Smart-Tek Service Solutions Corp. v. United States Internal Revenue Service

Filing 36

ORDER Granting in part and Denying without prejudice in part Defendant's 29 Motion for Summary Judgment. Signed by Judge Barry Ted Moskowitz on 7/10/2017. (rlu)

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 9 SMART-TEK SERVICE SOLUTIONS CORP., 10 Case No.: 15-cv-0452-BTM-JMA Plaintiff, 11 v. 12 UNITED STATES INTERNAL REVENUE SERVICE, 13 14 ORDER GRANTING IN PART AND DENYING WITHOUT PREJUDICE IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [ECF NO. 29] Defendant. 15 16 The United States Internal Revenue Service (“IRS”) has filed a motion for 17 summary judgment as to Plaintiff’s claims under the Freedom of Information Act 18 (“FOIA”), 5 U.S.C. § 552, et seq. (ECF No. 29.) For the reasons discussed below, 19 the IRS’s motion will be granted in part and denied without prejudice in part. 20 I. BACKGROUND 21 This is one of five actions filed by related entities against the IRS.1 Each 22 case is based on the claim that the IRS failed to comply with its obligations under 23 5 U.S.C. § 552 to respond to FOIA requests submitted by the plaintiffs. Plaintiffs 24 25 26 27 28 1 The five actions (including this one) are: Trucept, Inc., fka Smart Tek Solutions Inc. v. United States Internal Revenue Service, Case No. 15-cv-0447-BTM-JMA; Smart-Tek Services, Inc. v. United States Internal Revenue Service, Case No. 15-cv-0449-BTM-JMA; Smart-Tek Service Solutions Corp. v. United States Internal Revenue Service, Case No. 15-cv-0452-BTM-JMA; Smart-Tek Automated Services, Inc. v. United States Internal Revenue Service, Case No. 15-cv-0453-BTM-JMA; and American Marine LLC v. United States Internal Revenue Service, Case No. 15-cv-0455-BTM-JMA. 1 15-cv-0452-BTM-JMA 1 contend they submitted their requests after the IRS filed a series of liens against 2 them between 2011 and 2013 holding them liable for payroll tax liabilities of other 3 corporations under alter ego and/or successor liability theories. 4 Plaintiff Smart-Tek Service Solutions Corp. (“Plaintiff”) alleges it sent a 5 written FOIA request to the IRS on May 12, 2014. Compl. (ECF No. 1) ¶ 10. Under 6 5 U.S.C. § 552(a)(6)(A)(i), an agency has 20 business days following receipt of a 7 FOIA request to determine whether to comply with the request and must 8 “immediately” notify the requester of its determination. 5 U.S.C. § 552(a)(6)(A)(i). 9 On September 29, 2014, the IRS allegedly sent a response to Plaintiff 10 acknowledging receipt of the request but “failed to make any determination about 11 the request.” Compl. ¶ 11. On February 27, 2015, having received no further 12 response from the IRS, Plaintiff initiated this action. 13 On October 7, 2016, the IRS filed the instant motion. It indicates it has now 14 completed its search for records and released 1,598 pages in full, and 369 pages 15 in part, of non-exempt documents responsive to Plaintiff’s FOIA request. It seeks 16 summary judgment on the ground that it has fully discharged its obligations under 17 5 U.S.C. § 552. Plaintiff opposes the motion. (ECF No. 31.) 18 II. DISCUSSION 19 A. FOIA Summary Judgment Standard 20 Summary judgment is appropriate if the evidence, when viewed in the light 21 most favorable to the non-moving party, demonstrates “there is no genuine dispute 22 as to any material fact.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 23 U.S. 317, 322 (1986). The moving party bears the initial burden of showing there 24 is no material factual dispute and he or she is entitled to prevail as a matter of law. 25 Celotex, 477 U.S. at 323. If the moving party meets its burden, the nonmoving 26 party must go beyond the pleadings and identify specific facts which show a 27 genuine issue for trial. Id. at 324. 28 District courts are directed to conduct a de novo review of the adequacy of 2 15-cv-0452-BTM-JMA 1 an agency’s response to a FOIA request. 5 U.S.C. § 552(a)(4)(B); U.S. Dep’t of 2 Justice v. Reporters Comm. for Freedom of Press, 489 U.S. 749, 755 (1989). 3 Because FOIA cases rarely involve material factual disputes, they “are typically 4 and appropriately decided on motions for summary judgment.” 5 Wildlife v. U.S. Border Patrol, 623 F. Supp. 2d 83, 97 (D.D.C. 2009); see 6 Shannahan v. Internal Revenue Serv., 637 F. Supp. 2d 902, 912 (W.D. Wash. 7 2009). 8 summary judgment in a FOIA case.” Shannahan, 637 F. Supp. 2d at 912. Defenders of Courts “follow a two-step inquiry when presented with a motion for 9 First, the district court must determine whether the agency has established 10 that it fully discharged its obligation under FOIA to conduct an adequate search for 11 responsive records. Zemansky v. U.S. Envtl. Prot. Agency, 767 F.2d 569, 571 (9th 12 Cir. 1985). To meet this burden, the agency must: 13 14 15 16 17 18 demonstrate that it has conducted a “search reasonably calculated to uncover all relevant documents.” Further, the issue to be resolved is not whether there might exist any other documents possibly responsive to the request, but rather whether the search for those documents was adequate. The adequacy of the search, in turn, is judged by a standard of reasonableness and depends, not surprisingly, upon the facts of each case. In demonstrating the adequacy of the search, the agency may rely upon reasonably detailed, nonconclusory affidavits submitted in good faith. 