FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee, No. 10-35789
v.
D.C. No.
3:65-cv-00127-PA
HARRY S. STONEHILL, the Estate of;
ROBERT P. BROOKS, the Estate of, OPINION
Defendants-Appellants.
Appeal from the United States District Court
for the District of Oregon
Owen M. Panner, Senior District Judge, Presiding
Argued and Submitted
March 18, 2011—San Francisco, California
Filed September 28, 2011
Before: Alex Kozinski, Chief Judge, Thomas M. Reavley,*
and William A. Fletcher, Circuit Judges.
Opinion by Judge William A. Fletcher
*The Honorable Thomas M. Reavley, Senior Circuit Judge for the Fifth
Circuit, sitting by designation.
18445
UNITED STATES v. STONEHILL 18449
COUNSEL
Randolph Lyons Hutter, Frank Phillip Cihlar, Charles Duffy,
Bethany B. Hauser, U.S. DEPARTMENT OF JUSTICE,
TAX DIVISION, Washington, D.C., for the appellee.
Robert Eldon Heggestad, Jonathan Cohen, John Richard Ger-
stein, TROUTMAN SANDERS, LLP, Washington, D.C.,
Paul L. Gale, TROUTMAN SANDERS, LLP, Irvine, Califor-
nia, for the appellants.
OPINION
W. FLETCHER, Circuit Judge:
Harry Stonehill and Robert Brooks (“Taxpayers”) appeal
the district court’s denial of their Rule 60(b) motion to vacate
a 1967 tax judgment against them. Based on evidence discov-
ered through the Freedom of Information Act (“FOIA”), Tax-
payers argue that the government committed fraud on the
18450 UNITED STATES v. STONEHILL
court during their 1967 suppression hearing, United States v.
Stonehill, 274 F. Supp. 420 (S.D. Cal. 1967) (“Stonehill I”),
and their subsequent appeal to this court, United States v.
Stonehill, 405 F.2d 738 (9th Cir. 1968) (“Stonehill II”). We
conclude that, although the evidence uncovered by Taxpayers
shows some misconduct on the part of the government, it is
insufficient to demonstrate fraud on the court. Taxpayers also
argue that the judgment should be vacated under United
States v. Throckmorton, 98 U.S. 61 (1878), because William
Saunders, Taxpayers’ business associate who sometimes
served as their attorney, gave information to the government.
Because Taxpayers have not shown Saunders was their attor-
ney rather than their business associate at the time he
informed on Taxpayers, we reject Taxpayers’ Throckmorton
claim.
As will become apparent during the course of this opinion,
this litigation has been extraordinarily protracted. We have
written an unusually detailed opinion in the hope that we may
thereby finally lay this litigation to rest. For the reasons that
follow, we affirm the district court.
I. Background
We begin with a general overview of the facts and proce-
dural history. We then discuss in more detail the evidence
uncovered at each stage of the litigation.
A. General Overview
Harry Stonehill was stationed in the Philippines during
World War II. During and shortly after the war, Stonehill
made tens of thousands of dollars buying and reselling army
surplus cars, and importing Christmas cards from the United
States. After the war, Stonehill briefly returned to his native
Chicago, but returned to the Philippines several years later.
Upon his return, Stonehill began what became an enormously
UNITED STATES v. STONEHILL 18451
successful business career, eventually becoming Robert
Brooks’s partner.
The Philippines became independent on July 4, 1946. The
early years of Philippine independence were notable for their
tumultuous politics and extensive corruption. Taxpayers
began their business ventures during these years. Taxpayers
eventually owned sixteen different corporations in the Philip-
pines, the most prominent of which was the United States
Tobacco Company (“U.S. Tobacco”). U.S. Tobacco was the
first company to produce American-style cigarettes in the
Philippines. U.S. Tobacco’s success was aided by the Philip-
pine government’s drastic limitation of the importation of
American cigarettes in 1949. Stonehill, not surprisingly, sup-
ported (and, according to some, purchased) this limitation.
U.S. Tobacco, as well as Taxpayers’ many other business
ventures, were extremely successful, and Taxpayers became
wealthy and influential figures in the Philippines.
Taxpayers’ success attracted attention from both Philippine
and U.S. authorities. The U.S. State Department became inter-
ested in Stonehill’s operations as early as 1950. The State
Department requested that the U.S. Embassy in Manila con-
duct a “discreet investigation” into Stonehill’s operations. In
its report to the State Department, the Embassy observed that
Stonehill’s businesses were conducted “just within or just
beyond the limits imposed by law,” and that Stonehill “has
the reputation of not paying his full income tax.” Over the
next decade, U.S. authorities became convinced that Stonehill
did not pay income taxes he owed to the United States. In
1960, the IRS sent Stonehill’s 1958 tax return for audit to
Robert Chandler, the IRS representative to the Far East sta-
tioned in Manila. However, Chandler took no action because
he had insufficient resources to conduct an extensive investi-
gation.
Philippine attention to Taxpayers began in the late 1950s.
It intensified after the election of President Diosdado Macapa-
18452 UNITED STATES v. STONEHILL
gal in 1961. Macapagal was elected on a reformist, anti-
corruption platform. Although, as we discuss below, Macapa-
gal and his party were not free from corruption themselves
(including corruption involving Stonehill), Macapagal
focused, at least rhetorically, on rooting out the influence of
corrupt foreign businessmen. During this period, the Philip-
pine government conducted wiretaps of Taxpayers’ activities.
In late 1961, Menhart Spielman contacted Robert Hawley,
an FBI agent stationed as the Legal Attache in Manila. Spiel-
man had been the Executive Vice President of U.S. Tobacco,
but had recently resigned from that position after a violent
altercation with Taxpayers. Spielman told Hawley that he had
confronted Taxpayers about massive illegalities in U.S.
Tobacco. It is equally or more likely, however, that Spielman
had attempted to blackmail Taxpayers by threatening to go to
the authorities if they did not give him an ownership share in
the company. Either way, Taxpayers responded by beating
Spielman unconscious, resulting in his hospitalization.
Spielman told Hawley that he could give the FBI informa-
tion concerning illegal activity at U.S. Tobacco. Hawley con-
cluded that, to the extent Spielman’s information suggested
violations of U.S. law, it was U.S. tax law. Hawley therefore
asked if Spielman would speak to IRS Agent Chandler. Spiel-
man agreed to do so. Although Spielman’s information sug-
gested violations of U.S. tax law, it primarily suggested
violations of Philippine law. Chandler and Hawley therefore
told Spielman that he should talk to the Philippine National
Bureau of Investigation (“NBI”), the Philippine equivalent of
the FBI. Spielman was reluctant to do so for fear that the NBI
was in league with Taxpayers. Spielman said that if Taxpay-
ers found out he was talking to the authorities, they would kill
him.
Hawley and Chandler eventually convinced Spielman to
talk to Colonel Jose Lukban, the Director of the NBI. In a
series of discussions at Chandler’s house, Spielman gave Luk-
UNITED STATES v. STONEHILL 18453
ban significant information about where Taxpayers kept
records and illegally imported material for making cigarettes
that would demonstrate various violations of Philippine law.
Some of these meetings were attended by Philippine Secretary
of Justice Jose Diokno. The information provided by Spiel-
man eventually led to a massive NBI raid on all of Taxpayers’
businesses on March 3, 1962. Approximately two hundred
NBI agents raided approximately seventeen different corpora-
tions.
After the raid, the NBI made many of the seized documents
available to U.S. officials. The extent of U.S. access to the
documents is contested, and we discuss the evidence concern-
ing U.S. access in detail below. The documents to which U.S.
officials had access were analyzed by Chandler, with William
Ragland, an IRS Agent, and Sterling Powers, an IRS Assistant
Revenue Service Representative. Ragland and Powers had
been sent to Manila shortly before the NBI raid specifically
to aid Chandler in the Stonehill investigation.
On April 22, 1962, Menhart Spielman disappeared. Spiel-
man had apparently been dissatisfied with his treatment by the
NBI and had approached Stonehill’s lawyers in search of
some sort of deal. Spielman then attempted to flee the Philip-
pines, assisted by men associated with Stonehill. Philippine
authorities eventually obtained confessions from the crewmen
of a boat called the “Kingdom.” The crewmen claimed they
attacked Spielman on the boat while he was asleep and threw
him semi-conscious into the shark-infested waters of the Sulu
Sea. The U.S. government was somewhat skeptical of this
story. It is, however, certain that Spielman disappeared.
Philippine enforcement proceedings against Taxpayers
were complicated by Philippine politics, by a Philippine
Supreme Court decision that the March 3 raid violated the
Philippine Constitution’s equivalent of the Fourth Amend-
ment, and by the disappearance of Spielman, their primary
witness. After negotiations with Philippine authorities, Tax-
18454 UNITED STATES v. STONEHILL
payers agreed to leave the country voluntarily in exchange for
the government’s agreement not to pursue criminal charges.
Taxpayers left the Philippines on August 4, 1962.
The documents seized in the March 3 raid were sufficient,
even without testimony from Spielman, to trigger a series of
legal actions in U.S. courts against Taxpayers, as well as
against Ira Blaustein, Taxpayers’ New York agent. The
United States filed a civil tax case against Taxpayers in Janu-
ary 1965 in the District Court for the Southern District of Cal-
ifornia. The government sought federal tax liens securing
federal income tax liabilities outstanding against Taxpayers
for the years 1958 through 1961. Taxpayers moved to sup-
press the documents seized in the NBI raid. The proceedings
in that motion form the basis of the present dispute.
B. Suppression Proceedings and Opinions
At the time the U.S. government filed this case against Tax-
payers, the Philippine Supreme Court had already held that
the raid violated the Philippine Constitution’s version of the
Fourth Amendment. Stonehill I, 274 F. Supp. at 423-24. The
United States did not contend that the NBI’s search warrants
were lawful under either Philippine or U.S. law, but argued
that under the “silver platter” doctrine the evidence should not
be suppressed because United States agents did not instigate
or participate in the raid. See id. at 426 (documents seized in
violation of the Fourth Amendment should not be suppressed
“if the illegal search and seizure is made by foreign govern-
ment officers”).
The major issue in the suppression motion in the district
court was the extent of U.S. participation in the planning and
execution of the raid. See id. at 424-25. Taxpayers argued that
United States agents, primarily Chandler and Hawley, had
sufficiently participated in the planning and execution of the
raid to make the “silver platter” doctrine inapplicable.
UNITED STATES v. STONEHILL 18455
Taxpayers filed their motion to suppress on March 13,
1967. The hearing on the motion to suppress was held
between June 12 and June 23, 1967. Nine witnesses provided
live testimony, and testimony was read from numerous depo-
sitions. The transcript from the hearing totaled 1,257 pages.
Much of the evidence at the suppression hearing came from
Hawley’s and Chandler’s testimony. The district court denied
Taxpayers’ motion to review all government memoranda con-
cerning the raid, granting them access only to “all documents
which were made from records seized in the Philippines.”
However, the government did introduce some internal docu-
ments and cables dealing with preparations for the raid, as
well as summaries of other documents and cables. It is
unclear from the current record exactly what the government
disclosed, but it was likely a small percentage of what is now
available. Included in the documentary evidence introduced
by Taxpayers were two pages of paper containing notes about
sites that the NBI should raid. Some of the notes were in
Chandler’s handwriting. These pages were part of a set of
photographs, maps, and notes of raid sites. These pages were
not provided by the United States but, rather, had been leaked
to Taxpayers by someone in the NBI. We refer to these docu-
ments as the Picture Folder, which we discuss in detail below.
We begin by describing the most important testimony by
Hawley and Chandler. We then describe the district court’s
findings concerning the history of U.S. involvement in the
raid, and our conclusions on appeal in 1968. We then describe
Taxpayers’ subsequent motions to suppress.
1. Hawley’s Testimony
Hawley’s testimony was introduced through his deposition,
which had been taken on January 17, 18, and 31, 1967. The
parties have introduced relatively small selections of Haw-
ley’s deposition into the record before us in the current pro-
ceeding. We describe those selections, and fill in some details
18456 UNITED STATES v. STONEHILL
based on descriptions in the district court’s 1967 opinion and
our 1968 opinion.
Hawley served as Legal Attache at the American Embassy
in the Philippines starting in August 1961. Spielman met with
Hawley alone on December 14, 15, and 16, 1961. Most of the
information Spielman gave to Hawley concerned violations of
Philippine law. Hawley testified, however, that some of Spiel-
man’s evidence suggested violations of U.S. law. For exam-
ple, Spielman told Hawley that Stonehill, together with his
agent Ira Blaustein in New York, had mislabeled a machine
used to slit cigarette paper in order to pay the lower Philippine
import duty for agricultural machinery. Such mislabeling
would have constituted a violation of the U.S. Bill of Lading
Act. Hawley reported this potential violation to Washington.
Hawley testified that he concluded that the majority of
potential violations of U.S. law were tax law violations. Haw-
ley therefore suggested that Spielman meet Chandler. See
Stonehill I, 274 F. Supp. at 421. Hawley and Chandler
together met Spielman on December 18, 20, and 23, 1961.
Chandler and Hawley eventually convinced Spielman to talk
to Philippine authorities. Stonehill II, 5405 F.2d at 741. The
first such meeting occurred on January 27, 1962. Present at
the meeting were Lukban, Damaso Nocon (Lukban’s right-
hand man), Spielman, Chandler, and Hawley. We describe
these meetings in detail in discussing Chandler’s testimony.
Hawley testified that during the period before the raid, Luk-
ban provided him with copies of wiretaps the NBI had placed
on Taxpayers. Hawley testified that he had not asked for these
transcripts and that he stopped receiving wiretap transcripts
after the raid. He also testified that he showed Chandler some
of the wiretaps and technical surveillance reports that Lukban
had made available to him.
Hawley testified that at some time prior to February 24,
1962, the date the raid was originally scheduled, Secretary
UNITED STATES v. STONEHILL 18457
Diokno had casually mentioned to him that the raid had been
planned. Hawley testified that he had no specific knowledge
concerning what was going to be raided, and that Diokno had
not asked him for his recommendations as to locations that the
NBI should raid. He also testified that he did not ask Diokno
to provide him with any information that the NBI recovered
in the raid.
The raid was postponed. Hawley testified that he had not
been told of the postponement. He “remember[ed] wondering
why by the following Monday, I hadn’t seen anything in the
paper about [the raid].” Further, Hawley testified that he was
never told the final date for the raid. He was asked, “On
March 3, you didn’t know anything about the raids?” He
responded, “No.” He testified that he had scheduled a party
for March 4. Even on the day of the raid he had “no idea of
any kind of projected raids or anything.” The night of the raid
he was home with his wife after spending some time at the
office. He testified that he first learned of the raid in the Sun-
day copy of The Manila Times the day after the raid. He had
the following exchange with Stonehill’s counsel:
Q When did you first find out that Stonehill was
arrested and that the raids had taken place?
