Third Circuit Affirms Contempt on Foreign Bank Account Records Subpoena (3/14/17)

I previously reported on United States v. Chabot, 793 F.3d 338 (3d Cir 2015), here, an almost garden-variety case enforcing a grand jury subpoena for production of foreign bank account records.  See Third Circuit Applies Required Records Doctrine to Require Taxpayers to Respond to Compulsory Process About Foreign Bank Account (Federal Tax Crimes Blog 7/18/15), here.  Yesterday, the Third Circuit issued another opinion after Eli Chabot was held in contempt on remand for failure to comply.  United States v. Chabot, 2017 U.S. App. LEXIS 4355 (3d Cir. 2017) (nonprecedential), here.

In order to avoid contempt below on remand, the Chabots submitted

supplemental evidence, including a medical report questioning Eli's capacity to testify. They also submitted several letters from their foreign counsel and a report from an accounting firm denying that the Chabots had the requisite connection to any foreign financial accounts necessary for them to maintain documents under the Bank Secrecy Act. 

The trial court then found that

[T]he Government satisfied its initial burden, Chabot had to establish his "present inability to comply with the order in question." Gov't Br. 13. The Court found that Chabot failed to establish he lacked the requisite connection to the foreign financial accounts and held Chabot in civil contempt, ordering him to pay $250 per day as a coercive sanction. 

The Court of Appeals held that, once the Government establishes (1) a valid court order; (2) Chabot's knowledge of the order and (3) disobeyance of the order, the burden shifted to Chabot to either produce the records or establish a present inability to comply.  (Citing United States v. Rylander, 460 U.S. 752, 757 (1983)).  The court then cryptically held that the trial court had properly held Chabot in contempt.

Further on Contempt Sanctions for Failure to Produce Foreign Documents (2/20/17)

I previously blogged on a case In re Various Grand Jury Subpoenas, 2017 U.S. Dist. LEXIS 9697 (SD NY 2017), involving contempt sanctions for failing to produce foreign bank and entity documents allegedly in the control of the person subject to the grand jury subpoena.  See Contempt Sanctions Continued in GJ Subpoena for Required Records (Federal Tax Crimes Blog 1/25/17), here.  On February 13, 2017, Judge Pauley issued a further order staying the effective date for the contempt sanction of $1,000 per day to comment from February 14, 2017 to March 20, 2017 to permit the subpoenaed party additional time to arrange with the foreign entities and coordinate with the Government to produce the documents.  The key documents for this new opinion are:=

• The order, here.
• The motion was filed but apparently the memo in support was filed under seal; the motion was just the bare motion, so I don't link it.
• The United States response, here.

The subpoenaed person sought to purge the contempt order previously issued by showing that she had complied with the compulsion in the subpoena by requesting that the Swiss banks produce the records directly to the Government.  One of the banks notified the person that, under Swiss law, it could not produce the documents to the Government.  But, the Government urged, whether or not that was true, with the right form of request (requesting production to her rather than the Government), the banks could produce the documents to the person and she could then provide them to the Government.  Judge Pauley gave the additional time to make sure that she had the time necessary to get the documents, but he makes clear that the Government will not wait forever -- hence the March 20, 2017 date.

Trial Court Issues Contempt Order for Summons Noncompliance While Case is on Appeal (9/7/15)

In United States v. Soong, 2015 U.S. Dist. LEXIS 118585 (ND Cal. 2015), here, the district court held the taxpayers in contempt in a summons enforcement case for foreign account records.  Readers of this blog will recall that there have been many cases involving whether the IRS could use compulsory process (summons or subpoena) to compel the production of foreign account records that a U.S. person is required to maintain under the BSA.  Although there were some taxpayer victories in the district court, ultimately the Courts, including the Ninth Circuit, held uniformly that, under the required records doctrine, the the Government can compel production over an otherwise validly asserted Fifth Amendment claim, Apparently, recognizing that contesting the required records doctrine would not carry the day, the Soongs argued that the court could or should not enforce because of improper service of the summons.  The district court rejected that defense and ordered enforcement of the summons.  The taxpayers then filed notice of appeal but did not seek to stay the enforcement order in the district court.  Upon the taxpayers' failure to produce, the Government asked the trial court for contempt sanctions.

The district court rejected the taxpayers defense as follows:

First, they seem to suggest that this Court does not have jurisdiction to find them in contempt of this Court's Enforcement Order because the Soongs' appeal of that Order is currently pending before the Ninth Circuit. However, it is well established that a district court "retain[s] a limited equitable jurisdiction to enforce its orders" even after a notice of appeal has been filed. Kelley v. C.I.R., 45 F.3d 348, 351 n.5 (9th Cir. 1995); see also Hoffman v. Beer Drivers & Salesmen's Local Union No. 888, 536 F.2d 1268, 1276 (9th Cir. 1976) (holding that an appeal from a district court order does not divest the district court of jurisdiction to enforce its order). Or, as the Sixth Circuit has held, "[w]here, as here, the district court is attempting to supervise its judgment and enforce its order through civil contempt proceedings, pendency of appeal does not deprive it of jurisdiction for these purposes." Island Creek Coal Sales Co. v. City of Gainesville, 764 F.2d 437, 440 (6th Cir. 1985). Thus, the Court finds that it retains the authority to enforce compliance with its order irrespective of the fact that the Soongs' appeal of the Enforcement Order is currently pending. 

