ARGUED: Karen Marie Quesnel, Tax
Division, United States Department of Justice, Washington, DC, for Appellant.
Thomas Kieran Maher, Rudolf & Maher, P.A., Chapel Hill, NC, for Appellee.
ON BRIEF: Loretta C. Argrett, Assistant Attorney General, Robert E. Lindsay,
Alan Hechtkopf, Scott A. Schumacher, Mark T. Calloway, United States Attorney,
Tax Division, United States Department of Justice, Washington, DC, for
Appellant. David S. Rudolf, Rudolf & Maher, P.A., Chapel Hill, NC, for
Appellee.
Before MURNAGHAN, ERVIN and WILKINS, Circuit Judges.
Reversed and remanded by published opinion. Judge
ERVIN wrote the opinion, in which Judge MURNAGHAN and Judge WILKINS joined.
ERVIN, Circuit Judge:
1
The United States indicted James C. Hastings for
failing to file several years of federal income tax returns. Three decisions
made by the district court are at issue in this appeal. First, the district
court ordered the government to produce discovery related to Hastings' claim
that he was selectively prosecuted because he is a Republican. Second, the
district court ordered the government to disclose certain documents which the
government argues are protected by the law enforcement privilege. Third, the
district court ultimately dismissed the indictment against Hastings as a
sanction for the government's failure to cooperate with the court's discovery
orders. The government appeals each of these decisions. For the reasons
hereinafter explored, we reverse the district court's decision to grant
Hastings discovery on the issue of selective prosecution. We also reverse the
dismissal of the indictment. We decline to reach the issue of privilege because
it is made moot by our decision that discovery regarding selective prosecution
was not warranted.
2
* Hastings is a prominent businessman and Republican
Party leader in Boone, North Carolina. He failed to timely file income tax
returns with the federal government from 1988-1991. Hastings owed substantial
taxes for some of those years and was entitled to a less substantial credit or
refund in one of those years.
3
The Internal Revenue Service (IRS) began to
investigate Hastings on the basis of a computer-generated referral in May 1992,
which indicated he had failed to file returns. The resulting civil
investigation revealed that Hastings had an earned interest and wage income
alone of more than $170,000 during the years at issue; that he owns more than
$610,000 in real estate; that he lives in a lavish home; that he is partner in
several business enterprises; that he owns a restaurant franchise; and that he
had paid very few taxes for the years at issue through withholding and tax
payments. The investigation did, however, show that Hastings had a substantial
tax credit from an overpayment in 1987.
4
Based upon this information, the IRS began a criminal
investigation. The official referral to the criminal investigatory unit within
the IRS was made in January 1993. The referral form was completed by Revenue
Agent Tanya Schmidt, who had been part of the initial civil investigation. In
the section of the form allowing for "remarks," Schmidt mentioned the
above listed factors. She also mentioned that Hastings has ties to Jim Gardner,
a former Republican gubernatorial candidate. Schmidt acknowledged in the report
that Hastings' income for two of the four years at issue was "low,"
implying that it was lower than the threshold for most criminal prosecutions;
however, she noted that she nonetheless thought the case should be considered
for prosecution because of Hastings' prominence in the community, because he
owns a substantial amount of real estate, and because his behavior in the past
indicated that he is aware of the income tax filing requirements.
5
When the Hastings case was transferred to the IRS's
criminal division, it was assigned to Special Agent Lori Coombs. Coombs also
investigated all aspects of Hastings' case. She interviewed, among other
persons, Officer Kennedy of the Boone Police Department. Although he knew
little about Hastings' tax law violations, he did tell Coombs that Hastings is
a prominent Republican. Coombs also interviewed Schmidt, who told her that once
Schmidt saw Hastings' lavish lifestyle she passed the case along to the
criminal division for further action. Although Schmidt also told Coombs about
Hastings being a prominent Republican, she did not say that this was a reason
the case had been forwarded for criminal investigation.
6
Hastings was aware that the criminal division was
investigating him and he was contacted and interviewed by IRS agents in the
spring of 1993. In September 1993, several months after he had been informed of
the investigation, Hastings finally filed the delinquent tax returns. The IRS's
investigation ultimately revealed that Hastings had earned more than $7,000,000
in gross income during the years in question, and had failed to timely pay more
than $150,000 in taxes for the years 1990 and 1991. The IRS formally
recommended prosecution of Hastings to the Department of Justice's Tax Division
in November 1994. In a June 1995 memorandum written by Coombs regarding the
Hastings investigation, she mentioned Hastings' political prominence and
attached a newspaper article about Hastings' business life and political
aspirations.
