Petition — Kleinman v. United States

— ee —— iz ——_———

NO. 83: age

in the

Supreme Court

of the

United States

October Term, 1983

HARVEY S. KLEINMAN AND

BONNIE M. KLEINMAN,

Petitioners,

VS.

UNITED STATES OF AMERICA

AND INTERNAL REVENUE SERVICE

SPECIAL AGENT EUGENE BROZEN,

Respondents.

On Petition for Writ of Certiorari

To the United States Court of Appeals,

For the Eleventh Circuit

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES SUPREME COURT

ROBERT 4. SHUPACK, PA.

ROBERT A. SHUPACK

Attorney for Petitioners

2434 Hollywood Blvd.

Hollywood, Florida 33020

(305) 922-2889

QUESTIONS PRESENTED

I,

IN AN INTERNAL REVENUE SERVICE

SUMMONS ENFORCEMENT PROCEEDING

BROUGHT PURSUANT TO SECTIONS 7602

AND 7609 OF THE INTERNAL REVENUE

CODE OF 1954, AS AMENDED, HERE-

INAFTER THE CODE, IS THE TAXPAYER

(INTERVENOR) ENTITLED TO AN

ADVERSARY (EVIDENTIARY) HEARING

WHEN THE TAXPAYER FILES RESPONSES

ALLEGING WITH PARTICULARITY,

SUPPORTED BY AFFIDAVITS, THAT SUCH

SUMMONS WAS ISSUED IN “BAD FAITH”

FOR A PURPOSE NOT AUTHORIZED BY

SECTIONS 7602 AND 7609 OF THE CODE.

{I.

IS SUCH A TAXPAYER WHO IS DENIED

AN ADVERSARY (EVIDENTIARY)

HEARING DENIED DUE PROCESS OF LAW

AS REQUIRED BY THE FIFTH AMEND-

MENT TO THE UNITED STATES

CONSTITUTION.

III.

IS SUCH A TAXPAYER’S APPEAL TO A

UNITED STATES COURT OF APPEALS

RENDERED MOOT WHEN THE INTERNAL

REVENUE SERVICE OBTAINS THE

SUMMONED RECORDS.

TABLE OF CONTENTS

I ass on cc secs e su oie d mo i

a8 oka pe a bleldecervoes iii-v

Opinions Below and Court's Jurisdiction ......... 1

Constitutional and Statutory ProvisionsInvolved. 1

Se 2

Reasons for Granting the Writ................. 6

ee ea hk veo nies ccae nevis 7

er cs cece cs cecscvceeecss 20

I A-E

TABLE OF AUTHORITIES

Case Pages

Armstrong v. Monzo,

Ft RED oi vy 8 8g 00s bare eens 13

Donaldson v. United States,

a ee te oo os oe oe he eae 14

Genser v. United States,

pA oT ) ee ee rrr 7

Goldberg v. Kelley,

og eR Tears ae eee 13

Grannis v. Ordean,

SG EA EEE ssc eos onc ech oe eke 13

Greene v. McElroy,

Pe UE vec case esas cease ches e ee 14

Gumbel v. Pitkin,

ay a os cco clve aces einwabun 19

Marbury v. Madison,

5 U.S. (1 Cranch) 137, 163 (1803) ............. 12

North Carolina v. Rice,

Se aa NEED, oo dacs y bw awe ste eke tees 19

Ownbey v. Morgan,

Se IIE 556s cee oad wd cee aes 19

Reisman v. Caplin,

375 U.S. 440 (1964) ....... 6, 7, 8, 9, 10, 11, 12, 13,

14, 15, 16, 19, 20

iii

TABLE OF AUTHORITIES (Continued)

Case Pages

Roadway Express, Inc. v. Piper,

po ef ee rer eae 19

Sibron v. New York,

er RE oc ck bie eas Bika cae 19

Southern Pacific Terminal Co. v.

Interstate Commerce Commission,

Oe MD hoc Soe yo v6 vivo biel echo 17

United States v. Harris,

628 F.2d 875 (Sth Cir. 1975) ................ 7,10

United States v. LaSalle,

437 U.S. 313 (1978) ........ 6, 7, 10, 12, 18,

14, 15, 16, 19, 20

United States v. Morgan Guaranty Trust Co.,

G7 Fe OO UNE Ut ABTS) . ccc ee 7,10

United States v. Powell,

$79 U.S. 48 (1964) ............. 6, 7, 8, 10, 12, 13,

14, 15, 16, 19, 20

United States v. Rylander,

US. 103 S.Ct. 1548 (1983) .......... 8

United States v. Salter,

432 F.2d G07 (ist Cir. 1976) ............-.5.. 7

TABLE OF AUTHORITIES (Continued)

Case Pages

United States v. Samuels, Kramer & Co.,

Tin oe tees wee Car. 1968)... .. «2. 7, a

United States u Southeast First National Bank

of Miami Springs,

655 F.2d 661 (5th Cir. 1981)............ 7,10, 14

Wilner v. Committee on Character & Fitness,

Re 13,14

Weinstein v. Bradford,

a er 17, 18

CONSTITUTION AND STATUTES

Amendment V, United States Constitution... 1,6, 13

Title 26 United States Code §6103 ............... il

Title 26 United States Code §7213 ............... 11

Title 26 United States Code §7602....... 1, 3, 5, 9, 12

Title 26 United States Code §7603 ............... 5

Title 26 United States Code §7609....... 1, 2, 3, 4, 6,

9,12, 14

Title 28 United States Code §1254(1)............. 1

OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Eleventh Circuit (App. A, infra, P A-1) is

unreported. The Court dismissed the appeal determining

that the Appeal was moot on August 17, 1983 (App. A,

infra, P A-1). The decision of the United States District

Court enforcing the summonses was entered on April

23, 1983 (App. B infra, P B-1-3). The Orders of the

United States District Court for the Southern District

of Florida and the United States Court of Appeals for

the Eleventh Circuit denying Petitioners’ Motion To

Stay were entered on April 23 and April 25, 1983,

respectively. (App. D-1-3; App. E-1)

The opinion of the United States Court of Appeals

was entered on August 17, 1983. The jurisdiction of

this Court is invoked under 28 U.S.C. Section 1254(1)

and Amendment V of the United States Constitution.

