Petition — American Law Ass'n v. Merkel

Office-Supreme Court, U.S.

* i } Mi )

80-2032 | Mays 1981

CLERA

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

AMERICAN LAW ASSOCIATION,

an unincorporated association,

PETITIONER,

vs.

JOHN MERKEL, in his capacity as United States Attorney

for the Western District of Washington, BENJAMIN CIVILETTI,

in his capacity as Attorney General of the United States;

DAVID BEITZ, in his capacity as Assistant US. Attorney;

JEROME KURTZ, in his capacity as Commissioner of the

Internal Revenue Service; ARTURO JACOBS, in his capacity as

Seattle District Director of the Internal Revenue Service;

DANIEL C. BROWN, DONALD JENSEN, RONALD F. PERRON,

RON LANG, REGINALD NORBERG, in their capacity as Special

Agents for the Internal Revenue Service, and the

UNITED STATES of AMERICA.

RESPONDENTS.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

J. Jeffrey Dudley

Cartano Botzer Larson & Birkholz

Attorney for Petitioner

1300 IBM Building

Seattle, Washington 98101

(203) 623-6700

Ap

QUESTIONS PRESENTED FOR REVIEW

1. Whether the denial of a motion to quash

subpoenas is dismissable as moot on appeal where the

grand jury investigation is ongoing and the material

subpoenaed would disclose confidential membership

lists and financial information of an association in

violation of its First Amendment Rights.

2. Whether the allegation of a government

prosecutor that certain officers of an association

"may" have committed tax crimes is sufficient to

require production by grand jury subpoenas of confi-

dential membership lists and financial information of

the association held by third party banks.

i.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED i.

OPINIONS BELOW 2

JURISDICTION . 2

CONSTITUTIONAL PROVISIONS INVOLVED 2

STATEMENT OF THE CASE.

w

REASONS FOR GRANTING WRTT ..

1. THE DECISION BELOW CONFLICTS

WITH THE DECSION OF OTHER

COURTS OF APPEALS AS TO THE

PROPER INTERPRETATION OF THE

"CAPABLE OF REPETITION YET

EVADING REVIEW" EXCEPTION TO

THE MOOTNESS DOCTRINE APPLI-

CABLE IN THIS MATTER. . 9

2. THE DECISION BELOW ERREDIN

DECIDING A SIGNIFICANT CONSTITU-

TIONAL QUESTION IN HOLDING THAT

THE GOVE RN MENT SUBPOENAS IN

THIS MATTER DEMANDING CONFIDEN-

TIAL ASSOCIATION MEMBERSHIP AND

FINANCIAL INFORMATION DID NOT

VIOLATE PETITIONER'S FIRST AMEND-

MENT RIGHTS . 16

CONCLUSION . 24

APPENDIX A. 1A

APPENDIX B 1B

ii.

TABLE OF AUTHORITIES

Page

CASES:

Branzburg v. Hayes, 408 U.S. 665 (1972). 18

Bursey v. United States, 466 F.2d 1059

(9th Cir. 1972) 19, 20, 21, 23

— v. Littlejohn, 569 F. 2d 219 (5th Cir.

1 20

Gibson v. Florida 559 1 85 Investigative

Comm., . 1963) .cccccccccccccccee 16,20

266% % 10, 11,12, 1 3, 14

NAACP vy. Alabama, 357 U.S. 449 (1958) 17,18

NAACP v. Button, 371 US. 415 (1963) ... 16

Pollard v. Roberts 283 F.Supp. 248 (E.D.

Ark. 1 7 per curiam, 393 U.S. 14 (1968) 18,20

Securities & Exch Com'n v. Laird, 598

F.2d 1162 (9th Cr 1979) 10,12

Southern Pacific Terminal Co. v. ICC, 219

U.S. 498 (1911) 10

United States v. Arthur Andersen & Con 623

5 (ist . 198 coun 13

United States v. Citizens State Bank, 612 F.2d

1091 7 21,22

United States v. Deak-Perera Internatio

ng orp., 10 * E * 1 q eee 15

United States v. Silva and Silva Accountancy

Corp., 4 1-1 9th * No.

80-5497, Merch 20, 1981) ° 15

Weinstein v. Bradford, 423 U.S. 147 (1975) ... 10,11

NO.

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

AMERICAN LAW ASSOCIATION,

an unincorporated association,

PETITIONER,

VS.

JOHN MERKEL, in his capacity as

United States Attorney for the

Western District of Washington, et al,

RESPONDENTS.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

The Petitioner, AMERCIAN LAW ASSOCIA-

TION, respectfully prays the court issue a writ of

certiorari to review the order of the United States

Court of Appeals for the Ninth Circuit entered in this

proceeding on February 4, 1981.

21

OPINIONS BELOW

The Order of the United States Court of

Appeals for the Ninth Circuit dismissing the appeal

as being moot is unreported, but is set forth in

Appendix A herein.

The Order of the United States District Court

for the Western District of Washington is unreported,

but is set forth in Appendix B herein.

