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SYNANON CHURCH v. UNITED STATES

February 9, 1984

THE SYNANON CHURCH, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant



The opinion of the court was delivered by: RICHEY

 INTRODUCTION

 Synanon filed a complaint for declaratory relief in August 1982, pursuant to the Internal Revenue Code of 1954, 26 U.S.C. § 7428, alleging, inter alia, that the Internal Revenue Service ("IRS") erroneously revoked its tax-exempt status under § 501(c)(3) for the two fiscal years ending August 31, 1977, and August 31, 1978. *fn1" Since that time, the parties have filed reams of motions, memoranda, exhibits, and affidavits, some of which remain before this court for consideration, but which for the most part it will not be necessary to decide in view of the result herein. Those outstanding motions include cross motions for summary judgment, defendant's second motion for summary judgment, defendant's motion to dismiss with prejudice, and a variety of motions relating to discovery and evidentiary matters. For the reasons set forth below, the court has determined that this case will be dismissed with prejudice for plaintiff's fraud upon the court, and judgment will be entered in favor of the United States.

 BACKGROUND

 Synanon was founded in 1958 by Charles E. Dederich, allegedly to rehabilitate drug addicts and to engage in related research and public education. Its application for tax-exempt status was granted in July 1960 because it was "organized and operated exclusively for charitable purposes" (IX at 369) *fn2" and therefore qualified under 26 U.S.C. § 501(c)(3), which excludes from taxation:

 
Corporations . . . organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, . . . no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation . . ., and which does not participate in, or intervene in . . . any political campaign on behalf of any candidate for public office.

 Synanon operated as a residential facility and relied on group encounter sessions, known as "games," for part of its therapy. (Plaintiff's Statement of Material Facts, Vol. III.) Beginning in 1967, non-addicts were also admitted to Synanon as residents, and were known as either "squares" or "lifestylers" depending on whether they worked within Synanon itself or at outside jobs. Lifestylers paid to live in Synanon facilities. (Defendant's Statement of Material Facts at 4-5.) In 1974, Synanon's chief counsel proposed "calling ourselves a religion," to reflect what had "been so for a long time," (IX at 56) and won the Board of Directors' approval. Synanon's Articles of Incorporation were amended in September 1975 to include "religious purposes." (IX at 63.)

 Over the years, Synanon became involved in a wide variety of endeavors other than strictly residential rehabilitation of addicts. In addition to its inclusion of lifestylers and squares, these activities included ADGAP, an advertising gift business; the Synanon Distribution Network, which solicited goods from farmers and the business community; real estate development; investment counseling; and the training and maintenance of security forces, among others. (See Defendant's Statement of Material Facts.) Synanon claims that these were all designed to enhance its educational and rehabilitative objectives, while the government contends that they are evidence of its ineligibility for tax exemption. The government bases its position on three arguments, two statutory and one extra-statutory. First, it claims that Synanon is not "organized and operated exclusively for religious, charitable, scientific, . . . or educational purposes," as required by § 501(c)(3). The United States further claims that Synanon fails to qualify under § 501(c)(3) because its net earnings inure to the benefit of private individuals. Finally, the government relies on Bob Jones University v. United States, 461 U.S. 574, 103 S. Ct. 2017, 2028-29, 76 L. Ed. 2d 157 (1983), for the proposition that a tax-exempt organization must serve a public benefit, in addition to satisfying the statutory criteria. The government argues that Synanon's violent and illegal activities bar tax exemption under the Bob Jones test. Although the government vigorously disputes Synanon's self-characterization as a religion, the decision herein does not depend on the resolution of that controversy. Even a bona fide church that failed the "exclusive operation," "private inurement," or Bob Jones test would not be eligible for tax exemption. Incorporated Trustees of the Gospel Worker Society v. United States, 510 F. Supp. 374, 378 n.12 (D.D.C.), aff'd, 672 F.2d 894 (D.C. Cir. 1981), cert. denied, 456 U.S. 944, 102 S. Ct. 2010, 72 L. Ed. 2d 467 (1982).

 I. IT IS NOT NECESSARY TO REACH DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT IN LIGHT OF THE RESULT HEREIN BUT IT CANNOT BE DISPUTED THAT SUBSTANTIAL EVIDENCE SUPPORTS THEIR ALLEGATIONS THAT PLAINTIFF HAS A POLICY OF COMMITTING HEINOUS ACTS OF PHYSICAL VIOLENCE AGAINST ITS PERCEIVED ENEMIES

 The government has advanced three theories under which it claims entitlement to summary judgment: exclusive operation, private inurement, and Bob Jones ' "public policy" test. The voluminous exhibits it has submitted in support of its motions consist largely of Synanon's own records and transcripts of taped statements by Synanon's leaders. These exhibits raise serious questions concerning Synanon's financial operations and create a chilling portrait of an organization that advocates terror and violence. Approximately seven million dollars of corporate money was distributed to Synanon officials during the two years at issue in this lawsuit, purportedly as salaries, bonuses, and consultation fees. Of this sum, over two million dollars went to Charles Dederich and his family. (Defendant's Statement of Material Facts at 35-47.) Top Synanon officials received non-cash benefits as well, including a residence known as "Home Place" in Badger, California (id. at 26-28); access to a fleet of recreational vehicles, including boats, planes, and motorcycles (id. at 10-11, 26-27); brokerage services (id. at 48-51); and a two-month trip to Europe (id. at 134-35).