CONSTITUTIONAL AND

STATUTORY PROVISIONS INVOLVED

The Fifth Amendment to the Constitution of the

United States and Sections 7602 and 7609 of the Internal

Revenue Code of 1954, as amended, 26 U.S.C. Sections

7602 and 7609 as set forth in the Appendix. (App. C,

infra, C-1 to C-9).

STATEMENT OF THE CASE

Harvey S. Kleinman and Bonnie M. Kleinman, his

wife, hereinafter the Petitioners, were noticed that

four Internal Revenue Service summonses were served

upon two banks in Broward County Florida (R. I-4;

III-4; IV-5; V-4).! Each of the summonses were served

upon the banks as third party record keepers, pursuant

to Section 7609 of the Code. Petitioners, through counsel,

pursuant to Section 7609(b\X2) of the Code, timely notified

each of the respective banks not to comply with the

summonses (R, I-73, 74; III-85, 86; IV-86, V-144, 145).

The United States of America and Special Agent,

Eugene Brozen, of the Internal Revenue Service,

hereinafter IRS, filed four Petitions to Enforce the

Summonses in the United States District Court for the

Southern District of Florida (R, I-1; III-1; IV-1; V-4).

The Court issued four Orders to Show Cause and further

issued an Order sua sponte consolidating the four cases

(R, I-7; III-10; IV-9; V-67). The Court in said Orders to

Show Cause ordered that Petitioners, if they opposed

the enforcement action, intervene and set forth reasons

supported by affidavits as to why enforcement should

not be granted (R, I-8; IJI-11, IV-10; V-68).

‘At the time this Petition was prepared counsel had possession

of the record prepared for the Appeai to the United States Court

of Appeals for the Eleventh Circuit to prepare Appellant's Brief.

Therefore, all references to the Record “R” are accurate references

though the record has not yet been certified to this Court. However,

since the Record is in five volumes which do not have consecutively

numbered pages, record references wil] be first to the Record

“R", next to the volume I, II, III, IV or V and last to the page, e.g.,

R, I-1.

Petitioners filed a Response, Supplemental Response

and Motion for Evidentiary Hearing and to Orally

Examine Special Agent, Brozen, supported by affidavits,

and a Motion to Strike the Petition and/or Quash the

Summons (R, I-12, 17, 19, 22, 26, 82; III-15, 17, 20, 24, 70,

79, 94; IV-14, 16, 19, 23, 80, 95; V-9, 72, 74, 77, 81, 138,

153). Petitioners contended in their Response,

Supplemental Response and Motion for Evidentiary

Hearing, supported by affidavits that the summonses

were issued in “bad faith” and for a purpose not authorized

by Sections 7602 and 7609 of the Code (R, I-17-18, 30-31,

42-44; III-28-30, 40-42, 70-76; IV-14, 15, 27-29, 39-41,69-

72; V-72-73, 85-87, 97-99, 127-130). Specifically, Petitioners

alleged that the purpose for the issuance of the summonses

was to obtain Petitioners’ records and deliver same to

a private third party to assist said third party in private

litigation with Petitioners (R, I-42-44; III-40-42, 70-76;

IV-39-41, 69-72; V-97-99, 127-130). Petitioners’ Response,

Supplemental Response and Motion for Evidentiary

Hearing and exhibits attached thereto, detailed that

Petitioner, Harvey S. Kleinman was the former sales

manager for American Permac, Inc., a New York

corporation, hereinafter ‘‘Permac’”’, had left his

employment and established a competitive business

enterprise (R, I-30-31; III, 40-42; IV-27-29; V-85-87). Permac

sued the Petitioners in a Florida state court alleging

events which occurred both before and after Petitioner

left Permac caused Permac damage (R, I-30-31; III-40-

42; IV-27-29; V-85-87). To obtain discovery not otherwise

available and with the avowed purpose of destroying

Petitioners’ business, Permac contacted the IRS (R,

1-30-31; III-40-42; IV-27-29; V-85-87).

The former comptroller of Permac was present

during meetings of the IRS and Permac at all pertinent

times. He executed an affidavit stating that he was

present at a meeting between agents of the IRS, including

Special Agent, Eugene Brozen, whereby Permac told

the IRS that Permac wanted the information obtained

from the income tax investigation of Petitioner, Harvey

S. Kleinman, delivered to it and Brozen acquiesced. (R,

III-70-73; IV-69-72; V-127-130).’

Appellees filed a Response to the Motion for

Evidentiary Hearing. Said Response, citing applicable

case law, acknowledged that Petitioners were entitled

to an evidentiary hearing (R, I-80; II? 92; IV-93; V-151).

The Lower Court denied any form of evidentiary

hearing. (II-R-1-24)

Petitioners further alleged Section 7609 Code defects

in the summonses and requested an evidentiary

(adversary) hearing on such defects. These allegations

may be briefly summarized as follows:

1. Though the Petitioners had received the notices

of the summonses, the notices contained the incorrect

address of Petitioners (R, I-35; III-33; IV-32; V-90);

2. Though records of the Petitioner, Bonnie M.

Kleinman, were sought to be produced by the summonses,

neither the summonses nor the Petitions for enforcement

stated that her tax liability was under investigation or

that her records were relevant or material (R, I-16-17;

ITI-39-40; IV-38-39; V-96-97);

"Bonnie Kleinman is not under investigation but her individual

records were summoned from the Third Party Recordkeepers.

3. Each of the summonses sought certain specific

records and then contained language requesting “.. .

including but not limited to...” and Petitioners

contended that the subject summonses lacked the

requirement that records be described with

“. . . reasonable certainty ...” required by Section

7602 and 7603 of the Code (R, I-16-17); III-39-40; IV-38-39;

V-96-97).

