United States v. American Target ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
AMERICAN TARGET ADVERTISING,
No. 00-1384
INCORPORATED; VIGUERIE AND
ASSOCIATES, INCORPORATED; THE
VIGUERIE COMPANY,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(MISC-99-56-MC)
Argued: December 4, 2000
Decided: July 11, 2001
Before WILKINS and KING, Circuit Judges, and
William L. GARWOOD, Senior Circuit Judge of the
United States Court of Appeals for the Fifth Circuit,
sitting by designation.
_________________________________________________________________
Affirmed by published opinion. Judge King wrote the opinion, in
which Judge Wilkins and Senior Judge Garwood joined.
_________________________________________________________________
COUNSEL
ARGUED: Mark J. Fitzgibbons, Manassas, Virginia, for Appellants.
Colette Gianna Matzzie, Appellate Staff, Civil Division, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: William J. Olson, John S. Miles, WILLIAM
J. OLSON, P.C., McLean, Virginia, for Appellants. David W. Ogden,
Acting Assistant Attorney General, Mark B. Stern, Appellate Staff,
Civil Division, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee.
_________________________________________________________________
OPINION
KING, Circuit Judge:
On January 9, 1998, under the authority of the Inspector General
Act of 1978, the United States Postal Inspection Service issued sub-
poenas for certain records and documents in the possession of Ameri-
can Target Advertising, Inc., and Viguerie and Associates, Inc.,
direct-mail companies with a common base of operations in Manas-
sas, Virginia. Shortly thereafter, on February 2, 1998, a third sub-
poena was served on yet another entity, The Viguerie Company,
which is also engaged in the direct-mail business and operates from
the same premises. The three companies (hereinafter referred to col-
lectively as "American Target") are united by the common ownership
of Richard A. Viguerie, self-described as "a well-known, politically-
conservative businessman and political spokesman." Br. of Appel-
lants, at 5. On their face, the subpoenas were issued for the purpose
of investigating "[a] possible fraud against the Postal Service."
After American Target declined to produce the requested materials,
the Government petitioned the district court for summary enforcement
of the subpoenas. Following a hearing, the court granted the Govern-
ment's petition and directed American Target to comply with the sub-
poenas within thirty days of the August 16, 1999 Order
memorializing its decision. American Target moved to alter or amend
the ruling, but that motion was ultimately denied by the district court
by its Order of February 14, 2000. American Target timely filed a
notice of appeal from both dispositive Orders, and it moved the dis-
trict court to stay those Orders pending appeal. The court below
denied the stay motion on April 14, 2000, prompting American Target
to seek similar relief before us. See Fed. R. App. P. 8(a)(2). On April
2
19, 2000, a panel of this Court denied a stay, and American Target
complied with the subpoenas.1 1
Having now had the benefit of briefing and oral argument, we pro-
ceed to consider the merits of this appeal. The question before us is
whether the district court, constrained by its limited scope of review
in such matters, clearly erred in summarily enforcing the subpoenas
without -- at the very least -- permitting American Target discovery
into what it contends is a politically motivated abuse of the adminis-
trative process. We conclude that the court committed no clear error,
inasmuch as (1) the reasons proffered by the Postal Inspection Service
for issuing the subpoenas withstand the appropriately narrow level of
judicial scrutiny; and (2) American Target has not made a sufficient
showing of abuse to vindicate its non-compliance with the subpoenas,
or even to justify discovery of the catalyst behind the investigation.
Hence, as outlined below, we affirm the Orders on appeal.
I.
We have previously recognized that, in most cases,"a district
court's role in enforcing administrative subpoenas is sharply limited."
EEOC v. Lockheed Martin Corp., Aero & Naval Systems, 116 F.3d
110, 113 (4th Cir. 1997) (citation and internal quotation marks omit-
ted). The court below, in granting the Government's petition for
enforcement, need only have discerned that (1) the Postal Inspection
Service was authorized to undertake such an investigation; (2) the
applicable statutory requirements of due process had been met; and
(3) the materials requested were relevant. See id. (citing, inter alia,
Oklahoma Press Publ'g Co. v. Walling, 327 U.S. 186, 216-17
(1946)). American Target attacks the district court's ruling as it per-
tains to the first of these three requirements, that of authorization. The
lower court's decision in this regard is reviewed for clear error. Id.
