509(a)(2). That Rule was not adopted, but insofar as it reflects the principles of the common law, as interpreted by the Federal Courts in the light of reason and experience, it is embodied in Fed. Ev. Rule 501.
This case does not involve military secrets such that the claim of privilege must be decided without requiring disclosure, even in camera, U. S. v. Reynolds, 345 U.S. 1, 73 S. Ct. 528, 97 L. Ed. 727 (1953). Rather, it is a case in which the Government's claim of need for secrecy is to be balanced with the party's need for disclosure, albeit under a protective order. See, for example, Boeing, etc. v. Coggeshall, 108 U.S.App.D.C. 106, 280 F.2d 654 (1960); Ackerly v. Ley, 137 U.S.App.D.C. 133, 420 F.2d 1336 (1969); Davis v. Braswell, 363 F.2d 600 (CA-5, 1966); Kaiser, etc. v. U. S., 157 F. Supp. 939, 141 Ct.Cl. 38 (1958). The indications are that the test is whether disclosure in the action would be harmful to the interests of the public. Compare N.J. Ev. Rule 34, N.J.S.A. 2A:84A-27. See, also, In re John S. Irving, 600 F.2d 1027 (CA-2, 1979).
On balance, while the Court has already ruled that taxpayers' effort to show institutional bad faith through these sealed materials would be fruitless, they are entitled to try to persuade the Court of Appeals to rule otherwise. They cannot make the argument in any effective way without access to the materials. Disclosure to taxpayers' attorneys only, with a protective provision limiting use of the materials to the purposes of the appeal, requiring any papers on the point to be submitted to that Court under seal, and forbidding disclosure to any other person (including taxpayers) will not be harmful to the interests of the public.
The Order should contain a provision to this end, and also providing that the release under protection be stayed until an Order of a panel of the Court of Appeals be entered to adopt a like protective and sealing Order to govern the proceedings there, or modifying or vacating the provision or the stay or both.
2. Reconsideration of the denial of a stay pending appeal.
At its ruling from the bench, the Court denied a stay of the enforcement Order pending appeal. There were several reasons. One was that in the event the enforcement Order be reversed, taxpayers' interests would be adequately protected by a provision requiring IRS to make a detailed, itemized list, and to mark, all documents produced in response to the subpoena to each witness, and a transcript of any evidence adduced other than the exhibits. This was discussed in more detail at the hearing of April 19, 1979. Second, since the time needed for an appeal to be decided is unpredictable, especially in view of the exceptionally heavy workload of the Court of Appeals, the IRS investigation would be unduly hampered in the event of affirmance. The documents sought on the present subpoenas may well be only a first level of the investigation. The information obtained may call for more subpoenas to other witnesses before the investigation is completed.
It is true that In re Turner, 309 F.2d 69 (CA-2, 1969) mentions the running of the Statute of Limitations as a factor militating against a stay. It is also true that, as amended in 1976, 26 U.S.C. § 7609(e) suspends the Statute of Limitations as to a taxpayer/intervenor for the time consumed by the enforcement proceeding and appeals therefrom. But the suspension of the Statute of Limitations does not protect against the loss of records or the dimming of memories. Nor does it protect against the running of the Statute of Limitations in respect to persons other than the intervenor, about whose tax liability questions may arise as the result of information gathered.
There may be cases where the issues raised by the answer, or by a counterclaim, in the enforcement action extend beyond the narrow scope of an enforcement suit, in which a stay might well be proper. In this case, no questions are seen beyond the issue of propriety of enforcement according to the standards of LaSalle.
Having reconsidered, the Court adheres to its initial ruling that a stay pending appeal be denied. This is without prejudice to taxpayers' right to seek a stay from the Court of Appeals. The date for production of the documents can be set for one some weeks after entry of the Order so that the application can be made meanwhile.
3. Further consolidation.
Both sides agree that Civ. 78-3056, involving other taxpayers, should be consolidated with Civ. 78-3054, for all purposes. The issues and record are identical except for the taxpayers and the witnesses. The consolidation will provide means for taking a single appeal on all the questions involved. A separate Order to that end will be entered.
There are two folders of IRS memoranda that the Court examined in camera. These will be marked Exhibits C-1 and C-2, under seal.
There is a letter of March 13, 1979 from taxpayers' attorney to the Court in chambers, supplying copies of the Reopening Letters issued to taxpayer. This set will be marked Exhibit C-3.
There is a letter of March 20, 1979 from taxpayers' attorney to the Court in chambers along with papers involving their FOIA request in connection with this matter. This set will be marked Exhibit C-4.
There is a letter of March 29, 1979 from the AUSA dealing with procedures. This letter and attachment will be marked Exhibit C-5.
The ruling granting the enforcement Order is not intended to affect adversely taxpayers' rights in other contexts to challenge the right of the United States to make one or another use of the information so obtained. One example, is a motion to suppress evidence at trial of a criminal charge if one be brought, U. S. v. Genser, 582 F.2d 292 (CA-3, 1978), and after remand, 595 F.2d 146 (CA-3, 1979) (Nos. 76-262 3/4, decided March 9, 1979). This is so without regard to whether the theory be res judicata, collateral estoppel or any other. The order should contain a provision expressing this point.