On April 22, 1983, the Court held a non-evidentiary

hearing on the Orders to Show Cause (R, II-1-24). Special

Agent Brozen was present at this hearing as was Arthur

Giles. (R, II-17). No testimony or evidence was allowed

to be taken and all of the objections to the summonses

were denied (R, II-23). The Court refused t» grant

Petitioners an evidentiary hearing on the que.ttion of

“bad faith” as well as the other issues raised by the

Petitioners (R, II-23). The Court also denied Petitioners’

motion to Stay pending appeal (R, I-87, 88; III-90, 100;

IV-100, 101; V-158, 159).

Petitioners immediately filed a Motion to Stay

with the United States Court of Appeals for the Eleventh

Circuit. The Court of Appeals denied the Motion to

Stay and Petitioners filed a Notice of Appeal (R, 1-89;

III-101; IV-102; V-160).

After the filing of a Notice of Appeal and prior to

the time Petitioners’ brief was due to be filed, the

government and Special Agent Brozen filed a Motion

to Dismiss with the Court of Appeals contending that

since the records sought by the summons had been

produced, the Appeal was moot.’ Petitioners filed a

timely Memorandum in Opposition to the Motion to

Dismiss. The Court of Appeals without opinion entered

an Order Dismissing the Appeal as Moot on August 17,

1983 (App. A, infra, P A-1).

REASONS FOR GRANTING THE WRIT

This Court has consistently held that a taxpayer

in an IRS summons enforcement proceeding who alleges

that a summons was issued for a purpose not authorized

by Section 7602 of the Code or whose enforcement

would be an abuse of the Court’s process has a right to

an adversary hearing and has granted writs of certiorari

to establish that Right and reaffirm it. Reisman u. Caplin,

375 U.S. 440 (1964); United States v. Powell, 379 U.S. 48

(1969); United States v. LaSalle, 437 U.S. 313 (1978).

The reasons for granting the writ are even rnore

compelling where the taxpayers alleged with particularity

the “Bad Faith” and supported such allegations by

affidavits and still were denied an adversary hearing.

Further, this is a case of first impression inasmuch as

the facts fall within the setting of Section 7609 of the

Code wherein Congress allowed taxpayers to intervene

in a third party record keeper enforcement proceeding.

Amendment V to the United States Constitution

provides, inter alia, that ‘No person shall

be ... deprived of life, liberty or property, without

due process of law...” The right to an adversary

*The Record did not contain the Motion or Petitioners’

Memorandum in Opposition thereto because same were filed after

the Record was prepared for Appellants.

hearing in a summons enforcement proceeding is grounded

upon this basic constitutional right which Petitioners

were denied.

Conflict also exists among the United States Courts

of Appeai with respect to the right to such adversary

hearing. Compare, United States v. Southeast First

National Bank of Miami Springs, 655 F.2d 661 (5th Cir.

1981); United States v. Harris, 628 F.2d 875 (5th Cir.

1975); United States v. Salter, 432 F.2d 697 (1st Cir.

1976); United States v. Samuels, Kramer & Co., 52

AFTR 2d 83-5670 (9th Cir. 1983); Genser v. United

States, 602 F.2d 69 (3d Cir. i979) and United States v.

Morgan Guaranty Trust Co., 572 F.2d 36 (2d Cir. 1978)

where the Courts recognized the right to an adversary

(evidentiary) hearing contrary to the case at bar and

the District Court for the Southern District of Florida

denied an adversary hearing and the Eleventh Circuit

dismissed the appeal as moot.

ARGUMENT

A. Departure From Accepted And Usual Course

Of Judicial Proceedings.

It is well established that a taxpayer in an IRS

summons enforcement proceeding has a right to an

adversary hearing where that taxpayer alleges that

the summons was issued and served for purposes other

than those authorized by Section 7602 of the Code.

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

Powell, 379 U.S. 48 (1964); United States v. LaSalle, 437

US. 313 (1978). The right of a taxpayer to“. . . challenge

the summons on any appropriate ground . . .” established

by Reisman v. Caplin, was further explained in United

States v. Powell, where the Court stated the following:

“This does not make meaningless the adversary

hearing to which the taxpayer is entitled before

enforcement is ordered. At the hearing he

‘may challenge the summons on any appropriate

ground,’ Reisman v. Caplin, 375 U.S. 440, at

449. Nor does our reading of the statutes mean

that under no circumstances may the Court

inquire into the underlying reasons for the

examination. 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 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 investigation. The

burden of showing an abuse of the court's

process is on the taxpayer, and it is not met by

a mere showing, as was made in this case, that

the statute of limitations for ordinary deficiencies

has run or that the records in question have

already been once examined.

Recently this Court in United States uv. Rylander, 103

S.Ct. 1548, (1983), reaffirmed the right of a taxpayer to

contest the enforcement of an IRS summons on any

appropriate grounds in an adversary proceeding.

In the case at bar, Petitioners (Intervening

Taxpayers) met their burden of showing that enforcement

of the subject summonses would be an abuse of tie

court’s process and that the summonses were issued

for a purpose not authorized by Section 7602 of the

Code: Petitioners, in accordance with Reisman v. Caplin,

and its progeny and pursuant to Section 7609 of the

Code, timely intervened in the enforcement action filing

a Response, Supplemental Response and Motion for

Evidentiary Hearing. Said pleadings alleged, supported

by affidavits, that the purpose for the issuance of the

summonses was to obtain Petitioners’ records from

third party record keepers and disclose those records

to a private third party. Specifically, Petitioners alleged

that an agent or agents of the IRS had agreed to obtain

records of the Petitioners through use of the summonses

and turn those records over to American Permac, Inc.

