proceedings. Both

are legitimate objectives of plea

bargaining.

It is true that in Powell the Supreme

Court has stated that "Put[ing] pressure

on [a taxpayer] to settle a collateral

dispute" (at 58) is an example of bad faith

in the use of a §7602 summons. But that

was written in the context of a case in

which the Court was discussing alleged

repetitive inspections by the IRS and does

not mean that settlement or compromise

or even immunity approaches in and of

themselves indicate lack of good faith

use of a §7602 summons to aid in civil tax

~62a-

collection.

Careful examination of the record

reveals that if Judge Blair had followed his

inclination expressed near the end of the

evidentiary hearing he conducted and had

held that there were insufficient allegations

by DiVivo, to require any further eviden-

tiary inquiry, he would not have been in

error. While the District Court's termina-

tion herein of the evidentiary hearing may

not rest on lack of standing on the part of

DiVivo, that termination was fully justi-

fied. By the time Judge Blair ended the

hearing, he had heard the lengthy proffer

from counsel for DiVivo as well as consid-

erable testimony from the special agent in

charge of the DiBiasi investigation which

disclosed that DiVivo's attack on the good

faith of the IRS investigation was without

merit.

Powell speaks to the need of a Court

"not to permit its process to be abused."

United States v. Powetl, supra, at 57.

Since DiVivo was named in the summons and

therefore has standing to intervene in this

case, DiVivo may bring the abuse-of-court

process contention to the District Court's

attention and ask the District Court not to

ignore the same, even if the abuse ~

complained of involves no violation of any

right of DiVivo. But, even so assuming,

DiVivo's allegations, proffers and conten-

tions, if accepted as factually accurate,

and giving DiVivo the benefit of all reason-

able inferences add up only to the follows:

(1) . That the IRS was principally and

primarily interested in DiVivo and only

-63a-

secondarily interested in DiBiasi and certain

other partners or associates of DiVivo,

and (2) that the IRS would not have investiga-

ted any of those persons other than DiVi

if the IRS had not been investigating ot

DiVivo or if one or more of all of those

others had cooperated with the IRS against

DiVivo. Assuming those facts, such conduct

hardly constitutes an abuse of the process

of the District Court. There are many

criminal cases in which minor. defendants

are named who would not have been singled

out and prosecuted but for the Government's

prosecutorial decision to proceed against

the major participant or participants.

The inclusion of certain minor defendants

is often sought by the prosecutor in the hope

that one or more of them will enter into

agreements to cooperate with the government

in return for an undertaking by the govern-

ment to seek a dismissal or to recommend

leniency. Such practices, which have not

been deemed inappropriate, see generally

Bordenkircher v. Hayes, 434 U.S. 357

(1978), would not seem different than

those involved herein. At no time has

DiVivo suggested, except once 30 ina single

isolated conclusory oral assertion by counsel,

that the civil tax investigations of DiBiasi

and the others were themselves phony, i.e.,

that there was no factual basis upon which

the IRS could have conducted an investigation

to determine whether DiBiasi and the others,

as admitted partners and associates of

DiVivo, violated any of their respective

Civil tax duties and that the IRS did not

-64a-

bes als

es

eee

a

nncenmeccalip mcmcmrccset

decide to conduct such investigations.

Perhaps, with 20-20 hindsight, the District

Court might have required the Government,

before terminating the hearing, to file,

in camera, an affidavit by Mr. Bell or

one or more others, pursuant to Federal

Civil Rule 56, giving some details as to the

alleged civil tax violations of DiBiasi

and the others and the IRS's reasons for

investigating those possible violations.

But even the use of such summary-type

procedures must be carefully tailored to

prevent delay of “summons enforcement

proceedings while parties clash over, and

judges grapple with, the thought processes

of each investigator." United States v.

Morgan Guaranty Trust Co., quoted by Mr.

Justice Blackmun in United States v.

