Court Rejects Prior Settlement From Barring Release of Documents in FOIA Claim

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“Some on the street say snitches get stitches, but in this case they become the subject of Freedom of Information Act requests.” So starts Montgomery v US, one of the more interesting FOIA cases I have come across in this round of updates for the Saltzman Book IRS Practice and Procedure treatise.

I start by noting that “FOIA” and “interesting” do not usually find themselves paired. But in Montgomery, a district court opinion from earlier this year, the two fit nicely. In an opinion written by Judge James Boasberg, the same district court judge who wrote the opinion a few years ago in Loving v IRS, which struck down the testing and continuing education requirements for return preparers, Montgomery addresses a FOIA issue I had not previously seen-namely whether a prior settlement agreement can serve as a nonstatutory basis for the government’s withholding documents in a FOIA case.

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This case had its origins in the IRS’s examination of the taxpayers’ complex partnership transactions many years ago. As the opinion describes, the partnership transactions attracted the attention of the IRS, leading to opinions that upheld the determination that the partnerships were shams and that the IRS properly issued final partnership administrative adjustments, but also a separate refund suit that the IRS ultimately settled, leading to an almost $500,000 refund for the Montgomerys.

The settlement did not end the dispute. The Montgomerys filed a FOIA claim, convinced that the IRS troubles with the partnerships were the result of information that an informant provided to the IRS. The FOIA claim sought general information pertaining to the IRS investigation, but also specific forms the IRS uses when confidential informants trigger an investigation.

The case implicates FOIA Exemption 7D, which we discuss in Chapter 2 of the treatise, and which provides protection for “records or information compiled for law enforcement purposes [which] could reasonably be expected to disclose the identity of a confidential source…”

7D has a lot to unpack, and there has been a substantial amount of case law getting into its nooks and crannies, and we discuss that in Chapter 2.03[6] of the treatise.

This opinion, however, involves a preliminary defense that the Service raised in a motion for summary judgment. In settling the refund suit in 2014, the IRS and Montgomery entered into an agreement that “fully and final resolve[d] all ongoing disputes” among the IRS, the Montgomerys and their partnerships; the language in the agreement also referred to resolving all issues in “pending” lawsuits.

In justifying its refusing to hand over documents that the Montgomerys requested in the FOIA request, the government argued that the refund suit settlement agreement’s final resolution language barred the Montgomerys from bringing their FOIA case.

The problem, however, is that the settlement agreement, which resolved the ongoing disputes and pending litigation, predated the FOIA claim, which was filed a year or so after the agreement. Despite that challenge, the government argued that the Montgomerys in their refund suit had sought similar information in a motion for disclosure, and thus there was an “ongoing dispute” that brought the FOIA claim within the parties’ settlement agreement.

The court disagreed:

Where the IRS goes off track, however, is in conflating the underlying information that Plaintiffs seek with the device through which they are pursuing documents…. The Service cannot try to shoehorn this action into the Settlement Agreement simply because Plaintiffs’ end game is the same.

While the opinion rejected the government’s argument, the opinion notes that the outcome might have differed if in the prior litigation the taxpayers had sought information pursuant to Rule 34 of the Federal Rules of Civil Procedure, which allows for inspection of documents or electronically stored information and which the opinion notes  “might arguably be more akin to a FOIA request.”

Conclusion

For readers with an interest in FOIA, there is a bit more to this case, as the  opinion also rejects strained res judicata and collateral estoppel arguments the government raised in its motion.

Despite the initial win for the Montgomerys, the dispute continues, however, as the parties differ on the reach of the statutory basis for withholding of documents, as well as the applicability of a so-called Glomar denial, which is when the government refuses to confirm or deny information pertaining to a request. A Glomar denial has its origins in a case involving the CIA and the government’s withholding information relating to Project Azorian, a massive project to uncover a sunk Soviet sub. Its reach in FOIA cases involving the IRS and its possible use of informants is now squarely at issue in this case. Stay tuned.

 

 

 

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Good piece. Question: Google/Wikipedia show Project Azorian, not Project Azorkian. Which is correct? Let us know. Thanks!

  2. Azorian is right; updated post to correct. Thanks for flagging.

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