Donn Vonderahe and Barbara Vonderahe v. Roy H. Howland

508 F.2d 364

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 18, 1975
• Docket: 71-1982
• Status: Published

Opinions

MOORE, Circuit Judge:

Just after 8:00 A. M., on the morning of June 16, 1970, a group of four Special Agents of the Internal Revenue Service (IRS) arrived at the office of Dr. Donn VonderAhe, a dentist practicing in Fremont, California. Simultaneously, a second group of three agents arrived at the home of the doctor and his wife, Barbara, in Newark, California. Each group was armed with a search warrant issued by a United States Commissioner. The Agents then proceeded to search or, more accurately, to ransack both office and home and to asport practically every piece of paper they could lay their hands on.

The background to this rather extraordinary procedure is best portrayed somewhat chronologically.

Dr. VonderAhe (usually referred to herein as the “doctor”) apparently has a successful dental practice. On June 16th his office consisted of eight rooms and a hallway. He had one or more employees who kept his patients’ records and recorded bills and payments.

The doctor and his wife, Barbara, filed joint income tax returns. In the early part of 1969, i. e., between early January and late March, an IRS Agent (Holmes) made an audit of their 1966 and 1967 income tax returns. There were made available to him six sets of records for the years in question: (1) combined cash-receipts-cash-disbursements journal; (2) bank statements and cancelled checks; (3) savings account passbooks; (4) daily patient appointments book with amounts charged and amounts collected; (5) patient cards containing dental information together with charges and collections; and (6) cash receipts books. Agent Holmes found that the books and records examined accurately reflected the income reported, and recommended acceptance of the taxpayers’ returns as filed.

This recommendation was not long to endure because a telephone call from a former employee, Lynette Bush, to IRS revealed that the doctor during her period of employment had maintained two sets of records. This former employee was most specific concerning the records and the location thereof. She stated that the records of “regular” patients were recorded on white “Banco” cards; those of “emergency” patients on yellow sheets — subsequently green cards. She further disclosed that checks received for services from patients listed on the yellow sheets or green cards were hand endorsed*/by the doctor and cashed by another employee.

In the office, according to Mrs. Bush and Mrs. Van Order, another former employee of Dr. VonderAhe, the “emergency” cards were kept in a portable file cabinet maintained in the “opratory” room, separate and apart from the other file cabinets (Bush, Aff., June 14, 1970) or, during Van Order’s regime, in the third drawer of the cabinets on the, right side of the office.

There were four “emergency receipt books” during the period of employee Bush’s employment, and three during employee Van Order’s tenure, which were relevant to VonderAhe’s allegedly unreported income. The books in question were described as “approximatly one inch thick with six receipts per page.” When filled, they were taken to the doctor’s home.

Agent Romano was assigned to investigate further. To him it was obvious that if only the white card income had been disclosed to Agent Holmes, the doctor’s income would have been understated by the amount of the yellow sheet/green card “emergency” income. At least an investigation was in order to ascertain whether it had been reported. This suspicion was strengthened by remarks made by another employee, a Mrs. Comegys, who told the Agent that she and the doctor had removed the yellow sheets and green cards from the files when the 1969 audit was pending; that the doctor had taken these records to his home so that they would not be available to the Examining Agent; and that the doctor had instructed her to remain at home on the day of the audit so that she would not give any “wrong” answers. In addition to information about the cards and books, Mrs. Comegys stated that she had, in 1968, arranged the opening of a Swiss bank account for her employer and had deposited a check for $6,050 therein.

The Search Warrant

Having received this information, IRS was alerted to the fact that there existed previously unexamined yellow sheets and green cards and books in which entries therefrom had been made. There were various ways by which these records could have been obtained. The doctor had voluntarily made available to Agent Holmes all records of income received from his “regular” patients. Confronted with the knowledge that IRS knew of the withheld records, the doctor was scarcely in a position to place the undisclosed records in a different category from the disclosed. The Agents could have asked for them; they could have subpoenaed them; or, if they thought that there was danger of destruction, they could have sought a warrant. The service chose this last course of action.

In spite of the fact that the “things” to be seized and the places to be searched were known to the Service with a high degree of specificity, the warrants as they were requested and issued were, for all practical purposes, “general warrants.” The property allegedly concealed was described as: “Fiscal records relating to the income and expenses of Dr. Donn VonderAhe from his dental practice and other sources since January 1, 1966, to date, including, but not limited to dental patient cards, appointment books, combined appointment-cash receipts books, combined cash receipts and cash disbursements journals, business ledgers, expense records, bank ledger sheets and statements, cancelled checks, bank savings account pass books, records and correspondence relating to the opening of and deposits and withdrawals from a bank account maintained by said Doctor at the Banaue Romande in Geneva, Switzerland, plus copies of invoices and bills sent to patients of the aforesaid Doctor.”

