The opinion of the court was delivered by: WYATT
This is a motion by plaintiff (Emilio) for a preliminary injunction (Fed. R. Civ. P. 65) restraining defendants from levying (26 U.S.C. § 6331(a)) to satisfy an assessment of taxes against Emilio made by the Internal Revenue Service (the Service) on April 25, 1968. The action is in substance for the same relief permanently.
Emilio is the proprietor of a stationery store and luncheonettes located at 151 West Sanford Boulevard, Mount Vernon, New York.
On April 15, 1965, Emilio was arrested in the back room of his store by special agents of the Service who had an arrest warrant issued on a complaint of violation of federal wagering tax laws. A search of Emilio conducted incident to his arrest disclosed $425 in currency on his person and some betting slips. Some three hours later, the agents caused a safe in the storage room of Emilio's store to be opened; currency in the amount of $123,017 was found and seized. Other currency in the sum of $2,440 was at about the same time seized from other locations in the storage room, along with three bundles of bets wrapped up in racing forms. The total of the money seized on April 15 was thus $125,882.
On July 9, 1965, the government filed a libel of information (65 Ad. 704) to forfeit (26 U.S.C. § 7302) the $125,882 in currency seized on April 15. In due course Emilio filed a claim to the money as its owner.
When property is seized by revenue officers and is "forfeitable", it may, at the option of the Service, be put in the "custody and control " of the Marshal, that is, in advance of the filing of a libel (26 U.S.C. § 7322; emphasis supplied). In this instance, the property was not put in the custody and control of the Marshal before filing the libel.
Forfeiture is by "a proceeding in rem" (26 U.S.C. § 7323) and where the Court does not already have the property, jurisdiction is obtained by securing its possession in the Court so that control over the property may be exercised and the Court's decree made effective.
When the libel was filed against the currency seized from Emilio, a writ of attachment duly issued. The currency, then in the physical possession of the Service at 90 Church Street, was on July 14, 1965 attached and taken under control of the Marshal by proper service of the writ on the appropriate representative ("property coordinator") of the Service. Physical possession was not then changed but from that date the property has nevertheless been in the custody of the Court (and on May 29, 1968, I directed the Marshal to take the property into his physical possession).
An information (65 Cr. 729) was filed on August 19, 1965 charging Emilio in two counts with violations of the federal wagering tax laws (26 U.S.C. §§ 4401, 4411 and related sections). Emilio pleaded not guilty.
Emilio moved under Fed. R. Crim. P. 41(e) for the return of the money seized and for its suppression for use as evidence. He successfully contended before Judge Murphy that the arrest warrant was invalid but Judge Murphy sustained the arrest as one by a private citizen who saw Emilio commit a misdemeanor in his presence (accepting wagers illegally); such an arrest is valid under New York law (United States v. Viale, 312 F.2d 595 (2d Cir.), cert. denied 373 U.S. 903, 10 L. Ed. 2d 199, 83 S. Ct. 1291 (1963)). Since the $425 in currency and "ten betting slips" were taken in a search incident to a lawful arrest, Judge Murphy would not suppress this property for use as evidence nor direct its return to Emilio. On the other hand, the currency seized three hours later (in total $125,457) and the bundle of bets then taken were held to have been illegally seized because not incident to the arrest. The government contended that this property should not be ordered returned, however, because it was subject to forfeiture under 26 U.S.C. § 7302. Without passing on the merits of this contention Judge Murphy denied that part of Emilio's motion which sought the return of the $125,457 and the bundle of bets on condition that the government before November 1, 1965 file a libel for its forfeiture (Judge Murphy was evidently not aware that a libel had already been filed). The order with opinion of Judge Murphy was filed October 25, 1965.
A motion for Emilio for summary judgment in the forfeiture case was denied by Judge (now Chief Judge) Sugarman by order with opinion filed March 22, 1966. Chief Judge Sugarman ruled that under One 1958 Plymouth, etc. v. Commonwealth of Pennsylvania, 380 U.S. 693, 14 L. Ed. 2d 170, 85 S. Ct. 1246 (1965) a forfeiture could not be supported solely by illegally seized evidence but that there had to be a trial of Emilio's case because "independent" and untainted evidence was available. The motion before Judge Sugarman was for summary judgment "in favor of the claimant" but the moving affidavit made it clear that the motion was for partial summary judgment because it did not include the $425 and "ten betting slips" taken from Emilio's person.
The trial of the information in the criminal case was before Judge Frankel and a Jury. There was a verdict of guilty on both counts (but "without wilful intent", thus excluding a violation of 26 U.S.C. § 7203) and judgment of conviction was entered on May 10, 1966. The Court of Appeals affirmed on November 17, 1967 (386 F.2d 177).
On January 29, 1968, the Supreme Court decided that the federal wagering tax laws could not be used to punish criminally those who (as did Emilio) defend their violations on Fifth Amendment grounds. Marchetti v. United States, 390 U.S. 39, 88 S. Ct. 697, 19 L. Ed. 2d 889.
On March 4, the Supreme Court granted certiorari in Emilio's case, vacated the judgment and remanded, etc., Stone v. United States, 390 U.S. ...