Gaetano v. United States

942 F.3d 727

Richard GAETANO; Kimberly Basehart Gaetano, Plaintiffs-Appellants,

v.UNITED STATES of America; Maurice Eadie; Kelly A. Williams, Defendants-Appellees.

No. 19-1122

United States Court of Appeals, Sixth Circuit.

Argued: October 24, 2019

Decided and Filed: November 6, 2019

ARGUED: Joseph Falcone, JOSEPH FALCONE, P.C., Southfield, Michigan, for Appellants. Deborah K. Snyder, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees. ON BRIEF: Joseph Falcone, JOSEPH FALCONE, P.C., Southfield, Michigan, for Appellants. Deborah K. Snyder, Gretchen M. Wolfinger, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellees.

Before: SUTTON, COOK, and THAPAR, Circuit Judges.

SUTTON, Circuit Judge.

Richard and Kimberly Gaetano trusted Gregory Goodman as their legal advisor and business partner in running a cannabis operation. That trust was spurned. The Gaetanos ended the relationship after ethics violations undid Goodman’s license to practice law. He retaliated by assisting the Internal Revenue Service in a tax audit against them. Concerned about what Goodman might reveal, the Gaetanos sued the government to prevent it from discussing attorney-client confidences with him. The Anti-Injunction Act bars the lawsuit, and the Williams Packing exception does not apply. See 26 U.S.C. § 7421(a) ; Enochs v. Williams Packing & Navig. Co. , 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962).

I.

Husband and wife Richard and Kimberly Gaetano run 420 Wellness Dispensary. As the name suggests (to some), they sell cannabis. Assisting them in this operation was Gregory Goodman, a lawyer. Trouble began in 2010 when the Gaetanos, with Goodman’s help, attempted to transfer shares in their business to another cannabis company, AgraTek. The shares, as it happens, were not theirs to transfer. They had already been purchased by Green-VisionTek, one of AgraTek’s rivals.

Green-VisionTek did not react well to the transaction. It sued the Gaetanos, Goodman, and 420 Wellness. And it filed a disciplinary complaint against Goodman for good measure. An ethics inquiry cast an unflattering light on Goodman. He had negotiated future employment with AgraTek while representing 420 Wellness in the purchase agreement. From that point on, he began double-dealing. When the Gaetanos contemplated breaking off their arrangement with AgraTek, for instance, Goodman encouraged them to reconsider. To make matters worse, Goodman reached into the pot of money used to secure the purchase agreement and helped himself to a generous (and unauthorized) attorney’s fee. Trying to cover his tracks, he manufactured fake emails that he presented under oath in civil litigation and in the state ethics proceedings.

Goodman lost his license to practice law in June 2014. The Gaetanos apparently did not learn of this fact until that October, when they severed their relationship with him. We don’t know the specifics of their parting. But it’s fair to infer that it was not amicable.

That brings us to 2017, when the Internal Revenue Service began an audit of the Gaetanos’ 2014 and 2015 tax returns. As part of this investigation, it sent a letter to Goodman asking for assistance. Goodman saw an opportunity. He notified the Gaetanos of the IRS’s request. Unless they gave him a "significant down-payment," he threatened, he would "make a final push in the second half of 2017" to see them "take[n] down" and "led away in handcuffs." R. 16-4 at 11. When they did not oblige, Goodman sent a series of menacing emails, warning them to "get used to being tailed" and assuring them that their lives would "go[ ] down in flames" unless they paid him his due. R. 16-4 at 13. The Gaetanos reached out to the IRS through a new attorney, insisting that it cease contact with Goodman and destroy whatever privileged information he had shared.

The extortion unsuccessful, Goodman made good on his threat to call the IRS. According to the agent who handled the phone call, Goodman "was upfront that he ha[d] an axe to grind with the Gaetanos." R. 33-3 at 1. But the agent, who knew of Goodman’s history, "cautioned that due to the prior relationship" he had with the Gaetanos she didn’t want him to "share any privileged communique with her." Id. Goodman replied that he would not, that he "understood the difference between privileged and non-privileged communication," and that he obtained his information primarily through "on-line searches and work performed by a Private Investigator." Id. All the same, the agent told him that she would "run any information he provided to her" by "IRS counsel as well as her Manager" to ensure "confidentiality had not been violated." Id. Over the next 50 minutes, Goodman proceeded to discuss various aspects of the Gaetanos’ drug business.

Goodman followed up this call with an email to Kimberly Gaetano. In it, he taunted her: "Guess what we talked about for 50 minutes, and how excited [the agent] is?" R. 12-5 at 2. "You are going down," he warned, alongside "your mother, your stepson, your babysitter, your husband, and anyone else who's helping you out there." Id. "[I]t sounded like [the agent] was breaking pencil tips by scribbling so fast," he added, before calling Kimberly names no parent would give a child. Id.