19 20 21 22 23 24 25 26 27 28 Id. (quoting Weisberg v. U.S. Dep’t of Justice (“Weisberg II”), 745 F.2d 1476, 1485 (D.C. Cir. 1984)). If the agency satisfies its initial burden, the court proceeds to the second step and considers “‘whether the agency has proven that the information that it did not disclose falls within one of nine FOIA exemptions.’” Shannahan, 637 F. Supp. 2d at 912 (quoting Los Angeles Times Commc’ns, LLC v. Dep’t of the Army, 442 F. Supp. 2d 880, 894 (C.D. Cal. 2006)). Agencies seeking to withhold documents pursuant to a FOIA exemption “have been required to supply the opposing party and the court with a ‘Vaughn index,’ identifying each document withheld, the 3 15-cv-0452-BTM-JMA 1 statutory exemption claimed, and a particularized explanation of how disclosure of 2 the particular document would damage the interest protected by the claimed 3 exemption.” Wiener v. Fed. Bureau of Investigation, 943 F.2d 972, 977 (9th Cir. 4 1991); see Vaughn v. Rosen, 484 F.2d 820, 823-25 (D.C. Cir. 1973). “The purpose 5 of a Vaughn index ‘is … to afford the requester an opportunity to intelligently 6 advocate release of the withheld documents and to afford the court the opportunity 7 to intelligently judge the contest.’” Shannahan, 637 F. Supp. 2d at 912 (quoting 8 Wiener, 943 F.2d at 979). 9 Finally, “even if the agency satisfies the two-part test, it generally must still 10 disclose any reasonably segregable portions of the withheld documents.” Id.; 5 11 U.S.C. § 552(b) (“Any reasonably segregable portion of a record shall be provided 12 to any person requesting such record after deletion of the portions which are 13 exempt under this subsection.”). “‘The burden is on the agency to establish that 14 all reasonably segregable portions of a document have been segregated and 15 disclosed.’” Id. (quoting Pac. Fisheries Inc. v. United States, 539 F.3d 1143, 1148 16 (9th Cir. 2008). 17 B. Reasonableness of Search 18 The IRS contends it has conducted an adequate search for records 19 responsive to Plaintiff’s FOIA request. To fulfill its obligations under FOIA, “the 20 agency must show that it made a good faith effort to conduct a search for the 21 requested records, using methods which can be reasonably expected to produce 22 the information requested.” Oglesby v. U.S. Dep't of the Army, 920 F.2d 57, 68 23 (D.C.Cir.1990). The agency must show “[w]hat records were searched, by whom, 24 and through what process.” Steinberg v. U.S. Dep’t of Justice, 23 F.3d 548, 552 25 (D.C. Cir. 1994). An agency can meet its burden by submitting a “reasonably 26 detailed, nonconclusory” affidavit “in good faith.” Id. at 551 (quoting Weisberg II, 27 745 F.2d at 1485). Agency affidavits that “do not denote which files were searched 28 or by whom, do not reflect any systematic approach to document location, and do 4 15-cv-0452-BTM-JMA 1 not provide information specific enough to allow the plaintiff to challenge the 2 procedures utilized” are insufficient to fulfill the agency’s burden. Weisberg v. U.S. 3 Dep’t of Justice, 627 F.2d 365, 371 (D.C. Cir. 1980). In determining whether an 4 agency has met its burden to prove an adequate search, “the facts must be viewed 5 in the light most favorable to the requestor.” Zemansky, 767 F.2d at 571 (citing 6 Weisberg II, 745 F.2d at 1485). 7 The IRS submits the declaration of Delphine Thomas in support of its 8 contention that it conducted an adequate search for records responsive to 9 Plaintiff’s FOIA request. (ECF No. 29-4.) Thomas is a Senior Disclosure Specialist 10 whose duties include responding to FOIA requests for IRS records, which requires 11 her to “have knowledge of the types of documents created and maintained by the 12 various divisions and functions of the Service and an understanding of the 13 provisions of the FOIA.” Thomas Decl. ¶¶ 1-2. 14 Thomas states she was not initially assigned to respond to Plaintiff’s FOIA 15 request, but she familiarized herself with the steps taken prior to her involvement 16 by reviewing the case notes of disclosure specialist Edward Pullman, who was 17 initially assigned to the case. Id. She relates that on May 29, 2014, the IRS 18 received a written FOIA request from a representative of Plaintiff seeking “a 19 complete copy of the administrative file” for Plaintiff. Id. ¶ 9. Pullman deemed this 20 request overly broad, and on June 17, 2014, contacted Plaintiff’s representative, 21 who agreed to narrow its scope to “records regarding forms 940, 941 and 1120 for 22 the years 2007 through 2014.” Id. ¶ 11. 