Court Blurs Analysis of the Fifth Amendment and Document Production (5/12/11)

In United States v. Nugyen (SD TX 5/5/11), the court considered the Government's petition to enforce IRS summonses. The individuals asserted blanket claims of Fifth Amendment privilege to answer questions and produce documents. In its analysis, the court somehow got off track with respect to the document production.

1. Since Hubbell and indeed its predecessor Fisher, there has been no Fifth Amendment privilege for the contents of documents. The documents were not produced under compulsion and hence any "testimony" in them is not subject to the privilege.  The Fifth Amendment privilege for compulsory production of documents arises from testimony inherent in the act of producing documents under compulsion. (This is often called the Act of Production doctrine.)  Testimony inherent in the act of production can include the existence and possession of the documents, the witnesses' mental acts of having to identify and cull documents identified in a generalized and overbroad summons, authenticity, etc.
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Summons Production Ordered from Law Firm for Client Documents in Its Possession

In United States v. Sideman & Bancroft, LLP (ND CA 4/8/11 - No. 3:11-cv-00736), the court enforced a summons issued to the taxpayer-target's criminal defense attorneys, Sideman & Bancroft LLP ("Sideman"). The facts were: The taxpayer had delivered the documents in question to her return preparer, an enrolled agent. Then, while the return preparer held the documents, the IRS obtained a search warrant for the taxpayer's residence and business premises. The documents were within the description contained on the search warrant, but, of course, the IRS did not find the seize the documents because they were at the return preparer's office. But the agent did find documents referring to the return preparer.  During the execution of the search warrant, the taxpayer talked with the return preparer and then went to the return preparer's office to sign one of the returns. After the taxpayer left, the return preparer realized that she had documents within the scope of the search warrant. She called the taxpayer's attorney, a Richard Guadagni to advise and have them delivered to the IRS. Guadagni took possession of the documents later that day but delivered them to the taxpayer's new attorney, Jay Weill with Sideman. The return preparer said that she would not have given the documents to Guadagni if she had known he would not deliver them to the IRS. Apparenltly, the return preparer advised the IRS of the description of the documents and, using the description, the IRS summonsed from Sideman.
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Foreign Bank Account Records and the Required Records Exception to the Act of Production Doctrine

For those exposed on foreign accounts (i.e., no FBARs and no income tax reporting), the Government is brandishing a weapon that some taxpayers may not anticipate -- end-runs around the Fifth Amendment that would otherwise apply to avoid incriminating oneself. The end-runs are the "required records" exception to the Fifth Amendment and possibly the "foregone conclusion" exception to a Fifth Amendment act of production claim. I have previously blogged on the foregone conclusion exception here and focus here on the required records exception.

Just for background, there is now no Fifth Amendment privilege for the contents of documents (not even diaries which are, after all, not made under compulsion), but there is a Fifth Amendment privilege under the "act of production" doctrine relating to the testimonial aspects of compulsory production of documents (i.e., identifying documents, acknowledging their existence, etc.). So, the Fifth Amendment privilege is alive and well for compulsory document production in many cases. Hence, the Government needs end-runs such as the required records exception and the foregone conclusion exception.

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What is the Foregone Conclusion To Overcome the Fifth Amendment Act of Production Doctrine? (7/27/10)

The IRS summons is a substantial tool in the investigation of tax liabilities and of crimes related to taxes. The summons is compulsory process; to that extent, is like a grand jury subpoena. It is not as powerful a tool as the grand jury subpoena (because, in part, of timing and procedural predicates in enforcing the summons not present for grand jury subpoenas), but in its compulsoriness is like a grand jury subpoena. The Supreme Court held in a line of cases culminating United States v. Hubbell, 530 U.S. 27 (2000) that, although there is no Fifth Amendment privilege for the contents of documents, compulsory process may implicate the Fifth Amendment where the witness's act of producing is inherently testimonial. It is testimonial where the existence of the documents is not a "foregone conclusion" and thus the witness would, in effect, "testify" under compulsion as to the existence of the documents, their authenticity and the witness's possession of the documents. The question is what facts rise to the level of "foregone conclusion" as to the existence and possession of the documents the IRS has summonsed (or, in the case of a grand jury subpoena, that the grand jury has subpoenaed)?

In a recent opinion in a summons enforcement case, United States v. Shadley 2010 U.S. Dist. LEXIS 81651 (ND CA 2010), the Court held that the witness need not produce checkbook deposit slips for a bank account that the IRS knew about and even already had obtained the bank's records. Thus, the IRS certainly knew of the existence of a bank account, that the witness had made deposits into the account, and that the bank would have given the defendant a stamped deposit slip in normal course of accepting the deposits reflected on the deposit slips. Yet the Court held that the witness had a Fifth Amendment privilege because the act of production was testimonial and the Government had not shown that existence and possession of the deposit slips that the witness surely received was a foregone conclusion.