Concerned about the email and keen to protect their drug business, the Gaetanos reached out to the IRS. According to the amended complaint, the IRS stated that it intended to continue interviewing Goodman and that it had "no obligation to refuse to receive what it knew to be privileged attorney-client communications." R. 16 at 5. The IRS agrees that it spoke with the Gaetanos’ counsel but has yet to identify any attorney-client privileged information.

A procedural tango followed. The Gaetanos filed a complaint seeking to stop the government from discussing attorney-client privileged information with Goodman and requiring it to destroy any attorney-client confidences it already had. The IRS moved to dismiss, asserting that the court lacked jurisdiction to hear the Gaetanos’ request for equitable relief under the Anti-Injunction Act. See 26 U.S.C. § 7421(a). The Gaetanos invoked an exception to the Act that applied because their case, they claimed, was a clear winner on the merits.

The same day they filed their response, the Gaetanos amended their complaint to add a Bivens claim seeking damages against several IRS agents for violating their Fifth and Sixth Amendment rights. In view of this amendment, the district court denied the motion to dismiss as moot.

The Gaetanos agreed to dismiss their Bivens action. The court obliged. In doing so, it also dismissed on its own initiative their claim for injunctive relief, though no motion to dismiss remained pending. The Gaetanos moved for reconsideration, pressing variations on arguments already raised. The court denied the motion. The Gaetanos appeal.

II.

The Anti-Injunction Act says that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. § 7421(a). We have previously described the Act as stripping courts of "jurisdiction" to hear covered lawsuits. Ecclesiastical Order of the Ism of Am, Inc. v. I.R.S. , 725 F.2d 398, 402 (6th Cir. 1984). But we have not had occasion since Arbaugh v. Y&H Corp. , 546 U.S. 500, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006), to determine whether the Act genuinely implicates our subject matter jurisdiction, or whether it instead imposes a mandatory claim-processing rule subject to waiver, forfeiture, and estoppel. Cf. Hobby Lobby Stores, Inc. v. Sebelius , 723 F.3d 1114, 1159 (10th Cir. 2013) (en banc) (Gorsuch, J., concurring); Morris v. United States , 540 F. App'x 477, 479–80 (6th Cir. 2013). This is not the case to weigh in on that question, as the Gaetanos do not deny the threshold applicability of the Act. They instead invoke an exception to the Act recognized by Williams Packing , 370 U.S. at 6, 82 S.Ct. 1125. To invoke the exception, the taxpayer must show two things: (1) that "under no circumstances could the Government ultimately prevail" against their claims for injunctive relief and (2) that "equity jurisdiction otherwise exists." Id.

Starting with the first requirement, the Gaetanos claim they are plainly entitled to injunctive relief for several distinct reasons.

They first claim that the government’s intrusion into their attorney-client relationship violated their Sixth Amendment right to counsel. That argument disposes of itself. The Sixth Amendment does not attach until a criminal "prosecution is commenced," McNeil v. Wisconsin , 501 U.S. 171, 175, 111 S.Ct. 2204, 115 L.Ed.2d 158 (1991), which in turn requires a "formal charge, preliminary hearing, indictment, information, or arraignment," United States v. Gouveia , 467 U.S. 180, 189, 104 S.Ct. 2292, 81 L.Ed.2d 146 (1984) ; see Rothgery v. Gillespie County , 554 U.S. 191, 200–03, 128 S.Ct. 2578, 171 L.Ed.2d 366 (2008). The government’s inquiry in this instance remains investigatory, and no criminal prosecution has begun. Because the Sixth Amendment does not "protect[ ] the integrity of the attorney-client relationship" before "the prosecution has in fact commenced," Moran v. Burbine , 475 U.S. 412, 428–29, 106 S.Ct. 1135, 89 L.Ed.2d 410 (1986), the Gaetanos have no Sixth Amendment basis for obtaining relief.

The Gaetanos next seek refuge in the Due Process Clause of the Fifth Amendment. As a "creation of the common law, not the Constitution," the attorney-client privilege cannot by itself provide the basis for a due process claim. Sanborn v. Parker , 629 F.3d 554, 575 (6th Cir. 2010) (quoting Lange v. Young , 869 F.2d 1008, 1012 n.2 (7th Cir. 1989) ); see Maness v. Meyers , 419 U.S. 449, 466 n.15, 95 S.Ct. 584, 42 L.Ed.2d 574 (1975). Support for the Gaetanos’ position thus must come from somewhere else, in this instance from cases holding that deliberate "preindictment...