Smart-Tek Automated Services Inc. v. United States Internal Revenue Service

Filing 36

ORDER Granting in part and Denying in part Without Prejudice Defendant's 26 Motion for Summary Judgment. Signed by Judge Barry Ted Moskowitz on 7/20/2017. (mxn)

1
2
3
4
5
6

UNITED STATES DISTRICT COURT

7

SOUTHERN DISTRICT OF CALIFORNIA

8
9

SMART-TEK AUTOMATED
SERVICES INC.,

10

Plaintiff,

11
v.

12

UNITED STATES INTERNAL
REVENUE SERVICE,

13
14

Case No.: 15-cv-0453-BTM-JMA
ORDER GRANTING IN PART AND
DENYING WITHOUT PREJUDICE
IN PART DEFENDANT'S MOTION
FOR SUMMARY JUDGMENT
[ECF NO. 26]

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. 26.) 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-0453-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 Automated Services Inc. (“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 June 26, 2014, the IRS allegedly sent a response to Plaintiff in which it

10

acknowledged 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 14,544 pages in full, and 3,479

15

pages in part, of non-exempt documents responsive to Plaintiff’s FOIA request. It

16

seeks summary judgment on the ground that it has fully discharged its obligations

17

under 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-0453-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.” Defenders of

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.

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-0453-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-0453-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

Here, the IRS submits the declaration of Delphine Thomas to support its

8

contention that it conducted an adequate search for records in response to

9

Plaintiff’s FOIA request. (ECF No. 26-5.) 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.

14

Thomas states that Ed Pullman, the disclosure specialist initially assigned to

15

process Plaintiff’s FOIA request, now has a different role with the IRS and is

16

“unavailable to declare in this case.” Id. ¶ 3. She was assigned to respond to

17

Plaintiff’s request on October 17, 2014, and thereafter familiarized herself with the

18

search conducted before she was involved by talking to Pullman and reviewing his

19

case file. Id. ¶ 4.

20

Thomas states that the IRS Disclosure Office received a written FOIA

21

request from Plaintiff on May 29, 2014, seeking “‘a complete copy of the

22

administrative file’” for Plaintiff. Id. ¶ 6.2 Pullman found the request overbroad, so

23

he contacted Plaintiff’s representative and suggested narrowing its scope. Id. ¶ 7.

24

Plaintiff’s representative thereafter left Pullman a voicemail “clarifying that the

25

request was for the administrative files for the tax forms 940, 941, and 1120 for tax

26
27
28

2

Although Thomas indicates a copy of the FOIA request is attached as Exhibit A to her declaration, the exhibit
was not actually attached. See Thomas Decl. ¶ 7.
5
15-cv-0453-BTM-JMA

1

years 2007-2014.” Id. ¶ 8.

2

According to Thomas, Pullman thereafter searched for “files” using the IRS’s

3

Integrated Data Retrieval System (“IDRS”), an electronic system that “manages

4

data that has been retrieved from the Master File System” which is “the Service’s

5

nation-wide electronic information system containing permanent taxpayer account

6

information.” Id. ¶¶ 9-12. His IDRS search showed there was collection activity

7

related to Plaintiff, and he thereafter learned from Tax Law Specialist Athena

8

Amparano that the collection matter was assigned to Revenue Officer John Black

9

(“RO Black”) Id. ¶ 13.

10

Thomas indicates that on July 16, 2014, “the Disclosure Office learned from

11

RO Black that documents responsive to [Plaintiff’s] requests would be located

12

within the commingled files maintained by RO Black on these entities and over

13

twenty (20) related entities.”

14

proceeding on one of the entities and, as he progressed, realized that all the

15

entities were related,” had the other entities’ files transferred to him and “started

16

working the case as one large case.” Id. As he received new documents, “he

17

added them to the boxes in chronological order, not based on any particular entity,”

18

so as a result, “the files were all mixed together.” Id. ¶ 16. The commingled files

19

totaled 65 boxes containing “around 141,000 pages.” Id.

