United States District Court for the Northern District of California
United States of America, Plaintiff v. Donald L. Lipper, Defendant
1981 U.S. Dist. LEXIS 11766; 81-1 U.S. Tax Cas. (CCH) P9330; 47
A.F.T.R.2d (RIA) 1289
No. C-81-1222-RPA
DATE: March 25, 1981.
COUNSEL: G. William Hunter, United States Attorney, Jeffrey S. Niesen,
Michael D. Howard, Assistant United States Attorneys, Tyler G. Draa,
San Francisco, Calif. 94102, for plaintiff. Douglas Montgomery, 707
Haight Street, San Francisco, Calif. 94117, for defendant.
OPINION: Findings of Fact and Conclusions of Law
SCHNACKE, District Judge: An application for a Writ Ne Exeat Republica
duly came on for hearing before the Court 10:00 A.M. Monday, March 23,
1981. The United States was represented by G. William Hunter, United
States Attorney for the Northern District of California, Jeffrey S.
Niesen, Assistant United States Attorney, Chief, Tax Division, and
Michael D. Howard, Assistant United States Attorney. Donald L. Lipper
was represented [*2] by Douglas Montgomery, Esq. Based on the facts
presented to the Court at the March 23, 1981 hearing, the pleadings
and other do***ents on file with the Court, and the arguments and
representations of counsel, the Court hereby makes the following
findings of fact and conclusions of law.
Findings of Fact
1. In February 1981, the United States filed a petition with the
United States District Court for the Northern District of California
requesting the Court to issue Donald L. Lipper an Order to Show Cause
why he should not be compelled to comply with an internal revenue
sommons which was issued in an attempt to find information necessary
for the Internal Revenue Service to prepare tax returns of Donald L.
Lipper for the years 1976, 1977, 1978 and 1979.
2. The Honorable Marilyn H. Patel issued the requested Order to Show
Cause and ordered Donald L. Lipper to appear before the Court on April
6, 1981. The Internal Revenue Service made numerous attempts to serve
the Court Order upon Donald L. Lipper but Mr. Lipper refused to answer
his door, refused to return phone calls left with his answering
service by the Internal Revenue Service and refused to respond to mail
inquiries by [*3] the Internal Revenue Service.
3. On Thursday, March 19, 1981, the United States received information
that within the last two months Donald L. Lipper had sold two real
estate properties, his only remaining such holdings in the United
States for about $ 900,000. The United States was further informed
that Mr. Lipper was liquidating all of his furniture and personal
assets, and that he was in possession of approximately $ 350,000 in
cash. The United States was told that the purpose for this activity
was that Mr. Lipper planned to depart quickly from the United States
and intended to permanently reside in France.
4. The United States Attorney's Office obtained a description of Mr.
Lipper and was advised that he sometimes used the alias of "Terry."
5. Upon receiving the aforesaid information, Michael D. Howard,
Assistant United States Attorney for the Northern District of
California, Tyler Draa, a law clerk in the Office of the United States
Attorney, Kenneth Chan, a Revenue Agent of the Internal Revenue
Service and James Skeldon, Special Agent of the Criminal Investigation
Division of the Internal Revenue Service, proceeded to 506 Haight
Street, San Francisco, California, [*4] the last known address of Mr.
Lipper.
6. Upon ringing the doorbell at 506 Haight Street and identifying
themselves to the person who responded through an intercom system, the
representatives of the United States were informed that Mr. Lipper had
permanently left 506 Haight Street a few days earlier. The voice on
the intercom identified himself as a workman who was effecting repairs
on the flat for the new owner of the building. Further inquiries about
Mr. 2 Lipper were made over the intercom, and the "workman" was asked
to come to the door. This request was refused, and the "workman"
refused to speak any further.
7. The four United States officials then made inquiries of people in
the neighborhood as to where Mr. Lipper might be located. The
officials learned that Mr. Lipper had been selling and/or giving away
all of his personal assets. The officials also confirmed their
information that the building located at Haight and Fillmore Streets,
which contained the 506 Haight Street flat, had just been sold by Mr.
Lipper for approximately $ 650,000.
8. Two of the officials located a neighbor who identified himself as
John L. Merchant. Mr. Merchant stated that he had recently [*5]
purchased the Haight and Fillmore building, and that he did not
currently have any workman in 506. Mr. Merchant was then asked to open
the door at 506 Haight Street so that the flat could be inspected.
This request was refused.
9. The four federal officials then returned to 506 Haight Street and
observed two individuals through the glass ****tion of an alternate
entrance to the flat.
