U.S. DISTRICT COURT, WESTERN DISTRICT OF PENNSYLVANIA
October 18, 1973.
United States of America, and Thomas M. Plasko, Special Agent, Internal Revenue Service, Petitioners
Harold W. Brobeck, as President of Beaver Valley Volkswagen, Inc. and Beaver Valley Volkswagen, Inc., Respondents.
The opinion of the court was delivered by: MILLER
Memorandum and Order
MILLER, District Judge: Subsequent to the docketing of his appeal by the Third Circuit Court of Appeals, Harold W. Brobeck moved this Court for a further hearing to show his inability to comply with our Order of June 11, 1973, to produce specified books and records of Beaver Valley Volkswagen, Inc., for which his refusal, without adequate excuse or just cause, has resulted in his being held in contempt. In view of the posture of the proceedings, upon receipt of the motion, we forwarded it to the Clerk of the Third Circuit Court of Appeals. Thereafter, on September 27, 1973, the Appeals Court, after denying bail pending appeal and expediting the appeal, granted this Court leave to conduct such further proceedings it deemed appropriate. Exercising our discretion, we granted Mr. Brobeck a further hearing to permit him to purge himself of contempt. Thus, the sole question is whether the respondent is presently able to comply with the production order previously made and whether he is disobeying that order.
The government's proof at the enforcement and contempt proceedings established a prima facie case of wilful failure to comply with the Order of this Court to produce the corporate records. Mr. Brobeck's Fifth Amendment claim did not excuse him from producing the records of Beaver Valley Volkswagen, Inc., for it is well settled that "books and records kept "in a representative rather than in a personal capacity cannot be the subject of the personal privilege against self-incrimination, even though the production of the papers might tend to incriminate [their keeper] personally." United States v. White, 322 U.S. 694 699, 88 L. Ed. 1542, 64 S. Ct. 1248 (1944)." McPhaul v. United States, 364 U.S. 372, 380, 5 L. Ed. 2d 136, 81 S. Ct. 138 (1960); Rogers v. United States, 340 U.S. 367, 372, 95 L. Ed. 344, 71 S. Ct. 438 (1951). At no time prior to his commitment did respondent even suggest to the government or this Court, notwithstanding two opportunities to do so, his inability to produce the records. On the contrary, respondent in face of the government's evidence adhered to his claim of constitutional privilege standing mute as to his inability to comply with our Order.Thus, we believe the government's proofs coupled with the respondent's failure to offer any evidence regarding his ability to comply clearly supported fair and reasonable inferences of the existence of the corporate records and, as corporate president, respondent could have produced them. By not offering any evidence as to his inability to comply on June 11th and August 3rd, the respondent did not meet the issues of possession or inability. Consequently, we have prior adjudication of these issues as of June 11th, which were not appealed by respondent but are now attacked by him. The government maintains this prior adjudication in res judicata and the legal or factual basis of our underlying order is not open to reconsideration. Accord, United States v. Secor, 476 F.2d 766 (2 Cir. 1973). While United States v. Secor supra, sustained a res judicata contention in a similar factual situation to the present case, we are cognizant of our Supreme Court's admonitions in Maggio v. Zeitz, 333 U.S. 56, 92 L. Ed. 476, 68 S. Ct. 401 (1948) to the effect that a contemnor be permitted to deny his present possession of the corporate books and to give any evidence of present conditions or intervening events which corroborate such a denial. The trial court is obligated to weigh all the evidence before it in determining whether or not there is actually a present ability to comply and whether failure so to do constitutes deliberate defiance. Thus the real problem concerns the evidence admissible in this proceeding.
The fact that the government had carried the burden of proof at the enforcement hearing and the production order had issued establishing prior possession, at a time when continuance thereof is the reasonable inference coupled with no explanation at the contempt hearing, the contemnor is confronted by a prima facie case. Accordingly, the burden of rebutting the government's evidence is the respondent's and he "must assume an explanatory role or subject himself to reasonable inferences or circumstantial evidence." Bass v. Hutchins, 417 F.2d 692, 698 (5 Cir. 1969); Sheinman v. Chalmers, 33 F.2d 902 (3 Cir. 1929); Maggio v. Zeitz, 333 U.S. 56, 75, 92 L. Ed. 476, 68 S. Ct. 401 (1948).
At the hearing the respondent testified the corporate records ordered produced were not presently nor had they been in his control, custody or possession when initially sought by the Internal Revenue Service or when ordered to produce them. When pressed on cross-examination he claimed ignorance as to their whereabouts and on numerous occassions asserted a constitutional claim of privilege to include the Fifth Amendment. Admitting he was the corporate president and its sole capital contributor with 73% of its stock, although not issued, he claims he ceased employment in April 1970, but remained until July 1971 when the corporation allegedly ceased doing business. Reduced to bare bones, respondent's explanation amounts to a denial of possession, custody or control over corporate records and knowledge of their whereabouts since July 1971. He further claims discontinuance of business by the corporation in July 1971 with his succeeding to the business as a sole proprietorship.
The government on the other hand has through the testimony of former employees of the corporation clearly and convincingly established the existence and location of corporate records of the character ordered produced through March 1972; that Harold W. Brobeck was the president and dominant figure in the corporation beyond the alleged time frame it terminated operations; that a corporate Master Charge Account was active and maintained at Western Pennsylvania National Bank at least until April 1972; that no dissolution or wind-up documents were filed with the Commonwealth of Pennsylvania dissolving Beaver Valley Volkswagen, Inc. in accordance with Pennsylvania law; and the current business manager of the alleged corporate successor believes she saw corporate books and records for the year 1971 this year, 1973, [Tr. 127] and that generally these books and records are stored upstairs. [Tr. 127] Furthermore, all witnesses testified they did not remove corporate books and records and to their knowledge corporate records were not removed from the premises.
If we were to merely limit our consideration of respondent's evidence, as urged by the government, to that which does not contradict our production order, we believe his denial of present possession not sufficient to establish his inability to produce the corporate records for the years 1970 and 1971.However, when considering all of the respondent's evidence against that of the government's, his explanation cannot be characterized other than as incredible. Before the Court stands the president of an obvious closed family corporation, which for the year 1970 had gross receipts of $1,877,891.00 [Government Exhibit "F"], who was the sole contributor of its capital and principal executive officer claiming in essence he lost control of the corporate records when the corporation allegedly terminated operations and he continued the automobile business as a sole proprietorship. The testimony and evidence is to the contrary making it unreasonable to believe respondent, a person who controlled the business to the extent he did, completely lost control of the corporate records. Therefore the bold denial of past or present possession of the corporate records for the years 1970 and 1971, or knowledge of their whereabouts, we believe, is not sufficient explanation to establish a present inability to produce the corporate records or destroy the evidence and inference of present possession where their existence and prior possession are so clearly indicated. Likewise, respondent's repeated assertions of the Fifth Amendment privilege against self-incrimination cannot be transformed into an adequate or plausible denial of continued possession of the corporate books and records. See Dittmar v. Michelson, 281 F. 116 (3 Cir. 1922), cert. denied 260 U.S. 738; 8 Wigmore, Evidence (McNaughton rev. 1961) § 2272, at p. 439 footnote. Thus, Mr. Brobeck has failed to purge himself of contempt.
This memorandum shall be deemed to embody findings of fact and conclusions of law required by Rule 52, Federal Rules of Civil Procedure, 28 U.S.C.A.
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