Id. ¶ 15.

RO Black had “started a collection

20

On or about July 25, 2014, “Plaintiff’s representative confirmed via fax that

21

the request was for the entire administrative file maintained by Collection….” Id. ¶

22

19. Thomas, Pullman, and Amparano, later joined by attorneys and law clerks in

23

the Office of Chief Counsel, thereafter worked from late 2014 through fall 2015 to

24

“search for documents responsive to Plaintiff’s FOIA request within the

25

commingled administrative file of the Smart-Tek entities….” Id. ¶¶ 23, 27. Thomas

26

says that her review consisted of “not[ing] which documents were responsive to

27

Plaintiff’s FOIA request and which documents were responsive to the other related

28

entities’ FOIA requests.” Id. ¶ 27. She concludes, “[t]o my knowledge, there are
6
15-cv-0453-BTM-JMA

1

no other records responsive to Plaintiff’s request.” Id. ¶ 28.

2

Plaintiff argues this evidence is insufficient to demonstrate the adequacy of

3

the IRS’s search, because it fails to explain what documents the commingled files

4

contained, the methodology used to review the 65 boxes of documents, criteria for

5

selecting responsive documents, and because it does not identify the entities

6

whose records were in the commingled file. Pl.’s Opp. at 6-7.

7

The Court agrees with Plaintiff in part. To sustain its burden, the IRS must

8

show “[w]hat records were searched, by whom, and through what process.”

9

Steinberg, 23 F.3d at 552.

Although a “reasonably detailed, nonconclusory”

10

affidavit submitted “in good faith” will generally meet this burden, id. at 551 (quoting

11

Weisberg II, 745 F.2d at 1485), in key respects, Thomas’s declaration is too

12

conclusory to suffice.

13

First, the IRS has not explained how it interpreted Plaintiff’s FOIA request

14

(as initially submitted, or as subsequently clarified), nor does it explain what scope

15

of documents it determined were responsive to the request. Federal agencies

16

responding to FOIA requests are required to use search methods that can

17

reasonably be expected to yield the requested information. Lane v. Dep’t of

18

Interior, 523 F.3d 1128, 1139 (9th Cir. 2008). Without knowing what documents

19

the IRS was searching for in response to Plaintiff’s request, the Court has no

20

context for evaluating the reasonableness of the IRS’s search methods

21

Second, Thomas’s declaration fails to provide sufficient information about

22

the process by which the IRS reviewed the 65 boxes of documents. The IRS spent

23

months reviewing the boxes and removing particular documents, but it has not

24

explained what criteria the review team used to determine which documents to

25

remove.

26

calculated to uncover all relevant documents,” Zemansky, 767 F.2d at 571, to

27

evaluate the adequacy of the IRS’s search, the Court needs to know what the

28

search of the 65 boxes entailed to determine whether it was reasonable. See

Although an agency need only prove its search was “reasonably

7
15-cv-0453-BTM-JMA

1

County of Santa Cruz v. Ctrs. for Medicare and Medicaid Servs., No. C-07-2889

2

MMC, 2009 WL 816633, at *2 (N.D. Cal. Mar. 26, 2009) (holding IRS failed to

3

demonstrate reasonableness of search where supporting declarations reported

4

that searches of various files located no responsive documents, without explaining

5

“the process used to conduct [the IRS’s] search”). Thomas states the search for

6

responsive records involved “not[ing] which documents were responsive to

7

Plaintiff’s FOIA request,” Thomas Decl. ¶ 24, which does not give the Court an

8

adequate understanding what the responsive records consisted of. See, e.g.,

9

Kean v. Nat’l Aeronautics & Space Admin., 480 F. Supp. 2d 150, 156-57 (D.D.C.

10

2007) (finding descriptions of searches “inadequate” where they “[did] not contain

11

any details regarding which databases or records were searched, and what

12

methodology or search terms were used”). The IRS must provide additional detail

13

regarding the search paramaters the review team used to determine what

14

documents to remove from the 65 boxes as responsive, or potentially responsive,

15

to Plaintiff’s FOIA request.

