Matter re: Grand Jury Proceedings

• Decision Date: 18 July 2000
• Docket Number: Nos. 99-3131,s. 99-3131
• Citation: 220 F.3d 568
• Parties: (7th Cir. 2000) IN THE MATTER OF GRAND JURY PROCEEDINGS, Involving William Thullen and Kenneth Dvorak, Witnesses Before the Special January, 1999-2 Grand Jury Appeal of: Basaam Osman and Cross-Appeal of: United States of America. & 99-3317
• Court: U.S. Court of Appeals — Seventh Circuit

Page 568

220 F.3d 568 (7th Cir. 2000)

IN THE MATTER OF GRAND JURY PROCEEDINGS, Involving William Thullen and Kenneth Dvorak, Witnesses Before the Special January, 1999-2 Grand Jury

Appeal of: Basaam Osman

and

Cross-Appeal of: United States of America.

Nos. 99-3131 & 99-3317

In the United States Court of Appeals For the Seventh Circuit

Argued February 17, 2000

Decided July 18, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 96 GJ 791--Marvin E. Aspen, Chief Judge.

Before HARLINGTON WOOD, JR., COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

A grand jury investigating alleged tax fraud by Dr. Basaam Osman subpoenaed numerous documents from accountants hired by his attorneys. Dr. Osman sought to block production of the documents. He claimed that the accountants were agents of law firms representing him in the grand jury investigation and, thus, that the documents were subject to the attorney-client privilege. The district court, after reviewing the disputed materials in camera, required the production of some of the documents. The court allowed others to be withheld on the ground that the attorney- client privilege was a shield to their production. Dr. Osman appeals the district court's order determining that the attorney- client privilege does not protect certain documents in the possession of his accountants. The United States cross-appeals, claiming that in that same order, the district court erroneously applied the privilege to other documents. For the reasons set forth in the following opinion, we vacate the judgment of the district court and remand this case to permit the district court to make further findings as to whether the documents in question are subject to the attorney-client privilege.

I BACKGROUND

Dr. Basaam Osman is currently under investigation for tax fraud by a grand jury in the Northern District of Illinois. The grand jury is investigating fraud allegedly perpetrated by Dr. Osman in connection with both his personal and medical business tax filings between 1985 and 1997. We begin by setting forth, in summary fashion, the history of this investigation.

In 1994, the Criminal Investigations Division of the Internal Revenue Service ("IRS") initiated a criminal investigation of Dr. Osman, focusing on the years 1985 to 1993. Dr. Osman retained the law firm of von Mandel & von Mandel to represent him. The von Mandel law firm then hired an accounting firm, Terrell, Weiss & Sugar Ltd., to assist it in defending Dr. Osman. The initial criminal investigation evolved into a civil audit. In May 1995, Dr. Osman, with the assistance of the von Mandel and Terrell firms, provided the IRS with tax returns for the years 1985 to 1993. Von Mandel's professional representation of Dr. Osman ended later that same year.

In 1996, however, a grand jury investigation of Dr. Osman began. The initial scope of this investigation was to consider allegations that Dr. Osman failed to file individual and corporate tax returns after the IRS had concluded its earlier audit. For this investigation, Dr. Osman retained the law firm of Cotsirilos, Stephenson, Tighe & Streicker. The Cotsirilos law firm then hired another accounting firm, Czurylo, Thullen & Rodgers, to assist in the representation of Dr. Osman.

In November 1998, a grand jury subpoena sought the production of all correspondence to or from the two accounting firms that had been written in the course of their work on Dr. Osman's matters. The two accounting firms produced over 2000 documents, but each withheld certain documents based on Dr. Osman's claim of attorney-client privilege. The Terrell accounting firm withheld 51 pages of material; the Czurylo accounting firm retained 78 pages.

In March 1999, Kenneth Dvorak and William Thullen testified before the grand jury. Dvorak, an accountant with the Terrell firm, testified that he had prepared Dr. Osman's tax returns for the years 1985 to 1993 and explained that his accounting firm was hired by the von Mandel law firm for the sole purpose of preparing tax returns. Thullen, an accountant with the Czurylo firm, testified that he was hired by an attorney with the Cotsirilos firm for the sole purpose of preparing tax returns.

The Government then filed a motion to compel production of the withheld documents. In a proceeding involving the accounting firms and the Government, but not Dr. Osman, the district court ordered the accountants to produce the documents. Dr. Osman filed an emergency motion to intervene, and tendered the documents themselves for in camera review by the district court. In August, the district court entered an order requiring the production of specific pages of the withheld documents 37 Terrell pages in their entirety, 2 Terrell pages in redacted form, 50 Czurylo pages in their entirety, and 2 Czurylo pages in redacted form. The district court allowed Dr. Osman to retain the remaining pages of the documents. In its order, the district court explained that it relied on a document-by- document in camera examination of the contested materials to decide whether the attorney-client privilege applied to particular pages. It did not provide an explanation of why each particular page was or was not privileged.

Dr. Osman, confronted with this district court order, produced all of the documents ordered disclosed except for 8 pages of the Terrell documents. He now appeals, asking that he be allowed to retain those 8 pages. The Government cross-appeals, arguing that it is entitled to view the 12 Terrell pages and 26 Czurylo pages that the district court allowed Dr. Osman to continue to withhold and that it should be allowed to view the redacted pages in their entirety.

II DISCUSSION

Dr. Osman claims that the documents in the possession of the accounting firms are protected by the attorney-client privilege. There is no accountant-client privilege. See United States v. Arthur Young & Co., 465 U.S. 805, 817-19 (1984); Couch v. United States, 409 U.S. 332, 335 (1973); United States v. Frederick, 182 F.3d 496, 500 (7th Cir. 1999), cert. denied, 120 S. Ct. 1157 (2000). However, material transmitted to accountants may fall under the attorney-client privilege if the accountant is acting as an agent of an attorney for the purpose of assisting with the provision of legal advice. "'[W]hat is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. If what is sought is not legal advice but only accounting service . . . or if the advice sought is the accountant's rather than the lawyer's, no privilege exists.'" United States v. Brown, 478 F.2d 1038, 1040 (7th Cir. 1973) (quoting United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961)).¹

Although the violation of the attorney-client privilege is a serious matter, our case law has recognized consistently that the privilege is in derogation of the search for the truth and, therefore, must be strictly confined. See United States v. White, 970 F.2d 328, 334 (7th Cir. 1992) (citing cases). In applying this principle, we have held that material transmitted to an attorney or the attorney's agent for the purpose of using that information on a tax return is not privileged. The preparation of tax returns is an accounting service, not the provision of legal advice. See Frederick, 182 F.3d at 500-01; United States v. Lawless, 709 F.2d 485, 487 (7th Cir. 1983). On the other hand, information transmitted to an attorney or to the attorney's agent is privileged if it was not intended for subsequent appearance on a tax return and was given to the attorney for the sole purpose of seeking legal advice. See Frederick, 182 F.3d at 500-01. Documents used in both preparing tax returns and litigation are not privileged. See id. at 501.

Dr. Osman, as the party seeking to establish the privilege, bears the burden of demonstrating that all of the requirements for invoking the attorney-client privilege have been met. See United States v. Evans, 113 F.3d 1457, 1461 (7th Cir. 1997); Lawless, 709 F.2d at 487. The inquiry into whether documents are subject to...