23 From the case notes, Thomas determined that on June 20, 2014, Pullman 24 used the IRS’s Integrated Data Retrieval System (“IDRS”), an electronic system 25 that “manages data that has been retrieved from the Master File System” which is 26 “the Service’s nation-wide electronic information system containing permanent 27 taxpayer account information,” to locate documents within the scope of plaintiff’s 28 FOIA request by entering the taxpayer identification number (TIN) into IDRS in 5 15-cv-0452-BTM-JMA 1 conjunction with certain command codes to retrieve information pertaining to the 2 relevant tax years 2007-2014 (command code BMFOLT). Id. ¶¶ 4-6, 12. While 3 completing his IDRS search, Pullman received an email from Tax Law Specialist 4 Athena Amparano, who advised that “the requested administrative file was in the 5 possession of Revenue Officer (“RO”) John Black, who was assigned to a 6 collection matter involving the Smart-Tek entities.” 7 different related entities” had been “commingled in one large file” consisting of 65 8 boxes of documents totaling “around 140,000 pages.” Id. ¶¶ 14-15. Id. ¶ 14. The files of “20 9 Pullman contacted Plaintiff’s representative to discuss “further limiting the 10 scope of the request,” but Plaintiff’s representative refused and took the position 11 that “plaintiff was requesting the entire administrative file.” Id. ¶ 17. Thomas, 12 Pullman, and Amparano, later joined by “attorneys and law clerks in the Office of 13 Chief Counsel,” worked from August 2014 through fall 2015 to “search for 14 documents responsive to plaintiff’s FOIA request within the commingled 15 administrative file of the Smart-Tek entities.” Id. ¶ 26. Thomas does not indicate 16 when the search was completed; she simply concludes, “[t]o my knowledge, there 17 are no other records responsive to Plaintiff’s request.” Id. ¶ 27. 18 Plaintiff argues Thomas’s declaration is insufficient to prove the adequacy of 19 the IRS’s search, because it fails to explain what documents the commingled files 20 contained, the methodology used to review the 65 boxes of documents, criteria for 21 selecting responsive documents, and because it does not identify the entities 22 whose records were in the commingled file. Pl.’s Opp. at 6-7. 23 The Court agrees with Plaintiff in part. To sustain its burden, the IRS must 24 show “[w]hat records were searched, by whom, and through what process.” 25 Steinberg, 23 F.3d at 552. 26 affidavit submitted “in good faith” will generally meet this burden, id. at 551 (quoting 27 Weisberg, 745 F.2d at 1485), in key respects, Thomas’s declaration is too 28 conclusory to suffice. Although a “reasonably detailed, nonconclusory” 6 15-cv-0452-BTM-JMA 1 First, the IRS has not explained how it interpreted Plaintiff’s FOIA request 2 (as initially submitted in writing, or as subsequently clarified in communications 3 with Pullman), that is, what scope of records it decided fell within the scope of 4 request and for which it searched in response. Federal agencies responding to 5 FOIA requests are required to use search methods that can reasonably be 6 expected to yield the requested information. Lane v. Dep’t of Interior, 523 F.3d 7 1128, 1139 (9th Cir. 2008). Without a description of the scope of documents the 8 IRS determined to be responsive to the request, the Court has no context for 9 evaluating the reasonableness of the methods it used to find them. 10 Second, Thomas’s declaration fails to give sufficient information about the 11 IRS’s review of the 65 boxes of documents. The IRS spent months reviewing the 12 boxes and removing particular documents, but it has not explained what 13 documents the document review team was looking for and pulling out of the boxes, 14 including the criteria or search parameters the team used to determine which 15 documents to remove for production. Although an agency need only prove its 16 search was “reasonably calculated to uncover all relevant documents,” Zemansky, 17 767 F.2d at 571, to evaluate the adequacy of the IRS’s search, the Court needs 18 information regarding the document review to determine whether the IRS’s search 19 of the 65 boxes was reasonable. See County of Santa Cruz v. Ctrs. for Medicare 20 and Medicaid Servs., No. C-07-2889 MMC, 2009 WL 816633, at *2 (N.D. Cal. Mar. 21 26, 2009) (holding IRS failed to demonstrate reasonableness of search where 22 supporting declarations reported that searches of various files located no 23 responsive documents, without explaining “the process used to conduct [the IRS’s] 24 search”). 