JURISDICTION

The Order of the United States Court of

Appeals for the Ninth Circuit was entered on Feb-

ruary 4, 1981, and this petition for certiorari is filed

within 90 days of that date. The jurisdiction of this

court is invoked under 28 U.S.C. 8 1254(1).

CONSTITUTIONAL PROVISIONS INVOLVED

First Amendment of the United States Consti-

tution:

"Congress shall make no law... abridging

the freedom of speech, or of the press; or

the right of the people peaceably to

assemble, and to petition the Government

for a redress of grievances."

STATEMENT OF THE CASE

1. DISTRICT COURT JURISDICTION.

District Court jurisdiction was invoked by vir-

tue of 28 U.S.C. § 1331(a), as a federal question arose

under the First Amendment of the United States

Constitution and involved the United States and its

officers in their official capacities.

2. STATEMENT OF FACTS.

The Petitioner, the American Law Association

(hereinafter the "ALA" or the Association“) is an

unincorporated association with headquarters in

Bryan, Texas. The purpose of the ALA is to dissemi-

nate information to private citizens regarding their

rights under the laws of the United States, particu-

larly the Internal Revenue Code and Tax Treaties as

they pertain to individual income taxation. (CR 2a)".

tan record references refer to the Clerk's Record

(CR) as docketed by the United States District Court

for the Western District of Washington. Relevant

portions of this record were before the Court of

Appeals by Appellant's Excerpt of Record and as

attachments to Appellant's Memorandum in Opposi-

tion to Appellees' Motion to Dismiss Appeal. The

official trial court record was never transmitted to

the Court of Appeals due to the dismissal on the

grounds of mootness.

o 3-

The ALA has several hundred members, all

US. citizens who have joined together to exchange

information on these subjects. (CR 2a). The ALA

holds membership meeetings, annual conventions, and

publishes a monthly newsletter. (CR 2a). Member-

ship lists, minutes of meetings, and other information

disseminated by the ALA as well as its financial

status and funding sources are confidential as the

ALA and its individual members have long feared

interference and harassment by the Internal Revenue

Service owing to the nature and purpose of the

organization. (CR 2a).

This fear is actual and not imagined. Members

of the ALA have been harassed and audited by the

IRS apparently based solely on their affiliation with

the ALA. (CR 2e, 2d, 2e and 2f). This government

harassment, prompted by the refusal of ALA mem-

bers to answer questions about the ALA or to disclose

the names of other ALA members, is documented in

uncontraverted affidavits. (CR 2c, 2d, 2e and 2f).

In early March, 1980, a federal grand jury

convened in the Western District of Washington sub-

a

poenaed bank records concerning the ALA requesting

"signature cards" and "statements of account". The

district court denied Petitioner's request to enjoin

these subpoenas in holding that no information con-

cerning membership of the ALA would be disclosed.

(CR 8). The hearing on Petitioner's request was held

before a Magistrate whose Report and Recommen-

dation was adopted by the court without further

hearing. (CR 6).

Emboldened by this decision, the government

served new subpoenas returnable May 6, 1980 on the

same banks seeking "cancelled checks, deposit slips

and items of deposit" for accounts held by certain

principals in the ALA. (CR 11). It is uncontraverted

that the subpoenaed material would reveal member-

ship and confidential financial information of the

ALA. (CR 2a, 11, 17). It is also uncontraverted that

disclosure of the membership lists of the ALA would

cause irreparable harm to the ALA and chill its First

Amendment rights. (CR 2a, 11, 17).

The Petitioner again objected to this second

string of subpoenas. It requested the district court

= §-

quash any subpoenas revealing membership and con-

fidential financial information concerning the ALA.

By agreement of government counsel, the return date

of the challenged subpoenas was delayed to June 3,

1980 to allow time for hearing and decision by the

district court.

In support of its need for this information, the

government presented one affidavit of a government

attorney. (CR 20). In this affidavit, the government

averred that the grand jury investigation was focused

on certain ALA principals and alleged that these

principals may have committed specifie crimes."

(CR 20, Par. 2). The government opined that the

subpoenaed material was "necessary for the grand

jury to determine whether there is evidence that

subjects of the investigation may have committed

crimes." (CR 20, Par. 3).

Hearing was again held before a magistrate on

May 16, 1980. Petitioner's request for a hearing

before the judge was denied. The district court

adopted the Magistrate's Report and Recommenda-

tion denying the motion to quash on May 29, 1980.

(CR 33). Government attorneys refused to further

extend the return date of the subpoenas to allow

review of the district court's decision.

Petitioner immediately appealed the district

court's decision to the Ninth Circuit Court of Appeals

with a simultaneous motion to the district court to

enjoin enforcement of the subpoenas pending appeal.

(CR 36,37, 38,39). The motion was denied by the

district court on que 2, 1980.