_________________________________________________________________
1 American Target's production of the requested materials does not
moot this appeal. See Church of Scientology of Cal. v. United States, 506
U.S. 9, 13 (1992) (where tapes and documents produced in response to
IRS summons, appeal challenging propriety of summons permitted to
proceed because "a court does have power to effectuate a partial remedy
by ordering the Government to destroy or return any and all copies it
may have in its possession").
3
(citing Reich v. National Eng'g & Contracting Co., 13 F.3d 93, 98
(4th Cir. 1993)).
II.
A.
At the outset, American Target contests the Postal Inspection Ser-
vice's authority to issue subpoenas at all, suggesting that the agency's
subpoena power instead resides exclusively in the Inspector General.
From 1988, at least until the office of Inspector General was estab-
lished within the Postal Service in 1996, see 39 U.S.C. § 202(e), the
Postal Inspection Service was "responsible for exercising the author-
ity, and carrying out the duties, functions, and responsibilities
assigned to the Office of the Inspector General by the Inspector Gen-
eral Act." 39 C.F.R. § 224.3(c). And, to be sure, the referenced Act
empowers the various Inspectors General "to require by subpena the
production of all information, documents, reports, answers, records,
accounts, papers, and other data and documentary evidence necessary
in the performance of the functions assigned . . .[.]" 5 U.S.C. app. 3
§ 6(a)(4). Although it seems clear that, in the absence of an Inspector
General, the subpoena authority reposed therein by statute was legiti-
mately exercised by the Postal Inspection Service, American Target
maintains that such authority was necessarily divested once Congress
created the office.
Whatever the merits of this argument, we decline to address them,
as American Target failed to preserve the point by presenting it to the
district court for consideration in the first instance. See Karpel v.
Inova Health Sys. Servs., 134 F.3d 1222, 1227 (4th Cir. 1998). Karpel
states our settled rule that "issues raised for the first time on appeal
generally will not be considered" except in the narrowest of circum-
stances, where, for example, plain error or a fundamental miscarriage
of justice would otherwise result. Id. (citing, inter alia, Nat'l Wildlife
Fed'n v. Hanson, 859 F.2d 313, 318 (4th Cir. 1988)). The present
case is not the exceptional one contemplated by Karpel and Hanson.2 2
_________________________________________________________________
2 We note without comment that, on January 7, 1997, the newly
appointed Inspector General, together with the Chief Postal Inspector of
4
Barb.
1.
American Target nonetheless asserts that, even if the general sub-
poena authority of the Postal Inspection Service is assumed, no such
authority existed in this specific instance. The Government, not sur-
prisingly, maintains to the contrary. A proper examination of the mat-
ter initially requires that we set forth the pertinent facts.
The purpose of the subpoenas, according to the Government's peti-
tion, was "to obtain books and records of the target companies in
order to determine whether they violated the ``Cooperative Mailing'
eligibility requirements for use of the Nonprofit Standard Rate." J.A.
11. Organizations and groups eligible for the Nonprofit Standard Rate
are permitted to mail letters and other materials for about forty-three
percent less than the rate paid by businesses operated for profit.
Problems can arise, however, when a nonprofit organization enters
into "cooperative mailing agreements" with outside entities to conduct
mailings at the reduced rate. See United States Postal Serv. v. Univ.
Publ'g Co., 835 F. Supp. 489, 491 (S.D. Ind. 1993) (accepting as rea-
sonable the Postal Service's definition of cooperative mailing as "a
mailing in which one or more parties cooperate with an authorized
nonprofit mailer to share the cost, risk, and benefits of the mailing").
The Postal Service takes the position that such arrangements involv-
ing commercial enterprises are illegal because they"permit the for-
profit party to bear financial risk and exert excessive financial and
administrative control for direct mailing programs undertaken by the
non-profit party." J.A. 29 (Declaration of Postal Inspector Mark P.
Hines).