2 25 26 27 28 Thomas’s statement “[t]o my knowledge, the other IRS employees assigned to review the documents in the boxes performed the same action,” Thomas Decl. ¶ 26, is also conclusory. While “[a]s a general matter, ‘[a]n affidavit from an agency employee responsible for supervising a FOIA search is all that is needed to satisfy’ the personal knowledge requirement of Rule 56(e)” Lahr v. Nat’l Transp. Safety Board, 569 F.3d 964, 990 (9th Cir. 2009) (quoting Carney v. U.S. Dep't of Justice, 19 F.3d 807, 814 (2d Cir.1994)), here, Thomas does not indicate 2 7 15-cv-0452-BTM-JMA 1 Next, the Court turns to Plaintiff’s argument that the IRS cannot establish the 2 reasonableness of its search without identifying the other entities whose records 3 were in the 65-box commingled file. Opp. at 7. The IRS did not address this 4 argument in its reply brief. 5 Two countervailing principles seem to bear upon Plaintiff’s contention. On 6 the one hand, the Court must make a de novo determination of the adequacy IRS’s 7 response to Plaintiff’s FOIA request, Reporters Comm. for Freedom of Press, 489 8 U.S. at 755, and it must be able to “intelligently judge the contest” to perform this 9 role. Wiener, 943 F.2d at 977. On the other hand, withholding information relating 10 to return information of another taxpayer or taxpayers, including the identity of 11 third-party taxpayers, is authorized under 5 U.S.C. § 552(b)(3), in conjunction with 12 26 U.S.C. § 6103(a), and 5 U.S.C. § 552 (b)(7)(C). See Johnson v. Comm’r of 13 Internal Revenue, 239 F. Supp. 2d 1125, 1128-29 (W.D. Wash. 2002). 14 Setting aside the merits of Plaintiff’s argument, as a threshold issue, it seems 15 likely that the alleged alter egos’ identities have already been disclosed. “[O]nce 16 tax return information is made a part of the public domain, the taxpayer may no 17 longer claim a right of privacy in that information” and “‘§ 6103’s directive to keep 18 return information confidential is moot.’” Lampert v. United States, 854 F.2d 335, 19 338 (9th Cir. 1988) (quoting Figur v. United States, 662 F. Supp. 515, 517 (N.D. 20 Cal. 1987). 21 submitted in support of Plaintiff’s opposition that Plaintiff issued its FOIA request 22 after being served with an IRS lien based on “payroll tax liabilities of unrelated 23 corporations.” Decl. Brian Bonar ¶ 2. Presumably the alleged alter egos were 24 identified in the IRS lien. 25 declaration; he describes the entities as “unrelated corporations,” and his Bonar is Plaintiff’s president, and he indicates in a declaration Such a presumption seems supported by Bonar’s 26 27 28 she had such a supervisory role, nor is there any indication how Thomas learned what other IRS employees did to complete their review 8 15-cv-0452-BTM-JMA 1 characterization of the corporations as “unrelated” implies he knows who they are. 2 Also, in researching the relevant legal issues, the Court encountered the district 3 court’s opinion in Goldberg v. United States, No. 13-61528-CIV, 2015 U.S. Dist. 4 LEXIS 104815, at *3-4 n.2 (S.D. Fla. Aug. 5, 2015). The Goldberg litigation 5 apparently arose from the same investigation of RO Black, and the district court’s 6 order appears to have disclosed the names of the entities involved. See id. If so, 7 under Lampert, disclosing their names in this litigation would appear not to run 8 afoul of § 6103(a). 9 The fact that any privilege pertaining to the identities of the alter egos may 10 have been dispelled does not necessarily mean the identity of every entity whose 11 files were in the 65 boxes has to be disclosed to establish the reasonableness of 12 the IRS’s search. At this stage, the record regarding the search the IRS undertook 13 is not yet complete, and the Court will reserve ruling on the merits of Plaintiff’s 14 argument until the record is more fully developed. 15 Based on the foregoing, the Court finds the IRS has failed to carry its burden 16 to demonstrate the adequacy of its search. Its motion for summary judgment will 17 be denied without prejudice. 18 C. Withholding of Responsive Documents Pursuant to FOIA Exemptions 19 The IRS indicates it withheld all, or part, of responsive documents pursuant 20 to FOIA exemptions. 1. 5 U.S.C. § 552(b)(3) (“Exemption 3”) in Conjunction with 26 U.S.C. § 21 22 6103(a); 5 U.S.C. § 552(b)(6) (“Exemption 6”); Records Withheld as 23 Outside Scope of Request 24 The IRS withheld responsive information pursuant to FOIA Exemptions 3 25 and 6, and it also withheld documents it contends fell outside the scope of Plaintiff’s 26 request. 27 Under Exemption 3, matters “specifically exempted by statute” are deemed 28 exempted under FOIA “if that statute—(A)(i) requires that the matters be withheld 9 15-cv-0452-BTM-JMA 1 from the public in such a manner as to leave no discretion on the issue; or (ii) 2 establishes particular criteria for withholding or refers to particular types of matters 3 to be withheld….” 5 U.S.C. § 552(b)(3)(A). 