United States of America v. Frank Agrama, No. 2:2019cv09204 - Document 28 (C.D. Cal. 2020)
Court Description: ORDER DENYING RESPONDENTS MOTION FOR EVIDENTIARY HEARING, 18 23 by Judge Dean D. Pregerson: For the reasons stated above, Respondents Motion for an Evidentiary Hearing is DENIED. A separate order compelling Respondent to comply with the summons shall issue. See order for further details. (shb)
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United States of America v. Frank Agrama Doc. 28 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, 12 Petitioner, 13 v. 14 FRANK AGRAMA, 15 Respondent. ___________________________ ) ) ) ) ) ) ) ) ) ) Case No. CV 19-09204 DDP (JCx) ORDER DENYING RESPONDENT’S MOTION FOR EVIDENTIARY HEARING [Dkt 18, 23] 16 17 Presently before the court is Respondent Frank Agrama’s Motion 18 for Evidentiary Hearing.1 19 parties, the court denies the motion for evidentiary hearing and 20 adopts the following Order. 21 I. 22 Having considered the submissions of the Background2 In 2006, an Italian prosecutor sought, pursuant to a Treaty on 23 Mutual Legal Assistance in Criminal Matters (“MLAT”) between Italy 24 and the United States, U.S. government assistance with an Italian 25 26 27 28 1 Although not styled as a motion to quash, Agrama also asks that this Court quash the IRS summons that the agency has petitioned the court to enforce. 2 The facts recited here are drawn from the filings in this matter, as well as those in a related matter, In Re Search of Harmony Gold USA Inc., No. 06-cv-07663-DDP-JC. Dockets.Justia.com 1 investigation of Respondent Frank Agrama (“Agrama”). 2 FBI agents obtained and executed search warrants for Agrama’s home 3 and business in Los Angeles. 4 forensic accountant Gabriela Chersicla (“Chersicla”) were present 5 during the searches. 6 Accordingly, Italian authorities, including Soon after, Agrama asked this Court to order the FBI to return 7 property and documents seized during the searches. 8 contended, among other things, that the affidavits underlying the 9 search warrants were defective, that FBI agents failed to follow 10 search protocols set forth in the warrants, and that many of the 11 documents seized were privileged. 12 Agrama’s motion for return of property, the government ultimately 13 withdrew its opposition, acknowledged that agents had erred in 14 certain respects, agreed that the search warrants should be 15 withdrawn, and agreed to return all property, without transmitting 16 or providing any copies of any documents to Italy or the Italian 17 prosecutors. 18 which the government complied. 19 Agrama After initially opposing This Court entered an order to that effect, with In 2009, Agrama and his wife sought to participate in the 20 Internal Revenue Service’s voluntary disclosure program regarding 21 foreign bank accounts. 22 represented that they were not under criminal investigation by any 23 law enforcement authority. 24 accepted the Agramas’ voluntary disclosure and, on the basis of 25 that disclosure, began a review of the Agramas’ 2009 tax return. 26 As part of that process, the Agramas The IRS preliminarily and conditionally In 2012, the IRS learned that Agrama was, in fact, under 27 criminal indictment in Italy. 28 evasion later that year in Italy, and received a three-year Indeed, Agrama was convicted of tax 2 1 sentence. 2 voluntary disclosure program in early 2013. 3 The Agramas were subsequently removed from the IRS’ In the meantime, and indeed even prior to the 2006 MLAT 4 request to the United States, Italian prosecutors also sought 5 assistance from the governments of Switzerland, Hong Kong and 6 Ireland pursuant to MLATs between Italy and each of those foreign 7 entities. 8 forensic accountant Chersicla was present during searches executed 9 in Hong Kong in 2007. As with the FBI searches in the United States, Italian Italian prosecutors were eventually able to 10 obtain, over Agrama’s objections, documents from all three other 11 jurisdictions (the “MLAT documents”). 12 authored a report analyzing documents obtained from Hong Kong (“the 13 Chersicla Report”). 14 were, consistent with all applicable treaties and laws, provided to 15 Agrama in the course of criminal proceedings against him in Italy.3 16 At some point after the Agramas’ expulsion from the IRS’ In December 2013, Chersicla The Chersicla Report and all MLAT documents 17 voluntary disclosure program in early 2013, and after the 18 publication of the Chersicla report in December 2013, the IRS 19 initiated an audit of the Agramas and, eventually, Agrama’s 20 business. 21 liability for fourteen tax years, ranging from 1997 to 2011. 22 connection with that examination, the IRS issued a summons in 2018 23 directing Agrama to produce documents, including all documents 24 related to Agrama’s two criminal trials in Italy, documents related 25 to Agrama’s challenge to Italy’s MLAT request to Ireland, and all The IRS is currently investigating the Agramas’ tax In 26 27 28 3 Although Agrama was convicted of tax evasion in Italy in 2012, he was later acquitted of further charges in 2016. 