16

Also, Plaintiff indicates in opposition to the IRS’s motion that it has received

17

two productions of documents from the IRS, including one that was produced on

18

August 1, 2016 that encompassed “several thousand more pages of documents”

19

in connection with which the IRS stated it was continuing to search for responsive

20

records. Bonar Decl. ¶ 8. The IRS responds that its subsequent release of

21

additional records does not render its entire search unreasonable. Reply at 4.

22

Perhaps not, but the Court agrees with Plaintiff that the IRS’s failure to address the

23

subsequent release of documents in its motion means it has failed to demonstrate

24

the reasonableness of the entirety of its search.

25

Next, the Court turns to Plaintiff’s argument that the IRS cannot establish the

26

reasonableness of its search without identifying the other entities whose records

27

were in the 65-box commingled file. The IRS did not address this argument in its

28

reply brief.
8
15-cv-0453-BTM-JMA

1

Two countervailing principles bear upon Plaintiff’s contention. On the one

2

hand, the Court must make a de novo determination of the adequacy of IRS’s

3

response to Plaintiff’s FOIA request, Reporters Comm. for Freedom of Press, 489

4

U.S. at 755, and it must be able to “intelligently judge the contest” to perform this

5

role. Wiener, 943 F.2d at 977. On the other hand, withholding information relating

6

to return information of another taxpayer or taxpayers, including the identity of

7

third-party taxpayers, is authorized under 5 U.S.C. § 552(b)(3), in conjunction with

8

26 U.S.C. § 6103(a), and 5 U.S.C. § 552 (b)(7)(C). See Johnson v. Comm’r of

9

Internal Revenue, 239 F. Supp. 2d 1125, 1128-29 (W.D. Wash. 2002).

10

Setting aside the merits of Plaintiff’s argument, as a threshold issue, it seems

11

likely that the alleged alter egos’ identities have already been disclosed. “[O]nce

12

tax return information is made a part of the public domain, the taxpayer may no

13

longer claim a right of privacy in that information” and “‘§ 6103’s directive to keep

14

return information confidential is moot.’” Lampert v. United States, 854 F.2d 335,

15

338 (9th Cir. 1988) (quoting Figur v. United States, 662 F. Supp. 515, 517 (N.D.

16

Cal. 1987).

17

submitted in support of Plaintiff’s opposition that Plaintiff issued its FOIA request

18

after being served with an IRS lien based on “payroll tax liabilities of unrelated

19

corporations.” Decl. Brian Bonar ¶ 2. Presumably the alleged alter egos were

20

identified in the IRS lien.

21

declaration; he describes the entities as “unrelated corporations,” and his

22

characterization of the corporations as “unrelated” implies he knows who they are.

23

Also, in researching the relevant legal issues, the Court encountered the district

24

court’s opinion in Goldberg v. United States, No. 13-61528-CIV, 2015 U.S. Dist.

25

LEXIS 104815, at *3-4 n.2 (S.D. Fla. Aug. 5, 2015). The Goldberg litigation

26

apparently arose from the same investigation of RO Black, and the district court’s

27

order appears to have disclosed the names of the entities involved. See id. If so,

28

under Lampert, disclosing their names in this litigation would appear not to run

Bonar is Plaintiff’s president, and he indicates in a declaration

Such a presumption seems supported by Bonar’s

9
15-cv-0453-BTM-JMA

1

afoul of § 6103(a).

2

The fact that any privilege pertaining to the identities of the alter egos may

3

have been dispelled does not necessarily mean the identity of every entity whose

4

files were in the 65 boxes has to be disclosed to establish the reasonableness of

5

the IRS’s search. At this stage, the record regarding the search the IRS undertook

6

is not yet complete, and the Court will reserve ruling on the merits of Plaintiff’s

7

argument until the record is more fully developed.