(Permac), an existing litigant with Petitioners. The

affidavit of Permac’s former comptroller was submitted

to the Court in support of the Motion for Evidentiary

Hearing, and he, under oath, swore that he was present

when Special Agent, Eugene Brozen,met with

representatives of Permac and discussed the disclosure

of records obtained by the IRS to Permac.‘

The Trial Court refused to grant the adversary

(evidentiary) hearing despite the substantial showing

by the Petitioners of the abuse of the court’s process

and the prohibited purpose for the issuance of the

‘Petitioners also in the pleadings fully developed the background

surrounding this agreement with the IRS. Specifically, Petitioners

detailed the fact that Permac employed Harvey Kleinman for 20

years and that he left their employment and established a competitive

business enterprise; that Permac sued Petitioners in State Court

in Florida for alleged acts occurring when he was their sales

manager and after leaving their employment; that a vendetta was

being waged by Permac against Petitioners in an effort to destroy

both them and their fledgling competitive business enterprise.

summons. Even the government had acquiesced and

agreed in its Response to the Motion for Evidentiary

Hearing that Petitioners had a right to such evidentiary

hearing.°

Though the Courts of Appeal have disagreed on

whether a taxpayer may merely plead “bad faith” or

must support such allegations with affidavits,* all Courts

of Appeal, until the case at bar, have agreed that some

form of adversary (evidentiary) hearing is required.’

Petitioners were denied an adversary (evidentiary) hearing

and never had the opportunity to prove the bad faith

as alleged.

The present case is also highly distinguishable

from the cases where the taxpayer has alleged that the

“bad faith” purpose for the issuance and service of the

summons was to gather evidence to criminally prosecute

the taxpayer. See, e.g., United States v. LaSalle, supra.

‘The government relying upon the decision of United States

v. Harris, 628 F.2d 875 (5th Cir. 1975) agreed that an evidentiary

hearing was required. United States vu. Harris, supra, analyzed in

depth Reisman v. Caplin and United States v. Powell, concluding

that the right to an adversary (evidentiary) hearing to a taxpayer

who alleges an abuse of the court's process or a purpose not

authorized by Section 7602 of the Code, must be granted.

‘Compare, United States v. Southeast First National Bank of

Miami Springs, supra, 655 F.2d 661 (5th Cir. 1981), where the

Court determined an allegation of “bad faith” was sufficient with

United States v. Morgan Guaranty Trust Co., 572 F.2d 36 (2d Cir.

1978) where the Court required affidavits setting forth facts

supporting the allegations of bad faith.

"See cases cited at page 7, supra.

10

Petitioners do not allege such purpose but that the

purpose was to disclose taxpayers’ records to a third

party and therefore, was not authorized by Sections

7602 and 7609 of the Code. Under similar circumstances

where taxpayers alleged, supported by affidavits, that

the purpose for the issuance and service of the summonses

was to close down the taxpayer's business, who were

tax shelter promoters, the Court of Appeals relying

upon Reisman v. Caplin, and its progeny, held that the

adversary (evidentiary) hearing requested by taxpayers

should be granted. United States 1. Samuels, Kramer

& Co., 712 F.2d 1342, (9th Cir. 1983). The taxpayers in

the present case have similarly alleged that the records

to be disclosed to the third par.y, Permac, are to be

used by Permac in its state court litigation and to

destroy Petitioners, and their fledgling competitive

business enterprise. Congress has very clearly spoken

on the question of disclosing taxpayer records to

unauthorized persons and clearly prohibited such

disclosure.”

It would indeed be an anomaly in the law that the

Petitioners should have a right to an adversary

(evidentiary) hearing to prove the “bad faith” as alleged

and yet be denied that right because the summoned

records were turned over to the IRS and the Court of

Appeals dismiss the case as moot. The right to such a

hearing will indeed be meaningless because Petitioners

would be left without any remedy to prevent the alleged

abuse of the Court’s process or to prove the alleged

‘Section 7213 of the Code, Unauthorized disclosure of information,

26 U.S.C. §7213, and Section 6103 of the Code, Confidentiality and

disclosure of returns and return information, 26 U.S.C. §6103,

both prohibit disclosures of taxpayer records to any unauthorized

person.

11

abuse of the Court’s process or to prove the alleged

violation of Sections 7602 and 7609 of the Code. See

Marbury v. Madison, 5 U.S. (1 Cranch) 137, 163 (1803).

B. Conflict Existing Among The Courts Of

Appeal.

As pointed out above, all Courts of Appeal, save

the Eleventh Circuit, have consistently held that Reisman

v. Caplin and its progeny mandate that an adversary

hearing must be given to a taxpayer who properly

alleges in an IRS summons enforcement proceeding

“bad faith”, that the summons was issued for a purpose

not authorized by Section 7602 or whose enforcement

would be an abuse of the court’s process. (See, cases

cited at page 7, supra). Though the Courts of Appeal

have not uniformly agreed upon the extent and scope

of the Reisman-Powell-LaSalle mandated adversary

hearing, all have concurred that some form of adversary

hearing is required.

The conflict between the decisions of the First,

Second, Third, Fifth and Ninth Circuits with the decision

of the Court in the case at bar is patent. Petitioners

sought an adversary (evidentiary) hearing before the

United States District Court for the Southern District

of Florida properly pleading “bad faith” supported by

affidavits. Such adversary hearing was denied and

Petitioners never had an opportunity to present any

evidence, examine the investigating agent or any other

institutional representative of the IRS. Despite timely

Motions to Stay filed with the trial court and the Eleventh

Circuit, a stay pending appeal was denied. The eleventh

Circuit dismissed the appeal as “moot” upon a Motion

to Dismiss for mootness filed by the government, opposed

12

by Petitioners, after the IRS obtained the summoned

records.

Because of the clear conflict existing between the

Courts of Appeal granting to taxpayers a Reisman-

Powell-LaSalle adversary hearing and the case at bar

where such adversary hearing was denied, certiorari

should be granted. To do otherwise would render the

right to such adversary hearing illusory and forever

preclude Petitioners from having an opportunity to

prove the “bad faith” purpose for the service of the

summonses.

