Gaetano v. United States

942 F.3d 727 (6th Cir. 2019)

Decided November 6, 2019

In the recent Sixth Circuit decision, Gaetano v. United States, the Court defines the requirements to invoke the exception to the Anti-Injunction Act.  The Appellants in this case are Richard and Kimberly Gaetano (“the Gaetanos”), who own a cannabis dispensary.  To advise on their business operations, the Gaetanos hired an attorney, Gregory Goodman (“Goodman”).  Goodman also became an investor in the Gaetanos’ business venture.  Due to numerous professional ethics violations, the Gaetanos severed their legal and business relationships with Goodman.

Unrelatedly, the IRS later initiated an audit of the Gaetanos and their business.  An IRS agent contacted Goodman for assistance with the investigation and he chose to speak with them concerning his prior clients.  Following his conversation with the IRS, Goodman threatened the Gaetanos of the valuable information he had shared with the IRS.  At this point, the Gaetanos initiated this injunctive action against the IRS to prevent any further collection of attorney-client privileged communications and to destroy any information obtained in breach of their attorney-client privilege with Goodman.  The IRS then moved to dismiss the injunctive action because a lack of jurisdiction due to the Anti-Injunction Act.  The Gaetanos then alleged the Williams Packing exception was applicable and overrides the lack of jurisdiction under the Anti-Injunction Act.  The district court dismissed the action and the Gaetanos appealed to the Sixth Circuit Court of Appeals.

The Sixth Circuit affirmed the district court’s decision that the Anti-Injunction Act bars the Gaetanos’ suit and the requirements of the Williams Packing exception were not met by the Appellants.  The Anti-Injunction Act historically has been used to bar any court from having jurisdiction over matters involving the restraining of the assessment or collection of any tax.  See 26 U.S.C. § 7421.  Due to the broad applicability, this decision focusd on the inapplicability of the Williams Packing exception.  To invoke this exception the moving party must show two things: (1) that “under no circumstances could the Government ultimately prevail” against the moving party’s claim for injunctive relief and (2) that jurisdiction exists due to equity.  See 26 U.S.C. § 7421(a); Enochs v. Williams Packing & Navig. Co., 370 U.S. 1 (1962).

Ultimately, the Court found that the government does prevail against the Gaetanos’ injunctive relief claim., and it rejected the arguments presented by the Appellants’.  First, the Appellants argued that their Sixth Amendment rights were violated by the IRS.  In order to violate the Sixth Amendment, the prosecution must have commenced.  In this case, the IRS is still in the investigatory stages and no criminal prosecution has begun.  Second, the Appellants alleged that the IRS had violated their Fifth Amendment rights.  That assertion was found incorrect because intrusion by the government into the attorney-client relationship alone has not been held to violate Due Process.  Sanborn v. Parker, 629 F.3d 554, 575 (6th Cir. 2010).  There must be a showing that the intrusion was “so pervasive and prejudicial” that it threatened the fairness of the proceedings and the moving party should provide evidence that the intrusion was a display of “outrageous government conduct.” United States v. Voigt, 89 F.3d 1050, 1066 (3d Cir. 1996); United States v. Harney, 934 F.3d 502, 506–07 (6th Cir. 2019).  Furthermore, the Court held that for such a due process claim to be successful there must be an ongoing attorney-client relationship, which the Gaetanos did not have with Goodman at the time the IRS spoke with him.  Voigt, 89 F.3d at 1067.  Lastly, the Gaetanos make a last-ditch effort by alleging that the Court should exercise its right to enjoin intrusions into the attorney client relationship.  The Sixth Circuit struck down that because the communication in this case did not occurring during a court proceeding before a judge.

The Court also found that the Gaetanos failed to show the second requirement of the Williams Packing exception, by not presenting evidence of how they will be denied an adequate remedy at law if the Anti-Injunction Act bars their injunctive claim.  The Court pointed to multiple avenues in which the Appellants would still have an adequate remedy.  First, the Gaetanos will be able to invoke privilege if this information obtained from Goodman is used against them in a criminal proceeding.  Additionally, the Gaetanos will be able to take the appropriate steps to recover from the misconduct of their prior attorney, Goodman, for any professional ethics violations he committed.

This decision further shows the broad applicability of the Anti-Injunction Act through the high standards required to invoke the Williams Packing exception.