A similar motion thereafter presented to a

single judge of the Ninth Court sitting in Seattle was

also denied on June 2, 1980. When Petitioner dis-

covered one bank in Texas had not timely complied

with its subpoena, an Emergency Motion for Recon-

sideration was thereafter presented to a three judge

panel of the Ninth Circuit in San Francisco and was

denied on June 12, 1980.

The banks to whom the subpoenas were issued

were compelled to produce the information

requested, including that information disclosing

membership and confidential financial records of the

ALA. °

Meanwhile, the grand jury investigation con-

tinued (and it is Petitioner's belief it continues

today). In its response to the Association's request

for stay pending appeal at the district court, the

Government stated its investigation "will be a long

and complicated one, and it is only the beginning."

(CR 34). The Government has continued in its

attempts to discover information about the ALA. In

May 1980, the Government requested all information

in an accountant's possession relating to "any other

member of the American Law Asociation for whom

you have performed accounting or tax services."

(Exhibit 1 to hearing before Magistrate Sweigert, May

16, 1980). In subpoenas to other individuals, the

Government requested "all documents and records

relating to the American Law Association..." (Sub-

poena to Robert A. Austin, Exhibit 2 at hearing

before Magistrate Sweigert, May 16, 1980). In July,

1980, the Government filed a "Status Report Regar d-

ing Subpoenas" and an "A mended Status Report

Regarding Subpoenas" with the district court. (CR

50, 51). Each disclosed that as of July, subpoenas

- §-

were outstanding and additionally, other subpoenas to

other banks had not been satisfied at that time. The

above facts were presented to the Ninth Circuit in

Petitioner's Memorandum in Opposition to Appellees’

Motion to Dismiss.

After Petitioner's brief on the First Amend

ment issue was filed with the Ninth Circuit, the

Government, without filing its Appellees’ brief,

moved to dismiss the appeal as moot. The Ninth

Circuit granted the Government's motion without

hearing and without opinion on February 4, 1980.

(Appendix A).

REASONS FOR GRANTING THE WRIT

i. THE DECISION BELOW CONFLICTS

WITH THE DECISIONS OF OTHER

COURTS OF APPEALS AS TO THE

PROPER INTERPRETATION OF THE

"CAPABLE OF REPETITION YET

EVADING REVIEW" EXCEPTION TO

THE MOOTNESS DOCTRINE.

This court has refused to dismiss as moot,

cases in which the controversy is one "capable of

repitition, yet evading review". Southern Pacific

Terminal Co. v. ICC, 219 US. 498, (1911). This

principle was further clarified in Weinstein v. Brad-

ford, 423 US. 147, (1975), as precluding a dismissal

for mootness when "(1) the challenged action was in

its duration too short to be fully litigated prior to its

cessation or expiration, and (2) there was a reason-

able expectation that the same complaining party

would be subjected to the same action again."

The Ninth Circuit Order dismissing the appeal

was fiied without opinion. (Appendix A). The Order

cites, without further explanation, Securities &

Exchange Comm'n x. Laird, 598 F.2d 1162 (9th Cir.

1979). Because Petitioner argued the actions of the

Government were "capable of repitition, yet evading

review", it can only surmise the court rejected this

exception to the law of mootness as applied to the

facts of the case.

In so holding, the Ninth Circuit's implicit

rejection directly conflicts with the Seventh Circuit's

interpretation of this principle in In Re Special April

1977 Grand Jury, (Scott), 581 F.2d 589 (7th Cir. 1978)

which involved facts identical to those herein.

In Scott, Federal Grand Jury subpoenas were

served on staff members of the Attorney General for

Illinois, William Scott. The District Court denied

Scott's motion to quash the subpoenas and denied any

Stay pending appeal, as did the Seventh Circuit and

this Court. Subsequently, the staff members com-

plied with the subpoenas. On appeal, the Seventh

Circuit denied government claims that the issues

raised were moot because of compliance. It held that

the case was justiciable because the controversy was

"capable of repetition yet evading review." Both

elements of the Weinstein standard were met in that:

(1) the dates imposed for subpoena compliance were

too short to allow their litigation fully prior to

compliance; and (2) there was a reasonable expecta-

tion that the same complaining party would be sub-

jected to the same action again because the sub-

poenas were part of a continuing investigation, and

future subpoenas, subject to the same objection

(mootness), were likely. 581 F.2d at 591. The

Seventh Circuit further opined that this Court has

-ll-

not required parties to refuse subpoena compliance

and appeal "a subsequent finding of contempt." Id.,

at 591.

The facts and procedural posture of the

instant case are virtually identical to those found

determinative in Scott. (1) The dates required for

compliance with the subpoenas served on the banks

demanding confidential association records were too

short to allow their litigation fully prior to compli-

ance. (2) There is a reasonable expectation that the

Association will be subjected to the same action

again because, as in Scott, the subpoenas are part of

an admittedly long-term investigation with the

expectancy of additional subpoenas.

Despite the symmetry with Scott, the Ninth

Circuit, without explanatory opinion, dismissed the

Petitioner's appeal as citing Laird. This reliance is

open to serious question.

