Black Panther Party v. Alexander

Not Reported in F.Supp., 1975 WL 552 (N.D.Cal.), 35 A.F.T.R.2d 75-1241,

75-1 USTC P 9376

United States District Court; N.D. California.

The Black Panther Party, etc., et al., Plaintiffs

v.

Donald C. Alexander, etc., et al., Defendants.

No. C-74-1247 AJZ

3/21/75

ZIRPOLI, District Judge.

*1

In this case the court must determine the impact of the Anti-Injunction

Act, 26 U. S. C. § 7421(a), [n. 1] upon plaintiffs' attempt to enjoin

defendants from utilizing administrative summons to inquire into the tax

status of the Black Panther Party and its president, Huey P. Newton.

Concluding that the Act bars injunctions against service of the summons or

damage recoveries for serving them, the court grants defendants' motion to

dismiss the complaint. Since plaintiffs may be able to allege facts

justifying other relief, however, the court grants them leave to amend

their complaint.

n. 1 The Act provides that

on 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.

Plaintiffs are the Party and Newton and "Jane Murphy," a contributor to

the Party who sues here under a fictitious name. Defendants are the

Commissioner of Internal Revenue Service, its Regional Commissioner, the

Secretary of the Treasury and the First Enterprise Bank, which has

received an administrative summons from IRS seeking records concerning

plaintiffs. Plaintiffs allege that in July, 1969, pursuant to orders from

the White House, IRS created an Activist Organization Project (AOP) with

the specific goal of destroying "radical organizations," among them the

plaintiff Party. They allege further that IRS enlisted the assistance of

the Federal Bureau of Investigation in this effort and that

representatives of the FBI have harassed contributors to the Party.

Finally, they allege that IRS issued and served the summons directed to

the First Enterprise Bank, and several other summons, [n. 2] in order to

acquire information with which to further the scheme AOP undertook in

1969. They propose four bases for relief: (1) that the attempt to discover

their lists of contributors violates free associational rights protected

by the First Amendment, see NAACP v. Alabama, 357 U. S. 449 (1957); (2)

that the retaliatory use of the summons violated their rights to due

process under the Fifth Amendment; (3) that the summons invaded their

right to privacy; (4) that the summons were vague and overbroad in

violation of their rights under the First and Fourth Amendments. They pray

that the court declare that the issuance of summons as to them is unlawful

and that the First Enterprise Bank and other recipients of such summons

need not comply with them; that the court enjoin defendants from serving

any administrative summons on third parties for information about them;

and that the court award them the sum of $500,000 in damages. The federal

defendants have moved to dismiss the complaint.

n. 2 Plaintiffs allege additionally that defendants have served

administrative summons on a Bank of America branch in Oakland, California,

W. W. Norton & Co. of New York, which published a book containing

transcribed conversations between plaintiff Newton and Harvard professor

Erik H. Erikson, and Playboy Enterprises of Chicago, which published an

interview with Newton. The summons served on Playboy seeks, among other

things, the transcript of the interview in its whole.

*2

On a motion to dismiss, the court treats all well pleaded allegations as

true. [n. 3] So reading the complaint, the court discerns that plaintiffs

anticipate a three-part development: (1) defendants will obtain lists of

contributors to the Party from the records produced by the recipients of

the administrative summons; (2) they will transmit this information to the

FBI; (3) the FBI will use the information to harass supporters of the

Party and thereby destroy it. While it is not absolutely clear, it appears

that plaintiffs may also foresee a further development: (4) IRS will use

information obtained by the summons to enforce the Internal Revenue Code

in a discriminatory fashion against them and their supporters. Plaintiffs

seek to arrest this process at the first step; it is precisely there that

the Anti-Injunction Act frustrates their attempt.

