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UNITED STATES v. MILLSTONE ENTERPRISES

April 18, 1988

United States of America, and James L. Sherlock, Special Agent of the Internal Revenue Service, Petitioners,
v.
Millstone Enterprises, Inc., R & R Trucking and Transportation, Inc., Vee's Book Boutique, Inc., Truckers Training and Transfer, Inc., Businessman's Management and Consulting Company, Inc., Boulevard Bookstore, Inc., Respondents



The opinion of the court was delivered by: MENCER

 Glenn E. Mencer, United States District Judge.

 Procedural Background

 This is an action by the United States of America and a Special Agent of the Internal Revenue Service's [IRS] Criminal Investigation Division, James L. Sherlock [collectively "the Government"] to enforce a summons issued to the respondents. The respondents are six corporations controlled by William Robert Birdseye. Birdseye is currently being prosecuted, along with his son William Richard Birdseye, by Allegheny County, Pennsylvania, authorities on criminal charges related to prostitution and pornography.

 Special Agent Sherlock is conducting a IRS criminal investigation to determine whether William Robert Birdseye committed criminal offenses with regard to his income taxes for the years 1982 to 1985. On March 20, 1987, Sherlock issued a summons seeking production of the corporate books and records of the six corporations who are the respondents in this action. The summons also directed Birdseye, as president of the respondent corporations, to answer questions put to him by Sherlock. William Robert Birdseye and the respondents have refused to comply with the summons, claiming that the criminal tax investigation, the summons and Special Agent Sherlock's questions for Birdseye are derived from an illegal wiretap. This Court held a hearing at which the respondents were to show cause why they should not comply with the IRS summons. We issued an order on January 7, 1988 directing the respondents to comply with the summons. When the respondents maintained their refusal to comply with the summons, this Court held a civil contempt hearing on April 5 - 6, 1988. We must now decide whether the respondents should be held in contempt of this court's order, or whether they had "just cause" to refuse compliance.

 Facts

 Evidence acquired through wiretapping formed the basis of probable cause for search warrants for a series of raids on the Birdseye residence and businesses conducted by state and local law enforcement officials beginning in May, 1986 and ending July 18, 1986. An IRS Special Agent, Robert R. Clark, took part in the July 18, 1986 raid of the Birdseye residence, at which the authorities examined and seized financial records, a computer and computer discs.

 The IRS's criminal tax investigation of William Robert Birdseye was officially begun by Special Agent Sherlock nearly three months later, when a case number was assigned on October 10, 1986. Special Agent Sherlock testified that a case is "numbered" when the IRS has an indication that there has been a violation of a tax law. Sherlock's initial involvement in the Birdseye investigation was when he was invited by Westmoreland County law enforcement officials to review documents that had been seized in the raids on the respondent corporations' premises and the Birdseye residence. Sherlock testified that in late July or early August, 1986, he visited a Pennsylvania State Police barracks where he reviewed most, but not all, of the material seized by the state and local authorities. He photocopied certain of the seized records at that time. Sherlock requested copies of William Robert Birdseye's personal income tax returns from the IRS files on August 8, 1986. He did not request tax returns for the respondent corporations until some later date.

 While the IRS did not begin its case investigating William Robert Birdseye until October 10, 1986, several IRS Criminal Division agents had previously acquired isolated snippets of information on Birdseye. Special Agent Sherlock testified that prior to November, 1985, IRS Criminal Division Agents Gary McCoffskey and James Blum learned, through a different investigation, that Birdseye allegedly had supplied go-go girls to a bar. In November, 1985, Westmoreland County detectives informed Agent Blum that Birdseye was alleged to be involved in prostitution. Blum filed a report on this information, but made no mention of possible tax violations. He did not request copies of Mr. Birdseye's tax returns, and did not initiate a criminal tax investigation.

 In late December, 1985 or early January, 1986, IRS Agent Robert Clark was contacted by a Pennsylvania State Trooper who told him of a state investigation into Mr. Birdseye for pornography. Clark asked the trooper to keep him informed of developments in the state investigation. State authorities later invited Clark to participate in the July 18, 1986 search of the Birdseye residence, and he was part of the search team that day. Clark testified that while he had examined some of the records seized during the raid, he made no photocopies. He also testified that to the present day he has no knowledge of Millstone Enterprises, Inc. or any of the other respondent corporations. After the raid, Clark made a verbal report to his supervisor but took no further action.

