United States District Court, D. Nevada
January 9, 2017
United States of America, Plaintiff
Ramon Desage, et al., Defendants
ORDER SUSTAINING THE GOVERNMENT'S OBJECTIONS AND
REVERSING IN PART AND REMANDING THE MAGISTRATE JUDGE'S
ORDER [ECF NOS. 127, 128, 129, 182, 183]
Jennifer A. Dorsey United States District Judge
Desage stands charged with conspiracy to defraud the United
States (1 count), wire fraud (18 counts), money laundering
(27 counts), and income tax evasion (4 counts), all stemming
from Desage's alleged investment-fraud scheme and related
tax fraud. In August 2015, the magistrate judge
granted Desage's motion to compel production of ten
years' worth of tax records for 14 individuals and
entities. The government objects. Because most of
the requested tax records are not in the government's
possession, this court lacks authority to compel their
production under Rule 16 or Brady/Giglio.
As to the few records in the government's possession,
their disclosure under Rule 16 is prohibited by 26 USC §
6103, which broadly protects taxpayer information. I
therefore sustain the government's objections and remand
to the magistrate judge to determine whether the Hefetz/Frey
returns are, in whole or in part, discoverable under
Desage moved to compel tax records
four-page motion to compel, Desage requested the 2005-2014
tax returns for: (1) Jacob (Yakov) Hefetz; (2) any entity
with which Hefetz is or was affiliated with that is alleged
to have loaned funds to or invested funds with Desage or any
entity with which Desage is affiliated; (3) Harold Foonberg;
(4) Stanley Sunkin; (5) any entity with which Foonberg is or
was affiliated with that is alleged to have loaned funds to
or invested funds with Desage or any entity with which Desage
is affiliated; (6) Harvey Vechery; (7) Linda Vechery; (8) any
entity with which H. Vechery is or was affiliated with that
is alleged to have loaned funds to or invested funds with
Desage or any entity with which Desage is affiliated; (9)
William Richardson; (10) any entity with which William
Richardson is or was affiliated that is alleged to have
loaned funds to or invested funds with Desage or any entity
with which Desage is affiliated; (11) Herb Frey; (2) AW
Financial Group; (13) Federal Pants Company, Inc; and (14) F
& S Partners LP. Of these individuals and entities, only
Hefetz, Harvey Vechery, Foonberg, and Richardson are alleged
victims in this case. This is the sole basis Desage proffered
for his broad request:
Mr. Desage expects that Mr. Richardson's, Mr.
Vechery's and Mr. Foonberg's personal and corporate
tax returns will show that they did not take into account
their receipts of cash from Mr. Desage. These omissions from
their tax returns will constitute significant impeachment
material regarding the credibility of these alleged victims.
Thus, the tax returns are crucial to Mr. Desage's defense
that he did not defraud investors/lenders.
government opposed the request, arguing that Desage failed to
make the threshold showing that the returns are material,
disclosure is prohibited under 26 U.S.C. § 6103, and the
prosecution team is not in possession of the requested
returns. If the magistrate judge granted the
motion, the government requested that the records be first
examined by the court in camera to determine if any
Brady/Giglio material is present before
disclosure to defense counsel. The government also requested
a protective order limiting Desage's use of the tax
The magistrate judge granted Desage's motion
reciting the standards for disclosure under Federal Rule of
Criminal Procedure 16 and Brady/Giglio, the
magistrate judge granted Desage's motion. The full
explanation for the ruling is:
Mr. Desage is not engaged in a fishing expedition. His motion
requests specific tax records for specific years for specific
victims. Nor has Mr. Desage failed to make a plausible
showing that the tax records are favorable to his defense. He
contends that the records will show that the victims failed
to report earned income, which they received in cash from Mr.
Desage. This plausibly shows that the tax records contain
impeachment evidence. [FN. 1 The government concedes that it
possesses the tax records Mr. Desage seeks].
The government objected
government objected to the magistrate judge's order,
arguing that there were three errors warranting reversal: the
magistrate judge incorrectly held that Desage made the
requisite materiality showing under Rule 16 and
Brady/Giglio, the magistrate judge accepted
Desage's faulty and unsupported argument that the returns
would constitute impeachment material, and the order is
significantly overbroad. One of the alleged victims whose
records were ordered disclosed, William Richardson, filed a
motion for relief under the Crime Victim Rights
and joined in the government's objections.
parties stipulated to multiple continuances of the deadline
for Desage's response to the government's objections,
ultimately extending the deadline for almost one year.