3 1 documents provided to the Italian government from other countries, 2 including Hong Kong, relating to Agrama’s two trials in Italy 3 (i.e., the MLAT documents). 4 documents to the IRS, he has not provided any MLAT documents. 5 Accordingly, the IRS has petitioned this Court to enforce the 6 summons and require Agrama to produce the MLAT documents. 7 Although Agrama provided some Agrama contends that the summons should be quashed because it 8 was issued in bad faith. 9 evidentiary hearing to determine whether the summons was issued for 10 a proper purpose. 11 II. 12 In the alternative, Agrama requests an Discussion To obtain judicial enforcement of a summons, the IRS need only 13 show that the summons was issued in good faith. 14 Clarke, 573 U.S. 248, 250 (2014). 15 limited to that narrow question. 16 burden by demonstrating that (1) the investigation has a legitimate 17 purpose, (2) the inquiry may be relevant to that purpose, (3) the 18 IRS does not already possess the information it seeks, and (4) the 19 IRS has followed the procedures required by the Internal Revenue 20 Code. 21 Court has already determined that the government has made such a 22 prima facie showing. 23 summons enforcement proceedings are “summary in nature,” a 24 respondent is nevertheless entitled to contest an IRS summons “on 25 any appropriate ground.” 26 seeking an evidentiary hearing “need only make a showing of facts 27 that give rise to a plausible inference of improper motive.” United States v. Indeed, this Court’s inquiry is Id. at 254. The IRS meets its United States v. Powell, 379 U.S. 48, 57-58 (1964). (Order to Show Cause, Dkt. 14.) Although Clarke, 573 U.S. at 250, 254. 28 4 This A taxpayer Id. 1 “Naked allegations of improper purpose[, however,] are not enough.” 2 Id. 3 A. 4 Agrama argues first that the summons in question was issued in Prior Possession 5 bad faith because the IRS already possesses the information it 6 seeks. 7 of some documents, such as the Chersicla Report, that fall within 8 the ambit of the summons. 9 no way of knowing whether the documents it does possess are The IRS does not dispute that it already possesses portions The IRS represents, however, that it has 10 complete. 11 that its copy is not complete, and that the full report includes 12 nearly 250 exhibits, none of which are attached to the IRS’ copy. 13 Under these circumstances, this Court cannot agree that the IRS 14 improperly seeks information that is already in its possession. 15 And, in the case of the Chersicla Report, the IRS knows Although Agrama asserts that “the Supreme Court’s mandate is 16 clear” that this Court cannot enforce a summons that seeks any 17 information already possessed by the IRS, this Court does not read 18 Powell as dogmatically as Agrama would urge. 19 agreed that a statutory mandate that “[n]o taxpayer shall be 20 subjected to unnecessary examination or investigations” “does 21 appear to require that the information sought is not already within 22 the [IRS]’ possession.” 23 56. 24 purpose was no more than to emphasize the responsibility of agents 25 to exercise prudent judgment in wielding the extensive powers 26 granted to them by the Internal Revenue Code.” 27 56. 28 enforcement process would occur “if the summons had been issued for In Powell, the Court 26 U.S.C. § 7605(b); Powell, 379 U.S. at Nevertheless, the Court explained, the clause’s “primary Powell, 379 U.S. at The Court further explained that an abuse of the judicial 5 1 an improper purpose, such as to harass the taxpayer . . . .” 2 at 58 (emphasis added). 3 Powell factor (i.e., the “already possesses” factor), has similarly 4 held that the “limitation prevents unnecessary summonses that are 5 designed to harass the taxpayer, or that otherwise abuse the 6 court’s process.” 7 1142, 1146 (9th Cir. 2013) (internal quotation marks omitted). 8 Notably, moreover, the Ninth Circuit interpreted the third Powell 9 factor to forbid a repeat summons to a taxpayer “[w]here the IRS 10 already possesses copies of particular records obtained from the 11 taxpayer.” 12 obstruct the ability of the IRS to obtain relevant information 13 necessary to a legitimate investigation.” 14 Id. Id. The Ninth Circuit, discussing the third Action Recycling Inc. v. United States, 721 F.3d “This limitation was not designed, however, to Id. Here, Agrama does not contend that any of the information the 15 IRS seeks, but may already possess, has already been produced by 16 Agrama himself. 17 information it already possesses, is there any indication that the 18 IRS’ efforts are motivated by any intent to harass Agrama. 19 as discussed above, the IRS seeks to complete partial documents in 20 its possession, or to determine whether documents in its possession 21 are, in fact, complete. 22 be read to require that the summons be quashed. 23 Recyling, 721 F.3d at 1145-46 (interpreting Powell as “cautioning 24 against a stringent interpretation that could hamper the [IRS] in 25 carrying out investigations [it] thinks warranted, and noting that 26 the legislative history of § 7605(b) indicates that no severe 27 restriction was intended.” (internal quotation marks omitted)). 