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Attorney(S)

J. Edward Lumbard, U.S. Atty., New York City, by Arnold Bauman, Arthur H. Christy, Asst. U.S. Attys., New York City, of counsel, for plaintiff. Leo Kaplan, New York City, for defendant.

Judges

Henry Warren Goddard

Acts

Internal Revenue Code — Income Taxes — Normal Taxes And Surtaxes — Determination Of Tax Liability — Alternative Minimum Tax — Alternative Minimum Tax Imposed

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Smart Summary

Summary of Opinion: United States v. Ward

Factual and Procedural Background

This opinion addresses a motion by defendant John Ward for pretrial production of documents the defense subpoenaed from the government under Rule 17(c) of the Federal Rules of Criminal Procedure. The subpoenas sought: (a) income tax returns of John White, John Kehoe and Michael Wheeler (1951) including records as John White Co.; (b) books and records of various trucking companies reflecting payments to Allied Stevedoring Corp. during 1951; (c) statements made to the government by John White, John Kehoe, Michael Wheeler and Jos. Feinbaum; and (d) all documents obtained by the government (other than by seizure or process) in the course of the grand jury investigation and in the course of the government's preparation for trial (if presented to the grand jury or to be offered as evidence).

The underlying indictment charges Allied Stevedoring Corp. and officers (including John Ward) with wilfully attempting to evade Allied's 1951 income taxes by filing a fraudulent return that reported net income of $137.49 and tax of $39.53 while the indictment alleges the true net income was $71,846.07 with tax due of $43,331.61. A bill of particulars required the government to state the general sources of the additional income; it identified trucking-company payments for Allied's services as a "public loader", receipts from other public loaders, and rental on machinery to these public loaders.

Legal Issues Presented

Whether Rule 17(c) requires or permits pretrial production and inspection of documents in the government's possession.
Whether the defendant is entitled to pretrial production of the specific categories requested in the subpoenas: (a) third-party income tax returns for 1951; (b) trucking companies' books and records reflecting payments to Allied during 1951; (c) statements given to the government by specified individuals; and (d) all non-seized government documents obtained in the grand jury investigation or in preparation for trial.
Whether statutory privilege under 26 U.S.C.A. § 55 bars pretrial disclosure of income tax returns.
Whether Rule 17(c) functions as a discovery device permitting broad pretrial inspection of the government's files.

Arguments of the Parties

Defendant's Arguments

The income tax returns of Wheeler and White (and others) are important because Wheeler and White testified before the New York State Crime Commission that they made payments on behalf of White Co. to Allied; the defense wishes to see whether those payments were reported on their returns.
The defense seeks statements given to the government by certain individuals for impeachment and to prepare for possible testimony.
The trucking companies' books and records will materially inform the defense about the time and nature of alleged unreported income and may not be available elsewhere.