Shortly before the government's response was due in
August 2016, the government-now represented by two new U.S.
Attorneys-moved for leave to file supplemental briefing in
support of its objections to address 28 U.S.C. §
6103. I found that additional briefing on
§ 6103's interaction with Rule 16 and
Brady/Giglio would be helpful and that the
delay would not be prejudicial to Desage, who had still not
filed his response to the government's initial
objections. I therefore gave the government seven
days to file a new, complete appeal of the magistrate
judge's order and ordered both of the parties to address
the applicability of § 6103 to the magistrate
judge's order and to the production of the tax records
requested in this case.
government's newly filed objections flesh out its §
6103-based arguments and its arguments that Desage failed to
make the required materiality showing far beyond the thin
discussion originally provided to the magistrate
judge. The government comprehensively argues
that, under the plain language of § 6103 and its
interpretive jurisprudence, this court lacks the power to
compel production of taxpayer return information unless the
United States Attorney already possesses the taxpayer
information under one of two narrow exceptions that are not
applicable here. The government maintains that it cannot be
required to produce-under Rule 16 or
Brady/Giglio-information that is not in its
actual or constructive possession and clarifies that, with
the exception of the tax returns of two of the victims, it
does not possess the requested documents. Finally, the
government contends that the tax-return information is not
material to this case and therefore not subject to
disclosure, and that the magistrate judge's order is
erroneous and overbroad because he failed to individually
assess the requested records. Richardson joins in the
maintains that the tax returns “will yield crucial
impeachment evidence” and are thus discoverable under
Rule 16 and Brady/Giglio and that the
magistrate judge's order is not overbroad. In response to
the government's § 6103-based arguments, Desage
contends that there is nothing in the statute that prohibits
the court from ordering the government to obtain taxpayer
information that is not already in its possession and that
falls within § 6103(h)(2) and (4) subsection
(B)-(C)'s exceptions for release of taxpayer information.
Desage also questions the government's assertion that,
with the exception of the records of two of the victims, it
is not in possession of the requested tax records. The rest
of Desage's response opposes Richardson's motion for
relief under the Crime Victim Rights Act.
Standard of review
district judge may “reconsider any pretrial matter . .
. where it has been shown that the magistrate judge's
order is clearly erroneous or contrary to
law.” The district judge may affirm, reverse,
or modify the magistrate judge's order and may also
remand the matter to the magistrate judge with
instructions. A magistrate judge's order is
“clearly erroneous” if the court has a
“definite and firm conviction that a mistake has been
committed.” “An order is contrary to law when
it fails to apply or misapplies relevant statutes, case law,
or rules of procedure.”
that the order is clearly erroneous because it is premised on
the misperception that the government possesses all
of the requested tax records despite the government's
representation that it did not, in fact, have the records.
The order is also clearly erroneous because it failed to
individually address the 14 different categories of requested
tax returns. Because I find that the order is clearly
erroneous, I reconsider Desage's motion to compel,
reverse in part the magistrate judge's order granting it,
and remand for further findings on whether the few returns in
the government's possession are discoverable under
26 U.S.C. § 6103
request for income-tax returns submitted to the IRS is a
request for “taxpayer return information, ” which
is presumptively confidential under 26 U.S.C. § 6103
unless one of the statute's narrow exceptions applies.
