FU Inv. Co. v. Comm'r of Internal Revenue
| Decision Date | 03 April 1995 |
| Docket Number | 12984–94.,Nos. 12983–94,s. 12983–94 |
| Citation | 104 T.C. 408,104 T.C. No. 20 |
| Parties | FU INVESTMENT CO., LTD., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.COCO PALMS INVESTMENT, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Paul J. Sax, Lisa A. Wilcox, and William L. Riley, San Francisco, CA, for petitioner.
Bryce A. Kranzthor, San Francisco, CA, Debra K. Estrem, Oakland CA and Jordan Musen, Washington, DC, for respondent.
Ps each filed a Motion for Protective Order seeking to preclude R from engaging in ex parte communications with Ps' former employees regarding the matters in dispute in these cases.
Held: Model Rules of Professional Conduct Rule 4.2 (1992), which prohibits an attorney from engaging in ex parte communications with a party that he knows to be represented by counsel, does not apply to preclude R from engaging in ex parte communications with Ps' former employees.
Held further: Ps' general assertions that the former employees in question were privy to communications protected by the attorney-client privilege are insufficient to satisfy Ps' burden of proof that a protective order is warranted under the circumstances presented.
These consolidated cases were assigned to Chief Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with and adopts the opinion of the Chief Special Trial Judge, which is set forth below.
PANUTHOS, Chief Special Trial Judge:
This matter is before the Court on petitioners' separate Motions For Protective Order filed December 12, 1994. Petitioners each seek a protective order from the Court precluding respondent from engaging in ex parte communications with petitioners' former employees.
Respondent determined that petitioners Fu Investment Co., Ltd., and Coco Palms Investment, Inc., are liable for withholding of income tax at source as follows:
+--------------------------------------------------------+
¦Fu Investment Co., Ltd. ¦¦Coco Palms Investment, Inc. ¦
+-------------------------++-----------------------------¦
¦Year ¦Amount ¦¦Year ¦Amount ¦
+---------+---------------++------------+----------------¦
¦ ¦ ¦¦ ¦ ¦
+---------+---------------++------------+----------------¦
¦1990 ¦$1,287,375 ¦¦1990 ¦$483,272 ¦
+---------+---------------++------------+----------------¦
¦1991 ¦635,642 ¦¦1991 ¦238,865 ¦
+--------------------------------------------------------+
Petitioners, whose principal place of business was in California, invoked the jurisdiction of this Court by filing separate petitions for redetermination.
After filing an answer to each of the petitions, respondent mailed letters to three of petitioners' former employees (a former secretary and two accounting supervisors) requesting interviews regarding the matters in dispute in these cases. After being notified of respondent's intentions by one of the former employees, petitioners filed the Motions for Protective Order pending before the Court. Specifically, petitioners request that we preclude respondent from engaging in ex parte contacts with their former employees. Petitioners' counsel requests reasonable advance notice of the name of the former employee, the time and place for the interview, and an opportunity to be present at the interview for the purpose of objecting to questions that might elicit privileged information.
Respondent filed objections to petitioners' motions, indicating therein that she would suspend her efforts to interview the individuals in question pending the disposition of petitioners' motions.
Petitioners' motions were calendared for hearing in Washington, D.C. Counsel for respondent appeared at the hearing and presented argument in opposition to the motions. Petitioners filed statements with the Court pursuant to Rule 50(c) in lieu of attending the hearing. Petitioners' Rule 50(c) statements include declarations submitted by James Murad, a partner with Cooper, White & Cooper, petitioners' general counsel, stating that, while employed by petitioners, each of the former employees in question was privy to confidential attorney-client communications regarding the substantive issues in dispute in these cases.
During the hearing of this matter, counsel for respondent argued that respondent is not obligated to provide advance notice of her intention to interview petitioners' former employees. Counsel for respondent also assured the Court that respondent would attempt to avoid eliciting privileged information from the former employees and, further, would provide petitioners with copies of any notes taken during the interviews.
