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IN RE GRAND JURY SUBPOENA

December 14, 1973

In re Grand Jury Subpoena, Gabriel H. Berkovitz, a Witness, and Henry R. Sklar, Movant

Gorbey, District Judge.


The opinion of the court was delivered by: GORBEY

GORBEY, District Judge:

 Before the court is a motion by Henry R. Sklar to quash the Grand Jury subpoena issued to obtain the testimony of his accountant, Gabriel H. Berkovitz, and to suppress the evidence obtained by a prior subpoena which compelled Mr. Berkovitz to produce all papers, documents and files relating to the financial affairs of Henry R. Sklar, as to the years 1970 through 1973. The primary ground upon which movant bases his claim for relief is that the United States has not complied with certain internal procedures, allegedly required before this matter could be brought before the Grand Jury.

 On October 10, 1973, this court held a hearing on this motion. The facts of the case, as we find them to be, are as follows: On July 24, 1973, a special agent for the Internal Revenue Service served a Grand Jury subpoena on petitioner's accountant, calling for the production of all records pertaining to the financial affairs of movant for the years 1970 through 1973. In response to this subpoena, the movant filed on the morning of July 30th, a motion to quash the subpoena. The basis of that motion, as set out in paragraph 3 therein, was that both Internal Revenue and the United States Attorney's Office were prohibited from utilizing the assistance of the Grand Jury, unless certain approvals from Internal Revenue and the Department of Justice, Tax Division, Washington, D.C., had first been obtained.

 A two day hearing was held before Judge Clifford Scott Green, sitting as emergency judge. At the end of that hearing, Judge Green, in refusing to quash the subpoena, made findings of fact (n.t., August 2, 1973, pp. 224-226) and the following conclusions of law (n.t., August 2, 1973, p. 226):

 
The court concludes, as a matter of law, that in regard to the investigation described in the Findings of Fact, that the government agencies involved, were not required to follow any procedure concerning prior approvals, as outlined in paragraph A of the motion and, therefore, the procedure followed is proper and lawful.
 
Accordingly, the court concludes that, as a matter of law, the movant has not been the victim of the failure to follow any official policies, directives or regulations, which would constitute a discriminatory denial of the regular, impartial administration of the Internal Revenue Code; nor has movant in any manner, been denied due process of law, as guaranteed by the Fifth Amendment of the United States Constitution, as alleged in paragraph 3-D of the motion to quash the subpoena. And the court further finds that movant has not been denied any rights which he may have in regard to this matter.

 A second Grand Jury subpoena was issued and served upon Gabriel H. Berkovitz, returnable on October 15, 1973. The government has agreed to a stay of this subpoena, pending disposition of movant's motion by this court. The grounds which movant puts forth in support of this second motion are almost identical to those put forth before Judge Green. Movant claims that the present situation differs from that before Judge Green because of certain intervening facts, which were put on the record at the hearing conducted by this court on October 10, 1973.

 This new information is as follows:

 Beginning in September, 1973, a series of letters were exchanged between counsel for the movant and the Assistant United States Attorney. The essence of these letters was that since Mr. Sklar had not filed a power of attorney with the Internal Revenue Service, Special Agent Alan Feldman *fn1" was prohibited by IRS regulations from dealing with anyone but the taxpayer, directly. This resulted in a letter dated September 21, 1973 from John F. Penrose, Assistant U.S. Attorney, to Jerome R. Richter, Esquire, concerning Mr. Sklar. In that letter, Mr. Penrose stated that unless a proper power of attorney is filed, the special agent on the case would continue to contact Mr. Sklar directly. In response to that letter, Jerome R. Richter, Esquire, sent a letter to Special Agent Feldman on October 5, 1973, attaching to that letter the required power of attorney. However, this letter stated that such power of attorney was being filed under protest, simply to prevent Special Agent Feldman from contacting Mr. Sklar directly. The movant urges that the letter of September 21, 1973 "clearly establishes that this investigation is, and has been, at all relevant times, a tax investigation in which the authority in process of the Grand Jury has been unlawfully utilized contrary to the previous stated position of the United States Attorney." (movant's supplemental memorandum of law, p. 2). Movant urges that this new evidence changes the posture of the case from that which was before Judge Green. We cannot agree. The motion put forth to quash this second subpoena is almost identical to the one with which Judge Green dealt. The memorandum in support of that motion makes the same arguments and cites the same law which was put forth to Judge Green. We feel that while this new material may serve to clarify the situation, it does not change it.

 Movant's primary attack rests on an allegation that prior to the issuance of this subpoena, the government has not followed certain procedures and received certain approvals, required by the Rules and Regulations (formal and informal) of the Internal Revenue Service and the Department of Justice.

 The first procedures that allegedly were not followed are those used in what is commonly described as the "reluctant witness situation." *fn2" While we feel that the validity of these procedures is highly suspect, we agree with the government's position that this is not the situation presently before the court. In this matter, there is an ongoing investigation presently being conducted by the Grand Jury into irregularities relating to the Small Business Administration, including possible tax offenses. Mr. Sklar has become a target of this investigation. Thus, the "reluctant witness situation" is not before us since there is an ongoing investigation being conducted by the Grand Jury concerning Mr. Sklar.

 Movant next argues that the requested material is relevant only to tax offenses; and, as such, cannot properly be brought before the Grand Jury without the government first obtaining certain approvals. The government's response to this is that the subpoena is not primarily concerned with potential tax offenses, and that if the investigation does touch upon tax matters, it is only collaterally. In support of this, the government urges that the work papers of the accountant and the accountant's testimony may contain admissions by Mr. Sklar of receipt of bribery or extortion monies, which would be highly relevant to the investigation of the affairs of the Small Business Administration. However, the government does not deny that Mr. Sklar's tax liability is part of this investigation, and that the subpoenaed material may also be relevant to the tax aspects of the investigation.

 Movant argues, that before the government can proceed before the Grand Jury to investigate a tax matter, such a Grand Jury investigation must be approved by the Tax Division of the Justice Department. Such approval will only occur at the request of the Internal Revenue Service, after formal notification through regional counsel, that the ordinary investigative techniques of the Internal Revenue Service are inadequate for specified reasons, and that Grand Jury assistance is necessary. Movant further argues that no United States Attorney is permitted to conduct a Grand Jury investigation specifically into the possibility of tax offenses, unless such use of the Grand Jury has been authorized by the Tax Division of the Justice Department. In support of this allegation, the movant cites no specific regulations or procedures, but simply refers to the testimony of L. K. Baily, Chief of the Criminal Section, Tax Division, Department of Justice, Washington, D.C., that the normal procedure would be for the Internal Revenue Service to request such an investigation through the Tax Division of the Justice Department. This ...


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