In Laird, a corporation and certain individuals

resisted government subpoenas. While, on appeal, all

requested documents and testimony were voluntarily

given the Government by the parties challenging the

-12-

Subpoenas. The court, without addressing the "cap-

able of repetition" exception to the mootness doc-

trine, properly held the case moot. Id, at 1163.

Laird is factually inapposite to the instant

case. In Laird, the subpoenaed parties both moved to

quash and voluntarily relinquished the challenged

material. Here the information subpoenaed was in

the hands of third party banks; neutral parties and

heavily regulated by the government. As such the

banks had no interest in the matter and could not be

expected to refuse compliance.

This distinction between voluntary compliance

of the party challenging the subpoenas and a third

party with no interest was considered determinative

in United States v. Arthur Andersen & Co., 623 F.2d

725 (1st Cir. 1980). In that case, an Internal Revenue

Service summons was served on an accounting firm

requiring production of workpapers of a client under-

going a tax investigation. Arthur Andersen, and not

the taxpayer, challenged the summons. As in Scott

and the instant case, the accounting firm's request

for a stay pending appeal was denied by both the

-13-

district and appeals court. The accounting firm

subsequently complied with the summons pending

appeal.

On appeal, the First Circuit equated a civil

summons to a subpoena and expressly distinguished

Scott holding the controversy was moot and not

"capable of repetition yet evading review". The

court stated:

n... the case [Scott] is distinguishable in

one important aspect. The grand jury

subpoenas at issue were directed at mem-

bers of the appellant's staff, not the

appellant himself. It would be unreason-

able to expect individuals with no strong

interest in resisting the subpoenas to

expose themselves to contempt by refus-

ing to comply. Cf. Periman v. United

States, 247 US. 7 (1918) (interlocutory

appeal from discovery order permitted

when order directed to person other than

appellant who has insufficient incentive

te risk contempt.)" At 723.

Thus, in a controversy involving nearly identi-

cal facts to Scott, the Ninth Circuit has reached an

opposite result. Indeed, after Petitioner argued to

the Ninth Circuit that the Scott case precludes

dismissal due to mootness, the Government replied,

"We submit that Scott was incorrectly decided and

-14-

should not be applied by this Court" (Appellees'

Response to Appellant's Opposition to Motion to

Dismiss Appeal).

Petitioners could find only two other cases

involving mootness when a third party complied with

an IRS summons. In United States v. Deak-Perera

International Banking Corp., 610 F.2d 89 (2d. Cir.

1979) the court dismissed as moot an appeal when the

third party voluntarily complied with a summons.

There was no mention of an ongoing investigation.

The Ninth Circuit has apparently reconfirmed its

position in United States v. Silva and Silva Account-

ancy Corp., 47 AFTR 2d 81-1270 (9th Cir. Cause No.

80-5497, March 20, 1981). In a two paragraph

opinion, the Ninth Circuit dismissed as moot a chal-

lenge to a summons when the third party accountant

voluntarily relinquished the taxpayer's records.

There was again no mention of an ongoing investiga-

tion.

In conclusion, the dismissal by the Ninth Cir-

cuit erystalizes a conflict between the circuits on

this point: The Ninth and Seventh have taken oppos-

-15-

ite positions, the First apparently supports the

Seventh, and the Second apparently supports the

Ninth.

2. THE DECISION BELOW ERRED

IN DECIDING A SIGNIFICANT

CONSTITUTIONAL QUESTION

BY HOLDING THAT THE

GOVERN MENT SUBPOENAS IN

THIS MATTER DEMANDING

CONFIDENTIAL ASSOCIATION

ME MBERSHIP AND FINANCIAL

INFORMATION DID NOT VIO-

LATE PETITIONER'S FIRST

AMENDMENT RIGHTS.

Petitioner's submit that the question of moot-

ness cannot be isolated from the nature of the

challenge to the grand jury subpoenas. The subpoenas

are not challenged on merely technical grounds as

relevancy or undue burden. The are challenged

because they violate the Association's First Amend

ment rights.

This Court has recognized these freedoms are

"delicate and vulnerable, as well as supremely pre-

cious" in NAACP v. Button, 371 U.S. 415 (1963). In

Gibson x. Florida Legislative Investigation Comm.,

372 U.S. 539 (1963), a case dealing with l.gislative

subpoenas issued to compel membership lists of the

-16-

NAACP in Florida, this Court recognized that com-

pulsory process must be subordinated to the require-

ments of the First Amendment.

"To permit legislative inquiry to proceed

on less than an adequate foundation would

be to sanction unjustified and unwar-

ranted intrusions into the very heart of

the constitutional privilege to be secure

in associations in legitimate organizations

engaged in the exercise of First and F our-

teenth Amendment rights; to impose a

lesser standard than we here do would be

inconsistent with the maintenance of

those essential conditions basic to the

preservation of our democracy." 372 US.

at 558.