26 U.S.C. § 6103 is a provision within 4 the IRS Code and has been determined to be an Exemption 3 statute. Long v. 5 United States, 742 F.2d 1173, 1178 (9th Cir. 1984). Section 6103(a) provides that 6 taxpayer “returns and return information shall be confidential.” 7 6103(a). 8 taxpayer’s identity, the nature, source, or amount of his income, payments, 9 receipts, deductions, exemptions, credits, assets, liabilities, … whether the 10 taxpayer’s return was, is being, or will be examined or subject to other investigation 11 or processing, or any other data … with respect to a return…..” 26 U.S.C. § 12 6103(b)(2). Pursuant to Exemption 3 and § 6103(a), the IRS withheld documents 13 responsive to Plaintiff’s FOIA request because they contained information of 14 “taxpayers other than the plaintiff.” Valvardi Decl. ¶ 11. 26 U.S.C. § “Return information” is defined to include, among other things, “a 15 Exemption 6 restricts from disclosure “personnel and medical files and 16 similar files the disclosure of which would constitute a clearly unwarranted invasion 17 of personal privacy.” 5 U.S.C. § 552(b)(6). Under Exemption 6, the IRS withheld 18 responsive information because it related to taxpayers, tax preparers, and/or 19 persons other than Plaintiff. Valvardi Decl. ¶¶ 21-23. 20 The IRS also withheld documents that “concern entities other than plaintiff 21 involved in [this] litigation” on the ground they fell outside the scope of Plaintiff’s 22 FOIA request. Valvardi Decl. ¶ 27. No exemption need apply to justify withholding 23 on this ground, because such documents are not subject to production under FOIA 24 for the simple reason that they were not requested. See 5 U.S.C. § 552(a)(6)(A) 25 (requiring agency to act on “any request for records made under paragraph (1), 26 (2), or (3)…”) (emphasis added). 27 At this stage, the Court will reserve ruling on the validity of the IRS’s 28 withholding of information under Exemptions 3 and 6, and its claim that documents 10 15-cv-0452-BTM-JMA 1 were not produced because they fell outside the scope of Plaintiff’s FOIA request. 2 IRS’s response to its FOIA request was inadequate because it failed to produce 3 documents pertaining to alter ego entities whose tax liability was the basis for the 4 lien against Plaintiff. 5 exemptions relates to unidentified “taxpayers” other than Plaintiff. Similarly, the 6 IRS’s contention certain documents are nonresponsive is based on the fact they 7 address “entities other than plaintiff.” Some of the “taxpayers” or “entities other 8 than plaintiff” may be the alter ego entities whose documents Plaintiff seeks. The 9 IRS disputes whether Plaintiff can obtain tax information relating to Plaintiff’s alter 10 egos without an authorization from the alter ego. Plaintiff cannot obtain such an 11 authorization, however, without knowing which entities’ records have been 12 withheld. Although the IRS claims even the names of the alter egos are protected 13 from disclosure, if those names have already been published such that any related 14 privacy interest has been lost, there would appear to be no impediment to 15 identifying, in subsequent briefing, any alter ego “taxpayers” whose records were 16 withheld. If the IRS can disclose those names in subsequent proffers, Plaintiff will 17 have the opportunity to more intelligently advocate for disclosure of the withheld 18 information. Wiener, 943 F.2d at 977. 19 20 21 The information withheld on the basis of the foregoing The Court will therefore reserve ruling on these issues until the record has been more fully developed. 2. 5 U.S.C. § 552(b)(5) (“Exemption 5”) 22 Exemption 5 protects from disclosure “inter-agency or intra-agency 23 memorandums or letters that would not be available by law to a party other than 24 an agency in litigation with the agency….” 5 U.S.C. § 552(b)(5). “This exemption 25 entitles an agency to withhold … documents which a private party could not 26 discover in litigation with the agency.” Pac. Fisheries, 539 F.3d at 1148 (quoting 27 Maricopa Audubon Soc’y v. U.S. Forest Serv., 108 F.3d 1089, 1092 (9th Cir. 1997). 28 “Exemption 5 thus covers the attorney-client privilege, the attorney work-product 11 15-cv-0452-BTM-JMA 1 privilege, and the executive ‘deliberative process’ privilege.” Maricopa, 108 F.3d 2 at 1092. 3 a) Attorney-Client Privilege 4 Pursuant to Exemption 5, the IRS withheld eight pages of documents on the 5 ground they contain information protected by the attorney-client privilege. “The 6 attorney-client privilege protects confidential disclosures made by a client to an 7 attorney in order to obtain legal advice, ... as well as an attorney's advice in 8 response to such disclosures.” United States v. Ruehle, 583 F.3d 600, 607 (9th 9 Cir. 2009) (internal quotation and citation omitted). 