n. 3 In their memorandum in support of their motion to dismiss, defendants

argued that plaintiffs' allegations of bad faith and conspiracy were

"conclusory allegations which should not be accepted as true on a motion

to dismiss." Memo at 8, 20. They offered no authority to support this

proposition, and the court is unaware of any. In essence, they seem to

contend that plaintiffs must allege specific conspiratorial acts before

they have had any discovery. Plaintiffs have responded to these

contentions by submitting to the court various internal memoranda of IRS

obtained by the plaintiffs in the case of Brandon v. Internal Revenue

Service, No. 74-1083 (D. D. C. 1974), and the court has reviewed these

documents. Treating them as an amplification of the allegations of the

complaint, it is unable to say with certainty whether they show bad faith

on the part of IRS or not. It appears that IRS did have some nonrevenue

purposes in creating the AOP. Thus, exhibit 4 explains that

Some of these organizations [including the Black Panther Party] may be a

threat to the security of the United States and one of our principal

functions will be to determine the sources of these funds, the names of

the contributors, whether the contributions given to the organizations

have been deducted as charitable contributions, what we can find out

generally about the funds of these organizations.

Exhibit 4 at 2 n. 5. In support of this effort, IRS established a liaison

with the FBI, exhibit 15 at 1 n. 2, but these documents indicate that this

arrangement was only to permit IRS access to FBI information, not vice

versa. See exhibit 6 at 2. The entire operation apparently proceeded on

the theory that "extremist groups and their principals . . . by their

stated attitudes and actions could be expected to ignore or violate

Federal tax statutes," exhibit 16 at 1; the court finds no reason to doubt

that [t]he sole objective of the Special Services Group is to provide a greater

degree of assurance of maximum compliance with the Internal Revenue laws

by those involved in extremist activities and those providing financial

support for such activities.

Exhibit 12 at 4; see also exhibit 13. Whether these documents support

the conclusion that defendants have conspired against plaintiffs or are

guilty of bad faith is something the court need not decide now; it is

sufficient to say that plaintiffs' allegations of conspiracy and bad faith

are not, considered in conjunction with these documents, so "conclusory"

that the court cannot take them as true on a motion to dismiss.

*3

Last term the Supreme Court carefully considered the scope of the Act in

Bob Jones University v. Simon [74-1 USTC P 9438], 416 U. S. 725 (1974),

and its companion case Alexander v. "Americans United," Inc. [74-1 USTC P

9439], 416 U. S. 752 (1974), and the court finds these two cases

dispositive on the federal defendants' motion to dismiss. Plaintiffs in

both cases sought to challenge IRS revocation of ruling letters declaring

them eligible for tax-exempt status as charitable or educational

organizations under section 501(c)(3) of the Internal Revenue Code, 26 U.

S. C. § 501(c)(3). The Court recognized that revocation of these letters

had substantially injured the plaintiffs, for the letter was essential to

the University's fund-raising efforts, Id. at 728, and the revocation had

caused a substantial decrease in the contributions to Americans United.

Id. at 756. Both plaintiffs alleged in their complaints that the

revocation violated their constitutional rights, and that it was designed

to achieve a purpose that was not revenue-related: the University claimed

that IRS was pursuing a policy of punishing schools that practiced racial

segregation, id. at 739; Americans United claimed that the Commissioner

was attempting to penalize it for engaging in protected political

expression. Id. at 756 n. 6; see also id. at 766-67 (Blackmun, J.,

dissenting). Additionally, the Court recognized that plaintiffs'

alternative remedies, by way of suits for refunds, were, "as a practical

matter, inadequate to avoid the decrease in respondent's contributions for

the interim between the withdrawal of 501(c)(3) status and the final

adjudication of its entitlement to that exemption." Id. at 761- 62; see

id. at 746-47.

Nevertheless, the Court held that the Act divested the district court of

subject matter jurisdiction. It held that both of the suits were, in

effect, suits "for the purpose of restraining the assessment or collection

of [a] tax." In the University's case, that result was clear because it

would be liable for substantial income tax once deprived of the exemption.

Id. at 738- 39. Americans United, however, had been reclassified as an

exempt organization under section 501 (c)(4) and was not liable for income

taxes, but the Court held that its suit was barred because it was, in

effect, an attempt to affect collection of taxes from other persons, its

donors. Id. at 760; compare Eastern Kentucky Welfare Rights Organization

v. Simon, 506 F. 2d 1278 (D. C. Cir. 1974); Tax Analysts and Advocates v.