8

Based on the foregoing, the Court finds the IRS has failed to carry its burden

9

to demonstrate the adequacy of its search. Its motion for summary judgment will

10

be denied without prejudice.

11

C. Withholding of Responsive Documents Pursuant to FOIA Exemptions

12

The IRS indicates it withheld, in full or in part, responsive documents

13
14
15

pursuant to FOIA exemptions.
1. 5 U.S.C. § 552(b)(3) (“Exemption 3”) in Conjunction with 26 U.S.C.
§ 6103(a), 5 U.S.C. § 552(b)(7)(C) (“Exemption 7(C)”)

16

The IRS withheld responsive information pursuant to FOIA Exemption 3.

17

Exemption 3 protects from disclosure matters “specifically exempted by statute” “if

18

that statute—(A)(i) requires that the matters be withheld from the public in such a

19

manner as to leave no discretion on the issue; or (ii) establishes particular criteria

20

for withholding or refers to particular types of matters to be withheld….” 5 U.S.C.

21

§ 552(b)(3)(A). 26 U.S.C. § 6103 has been determined to be an Exemption 3

22

statute. Long v. United States, 742 F.2d 1173, 1178 (9th Cir. 1984). Section

23

6103(a) provides that taxpayer “returns and return information shall be

24

confidential.” 26 U.S.C. § 6103(a). “Return information” is defined to include,

25

among other things, “a taxpayer’s identity, the nature, source, or amount of his

26

income, payments, receipts, deductions, exemptions, credits, assets, liabilities, …

27

whether the taxpayer’s return was, is being, or will be examined or subject to other

28

investigation or processing, or any other data … with respect to a return…..” 26
10
15-cv-0453-BTM-JMA

1

U.S.C. § 6103(b)(2).

2

Pursuant to Exemption 3 and § 6103(a), the IRS withheld documents

3

because they contained information of “third party taxpayers” and other “entities”

4

other than plaintiff. Maher Decl. ¶¶ 11-12.

5

Exemption 7(C) requires withholding of records or information compiled for

6

law enforcement purposes, but only to the extent the production of such

7

information “could reasonably be expected to constitute an unwarranted invasion

8

of personal privacy.” 5 U.S.C. § 552(b)(7)(C). Pursuant to Exemption 7(C), the

9

IRS withheld information consisting of “bank account numbers of business entities”

10

and “contracts between other businesses and plaintiff” as well as checks written to

11

plaintiff by third-party businesses.

12

At this stage, the Court will reserve ruling on the validity of the IRS’s

13

withholding of information under Exemptions 3 (in conjunction with § 6103(a)) and

14

7(C). Plaintiff’s essential dispute is that the IRS has wrongfully refused to produce

15

documents pertaining to alter ego entities whose tax liability was the basis for the

16

lien against Plaintiff.

17

exemptions relates to unidentified taxpayers and entities other than Plaintiff. Some

18

of the taxpayers or entities may be the alter ego entities whose documents Plaintiff

19

seeks. The IRS disputes whether Plaintiff can obtain tax information relating to

20

Plaintiff’s alter egos without an authorization from the alter ego. Plaintiff cannot

21

obtain such an authorization, however, without knowing which entities’ records

22

have been withheld. Although the IRS claims even the names of the alter egos

23

are protected from disclosure, if those names have already been published such

24

that any related privacy interest has been lost, there would appear to be no

25

impediment to identifying, in subsequent briefing, any alter ego taxpayers whose

26

records were withheld.

27

proffers, Plaintiff will have the opportunity to more intelligently advocate for

28

disclosure of the withheld information. Wiener, 943 F.2d at 977.

The information withheld on the basis of the foregoing

If the IRS can disclose those names in subsequent

11
15-cv-0453-BTM-JMA

1
2

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”)

3
4

Exemption 5 protects from disclosure “inter-agency or intra-agency

5

memorandums or letters that would not be available by law to a party other than

6

an agency in litigation with the agency….” 5 U.S.C. § 552(b)(5). “This exemption

7

entitles an agency to withhold . . . documents which a private party could not

8

discover in litigation with the agency.” Pac. Fisheries, 539 F.3d at 1148 (quoting

9

Maricopa Audubon Soc’y v. U.S. Forest Serv., 108 F.3d 1089, 1092 (9th Cir. 1997).

