United States v. Stelten

Norbert E. Stelten, Joseph P. Gorman, Robert A. Hawley, Audrey J. Hawley, Lloyd M. Emond, and Donald Lee Carlson appeal the decision of the district court to deny their motions to suppress allegedly illegally seized evidence.1 We affirm. BACKGROUND

Appellants were charged with and convicted of a single count of conspiracy to defraud the United States Government by impairing and impeding the lawful functions of the Internal Revenue Service, in violation of 18 U.S.C. § 371.2 Appellant Carlson was charged with and convicted of income tax evasion for the tax year 1983, in violation of 26 U.S.C. § 7201. In addition to imposing prison sentences which range from two to five years, the district court assessed the prosecution costs of $17,-254.53 to be paid “jointly and severally” by the appellants.

The appellants are members of the National Commodity and Barter Association (NCBA), an association seeking political redress from the United States Government against what it perceives to be an unconstitutional and oppressive monetary and taxation system. The leadership of the NCBA advocates and promotes opposition to federal income taxation laws. The subject of this lawsuit is the appellants’ participation in a NCBA warehousing banking exchange commonly known as the National Commodity Exchange (NCE). The official purpose of the NCE was to provide an alternate method of banking for NCBA members to preserve privacy in financial transactions.

The government contends that the true purpose of the warehouse bank exchanges was to allow the appellants to defraud the United States of tax monies owed by conducting financial transactions without creating records which could be detected by the IRS. The appellants also allegedly promoted the use of the exchanges to other individuals as a method of preventing the IRS from tracing income to its source or owner. According to the IRS, the appellants failed to file income tax returns and suggested to exchange members that the filing of income tax returns was not required.

The NCE, managed and operated by Joseph P. Gorman, had several affiliated satellite exchanges. Robert and Audrey Haw-ley operated the Mid-States Exchange (MSE) from their home in Alexandria, South Dakota. Stelten, a salesman of business trusts, maintained a satellite exchange account with MSE, serviced transactions for several individuals through this account, and provided the Hawleys with a list of his account holders. Emond held an NCBA account, and operated a satellite exchange called the Nu-Patriot Commodity Exchange. Carlson maintained two accounts with the NCE and one account with MSE.

After an undercover investigation, IRS agents obtained and executed three search warrants in Colorado, seizing numerous boxes of documents relating to the NCE warehousing business.3 Several NCBA members then requested a Fed.R.Crim.P. 41(e) evidentiary hearing seeking the return of these documents. A federal district judge held that the search was illegal as the description of the items to be seized was insufficiently particular. The district court ordered the IRS to return the property to NCBA members.4 Although the documents were returned, the IRS retained copies of many of the documents and submitted them to a Minnesota grand jury. After being indicted in Minnesota for conspiring to defraud the United States Government, the appellants filed motions to suppress the copies as evidence, arguing that the Colorado proceeding precluded the government from using these documents in the Minnesota trial. The district court denied these motions and many of the documents were admitted at trial.

IRS agents also obtained a warrant to search the South Dakota residence of Robert Hawley and Audrey Hawley.5 Although the warrant only extended to the business office in the Hawley residence, IRS agents conducted a security search of the entire house. They discovered and seized a large number of MSE records, banking documents, cassette tapes, and books in the office, a basement closet and several bedrooms. The Hawleys sought the return of the documents through a Rule 41(e) motion, but the district court refused to rule on the constitutional validity of the warrant as their motion was premature.6 After they were indicted for conspiring to defraud the United States Government, the Hawleys renewed their motion to suppress, asserting that the description of items to be seized, identical to the description in the Colorado warrants, was insufficiently particular and over-broad. The district court denied their motion. 661 F.Supp. at 1095. Several items seized from the Hawley home were admitted into evidence at trial.

In this consolidated appeal, the appellants assert that the district court erred in not suppressing the evidence seized during the execution of the Colorado and South Dakota search warrants because the warrants were overly broad and they violated the appellants’ first amendment rights by calling for the seizure of documents indicating names of NCBA members. Appellants also assert that both the Colorado and South Dakota warrants were not properly admissible under the good faith exception to the exclusionary rule. We disagree.

