Shannahan v. Internal Revenue Service, No. 2:2008cv00560 - Document 61 (W.D. Wash. 2010)
Court Description: THIRD ORDER ON DEFENDANT'S 22 MOTION FOR SUMMARY JUDGMENT and ORDER denying 46 Plaintiff's Motion for Summary Judgment, by Judge James L. Robart.(MD)
Download PDF
<![CDATA[
1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 WILLIAM P. SHANNAHAN, Plaintiff, 11 13 INTERNAL REVENUE SERVICE, Defendant. 14 15 16 17 18 19 20 21 THIRD ORDER ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT v. 12 CASE NO. C08-0560JLR AND ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT I. INTRODUCTION This matter comes before the court for a third time on Defendant Internal Revenue Service’s (“IRS”) motion for summary judgment (Dkt. # 22) and for the first time on Plaintiff William P. Shannahan’s motion for summary judgment (Dkt. # 46). Previously, this court twice determined that the IRS has not met its burden to withhold documents under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552, and twice directed the 22 ORDER- 1 1 IRS to supplement its declarations in support of withholding. (See Order dated April 27, 2 2009 (“Order I”) (Dkt. # 32); Order dated September 3, 2009 (“Order II”) (Dkt. # 44).) 3 Having reviewed the IRS’s latest submissions, as well as the briefing and the balance of 4 the record, the court GRANTS the IRS’s motion for summary judgment (Dkt. # 22) and 5 DENIES Mr. Shannahan’s motion for summary judgment (Dkt. # 46). II. BACKGROUND 6 The parties are familiar with the background of this case, and the court will not 7 8 repeat it in full here. For a complete background, the court directs the parties to the 9 court’s two previous orders. (See generally Order I; Order II.) III. 10 ANALYSIS 11 A. Preliminary Matters 12 13 14 15 16 17 18 19 20 21 22 1. Sufficiency of the Vaughn Index The court previously directed the IRS to provide additional information regarding how it selected the documents described in the Vaughn index. In her third declaration, Meghan G. Mahaney, an IRS attorney and the individual who prepared the Vaughn index, states that she did not choose the documents at random but rather selected representative documents. (Third Declaration of Meghan G. Mahaney (“Third Mahaney Decl.”) (Dkt. # 50) ¶¶ 7-9.) Ms. Mahaney explains in detail the method she used to select the documents included in the Vaughn index. (Id.) Mr. Shannahan does not renew his argument that the Vaughn index does not constitute a representative sample of the withheld documents. On this record, having reviewed Ms. Mahaney’s third declaration, the court is satisfied that the Vaughn index is representative of the withheld documents. ORDER- 2 In light of this determination and in accordance with its prior findings, the court 1 2 grants summary judgment under Exemptions 3 and 7(A) with respect to all of the 3 documents prepared by the IRS and other government agencies. The court previously 4 found that the IRS had established that Exemptions 3 and 7(A) apply with respect to all 5 of the withheld documents prepared by the IRS and other government agencies described 6 in the Vaughn index. The court also found that those documents are not reasonably 7 segregable, and thus granted summary judgment in favor of the IRS. The court declined, 8 however, to grant summary judgment with respect to those documents prepared by the 9 IRS and other government agencies but not described in the Vaughn index because the 10 court could not determine whether the Vaughn index constituted a representative sample 11 of the withheld documents. Having now determined that the Vaughn index is 12 representative, the court grants summary judgment under Exemptions 3 and 7(A) with 13 respect to all documents prepared by the IRS and other government agencies. 14 2. Original Documents The court also previously directed Mr. Shannahan to file a status update regarding 15 16 the Original Documents. Mr. Shannahan represents that he has now obtained copies of 17 the Original Documents. (Dkt. # 45.) On this record, the court finds this issue to have 18 been resolved between the parties. 19 20 21 22 3. Special Agent’s Report In preparing its latest submissions, the IRS located a signed, final copy of the special agent’s report for the Cheungs that had not been previously identified, but is responsive to the FOIA requests. (Declaration of Steven J. Bellis (“Bellis Decl.”) (Dkt. # ORDER- 3 1 51) ¶ 19.) The report is 41 pages in length, and a draft copy of the report was previously 2 identified as responsive by the IRS. (Id.) The IRS argues that the report is properly 3 withheld under Exemptions 3 and 7(A) in accordance with the court’s second order. (Id.) 4 Mr. Shannahan does not address whether this report may be withheld. On this record, the 5 court finds that the report was prepared by the IRS, that the IRS has established that 6 Exemptions 3 and 7(A) apply for the reasons articulated in the court’s prior orders, and 7 that the report is not reasonably segregable. The court thus grants summary judgment in 8 favor of the IRS with respect to the report. 