A I think it was in the Sunday paper, the Manila
Times.
Q That was when you found out and that was
delivered to you in the morning when you woke
up?
A Yes.
Q At that time, you knew nothing about either the
raids or Stonehill’s arrest until the time you read
it in the Times?
18458 UNITED STATES v. STONEHILL
A No.
Q What was your reaction?
A Interested that it had come about.
Q You knew it was planned, actually? You knew
it was?
A Yes, but I had no positive date at all.
Q You had no positive date?
A No.
2. Chandler’s Testimony
Chandler testified in person at the suppression hearing. He
testified that he was assigned to examine Stonehill’s 1958 tax
return in 1960. He testified that the only time he saw a wire-
tap transcript was in December 1961, and that Hawley
showed it to him. Much of Chandler’s testimony included in
the record on appeal in 1968 focused on his activity coordi-
nating communications between Spielman and Lukban, and
his activity during the days surrounding the raid. Chandler
testified that the initial meetings between Lukban and Spiel-
man took place at Chandler’s home. Chandler said that Spiel-
man requested that the meetings be there because Spielman
“wouldn’t go near a Philippine government office at that
time.” Hawley and Diokno attended the meetings “once or
twice.” Chandler testified that he did not set the date for the
raid, and that he had not been asked to participate in the raid
or to assign any agent to the raid. He was told the date of the
raid would be February 24 by someone in the NBI, probably
Nocon.
During cross-examination, Chandler was asked a series of
questions about whether he saw any pictures of potential raid
UNITED STATES v. STONEHILL 18459
sites. At this point in the hearing neither Chandler nor the
government knew that the defense had part of the Picture
Folder. Chandler first testified that he had never himself taken
or had others take any pictures of the buildings to be raided.
Chandler and Taxpayers’ attorney then had the following
exchange:
Q. Mr. Chandler, did you ever see any pictures of
any of the locations at which the raids were to
be made?
A. I don’t remember. I had — it seems to me that
I had heard the NBI had photographed some of
the — had made some photographs. I don’t
recall whether I ever saw them.
Q. Isn’t it a fact, Mr. Chandler, that the NBI made
picture folders of each of the locations to be
made, and showed them to you?
A. I don’t recall seeing pictures, no.
Q. But you do have some recollection of the NBI
taking pictures?
A. Yes, I have a recollection that they did do —
Q. Did you recollect that you were told that by Mr.
Danny Nocon?
A. I think probably Danny, yes.
They continued on the same subject shortly thereafter:
Q. Do you recall seeing some files or documents
which were called picture folders on March 2?
A. I don’t recall seeing pictures, and yet I may
have.
18460 UNITED STATES v. STONEHILL
Q. But you are clear —
A. I may have seen these pictures at some time . . .
[b]ut I wouldn’t recall if it was March 2nd.
Q. But you are clear that any pictures you saw
would have been made by the NBI?
A. Oh, yes.
Taxpayers’ attorney then asked Chandler if he had ever
made a sketch of several of the buildings to be raided and had
given that sketch to Nocon or another NBI agent. Chandler
said he may have helped Spielman make a sketch, but he
would not have made one on his own. If there were such a
sketch, he would have given it to Spielman, not directly to the
NBI.
Taxpayers then introduced the parts of the Picture Folder in
their possession. This consisted of two pages. The first page
was divided into three parts. The bottom two parts each con-
tained a sketched floor plan of a building. There were five cir-
cled numbers identifying various locations within the two
buildings. The top part of the paper had five instructions,
which corresponded to the five circled numbers. Next to num-
ber one was written, “Check cigarette case for stamps.” Next
to number two was written, “Check dummy wall for door.”
Next to number three was written, “Rolls of paper t/b checked
— is it actually cigarette paper for slitting[?]” Next to number
four was written, “Check closely all items + area for stamps.”
Next to number five was written, “Check all packing material
for stamps.”
The page consisted solely of writing and was titled, “U.S.
Tobacco Co. — Picture Folder.” It included a list of circled
numbers, one through twenty, with comments after the num-
bers. These comments each seemed to correspond to some-
thing different, perhaps to a different picture. For example,
UNITED STATES v. STONEHILL 18461
next to number one was written “No comment.” Next to num-
ber two was written, “Motor Pool, no significance.” Next to
number four was written, “Goodyear Bldg. — John Brook’s
— Confiscate records in separate small adjoining bldg. —
This is bldg. from which John Brooks carried stamps at
night.” Next to number nine was written, “Goodrich Bldg. —
Chambon Slitting Machine + Evening News Newsprint sup-
ply.”
Chandler testified that although he had no recollection of
preparing these documents, the handwriting on both pieces of
paper was his. He testified that the language is “Spielman’s
language.” When asked why he would be preparing such a
document for an informer, Chandler responded, “Spielman
was an unusual individual. He pestered the life out of you on
things and I figured on something of that nature, I don’t know
what reason he would have given me, why I should write it
down rather than he should write it down, because it was his
information.” The following three exchanges provide a sense
of Chandler’s testimony during cross-examination concerning
the Picture Folders:
Q. Does this language [instructions to “check” sev-
eral places from the first piece of paper] recall
to you that you did give instructions to the NBI
prior to the raids or advice?
A. Well, I did relay some — did help Spielman get
some of his information to them, because they
didn’t understand each other.
Q. And you did this to help with the raiders, is that
correct?
A. I presume that would probably be used in the
raids, yes.
A second exchange was:
18462 UNITED STATES v. STONEHILL
Q. Now, I call your attention that each of these
items I read on the first sheet, “Check, check,
check, check,” and one that says “To be
checked,” I think that is what it means, are
numbered 1, 2, 3, 4, 5, and these numbers are
placed in certain areas on these diagrammatic
sketches of the buildings. Are these numbers in
your handwriting also?
A. Yes, those numbers are in mine.
Q. So, in other words, those numbers were placed
on these three sheets by you. Does that refresh
your recollection to the effect that you were try-
ing to specify for the NBI exactly where the
places were that the agents and team leaders
were to go?
A. Well, undoubtedly I was trying to set down
Spielman’s information.
In the third exchange, the questions are coming from the
court:
Q. Now, can you tell me, how did you know that
location 1 was a place to be checked for stamps,
location 2 was a dummy wall, location 5 was
packing material, how did you know all of that?
A. I had listened to Mr. Spielman talk about that
for weeks, this type of thing.
Q. And you mean to say you got all your informa-
tion about this building and these locations from
Mr. Spielman?
A. Yes, your Honor.
UNITED STATES v. STONEHILL 18463
Q. You never made any personal investigation of
these buildings?
A. No, your honor. He had told me this many
times, he had told the NBI people many times.
. . . But it might be exactly an example of what
I am speaking of, they did not understand [him],
even though he talked with them, just the same
as he did with me.
On redirect, Chandler further explained that, although he
did not specifically remember making these drawings, he
often served as a liaison between Spielman and the NBI.
“There was not altogether rapport between [Spielman] and the
NBI. I might have helped him to do something. He might
have sketched this out and I might have done some of the
writing.” Chandler testified that he could not have drawn the
diagrams without Spielman because he had never been to the
buildings they depicted.
Returning to the days surrounding the raid, Chandler testi-
fied that late on the night of March 2, the night before the
raid, Nocon came to Chandler’s house and told him Lukban
would like Chandler to come to his house. Chandler testified
that he followed Nocon to Lukban’s house, where Lukban’s
associates were preparing search warrants. While there, Chan-
dler asked if they had included the Army and Navy Club as
a raid point. Nocon said they had not included the Army and
Navy Club, and Chandler persuaded them to do so. Chandler
testified that he gave no other advice to Lukban and made no
requests of him. Chandler testified that he did not visit the
Army and Navy Club that night with an NBI officer, but went
straight home from Lukban’s house.
Chandler testified that on the day of the raid he, along with
William Ragland and Bill Reynolds, IRS agents who had
recently arrived in Manila, went to an area across the street
from the NBI headquarters that Lukban had designated as the
18464 UNITED STATES v. STONEHILL
place they should wait during the raid. That evening, at
around 10 p.m., Lukban called them and said that “they had
hit the jack pot.” He invited them to come to his office in the
NBI headquarters. Chandler testified that he saw boxes
throughout the headquarters building. While Chandler, Rag-
land, and Reynolds were with Lukban, an NBI agent reported
that they had just seized a tremendous quantity of records and
requested help sorting them. Lukban asked if Chandler, Rag-
land, and Reynolds would help the agent. They followed the
agent to a location in the port area. When the three men
arrived, they identified the documents they thought were
important and placed them in a carton for the NBI to take
back to headquarters.
Chandler testified that he had felt that “this business was
rather disorganized.” Thus, on the way back from the port
“out of curiosity I went up to the main office, drove up to the
main office of the U.S. Tobacco Corporation, to see whether
that was equally disorganized.” Ragland and Reynolds
remained in the jeep, and Chandler went into the office. Chan-
dler testified that once in the office, he pointed out to NBI
agents a back room area that the agents should search. Stone-
hill II, 405 F.2d at 742.
Chandler testified that on the Monday after the raid, March
5, Lukban brought Chandler, Reynolds, and Ragland to the
NBI building. Lukban gave them a place to work and made
some records available. Once Reynolds and Ragland started
work, Chandler left.
3. District Court Opinion
The district court denied Taxpayers’ motion to suppress on
October 16, 1967. Stonehill I, 274 F. Supp. at 420. The dis-
trict court made the following factual findings. Spielman ini-
tially went to Hawley with documents he had obtained from
U.S. Tobacco. Id. at 421. Hawley and Chandler eventually
convinced Spielman to speak with Lukban. Id. “For some
UNITED STATES v. STONEHILL 18465
time before Colonel Lukban’s interview with Mr. Spielman,
the [NBI] had been engaged in gathering evidence concerning
the activities of Stonehill and Brooks.” Id. Lukban eventually
decided to proceed with the raid, despite the fact that Chan-
dler “negated any procedure which included raiding.”1 Id. at
421-22. The NBI then “consummated raid plans,” and
because “Colonel Lukban and Robert Chandler were friends,
some of the [raid planning] meetings were held in the home
of Robert Chandler.” Id. at 422.
The court found that at “one of the various meetings of
members of the [NBI] (at which Robert Chandler was also
present) the premises to be raided were mentioned, and Rob-
ert Chandler inquired whether the Army and Navy Building
was included on the list of premises” to be searched. Id.
Learning that it was not, he suggested that it be included, and
it eventually was included. Id. “Sometime during the investi-
gation,” a diagram of certain of Stonehill’s companies “was
drawn by Robert Chandler . . . , together with a memorandum.
. . . The diagram and memorandum thereafter came into pos-
session of the [NBI].” Id.
The court found that during the planning meetings “Lukban
had promised Robert Chandler that he, Chandler, would be
permitted to examine and copy documents and records which
the [NBI] obtained in connection with defendants’ activities
and the activities of their various corporations.” Id. On the
day of the raid, Chandler, Reynolds, and Ragland were sta-
tioned at a small temporary structure. Id. They waited until
10:00 p.m. that evening, at which point Lukban contacted
them and requested that they come to his office. Id. They
went to his office, at which point “Chandler requested permis-
sion to copy or photograph some of the records and docu-
1
This finding was based on parts of Chandler’s testimony not directly
reproduced in the record in the current proceeding, but quoted in the gov-
ernment’s brief to this court in 1968, which is in the record in the current
proceeding.
18466 UNITED STATES v. STONEHILL
ments, [but] his request to copy or photograph them was
denied.” Id. The NBI said they would not allow copying until
the NBI had inventoried the items. Id. Chandler was allowed
to copy documents the next day. Id.
The district court held that Chandler had neither “instigat-
ed” nor “participated in” the raid. The court concluded that
the NBI “had defendants under investigation” before Chan-
dler did anything. Id. at 424. It concluded, further, that neither
Chandler nor any other official “participated in, was present
at, or a party to the raid.” Knowledge of the raid on its own,
the court held, was insufficient to require suppression. Id.
4. Ninth Circuit Opinion
We affirmed in a 2-1 opinion on December 9, 1968. Stone-
hill II, 405 F.2d at 738. The majority opinion largely reiter-
ated the factual findings of the district judge. One key
difference, however, was that in discussing the selections of
the Picture Folder that Taxpayers had introduced, the majority
concluded that the “diagram prepared by Chandler of one
premises and a memorandum prepared by him on another
inadvertently fell into the hands of the NBI. They were not
intended as directions to the NBI.” Id. at 741 (emphasis
added). The district court had found that the NBI had obtained
the Picture Folder selections, but had not decided whether
they had been inadvertently or intentionally provided to the
NBI. The majority also discussed the incident, not mentioned
by the district court, in which Chandler accompanied an NBI
agent to the warehouse after the raid to help the NBI agent
sort the files. Id. at 742. It also discussed the incident in which
Chandler, after helping the NBI agent sort the files, drove to
the U.S. Tobacco headquarters and “asked the NBI agent in
charge if they had found the record storage room Spielman
had told both Chandler and the NBI about. The NBI agent did
not seem to know about it and asked Chandler to point it out.
Chandler stepped into the office, pointed out generally the
location of the record storage area, and left.” Id.
UNITED STATES v. STONEHILL 18467
The majority agreed with the district court’s conclusions,
specifically focusing on the following six factual findings:
1) No United States agent selected any evidence
for use in a United States investigation or prosecu-
tion . . . . [T]he raids were initiated and planned by
Philippine officers before United States agents
became involved; the sole purpose of the raids was
to obtain evidence for Philippine proceedings.
2) All activities of United States agents in connec-
tion with the raids took place before the raids com-
menced or after their termination.
3) Only after the raids were completed and the
documents catalogued were the United States agents
given permission to copy documents . . . .
4) There is no evidence that any United States
agents were attempting to shortcircuit the Fourth
Amendment rights of the taxpayers . . . .
5) The United States agents clearly objected to the
raids, asking that the raids either not take place or at
least that they be postponed.
6) When the United States agents made Spiel-
man’s information available to the Philippine author-
ities, they were not requesting any action
whatsoever, much less instigating an unlawful
search.
Id. at 746.
Judge Browning wrote an emphatic dissent. He first noted
that the Philippine Supreme Court had already concluded that
the raid violated the Philippine Constitution’s equivalent of
the Fourth Amendment. Id. at 747 (Browning, J., dissenting).