The grounds for search and seizure were stated as: “now and have been used as a means of committing and constitute evidence of offenses in violation of the provisions of the Internal Revenue laws; particularly Sections 7201 and 7206(1) of Title 26 United States Code; and which further comprise and constitute evidence of offenses committed in violation of the laws of the United States within the meaning of Section 1001 of Title 18, United States Code.”

There was no allegation in the supporting affidavit of Agent Holmes that he sought to re-audit the material listed by him as already audited and reconciled. In the principal affidavit of Agent Romano, he states that he has “reason to believe that the amount of fees collected from patients during the years 1966 and 1967 whose names appeared on yellow information sheets were intentionally segregated by Dr. VonderAhe and Mrs. Comegys and not made available to Revenue Agent Holmes for the audit examination of early 1969." Thus, what had been revealed and what had been concealed had already been made abundantly clear.

The Execution of the Warrants

The Office

According to Dr. VonderAhe, at about 8:15 A. M., on June 16, 1970, three (elsewhere stated as four or five) Treasury Agents forced their way into his inner office. They apparently took over the premises, and continued their search until 1:15 P.M. The search necessitated cancellations of patient appointments because the Agents seized patient cards and records and virtually were in charge of the office. The doctor alleges that he was unable to resume his practice for approximately two weeks when most of the original records were returned.

The extent of the seizure may be judged by the list (“Document Receipt”) made by the Agents, which consisted of thirty-two pages of papers and records which were carted away in cartons in a small truck. By way of brief illustration, the Agents took the contents of the drawers of the doctor’s desk in his private office, including correspondence relating to the purchase of property in Bull River, Montana, a U-Haul rental contract, 'an application for insurance, personal letters, notes relating to the VonderAhe’s planned new home, and correspondence with an investment advisory service. Hundreds of patient record cards were taken. The receptionist’s desk was also searched.

The Home

The warrant enforcement technique employed by the Agents at the home was quite similar to that used at the office. They forced their way in, made a room by room search of the premises, searched the contents of Mrs. Vonder-Ahe’s purse and even that of a Mrs. Perez, a visiting friend. Items were seized in an unused bedroom involving the VonderAhe’s real estate and records labeled “New House.” Again, over objection, an IRS Agent forced his way into the VonderAhe’s car which was parked in their garage and searched it. Papers taken from the garage included many folders of patients’ records, “lab slips,” etc. Several cartons of seized material were loaded into a truck and taken away.

The oral protests of the VonderAhes were quickly followed by legal protests. From a procedural point of view, Rule 41(e) of the Federal Rules of Criminal Procedure was unavailable to the doctor because neither he nor his wife had been indicted and there was no criminal case in being against them. However, they were well aware of potential civil and criminal consequences of the alleged concealment of records. They quite naturally desired to cause these records to be unavailable for use by the Commissioner or by a Grand Jury. Accordingly, they brought “an independent civil action prior to indictment pursuant to the Court’s inherent equity power seeking return of property seized and its suppression as evidence in any subsequent criminal proceedings.” (Applts’ Br. p. 14). By this “independent equitable action” they sought to avoid the appeala-bility question which might have otherwise arisen. Thus, having invoked the equity powers of the court, they must abide by this standard. In their complaint, filed July 7, 1970, they sought (1) the return of their books and records; (2) an injunction against the use of their property, allegedly illegally seized, in any investigation and prosecution against them; (3) an injunction against the use of copies or notes made from the material seized for prosecution purposes; (4) an injunction against contacting persons or businesses, the names of which were disclosed in the seized material; (5) the suppression of the property seized as evidence in any “criminal proceeding” .and in any proceeding to determine the tax liability of the VonderAhes; and (6) a hearing to be held by the court, prior to the presentation of the evidence to a Grand Jury or a Commissioner, at which the defendants “shall prove that said evidence was not illegally obtained.” By leave of court, the complaint was amended to assert damages suffered by the disruption to the doctor’s dental practice caused by the Agent’s action in the amount of $15,000.

The government moved to dismiss the complaint on the grounds that (1) the United States had not consented to be sued; (2) the court lacked jurisdiction over the subject matter; and (3) that the complaint failed to state a claim upon which relief could be granted.

In the meantime, the government had photocopied the seized records and returned the originals.

