Unpublished Disposition, 916 F.2d 716 (9th Cir. 1990)

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US Court of Appeals for the Ninth Circuit - 916 F.2d 716 (9th Cir. 1990)

John R. BARTON and Anna Barton, Plaintiffs-Appellants,v.UNITED STATES of America, Defendant-Appellee.

No. 89-15450.

United States Court of Appeals, Ninth Circuit.

Submitted Sept. 10, 1990.* Decided Oct. 17, 1990.

Before EUGENE A. WRIGHT, FARRIS and NOONAN, Circuit Judges.


MEMORANDUM** 

The Bartons appeal the dismissal of their petition to quash ten Internal Revenue Service summonses requesting records from third-party financial institutions. We dismiss part of this appeal as moot. As to the remaining part, we affirm the judgment.

FACTS AND PRIOR PROCEEDINGS

Because of the Bartons' failure to file income tax returns for several years, the IRS issued identical summonses to ten financial institutions requesting records pertaining to several trusts and accounts. The IRS timely notified the Bartons that it had issued the summonses. It did not give notice to the trustees of the trusts identified in the summonses.

The Bartons contend that the district court did not have jurisdiction to enforce the summonses because the trustees of two of the trusts: (1) were indispensable real parties in interest and, alternatively, (2) were not served with notice of the summons as required by 26 U.S.C. § 7609(a). Following a hearing, the district court issued an order dismissing the taxpayers' petition to quash the summonses and enforcing all summonses. The court found that, even if the lack of notice constituted a violation, the Bartons suffered no harm and so there was no reason to quash the summonses.

DISCUSSION

This court reverses a decision to enforce an IRS summons only when it is clearly erroneous. Ponsford v. United States, 771 F.2d 1305, 1307 (9th Cir. 1985).

II. Appeal is Moot as to Nine Financial Institutions

The IRS contends that the Bartons' appeal is moot as to nine of the financial institutions served with summonses. Compliance with an IRS summons moots an appeal challenging its enforceability. United States v. Silva and Silva Accountancy Corp., 641 F.2d 710, 711 (9th Cir. 1981). Nine of the financial institutions have complied with their summonses. As to them, this appeal is dismissed.

One of the ten summonses has not yet been satisfied. Superior Home Loans, Inc. has not complied with its summons. We consider the enforceability of that summons.

III. The District Court Has Jurisdiction to Enforce the Summons

The Bartons contend that the district court erred in assuming jurisdiction to enforce the summons. They contend that under the California Probate Code, the trustees are real parties in interest indispensable to the proceeding. They argue that failure to notify the trustees deprived both the IRS and the district court of jurisdiction to enforce the summons.

The Internal Revenue Code provides that jurisdiction to enforce a contested summons lies in the United States district court for the district where the person summoned resides. 26 U.S.C. §§ 7402(b), 7604(b). If subject matter jurisdiction exists, a defect in the manner an action is instituted and processed is not itself jurisdictional and does not prevent entry of a valid judgment. Schlesinger v. Councilman, 420 U.S. 738, 742 n. 5 (1975); see 2 J. Moore & J. Lucas, Moore's Federal Practice, Secs. 3.04, 3.06 (2nd ed. 1989).

The district court had jurisdiction to enforce the contested summons pursuant to sections 7402(b) and 7604(b) of the Internal Revenue Code. Because this case is governed by the Code, California law is inapplicable. See Donaldson v. United States, 400 U.S. 517, 528-529 (1971). It is irrelevant whether the trustees are indispensable parties under California law. The IRS failure to notify the trustees did not deprive the court of jurisdiction.

The Bartons contend that the district court erred in enforcing the summons because some of the entities named did not receive notice. The Bartons argue that section 7609(a) requires notice, and that failure to give proper notice invalidates the summons.

Given the facts here, we need not decide whether the trustees were entitled to section 7609 notice by virtue of their identification in the summons. Even if the lack of notice to the trustees was a violation, it does not warrant invalidation of the summons.

The Fifth Circuit has held that not every violation of the section 7609 requirements necessarily invalidates a summons. United States v. Bank of Moulton, 614 F.2d 1063 (5th Cir. 1980) (per curiam) (refusing to invalidate a summons where bank officials made disclosures to IRS agent before taxpayer received notice). The Moulton court held that in determining whether to enforce an imperfectly executed IRS summons, the court should evaluate the seriousness of the violation under all of the circumstances, including the government's good faith and the degree of harm imposed by the unlawful conduct. Moulton, 614 F.2d at 1066.

There is no evidence that the IRS was motivated by bad faith when it failed to give notice to the trustees. Even if section 7609(a) entitled the trustees to notice, there is no evidence that the Bartons were harmed by this violation.

The IRS notified the Bartons of the summons within 23 days of serving it. See 26 U.S.C. § 7609(a). They intervened to quash the summons under section 7609(b). They may not claim that they themselves were denied an opportunity to challenge the summons. Because they may not rest a claim to relief on the legal rights or interests of third parties, they cannot assert the trustees' right to intervene. See Secretary of State of Maryland v. Joseph H. Munson Co., 467 U.S. 947, 955 (1984); Ripplinger v. Collins, 868 F.2d 1043, 1047 (9th Cir. 1989). Only in exceptional circumstances, not present here, will a court relax the general prohibition against assertion of third party rights. Munson Co., 467 U.S. at 956.

The Bartons make a conclusory claim that the trustees would have challenged the summons. They have failed to show, however, that this warrants an exception to the rule against asserting the rights of third parties. Had the Bartons chosen to bring the trustees into the summons enforcement proceedings, they could have notified the trustees, who could have petitioned to intervene.1 

Absent any showing of material harm through enforcement of the challenged IRS summons, lack of notice to the trustees does not defeat its enforcement. See Moulton, 614 F.2d at 1066. We do not take lightly the statutory and administrative regulations that govern the issuance of those summonses. As the Eighth Circuit has said, these regulations "are an essential check on the discretion of an agency with broad investigatory powers over all American citizens. Nevertheless, in the circumstances of this case, we believe denial of the summons would be an elevation of form over substance." Swanson, 772 F.2d at 441.

CONCLUSION

We DISMISS this appeal as to the nine financial institutions which have complied. We AFFIRM the dismissal of the petition to quash the remaining summons.

 *

The panel unanimously finds this case suitable for decision without oral argument. Fed. R. App. P. 34(a); Ninth Circuit Rule 34-4

 **

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3

 1

The government's brief stated in a footnote that a related case found that the Bartons were the officers of the trusts. As this information is not in the record, we decline to consider it

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