Petitioners urge this Court to decide the con-

stitutional issue now. There is no benefit to remand-

ing the case to the Court of Appeals as the entire

record consists of affidavits; one by a government

attorney, several by Association members. The con-

stitutional conclusion must flow from these and, the

correctness of the district court decision is open to

serious doubt.

An association posseses standing to assert the

First Amendment rights of its members. NAACP v.

Alabama, 357 US. 449 (1958). The ALA has standing

to quash a subpoena issued to a third party financial

-17-

institution which would reveal membership lists and

financial records of the Association. Pollard v.

Roberts, 283 F.Supp. 248 (E.D. Ark. 1968), aff'd per

curiam, 393 US. 14 (1968). It is settled that mem-

bership lists of organizations are protected from

compulsory disclosure by the First Amendment right

of association when the membership list itself is not

relevant to the purpose of the investigation. NAACP

v. Alabama.

Even Grand Juries must bow to the First

Amendment. In Branzburg v. Hayes, 408 US. 665

(1972), this Court dealt with the claimed First

Amendment freedom of reporters to protect sources.

In its opinion, the Court stated:

"Grand Juries are subject to judicial con-

trol and subpoenas to motion to quash.

We do not expect courts will forget that

Grand Juries must operate within the

limits of the First Amendment..." Ig. at

708.

An asserted First Amendment claim does not

in itself put information beyond the reach of the

government. Instead a balance must be struck. When

grand jury investigations collide with First Amend-

ment rights, the burden shifts to the government to

establish its interests are legitimate and compelling

and that the incidental infringement upon First

Amendment rights are not greater than is essential to

vindicate its subordinating interests. Bursey v. United

States, 466 F.2d 1059 (9th Cir. 1972). As stated in

Bursey, when grand jury subpoenas infringe on First

Amendment rights, the government must show that

"there is a substantial possibility that the information

sought will expose criminal activity within the com-

pelling subject matter of the investigation." Id. at

1083. The government must also demonstrate that

the "means of obtaining the information is not more

drastic than necessary to forward the asserted

governmental interest." Id.

In the case before the court, it is uncontra-

verted that the subpoenaed material will reveal

membership lists of the American Law Association.

It is uncontraverted that the members of the Amer-

ican Law Association have been harassed by agents of

the Internal Revenue Service. The only justification

provided by the government to secure this informa-

-19-

tion is that the material might show that certain

officers of the American Law Association "may" have

committed certain crimes. This justification is

inadequate when compared to other decisions balanc-

ing First Amendment rights against the government's

need to know. See Bursey, supra, Pollard, supra,

Gibson, supra, and Ealy v. Littlejohn, 569 F.2d 219

(5th Cir. 1978). In the above cases, in balancing the

need to know against the First Amendment,.a more

cogent showing for the production of the records was

demonstrated than by the government here, yet the

records were ordered not to be produced.

It is not contended that a First Amendment

claim is an absolute bar. But when the First Amend-

ment is raised, the government must demonstrate

that there is a "substantial possibility that the infor-

mation sought will expose criminal activity." Parti-

cularly in the instant case, because the government

already has obtained blind records (signature cards

and statements of account) from each bank subpoen-

aed, the government must demonstrate that the com-

prehensive subpoenas which will disclose membership

lists will expose criminal activity.

In the proceeding below, the government

failed to address the further Bursey requirement that

the government demonstrate the information sought

could not be obtained by less burdensome means.

The proper approach to acquire the informa-

tion sought by the government is outlined in United

States v. Citizens State Bank, 612 F.2d 1091 (8th Cir.

1980). A civil summons was issued by the Internal

Revenue Service to a bank requesting all records of

an officer of the United States Taxpayer Union. The

information requested was virtually identical to that

requested by the subpoenas challenged herein. The

United States Taxpayer Union intervened in the

administrative summons and moved it be quashed

under the First Améndment because the bank records

would reveal membership lists of the Union. The

government resisted asserting that its summons was

issued in good faith for a proper purpose. The Eighth

Circuit, in reversing the trial court, decided the

government failed to meet the burden of showing a

need for the material.

-21-

Despite the failure, the court suggested how

the government might proceed. It proposed a "step

by step" approach whereby the government would

first seek bank statements and other "blind" records

indicating the status of the United States Taxpayers

Union account. It suggested, if more information was

needed to obtain a true picture of the taxpayers'

finances, subsequent summons could be issued each

seeking increasingly detailed information. The court

opined that if discrepancies were discovered, the

government might be able to make the "cogent and

compelling" showing needed to obtain the entire set

of bank records, including the documents identifying

USTU members.

In view of Citizens State Bank, the govern-

ment's omission is significant here. It had in its

possession at the time it issued the second set of

subpoenas, statements of account which are the blind

records mentioned by the Eighth Circuit. However,

even with these blind records in its possession, the

government made no showing other than the unsup-

ported allegation that the officers "may" have com-

-22-

mitted crimes.

The government's showing falls short of the

required justification for producing material pro-

tected by the First Amendment.