C. The Denial Of The Right To An Adversary

Hearing To Petitioners Is A Denial Of Due

Process Of Law As Required By The Fifth

Amendment To The United States

Constitution

The right of a taxpayer to an adversary hearing in

an IRS summons enforcement proceeding recognized

by Reisman v. Caplin and consistently adhered to by

this Court is a recognition of the basic right of an

opportunity to be heard. The right to be heard is a

fundamental] requirement of due process of law. Grannis

v. Ordean, 234 U.S. 385, 394 (1914); Goldberg vu. Kelley,

397 U.S. 254, 268 (1970). Any such hearing in order to

comport with due process must be “at a meaningful

time and in a meaningful manner”. Armstrong v. Monzo,

380 U.S. 545, 552 (1965). This right, in the context of an

adversary hearing where questions of fact are to be

determined by the trier of fact, must also include an

opportunity to confront and cross-examine witnesses.

Wilner v. Committee on Character & Fitness, 373 U.S.

13

96, 103-104 (1963); Greene vu. McElroy, 360 U.S. 474, 496

(1959).

Congress, in furtherance of the Reisman-Powell-

LaSalle trilogy reserved to Taxpayers an adversary

hearing, by enacting Section 7609 of the Code which

grants to taxpayers the right to intervene in summons

enforcement proceedings and step into the shoes of a

third-party recordkeeper. Disturbed by the Court’s

decision in United States v. Donaldson, 400 U.S. 517

(1971) wherein the Court held that the right to intervene

required that the taxpayer have a proprietary interest

in the books and records summoned, Congress eliminated

such requirement granting automatic intervention.’

Congress therefore engrafted automatic standing upon

an already existing right to an adversary hearing

mandated by this Court in Reisman, Powell and LaSalle.

In United States v. Southeast First National Bank

of Miami Springs, 655 F.2d 661, 665 (5th Cir. 1981) the

Court discussed at length the right to the Reisman-

Powell-LuSalle mandated adversary hearing. Te Court

refused to accede to the government's challenge to

that right where a taxpayer had only generally alleged

“bad faith”. The Court recognized that it would be

impossible for a taxpayer to allege precise facts or

support such allegations with an affidavit because in

most cases a taxpayer could only obtain those facts

through an adversary hearing. The taxpayer would not

be saddled with a “Catch 22” requirement of having to

*See, 4 U.S. Code Cong. & Admin. News, 3302-3308, 3205,

wherein the Joint Committee specifically stated Section 7609 was

designed to permit taxpayers as intervenors to stand in the shoes

of third party record keepers and assert any defense available to

them.

14

plead facts where the only forum the taxpayer had to

obtain those facts was an adversary hearing before the

Court. Stated differently, the Court simply recognized

that fundamental fairness and due process of law required

that a taxpayer be granted an adversary hearing.

The words “adversary hearing” mandated by

Reisman, Powell and LaSalle at a minimum means at

least an opportunity to examine the agent who issued

the summonses and determine his motives.” It is obvious

to any lawyer who has ever tried a case that due

process requires more than trial by affidavits once any

dispute of material fact is in issue or such allegations

and affidavits infer a possibility that “bad faith” is an

issue. The Reisman-Powell-LaSalle mandated adversary

hearing requires at a minimum that a taxpayer be

given the opportunity to examine the investigating

agent of the IRS and present evidence and witnesses in

support of the taxpayer’s position.

LaSalle made clear that in order to enforce an IRS

summons, several requirements must be met. First,

the summons must be issued before the IRS recommends

criminal prosecution to the Department of Justice. Second,

“the Service at all times material must use

the summons authority in good faith pursuit

of the congressionally authorized purposes of

“United States v. LaSalle, 437 U.S. 313, 316-18 (1978). See,

notes 17, 18 and 19, wherein the Court acknowledged examination

of the investigating agent may be necessary and further opined

that Powell was not an exclusive pronouncement on the “bad

faith” purposes for which a Court would grant relief in an IRS

Summons Enforcement proceeding.

-

15

§7602. This second requirement requires the

Service to meet the Powell standards of good

faith”. 437 U.S. at 317.

Where taxpayers such as Petitioners place that

question of “good faith’ in issue with appropriate

responses supported by affidavits, an adversary hearing

and opportunity to be heard is a basic requirement of

due process of law.

The federal district court and the Eleventh Circuit

erred in refusing to grant Petitioners an evidentiary

hearing. It would be a pernicious precedent to permit

any court to deny to Petitioners an adversary hearing

to which they are entitled and permit a case such as

this to be dismissed as “moot”. Due process of law

requires that the Reisman-Powell-LaSalle mandated

adversary hearing be granted to the Petitioners.

D. This Case Is Not Rendered Moot Because

The IRS Obtained The Records Summoned

Where There Is A Reasonable Expectation

That The Wrong Will Be Repeated, The

Acts Alleged By Petitioners Are Capable

Of Repition Yet Will Evade Review And An

Abuse Of The Court’s Process Is Not Rendered

Moot Because The Summoned Records Are

Obtained.

Petitioners were entitled to a Reisman-Powell-LaSalle

mandated adversary hearing. Upon not being granted

such adversary hearing Petitioners sought a stay first

from the federal district court and then from the Eleventh

Circuit. Both Motions for Stay pending appeal were

denied.

16

There is currently pending in the United States

Court of Appeals for the Second Circuit a case concerning

the same parties arising out of an IRS summons

enforcement proceeding in the United States District

Court for the Eastern District of New York.” Petitioners

(Appellants) in that case have alleged the same facts as

were alleged in the case at bar; to wit, that the summonses

were issued for a “bad faith” purpose not authorized

by Sections 7602 and 7609 of the Code and the enforcement

of same would be an abuse of the Court’s process. The

district court in that case denied to Petitioners the

right to an adversary hearing, but the Court of Appeals

for the Second Circuit stayed enforcement pursuant to

a stipulation of the parties.”