10 The IRS submits the declaration of Christopher Valvardi, an attorney in the 11 IRS’s Office of Associate Chief Counsel, in support of its privilege claim. He states 12 the withheld information consisted of emails containing confidential legal advice 13 that RO Black received from an IRS Chief Counsel attorney (pages 1968-69), as 14 well as case notes reflecting his discussions with Chief Counsel attorneys and 15 facts he disclosed to them on which their advice to him was based (pages 2110- 16 15). Valvardi Decl. ¶ 13. He indicates he is familiar with FOIA’s segregation 17 requirements, and that the IRS complied with such requirements in withholding the 18 referenced information. Id. ¶ 9. 19 The Court finds the Valvardi declaration sufficiently detailed and non- 20 conclusory to support the conclusion that the withheld information falls within the 21 scope of the privilege, because it reflects RO Black’s confidential communications 22 with agency lawyers for the purpose of obtaining legal advice. Ruehle, 583 F.3d 23 at 607. The Court also finds the IRS complied with its duty to produce reasonably 24 segregable portions of documents containing such information. 25 Accordingly, the Court grants the IRS’s motion for summary judgment as to 26 its determination that the foregoing documents contained attorney-client privileged 27 information and were exempt from disclosure pursuant to Exemption 5. 28 // 12 15-cv-0452-BTM-JMA 1 b) Deliberative Process Privilege 2 The IRS withheld documents pursuant to Exemption 5 on grounds they fall 3 within the scope of the deliberative process privilege. “In order to be protected by 4 the deliberative process privilege, a document must be both (1) ‘predecisional’ or 5 ‘antecedent to the adoption of agency policy’ and (2) ‘deliberative,’ meaning ‘it 6 must actually be related to the process by which policies are formulated.’” United 7 States v. Fernandez, 231 F.3d 1240, 1246 (9th Cir. 2000) (quoting Nat’l Wildlife 8 Fed’n v. U.S. Forest Serv., 861 F.2d 1114, 1117 (9th Cir. 1988) (additional citation 9 and internal quotation marks omitted)) (holding death penalty evaluation form 10 completed by U.S. Attorney and submitted before final decision whether to seek 11 the death penalty fell within deliberative process privilege). 12 documents from production is meant to encourage forthright and candid 13 discussions of ideas and improve the decision-making process. 14 Assembly of the State of Cal. v. U.S. Dep’t of Commerce, 968 F.2d 916, 920 (9th 15 Cir.1992)). Shielding such Id. (citing 16 The IRS relies on the Valvardi declaration to support its withholding of 17 responsive information pursuant to the deliberative process privilege. Valvardi 18 Decl. ¶¶ 14-20. 19 containing pre-decisional legal advice (pages 1968-69, which are also the subject 20 of the IRS’s claim of attorney-client privilege); case notes memorializing 21 examination activities that “include pre-decisional statements regarding proposed 22 courses of action” (pages 2110-15, also the subject of the IRS’s attorney-client 23 privilege claim); and “sensitive case reports containing pre-decisional proposals of 24 possible courses of action, submitted to management for review” (pages 2117-20) 25 Id. ¶ 20(a)-(c). 26 because it reflects opinions and recommendations … that precede the final 27 decision to undertake specific collection efforts, and the process of determining the 28 appropriate collection action remains ongoing,” and “deliberative because they He states that the withheld records were email messages He indicates the withheld information is both “pre-decisional 13 15-cv-0452-BTM-JMA 1 discuss or propose options for reaching the proper enforcement determinations.” 2 Id. ¶ 20. He states that while the IRS “has not made a final determination about 3 whether or how to pursue further action against plaintiff,” the withheld records 4 reflect the agency’s “give-and-take” regarding “the potential decision to take 5 enforcement action against plaintiffs, what action should be taken, and the bases 6 and justificiations for such action.” Id. ¶¶ 14, 17. 7 The Court finds the Valvardi declaration sufficient to support the IRS’s 8 privilege claim, in that the withheld documents are both predecisional and 9 deliberative in the sense that they are actually related to the IRS’s ongoing efforts 10 to determine how to proceed with its enforcement action. Fernandez, 231 F.3d at 11 1246. 12 reasonably segregate and produce non-exempt information. See Valvardi Decl. ¶ 13 9. 14 15 16 The Court also finds the IRS has shown it complied with its duty to Accordingly, the Court grants the IRS’s motion for summary judgment as to its withholding of the foregoing documents on this ground. 3. 5 U.S.C. § 552(b)(7)(A) (“Exemption 7(A)”) 17 Exemption 7(A) applies to “records or information compiled for law 18 enforcement purposes” to the extent production of such information “could 19 reasonably be expected to interfere with enforcement proceedings….” 