United States v. Gippetti , 248 F. App'x 382 ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
9-20-2007
USA v. Gippetti
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-3801
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Case No: 06-3801
UNITED STATES OF AMERICA
v.
JEROME GIPPETTI
On Appeal from the United States District Court
for the District of New Jersey
District Court No.: 04-cv-00522
District Judge: The Honorable Katharine S. Hayden
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
September 19, 2007
Before: SLOVITER, SMITH, and GARTH, Circuit Judges
(Filed: September 20, 2007)
OPINION
SMITH, Circuit Judge.
This case involves a protracted struggle between a taxpayer, Jerome Gippetti, and
the Internal Revenue Service (“IRS”) over IRS attempts to enforce a summons in its civil
investigation of Gippetti. A prior decision by this Court required the District Court to
make an express finding that Gippetti exercised possession or control over the records
now sought by the IRS. Although the District Court made such a finding, Gippetti argues
that this Court’s order required the District Court to conduct further factfinding to
determine whether Gippetti had control over the relevant records. More specifically,
Gippetti contends that the District Court needed to conduct an evidentiary hearing at
which Gippetti had the burden of proving his lack of possession and control of the
records. We reject Gippetti’s argument and will affirm the District Court order enforcing
the IRS administrative summons.
I.
In February 2003, the IRS issued a summons to Jerome Gippetti as a result of its
civil investigation into the 1999 and 2000 federal income tax liabilities of Gippetti and his
late wife. The summons required that Gippetti appear before IRS revenue agent Karen
Remington to provide testimony and produce records relating to, inter alia, his bank and
credit card accounts with the Cayman National Bank, Ltd (“CNB”). In April 2004, after
Gippetti failed to comply with the summons, the IRS initiated an enforcement action in
the District Court to enforce the summons and the related subpoena. On August 27, 2004,
the District Court entered an order that required, in relevant part, Gippetti to produce
documents requested by the IRS that related to Gippetti’s CNB bank and credit card
accounts. Gippetti appealed the District Court’s order to this Court, which vacated the
order and remanded the case. The primary issue on this appeal is whether, on remand, the
District Court complied with this Court’s November 8, 2005 Not Precedential Opinion
and Judgment that required the District Court to make “an express determination of
possession or control” over the records the Government is seeking. United States v.
2
Gippetti, 153 Fed. Appx. 865, 868 (3d Cir. Nov. 8, 2005) (“Gippetti I”).1 We noted that
“[t]here can be no question—and Gippetti does not seriously dispute—that most or all of
the CNB records at issue here exist, that the government knows they exist, and that they
are located at CNB.” Id.On remand, the District Court expressly found, in a June 22, 2006 enforcement
order, “that Gippetti has possession, custody or control of the summoned records
pertaining to his CNB bank account and MasterCard credit card accounts issued through
and by CNB.” A3-4. This statement occurred after a post-remand hearing where the
District Court stated that “I am making the finding that [Gippetti] does have possession,
custody and control sufficient to serve the purposes that are necessary so that he can
fulfill the requirements of this subpoena.” A36. Gippetti argues that this determination
did not comply with this Court’s instructions in Gippetti I. Instead, Gippetti interprets
Gippetti I to require a fresh evidentiary hearing to determine possession and control.2
II.
1
In our previous opinion, we dispelled any Fifth Amendment concerns related to the
production of these documents. See Gippetti, 153 Fed. Appx. at 869 (stating that “for
Gippetti to produce the CNB records would have no testimonial significance, and any
Fifth Amendment claim would be without merit”). Gippetti appealed this ruling, but the
Supreme Court denied certiorari on June 26, 2006. Gippetti v. U.S., __ U.S. __ , 126
S.Ct. 2932, 165 L.Ed.2d 977 (June 26, 2006).
2
The District Court exercised jurisdiction over the IRS summons enforcement
proceedings pursuant to 26 U.S.C. §§ 7402(b) and 7604(a). After remand, the District
Court entered a final order enforcing the IRS summons in part. Gippetti filed a timely
notice of appeal from this order. We therefore have jurisdiction pursuant to 28 U.S.C. §
1291. See Church of Scientology of Calif. v. United States, 506 U.S. 9, 14-15 (1992).
3
We exercise plenary review over whether the District Court correctly interpreted
the instructions of our prior opinion in Gippetti I, 153 Fed. Appx. at 869, where we
“remanded for further proceedings consistent with this Opinion.” See Cooper Distrib.