If Shadley is correctly decided, it is hard to imagine a case where the taxpayer cannot assert the privilege, thus turning the act of production doctrine into a Fifth Amendment privilege for the contents of the documents. So, let's explore a bit more about what level of knowledge is required for the Government to have sufficient knowledge for the foregone conclusion that precludes the assertion of the Fifth Amendment.

In United States v. Norwood, 420 F.3d 888 (8th Cir. 2005). the IRS had instituted a much heralded initiative to discover foreign bank accounts by issuing John Doe summonses to credit card processing agencies within the United States who would have records of processed charges for foreign bank accounts. From those records, the IRS obtained evidence that a particular taxpayer, the taxpayer- defendant in this summons enforcement proceeding had a foreign credit card, The IRS issued the summons for the taxpayer's bank and credit card records and related documents. The taxpayer appeared pursuant to the summons and asserted privileges. The Government then brought the summons enforcement proceeding and requested that the Court also issue an order requiring compliance with a consent directive directing the offshore bank to disclose information to the IRS. In the affidavit in support of the summons, the IRS Agent recounted the following evidence : (i) the taxpayer had a foreign bank account with two associated credit cards; (ii) the bank account number for that account; and (iii) the taxpayer had answered no to the foreign bank account question on Schedule B of his 1040.

One of the taxpayer’s defenses to compliance was the Hubbell defense. The district court and the court of appeals rejected the defense on the basis that the information the IRS already had made the existence of the foreign bank account virtually a “foregone conclusion,” sufficient to meet Hubbell’s requirements. The court of appeals reasoned:

The existence of the requested records relating to Norwood's [foreign bank credit] cards and [related foreign bank] account is a foregone conclusion. The summons seeks records such as account applications, periodic account statements, and charge receipts, all of which are possessed by the owners of financial accounts as a matter of course. Norwood does not contend that he does not possess any of these documents, and the government knows far more about the documents associated with Norwood's [foreign bank] cards and account than it did about the defendant's business records in Hubbell. 530 U.S. at 44. In Hubbell, the government could not show "any prior knowledge of either the existence or whereabouts” of the documents sought. Id. (emphasis added). Here, by contrast, the government knows the name and location of the bank that created the records sought, Norwood's payment card numbers, and even the details of a number of discrete transactions involving the cards and his [foreign bank] account. Accordingly, the district court's conclusion that “Norwood's production of the records has no testimonial significance,” is not clearly erroneous.

United States v. Ponds, 454 F.3d 313 (D.C. Cir. 2006) addressed some of the issues left open by Hubbell in holding that the Fifth Amendment was implicated in a compelled document production. Focusing on the spectrum usually encountered between the frames of the two cases – Fisher where the documents were reasonably known to exist (no Fifth Amendment privilege) and Hubble where the Government was just fishing (Fifth Amendment privilege) – the court said (pp. 320-321):

Although the Supreme Court did not adopt the “reasonable particularity” standard in affirming our decision, it emphasized that the applicability of the Fifth Amendment turns on the level of the government's prior knowledge of the existence and location of the produced documents. See Hubbell, 530 U.S. at 44-45. Post-Hubbell, another circuit has applied the reasonable particularity standard to determine whether an act of production is sufficiently testimonial to implicate the Fifth Amendment. See In re Grand Jury Subpoena Dated April 18, 2003, 383 F.3d 905, 910 (9th Cir. 2004). Because that standard conceptualizes the Supreme Court's focus in a useful way, so do we.

The Ponds court found that, under the facts, the prosecutors did not have the required particularity of knowledge as to some of the documents and, accordingly, that Ponds had a Fifth Amendment right to not produce the documents. As is sometimes the case where the subpoenaed party properly asserts a Fifth Amendment privilege, the prosecutors in Ponds obtained an immunity order and, as in Hubbell, the immunity order is ultimately what propelled the issue forward when the taxpayer claimed, in effect, that, because his Fifth Amendment privilege was implicated, the prosecutors used the “testimony” thus compelled in a way not permitted by the grant of immunity.

Now, back to Shadley, the question as to an, if not the, appropriate standard -- the reasonable particularity standard -- appears close to the standard for search warrants. Thus, if you framed the question as to whether the Government had sufficient evidence to seek and sustain a search warrant for the deposit slips, then there would be no Fifth Amendment privilege. It seems to me that the combination of the Norwood analysis and Ponds suggests that Shadley was improperly decided.

Nevertheless, Shadley does suggest in this genre of context that it is not a foregone conclusion that a district court will enforce the summons so a taxpayer with documents too risky to disclose voluntarily would be well advised to assert the act of production doctrine and put the IRS to its proof in an enforcement proceeding.  There should be no downside to doing so, and the taxpayer may prevail.