7
In 1995 the grand jury indicted Hastings for failure
to file his tax returns. Hastings sought to have the indictment dismissed on
the ground that he was being unfairly and selectively targeted for prosecution.
In support of his request for discovery to support this claim, Hastings
submitted the affidavit of Gary Mathes, who had been an IRS agent from 1973 to
1980. Mathes stated that, in his experience, most taxpayers who file returns
delinquently are dealt with civilly rather than criminally. He stated that
criminal prosecutions are only made when there are indicia of fraud on the part
of the delinquent taxpayer.
8
In November 1995, the district court found that
Hastings had made an adequate initial showing of selective prosecution and
ordered the government to provide Hastings with discovery relevant to that
claim. The government at first refused to comply with the discovery order and
requested that the court withdraw it. The government then reluctantly provided
much of the ordered discovery material, but did so in an untimely fashion,
missing the deadline set by the court by several days.
9
Further, although the government provided Hastings
with most of the requested discovery materials, it declined to turn over a
portion of the IRS's Law Enforcement Manual. The government asserted that that
portion of the Manual, known as LEMV, was protected by the law enforcement
privilege because it contains confidential, sensitive information, the
disclosure of which would hamper the government's ability to deter and
prosecute tax evasion and other tax-related crimes. Ultimately, following
extensive briefing, a hearing on the matter, and an in camera review of LEMV,
the district court held that, although LEMV was privileged, the government had
to provide it to Hastings because his need for the document outweighed the
government interest in keeping LEMV secret. However, the government continued to
refuse to turn LEMV over to Hastings. Eventually, the indictment against
Hastings was dismissed as a penalty for the government's repeated violations of
discovery orders. The government then brought the instant appeal.
10
II
11
The government asserts that the district court
erroneously granted discovery on the issue of selective prosecution. We
recently made clear in United States v. Olvis, 97 F.3d 739,
743 (4th Cir.1996), that we review a district court's decision to order
discovery regarding a selective prosecution claim de novo, because we are
addressing the "legal adequacy" of the evidence offered by the
defendant.
12
* The equal protection component of the Due Process
Clause of the Fifth Amendment mandates that the decision to prosecute a
particular criminal case may not be based upon an "unjustifiable"
factor such as race, religion, or another arbitrary classification. See United
States v. Armstrong, 517 U.S.
456, ----, 116 S.Ct. 1480, 1486, 134 L.Ed.2d 687 (1996). A prosecution also
cannot be motivated by a suspect's exercise of constitutional rights through
participation in political activity. See United States v. Marcum, 16 F.3d 599,
602 (4th Cir.1994); United States v. Berrios, 501 F.2d 1207,
1211 (2d Cir.1974). However, absent a substantial showing to the contrary,
governmental actions such as the decision to prosecute are presumed to be
motivated solely by proper considerations. See Armstrong, 517 U.S. at ----, 116
S.Ct. at 1486; United States v. Mezzanatto, 513 U.S. 196, 210,
115 S.Ct. 797, 805-06, 130 L.Ed.2d 697 (1995).
13
A criminal defendant bears a heavy burden in proving
that he has been selected for prosecution in contravention of his
constitutional rights. A defendant "must demonstrate that the federal
prosecutorial policy had a discriminatory effect and that it was motivated by a
discriminatory purpose." Armstrong, 517 U.S. at ----, 116 S.Ct. at 1487
(internal quotation marks and citations omitted). We have held, in a case
concerning allegations of racially biased prosecution, that a defendant must
establish "both (1) that similarly situated individuals of a different
race were not prosecuted, and (2) that the decision to prosecute was invidious
or in bad faith." Olvis, 97 F.3d at 743
(internal quotation marks and citations omitted) (emphasis added).
14
We have also held that similar standards apply when a
defendant seeks discovery in support of a selective prosecution claim. Before a
defendant can obtain discovery from the government on this issue, he or she
"must produce 'some evidence' making' a credible showing' of both
discriminatory effect and discriminatory intent." Olvis, 97 F.3d at 743
(quoting Armstrong, 517 U.S. at ---- - ----, 116 S.Ct. at 1488-89). As the
Court made clear in Armstrong the evidentiary threshold required before
discovery will be granted is a rigorous one, intended to be "a significant
barrier to the litigation of insubstantial claims." Armstrong, 517 U.S. at
----, 116 S.Ct. at 1486.