Should the government's contentions be

accepted as sufficient by this Court, any prosecutor,

state or federal, could make this allegation, I have

reasons to believe that Mr. X, with signatural powers

over an organization's bank account may have com-

mitted a tax crime” and obtain membership lists and

financial information of the organization. Peti-

tioners believe the First Amendment means more

than this.

And, las dy, disclosing financial information of

the Association is as much a violation of the Peti-

tioner's First Amendment rights as is disclosure of

the Associations membership lists. As the court

stated in Bursey:

"(t]o require a member of an association,

especially a dissident political party, to

reveal the details of its funding is as

effective a chilling device as is compul-

sory disclosure of its membership lists."

466 F.2d at 1088.

-23-

It is uncontraverted that the subpoenas herein

would garner confidential financial information of

the Association. The government has made no cogent

showing herein as to its need for this information.

The district court's conclusion that no First Amend

ment rights are violated is not justified.

CONCLUSION

For the foregoing reasons, Petitioner,

American Law Association, respectfully urges that

this Petition for Writ of Certiorari to the United

States Court of Appeals for the Ninth Circuit be

granted to resolve the conflict which has arisen

among the Circuits. It furthermore requests the

Court to resolve the issue of the violation of Peti-

tioner's First Amendment rights.

Respectfully submitted,

(s) J. Jeffrey Dudley

CARTANO BOTZER LARSON & BIRKHOLZ

1300 IBM Building

Seattle, Washington 98101

(206) 623-6700

Dated: May 4, 1981

APPENDIX

_ APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

AMERICAN LAW ASSOCIATION, an)

unincorporated association, ) NO. 80-3185

) CV 80-329 WTM

Plaintiff-Appellant,

*

— — — — —-—T — — ee ee —

JOHN MERKEL, in his capacity as ORDER

United States Attorney for the

Western District of Washington,

Defendant-Appellee.

Filed: February 4, 1981

Before: TANG and CANBY, Circuit Judges

Upon due consideration, the court issues the fol-

low ing order:

1. Appellant's motion for an extension of time

to respond to appellee's motion to dismiss is granted,

and the opposition, heretofore received, is ordered

filed;

2. Appellee's motion to dismiss this appeal as

moot is granted, and the appeal is hereby dismissed, see

Securities & Exchange Comm'n v. Laird, 598 F.2d 1162

(9th Cir, 1979); and

1A

3. Appellee's motion for an extension of time

to file its answering brief in this appeal is denied as

moot.

2A

APPENDIX B

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

AMERICAN LAW ASSOCIATION,

Plaintiff,

JOHN C. MERKEL, et al.,

)

)

)

)

v. )

)

Defendants. ;

SOCIETY, et al.,

Plaintiffs,

)

)

)

)

v. )

INTERNAL REVENUE SERVICE, )

et al.,

Defendants. )

POENA DUCES TECUM AD- )

DRESSED TO RAINIER NATIONAL )

BANK AND SEATTLE TRUST AND )

SAVINGS BANK SEEKING PRO-_)

DUCTION OF BANKING RECORDS )

OF THE AMERICAN LAW EDUCA- )

TIONAL SOCIETY MASTER-PLAN )

TRUST, N. W. DIAMOND FINAN- +)

CIAL SERVICES AND R. BRUCE _ )

RIPLEY )

C80-329M

C80-445M

MS80-101

REPORT AND RE-

COMMENDATION

INTRODUCTION AND SUMMARY OF CONCLUSION

The Federal Grand Jury in this district issued sub-

poenas duces tecum ordering several banks to produce

financial records of certain customer accounts. All of

1B

the subpoenas were served by special agents of the

Internal Revenue Service and provide that the banks will

be considered to have complied with the subpoenas by

their delivering the requested documents to the special

agent serving the subpoena, or by mailing them to the

"United States Attorney, Attn: David H. Beitz.“

Plaintiffs, American Law Association ("ALA"),

American Law Education Society ("ALES"), and R. Bruce

Ripley and Doris Ripley moved to quash the subpoenas

and/or for injunctive relief, to prevent the financial

records requested from being turned over either to the

grand jury or to the government officials identified in

the subpoenas. Their primary claim is that production of

the financial records will disclose the identity of the

membership of the associations in violation of their First

Amendment rights of association. They also argue,

however, that even if the documents may be required by

the grand jury, the particular subpoenas involved here

violate the Right to Financial Privacy Act, 12 USC

83420, because they permit the banks to deliver the

documents in a manner other than directly to the grand

jury.

In C80-329M, ALA moved to quash subpoenas issued

to the First Bank of Snook, Snook, Texas, to Seattle

Trust and Savings Bank, Redmond, Washington, and to

Rainier National Bank, Midlakes Office, Bellevue, Wash-

ington.

In C80-445M, subpoenas issued to Seattle Trust and

to Rainier National Banks are also involved, but in that

case ALES and Bruce Ripley and Doris Ripley seek a

temporary restraining order against the Internal Revenue

Service ("IRS") and Special Agents Jensen and Brown to

restrain them "from proceeding with" the subpoenas.