9 B. 10 Legal Standard Summary judgment is appropriate if the evidence, when viewed in the light most 11 favorable to the non-moving party, demonstrates there is no genuine issue of material 12 fact. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. 13 County of Los Angeles, 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the 14 initial burden of showing there is no material factual dispute and he or she is entitled to 15 prevail as a matter of law. Celotex, 477 U.S. at 323. If the moving party meets its 16 burden, the nonmoving party must go beyond the pleadings and identify facts which 17 show a genuine issue for trial. Cline v. Indus. Maint. Eng’g. & Contracting Co., 200 18 F.3d 1223, 1229 (9th Cir. 2000). 19 “Summary judgment is the procedural vehicle by which nearly all FOIA cases are 20 resolved.” Los Angeles Times Commc’ns, LLC v. Dep’t of the Army, 442 F. Supp. 2d 21 880, 893 (C.D. Cal. 2006). The court conducts a de novo review of an agency’s 22 response to a FOIA request. 5 U.S.C. § 552(a)(4)(B); U.S. Dep’t of Justice v. Reporters ORDER- 4 1 Comm. for Freedom of Press, 489 U.S. 749, 755 (1989). The usual summary judgment 2 standard does not extend to FOIA cases because the facts are rarely in dispute and courts 3 generally need not resolve whether there is a genuine issue of material fact. Minier v. 4 Cent. Intel. Agency, 88 F.3d 796, 800 (9th Cir. 1996). Courts instead follow a two-step 5 inquiry when presented with a motion for summary judgment in a FOIA case. Los 6 Angeles Times Commc’ns, 442 F. Supp. 2d at 893. 7 First, courts must evaluate “whether the agency has met its burden of proving that 8 it fully discharged its obligations under the FOIA.” Id. The agency must demonstrate 9 that it has conducted a search reasonably calculated to uncover all relevant documents. 10 Zemansky v. U.S. Envtl. Prot. Agency, 767 F.2d 569, 571 (9th Cir. 1985). Second, if the 11 agency satisfies its initial burden, the court must determine “whether the agency has 12 proven that the information that it did not disclose falls within one of the nine FOIA 13 exemptions.” Los Angeles Times Commc’ns, 442 F. Supp. 2d at 894. In meeting its 14 burden, “the government may not rely upon ‘conclusory and generalized allegations of 15 exemptions.’” Church of Scientology of Cal. v. U.S. Dep’t of the Army, 611 F.2d 738, 16 742 (9th Cir. 1980) (quoting Vaughn v. Rosen, 484 F.2d 820, 826 (D.C. Cir. 1973)). 17 C. FOIA Exemptions 18 In its motion for summary judgment, the IRS argues that the withheld documents 19 are exempt from disclosure under FOIA Exemptions 3, 5, 6, 7(A), 7(C), and 7(E). Mr. 20 Shannahan contends that the IRS has failed to present sufficient information to justify 21 withholding under these exemptions. In its two prior orders, the court ruled on many, 22 but not all, of the issues raised by the IRS’s motion. First, the court determined that the ORDER- 5 1 IRS conducted an adequate search. Second, the court denied the IRS’s motion for 2 summary judgment with respect to Exemptions 6 and 7(E). Third, the court granted in 3 part the IRS’s motion for summary judgment under Exemptions 3, 5, and 7(A). The 4 court reserved ruling on the remaining issues. In light of its prior orders, the court once 5 again begins its inquiry with the second step of the FOIA analysis: has the IRS 6 established that the remaining withheld documents fall within one or more of the 7 claimed FOIA exemptions? 8 9 1. Exemption 3 and 26 U.S.C. § 6103 Exemption 3 of FOIA incorporates nondisclosure protections established in other 10 federal statutes. 5 U.S.C. § 552(b)(3). 26 U.S.C. § 6103(a) prohibits the disclosure of 11 returns or return information and qualifies as a statute that exempts disclosure within the 12 meaning of Exemption 3. Kamman v. U.S. Internal Revenue Serv., 56 F.3d 46, 48 (9th 13 Cir. 1995); Johnson v. Comm’r, 239 F. Supp. 2d 1125, 1137 (W.D. Wash. 2002). 14 Section 6103(a) provides that “[r]eturns and return information shall be confidential,” 15 and generally prohibits the government from disclosing returns and return information. 16 26 U.S.C. § 6103(a). The statute defines “return information” to include: 17 18 19 20 21 [A] taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense . . . . 22 ORDER- 6 1 26 U.S.C. § 6103(b)(2)(A). Despite the general rule, the IRS may disclose return 2 information to a taxpayer so long as “the Secretary determines that such disclosure would 3 not seriously impair Federal tax administration.” 26 U.S.C. § 6103(e)(7). 