United States of America v. Gehrisch

Filing 25

ORDER denying without prejudice Govt's 13 Motion for Contempt Sanctions. Denying Respondent's 20 Motion to Dismiss. Court orders Christopher Gehrisch, CEO of Proteus Dimensional Technologies, Inc. and Matthew Gehrisch, CFO of Proteus Di mensional Techonologies, Inc., to deliver copies of all documents responsive to URS summonses to Revenue Officer Lucia by 9/26/2011. If Revenue Officer Lucia needs additional documents or oral testimony based upon review of the documents, the Gehrisches are ordered to provide the documents or testimony in a timely manner. Signed by Judge Irma E. Gonzalez on 9/23/2011. (All non-registered users served via U.S. Mail Service) (jah)

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I 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 UNITED STATES OF AMERICA, 15 ) ) Petitioner, ) ) v. ) ) CHRISTOPHER GEHRISCH, Chief ) Executive Officer of Proteus Dimensional ) Technologies, Inc., ) ) Respondent. ) 16 --------------------------) ) 11 12 13 14 UNITED STATES OF AMERICA, 17 Petitioner, 18 19 20 21 22 23 v. MATTHEW GEHRISCH, Chief Financial Officer of Proteus Dimensional Technologies, Inc., Respondent. ) ) ) ) ) ) ) ) ) ) Case No. IlcvOI41-IEG(BLM) Order Denying Without Prejudice Motion for Contempt Sanctions [Doc. 14]; Requiring Respondent to Tum Over Copies of Documents Case No. llcvOI43-IEG(BLM) Order Denying Without Prejudice Motion for Contempt Sanctions [Doc. 13]; Denying Respondent Matthew Gehrisch' s Motion to Dismiss [Doc. 20]; Requiring Respondent to Tum Over Copies of Documents ------------------------) The government moves the Court for an order of contempt against Christopher and Matthew 24 Gehrisch based upon their failure to comply with the Court's April 5, 2011 order enforcing IRS 25 summonses issued to them. Christopher Gehrisch filed a "response" to the government's motion 26 [Case llcvl41, Doc. 19], and Matthew Gehrisch moved the Court to dismiss the contempt motion 27 28 [Case llcvl43, Doc. 2()1!]. The government filed a reply, and Matthew Gehrisch filed a sur-reply. 2 A hearing was held before Chief Judge Irma E. Gonzalez on September 21, 2011. Christopher and 3 Matthew Gehrisch appeared on their own behalf. Assistant United States Attorney Raven Norris 4 appeared, along with Revenue Agent Mark Lucia. For the reasons explained more fully below, the 5 Court DENIES the government's motion without prejudice, and DENIES Matthew Gehrisch's 6 motion to dismiss the contempt proceeding. 7 Back~round 8 By orders filed on April 5, 2011, the Court granted the IRS's motion to enforce IRS 9 summonses issued to Christopher and Matthew Gehrisch in furtherance of its investigation of the 10 income tax liability of Proteus Dimensional Technologies ("Proteus") for the tax year 2008. 11 Christopher Gehrisch is the Chief Executive Officer of Proteus, and Matthew Gehrisch is the Chief 12 Financial Officer of Proteus. The orders required Christopher and Matthew Gehrisch to appear 13 before Revenue Agent Mark Lucia on April 25, 2011, at the offices of Proteus, to "produce the 14 documents and give testimony as directed in the summons." 15 On April 25, 2011, Christopher and Matthew Gehrisch gave testimony and allowed 16 Revenue Agent Lucia to "examine" and "review" the documents listed in the summonses. Revenue 17 Agent Lucia was not able to complete his review of the documents, and therefore sought to take 18 copies back to his office. The Gehrisches, however, refused to allow Revenue Agent Lucia to take 19 the documents from the Proteus offices, arguing the summonses only required them to "produce for 20 examination" the documents. They argued the summons and order did not require them to provide 21 copies of the documents to Revenue Agent Lucia to take out of the Proteus offices. Revenue Agent 22 Lucia made arrangements to return to Proteus to complete his review on May 4 and 11, 2011. 23 When he returned to the Proteus office on May 4, however, the Gehrisches told him they would not 24 permit any further review because they had fully complied with the subpoena and the Court's order. 25 27 YIn support of their opposition to the contempt motion, the Gehrisches lodged two CDs containing the audio of the two initial meetings between Revenue Agent Lucia and the Gehrisches on August 12 and 13,2010, as well as the meeting on April25, 2011, which the Court has reviewed. 