These same plaintiffs also filed MS80-101 alternatively

seeking to quash the subpoenas.

All of the subpoenas were originally returnable on

May 6, 1980, but the parties stipulated to continue the

return dates to May 20, 1980, in order to permit the

cases to be adequately briefed and argued. Because the

three cases involve identical issues, a consolidated hear-

ing was held on May 6, 1980, at which the court

considered the memoranda and affidavits submitted and

heard oral argument.

For the reasons set forth hereinafter, I recommend

that the motions be denied in all respects.

3B

DISCUSSION AND ANALYSIS OF AUTHORITIES

On January 28, 1980, a grand jury investigation of

Karl L. Dahlstrom, R. Bruce Ripley, Hiram E. Conley,

Gaze Durst, and David J. Morris, was commenced in this

district. Counsel for the government in these cases,

David H. Beitz, is the attorney conducting the grand jury

proceedings. He advises that the agents who served the

subpoenas were acting as agents of the grand jury.

The investigation seeks to explore possible viola-

tions of 26 USC §7201 (attempt to evade taxes), 26 USC

§7206(1) (subscribing returns known to be false), 26 USC

§7206(2) (aiding and assisting others in preparing false

tax returns), and 18 USC §371 (conspiracy to unlawfully

impede and impair the lawful functions of the Internal

Revenue Service ("IRS").

IRS suspects that those who are the focus of the

investigation are engaged in a promotional scheme involv-

ing ALA and ALES in which individuals pay for tax

advice involving the establishment of overlapping and

interlocking foreign trusts through which American tax-

payers attempt to transfer income in a manner which

appears to return it in tax free transactions but which

the government suspects are "sham tax dodges."

4B

The subpoena to First Bank of Snook, Snook, Texas,

seeks all financial records for accounts in the name of

"Trust Publications,“ "Karl L. Dahlstrom, Trust Publi-

cations," and any other accounts involving Dahlstrom or

his dba's, during certain specific time periods.

The subpoena to Seattle Trust seeks all financial

records for the account of ALES from September 14,

1977 to December 31, 1979.

The subpoena to Rainier National Bank seeks finan-

cial records for a "Masterplan Trust" account, an ALES

account, a N. W. Diamond Financial Service" account

and any other accounts in which R. Bruce Ripley was a

signatory authority all for certain specific time periods.

Messrs. Dahlstrom, Conley, and Ripley have sub-

mitted affidavits which essentially state that the ALA

and ALES are unincarporated membership associations

interested in tax change, that they and other members of

these associations have been harassed by IRS, and that

disclosure of the records of the various accounts would,

in essence identify most of the members of these asso-

ciations - that such identification would, because of past

harassment, have a "chilling effect" on the membership.

(1) First Amendment Claims.

The First Amendment right of free association

reaches within the closed doors of the grand jury, and

when such right is validly asserted, the burden shifts to

the government to demonstrate a "compelling interest"

sufficient to outweigh the possibility of infringement.

Bursey v. United States, 466 F.2d 1059 (9th Cir. 1972).

Assuming the ALA and ALES have sufficiently estab-

lished that compliance with the subpoenas would burden

the right of association because disclosure of the records

sought would reveal most of their membership, and that

they have further established adverse consequences to

members because of a potential for harassment, see

Buckley v. Valeo, 424 U.S. 1 (1976), I believe that the

government has met its burden of establishing that it has

an immediate and compelling interest in the subject of

the investigation and that there is a substantial connec-

tion between the financial records sought and the crimes

under investigation.

The grand jury investigation into violations of the

tax laws of the United States is focused on several

named individuals and in order to determine whether

illegal tax evasion schemes are being promoted and

carried out by them, a complete and full picture of their

financial dealings will be required. Under the circum-

stances, the incidental effect on membership must give

way.

Plaintiffs argue that the government has not met its

burden and rely primarily on Bursey v. United States,

supra.

However the facts in Bursey are clearly distin-

guishable. In Bursey, the grand jury was investigating

threats against the President of the United States al-

leged to have been made by members of the Black

Panther Party. The court held that the government had

failed to show any connection between the questions put

to members of the staff of the party newspaper and any

possible crime under investigation and therefore struck

the balance in favor of First Amendment rights. Here,

specific individuals who at various times have had signa-

tory control over ALA and ALES accounts are being

investigated for possible tax law violations arising out of

financial transactions allegedly involving ALA and ALES.

The government need not establish that crimes have

been committed to justify the investigation, all it need

establish is a substantial possibility that the records

sought may establish such crimes Bursey v. United

7B

States, supra.

In sum, there is no showing that the grand jury is

seeking to expose for the sake of exposure, as in NAACP

v. Alabama, 357 U.S. 449 (1957). Instead, the record

reflects an investigation of specific individuals suspected

of criminal tax violations and the financial records re-

quested are clearly necessary to that investigation.

