The lawsuit raised the ire of Congressional Republicans, who opened an investigation into how the IRS handles protected health information seized in criminal cases. Meanwhile, a federal judge has ruled that prosecutors can look for evidence in the 100 gigabytes of seized data, which includes the personal health information copied from Three Rivers' computers.
The raid was triggered by a criminal investigation of Three Rivers' founder, Blaine Pollock, who was indicted in U.S. District court in San Diego for allegedly funneling company funds to overseas bank accounts and “off-the-books” accounts domestically between 2006 and 2011.
The IRS accuses Pollock of funneling millions of dollars into the accounts to buy homes in California and the Philippines and two yachts, and to pay for expenses from a “marital settlement agreement.” Pollock was charged with 13 counts of making false statements on his tax returns, aiding private companies in making false statements on their returns and conspiring to defraud the U.S. government.
He pleaded not guilty and was released on a $1 million secured bond in June 2013. His attorney, Robert E. Barnes, has not returned calls about the matter.
The company sued the IRS in state court—appearing on the complaint as John Doe Company—saying that the IRS agents had abused their authority in carrying out the raid. Subsequent court documents identify the raided company as Three Rivers Provider Network.
The lawsuit, which was later transferred to federal court, argues that the agents' search warrant allowed them to seize financial records relating “solely to a tax matter involving a former employee of the company.” Yet while on site, the agents demanded to see the servers containing millions of patients' protected health information—data that the government admits it retains today.
“After being put on notice of the illicit seizure, the IRS agents refused to return the records, continued to keep the records for the prying eyes of IRS peeping toms, and keep the records to this very day,” the lawsuit against the IRS says.
Indeed, Assistant U.S. Attorney David Leshner had to get special permission from a federal judge to view the files copied from the Three Rivers computers to examine whether they are relevant to the case against Pollock.
U.S. District Judge Michael M. Anello granted a government request to allow a third-party attorney to review the material and flag any information that might be relevant to Pollock's tax case. For any information not deemed relevant, the IRS has promised to set it aside in a “sealed evidence bag” and allow the court to take custody of it.
Although Pollock initially appealed Anello's order to a federal circuit court, that appeal was thrown out last month, allowing the review to proceed. The lawsuit against the IRS has since been put on hold pending the outcome of the criminal action against Pollock.
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