Sealed Case, In re

• Decision Date: 27 June 1989
• Docket Number: No. 89-5102,89-5102
• Citation: 877 F.2d 976,278 U.S. App. D.C. 188
• Parties: , 28 Fed. R. Evid. Serv. 358 In re SEALED CASE.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 976

877 F.2d 976

278 U.S.App.D.C. 188, 28 Fed. R. Evid. Serv. 358

In re SEALED CASE.

No. 89-5102.

United States Court of Appeals District of Columbia Circuit.

Argued May 8, 1989.

Decided June 27, 1989.

As Amended June 27, 1989.

Appeal from the United States District Court for the District of Columbia (Misc. No. 88-00303).

Before EDWARDS, SILBERMAN and BUCKLEY, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

The appellant, "Company," appeals from a contempt order of the district court. Company refused to comply with a grand jury subpoena insofar as it was directed to six documents that Company claimed were covered by attorney-client privilege. The district court held the privilege was waived as to all six documents. We agree that there was at least a partial waiver of the privilege, but we remand for the district court to further consider of the scope of the waiver.

I.

Appellant is a government contractor performing work for the Defense Department on a cost-plus basis. Company and its former chief executive officer ("CEO") are under a grand jury investigation into the possibility of Company's tax evasion as well as a possible conspiracy to defraud the United States. It is thought CEO may have engineered a scheme whereby he received secret rebates (undeclared personal income to him) from subcontractors while the amounts rebated were included on Company's books as payments to the subcontractors and thus business expenses.

The grand jury issued a subpoena in June 1988 to Company seeking production of documents relating to certain adjusting entries made to Company's books in the latter part of 1987. Company produced the documents sought, except for six it claimed were protected by the attorney-client privilege. Three of these documents contain notes taken by Company's former vice president for finance at meetings with attorneys from a law firm retained by Company. The other three are memoranda from that vice president to Company's chief accounting officer ("CAO") transmitting the law firm's legal advice to amend the corporate books to reflect that certain amounts previously reported on its books--and to the IRS--as business expenses be shown as nondeductible income payments to CEO.

The government moved to compel production of all six documents, arguing that the privilege was waived since the documents presumably contained only information that had been or would eventually be reported to the IRS. The district court granted the order, concluding "whatever attorney-client privilege that may have attached to the documents was waived by the filing (or the intention to file) of required forms to the IRS[.]" Company refused to comply, was held in contempt, and thereafter brought an appeal.

While the appeal was pending, the government learned that one of the memoranda in question had already been disclosed, in January 1988, by the CAO to the Defense Contract Audit Agency during a routine audit of the contractor's travel expenses. The government sought and gained a remand to permit the district court to consider this additional ground for the government's claim of waiver. Appellant claimed on remand that the disclosure of the one document to the DCAA had been inadvertent ("a bureaucratic error") and offered to prove that through the testimony of its CAO, but only if his testimony were limited to that issue and his Fifth Amendment privilege were not waived. The district court rejected the proffer, reiterated its prior finding that if the privilege existed, it had been waived because the information in the documents was to be publicly reported, and further found that the disclosure of the one document "was a voluntary intentional disclosure" which "constituted a [further] waiver of the attorney-client privilege not only with respect to the particular document but also as to all related communications." (emphasis added). The district court believed that had the disclosure to DCAA been inadvertent rather than intentional, it would have constituted a waiver (if that were the sole grounds for finding a waiver) only with respect to that document and not the other five.

Prior to the remand hearing it was further revealed that the vice president had entered into a personal immunity agreement with the government in October 1987 and, at that time, given all six of the documents to the government ¹ without Company's authorization. From that, we infer the government continues to seek the documents through subpoena because it is uncertain as to the use that can be made of the copies voluntarily turned over by the vice president. The government asserts that the attorney handling the grand jury proceedings has not been given access to the documents. Nevertheless, Company urged the district court, in the exercise of its supervisory power over grand jury proceedings, to conduct an evidentiary hearing to determine whether the government had engaged in misconduct, which Company apparently thought might justify quashing the subpoena. The district court declined to do so and Company appeals that determination as well.