4 i. Prior Orders 5 The court previously determined that the withheld documents constitute “return 6 information” under 26 U.S.C. § 6103(b)(2). In addition, the court previously determined 7 that the IRS had met its burden under Exemption 3 and 26 U.S.C. § 6103 with respect to 8 those documents prepared by the IRS or other government agencies and described in the 9 Vaughn index. Here, the court addresses only those documents prepared by third parties 10 and the Electronic Database. 11 12 13 14 15 16 17 18 19 20 21 22 ii. Serious Impairment of Federal Tax Administration A district court reviews de novo the IRS’s determination that the release of withheld documents would seriously impair federal tax administration. Long v. U.S. Internal Revenue Serv., 742 F.2d 1173, 1182-83 (9th Cir. 1984); Pac. Fisheries, Inc. v. Internal Revenue Serv., No. C04-2436JLR, 2009 WL 1249296, at *3 (W.D. Wash. May 6, 2009). The IRS bears the burden on this issue. Long, 742 F.2d at 1183. Although the IRS’s determination is entitled to deference, the court nonetheless reviews the determination de novo and “must satisfy itself, on the basis of detailed and nonconclusory affidavits, that the Commissioner is correct in his belief that the disclosure of [the information requested] by [the plaintiff] would pose a substantial risk of impairing the collection, assessment, or enforcement of the tax laws.” Long, 742 F.2d at 1183. Federal tax administration, as defined at 26 U.S.C. § 6103(b)(4), “embraces ORDER- 7 1 assessment, collection, enforcement and litigation under laws governing the application 2 of the internal revenue laws,” United States v. Hobbs, 991 F.2d 569, 573 (9th Cir. 1993), 3 and “unquestionably includes the criminal enforcement of the internal revenue laws,” 4 Youngblood v. Comm’r, No. 2:99-CV-9253-R(RNBX), 2000 WL 852449, at *9 (C.D. 5 Cal. Mar. 6, 2000). 6 The IRS argues that all of the documents may be withheld pursuant to Exemption 7 3 because their disclosure would seriously impair federal tax administration. Agent 8 Caesar White, who previously served as the supervisory special agent for criminal 9 investigations in the Seattle, Washington, Office of the IRS, asserts that release of the 10 documents would or could (1) “allow the Cheungs to determine the nature, direction, 11 scope, and limits of the criminal proceedings, and the strategies and theories being 12 utilized by the government”; (2) “allow the Cheungs earlier and greater access to 13 information about the proceedings than they would otherwise be entitled to receive, and 14 would deprive the government of reciprocal discovery since the Cheungs are now 15 unavailable”; (3) “enable the Cheungs to craft explanations or defenses based upon the 16 government’s analysis, depriving the government of the facts known to the Cheungs”; 17 and (4) “enable the Cheungs to conceal or disguise income, or take other steps to avoid 18 having income attributed to them.” (Declaration of Caesar White (“White Decl.”) (Dkt. 19 # 22-4) ¶ 15.) Mr. Shannahan does not dispute that the types of harm alleged by the IRS 20 would constitute serious impairment of federal tax administration. Rather, he argues that 21 the IRS has not demonstrated a rational connection between release of the documents 22 and the alleged harms. ORDER- 8 a. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Documents Obtained by the Government Pursuant to a Mutual Legal Assistance Agreement Between Hong Kong and the United States In his declaration, Steven J. Bellis, the supervisory special agent for criminal investigations in the Seattle, Washington, Office of the IRS, explains in depth the bases for his determination that the release of the withheld documents will seriously impair federal tax administration. Agent Bellis states that 302 pages of the withheld documents were obtained pursuant to a mutual legal assistance agreement (“MLAA”) between Hong Kong and the United States. (Bellis Decl. ¶¶ 6, 9.) Because there is not a standing tax treaty in place between Hong Kong and the United States, the United States must enter into an agreement regarding the exchange of information during the course of specific criminal investigations. (Id. ¶ 9.) Hong Kong determines whether to enter into an agreement on a case-by-case basis. (Id.) In this matter, Agent Bellis states that the terms of the MLAA require information obtained to remain confidential and to be used only for the criminal investigation.1 (Id. ¶ 10.) Although Agent Bellis acknowledges that some of the information obtained pursuant to the MLAA “may be readily available to the Cheungs outside the context of this investigation,” he emphasizes that releasing the documents so obtained would violate the confidentiality provisions of the MLAA. (Id. ¶¶ 9-12.) In his view, this would potentially