LaSalle National Bank, 437 U.S. at 316. In

this case the record discloses close cooper-

ation between counsel for DiVivo, on the one

hand, and counsel for DiBiasi would know

the same and that DiVivo would have

presented specifics as to the same in one

or more documents pursuant to Federal

Civil Rule 56 and/or have informed the

District Court of the same during DiVivo's

counsel presentation of DiVivo's "theory"

of this case. There is thus no need, in

this case, to remand for further presentation

and consideration of further evidence to an

by the District Court in order to afford the

opportunity to DiVivo to prove abuse of

the process of the District Court by the

enforcement of the summons in the civil

tax investigation of DiBiasi. DiVivo, has

had that opportunity and has fallen short

of alleging or proffering facts or theory

entitling him to any further evidentiary

hearing or to.any of the relief he seeks.

The judgment below is accordingly

affirmed.

-65a-

WINTER, Circuit Judge, dissenting:

I agree with the majority that DiVivo

has standing as an intervenor to raise the

question of the good faith of the Internal

Revenue Service in issuing the summons for

records relating to his business dealings

with DiBiasi. I disagree, however, that

DiVivo has failed to allege facts sufficient

to defeat the enforcement of the summons.

‘Relying on the standards enunciated by the

Supreme Court: in United States v. Powell,

379 U.S. 48 (1964), I would hold that, when

the IRS undertakes investigation of a tax-

payer for the primary purpose of pressuring

him to give evidence against another taxpayer

the investigation is not conducted in good

faith and a summons issued in the course of

the investigation is therefore not enforce-

able. In the instant case, DiVivo has al-

leged that "one of [the] purposes, if not

the primary purpose [of the IRS investiga-

tion of DiBiasi is] to pressure DiBiasi into

cooperating with the Internal Revenue Service

in its investigation of [DiVivo]." More-

over, he has proffered evidence which tends

to support his allegation. I therefore be-

lieve that the district court erred in deny-

ing DiVivo the opportunity to prove his alle-

gation. I respectfully dissent.

Powell established that a district court

should not enforce a summons issued in the

course of an investigation that is not under-

taken in good faith. In his opinion for the

Court, Justice Harlan stated:

It is the court's process which is

invoked to enforce the administrative

summons and a court may not permit

its process to be abused. Such as

abuse would take place if the sum-

mons had been issued for an improper

66a

oe)

a

purpose, such as to harass the tax-

payer or to put pressure on him to

settle a collateral dispute, or for

any other purpose reflecting on the

good faith of the particular investi-

gation. The burden of showing an

abuse of the court's process is on

the taxpayer... .

Id. at 58. Although the claim of harassment

advanced by the taxpayer in Powell involved

repetitive summonses, the broad scope of the

quoted language makes clear that other forms

of harassment or bad faith will also render

a summons unenforceable. The broad appli-

cability of the Powell standards was reaf-

firmed in United States v. LaSalle National

Bank, 437 U.S. 298 [AFTR 2d 78-5198] (1978).

In particular, LaSalle made clear that the

Powell standards are independent of, and

in addition to, the requirement that a sum-

mons must be issued before the IRS has aban-

doned the pursuit of civil tax determination

or collection in favor of criminal prosecu-

tion. See id. at 317 n. 19, 318.

DiVivo has alleged that the IRS under-

took its investigation of DiBiasi and issued

the summons in question for the purpose,

if not the primary purpose, of pressuring

DiBiasi into cooperating with the investiga-

tion of DiVivo by giving evidence against

him. If it is proved that the primary pur-

pose of the investigation and the summons

was to force DiBiasi's cooperation in the

DiVivo investigation, then I think Powell

requires that enforcement of the summons

be denied. It is difficult to conceive of

an example of bad faith that would better

qualify as "an improper purpose, such as

to harass the taxpayer or to put pressure

on him to settle a collateral dispute."