II.

The government does not dispute that all six documents fall within Company's attorney-client privilege. It is not argued, for instance, that the memoranda from the vice president to the CAO, communicating the advice given by counsel and directing the adjusting entries be made in accordance with that advice, are outside the privilege. ² Nor is it claimed that the conversation between the corporate officers and the law firm were not intended to be confidential so that the privilege never attached. See Mead Data Central, Inc. v. U.S. Dept. of Air Force, 566 F.2d 242, 254 (D.C.Cir.1977). Instead, the government relies on two grounds for concluding Company waived the privilege for all six documents.

The government first claims that because the documents provide background "detail" supporting the adjusting bookkeeping entries that have been reported to the IRS, Company has waived its privilege in the documents. The government relies on several cases that have addressed the status of the attorney-client privilege in cases involving disclosure of financial information to the IRS or other third parties. In United States v. Cote, 456 F.2d 142 (8th Cir.1972), the Eighth Circuit held that the act of filing amended IRS returns waived any attorney-client privilege in an attorney-supervised accountant's workpapers, which contained information later transcribed onto the returns. But the Court remanded to the district court to determine whether any of the workpapers contained "unpublished expressions" not part of the data revealed on the tax returns. Id. at 145 n. 4. The Court also recognized that in tax cases, waiver typically is not an issue, because "the privilege is said not to attach to information which the taxpayer intends his attorney to report in the contents of a tax return." See id. at 145 n. 3 and cases cited therein.

In that vein, United States v. (Under Seal), 748 F.2d 871 (4th Cir.1985), held that the privilege did not cover documents, including communications between two attorneys relating to a proposed tax ruling for a client, and material supplied by the client concerning commercial transactions upon which the proposed tax ruling would be based. These documents, according to the court, either did not reveal client communications or were not meant to be confidential. The court thus applied its previous holding in In re Grand Jury Proceedings, 727 F.2d 1352 (4th Cir.1984), that "if a client communicates information to his attorney with the understanding that the information will be revealed to others, that information, ' "as well as the details underlying the data which was to be published," ' will not enjoy the privilege." United States v. (Under Seal), 748 F.2d at 875 (citations and footnote omitted). Apparently recognizing the aphorism that "God is in the details," the court explained in a footnote:

[t]he details underlying the published data are the communications relating the data, the document, if any, to be published containing the data, all preliminary drafts of the document, and any attorney's notes containing material necessary to the preparation of the documents. Copies of other documents, the contents of which were necessary to the preparation of the published document, will also lose the privilege. [But] [i]f any of the non-privileged documents contain client communications not directly related to the published data, those communications, if otherwise privileged, must be removed by the reviewing court before the document may be produced.

Id. at 875 n. 7. ³

Although these cases seem to conflate two theories--waiver of an existing privilege and absence of an intent to maintain confidentiality in the first place--we think under either theory the IRS cases are inapposite; the government much too facilely claims that the six documents are merely "details" underlying past or future returns. To be sure, virtually all the material in the documents reflects adjusting entries in Company's books, which have been or will be reported to the IRS. ⁴ But the crucial significance of the documents--and the apparent reason the government wishes to present them to the grand jury--is that they suggest Company made the adjusting entries on the advice of counsel (after the investigation commenced).

The raison d'etre of the hallowed attorney-client privilege is the protection of a client's communications to counsel so that persons, including organizations, will be induced to consult counsel when needed. The attorney's communications (his advice) to the client must also be protected, because otherwise it is rather easy to deduce the client's communications to counsel. The documents sought in this case reveal directly the attorney's confidential advice, and their disclosure thereby invades the core of the privilege; it permits an inference to be drawn as to the...