18468 UNITED STATES v. STONEHILL
Judge Browning noted that the American agents contributed
to the raid in “at least these respects”:
They brought Spielman and his information to the
attention of the Philippine authorities, and, as the
majority finds, “finally persuaded” Spielman to meet
with them. Chandler made his home available to the
NBI for meetings with Spielman, and for the “plan-
ning” and “preparation” of the raids. Chandler
attended these meetings. In the course of “relaying
information” from Spielman to the NBI, Chandler
prepared a diagram and a memorandum of two of the
premises to be raided. Chandler suggested an addi-
tional location to be raided; and his suggestion was
adopted. Chandler, prior to the raids, “secured per-
mission from Colonel Lukban to examine and copy
records seized in the raids.” After the raids had
begun, Chandler and his two assistants, at Colonel
Lukban’s request, went to one of the premises being
searched, and “pointed out” the “significant” books
and records to be seized. From this search location
the three American agents, on their own initiative,
went to another. There Chandler inquired whether
the NBI agents had found a records storage room
which Spielman had mentioned, and upon discover-
ing that they had not, Chandler pointed out the loca-
tion of the storage room to the NBI agent in charge.
Id. at 749-50 (footnotes omitted).
Judge Browning criticized the majority for its “pallid and
somewhat misleading description” of the relevant incidents.
Id. at 750 n.19. He noted that Chandler, after helping the NBI
agent sort the documents, did not leave right away. He exam-
ined bobbins of cigarette paper (thought to have been illegally
imported by Stonehill) in the warehouse, when the “agent
didn’t seem to be familiar with the thing at all,” and told the
agent “that he probably better check with Colonel Lukban.”
UNITED STATES v. STONEHILL 18469
Id. Furthermore, at the U.S. Tobacco headquarters, Chandler
not only told the agent to search a back room, but also showed
him where the room was in the building. Id. at 750 n.20.
Finally, Judge Browning emphasized the “inadequacy of
the trial court’s findings,” and pointed out that the majority
filled the gaps with questionable factfinding of its own. Id. at
752. The district court had made no finding whether the pur-
pose of the raid was to obtain evidence for use in an American
tax prosecution. Yet the majority specifically found that the
purpose of the raid was “to uncover violations of Philippine
law, not to obtain evidence for the United States agents.” Id.
Judge Browning concluded that there was “substantial evi-
dence” suggesting that the majority incorrectly characterized
the purpose of the raid. Id. He also criticized the majority’s
finding that the diagram Chandler drew of the buildings to be
raided “inadvertently” fell into the NBI’s hands and was not
intended to provide directions to the NBI, noting that the trial
court had found only that the document had ended up in the
NBI’s possession. Id. at 753-54. Judge Browning pointed out
that there was no evidence that its transfer to the NBI was, in
fact, inadvertent. Id. at 754. Judge Browning concluded that
“[a]t the very least . . . reconsideration by the trial court is
plainly required.” Id.
The Supreme Court denied certiorari. Stonehill v. United
States, 395 U.S. 960 (1969).
5. Renewed Motion to Suppress, Motion for
Reconsideration, and Second Renewed Motion to Suppress
In February 1971, Taxpayers filed a renewed motion to
suppress based on newly discovered evidence. United States
v. Stonehill, 420 F. Supp. 46, 51 (C.D. Cal. 1976) (Stonehill
III). The motion was based largely on an affidavit of Damaso
Nocon, Lukban’s right-hand man. Nocon’s affidavit, executed
in November 1970, told a very different story from that told
by Hawley and Chandler. Nocon stated that he was an NBI
18470 UNITED STATES v. STONEHILL
Special Agent and that part of his job was to “maintain[ ] liai-
son with agencies of the United States Government operating
in the Philippines.” Taxpayers introduced a copy of Nocon’s
Special Agent ID. Nocon stated that in 1961 Hawley began
expressing interest in Stonehill. Nocon stated that “[b]ecause
of Mr. Hawley’s interest, and upon instructions of the NBI
Director I commenced tapping Mr. Stonehill’s telephones.”
Nocon turned these transcripts over to Hawley.
Nocon further stated that Chandler told him he was inter-
ested in making a tax case against Stonehill, and “hoped to
obtain Philippine assistance in gathering evidence in the Phil-
ippines.” Nocon stated that Chandler told him that after talk-
ing with Spielman he felt he could make a case against
Taxpayers, but that he needed more documentary evidence.
Nocon stated that he met with Chandler and Hawley on an
“almost daily basis” and talked to Chandler “at least four or
five times a day.” They “discussed and laid plans for the
raids,” and Chandler reviewed all information so the NBI
“would be certain of raiding all places where any documents
might be located. Together, we made a comprehensive list of
these locations.” Nocon described a meeting at the Philippine
Columbian Club on February 6, 1962, attended by Hawley,
Chandler, Secretary Diokno, Spielman, and Nocon. Nocon
stated that Chandler told Secretary Diokno that the raid would
receive full U.S. backing and that special U.S. agents would
be flown over to assist in the raid. Chandler also “stated that
he would try to arrange a meeting between Diokno and Attor-
ney General Kennedy.”
Nocon further stated that “[a]t Chandler’s request” the NBI
made photographs of all target areas for the raid. After this
had been done, Chandler and Nocon reviewed the photo-
graphs together, and Chandler gave instructions in writing for
what to do in each place. Nocon stated that because the NBI
had “never before been involved in massive raids of this
UNITED STATES v. STONEHILL 18471
kind,” its officials “relied heavily on Mr. Chandler’s apparent
expertise.”
Nocon also described Chandler’s suggestion that they add
the Army and Navy Club to the warrants, but stated that
Chandler and Nocon went to see the Army and Navy Club
together after leaving Lukban’s house. Finally, Nocon stated
that Chandler made a house available for the NBI to store the
seized documents for free, “provided, however, that he be
given exclusive use of a separate room for photo-copying the
seized documents.”
In response, the United States submitted an affidavit by
Colonel Lukban, dated March 2, 1971. Lukban stated that he
found Nocon’s affidavit “inaccurate, misleading and false in
a number of its allegations.” He stated that Nocon was not a
special agent because he did not have the educational qualifi-
cations. He said Nocon was his “confidential agent.” Nocon
had “no official duties or an official position which called for
him to maintain liaison with foreign governments and police
agencies.” Nocon “never made a telephone tap for the NBI as
he says in his affidavit, although he may well have made
some typewritten transcripts from records. However, his func-
tion was strictly that of typing.”
Lukban further stated that Nocon lied about Chandler’s
requests for help:
I was in charge of the Stonehill investigation, not
Mr. Nocon, and I was in charge of all the preparation
for the raids, not Mr. Nocon nor anybody else. There
were no joint preparations, US-Philippine, for the
raids nor was there any joint strategy for the raids.
I ordered the investigations into Stonehill’s affairs
long prior to meeting Spielman solely for purposes
of Philippine law enforcement and I ordered the
raids on Stonehill’s businesses under the authority of
then Secretary of Justice, Jose Diokno, with the
18472 UNITED STATES v. STONEHILL
sanction of President Macapagal, solely for the pur-
poses of Philippine law enforcement. These raids
were not a joint effort between Philippine authorities
and United States authorities and the raids were not
made because of any request by United States
authorities or for the purpose of helping Untied
States authorities in any investigation of theirs.
Lukban stated that, although he let Chandler see the docu-
ments, it was not because Chandler had negotiated a deal.
Rather, it was because Lukban believed “then and now that
there should be cooperation and pooling of information
among the various police agencies of the world.” He stated
that the NBI had conducted large-scale raids in the past, and
did not need to rely on, and had not relied on, Chandler’s
expertise in preparing for the Stonehill raid.
The district court denied Taxpayers’ Renewed Motion on
May 26, 1971. Stonehill III, 420 F. Supp. at 51. Taxpayers
filed a Motion for Reconsideration in August 1971. Id. In
response the government submitted more evidence. In an affi-
davit filed September 16, 1971, John McCarthy, the govern-
ment’s lawyer throughout the litigation, stated that he had
asked Powers, the IRS representative in Manila, to look into
Nocon’s status with the NBI. McCarthy stated that Powers
had reported that Lukban told him that Nocon was never a
Special Agent of the NBI, though Lukban gave Nocon an ID
card (which had been introduced by Taxpayers) for his pro-
tection so he could legally carry a firearm. Powers told
McCarthy that Lukban told him that Nocon was “merely an
informer and he is not qualified educationally speaking to
become a Special Agent of the N.B.I.” attachments to his affi-
davit, McCarthy included a certification from the then-current
NBI Director that Nocon does not appear in any of the NBI’s
payroll history, and that he served only as a Confidential
Agent to Lukban, paid out of Lukban’s discretionary funds.
The government also submitted several other documents sug-
gesting that Nocon had never worked directly for the NBI.
UNITED STATES v. STONEHILL 18473
After hearing oral argument, the court denied the Motion for
Reconsideration on November 11, 1971. Id.
In May 1975, in connection with the litigation of the sub-
stantive tax assessment issues, Taxpayers filed a second
Renewed Motion to Suppress, arguing that new evidence dis-
covered since 1968 required suppression. Id. In addition to the
evidence just discussed, Taxpayers had Nocon’s deposition,
taken on September 4, 1974. Nocon testified that Lukban had
appointed him the direct liaison with Chandler. He said that
the planning of the raid “was a joint venture from the very
beginning.” He further testified that technical surveillance of
Stonehill started in the early 1960s based on instructions from
the FBI’s Tokyo office.
The district court denied this motion, and rejected Taxpay-
ers’ substantive tax law claims, on July 23, 1976. Stonehill III,
420 F. Supp. at 46. Ironically, given that litigation was to con-
tinue for an additional thirty-five years, the district judge
began by lamenting the “many hundreds of thousands of dol-
lars” that had been spent litigating the case, the “more than 35
separate court sessions” that had been held, and the work put
in by the three district court judges who had been assigned to
the case at various times. Id. at 51. He also noted the diffi-
culty caused by the “unavailability or noncooperation of
important witnesses, including Stonehill and Brooks who
refused to appear,” as well as the allegations of misconduct by
both sides. Id.
The court then addressed Taxpayers’ two new arguments.
First, based on Nocon’s testimony, Taxpayers argued that
U.S. officials were actively investigating Taxpayers much
earlier than previous evidence had showed, and that Philip-
pine authorities were acting at the direction of U.S. officials.
Id. at 52. The district court found that Nocon’s testimony was
not credible, and concluded that the NBI conducted the raid
for the purposes of Philippine law enforcement. Id. at 52-53.
18474 UNITED STATES v. STONEHILL
Second, Taxpayers argued that the government’s evidence
came from illegal wiretaps. Id. at 53. The district court con-
cluded that even if the wiretaps had been illegal, they were
NBI wiretaps that had been installed in the course of the
NBI’s own investigation. Id. It noted that the only evidence
to the contrary came from Nocon, whom the court did not
believe. Id.
C. Post-suppression Motion Litigation
In the same 1976 decision in which the district court denied
the renewed motion to suppress, the district court ruled
against Taxpayers on a series of substantive tax arguments.
Stonehill III, 420 F. Supp. at 54-64. The court ruled against
Taxpayers in several more orders concerning substantive tax
law in 1980. See United States v. Stonehill, No. 65-127-GJS,
1980 U.S. Dist. LEXIS 16574 (C.D. Cal. April 19, 1980). We
affirmed those rulings in 1983. United States v. Stonehill, 702
F.2d 1288 (9th Cir. 1983). In 1984, Stonehill (without
Brooks) attempted to relitigate many of these substantive tax
issues in Tax Court, but that court held that the district court’s
order, affirmed on appeal, was res judicata. Stonehill v.
Comm’r of Internal Revenue, No. 1574-65, 1984 Tax Ct.
Memo LEXIS 339 (U.S. Tax Ct. June 28, 1984).
In 1991, Taxpayers filed a Rule 60(b)(5) motion, seeking
a declaration that the United States’ judgment for income
taxes had been satisfied. United States v. Stonehill, No. 91-
35049, 1992 U.S. App. LEXIS 6498 (9th Cir. April 7, 1992).
Taxpayers did not seek a modification of the district court’s
prior determination of liability. Id. at *2. But they contended
that the district court had improperly prevented them from
proving that the 1980 judgment was erroneous as to the
amount owed. Id. at *2-3. We wrote in an unpublished memo-
randum disposition that “we are unwilling to permit taxpayers
to go behind [the 1980] judgment to argue satisfaction of the
judgment on the basis of a Rule 60(b)(5) motion filed ten
years after entry of that judgment.” Id. at *5. Taxpayers also
UNITED STATES v. STONEHILL 18475
objected to the government’s attempts to sell some of the
property subject to tax liens, but we affirmed the sale of the
last property subject to tax lien in 1996. United States v.
Stonehill, 83 F.3d 1156 (9th Cir. 1996).
In 1998, Stonehill filed the first of many FOIA requests,
seeking government documents relating to the raid. See Stone-
hill v. IRS (“Stonehill IV”), 534 F. Supp. 2d 1, 2 (D.D.C.
2008). Shortly thereafter, on August 20, 2000, Taxpayers
began the current incarnation of this case by filing a motion
in district court under Rule 60(b)(6) to vacate the original
1967 judgment, alleging that the government had committed
fraud on the court. The district court denied the motion and
Taxpayers appealed. In the meantime, the FOIA proceedings
continued. They were long and contentious. Taxpayers
accused the government of losing documents, intentionally
releasing documents slowly, and over-redacting the docu-
ments it did release. The government repeatedly emphasized
that Taxpayers’ current attorney, Robert Heggestad, had not
received many of the files previously assembled by Taxpay-
ers’ prior attorney and was thus making duplicative FOIA
requests.
We heard Taxpayers’ appeal of the district court’s denial of
the motion to vacate in 2002. In December 2002, we con-
cluded in an unpublished memorandum disposition that the
district court had abused its discretion “when it ruled on the
motion to vacate while Stonehill and Brooks were still seek-
ing potentially relevant evidence.” United States v. Stonehill,
53 Fed. App’x 470, 471 (9th Cir. 2002). We noted that even
in the time since the district court’s ruling, Taxpayers had
obtained more documents that could bolster their case, and
that they still had FOIA requests pending. Id. We concluded
that “[o]n remand, the district court should ensure that [Tax-
payers] have a fair opportunity to present their argument to
the court. It should assist them in obtaining relevant evidence
and should not rule on their motion to vacate until it has
received and considered all evidence that Stonehill and
18476 UNITED STATES v. STONEHILL
Brooks may obtain within a reasonable time.” Id. After nearly
ten years of correspondence and litigation, the District Court
for the District of Columbia ruled on all outstanding FOIA
issues, mainly relating to redactions, on January 10, 2008.
