In re: Feinberg ( 2015 )


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  •                                                                      FILED
                                                             United States Court of Appeals
                                                                     Tenth Circuit
    
                                        PUBLISH                   December 18, 2015
                                                                  Elisabeth A. Shumaker
                          UNITED STATES COURT OF APPEALS              Clerk of Court
    
                                    TENTH CIRCUIT
    
    
     NEIL FEINBERG; ANDREA E.
     FEINBERG; KELLIE MCDONALD,
    
           Petitioners,
    
     v.                                                    No. 15-1333
    
     COMMISSIONER OF INTERNAL
     REVENUE,
    
           Respondent.
    
    
                           Petition for Writ of Mandamus to the
                                  United States Tax Court
                              (T.C. Nos. 10083-13, 10084-13)
    
    
    James D. Thorburn of The Law Office of James D. Thorburn, LLC, Greenwood
    Village, CO (Richard A. Walker of The Law Office of Richard A. Walker, P.C.,
    Longmont, CO, with him on the petition) for Petitioners.
    
    Patrick J. Urda, Attorney, Appellate Section, Tax Division (Caroline D. Ciraolo,
    Acting Assistant Attorney General, Tax Division, and Gilbert S. Rothenberg and
    Richard Farber, Attorneys, Appellate Section, Tax Division, with him on the
    response) of the United States Department of Justice, Washington, D.C., for
    Respondent.
    
    
    Before GORSUCH, HOLMES, and MORITZ, Circuit Judges.
    
    
    GORSUCH, Circuit Judge.
          This case owes its genesis to the mixed messages the federal government is
    
    sending these days about the distribution of marijuana. The Feinbergs and Ms.
    
    McDonald run Total Health Concepts, or THC, a not-so-subtly-named Colorado
    
    marijuana dispensary. They run the business with the blessing of state authorities
    
    but in defiance of federal criminal law. See 21 U.S.C. § 841. Even so, officials
    
    at the Department of Justice have now twice instructed field prosecutors that they
    
    should generally decline to enforce Congress’s statutory command when states
    
    like Colorado license operations like THC. At the same time and just across 10th
    
    Street in Washington, D.C., officials at the IRS refuse to recognize business
    
    expense deductions claimed by companies like THC on the ground that their
    
    conduct violates federal criminal drug laws. See 26 U.S.C. § 280E. So it is that
    
    today prosecutors will almost always overlook federal marijuana distribution
    
    crimes in Colorado but the tax man never will.
    
          Our petitioners are busy fighting the IRS’s policy. After the agency
    
    disallowed their business expense deductions and sent them a large bill, the
    
    Feinbergs and Ms. McDonald challenged that ruling in tax court. Among other
    
    things, they argued that the agency lacked authority to determine whether THC
    
    trafficked in an unlawful substance and, as a result, they suggested that their
    
    deductions should have been allowed like those of any other business. As the
    
    litigation progressed, though, the IRS issued discovery requests asking the
    
    petitioners about the nature of their business — no doubt seeking proof that they
    
                                            -2-
    are indeed trafficking in marijuana, just as the agency alleged. The Feinbergs and
    
    Ms. McDonald resisted these requests, asserting that their Fifth Amendment
    
    privilege against self-incrimination relieved them of the duty to respond.
    
          It’s here where the parties’ fight took an especially curious turn. The IRS
    
    responded to the petitioners’ invocation of the Fifth Amendment by filing with
    
    the tax court a motion to compel production of the discovery it sought. Why the
    
    agency bothered isn’t exactly clear. In tax court, after all, it’s the petitioners who
    
    carry the burden of showing the IRS erred in denying their deductions — and by
    
    invoking the privilege and refusing to produce the materials that might support
    
    their deductions the petitioners no doubt made their task just that much harder.
    
    See Tax Ct. R. 142(a)(1). And harder still because in civil matters an invocation
    
    of the Fifth Amendment may sometimes lawfully result in an inference that what
    
    you refuse to produce isn’t favorable to your cause. See, e.g., Baxter v.
    