5 U.S.C. § 20 552(b)(7)(A). To support withholding documents under Exemption 7(A), an agency 21 “must establish only that they were investigatory records compiled for law 22 enforcement purposes and that production would interfere with pending 23 enforcement proceedings.” Barney v. Internal Revenue Service, 618 F.2d 1268, 24 1272-73 (8th Cir. 1980). 25 enforcement agency, Shannahan v. Internal Revenue Serv., 680 F. Supp. 2d 1270, 26 1281 (W.D. Wash. 2010), and civil tax enforcement proceedings are “enforcement 27 proceedings,” Barney, 618 F.2d at 1273. “The IRS need only make a general 28 showing that disclosure of its investigatory records would interfere with its For purposes of Exemption 7(A), the IRS is a law 14 15-cv-0452-BTM-JMA 1 enforcement proceedings.” Lewis v. Internal Revenue Serv., 823 F.2d 375, 380 2 (9th Cir. 1987). “[D]isclosure of such records as witness statements, documentary 3 evidence, agent’s work papers and internal agency memoranda, prior to the 4 institution of civil or criminal tax enforcement proceedings, would necessarily 5 interfere with such proceedings by prematurely revealing the government’s case.” 6 Barney, 618 F.2d at 1273; see NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 7 236-37 (1978). 8 The IRS submits the declaration of Rosanna Savala, a Supervisory Revenue 9 Officer, in support of its decision to withhold parts of three pages of responsive 10 documents under Exemption 7(A). Savala Decl. ¶¶ 12-14. Savala indicates the 11 withheld information is contained in “sensitive case reports” that were redacted 12 “because they contain facts … [that] reveal the strength of the Service’s position 13 and its reliance on certain evidence.” Id. ¶ 14. She further states that “[d]isclosure 14 of the information withheld would allow plaintiff premature access to information it 15 could use … to circumvent the Service’s ongoing efforts to collect plaintiff’s 16 outstanding taxes, including efforts to seize certain property.” Id. 17 The Court finds the IRS’s evidence sufficient to show disclosure of the 18 referenced information would interfere with its enforcement proceedings such that 19 it was justified in withholding the information under Exemption 7(A), and further 20 finds the IRS complied with its duty to reasonably segregate and produce all non- 21 exempt information. Valvardi Decl. ¶ 9. Accordingly, the IRS’s motion for summary 22 judgment is granted as to its withholding of information under this exemption. 23 24 25 26 27 28 4. 5 U.S.C. § 552(b)(7)(D) (“Exemption 7(D)”) Exemption 7(D) protects information compiled for law enforcement purposes from disclosure to the extent it could reasonably be expected to disclose the identity of a confidential source, including a State, local, or foreign agency or authority or any private institution which furnished information on a confidential basis, and, in the case of a record or information compiled by criminal law 15 15-cv-0452-BTM-JMA 1 2 enforcement authority in the course of a criminal investigation or by an agency conducting a lawful national security intelligence investigation, information furnished by a confidential source[.] 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 U.S.C. § 552(b)(7)(D). Exemption 7(D) “has long been recognized as affording the most comprehensive protection of all of FOIA’s law enforcement exemptions.” Billington v. U.S. Dep’t of Justice, 301 F. Supp. 2d 15, 22 (D.D.C. 2004). To invoke its protections, an agency must show the particular source “provided information under an express assurance of confidentiality or in circumstances from which such an assurance could be reasonably inferred.” U.S. Dep’t of Justice v. Landano, 508 U.S. 165, 172 (1993). “A source should be deemed confidential if the source furnished information with the understanding that the [agency] would not divulge the communication except to the extent [it] thought necessary for law enforcement purposes.” Id. at 174. The IRS relies on the declaration of Valvardi in support of its decision to withhold nine pages of responsive documents in full or in part under Exemption 7(D). Valvardi Decl. ¶¶ 24-25. Valvardi states that eight of the withheld pages consist of memoranda of an interview RO Black conducted with a confidential source pursuant to an assurance of confidentiality, and the ninth page (page 2110) contains the name of a confidential source as well as information the source provided relevant to RO Black’s investigation. Valvardi ¶ 25(a), (b). The Court finds the evidence sufficient to show the withheld information falls within Exemption 7(D), Landano, 508 U.S. at 174, and that the IRS reasonably segregated and produced all non-exempt information. See Valvardi Decl. ¶ 9. Accordingly, the Court grants the IRS’s motion for summary judgment as to the validity of its withholding of the foregoing information under Exemption 7(D). 