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GANNET v. FIRST NATL. STATE BANK OF N.J.

March 19, 1976

HERBERT M. GANNET, Plaintiff
v.
FIRST NATIONAL STATE BANK OF N.J., Defendant; UNITED STATES OF AMERICA and CARL E. REICHELT, Special Agent of the Internal Revenue Service, Plaintiff v. FIRST NATIONAL STATE BANK OF N.J., Defendant v. HERBERT M. GANNET, Intervenor



The opinion of the court was delivered by: BIUNNO

 In this case, some of the facts are not in dispute; others are assumed for the purpose of this determination.

 The undisputed facts are as follow. In the due course of the mails, the Internal Revenue Service Center (IRS) at Holtsville, N.Y., received a certified letter from Herbert L. Zuckerman, Esq., a Newark attorney, dated November 4, 1974. The letter enclosed a cashier's check, number 488562, issued by National Newark & Essex Bank, payable to IRS, for $142,497.81.

 The letter said that the check represented additional amounts due from "a taxpayer for past years"; that Mr. Zuckerman did not know the taxpayer's name, and that the aggregate additional amount, "together with interest computed to November 5, 1974" totalled the amount of the check.

 It further said that Zuckerman was informed that taxpayer was not aware of any investigation in process by IRS, and that taxpayer's attorney had concluded that additional taxes were due and recommended that payment be made. Finally, it asked that the check be deposited in the Deposit Fund Account of the Treasury of the United States, or in such other account as appropriate "for unidentified collections".

 An IRS official, informed of the letter and check, instructed a special agent to try to find out who the taxpayer was. The first stage of inquiry produced information that the source of the funds for the cashier's check was a check, No. 1186, drawn by Herbert M. Gannet Trust Account at First National State Bank of N.J. (FNSB) to Zuckerman, dated November 4, 1974, in the amount of $142,497.81.

 On October 3, 1975, IRS issued an administrative summons (26 U.S.C. § 7602) to FNSB asking for all negotiable instruments and deposit tickets relating to the source of the funds used for the Gannet/Zuckerman check, as well as monthly bank statements and deposit tickets for $1,000 or more for the period October 1 through November 4, 1974, in the Gannet account.

 This inquiry produced the information that two cashier's checks were deposited in the Gannet account, these having been purchased at FNSB's Port Newark branch office on October 31, 1974, in the amounts of $65,182.66 and $77,315.15 (total, $142,497.81).

 On November 19, 1975, IRS issued another administrative summons to FNSB, returnable December 2, 1975, asking for the name, address and social security number of the purchaser of the cashier's checks, and for all documentation relative to the source of the funds used to purchase the checks.

 Meanwhile, and about October 31, 1975, FNSB informed Gannet of the first summons and that it had furnished the two cashier's checks to IRS. On about November 3, 1975, Gannet served a written demand on FNSB that it not furnish any further information on his trust account to IRS, and that it advise IRS that it would refuse to furnish such further information.

 When the second summons was served on November 19, 1975, FNSB informed Gannet of it, although it was not directed to Gannet's trust account, and Gannet filed in this court the first of the two pending actions, Civil No. 75-2028. With the filing of the complaint, Gannet sought an order to show cause why FNSB should not be enjoined from obeying the summons, along with a temporary restraint.

 This application was heard November 26, 1975 on informal notice to FNSB and, at the court's direction, to IRS, which appeared amicus curiae.

 These assumed facts are fairly evident from what was done by the taxpayer, by Gannet and by Zuckerman in dealings with third parties. The taxpayer, or someone acting for him, dealt with someone at the Port Newark Office of FNSB to purchase two cashier's checks on October 31, 1974. The checks were deposited in Gannet's trust account, and he drew a check to Zuckerman for their total. That check was used by Zuckerman to buy a cashier's check in the same amount, and this check he sent to IRS with his letter of November 4, 1974, making the disclosures noted above.

 The argument for Gannet in the first case was grounded on the attorney-client privilege, F.Ev.Rule 501, and on N.J. Court Rule R.1:21-6, requiring all attorneys to establish and maintain trust accounts for ...


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