Appendix — United States v. Behrens

: 9 r Office-Supreme Co. rt, U.S,

° BE NEATS Te Mik Db

2). Of Ste

Q FEB 12 1963

JOHN F. DAVIS, CLERK

IN THE

SUPREME COURT OF THE UNITED States

' Qctober Term, 1962

No. 821

BADGER METER MANUFACTURING

COMPANY,

a

e

Petitioner;

v. .

JAMES B. BRENN AN, in his capacity’as United States

Attorney for the Eastern District of Wisconsin; and

EMIL J. NELSON, in his capacity as,

District Director of Internal Revenue,

Respondents.

& APPENDIX TO PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE

SEVENTH CIRCUIT

{ JESSE CLIMENKO :

| Attorney for Petitioner.

360 Lexington Ave.,

| New York 17, N.Y.

JAMES D. PORTER aa

622 North Water Street

é. Milwaukee 2, Wisconsin .

- Of Counseh

HAMMERS 'TH KORTMEYVER CO.

MILWAUKEE

INDEX TO APPENDIX

"ite ‘Page

Appendices

Appendix A: Statement Of, ‘Lhe Reliet Require

<4, And Prayer For Relief, In Petition To Dis-

ot Court ph eo lice iealan MR anscanunmennstets saa

“Appendix B: Opinion, Entitled “Memorandum”,

Be IONE IND escneSniscetoeveninsageeietibdssnbnatntbcbensivies

Appendix C: Certificate Of Clerk Of District

Court, Dated December 26, 1962 ...........0...........

Appendix D: Order For Judgment, Of Disttict

PIII sastacicdnile NesbcsessieilisAcnsintcbdeiscbttipcucshioslandakovetnidespioe

Appendix E:. Order, Entitled “Order Dismissing

Appeal”, Qf Court Of Appeals .........0.0......... :

Appendix F: Applicable Provisions Of The State

utes And Rules Involved. ................... SO PTR

Appendix G; Statement Of The Case Which Will

Be Reviewed If The Judgment Of The Court

Of a Bi IIE exincsrensanresiinonauacs aD |

2

6

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF WISCONSIN

.

BADGER METER MANUFAC-

TURING COMPANY, : z

‘Petitioner and Movant, NO. 59-C-119

e. PETITION AND

“MOTION FOR THE

EDWARD G. MINOR, in his RETURN OF SEIZED.

capacity gs United States Attorney PROPERTY AND THE =:

for the'Eastern District of Wisconsin; , . ah

and EMIL B. NELSON, in his eee

capacity as District Director of VIDENCE

Internal Revenue ; a

Respondents. j

f

THE RELIEF REQUESTED |

, Badger Meter Manufacturing Company, a Wisconsin’

“corporation, with an office in Brown Deer, in. Milwau- .

kee County, Wisconsin, which has ag all times filed its

income ‘tax returns at the office of the District Director

of Internal Revenue in: Milwaukee, Wisconsin, hereby

respectfully ‘Petitions and moves that this Court

(I) order that vines 9 aap to the petitioner —

all copies, data, memorarfda and cqmputations made

and exce nts taken ‘by either or both Franklin P.

Graf, an Internal Revenue Agent (hereinafter called

“Revenue Agent Graf”) and Frederick C. Stieber,

Special Agent (hereinafter called. the “Special

Agent’), in the course of their examinations of the

sbooks 6f account, correspondence files, expense re-

poris and other books and records of the petitioner

o~

during the ‘period commencing on or about July 5 .

and ending on or about July. 28, 1954; -

(11) order that all the copies, data, memoranda,

computations and excerpts referred to in (1) above,

and ail clues, leads, knowledge, information, ma-

terial and evidence (hereinafter called, collectively,

“secondary evidence’) directly or derivatively ob-

tained as a result of the examinations referred to

in (1) above; be suppressed ‘as , evidence against

either or both the petitioner or any past or present

officer or employee of the petitioner, including

“Philip J. Berner (hereinafter called “Berner’),

Secretary and lreasurer of the petitioner, in any

preliminary examination, Grand Jury hearing or

other criminal proceeding against any og all of them;

(III) order that there be returned to the peti-

tioner all copies of two books (hereinafter called

the “ledgers’’), one being a two-post ledger con-

taining 191 pages and the other being a three-ring

binder containing ninety-three pages, which were

produced by Berner on March 4, 1955, pursuant to

the Special Agent's summons to testify and produce

them, the originals and all copies of advance and

expense checks referred to in the ledgers, and the

related expense reports, supporting documents and

correspondence, and all excerpts taken and data,

m¢moranda and computations made or derived

therefrom or by means of the use thereof, which

are in the possession of unger the control of either

or any of the respondents or any attorney, agent or

employee of the Department of Justice or the In-

ternal Revenue Service;

(Appendix A)

Des

(1V) order that the originals of the*ledgers, all

copies thereof, all the originals and copies of the

echecks, expense repSrts, supporting documents and

correspondence, and the excerpts, data, memoranda

and computations referred to in @II1) ‘above, and

all secondary evidence directly or derivatively ob-

tained by means of the use of any thereof, be sup-

pressed as evidence against either or both the pe-

titioner, or any past or present officer or employee

of the petitioner, including Berner, in any prelim-

inary examinations Grand Jury hearing or other

‘criminal proceeding against any or all of them; and

(V) permanently restrain the respondents and

all attorneys, agents and other employees of the De-

‘partment of Justice and the Internal Revenue Serv-

ice from using-as evidence in any preliminary ex-

amination, Grand Jury hearing or other criminal

proceeding against either or both the petitioner, |

Berner or any other past or preset officer or em-

ployee of theepetitioner, and from disclosing to any

other person or governmental department or agency

any of the copies, data, memoranda, compilations

and excerpts, ledgers, checks, expense reports, sup-

porting documents and correspondence, the sec-

ondary evidence, and the contents of any thereof,

referred to in (1), (IL), (111)? and (IV) above.