interfere with the government’s ability to use 18 19 20 1 The IRS does not provide a copy of the actual MLAA at issue in this matter because the “MLAA reveals what factual information the government possessed at the time it was 21 executed as well as its theories of the case.” (Bellis Decl. ¶ 9.) Instead, the IRS has provided a copy of a “standard” MLAA. (Id. ¶ 10 & Ex. B.) 22 ORDER- 9 1 these documents at trial (id. ¶ 11) and jeopardize the IRS’s ability to obtain information 2 from Hong Kong in future investigations (id. ¶ 12). Specifically, Agent Bellis declares: Not only would violating the terms of the MLAA hamper tax administration as it pertains to the Cheungs, but it would also place at risk the government’s future ability to obtain information from the Hong Kong government in criminal investigations. If Hong Kong no longer trusts the United States government to comply with the terms of MLAAs that it enters into, then Hong Kong will be less likely to enter into such agreements and/or cooperate with the United States government in the future. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 (Id.) In Pacific Fisheries, Inc. v. Internal Revenue Service, this court addressed an analogous argument in support of withholding documents made by the IRS with respect to a tax treaty between the United States and Russia. 2009 WL 1249296, at *2-3. There, the IRS argued that release of certain tax information requested under FOIA would constitute a serious impairment of federal tax administration because, in essence, it would disrupt Russia’s confidence in the exchange-of-information process and potentially chill future cooperation, thereby interfering with other United States civil and criminal tax investigations. Id. at *2. The court accepted the IRS’s argument in Pacific Fisheries, finding that the IRS’s affiant had “provided specific justifications for why release of the material at issue would seriously impair federal tax administration” and that these justifications were grounded in the affiant’s experience. Id. at *3. The court also concluded that the IRS’s determination regarding foreign policy issues was entitled to some deference “as the court is not in a position to independently determine what actions 21 22 ORDER- 10 1 on the part of the United States government would or would not impair treaty relations 2 with another nation.” Id. 3 Here, as in Pacific Fisheries, the court is persuaded that the IRS has met its burden 4 of showing that the release of the withheld documents obtained pursuant to the MLAA 5 would pose a risk of substantial interference with federal tax administration. Agent Bellis 6 has provided a specific, legitimate reason for withholding these documents, and this 7 reason is grounded in his experience as an IRS special agent. Further, the court 8 determines that Agent Bellis’s conclusions are entitled to some deference as the court is 9 not in a position to independently evaluate what actions on the part of the IRS or the 10 United States government would impair relations between Hong Kong and the United 11 States. See id. Mr. Shannahan has not brought forth evidence to controvert Agent 12 Bellis’s justifications for withholding these documents. Therefore, the court concludes 13 that the IRS has met its burden of establishing that Exemption 3, in connection with 26 14 U.S.C. § 6103, applies with respect to those documents obtained pursuant to the MLAA. b. 15 16 17 Documents Obtained by the Government from a Confidential Informant or Confidential Informants 2 Agent Bellis next explains that a number of the withheld documents were obtained from a confidential informant or informants. 3 Agent Bellis is the supervisory 18 19 2 The IRS does not argue that the documents may be withheld under Exemption 7(D), which protects confidential sources. 5 U.S.C. § 552(b)(7)(D); see generally Rosenfeld v. U.S. 20 Dep’t of Justice, 57 F.3d 803, 813-15 (9th Cir. 1995). Regardless of whether the IRS could have argued that the documents obtained from the informant are exempt under Exemption 7(D), the 21 court is satisfied that the IRS may also raise similar arguments in support of withholding under other FOIA exemptions. 22 ORDER- 11 1 investigative agent responsible for overseeing the assistance of the informant. (Bellis 2 Decl. ¶ 4.) He states that the assistance of the informant was conditioned on the 3 government keeping his or her identity confidential. (Id. ¶ 13.) Agent Bellis has 4 determined that the release of the documents obtained from the informant would cause 5 serious impairment of federal tax administration by: (1) revealing the identity of the 6 informant, either directly or indirectly; (2) breaching the IRS’s agreement to maintain the 7 confidentiality of the informant’s identity; (3) discouraging future cooperation from the 8 informant; (4) exposing the informant to a risk of harm; and (5) chilling other individuals 9 from providing information to the government conditioned on confidentiality. (Id.) Mr. 10 Shannahan responds that the IRS has not shown that releasing these documents will 11 reveal the informant’s identity. 