Marriott Intern. Resorts, L.P. v. U.S.

• Decision Date: 03 February 2006
• Docket Number: No. 05-5046.,05-5046.
• Citation: 437 F.3d 1302
• Parties: MARRIOTT INTERNATIONAL RESORTS, L.P., and Marriott International JBS Corporation, Plaintiffs-Appellees, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

437 F.3d 1302

MARRIOTT INTERNATIONAL RESORTS, L.P., and Marriott International JBS Corporation, Plaintiffs-Appellees, v. UNITED STATES, Defendant-Appellant.

No. 05-5046.

United States Court of Appeals, Federal Circuit.

February 3, 2006.

Harold J. Heltzer, Crowell & Moring LLP, of Washington, DC, argued for plaintiffs-appellees. With him on the brief were Robert L. Willmore and Alex E. Sadler.

Joan I. Oppenheimer, Attorney, Tax Division, Appellate Section, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With her on the brief were Eileen J. O'Connor, Assistant Attorney General, Richard T. Morrison, Deputy Assistant Attorney General, Gilbert S. Rothenberg, Chief, Appellate Section, and Jonathan S. Cohen, Attorney.

Jerry Stouck, Greenberg Traurig, LLP, of Washington, DC, for amici curiae. With him on the brief was Robert L. Shapiro.

Before MAYER, RADER, and LINN, Circuit Judges.

Opinion for the court filed by Circuit Judge RADER.

Dissenting opinion filed by Circuit Judge MAYER.

RADER, Circuit Judge.

The United States Court of Federal Claims certified this interlocutory appeal to examine the limits of the "deliberative process privilege." The trial court decided that only the Agency head could invoke the privilege on the Agency's behalf. Therefore, the trial court rejected as procedurally flawed a process allowing a high ranking subordinate to invoke the privilege. Marriott Int'l Resorts, L.P. v. United States, 61 Fed.Cl. 411 (2004) (Court of Federal Claims Decision). In the absence of binding precedent on the specific issue before the court, the court adopts the position that the deliberative process privilege permits delegation. A majority of our sister circuits have reached the same conclusion. Therefore, this court reverses and remands for further proceedings.

I.

The case arises in the context of a tax case in the Court of Federal Claims. Marriott International Resorts, L.P. (Marriott) requested production of all documents that the Internal Revenue Service (IRS or Agency) relied upon in defining "liability" under 26 U.S.C. § 752. See id. at 414. Marriott alleges the Agency's pre-1995 interpretation of § 752 justified its treatment of various short-sale transactions as liabilities in its 1994 tax returns. Id. at 413. In 1995, however, the Agency reinterpreted § 752 in a manner that excluded Marriott's short-sale transactions, thereby increasing Marriott's 1994 taxable income by $72,946,839. Id. Thereafter, Marriott filed suit in the Court of Federal Claims, challenging the Agency's treatment of its short-sale transactions. Id. As summarized by the trial court:

In pursuit of support for those allegations, Marriott . . . requested from the government all documents relied upon by the IRS "in formulating its position with respect to the definition of 'liability' in Treasury Regulations issued under [Internal Revenue] Code section 752 in 1988 and 1991 and various revenue rulings in which the IRS purported to define the term."

Id. at 414 (citing Pls.' Mot. at 9-10) (alteration in original).

While producing some documents in response to Marriott's request, the Government withheld or redacted portions of 339 responsive documents under a claim of "executive privilege." Id. Notably, the Commissioner of the IRS did not personally invoke the privilege claim. Id. Rather, the Commissioner delegated the authority to an Assistant Chief Counsel who invoked the privilege during an exhaustive examination of the voluminous documents at issue. Id. (citing Delegation Order No. 220 (Rev.3), 1997 WL 33479282).

Without addressing the merits of the privilege claim, the trial court rejected the Agency's invocation of the privilege as procedurally flawed because, in its view, the privilege could only be invoked "by the head of agencies after personal familiarization with the documents involved and a determination that disclosure would significantly and adversely affect the agency's vital functions." Id. at 417. In reaching that conclusion, the trial court relied on a case from this court's predecessor, the United States Court of Claims, namely Cetron Electronic Corporation v. United States, 207 Ct.Cl. 985, 1975 WL 6632 (1975) (Cetron Elec.). The trial court also noted other cases in its court on this issue. See Vons Companies, Inc. v. United States, 51 Fed.Cl. 1, 23 (2001); Abramson v. United States, 39 Fed.Cl. 290, 295 (1997); Walsky Const. Co. v. United States, 20 Cl.Ct. 317, 320 (1990); Deuterium Corp. v. United States, 4 Cl.Ct. 361, 364 (1984). Based on its finding that the Government had not properly invoked the privilege, the trial court ordered either production of all the documents or invocation of the privilege properly by the Commissioner himself after personal review of the documents. Court of Federal Claims Decision, 61 Fed.Cl. at 419-20. With the trial court's permission, the Government filed the present interlocutory appeal to challenge this holding.