Government's Arguments

The government asserted privilege over the third-party income tax returns, citing statutory protection under Title 26 U.S.C.A. § 55.
More generally, the government opposed broad pretrial production, resisting what it characterized as an attempt to rummage through its files and obtain its evidence in advance of trial.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bowman Daily Co. v. United States, 341 U.S. 214, 71 S.Ct. 675, 95 L.Ed. 879	Leading case on use of Rule 17(c) to obtain pretrial production; papers subject to subpoena if evidentiary; Rule 17(c)'s chief innovation is inspection before trial to expedite trial.	Used to acknowledge that Rule 17(c) permits pretrial inspection of evidentiary materials but does not alone mandate production in every case.
Remmer v. United States, 9 Cir., 1953, 205 F.2d 277, 284	Clarified that Bowman Daily held trial courts have power to order production, but did not hold that refusal to grant production is necessarily an abuse of discretion.	Supported the proposition that pretrial production under Rule 17(c) remains within the district court's sound discretion.
United States v. Schneiderman, D.C., 104 F. Supp. 405	Illustrates that Rule 17(c) does not require production and supports discretionary handling; also cited in relation to non-discovery and in-trial inspection availability.	Referenced to show that the court may deny pretrial production without depriving defendant of trial access where appropriate; cited as authority that production may be denied and that in-trial applications remain possible.
United States v. Mesarosh, D.C., 13 F.R.D. 180, 184	Supports the discretionary nature of pretrial production and that Bowman Dairy permits pretrial inspection only where a good faith effort is shown.	Relied upon to emphasize discretion and the requirement of a good faith, evidentiary basis for pretrial inspection.
United States v. Maryland Virginia Milk Producers' Ass'n, D.C., 9 F.R.D. 509	Holds Rule 17(c) is not a discovery provision; subpoenas intended as broad discovery may be denied.	Used to deny part (d) of the subpoena as an attempt to rummage through government files and to support that Rule 17(c) cannot be used for broad discovery.
United States v. Andolschek, 2 Cir., 1944, 142 F.2d 503	Holds that where a prosecution concerns the very matters recorded in privileged documents, the government must make those documents available at trial or forego the prosecution (documents must be relevant).	Recognized by the court as authority that may require trial-time disclosure of privileged documents in certain circumstances, but the court distinguished trial production from pretrial inspection.
United States v. Beckman, 2 Cir., 1946, 155 F.2d 580	Affirms that privileged documents must be relevant to be compelled at trial.	Cited to underscore that relevance is required before privileged documents may be compelled at trial; not directly controlling pretrial production.
United States v. Krulewitch, 2 Cir., 1944, 145 F.2d 76, at page 78, 156 A.L.R. 337	Recognizes that different rules may apply to pretrial production than to production at trial.	Relied upon to justify treating pretrial inspection requests differently from trial-time compulsion; supports court's distinction between the two contexts.
United States v. Iozia, D.C., 13 F.R.D. 335	Supports in-camera inspection at trial if witnesses testify, and states that voluminous documents may be examined before trial to prepare defense when good cause is shown.	Used to justify denying pretrial production of tax returns and statements now while preserving the possibility of in-camera inspection at trial; also cited in support of granting voluminous trucking records when good cause shown.
Fryer v. United States, D.C. Cir., 1953, 207 F.2d 134	Held statements of government witnesses are evidentiary within Bowman Dairy and subject to subpoena; held error to refuse their pretrial production and remanded to determine prejudice.	Cited by the court but distinguished: acknowledged Fryer's holding that such statements can be evidentiary, yet rejected any reading that pretrial production is an absolute right in all cases under Rule 17(c).
Goldman v. United States, 316 U.S. 129 at page 132, 62 S.Ct. 993, 86 L.Ed. 1322	Holds that a defendant is not entitled as of right to compel disclosure of the government's evidence in advance of trial.	Invoked to support the court's conclusion that defendants cannot automatically compel pretrial disclosure of the government's evidence.
United States v. Kushner, 2 Cir., 1943, 135 F.2d 668 at page 673	Supports that pretrial disclosure of the government's evidence is not an absolute right.	Used to reinforce the discretionary nature of pretrial production and the limitation on automatic disclosure.
Gordon v. United States, 344 U.S. 414, 73 S.Ct. 369, 97 L.Ed. 447	Referenced in connection with availability at trial of materials for impeachment upon proper foundation.	Relied on to note that impeaching or contradictory statements should be available to the defendant at trial with proper foundation.
United States v. Cohen, 2 Cir., 1944, 145 F.2d 82 at page 92	Referenced among authorities concerning trial availability of impeachment material.	Supported the court's view that impeachment materials may be furnished at trial when appropriately required.
United States. v. Ebeling, 2 Cir., 1944, 146 F.2d 254	Referenced among authorities regarding trial-time disclosure for impeachment.	Used to bolster the position that impeachment material will be available at trial under proper procedures.

Court's Reasoning and Analysis

The court began by identifying Rule 17(c)'s text and purpose: it authorizes a court to direct that subpoenaed books, papers, documents or objects be produced before trial, enabling inspection to expedite the trial. The court treated Bowman Daily Co. as the leading authority recognizing that evidentiary materials may be subpoenaed for pretrial inspection, but it emphasized subsequent authority (Remmer) that such recognition of power does not convert refusal into an abuse of discretion.