12 On this record, the court finds that the release of documents obtained from the 13 confidential informant is likely to cause substantial interference with federal tax 14 administration. Agent Bellis has addressed this court’s previous concerns by explaining 15 in detail why the release of documents obtained from the informant poses a risk of 16 disclosing his or her identity. Contrary to Mr. Shannahan’s arguments, Agent Bellis 17 clearly sets out the basis for his belief that release of these documents would compromise 18 the informant. Specifically, he explains that these documents consist of “handwritten 19 notes written in a third party’s own handwriting, documents attested to by a third party, 20 21 3 The IRS does not specify the number of informants connected to the investigation of the Cheungs. In this order, the court will refer to the informant or informants in the singular for 22 the sake of simplicity. ORDER- 12 1 and documents to which only certain individuals have access.” (Id. ¶ 16.) It follows, as 2 Agent Bellis submits, that access to these types of documents will allow the Cheungs 3 either to identify directly the informant or to winnow down the list of possible 4 informants. (Id.) This danger is not easily forestalled. Even were the IRS to redact the 5 most revealing portions of these documents—such as all handwritten notes, for 6 instance—this does not fully address the risk of disclosure as the mere knowledge of 7 which documents were obtained by the IRS may be sufficient to reveal the identity of the 8 informant because “only certain individuals” have access to the documents. (Id.) 9 In response, Mr. Shannahan argues that the Vaughn index already provides 10 sufficient information to reveal the identity of the confidential informant and thus further 11 disclosure is not likely to cause additional harm. In other words, to the extent the IRS’s 12 concerns are legitimate, the Vaughn index, by describing specific financial documents 13 prepared by third parties that are now in the IRS’s possession, may have caused the very 14 harm the IRS now seeks to prevent. This argument is not without some force, but it does 15 not account for the broader picture. First, the Vaughn index describes only a small 16 number of the total documents withheld. Mr. Shannahan has made no showing that the 17 descriptions provided in the Vaughn index, in and of themselves, have compromised or 18 are sufficient to compromise the informant. Second, the Vaughn index generally does not 19 specify whether particular financial documents were obtained pursuant to the MLAA or 20 from the informant. Third, the release of the third-party documents described in the 21 Vaughn index, as well as additional third-party documents not described in the Vaughn 22 index, is reasonably likely to increase the risk of disclosure. Fourth, the Vaughn index ORDER- 13 1 does not include handwritten notes and other indicia of identity that may be particularly 2 revealing. On balance, these considerations undercut Mr. Shannahan’s argument and 3 demonstrate that the IRS’s concerns remain acute even after having filed the Vaughn 4 index. 5 Furthermore, the court is disinclined to countenance the argument that the IRS has 6 undermined the basis for its claimed exemption through the very act of complying with 7 the court’s order and providing the Vaughn index. The court directed the IRS to 8 supplement its motion for summary judgment with a Vaughn index in part as a means to 9 provide Mr. Shannahan with sufficient information upon which to advocate intelligently 10 for the release of the withheld documents. Mr. Shannahan may, of course, use the 11 information provided in the Vaughn index to press for disclosure. Nevertheless, without 12 an additional showing, the court will not accept the argument that the Vaughn index itself 13 vitiates the IRS’s claimed basis for nondisclosure. 