The District Court denied the VonderAhes’ motion for a preliminary injunction and granted the government’s motion to dismiss. The doctor and his wife appealed.

Jurisdiction

A threshold question is posed with respect to our jurisdiction to entertain this appeal. The government contends that we are without jurisdiction because the decision of the district court did not result in a final order as required by 28 U.S.C. § 1291. We have held that an order dismissing an action for the return of documents and for the suppression of evidence is final and appealable when a plaintiff, as here, seeks recovery of copies and when no criminal action is pending. Goodman v. United States, 369 F.2d 166 (9th Cir. 1966); Selinger v. Biglar, 377 F.2d 542 (9th Cir. 1967). Our finding of appealability is reinforced by United States v. Ryan, 402 U.S. 530, 91 S.Ct. 1580, 29 L.Ed.2d 85 (1971), in which the Supreme Court said: “We have thus indicated that review is available immediately of a denial of a -motion for the return of seized property, where there is no criminal prosecution pending against the movant. See DiBella v. United States, supra, 369 U.S. at 131-132, [82 S.Ct. 654, 7 L.Ed.2d 614].” 402 U.S. at 533, 91 S.Ct. at 1582. Accordingly, we conclude that the order of the court below was final and that we have appellate jurisdiction under 28 U.S.C. § 1291.

The Fourth Amendment

Initially, the search and seizure must be considered within the confines of the Fourth Amendment. In fact, limitation to consideration of this appeal within the confines of the Fourth Amendment is suggested by the taxpayers themselves in arguing (Appellants’ Brief, pp. 12, 13) that “assuming the Court finds prohable cause for a search warrant to exist, the government’s showing of probable cause did not justify the extent of the searches and seizures at bar,” and that “the affidavits only justfied the search for the records which the taxpayers allegedly had withheld, the location of which an employee of the VonderAhes had described to the Treasury Agents.”

The Fourth Amendment declares the “right of the people to be secure in their persons, houses, papers and effects” but only against “unreasonable searches and seizures” (emphasis supplied). Any warrant therefor shall issue “upon probable cause” and shall describe “the place to be searched, and the persons or things to be seized.” As to “probable cause,” the district court found that “the affidavits submitted were more than sufficient to provide probable cause to believe that plaintiffs were violating the income tax laws.”

But the words “probable cause” are not self-defining — “probable cause” for what? The supporting affidavits were quite specific in describing the allegedly concealed property, namely, yellow sheets and green cards. No facts were alleged which showed probable cause for the issuance of a general warrant. No charge was made that the books and records submitted to Agent Holmes were false and that they should be subjected to a re-audit. To proceed by the “warrant” method without first seeking the desired papers by request or subpoena should be based upon the strongest showing of necessity but if such drastic procedure is to be availed of, it should be strictly limited as constitutionally required. Therefore, although there may have been “probable cause” to search for and seize the yellow sheets and green cards for 1966 and 1967, there was no probable cause shown for a seizure of all the doctor’s dental books and records, or his personal and private papers.

In seeking and executing such a general warrant, the agents themselves must assume the responsibility for its breadth. They could have restricted it to the concealed items and thus have avoided the ransacking procedure in which they, in executing the warrant, indulged.

There remain for consideration specificity and unreasonableness, issues which are subject to a similar analysis. Although the District Court noted that “general warrants which fail to adequately specify the area to be searched or the items to be seized have historically met with judicial disapproval,” it held that “the warrants were as specific as practical” and while recognizing their “broad scope,” they were “not overly broad in a constitutional sense.”

What is “overly broad” cannot be resolved in an abstract or academic manner but only in relation to the facts, circumstances under, and the purpose for, which the warrants were issued. The warrants here were, in effect, general warrants. They sought all fiscal records of the doctor from January 1, 1966 to date [June 1970] relating to his income and expenses “but not limited to [books and records enumerated] * * In short, except for the yellow sheets and green cards, this was the identical material which had been delivered to and examined by Agent Holmes.

The Supreme Court has stated that there are certain permissible standards to be applied in connection with the issuance of search warrants. Thus in Berger v. New York, 388 U.S. 41, 58, 87 S.Ct. 1873, 1883, 18 L.Ed.2d 1040 (1967), the Court said:

“The proceeding by search warrant is a drastic one,” Sgro v. United States, 287 U.S. 206, 210, 53 S.Ct. 138, 140, 77 L.Ed. 260 (1932), and must be carefully circumscribed so as to prevent unauthorized invasions of “the sanctity of a man’s home and priva-cies of life.” Boyd v. United States, supra, 116 U.S. 616, 630, 6 S.Ct. 524, 532, [29 L.Ed. 746].