Desage points to § 6103(h)(2) and (4) as the basis for
his request. Section 6103(h) provides for disclosure to
certain federal officers and employees for matters involving
tax administration. Subsection (h)(2) and (4) provide that
return information may be “open to inspection by or
disclosure to” United States Attorneys and disclosed in
federal judicial proceedings pertaining to tax administration
if “(B) the treatment of an item reflected on such
return is or may be related to the resolution of an issue in
the proceeding or investigation; or (C) such return
information relates or may relate to a transactional
relationship between a person who is or may be a party to the
proceeding and the taxpayer which affects, or may affect, the
resolution of an issue in such proceeding or
investigation.” The statute also sets forth the
procedures through which the United States Attorney can apply
for disclosure of protected information that fits one of
Besides the Hefetz/Frey returns, the government is not in
possession of any of the requested
documents, so they are not discoverable under Rule 16 or
magistrate judge's order does not address § 6103; it
examines only whether Rule 16 and Brady allow for
disclosure of the requested taxpayer
information. Disclosure under either Rule 16 or
Brady requires that the requested materials be
within the possession, custody, or control of the prosecution
or those acting on its behalf. The government represents
that, besides the returns for Jacob Hefetz and Herb Frey, it
is not in possession of any of the requested
returns. Desage responds that the government must
possess all of the requested records because it has openly
admitted that IRS agents are involved in this case.
government represents that only the criminal investigative
arm of the IRS has been involved with this case and that the
civil division of the IRS-which is likely in possession of
the requested documents-has never been a part of this
case. This is a crucial distinction between
this case and the case Desage cites, United States v.
Prokop. In Prokop, District Judge Du upheld the
magistrate judge's finding that the government possessed
audit files based on the government's own representations
that both the criminal and civil investigation divisions of
the IRS had participated in the case and that the IRS was
prepared to provide the audits upon appropriate order by the
court.After finding that the requested
documents were in the government's possession and
material to the defense, Judge Du concluded that the
additional requirements for disclosure under 26 U.S.C. §
6103(h) were met and that the audit records were therefore
discoverable. But the bulk of the tax records requested here
are not in the government's possession, so they are not
discoverable under Rule 16 or Brady even if they fit
under one of § 6103's disclosure exceptions.
Tax-return information is discoverable under Rule 16 only if
it meets the disclosure requirements of
argues that disclosure of the tax returns is authorized by
§ 6103(h)(2), which sets out when tax-return information
may be disclosed to the Department of Justice and (h)(4),
which governs the disclosure of tax-return information in
judicial proceedings and administrative tax
proceedings. I am persuaded by the authority the
government cites, particularly United States v.
Robertson, that a court may not order the release of
tax-return information under § 6103(h) that has not
already been produced to the government through the
application process described in § 6103(h) or
(i)(1). I agree that the disclosure process
described in § 6103(h)(2) and (4) presupposes that the
prosecuting United States Attorney is already in possession
of the tax returns and only then do (h)(2) and (h)(4)
subsections (B) and (C) allow for disclosure and permit
discovery under Rule 16, which cannot be used to circumvent
§ 6103's express statutory requirements.
government represents that it is “not in possession of
any [of] the requested tax returns pursuant to §
6103(h)” and that the United States Attorney “has
never moved pursuant to 6103(i)(1) for an order releasing any
of the taxpayer information Desage
seeks.” The government explains that, although
it is in constructive possession of the Hefetz/Frey returns
for Brady purposes, it is not in possession of these
documents under § 6103 because it never made a proper
application for them under the statute. The government
further explains that the undersigned AUSA “recently
investigated this issue, and after careful and specific
discussion with the IRS criminal investigation division case
agent, was able to confirm that the case agent, at one point
very early in the investigation, pulled and reviewed the IRS
Integrated Data Retrieval System (IDRS) portfolios for Jacob
Hefetz and Herb Frey, which contain” the requested tax
returns for these individuals. I agree that § 6103 does
not permit disclosure under Rule 16 by the United States
Attorney under these circumstances.
