Page taken from: Law.com
Two weeks before tax day, married lawyers Alan and Jean Brown were signing their names to the back of a familiar-looking green and yellow U.S. Treasury Department check that most Americans associate with a tax refund.
The check the San Antonio couple endorsed on March 30 was an Internal Revenue Service refund of sorts — but not in the traditional sense.
The $1.34 million check was the result of a settlement between the Browns and the government in Alan Brown, et al. v. United States, a Federal Tort Claims Act (FTCA) suit the couple filed three years ago in the U.S. District Court for the Western District of Texas.
The couple filed the civil suit after they were caught up in a complicated tax prosecution in which Alan Brown, a well-known criminal defense attorney with Brown & Norton, and Jean Brown, a family law solo, allege they were targeted by overzealous Internal Revenue Service agents, which led to the Browns being indicted in 2003 by a federal grand jury in Austin, Texas, for allegedly filing false personal tax returns between 1994 and 1997.
In their first amended complaint in their civil suit, the Browns alleged, among other things, that IRS agents had authorized a warrantless search of their offices, records and home that was without probable cause; that the defendants and/or other “investigative or law enforcement officers” used false or misleading evidence to seek a search warrant, justify the grand jury investigation, and the indictments; and that the government, “through its ‘investigative or law enforcement officers,’ maliciously prosecuted Alan Brown through and including a lengthy criminal trial without probable cause, which proximately caused plaintiffs to suffer significant damages.”
The Browns further alleged in a response pleading that IRS agents made “material misrepresentations and omissions to their supervisors, prosecutors, and a grand jury.”
After a five-week trial before U.S. District Judge Lee Yeakel of Austin in United States v. Alan Brown, a jury acquitted Alan Brown in 2005. The government subsequently dismissed the indictment against Jean Brown.
While the settlement check that resulted from their civil suit will just about cover the Browns’ legal expenses in their criminal tangle with the government, the couple says the money represents something more important — that the fight with the government finally is over.
“While we believe we would have gotten a lot more in trial, it would have hung up on appeal,” says Jean Brown, who adds that she was indicted merely because she filed a joint tax return with her husband. “And we wanted to get our lives back together professionally and emotionally. And we didn’t want to give them another day of our lives.”
“The further away you get from it the better,” says Alan Brown. “But when it started off, I was totally terrorized.”
Larry Wright, an IRS regional spokesman in San Francisco, refers questions about the Browns’ civil suit to the Assistant U.S. Attorneys who were involved in the FTCA suit.
Julie Zatz, an Assistant U.S. Attorney in Los Angeles who handled the FTCA civil suit after the U.S. Attorney’s Office for the Western District of Texas recused itself, says the government did not admit any liability in settling the case. The U.S. Attorney’s Office for the Western District recused itself because Alan Brown regularly defended clients in federal court who were being prosecuted by the office.
“It did not settle for anything that the agents had alleged to have done or failed to do,” Zatz says. Rather, she explains, the government wanted to contain its litigation costs by settling the suit.
But Bill Reid, a partner in Austin’s Diamond McCarthy who represented the Browns in their civil suit, disagrees with Zatz. It is unusual for the government to settle such a case for more than $1 million, he says.
“The thing is, this is not your normal tax case,” says Reid, who is a former Assistant U.S. Attorney for the Western District of Texas. “Generally, they’re not paying that … on a malicious prosecution case.”
The Browns didn’t know the IRS was investigating them until 2000, when IRS agents served a search warrant on their house and on Alan Brown’s law office. The agents went through the Browns’ personal and professional lives in ways they never could have imagined, Jean Brown says.
“They picked through my trash; there isn’t a merchant in town they didn’t talk to,” she says.
The agents also ended up seizing hundreds of Alan Brown’s client files, crippling his practice, he says.
In 2002, the Browns filed a motion before U.S. District Judge Orlando Garcia of San Antonio to have Alan Brown’s files returned, which Garcia granted.