Stonehill IV, 534 F. Supp. 2d 1.
D. New Evidence Uncovered Through FOIA
Through their numerous FOIA requests, Taxpayers have
uncovered an enormous number of documents relating to the
raid. We provide an overview of this evidence in chronologi-
cal order, divided by subject area.
1. United States Government’s Early Interest in Stonehill,
and Potential Involvement in the Investigation of William
Saunders, Taxpayers’ Business Associate and Attorney
The earliest document mentioning Stonehill is a memoran-
dum from the U.S. Embassy to the State Department, dated
February 21, 1951, in response to the State Department’s
request for a “discreet investigation” into Stonehill’s affairs.
The memorandum describes Stonehill’s tobacco business and
his “reputation of not paying his full income tax.” The
Embassy in Manila says it will “continue to observe Mr.
Stonehill’s business operations and report any significant
developments.”
Interest in Stonehill appears to have been renewed nine
years later. On April 27, 1960, IRS Agent James Griffin wrote
to the audit division that “Mr. William W. Saunders, an attor-
ney . . . , reported in confidence, that Harry S. Stonehill had
forwarded a check from a Swiss bank account to Honolulu.”
(Emphasis in original.) The money was used to purchase land
in Oregon. Griffin said that if “it is desired that further infor-
mation be gathered on the above matter, please send the
request as if the source was from some other area. Otherwise
the source of information might be compromised.” On July
21, an individual whose name has been redacted filed an
UNITED STATES v. STONEHILL 18477
Application and Public Voucher for Reward for Original
Information. Although there is no clear evidence supporting
their contention, Taxpayers contend that this Application was
filed by Saunders.
On June 30, 1960, Louis Blissard, the U.S. Attorney for the
District of Hawaii, wrote a memorandum to Lukban, respond-
ing to Lukban’s request for information concerning an indict-
ment against a man named Ted Lewin. Although most of this
memorandum concerns Lewin’s indictment for illegal cur-
rency transactions, the memorandum mentions that part of the
money Lewin was using was “actually money belonging to
Harry Stonehill.” Some of Blissard’s information came from
“William W. Saunders, a Honolulu attorney, who is in some
business ventures with Stonehill.” Saunders told Blissard that
Taxpayers did not want Lewin to testify concerning Lewin
and Stonehill’s association in activities in the Philippines.
On August 16, 1960, the IRS Office of International Opera-
tions (“OIO”) sent Chandler a memorandum forwarding
Stonehill’s 1958 tax returns to evaluate whether an audit was
warranted. Chandler responded on August 31, 1960. Chandler
stated that he had “for some time been aware of the need for
investigation of Stonehill,” but that it would be a difficult case
that is “beyond our present capacity in view of current work-
loads.” He informed the OIO that the Stonehill case will “of
necessity remain in our unassigned backlog for an indefinite
. . . length of time.”
In September 1960, Blissard wrote a memorandum to
Charles Rice, the Assistant Attorney General for Tax, calling
his attention to Stonehill’s activities, noting his belief that
Stonehill “owes and has not paid large amounts of income
taxes,” and briefly explaining the basis for that belief. Shortly
thereafter, Blissard sent at least one other similar memoran-
dum to Rice, in which he wrote that he had spoken with Luk-
ban, who had provided him with information concerning
18478 UNITED STATES v. STONEHILL
Stonehill’s financial dealings. Rice forwarded this informa-
tion to the Commissioner of Internal Revenue.
We note two things about these early documents. First,
although there was some U.S. interest in Stonehill prior to the
appearance of Spielman, there was no action taken due to a
lack of capacity. Second, during this period Saunders was giv-
ing information to U.S. authorities concerning Stonehill.
There is no evidence, however, that Saunders was serving as
Stonehill’s attorney at that time.
2. Initial Meeting with Spielman
Both Hawley and Chandler wrote memoranda describing
their initial meetings with Spielman. Hawley’s memorandum
was sent to FBI Director Hoover2 on January 2, 1962, and
Chandler’s memorandum was sent to the OIO on December
22, 1961.
According to Chandler’s memorandum, Spielman
recounted that Stonehill and Brooks left the Philippines dur-
ing the 1961 Philippine presidential campaign due to attempts
by the administration to extort political campaign funds.
Stonehill and Brooks gave Spielman more control of the com-
panies during their absence. Spielman said that he then dis-
covered a “huge and evil fraud” Taxpayers were perpetrating.
“[T]he extent of this infamy was a shock to him.” Spielman
realized that Stonehill would have enormous control over the
regime of President Macapagal, who had just won the elec-
tion. Stonehill had “engineered” the withdrawal of presiden-
tial candidate Rogelio de la Rosa, a candidate who had
2
All of Hawley’s memoranda are sent to “Director, FBI.” It appears,
however, that many of these memoranda are addressed to the heads of the
relevant government divisions even when the memoranda are intended for
less senior members of that division. Though it is not always clear who,
in fact, received Hawley’s memoranda, we refer to the memoranda as
being written to Hoover.
UNITED STATES v. STONEHILL 18479
entered the race based on a bribe from then-President Garcia,
who thought de la Rosa would take some of Macapagal’s
votes. According to Spielman, Stonehill had signed agree-
ments from Macapagal permitting Stonehill to name three
members of the incoming cabinet and guaranteeing him
important business concessions relating to Stonehill’s near-
monopoly on the importation of Virginia tobacco into the
Philippines.
According to Spielman, when Stonehill and Brooks
returned to the Philippines after Macapagal’s victory, now-
President Macapagal tried unsuccessfully to convince them to
change their ways. Macapagal then told them they would have
to leave the Philippines. At this point, according to Spielman,
they realized how dangerous Spielman could be to them
because of his knowledge of their illegal activities. Stonehill
called Spielman to his suite on December 9, 1961. After
Spielman told them he was upset about the extent of the ille-
gal activity, Stonehill called in Brooks.
According to Hawley’s memorandum, Spielman said that
Stonehill “pulled a couple of pistols from his desk, ostenta-
tiously played with them and mentioned what would happen
to people who did not play ball.” They then beat Spielman
and knocked him unconscious. At the first interview with
Hawley, Spielman had a very severe black eye, a swollen left
cheek and side of his face, a bad cut inside his mouth, and a
number of bruises on his chest and arms.
Although the story of the beating is almost certainly true,
Spielman’s motivations for speaking with Hawley and Chan-
dler were likely less altruistic than Spielman suggested. In
other memoranda, Hawley and Chandler suggest that they
believed that Stonehill attacked Spielman only after Spielman
attempted to blackmail Stonehill into giving him greater con-
trol of the company. The district court made a factual finding
that Spielman copied the records he eventually brought to
Hawley “to force the taxpayers to give him part ownership in
18480 UNITED STATES v. STONEHILL
their business enterprises. When Spielman proposed this, they
first beat him and then fired him. Spielman became fearful of
what else they might do to him, so he went to United States
officials for protection and for vengeance.” Stonehill III, 420
F. Supp. at 53. Hawley wrote that he told Spielman that most
of what Spielman described were violations of Philippine law
over which he had no jurisdiction. He said there could be tax
law violations, and he encouraged Spielman to meet with
Chandler. Spielman agreed.
According to Chandler’s memorandum, Spielman said he
believed he was “in considerable danger of being murdered.”
Chandler wrote, “[W]e are inclined to agree that this is a very
real possibility.” Spielman, a Czech Jew and a Holocaust sur-
vivor whose parents were killed in concentration camps, said
he was not afraid of Stonehill. He took “the position that he
faced death many times during the war years in Europe, spent
much time in concentration camps and lived constantly in fear
of death. He became an American citizen in the hope and
expectation that he would thereafter be a free man and he can-
not now see himself subject to the threats of the Stonehill
group.” He said he would thus stay in the Philippines despite
the risk.
Chandler noted in his memorandum that he had always sus-
pected Stonehill of “an enormous fraud,” but that they had not
had the manpower to pursue it. He wrote that based on Spiel-
man’s evidence, he recommended that the OIO send at least
a Special Agent and a Revenue Agent. He further noted, “We
have also been given access to transcript[s] of telephone taps
made by the local NBI and in part the information comes also
from that source or has been confirmed thereon.”
Over the next several weeks, both Hawley and Chandler
sent multiple memoranda to their respective domestic offices.
Beginning with a January 9, 1962, memorandum describing
the potential Bill of Lading Act indictment against Stonehill’s
associate Ira Blaustein, Hawley sent regular memoranda to
UNITED STATES v. STONEHILL 18481
Hoover detailing information provided by Spielman and
updating Hoover on the progress of the investigation. He also
sent a “VERY URGENT” memorandum on February 7, 1962,
advising Hoover that Diokno had personally interviewed
Spielman.
Chandler wrote fewer, but more detailed memoranda. In a
January 10, 1962, memorandum to OIO, Chandler described
an encounter with Howard Parsons, the Economic Counsellor
for the Embassy. Parsons stated that “in the opinion of the
Embassy it is imperative for American interests in the Philip-
pines that some way be found to get Stonehill out of the Phil-
ippines and break his stranglehold here.” Parsons suggested
that Stonehill could “undermine the entire American effort
and perhaps destroy democracy here.” Chandler informed
Parsons that he had begun an investigation. Chandler told Par-
sons that he doubted the maximum IRS effort could accom-
plish what the Embassy wanted. Chandler again requested
from OIO that “agents be sent to Manila specifically to under-
take this examination,” but he realized that it was not easy to
spare agents. Chandler emphasized, however, that tax compli-
ance in the Far East generally is “highly unsatisfactory,” and
that the Stonehill case would be a good way “to create an
effective and necessary enforcement image.”
A memorandum to file from an employee at OIO, dated
February 13, 1962, recorded the permanent assignment of
Sterling Powers, an IRS Special Agent, to Manila, and sug-
gested there would shortly be a second person assigned.
Chandler wrote a memorandum to OIO the same day. Chan-
dler informed OIO that one agent was insufficient, and that in
order to undertake this investigation effectively, he would
need the undivided attention of “at least a Special Agent and
a Revenue Agent.”
The newly discovered documents from this period are more
detailed than previously available evidence, but they are gen-
erally consistent with the testimony of Hawley and Chandler
18482 UNITED STATES v. STONEHILL
at the 1967 suppression hearing. Specifically, Chandler’s dis-
cussion of wiretaps in his memoranda suggests that he and
Hawley received these wiretaps only after speaking with
Spielman, which comports with Hawley’s deposition testi-
mony that the NBI never gave him wiretaps prior to Decem-
ber 15, 1961. Furthermore, in Chandler’s discussion of
wiretap “transcript[s] of telephone taps made by the local
NBI,” he does not suggest that they had in any way helped the
NBI establish the wiretaps.
3. Diokno-Seigenthaler Meeting
In early February 1962, Robert Kennedy, then the Attorney
General, made a trip to Hong Kong. In a February 7, 1962,
memorandum to Hoover, Hawley reported that Secretary
Diokno asked to meet with Kennedy “as Diokno would like
to see him in Hong Kong so Attorney General will know
about [Taxpayers’] activities and make sure that all American
interested agencies involved, particularly Internal Revenue
Service, will provide sufficient manpower for effective inves-
tigation.” The U.S. Ambassador to the Philippines asked the
U.S. Legal Attache in Tokyo to tell Kennedy that Taxpayers’
case was the likely reason for Diokno’s request. There is
some suggestion, however, that Diokno wanted to meet Ken-
nedy for “personal reasons.” As a later memorandum made
clear, “DIOKNO is youthful, energetic, and cuts through
usual protocol channels, and has frequently been called ‘the
BOBBY KENNEDY of the Philippines’ since he took office.”
At the instruction of the Ambassador, Hawley told Diokno
that Kennedy’s schedule was full.
Although Diokno was unable to meet with Kennedy, he did
travel to Hong Kong, where he met with Assistant Attorney
General John Seigenthaler on February 11, 1962. A February
12 Foreign Service memorandum to the U.S. Embassy in
Manila reported that Diokno told Seigenthaler about Taxpay-
ers’ case and stated that Hawley and Chandler were “suppos-
edly . . . sympathetic” to Diokno’s “Hong Kong Mission.”
UNITED STATES v. STONEHILL 18483
Diokno further said he did not want to operate through “ordi-
nary government channels” because Stonehill controlled a
cabinet minister, the executive secretary president, and the
entire Philippine Internal Revenue Board. Diokno requested
that the
US government supply him two tobacco experts in
grading, drying and inventorying Virginia tobacco in
order train his own people in investigation Stone-
hill’s tobacco racket. Diokno also requests seizure
books Stonehill New York representative Ira Glaus-
ten [sic] by Customs or Internal Revenue investiga-
tors be coordinated with his own department
crackdown Brooks Bros. and Stonehill which tenta-
tively scheduled take place end of February.
The memorandum requested that the Manila Embassy furnish
“all details” of the case and “make immediate recommenda-
tion as to Attorney General’s course of action.” A summary
of this memorandum was presented at the 1967 suppression
hearing. A comparison of the summary and the actual memo-
randum reveals that the summary contains all of the relevant
information contained in the memorandum.
On February 15, 1962, Hawley wrote a long memorandum
to Hoover describing the events leading up to the Diokno-
Seigenthaler meeting. He also recounted the descriptions of
the meeting contained in the previous memorandum. He
quoted the Manila Embassy’s response to that memorandum,
sent on February 13. The Embassy noted Chandler’s request
for the “immediate detail of agents to Manila to undertake
both civil and criminal tax aspects of case.” The Embassy also
stated,
It would be advisable for us to look thoroughly into
case to determine what action US Govt might want
take and to what extent we can assist Philgovt. Rec-
ommend therefore that an Internal Revenue Special
18484 UNITED STATES v. STONEHILL
Agent be detailed to Manila for full-time work on
this case. On basis his findings US would then be in
position determine what further action would be nec-
essary.
Diokno also apparently told Hawley that he was waiting to
hear from the Embassy “what action would be taken to coor-
dinate investigation in the United States with DIOKNO’s
desire for action by the end of February.” Hawley concluded
the memorandum by requesting that the “Bureau provide
instructions concerning the extent to which cooperation
should be extended in these matters.”
Taxpayers make much of this meeting between Diokno and
Seigenthaler and the three memoranda describing it. The
memoranda make clear that the U.S. Department of Justice
was interested in Taxpayers’ cases. They also make clear that
Diokno was interested in coordinating his investigation,
including his planned raid, with the U.S. investigation. How-
ever, they contain no evidence that any U.S. official ever
acted on Diokno’s requests for coordination; nor do they sig-
nificantly change the picture already drawn by previously
available evidence. In his affidavit filed in 1971, Lukban
stated that the United States never provided the tobacco
experts requested by Diokno. The United States had disclosed
the fact of the meeting in the original suppression hearing,
and the summary of the February 12, 1962, memorandum
provided to the district court contained all relevant informa-
tion concerning the meeting.