. * * * * *

(Appendix :1)

4

ay

15 a@ PRAYER FOR RELIEF

Wherefore, the petitioner prays that this Court enter

its orders : in

(AP granting to the petitioner the relief delineat-

ed in paragraphs (I), (II), (III), (1V) and (V)

set forth first above under the caption “THE RE-

LIEF REQUESTED”; and

(B) granting to the petitioner such other and fur-

ther relief as may be just and equitable. sie

: a

—

/s/ James D. Porter

' /s/ Norman H. Quale

/s/ Irving W. Zirbel

?

' 622 North Water Street

Milwaukee 2, Wisconsin

Attorneys for Petitioner

Porter, Johnson, Quale & Porter

622 North Water Street

Milwaukee 2, Wisconsin

Of Counsel

e.

(Appendix A)

5 es

Sd

, APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

BADGER METER MANUFACTURING COMPANY,

Petitioner and Movant,

vs. - ‘ No. 59-C-119

JAMES B. BRENNAN, in his capacity as

United States Attorney for the Eastern

District of Wisconsin; and

s . é

Emi B. NELSON, in his capacity as :

District Director of Internal Revenue, ~ }

Respondents.

id

PHILIP J. BERNER,

Petitioner,

vs. ig No. 59-C-125

*) ames-B. BRENNAN, United States

Attorney forthe Eastern District

of Wisconsin,

Respondent.

ry)

MEMORANDUM -

The petitioners in these two actions, being Badger Me-

ter Manufacturing Company in Case No. 59-C-119, and -

Philip J. Berner, its secretary-treasurer in Case,No. 59-

C-125, request return of certain property and its suppres-

66

8)

sion as evidence in any criminal proceeding and seek to

restrain the named respondents, their agents, etc. from

using such property as evidence in any criminal proceed-

ings. The actions were consolidated for hearing, at which

hearing, the following facts were established :

On January 4, 1954, Frederick C. Stieber, then and now

a special agent of the Intelligence Divisidn of Interna!

Revenue Service was orally assigned by his superior to

make an investigat on of Badger Meter Manufacturing

Company, hereinafter referred to as Badger. On that date,

he interviewed an informant and at that time or shortly

thereafter, obtained the informant’s affidavit which stated |

that in the course of selling water meters to various mu-

nicipalities, it was the policy of Badger to make kickbacks

to certain city officials or employees at the rate of 10%

of the cost of the water meters purchased and that Philip

J. Berner was the company official whocairigd out that

policy. The informant told Stieber that the kickbacks

were paid through the medium of advances to salesmen.

On January 7, 1954, Stieber, who, as a special agent, was

concerned with ‘investigating for possible criminal tax

violations, requested that a case number be assigned to

the investigation of Badger, indicating that at that time

he believed: his informant was reliable and that a full

scale investigation was warranted.

* a,

Thereafter and on January 18, 1954, the Chief of the

Intelligence [Division sent a memorandum to the District

Director, stating fhat.an informant had presented in-

formation relative to alleged. violations by Badger’ for

the years 1949 to 1951 which would Warrant a joint in-

vestigation and asking that-an internal revenue agent be

: (Appendix B)

@

a |

assigned to participate with Stieber in such an investiga-

tion. On January 20, 1954; Revenue Agent Frayklin P. .

Graf, who had previously been assigned to audit the com- .

pany’s 195] income tax return, was assigned to participate

with Stieber in the joint investigation, Hé and Stieber had

“a short conference on or about that date during which

Stieber informed Graf that the investigation concerned

kickbacks to public officials.

=

There is a dispute in the evidence concerning the early

stage of the investigation. It is the position of the peti-

tioners that Revenue Agert Graf appeared at Badger

at least two weeks before Special’ Agent Stieber and ex-

amined its books and records for ten days under the guise

67 of conducting an audit of the company’s 1951 return,

before being joined by Stieber on July 12, 1954. The

respondents admit that Graf commenced his audit prior

to the appearance of Stieber and did not then reveal either

% that he planned to investigate vears prior to 1951 or that

a joint investigation was in progress. “They contend, how-

ever, that Graf spent only two days at the plant alone -

July | and 2, 1954, and that Stieber and he appeared

together on July 6th when. Stieber was identified as a

Special Agent. We have examined the conflicting evi-

dence on this point, and it is our belief that Revenue

Agent Graf began to examine the records of the company

at least two weeks prior to July 6, 1954, and conducted

such examinaQon for ten days before being joined for the

first time by Special Agent Stieber. In making this find-

ing we have rejected Graf's unsupported testimony that

he was at the company’s plant for only two days, July Ist

and 2nd, before Stieber's first visit on-July 6th because

(.dppengag B)

8

Graf admittedly had almost no independent recollection

of his investigation. Although he testified that his report

showed that he began his investigation on July 1, 1954,

that report was not offered in evidence. We have accept-

ed July 6th as the date when the Special Agent appeared

on the scene openly because it is supported by other evi-

dence not dependent upon the memory of any witnesses.

We further find that Graf went to the plant alone with

the knowledge and consent of Stieber, who, as special

agent, was in charge of the joint investigation, and that

Graf was aware of the fact, when he went to the plant

that the prime subject of the investigation was the kick-

back policy of the company and that the prime target

of the investigation was Berner. We must also find that

at all times after conferring with his informant in Jan-

uary, 1954, Special Agent Stieber well knew that Berner

and not the company was the target of any criminal in-

vestigation, and we find that Graf was aware of this fact

on his first visit to the company’s plant.’