Garcia’s 20-page opinion ordering the return of the files laid out some of the more unusual details of the case: IRS agent James Maxwell obtained a search warrant for the Browns’ home and Alan Brown’s law office at Brown & Norton based on information provided by a confidential informant who had managed the bookkeeping in Alan Brown’s law office. The employee told Maxwell that Brown’s law office cash receipts book showed that he had been under-reporting his taxable income for years.
But the employee’s credibility was compromised, according to Garcia’s opinion. Among other things, the employee’s boyfriend was serving 18 years in the federal penitentiary for various drug-related convictions, and she allegedly had laundered money through Alan Brown’s law office. She hoped federal prosecutors would reduce her boyfriend’s sentence if she turned in Brown, according to the opinion.
“Yet Maxwell disclosed none of this to the magistrate judge” who approved the search warrant, Garcia wrote.
Garcia also concluded that Maxwell — as an experienced tax fraud investigator and certified public accountant — should have known that the cash receipts book at Alan Brown’s law office included entries that were not taxable income, items such as payments for bail bonds or retainers paid by clients.
“Despite this knowledge, Maxwell told the magistrate judge that the receipt books indicated Brown had received tens of thousands of dollars that he failed to report on his tax returns,” Garcia wrote.
“Therefore, Maxwell’s statements are knowingly or recklessly false,” Garcia wrote, approving the return of the materials seized from Alan Brown’s law office.
Prosecutors appealed Garcia’s order to the 5th U.S. Circuit Court of Appeals, which reversed Garcia in 2003. The court found that Alan Brown had failed to prove the necessary harm requiring the return of the seized materials.
Prosecutors presented their case against the Browns to a federal grand jury in Austin, which indicted the couple for allegedly filing false income tax returns.
Alan Brown’s trial lasted five weeks and ended with the jury acquitting him. The indictment against his wife was dismissed.
Brenda Morris, a chief deputy in the U.S. Department of Justice’s Public Integrity Section who prosecuted the Browns, did not return a telephone call seeking comment.
Jason Collins, an associate with Austin’s Diamond McCarthy who also represented the Browns in their civil suit against the government, believes IRS agents targeted Alan Brown because he was a high-profile attorney who had defended big-name clients such as former U.S. Rep. Albert Bustamante, professional boxer Tony Ayala and country music star Johnny Rodriguez.
Collins says because Alan Brown is successful, he has paid hundreds of thousands of dollars in taxes over the years. And the IRS wrongly accused him of owing $80,000 more.
“They took a guy who pays his taxes and chewed he and his family apart over this,” Collins says.
When Alan Brown was indicted in 2003, he was earning nearly $1 million a year, his lawyers say.
The next three years, the Browns’ legal practices took a huge hit, losing nearly $1.5 million in business, Collins maintains.
Alan Brown says he had to inform all of his clients who had cases pending in the federal courts in San Antonio that he was under federal indictment. Most of his clients stuck by him, he says.
“You didn’t want to fool a client. A lot of people still wanted to hire us,” Alan Brown says. “And the town and the lawyers stuck by me.”
One state judge and two prosecutors in San Antonio even testified at the trial as character witnesses for the couple, he says.
Jean Brown says her family law practice also took a hit after she was indicted.
“One client fired me because she thought I was going to be preoccupied with my own case,” Jean Brown says. “I managed to practice good law, but it wasn’t a lot of law. I was very depressed.
“I went to my 35th high school reunion and looked around and thought I would have been voted the least likely to have been federally indicted,” Jean Brown says.
To pay for their criminal defense lawyers, the Browns took out a second mortgage on their house, spending just over $1 million in legal fees. “And that was people being nice to me. If it was a company it could have been $5 million,” Alan Brown says. “Discovery was huge,” he says, adding that the government had close to 30,000 files.
After paying their legal bills, there won’t be any money left over from the settlement, Jean Brown says.
“The settlement certainly won’t put any extra change in our pocket, but it will be able for us to get out of the hole,” Jean Brown says. “Is any one of us going to quit working? No.”