10

“Exemption 5 thus covers the attorney-client privilege, the attorney work-product

11

privilege, and the executive ‘deliberative process’ privilege.” Maricopa, 108 F.3d

12

at 1092.

13

a) Attorney-Client Privilege

14

Pursuant to Exemption 5, the IRS withheld portions of six pages of

15

documents because they contain attorney-client privileged information. “The

16

attorney-client privilege protects confidential disclosures made by a client to an

17

attorney in order to obtain legal advice, ... as well as an attorney's advice in

18

response to such disclosures.” United States v. Ruehle, 583 F.3d 600, 607 (9th

19

Cir. 2009) (internal quotation and citation omitted).

20

The IRS submits the declaration of Joseph T. Maher Jr., an attorney in the

21

IRS’s Office of Associate Chief Counsel, in support of its privilege claim. Maher

22

indicates the withheld information consisted of case history transcripts containing

23

“notes about advice from counsel on issues in the case.” Maher Decl. ¶ 17.

24

Maher’s declaration contains no indication who the “counsel” providing the

25

advice was, including whether the attorney was employed by the IRS Office of

26

Chief Counsel, or any other agency, so as to make it an inter-agency or intra-

27

agency communication covered by Exemption 5. See 5 U.S.C. § 552(b). There

28

is also no representation that the communications reflected in the notes were
12
15-cv-0453-BTM-JMA

1

confidential. See Ruehle, 583 F.3d at 607. On this record, the Court cannot

2

determine whether the withheld information fell within the attorney-client privilege

3

or Exemption 5. Accordingly, the Court denies the IRS’s motion for summary

4

judgment without prejudice on this ground.

5

b) Deliberative Process Privilege

6

The IRS withheld two pages of documents in full and 17 pages in part

7

pursuant to Exemption 5 and the deliberative process privilege. “In order to be

8

protected by the deliberative process privilege, a document must be both (1)

9

‘predecisional’ or ‘antecedent to the adoption of agency policy’ and (2)

10

‘deliberative,’ meaning ‘it must actually be related to the process by which policies

11

are formulated.’” United States v. Fernandez, 231 F.3d 1240, 1246 (9th Cir. 2000)

12

(quoting Nat’l Wildlife Fed’n v. U.S. Forest Serv., 861 F.2d 1114, 1117 (9th Cir.

13

1988) (additional citation and internal quotation marks omitted)) (holding death

14

penalty evaluation form completed by U.S. Attorney and submitted before final

15

decision whether to seek the death penalty fell within deliberative process

16

privilege). Shielding such documents from production is meant to encourage

17

forthright and candid discussions of ideas and improve the decision-making

18

process. Id. (citing Assembly of the State of Cal. v. U.S. Dep’t of Commerce, 968

19

F.2d 916, 920 (9th Cir.1992)).

20

The IRS relies on the Maher declaration to support its decision to withhold

21

all or parts of responsive documents pursuant to the deliberative process privilege.

22

Maher Decl. ¶¶ 18-21. He states the withheld information consists of “notes which

23

contain predecisional and deliberative recommendations and analysis of the case,

24

along with some notes about advice from counsel on issues in the case” (¶ 21(a))

25

and a “memorandum from one Service employee to another” that contained

26

material that “is both predecisional and deliberative” (¶ 21(b)). This information is

27

“predecisional and deliberative as they contain assumptions or recommendations

28

reflecting ‘the give-and-take’ of the agency’s deliberative processes and release of
13
15-cv-0453-BTM-JMA

1

this information would reveal predecisional thoughts and analysis of Service

2

employees….” Id. ¶ 18.