    Palmigiano, 
    425 U.S. 308
    , 318 (1976).
    
          Still, the IRS chose to pursue a motion to compel. And in support of its
    
    motion the agency advanced this line of reasoning. Yes, of course, the IRS said,
    
    it thinks THC’s deductions are impermissible precisely because they arise from
    
    activity proscribed by federal criminal statutes. Yes, the Fifth Amendment
    
    normally shields individuals from having to admit to criminal activity. But, the
    
    IRS argued, because DOJ’s memoranda generally instruct federal prosecutors not
    
    to prosecute cases like this one the petitioners should be forced to divulge the
    
                                             -3-
    requested information anyway. So it is the government simultaneously urged the
    
    court to take seriously its claim that the petitioners are violating federal criminal
    
    law and to discount the possibility that it would enforce federal criminal law.
    
           Ultimately, the tax court sided with the IRS and ordered the petitioners to
    
    produce the discovery the agency demanded — and it is this ruling the Feinbergs
    
    and Ms. McDonald now ask us to overturn. Because the tax court proceedings are
    
    still ongoing and no final order exists that might afford this court jurisdiction in
    
    the normal course, the petitioners seek a writ of mandamus. But, of course,
    
    courts of appeals only rarely intervene in ongoing trial court proceedings, and
    
    winning a writ of mandamus poses a special challenge. To secure a writ, the
    
    petitioners must show that no other adequate means exist to secure the relief they
    
    seek. They must also show a clear and indisputable entitlement to that relief.
    
    And even if they can satisfy these two requirements, the petitioners still must
    
    convince this court that exercising its discretion to intervene in an ongoing trial
    
    court proceeding is “appropriate” in the interests of justice. See Cheney v. U.S.
    
    Dist. Court, 
    542 U.S. 367
    , 380-81 (2004); Kerr v. U.S. Dist. Court, 
    426 U.S. 394
    ,
    
    403 (1976); United States v. Copar Pumice Co., 
    714 F.3d 1197
    , 1210 (10th Cir.
    
    2013). 1
    
    
           1
             At times our cases have suggested that, when a petitioner seeks a writ of
    mandamus to vindicate a claim of privilege in response to an adverse discovery
    ruling, this court will apply a two-prong test before considering the merits of the
    petition — asking first whether “(1) disclosure of the allegedly privileged or
    
                                             -4-
          When it comes to establishing a clear and indisputable entitlement to relief,
    
    you might wonder if the petitioners are indeed able to bear the burden the law
    
    imposes on them. Of course it’s true, as the IRS argues, that to invoke the Fifth
    
    Amendment you must “face some authentic danger of self-incrimination.” United
    
    States v. Rivas-Macias, 
    537 F.3d 1271
    , 1277 (10th Cir. 2008) (internal quotation
    
    marks omitted). And it’s true, as the IRS stresses, that two consecutive Deputy
    
    Attorneys General have issued memoranda encouraging federal prosecutors to
    
    decline prosecutions of state-regulated marijuana dispensaries in most
    
    circumstances. 2 But in our constitutional order it’s Congress that passes the laws,
    
    Congress that saw fit to enact 21 U.S.C. § 841, and Congress that in § 841 made
    
    the distribution of marijuana a federal crime. And, frankly, it’s not clear whether
    
    informal agency memoranda guiding the exercise of prosecutorial discretion by
    
    field prosecutors may lawfully go quite so far in displacing Congress’s policy
    
    directives as these memoranda seek to do. There’s always the possibility, too,
    
    
    confidential information renders impossible any meaningful appellate review of
    the claim of privilege or confidentiality; and (2) the disclosure involves questions
    of substantial importance to the administration of justice.” Barclaysamerican
    Corp. v. Kane, 
    746 F.2d 653
    , 654-55 (10th Cir. 1984) (internal quotation marks
    omitted). The parties before us debate whether this test merely restates the
    traditional test for mandamus relief we’ve outlined in the text or whether it
    imposes a more onerous burden on the petitioner. Who’s right, though, proves
    immaterial in light of our assessment that petitioners in this case fail even under
    the traditional mandamus standard.
          2
             See Memorandum from David W. Ogden, Deputy Att’y Gen., U.S. Dep’t
    of Justice to Selected U.S. Att’ys (Oct. 19, 2009), revised by Memorandum from
    James M. Cole, Deputy Att’y Gen., U.S. Dep’t of Justice (Aug. 29, 2013).
    