14 In sum, the court concludes that the IRS has met its burden of establishing that 15 Exemption 3, in connection with 26 U.S.C. § 6103, applies with respect to those 16 documents obtained from the confidential informant. c. 17 18 19 20 21 Documents Obtained by the Government from Third-Party Sources by Subpoena The IRS also obtained documents from third parties by subpoena. (Bellis Decl. ¶ 14.) Agent Bellis states that the disclosure of these documents would reveal the scope of the government’s investigation. (Id.; see Third Mahaney Decl. ¶ 10.) He reasons that the Cheungs are not aware of precisely what information third parties have provided to the 22 ORDER- 14 1 government, which party provided particular information, and what information the 2 government has not been able to obtain. (Bellis Decl. ¶ 14.) The IRS acknowledges that 3 the Cheungs may be familiar with the financial transactions at issue in the criminal 4 investigation, that the documents detailing those transactions may have been created by 5 third parties instead of by the government, and that these third-party documents may 6 contain primarily factual content without accompanying governmental analysis. Despite 7 these considerations, Agent Bellis states that the Cheungs are unlikely to know exactly 8 what evidence the government has collected against them because the government has 9 used a range of sources to gather evidence, including the MLAA, subpoenas, and the 10 confidential informant. (Id. at 3.) Mr. Shannahan responds that the IRS still has not 11 provided sufficient detail to support withholding on this ground. 12 The court is persuaded that the IRS has met its burden in support of withholding 13 with respect to those documents obtained by subpoena. These documents were not 14 provided to the government by the Entities or the Cheungs. (Third Mahaney Decl. ¶ 10.) 15 Accordingly, though the Cheungs may be familiar with many of these documents, the 16 Cheungs do not have knowledge of the full scope of which documents were obtained by 17 the government in its investigation, nor which documents were not obtained. Other 18 courts have observed that even where documents pertain only to the plaintiff, not to third 19 parties, these documents nonetheless may be withheld under Exemption 3 and 26 U.S.C. 20 § 6103 if they were “obtained from IRS databases and pursuant to summonses and not 21 from plaintiff.” Radcliffe v. Internal Revenue Serv., 536 F. Supp. 2d 423, 439 (S.D.N.Y. 22 ORDER- 15 1 2008); see May v. Internal Revenue Serv., No. 90-1123-CV-W-2, 1991 WL 328041 2 (W.D. Mo. Dec. 9, 1991). 3 The facts of this case are unlike those of Lion Raisins v. United States Department 4 of Agriculture, 354 F.3d 1072 (9th Cir. 2004), wherein the Ninth Circuit directed the 5 United States Department of Agriculture (“USDA”) to disclose copies of USDA-retained 6 originals of documents identical to the copies the USDA had left in the plaintiff’s 4 7 possession. 354 F.3d at 1084-85. The Ninth Circuit reasoned that “[b]ecause [the 8 plaintiff] already has copies of the documents it seeks from USDA, USDA cannot argue 9 that revealing the information would allow [the plaintiff] premature access to the 10 evidence upon which it intends to rely at trial.” Id. at 1085. In Radcliffe, the court 11 distinguished Lion Raisins and similar cases on the ground that the documents “were 12 either provided by the plaintiff to the government or were already disclosed in some way 13 by the government itself.” Radcliffe, 536 F. Supp. 2d at 439. Though Mr. Shannahan has 14 presented evidence in support of his contention that the Entities and the Cheungs are 15 familiar with some of the withheld documents, he has not shown that the Entities or the 16 Cheungs actually possess copies of these documents. (See Declaration of Patrick Kan 17 (Dkt. # 48) ¶¶ 5-6.) Further, it remains undisputed that the Entities and the Cheungs did 18 not provide these documents to the government and that the government has not provided 19 copies of these documents to the Entities or the Cheungs. 20 4 In Lion Raisins, the Ninth Circuit addressed Exemption 7(A), not Exemption 3. Lion 21 Raisins, 354 F.3d at 1081. Nevertheless, the court is persuaded that the Ninth Circuit’s reasoning extends with similar force to Exemption 3 when the bases for the agency’s 22 nondisclosure under Exemptions 3 and 7(A) overlap, as they do in this case. ORDER- 16 1 This court agrees with the reasoning of Radcliffe, and declines to extend Lion 2 Raisins to the facts of this case. The Entities and the Cheungs did not provide these 3 documents to the government, the government has not disclosed the documents, and Mr. 4 Shannahan has not shown that the Entities or the Cheungs have actual possession of the 5 documents as opposed to a general knowledge of their contents. Agent Bellis has 6 articulated a specific basis for his determination that the release of these documents 7 would cause substantial interference with federal tax administration. Agent Bellis’s 8 determination is entitled to some deference. Long, 742 F.2d at 1182-83. The court 9 concludes that the IRS has met its burden of establishing that Exemption 3, in connection 10 with 26 U.S.C. § 6103, applies with respect to those documents obtained by subpoena. d. 11 12 The Electronic Database The court previously determined that the IRS had not