4. The Raid
A few documents address the raid itself. The first is a mem-
orandum from Hawley to FBI Director Hoover on February
16, 1962. Hawley recounts that during the night of February
15-16, the main plant and warehouse of Philippine Tobacco’s
flue-curing and re-drying operation burned to the ground, and
that arson was strongly suspected. Philippine Tobacco pro-
UNITED STATES v. STONEHILL 18485
vided illegal tobacco to U.S. Tobacco. According to Hawley
the fire “probably destroyed large portion of evidence of ille-
gal tobacco dealing.” Hawley wrote that Lukban had inferred
from the fire that Stonehill knew of the NBI investigation, and
that Lukban therefore wanted to act quickly. He scheduled the
raid and arrest for February 24.
Hawley sent a memorandum to Hoover a week later, on
February 23, 1962. He wrote, “Lukban advised today planned
raid instant matter delayed for further preparation. No date
set.”
Hawley sent a final pre-raid memorandum to Hoover a
week later, on March 2, 1962. He wrote:
The raids planned on the Stonehill companies
including U. S. Tobacco Corporation for February
24, 1962, are now to be put into effect on March 3,
1962. During the course of these raids they said
effort will be made to obtain documents relating to
the import of the tobacco paper through the subject
and Universal New York [i.e. the BLA criminal
case]. If any discrepancies appear as alleged by
MENHART SPIELMAN a substantial case will be
in the making.
It is anticipated that large masses of papers and
files will be accumulated in the raids, photographed,
and returned because it is presumed that STONE-
HILL will use every legal device to protect his inter-
ests. Both DIOKNO and LUKBAN are very aware
of the Bureau’s interest in these matters and will
advise of any pertinent developments.
The crucial document concerning the lead-up to the raid is
the Picture Folder. Through FOIA requests, Taxpayers were
able to obtain not only the two pages introduced during Chan-
dler’s testimony at the 1967 suppression hearing, but also a
18486 UNITED STATES v. STONEHILL
further sketch and the twenty-two photographs that the second
page had referenced. The sketch depicts two buildings,
marked at various places with circled numbers one through
twenty-two. On the side of the sketch is written, “US Tobacco
Co.” and “Note: Numbers indicate the point of view of the
corresponding pictures.” The handwriting is not Chandler’s.
The twenty-two photographs depict several buildings from
different angles. They are clearly the photographs referenced
both by one of the pages introduced in the original suppres-
sion hearing and by the sketch uncovered through FOIA. Sev-
eral of the photographs have notes or instructions written on
them in Lukban’s handwriting. In reference to one door, Luk-
ban wrote: “To be thoroughly searched. break open.”
(Emphasis in original.) Nearly all of the other comments are
identifications of what is stored in specific places in the build-
ings, or whose offices are in the buildings.
The documents just described make several things clear.
First, given that Hawley sent a memorandum on March 2
informing Hoover that the raid was planned for the next day,
it is clear that Hawley lied in his deposition when he said that
he did not know about the timing of the raid until he read
about it in The Manila Times the next morning. Second, the
documents show a keen U.S. interest in the raid, and they
show at least an informal agreement that Lukban would make
an effort to obtain documents useful to the United States in its
tax case and possible criminal case. However, they also dem-
onstrate that it was Lukban and the NBI who were organizing
and planning the raid. There is nothing to suggest that Hawley
or Chandler was involved in selecting the date. Indeed Haw-
ley, who was always very diligent about sending updates to
FBI headquarters in Washington, did not inform Hoover of
the date of the raid until the day before the raid occurred.
Third, although the Picture Book demonstrates that Chandler
wrote notes that were used by Lukban to identify targets for
the raid, it is not clear how the now-complete Picture Book
demonstrates Chandler’s involvement any more than did the
two pages from the Picture Book introduced in the district
UNITED STATES v. STONEHILL 18487
court during the original suppression hearing. Finally, none of
the documents contradicts Chandler’s testimony that he was
simply recording information given to him by Spielman.
5. Access To Documents After the Raid
On March 5, two days after the raid, Hawley wrote to Hoo-
ver informing him that the raid had occurred, and that
“[c]opies of documents will be obtained as soon as possible.”
Later that same day, he wrote to Hoover, “Director Lukban
providing copies of all documents found. All information may
be used openly.” Between March 7 and 16, Hawley wrote
several more memoranda to Hoover attaching copies of cables
and letters from the raid that were of interest in a criminal Bill
of Lading Act case against Blaustein. The first two memo-
randa do not specify how Hawley obtained the documents, but
the last memorandum specifies that they were “furnished” by
the NBI. Over the following months, Hawley sent several
more such memoranda forwarding documents obtained in the
raid, presumably provided to him by the NBI.
Chandler’s post-raid memoranda show that he was more
involved than Hawley in negotiating access to the seized doc-
uments. In a March 16, 1962 memorandum to OIO, he notes
that the local authorities asked Chandler to provide space for
storage of the Stonehill records “in order that we could have
full access to them and both of us would have an opportunity
to fully determine and appraise what had been acquired.”
Chandler described how he initially thought it would be nec-
essary to rent space, but he had since “been able to secure a
donation of private space from an American and the records
were moved to that location yesterday. They are now fully
available whereas previously physical conditions considerably
limited our access.” Presumably without hearing that the
question was moot because Chandler had obtained storage
space for free, a DOJ attorney had researched whether paying
for the storage of the records seized by the NBI would create
problems for the government’s planned “silver platter doc-
18488 UNITED STATES v. STONEHILL
trine” defense. The attorney concluded that “the proposed
payment would not jeopardize the criminal case” and recom-
mended that the payment be made.
Chandler initially complained that he did not have suffi-
cient equipment to copy the documents. However, by March
21 he had obtained a copier from another agency, and IRS
Agent Powers reported receiving “splendid cooperation from
the local authorities.” In a progress report filed by Powers
covering the period of March 21 to April 20, Powers reported
that the NBI had “over 100 employees working 12 hours a
day six days a week . . . trying to inventory and index these
records.” Powers reported that they were working as quickly
as possible because of concern that Stonehill might convince
the Supreme Court of the Philippines that the NBI should
return the documents.
A memorandum from IRS Agent Ragland to OIO on Octo-
ber 10, 1962, paints a slightly different picture of American
access. Ragland wrote, “We have not had free access to the
records since June 27.” He further stated that the American
officials “have never actually had unlimited access to the
records, and our photographed documents were obtained only
after patiently dealing with individual groups of agents.” Fur-
ther, “The NBI did not attempt to audit or put the records in
any order, but merely indexed them for their own specific
purpose.”
Some further details are contained in a long report by
Lewis Gleeck, the Consul General at the U.S. Embassy in
Manila. Gleeck divided the document work into three phases.
The first was from March 3 to March 22, during which
Gleeck reported frantic work by both the NBI and Stonehill’s
lawyers. Gleeck noted that the NBI had not expected to get so
much material. The second phase began on March 22, when
the Philippine Supreme Court issued a preliminary injunction
against the use of the documents. This caused a lull in docu-
ment review. The third phase began on June 30, when the
UNITED STATES v. STONEHILL 18489
Supreme Court lifted the injunction. Gleeck did not describe
the U.S. involvement in great detail. Most of his memoran-
dum recounted the disappearance (and presumed murder) of
Spielman, and the subsequent investigation and trial of Spiel-
man’s alleged abductors. Gleeck’s report does, however,
create the impression that, at least from the perspective of the
U.S. Embassy, the raid and investigation were an NBI opera-
tion. The only discussion of U.S. activity in the memorandum
concerned efforts to protect Stonehill’s rights as an American
citizen. Gleeck congratulated the Embassy on its “policy of
watchful vigilance, as opposed to direct interference in the
case.”
The only other mention of access to documents is contained
in a memorandum from Donald Durkin, the Chief of the IRS
Intelligence Division, to Chandler. This memorandum was
not sent until October 17, 1962. Durkin told Chandler that
Lukban had visited his office and had told him that “Mr.
Chandler and Mr. Powers could have access to any informa-
tion that was in the possession of the National Bureau of
Investigation. He further stated that his agents had been
instructed to cooperate with Mr. Chandler and Mr. Powers.”
Because this memorandum referenced a request from the
“Manhattan District,” it was likely related to the criminal Bill
of Lading Act case against Blaustein.
6. Documents Prepared in Connection with Litigation
Three documents, prepared in connection with the antici-
pated litigation in Taxpayers’ civil tax case, were revealed
through their FOIA requests. They are: a document summa-
rizing an interview of Chandler conducted by two government
attorneys in Rome in February 1966; an internal IRS memo-
randum summarizing the factual and legal background to the
suppression motion; and a memorandum from IRS Agent
Sterling Powers to OIO concerning the Picture Folder (the
“Powers Memorandum”).
18490 UNITED STATES v. STONEHILL
a. Chandler Interview
On February 11, 12, and 13, 1966, lead attorney McCarthy
and Harlow Huckabee, another DOJ attorney, interviewed
Chandler in Rome. This interview took place shortly before
Chandler’s deposition. Only Chandler, McCarthy, and Hucka-
bee were present.
Most, though not all, of the information in the document
summarizing this interview is consistent with evidence pre-
sented during the 1967 suppression hearing. Chandler told the
attorneys that because “the F.B.I. and the N.B.I. are corre-
sponding agencies . . . there was continuing cooperation and
an implied agreement that the F.B.I. and the N.B.I. would
help each other as much as possible.” Chandler told them that
he “attempted to have the Philippine officials delay the search
and seizure action until a special agent arrived who would
have more knowledge of the criminal aspects of the case than
Chandler did,” which suggested that Chandler instigated the
delay of the raid from February 24 to March 3.
Chandler stated that during the meetings in his house he
paid attention to what was being said, but “Philippine officials
made the decisions.” He stated that Spielman was often con-
fused. The memorandum states, “[A]t one point Chandler said
that he helped Spielman draw a sketch of locations involved
in the search and seizure. He does not know what Spielman
did with the sketch, but assumes that Spielman made it avail-
able to the N.B.I.” This statement casts doubt on Chandler’s
failure to remember the sketch at the suppression hearing. It
is unlikely that Chandler would remember the sketch clearly
in February 1966, as the government was preparing for trial,
but fail to remember it only a year later during the suppres-
sion hearing for that very trial. It does, however, support
Chandler’s assertion that the sketches simply recorded Spiel-
man’s story. It also supports Chandler’s statement that he
gave the sketch and notes to Spielman, rather than directly to
the NBI.
UNITED STATES v. STONEHILL 18491
Chandler told the attorneys that at the meetings at his home
the NBI agents often played selections from their wiretaps of
Stonehill. Chandler said that he knew these wiretaps had been
going on for a long time. He said that he was not particularly
interested in them. He was not aware whether the NBI contin-
ued the wiretaps after the raid, but he said he would not be
surprised if they had. Chandler said the NBI had been tapping
Stonehill long before the IRS became involved in the investi-
gation of Stonehill, and that the IRS had never been involved
in wiretapping.
Chandler also said why he was interested in ensuring that
the NBI would search the Army and Navy Club. He recounted
that during one conversation, Spielman had said that a man
named Murray Otstott had told Spielman that he had a room
at the Army and Navy Club where he kept a safe and files for
Stonehill. Chandler was later at the Club and asked about this
room. The Club had no room for Otstott, but did have a room
for Karl Beck, another Stonehill associate. Chandler remem-
bered this when he went to Lukban’s house the night before
the raid. Chandler stated that on the night of the raid, when
Lukban called him at ten p.m., Lukban told him not only that
“[w]e hit the jackpot,” as Chandler testified, but that “we hit
the jackpot at the Army and Navy Club.”
In describing what happened on the night of the raid, Chan-
dler provided more details than he would later provide in his
testimony. When he, Ragland, and Reynolds went to the
warehouse at Lukban’s request to help the hapless NBI
agents, in addition to helping to sort the documents, Chandler
instructed the agents to seize some mislabeled cigarette paper
Spielman had said would be important. Chandler became
worried the NBI had missed a back room at the main U.S.
Tobacco office. This room was in a sketch that Chandler had
helped Spielman prepare. Chandler said that he went to the
office and found that the NBI had indeed failed to search this
room. Chandler pointed the room out to the NBI agent, but
then left and did not know what was found in that room.
18492 UNITED STATES v. STONEHILL
Finally, Chandler discussed his work arranging for the stor-
age of the seized documents. His friend, Colonel Seriano, who
ran the San Miguel Brewery, had a lot of extra space. In part
by emphasizing that “Chandler was also interested in the mat-
ter,” a redacted NBI official (likely Lukban) convinced Colo-
nel Seriano to let them use the space.
b. IRS Memorandum of Fact and Law
A one-hundred-page government Memorandum of Fact and
Law is dated March 4, 1966. Although it is not entirely clear
who wrote this memorandum, it appears to come from the
IRS Chief Counsel’s office. The memorandum was prepared
in anticipation of Taxpayers’ motion to suppress, and it con-
tains an analysis of Taxpayers’ anticipated arguments. We
will refer to it as the “IRS Memorandum.”
The IRS Memorandum begins by discussing wiretapping
activities. This section of the memorandum is quite heavily
redacted, particularly the names of the individuals who
worked on wiretapping in the Philippines. The memorandum
describes a meeting with an official, whose name is redacted,
who was a CIA employee in the Philippines during this time.
From a later memorandum that the government did not redact,
it seems clear that this official is CIA agent Joseph McGee.
We will therefore refer to this redacted official as McGee.
McGee stated that he did “furnish[ ] technical advice and
assistance to the N.B.I. in various investigative techniques,
including telephone taps. In addition, U.S. equipment (includ-
ing wiretap equipment) was made available to the N.B.I.”
McGee further stated, however, that “he had no knowledge
when the N.B.I. taps of Stonehill and his associates may have
started. Furthermore, he stated he was never personally
involved in tapping the wires of Stonehill or his associates,
nor was he involved in giving direct advice or assistance with
reference to tapping the wires of Stonehill or his associates.”
Even when it was pointed out to McGee that Hawley and
Chandler had seen some of these wiretaps, McGee said “he
UNITED STATES v. STONEHILL 18493
knew nothing about those transcripts and had never seen
them.”
McGee further discussed someone in the NBI, whose name
is redacted, as his “main N.B.I. contact.” This person’s speci-
ality was telephone taps. McGee also said that this person
might have been paid money by the CIA, but he was not sure.