While working at the plant prior to July 6, 1954, Graf

informed no one that he was participating in a joint in-

vestigation, stating only that, he was to audit the books.

Neither did he inform anyone that years. prior to 195!

were being investigated. He received the cooperation of

company personnef and was refused access to no records

requested by him.

What we consider-to be the second stage of the investi-

gation commenced on July 6, 1954, when Special Agent

Stieber began his open participation therein by joining

tAlthough Stieber testified that the informant’s affidavit set forth

“more than one name” of persons principally concerned with Badger's

kickback practice, this was not true. The affidavit named Berner only

as the person carrying out the policy.

(Appendix B)

Ss

&

69

9

Graf at the plant. It is uncontroverted that Stieber

identified himself as a Special Agent on that date, but

informed no one that he Was there to conduct joint in-

vestigation with criminal implications. C ompany officials,

including Berner, were then informed, however, that the

Revenue Service had informayjon that the company was

allegedly making kickbacks thfbugh its salesfhen. Stieber

Graf, working together, continued to receive the

cooperation of company personnel after Stieber’s identifi-

cation as a Special Agent and after learning that the

Revenue Service was concerned with kickbacks.

Prior to going to Badger’s plant on July 6, 1954, Stieber

had information about the existence of records regarding

*« kickbacks, but had no description of any such records.

WwW ithin several days thereafter, however, Stieber obtained

from the company records, the name of Mrs. Towle,

former secretary of Berner. He then interviewed Mrs.

Towle, who gave him information describing the record

as a “black book” and Jocating that book as being in a

~ closet in Berner’s office.

When Stieber began his investigation on July 6th and

thereafter, he examined salesmen’s expense accounts and

ledger sheets looking for advance payments to salesmen

and transcribing and abstracting from those records. On

July 27, 1954, he requested Berner to furnish salesmen’s

correspondence files and Berner referred him to the com-

pany’s attorney. After a conference with the attorney

those files were produced. On that date, Badger admits,

its attorney was informed that the investigation was a

criminal investigation. Badger continued to make re-

~ quested records available for examination thereafter.

The third stage of the investigation then began. On

August 6, 1954, after interviewing Mrs. Towle, Stieber

(Appendix B)

4

70

10

and Graf. had a conference with Berner. Stieber asked

for the black book and suggested that it was in Berner’s

closet, whereupon Berner told him to go and look if he

thought it was there. Stieber looked and did not find, it.

It would appear that no flat denial-of its existence was

made by Berner,.but rather that there was considerable

fencing and “jockeying” since it is clear that Berner told

the agents on that day that he would call them on August

16th or 17th to give them a decision, and Graf, at least,

interpreted that as a statement that he was going to give

a decision about producing the black book.

By August 25, 1954, Berner w as represented by coun:

sel, who inquired whether he should file a ‘ower of at- .

torney. Stieber informed Berner’s attorney ‘hat he was

examining Badger and not Berner. When questioned by

adversary counsel and the court whether it was policy

to commence prosecutions against corporations, Stieber

disclaimed knowledge of ‘policy but admitted that he

_knows ‘of no prosecutions that were begun against cor-—

porations, giving rise to a fair inference that he was aware

from the beginning of his investigations fhat he was in-

vestigating to determine possible criminal liability of

an individual connected with Badger, that individual

being Berner, oy only person named by his informant.

We now come to what we consider to be the fourth

stage of the investigation. On October 11, 1954, Berner,

Secretary-treasurer of Badger, was summoned to appear .

before Stieber on October 21, 1954, to give testimony with

respect to the tax liability of the company. He was

directed to bring with him:

“The ledger book containing certain recordings re-

lating to advance payments made to various salesmen

of the Badger Meter Manufacturing cea

(Appendix B)

2

Page of

Record

II, ‘

. > x

t er

ledger book containing sheets on which is recorded

data relating to customers, invoice numbers, amounts

of payments by customers, which form-the basis for

the advance payments to the salesmen.” 8

Berner appeared as directed and was represented by

counsel when he appeared. When he was asked whether

he had produced the ledger book set forth in the sum-

mons, his attorney stated his legal position to be that

corporate ledgers relating to salesmen’s advances had

been made available and that there was no single corpo- -

rate record with that information. The attorney further

stated that Berner denied that he had any corporate rec-

ord as described, but neither admitted nor denied custody

or control of a private record. He added that if the sub-.

poena referréd to a private record, Berner refused to pro-

duce it if he had it or-to testify with respegt to it on the

grounds that he might be~ incriminated thereby. These

statements were approved by Berrer. His counsel also in-

dicated that he knew the investigation was tor the purposes

of considering possible criminal prosecution (though the

investigation was still ostensibly of the company) and that

evidence, sought might incriminate Berner. At this stage

it is clear that Berner knew he was a potential. defendant

ina criminal prosecution, —

On February 3, 1955, Stieber filed .a petition in this

court alleging that Internal Revenue Service was investi-

gating the tax liabilities of Badger, that Berner failed to

comply with the ummons of October 11, 1954 by fail-

ing ta produce the corporate,record described therein and

in his custody as 4h official of the company or to testify

with respect to the contents thereof and asking that a

writ of attachment be issued pursuant to § 7604 of the

1954 Internal Revenue Code directing the United States

Marshal to bring Berner before the court to show cause

§ (Appendix B)

~

wv

71

12

for his failure to comply, and that upen a hearing, the

court order Berner to testify concerning the company

The court issued an order for attachment stating that

Berner had not complied with the summons in violation

of various sections of the Internal Revenue Code of 1954,

directing the Clerk of Court to issue a writ of attachment,

directing the Marshal to serve and execute the writ and

ordering that upon.the arrest of Berner he be brought be-

fore the court for a hearing. The writ was issued.and

Berner came before the court with his attorney on Febru-

ary 7, 1955. No objection was made by him or his attorney

to the issuance of the writ or any of the proceedings before

the court, and, on agreement of the parties, the matter

‘was held in abeyance and Berner released on his own re-

cognisance. No order was entered directing Berner ‘to

produce any records or give any testimony.

