IRS Tax Shelters and 419 Plans Litigation
412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.
This appeal presents the question of when a district court may enforce a government agency's subpoena duces tecum against a financial institution in light of two statutes which protect private consumer financial information, the Right to Financial Privacy Act (RFPA), 12 U.S.C. § 3401, et seq. and the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. § 6801 et seq.
I. Factual and Jurisdictional Background
2 In February 2004, the United States Department of Labor (DOL) initiated an investigation into unspecified fiduciary duty violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA), involving the Regional Employers' Assurance Leagues' Voluntary Employees' Beneficiary Association (REAL VEBA). REAL VEBA is a multiple-employer/employee welfare benefit trust. The individual employees, who are beneficiaries of the REAL VEBA Trust, receive various benefits from the trust, including life insurance. REAL VEBA pays the premiums of each participant's separate insurance policy. REAL VEBA does not, however, maintain separate accounts in each participant's name. Each participant in REAL VEBA has executed a limited power of attorney for REAL VEBA to act on his or her behalf.
3 As part of her investigation, the Secretary of Labor issued an administrative subpoena duces tecum to Penn-Mott Benefit Services, Inc., the REAL VEBA plan administrator, and to John J. Koresko. Koresko is the sole shareholder in Koresko and Associates, a law firm that represents Penn-Mott. Penn-Mott has no employees or assets. Penn-Mott and Koresko refused to comply with the subpoena based on attorney-client privilege and financial privacy rights. As a result, in April 2004, the Secretary instituted an enforcement action in the Eastern District of Pennsylvania. Our Court ultimately ordered in Chao v. Koresko, 2005 WL 2521886 (3d Cir. Oct. 12, 2005), 2005 U.S.App. LEXIS 22025, that the subpoenas against Penn-Mott and Koresko be enforced.1
4 Community Trust Company (CTC) is state-chartered trust company. It is the trustee of REAL VEBA and maintains an account in REAL VEBA's name. CTC accepts deposits for policy premiums to be paid for certain benefits, such as life insurance, for specific employee beneficiaries. CTC maintains the deposits, invests them in a money market account, and remits payment of the premiums to insurance companies for individual employees' policy premiums. The Secretary, in December 2004, issued a second subpoena duces tecum to CTC, directed at the REAL VEBA documents.
5 CTC maintains a copy of the REAL VEBA Trust organizational documents, such as the trust agreement.2 However, the vast majority of the documents covered by the CTC subpoena contain personal private financial information specific to each employee receiving benefits under the REAL VEBA Trust. CTC claims that the subpoena requires it to disclose documents which are either personal financial records of REAL VEBA beneficiaries or copies of documents which the Secretary has already received from the respondents in Koresko.3 Therefore, CTC refused to furnish the information, arguing that it would violate financial privacy rights set forth in the RFPA and the GLBA.
6 On January 1, 2005, the Secretary filed a petition to enforce the CTC subpoena in the District Court
This appeal presents the question of when a district court may enforce a government agency's subpoena duces tecum against a financial institution in light of two statutes which protect private consumer financial information, the Right to Financial Privacy Act (RFPA), 12 U.S.C. § 3401, et seq. and the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. § 6801 et seq.
ReplyDeleteI. Factual and Jurisdictional Background
2
In February 2004, the United States Department of Labor (DOL) initiated an investigation into unspecified fiduciary duty violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA), involving the Regional Employers' Assurance Leagues' Voluntary Employees' Beneficiary Association (REAL VEBA). REAL VEBA is a multiple-employer/employee welfare benefit trust. The individual employees, who are beneficiaries of the REAL VEBA Trust, receive various benefits from the trust, including life insurance. REAL VEBA pays the premiums of each participant's separate insurance policy. REAL VEBA does not, however, maintain separate accounts in each participant's name. Each participant in REAL VEBA has executed a limited power of attorney for REAL VEBA to act on his or her behalf.
3
As part of her investigation, the Secretary of Labor issued an administrative subpoena duces tecum to Penn-Mott Benefit Services, Inc., the REAL VEBA plan administrator, and to John J. Koresko. Koresko is the sole shareholder in Koresko and Associates, a law firm that represents Penn-Mott. Penn-Mott has no employees or assets. Penn-Mott and Koresko refused to comply with the subpoena based on attorney-client privilege and financial privacy rights. As a result, in April 2004, the Secretary instituted an enforcement action in the Eastern District of Pennsylvania. Our Court ultimately ordered in Chao v. Koresko, 2005 WL 2521886 (3d Cir. Oct. 12, 2005), 2005 U.S.App. LEXIS 22025, that the subpoenas against Penn-Mott and Koresko be enforced.1
4
Community Trust Company (CTC) is state-chartered trust company. It is the trustee of REAL VEBA and maintains an account in REAL VEBA's name. CTC accepts deposits for policy premiums to be paid for certain benefits, such as life insurance, for specific employee beneficiaries. CTC maintains the deposits, invests them in a money market account, and remits payment of the premiums to insurance companies for individual employees' policy premiums. The Secretary, in December 2004, issued a second subpoena duces tecum to CTC, directed at the REAL VEBA documents.
5
CTC maintains a copy of the REAL VEBA Trust organizational documents, such as the trust agreement.2 However, the vast majority of the documents covered by the CTC subpoena contain personal private financial information specific to each employee receiving benefits under the REAL VEBA Trust. CTC claims that the subpoena requires it to disclose documents which are either personal financial records of REAL VEBA beneficiaries or copies of documents which the Secretary has already received from the respondents in Koresko.3 Therefore, CTC refused to furnish the information, arguing that it would violate financial privacy rights set forth in the RFPA and the GLBA.
6
On January 1, 2005, the Secretary filed a petition to enforce the CTC subpoena in the District Court