Co., Inc. v. Amana Refrigeration, Inc., 180 F.3d 542, 546 (3d Cir. 1999). Nowhere in our
prior decision did we state that the District Court needed to hold an evidentiary hearing to
fulfill the instructions of our prior opinion. Nonetheless, Gippetti alleges that Gippetti I
implicitly, and Third Circuit precedent explicitly, mandated that the District Court on
remand conduct factfinding through, for example, a hearing. Presumably, Gippetti would
have presented evidence at this hearing to show that he did not have copies of the foreign
bank account and credit card records and that CNB would not provide the records
because, Gippetti argues, Cayman Island banking law precludes its banks from releasing
such information unless the customer has consented to the disclosure. While Gippetti
asked CNB for the information, he asserts that CNB did not view this action as
consensual because the request was in response to the August 27, 2004 District Court
order.3 See Gippetti I, 153 Fed. Appx. at 867.
3
After the District Court’s post-remand June 22, 2006 enforcement order, Gippetti
flew to CNB in the Cayman Islands in an apparent attempt to receive copies of the
records. CNB refused to turn over these records. In a July 6, 2006 letter to Gippetti
placed in the appendix by Gippetti, the bank stated that “[w]hen you made your previous
request [in 2004] we considered carefully the documents which your US attorneys
provided to us and in particular the Summons issued by the Internal Revenue Service and
the subsequent Court Orders made against you, to which you referred in your letter.”
A77. CNB noted that “consent given under pain of penal sanction(s) does not constitute
consent within the meaning” of Cayman Islands law. Id. CNB determined that “those
circumstances had not changed and that [Gippetti’s] request had not changed and that
[Gippetti’s] request was based on ‘submission to force’.” A78. These post-June 22, 2006
4
Gippetti I did not implicitly require a new evidentiary hearing to determine
possession or control. We simply mandated that the District Court expressly rule on this
issue. We concluded that this mandate was appropriate because a taxpayer faces the
likelihood of a civil contempt action if the taxpayer refuses to produce the relevant
records. Because the specter of civil contempt looms over non-complying taxpayers, we
held that a District Court cannot make such a finding of possession and control implicitly.
We are unconvinced that such a general directive to the District Court, without any
particular requirement on how to make such an express determination, required a new
hearing. This conclusion is buttressed by our statements in Gippetti I that the District
Court’s original enforcement order “necessarily contained an implied finding that any
defense of lack of possession or control had not been sustained,” Id. at 868, and that
Gippetti “does not dispute, nor could he reasonably do so, that banks, including CNB,
generate and, indeed, send to their customers monthly statements and the like and does
not argue that, in 1999 and 2000, he did not, in fact, receive those statements and some or
all of the other records sought by the government.” Id. at 867.
Similarly, Third Circuit precedent does not require an evidentiary hearing under
the circumstances of this case. To begin, a district court’s summons enforcement
actions do not shed much light on this appeal, as our review is limited to the District
Court’s express determination on June 22, 2006 that Gippetti had possession and control
over the records. Further, as noted by the Government, Gippetti’s claim that he has tried
to attain the records “has not been the subject of discovery, or of cross-examination, and
it was not considered by the District Court in deciding whether to enforce the IRS
summons.” Gov’t Br. 33.
5
proceedings “are designed to be summary in nature.” United States v. Rockwell Int’l, 897
F.2d 1255, 1261 (3d Cir. 1990). The Supreme Court has stated that, before a district
court can enforce an IRS summons, the Government must “show that the investigation
will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the
purpose, that the information sought is not already within the Commissioner’s possession,
and that the administrative steps required by the Code have been followed.” United
States v. Powell, 379 U.S. 48, 57-58 (1964); Rockwell Int’l, 897 F.2d at 1261-62. Once
the Government makes this four-step prima facie showing, the taxpayer still has the right
to “challenge the summons on any appropriate ground.” Rockwell Int’l, 897 F.2d at 1262(quoting Powell, 379 U.S. at 58). The taxpayer bears the burden to show an appropriate
ground. See Powell, 379 U.S. at 58; United States v. Wheaton, 791 F. Supp. 103,
105 (D.N.J. 1992); United States v. Millstone Enters., Inc., 864 F.2d 21, 23 (3d Cir.
1988). The “lack of possession or control of records” is an appropriate ground to
challenge a summons. United States v. Rylander, 460 U.S. 752, 757 (1983).