This Court has held that where a case concerns

acts which are “capable of repetition, yet evading review”

the case will not be rendered moot because the act

sought to be reviewed has been consummated. Southern

Pacific Terminal Co. v. Interstate Commerce Commission,

219 U.S. 498, 515 (1911). In Weinstein v. Bradford, 423

US. 147, 149 (1975) the Court announced general principles

for application of the doctrine and stated:

“{I]n the absence of a class action, the ‘capable

of repetition, yet evading review’ doctrine was

limited to the situation where two elements

“Harvey and Bonnie Kleinman v. United States of America,

Case No. 83-6265.

"In that case, 83-6265, pending before the Second Circuit,

enforcement of some thirteen summonses served upon banks,

savings and loans and one stock brokerage firm are stayed.

17

combined: (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

reasonable expectation that the same

complaining party would be subjected to the

same action again.”

Because a stay was denied by both the federal district

court and the Eleventh Circuit and no adversary hearing

granted, the action challenged (enforcement of the

summonses) was never litigated. Moreover, because

there is now pending in the Second Circuit an appeal

which has for the present been stayed and in which the

Petitioners as the complaining party have alleged the

identical “bad faith” motive for the issuance of the IRS

summonses, there is a reasonable expectation that

Petitioner would be subjected to the same action again,

to wit, enforcement of the summonses without an

adversary hearing."

There are also “collateral consequences” in the

case at bar to the Petitioners so that they have a

personal stake in the outcome of the case. If Petitioners’

contentions are true, that a private third party will

obtain taxpayer's records, the injury to Petitioners

extends beyond the IRS obtaining such records. The

disclosure of such records to a private third party is a

“Oral argument under an expedited appeal procedure is now

scheduled before the Second Circuit on October 14, 1983.

18

real and immediate injury so that Petitioners have a

personal stake in the outcome of the case.”

Finally, Reisman, Powell and LaSalle made it

abundantly clear that the enforcement of an IRS summons

for a purpose not authorized by Section 7602 of the

Code or where said summons was served in “bad faith”

would be an abuse of the court’s process. Even though

the IRS has obtained records summoned, this would

not ameliorate nor render moot such an abuse of the

court's process. If, as alleged and supported by affidavits,

the IRS has entered into an unholy alliance with Permac

agreeing to disclose those records to Permac, the use

of a federal district court and United States Court of

Appeals for such purpose would clearly abuse the process

of both Courts. Federal courts have a broad and inherent

power “over their own process, to prevent abuses,

oppression and injustice”. Gumbel v. Pitkin, 124 US.

131, 144 (1888); Ownbey vu. Morgan, 256 U.S. 94, 110

(1921); See, also, Roadway Express, v. Piper, 100 S.Ct.

2455 (1980).

The case at bar is clearly not one in which the “no

harm, no foul” cliche may be applied. The harm both to

the court and the Petitioners is real, immediate and of

a continuing nature. An abuse of the court’s process as

alleged by Petitioners is not rendered moot merely

because the IRS obtained the summoned records.

“See, e.g., Sibron v. New York, 392 U.S. 40, 50-58 (1968) and

North Carolina v. Rice, 404 U.S. 244 (1971) where a criminal

conviction was not rendered moot because a prison term had been

served where the conviction affected the person's ability to vote,

hold public office or be a juror. Similarly, enforcement of the

summonses means to Petitioners that records in which they have

a proprietory interest will be disclosed to a private third party

without their consent or approval.

19

CONCLUSION

The right to an adversary hearing in an IRS summons

enforcement proceeding, where a taxpayer properly

alleges “bad faith” is mandated by this Court’s decisions

in Reisman, Powell and LaSalle. The right to such

hearing is simply the right to be heard, a fundamental

requirement of due process of law.

Therefore, the Petition for Writ of Certiorari to

the United States Court of Appeals, Eleventh Circuit

should be granted.

Respectfully submitted,

ROBERT A. SHUPACK

ROBERT A. SHUPACK, P.A.

Attorney for Petitioners

2434 Hollywood Boulevard

Hollywood, F lorida 33020

(305) 922-2889

20

Appendix

[FILED AUG 17 1983}

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 83-5357

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent, IRS,

Plaintiffs-A ppellees,

VveTsSus

BANK OF CORAL SPRINGS,

Defendant,

HARVEY S. KLEINMAN and

BONNIE M. KLEINMAN,

Intervenors-A ppellants.

Appeal from the United States District Court

for the Southern District of Florida

Before HILL, KRAVITCH and CLARK, Circuit

Judges.

BY THE COURT:

The Motion of appellee(s) to dismiss the appeal as

moot is granted.

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[FILED 1983 APR 25]

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF FLORIDA

CIVIL NO. 83-6020-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Petitioners,

Vv.

BANK OF CORAL SPRINGS,

Respondent.

CIVIL NO. 83-6021-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Vv.

BANK OF CORAL SPRINGS,

Respondent.

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CIVIL NO. 83-6022-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE

Vv.

BROWARD FEDERAL SAVINGS AND LOAN,

Respondent.

CIVIL NO. 83-6023-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent,

INTERNAL REVENUE SERVICE,

Vv.

BROWARD FEDERAL SAVINGS AND LOAN,

Respondent.

In the Matter of the

Tax Liability of

HARVEY S. KLEINMAN.