5. 5 U.S.C. § 552(b)(7)(E) (“Exemption 7(E)”) Exemption 7(E) protects information compiled for law enforcement purposes from disclosure to the extent it “would disclose techniques and procedures for law 16 15-cv-0452-BTM-JMA 1 enforcement investigations or prosecutions, or would disclose guidelines for law 2 enforcement investigations or prosecutions if such disclosure could reasonably be 3 expected to risk circumvention of the law.” 5 U.S.C. § 552(b)(7)(E). To establish 4 this exemption, “the Government must show that the technique that would be 5 disclosed under the FOIA request is a technique unknown to the general public.” 6 Pully v. Internal Revenue Serv., 939 F. Supp. 429, 438 (E.D. Va. 1996) (citing 7 Malloy v. Dep’t of Justice, 457 F. Supp. 543, 545 (D.D.C. 1978)); see Wilkinson v. 8 Fed. Bureau of Investigation, 633 F. Supp. 336, 349 (C.D. Cal. 1986) (to justify 9 withholding under Exemption 7(E), “the government will have the burden of proving 10 that these techniques are not generally known to the public”). 11 The IRS indicates it withheld five pages pursuant to Exemption 7(E). 12 According to Valvardi, the redacted pages contain notes that “include discussions 13 of several techniques and procedures typically used by examiners to gather 14 evidence about taxpayers, and to identify the relationships among various entities.” 15 Id. 16 procedures discussed in the documents relate to “technique[s] unknown to the 17 general public.” Pully, 939 F. Supp. at 438. Accordingly, the Court will deny 18 summary judgment without prejudice as to this exemption. 19 However, the declaration does not address whether the techniques and 6. Exemption 3 in Conjunction with 26 U.S.C. § 6103(e)(7) 20 The IRS withheld parts of documents pursuant to 26 U.S.C. § 6103(e)(7), 21 which is an Exemption 3 statute. Chamberlain v. Kurtz, 589 F.2d 827, 839-40 & 22 n.26 (5th Cir. 1979) (referring to § 6103(e)(7) under its then-applicable statutory 23 number, § 6103(e)(6)). Pursuant to § 6103(e)(7), “[r]eturn information with respect 24 to any taxpayer may be open to inspection by or disclosure to any person 25 authorized by this subsection to inspect any return of such taxpayer if the Secretary 26 determines that such disclosure would not seriously impair Federal tax 27 administration.” 26 U.S.C. § 6103(e)(7). Section 6103(e)(7) applies where a 28 taxpayer seeks its own tax return, and gives the taxpayer “unrestricted access to 17 15-cv-0452-BTM-JMA 1 his own returns, but as to other information or materials collected by the IRS in the 2 course of determining tax liability” availability of the returns “is conditioned on the 3 Secretary’s determination that such access would not impair tax administration.” 4 Chamberlain, 589 F.2d at 837. Documents reflecting information “prepared or 5 collected by the Secretary with respect to determining the existence of liability for 6 a tax or penalty” is subject to withholding under § 6103(e)(7). Id. at 840. 7 Here, Savala states she is authorized pursuant to Treasury Department 8 Order No. 150-10 and related authority to determine under § 6103(e)(7) whether 9 disclosure of return information would impair tax administration. Savala Decl. ¶ 9. 10 She determined that parts of five pages of case reports (pages 2116-17, 2119, and 11 attachments 2118 and 2121) would have such an impairing effect, as they “contain 12 data … with respect to the determination of the existence of plaintiff’s liability for 13 tax, penalties, forfeiture, or other imposition” and “[t]he information withheld in 14 these sensitive case reports reveals the direction, scope, and focus of the case, 15 the strength of the Service’s position, and its reliance on certain evidence.” Savala 16 Decl. ¶ 11. She avers that “[d]isclosure of this information would allow plaintiff 17 premature access to information” it could then use to “undermine” or “circumvent 18 the Service’s ongoing efforts to collect plaintiff’s outstanding taxes, including efforts 19 to seize certain property.” Id. 20 The Court finds the IRS’s evidence sufficient to show disclosure of the 21 withheld information access would impair tax administration, such that it is subject 22 to withholding under § 6103(e)(7). The Court further finds the IRS complied with 23 its duty to reasonably segregate and produce non-exempt information. 24 Accordingly, the Court grants the IRS’s motion for summary judgment as to this 25 exemption. 26 // 27 // 28 // 18 15-cv-0452-BTM-JMA 1 2 3 4 5 III. CONCLUSION AND ORDER For the reasons discussed above, the IRS’s motion for summary judgment is GRANTED IN PART and DENIED WITHOUT PREJUDICE in part. IT IS SO ORDERED. Dated: July 10, 2017 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 15-cv-0452-BTM-JMA

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