The court reasoned that whether subpoenaed materials should be produced prior to trial rests within the court's sound discretion. It repeatedly stated that Rule 17(c) is not a discovery device and that pretrial inspection may be denied where the subpoena is being used as broad discovery of the government's files rather than to obtain specific evidentiary material in good faith.

Concerning part (a) (third-party income tax returns): the court recognized the asserted statutory privilege (26 U.S.C.A. § 55) protecting confidential tax information. Although the court acknowledged Andolschek (which requires production at trial where the prosecution concerns the very matters recorded in privileged documents), it distinguished trial production from pretrial inspection, citing Krulewitch. The court found nothing to indicate the taxpayers in question would be called as witnesses and concluded that it would be unwise to reject the privilege and order production prior to any demonstration of relevance and necessity. The court preserved the possibility of in-camera inspection or later application at trial if needed.

Concerning part (c) (statements to the government by certain individuals): the court acknowledged Fryer, which held witness statements to be evidentiary and subject to subpoena, but the court refused to adopt the view that such production is an absolute right in all cases. The court treated these statements like other impeachment material that, absent a showing of present relevance and necessity, may be withheld until trial and obtained then upon proper foundation; in-camera or trial-time procedures can protect both privilege and the defendant's rights.

Concerning part (b) (trucking companies' books and records): the court concluded that Rule 17(c) was designed to permit examination of voluminous documents before trial to prepare the defense and that good cause had been shown. Given the indictment and bill of particulars were not fully informative, these records appeared material, likely to inform the defense about timing and nature of payments alleged to be unreported, and perhaps not available elsewhere. Accordingly, the court granted pretrial inspection of these records.

Concerning part (d) (all documents obtained by the government other than by seizure or process): the court viewed this request as an attempt to rummage in the government's files and applied precedents rejecting such broad discovery requests. It denied this portion of the subpoena.

Holding and Implications

Core Ruling: Motion granted in part and denied in part, as follows.

Part (a) (tax returns): Denied at this time. The court refused to order pretrial production of the third-party income tax returns, citing statutory privilege and lack of present demonstration of relevance; in-trial or in-camera procedures remain available if and when relevance is shown.
Part (b) (trucking companies' books and records): Granted. The court ordered pretrial production/inspection of these records, finding good cause because they are voluminous, material to the defense, and may not be available elsewhere.
Part (c) (statements to the government): Denied at this time. The court declined to order pretrial production of these statements but indicated they may be available at trial upon proper foundation if witnesses are called.
Part (d) (all non-seized government documents): Denied. The court rejected this broad request as an impermissible attempt to rummage through government files.

Implications for the parties: the defense will obtain pretrial inspection of the trucking companies' records (part b). The defense will not obtain pretrial access to the third-party tax returns or the witness statements (parts a and c), but may seek in-camera review or obtain materials at trial if relevance and necessity are shown or witnesses are called. The court emphasized the discretionary nature of pretrial production under Rule 17(c) and that Rule 17(c) is not a general discovery device.

Order: Motion granted in part and denied in part. Settle order on notice.

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UNITED STATES v. WARD

GODDARD, District Judge.

Motion by defendant, John Ward, for the production prior to trial of certain documents requested in subpoenas served on the government pursuant to Rule 17(c) of the Federal Rules of Criminal Procedure, 18 U.S.C.A.

The subpoenas call for the production of:

(a) Income tax returns filed by John White, John Kehoe and Michael Wheeler, as individuals and doing business as John White Co. for the tax year 1951.

(b) The books and records of various trucking companies reflecting payments to the defendant, Allied Stevedoring Corp. during 1951.

(d) All documents obtained by the government other than by seizure or process (1) in the course of the grand jury investigation and (2) in the course of the government's preparation for trial if (a) they were presented to the grand jury, or (b) they are to be offered as evidence.

The indictment charges the defendants, Allied Stevedoring Corp., and John Ward, John Potter and Michael Bowers, officers of Allied, with wilfully attempting to evade income taxes owing by Allied for the year 1951, by filing a fraudulent return, wherein "they alleged that the net income of the corporation for the said calendar year was the sum of $137.49, and that the total amount of tax due thereon was the sum of $39.53, whereas as they then and there well knew, the net income of the corporation for the said calendar year was $71,846.07, upon which said income the corporation owed to the United States of America a total tax of $43,331.61."