67a

The majority seeks to justify the purpose

attributed by DiVivo to the IRS by citing

the authority granted to the IRS under IRC

§7122(a) to compromise any civil or criminal

tax case, prior to referral to the Department

of Justice. In United States v. Barrett,

505 F.2d 1091, 1100-03 [35 AFTR 2d 75-858]

(7 Cir. 1974), cert. denied, 421 U.S. 964

(1975), §7122(a) was relied upon to permit

the grant of civil tax immunity to the ac-

complice of a bribery defendant, with re-

spect to the income tax owed by the accom-

plice on bribes which passed through his

hands, in exchange for the accomplice's tes-

“‘timony against the defendant. But the power

of the IRS to compromise tax cases has no

bearing on the question before us. DiVivo

does not deny that if the IRS had under-

taken an investigation of DiBiasi in good

faith for the primary purpose of determin-

ing and collecting DiBiasi's tax liability,

then the IRS could properly issue summonses

pursuant to that investigation and could ul-

timately compromise DiBiasi's case in ex-

change for his testimony against DiVivo.

Rather, DiVivo alleges that the investiga-

tion of DiBiasi was undertaken in bad faith

as a pressure tactic to force DiBiasi to co-

operate in the investigation of DiVivo.

Nothing in §7122(a) or Barrett authorizes

the IRS to undertike or pursue an investi-

gation for such a primary purpose.

I fully recognize the difficulty that

DiVivo would have in proving his case.

Powell places the burden of proving bad

faith on the party opposing enforcement,

379 U.S. at 58, and this burden is a heavy

one indeed. In order to prevent enforce-

ment of the summons, DiVivo would have

to prove that the primary purpose of the

investigation of DiBiasi was not to deter-

mine and collect his tax liability but rather

to pressure him to give evidence against

68a

DiVivo. Although such proof would be

quite difficult to establish, DiVivo prof-

fered evidence to the district court, inter

alia, that DiBiasi was contacted about co-

operating with the DiVivo investigation

very soon after receiving notification of

his own investigation; that DiBiasi was told.

to contact the Special Agent in charge of the

DiVivo investigation, rather than the agents

handling his own investigation; and that the

DiBiasi investigation has been characterized

by several other unexplained departures from

standard IRS procedures. While such evidence

may be insufficient to prove the ultimate

fact sought to be established, it was suffi-

cient to raise a genuine dispute on the ques-

tion of good faith of the IRS, and the dis-

trict court therefore erred in denying Di-

Vivo “the adversary hearing to which [he] is

entitled before enforcement [of the summons]

is ordered," id.

Although I share the concern expressed

by the majority that consideration by dis-

trict courts of objections charging IRS bad

faith may unduly delay the enforcement of

IRS summonses, I doubt that such objections

will be frequent. The difficulty of prov-

ing IRS bad faith, which I discuss above,

will be a deterrent to many unfounded objec-

tions. Summary procedures, where appropri-

ate, can assist in the expeditious disposi-

tion of such objections. See id. at 58

n. 18 (Federal Rules of Civil Procedure gov-

ern proceedings to enforce IRS summonses).

In any event, both Congress and the Supreme

Court have determined that full consideration

of objections to the vaiidity of a summons

is worth the delay that may result. Congress

has provided for a judicial hearing prior to

enforcement of a summons and for the right

69a

of a person in DiVivo's position to intervene

in such a proceeding. See I.R.C. §§7604(b),

7609(b) (1). And, as the majority notes, the

Supreme Court has indicated that occasional

delays caused by the consideration of un-

meritorious objections to IRS summonses is

the necessary price for ensuring that the

process of the courts is not abused. See

United States v. LaSalle National Bank, 437

U.S. at 316, n. 17; United States v. Powell,

379 U.S. at 58.

I would reverse the judgment of the

district court and remand the case for a

full hearing on DiVivo's allegations of IRS

bad faith.