On March 4, 1955, Berner, again represented by very

able counsel, appeared before Stieber. Badger’s counsel

was also present. Berner produced two ledgers, in com-

pliance with the summons of October 11, 1954, and was

given a receipt therefor describing the books produced

as “1! black three ring binder containing 93 pages” and

“1 black two post ledger containing 191 pages”. Neither

Berner, his attorney, nor the attorney for the company

made any objection to production of these records. This

material was photostated -by Stieber and returned to

Berner on March 16, 1955. Berner gave his receipt. The

court procegding was dismissed on March 11, 1955 on

motion of the United States. )

After obtaining photostats of the two books, Stieber

requested and examined various records of the company.

No attempt was made at the hearing to identify all of

the evidence which the petitioners seek to suppress. It was

(Appendix B) — ‘

72

Qe

agreed by the parties that if the court determines that

_ the petitioners are entitled to the relief sought they would

stipulate to the evidence affected by that decision.

The investigation by Internal Revenue commenced, ais

we have stated, in 954. On June 8, 1959, a comptaint

was presented to the United States Commissioner charg: -

ing Berner with a violation-of § 145(b), of the Internal:

Revenue Code of 1939 in connection with filing the com-

pany’s return for the year 1952. This complaint, filed

only two days before the statute of limitations for that

year had run, was dismissed. Further Prosecution in-

volving that year is apparently barred. It is our under-

standing that prosecution involving the year 1953 was

planned but that the statute of limitations for that year

had run before action was taken. The only criminal case

now pending in any way relating to the investigation

previously described is Criminal Action No. 59-CR-94 in

which Berner has been charged in a two count indictment

with violating § 1001, Title 18, U.S.C. by falsely stating

to Stieber and Graf on August 6, 1954 that no corporate

record of advances to salesmen existed and by falsely.

stating (through his attorney) on October 21, 1954 in

response to an administrative summons issued October

21, 1954 [sic] that no corporate record as described in

the summons existed.

Badger .contends that all information obtained by

Stieber and Graf from its books and records before July

27, 1954, the day when its attorney was told that a crimi- °

nal investigation was in progress, and all evidence ob-

tained through leads gotten during that period, were

obtained during an unlawful search and seizure in vio-

lation of its rights under the Fourth Amendment to the

United States Constitutian. It also contends that the

‘(Appendix B)

| 14

ledgers delivered to Stieber’on March 4, 1955, and evi-

dence obtained through leads gotten from the’ ledgers,

were procured in violation of its rights under the Fourth

Amendment because they were uncovered as a result of

léads gotten prior to July 27; 1954, and | because they

were obtained by use of unlawful process. It asks that

all Said material be returned and suppressed as evidence

against itself and any of its past or present officers or

ais er: in any criminal progeeding. .

a |

wo

“Berner hatieaiies: the legality, of the examination ae

Badger’s records prior to July-27, 1954 and claims stand-

ing to ask.suppression of all évidence obtained by means

thereof because while-the investigation was purportedly

- of Badger, in truth amd in fact it phn ees at him

and he was the victim thereof? He also cofftends that all

oral statements made-by him Jrom the beginning of the

investigation to and including August 6, 1954 were evi-

dance obtained in violation of his rights under the Fourth

and Fifth Amendments, and that statements made before

Stieber on October $1,.1954 and March 4, 1955, the ledgers

‘délivered to Stieber on March 4, 1955 and all evidence

obtained as a result of leads found in the ledgers were -

also obtained in violation of his rights under the Fourth

and Fifth Amendments. “

The respondents contend primarily that the petitioners

‘consented to the examinations here complained of and

that Berner waived the rights under the Bifth Amendment

which he here claims were violaied.

2k

“In his brief, Berner claims that some ‘inaterial was taken from his

own. private office during that time, giving him rights not derived

through the corporation to object to the search and: seizure but- no

: ev idgunce supports this claim.

© (Appendix 2)

“3

beck)

,

of

rd

74

4 .

Aten, -

We bene examined the entire record herein and have

considered with care the arguments of counsel presented

their extensive briefs and the many Authorities. upon

which they rely,and have concluded that no violation of

Badger’s rights under the Fourth Amendment or Berner’s

sights under the Fourth and Fifth Amendments has been

shown and that these actions must be dismissed.

At the outset_we must state that we are here concerned

only’'with the rights of Badger and Berner, the only: par-

ties appearing to assert that their fights have been in-

vaded. Insofar as Badger seeks suppression of certain

material as evidence against any Of its past or present

officers or employees, its. petgtion must be summarily

denied. er

It ig clear that Badger consented to examination of its

beoks and-records by Graf and Stieber during the first

two stages of the investigation. Both Badger and Berner

argue that this consent was not voluntarily and under-

standingly given, but. rather was procured by fraud and

deceit of the agents in failing” to apprise Badger that a.

joint investigation, being “one that is initiated when

probable fraud is indicatéd” (United States v. Wolrich

(S. D. N.Y. 1955) 129 F. Supp. 528 at 529). was being

conducted and in misleading Badger into believing that ¥

the examination was a routine audit for the’ purpose of

investigating civil liability“only. We do not agree. We

behieve this case indistinguishable in*any niaterial respect

from United States v. Wheeler (W. D. Pa., 1959) 172

F. Supp. 278,* wherein- the court stated at Page 283:

“It is established that failyre to warn a person sus-

pected of crime of his constitutional rights does not

3Fog a Aull statement of rn facts upon which the defendant in that

case .relied in asserting that certain evidepce, must be suppressed,

United States v. Wheeler (W. D. Pa., 1957) 149 F. Supp. 445.

