BITTNER v. IRS, 120 AFTR 2d 2017-5633, Code Sec(s) 6103, (DC TX), 07/31/2017

American Federal Tax Reports

BITTNER v. IRS, Cite as 120 AFTR 2d 2017-5633, Code Sec(s) 6103; 6103, (DC TX), 07/31/2017

Alexandru BITTNER and Sherry BITTNER, PLAINTIFFS v. INTERNAL REVENUE SERVICE, DEFENDANT.

Case Information:

[pg. 2017-5633]

Code Sec(s):	6103, 6103
Court Name:	U.S. District Court, Western Dist. of Texas,
Docket No.:	A-15-CV-1209-SS-ML,
Date Decided:	07/31/2017.
Prior History:	Adopted at (2017, DC TX) 120 AFTR 2d 2017-5643.
Tax Year(s):	Years 2002, 2003, 2004, 2006, 2007, 2008, 2009, 2010, 2011.
Disposition:	Decision for Govt.

HEADNOTE

1. FOIA—IRS records—adequate search—summary judgment. Magistrate judge recommended granting IRS summary judgment that it conducted adequate search for documents responsive to married couple's FOIA request for records from their administrative file relating to IRS's underlying income tax and FBAR exam for multiple years, during which taxpayers resided outside U.S.: since taxpayers didn't word their FOIA request as seeking any and all documents, IRS was entitled to focus its search accordingly; and although that search didn't yield certain IRS employees' emails, IRS adequately explained loss of same with description of how employees suffered computer hard drive failure.

Reference(s): ¶ 76,556.502(75)

2. FOIA—IRS records—exemptions—investigatory information; privileges; confidential return information—discovery—summary judgment. Magistrate judge recommended granting IRS summary judgment that it properly withheld certain documents responsive to married couple's FOIA request for records relating to IRS's underlying income tax and FBAR exam for multiple years, during which taxpayers resided outside U.S. Even though underlying exam had concluded, IRS was entitled to rely on Exemption 7(A) for withholding certain records since exam resulted in over $20 million liability determination that taxpayers disputed and were reasonably expected to contest in ongoing proceedings. Taxpayers' arguments regarding above or that IRS was required to produce segregable information which it had withheld under Exemptions 5 or 3, and/or that they were entitled to in camera review, were unpersuasive. Alternative argument that they should be allowed to depose IRS agent who was conducting underlying exam was also unpersuasive since issue here was FOIA procedures, not underlying exam.

Reference(s): ¶ 76,556.502(60);¶ 76,556.502(20);¶ 76,556.502(10) Code Sec. 6103

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION,

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

Judge: TO THE HONORABLE SAM SPARKS UNITED STATES DISTRICT JUDGE:

Judge: MARK LANE, UNITED STATES MAGISTRATE JUDGE

Before the court are Defendant Internal Revenue Service's Motion for Summary Judgment (Dkt. #16) and Plaintiffs' Cross-Motion Requesting the Court Order the Production of Agency Records Improperly Withheld from the Plaintiffs and Allow the Deposition of the IRS Revenue Agent (Dkt. # 27).¹ Hearings were held in this matter on May 3, 2017 and July 21, 2017. Having considered the parties' written submissions and oral arguments, the court issues the following Report and Recommendation.

I. BACKGROUND

Plaintiffs, Alexandru and Sherry Bittner, spouses (the “Bittners”), requested documents (the “Request”) from the Internal Revenue Service (the “Service”) on September 8, 2015, under the Freedom of Information Act (“FOIA”). Dkt. #27-2. The Bittners requested:

A copy of the administrative file regarding the 2002-2004 and 2006-2011 income tax and Report of Foreign Bank and Financial Accounts examination of Alexandru and Sherry Bittner, conducted by Revenue Agents Cherry Mayberry Jones and Anh Reach and International Examiner Holly Bishop.

[pg. 2017-5634]

Id. The Bittners sought the documents for their personal use. Id. On October 9 and 11, 2015, the Bittners clarified to the Service that “you do not need to provide us with copies of anything that Taxpayers [the Bittners] have previously provided to the IRS examiner.” Dkt. #16-3. The Service requested two extensions to provide the Bittners the requested documents. Dkt. #1 (Compl.) at ¶¶ 35-38. The Bittners eventually filed suit seeking the documents on December 22, 2015. Dkt. #1.

The Service located 5,319 pages responsive to the Request. While the suit was pending, the Service produced 3,845 pages in full and another 358 pages in part. Dkt. #16-1 at 2; Dkt. #16-4 (Valvardi Decl.) at ¶ 12. The Service withheld 1116 pages in full. Id. The Service moved for summary judgment that it had fulfilled its obligations with respect to the Request. Dkt. #16. The Service claimed the withheld documents met the requirements of:

5 U.S.C. §552(b)(3), Exemption 3, in conjunction with 31 U.S.C. §5319;
5 U.S. C. §552(b)(3), Exemption 3, in conjunction with 26 U.S.C. §6103(a), §6103(b)(2); and §6103(e)(7);
5 U.S.C. §552(b)(5), Exemption 5 and the attorney-client privilege;
5 U.S.C. §552(b)(5), Exemption 5 and the deliberative process privilege;
5 U.S.C. §552(b)(5), Exemption 5 and the attorney work-product privilege;
5 U.S.C. §552(b)(6), Exemption 6;
5 U.S.C. §552(b)(7)(A), Exemption 7(A);
5 U.S.C. §552(b)(7)(C), Exemption 7(C); and/or
5 U.S.C. §552(b)(7)(E), Exemption 7(E).