II.

As noted, the trial court felt bound by the holding of the Court of Claims in Cetron Elec. See id. at 417. The trial court further commented that Cetron Elec. was consistent with an earlier Court of Claims decision, Kaiser Aluminum & Chemical Corporation v. United States, 141 Ct.Cl. 38, 157 F.Supp. 939 (1958) (Kaiser Aluminum). Id. The case law of the Court of Claims, including both Cetron Elec. (1975) and Kaiser Aluminum (1958), bind this court. South Corp. v. United States, 690 F.2d 1368, 1370 (Fed.Cir.1982) (en banc). Cetron Elec. and Kaiser Aluminum, however, did not address or decide the issue presently before this court.

Kaiser Aluminum occasionally receives credit as the first federal case to recognize a deliberative process privilege.¹ See e.g., Michael N. Kennedy, Escaping The Fishbowl: A Proposal To Fortify The Deliberative Process, 99 NW. U.L.Rev. 1769, 1779 (2005). Kaiser Aluminum involved an alleged breach of contract in the United States' sale of war plants to Kaiser Aluminum & Chemical Corporation (Kaiser) and Reynolds Metal Company (Reynolds). 157 F.Supp. at 941. During the litigation, Kaiser sought documents from the General Services Administration (GSA) relating to the Kaiser and Reynolds sales:

[T]he request included all internal GSA reports, memoranda, or other documents concerning these sales to Kaiser and Reynolds prepared by all employees or agents of the Administration for intra-agency use, particularly prior drafts of the Kaiser contract with Agency interpretation and justification thereof and similar papers in connection with that claim. There was also sought the like intra-agency reports and comparisons concerning the Reynolds contract.

Id. at 942. In response, the Government produced all but one document "on the ground that it was `contrary to the national interest.'" Id. The Kaiser Aluminum opinion decided the propriety of this privilege claim.

Initially, "[Kaiser] objected that . . . the [Government's] claim of privilege had not been made by the head of the department after actual personal consideration, citing United States v. Reynolds, 345 U.S. 1, 7, 73 S.Ct. 528, 97 L.Ed. 727 (1953)." Id. However, "[t]he Government thereupon filed a letter dated June 11, 1957, of the agency head, the Administrator of the General Services Administration . . . declining to produce the document." Id. at 943 (emphasis added). Thus, the Court of Claims in Kaiser Aluminum did not face the question of delegation of the deliberative process privilege as in the present case.²

Cetron Elec. involved "the failure of . . . a defunct wholly owned subsidiary . . . to withhold and pay over . . . federal employment taxes for the second and third calendar quarters of 1963." Cetron Elec., 207 Ct.Cl. 985,. During the litigation, Cetron Electronic Corporation (Cetron) sought:

internal reports of officials of [the] IRS relating to assessment of the 100-percent penalty tax under section 6672 of the Internal Revenue Code of 1954, against those persons deemed responsible for the failure of Associated Engineers to collect and pay over to [the] IRS the taxes at issue.

Id. In response, the Government refused to produce seven relevant documents. It invoked "an alleged general privilege the Government has against disclosure of any intra-agency communications that contain opinions, conclusions, and reasoning of Government officials used in the administrative decision making process." Id. 207 Ct.Cl. 985, 1975 WL 6632 at *3. As with Kaiser Aluminum, the Cetron Elec. opinion focuses on the propriety of the privilege claim. Id. 207 Ct.Cl. 985, 1975 WL 6632 at *5.

Notably, however, the Government did not invoke the deliberative process privilege in Cetron Elec.³ Rather, as stated in the opinion:

Of Course, even executive privilege has its limitations and is not absolute, but we do not need to go into that here since it is not claimed in this case.

Id. 207 Ct.Cl. 985, 1975 WL 6632 at *5 (emphasis added); see also id. 207 Ct.Cl. 985, 1975 WL 6632 at *3 ("Defendant seeks to distinguish and does not assert the doctrine of executive privilege . . . ."). Thus, Cetron Elec. did not decide anything relative to the dimensions of the executive privilege at issue in the present case. Hence, Cetron Elec. could not decide specific conditions for invocation of a privilege not invoked in that case. See Yankee Atomic Elec. Co. v. United States, 54 Fed. Cl. 306, 310 n. 4 (2002) (commenting that Cetron Elec.'s discussion of the executive privilege is merely dictum).

Moreover, even if the general discussion in Cetron Elec. appears to apply to the deliberative process privilege generally, the Court of Claims did not confront or consider the propriety of a delegated invocation of the privilege. Nowhere does Cetron Elec. even discuss the Agency's procedure of invocation of the privilege claim that was specifically not asserted in the case before this court's predecessor. Thus, Cetron Elec. did not address or decide the issue before this court.

...