28 B. Nor, to the extent that the IRS does seek Rather, Under these circumstances, Powell cannot Circumvention of Treaties 6 See Action 1 The MLAT treaties between Italy and Hong Kong, Ireland, and 2 Switzerland restrict, to varying degrees, the requesting government 3 (in this case, Italy)’s use of any information provided by the MLAT 4 treaty partner.4 5 seeking MLAT documents from Agrama is to circumvent the various 6 MLATs’ restrictions, and that this improper purpose merits quashal 7 of the summons. 8 matter, Agrama cites to a series of cases that are largely inapt. 9 With one exception, none concerns an IRS summons, and all involved Agrama contends that the IRS’ true purpose in This argument is not persuasive. As an initial 10 an attempt to obtain information located in foreign countries. 11 Societe Internationale v. Rogers, 357 U.S. 197 (1958) (Swiss bank 12 records); Ings v. Ferguson, 282 F.2d 149, 150 (2d Cir. 1960) (bank 13 records located in Canada); Application of Chase Manhattan Bank, 14 297 F.2d 611, 611 (2d Cir. 1962) (bank records located in Panama). 15 Furthermore, and more fundamentally, Agrama provides no 16 explanation how an IRS summons to a private United States citizen 17 in the United States could possibly implicate any obligations the 18 government of Italy may owe to any other foreign entity. 19 States v. Vetco Inc., 691 F.2d 1281, 1288 (9th Cir. 1981), is of 20 little aid to Agrama. 21 not only located in Switzerland, but the divulgence of which might 22 also subject the U.S. respondents to criminal penalties in 23 Switzerland. 24 determining whether foreign illegality ought to preclude 25 enforcement of an IRS summons,” and concluded that, under the United In Vetco, the IRS sought records that were The Ninth Circuit applied a five-factor test “in 26 4 27 28 See Although Agrama represents, and the government does not dispute, that this is true of the MLAT treaty between Italy and Switzerland, Agrama does not provide a reference to an Englishlanguage version of the relevant treaty. 7 1 circumstances present in Vetco, the national interests at stake, 2 the hardship to respondents, the location of production, the 3 importance of the records, and the availability of alternate means 4 of compliance weighed in favor of enforcing the summons, 5 notwithstanding the possibility of criminal prosecution in 6 Switzerland. 7 weighing of the relevant considerations would yield a similar 8 conclusion, the court need not consider each of the five Vetco 9 factors because Agrama has not made a threshold showing that his Vetco, 691 F.2d at 1288-90. Here, although a 10 compliance with the summons would violate any foreign law. See 11 Vetco,691 F.2d at 1289 (“The party relying on foreign law has the 12 burden of showing that such law bars production.”). 13 MLAT between Italy and any other entity puts any restriction on 14 Agrama’s ability to produce documents in his possession or 15 control.5 Put simply, no 16 C. 17 Illegal, and particularly unconstitutional, conduct by IRS Tainted Investigation 18 agents may so compromise the good faith of an investigation as to 19 render any judicial enforcement of a related summons an abuse of 20 judicial process. 21 F.2d 49, 53 (2d Cir. 1983); Gluck v. United States, 771 F.2d 750, 22 756 (3d Cir. 1985). United States v. Beacon Fed. Sav. & Loan, 718 Agrama argues that the summons should be 23 24 25 26 27 28 5 The court notes that Agrama appears to have largely abandoned this line of reasoning in his Reply, arguing only briefly that to enforce the summons “would involve the court in the IRS’s efforts to circumvent [] legal restrictions” and that “[p]rinciples of international comity require that domestic courts not take action that may cause violation of another nation’s laws.” (Reply at 9.) As explained above, however, Agrama has made no showing that his production of the requested documents would violate any foreign law. 8 1 quashed because the investigation of which it is a part is tainted 2 by the government’s unlawful actions, namely (1) the allegedly 3 unconstitutional searches executed by the FBI in 2006 and (2) the 4 IRS’ illegal procurement of MLAT documents, including the Chersicla 5 Report. 6 7 1. Fruit of the illegal 2006 searches The alleged link between the investigation of which the 8 instant petition to enforce is a part and the allegedly 9 unconstitutional 2006 searches is a tortured and tenuous one. 10 First, Agrama asserts that the IRS’ current investigation, spanning 11 fourteen tax years, is premised upon the Cheriscla Report. 12 assertion appears to be supported by little more than speculation 13 and the lone fact that the IRS’ audit post-dated the issuance of 14 the Chersicla Report. 15 voluntary disclosure to the IRS in 2009, not to mention the 16 Agramas’ expulsion from the voluntary disclosure program in early 17 2013 in the wake of the revelation that, contrary to his 18 representation to the IRS, Agrama had in fact been investigated by 19 Italian authorities and was ultimately convicted of tax evasion. This The audit also post-dated, however, Agrama’s 20 The implausible assertion that the IRS’ entire investigation 21 is based upon the Chersicla Report is, furthermore, but the first 22 implausible inference necessary to connect the current summons to 23 the 2006 searches. 