decline Desage's invitation to issue an order requiring
the government to apply for disclosure of the tax returns
under § 6103(h) so that Desage can then obtain the
records via Rule 16. As the government notes, none of the
cases declining to order the government to disclose taxpayer
information not already in its possession through §
6103's application procedures suggest that this option is
available. Indeed, the Robertson court expressly
“refuse[d] to consider ordering either the Secretary of
Treasury or the Attorney General to take disclosure action
prescribed by subsection (h)(3) as such order would violate
the separation of powers between the judicial and executive
branches.” I agree with the government that
“the statute's language and the separation of
powers do not sanction the end-run around the statute that
Brady materials are discoverable even if they do not
satisfy the disclosure requirements of
final question-and one not addressed by the
Robertson court that dealt with a request for
production under Rule 16 only-is whether tax returns that
satisfy Brady are discoverable even if their
disclosure is prohibited by § 6103. The
Robertson court noted that “[a] different
problem would arise if Brady material were
involved” reasoning that, because Brady
announced a constitutional principle, “a conflict
between production of Brady material and statutory
restrictions on disclosure of return information would have
to be resolved in favor of production.” I find that,
because Brady is a constitutional rule, its
disclosure requirement trumps § 6103's disclosure
limitations. Though the government represents that it
has never applied for and obtained these records via the
procedures outlined in § 6103, it admits that it is
deemed to be in possession of these documents for
Brady purposes. Because the government concedes that
it possesses the Hefetz/Frey returns for Brady
purposes, these items are discoverable despite §
6103's disclosure limitations if Desage can make
the required materiality showing. Because the magistrate
judge did not make individualized findings on these
Hefetz/Frey returns, I am unable to determine whether they
are discoverable under Brady. I therefore remand
this matter back to the magistrate judge to determine whether
any portion of the Hefetz/Frey returns is discoverable under
Other pending motions [ECF Nos. 128, 129, 183]
I hold in this order that production of alleged victim
William Richardson's tax returns is no longer required, I
deny as moot his motion for relief under the Crime Victim
Rights Act and his motions to join the government's
IT IS HEREBY ORDERED that the government's objections
[ECF No. 182] are SUSTAINED, and the magistrate judge's
order [ECF No. 121] is REVERSED in part and remanded for
determination of whether any portion of the Hefetz/Frey
returns are discoverable under Brady.
FURTHER ORDERED that the government's objections [ECF No.
127], Richardson's motion for relief under the Crime
Victim Rights Act [ECF No. 128], and motions for joinder [ECF
Nos. 129, 183] are DENIED as moot.
 ECF No. 59.
 ECF No. 107.
 ECF No. 182.
 ECF No. 107 at 3.
 ECF No. 114.
 ECF No. 121 at 4.
 ECF No. 127.
 ECF No. 128.
 ECF No. 129.
 ECF No. 174.
 ECF No. 177.
 Compare ECF No. 182,
with ECF No. 114.
 ECF No. 183.
 28 U.S.C. §
 L.R. IB 3-1(b).
 United States v. U.S. Gypsum
Co., 333 U.S. 364, 395 (1948).
 Jadwin v. Cty of Kern, 767
F.Supp.2d 1069, 1110-11 (E.D. Cal. 2011).
 This is likely because the
government only briefly mentioned § 6103 in its response
to Desage's motion to compel, but its new objections
focus extensively on the statute.
 Fed. R. Crim. Proc. 16(a)(1)(E);
Kyles v. Whitley, 514 U.S. 419, 437 (1996)
(“the individual prosecutor has a duty to learn of any
favorable evidence known to others acting on the
government's behalf in [the particular case], including
 ECF No. 182 at 25-26.
 ECF No. 205 at 8-9.
 United States v. Prokop,
2012 WL 2375001, *2 (D. Nev. June 22, 2012).
 ECF No. 204 at 13.
 United States v. Robertson,
634 F.Supp. 1020 (E.D. Ca. 1986), aff'd, 815
F.2d 714 (9th Cir. 1987), cert. denied, 484 U.S. 912
(1987); see also United States v. Recognition Equip.,
Inc., 720 F.Supp. 13 (D. D.C. 1989); United States
v. Jackson, 850 F.Supp. 1481, 1490 (D. Kan.
 ECF No. 182 at 23.
 ECF No. 182 at 26.
 ECF No. 204 at 16.
 Robertson, 634 F.Supp. at
n.9 (citing United States v. Gatto, 763 F.2d 1040,
1096 (1985) (separation of powers limits court's power of
supervision over criminal discovery).
 ECF No. 205 at 7.
 Robertson, 634 F.Supp. at
 See Pennsylvania v.
Ritchie, 480 U.S. 39, 59 (1987) (Brady duty on
prosecution trumped state statute preventing disclosure of
child-abuse files); see also Jackson, 850 F.Supp.
1503-04 (noting that Brady “comes ahead of
most statutory limitations on disclosure” but declining
to compel production under § 6103 because documents were
not in prosecution team's possession).