In the present case, Gippetti concedes that the Government has met its prima facie
burden under Powell. However, Gippetti argues that he challenged the summons on an
appropriate ground by raising the lack of possession or control as a valid affirmative
defense. Because he raised this affirmative defense, Gippetti contends that, on remand,
the District Court should have afforded him an evidentiary hearing. On the one hand, if
“material Government allegations are factually refuted by the taxpayer, thus presenting a
disputed factual issue, or where proper affirmative defenses … are factually supported by
6
the taxpayer’s affidavits, the taxpayer is entitled to an evidentiary hearing.” United States
v. Garden State Nat’l Bank, 607 F.2d 61, 71 (3d Cir. 1979). On the other hand, mere
allegations supporting an affirmative defense are “insufficient if conclusionary.” Id.; see
also Alphin v. United States, 809 F.2d 236, 238 (4th Cir. 1987) (“If the challenging party
cannot refute the government’s prima facie case or cannot factually support a proper
affirmative defense, ‘the district court should dispose of the proceeding on the papers
before it and without an evidentiary hearing’.” (citing Garden State, 607 F.2d at 71)). Put
differently, the taxpayer’s affidavit must “particularize those specific facts” that could
lead a district court to infer that the taxpayer has rebutted the Government’s prima facie
case. Garden State, 607 F.2d at 71. Additionally, “[l]egal conclusions or mere
memoranda of law will not suffice.” Id. No evidentiary hearing is required if “the
taxpayer cannot refute the government’s prima facie Powell showing or cannot factually
support a proper affirmative defense.” Id.Gippetti has not sufficiently raised the affirmative defense of non-possession and
non-control to entitle him to an evidentiary hearing. Up until the District Court’s post-
remand enforcement order, Gippetti focused his efforts to defeat the enforcement of the
summons on his Fifth Amendment right against self-incrimination. He did not assert a
lack of possession or control specifically because of the manner in which Cayman Island
banking laws define consent. On March 8, 2004, Gippetti’s attorney submitted a letter to
the District Court stating that Gippetti “will assert his constitutional privileges with
respect to any testimony and production of documents sought by the Summons.” A52.
7
Gippetti’s attorney sent another letter three days later, which again focused only on the
right against self-incrimination. A53. In a letter dated March 25, 2004, Gippetti’s
attorney again emphasized Gippetti’s right against self-incrimination as to producing the
CNB records. A55-58. On April 23, 2004, Gippetti submitted an affidavit in support of
his motion to quash the IRS summons. With respect to the CNB records, Gippetti stated
that he did “not possess any documents pertaining to [the CNB] accounts….” A173.
Gippetti also raised a Fifth Amendment self-incrimination objection to the record
production of those and other records sought by the IRS. A171-77. Four days earlier,
Gippetti’s Certified Personal Accountant submitted an affidavit that repeatedly noted that
he had never seen any of the CNB records and had no knowledge of their existence.
A182-87. Gippetti I rejected Gippetti’s Fifth Amendment arguments. Gippetti, 153 Fed.
Appx. at 869. Once we separate Gippetti’s Fifth Amendment arguments from his
contentions regarding a lack of possession or control, we fail to see how these affidavits
amount to anything more than the non-particularized facts and conclusory statements that,
under Garden State, do not require an evidentiary hearing. See Garden State, 607 F.2d at
71.
In light of this conclusion, we agree with the Government that a taxpayer cannot
“refuse to come forward with evidence in the District Court to rebut the Government’s
prima facie case, improperly claiming a privilege against self-incrimination under the
Fifth Amendment, and then, when that claim is rejected … demand another chance to
meet his evidentiary burden.” Gov’t Br. 26.
8
In sum, we instructed the District Court to make an express determination as to
Gippetti’s possession or control over the CNB records. It made such a determination.
Failing to find any error in the District Court’s proceedings conducted on remand, and
because the District Court’s determination is not clearly erroneous, we will therefore
affirm the judgment of the District Court.4
4
We note that, while Gippetti did not meet his affirmative defense burden to contest
the Government’s prima facie Powell showing, he still has the opportunity to allege a
current lack of possession or control if the Government pursues civil contempt
proceedings. As the Supreme Court has instructed, “[i]n a civil contempt proceeding … a
defendant may assert a present inability to comply with the order in question. While the
court is bound by the enforcement order, it will not be blind to evidence that compliance
is now factually impossible. Where compliance is impossible, neither the moving party
nor the court has any reason to proceed with the civil contempt action.” Rylander, 460
U.S. at 758.