                                            -5-
    that the next (or even the current) Deputy Attorney General could displace these
    
    memoranda at anytime — by way of illustration look no further than DOJ’s (still)
    
    evolving views on corporate waivers of the attorney-client privilege expressed in
    
    so many memoranda by so many Deputy Attorneys General over so many years. 3
    
          In light of questions and possibilities like these, you might be forgiven for
    
    wondering whether, memos or no memos, any admission by the petitioners about
    
    their involvement in the marijuana trade still involves an “authentic danger of
    
    self-incrimination.” Maybe especially given the fact that the government’s
    
    defense in this case is wholly premised on the claim that the petitioners are, in
    
    fact, violating federal criminal law. And given the fact that counsel for the
    
    government in this appeal candidly acknowledged that neither the existence nor
    
    the language of the DOJ memoranda can assure the petitioners that they are now,
    
    or will continue to be, safe from prosecution. And given the fact that this court
    
    has long explained that, once a witness establishes that “the answers requested
    
    would tend to incriminate [him]” under the law of the land, the Fifth Amendment
    
    may be properly invoked without regard to anyone’s “speculat[ion] [about]
    
          3
             See Memorandum from Eric H. Holder, Jr., Deputy Att’y Gen., U.S.
    Dep’t of Justice to All Component Heads & U.S. Att’ys (June 16, 1999), revised
    by Memorandum from Larry D. Thompson, Deputy Att’y Gen., U.S. Dep’t of
    Justice (Jan. 20, 2003), revised by Memorandum from Robert D. McCallum, Jr.,
    Acting Deputy Att’y Gen., U.S. Dep’t of Justice (Oct. 21, 2005), revised by
    Memorandum from Paul J. McNulty, Deputy Att’y Gen., U.S. Dep’t of Justice
    (Dec. 12, 2006), revised by Memorandum from Mark Filip, Deputy Att’y Gen.,
    U.S. Dep’t of Justice (Aug. 28, 2008), revised by Memorandum from Sally Q.
    Yates, Deputy Att’y Gen., U.S. Dep’t of Justice (Sept. 9, 2015).
    
                                            -6-
    whether the witness will in fact be prosecuted.” United States v. Jones, 
    703 F.2d 473
    , 478 (10th Cir. 1983).
    
            But even if their Fifth Amendment objection bears merit, the petitioners
    
    still face a problem. As we’ve seen, a writ of mandamus isn’t available when an
    
    appeal in the normal course would suffice to supply any necessary remedy. And
    
    in Mid-America’s Process Service v. Ellison, 
    767 F.2d 684
     (10th Cir. 1985), this
    
    court expressly held that any error in a district court’s order compelling
    
    production of civil discovery that the petitioners believed protected by the Fifth
    
    Amendment could be satisfactorily redressed in an appeal after final judgment.
    
    Id. at 685-86. A holding that would seem to cover the very situation we now
    
    face.
    
            Admittedly, the government unearthed Mid-America’s Process only after
    
    briefing in this appeal finished, citing the case for the first time in a supplemental
    
    letter to the court. But the petitioners have now had a chance to consider and
    
    reply to the government’s submission concerning Mid-America’s Process. And,
    
    in our judgment, they have identified no satisfactory way to distinguish the
    
    decision. The petitioners do argue that their case involves the Fifth Amendment
    
    rights of natural persons, while Mid-America’s Process involved a corporation’s
    
    claim to a Fifth Amendment privilege against self-incrimination. And, they note,
    
    the Supreme Court has cast doubt on the viability of corporate invocations of the
    
    privilege. See Braswell v. United States, 
    487 U.S. 99
    , 116 (1988). But while not
    