(Appendix B)

*

75

16

of itself make his confession or admissions, involun-

tary, Wilson v. United States, 1896, 162 U.S: 613, 623,

16 S. Ct. 895, 40 L. -Ed? 1090; Powers v. United

States, 1912, 223 U.'S. 303, 313, 32 S. Ct. 281, 56

L. Ed. 448. And it seems to be pretty well settled

that if a taxpayer freely consents to a tax examina-

tion of his tecords at the request of an infernal

revenue agent, as was done in this case, it is not to

be concluded that his consent was enticed, induced,

or rendered involuntary by the failure of the agent

.to divulge the purpose and instructions of his su-

periors or to warn the taxpayer that he is under sus-

picion of criminality. ‘Turner v. United States, 4 —

Cir., 1955, 222 F: 2d 926, a case involving both the -

* Fourth and Fifth Amendments. See, also, United.

States v. Achilfi, 7 Cir., 1956, 234 F. 2d 797, affirmed. -

1957, 353 U. $.°373, 77 B. 4s. “995, 1 L¥ Ed. 2d 918;

Vloutis v. United States, § Cir., 1955, 219 F. 2d_782;

United States v. Burdick, 3 Cir., 1954, 214 F. 2d 768;

Montgomery v. United ‘States. 5 Cir., 1953, 203 F.

2d 887, where the agent made. affirmative represen- .

tations that the investigation was ‘purely a civil

matter’.”’

In affirming ve defendant's conviction in that case, the

Court of Appeals for the Third Circuit stated in United

States v. Wheeler (1960) 275 F. 2d 94, at Page 97:

“The important relevant inquiry in this casé is wheth-

er appellant freely gave his consent to havg¢ his, rec-

ords examined with the knowledge that his returns

were being investigated. The answer to that inquiry

is unequivocally, yes.’

The court responded thus to its own inquiry despite the

fact that in that case a revenue agent had been sent by his

superiors to conduct a routine investigation of the defend- ,

ant’s records “with the additional mission of ascertaining

involvement of Internal Revenue employees and defend-

/

5 (Appendix B)

Page of : x » ys o

Record

¢ ant in any wrongdoing with a view to obtainggg facts

which would lead to crimina: prosecution.” (149 F. Supp.

445, at Page 448) and that defendant was not informed

of the underlying purpose of the investigation.’

In the instant cases, Badger concededly consented to

examination of its records by Graf prior to July 6, 1954

and by Graf and Stieber to July 27, 1954. Its consent was

given without coercion or duress and without promise of

immunity from criminal liability or assurance that crimi-

nal liability would not be checked. We do not believe

that the failure of the agents to inform anyone at Badger

that the investigation was being conducted with a view to

determining criminal as well as civil liability amounted

to fraud, trickery or deceit vitiating ‘the consent given.

We alsotelieve that even if it were held’ that the

“failure to disclose the criminal implications of the inves-

tigation vitiated Badger’s consent, the period affected by

that failure is the period whén Graf alone conducted the

examination, that is, the period prior to July 6, 1954.

On that date, Stieber’s participation in the investigation

Was revealed and he was identified as a special agent. This

identification, plus the information given on_that date

that the Revenue Seryice had heard that Badger was

making kickbacks through its salesmen -was sufficient to

warn company officials that the investigation could have

criminal implications. ie

In holding that the examination of Badger’s records

76 prior to July 27, 1954 was conducted with Badger’s con-

sent and without violation of its rights under the Fourth

Amendment, we place considerable rgliance on the opin-

4We do not consider it significant that the criminal inves gation

initiated in the /fheeler case prior to the revenue agent's s examination

dfd not relate to tax evasion.

of Appendix B)

a >

a

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ion of our own Court, of Appeals in: United States v

Achillt (1956)2234 F. 2d 797.

Since the examination made prior to July 27, 1954, did

not violate Badger’ s rights under the Fourth Amendment,

we need not consider Berner contention that he has

standing to seek suppression of material obtained from

the company during that peridd. Neither need we con-

sider his contention that the Fourth Amendment requires

suppression of statements made by him to the ager

during that period since no-unreasonable search and

seizure occurred. We must, however, consider whether -

oral statements and admissions made by him to the agents

through August 6, 1954 were obtainedein viglation of his.

rights under the Fifth Amendment. As we have stated

previously, it is the position of the respondents that

Berner’s rights under the Fifth Amengiment were waived.

The evidence reveals that neither Stieber nor Graf in--

formed Berner that their investigation might lead to a

prosecution of him, and that they were fully aware of the

fact that he was the tafget of the investigation. Knowing

this, Stieber stated gs late as August 25, 1954, that he was

examining Badger and not Berner, when asked by Bern-

er’s counsel whether a power of attorney.should be filed.

iv

We do not believe that Berner’s rights under the Fifth

Amendment were violated as a result of the conduct of

_ the agents. Such a holding should in no wise be construed

as approval of the methods and tactics here found to have

been used. Berner made statements to the agents. He

made them voluntarily, but without being informed of his

rights and without being told that he himself was under

suspicion. His counsel apparently concedes, however,

that the failure to inform Berner.of his constitutional

(Appendix B)

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77

19

rights did not, in and of itself, violate those rights. While.

the agents deliberately led him to believe that only

Badger was being investigated, no claim is made by

Berner that any promise of immunity was madg to him

or that he was given the impression that he would not be

oaieuel, We cannot hold that Berner, in making state-

ments to the agents, did not make them voluntarily and

understandingly merely because he was not previously

informed that he himself Was under investigation.