15
B
16
Applying these standards to the instant case, in
order to affirm the district court's decision to grant discovery it is
necessary for us to find that Hastings offered credible evidence to prove each
of the two prongs of his selective prosecution claim. We find Hastings in fact
satisfied neither prong of the test, and therefore we hold that the grant of
discovery was inappropriate.
17
With respect to the intent prong set forth in
Armstrong, Hastings offers two theories in support of his claim that his
prosecution was the product of discriminatory intent. He first argues that the
prosecution of his case was motivated by unconstitutional animus because he is
a Republican. In support of this allegation he points to the memoranda written
by the civil and criminal investigators of the IRS. In those memoranda Hastings
was described as a prominent businessman, an active Republican, and someone
with connections to certain Republican candidates for office. Hastings
encourages us to find that the prosecutors were motivated by these facts in
deciding to pursue a case against him. For several reasons, we conclude that
Hastings' arguments are without merit.
18
First, none of the memoranda actually state that
Hastings' political affiliation is the reason for pursuit of the case against
him. For example, in the memo written by Schmidt when she forwarded Hastings'
case to the criminal division, she mentioned that Hastings had connections to a
former candidate for governor. She did not say that those connections had
anything to do with the decision to refer the case for criminal investigation.
In fact, when Schmidt listed the reasons supporting pursuit of a criminal case
against Hastings, she mentioned his expansive real estate and business holdings
and the fact that he was certainly aware of his obligations under the tax laws.
Schmidt's affidavit supports the conclusion that Hastings' property,
substantial earnings, lifestyle and repeated failure to file tax returns led to
the decision to prosecute. The other forms and memos upon which Hastings relies
similarly described his political, business, and community prominence, but his
party affiliation was never described as a reason for the prosecution.
19
Second, even if there were some evidence of political
animus on the part of the IRS's civil or criminal division there is no evidence
that the government official who actually made the decision to prosecute the
case was motivated by impermissible considerations. We will not impute the
unlawful biases of the investigating agents to the persons ultimately
responsible for the prosecution. See United States v. Hendricks, No. 1:96CR87,
Slip op. (W.D.N.C. May 19, 1997) (declining to adopt a theory of "imputed
vindictiveness" in assessing a selective prosecution claim); United States
v. Monsoor, 77
F.3d 1031, 1035 (7th Cir.1996) (holding that "the animus of a
referring agency is not, without more, imputed to federal prosecutors");
United States v. Goulding, 26 F.3d 656,
662 (7th Cir.1994) (finding that the relevant bias is that of the agents who
actually make the decision to prosecute).
20
Hastings' second argument with respect to
discriminatory intent is that, even if he was not prosecuted because he is
Republican, he satisfies this prong of the Armstrong test because the IRS
improperly considered his general prominence in the community when deciding to
prosecute. Hastings asserts that it is not permissible for prominence to be
considered as a factor which militates in favor of prosecution, particularly
when that prominence is due to a defendant's political activities. We do not
agree.
21
It seems likely that Hastings' prominence in the
community was a factor that supported, if not actually motivated, the decision
to refer Hastings' case for possible criminal charges. However, Hastings points
us to no authority that supports the proposition that prominence itself is not
a valid factor to weigh in favor of a criminal prosecution. In contrast, the
government cites several cases in which courts have found that a person's
public renown may be properly considered among other factors when deciding
whether to pursue criminal sanctions for a violation of the law. For instance,
in United States v. Saade, 652 F.2d 1126,
1136 n. 14 (1st Cir.1981), the First Circuit stated that the increased
deterrent effect of prosecution of prominent figures is a legitimate
consideration in favor of prosecution. See also United States v. Catlett, 584 F.2d 864,
868 (8th Cir.1978) ("Since the government lacks the means to investigate
and prosecute every suspected violation of the tax laws, it makes good sense to
prosecute those who will receive, or are likely to receive, the attention of
the media."); United States v. Ojala, 544 F.2d 940,
944-45 (8th Cir.1976) (holding that the potential deterrent effect of
prosecuting a well-known person is a valid consideration in the prosecutorial
decision); United States v. Peskin, 527 F.2d 71,
86 (7th Cir.1975) ("Assuming that the decision to indict Peskin and press
for trial was based in part on considerations of his political prominence, this
is not an impermissible basis for selection.").1
22
With respect to the discriminatory intent prong of
the Armstrong test, we conclude that Hastings offers no information, aside from
his own interpretation of the referral forms, to support his claim that his
prosecution was motivated by discrimination or unconstitutional considerations
such as his political activity. This is simply inadequate to satisfy his burden
of proof on this issue.
