Baird v. Koerner, No. 16495.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: STEPHENS, BARNES and JERTBERG, Circuit
• Citation: 279 F.2d 623
• Parties: Alva C. BAIRD, Appellant, v. Laurence P. KOERNER, Special Agent, Internal Revenue Service, Appellee. Laurence P. KOERNER, Special Agent, Internal Revenue Service, Cross-Appellant, v. Alva C. BAIRD, Cross-Appellee.
• Decision Date: 01 August 1960
• Docket Number: No. 16495.

279 F.2d 623 (1960)

Alva C. BAIRD, Appellant,
v.
Laurence P. KOERNER, Special Agent, Internal Revenue Service, Appellee.
Laurence P. KOERNER, Special Agent, Internal Revenue Service, Cross-Appellant,
v.
Alva C. BAIRD, Cross-Appellee.

No. 16495.

United States Court of Appeals Ninth Circuit.

June 6, 1960.

Rehearing Denied August 1, 1960.

279 F.2d 624

COPYRIGHT MATERIAL OMITTED

279 F.2d 625

Baird & Holley, Thomas A. Baird, B. H. Neblett, Albert J. Galen, Los Angeles, Cal., for appellant

Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before STEPHENS, BARNES and JERTBERG, Circuit Judges.

BARNES, Circuit Judge.

Appellee, as Special Agent of the United States Internal Revenue Service, sought by his petition the aid of the district court (28 U.S.C. §§ 1340, 1345) to enforce a summons and compel testimony (26 U.S.C. § 7402) at an inquiry as to the identity of a person who might be liable to pay an internal revenue tax (26 U.S.C. §§ 7601-7605). He received such aid. The district court ordered appellant Alva C. Baird to answer a certain question. Baird refused to answer.

This is an appeal from a judgment of civil contempt and an order committing Baird to custody because of his refusal to answer that question (as to the identity of his clients), and a cross-appeal from that portion of the judgment which does not require appellant Baird to answer other questions with respect to the identity of other attorneys and accountants for said clients.¹

Specifically, appellant was asked, and refused to answer, as to the "identity and addresses of each and every person who employed appellant in connection with his transmittal of a cashier's check in the sum of $12,706.85 to the Director of Internal Revenue at Baltimore, Md." Appellant based his refusal on various grounds, but primarily on the privilege existing between attorney and client. As government counsel stated in oral argument, the one real issue is: Is there here a valid claim of the attorney-client privilege?

I. Factual Background

The judgment and committment below arose out of the following facts. Appellee is Laurence P. Koerner, Special Agent of the Internal Revenue Service. Appellant is an attorney at law, and has been engaged in the practice of law continuously from April 20, 1920. He is admitted to practice before all of the state courts of California and Montana, the Tax Court of the United States, the United States Court of Claims, the District Courts of the United States in California and Montana, the United States Court of Appeals for the Ninth Circuit, and the Supreme Court of the United States.

From September 8, 1925 to June 30, 1943, appellant was engaged as an attorney in the Internal Revenue Service of the United States and for a substantial portion of that time was engaged in

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handling cases involving tax frauds and criminal prosecutions. For five years before his resignation from the Service in 1943, appellant was Division (now Regional) Counsel of the Pacific Division of the Internal Revenue Service, which included the nine Western States and the Territory of Hawaii. At all times since June 30, 1943 appellant has been regularly authorized to practice in all matters before the Treasury Department of the United States. Since June 30, 1943 appellant has been, and now is, engaged in the practice of law in the State of California with offices at Los Angeles, California, and a substantial portion of his practice is devoted to all phases of State and Federal Tax Laws, including the representation of taxpayers accused of fraud or charged with alleged criminal violations of the Internal Revenue Laws

Early in August 1956 appellant consulted with certain accountants and gave advice concerning certain undisclosed taxpayers' income tax. There was a discussion of defenses and steps to be taken to place the undisclosed taxpayers in the most favorable position in the event criminal charges were to be brought against them by the Internal Revenue Service.

The accountants determined the undisclosed taxpayers' returns were incorrect and the taxes understated. No investigation was then being made, nor had it been made by the government, of taxpayers.