_________________________________________________________________
the Postal Inspection Service, executed an "Interim Memorandum of
Understanding" to permit the orderly transition of functions between
their respective offices. This document memorialized the officers' agree-
ment that, inter alia, the Postal Inspection Service would continue to
exercise subpoena authority during the "interim period." The Memoran-
dum failed to mention a specific date on which the interim period would
terminate, but it was apparently ongoing more than one year afterward,
when the subpoenas in this case were issued.
5
The Domestic Mail Manual ("DMM"), a Postal Service publication
incorporated into the agency's regulations, see 39 C.F.R. §§ 111.1,
211.2(a)(2), provides that
Cooperative mailings may be made at the special bulk rates
only when each of the cooperating organizations is individu-
ally authorized to mail at the special bulk rates at the post
office where the mailing is deposited. Cooperative mailings
involving the mailing of any matter on behalf of or produced
for an organization not itself authorized to mail at the spe-
cial bulk rates at the post office where the mailing is depos-
ited must be paid at the applicable regular rates. . . .
DMM § 625.521. This "Cooperative Mail Rule" embodied within the
postal regulations effectively "restricts Nonprofit Standard Mail mail-
ings to the authorized organizations' own mail." United States Postal
Service Publication 417, Nonprofit Standard Mail Eligibility (1996),
at 19 [hereinafter Publication 417].3
3
The records and documents sought by the subpoenas presumably
disclose the nature of American Target's business relationships with
a trio of nonprofit groups: The 60/Plus Association; United Seniors
Association, Inc.; and Taxpayers Education Lobby/Seniors. Each of
these organizations purports to function as a political advocate on
behalf of senior citizens, and all have retained American Target to
assist them in soliciting funds through the mails from their putative
_________________________________________________________________
3 Among other things, Publication 417 provides guidelines for evaluat-
ing whether a particular arrangement constitutes a cooperative mailing.
Chapter 5 lists the relevant factors to be considered: (1) the identity of
the party that "devised, designed, and paid for the mailpiece"; (2) the
party that "paid the postage on the mailing, either directly or indirectly";
(3) the manner in which "the profits and revenues[are] divided from the
mailing or an enterprise it supports"; (4) the"risks [that] are entailed with
the mailing . . . and who bears those risks"; (5) the party that "makes
managerial decisions about the content of the mailing"; and (6) the nature
of the "participants' intentions and interests." Publication 417, at 19. A
nonprofit entity eligible for the reduced rate may enlist the assistance of
a commercial mailing agent "if the organization can show that the rela-
tionship is a legitimate principal-agent relationship." Id.
6
constituency. If the current investigation were to reveal that these
campaigns were so dominated by American Target as to preclude the
solicitation letters from being the nonprofit groups' "own mail," the
Postal Service could assess a postage deficiency for the difference
between the discounted nonprofit rate and the regular rate. See 39
U.S.C. § 3626(k)(2).4
4
American Target contends, however, that cost, benefit, risk, and
control are inappropriate factors to consider in deciding whether a
particular solicitation effort constitutes a cooperative mailing. Even if
we hypothesized an agreement whereby the for-profit enterprise
devised the copy, bore the printing and postage expenses, provided
the names of likely donors, and assumed all risk of loss while retain-
ing the lion's share of any profits, such an arrangement would not,
according to American Target, constitute an impermissible coopera-
tive mailing, so long as the client's name appeared on the letterhead,
that is, the solicitation letter was -- at least nominally -- the non-
profit group's "own mail." American Target asserts that nothing in the
underlying statute or implementing regulations even remotely autho-
rizes the Postal Service to define a cooperative mailing as it has in
Publication 417, see supra note 3. To the extent that the subpoenas
furthered an investigation into a potential violation of an invalid rule,
American Target maintains that it need not have complied with them.
This line of reasoning, though cogently presented and perhaps tena-
ble, nonetheless places the cart before the horse. Although American
Target might seek to defend itself against a subsequent deficiency
determination by contesting the Postal Service's interpretation of the
statutory prohibition against cooperative mailings, the scope of
inquiry is necessarily much narrower in a subpoena enforcement pro-
ceeding. Such proceedings "are designed to be summary in nature."