There is no indication in the record that petitioners' former employees are presently represented by counsel.
Petitioners' Motions for Protective Order raise the issue of whether respondent may engage in ex parte communications with the former employees of a taxpayer after the taxpayer has filed a petition for redetermination with this Court. In addition, we must address petitioners' concerns that the former employees in question may disclose matters to respondent that are subject to the attorney-client privilege.
Rule 103 provides that, upon motion by a party or any other affected person, and for good cause shown, the Court may make any order which justice requires to protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense. We have previously considered the question of the Court's authority to issue a protective order under Rule 103 restricting the use of information obtained through legal procedures that fall outside of the Court's formal discovery procedures. See Ash v. Commissioner, 96 T.C. 459, 469–470 (1991) (). Arguably, respondent's efforts to arrange informal witness interviews do not fall within our discovery procedures, and, thus, are not subject to restriction under Rule 103. See Amarin Plastics, Inc. v. Maryland Cup Corp., 116 F.R.D. 36, 38 (D.Mass.1987) ( Fed.R.Civ.P. 26(c)).
Nonetheless, it is well settled that courts have inherent powers not derived from any statute to, inter alia, control the conduct of attorneys practicing before them and to regulate their own processes to prevent injustice. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 765 (1980); Ash v. Commissioner, supra at 470; Amarin Plastics, Inc. v. Maryland Cup Corp., supra at 38–39; see also Rule 1(a). With these principles in mind, we first turn to the question of whether respondent may engage in ex parte communications with petitioners' former employees.
Rule 201(a) provides that practitioners before the Court shall carry on their practice in accordance with the letter and spirit of the Model Rules of Professional Conduct of the American Bar Association. Duffey v. Commissioner, 91 T.C. 81, 82 (1988). Model Rules of Professional Conduct Rule 4.2 (1992) (hereinafter Model Rule 4.2) states:
In representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.
In short, Model Rule 4.2 prohibits ex parte communications with a party that the lawyer knows to be represented by another attorney in the matter.
The official comment to Model Rule 4.2 states in pertinent part:
In the case of an organization, this Rule prohibits communications by a lawyer for one party concerning the matter in representation with persons having a managerial responsibility on behalf of the organization, and with any other person whose act or omission in connection with that matter may be imputed to the organization for purposes of civil or criminal liability or whose statement may constitute an admission on the part of the organization. If an agent or employee of the organization is represented in the matter by his or her own counsel, the consent by that counsel to a communication will be sufficient for purposes of this Rule. Compare Rule 3.4(f).
This Rule also covers any person, whether or not a party to a formal proceeding, who is represented by counsel concerning the matter in question.
Model Rule 4.2 advances the well recognized public policy favoring the preservation and protection of the attorney-client relationship. Specifically, by prohibiting ex parte communications with a party represented by counsel, opposing counsel is: (1) Denied the unfair advantage that he would otherwise enjoy over a lay person unfamiliar with the law; and (2) precluded from disturbing an established attorney-client relationship. Cram v. Lamson & Sessions Co., 148 F.R.D. 259, 260 (S.D.Iowa 1993); Polycast Technology Corp. v. Uniroyal, Inc., 129 F.R.D. 621, 625 (S.D.N.Y.1990) ( Code of Professional Responsibility, Disciplinary Rule 7–104(A)(1)).
Consistent with its official comment, Model Rule 4.2 generally has been interpreted to preclude opposing counsel from engaging in ex parte communications with the present employees of a corporate party. See, e.g., Miano v. AC & R Advertising, Inc., 148 F.R.D. 68, 76–77 (S.D.N.Y.1993). As indicated, however, we are asked to decide, in a case of first impression in this Court, whether respondent may engage in ex parte communications with the former employees of a corporation/petitioner. The issue to be decided has been addressed by the American Bar Association (ABA) and a substantial number of Federal District Courts.
We begin our review of these authorities with ABA Standing Comm. on Ethics and Professional Responsibility, Formal Op. 91–359 (1991)....
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