ENFORCEMENT ORDER AND JUDGMENT

This consolidated matter having come on for hearing

before the undersigned on April 22, 1983, pursuant to

the Court's Order to show cause, the parties having

appeared and been heard, the Court having reviewed

the submissions of the parties and being fully aware in

the premises and it appearing that each of the summonses

issued by the petitioner, Special Agent Eugene Brozen,

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to the respondent, Bank of Coral Springs, on January

8, 1982 and April 12, 1982, and to the respondent,

Broward Federal Savings and Loan, on January 8, 1982

and April 12, 1982, (1) was issued for a legitimate purpose,

that is, the investigation of the correct federal income

tax liabilities and returns of Harvey S. Kleinman for

the years 1977, 1978, 1979 and 1980, (2) that the summoned

testimony and date may be relevant to that determination,

(3) that the books, records, papers and other data sought

are not already in the possession of the Internal Revenue

Service, and (4) that the administrative steps required

by the Internal Revenue Code have been followed, it is

therefore

ORDERED, ADJUDGED AND DECREED that

the intervening taxpayer’s Motions to Dismiss or for

Judgment on the Pleadings, to Strike, for Evidentiary

Hearing and to Take Oral Examination at Trial of Special

Agent Brozen, and to Strike Petition to Enforce Summons

or, in the alternative, to Quash Summons are each

denied, and it is further

ORDERED, ADJUDGED and DECREED that the

respondent, Bank of Coral Springs, appear before Special

Agent Eugene Brozen, or any other proper official of

the Internal Revenue Service at a time, date and place

as shall be specified by Special Agent Brozen or other

proper official of the Internal Revenue Service, then

and there to be sworn, to give testimony, and to produce

for examination and copying the books, records, papers

and other data demanded by the summonses served

upon it on January 8, 1982 and April 12, 1982, the

examination to continue from day to day until completed,

and it is further

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ORDER, ADJUDGED and DECREED that the

respondent, Broward Federal Savings and Loan, appear

before Special Agent Eugen Broze, or any other proper

official of the Internal Revenue Service at a time, date

and place as shall be specified by Special Agent Brozen

or other proper official of the Internal Revenue Service,

then and there to be sworn, to give testimony, and to

produce for examination and copying the books, records,

papers and other data demanded by the summonses

served upon it on January 8, 1982 and April 12, 1982,

the examination to continue from day to day until

completed.

DATED this 23 day of April, 1983, at Fort

Lauderdale, Florida.

Norman C. Roettger

UNITED STATES DISTRICT JUDGE

ce: United States Attorney

Attn: Lloyd G. Bates

Assistant U.S. Attorney

Alvarez L. LeCesne, Jr.

Trial Attorney, Dept. of Justice

Robert A. Shupack

Counsel for Harvey S. Kleinman

Bank of Coral Gables

Broward Federal Savings and Loan

B-4

AMENDMENT V,

CONSTITUTION OF THE UNITED STATES

“No person shall be held to answer for a capital or

otherwise infamous crime, unless on a presentment or

indictment of a grand jury, except in cases arising in

the land or naval forces, or in the militia, when in

actual service in time of war or public danger; nor shall

any person be subject for the same offense to be twice

put in jeopardy of life or limb; nor shall be compelled in

any criminal case to be a witness against himself, nor

be deprived of life, liberty or property, without due

process of law; nor shall private property be taken for

public use without just compensation.”

TITLE 26, UNITED STATES CODE

§7602. Examination of books and witnesses.

For the purpose of ascertaining the correctness of any

return, making a return where none has been made,

determining the liability of any person for any internal

revenue tax or the liability at law or in equity o. any

transferee or fiduciary of any person in respect of any

internal revenue tax, or collecting any such liability,

the Secretary is authorized —

(1) To examine any books, papers, records, or other

data which may be relevant or material to such inquiry;

(2) Tosummon the person liable for tax or required to

perform the act, or any officer or employee of such

person, or any person having possession, custody, or

care of books of account containing entries relating to

the business of the person liable for tax or required to

C-i

perform the act, or any other person the Secretary

may deem proper, to appear before the Secretary at a

time and place named in the summons and to produce

such books, papers, records, or other data, and to give

such testimony, under oath, as may be relevant or

material to such inquiry; and

(3) To take such testimony of the person concerned,

under oath, as may be relevant or material to such

inquiry.

TITLE 26, UNITED STATES CODE

§7609. Special procedures for third-party summonses.

(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 business 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 notice

shall be accompanied by a copy of the summons which

C-2

has been served and shall contain directions for staying

compliance with the summons under subsection (b})(2).

(2) Sufficiency of notice. Such notice shall be

sufficient if, on or before such third day, such notice is

served in the manner provided in section 7603 (relating

to service of summons) upon the person entitled to

notice, or is mailed by certified or registered mail to

the last known address of such person, or, in the absence

of a last known address, is left with the person summoned.

If such notice is mailed, it shall be sufficient if mailed to

the last known address of the person entitled to notice

or, in the case of notice to the Secretary under section

6903 of the existence of a fiduciary relationship, to the

last known address of the fiduciary of such person,

even if such person or fiduciary is then deceased, under a

legal disability, or no longer in existence.

(3) Third-party recordkeeper defined. For

purposes of this subsection the term “third-party

recordkeeper” means —

(A) any mutual savings bank, cooperative bank,

domestic building and loan association, or other

savings institution chartered and supervised

as a savings and loan or similar association

under Federal or State law, any bank (as defined

in section 581), or any credit union (within the

meaning of section 501(¢c14)(A);

(B) any consumer reporting agency (as defined

under section 602(d) of the Fair Credit Reporting

Act (15 U.S.C. 1681a(f);

C-3

(C) any person extending credit through the

use of credit cards or similar devices;

(D) any broker (as defined in section 3(a)(4) of

the Securities Exchange Act of 1934 (15 U.S.C.

78C(a\4)

(E) any attorney; and

(F) any accountant.

(4) Exceptions. Paragraph (1) shall not apply to

any summons —

(A) served on the person with respect to whose

liability the summons is issued, or any officer

or employer of such person.

(B) to determine whether or not records of

the business transactions or affairs of an

identified person have been made or kept, or

(C) described in subsection (f).

(5) Nature of summons. Any summons to which

this subsection applies (and any summons in aid of

collection described in subsection (c\2\B) shall identify

the taxpayer to whom the summons relates or the

other person to whom the records pertain and shall

provide such other information as will enable the person

summoned to locate the records required under the

summons.

(b) Right to intervene; right to stay compliance.

C-4

(1) Intervention. 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

intervene in any proceeding 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 compliance with the summons if, not

later than the 14th day after the day such notice is

given in the manner provided in subsection (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 certified

mail to such person and to such office as the

Secretary may direct in the notice referred to

in subsection (a)(1).

(ec) Summons to which section applies.