United States v. Sturm, Ruger & Co., Inc., 84 F.3d 1, 5 (1st Cir.
1996); see EEOC v. American & Efird Mills, Inc. , 964 F.2d 300, 303
(4th Cir. 1992) ("The [review] process is not one for a determination
_________________________________________________________________
4 The deficiency may be assessed against any person or organization
that "mail[s], or cause[s] to be mailed by contractual agreement or other-
wise" any matter ineligible for the nonprofit rate. See 39 U.S.C.
§ 3626(k)(1).
7
of the underlying claim on its merits; Congress has delegated that
function to the discretion of the administrative agency.").
As a collateral effect of this legislative grant of discretion, targets
of agency investigations are constrained to endure the trouble and
expense of compliance, along with certain compromises of their pri-
vacy attendant to the disclosure of proprietary information to third
parties. If the investigation ultimately uncovers no wrongdoing, the
subject may, with some justification, believe itself unfairly victimized
or otherwise violated. The inevitability of these sorts of unfortunate
outcomes, however, is trumped by the overriding public interest in
ensuring "the expeditious investigation of possible unlawful activity."
FTC v. Texaco, Inc., 555 F.2d 862, 872 (D.C. Cir. 1977).
Congress has duly weighed the competing policy interests, and it
has chosen in favor of the effective administration and enforcement
of its laws. It is not the role of the courts to second-guess that choice.
So long as the agency's assertion of authority is not "obviously apoc-
ryphal," Sturm, Ruger & Co., 84 F.3d at 5-6 (citations omitted), the
first requirement of Oklahoma Press and Lockheed Martin is met. See
supra at 5. Inasmuch as the Postal Service's interpretation of the
Cooperative Mail Rule has been accepted by at least two federal
courts, see United States v. Raymond & Whitcomb Co., 53 F. Supp.
2d 436, 440-43 (S.D.N.Y. 1999); Univ. Publ'g Corp., 835 F. Supp.
at 491, its assertion of authority is far from apocryphal, obviously or
otherwise.
2.
American Target contends that, regardless of whether the Postal
Service would ordinarily possess the authority to investigate potential
violations of the Cooperative Mail Rule, it has no authority to exer-
cise its investigative prerogative as a tool of intimidation and harass-
ment. This premise finds support in the law. In United States v.
Powell, 379 U.S. 48 (1964), a proceeding challenging an IRS sum-
mons, the Supreme Court declined to foreclose judicial inquiry into
the motivation behind the Government's examination:
It is the court's process which is invoked to enforce the
administrative summons and a court may not permit its pro-
8
cess to be abused. Such an abuse would take place if the
summons had been issued for an improper purpose, such as
to harass the taxpayer or to put pressure on him to settle a
collateral dispute, or for any other purpose reflecting on the
good faith of the particular investigation.
Id. at 58 (footnote omitted); accord, Maccaferri Gabions, Inc. v.
United States, 938 F. Supp. 311, 314 (D. Md. 1995) ("[T]he govern-
ment may not subvert the use of its investigative power by reason of
political influence or other improper motives.") (citations and internal
quotation marks omitted). The burden of demonstrating an abuse of
process is on the party challenging the investigation. Powell, 379 U.S.
at 58.
In furtherance of its allegation that an abuse of process occurred
here, American Target advances the theory that the Postal Service
commenced this investigation at the behest of Senator David Pryor,
an Arkansas Democrat who is now retired. American Target notes
that the solicitation letters sent on behalf of its clients frequently criti-
cized the administration of President Clinton, leading Pryor to pub-
licly rebuke Viguerie on the Senate floor. Speaking in support of
proposed legislation to protect senior citizens, Pryor portrayed Vigue-
rie as the driving force behind all three of the nonprofit organizations
whose relationship with American Target (itself owned by Viguerie)
is the focus of the subpoenas at issue. Senator Pryor opined that
Viguerie, rather than being an advocate for senior citizens, was
instead an "opportunist":
His goal is to generate money for his own pocket and for his
own organizations. He and other profiteers use these dona-
tions to fuel their direct mail operations across America.
