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United States v. Arizechi

June 20, 2006

UNITED STATES
v.
ARIZECHI



The opinion of the court was delivered by: William J. Martini Judge

MARTIN LUTHER KING JR. FEDERAL BLDG. & U.S. COURTHOUSE 50 WALNUT STREET, P.O. BOX 419 NEWARK, NJ 07101-0419 (973) 645-6340

LETTER OPINION

Dear Counsel:

This matter comes before the Court on Respondent Michael Arizechi's appeal of Magistrate Judge Ronald J. Hedges's Letter Order, dated May 27, 2006, granting Petitioner United States's petition to enforce two Internal Revenue Service summonses and denying Respondent's motion to quash the summonses. There was no oral argument. Fed. R. Civ. P. 78. For the following reasons, Judge Hedges's decision is AFFIRMED.

Background

Petitioner, the United States (the "Government"), is investigating the federal income tax liability of Respondent, Michael Arizechi ("Arizechi"), for the years of 2001 to 2005. (Declaration of Special Agent Frank Stryker ¶ 2 [hereinafter "Stryker Decl."]). As part of this investigation, the Government served two Internal Revenue Service ("IRS") summonses upon Arizechi, as custodian of records for two companies, Arizek, Inc. ("Arizek") and Mikarchi, LLC ("Mikarchi"). (Declaration of James J. Bonicos at Ex. C [hereinafter "Bonicos Decl.")]). Arizechi is the sole director, officer, shareholder, and employee of the companies. (Arizechi's Opp. Br. at 2). The summonses directed Arizechi to appear before an IRS agent on July 7, 2005 to give testimony and produce for examination certain books, papers, records, and other data described in the summonses. (See id.). Specifically, the summonses sought: "All corporate records and books of account relative to the financial transactions of [Arizek and Mikarchi]." (Id.).

Arizechi never appeared before the agent on July 7. (Stryker Decl. ¶ 4). Instead, he wrote a letter to the Government, dated July 14, 2005, stating his intention to invoke the Fifth Amendment privilege against self-incrimination. (See Bonicos Decl. at Ex. E). Arizechi also offered in the letter to personally appear before the agent to invoke his privilege on a question- by-question basis. (Id.). The Government never responded. Rather, on February 6, 2006, the Government brought two petitions pursuant to 26 U.S.C. §§ 7402(b) and 7604(a) against Arizechi, as custodian of records for Arizek and Mikarchi, to judicially enforce the summonses. In a declaration submitted with the petitions, the Government warranted that it was not already in possession of the testimony and documents sought. (Stryker Decl. ¶ 5). Additionally, the Government stated that the testimony and documentation sought was necessary to determine whether Arizechi committed any offense under the Internal Revenue Code and to determine his correct income for the years 2001 to 2005. (Id. ¶ 7).

Upon the Government's motion, Magistrate Judge Ronald J. Hedges issued an order to show cause why Arizechi should not be compelled to obey the summonses. In response, Arizechi filed an opposition to the Government's petition and moved to quash the summonses. In his motion, Arizechi raised two arguments: (1) the Fifth Amendment privilege against self- incrimination protects him from responding to the summonses; and (2) the summonses contain certain deficiencies which render them unenforceable. After holding oral argument on the matter, Judge Hedges issued a Letter Order granting the Government's petition to enforce the summonses. Arizechi now appeals to this Court.

Discussion

I. Standard of Review

A district court may reverse a Magistrate Judge's order if it finds the ruling clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a); D.N.J. Civ. R. 72.1(C)(1)(A). The district court is bound by the clearly erroneous rule as to findings of fact, while the phrase "contrary to law" indicates plenary review as to matters of law. Haines v. Liggett Group Inc., 975 F.2d 81, 91 (3d Cir. 1992). "[A] finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). When an appellant challenges a magistrate's interpretation of specified statutory language, the court's standard of review is plenary. United States v. Hayden, 64 F.3d 126, 129 (3d Cir. 1995); United States v. Accetturo, 623 F. Supp. 746, 753 (D.N.J. 1985).

II. The Fifth Amendment Privilege Against Self-Incrimination Does Not Shield Arizechi from Responding to the Summonses

Arizechi first argues that he is protected from responding to the summonses under the Fifth Amendment privilege against self-incrimination. The Fifth Amendment guarantees that no person "shall be compelled in any criminal case to be a witness against himself." U.S. Const. amend. V. "The word 'witness' in the constitutional text limits the category of compelled incriminating communications to those that are 'testimonial' in character." United States v. Hubbell, 530 U.S. 27, 34 (2000). Corporations do not enjoy a Fifth Amendment privilege against self-incrimination, as this privilege is personal and only enjoyed by natural individuals. Braswell v. United States, 487 U.S. 99, 102 (1988). In addition, the Supreme Court has held that the collective-entity doctrine precludes a custodian of corporate records from raising the Fifth Amendment to prevent production of those records. See Bellis v. United States, 417 U.S. 85, 88 (1974); Braswell, 487 U.S. at 108-09. Under the collective entity doctrine, the custodian of corporate records has no Fifth Amendment privilege, "regardless of how small the corporation may be." Bellis, 417 U.S. at 100.

Cases such as this, however, also involve the "act of production doctrine." This doctrine recognizes that "the act of producing documents in response to a [summons] may have a compelled testimonial aspect...." Hubbell, 530 U.S. at 36; see also United States v. Doe, 465 U.S. 605, 612 (1984) (holding that "[a]lthough the contents of a document may not be privileged, the act of producing the document may be" because the person is compelled "to perform an act that may have testimonial aspects and an incriminating effect."). A corporate custodian, however, cannot refuse to produce the requested records because it would be a personally incriminating act. See Braswell, 487 U.S. 99, 117 (1988). To protect corporate custodians in such circumstances, the Supreme Court has provided certain protections. Specifically, in Braswell, the Court held that "[i]f the custodian were later tried on criminal charges and the government used the documents he produced...[,] the government could inform the ...


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