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United States v. Municipal Bond and Collection Services Inc.

filed: January 20, 1987.

UNITED STATES OF AMERICA AND AMY F. ZELNIK, SPECIAL AGENT, INTERNAL REVENUE SERVICE, APPELLEES,
v.
MUNICIPAL BOND AND COLLECTION SERVICES, INC., APPELLANT



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 86-1841.

Author: Weis

Before: ALDISERT, Chief Judge, and WEIS, Circuit Judge, and FISHER,*fn* District Judge.

WEIS, Circuit Judge.

A corporation has appealed an order to produce its records in compliance with an IRS summons issued in connection with an investigation of the company's president. He is also the self-designated custodian of the company's books. The custodian is not named as an appellant on the notice of appeal; consequently, we do not review his complaint about the scope of immunity granted by the district court to cover the act of production. Finding no prejudice to the corporation itself, we will affirm the order of the district court.

After a hearing, the district court directed Municipal Bond and Collection Services, Inc. ("Municipal") to comply with an IRS summons. Some documents were produced, but the corporation has resisted the court's order to turn over other records. The IRS has begun contempt proceedings on the district court and concedes that this case is not moot.

Jeffrey Prusan, president and stockholder of Municipal, is the target of a criminal investigation for tax fraud. As part of its inquiry, the IRS issued a summons addressed to the "Custodian of Records, Municipal Bond and Collection Services, Inc." When the corporation failed to comply, the government filed a complaint in the district court to enforce the summons.

At the hearing, the lawyer retained by Municipal also represented Prusan. Counsel maintained that Prusan was custodian of Municipal's records and argued that production might incriminate him.

The IRS's attorney stipulated that the government would not use the act of production as evidence in any criminal proceeding against Prusan. His counsel argued that this immunity would not suffice because, even if Prusan did not personally hand over the records, he would be required to furnish information to the person designated to do so. Prusan contended that compelling him to serve as a link in the chain of evidence required that he be given "derivative immunity" for the act of production.

Counsel proffered that Prusan's testimony would establish that his duties require him to control and prepare the corporate records, as well as oversee their physical custody. At that point, the district judge said, "As I understand it, the government is agreeing that it will not use this evidence for any purpose whatsoever outside of this case." The IRS attorney responded, "That's correct, Your Honor." Prusan's lawyer then asked for "a formal judicial order of immunity, both use and derivative." The court announced that "use immunity is hereby granted in respect to testimony to substantiate the offer of proof as to custodian duties."

After Prusan had testified within the terms of the proffer, the IRS attorney asked how long Prusan had acted as custodian. Defense counsel objected, and the court ruled, "The witness is granted immunity as to any of his testimony today." Prusan insisted that he personally kept the records under lock and key, even though he had signed an IRS form stating that Allen Massey, Municipal's office manager, maintained the books and records. Prusan also acknowledged that Barry Arno, the other Municipal stockholder, participated in the day-to-day operation of the company but had no record-keeping responsibilities. Arno obtained access to the corporate documents only after securing a key from Prusan.

The district court directed that the business records be produced and specified in its order that:

"the testimony of Jeffrey Prusan to attempt to establish his custodial responsibilities shall not be used against him in a criminal case; and it is finally ordered that the [act of] production by the defendant shall not be used as evidence against Jeffrey Prusan in any later proceeding."

Municipal alone has appealed. We have jurisdiction over its appeal. Reisman v. Caplin, 375 U.S. 440, 11 L. Ed. 2d 459, 84 S. Ct. 508 (1964); 9 J. Moore, B. Ward & J. Lucas, Moore's Federal Practice P110.13[2](2) (2d ed. 1986).

Municipal contends that the district court erred in denying the request of Prusan for "derivative use immunity" with respect to the testimony given and records produced. Municipal also asserts that the immunity order should ...


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