23
C
24
The evidence Hastings provided the district court to
prove the discriminatory effect prong of his selective prosecution claim is
even less compelling. Hastings' evidence on this matter came entirely from the
affidavit of a former IRS agent, Gary Mathes. Mathes stated that, based upon
the information told him, presumably by Hastings or his counsel, Hastings' case
is not the sort that is generally subject to criminal prosecution. The former
agent also said that he knew of no similar cases which had been criminally
prosecuted. This single affidavit is simply inadequate to sustain the
"significant burden" of proof Hastings faces before being entitled to
discovery.
25
In Olvis, 97 F.3d at 743,
we discussed the relevant legal standard for determining when a pattern of
prosecution has a discriminatory effect. A defendant must show that similarly
situated persons outside of the constitutionally protected class are not being
prosecuted. In determining whether persons are in fact similarly situated a
court must examine all factors relevant to the government's decision to
prosecute. Id. at 744. In Olvis, for instance, we found that many legitimate
considerations justified prosecution of the indicted black defendants in the
case but not the white co-conspirators, including the greater role in the
conspiracy played by the black defendants and the white conspirators' voluntary
cooperation with law enforcement. We held that "defendants are similarly
situated when their circumstances present no distinguishable legitimate
prosecutorial factors that might justify making different prosecutorial
decisions with respect to them." Id.
26
Given these stringent requirements, it is apparent
that Hastings did not meet his burden of proof with respect to discriminatory
effect. Hastings is unable to show that there were other persons with similar
characteristics who were spared prosecution because of their political
affiliation. In fact, he is unable to show that any other person not prosecuted
has any of the characteristics identified by the IRS as warranting prosecution
in Hastings' case, such as a lavish lifestyle, a significant tax debt,
substantial earnings and property holdings, and clear knowledge of tax laws and
obligations. Since the only evidence Hastings presented to the district court
is that prosecution is not common for delinquent filers in the experience of a
single former IRS employee, he has not satisfied what is supposed to be a
substantial evidentiary burden.
27
Hastings also offers statistical evidence to support
his claim of discriminatory impact. We note that this evidence was not
presented to the district court before it ordered discovery, but was in fact
obtained as a part of the discovery provided by the government; therefore, we
should not consider these statistics when deciding whether Hastings made the
requisite initial showing to prove that he is entitled to discovery. See
F.R.A.P. 10(a); United States v. Russell, 971 F.2d 1098,
1112 (4th Cir.1992) (holding that a party may not rely, on appeal, on evidence
which was not in the record before the district court). Even if these
statistics had been before the district court when it made its decision,
however, they do not sustain Hastings' burden of proof. The statistical
evidence suggests that the IRS department which referred Hastings' case for
criminal action referred only twelve of more than 37,000 delinquent filers for
prosecution, and that only one case other than Hastings' had been prosecuted in
the Western District of North Carolina.2 Again, Hastings does not show that
any of the thousands of persons not prosecuted had the same characteristics
militating in favor of prosecution as Hastings. He also does not show that
most, or even any, of the few persons who were pursued for criminal
investigations were Republicans.3
28
We conclude that Hastings was unable to prove to the
district court either element necessary to support his claim of selective
prosecution, and he remains unable to provide the required proof even now.
There fore, the district court erred when it ordered the government to provide
discovery to Hastings on this issue. As we made clear in Olvis, the government
should neither be subjected to adjudication nor discovery burdens on a
selective prosecution claim unless the defendant can show both discriminatory
intent and discriminatory impact. Neither showing was made in the instant case.
29
III
30
The government next argues that the district court
erroneously dismissed the indictment against Hastings as a sanction for the
government's refusal to provide complete discovery on the selective prosecution
claim. The government specifically asserts that, because it should not have
been ordered to provide discovery on the selective prosecution issue, it may
not be sanctioned for its failure to comply with that order.
31
We agree that dismissal of the indictment was
inappropriate, but we do not agree that the government should not have been
sanctioned in any way. We review a district court's decision to sanction a
party for discovery violations for an abuse of discretion. See United States v.