In support of his contention that statements made and

records delivered ‘to Stieber on October 21, 1954 and

March 4, 1958, were procured in violation of his rights

under the Fourth Amendment, Berner first claims that

Stieber had no authority under § 602, Title 26. S. C.

_to summon him to appear before him, stating that under

that section a sunmmons can properly be issued only to

aid-in the determination and collection of civil tan lia-

bility, and that the Internal Revenue Code does not au-

thorize issuance of a summons in support of a criminal

investigation. We have examined the summons of Octo-

ber [1, 19§4. That summons related to the tax liability

of Badgery It may be that the criminal matter was in

mind, but in our opinion issuance of the summons was

justified by the existence of an investigation into any pos-

sible civil tax liabitity on the part of. Badger.” It has not

been shown that such an investigation did not exist.

Neither do we agree with the argument that putative

criminal defendants cannot constitutionally be summoned

under § 7602. ‘The section itself does not limit the class of

persons who may be summoned, and of course persons

~ See Lash v. Nighosian (C.2A. 1, 1959) 273 F. 2d 185, cert. den.

1960, 342 U.S. 904, and Boren v. Tucker (C. A. 9, 1956) 239 F.

2d 767.

: (Appendix B)

-~

Se .|

summoned are always free to assert their constitutional

privileges. re

Berner also asserts that by virtue of the issuance of the

summons he was compelled to produce the ledgers —per-

78 sonal records or corporate records held in a personal

capacity—and to make statements in violation of his rights

“under the Fifth Amendment. In our opinion the record

clearly shows that any statements made by him before the

special agent on October 21, 1954 and March 4, 1955,

were voluntarily made, that the records produced by him

on March 4, 1955 were voluntarily produced, and

that any rights which he may have had with respect

thereto under the Fifth Amendment were waived. Berner

was represented by counsel durmg both appearances be-

fore Stieber, and invoked the protection of the Fifth

Amendment during his first appearance. The mere fact

that he appeared, produced records and made statements

by reason of a summons does not constitute a violation of

his rights under the Fifth Amendment. He was at all

times free to assert those rights but he and his of

chose not so to do.

We reject completely the contention that the commece-

ment of enforcement proceedings in this court constituted

unlawful coercion and compulsion ‘resulting in Berner’s

surrendering the ledgers on March 4, 1955. No order

was entered by this court directing Berner to comply with

the summons of October 1!, 1954, and it was af*all times

apparent that such an order would not be entered without

Berner being afforded a hearing.

Because the ledgers produced on March 4, 1955, were

not obtained in violation of Berner's rights under the

Fourth and Fifth Amendments, we need not consider.

° (Appendix B)

79

. ees

Badger’s contention that seizure of the ledgers in viola-

tion of Berner’s rights violatedsits own rights under the

Fourth Amendment.

Both petitioners have complained of violations by the

agents of the Internal Revenue Manual. These conten-

tions cannot properly be made in pre-indictment petitions

to suppress.

We have not considered herein the standing of each

petitioner to ask the relief sought. The title as between

the two petitioners to the ledgers which, we assume, are

the prime evidentiary matters sought to be suppressed,

need not and cannot vn the record before us be deter-

mined.

Because in our opinion the rights of the petitioner in

Civil Action No. 59-C-119, Badger Meter Manufactur-

ing Company, under the Fourth Amendment, and the

rights of the petitioner in Civil Action No, §9-C-125,

Philip J. Berner, under the’Fourth and Fifth Amend-

ments, have not been violated, the relief requested in

these actions must be denied.

This memorandum shall stand as and for findings of

fact and conclusions of law within the meaning of Rule

§2(a) of the Federal Rules of Civil Procedure. Counsel

for the réspondents will prepare an order for judgment

and submit it to opposing co@nsel for approval as to form. ,

Dated, Milwaukee, Wisconsin, this 15th dpy of August,

1962. ° — ° _

ie ‘ -» Ropert FE. TEHAN

~ US. District Judge

(Appendix B)

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APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

BADGER METER MANUFACTURING

COMPANY, ae?

Petitioner and Movant,

Us.

JAMEs B. BRENNAN, in his capacity |

as United States Attorney for the .

Eastern District of Wisconsin; and (: No. 59-C-1f9

* EMIL B. NELSON, in his capacity as

District Director of Internal

Revenue,

Respondents.

CERTIFICATE OF CLERK

I hereby certify that I am Clerk of the United States

District Court for the Eastern District of Wisconsin,

and that the following information has been transcribed

acgurately from records on file in this Court:

On June 29, 1959, Petitioner filed a “MEMORANDUM

BRIEF IN SUPPORT OF MOTION FOR PRELIMINARY IN-

. JUNCTION”, in Civil Action No. 59-C-125, which was

then entitled Philip J. Berner, Petitioner, v: Edward G.

Minor, United States Attorney for the Eastern District

of Wisconsin, and Frederick C. Stieber, Special Agent,

Internal Revenue Service, Respondents.

. The ‘following extract has been taken. from pages 33-

34 of the above-described brief:

if

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this pre-indictment motion to suppress, the Court

may assume that the records in question were corpo-

rate records. Petitioner does not intend to adduce tes-

timony at this time to support his position that the

records were personal and private records. Petition-

er does not, however, waive the right to present such

evidence in any future proceeding of any’ nature.”

“For the purposes of the hearing es decision on

Dated at Milwaukee, Wisconsin, this 26th day of De-

cember 1962. ;

s/ Dale E. Ihlenfeldt

Dale E. Ihlenfeldt,

Clerk.

‘

(Appendix C)

E

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80

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APPENDIX D

UNITED STATES DisTRICT COURT

EASTERN DISTRICT OF WISCONSIN

BADGER METER MANUFACTURING

COMPANY, .