 Special Agent Sherlock was dispatched to the state police barracks soon thereafter to review the seized documents and he later opened up the criminal investigation of William Robert Birdseye. On March 20, 1987, Birdseye was served with a summons directing him to appear before Special Agent Sherlock on April 6, 1987 to give testimony and to bring with him essentially all the financial records of each of the respondent corporations. The respondents' refusal to comply with that summons has ultimately lead to this contempt hearing.

 I. Civil Contempt Standard

 28 U.S.C. § 1826(a) provides that a judge may order confinement "whenever a witness in any proceeding before or ancillary to any court . . . of the United States refuses without just cause to comply with an order of the court to testify or provide information. . . ." 28 U.S.C. § 1826(a). Therefore, "just cause" for a refusal to comply with a court order is a defense to being held in contempt.

 In this case, the respondents maintain they have "just cause" not to comply with this Court's January 7, 1988 order directing them to comply with Special Agent Sherlock's summons directing William Robert Birdseye to appear for questioning and to produce corporate records. The respondents claim "just cause" because the IRS's criminal investigation of Birdseye, the summons and the questions to be put to him by Sherlock were derived from wiretaps which violated Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510 et seq. [Title III].

 II. The State Wiretaps Violated The Federal Wiretapping Statute

 In Title III, Congress set out a comprehensive scheme for the regulation of wiretapping and electronic surveillance. 18 U.S.C. §§ 2510 et seq. Title III authorizes the interception of private wire and oral communications only when federal, state or local law enforcement officials are investigating certain specified crimes and receive prior judicial authorization. 18 U.S.C. § 2516. "Except as expressly authorized in Title III . . . all interceptions of wire and oral communications are flatly prohibited." Gelbard v. United States, 408 U.S. 41, 47, 92 S. Ct. 2357, 2360, 33 L. Ed. 2d 179 (1972). Title III makes it a crime to engage in illegal interception or to disclose information obtained through illegal interceptions. 18 U.S.C. § 2511(1). The victim of an illegal interception, disclosure or use is entitled to recover civil damages. 18 U.S.C. § 2520. Title III also bars the use of the contents of illegally intercepted communications, as well as evidence derived therefrom ("fruit of the poison tree") "in any trial hearing, or other proceeding in or before any court, grand jury, department, officer, agency, regulatory body, legislative committee or other authority of the United States, a State, or a political subdivision thereof . . . ." 18 U.S.C. § 2515. The statute also provides procedures for moving to suppress such evidence in various proceedings. 18 U.S.C. § 2518(9)-(10).

 A. States May Not Wiretap To Investigate Non-Violent Prostitution-Related Allegations

 The respondents contend that the wiretaps authorized by Judge Zoran Popovich on April 21, 1986 were illegal because they were approved for the investigation of crimes not within the scope permitted by 18 U.S.C. § 2516(2). Section 2516(2) enumerates the offenses whose investigation may be pursued through the interception of wire, oral or electronic communications. It permits a state to wiretap for the investigation of:

 
murder, kidnapping, gambling, robbery, bribery, extortion, or dealing in narcotic drugs, marihuana or other dangerous drugs, or other crimes dangerous to life, limb or property, and punishable by imprisonment for more than one year, designated in any applicable State statute authorizing such interception, or any conspiracy to commit any of the foregoing offenses.

 18 U.S.C. § 2516(2) [emphasis added]. The respondents contend that the state crimes for which the Wiretaps were approved to investigate are not offenses within the scope of section 2516(2). They argue that the wiretap was therefore invalid, and any evidence derived therefrom should not be used in a proceeding before a government body. We agree.

 The wiretap authorized on April 21, 1986 was for the investigation of prostitution and related offenses (18 Pa. C.S. § 5902), corrupt organizations (18 Pa. C.S. § 911) and conspiracy with regard to the former offenses (18 Pa. C.S. § 903). None of these crimes are among those specified in section 2516(2). The question remains whether these offenses might have been within the Congress's intendment of "other crimes dangerous to life, limb or property."

 The legislative history of section 2516(2) indicates that Congress did not intend to authorize state wiretapping for offenses such as prostitution. The drafters of section 2516(2) explained that the list of crimes was to represent a class of major offenses that were either "intrinsically serious or * * * [were] characteristic of the operations of organized crime." Senate Report No. 1097, 90th Cong., 2d Sess., U.S. Code Cong. & Admin. News, 1968, p. 2234. With the exception of bribery and gambling, these enumerated crimes all involve harm or the substantial threat of harm to the person, a "limitation [expressly] intended to exclude such offenses as fornication and adultery" from the permissable scope of electronic surveillance. Id. at p. 2187; see People v. Shapiro, 50 N.Y.2d 747, 409 N.E.2d 897, 907, 431 N.Y.S.2d 422 (1980). ...


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