Dkt. #16 at 1-2. The Service provided supporting declarations from Gail Minauro, Senior Disclosure Specialist in the Disclosure East Area of the Disclosure Office for the Internal Revenue Service; Christopher P. Valvardi, attorney in Branch 7 of the Office of the Associate Chief Counsel (Procedure and Administration), of the Internal Revenue Service Office of Chief Counsel; Anh Reach, Internal Revenue Agent with the International Individual Compliance office, Territory 2, in the Large Business and International Division; and Charles B. Christopher, Supervisory General Attorney currently serving as Branch Chief for Branch 7 of the Office of the Associate Chief Counsel (Procedure and Administration), of the Internal Revenue Service Office of Chief Counsel, that describe the collection of documents and the exemptions that were applied. See Dkt. #16-2–16-6. Ms. Minauro's declaration describes her document collection efforts. Dkt. #16-2. She describes the process of collecting documents and email messages from Agent Reach, who was conducting the examination, and Agent Bassett, the international examiner conducting the examination. Id. Ms. Minauro's Supplemental Declaration explains the Service's electronic file system and describes in greater detail the systems that were searched and the people that were contacted to determine whether they had any responsive documents. Dkt. #23.

Mr. Valvardi's declaration describes his role in reviewing the collected documents and describing the exemptions that were claimed. Dkt. #16-4. Agent Reach's declaration describes the examination at a high level and describes the pages the Service claims are exempt from disclosure under 5 U.S.C. § 552(b)(7)(A), the law enforcement exemption. Dkt. #16-5. Mr. Christopher's declaration describes the documents that were withheld under exemption (b)(3) in conjunction with other statutes. Dkt. #16-6. The declarations describing withheld pages included tables indicating the pages withheld, the exemptions they were withheld under, and descriptions of the documents. See Dkt. #16-4–16-6. The tables group pages into categories with similar descriptions. For instance, pages 3231-3234; 3236-3242, 3244-3546, 3248-3250, 3252-3269, 3271-3278, 3281-3282, 3699-3701, 3725-3742, 4409-4412, 4414-4416, 4418-4420, 4422-4424, 4426-4428, 4430-4447, 4449-4456, 4977-4987 were described in one entry as:

Spreadsheets created by Revenue Agents or Counsel, compiling information collected by Revenue Agents, organized to indicate possible parties, transactions, and relationships of interest in determining plaintiffs' liability. These pages are also attorney work product: 3699-3701; 3725-3742.

Dkt. #16-4 at 13. Another group of pages is described in a single entry as “Draft summons submitted by Revenue Agent for review and advice of Counsel, or submitted to supervisory Revenue Agent for review and signature.” Id. at 14. Both of these examples were withheld under exemption (b)(5) due to the deliberative process privilege. Id. at 12. Where pages were withheld under exemption (b)(7)(A), the table also included an explanation of “Reasons that Disclosure Will Interfere with Examination.” Dkt. #16-5 at 4-12. Similarly, pages withheld under exemption (b)(3) in conjunction with IRC § 6103(e)(7) also included a “Reason for Impairment,” such as “Disclosure would reveal how collected data was organized and analyzed, indicating entities and transaction of interest [pg. 2017-5635] and thereby prematurely indicating the strategy and focus of the examination.” Dkt. #16-6 at 6-15.

The Bittners cross-moved for summary judgment in their favor contending the Service had improperly narrowed the scope of the Bittners' Request and had improperly claimed exemptions from disclosure. Dkt. #27. The parties primarily disputed the meaning and scope of “administrative file” in the Bittners' Request and whether particular documents sought fell within the scope of the Bittners' Request. Specifically, the Bittners claimed the production did not include emails to and from: Holly Bishop, and international examiner; Sheena Bassett, also known as Sheena Potter, an examiner before Agent Reach; Bob Davis, a supervisor; Johnny Johnson,² another supervisor; and Dan Price, an attorney in the Chief Counsel's Office.³

The Internal Revenue Manual describes an “administrative file” as “the Commissioner's official file in the case or matter.” I.R.M. § 30.9.1.4.1. The Bittners contend that a request for an “`administrative file' covers all documents produced or collected in connection with that examination.” Dkt. #27 at 12. As “administrative file” is not further defined beyond the “official file,” the Service interpreted the Bittners' request of the “administrative file regarding the ... examination” to refer to the examination case file, which “generally contains information deemed by the examiners to be necessary to support their findings or information that is otherwise critical to the case.” Dkt. #24 (Supp. Valvardi Decl.) at ¶ 7; Dkt. #32 at 5. The Bittners contend the Service improperly narrowed their request from the “administrative file,” which they argue includes everything, to the “examination file,” which is more limited. The court notes, however, that the Bittners did not request “any and all documents regarding the 2002-2004 and 2006-2011 ...” which would have more clearly captured their desire for all documents related to their examination. Such “any and all documents” language or other similar wording is not uncommon in FOIA requests. See Batton v. Evers, 598 F.3d 169, 173 [105 AFTR 2d 2010-1074] (5th Cir. 2010) (seeking “all information and documents relating to the audit that are in the possession of the IRS”); Church of Scientology of Texas v. IRS, 816 F. Supp. 1138, 1146 (W.D. Tex. 1993) (seeking “a copy of all records, documents, notes, control cards, subject files, tapes, buck slips, electronic information, and/or information relating to or concerning ...” and “any records that refer to [plaintiff] or that are retrievable in a search for files listed in [plaintiff's] name”).