Alternatively, the Soongs again argue that this Court lacks personal jurisdiction over them because they are currently living abroad, and any attempted service on them at their Union City home was improper and legally ineffectual. See Opp. Br. at 4. Thus, the Soongs contend that "there is no personal jurisdiction for the district court until the Ninth Circuit says there is. Absent a final determination that this Court has jurisdiction over the Soongs, there is no jurisdiction to support the issuance of a Contempt Order." Id. (emphasis in original). The Soongs have the law backwards. As the Supreme Court has squarely held, "[i]t would be a disservice to the law if we were to depart from the long-standing rule that a contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed and thus become a retrial of the original controversy." Rylander, 460 U.S. at 756 (quoting Maggio v. Zeitz, 333 U.S. 56, 69 (1948)). Or, as the Ninth Circuit has stated this basic principle of law: "Disagreement with the court is not an excuse for failing to comply with court orders." Adriana Int'l Corp. v. Thoeren, 913 F.2d 1406, 1412 (9th Cir. 1990); see also Hyde & Drath v. Baker, 24 F.3d 1162, 1168 (9th Cir. 1994) (same). This Court has already determined that it does have jurisdiction over the Soongs, and until the Soongs prove otherwise, they are obligated to comply with this Court's orders. See Adriana, 913 F.2d at 1412. If the Soongs did not want to comply with this Court's Enforcement Order pending their appeal, they should have sought a stay of this Court's order either in this Court or before the Ninth Circuit. Having failed to do so, however, the Soongs have no valid excuse for failing to comply with the unambiguous command of this Court. The Soongs must produce the documents the IRS has requested in its summonses. 

Because it is undisputed that the Soongs have not complied with this Court's Enforcement Order, and because it is beyond doubt that the Soongs have no valid excuse for this failure, the Court finds clear and convincing evidence that the Soongs are in contempt. Balla v. Idaho State Bd. of Corrections, 869 F.2d 461, 466 (9th Cir. 1989) ("As we have previously stated, civil contempt is appropriate when a party fails to comply with a specific and definite court order.") (citations omitted). In its motion, the Government asks this Court to impose a coercive fine on the Soongs in an effort to gain their compliance with this Court's Enforcement Order (i.e., to get the Soongs to produce the documents requested by the IRS in its summonses). Where the Court issues a fine in an effort to gain the contemnor's compliance with one of the Court's orders, the Supreme Court has held that the fine amount must take into account "the character and magnitude of the harm threatened by continued contumacy, and the probable effectiveness of any suggested sanction in bringing about the result desired." Unites States v. United Mine Workers of Am., 330 U.S. 258, 304 (1947); see also Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 516 (9th Cir. 1992). "[I]n fixing the amount of a fine to be imposed as a . . . means of securing future compliance, [the Court should] consider the amount of defendant's financial resources and the consequent seriousness of the burden to that particular defendant." United Mine Workers, 330 U.S. at 304. 

Here, the Court believes that a coercive daily fine should be imposed on the Soongs for each day they remain out of compliance with this Court's Enforcement Order. See Bagwell, 512 U.S. at 829 (explaining that civil contempt fines may be imposed to ensure compliance with a Court order so long as the contemnor has a "subsequent opportunity to reduce or avoid the fine through compliance"). The Court finds that a fine of $500 a day per spouse (or $1,000 a day collectively as a couple) payable to the Court is the appropriate fine amount. The Soongs' appear to have tremendous financial resources -- the IRS has stated that the Soongs' privately held corporation earned revenues in excess of $200 million annually, and the Soongs apparently deposited at least $10 million in a foreign bank account -- and thus a lesser fine amount is unlikely to secure their compliance with this Court's order. Moreover, the Court believes this fine amount is appropriate in light of the lengthy period of non-compliance with the IRS's summonses, and the risk that further delay will prejudice the IRS's investigation if the evidence sought in its summonses is lost or destroyed. The Soongs have made no effort to comply with this Court's order for nearly a year-and-a-half, and have refused to comply with the IRS investigation for years before that. The Soongs' should not be permitted to put off compliance any longer. 

III. CONCLUSION 

The Soongs admit that they have not complied with this Court's Order Enforcing the IRS's document summonses. Thus, the Soongs are in contempt. Beginning Friday, September 11, 2015, the Soongs shall pay a daily fine to the Clerk of Court in the amount of $500 per person ($1,000 total) until they come into substantial compliance with this Court's order.