Opinion
Case No. CR-3-93-028
July 6, 1999
Mark S. Feuer, Esq. and Jeffrey D. Slyman, Esq. for plaintiff.
James Wilson and James Wright for defendant.
On November 23, 1993, the Defendant entered a guilty plea to three of the seven offenses with which he had been charged in the Indictment (Doc. #1). See Plea Agreement (Doc. # 48). Among the charges to which the Defendant plead guilty was one of income tax evasion. Id. As part of the Plea Agreement, the Defendant agreed to cooperate with the Government and its agents and employees, for the purpose of preparing and reviewing tax returns, and to pay any back taxes he owed for 1987 and 1988. _Id. at 2. On July 15, 1994, this Court sentenced the Defendant, _inter alia, to 36 months of incarceration, to be followed by a period of 3 years of supervised release. See Doc. # 63. As a condition of Defendant's supervised release, the Court required the Defendant "to pay/fully settle, within the period of supervised release, the penalties, interest and back taxes owed. . . ." Id. at 3.
This case is now before the Court on the Government's Motion to Permit Disclosure of Grand Jury Information (Doc. #69). In the motion, the Government asserts that the Defendant has not cooperated with employees of the Internal Revenue Service ("IRS"), in determining his tax liability. The Government states that, although the IRS wants to pursue the tax obligations owed by the Defendant, as ordered by this Court, it will be necessary to document his tax related income and expenditures in order to accomplish that goal. Since that information is readily available in "the working papers and exhibits," which the Criminal Investigation Division of the IRS prepared during the Grand Jury's investigation of the Defendant, the Government moves, pursuant to Rule 6(e)(3)(C)(i) of the Federal Rules of Criminal Procedure, for an Order permitting the disclosure of Grand Jury information to representatives of the IRS.
Rule 6(e)(2) of the Federal Rules of Criminal Procedure codifies the rule of secrecy regarding proceedings before a Grand Jury. In United States v. Proctor Gamble Co., 356 U.S. 677 (1958), the Supreme Court explained the general policies upon which the rule of secrecy is based:
(1) To prevent the escape of those whose indictment may be contemplated; (2) to insure the utmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; (3) to prevent subornation of perjury or tampering with the witnesses who may testify before [the] grand jury and later appear at the trial of those indicted by it; (4) to encourage free and untrammeled disclosure by persons who have information with respect to the commission of crimes; (5) to protect [the] innocent accused who is exonerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was no probability of guilt.Id. at 681 n. 6. See also, Federal Deposit Ins. Corp. v. Ernst Whinney, 921 F.2d 83, 86 (6th Cir. 1990); In re Grand Jury Proceedings, 851 F.2d 860 (6th Cir. 1988). However, the rule of secrecy has exceptions, which are set forth in Rule 6(e)(3), one of which, Rule 6(e)(3)(C)(i), authorizes disclosure "when so directed by a court preliminarily to or in connection with a judicial proceeding." Disclosure under Rule 6(e)(3)(C)(i) is permitted only where, 1) the disclosure is sought either "preliminarily to" or "in connection with" a judicial proceeding, and 2) the party requesting such disclosure has demonstrated a particularized need for the requested Grand Jury materials. See e.g., United States v. Sells Engineering, Inc., 363 U.S. 418 (1983); United States v. Baggot, 463 U.S. 476 (1983); In re Grand Jury 89-4-72, 932 F.2d 481, 483 (6th Cir.) (stressing that the need for the materials must be "compelling"), cert. denied, 502 U.S. 958 (1991). Herein, the Government argues that it has made both of the required showings. As a means of analysis, the Court will initially decide whether the Government has requested disclosure "preliminarily to or in connection with a judicial proceeding." If the Court concludes that the Government has made such a request, it will turn to the question of whether the Government has established a particularized need for the materials.
In Baggot, the Supreme Court addressed a request by the Government for disclosure of Grand Jury materials, under circumstances similar to those herein. Therein, Baggot, who had been the target of a Grand Jury investigation, plead guilty to two misdemeanor counts of violating the Commodity Exchange Act, before being indicted. Subsequently, the Government filed a motion under Rule 6(e)(3)(C)(i), requesting disclosure of documents submitted to the Grand Jury and transcripts of testimony before that body, to use in auditing Baggot's taxes. The District Court granted the Government's motion, and the Seventh Circuit reversed, concluding the Government had not requested the Grand Jury materials "preliminarily to or in connection with a judicial proceeding." Upon further appeal, the Supreme Court agreed with the Seventh Circuit. Initially, the Supreme Court noted that the phrase "in connection with," in Rule 6(e)(3)(C)(i) refers to "a judicial proceeding that is already pending," while "preliminarily to" refers to "one not yet initiated." 463 U.S. at 479. The Baggot Court elaborated further on the meaning of the phrase "preliminarily to or in connection with a judicial proceeding:"
The provision in [Rule 6(e)(3)](C)(i) that disclosure may be made "preliminarily to or in connection with a judicial proceeding" is, on its face, an affirmative limitation on the availability of court-ordered disclosure of grand jury materials. In our previous cases under Rule 6(e), we have not had occasion to address this requirement in detail, focusing instead on the requirement that the moving party show particularized need for access to grand jury materials. . . . The two requirements, though related in some ways, are independent prerequisites to [Rule 6(e)(3)](C)(i) disclosure. The particularized-need test is a criterion of degree; the "judicial proceeding" language of [Rule 6(e)(3)](C)(i) imposes an additional criterion governing the kind of need that must be shown. It reflects a judgment that not every beneficial purpose, or even every valid governmental purpose, is an appropriate reason for breaching grand jury secrecy. Rather, the Rule contemplates only uses related fairly directly to some identifiable