3

The Court finds the Maher declaration insufficient to support the IRS’s

4

privilege claim. In particular, although he describes deliberative materials in the

5

abstract, Maher fails to indicate in non-conclusory fashion how the withheld

6

information was “actually related” to the IRS’s effort to decide how to proceed with

7

the collection action in this case. Fernandez, 231 F.3d at 1246 (to be “deliberative,”

8

information “must actually be related to the process by which policies are

9

formulated”) (emphasis added). Accordingly, the Court will deny the IRS’s motion

10
11

on this ground without prejudice.
3. 5 U.S.C. § 552(b)(6) (“Exemption 6”)

12

Exemption 6 restricts from disclosure “personnel and medical files and

13

similar files the disclosure of which would constitute a clearly unwarranted invasion

14

of personal privacy.” 5 U.S.C. § 552(b)(6). To determine whether information has

15

been properly withheld under Exemption 6 requires a court to “balance the privacy

16

interests or personal nature of the information sought against the public interest

17

that would be served by disclosure.” Chamberlain v. Kurtz, 589 F.2d 827, 841-42

18

(5th Cir. 1979); see Horowitz v. Peace Corps, 428 F.3d 271, 278 (D.C. Cir. 2005).

19

The IRS relies on the declaration of Maher in support of its withholding of

20

information under Exemption 6. He describes the information withheld under

21

Exemption 6 as “personal guaranty and signature sections of contracts between

22

other businesses and the plaintiff” that “contain the home addresses and social

23

security numbers of individuals” (Maher Decl. ¶ 23(a)); portions of documents

24

containing the social security numbers, email addresses, and phone numbers of

25

individuals (¶¶ 23(b)-(f)); and copies of checks written to plaintiff by third-party

26

individuals (¶ 23(g)).

27

The Court finds the referenced information was properly withheld under

28

Exemption 6, because it consists of personal information of individuals that falls
14
15-cv-0453-BTM-JMA

1

within the ambit of information typically subject to privacy protection, and the

2

privacy interests of the individuals involved outweigh any public interest that might

3

be served by disclosure. Chamberlain, 589 F.2d at 841-42. The Court also finds

4

the IRS has complied with its duty to disclose any reasonably segregable portions

5

of the affected documents. See Maher Decl. ¶ 9. Accordingly, the Court grants

6

the IRS’s motion for summary judgment as to its withholding of information

7

pursuant to Exemption 6.

8

4. 5 U.S.C. § 552(b)(7)(A) (“Exemption 7(A)”)

9

Exemption 7(A) relates to “records or information compiled for law

10

enforcement purposes” to the extent production of such information “could

11

reasonably be expected to interfere with enforcement proceedings….” 5 U.S.C. §

12

552(b)(7)(A). To support withholding documents under Exemption 7(A), an agency

13

“must establish only that they were investigatory records compiled for law

14

enforcement purposes and that production would interfere with pending

15

enforcement proceedings.” Barney v. Internal Revenue Service, 618 F.2d 1268,

16

1272-73 (8th Cir. 1980).

17

enforcement agency, Shannahan v. Internal Revenue Serv., 680 F. Supp. 2d 1270,

18

1281 (W.D. Wash. 2010), and civil tax enforcement proceedings are “enforcement

19

proceedings,” Barney, 618 F.2d at 1273. “The IRS need only make a general

20

showing that disclosure of its investigatory records would interfere with its

21

enforcement proceedings.” Lewis v. Internal Revenue Serv., 823 F.2d 375, 380

22

(9th Cir. 1987). “[D]isclosure of such records as witness statements, documentary

23

evidence, agent’s work papers and internal agency memoranda, prior to the

24

institution of civil or criminal tax enforcement proceedings, would necessarily

25

interfere with such proceedings by prematurely revealing the government’s case.”

26

Barney, 618 F.2d at 1273; see NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214,

27

236-37 (1978).

