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Gluck v. United States

August 28, 1985

PAUL GLUCK AND INA CLUCK, APPELLANTS
v.
UNITED STATES OF AMERICA, APPELLEE; SIDNEY STEIN; STEIN & STEIN; STEIN'S FOOT SPECIALTIES, INC., APPELLEE V. UNITED STATE OF AMERICA, APPELLANT



On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 83-1523) On Appeal form the United States District Court for the District of New Jersey (D.C. Civ. No. 83-1492)

Author: Becker

Before: GARTH, BECKER, ROSENN, Circuit Judges

Opinion OF THE COURT

BECKER, Circuit Judge.

These consolidated appeals present the question whether certain Internal Revenue Service summonses should be quashed because they resulted from grand jury information obtained by reason of a district court's Fed. R. Crim. P. 6(e) order that would now be invalid under United States v. Baggot, 463 U.S. 476, 103 S. Ct. 3164, 77 L. Ed. 2d 785 (1983). We hold that they should not.

I. FACTS AND PROCEDURAL HISTORY

A. United States v. Gluck, No. 84-5282

At some time prior to November 1983, a federal grand jury sitting in the District of New Jersey conducted an investigation into the affairs of Franklin State Bank. During the course of this investigation, the grand jury examined records of bank accounts maintained by appellants Paul and Ina Gluck, among others. At the conclusion of the grand jury inquiry, the United States Attorney for the District of New Jersey, acting pursuant to Fed. R. Crim. P. 6(e)(3)(C)(i),*fn1 moved ex parte in the district court for an order authorizing disclosure to the Internal Revenue Service ("IRS" or "Service") of matters occurring before the grand jury for IRS use in calculating civil tax liabilities of the Glucks and others. No November 19, 1982, the court granted this motion. The IRS thereupon used information obtained from the grand jury materials as the basis for summonses to Franklin State Bank and First National State Bank-Edison in April 1983 seeking records necessary to determine the Gluck's tax liability for the tax years 1979-81.

As required by 26 U.S.C. §§ 7609(a), (c) (1982), the IRS notified the Glucks of the summonses, and they responded by filing, pursuant to 26 U.S.C. § 7609(b), motions to quash the summonses in the United States District Court of New Jersey. The IRS countered with a motion for summary enforcement. The Glucks argued that the Supreme Courts decision in United States v. Baggot, 463 U.S. 476, 103 S. Ct. 3164, 77 L. Ed. 2d 785 (1983), filed after entry of the ex parte 6(e) order, retroactively invalidated that order, and that the summonses should therefore be quashed as the fruit of information impermissibly obtained in violation of grand jury secrecy. On December 19, 1983, the district court denied Gluck's motion to quash the summonses and granted the IRS's motion for summary enforcement. On December 29, the Glucks moved for reconsideration and a stay pending appeal. The district court denied these motions on April 5, 1984, and the Glucks filed the present appeal on April 23.*fn2 Shortly thereafter, the banks complied with the summonses by turning the requested documents over to the IRS.

B. Stein v. United States, No. 84-5323

The rule 6(e) order entered by the United States District Court for the District of New Jersey on November 19, 1982, also led the IRS to information concerning the tax liabilities of appellants in No. 84-5323, Sidney Stein, Stein and Stein (a corporation), and Stein's Foot Specialities (a partnership) (hereinafter collectively referred to as "the Steins"). Using this information, the IRS issued summonses to Franklin State Bank on April 13, 1983, seeking bank records necessary to calculate the amount of taxes allegedly owed by the Steins for the 1981 tax year. On April 27, the Steins filed, pursuant to 26 U.S.C. § 7609(b), a motion to quash the summonses in the district court, and the IRS responded with a motion for summary enforcement. Like the Glucks, the Steins' primary argument in support of their motion to quash was the alleged retroactive effect of Baggot. The district court denied the Steins' motion to quash and granted the IRS's motion for summary enforcement on November 18, 1983. The Steins moved for reconsideration, and on March 14, 1984, the district court reversed its earlier judgment, holding that Baggot should be applied retroactively to invalidate summonses that are the result of information improperly obtained from grand jury materials. Accordingly, the court ordered that the summonses to the Franklin State Bank be quashed. The IRS appeals.

II. MOOTNESS OF THE UNITED STATES V. GLUCK, NO. 84-5282

In the Gluck matter, after the district court refused to quash the summonses or to stay the execution of its judgment pending appeal, Franklin State Bank fully complied with the summonses. Relying on Vesco v. Securities and Exchange Commission, 462 F.2d 1350 (3d Cir. 1972), the IRS argues that this action ended any controversy between the parties and mooted the Glucks' appeal because the relief sought -- prevention of compliance with the summonses -- can no longer be granted. The Glucks respond that their appeal is not moot because this court can prevent the IRS from using information obtained as a result of summonses that should have been quashed.

The Glucks cite two cases from this circuit in support of their position. The first is United States v. Waltman, 525 F.2d 371 (3d Cir. 1975), which concerned the contents of a diary characterized by the government as a corporate record with no fifth amendment protection, but claimed by the taxpayer to be a personal item privileged from disclosure. The district court ordered the diary produced and denied a stay pending appeal. Although the taxpayer surrendered the diary while the case was on appeal, this court held that the case was not moot, stating:

Because a stay was denied, the diary was produced. However, the case is not moot since if the diary is not a corporate record, the individual respondent is entitled to its return and appropriated suppression of the use of its contents.

Id. at 373 n.1.

The other case relied on by the Glucks is United States v. Friedman, 532 F.2d 928 (1976), which also addressed the effect of compliance with an IRS summons during the pendency of an appeal challenging its validity. As in Waltman, this court denied the IRS's motion to dismiss the appeal as moot "because the controversy between the IRS and the taxpayers over these records [was] still very much alive." Id. at 931. We stated:

If the taxpayers were to prevail in their contention that all summonses were illegal because they were issued solely to gather evidence for use in a criminal prosecution, then the records . . . would have been obtained unlawfully. Such a ruling could affect the possible use of these records in ...


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