 More disturbing than this evidence of fiscal improprieties, however, are the repeated attacks and threats of violence committed by Synanon members against those perceived as enemies of the organization. These incidents are tied to Synanon's leaders, at the very least by rhetoric and sometimes by participation or ratification as well. (See Defendant's Statement of Material Facts at 66-100.) In 1977, for example, Charles Dederich's "New Religious Posture" speech warned "Don't mess with us. You can get killed dead. Physically dead." (Vol. I at 4.) Dederich was later convicted on a plea of nolo contendere, along with two other Synanon members, of conspiracy to murder Paul Morantz. Mr. Morantz, an attorney who filed suit against Synanon on behalf of two former members, had been bitten by a four-foot rattlesnake when he reached into his home mailbox in October 1978. (Id. at 98-100.) While Synanon officials were in Formia, Italy, in the summer of 1978, phone calls were made back to the United States to try to arrange Morantz' assassination. (Fleishman affidavit at 5; Mullen affidavit at 2; Arbiter affidavit at 1-2.) Synanon organized groups called the "Imperial Marines" and the "National Guard," and called for "Holy War" against its enemies. (Defendant's Statement of Material Facts at 68-74, 108-09.) Synanon leaders and members have been linked with a large number of beatings and other acts of physical violence, and some have been convicted. (See id.; Fleishman, Mullen, and Arbiter affidavits.)

 It is fundamental that a party cannot avoid summary judgment by mere conclusory denials in its pleadings. Tarpley v. Greene, 221 U.S. App. D.C. 227, 684 F.2d 1, 6-7 (D.C. Cir. 1982); Crooker v. Bureau of Alcohol, Tobacco & Firearms, 216 U.S. App. D.C. 232, 670 F.2d 1051, 1054 n.7 (D.C. Cir. 1981). In addition, Local Rule 1-9(h) requires that the party opposing a summary judgment motion file a "concise statement of genuine issues" and provides that the court may take the moving party's factual claims as true without such a statement. Gardels v. CIA, 205 U.S. App. D.C. 224, 637 F.2d 770, 773 (D.C. Cir. 1980). The plaintiff here has attempted to contravert defendant's evidence with its "gaming" explanation, its denial of corporate complicity in acts of violence, and its "deferred compensation" explanation for the distribution of substantial corporate assets to its members, and has submitted a voluminous statement and affidavits to that effect. It is not necessary to decide whether these self-serving affidavits are sufficient to withstand defendant's motions for summary judgment, however, in light of the result reached herein on other grounds.

 II. THIS CASE MUST BE DISMISSED BECAUSE OF SYNANON'S FRAUD UPON THE COURT

 Although summary judgment is not necessary given the posture of this case, the action must be dismissed due to plaintiff's wilful, systematic, and extensive destruction and alteration of documents and tapes relevant to a determination of Synanon's tax-exempt status. This "egregious misconduct" amounts to "a scheme to interfere with the judicial machinery performing the task of impartial adjudication, . . . by preventing the opposing counsel from fairly presenting . . . [its] case or defense." Pfizer, Inc. v. International Rectifier Corp., 538 F.2d 180, 195 (8th Cir. 1976). More than mere fraud between the parties, or an isolated instance of perjury, plaintiff has compounded its "unconscionable plan," England v. Doyle, 281 F.2d 304, 309 (9th Cir. 1960), by its indisputable misconduct before this court, as outlined below.

 A. Plaintiff Is collaterally Estopped From Denying Its Systematic Destruction and Alteration of Records by the Bernstein Decision of Judge Braman of District of Columbia Superior Court

 In Synanon Foundation, Inc. v. Bernstein, et al., Superior Court of the District of Columbia, Civil Action No. 7189-78, Judge Braman found by clear and convincing evidence that Synanon engaged in a "wilful, deliberate and purposeful scheme to . . . destroy extensive amounts of evidence and discoverable materials which probably would have had a dispositive bearing upon Synanon's . . . non-profit status . . . . The scheme further had as its purpose to cover up and conceal this destruction of evidence and discoverable materials . . ." (T. at 42.) *fn3" The destruction and alteration of tapes, a computer inventory, and transcript index was aimed at "materials not only related to violence, but also to money, to sexual subjects, to guns, and to others matters." (T. at 13). This destruction and cover-up were conducted under the direction of Steve Simon, Synanon's "Archivist," (T. at 13) with the "knowledge and approval of . . . [Synanon's] legal department," including Philip Bourdette, its general counsel, Board of Directors' member, and Secretary. ...


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