The same memorandum reports Chandler as stating that he
“had a number of conversations with Nocon indicating that
Nocon was a wiretap expert,” suggesting that Nocon could
have been McGee’s contact. Chandler also stated that
“Nocon, at some earlier time, may have done some investiga-
tive work for a United States military service.” However, at
various points in the discussion of McGee’s contact, Nocon’s
name is not redacted while the contact’s name is, suggesting
that McGee’s contact may not have been Nocon.
In discussing U.S. participation in the raid, the IRS Memo-
randum primarily focuses on Chandler’s February 11-13
statements to McCarthy and Huckabee in Rome, the Diokno-
Seigenthaler meeting in Hong Kong, events on the day of the
raid, and the storage of documents after the raid. It describes
Chandler’s memorandum recounting Parson’s comment that it
was crucial for the United States to “get Stonehill out of the
Philippines.” The IRS Memorandum describes Chandler’s
memorandum as a “particularly sensitive area indicating an
underlying interest and, in effect, participation on the part of
the State Department.”
The IRS Memorandum concluded that there was significant
participation by U.S. personnel in the raid:
It appears that the activities of United States officials
in preparation and planning for the raids and on the
day of the raids were significant. These include
[redacted, presumably McGee]’s activities in con-
nection with the wiretapping; the planning meetings
in Chandler’s home; Chandler’s assistance in draw-
18494 UNITED STATES v. STONEHILL
ing a sketch of locations to be raided; Chandler’s
action the night before the raid in requesting that a
warrant be issued for the Army and Navy Club; the
fact that on the night of the raid Chandler pointed out
to the N.B.I. agent at the United States Tobacco
Company warehouse the significance of the rolls of
cigarette paper; and the fact that on the night of the
raid Chandler pointed out to the N.B.I. agent at the
United States Tobacco Company office the signifi-
cance of the back room. These and other indications
of cooperation and participation outlined above are
sufficient so that our courts would probably evaluate
this matter de novo.3
One of the last sections of the IRS Memorandum describes
post-raid developments in Philippine politics. The election of
Ferdinand Marcos as President in 1965 began a wave of anti-
American sentiment in the Philippines. This led to the
removal of Lukban as NBI Director. The new Secretary of
Justice, Jose Yulo, announced that working for the CIA would
be considered treason. Yulo described the attempts by U.S.
Treasury officers to take depositions of Philippine officials in
the Stonehill case as an “encroachment on our sovereignty.”
The anti-American sentiment of the new Marcos regime cre-
ated serious problems for U.S. officials working on Taxpay-
ers’ case. IRS Agent Powers reported that Nocon had been
fired along with Lukban, and that Nocon had been “one of the
best friends we have had in the Philippines over the past four
years.” As a result of Lukban and Nocon’s firing, “coopera-
tion from the N.B.I. has been cut off.” Lukban and Nocon told
Powers that they thought that they were fired as a favor to
Stonehill, who had given Marcos money earlier in his political
career. The IRS Memorandum concludes that proceeding with
3
Although it is unclear what the IRS intended when it stated that courts
would “evaluate this matter de novo,” it likely meant that courts would
treat this as action by the U.S. government and apply traditional Fourth
Amendment principles.
UNITED STATES v. STONEHILL 18495
the case against Taxpayers would be very difficult when faced
with such opposition from the Philippines.
c. Powers Memorandum
IRS Agent Powers sent a memorandum to lead attorney
McCarthy on September 27, 1967, while the original district
court decision was on appeal. (The district court’s order was
entered on October 16, 1967, and we heard argument on
December 9, 1968.) This Powers Memorandum describes
Powers’s success in obtaining a copy of the full Picture Book,
two pages of which had been introduced during the district
court suppression hearing. Powers wrote:
I have been furnished access to and allowed to
reproduce the Picture Book of the buildings of the
U.S. Tobacco Company by a confidant within the
NBI. This picture folder . . . was prepared before the
raid to identify the buildings to be raided and, where
possible, to show the location of the records to be
taken in the raid. Each picture is numbered, 1
through 22. Also, there is a map drawn on very thin
paper showing the streets and locations of each
building by a number in a circle.
I have added to this picture folder a copy of the
handwritten notes of Robert L. Chandler which were
introduced in court by the defense. These notes very
definitely tie into the pictures and map by reference
numbers. The pictures and map had holes punched
through them and were fastened into the manila
covering-folder by an ACCO fastener. The holes in
Chandler’s notes fit precisely with the holes punched
in these pictures and folder.
Before gaining access to this picture folder, I
talked with Col. Lukban about the existence of a
possible picture folder. He was certain that such a
18496 UNITED STATES v. STONEHILL
folder was prepared, but his recollection of it was
very dim. He and Danny Nocon were of the opinion
that Chandler’s notes were prepared by him for the
benefit of Col. Lukban.
I have been told by our confidant that the hand-
written notes on pictures Nos. 4, 5, 8, 9, 10, 12, 15,
16, and 20 were those of Col. Lukban. I questioned
Col. Lukban and Danny Nocon with regard to Page
No. 2 of Chandler’s notes, which had been written
on perforated paper. Col. Lukban stated he never
used that type of paper in his office and furnished me
with a sheet of a “Don’t Forget” pad, which he
always used in his office while Acting Director of
the NBI . . .
I believe I have narrowed to one of four persons
who furnished the defense with Chandler’s notes and
possibly a copy of the picture folder. It is believed
that this person or persons are still employed by the
NBI. We are hopeful their identity will be deter-
mined in the near future.
Neither the full Picture Book, nor the information in the Pow-
ers Memorandum, was provided to this court or to Taxpayers,
even though it was in the government’s possession during the
pendency of the appeal to us.
Much of the information in the Powers Memorandum
would not have been particularly important during the sup-
pression hearing. The memorandum reveals that the handwrit-
ten notes on the pictures were written by Lukban, not
Chandler. Thus, all of Chandler’s handwritten instructions
were before the district court. Powers’s statement that the Pic-
ture Book was “prepared before the raid to identify the build-
ings to be raided” is not new information, as it was clear that
Chandler’s notes introduced at the hearing were prepared for
the same purpose.
UNITED STATES v. STONEHILL 18497
The most troubling aspect of the Powers Memorandum is
its statement that Lukban and Nocon were of the “opinion that
Chandler’s notes were prepared by him for the benefit of Col.
Lukban.” Chandler testified at the suppression hearing that he
made the notes to help Spielman. This was a key issue during
the 1968 appeal. Judge Browning criticized the majority for
concluding, with no basis in the record, that the Picture Book
had “inadvertently” fallen into the hands of the NBI. If Luk-
ban and Nocon were correct that Chandler prepared his notes
for Lukban, as stated in the Powers Memorandum, it is clear
that the NBI did not come into possession of the Picture Book
“inadvertently.”
The Powers Memorandum is also troubling in its sugges-
tion of an attempt to discover who provided the two pages of
the Picture Book to Taxpayers. Powers’s statement that he is
attempting to discover who “furnished” the defense with
Chandler’s notes, and his hope that the person’s identity “will
be determined in the near future,” suggests prior possession
of the full Picture Book by the government, as well as a con-
scious attempt by the government to withhold the Picture
Book from Taxpayers.
E. Proceedings after Remand
After our 2002 remand on Taxpayers’ fraud-on-the-court
claim, many documents (described above) were obtained by
Taxpayers through their FOIA requests. While the district
court had the case on remand, Stonehill filed a civil suit
against Saunders’ Estate in Hawaii state court, alleging that
by informing against him Saunders had violated his duties of
confidentiality and undivided loyalty, and had cost Stonehill
millions of dollars. The state court jury concluded that
Saunders had breached his duties of confidentiality and undi-
vided loyalty, but awarded no damages.
On July 14, 2010, the district court held that the govern-
ment did not commit fraud on the court. Taxpayers timely
appealed.
18498 UNITED STATES v. STONEHILL
II. Standard of Review
In general, we review denials of motions to vacate for
abuse of discretion. Am. Games, Inc. v. Trade Prods., Inc.,
142 F.3d 1164, 1166 (9th Cir. 1998); Nat. Union Fire Ins. Co.
v. Seafirst Corp., 891 F.2d 762, 765 (9th Cir. 1989). Because
Taxpayers argue that fraud was committed on this court as
well as the district court, Taxpayers could have brought the
motion to vacate directly in this court. See Hazel-Atlas Glass
Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), overruled
on other grounds by Standard Oil v. United States, 429 U.S.
17 (1976); Leber-Krebs, Inc. v. Capitol Records, 779 F.2d
895, 899 (2d Cir. 1985) (appellate court has “the power to
vacate its own judgment upon discovery that a fraud ha[s]
been perpetrated upon it”). Given that Taxpayers could have
brought their motion in this court, Taxpayers argue that this
court should review the district court’s decision de novo. We
need not decide whether abuse of discretion or de novo review
is the proper standard because we conclude that under either
standard Taxpayers have failed to carry their burden of prov-
ing fraud on the court.
For purposes of the standard of review, we treat Taxpayers’
Throckmorton claim as a motion to vacate, and we review the
district court’s decision for abuse of discretion. Am. Games,
142 F.3d at 1166.
III. Discussion
Taxpayers argue that the district court’s 1967 decision
denying Taxpayers’ suppression motion should be vacated for
two reasons. First, they argue that the judgment should be
vacated because the government committed fraud on both the
district court and this court in defending against the suppres-
sion motion. Second, they argue that the government’s use of
William Saunders, Taxpayers’ sometime attorney, as an infor-
mant is an independent basis for vacating the district court’s
UNITED STATES v. STONEHILL 18499
1967 decision under United States v. Throckmorton. We eval-
uate these arguments in turn.
A. Fraud on the Court
Taxpayers’ primary argument is that their conviction
should be vacated because the government committed fraud
on the court during the 1967 suppression hearing and during
the subsequent appeal. We first discuss the legal standard for
fraud on the court and then analyze Taxpayers’ specific
claims of fraud on the court.
1. Legal Standard
[1] Courts have inherent equity power to vacate judgments
obtained by fraud. Chambers v. NASCO, Inc., 501 U.S. 32, 44
(1991); In re Levander, 180 F.3d 1114, 1118-19 (9th Cir.
1999). Rule 60(b), which governs relief from a judgment or
order, provides no time limit on courts’ power to set aside
judgments based on a finding of fraud on the court. 11
Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure § 2870 (2d ed. 1987). We exercise the power
to vacate judgments for fraud on the court “with restraint and
discretion,” Chambers, 501 U.S. at 44, and only when the
fraud is established “by clear and convincing evidence,”
England v. Doyle, 281 F.2d 304, 310 (9th Cir. 1960).
Out of deference to the deep-rooted policy in favor
of the repose of judgments entered during past terms,
courts of equity have been cautious in exercising
their power over such judgments. United States v.
Throckmorton, 98 U.S. 61. But where the occasion
has demanded, where enforcement of the judgment
is “manifestly unconscionable,” Pickford v. Talbott,
225 U.S. 651, 657[ (1917)], they have wielded the
power without hesitation.
Hazel-Atlas Glass Co., 322 U.S. at 244-45.
18500 UNITED STATES v. STONEHILL
We have struggled to define the conduct that constitutes
fraud on the court. Because the power to vacate for fraud on
the court “is so great, and so free from procedural limita-
tions,” 11 Wright & Miller § 2870, we have held that “not all
fraud is fraud on the court,” Levander, 180 F.3d at 1119. The
line between mere fraud and fraud on the court has been diffi-
cult to draw. “[M]ost attempts to state it seem to us to be
merely compilations of words that do not clarify.” Toscano v.
Comm’r, 441 F.2d 930, 933 (9th Cir. 1971). “Perhaps the
principal contribution of all [the] attempts to define ‘fraud on
the court’ and to distinguish it from mere ‘fraud’ is as a
reminder that there is a distinction.” 11 Wright & Miller
§ 2870.
In determining whether fraud constitutes fraud on the court,
the relevant inquiry is not whether fraudulent conduct “preju-
diced the opposing party,” but whether it “ ‘harm[ed]’ the
integrity of the judicial process.” Alexander v. Robertson, 882
F.2d 421, 424 (9th Cir. 1989). Fraud on the court involves
“far more than an injury to a single litigant.” Hazel-Atlas, 322
U.S. at 246.
[T]he inquiry as to whether a judgment should be set
aside for fraud upon the court under Rule 60(b)
focuses not so much in terms of whether the alleged
fraud prejudiced the opposing party but more in
terms of whether the alleged fraud harms the integ-
rity of the judicial process . . . .
In re Intermagnetics America, Inc., 926 F.2d 912, 917 (9th
Cir. 1991).
A fraud “connected with the presentation of a case to a
court” is not necessarily a fraud on the court. 11 Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure
§ 2870 (2d ed. 1987).
“Fraud on the court” should, we believe, embrace
only that species of fraud which does or attempts to,
UNITED STATES v. STONEHILL 18501
defile the court itself, or is a fraud perpetrated by
officers of the court so that the judicial machinery
can not perform in the usual manner its impartial
task of adjudging cases that are presented for adjudi-
cation.
In re Intermagnetics America, Inc., 926 F.2d 912, 916 (9th
Cir. 1991) (quoting 7 J. Moore & J. Lucas, Moore’s Federal
Practice ¶ 60.33, at 515 (2d ed. 1978)).
[2] Mere nondisclosure of evidence is typically not enough
to constitute fraud on the court, and “perjury by a party or
witness, by itself, is not normally fraud on the court.”
Levander, 180 F.3d at 1119. Some courts and commentators
have suggested that perjury should not usually constitute
fraud on the court unless “an attorney or other officer of the
court was a party to it.” 11 Wright & Miller § 2870.
Most fraud on the court cases involve a scheme by one
party to hide a key fact from the court and the opposing party.
For example, in Levander a corporate officer testified in a
deposition that the corporation had not sold its assets, and a
bankruptcy court subsequently entered a judgment against
only the corporation. Levander, 180 F.3d at 1116-17. It turned
out that the corporation had in fact transferred all of its assets
to a related partnership. Id. We held that the false testimony
constituted fraud on the court, and the bankruptcy court was
allowed to amend its order to include the partnership as an
additional party to the judgment. Id. at 1122-23.
A similar example is Pumphrey, in which Melvin Sparks
was killed when he dropped a handgun made by K.W.