Fifth Amendment Privilege for Document Production - Authentication

The Ninth Circuit's decision Friday in United States v. Bright, 596 F.3d 683 (9th Cir. 2010) has an interesting discussion of the application of the Fifth Amendment to compulsory production of documents pursuant to summons or subpoena (in Bright, an IRS summons). The case swirls around the practical application of United States v. Hubbell, 530 U.S. 27 (2000). The take away from Hubbell, consistent with the trend in earlier Supreme Court jurisprudence, is that the taxpayer has a valid Fifth Amendment privilege that can be asserted to document production where the nature of the duces tecum document request is a fishing expedition rather than a finely tuned request for documents the Government knew or has reason to know the taxpayer has or, I suppose, should have. Like much of life, that line is necessarily blurred between the extremes. This is commonly referred to as the Act of Production doctrine which says that there are testimonial aspects to the act of producing documents and the act of production is subject to a Fifth Amendment privilege.  So the compelled party wanting to avoid production of potentially incriminating documents asserts the Fifth Amendment hoping the Government won't move to compel, but then, should the Government move to compel, hopes the Government will be unable to meet the Hubbell requirement of prior knowledge of the existence of the documents.  Implicit in this, perhaps as I note, is also some indication that the Government can authenticate the documents independent of any testimonial aspects of the act of production.  (I am not sure of the autentication, but it makes sense to me and the Bright court talks about it; I discuss it below.)

At this point, let me say that other courts have struggled with the implementation of Fifth Amendment jurisprudence in related contexts. Thus, the D.C. Circuit in United States v. Ponds, 454 F.3d 313 (D.C. Cir. 2006) said that the Government's burden is something like the reasonable particularity burden for search warrants. If the Government cannot make the showing that the Government had that level of knowledge when the compulsory process was issued, then the taxpayer can assert the Fifth Amendment privilege to avoid production.  (If the Government does have that level of knowledge, I do think it is much more civilized for the Government to flush out the documents with a subpoena or summons than to grab them by search warrant.)

Now going back to Bright, the setting was the district court's imposition of contempt on the Brights (husband and wife) as to their assertion of the Fifth Amendment for requests for documents related to foreign bank, credit card or similar accounts. The IRS already had some proof of the existence of two of them but not the other two. The IRS fashioned the summons broadly to cover all foreign accounts rather than just the two it knew about and identified in the summons.

The Court held:

We conclude that the foregone conclusion exception does apply to documents related to the two credit cards expressly named in the summonses. The exception, however, does not apply to documents concerning the two additional credit cards named during contempt proceedings, and the production of those documents is therefore privileged under the Fifth Amendment.

Now here is the interesting part because, at least in my mind, "foregone conclusion" is not the same thing as authenticating the documents which the compelled party would necessarily do by producing them. (And, by the way, isn't that concern what the Fifth Amendment is all about.) The Court said (case citations omitted):

The government did not need the Brights to authenticate such documents, because the records could be independently authenticated by banking officials. Nor did the government need to prove that it had previously authenticated the same documents or that it had used these same bank officials in the past; it needed to show only that it could do so without the taxpayer's assistance, including without information gleaned from the documents. n4
n4 At oral argument, the Brights suggested for the first time that when the IRS issued the summonses, the government believed that it could not authenticate the documents through bank officials because there were no tax treaties between the United States and the jurisdictions in which the banks were located. However, the Brights conceded that the government can authenticate relevant documents through the American card servicing company. Moreover, this argument was not raised in the district court or preserved in the Brights' briefs and is now waived.

That is interesting. I think that is the right answer since the issue is the testimony implicit in the compelled production. The Government must have some some way to authenticate in a proceeding where the compelled party's guilt or innocence might be in issue; the Government cannot rely nor can a judge or jury ultimately rely upon the implicit testimony of authentication in the compelled party's act of production.  So how does the Government authenticate even if it meets the threshold requirement of reason to believe that the documents exist? In Bright, the footnote quoted indicates that the Government had some way to do it through the credit card servicing company.  I am not sure exactly how that would work, and the court did not struggle with it because of the concession and, in any event, it had been waived (in the Ninth Circuit's analysis). In any event, the Ninth Circuit did note a problem of authentication where the foreign account did not in any way implicate persons (such as U.S. credit card processing companies and the foreign banks are not willng to or required to cooperate, including produce documents or authenticate.  Sometimes, where there is a good treaty (e.g., the double tax treaty with the more develeoped countries), there might be a way to authenticate, but for the Tax Havens (including Switzerland) are not going to cooperate (sometimes even with an otherwise good tax treaty).

What do the readers of this blog think about this requirement that the Government show the ability to authenticate? This is not a rhetorical question, so I hope someone will response, even if it is to tell me I have gone off track (if that happens, please say enough to put me back on track).