DISCUSSION

The Tenth Circuit found that the Colorado warrants were invalid because they allowed the seizure of evidence not related to the specific crime of conspiracy to defraud the government. The district court recognized the binding nature of this finding in the present case. It stated:

The district court [of Colorado] ruled the warrants were supported by sufficient probable cause, but invalid on particularity grounds. The Tenth Circuit Court of Appeals affirmed. 774 F.2d at 406.

Thus, on the instant motion to suppress the evidence seized pursuant to the three Colorado warrants, we do not proceed on a clean slate. The Colorado courts have decided that the affidavits supplied probable cause for the searches and that the warrants were not drawn with sufficient particularity to pass muster under the fourth Amendment.

United States v. Stelten, supra note 1, at 1094.

Although we may disagree with the Tenth Circuit, we are bound by its decision. The district court correctly noted, however, that neither the Colorado district court nor the Tenth Circuit addressed the issue of whether the officers acted in objectively reasonable reliance on the warrants that were issued by a detached and neutral magistrate. Thus, the evidence seized pursuant to the Colorado warrant may be admissible under United States v. Leon, 468 U.S. 897, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984). The district court properly addressed this issue.

The appellants, however, also raise an overbreadth challenge against the South Dakota warrant. Our review of Eighth Circuit law, in contrast to Tenth Circuit case law, indicates the South Dakota search warrant in this case is not facially overbroad because it called for the seizure of property being used in violation of federal law and because the seizure was limited to property involved in the alleged crime.

The last sentence of the South Dakota warrant provides that only evidence of the appellants’ conspiracy to defraud the government should be seized. A very detailed affidavit accompanied the warrant clearly establishing the government’s contention that the appellants were attempting to hide tax monies owed to the federal government through the banking warehouse operations. The warrant did not authorize the seizure of every business document or every item located in the Hawley residence. The warrant and the affidavit indicated to the searching agents that they had to limit their seizure of evidence to documents relating to the appellants’ attempt to defraud the government through banking warehouse transactions. We do not believe that the warrant, accompanied with the affidavit, was constitutionally deficient.

Nor do we find in the present case any violation of the “scrupulous exactitude” standard of Stanford v. Texas, 379 U.S. 476, 85 S.Ct. 506, 13 L.Ed.2d 431 (1965). In Stanford v. Texas, the Supreme Court held that warrants calling for the seizure of books on the basis of the objections to ideas they contain must describe the items to be seized with “scrupulous exactitude.” 379 U.S. at 485, 85 S.Ct. at 511-12. When the government wishes to seize written material for any reason other than the content of the material, the first amendment is not infringed and the scrupulous exactitude test does not apply.

The IRS listed items in the Colorado and South Dakota warrants that were business records documenting the financial transactions of the banking warehouses. Although some of the seized documents identified the names of people who participated in the activities of the NCBA, NCE and MSE, that fact does not render their seizure a violation of the members’ right of association. Seizure of a customer’s warehouse receipt file is proof of the way in which he or she used the NCE’s financial services to conceal income. This type of business record in no way resembles “indi-cia of membership,” as its evidentiary value is independent of the association it demonstrates. Furthermore, the books that were seized were not confiscated on the basis of the ideas they contained. The Bible that was seized, for example, contained a bookmark that had banking information written on it. Thus, neither the Colorado warrants nor the South Dakota warrant violate the appellants’ first amendment rights. They are, therefore, not subject to the Stanford v. Texas standard.

Even if the evidence had been seized pursuant to overly broad warrants, courts need not exclude evidence seized by law enforcement officers acting in objectively reasonable reliance on a warrant issued by a neutral magistrate. United States v. Leon, 468 U.S. 897, 922, 104 S.Ct. 3405, 3420, 82 L.Ed.2d 677 (1984).

We agree with the district court that the evidence supports the officers’ reasonable presumption that the Colorado and South Dakota warrants were valid. The agents’ testimony establishes that they took much care in drafting the descriptions of items to be seized. In the Colorado case, they sought the consultation of an Assistant U.S. Attorney. A comprehensive affidavit describing the scheme to defraud the government accompanied all of the warrants. Given the effort in drafting the warrants, the detailed affidavits and the specific itemization of evidence sought, we cannot find that the warrants were “so facially deficient * * * that the executing officers cannot reasonably presume it to be valid.” Leon, 468 U.S. at 923, 104 S.Ct. at 3421. We affirm the district court’s holding that the warrants at issue pass muster under the good faith exception enunciated in Leon.

CONCLUSION

The judgments of conviction are affirmed.