Thompson Tool Company (“Thompson”). The gun fired,
shooting him through the heart. Pumphrey v. K.W. Thompson
Tool Co., 62 F.3d 1128, 1130 (9th Cir. 1995). The plaintiffs,
Sparks’s widow and children, alleged that the gun’s safety
devices had been engaged at the time of the accident but had
failed to work. Id. At trial, Thompson introduced a video
18502 UNITED STATES v. STONEHILL
showing tests in which a gun had been dropped from various
heights with the safety devices activated. Id. The gun never
fired in the video, and Thompson represented that it was not
aware of any safety tests in which the gun did fire. Id. After
judgment had been entered in favor of Thompson, however,
plaintiffs learned that in some tests the gun had fired, and that
the Thompson officials had known this at the time of their
earlier representations to the contrary. Id. at 1131-32. The dis-
trict court vacated the original judgment for fraud on the
court, and we affirmed. Id. at 1134.
[3] In order to show fraud on the court, Taxpayers must
demonstrate, by clear and convincing evidence, an effort by
the government to prevent the judicial process from function-
ing “in the usual manner.” They must show more than perjury
or nondisclosure of evidence, unless that perjury or nondisclo-
sure was so fundamental that it undermined the workings of
the adversary process itself.
2. Fraud on the Court
The central issue, indeed almost the only issue, during the
1967 suppression hearing was the extent of U.S. involvement
in the NBI raid on Taxpayers’ businesses. Taxpayers sought
to prove that the U.S. involvement was so great that the “sil-
ver platter” doctrine did not apply, with the result that the
seized documents should have been suppressed. See Brulay v.
United States, 383 F.2d 345, 347-48 (9th Cir. 1967). Taxpay-
ers contend that the government committed fraud on the court
in misrepresenting the extent of U.S. involvement. We discuss
Taxpayers’ arguments in decreasing order of persuasiveness.
a. Picture Book and Powers Memorandum
Taxpayers’ strongest arguments concern the government’s
failure to disclose the full Picture Book and the information
it obtained through the Powers Memorandum. As we discuss
above, after the district court’s 1967 decision but before oral
UNITED STATES v. STONEHILL 18503
argument on appeal, IRS Agent Powers sent a memorandum
from Manila to McCarthy, the government’s lead attorney at
trial and on appeal. Powers told McCarthy that he had a copy
of the full Picture Book, and that it had been “prepared before
the raid to identify the buildings to be raided and, where pos-
sible, to show the location of the records to be taken in the
raid.” Powers clarified that Chandler’s notes, which Taxpay-
ers had introduced at the district court, “very definitely tie
into the pictures and map by reference numbers.” Powers also
reported that Lukban and Nocon told him that “Chandler’s
notes were prepared by him for the benefit of Col. Lukban.”
Despite receiving the Powers Memorandum before oral
argument, McCarthy never informed Taxpayers, or us, that
the government had a copy of the full Picture Book. Nor did
he inform Taxpayers that he now knew, based on the Powers
Memorandum, that both Lukban and Nocon “were of the
opinion” that Chandler had written his notes in the Picture
Book “for the benefit of Col. Lukban.” In describing the two
parts of the Picture Book then in the record (i.e. the parts
introduced by Taxpayers before the district court), McCarthy
had filed an appellate brief describing Chandler’s testimony
that “he did not give these or like papers to anyone other than
the informer Spielman,” and that “he did not remember giving
the exhibits to Colonel Lukban, the NBI, or Secretary
Diokno.” McCarthy wrote in the brief that “[t]here is abso-
lutely no evidence in the record that these two exhibits were
ever in the possession of the NBI other than the hearsay sug-
gestion made by counsel for the appellants in his examina-
tion.” Finally, McCarthy wrote, “By no stretch of the
imagination can these two exhibits be characterized as
instructions or directions by Mr. Chandler to the NBI or to
anyone else.”
[4] In light of the Powers Memorandum and the complete
Picture Book that we now know were in the government’s
possession, we conclude that McCarthy was not entirely
forthright in his representations to this court. He accurately
18504 UNITED STATES v. STONEHILL
described Chandler’s testimony before the district court, and
accurately described the state of the record in that court.
McCarthy’s statement that Chandler had not given the notes
directly to Lukban was supported by what Chandler had told
McCarthy in Rome. But McCarthy’s statement that there was
“absolutely no evidence in the record that these two exhibits
were ever in the possession of the NBI,” when he had recently
received a memorandum stating that those very exhibits were
“prepared before the raid to identify the buildings to be raided
and . . . to show the location of the records to be taken,” and
his statement that the exhibits cannot be “characterized as
instructions or directions by Mr. Chandler to the NBI,” were
not forthright. They concealed, rather than revealed, the true
state of affairs known to the government.
[5] Nevertheless, we conclude that McCarthy’s failure to
produce the full Picture Book, as well as his misleading state-
ments, had limited effect on the district court’s decision. First,
neither the full Picture Book, nor the information contained in
the Powers Memorandum, would have significantly changed
the information available to the district court. The portion of
the Picture Book not before the district court consisted of the
photographs to which Chandler’s notes correspond and the
instructions written on those photographs. Although Taxpay-
ers rely heavily on the instructions written directly on the pho-
tographs, the Powers Memorandum states that those
instructions were written by Lukban, not Chandler.
[6] Second, all of McCarthy’s representations to which
Taxpayers take exception are contained in the section of the
government’s brief responding to Taxpayers’ argument that
the parts of the Picture Book introduced in the 1967 suppres-
sion hearing “are instructions by Mr. Chandler to the NBI as
to how to conduct the raids.” The government responded to
this argument by writing:
Mr. Chandler freely admitted that most of the
handwriting on these two exhibits was his, but that
UNITED STATES v. STONEHILL 18505
some of the handwriting . . . appeared to be that of
others and that the diagram part was not his because
he had never been to the buildings drawn thereon.
He stated that he did not remember drafting these
specific exhibits but that he did make such notes and
drawings when interviewing the informer Spielman
and he drafted such things at Spielman’s request for
the purpose of reducing Spielman’s story to paper.
Mr. Chandler stated that the language in these two
exhibits was Spielman’s language and that all the
information on these exhibits came from the
informer Spielman and that he never had been to or
made any personal investigation of the described
premises himself. Further, Mr. Chandler explained
that he did not give these or like papers to anyone
other than the informer Spielman and that he did not
remember giving the exhibits to Colonel Lukban, the
NBI, or Secretary Diokno. . . There is absolutely no
evidence in the record that these two exhibits were
ever in the possession of the NBI other than the hear-
say suggestion made by counsel for the appellants in
his examination.
By no stretch of the imagination can these two
exhibits be characterized as instructions or directions
by Mr. Chandler to the NBI or to anyone else. The
only logical explanation for [the exhibit] is that it
contains responses or answers from a person being
interviewed.
[7] Taxpayers are correct that the Powers Memorandum
makes clear, contrary to the last sentence of the first quoted
paragraph, that the Picture Book exhibits were in the posses-
sion of the NBI. The Powers Memorandum also suggests that
Chandler wrote his notes intending that they be given to the
NBI. Taxpayers are also correct that the question of whether
Chandler’s notes were intentionally provided to the NBI was
discussed both in the district court opinion and in our original
18506 UNITED STATES v. STONEHILL
opinion. See Stonehill I, 274 F. Supp. at 422 (noting that
Chandler’s notes “came into possession of the [NBI]”); Stone-
hill II, 405 F.2d at 741 (noting that Chandler’s notes “inadver-
tently fell into the hands of the NBI”); id. at 753 (Browning,
J., dissenting) (“The majority finds that [Chandler’s notes]
‘inadvertently fell into the hands of the NBI’ . . . ; the district
court found only that these documents ‘thereafter came into
the possession of’ the NBI.”).
[8] The primary focus of the government’s argument in its
brief, however, and the focus of our majority opinion in 1968,
was not on whether Chandler intended that the notes be trans-
mitted to the NBI. Rather, the focus was on whether the notes
were instructions from Chandler, or were simply Spielman’s
information as recorded by Chandler. In recounting the facts,
the majority concluded, incorrectly, that Chandler’s notes “in-
advertently” fell into the hands of the NBI. The majority
wrote, further: “When the United States agents made Spiel-
man’s information available to the Philippine authorities, they
were not requesting any action whatsoever.” Stonehill II, 405
F.2d at 746. But the primary focus in both courts was on
whether Chandler was conveying Spielman’s information or
was conveying his own instructions. Nothing in either the full
Picture Book or the Powers Memorandum suggests that Chan-
dler was conveying his own information and instructions.
Indeed, Chandler’s statements to McCarthy and Huckabee in
Rome suggest that he was conveying Spielman’s information
and instructions, as he testified at the suppression hearing.
b. Hawley’s Perjury
The documents uncovered by Taxpayers through their
FOIA requests demonstrate that Hawley lied in his deposition
about his knowledge of the raid. In his deposition, Hawley
testified that no one told him that the raid would be postponed
to March 3 from its originally scheduled date of February 24.
He also testified that he was not informed in advance that the
raid would be carried out on March 3, and that he found out
UNITED STATES v. STONEHILL 18507
that the raid had been carried out only when he read about it
in the paper the next morning. He concocted a story about
how he was sure that he had not known about the reschedul-
ing to March 3 because of a party he had hosted on March 4.
The documents uncovered through FOIA show that Hawley
sent a memorandum to Hoover on February 23 informing him
that the raid had been postponed. He sent another memoran-
dum to Hoover on March 2 informing him that the raid had
been rescheduled for March 3.
[9] However, perjury by a witness does not necessarily
constitute fraud on the court. Levander, 180 F.3d at 1119.
Even under the facts revealed by the FOIA documents, Haw-
ley’s involvement in the raid was much less substantial than
Chandler’s. Hawley’s role was largely that of an interested
observer, relaying information to Washington. It was Chan-
dler’s much more active participation in the lead-up to the
raid, and in the raid itself, that posed the largest problem for
the government in defending against the motion to suppress.
Hawley’s lie concerning what he knew, and when he knew it,
likely did not affect the outcome of the case.
c. Lukban and Nocon’s CIA Connections
Taxpayers claim that Lukban and Nocon were working for
the CIA, and that their activity in connection with the raid
should therefore be considered the activity of U.S. agents.
Taxpayers argue that the United States committed fraud on
the court by intentionally concealing Lukban and Nocon’s ties
to the CIA.
There is evidence in the documents recently obtained by
Taxpayers that Nocon worked with the CIA, especially in
connection with wiretapping activities. However, there is little
evidence that Lukban worked with the CIA. In attempting to
show Nocon and Lukban’s CIA ties, Taxpayers rely primarily
on CIA redactions in the documents released through FOIA.
In documents in which the CIA redacted names and informa-
18508 UNITED STATES v. STONEHILL
tion for “national security” reasons, based on a stated desire
to prevent “the identification of individual human sources,”
and not to “reveal[ ] a CIA intelligence relationship with a
foreign intelligence service,” it appears that Lukban and
Nocon’s names were redacted.
There is some direct evidence to suggest that Nocon
worked on wiretapping with CIA agent Joseph McGee. The
IRS Memorandum recounted McGee’s involvement in train-
ing and aiding the NBI with wiretapping activities. McGee
also told the IRS that his primary NBI contact, whose name
is consistently redacted, was a specialist in telephone taps.
McGee mentioned that this person may have been paid money
by the CIA. Taxpayers point out that in his February inter-
view in Rome, Chandler told McCarthy and Huckabee that
Nocon had told him that he “was a wiretap expert.” Taxpayers
also point to Chandler’s statement to McCarthy and Huckabee
that Nocon
seemed to be a very good friend of [redacted]. In
fact, on a number of occasions when Nocon visited
Chandler’s house to play the tape recordings [of
Stonehill from the NBI wiretaps], Nocon would
comment that he had either just come from or was
going to [redacted]’s house. This raised the question
in Chandler’s mind as to the extent that [redacted]
may have been involved in advising or assisting
Nocon in connection with wiretaps of Stonehill and
Brooks. However, Chandler does not have any actual
knowledge as to what extent, if any, [redacted] was
involved in such wiretaps.
Taxpayers assert that the redacted name is McGee’s. If this is
true, it indicates that McGee was helping Nocon with the NBI
wiretaps of Taxpayers.
[10] For two reasons, we conclude that there is not clear
and convincing evidence Nocon and Lukban were CIA agents
UNITED STATES v. STONEHILL 18509
such that their action should be attributed to the United States.
First, Taxpayers’ evidence is too conjectural to satisfy the
clear and convincing standard. Second, even assuming the
redactions are as Taxpayers contend, these documents at most
prove that Nocon, and perhaps Lukban, had some relationship
with the CIA regarding wiretap training. However, the fact
that Lukban and Nocon at some point worked with the CIA
does not make everything they did the action of the U.S. gov-
ernment for purposes of a suppression motion. None of the
evidence Taxpayers highlight suggests that McGee or any
other member of the CIA was directing Lukban and Nocon in
their investigation and raid. In fact, there is evidence in the
record indicating that McGee was not directly involved in the
Stonehill wiretaps. The IRS Memorandum reported that
McGee stated that he did not know when the wiretaps of
Stonehill began, and that he was not involved in giving advice
or assistance for such wiretapping.
d. McCarthy’s Discrediting of Nocon’s 1970 Affidavit
As discussed above, Taxpayers submitted a 1970 affidavit
from Damaso Nocon as part of their 1971 renewed motion to
suppress. Nocon’s affidavit suggested that the United States
had been much more involved in the raid than any U.S. offi-
cial had admitted. The district court found Nocon’s affidavit
and his later testimony not credible. Stonehill III, 420 F. Supp.
at 52. Taxpayers contend that in his attempt to impeach
Nocon, McCarthy made false statements to the district court.
First, Taxpayers argue that McCarthy misrepresented the
facts when he sought to discredit Nocon’s claim that his
“principal function” with the NBI was “to maintain liaison
with foreign governments and police agencies, including their
local representatives.” In the government’s brief to the district
court in response to Taxpayers’ renewed motion to suppress
in 1976, McCarthy represented that Nocon’s assignments “did
not include liaison with foreign governments and police agen-
cies.” McCarthy relied on Lukban’s affidavit, in which Luk-
18510 UNITED STATES v. STONEHILL
ban had written that Nocon “had no official duties or an
official position which called for him to maintain liaison with
foreign governments and police agencies.”
Taxpayers argue that the documents they uncovered
through FOIA demonstrate that Nocon’s assignments did
include liaison with foreign governments. A 1966 memoran-
dum from the IRS representative in Manila (Chandler’s suc-
cessor) to OIO stated that Nocon was “well known to me and
every U.S. law enforcement agency in the Philippines,” and
described him as “perhaps the best informed person in the
Philippines as far as the Stonehill case and any other matters
of interest to us are concerned.” Further, a February 16, 1962,
memorandum to the U.S. Embassy in Tokyo from someone
named Stevenson, copying Chandler, had informed the Tokyo
Embassy that it would soon be contacted by Nocon, and that
the “[s]uccess of Nocon mission [is] extremely important to
Treasury. Please extend all possible cooperation.”