    
                                             -7-
    without some surface appeal, we don’t see how on more careful examination this
    
    distinction will do. For Mid-America’s Process expressly looked past the
    
    corporate form of the claimant in that case, took account of the individual
    
    petitioners’ underlying privilege claims, and held that an appeal after final
    
    judgment would suffice to remedy any individual injury as well. See 767 F.2d at
    
    685-86 & n.1. 4
    
          Besides, even if Mid-America’s Process didn’t control this case (it does)
    
    the petitioners still offer us no persuasive reason for thinking an appeal after final
    
    judgment would fail to remedy any wrong they might suffer. Suppose the
    
    petitioners are right and the tax court’s order compelling production violates their
    
    Fifth Amendment rights. If they defy the tax court’s order and that court issues
    
    an improper monetary or other sanction, this court would seem well able to undo
    
    the sanction after final judgment. By contrast, if the petitioners choose to comply
    
    with the discovery order under protest and the materials they produce are
    
    unlawfully used against them at trial, this court would still seem to enjoy ample
    
          4
             Despite the government’s urging, we do not think the disposition of this
    appeal is controlled by Mohawk Industries, Inc. v. Carpenter, 
    558 U.S. 100
    (2009). Mohawk involved not a mandamus petition raising the Fifth Amendment
    privilege but an argument that a discovery order infringing upon the attorney-
    client privilege was an immediately appealable collateral order under the Cohen
    doctrine. Id. at 103. What’s more, in dismissing the appeal, the Court in Mohawk
    relied on the fact that the appellant had at least three remaining options for
    challenging the discovery order: interlocutory appeal, writ of mandamus, or post-
    judgment appeal. Id. at 110-11. In contrast and given that the tax court denied
    the petitioners leave to file an interlocutory appeal, an adverse decision as to this
    petition would leave the petitioners with none but the final option.
    
                                             -8-
    authority to offer a remedy, maybe even in the form of a new trial without resort
    
    to the materials in question.
    
          Of course there are nuances here, but even they seem like they can be fairly
    
    addressed later. For example, if the petitioners stand on their privilege we would
    
    face the difficulty of separating out a permissible adverse inference (sometimes
    
    employable, as we’ve seen, in civil cases even when the Fifth Amendment is
    
    validly invoked) from an impermissible sanction. But no one suggests that task is
    
    beyond us after final judgment. Similarly, if the petitioners choose to produce the
    
    discovery under compulsion we might have to confront the question whether any
    
    error by the tax court in ordering production was harmless and so beyond our
    
    power to remedy after final judgment. But that sort of inquiry seems built into
    
    the mandamus standard too. See, e.g., Petersen v. Douglas Cty. Bank & Trust
    
    Co., 
    940 F.2d 1389
    , 1392 (10th Cir. 1991). Neither is it clear that an erroneous
    
    order compelling production in this civil case would yield an unremediable
    
    negative impact for the petitioners in a later criminal proceeding. For should they
    
    elect, under threat of sanction, to comply with the tax court’s order — and should
    
    it turn out that order was entered in error — the petitioners might later move to
    
    suppress any of the evidence they produced on the ground that the production was
    
    made involuntarily — a point even the government in this appeal does not
    
    dispute. See, e.g., Minnesota v. Murphy, 
    465 U.S. 420
    , 425, 434 (1984);
    
    Lefkowitz v. Cunningham, 
    431 U.S. 801
    , 805 (1977).
    
    
                                            -9-
          In the end, then, the petitioners fail to offer a convincing reason to think
    
    that without an immediate remedy they will face an irreparable injury. Maybe
    
    we’re missing something. Maybe a future party will show us what it is we’re
    
    missing. But the petitioners have not done that much here. And that by itself
    
    supplies an independent reason, beyond even our controlling precedent, to
    
    withhold the extraordinary remedy of mandamus in this case.
    
          The petition is denied.
    
    
    
    
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