A motion for a bill of particulars was granted to the extent of requiring the government to state the general sources of the additional income of the corporation. The bill of particulars stated that the additional income was obtained from trucking companies in and around New York City for Allied's services as a "public loader" and from other "public loaders" and from rental on machinery to these public loaders.

Rule 17(c) provides that:

"The court may direct that books, papers, documents or objects designated in the subpoena be produced before the court at a time prior to the trial or prior to the time when they are to be offered in evidence and may upon their production permit the books, papers, documents or objects or portions thereof to be inspected by the parties and their attorneys."

The leading case on the use of Rule 17(c) to effect pretrial production of papers in the possession of the government is Bowman Daily Co. v. United States, 341 U.S. 214, 71 S.Ct. 675, 679, 95 L.Ed. 879. Therein, after the district court had ordered extensive production prior to the trial, the Supreme Court largely upheld the action of the district court. It held that the papers and documents were subject to subpoena, so long as they were evidentiary. As it said, the chief innovation of Rule 17(c) "was to expedite the trial by providing a time and place before trial for the inspection of the subpoenaed materials."

However, speaking of the Bowman Dairy decision, in Remmer v. United States, 9 Cir., 1953, 205 F.2d 277, 284, the court declared:

"The Supreme Court in that case held that the trial court had the power to order the Government to produce certain documents. It did not hold that a refusal to grant the motion to produce would have been an abuse of discretion."

It seems clear that whether materials subject to subpoena are to be produced and inspected prior to trial rests within the sound discretion of the court. United States v. Schneiderman, D.C., 104 F. Supp. 405; United States v. Mesarosh, D.C., 13 F.R.D. 180, 184. Rule 17(c) by its very language does not require the court to order such production, but permits it to do so.

But Rule 17(c) is not a discovery provision. United States v. Maryland Virginia Milk Producers' Ass'n, D.C., 9 F.R.D. 509; United States v. Schneiderman, supra, 104 F. Supp. at page 408; United States v. Mesarosh, supra, 13 F.R.D. at page 183. Where the subpoena is not intended to be used to secure evidence to be used at the trial but rather is intended to be employed as a broad discovery for the purposes of inspecting all the documentary evidence in possession of the government and which the government intends to use at the trial, it may be denied. United States v. Maryland Virginia Milk Producers' Ass'n, supra. The decision in the Bowman Dairy case supports the granting of pretrial inspection only to the extent that a good faith effort is made to obtain evidence. United States v. Mesarosh, supra.

Defendant seeks the income tax returns of White, Kehoe, and Wheeler for the year 1951. It is alleged that Wheeler and White testified before the New York State Crime Commission in January, 1953 that they made payments on behalf of White Co. to Allied. Defendant says it is important to see whether these payments were reported on their returns. The government claims privilege, asserting that such disclosure is forbidden by statute, Title 26 U.S.C.A. § 55. Defendant relies on United States v. Andolschek, 2 Cir., 1944, 142 F.2d 503. The Andolschek case held that in a prosecution of a crime consisting of the very matters recorded in the documents claimed to be privileged, or of matters nearly enough akin to make relevant the matters recorded, the government must make those documents available at the trial or forego the prosecution. Of course, the documents must be relevant. United States v. Beckman, 2 Cir., 1946, 155 F.2d 580.

However, whether these returns must be made available at the trial is not the question before me. The question here is the right to pretrial inspection. That different rules may apply to pretrial production than for production at the trial was recognized by the court in United States v. Krulewitch, 2 Cir., 1944, 145 F.2d 76, at page 78, 156 A.L.R. 337. This is as it should be.

The privilege asserted is a valid and a salutary one, preventing as it does free disclosure of confidential information required to be reported for tax purposes. The defendant seeks these returns, anticipating that these individuals may be called to testify at the trial. But there is nothing to indicate to me that they will be called. As the court stated in United States v. Iozia, D.C., 13 F.R.D. 335, at page 340:

"Should any of the persons testify upon the trial, the documents will be available for inspection by the Court in camera to determine whether they contain matter helpful to the defense. Experience demonstrates that this procedure causes no undue delay in the progress of a trial and it affords full protection to the defendant."