(2) Right to Financial Privacy Act.

Section 3414(1) of the Right to Financial Privacy

Act, 12 USC §3401 et seq., provides as follows:

"Nothing in this chapter (except sec-

tions 3415 and 3420 of this title) shall apply

to any subpoena or court order issued in

connection with proceedings before a grand

jury."

Section 3420 provides:

"Financial records about a customer ob-

tained from a financial institution pursuant

to a subpoena issued under the authority of

a Federal grand jury -

"1) shall be returned and actually pre-

sented to the grand jury;

"(2) shall be used only for the purpose

of considering whether to issue an indict-

ment or presentment by the grand jury, or

of prosecuting a crime for which that in-

dictment or presentment is issued, or for a

purpose authorized by rule 6(e) of the Fed-

eral Rules.of Criminal Procedure;

"3) shall be destroyed or returned to

the financial institution if not used for one

gf the purposes specified in paragraph (2);

"(4) shall not be maintained, or a des-

cription of the contents of such records

shall not be maintained by any Government

authority other than in the sealed records of

the grand jury, unless such record has been

used in the prosecution of a crime for which

the grand jury issued an indictment or pre-

sentment or for a purpose authorized by rule

6(e) of the Federal Rules of Criminal Pro-

cedure."

Plaintiffs contend that the subpoenas in the instant

case which allows the banks to comply either by deliver-

ing the records to the IRS agent serving the subpoena or

by mailing the records to the government attorney handl-

ing the grand jury proceeding, violate §3420(1).

Plaintiffs argue that §3420(1) requires bank officers

to appear in person before the grand jury and present the

records. I do not believe the language requires such

conclusion, and the practical problems posed for grand

jury proceedings would suggest such interpretation is too

literal. Although the documents must actually be re-

turned and presented to the grand jury and be maintained

in accordance with §3420 and F. R. Cr. Proc. 6(e), the

language does not necessarily require return and pre-

sentation by the bank. The subpoenas issued under the

authority of the grand jury authorize the agents serving

the subpoenas or the government attorney to receive the

documents for the grand jury. Such agents are subject to

all of the handling requirements provided in §3420 and in

rule 6(e). Delivery of documents to agents of the grand

jury is acceptable grand jury procedure, United States v.

Duncan, 598 F.2d 839 (4th Cir. 1979), and 83420 does not

compel a contrary result.

CONCLUSION

The motions to quash and for injunctive relief should

be denied and the subpoenas enforced without modifi-

cation. The government has agreed to continue the

grand jury proceeding to June 3, 1980. Any objections

to, or memoranda in support of the Report and Recom-

mendation should be filed and served by May 30, 1980. If

the court deems further oral argument is necessary, it

will so advise the parties.

A proposed form of order accompanies this Report

and Recommendation.

DATED this 19th day of May, 1980.

United States Magistrate

10B

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

AMERICAN LAW ASSOCIATION,

Plaintiff, ;

v. )

) C80-329M

JOHN C. MERKEL, et al.,

Defendants.

AMERICAN LAW EDUCATIONAL )

SOCIETY, et al.,

Plaintiffs, )

) C80-445M

v. )

)

)

)

)

)

)

)

INTERNAL REVENUE SERVICE,

et al.,

Defendants.

IN RE THE GRAND JURYSUB-

MS80-101

ORDER

POENA DUCES TECUM AD- )

DRESSED TO RAINIER NATIONAL )

BANK AND SEATTLE TRUST AND )

SAVINGS BANK SEEKING PRO-_ ) DENY-

DUCTION OF BANKING RECORDS ) ING MOTIONS TO

OF THE AMERICAN LAW EDUCA- ) QUASH AND FOR

TIONAL SOCIETY MASTER-PLAN ) TEMPORARY

TRUST, N. W. DIAMOND FINAN- ) RESTRAINING

CIAL SERVICES AND R.BRUCE ) ORDER

RIPLEY )

The court has reviewed the motions to quash grand

jury subpoenas and/or for injunction, the supporting and

opposing affidavits, the memoranda of the parties, the

11B

Report and Recommendation of United States Magis-

trate Philip K. Sweigert, and the balance of the file

herein,

It is hereby ORDERED:

(1) Said Report and Recommendation is hereby

approved and adopted

(2) Plaintiff American Law Association's Motion

to Quash Grand Jury Subpoenas in No. C80-329M is

DENIED;

(3) Plaintiffs American Law Education Society

and R. Bruce Ripley and Doris Ripley's Motion for

Temporary Restraining Order in No. C80-445M and Mo-

tion to Quash Grand Jury Subpoenas in No. MS 80-101

are DENIED;

(4) The Clerk of Court is directed to forward

uncertified copies of this Order to counsel for the

par ties and to United States Magistrate Philip K. Swei-

gert.

DATED this 28th day of May, 1980.

/s/ Walter T. McGovern

CHIEF UNITED STATES DI-

TRICT COURT

12B