10. A man whose appearance matched the description of Mr. Lipper given
to the Government came to the door. He denied that he was Mr. Lipper,
claiming instead to be a workman, and informed the officials that he
was busy and that they should therefore leave. In response to several
additional denials, the U.S. officials asked the "workman" to give
them his name. The workman responded "Terry" -- the alias which the
Government had previously been informed was used by Mr. Lipper.
"Terry" was immediately served with an Order to appear in the United
States District Court on April 6, 1981.
11. "Terry" then admitted that he was in fact Mr. Lipper. He then
stated that he was leaving the country and would not be available on
April 6, 1981, nor would he return to the United States. He then
described [*6] the Court Order and the Internal Revenue Service with a
number of obscenities and further stated he had not filed tax returns
since 1969.
12. Thereafter the federal officials returned to their offices. After
locating and contacting various real estate people who had been
involved with Mr. Lipper's recent sales and verifying that in January
1981 Mr. Lipper had sold a building for a gross sales price of
approximately $ 270,000 and that on approximately March 10, 1981, he
had sold what appeared to be his last real estate holding for $
650,000, the Internal Revenue Service made a $ 183,315 termination
*****sment against Mr. Lipper for the period January 1, 1981 through
March 19, 1981. The *****sment was made late in the afternoon of March
19, 1981.
13. In order to preserve its revenue, the Internal Revenue Service,
through the United States Attorney's Office, sought an emergency Writ
of Entry to 506 Haight Street where Mr. Lipper both resided and
conducted his real estate business. A Court Order granting the Writ of
Entry was signed at approximately 8:45 P.M. on the evening of March
19, 1981.
14. Several revenue officers of the Internal Revenue Service as well
as special [*7] agents of the Internal Revenue Service who accompanied
the revenue officers for their protection (the entry was made at night
in an area of town which is widely known as a high crime neighborhood)
entered 506 Haight at approximately 9:45 P.M. and took control of a
number of the items found therein.
15. After entering, they discovered suitcases and a trunk packed with
what appeared to be substantially all of the clothes in the apartment.
In addition, closely adjacent to or within the suitcases, the agents
found a road map of France, several French/English dictionaries and 6
blank visa applications to enter France.
16. There was almost no furniture in the flat. Furthermore, within the
previous 5 months Mr. Lipper had stated in court do***ents that he
owned approximately $ 75,000 of artwork, but none was found in the
apartment.
17. A "bill of sale" for what appeared to be most of his kitchenware
and utensils was found. The bill evidenced receipts totalling $
4,000.
18. An automatic phone answering machine was seized. Of the many
messages left on it, one caller said: "Good luck on your trip to
France." A second caller said: "If you want to get to the South of
France [*8] on time, please contact me immediately."
19. The agents found do***ents which evidenced the fact that Mr.
Lipper kept one or more bank accounts in the name of "Leroy von
Lipper."
20. On both March 19, 1981, when first contacted, and again on March
20, 1981, while the Internal Revenue Service was removing what was
left of Mr. Lipper's items of value, Mr. Lipper again stated to
federal officials that he intended to leave the country.
21. Mr. Lipper has admitted he was liquidating all his personal assets
so he could "live in France in style."
22. On Friday, March 20, 1981, Mr. Lipper was asked where the notes
and/or deeds of trust related to the recent sales of two buildings
were located. He stated he did not know and later that he could not
remember.
23. The Government was unable to locate any tickets or reservations
made by or for Mr. Lipper to France. However, Mr. Lipper stated to
Reveue Officer Theresa Koenig he never made advance reservations but
merely went to the air****ts and paid cash for his tickets.
Furthermore, on Friday, March 20, 1981, Internal Revenue Service
Special Agent Dennis Hanson overheard Mr. Lipper make a phone call in
which Mr. Lipper said [*9] "the IRS is hassling me but it doesn't make
any difference because I'll get away anyway." Lastly, Mr. Lipper
stated to Revenue Officer Theresa Koenig that not only was he leaving
for France but he also intended to stay there permanently and had
organized a business there. Mr. Lipper was clearly planning to depart
quickly from the United States to France.
24. Mr. Lipper has been involved in numerous real estate transactions
over the last 11 years. County records reflect that an estimated 100
transactions involving Mr. Lipper occurred from 1969 through 1981.
However, at the time of this hearing, the Government had not had
sufficient time to totally analyze these transactions.
25. Based on the aforementioned facts, Jeffrey S. Niesen, Assistant
United States Attorney, Michael D. Howard, Assistant United States
Attoney,. and officials of the San Francisco Office of the Internal
Revenue Service sought the approval of the United States Department of
Justice in Wa****ngton, D.C., and the Commissioner of Internal Revenue
to seek a tem****ary Writ Ne Exeat Republica to, inter alia , restrain
Mr. Lipper from fleeing the country.