On or about the middle of August 1956 taxpayers' attorney came to appellant's office in Los Angeles and discussed with him in detail the facts and circumstances of the case. After a complete and thorough discussion of procedural steps, and of the moral, legal and tactical advantages of making payment of the tax then due, but without disclosing the identity of the taxpayers, their said attorney delivered to appellant the sum of $12,706.85, which had previously been determined to be the amount of the tax due, with interest thereon to September 1, 1956. The taxpayers' general attorney also, as compensation for the consultation and advice given in the various conferences had in regard to the matter, paid appellant a fee commensurate with the value of the services rendered.

On August 20, 1956 appellant transmitted a cashier's check dated August 17, 1956 for $12,706.85 to the District Director of Internal Revenue at Baltimore, Maryland, with a letter reading as follows:

"August 20, 1956 "Mr. Clarence L. Fox, Jr District Director of Internal Revenue Custom House Baltimore 2, Maryland

"Sir:

"There is enclosed Cashiers Check of Citizens National Trust & Savings Bank of Los Angeles No. 241292, dated August 17, 1956, payable to Director of Internal Revenue in the amount of $12,706.85.

"This represents additional amounts due from one or more taxpayers for some past years. Their names have not been disclosed to me. However, I am informed that the aggregate additional amount, together with interest computed to September 1, 1956, is the amount of the check, $12,706.85.

"No investigation of any kind is now in process by the Internal Revenue Service. There seems to be no reason to believe that one will be promulgated in the future. However, the attorney representing this group concluded that there were additional taxes due the United States and recommended to his clients that payment be made. The amount transmitted may be deposited in the Deposit Fund Account of the Treasurer of the United States or in such other account as may be appropriate for unidentified collections.

"Yours Respectfully /s/ Alva C. Baird Alva C. Baird "ACB;eg Enclosure"

The record shows that the identity of the taxpayers in question, their names and addresses have never been disclosed to appellant. Appellant was advised, however, that the taxpayers are reputable

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and responsible business men who are now and have always been engaged in a legitimate business, and have not engaged in any unsavory or illegal businesses of any kind.

On November 27, 1957, appellee, as Special Agent, issued a departmental summons, requiring appellant to identify the attorneys, the accountants, and the taxpayers for whom the check was forwarded. On December 16, 1957 appellant appeared in answer to the subpoena, was sworn, and declined to name the taxpayers on the ground he did not know their names, and declined to name the accountants or attorney on the ground that such information came to him as a privileged communication from the unknown client to Baird, as an attorney.

Appellee then filed a petition for enforcement of the Internal Revenue Service summons, and an order to show cause. Appellant moved to dismiss and to quash. These motions were denied. Appellant then answered the petition and order to show cause, pleading as defenses: (1) that no cause of action was stated; (2) the attorney-client privilege; (3) the fifth amendment, and Article I, Section 13 of the California Constitution; and (4) the fourth amendment, and Article I, Section 19 of the California Constitution.

At the hearing of the order to show cause in the district court, appellant refused to answer questions as to the identity and address of his employers and was found guilty of civil contempt. He was committed to custody until he was willing to answer, and a stay was granted to permit this appeal.

II. The Attorney-Client Privilege

We must first consider what the attorney-client privilege is; whether it here exists; to what does it extend; must it be raised, and if so, how; and who is entitled, or required, to raise it?

In considering these questions, we first run into divergent views as to what body of law applies — state or federal? Appellant Baird assumes in his opening brief that the law of the forum state applies. Appellee Koerner states there exists a federal common law rule that is applicable.

There is no question but that in diversity cases, the rule of Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188, requires the federal courts to ascertain and follow what the state law is if the state decisions are sufficiently conclusive, definite and final. But the Erie rule excepts "matters governed by the Federal Constitution or by Acts of Congress."

The taxing authority of the federal government lies in the Constitution, Article I, Section 8, and that same section authorizes Congress to make all laws necessary and proper to execute and implement this power. Congress has enacted the Internal Revenue Code under which appellee has acted.

While the authority under which the proceedings below were instituted stems from congressional enactment, that does not mean that there exists a federal common law defining the nature and extent of the privilege between attorney and client. There cannot be an attorney-client privilege unless the party to whom the communication was made is an attorney. United States v. United Shoe Machinery Corporation, D.C.Mass.1950, 89 F.Supp. 357-358. Each state determines, within constitutional limitations, who may or may not practice law within its courts. Schware v. Board of Bar Examiners, 1957, 353 U.S. 232, 248, 77 S.Ct. 752, 1 L.Ed.2d 796 (concurring...