Schultz [74-2 USTC P 9601], 376 F. Supp. 889 (D. D. C. 1974). It held,

further, that plaintiffs' allegations about the Service's purposes did not

enable them to avoid the effect of the Act:

There is no evidence that that position does not represent a good-faith

effort to enforce the technical requirements of the tax laws, and, without

indicating a view as to whether the Service's interpretation [of the

Internal Revenue Code] is correct, we cannot say that its position has no

legal basis or is unrelated to the protection of the revenues. The Act is

therefore applicable. Petitioner's attribution of non-tax related motives

to the Service ignores the fact that petitioner has not shown that the

Service's action is without an independent basis in the requirements of

the Code.

*4

Id. at 740. Finally, while it conceded that suits for refund were not

attractive alternatives to suits for injunctions, it was satisfied that

plaintiffs were not left "with no access at all to judicial review." Id.

at 746.

The court is unable to distinguish plaintiffs' position here meaningfully

from that of plaintiffs in Bob Jones University and "Americans United."

Certainly to enjoin the inquiry IRS seeks to make here would in effect

restrain the assessment of a tax, since IRS can only assess taxes against

plaintiffs or other contributors to the Party once it ascertains the facts

upon which to base the assessment. Cf. United States v. Bisceglia [75-1

USTC P 9247], - U. S. -, - (Feb. 19, 1975) (slip op. at 4-6). It is

equally clear that the constitutional nature of plaintiffs' claims does

not affect the applicability of the Act. Thus, the Act appears to apply.

Plaintiffs might argue that the court here should deny the motion to

dismiss since they have alleged evil motives for the issuance of the

summons and the Court, in the above-quoted passage in Bob Jones

University, relied upon the fact that there was "no evidence" that the

Service's action there was not a good faith effort to enforce the tax

laws. Yet, the court was there dealing with cases decided on the

pleadings, not motions for summary judgment; in "Americans United" it in

effect affirmed the district court's dismissal of the action. See also

Carson v. United States, 506 F. 2d 745 (5th Cir. 1975); Lewis v. Sandler,

498 F. 2d 395 (4th Cir. 1974). The court therefore feels that the decisive

inquiry is whether the Service's position "has no legal basis or is

unrelated to the protection of the revenues." This conclusion is

strengthened by the Court's reliance upon Bailey v. George, 259 U. S. 16

(1922), where it held that the Act precluded a suit to enjoin collection

of a tax under the Child Labor Tax Law, 40 Stat. 1057, 1138, on the same

day it held that taxing statute unconstitutional in the Child Labor Tax

Case, 259 U. S. 20 (1922). If plaintiff cannot escape the effect of the

Act by alleging that the taxing statute itself is unconstitutional, it is

difficult to understand how he can avoid it by claiming that a facially

valid taxing power is being utilized with malicious intent. Since the

service of the summons involved in this case is reasonably related to a

legitimate tax purpose-assessment of taxes against plaintiffs and other

supporters of the Party-the Act applies despite any simultaneous evil

motives of defendants.

The court is also persuaded that plaintiffs are not left "with no access

at all to judicial review," 416 U. S. at 746, for they can, as they have

here, seek to restrain banks and others from disclosing the records IRS

seeks by administrative summons. See Kelley v. United States, - F. 2d -

(9th Cir., Sept. 11, 1974); cf. United States v. Bisceglia, supra, - U. S.

at - (Feb. 19, 1975) (slip op. at 5); Donaldson v. United States [71-1

USTC P 9173], 400 U. S. 517 (1971). [n. 4] Moreover, plaintiffs appear

incorrectly to assume that the magnitude of the injury to them affects the

scope of the Act, but if it may not be evaded "merely because collection

would cause an irreparable injury, such as the ruination of the taxpayer's

enterprise," Enochs v. Williams Packing Co. [62-2 USTC P 9545], 370 U. S.