26. At approximately 4:15 P.M. Friday, March 20, 1981, [*10] the final
approvals to apply for the Writ were received from Wa****ngton, D.C.,
and the United States Attorney's Office made an Ex Parte Application
to the United States District Court for the Northern District of
California for a Writ Ne Exeat Republica against Mr. Lipper.
27. After reviewing the declarations on file, the memoranda of law,
and other items in the file, the Honorable Robert H. Schnacke issued
the tem****ary Writ and scheduled the matter for hearing on Monday
morning, March 23, 1981, at 10:00 A.M.
28. At the hearing the above facts were established to the
satisfaction of the Court plus the facts set forth below regarding Mr.
Lipper's finances and tax liabilities.
29. For the period of 1969 to the present, Internal Revenue Service
records indicate that they have no tax returns on file for Mr. Lipper
except for the years 1970 and 1971. At no time since 1969 has Mr.
Lipper re****ted any gains from the sale of real property (on Friday,
March 20, 1981, Mr. Lipper stated to Internal Revenue Service
personnel that it was too tedious for him to prepare tax returns).
30. On Friday, March 20, 1981, Mr. Lipper stated to Revenue Officer
Theresa Koenig that he had "made [*11] a lot of money in real estate
since 1969." As he stated this, he wrote down on a piece of paper "$
121 mill."
31. The statement indicating he had "made a lot of money" is
consistent with the fact that real estate records of the San Francisco
County Recorder reflect numerous transactions.
32. On March 20, 1981, Mr. Lipper stated to Internal Revenue Service
employees that "if $ 183,000 is all you want I'll be happy to pay it."
33. Subpoenaes were served on Mr. Lipper's accountant and as a result,
prepared but unfiled tax returns for 1973, 1974, 1975, 1977 and 1978
were discovered. No similar do***ents were found for 1969, 1970, 1971,
1972, 1976, 1979 or 1980.
34. Of the returns which were discovered, none reflected any income
arising from real estate transactions of Mr. Lipper.
35. The Government has thus far confirmed that Mr. Lipper owned at
least 9 real estate properties during the period in question. Purchase
and sale prices were only available for four of the properties at the
time of the hearing. However, the Internal Revenue Service is
continuing its attempts to locate properties owned and sold by Mr.
Lipper during the years in question and to determine and [*12] verify
the purchase prices for those properties as well as their ultimate
sale prices.
36. The Government has discovered a financial statement made out by or
for Mr. Lipper for 1976. It indicates rental income of $ 40,000.
Because more precise figures have not been verified for 1976, no tax
*****sment has yet been made for that year.
37. Similarly, aside from the unverified proceeds, if any, from the
sale of real property in 1979, the Government has in its possession
both a Mastercharge and an American Express credit card application
completed by Mr. Lipper and dated June 1979. Both applications state
that his income for that year was $ 100,000+". He also stated to the
representatives of the Internal Revenue Service that $ 4,000,000 went
through his bank accounts in 1979.
38. Because Mr. Lipper's income has not yet been ascertained for 1979
and 1980, no tax *****sment has yet been made for either year. This is
also true for 1969, 1970, 1971, 1972 and as mentioned above, 1976.
39. On Sunday, March 22, 1981, the Internal Revenue Service made
jeopardy *****sments against Mr. Lipper in the following amounts: Sub
1973 1974 1975 1977 1978 Total $ 2,941 $ 243.79 $ 8,125 $ 30,809 $
42,133 $ 84,252![*13]! As noted above, these *****sments are based
primarily on the prepared but unfiled returns subpoenaed from Mr.
Lipper's accountant, but include only two of the real estate
transactions of Mr. Lipper due to a lack of further accurate figures
as of the time of the hearing.
40. On Sunday, March 22, 1981, the Internal Revenue Service also
adjusted its termination *****sment for the period January 1, 1981
through March 19, 1981. This *****sment was reduced from $ 183,315 to
$ 100,705. The adjustment was made because further do***entation
appeared to indicate the cost basis of each of the two buildings sold
by Mr. Lipper were somewhat higher than the Internal Revenue Service
had initially believed.
41. The Internal Revenue Service is currently treating Mr. Lipper's
income from the sale of real estate as capital gain -- not ordinary
income. Because of the lack of time, the Government was unable to
establish to its satisfaction which, if any, of Mr. Lipper's sales of
real estate were made in the ordinary course of 5 business (thereby
generating ordinary income). The tax computations of Mr. Lipper's
known real estate sales were then made based on the assumption that
the sales generated [*14] capital gain. Accordingly, the Government's
present tax figures are lower than they will be if it is determined
that one or more of the sales generated ordinary income.