They get rich, while the only thing the seniors get is the
thrill of having their names and addresses sold to other orga-
nizations who will ask them for more money. It is a vicious
cycle and the elderly people of our country have become the
victim in a national con game.
139 Cong. Rec. S6364 (daily ed. May 24, 1993) (statement of Sen.
Pryor).
9
Without question, American Target has demonstrated a fair degree
of hostility directed toward it by Senator Pryor. But that is not
enough. American Target must show that the party actually responsi-
ble for initiating the investigation, i.e., the Postal Service, has done
so in bad faith. See SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d
118 (3d Cir. 1981) (en banc):
At bottom, this case raises the question whether . . . the
SEC's decision to investigate reflected its independent
determination, or whether that decision was the product of
external influences. The reality of prosecutorial experience,
that most investigations originate on the basis of tips, sug-
gestions, or importunings of third parties . . . need hardly be
noted. That the SEC commenced these proceedings as a
result of the importunings of Senator Weicker or[a business
competitor], even with malice on their part, is not a suffi-
cient basis to deny enforcement of the subpoena.
Id. at 130 (citation omitted). Quite simply, there has been no showing
of bad faith on the part of the Postal Service in connection with its
issuance of the contested subpoenas.
American Target suggests that it might be able to make the
required showing were it granted formal discovery before the district
court. The general rule, however, is that such discovery is prohibited
in these types of summary enforcement proceedings absent "extraor-
dinary circumstances." See SEC v. McGoff, 647 F.2d 185, 193 (D.C.
Cir. 1981) (citation omitted). To obtain discovery, the target of the
subpoena or other process must "distinguish himself from the class of
the ordinary respondent, by citing special circumstances that raise
doubts about the agency's good faith." SEC v. Dresser Indus., Inc.,
628 F.2d 1368, 1388 (D.C. Cir. 1980) (en banc) (citations and internal
quotation marks omitted), quoted in Maccaferri Gabions, 938 F.
Supp. at 316.
On occasion, a respondent has sufficiently called the Government's
good faith into question. In United States v. Fensterwald, 553 F.2d
231 (D.C. Cir. 1977) (per curiam), a taxpayer chosen for a "special
audit" was permitted limited discovery into the selection process upon
a showing that, inter alia, he was the former chief counsel to a Senate
10
committee where, in the course of his duties, he produced evidence
of illegal IRS activities. Similar relief was accorded the respondent in
Wheeling-Pittsburgh Steel, supra, where the district court had made
specific findings that "the SEC ``has permitted, and at times encour-
aged, the abuse of its investigating function,'" id. at 119, and that the
agency's allegations of wrongdoing against the respondent were "pa-
tently frivolous," id. at 127.
The circumstances surrounding the Postal Service's investigation
in this case have little in common with those in Fensterwald or
Wheeling-Pittsburgh Steel. Rather, American Target's situation more
closely resembles that described by the court in McGoff, supra. In that
case, the respondent alleged that he had been targeted for investiga-
tion by the SEC because he was "an active and vocal conservative
[who was] a fierce critic of Carter administration attitudes and poli-
cies." Id. at 188 (internal quotation marks and brackets omitted).
Then-Judge Ginsburg, writing for the court, aptly observed:
Most Americans criticize their government at one time or
another and many in a position to be heard do so regularly
and harshly. If strong criticism of administration policy on
the part of the target of an agency investigation were suffi-
cient to authorize inquiry into the agency's motives, little
would remain of the general rule that except in extraordi-
nary circumstances discovery is improper in a summary sub-
poena enforcement proceeding.
Id. at 194 (citation and internal quotation marks omitted).
We entirely agree. When presented with evidence of unlawful con-
duct, the Government is not bound to investigate only those potential
wrongdoers who support its policies. Because American Target has
failed to distinguish itself from the ordinary disgruntled respondent,
it is not entitled to discovery regarding the genesis of the Postal Ser-
vice's inquiry.
III.
The district court did not clearly err in determining that the Postal
Service was authorized to conduct its investigation of American Tar-
11
get. We therefore affirm the lower court's order directing compliance
with the administrative subpoenas.
AFFIRMED
12