70a

—

hii ERIN I

_—

FOOTNOTES

1. There are two principal investiga-

tive divisions within the IRS: The Audit

Division and the Criminal Investigation Di-

vision. The latter was once known as the

Intelligence Division. The Audit Division

reviews a taxpayer's returns and recommends

adjustments in tax if necessary, and is con-

cerned only with civil adjustments and ci-

vil liability. The basic functions of the

Criminal Investigation Division are to in-

vestigate taxpayers suspected of criminal

violations of the tax laws and to recommend

prosecution if appropriate. In many in-

stances a Special ent of the Criminal In-

vestigation Division’ and a Revenue Agent of

the Audit Division work together jointly in

an investigation. The Special Agent is

usually in charge of any such investigation,

with the Revenue Agent assisting in deter-

mination of correct tax liability. See In-

ternal Revenue Manual, §9324.

2. The Internal Revenue Manual §9383.1

and 9384.2 and the Special Agents Handbook

§243.2 set forth procedures to be followed

by Special Agents in conducting themselves

during question and answer sessions and ad-

vising persons being questioned of their

rights.

3. Internal Revenue Manual §9382.2

refers to the use of "alleged improper con-

duct by special agents as an arm of "defense

strategy" and provides that "{iJ]n order that

no situation may arise * * * which may fur-

nish a factual basis for the use of such de-

fense strategy, agents should, inter alia,

avoid "(b) statements or questions which

may be construed as offers of immunity * *

*." See also §9131 of the Internal Revenue

Manual.

-7la-

Spécial Agents Handbook §242.132 provides,

inter alia, "(6) The special agent will

not use trickery, misrepresentation or de-

ception in obtaining any evidence or infor-

mation, nor will he/she use language which

might constitute a promise of immunity o[r]

settlement of the principal's case, or

which might constitute intimidation or

threat."

4. Joint Appendix, p. 131.

5. Joint Appendix, pp. 110-13, 125.

6. See the discussion infra at p. 2l.

In view of the pending investigation of Di-

Vivo, it is not necessary to determine whe-

ther and under what conditions DiVivo would

possess standing to challenge the abuse of

process of this Court in the investigation

of DiBiasi, if only the investigation of

DiBiasi were ongoing.

7. Petition, Par. IV, Joint Appendix,

p. 6.

8. Petition, Par. IX, Joint Appendix,

9. Bell Affidavit, Par. 2, Joint Ap-

pendix, p. 12.

10. DiVivo Response, par. 4, Joint Ap-

pendix, p. 37.

ll. DiVivo Response, par. 17, Joint

Appendix, p. 39.

12. Joint Appendix, p. 52.

13. Joint Appendix, pp. 94-95.

-72a-

14. Joint Appendix, p. 97.

15. Joint Appendix, p. 99.

‘ 16. It was only at that one moment and

in that conclusory language that the record

' reveals any suggestion by DiVivo that the

investigations of persons other than DiVivo

were undertaken solely to further the Di-

Vivo investigation.

17. Joint Appendix, pp. 108-109.

18. Joint Appendix, pp. 100 - 1ll.

19. Joint Appendix, p. 113.

20. Joint Appendix, p. 91.

21. Joint Appendix, p. 116.

22. Joint Appendix, pp. 120-121.

23. Joint Appendix, p. 122. In their

principal appellate brief filed in this

Court, counsel for DiVivo wrote (at p. 9)

with regard to that questioning: "* * * it

appears that the Internal Revenue Service

may well have had incriminatory information

about DiBiasi, et-al at the time of their

Q & A's [questions and answers]."

24. Joint Appendix, p. 124.

25. Joint Appendix, p. 125.

26. See also, United States v. Garden

State Nat. Bank, 465 F. Supp. 437, 43 A.F.

T.R. 2d 479-405 (D.N.J. 1979) in which that

same question is discussed.

-73a-

27. Joint Appendix, p. 45.

28. See n. 3, supra.

29. See generally as to plea bargain-

ing, Bordenkircher v. Hayes, 434 U.S. 357

(1978). See also as to the power of the

IRS to compromise, United States v. Garden

State Nat. Bank, supra at n. 6.

30. See p. 9 and n. 16, supra.