28

For purposes of Exemption 7(A), the IRS is a law

The IRS submits the declaration of Rosanna Savala, a Supervisory Revenue
15
15-cv-0453-BTM-JMA

1

Officer, in support of its decision to withhold 45 pages in full, and 106 pages in

2

part, of responsive documents under Exemption 7(A). Savala Decl. ¶¶ 10-12. She

3

describes the withheld information as “case history transcripts and notes that

4

contain information about the case that if released would provide plaintiff with

5

earlier and greater access to information about the IRS’s investigation than it would

6

otherwise be entitled to receive” (¶ 12(a)); emails and memoranda that “reveal the

7

specific items and transactions that are the focus of an ongoing law enforcement

8

investigation” that reveal “the nature, direction, scope, and limits of the

9

investigation” (¶ 12(b)); notes of a meeting with a confidential informant that

10

contain information about plaintiff’s case (¶ 12(c)); and notes of meetings between

11

IRS employees “that contain information that if released would provide plaintiff with

12

earlier and greater access to information about the IRS’s investigation than it would

13

otherwise be entitled to receive” (¶ 12(d)). She indicates that disclosure of the

14

withheld information would give plaintiff the opportunity to tamper with or conceal

15

evidence, or construct explanations and defenses to the IRS’s theories, thus

16

interfering with the IRS’s law enforcement proceedings. Id. ¶ 12(a)-(d).

17

The Court finds the IRS’s evidence sufficient to show disclosure of the

18

referenced information would interfere with its enforcement proceedings pursuant

19

to Exemption 7(A), and that the IRS complied with its duty to reasonably segregate

20

and produce non-exempt information. Maher Decl. ¶ 9.

21

motion for summary judgment is granted as to this exemption.

22

5. 5 U.S.C. § 552(b)(7)(D) (“Exemption 7(D)”)

23
24
25
26
27
28

Accordingly, the IRS’s

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
enforcement authority in the course of a criminal investigation or by an

16
15-cv-0453-BTM-JMA

1
2

agency conducting a lawful national security intelligence investigation,
information furnished by a confidential source[.]

3

5 U.S.C. § 552(b)(7)(D). Exemption 7(D) “has long been recognized as affording

4

the most comprehensive protection of all of FOIA’s law enforcement exemptions.”

5

Billington v. U.S. Dep’t of Justice, 301 F. Supp. 2d 15, 22 (D.D.C. 2004). To invoke

6

its protections, an agency must show the particular source “provided information

7

under an express assurance of confidentiality or in circumstances from which such

8

an assurance could be reasonably inferred.” U.S. Dep’t of Justice v. Landano,

9

508 U.S. 165, 172 (1993). “A source should be deemed confidential if the source

10

furnished information with the understanding that the [agency] would not divulge

11

the communication except to the extent [it] thought necessary for law enforcement

12

purposes.” Id. at 174.

13

Pursuant to Exemption 7(D), the IRS withheld 28 pages in full, and one page

14

in part, of documents responsive to Plaintiff’s request. Maher Decl. ¶ 14. Maher

15

declares the withheld records contain information provided by a source who

16

“obtained implicit assurance of confidentiality” the release of which would disclose

17

the source’s identity. Id.

18

The Court finds Maher’s declaration insufficient to carry the burden of

19

demonstrating the withheld information is exempted from disclosure. Exemption

20

7(D) applies where there is an “express assurance of confidentiality” or

21

“circumstances from which such an assurance could be reasonably inferred.”

22

Landano, 508 U.S. at 172. Here, Maher says only that the source received an

23

“implicit assurance of confidentiality,” which is not an “express assurance of

24

confidentiality,” and since Maher does not explain what he means by an “implicit

25

assurance of confidentiality” the Court cannot determine whether the circumstance

26

he is referring to was one “from which such an assurance could be reasonably

27

inferred.” Id. Maher’s declaration in this case is less robust than the declarations

28

the IRS submitted to the Court in two of the cases related to this one, Case Nos.
17
15-cv-0453-BTM-JMA

