FOR PUBLICATION
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Petitioner-Appellee,
v.
LOREN C. TROESCHER,
Respondent-Appellant.
No. 95-55609
D.C. No. CV 93-5736 SVW
OPINION
Appeal from the United States District Court for the Central
District of California
Stephen V. Wilson, District Judge, Presiding
Argued and Submitted August 7, 1996 -- Pasadena, California
Filed November 7, 1996
Before: Stephen Reinhardt, Cynthia Holcomb Hall, and Edward
Leavy, Circuit Judges.
Opinion by Judge Reinhardt
OPINION
REINHARDT, Circuit Judge:
Loren C. Troescher appeals an order of the district court
compelling him to appear before the Internal Revenue Service to answer
questions and produce documents.*fn1 The IRS issued the summons after
Troescher apparently failed to file income tax returns for several
years. Troescher argues that the district court erred in rejecting his
assertion of the Fifth Amendment's privilege against self-incrimination.
We agree, and therefore vacate the order and remand to the district
court for reconsideration in light of this opinion.*fn2
I.
The general standard for a valid assertion of the Fifth
Amendment privilege against self-incrimination is well established. In
order properly to assert the privilege, "respondents must show that their
testimony would `support a conviction under a federal criminal statute'
or `furnish a link in the chain of evidence needed to prosecute the
claimant for a federal crime.' " United States v. Rendahl, 746 F.2d 553,
555 (9th Cir. 1984) (quoting Hoffman v. United States, 341 U.S. 479, 486
(1951). Indeed, it is enough if the responses would "merely `provide a
lead or clue' to evidence having a tendency to incriminate." United
States v. Neff, 615 F.2d 1235, 1239 (9th Cir.)(quoting Hashagen v.
United States, 283 F.2d 345, 348 (9th Cir. 1960)), cert. denied, 447
U.S. 925 (1980). The privilege is validly invoked "only where there are
`substantial hazards of self-incrimination' that are`real and
appreciable,' not merely `imaginary and unsubstantial.' " Rendahl, 746
F.2d at 555 (quoting Neff, 615 F.2d at 1239). Finally, "the existence of
such a hazard is generally determined from `examination of the
questions, their setting, and the peculiarities of the case.' " Id.
(quoting Neff, 615 F.2d at 1240).
The district court in this case initially analyzed Troescher's
privilege claims properly, under the standard set forth above. The court
ordered Troescher to file a statement under seal to determine whether he
was justified in refusing to answer each question posed by the IRS and
in refusing to produce each document requested under the subject
summons. The court then held a hearing and conducted an in camera review
of Troescher's statement and the IRS information requests, concluding in
the end that "respondent is faced with substantial hazards of
self-incrimination that are real and appreciable not merely imaginary
and unsubstantial."
Despite that finding, however, the court "reluctantly" issued
its order compelling Troescher to answer the questions and produce the
documents demanded in the IRS summons. In the face of appellant's
otherwise valid claims of privilege, the court was persuaded by the
government's argument that binding Ninth Circuit precedent created a
"Tax-Crime Exception" to the Fifth Amendment. It found that under Fuller
v. United States, 786 F.2d 1437 (9th Cir. 1986), and Brooks v. Hilton
Casinos, Inc., 959 F.2d 757 (9th Cir.), cert. denied, 506 U.S. 906
(1992), "the Fifth Amendment just does not apply when the taxpayer fears
prosecution for a tax crime." Because Troescher demonstrated a real and
appreciable fear of prosecution for tax crimes only, and could make no
showing regarding non-tax crime prosecution, the court rejected his
Fifth Amendment claims. The court felt bound by decisions it concluded
were unjustifiable and "simply wrong," and asked that we correct what he
rightly viewed to be in error.
[1] On appeal, the government appears to have discovered that
the district judge's instincts were correct. It now confesses error and
argues that "[t]he self-incrimination clause of the Fifth Amendment
applies in all instances where a taxpayer has reasonable cause to
apprehend criminal prosecution, whether tax related or not." We agree.