1, 6 (1962), it is difficult to understand how plaintiffs' speculative

worries about misuse of the information obtained by the administrative

summons in this case affects the court's resolution of this matter. See

Cattle Feeders Tax Committee v. Schultz [74-2 USTC P 9732], 504 F. 2d 462

(10th Cir. 1974).

n. 4 It is worth noting as well that if defendants do indeed engage in

discriminatory prosecutions based on the information they obtain through

service of the summons - stage four in the scheme that plaintiffs outline

in their complaint-the victims of such prosecutions would presumably be

able to resist them on grounds of discrimination; they are not deprived of

judicial review either.

*5

Congress has determined that the interest of the Government in speedy and

uninhibited collection of the revenue outweighs the interests of

individuals in prior vindication of their rights; its resolution of these

competing interests is not constitutionally defective. Indeed, it is worth

noting that even in NAACP v. Alabama, supra, the case upon which

plaintiffs place their primary reliance, the Court balanced the state's

requirement of disclosure against the NAACP's interest in secrecy. See 357

U. S. at 463- 64. Here the balance is close enough that Congress may

permissibly do the weighing.

Plaintiffs also seek declaratory relief as to the service of the

administrative summons concerning them, but the Declaratory Judgment Act,

28 U. S. C. § 2201, is expressly made inapplicable to suits with respect

to federal taxes, so plaintiffs may not avoid the effect of the

Anti-Injunction Act by seeking declaratory relief.

Plaintiffs also argue that even if the Anti-Injunction Act precludes an

equitable decree in their favor, they may still maintain this action for

damages. Defendants respond by contending that they are immune for acts

done within the general scope of their duties, relying on Barr v. Matteo,

360 U. S. 564 (1959). Since plaintiffs have alleged that defendants have

acted in bad faith and in excess of their authority, defendants' position

seems questionable, cf. Eastern Kentucky Welfare Rights Organization v.

Simon, supra, 506 F. 2d at 1282-83, the court rejects plaintiffs' position

on the narrower ground that it seems fundamentally inconsistent with the

Anti-Injunction Act. That Act was, as discussed above, intended to remove

any hurdles from the collection of federal taxes and to shunt challenges

to such assessment or collection to a suit for a refund or other

subsequent relief. Plaintiffs' position would frustrate this purpose

because the spectre of substantial damage recoveries would defer officers

of IRS in assessing and collecting taxes, so the court concludes that a

reasonable interpretation of the Act is that it also bars damage suits for

conduct that cannot be enjoined.

In holding that plaintiffs are barred by the Anti-Injunction Act from

asserting a claim based on the service of administrative summons, the

court merely rejects their attempt to arrest the three-step process they

describe in their complaint at the first step. Since it may dismiss an

action only if it is satisfied that plaintiffs can prove no set of facts

entitling them to recovery, Conley v. Gibson, 355 U. S. 41, 45-46 (1957),

it may dismiss this action only if it is convinced plaintiffs could not

state a cause of action based upon either the second step (disclosure to

the FBI) or the third step (harassment by the FBI) of the scheme they

allege defendants have undertaken. Defendants argue that the court cannot

enjoin disclosure of the information they obtain as a result of service of

the challenged summons because such disclosure is prohibited by 26 U. S.

C. § 6103. The court is not persuaded, however, that this prohibition

divests it of jurisdiction to enjoin an alleged violation of plaintiffs'

constitutional rights or deprive them of any right to seek damages for the

preceived infringement of their rights. Cf. Bivens v. Six Unknown Named

Agents, 403 U. S. 388 (1971). Since the complaint is presently cast

entirely as a challenge to the service of the administrative summons, the

court need not decide these issues now; it will grant plaintiffs leave to

amend the complaint.

*6

IT IS THEREFORE ORDERED that the motion of the federal defendants to

dismiss the complaint is granted.

IT IS FURTHER ORDERED that plaintiffs are granted thirty (30) days from

the date of this order within which to amend their complaint.