The Bittners also complained about the extent of pages the Service withheld. The Bittners argued the Service withheld 28% of the responsive documents, and they asked for an in camera review of the withheld or redacted documents. The Bittners provided no basis for their claim that the Service had not properly applied the FOIA exemptions. The Bittners also sought to depose Agent Anh Reach, who was handling their underlying tax examination.

The court held a hearing on the parties' cross motions for summary judgment on May 3, 2017. In an attempt to resolve the dispute, the court ordered the Service to:

search for and produce any documents that are related to the 2002-2004 and 2006-2011 income tax and Report of Foreign Bank and Financial Accounts examination of Alexandru and Sherry Bittner, not exempt from production, and are:
(1)) Emails from and to Holly Bishop;
(2)) Emails from and to Shena Bassett a/ka/ Shena Potter;
(3)) Emails from and to Bob Davis;
(4)) Emails from and [Johnny] Johnson; and
(5)) Emails from and to Dan Price.

Dkt. #39. The court also ordered the Service to produce a log of withheld or redacted documents that included a description of the document, the basis for the exemption, and, if applicable, reasons that disclosure would interfere with the examination. Id.

The Service filed a notice that it had substantially complied with the court's order, but was unable to produce emails collected from Mr. Davis or Mr. Johnson because they had experienced hard drive failures in 2015 and 2016, respectively, and had no other responsive documents. Dkt. #41. In support of this production of documents, the Service submitted another declaration from Christopher P. Valvardi, who describes the attempts to collect documents pursuant to the court's order. Dkt. #41-1. The Service also submitted declarations from Mr. Davis and Mr. Johnson, substantiating the loss of data on their hard drives. Dkt. #44-1, 44-2, respectively. To further support the circumstances surrounding the Mr. Davis's and Mr. Johnson's hard drive failures and why emails from them could not be retrieved, the Service later submit[pg. 2017-5636] ted declarations from Mr. Vikramsing R. Barad, a Branch Chief with the Office of Associate Chief Counsel for Procedure and Administration who manages the production of requests for electronically stored information subject to discovery during litigation. Dkt. #49-1. Mr. Valvardi also submitted another declaration, in which he described the timing of the claimed exemptions with respect to the conclusion of the examination and the implication of the conclusion of the examination on the claimed exemptions. Dkt. #49-2.

The Service also produced a Vaughn index to the Bittners, which identifies the pages withheld, whether they were withheld in full or in part, a description of the pages, the claimed FOIA exemptions, and a basis for the exceptions and reasons disclosure would interfere with the examination. Dkt. #47-1. The index is 148 pages long. The index incorporates much of the information that was previously provided in tables in the earlier declarations. See Dkt. #16-4– 16-6. However, where the earlier tables collectively described groups of pages, discussed supra, the Vaughn index describes each range of pages individually, contributing to its length. It also gives a more detailed explanation of how production of the pages would interfere with the examination proceeding.

The Bittners remain unsatisfied with the Service's production. Dkt. #47. First, the Bittners are not satisfied with the Service's explanations regarding Mr. Davis's and Mr. Johnson's hard drive failures. The Bittners note the Service has not stated whether it made any efforts to search Service email servers or “back-up tapes.” Second, the Bittners contend exemption (b)(7)(A) no longer applies because the Service has concluded its examination. The Bittners note that many documents were withheld under both (b)(7)(A) and (b)(5) and argue that since the (b)(7)(A) exemption no longer applies and the (b)(5) exemption does not apply to purely factual information or analysis, any factual information should have been segregated and produced. The Bittners ask the court to review some of the withheld documents to assess whether the exemptions were properly applied as well as review the Activity Record of Agent Reach, which was minimally redacted. The Bittners continue to seek the deposition of Agent Reach and seek limited discovery as to Mr. Davis's and Mr. Johnson's email. Finally, the Bittners seek a finding that the Service acted arbitrarily or capriciously with respect to the withholding of records.

The court held another hearing on July 21, 2017 regarding the parties' outstanding issues. The hearing was the Service's first opportunity to respond to the Bittner's recent complaints about the Service's second production. The Service clarified that neither Mr. Davis's nor Mr. Johnson's hard drive had been destroyed; both hard drives were held pursuant to a litigation hold. The Service explained that at least some of the emails that would have been recovered from Mr. Davis and Mr. Johnson were collected from other individuals who were included on the emails. The Bittners responded that since documents were not collected from Mr. Davis's or Mr. Johnson's supervisors, emails they received from their superiors providing direction for the examination would not have been collected. The Service continued to argue its earlier position that Mr. Davis's and Mr. Johnson's emails were outside the scope of the Bittners' FOIA Request. The Service acknowledged that the examination concluded shortly before the production was made, but contended the exemptions were still applicable because they were made in conjunction with other bases for withholding and because the conclusion of the examination does not automatically end the applicability of exemption (b)(7)(A).

The court notes that the Bittners are involved in an underlying dispute with the Service concerning the Bittners' tax liability for a period of time when the Bittners resided outside the United States. The Service recently concluded its examination and contends the Bittners are responsible for over $20 million in tax liability.⁴ The Bittners have made clear in their filings that they do not believe the Service has treated them fairly in the underlying examination. Dkt. #1; #27 at 2-6, 16-17; #34 at 6 n.15, 7-8; #47 at 5-6, 12-13. This belief appears to have influenced the Bittners' perception of the Service's compliance with their FOIA Request. However, the Service's actions in the underlying examination are not before the court. The only issue before the court is whether the Service has adequately complied with the FOIA Request.