There is no general "Tax-Crime Exception" to the Fifth Amendment, and
Troescher's Fifth Amendment claims were not defeated here simply because
he feared prosecution for tax crimes.*fn3
It is easy to understand why the district judge was misled by
some of our cases. Our opinions in Fuller and Brooks do contain language
that suggests a distinction between tax crimes and non-tax crimes under
Fifth Amendment analysis. In Fuller we stated, "The fifth amendment's
self-incrimination clause provides no right to taxpayers to refuse to
provide the IRS with financial information unless they make some showing
that there is an appreciable possibility of prosecution for a non-tax
crime." 786 F.2d at 1439. The actual holding in Fuller, however, and in
every case it cites for support of that holding, is merely that the
privilege is not validly invoked by asserting only vague, blanket, or
generalized claims of self-incrimination. In Fuller and the cases it
cites, we rejected Fifth Amendment claims where the taxpayer did not
make any showing of an "appreciable possibility of prosecution," as
required by traditional self-incrimination analysis. Id. Specifically in
Fuller, we upheld a penalty assessed against three taxpayers for filing
frivolous returns within the meaning of 26 U.S.C. S 6702, where each
raised only "spurious" Fifth Amendment objections on their return forms.
Any language suggesting a broad exemption from the Fifth Amendment in
tax cases or that there is a constitutional distinction between tax and
non-tax crimes is merely dictum.
The unfortunate dictum in Fuller was repeated in Brooks, where
on the basis of Fuller we volunteered that "the fifth amendment's
self-incrimination clause does not give taxpayers a right to withhold
financial information from the IRS unless they can show an appreciable
possibility of prosecution for a non-tax crime." 959 F.2d at 767
(emphasis in the original). Once again, however, the sweeping language
suggesting a constitutional distinction between tax and non-tax crimes
is simply dictum. In Brooks, discovery sanctions were imposed against a
plaintiff who sued his employer and then attempted to avoid discovery by
relying on the Fifth Amendment. We upheld the sanctions stating that
"Plaintiffs who voluntarily come into court and seek economic damages
must be prepared to prove their economic loss: `The scales of justice
would hardly remain equal . . . if a party can assert a claim against
another and then be able to block all discovery attempts against him by
asserting a Fifth Amendment privilege to any interrogation whatsoever
upon his claim.' " 959 F.2d at 768 (quoting Lyons v. Johnson, 415 F.2d
540, 542 (9th Cir. 1969), cert. denied, 397 U.S. 1027 (1970)). Thus, the
unnecessarily broad language of Brooks regarding a taxpayer's right to
withhold financial information from the IRS is clearly dictum and, like
in Fuller, involves a question not before the court.
[2] To read the Fuller and Brooks dicta as creating a general
"Tax-Crime Exception" to the Fifth Amendment would render the cases
inconsistent with the opinions of this court that have actually
considered the issue before us. The case law in this circuit is clear
that the Fifth Amendment may be validly invoked when the taxpayer fears
prosecution for tax crimes. See, e.g., United States v. Bodwell, 66 F.3d
1000, 1001 (9th Cir. 1995) (holding that "[a] reasonable belief that
information concerning income or assets, such as that sought in the
summons here, might be used to establish criminal failure to file a tax
return can support a claim of Fifth Amendment privilege."); Rendahl, 746
F.2d at 555-56 (failure to file tax return); see also United States v.
Turk, 722 F.2d 1439, 1440 (9th Cir. 1983) (failure to file tax return),
cert. denied, 469 U.S. 818 (1984); United States v. Tsui, 646 F.2d 365,
367 (9th Cir. 1981) (income tax evasion), cert. denied, 455 U.S. 991
(1982); United States v. Helina, 549 F.2d 713, 716 (9th Cir. 1977)
(income tax evasion and willful filing of a false return); Federal
Deposit Ins. Co. v. Sovereign State Capital, Inc., 557 F.2d 683, 686
(9th Cir. 1977) (tax fraud). Further, such a sweeping exception would be
inconsistent with the law in other circuits. See, e.g., United States v.