Muse, 83 F.3d
672, 675 (4th Cir.1996).
32
In the instant case, once the district court granted
Hastings' motion for discovery on the issue of selective prosecution, the
government had two options. It could have refused to comply with the discovery
order, accepted dismissal of the indictment, and immediately appealed the
issue. This was the option taken by the government in Olvis, 97 F.3d at 741.
The other option open to the government was to comply with the discovery order
in good faith having noted its objection, and save appeal of the issue for
later, after the court had decided the merits of the claim of selective
prosecution. Instead the government selected an improper third option when it
both refused to comply in good faith with the discovery order because it did
not agree with the district court's decision, and sought to avoid dismissal of
the indictment. The government refused to comply with the court's order and
compile certain pieces of documentation data regarding Hastings' selective
prosecution claim until it had been ordered to do so several times. Even when
the government did undertake to produce relevant evidence, it did so in an
untimely fashion. This reluctant and recalcitrant behavior does not satisfy the
good faith standard to which the government must adhere when faced with a court
order.
33
We hold, therefore, that it was not an abuse of
discretion for the district court to sanction the government in some way for
its recalcitrance. However, we further hold that dismissal of the indictment
against Hastings was an extreme and inappropriate sanction. When a court
sanctions the government in a criminal case for its failure to obey court
orders, it must use the least severe sanction which will adequately punish the
government and secure future compliance. See United States v. Maples, 60 F.3d 244,
247 (6th Cir.1995); United States v. Perez, 960 F.2d 1569,
1572 (11th Cir.1992). In determining a suitable and effective sanction, a court
must weigh the reasons for the government's delay and whether it acted
intentionally or in bad faith; the degree of prejudice, if any, suffered by the
defendant; and whether any less severe sanction will remedy the prejudice and
the wrongdoing of the government. See Maples, 60 F.3d at 247;
see also United States v. Shaffer Equip. Co., 11 F.3d 450,
463-64 (4th Cir.1993) (employing similar factors in a civil context).
34
When these factors are applied in Hastings' case, it
is clear that complete dismissal of the indictment was too severe a sanction to
punish the government. Hastings is unable to show that he suffered prejudice
beyond the inconvenience and slight expense of delays caused by the
government's slow compliance. This relatively slight harm must be weighed
against the public interest in seeing an alleged tax evader stand trial. A less
severe sanction should have been considered by the district court in the instant
case.
35
IV
36
Because we conclude that Hastings is not entitled to
discovery on the selective prosecution claim, we need not reach the
government's remaining contention on appeal. Specifically, the government
argues that one of the IRS documents it was required to give to Hastings in
discovery, LEMV, was privileged and therefore should have been protected from
disclosure. However, that document was only relevant to Hastings' selective
prosecution argument. Therefore we need not address whether the document would
be specially protected from disclosure due to privilege were Hastings in fact
entitled to discovery on this issue.
37
V
38
For the reasons explored above, we hold that Hastings
is not entitled to pursue a claim of selective prosecution or to receive
discovery on that claim. We further hold that the indictment against him should
be reinstated, although the district court may, on remand, order a lesser
sanction as a punishment for the government's discovery violations. Therefore
the decision of the district court is
39
REVERSED AND REMANDED.
Hastings attempts to distinguish Ojala and Saade,
arguing that the defendants in those cases gained their political prominence in
part through the activities for which they were being prosecuted, such as
publicly refusing to pay taxes in protest of the Vietnam War. This is not a
compelling distinction because the language of those decisions never says that
prominence is only properly considered in such cases. Moreover, Hastings
concedes that Peskin cannot be distinguished on this ground as the defendant in
that case was a former state representative whose prominence was unrelated to
his crimes
The time frame of these statistics is not clear from
the record
Hastings similarly relies on an affidavit from
William Pinna, a tax attorney. Pinna said that, in his many years of practice,
all delinquent filers he had represented had been handled civilly, including
one person who had failed to file returns for three years and owed more than
$100,000. As with the statistics, however, Pinna's affidavit was not before the
district court when it made its decision regarding discovery. Moreover, Pinna's
affidavit does not show that the taxpayer he described as similar to Hastings
was in fact similar in all respects relevant to prosecution. For instance, that
person may have been unable to pay the delinquent taxes or unaware of his tax
responsibility. Pinna's affidavit simply does not support Hastings' assertions