28 2 26 The government filed the current motion for contempt sanctions on July 12, 2011. Although 2 the Gehrisches thereafter offered to allow Revenue Agent Lucia limited additional time at their 3 offices to review the documents, Revenue Agent Lucia declined. 4 5 6 Discussion Before the Court can find Christopher and/or Matthew Gehrisch in contempt, the government must demonstrate: 8 "(I) that [respondent] violated the court order, (2) beyond substantial compliance, (3) not based on a good faith and reasonable interpretation of the order, (4) by clear and convincing evidence." 9 United States v. Bright, 596 F.3d 683, 694 (9 th Cir. 2010) (quoting Labor/Cmty. Strategy Ctr. v. Los 7 10 Angeles Co. Metro. Transp. Auth., 564 F.3d 1115, 1123 (9 th Cir. 2009». If the government II establishes a prima facie case of contempt, the Gehrisches may avoid sanctions "by demonstrating a 12 present inability to comply with the enforcement order." Id. at 696 (citing United States v. 13 Drollinger, 80 F.3d 389,393 (9 th Cir. 1996). 14 The purpose of civil contempt is coercive or compensatory. Koninkliike Philips Electronics 15 N.V. v. KXD Technology, Inc., 539 F.3d 1039, 1042 (9 th Cir. 2008). Courts have the power to 16 impose a conditional period of imprisonment for the purpose of coercing an individual to obey its 17 validly entered order. Uphaus v. Wyman, 360 U.S. 72, 81 (1959). Courts may also impose a 18 monetary sanction either for purposes of coercing compliance or to compensate the moving party 19 for its costs in attaining the contempt finding. General Signal Corp. v. Donallco. Inc., 787 F.2d 20 1376, 1380 (9 th Cir. 1986). 21 22 Here, the Court finds the Gerisches have technically not violated the Court's April 5, 2011 order. As they point out in opposition to the government's motionY, the order required the 23 27 Y'The Court rejects the Gehrisches' other arguments in opposition to the contempt motion. To the extent the Gehrisches seek to rely upon the Right to Financial Privacy Act, 12 U .S.C. § 3405, the Court notes such section does not apply to IRS summonses. 12 U.S.C. § 3413(c) ("[n]othing in this chapter prohibits the disclosure of financial records in accordance with procedures authorized by Title 26."); Lidas, Inc. v. United States, 238 F.3d 1076, 1083 (9th Cir. 2001). In addition, Revenue Agent Lucia properly served the motion for contempt sanctions. As set forth in the Court's (continued...) 28 3 24 25 26 1 Gehrisches to produce documents pursuant to the summons, which seeks the documents "for 2 examination." The order does not specifically state the Gehrisches must give copies to Revenue 3 Agent Lucia to take back to his office. In addition, the order requires the Gehrisches to produce the 4 documents to Revenue Agent Lucia on April 25, 2011. It does not require them to do anything on 5 any other date. Therefore, the Gehrisches have substantially complied with the technical letter of 6 the Court's order, and the Court DENIES the government's motion for contempt sanctions. 7 Nonetheless, the IRS is entitled to pursue its investigation ofthe of the income tax liability 8 of Proteus Dimensional Technologies ("Proteus") for the tax year 2008, and is entitled to 9 enforcement of its summonses to Christopher and Matthew Gehrisch. Therefore, the Court 10 concludes the Gehrisches must provide copies of the documents to Revenue Agent Lucia to review, 11 at his office, and to cooperate and provide additional documents and/or testimony to Revenue 12 Agent Lucia in a timely manner if requested. 13 14 Conclusion For the reasons set forth herein, the Court DENIES the government's motion for contempt 15 sanctions. The Court hereby orders Christopher Gehrisch, Chief Executive Officer of Proteus 16 Dimensional Technologies, Inc., and Matthew Gehrisch, Chief Financial Officer of Proteus 17 Dimensional Technologies, Inc., to deliver copies of all of the documents responsive to the IRS 18 summonses to Revenue Officer Lucia, at his office in San Marcos, by Monday, September 26,2011, 19 and leave those documents at the IRS office with Revenue Agent Lucia. In addition, if Revenue 20 Agent Lucia needs additional documents or oral testimony based upon his review of the documents, 21 the Gehrisches are ordered to provide the documents or testimony in a timely manner. 22 23 IT IS SO ORDERED. DATED: September 23, 2011 24 25 26 27 28 ll'(. .. continued) July 19,2011 order to show cause on the government's contempt motion, "any agent of the Internal Revenue Service" is authorized to effect service. 4

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