Petitioner and Movant,

Vv.

JAMES B. BRENNAN, in his capacity \ CIvIL ACTION

as United States ey for the No. 59-C-119

Eastern District of Wisconsin; and

EMIL J. NELSON, in his capdcity as

District Director of Internal

Revenue,

Respondents.

“~

ORDER FOR JUDGMENT

This cause having come on for hearing before the

Court on July 15, 1959, Badger Meter Manufacturing

“en a Petitioner, appearing by Messrs. James D.*

Portér, Esquire, Irving W. Zirbel, Esquire and Norman

H. Quale, Esquire, its counsel, and having been con-

solidated for trial with the cause, Philip J. Berner, Peti-

tioner, v. James B. Brennan, United States Attorney for

the Eastern District of Wisconsin, Civil Action No. 59-

C-125 and the issues having been duly tried and the Court.

having issued its opinion on the 15th day of August, 1962,

containing its Findings of Fact and Conclusions of Law;

now, therefore, upon all of -the records, files and pro-

ceedings had herein,

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IT IS HEREBY ORDERED as follows:

1. That the relief requested in the above-entitled ac-

tion by the Petitioner be denied and that this action be

dismissed.

2.° The Clerk is directed to enter final judgment in

accordance with the foregoing provision of this Order.

Dated at Milwaukee, Wisconsin, this 25 day of Sep-

tember, 1962. ‘

(s/ Rebers E. Tehan

United States District Judge for

the Eastern District of Wisconsin

APPROVED AS TO FORM:

/s/ James D. Porter

/s/ Irving W. Zirbel

Attorneys for Badger Meter

Manufacturing Company

te

/s/ Philip L. Padden

Attorney for Respondents

Asst. United States Attorney

°

oo (Appendix D).

26

APPENDIX E =

UNITED STATES COURT OF APPEALS ©

For the Seventh Circuit.

Chicago 10, .Illinois

‘ November 29, 1962

° Before

Hon. WIN G. KNOCH, Circuit Judge

Hon. LATHAM CASTLE, Circuit Judge

Hon. ROGER J. KILEY, Circuit Judge

BADGER METER MANUFACTURING

COMPANY, ~

Petitioner-Appellant,

vs. No. 13977 [°

. Order

* JAMEs B. BRENNAN, in his capacity Dismissing

as United States Attorney for the Appeal

Eastern District of Wisconsin; and

EMIL B- NELSON, in his capacity as

District Director of Internal

Revenue,

| Respondents-A ppellees.

On consideration of the motion of respondents-appellees

to docket and dismiss this appeal, the petitionerappel-

lant’s brief in opposition thereto and the affidavit filed

therewith, and the reply brief of respondents-appellees ;

. And it appearing that pursuant to an ordes entered

_herein November 6, 1962, this appeal has been docketed ;

And it further appearing that the order sought to be

appealed is interlocutory and not an appealable order

under the doctrine and principles of DiBella v. United

- States, 369 U.S. 121;

: IT IS ORDERED that respondents-appellees’ motion

_to dismiss this appeal is ALLOWED and the appeal here-

“in is DISMISSED. 7 -

27 | ;

APPENDIX F

_ Applicable Provisions Of The

Statutes And Rules Involved

United States Code, Title 28, §1254(1):

“Cases in the courts of appeals may be reviewed by the

Supreme Court by the following methods:

“(1) By writ of certiorari granted upon the petition

of any party to any civil or criminal case, before or after

rendition of judgment or decree ;”

United States Code, Title 28, $1291: ."

“The courts of appeals shall have jurisdiction of ap-

peals from all final decisions of the district courts of the

United States, * * * except where a direct review may be

had in the Supreme Court.”

Federal Rules of Civil Procedure

Rule |, second sentence:

“They [these rules] shall be construed to secure the

just, speedy, and inexpensive determination of every

action.”

' Rule 8(a), second sentence:

“Relief in the alternative or of several different types

may be demanded.”

Rule 8(f):

“Al pleadings shall ‘be so construed as to do sub-

stantial justice.”

Rule 54(c), second sentence:

“Except as to a party against whom a judgment is

entered by default, every final judgment shall grant

the relief to which the party in whose favor it is

rendered is entitled, even if the party has not de-

manded. such relief in his pleadings.” .

7

8 28

APPENDIX G

Statement Of The Case Which Will Be Reviewed If.

The Judgment Of The Court Of Appeals Is Vacated

The following summarizes the facts of the case that

will be reviewed, if the judgment of the court of/appeals

is vacated on certiorari. Dispute exists among the eircuits

as to the legal effect of ssime of them.

The tax acoA a criminal one, with Berner

(and not, the Compafiy) as its sole target, from its in-

ception-in January, 1954. (App. B, pp. 5, 6, 8; R. 65-

68). Knowing all this, a,.Revenue Agent (an auditor),

went to the Company plant alone, with the knowledge

and consent of one Stieber, a Special Agent of the In-

telligence Division (a,trained detective), who directed

the criminal investigition. (App. B, pp. 7, 8; R. 67,

102, 103, 303).’

The auditor represented that he had come to make

an audit of a’Company tax return, and received full

cooperation. (App. B, pp. 7, 8; R. 67, 68). He remained

alone at\the plant for ten days through Friday, July 2,

"1954, actually working on the investigation, but stating

only that he was auditing the books. (App. B, p. 8; R. 68).

The detective first appeared from behind the scenes by

means of accompanying the auditor on his return to the

plant on Tuesday, July sixth, after the long, holiday —

1Such an investigation is called a “joint” investigation in internal

‘regulations of the Service, i.e., Part 9 of the Internal Revenue Manual,

‘and Chapter 10 of the Handbook for Internal Revenue Agent, (R. 104).

