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UNITED STATES v. NEW YORK STATE DEPT. OF TAXATION

December 4, 1992

UNITED STATES OF AMERICA, Petitioner,
v.
NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, Respondent.



The opinion of the court was delivered by: NEAL P. MCCURN

NEAL P. McCURN, C.J.

 MEMORANDUM-DECISION AND ORDER

 This matter comes before the court today on a return of an order to show cause as to why the respondent, New York State Department of Taxation and Finance ("State"), should not be compelled to comply with an administrative subpoena duces tecum issued pursuant to 5 U.S.C. app. 3 § 6(a)(4) (West Supp. 1992) by the United States Department of Labor's Office of Inspector General. This court has jurisdiction over the dispute pursuant to 28 U.S.C. § 1345 (1988) (proceeding involving the United States).

 I. BACKGROUND

 In 1978, in an effort to control the rising tide of inefficiency and abuse in federal programs, Congress enacted the Inspector General Act of 1978 ("Act"). The Act established Offices of Inspector General in fifteen federal agencies, including the Department of Labor. The Offices were created to lead each agency's efforts in promoting efficiency and purging waste and fraud from their programs. See Act, Pub. L. No. 95-452, § 2, 92 Stat. 1101, 1101 (1978). To accomplish these goals, the Act requires Inspector Generals to conduct audits of, and investigations into, agency programs. Id. § 4(a)(1).

 Congress gave the Inspector Generals sweeping investigative powers to perform their functions. Most notably (at least for purposes of this proceeding), Congress gave the Inspector Generals authority to issue administrative subpoenas for the production "of all information, documents, reports, answers, records, accounts, papers, and other data and documentary evidence necessary in the performance of their functions . . . ." 5 U.S.C. app. 3 § 6(a)(4). Significantly, the Act places few restrictions on the Inspector Generals' subpoena power. The only substantive restriction relates to subpoenas issued to other federal agencies; after adding that limitation, Congress left the Inspector Generals' remaining subpoena power essentially unfettered.

 Pursuant to its authority under the Act, the Department of Labor's Office of Inspector General ("OIG") investigates activities related to, inter alia, the Department's Job Training Partnership Act ("JTPA"). The OIG is currently conducting an audit to determine whether various JTPA participants have satisfied the JTPA's training and assistance requirements. See Campbell Decl. (10/7/92) P 4. As part of its audit, the OIG has subpoenaed from the State wage records of approximately 150 JTPA participants. See Petition (11/5/92) exh. "2" (subpoena, including list of 150 JTPA participants). The OIG has specifically requested records showing: (1) the names and addresses of the participants' respective employers; (2) the employers' ID numbers; (3) the participants' earnings; and (4) the participants' hours worked. According to the OIG's Regional Inspector, the records sought would assist the OIG in determining whether the information contained in the participants' JTPA files is accurate. Campbell Decl. (10/7/92) P 6.

 The Regional Inspector attests that she has requested this information from the State because "the wage records maintained by New York State are the most reliable and, in some instances, the only independent sources of verification." Id. The OIG's efforts have been hampered, however, by the State's refusal to produce the subpoenaed documents. The State bases its refusal upon Fed. R. Evid. 501 and N.Y. Tax L. § 697(e)(1) (McKinney 1987), which, the State contends, considered together erect an absolute privilege to disclosure of the subpoenaed records. After unsuccessfully negotiating for the disclosure of the records, the OIG commenced this proceeding pursuant to the Act, 5 U.S.C. app. 3 § 6(a)(4) to compel production. *fn1"

 II. DISCUSSION

 A. State's argument against compliance

 As previewed above, the State's refusal to disclose the subpoenaed records is based upon its construction of the interplay of two statutes: Fed. R. Evid. 501 and N.Y. Tax L. § 697(e)(1). Thus, this discussion begins with a brief examination of those two statutes.

 The State first argues that Rule 501 ("Privileges"), a federal law, dictates that the OIG's subpoena power is subject to state law governing privileges. The portion of Rule 501 upon which the State relies specifically states:

 In civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of the decision, the privilege of a witness, person, government, state or political subdivision thereof shall be determined in accordance with State law.

 Fed. R. Evid. 501. *fn2" Construing Rule 501 as a mandate that privileges set forth in state law limit the OIG's investigative authority, the State invokes the privilege set forth in N.Y. Tax L. § 697(e)(1) in an ...


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