24 analysis of documents obtained in Hong Kong, not Los Angeles. 25 Indeed, as explained above, the FBI never transmitted any of the 26 documents seized in Los Angeles in 2006 to Chersicla or any other 27 Italian authority. 28 Kong documents “did not supernaturally bring themselves to the Agrama concedes that the Chersicla Report is an Nevertheless, Agrama contends that the Hong 9 1 attention of the Italian prosecution team,” and that Chersicla 2 “unavoidably would have used knowledge gained through the 3 unconstitutional searches in Los Angeles.”6 4 20.) 5 (Reply at 5:15-16, 19- In other words, the argument goes, the instant summons, issued 6 in 2018, is the fruit of the poisonous tree because (1) the audit 7 from which the summons stems began in 2013, after the issuance of 8 the Chersicla Report, and therefore must have been premised upon 9 that report, which (2) although based upon Hong Kong documents, was 10 able to focus on certain of those documents only because (3) 11 Chersicla was able to glean crucial guiding information from 12 privileged material while physically present for improper searches 13 in Los Angeles in 2006, even though she never received copies of 14 any of the documents seized. 15 whether any improper conduct by FBI agents in 2006 calls into 16 question the good faith of IRS agents investigating Agrama years 17 later, the facts alleged here are far too speculative to raise even 18 a plausible inference that the summons at issue here is, by way of 19 Hong Kong and Italy, the fruit of a poisonous tree planted in Los 20 Angeles in 2006. 21 22 Even putting aside the question 2. Illegal acquisition of MLAT documents Agrama also argues that, putting aside the issues with the 23 2006 searches, the investigation underlying the summons is tainted 24 because the MLAT documents upon which the investigation is 25 premised, including the Chersicla Report, were illegally obtained 26 27 28 6 Although the Hong Kong search occurred after the Los Angeles search, the MLAT request to Hong Kong predated the MLAT request to the United States. 10 1 by the IRS. 2 assumption that the IRS’ investigation was motivated by the 3 Chersicla Report. 4 plausible, particularly in light of Agrama’s voluntary disclosure 5 and apparent misrepresentation of his legal status. 6 First, this argument too is premised upon the As discussed above, that contention is not Even assuming, for the sake of argument, that the 7 investigation was spurred by the Chersicla report, Agrama does no 8 more than speculate that the IRS obtained the report, and other 9 MLAT documents, illegally. Agrama asserts that a separate, double- 10 taxation treaty between the United States and Italy allows for the 11 exchange of tax-related information only by designated competent 12 authorities, namely the Secretary of the Treasury or his delegate. 13 Agrama further asserts that any such delegate “would likely have 14 known about and respected” MLAT restrictions on the use of MLAT 15 information. 16 would have known that Italy was not free to divulge MLAT 17 information obtained from another country, and the U.S. delegate 18 would therefore have refused to accept any MLAT document proffered 19 by any Italian authority.7 20 must have received the Chersicla Report outside of the treaty 21 process and, therefore, illegally. 22 what a U.S. Treasury delegate “would likely have known,” or would 23 have done under certain circumstances, and that the IRS could not 24 possibly have obtained documents any other legitimate way, do not 25 give rise to a plausible inference that the IRS did anything (Reply at 7:9-20). In other words, a U.S. designee Thus, the argument seems to go, the IRS Bare assertions, however, of 26 7 27 28 Although Agrama asserts that IRS agents revealed that the IRS obtained documents “through channels or through the US attaché,” it is not clear to the court how such a statement suggests any illegality. 11 1 illegal or in bad faith.8 2 clear . . . that quashal of a summons does not follow automatically 3 from improper agency conduct.”). 4 IV. 5 See also Gluck, 771 F.2d at 757 (“It is Conclusion For the reasons stated above, Respondent’s Motion for an 6 Evidentiary Hearing is DENIED. 7 Respondent to comply with the summons shall issue. A separate order compelling 8 9 10 11 12 IT IS SO ORDERED. 13 14 15 16 Dated: DECEMBER 2, 2020 DEAN D. PREGERSON United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 8 The government asks that the court consider an in camera submission detailing the legal means by which the IRS obtained the Chersicla Report. Because Agrama’s contention that the document was illegally obtained is speculative, the court need not review, and has not reviewed, the government’s in camera submission. The government’s ex parte application for leave to file the in camera submission is, therefore, denied as moot. 12
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