And in Coolidge v. New Hampshire, 403 U.S. 443, 91 S.Ct. 2022, 29 L.Ed.2d 564 (1971), the Court said:

The second, distinct objective is that those searches deemed necessary should be as limited as possible. Here, the specific evil is the “general warrant” abhorred by the colonists, and the problem is not that of intrusion per se, but of a general, exploratory rummaging in a person’s belongings. [Citations omitted.] The warrant accomplishes this second objective by requiring a “particular description” of the things to be seized.

Upon the information available to it, the government knew exactly what it needed and wanted and where the records were located. There was no necessity for a massive re-examination of all records bearing on income and expenses. Were this the law, the Commissioner, upon finding any suspicious deficiency, could order a seizure of every such taxpayer’s records upon the mere allegation that the omission or an inaccurate statement of one item might bespeak inaccuracies as to others which, in his opinion, necessitates a seizure of all records, at office and home. Important as it is to enable the government to obtain information to assure itself of the correct reporting of taxes, it is difficult to believe that the draftsmen of the Fourth Amendment did not insert “unreasonable” to avoid just such an in terrorem state as the Agents created and wreaked here.

Moreover, just as “unreasonable” can be applied to the breadth of the warrant, so much the more can it be applied to the manner of execution because it is the “manner” which, as vividly illustrated by the facts of this case, can create and constitute the prohibited invasion. As previously mentioned, the Agents could have sought the allegedly concealed records by other means. If they had desired to question the accuracy of patient payments, they could have made a patient check. All this could have occurred in an orderly way without the sudden assault causing not only damage to the doctor’s finances and prestige but undoubtedly inconvenience and possibly pain and suffering to the many patients who could not be treated for weeks due to the disruption.

The Fifth Amendment

Appellants have addressed much of their argument to the point that the use of any of the seized papers would be a violation of their Fifth Amendment rights against self-incrimination. The district court held, in answer to appellants’ contention, that such records if seized under a search warrant, would compel them to incriminate themselves, that “the requirement that all individuals subject to tax liability keep accurate financial records is not sufficiently related to the investigation of criminal activity to require the protection of the Fifth Amendment.”

Two recent cases are directly apposite to the issue addressed by the District Court. Hill v. Philpott, 445 F.2d 144 (7th Cir. 1971), cert. denied, 404 U.S. 991, 92 S.Ct. 533, 30 L.Ed.2d 5 (1971). The facts are strikingly similar to those now before us. A Dr. Hill allegedly kept a set of financial records referred to as “red letter folders” separate and apart from his regular patient records. There, as here, disclosure to the IRS came from the doctor’s former employees, who said that they had been instructed by Dr. Hill to incinerate these particular records if any “taxman” sought to make an investigation. Pursuant to a search warrant, agents of the IRS searched both the doctor’s office and home, indiscriminatingly seizing as much material as was seized in this case. No criminal proceedings were pending against Dr. Hill. Dr. Hill immediately petitioned for the return of the seized property and its suppression on the ground of violation of his constitutional rights — particularly under the Fourth and Fifth Amendments. The district court denied the petition. On appeal the majority reversed but restricted its opinion to “only the first contention, which is based on the petitioner’s privilege against self-incrimination.” Then followed a lengthy discussion and review of cases from a Fifth Amendment self-incrimination point of view. Judge Fairchild in dissent, assuming that the seizure was based on an “adequately grounded warrant,” wrote that:

Assuming, however, that there is a class of papers so intimately confidential and so much a part of personhood that they ought to enjoy a superlative privacy and be protected from seizure upon an adequately grounded warrant, it does not seem to me that the records in question here have the required character. They appear to have been maintained for business and professional purposes, with the knowledge and assistance of employees, and the manner in which they were allegedly kept and used, made them, in a sense, instrumentalities of the tax evasion offense claimed.

Hill v. Philpott, supra, was followed in point of time by United States v. Blank, 459 F.2d 383 (1972), in the Sixth Circuit. There the search warrant was executed on June 3, 1971, gambling records were seized on June 15, 1971, and indictment was returned and on - August 3, 1971, a motion to suppress was filed. The distinct court, relying on Philpott, supra, granted the motion and held the records to be “per se self-incriminatory.” The Court of Appeals vacated the judgment and remanded the case for further proceedings. That court, in reaching this result, said that: “No claim is advanced that there has been any violation of the specific language of the Fourth Amendment” and that since “the papers are not communicative in nature; that papers are business records rather than personal and private writings; and that they are on their face instrumentalities of the crime with which appellant [Blank] is charged” they were subject to seizure under Fourth Amendment search warrant procedures and therefore should not have been suppressed. Blank, supra, 459 F.2d at 387. The court rejected “the rationale which underlies the majority decision of the Seventh Circuit [Philpott] * * * ” and noted Judge Fairchild’s dissent in Philpott wherein he “concerned himself more with the nature of the evidence under consideration than the method employed to obtain it” (quoting the portion of Judge Fairchild’s opinion previously quoted herein).