42.After reviewing the facts, the Court is satisfied there is a
substantial likelihood that the Internal Revenue Service's tax claim
is legitimate. Indeed, the figures represent a nominal estimate of Mr.
Lipper's tax liability since to date no *****sments at all have been
made for 1969, 1970, 1971, 1972, 1976, 1979 or 1980 and all tax
computations on the building sales were made at capital gain rates and
not ordinary income rates.
43. Because of the complicated facts involving Mr. Lipper's tax
liabilities for the years 1969 through 1981, the Court finds it is not
an unreasonable restraint upon him to remain in the jurisdiction of
the Northern District of California for a reasonable period of time
within which he and the Internal Revenue Service can ascertain his
civil tax liabilities for the years 1969 through 1981.
44. The United States has already served a Notice to Take Deposition
on Mr. Lipper and his deposition is scheduled to begin on Monday,
March 30, 1981. The Court is advised that the Internal [*15] Revenue
Service has and is devoting substantial efforts to determine Mr.
Lipper's liabilities as quickly as possible.
45. The Court is further advised that Mr. Lipper has agreed to and is
posting security in the approximate amount of $ 370,000 with the
United States of America as security for the currently estimated tax
liabilities of Mr. Lipper. Mr. Lipper has been ordered to surrender
his pass****t into the tem****ary custody of the Clerk of the Court and
the Court is advised the pass****t was delivered to the United States
Marshal and the paper-work is being completed to effectuate transfer
of possession of the pass****t to the Clerk of the Court.
46. The United States and the Internal Revenue Service are on notice
that any unnecessary delays in the resolution of Mr. Lipper's tax
liabilities are unacceptable. The issuance of the instant Writ is made
only because of the highly unusual facts of this case and the high
probability of Mr. Lipper's expatriation from the United States. While
the Court is aware that it may take time to unravel Mr. Lipper's
complicated financial transactions which have occurred since 1969,
absent a showing of good cause by the Government, the Court [*16]
fully expects this matter to be resolved within 120 days after the
filing of these findings of fact and conclusions of law.
47. Nothing herein precludes the United States from applying to the
Court for modification of the permanent Writ Ne Exeat Republica
entered March 23, 1981, should the Internal Revenue Service figures of
the tax liability change or should it appear that the other
cir***stances might warrant modification.
48. Any finding of fact determined to be a conclusion of law is hereby
deemed a conclusion of law. Conclusions of Law
49. The Court has jurisdiction of this matter by virtue of 26 U.S.C. =A7
7402(a) and 28 U.S.C. =A7 1651.
50. Section 1651(a) of Title 28 U.S.C. provides that: [t]he Supreme
Court and all courts established by Act of Congress may issue all
writs necessary or appropriate in aid of their respective jurisdiction
and agreeable to the usages and principles of law. In addition,
Internal Revenue Code Section 7402(a) (26 U.S.C. =A7 7402(a)) sets forth
the jurisdiction and authority of the district court in cases such as
this and specifically permits the issuance of a writ ne exeat
republica . In pertinent part, it states: The district [*17] courts of
the United States at the instance of the United States shall have such
jurisdiction to make and issue in civil actions, writs * * * of ne
exeat republica * * * and to render such judgments and decrees as may
be necessary or appropriate for the enforcement of the internal
revenue laws. * * * (Emphasis added).
51. Because of the exigent cir***stances which must be shown, Writs of
Ne Exeat Republica are rarely utilized by the courts. However federal
courts have unanimously upheld the constitutionality of such writs
issued pursuant to Section 7402(a) of the Internal Revenue Code of
1954. United States v. Shaheen, 445 F. 2d 6 (7th Cir. 1971); United
States v. McNulty, 446 F. Supp. 90 (N.D. Cal., 1978); United States v.
Clough , 33 AFTR 2d 74-650 (N.D. Cal., 1974); United States v.
Robbins, 235 F. Supp. 353 (E.D. Ark., 1964).
52. The Writ derives from the Writ ne exeat regnum, a common law
prerogative writ which enabled the sovereign to compel an individual
to remain within the realm in order to aid in the defense of his
country. n1 n1 "By the common law, (n) every man may go out of the
realm for whatever cause he pleaseth, without obtaining the King's
leave; provided he is under no injunction of staying home; (which
liberty was expressly declared in King John's great charter, though
left out in that of Henry III,) but because that every man out of
right to defend the king and his realm, therefore, the king, at his
pleasure, may command him by his writ that he go not beyond the seas,
or out of the realm, without license; and, if he do the contrary, he
shall be punished for disobeying the king's command." United States v.