provided adequate 13 information upon which to evaluate the withholding of the Electronic Database. In his 14 declaration, Agent Bellis remedies this deficiency by describing in detail both the type of 15 information contained in the Electronic Database and the source of the information. The 16 Electronic Database “details and documents a vast majority of the evidence obtained by 17 the government for use in the Cheungs’ criminal trial and was comp[il]ed and organized 18 by the U.S. government.” (Bellis Decl. ¶ 17.) The Electronic Database contains charts 19 detailing financial information pertaining to the Cheungs and the Entities, summaries of 20 the information, and agent notes. (Id.) The charts are broken down by table, queries, 21 forms, and reports, “all of which were prepared by the government as part of the criminal 22 ORDER- 17 1 investigation of the Cheungs.” (Id.) The Cheungs and the Entities did not provide any of 2 the information contained in the Electronic Database. (Id.) 3 Agent Bellis states that the release of any portions of the Electronic Database 4 would seriously impair federal tax administration by providing the Cheungs with 5 knowledge of the government’s theories and analysis of the case. (Id. ¶ 18.) He also 6 states that disclosure would reveal to the Cheungs what information the government has 7 not been able to obtain. (Id.) Finally, Agent Bellis states that the IRS’s concerns related 8 to the MLAA and the protection of the confidential informant apply with similar force to 9 the Electronic Database because some of the information was obtained through these 10 sources. (Id.) Mr. Shannahan responds that the IRS has not shown why the information 11 provided by third parties contained in the Electronic Database cannot be segregated and 12 released. 13 On this record, the court finds that the release of the Electronic Database, or any 14 portion thereof, is likely to cause substantial interference with federal tax administration. 15 As with the release of other documents prepared by the IRS, the release of the Electronic 16 Database would expose the internal workings of the criminal investigation, including its 17 scope, focus, and strengths and weaknesses, thereby offering a depth of insight into the 18 investigation that otherwise would not be available to the Cheungs and that poses a strong 19 likelihood of causing substantial interference with federal tax administration. Although 20 the Cheungs may know or have access to some of the factual information in the 21 Electronic Database, it does not follow that the Cheungs know the precise contours of the 22 government’s knowledge or the ways in which it used or is using the factual information. ORDER- 18 1 In addition, Agent Bellis’s determination that the release of these documents could enable 2 the Cheungs to craft explanations or defenses or to conceal or disguise income is entitled 3 to some deference. Long, 742 F.2d at 1182-83. Therefore, the court concludes that the 4 IRS has met its burden of establishing that Exemption 3, in connection with 26 U.S.C. § 5 6103, applies to the Electronic Database. e. 6 Summary of Exemption 3 In sum, the court concludes that the IRS has met its burden of showing that 7 8 Exemption 3 and 26 U.S.C. § 6103 apply to the documents prepared by third parties and 9 to the Electronic Database. Exemption 3 thus applies to all of the withheld documents. 10 11 2. Exemption 7 Exemption 7 of FOIA protects from disclosure “records or information compiled 12 for law enforcement purposes” to the extent that the agency justifies its decision to 13 withhold the documents by reference to one of six enumerated types of harm. 5 U.S.C. § 14 552(b)(7). Judicial review of an Exemption 7 claim requires a two-part inquiry. Fed. 15 Bureau of Investigation v. Abramson, 456 U.S. 615, 622 (1982). First, the court must 16 determine whether the documents qualify as records or information compiled for law 17 enforcement purposes. Id. Second, the agency must show that disclosure would result 18 in one of the six types of harm. Id. 19 20 21 22 i. Prior Orders In its first order, the court determined that the withheld documents constitute records or information compiled for law enforcement purposes. The court also concluded that the IRS had met its burden under Exemption 7(C), but declined to grant ORDER- 19 1 summary judgment with respect to documents withheld under this exemption because 2 the IRS had not performed a segregation analysis. In its second order, the court granted 3 summary judgment under Exemption 7(A) with respect to those documents prepared by 4 the IRS and other government agencies and described in the Vaughn index. 5 ii. Exemption 7(A) 6 Exemption 7(A) permits an agency to withhold law enforcement records that 7 “could reasonably be expected to interfere with enforcement proceedings.” 