II. FREEDOM OF INFORMATION ACT LEGAL STANDARD

FOIA requires agencies to disclose all requested agency records unless one of nine specific statutory exemptions applies. See 5 U.S.C. § 552. “The basic purpose of FOIA is to ensure an informed citizenry, vital to the functioning of a democratic society, needed to [pg. 2017-5637] check against corruption and to hold the governors accountable to the governed.” NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 242 (1978). FOIA was enacted “to pierce the veil of administrative secrecy and to open agency action to the light of public scrutiny.” Dep't of the Air Force v. Rose, 425 U.S. 352, 361 (1976) (internal citations omitted); Batton v. Evers, 598 F.3d 169, 176 [105 AFTR 2d 2010-1074] (5th Cir. 2010). Accordingly, FOIA has a “strong presumption in favor of disclosure,” U.S. Dep't of State v. Ray, 502 U.S. 164, 173 (1991), and “exemptions ... should be construed narrowly.” Batton, 598 F.3d at 176.

To properly assert a FOIA claim, a plaintiff must show that an agency has (1) improperly (2) withheld (3) agency records. U.S. Dep't of Justice v. Tax Analysts, 492 U.S. 136, 142 [63 AFTR 2d 89-1492] (1989). “[M]ost FOIA cases are resolved at the summary judgment stage.” Flightsafety Servs. Corp. v. Dep't of Labor, 326 F.3d 607, 610 (5th Cir. 2003). As in the non-FOIA context, summary judgment is appropriate only if there is no genuine dispute as to any material fact and the party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); see also Batton, 598 F.3d at 175. In deciding such a motion, “all underlying facts and inferences are analyzed in the light most favorable to the FOIA requester.” Ryan v. FBI, 113 F. Supp. 3d 356, 362 (D.D.C. 2015) (citations omitted). Unlike traditional summary judgment, however, FOIA places the burden on the agency to sustain its action; an agency may not meet this burden with a mere “conclusory and generalized” assertion, “even if the FOIA requester has not controverted the assertion.” See Cooper Cameron Corp. v. U.S. Dep't of Labor, OSHA , 280 F.3d 539, 543 (5th Cir. 2002).

To establish compliance with FOIA, an agency must “show beyond material doubt that it has conducted a search reasonably calculated to uncover all relevant documents.” Morley v. CIA, 508 F.3d 1108, 1114 (D.C. Cir. 2007); see also Batton , 598 F.3d at 176 (citing Oglesby v. U.S. Dep't of Army , 920 F.2d 57, 68 (D.C. Cir. 1990)). To the extent an agency withholds information pursuant to a FOIA exemption, the agency also shoulders the burden of identifying the documents at issue and explaining why they fall under the stated exemption. See Cooper Cameron Corp., 280 F.3d at 543. Unless refuted by contrary evidence or evidence of bad faith, an agency may satisfy its burden with supporting affidavits that are “relatively detailed and nonconclusory and ... submitted in good faith.” Weisberg v. U.S. Dep't of Justice, 627 F.2d 365, 370 (D.C. Cir. 1980). An agency's affidavits “are generally accorded the `presumption of legitimacy' unless there is evidence that the agency handled the FOIA request in bad faith.” Batton, 598 F.3d at 179 (citing Ray, 502 U.S. at 179).

III. ANALYSIS

To succeed on summary judgment, “the agency must show that it made a good faith effort to conduct a search for the requested records, using methods which can be reasonably expected to produce the information requested.” Oglesby, 920 F.2d at 68. “The question is not whether there might exist any other documents possibly responsive to the request, but rather whether the search for those documents was adequate.” Steinberg v. U.S. Dep't of Justice, 23 F.3d 548, 551 (D.C. Cir. 1994). “The adequacy of the search, in turn, is judged by a standard of reasonableness and depends, not surprisingly, upon the facts of each case.” Weisberg v. U.S. Dep't of Justice , 745 F.2d 1476, 1485 (D.C. Cir. 1984). While an agency is not required to search every record system, it must take a “reasonable and systematic approach to locating the requested documents.” Ctr. For Pub. Integrity v. FCC , 505 F. Supp. 2d 106, 116 (D.D.C. 2007).

The Bittners' argue about the scope of the search, contend the Service has improperly claimed exemptions from production and improperly withheld responsive documents, request in camera review of documents, request the deposition of Agent Reach, and seek a finding that the circumstances surrounding the withholding of requested records raise questions as to whether the Service acted arbitrarily or capriciously.

A. Reasonableness of the Service's Search

[1] In their cross motion, the Bittners contended the Service's response to their Request was insufficient because the Service's response was too narrow and did not include the full range of documents in the “administrative file.” Specifically, the Bittners complained the response was missing:

(1)) The Examining Officer's Activity Record for Shena Bassett a/k/a Shena Potter;
(2)) The Examining Officer's Activity Record for Cherry Mayberry-Jones;
(3)) Emails from and to Holly Bishop;
(4)) Emails from and to Shena Bassett a/k/a Shena Potter;
(5)) Emails from and to Bob Davis;
(6)) Emails from and to [Johnny] Johnson; and [pg. 2017-5638]
(7)) Emails from and to Dan Price.

Dkt. #27 at 11. The first document was produced, and the second document does not exist. Dkt. #24 at ¶¶ 5, 6. The court ordered the remainder of the documents to be produced. Accordingly, with the exception of the loss of Mr. Davis's and Mr. Johnson's hard drives, the Bittners' complaints about the scope of the search for responsive documents has been resolved. After reviewing the declarations that describe the search and considering the parties' arguments regarding the meaning of “administrative file,” the court determines the scope of the Service's search was adequate. See Steinberg, 23 F.3d at 551.