[11] Taxpayers exaggerate the breadth of McCarthy’s
statement. At issue on the renewed motion to suppress was
Nocon’s statement in his affidavit that his “principal function”
was to liaise with foreign governments. It was in response to
this claim that Lukban wrote that Nocon had “no official
duties or an official position which called for him to maintain
liaison with foreign governments and police agencies.” It was
obvious from Hawley and Chandler’s testimony that they had
significant interaction with Nocon. Lukban’s statement in his
affidavit, and McCarthy’s repetition of that statement in the
government’s brief, were simply countering the argument that
Nocon’s principal function was to maintain liaisons with for-
eign governments. Taxpayers misrepresent the contents of the
February 16 memorandum about the “Nocon mission,” sug-
gesting that it states that Nocon had been sent to Tokyo by the
CIA. On the contrary, a memorandum from Hawley to Hoo-
ver, also sent on February 16, makes clear that Nocon was
sent to Tokyo by Lukban. After the fire that destroyed the
plant and warehouse of Philippine Tobacco, Brooks left for
UNITED STATES v. STONEHILL 18511
Japan and his whereabouts were unknown. Hawley wrote,
“Lukban believes must take early action and has dispatched
Agent Damaso Nocon to Japan on . . . Brooks investigation
and requests cooperation with Legat Tokyo.” It is not surpris-
ing that the United States was willing to extend cooperation
to the NBI, especially given that the IRS was already consid-
ering a tax case against Stonehill and Brooks based on Spiel-
man’s information. However, it is clear that Nocon was acting
for Lukban, rather than the CIA.
Second, Taxpayers argue that McCarthy misrepresented
Nocon’s duties regarding wiretapping. Lukban wrote in his
affidavit that “Mr. Nocon never made a telephone tap for the
NBI as he says in his affidavit, although he may well have
made some typewritten transcripts from records.” In one of
the government’s briefs, McCarthy quoted Lukban’s testi-
mony that Nocon “never tapped — he typed.” Taxpayers note
that Chandler reported to McCarthy and Huckabee, during his
interview in Rome, that he thought Nocon was a “wiretap
expert.” The IRS Memorandum presumes that “Nocon was
tapping the wires of Stonehill and his associates and making
the information available to Chandler, Hawley, et al.” is also
possible, inferring from certain redactions, that McGee said
Nocon’s “specialty was telephone tap[s].”
[12] The documents now available suggest that Lukban
was lying when he said that Nocon had never made a tele-
phone tap. However, even if this is so, none of McCarthy’s
representations in the government’s brief constitutes fraud on
the court. McCarthy was not compelled to believe Nocon and
to disbelieve Lukban. Further, McCarthy never represented
that Nocon had never placed a wiretap. Lukban’s statement
that “Nocon never made a telephone tap for the NBI” was not
reproduced in the government’s brief. Lukban’s testimony
that Nocon “never tapped — he typed” was included in the
government’s brief as part of a three-page block quote from
Lukban’s testimony and was never specifically singled out.
This testimony was not used to rebut Taxpayers’ argument
18512 UNITED STATES v. STONEHILL
that Nocon at times made telephone taps, but rather to rebut
Taxpayers’ much more specific argument that Hawley
instructed Nocon to conduct wiretaps of Stonehill in 1960.
There is nothing to suggest that the government incorrectly
accused Nocon of lying when he wrote that Hawley instructed
him to make taps.
e. Access to Seized Documents
Taxpayers argue that McCarthy lied in describing the
extent of American officials’ access to the seized documents.
In his 1967 affidavit in the district court, McCarthy stated that
“this Government has never been able to examine all of the
records in the possession of the Philippine Government and
select those it wished to copy; rather this Government copied
those records which the Philippine Government selected and
chose to allow to be copied.” McCarthy later represented to
the court, “I believe there is some limitation on [Government
access to seized documents]. Our people had to ask for spe-
cific documents. They did not just have free access to every
room. They would say, ‘We believe there are such and such
records on such and such a company from what we have seen.
Can you find that.’ ”
[13] McCarthy’s statements were not inconsistent with the
evidence. As we previously discussed, the FOIA memoranda
that discuss the extent of U.S. access to documents are some-
what inconsistent. On the one hand, Hawley reported to Hoo-
ver that Lukban was providing copies of “all documents
found,” Powers reported “splendid cooperation” from the NBI
in accessing documents, and Chandler later reported that, after
he had helped the NBI acquire space for the documents, the
documents were “fully available.” On the other hand, Rag-
land’s memorandum from October 1962 stated that the U.S.
agents had “never actually had unlimited access to the
records.”
UNITED STATES v. STONEHILL 18513
f. Chandler’s Participation on the Day of the Raid
[14] Taxpayers contend that in his 1967 brief in the district
court McCarthy lied about Chandler’s activities on the day of
the raid. McCarthy wrote that after being called to Lukban’s
office on the night of the raid, and then following the hapless
NBI agent to help sort documents, Chandler “followed this
Agent from the warehouse to the [U.S. Tobacco] main office
and there had given some advice to the NBI agent.” Taxpay-
ers note that McCarthy’s suggestion that Chandler was merely
following the agent is incorrect, as Chandler chose to go to
the main office on his own initiative. However, to the extent
that McCarthy may have been suggesting that Chandler was
merely following the agent, he was more likely making a mis-
take rather than a willful misrepresentation. Chandler’s clear
testimony during the suppression hearing had been that he had
gone to the U.S. Tobacco main office on his own initiative.
g. Diokno-Seigenthaler Meeting
[15] Taxpayers contend that the FOIA documents concern-
ing the Diokno-Seigenthaler meeting show that the United
States responded to the meeting by assigning IRS Agent Pow-
ers to Manila. It is true that the memorandum assigning Ster-
ling Powers to Manila was written on February 13, 1962, only
two days after the Diokno-Seigenthaler meeting at which
Diokno requested U.S. coordination, However, according to
the February 12, 1962, foreign service memorandum concern-
ing this meeting, Diokno requested from Seigenthaler only
that he send two tobacco experts and that he coordinate U.S.
raids in New York with his raids. Taxpayers do not contest
the fact that neither of these requests was fulfilled. There is
nothing to suggest that Diokno requested that more IRS
agents be sent to Manila. Furthermore, Chandler had been
requesting additional agents to work on Taxpayers’ case for
some time. The decision to send additional IRS agents to
Manila was most likely a recognition that, in light of Spiel-
man’s information, the time had come to honor Chandler’s
18514 UNITED STATES v. STONEHILL
longstanding request for help on the Stonehill investigation.
Further, as we discussed above, the foreign service memoran-
dum describing the Diokno-Seigenthaler meeting was in any
event summarized with all key details and submitted to the
district court as part of the 1967 suppression hearing, thereby
putting all of the basic facts about the meeting before that
court.
h. Allegations as a Whole
[16] Taking into consideration all of Taxpayers’ conten-
tions, we conclude that the government did not commit fraud
on the court.
First, in nearly all fraud-on-the-court cases, the misrepre-
sentations went to the central issue in the case. For example,
in Levander and Pumphrey we vacated for fraud on the court
when the litigants intentionally misrepresented facts that were
critical to the outcome of the case, showing the appropriate
“deference to the deep rooted policy in favor of the repose of
judgments.” Hazel-Atlas Glass Co., 322 U.S. at 244-45.
[17] In this case, the government’s misrepresentations
were relatively few and were largely tangential to the funda-
mental question of U.S. participation. Even the full Picture
Book and Powers Memorandum do not significantly change
the story as presented to the district court. The similarity
between the summary in the internal IRS Memorandum of the
evidence supporting suppression of the seized documents and
the summary of such evidence in Judge Browning’s 1968 dis-
sent best demonstrates the nature of the new evidence Tax-
payers have uncovered. The IRS wrote:
It appears that the activities of United States officials
in preparation and planning for the raids and on the
day of the raids were significant. These include
[redacted, presumably McGee]’s activities in con-
nection with the wiretapping; the planning meetings
UNITED STATES v. STONEHILL 18515
in Chandler’s home; Chandler’s assistance in draw-
ing a sketch of locations to be raided; Chandler’s
action the night before the raid in requesting that a
warrant be issued for the Army and Navy Club; the
fact that on the night of the raid Chandler pointed out
to the N.B.I. agent at the United States Tobacco
Company warehouse the significance of the rolls of
cigarette paper; and the fact that on the night of the
raid Chandler pointed out to the N.B.I. agent at the
United States Tobacco Company office the signifi-
cance of the back room.
Judge Browning wrote:
[T]he American agents contributed to the unlawful
enterprise in at least these respects: They brought
Spielman and his information to the attention of the
Philippine authorities, and, as the majority finds, “fi-
nally persuaded” Spielman to meet with them. Chan-
dler made his home available to the NBI for
meetings with Spielman, and for the “planning” and
“preparation” of the raids. Chandler attended these
meetings. In the course of “relaying information”
from Spielman to the NBI, Chandler prepared a dia-
gram and a memorandum of two of the premises to
be raided. Chandler suggested an additional location
to be raided; and his suggestion was adopted. Chan-
dler, prior to the raids, “secured permission from
Colonel Lukban to examine and copy records seized
in the raids.” After the raids had begun, Chandler
and his two assistants, at Colonel Lukban’s request,
went to one of the premises being searched, and
“pointed out” the “significant” books and records to
be seized. From this search location the three Ameri-
can agents, on their own initiative, went to another.
There Chandler inquired whether the NBI agents had
found a records storage room which Spielman had
mentioned, and upon discovering that they had not,
18516 UNITED STATES v. STONEHILL
Chandler pointed out the location of the storage
room to the NBI agent in charge.
Stonehill II, 405 F.2d at 750-51 (Browning, J., dissenting)
(footnotes omitted); see also id. at 750-51 nn. 15-20 (describ-
ing the evidence for these findings in more detail).
Judge Browning made a strong argument that this evidence
should have been suppressed in 1967. The author of the IRS
Memorandum appears to have agreed with Judge Browning.
The district court and a majority in this court disagreed. The
similarity of the government’s internal analysis of the case
and that of Judge Browning, and near-identity of the facts
upon which the two analyses rely, fatally undermine any
claim that the government committed fraud on the court.
B. Throckmorton
Taxpayers also argue that the judgment should be vacated
because William Saunders, Taxpayers’ business partner and at
times their attorney, served as an informant against them for
the government. This, they argue, violates United States v.
Throckmorton, in which the Supreme Court held that a suit
could be resurrected in a case where “an attorney fraudulently
or without authority assumes to represent a party and con-
nives at his defeat; or where the attorney regularly employed
corruptly sells out his client’s interest to the other side.” 98
U.S. at 66. In such a case “there has never been a real contest
in the trial or hearing of the case.” Id. We have reaffirmed this
principle, stating that in such a case a party is “fraudulently
prevented from presenting his claim or defense.” Kimes v.
Stone, 84 F.3d 1121, 1127 n.3 (9th Cir. 1996) (internal quota-
tion marks omitted).
Taxpayers rely on a series of memoranda they uncovered
through FOIA. In a 1960 memorandum from IRS Agent
James Griffin to the IRS Audit Division, Griffin noted that
Saunders reported “in confidence” that Stonehill had for-
UNITED STATES v. STONEHILL 18517
warded a check from a Swiss bank account to Honolulu. Grif-
fin also provided instructions to prevent Saunders from being
“compromised.” In another memorandum, written shortly
thereafter, Louis Blissard, the U.S. Attorney in Hawaii, wrote
to Lukban with information from William Saunders, an attor-
ney “who is in some business ventures with Stonehill.” In
July 19, 1967, Fred Ugast, Chief of the General Litigation
Section of the DOJ Tax Division, wrote to Lester Uretz, IRS
Chief Counsel, that “[i]t is anticipated that one of the key wit-
nesses in [the Stonehill] case will be an attorney in Honolulu,
Hawaii, named William W. Saunders.” Ugast’s memorandum
then discusses a tape recording of an interview of Saunders
made by “Special Agent Davis.” It is unclear what subjects
Saunders discussed in this interview, and whether Stonehill
and the rest of his litigation team were aware of Saunders’s
proposed testimony.
Taxpayers also note that, based on the information Taxpay-
ers obtained through FOIA, Stonehill sued Saunders in
Hawaii state court for breach of the fiduciary duty of confi-
dentiality and breach of the duty of undivided loyalty.
Although the jury found that Saunders had breached these
duties, it awarded no damages because it found no legal cau-
sation.
[18] Although it is clear that Saunders did cooperate with
the government, we reject Taxpayers’ Throckmorton claim. It
is unclear the extent to which there was an overlap between
the time in which Saunders was actively informing on Stone-
hill and Brooks and the time in which he served as their attor-
ney. During some of the litigation of this case Saunders was
on Taxpayers’ team of attorneys. He was on the team for the
tax lien foreclosures in Hawaii, and he was the attorney of
record in Taxpayers’ answer to the complaint in the original
tax case. However, the memorandum describing Saunders’s
“in confidence” communication with the IRS, by far Taxpay-
ers’ best evidence of Saunders’s cooperation with the govern-
ment, was sent in 1960. Although in his complaint against
18518 UNITED STATES v. STONEHILL
Saunders in Hawaii state court Stonehill claimed that he
entered into an attorney-client relationship with Saunders in
1959, it seems more likely that at that time Saunders was just
a business associate and was not serving as Taxpayers’ attor-
ney. A government memorandum from October 15, 1962,
suggests that Saunders obtained power of attorney for Stone-
hill for the first time in June, 1962. The memorandum states,
“To our knowledge this association was not an attorney-client
relationship [during the business ventures]; therefore,
Saunders can be considered a third party with regard thereto.”
At best, the record is unclear concerning whether Saunders
and Stonehill were in an attorney-client relationship when
Saunders informed on Stonehill. That is, to the extent
Saunders did inform on Taxpayers, there is insufficient evi-
dence to show that anything Saunders did prevented Taxpay-
ers from receiving “a real contest in the trial or hearing of the
case.” Throckmorton, 98 U.S. at 66. We therefore reject Tax-
payers’ Throckmorton claim.
Conclusion
Any misrepresentations or false statements made by gov-
ernment witnesses or attorneys were on largely tangential
issues and did not substantially undermine the judicial process
by preventing the district court or this court from analyzing
the case. We therefore reject Taxpayers’ fraud-on-the-court
claim. Because Taxpayers have not shown that Saunders pro-
vided information to the government before he was in an
attorney-client relationship with Taxpayers, they have not
established that Saunders prevented them from having a fair
trial or hearing in their case.
AFFIRMED.