It seems to me to be unwise to reject the claim of privilege and to order the production of these confidential documents prior to the time when it will, if at all, appear relevant and necessary to the defense. The denial of pretrial inspection of course does not preclude further application for inspection during the trial. United States v. Schneiderman, supra, 104 F. Supp. at page 409.

I cannot see that these documents are relevant at this time, and since I can see no prejudice to the defendant by a denial at this time, I so deny this part of the motion.

For the same reasons, part (c) of the subpoena, calling for the statements given to the government is also denied. It is true that in Fryer v. United States, D.C. Cir., 1953, 207 F.2d 134, the court held that the statements of the government witnesses were evidentiary within the meaning of the Bowman Dairy case, and so subject to subpoena. With that there is no dispute. The court there held that it was error to refuse the production of these statements prior to trial and remanded to the district court to determine whether the denial was prejudicial. One judge in the Fryer case dissented, disagreeing with the majority in its interpretation of Rule 17(c). Insofar as the court's opinion in the Fryer case may be read to hold that in all cases such production is a matter of right, it is at variance with the very language of Rule 17(c). I do not so read it.

Rule 17(c) is not in terms mandatory. At the Proceedings of the Institute on Federal Rules of Criminal Procedure, speaking of Rule 17(c), one of the participants declared "that the court may, in the proper case, direct that they [documents] be brought into court in advance of the time that they are offered in evidence, so that they may then be inspected in advance, * * *". Proceedings of the Institute on Federal Rules of Criminal Procedure, New York University School of Law Institute, Vol. 6, at p. 168. [Emphasis added.]

As above mentioned, it has been consistently held by the courts that such production is discretionary. This appears to be nothing more than an attempt to procure the exposure of the government's evidence prior to the trial. It has often been held that a defendant is not entitled as of right to compel disclosure of the government's evidence in advance of trial. Goldman v. United States, 316 U.S. 129 at page 132, 62 S.Ct. 993, 86 L.Ed. 1322; United States v. Kushner, 2 Cir., 1943, 135 F.2d 668 at page 673; United States v. Schneiderman, supra, 104 F. Supp. at page 409. As noted before, although the defendant assertedly seeks these statements for impeaching purposes, it is not evident as yet that these people will be called to testify. Should they be, these statements will no doubt be available to the defendant at the trial insofar as they may be impeaching or contradictory, upon on a proper foundation being laid. Cf. Gordon v. United States, 344 U.S. 414, 73 S.Ct. 369, 97 L.Ed. 447; United States v. Krulewitch, supra; United States v. Cohen, 2 Cir., 1944, 145 F.2d 82 at page 92; United States. v. Ebeling, 2 Cir., 1944, 146 F.2d 254.

In the meantime, I believe that United States v. Iozia, supra, 13 F.R.D. at page 340, aptly stated it, when it remarked that the cases do not require "in advance of, and in preparation for, trial a disclosure to a defendant of information which may tend to impeach persons the Government may or may not call as witnesses."

Concerning part (b) of the subpoena, which calls for the books and records of various trucking companies reflecting payments to Allied during 1951, I think this should be granted. Rule 17(c) was designed to permit the examination of voluminous documents before trial to prepare the defense. United States v. Iozia, supra, of course requires that good cause be shown.

In a case such as this where the indictment and bill of particulars are not fully informative, and it appears that these records will be material and will more definitely inform the defense of the time of payment and nature of the income allegedly unreported, and where it appears that this information may not be available elsewhere to the defense, I believe that it is in furtherance of justice and the expedition of the trial to allow the defense to inspect them prior to the trial. The motion to produce is granted as to part (b) of the subpoena.

Part (d) of the subpoena appears to be an attempt to rummage around in the files of the government and this the defendant may not do. United States v. Iozia, supra; United States v. Maryland Virginia Milk Producers' Ass'n, supra.

Motion granted in part and denied in part, as indicated.

Settle order on notice.

UNITED STATES v. WARD, (S.D.N.Y. 1954)