The court's May 4, 2017 Order (Dkt. #39) compelled the production of Mr. Davis's and Mr. Johnson's emails in connection with the underlying examination proceeding. The Service has represented that emails were not collected from Mr. Davis and Mr. Johnson because their hard drives failed. However, the Service also represented that some of Mr. Davis's and Mr. Johnson's were collected and produced through the collection of their subordinates' emails.

The hard drive failures and lost emails were discussed at the July 21, 2017 hearing, and the Service has provided further explanation as to why those emails could not be retrieved from the email servers. See Dkt. #49 at 7-9; 49-1 (Barad Decl.). During the relevant time period, the Service limited its employees to 500MB of emails that may be stored on the Microsoft Exchange Server. Dkt. #49-1 at ¶ 3. As an employee reached this 500MB limit, the employee would be prompted to archive emails and attachments. Id. at ¶ 4. Archived emails and attachments were stored on the employee's local hard drive or other location, such as a network share drive or removable media. Id. Archived emails were solely in the possession and control of the employee who had archived them, and they were not backed up to the Exchange Server. Id. at ¶ 5. If the employee did not archive emails in response to a prompt to do so, older emails would be deleted from the Exchange Server. Id. at ¶ 7. Mr. Barad states that the Service was unable to retrieve any emails responsive to the Bittners' Request from Mr. Davis's and Mr. Johnson's hard drives. The court is satisfied with this explanation.

The Bittners contend that the lost emails between Mr. Davis and his supervisors and Mr. Johnson and his supervisors deprive them of emails that indicate the Service's higher policy positions with regards to the Bittners' examination. However, the Bittners make no argument that such policy emails would be contained in the “administrative file,” or Commissioner's official file, that they originally requested, and notably at the May 3, 2017 hearing they did not seek or request all Service employees' emails that may be relevant to the Bittners' examination.

The court concludes that the Service's response to the Bittners' request with respect to Mr. Davis's and Mr. Johnson's emails was reasonable. See Steinberg, 23 F.3d at 551 (“The question is not whether there might exist any other documents possibly responsive to the request, but rather whether the search for those documents was adequate.”). The Service cannot produce documents that no longer exist. Canning v. U.S. Dep't of Def. , 499 F. Supp. 2d 14, 24 (D.D.C. 2007) (“[E]ven where the Government was obligated to retain a document and failed to do so, that failure would create neither responsibility under FOIA to reconstruct those documents nor liability for the lapse.”).

B. Exemptions under (b)(7)(A) and (b)(5)

1. Continued Applicability of Exemption (b)(7)(A)

[2] The Bittners contend that exemption (b)(7)(A) no longer applies because the underlying examination has concluded. Exemption (b)(7)(A) exempts from disclosure “records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information [] could reasonably be expected to interfere with enforcement proceedings.” 5 U.S.C. § 552(b)(7)(A). “Once the investigation has concluded and there is no reasonable possibility of future law enforcement proceedings related to the requested documents, the documents lose Exemption 7(A) status.” Church of Scientology of Texas v. I.R.S., 816 F. Supp. 1138, 1157 (W.D. Tex. 1993) (citing Robbins Tire & Rubber Co., 437 U.S. at 235). However, “[i]f the investigation is open or there is a reasonable possibility of future law enforcement proceedings at the time of the request, the documents are exempt. Furthermore, the agency is not required to monitor the investigation and release the documents once the investigation is closed and there is no reasonable possibility of future proceedings.” Id.

At the July 21, 2017 hearing, the court asked both sides for authority on whether the (b)(7)(A) exemption continues to apply after the initial examination has concluded. In a supplemental filing, the Bittners cited the court to Church of Scientology . Dkt. #50 at 1-2. While that case examined the exemption's applicability with respect to the facts of that case, it did [pg. 2017-5639] not examine when the exemption ceases to apply with respect to the conclusion of the underlying examination. See Church of Scientology, 816 F. Supp. at 1157.

The Bittners also cited and heavily rely on Sea Shepherd Conservation Society v. I.R.S. , 89 F. Supp. 3d 81, 95-96 [115 AFTR 2d 2015-1242] (D.D.C. 2015), which held that exemption (b)(7)(A) did not apply once the underlying examination had concluded. Dkt. #50 at 2-4. In that case, in concluding the underlying examination, the IRS informed the plaintiff that “[s]hould the courts ... find the [plaintiff] in violation of laws, a subsequent examination may be initiated.” Id. at 96. The district court found the IRS had not carried its burden to show the exemption applied because the “IRS has not provided any authority for the proposition that the possibility that another investigation might be launched in the future is sufficient to give rise to the risk that disclosure of records of the previous investigation would `interfere with enforcement proceedings.'” Id. at 96. However, the facts of Sea Shepherd are materially different than those here. In Sea Shepherd, the IRS was examining whether to revoke Sea Shepherd's tax exempt status. Id. at 95. By the time the issue came before the court, the IRS had concluded the audit and determined that Sea Shepherd continued to qualify for tax exempt status. Id. Thus, the underlying law enforcement proceeding had finally concluded in Sea Shepherd's favor, and any future law enforcement proceeding was purely speculative. In contrast, here, the Service has notified the Bittners of over $20 million dollars in tax liabilities. The Bittners have not paid this amount and they are still within their rights to appeal their liability to the Service itself, in tax court, or in district court.⁵ Thus, while the Service's formal examination has concluded, the law enforcement proceeding is still ongoing. The Service anticipates further enforcement proceedings related to the underlying examination in the form of Tax Court litigation, administrative appeals, refund litigation, and/or collection activity. Dkt. #49-2 (Valvardi Decl.) at ¶ 3. Unlike Sea Shepherd, this anticipated enforcement proceeding is not a speculative proceeding that may occur at some future date. Instead, it is a near-certain continuation of the underlying examination.