Shaheen, supra at 9, n. 5 (7th Cir. 1971), quoting 1 Cooley's
Blackstone (3d Ed.) p. 264. [*18]
53. Freedom to travel is a right of constitutional dimension, Aptheker
v. Secretary of State, 378 U.S. 500, 517 (1964), which cannot be
abridged without due process of law. Kent v. Dulles , 357 U.S. 116,
125-26 (1958); United States v. Laub , 385 U.S. 475, 481 (1967).
However, the writ of ne exeat republica restrains individuals' rights
of free travel. Thus, while District Courts authority to issue writs
of ne exeat republica is clearly without question, the power is seldom
exercised.
54. Where the Government seeks to sup****t the issuance of such an
extraordinary writ it bears the burden of showing facts and
cir***stances which warrant civil restraint. United States v. Shaheen,
445 F. 2d 6, 10 (7th Cir. 1971); United States v. Clough , 33 AFTR 2d
74-650, 651 (n.d./ Cal., 1974). The burden on the Government in such a
case is analogous to that required to obtain injunctive relief.
Shaheen, supra at 10; Clough, supra at 651.
55. In compliance with Rule 65(d) of the Federal Rules of Civil
Procedure, n2 the Government has specifically set forth the factual
basis and its reasons for seeking a writ of ne exeat republica. It has
established that Mr. Lipper has a sizeable, [*19] outstanding tax
liability, that Mr. Lipper has liquidated all of his significant
assets, that Mr. Lipper has admitted his intention to immediately and
permanently leave this country, and that there is a strong likelihood
that a substantial ****tion of Mr. Lipper's assets would be difficult
if not impossible to collect absent issuance of the requested writ.
The United States has additionally shown that its efforts to ascertain
and seek the satisfaction of Mr. Lipper's tax liabilities would
clearly be frustrated unless the court grants its request for the
writ. In light of Mr. Lipper's obvious attempts to avoid the federal
authorities, it is also a distinct possibility that Mr. Lipper will
even attempt to thwart the power of the Court to grant the United
States any effective relief in its action to collect taxes from Mr.
Lipper -- absent issuance of the writ. n2 Rule 65(d) of the Federal
Rules of Civil Procedure states in pertinent part that: [e]very order
granting an injunction and every restraining order shall set forth the
reasons for its issuance, shall be specific in terms; [and] shall
describe in reasonable detail * * * the act or acts sought to be
restrained * * *. [*20]
56. The defendant's demonstrated intent to immediately leave the
country, the marshalling of his assets in a manner which insures his
ability to immediately expatriate these assets, in conjunction with
the facts set forth in paragraph 54 above, provide a more than
adequate basis for the Court to exercise its power pursuant to
Internal Revenue Code Section 7402, 28 U.S.C. =A7 1651; United States v.
Shaheen, supra, and United States v. Clough, supra , and to issue the
Writ Ne Exeat Republica .
57. A defendant must be given prompt notice of the writ and an
op****tunity to exercise his or her constitutional rights to an
evidentiary hearing before the court. United States v. Clough, 33 AFTR
2d 74- 650, 651 (N.D. Cal., 1974). Cf . Rule 65(b) Federal Rules of
Civil Procedure. In the case at bar, the 7 defendant was brought
before the Court for a full evidentiary hearing within three days of
the Court's issuance of the tem****ary Writ Ne Exeat Republica.
Defendant's proffered evidence at the hearing in no way contradicted
his earlier statements of intent made to Government officers. The
defendant's demonstrated intent to leave the country forthwith and
expatriate assets to which [*21] the Government could look in
satisfaction of his tax liability remained unchanged at the conclusion
of the hearing.
58. The Government must additionally demonstrate the likelihood of its
prevailing on the merits of its underlying action. United States v.
Shaheen, supra; United States v. McNulty, supra; United States v.
Clough, supra. The Government has met this burden.
59. The defendant was afforded an op****tunity to exercise his
consitutional right to a full evidentiary hearing before this Court.
Based on the evidence presented by the parties, the Court finds that
the Government has met each burden imposed upon it in sup****t of its
application for a writ ne exeat republica. Accordingly, the writ shall
issue. A copy of the Court's order is attached hereto and incor****ated
by reference.
60. Any conclusion of law determined to be a finding of fact is hereby
deemed a finding of fact.
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