Nevertheless, it would appear from the Blank opinion that the ultimate decision as to admissibility or Fifth Amendment protection had to await such further proof as might be adduced upon a trial. Thus, the court said:

Here, in fact, we have no way of knowing that the instant records are connected with the defendant beyond his counsel’s statement in the motion to suppress that they “may be” in his handwriting. This, however, is an important fact upon which the government must at trial bear the burden of proof and upon which, for all we know, there may be strong dispute.

In our opinion, appellant’s Fifth Amendment contention is premature. Resolution will depend upon facts and developments not before us at this time. As stated, no civil or criminal proceedings are currently pending. When, as and if such proceedings are brought, there will be ample opportunity for the taxpayers to make appropriate objection on Fifth Amendment grounds as the situation may warrant.

Were we to attempt to decide the Fifth Amendment “self-incrimination” problem at this time far more facts would be needed for its resolution. Did the doctor waive these rights by showing Agent Holmes all (except the yellow sheets and green cards) his books? Were the books kept for business purposes with entries made, possibly not by the doctor, but by third persons, actual declarations by and against himself ? What instructions, if any, did he give to his employees ? What entries, if any, did he personally make? These are but a few of the many questions which may arise. The records might even be placed in a “required records” category. The privilege of practising a profession and gaining income thereby from the public might well not carry with it the shield of Fifth Amendment immunity. If so, both government and appellants will have an opportunity when, as and if the yellow sheets and green cards are offered in any proceeding, criminal or civil, to argue the effect of 26 U.S.C. § 6001.

Conclusion

The problem here is one of resolving the equities. The government should not be benefitted in any forthcoming actions against the VonderAhes, civil or criminal, by using books and records illegally seized. On the other hand, the VonderAhes should not benefit from their own acts of concealment and thus avoid the payment of taxes legally due and also the possible consequences of illegal concealment. Our equitable powers would be much distorted were we to hold that the allegedly concealed records (yellow sheets and green cards) were improperly seized.

The VonderAhes have asked us to invoke in their favor what has become known as the “exclusionary rule,” i. e., to decree at this time that all records seized, including yellow sheets and green cards and any leads therefrom cannot be introduced in any proceeding, civil or criminal against them. However, if the facts are, as represented, that the taxpayers by their own wrong, deliberately concealed income and failed to pay taxes thereon, it would seem to be the height of inequity for the courts to enable them to profit thereby. Using equity as the standard, the warrants as issued restricted to the yellow sheets and green cards would have been reasonable; beyond these records they were too broad. Although the manner of execution was quite unjustified, the penalty of exclusion which the taxpayers would impose is equally unjustified. Our present task is to place the government’s allegedly unlawful procedure in obtaining and executing the warrants and the Vonder-Ahes’ allegedly unlawful concealment on the mythical scales of justice, and observe the balance. Observing this balance (or possibly imbalance), we believe that justice can best be achieved by reversing the order of the District Court dismissing the complaint and, upon remand, directing the District Court to grant the injunctive relief sought by appellants except as to the yellow sheets and green cards, copies of which the government may retain and use subject, however, to any and all objections thereto, including objections based on the Fifth Amendment, in any proceeding, civil or criminal, which may be raised by the VonderAhes.

Insofar as the complaint seeks money damages because of the Agents’ acts, the serious pecuniary loss caused thereby would appear to bring this case within the Bivens doctrine. In Bivens v. Six Unknown Fed. Narcotics Agents, 403 U. S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), the Supreme Court upheld federal jurisdiction over such a suit and held that money damages may be recovered for any injuries consequent upon a violation of the Fourth Amendment by federal officials. Mr. Justice Harlan in his concurring opinion pointed to the judiciary’s “particular responsibility to assure the vindication of constitutional interests such as are embraced by the Fourth Amendment.” Bivens, supra, at 407, 91 S.Ct. at 2010.

The amended complaint seeks damages of $15,000 for the description of the doctor’s practice. Upon the facts set forth, appellants are entitled to have these issues adjudicated. Therefore, the complaint as amended should not have been dismissed.

Order affirmed in part, reversed in part.