The Bittners also cited Citizens for Responsibility & Ethics in Washington v. U.S. Department of Justice, 746 F.3d 1082 (D.C. Cir. 2014), and August v. FBI, 328 F.3d 697 (D.C. Cir. 2003), which support the court's conclusion that the exemption remains applicable until the underlying law enforcement proceeding is finally concluded. In both of those cases, exemption (b)(7)(A) was applied through criminal defendants' convictions, sentencings, and appeals. See Citizens for Responsibility & Ethics, 746 F.3d at 1091; August, 328 F.3d at 699. Here, the Bittners are still within their rights to challenge the Service's determination of their liability, and under these circumstances such challenge is reasonably expected. Accordingly, the court finds exemption (b)(7)(A) continues to apply until such time as the tax liability is finally determined and resolved.

2. Segregation of Non-Exempt Information

The Bittners argue that if the (b)(7)(A) exemption is not upheld, the Service must produce any segregable information that was withheld under (b)(5). Although the court is recommending that the withholding of pages under exemption (b)(7)(A) be upheld, the court examines this argument for completeness.

Exemption (b)(5), known as the “deliberative process” exemption, is narrower than (b)(7)(A) in that it only exempts “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.” 5 U.S.C. § 552(b)(5). The privilege protects predecisional materials “reflecting deliberative or policy-making processes,” but not materials that are “purely factual.” Skelton v. U.S. Postal Serv., 678 F.2d 35, 38 (5th Cir. 1982). The purpose of the privilege is to protect the decision-making process from the inhibiting effect that disclosure of pre-decisional advisory opinions and recommendations might have on “the frank discussion of legal or policy matters in writing.” Skelton, 678 F.2d at 38 (citing NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 50 (1975)).

However, the Bittners' argument overlooks that documents withheld under (b)(7)(A) were also withheld under (b)(3) in conjunction with IRC § 6103(e)(7), 26 U.S.C. § 6103, in addition to the withholding under (b)(5). See Dkt. #47-1; 49-2 (Valvardi Decl.) at ¶ 8. Exemption (b)(3) permits the withholding of documents that are exempted from disclosure by other statutes so long as that statute requires withholding with no discretion on the issue or the statute establishes particular criteria for withholding or refers to particular types of matter to be withheld. 5 U.S.C. § 552(b)(3). IRC § 6103(e)(7) states “[r]eturn information with respect to any taxpayer may be open to inspection by or dis[pg. 2017-5640] closure to any person authorized by this subsection to inspect any return of such taxpayer if the Secretary determines that such disclosure would not seriously impair Federal tax administration.” 26 U.S.C. § 6103(e)(7) (emphasis added). The Service contends disclosure “would cause harm to the Government by impeding the Service's ability to develop evidence and strategy in the anticipated enforcement proceedings regarding the plaintiffs' taxable years.” Dkt. #49-2 (Valvardi Decl.) at ¶ 9.

The Bittners have provided a list of documents it would like the court to review in camera in order to determine whether the Service properly invoked exemptions (b)(7)(A), (b)(5), and (b)(3). See Dkt. #47-4. The court discusses the propriety of in camera review below.

C. In Camera Review

The Bittners have provided a two-page list of pages that they would like the court to review in camera . See Dkt. #47-4. The majority of the pages were withheld completely. Six entries related to pages that were produced but redacted, and those pages are all within Agent Reach's Activity Record, which the Bittners also request be reviewed in camera. Dkt. #47-5 (Agent Reach's redacted Activity Log). The Bittners have not provided any specific basis to believe the Service may have improperly claimed an exemption to any particular document.

“[A]gency affidavits are generally accorded a `presumption of legitimacy' unless there is evidence that the agency handled the FOIA request in bad faith.” Batton, 598 F.3d at 179 (citing Ray, 502 U.S. at 179). A Vaughn Index, such as that produced here, Dkt. #47-1, allows a court to effectively and efficiently evaluate whether a withheld record is exempt by informing a court what information is contained in a withheld record so that the court can determine de novo if the record is in fact exempt, and it gives the requester a meaningful opportunity to contest the agency's claim of exemption. Church of Scientology of Texas , 816 F. Supp. at 1147; see Vaughn v. Rosen, 484 F.2d 820, 826-827 (D.C. Cir. 1973). “A description is sufficient if it enables a court to reach its own conclusion as to what is in the record. Mere conclusory and generalized statements that a record falls within an exempt category, however, are insufficient.” Church of Scientology of Texas, 816 F. Supp. at 1147.

In camera, ex parte review, though permitted under FOIA and sometimes necessary, is generally disfavored—it “is not a substitute” for the government's obligations to justify its withholding in publicly available and debatable documents, and it should be invoked only when the issue at hand “could not be otherwise resolved.” The purpose of the Vaughn Index is to “permit adequate adversary testing of the agency's claimed right to an exemption,” and those who contest denials of FOIA requests—who are, necessarily, at a disadvantage because they have not seen the withheld documents—can generally prevail only by showing that the agency's Vaughn Index does not justify withholding information under the exemptions invoked. FOIA litigants are entitled to assume that the agency's Vaughn Index is accurate in every detail. And so is the court.