litigation, pending or anticipated. Thus, it is not enough to show that some litigation may emerge from the matter in which the material is to be used, or even that litigation is factually likely to emerge. The focus is on the actual use to be made of the material. If the primary purpose of disclosure is not to assist in preparation or conduct of a judicial proceeding, disclosure under [Rule 6(e)(3)](C)(i) is not permitted.Id. at 479-80 (emphasis in the original; citations and footnote omitted). The Baggot Court concluded that "disclosure is not appropriate for use in an IRS tax audit of civil liability, because the purpose of the audit is not to prepare for the conduct of litigation, but to assess the amount of tax liability through administrative channels." Id. at 480. The Supreme Court explained that, even if the audit showed that Baggot owed taxes, that result would not inevitably lead to litigation, at least from the IRS's point of view. Id. at 481. In In re Grand Jury 89-4-72, supra, the Sixth Circuit applied Baggot. In that case, a federal Grand Jury had investigated allegations that a Michigan state court judge had received improper payments from attorneys appearing before him; however, no indictments were returned. Subsequently, the Michigan Grievance Commission ("Commission") requested that the District Court disclose Grand Jury materials, which the Commission wanted to use to investigate the attorneys who had been implicated in the matter. The District Court granted the request, and the Sixth Circuit reversed, concluding that the Commission had not requested disclosure of the Grand Jury materials "preliminarily to or in connection with a judicial proceeding," since the Commission acted as an administrative body, rather than as a judicial tribunal, given that the Commission's actions could be reviewed by a court only if the Michigan Supreme Court were to grant a discretionary appeal.
Applying the foregoing authority to the present case, this Court concludes that the Government has failed to demonstrate that it is seeking the release of Grand Jury materials "preliminarily to or in connection with a judicial proceeding." In Baggot, the Supreme Court held that the "focus is on the _actual use to be made of the material" and that disclosure is not permitted, unless the primary purpose is to assist in preparing for or conducting litigation. 463 U.S. at 480 (emphasis in the original). Herein, the Government has failed to identify the use to which it proposes to put the Grand Jury materials, let alone to convince the Court that it will use those materials to assist in the preparation for or the conduct of litigation. In its initial memorandum, the Government merely states that the IRS wishes to pursue the Defendant's tax obligation and that its request has a judicial component, to wit: the enforcement of the Plea Agreement and the sentence imposed by this Court. In its Reply Memorandum, the Government ambiguously fleshes out its point concerning enforcement of the Plea Agreement and sentence:
The arguments of the Defendant regarding the disclosure of the grand jury material to the IRS focus on whether the disclosure sought is "preliminarily to or in connection with a judicial proceeding." There is no real argument regarding the law involved with this issue. However, the Defendant misses the point when he argues that the IRS wants the grand jury information as part of an administrative process to determine the tax due, and not as part of a "judicial proceeding."
The fact is the Plea Agreement entered into by the Defendant requires him to cooperate with the IRS as it relates to his taxes. ([Doc. #48]). That was part of the agreement. We are now asking that the Court allow the disclosure of the grand jury information to enforce this agreement and, as such, it does relate to a "judicial proceeding" . . . (sic) the criminal case. Further, at the time of sentencing, and as a condition of supervised release, the Court ordered the Defendant to pay and fully settle his tax liabilities. ([Doc. #63]). Again, there is a connection to a "judicial proceeding," the enforcement of the Court's sentencing order.
Doc. #73 at 2. While the Court agrees with the Government that there is a relationship or connection between a "judicial proceeding" and its request for disclosure, such an argument does not establish that it seeks disclosure, in order to use the materials to assist in the preparation for or the conduct of litigation, let alone how it intends to use the materials. The Court is left in the position where it must speculate as to what the Government will do with the Grand Jury materials, if the Court permits their disclosure to the IRS. It bears emphasis that the Government has not stated that it intends to use the Grand Jury materials to file a motion in this criminal prosecution, requesting that this Court enforce the Plea Agreement or revoke the Defendant's supervised release.
Based upon the foregoing, the Court concludes that the Government has failed to establish that it is seeking the disclosure of Grand Jury materials "preliminarily to or in connection with a judicial proceeding." Therefore, it is unnecessary for the Court to address the issue of whether the Government has established a particularized need for the Grand Jury materials it seeks. Accordingly, the Court overrules the Government's Motion to Permit Disclosure of Grand Jury Information (Doc. #69).
While the Government's motion has been deemed not well taken, the fact that the Prosecutor felt the need to file same at all raises the distinct possibility that the Defendant is in violation of that condition of his Supervised Release requiring him "to pay/fully settle, within the period of supervised release, the penalties, interest and back taxes owed." Obviously, one cannot settle his tax problems with the Government without fully cooperating with the agencies responsible for determining the exact amount of back taxes, penalties and interest. Accordingly, it is the order of this Court that the Defendant's probation officer, that individual responsible for monitoring the Defendant's Supervised Release, speak with the necessary officials to ascertain the validity of this assumed possibility and, if deemed accurate, forthwith and immediately, file a petition, directing Defendant to show cause why his Supervised Release should not be revoked.