Among other things, they prescribe standards of fair play to be ob-

served by Agents in investigations and audits. (Pet. Exs. 15, R. 418;

17, R. 420; 18, R. 421; and 20, R. 423; all offered and received with-

out objection at R. 327). The trial court admitted such regulations

in evidence, but concluded that complaints of violations of them could

‘not properly be made in “‘pre-indictment motions to suppress”. (App.

3B, p. 21; R. 78).

29 | !

DP | | ‘

weekend. (App. B, pp. 8, 9; R. 68, 298). He mere!y

introduced himself as “Special Agent Stieber”; said

nothing about the Intelligence Division; and said noth-

ing about either of them being there to’ conduct an

investigation with criminal implications. (App. B, p. 9;

R. 68). One of the agents remarked that the Service

had information that the Company was allegedly making

kickbacks through its salesmen. (App. B, p. 9;.R. 68).

The auditor and the detective then began.work together

at the plant, with the continuing full cooperation of

Company personnel. (App. B, p. 9; R68).

Within “several” days after July 6th, the detective ob-

tained the name of a Mrs. Towle, a former secretary

of Berner’s, from the Company records. (App. B, p. 9;

R. 68). (“Several” is the court’s language. The detective

testified that it was on July seventh or eighth, “somewhere ©

in there”. [R. 304)). He then interviewed Mrs. Towle,

who gave him,information in which she described a

record, of which he had had no description before, and

located it as being kept by Berner in ‘his office closet.

(App. B, p. 9; R. 68, 304). First he interviewed Mrs.

Towle; and his diary entries reveal that.then, on August

4, 1954, he. prepared questions to ask her under oath;

and on August 5, 1954, formally interrogated her under

oath as to the record. (R. 59, 240).

The detective. then subpoenaed (ostensibly still in an

investigation of the “tax liability of the Company”), and

obtained two ledgers, which constituted the record about = __¥

which Mrs. Towle had told him. (App. B, pp. 10; 11;

R. 69, 70). After photostating and returning them, he

demanded, examined, copied or transcribed and returned

various records of the Company. (App. BS. 12; R. 71).

He then sent the copies and transeciptions to Intelligence

(Appendix G) |

@

9

30

Division offices around the United States, in order that

their agents might _ipterrogate Company salesmen. (R.

313-315). . |

Now, in this Appendix, we summarize the Company's

contentions as follows: - ane

First, all evidemce seized by the Revenue Agent (the

auditor) prior to, July 6, 1954, was unlawfully seized be-

cause of his misrepresentation that he was merely engaged

in a routine tax audit.

Second, we conttend that Mrs. Towle’s name was un-

lawfully searched for and seized; and that the leads,

clues and property which the detective obtained as a re-

sult, i.e.: the information Mrs. Towle gave him, the

ledgers he seized lby means of that information, and the

information afd mecords he obtained from the ledgers,

all were tainted by the initial illegality which attached

to the obtaining off her name.

Our second conttention, above, rests upon our disagree-

ment with the district court's conclusion that, notwith- |

standing ten days ad elapsed in the course of a supposedly

normal, routine taix audit and thereupon the auditor was

quietly accompaniied by a companion on the auditor's

return after a holliday weekend, the companion’s intro-

duction as, merely, a special agent, plus a remark that

the Revenue Serwice had heard that the Company was

making kickbacks: through its salesmen, was sufficient to

warn Company offficials that the investigation could have

criminal income tax implications. (App. B, peyl7; R.

75). Even the Revenue Agent (the auditor), who had

been a Revenue Aigent for almost six years (R. 124) and

apparently had pvarticipated in other joint, criminal in-

vestigations (R. 1/93), testified that the mere designation

(.dppendix G)

31

°

“special agent’ woufd not imply a criminal investigation

to anyone who did not have an appreciation of rank

_ within the Revenue Service. (R. 199, 200).

Third, and finally, the Company contends that the

taint of illegality continued to attach to property obtained

from Company recerds made available upon the special

agent’s demand after July 27, 1954. In this contention

the Company disagrees with the district court’s contrary

conclusion, which the court based upon the fact. thag-on

that date the special agent informed the attorney for the

Company that he was engaged in “a criminal investiga-

tion’; and thereafter’ the Company continued to make

requested records available for examination. (App. B,

p. 9; R. 68, 69). The court implied in its opinion, incor-

rectly, that the Company conceded that only property

seized as the result of leads obtained prior to July 27,

1954, was unlawfully seized. (App. B, pp. 13, 14; R. 72).

The Company did not, and does not make any such con-

cession. |

The Company’s third contention is grounded upon two

arguments. We call attention, with respect to the occur-

rences on July 6, 1954, that if the words “special agent”

had been addressed to.a knowledgeable person to whom

that designation also carried with it the words “Intelli-

gence Division” and “detective”, nevertheless the agents

had given to their criminal investigation the erroneous

appearance of a routine ‘audit which had turned up

suspicions of fraud, and in which they were acting fairly

and above-board, in conformity with the Handbook for

Internal Revenue Agent (Pet. Ex. 20, R. +23, 327). The

respondents (the Government) bore the burden of prov-

ing, but failed to introduce any evidence to prove, that

either any Company official, or the Company's lawyer on

(.dppendix G)

32

July 27, 1954, were aware of the true state of affairs. Once

a citizen has been so far misled by the conduct of gov-

ernment officers, as the Company had been misled, com-

pliance with their further demands, even after so limited

a disclosure of the officers’ true purpose as was made on

July 27, 1954, does not constitute a knowing and willing

consent to, or waiver of, the taint which attached to the

officers’ illegal conduct and the fruits of that conduct.

——

——,

(Appendix G)

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