Id. at 1148 (citing Schiller v. N.L.R.B, 964 F.2d 1205, 1209 (D.C. Cir. 1992), abrogated on other grounds by Milner v. Dep't of Navy, 562 U.S. 562 (2011).

The court has reviewed representative entries from the Vaughn Index and the entirety of the various affidavits the Service submitted in support of its withholding. Dkt. #47-1, 16-4, 16-5, 16-6, 41-1, 49-2. The Vaughn Index is sufficiently detailed for the court to assess the applicability of the exemptions claimed. The Service's assertions that the exemptions apply are not “conclusory or generalized” or “too vague or sweeping.” See Cooper Cameron Corp., 280 F.3d at 543.

Notably, although the Bittners submit a two-page of documents for in camera review, the Bittners do not claim any specific entry is too vague or insufficient to assess the applied exemptions. Additionally, the Bittners' list does not contain all of the information provided in the Vaughn Index. The Bittners' list states the pages at issue, whether the pages were withheld in full or in part, and a document description. Dkt. #47-4. The list does not include the exceptions the pages were withheld under or the Service's basis for exemption or reasons disclosure would interfere with the examination. For instance, the Bittners ask the court to review the following entries in camera: [pg. 2017-5641]

   ------------------------------------------------------------------
    Pages  Withheld in     Description           Exemptions 
           full or part 
   ------------------------------------------------------------------
 
    156-   Full            Handwritten notes of  (b)(3)/6103(e)(7); 
    169                    Revenue Agents        (b)(5)/Deliberative 
                           indicating possible   Process; (b)(7)(A) 
                           entities and 
                           transactions of 
                           interest in 
                           determining 
                           plaintiffs' 
                           liability. 
   ------------------------------------------------------------------
    2750   Full            Email among Revenue   (b)(3)/6103(e)(7); 
                           Agents and Counsel    (b)(7)(A) 
                           discussing analysis 
                           of information 
                           collected from 
                           plaintiffs 
   ------------------------------------------------------------------
   ----------------------------------------------------------------
    Pages         Basis for exemption and reasons disclosure 
                  would interfere with examination 
   ----------------------------------------------------------------
 
    156-          Disclosure would reveal how collected data was 
    169           organized and analyzed, indicating entities and 
                  transactions of interest and thereby prematurely 
                  indicating the strategy and focus of the 
                  examination.These pages contain inter-agency 
                  memoranda,letters, or equivalent communications 
                  which reflect the deliberations of employees 
                  of the Service or their counsel, and could 
                  potentially result in confusion from the 
                  disclosure of pre-decisional facts, reasons, 
                  and rationales that were not the ultimate 
                  ground for the agency action. They contain 
                  communications and memoranda prepared by 
                  the Revenue Agents conducting the examination, 
                  their supervisors, and/or Chief Counsel, and 
                  pertain to the potential decision to take 
                  enforcement against plaintiffs, what action 
                  should be taken and the bases and 
                  justifications for such actions. They are 
                  deliberative because they discuss or propose 
                  options for reaching the proper enforcement 
                  determinations, or provide suggested revisions, 
                  legal analysis, and other comments on the 
                  language of draft documents involved in the 
                  examination. The information contained in these 
                  records is pre-decisional because it reflects 
                  opinions and recommendations of agency personnel 
                  that precede the decision to make adjustments 
                  to plaintiffs' tax liability. The final agency 
                  action will be the outcome of the pending civil 
                  examinations. 
   ----------------------------------------------------------------
    2750          These email messages discuss a means for 
                  acquiring additional information about documents 
                  provided by the taxpayers, and disclosing them 
                  would prematurely reveal a particular strategy 
                  and direction of the examination. 
   ----------------------------------------------------------------

Many of the documents on the Bittners' list have similar descriptions to one another and similar bases for the exemption and reasons disclosure would interfere with examination. Compare Dkt. #47-4 with Dkt. #47-1 at 1, 2, 3, 4, 16, 17, 24, 30. This is not surprising as in an examination of this size, one would expect multiple pages of handwritten notes, multiple emails (some of which may be duplicative), and multiple examination workpapers that summarize information from collected documents and indicate entities and transactions of interest. These descriptions, along with the explanations for the withholding, are sufficient for the court to determine that the Service is entitled to assert these exemptions. See Church of Scientology of Texas, 816 F. Supp. at 1147. While some of the descriptions are re-used for presumably similar documents, the Service's Vaughn Index is not conclusory or generalized. Based on the descriptions in the Vaughn Index, there is no reason to believe the relevant pages are not subject to the claimed exemptions. See Batton, 598 F.3d at 179 (“[A]gency affidavits [pg. 2017-5642] are generally accorded a `presumption of legitimacy.'”). The Vaughn Index is sufficiently detailed to permit the court “to effectively and efficiently evaluate the contents of each record and make an intelligent decision whether any portion of it is exempt.” See Church of Scientology of Texas, 816 F. Supp. at 1148. Accordingly, in camera review of the documents on the list submitted by the Bittners is not warranted. See Dkt. # 47-4. This conclusion is bolstered by review of Agent Reach's redacted Activity Record.