Argomaniz, 925 F.2d 1349, 1353 (11th Cir. 1991); Estate of Fisher v.
C.I.R., 905 F.2d 645, 648-49 (2nd Cir. 1990); United States v. Clark,
847 F.2d 1467, 1474 (10th Cir. 1988).
II.
Accordingly, because we conclude -- in light of the law of this
circuit, and in light of the government's confession of error on appeal
-- that there is no "Tax-Crime Exception" to the Fifth Amendment, we
vacate the order of the district court and remand for further
proceedings so that it may dispose of the matter before it in accordance
with the law that governs the invocation of the Fifth Amendment.
VACATED and REMANDED
Footnotes:
*fn1 The parties disagree as to whether we have jurisdiction to
hear this appeal. Indeed, the complex problem of jurisdiction presents
the sole substantial disagreement between Troescher and the government.
Accordingly, we conclude that this case is appropriate for application
of the doctrine of hypothetical jurisdiction. See Wong v. Ilchert, 998
F.2d 661, 662 (9th Cir. 1993) (assuming without deciding the existence
of subject matter jurisdiction where the "difficulty of resolving [the
jurisdictional question] is far greater than the difficulty of resolving
[the merits of the appeal].")
Several opinions in this circuit have set out requirements for
the proper application of the doctrine. See, e.g., In re Grand Jury
Subpoena Issued to Bailin, 51 F.3d 203, 206 (9th Cir. 1995) (holding
that the doctrine requires that "(1) the jurisdictional question must be
difficult; (2) the merits of the appeal must be insubstantial; (3) the
appeal must be resolved against the party asserting jurisdiction; and
(4) undertaking a resolution on the merits as opposed to dismissing for
lack of jurisdiction must not affect the outcome"), cert. denied, 116 S.
Ct. 472 (1995). The issue here is different from that in our other
cases, because here the parties do not disagree about the merits.
Indeed, the reason the case is before us now is that the government
argued a meritless position before the district court which it now
confesses was in error. Thus, the resolution of the merits is in
accordance with the position of both parties, and the third of the usual
requirements is therefore inapplicable. As to the fourth requirement,
whether we dismiss for lack of jurisdiction or reverse on the merits,
the outcome of this case will not change, given the government's
confession of error. In either event the parties will return to the
district court and proceed in accordance with traditional Fifth
Amendment doctrine. The other customary requirements are readily met. We
should note, incidentally, that the requirements we frequently apply
when invoking the doctrine are not mandated by historical practice. See
Philbrook v. Glodgett, 421 U.S. 707, 722 (1975) (resolving the merits in
favor of the party asserting jurisdiction); Secretary of the Navy v.
Avrech, 418 U.S. 676, 677-78 (1974) (reversing the decision of the court
of appeals on the merits without deciding the "difficult jurisdictional
issue" presented by the case, concluding that "even the most diligent
and zealous advocate could find his ardor somewhat dampened in arguing a
jurisdictional issue where the decision on the merits is foreordained").
Thus, our requirements may in some instances be flexible.
*fn2 The government also argues that Troescher was precluded by
waiver and res judicata from raising his Fifth Amendment claim with
respect to the production of documents for the first time in the
contempt proceeding. Because the facts in United States v. Rendahl, 746
F.2d 553 (9th Cir. 1984), are indistinguishable from those in the case
before us, we reject the government's argument, concluding as we did in
Rendahl, Troescher's "first opportunity to litigate properly [his] Fifth
Amendment claims was at the contempt hearing." Id. at 555.
*fn3 We need not consider how or in what manner the Fifth
Amendment may be invoked as a defense to a prosecution for failure to
file tax returns. See, e.g., United States v. Sullivan, 274 U.S. 259,
263-64 (1927); Rendahl, 746 F.2d at 556.
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U.S.A. v. Loren C. Troescher