1

15-cv-447 and 15-cv-452, which the Court found were sufficient to establish that

2

Exemption 7(D) applied. See Trucept, Inc., fka Smart Tek Solutions, Inc. v. IRS,

3

Case No. 15-cv-447-BTM-JMA, Queener Decl. (ECF No. 25-3) at ¶¶ 24-25 (stating

4

the withheld information “reveals a confidential source who/that received

5

assurance of confidentiality from the Service” and “was provided to the Service

6

with the understanding that it would only be divulged to the extent necessary to

7

facilitate ongoing efforts by the Service to enforce the Federal tax laws as applied

8

to plaintiff”); Smart-Tek Service Solutions Corp. v. IRS, Valvardi Decl. (ECF No.

9

29-5) at ¶ 25 (stating that the withheld information disclosed information or

10

identities of confidential sources who “have been assured confidentiality by the

11

Service”). Nor does the Maher declaration indicate whether the confidential source

12

he is referring to is the same one discussed in the declarations the IRS submitted

13

in the other cases. Thus, on this record, the Court cannot determine whether the

14

withheld information meets the standard for withholding under Exemption 7(D).

15
16
17

Accordingly, the Court will deny the IRS’s motion for summary judgment on
this ground without prejudice.
6. Exemption 3 in Conjunction with 26 U.S.C. § 6103(e)(7)

18

The IRS withheld parts of documents pursuant to 26 U.S.C. § 6103(e)(7),

19

which is an Exemption 3 statute. Chamberlain v. Kurtz, 589 F.2d 827, 839-40 &

20

n.26 (5th Cir. 1979) (referring to § 6103(e)(7) under its then-applicable statutory

21

designation, § 6103(e)(6)). Pursuant to § 6103(e)(7), “[r]eturn information with

22

respect to any taxpayer may be open to inspection by or disclosure to any person

23

authorized by this subsection to inspect any return of such taxpayer if the Secretary

24

determines that such disclosure would not seriously impair Federal tax

25

administration.” 26 U.S.C. § 6103(e)(7). Section 6103(e)(7) gives a taxpayer

26

“unrestricted access to his own returns, but as to other information or materials

27

collected by the IRS in the course of determining tax liability” availability of the

28

returns “is conditioned on the Secretary’s determination that such access would
18
15-cv-0453-BTM-JMA

1

not impair tax administration.”

2

reflecting information “prepared or collected by the Secretary with respect to

3

determining the existence of liability for a tax or penalty” is subject to withholding

4

under § 6103(e)(7). Id. at 840.

Chamberlain, 589 F.2d at 837.

Documents

5

The IRS relies on the declaration of Savala, who states she is authorized by

6

Treasury Department Order No. 150-10 and related authority to determine under

7

§ 6103(e)(7) whether disclosure of return information would impair tax

8

administration. Savala Decl. ¶¶ 6-9. She determined that 45 pages of documents

9

in full, and 106 pages in part, should be withheld because they would have such

10

an impairing effect. The withheld documents are the same as the ones identified

11

and withheld pursuant to Exemption 7(A). See id. ¶ 9(a)-(d); ¶ 12(a)-(d). Savala

12

indicates the withheld information would, if disclosed, give plaintiff an unfair

13

advantage “in the midst of an ongoing investigation” and allow it to prematurely

14

craft explanations and defenses based on the information, which would

15

“reasonably be expected to impair the Service’s ability to determine the correct

16

application of the Federal tax laws.” Id. ¶ 9(a)-(d).

17

The Court finds the IRS’s evidence sufficient to show disclosure of the

18

withheld information access would impair tax administration, such that it is subject

19

to withholding under § 6103(e)(7). The Court further finds the IRS complied with

20

its duty to reasonably segregate and produce non-exempt information. See Maher

21

Decl. ¶ 9. Accordingly, the Court grants the IRS’s motion for summary judgment

22

as to this exemption.

23

//

24

//

25

//

26

//

27

//

28

//
19
15-cv-0453-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 20, 2017

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
20
15-cv-0453-BTM-JMA