Agent Reach's Activity Record is 15 pages long and contains 7 substantive redactions. Several of the redactions, from their context, clearly appear to fall within the deliberative process exemption. For instance, one entry reads, “Discussed case with Mgmt. We determined that [redacted].” Dkt. #47-5 at 9. Another reads, “Participated in TAO discussion. Mgmt and Counsel were in agreement that [redacted].” Id. at 12. The Bittners have not pointed to any entry where the context casts doubt on the propriety of the exemption, nor has the court found any.

It appears that the Bittners' distrust of the Service stemming from the underlying examination has made them suspicious of the Service's response to their FOIA Request. The court, however, has no such distrust. While the Bittners have argued the Service has exhibited bias against them in the underlying examination, they have not shown the Service handled the FOIA Request in bad faith. Accordingly, the court will recommend that the Bittners' request for in camera review be denied.

D. Deposition of Anh Reach

The Bittners would like court to allow them to depose Agent Reach, who is handling the underlying examination. Notably, the Bittners did not request the deposition of an agent who is overseeing the Service's response to their FOIA Request. Thus, this request appears more likely to be an attempt to gain leverage or other information about the underlying examination rather than an improper attempt to gain information about the Service's compliance with FOIA's requirements. “[I]t is also settled law that FOIA was not intended to be a substitute for discovery.” Cooper Cameron Corp., 280 F.3d at 548.

The Bittners cite Citizens for Responsibility & Ethics in Washington v. U.S. Dep't of Justice, No. CIV. 05-2078(EGS), 2006 WL 1518964, at *3 (D.D.C. June 1, 2006), for the proposition that discovery may be granted when a plaintiff has made a sufficient showing that the agency acted in bad faith, has raised a sufficient question as to the agency's good faith, or when a factual dispute exists and the plaintiff has called the affidavits submitted by the government into question. Id. (citing Carney v. Dep't of Justice, 19 F.3d 807, 812 (2d Cir.1994); Judicial Watch Inc. v. Export-Import Bank, 108 F. Supp. 2d 19, 25 (D.D.C. 2000); Pub. Citizen Health Research Group v. FDA , 997 F. Supp. 56, 72-73 (D.D.C. 1998), rev'd on other grounds). The Bittners also cite Judicial Watch, Inc v. Dep't of State, No. CV 14-1242 (RCL), 2016 WL 1270980, at *1 (D.D.C. Mar. 29, 2016), for the proposition that “[w]here there is evidence of government wrong-doing and bad faith, as here, limited discovery is appropriate.”

The Bittners argue discovery is warranted because “Agent Reach's pattern of misconduct and the questionable circumstances surrounding the declarations of Mr. Davis and Mr. Johnson, as well as her retaliatory conduct in asserting astronomical penalties and taxes, raise sufficient questions as to the IRS's good faith in processing documents.” Dkt. #47 at 12 (footnote omitted). Alternatively, the Bittners contend discovery is appropriate because “the IRS has not met its burden with respect to demonstrating the adequacy of its search pertaining to the missing emails, nor has the IRS met its burden regarding compliance with the segregability obligation.” Id. at 12-13 (footnotes omitted).

The court has accepted the Service's explanation for Mr. Davis's and Mr. Johnson's failed hard drives and the Service's inability to retrieve emails from those hard drives. The court has also rejected the Bittners' segregability arguments. Agent Reach's conduct in the underlying examination and the Service's ultimate determination of the Bittners' tax liability are not before this court. The only issues before this court relate to the Service's compliance with its FOIA obligations. After reviewing the evidence, the court has found that the Service has complied with its obligations under FOIA and has not acted in bad faith with respect to those obligations. Accordingly, the court will recommend that the Bittners' request for deposition and any other discovery be denied.

E. Conclusion

For the reasons stated above, the undersigned finds the Service completed a reasonable search, it properly withheld documents under the claimed exemptions, and additional discovery is not warranted. Additionally, the court finds the Service did not act in bad faith in responding to the Bittners' Request. Accordingly, the court will recommend that the Service's Motion for Summary Judgment be granted and [pg. 2017-5643] the Bittners' Cross Motion for Summary Judgment be denied.

IV. RECOMMENDATIONS

For the reasons stated above, no genuine issue of material fact exists with respect to the Bittners' FOIA claim because the Service conducted a reasonable search for documents responsive to the Request and released all responsive pages, or responsive portions of those pages, that are not exempt from disclosure. Accordingly, the court RECOMMENDS the District Court GRANT Defendant Internal Revenue Service's Motion for Summary Judgment (Dkt. #16) and DENY Plaintiffs' Cross-Motion Requesting the Court Order the Production of Agency Records Improperly Withheld from the Plaintiffs and Allow the Deposition of the IRS Revenue Agent (Dkt. #27).

V. OBJECTIONS

The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battles v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).

A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Services Automobile Ass'n, 79 F.3d 1415 (5th Cir. 1996)(en banc).

SIGNED July 31, 2017.

MARK LANE

united states magistrate judge

¹ The motions were referred by United States District Judge Sam Sparks to the undersigned for a Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636(b), Rule 72 of the Federal Rules of Civil Procedure, and Rule 1 of Appendix C of the Local Rules of the United States District Court for the Western District of Texas.

² In some filings Mr. Johnson was misidentified as Jimmy Johnson.

³ The Bittners also contended two other specific documents were not produced, but the Service clarified that one document did not exist and the other was recently produced. Dkt. #24 at ¶¶ 5, 6.

⁴ The court uses the term “tax liability” to include liability for unpaid taxes, fines, assessments, penalties, and all other nomenclature used to indicate an amount owed to the Service for any reason.

⁵ Because the Bittners' tax liability was assessed through various mechanisms, the Bittners have multiple methods to challenge the liability.