(1) In general. Except as provided in paragraph

(2), a summons is described in this subsection if it is

issued under paragraph (2) of section 7602 or under

section 6420(e\(2), 6421(f)

(2), 6424 (dX2) or 6427(fX2) [(6427(gX2)] and requires

the production of records.

(2) Exceptions. A summons shall not be treated

as described in this subsection if—

C-5

(A) it is solely to determine the identity of

any person having a numbered account (or

similar arrangement) with a bank or other

institution described in subsection (a\(3\A, or

(B) itis in aid of the collection of —

(i) the liability of any person against whom

an assessment has been made or judgment

rendered, or

(ii) the liability at law or in equity of any

transferee or fiduciary of any person referred

to in clause (i).

(3) Records; certain related testimony. For purposes

of this section—

(A) the term “records” includes books, papers

or other data, and

(B) a summons requiring the giving of

testimony relating to records shall] be treated

as a summons requiring the production of such

records.

(d) Restriction on examination of records. No

examination of any records required to be produced

under a summons as to which notice is required under

subsection(a) may be made —

(1) before the expiration of the 14 day period

allowed for the notice not to comply under subsection

(b\(2), or

C4

(2) when the requirements of subsection (bX2) have

been met, except in accordance with an order issued by

a court of competent jurisdiction authorizing examination

of such records or with the consent of the person staying

compliance.

(e) Suspension of statute of limitations. If any person

takes any action as provided in subsection (b) and such

person is the person with respect to whose liability the

summons is issued (or is the agent, nominee, or other

person acting under the direction or control of such

person) then the running of any period of limitations

under section 6501 (relating to the assessment and

collection of tax) or under section 6531 (relating to

criminal prosecutions) with respect to such person shall

be suspended for the period during which a proceeding,

and appeals therein, with respect to the enforcement

of such summons is pending.

(f) Additional requirement in the case of a John Doe

summons. Any summons described in subsection (c)

which does not identify the person with respect to

whose liability the summons is issued may be served,

only after a court proceeding in which the Secretary

establishes that —

(1) the summons relates to the investigation of a

particular person or ascertainable group or class of

persons,

(2) there is a reasonable basis for believing that

such person or group or class of persons may fail or

may have failed to comply with any provision of any

internal revenue law, and

C-7

(3) the information sought to be obtained from

the examination of the records (and the identity of the

person or persons with respect to whose liability the

summons is issued) is not readily available from other

sources.

(g) Special exception for certain summonses. In the

case of any summons described in subsection (c), the

provision of subsections (a) (1) and (b) shall not apply if,

upon petition by the Secretary, the Court determines,

on the basis of facts and circumstances alleged, that

there is reasonable cause to believe the giving of notice

may lead to attempts to conceal, destroy, or alter records

relevant to the examination, to prevent the communication

of information from other persons through intimidation,

bribery, or collusion or to flee to avoid prosecution,

testifying or production of records.

(h) Jurisdiction of district court.

(1) The United States District Court for the district

within which person to be summoned resides or is

found shall have jurisdiction to hear and determine

proceedings brought under subsections (f) or

(g) The determinations required to be made under

subsections (f) and (g) shall be made ex parte and shall

be made solely upon the petition and supporting affidavits.

An order denying the petition shall be deemed a final

order which may be appealed.

(2) Except as to cases the court considers of greater

importance a proceeding brought for the enforcement

of any summons, or a proceeding under this section,

C-8

and appeals, take precedence on the docket over all

cases and shal] be assigned for hearing and decided at

the earliest practicable date.

C-9

[FILED 1983 APR 25]

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF FLORIDA

CIVIE NO>83-6020-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Petitioners,

v.

BANK OF CORAL SPRINGS,

Respondent.

CIVIL NO. 83-6021-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Vv.

BANK OF CORAL SPRINGS,

Respondent.

D-1

CIVIL NO. 83-6022-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Vv.

BROWARD FEDERAL SAVINGS AND LOAN,

Respondent.

CIVIL NO. 83-6023-CIV-NCR

UNITED STATES OF AMERICA and

EUGENE BROZEN, Special Agent

INTERNAL REVENUE SERVICE,

Vv.

BROWARD FEDERAL SAVINGS AND LOAN,

Respondent.

In the Matter of the

Tax Liability of

HARVEY S. KLEINMAN.

D-2

ORDER DENYING MOTION FOR STAY

PENDING APPEAL

Counsel for intervening taxpayers, at the hearing

before the undersigned on April 22, 1983, having orally

moved this Court for a stay of the order entered by

this Court enforcing each of the summonses issued in

the above consolidated matter, the parties having been

heard, the Court being fully aware in the premises, and

it appearing that there is no grounds justifying the

motion for stay pending appeal, it is therefore

ORDERED, ADJUDGED and DECREED that the

motion be and is denied.

DATED this 23 day of April, 1983, at Fort

Lauderdale, Florida.

[Illegible]

United States District Judge

cc: United States Attorney

Attn: Lloyd G. Bates

Assistant U.S. Attorney

Alvarez L. LeCesne, Jr.

Trial Attorney, Dept. of Justice

Robert A. Shupach

Counsel for Harvey S. Kleinman

Bank of Cora! Gables

Broward Federal Savings and Loan

D-3

[FILED APR 25 1983]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

83-6021-Civ-NCR

83-6020-Civ-NCR

§3-6022-Civ-NCR

83-5279 Civ-NCR

83-6023-Civ-NCR

UNITED STATES OF AMERICA,

Petitioner-A ppellee,

versus

BANK OF CORAL SPRINGS and

BROWARD FEDERAL SAVINGS & LOAN,

Respondents,

HARVEY S. KLEINMAN and

BONNIE M. KLEINMAN,

Intervenors-A ppellants.

Appeal from the United States District Court for the

Southern District of Florida

Before TJOFLAT, JOHNSON and HATCHETT, Circuit

Judges.

BY THE COURT:

The Motion of appellant(s) for stay pending appeal

is DENIED.

E-1