5 U.S.C. § 8 552(b)(7)(A). “The IRS need only make a general showing that disclosure of its 9 investigatory records would interfere with its enforcement proceedings.” Lewis v. 10 Internal Revenue Serv., 823 F.2d 375, 380 (9th Cir. 1987); Barney v. Internal Revenue 11 Serv., 618 F.2d 1268, 1272-73 (8th Cir. 1980). In order to withhold documents under 12 Exemption 7(A), the agency “must establish that it is a law enforcement agency, that the 13 withheld documents were investigatory records compiled for law enforcement purposes, 14 and that disclosure of those documents would interfere with pending enforcement 15 proceedings.” Lion Raisins, 354 F.3d at 1082 (quoting Lewis, 823 F.2d at 379). 16 The IRS has met its burden under Exemption 7(A) with respect to all of the 17 remaining withheld documents and the Electronic Database. First, the IRS is a law 18 enforcement agency for purposes of Exemption 7(A). See Church of Scientology Int’l v. 19 U.S. Internal Revenue Serv., 995 F.2d 916, 919 (9th Cir. 1993); Lewis, 823 F.2d at 379. 20 Second, the court has previously concluded that the withheld documents constitute 21 investigatory records compiled for law enforcement purposes. Third, the IRS has now 22 demonstrated that disclosure of the withheld documents would interfere with ORDER- 20 1 enforcement proceedings. As in its prior orders, the court’s reasoning with respect to 2 Exemption 3 and 26 U.S.C. § 6103 applies with similar force here. In his declaration, 3 Agent Bellis explains in sufficient detail how release of the withheld documents would 4 interfere with enforcement proceedings. The court concludes that the IRS has met its 5 burden of establishing that Exemption 7(A) applies to all of the remaining documents. 6 Therefore, in light of the court’s prior orders, Exemption 7(A) applies with respect to all 7 of the withheld documents. 8 Having concluded that the IRS has met its burden with respect to all of the 9 withheld documents under both Exemptions 3 and 7(A), the court declines to consider 10 the additional exemptions claimed by the IRS at this time. 11 D. Segregation 12 Even if a FOIA exemption applies, an agency must disclose any reasonably 13 segregable portions of documents withheld pursuant to one of the FOIA exemptions. 5 14 U.S.C. § 552(b). “The burden is on the agency to establish that all reasonably 15 segregable portions of a document have been segregated and disclosed.” Pac. Fisheries, 16 Inc. v. United States, 539 F.3d 1143, 1148 (9th Cir. 2008). An agency can meet its 17 burden by providing “an affidavit with reasonably detailed descriptions of the withheld 18 portions of the documents and alleging facts sufficient to establish an exemption.” Id. 19 The IRS has met its burden of demonstrating that the documents withheld under 20 Exemptions 3 and 7(A) are not reasonably segregable. In the Vaughn index, Ms. 21 Mahaney provided descriptions of the withheld documents and identified whether they 22 are withheld in full or in part. With respect to documents withheld pursuant to ORDER- 21 1 Exemptions 3 and 7(A), which are withheld in full, the Vaughn index provides 2 sufficiently specific information upon which to conclude that the IRS correctly 3 determined that the documents are not reasonably segregable. Though the IRS did not 4 provide substantial additional information regarding the issue of segregability in its latest 5 round of submissions, the Vaughn index is adequate to address segregability on the 6 present record now that the IRS has explained in more depth the justifications for its 7 decision to withhold the documents under Exemptions 3 and 7(A). The court thus grants 8 summary judgment with respect to all remaining documents. 9 E. 10 Mr. Shannahan’s Motion for Summary Judgment Having granted summary judgment in favor of the IRS, the court denies Mr. 11 Shannahan’s motion for summary judgment. Mr. Shannahan argues that the court should 12 grant summary judgment with respect to those documents and factual information 13 supplied to the government by third parties. The court has addressed these issues in the 14 course of ruling on the IRS’s motion for summary judgment. 15 16 17 18 19 20 21 22 ORDER- 22 IV. 1 2 CONCLUSION For the foregoing reasons, as well as the reasons stated in the court’s two prior 3 orders, the court ORDERS as follows: 4 (1) The court GRANTS the IRS’s motion for summary judgment (Dkt. # 22); 5 (2) The court DENIES Mr. Shannahan’s motion for summary judgment (Dkt. # 6 46); and 7 (3) The court directs the clerk to enter judgment in favor of the IRS. 8 Dated this 4th day of January, 2010. A 9 10 ____ JAMES L. ROBART United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 ORDER- 23
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
