Sears, Roebuck & Co. v. Gussin

• Decision Date: 01 September 1997
• Docket Number: No. 117,117
• Citation: 714 A.2d 188,350 Md. 552
• Parties: SEARS, ROEBUCK & CO. v. Paul GUSSIN et al. ,
• Court: Maryland Court of Appeals

Page 552

350 Md. 552

714 A.2d 188

SEARS, ROEBUCK & CO. v. Paul GUSSIN et al.

No. 117, Sept. Term, 1997.

Court of Appeals of Maryland.

July 31, 1998.

Richard J. Link (Curtis Karpel, Law Offices of Curtis J. Karpel, on brief), Silver Spring, for appellant.

J. Andrew Heaton, Asst. Gen. Counsel (Ernst & Young LLP, on brief), Washington, DC, for appellees.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, RAKER, WILNER and CATHELL, JJ.

RAKER, Judge.

Appellant Sears Roebuck & Co., seeks documents reflecting investments, gifts, asset transfers, trusts, income, and real property in the possession of Ernst & Young L.L.P., accountants for Appellee Paul Gussin. We shall hold that the client did not waive the accountant-client privilege found in Maryland Code (1974, 1995 Repl.Vol., 1997 Supp.), § 9-110 of the Courts & Judicial Proceedings Article ¹ and, accordingly, shall affirm the judgment of the Circuit Court for Prince George's County.

I.

Appellant Sears, Roebuck & Co., (hereinafter "Sears") obtained a judgment in the amount of $36,031.46 against Appellee, Paul Gussin, on August 7, 1995 in the Circuit Court for Prince George's County, Maryland. After judgment was entered in Maryland, the judgment was enrolled in Florida, where Mr. Gussin resides. Sears proceeded with discovery in aid of enforcement of that money judgment and Sears took Mr. Gussin's deposition in Florida on May 30, 1996.

At his deposition in Florida, Gussin produced his 1994 federal income tax return. The 1994 tax return, filed jointly with his wife, showed $247,787 in investment income. Gussin testified that the return was prepared by his accountant, Ernst & Young L.L.P. (hereinafter "Ernst & Young") of Baltimore, Maryland. Attached to the 1994 return was a printout showing the companies, partnerships, trusts, and bank accounts that make up the reported investment income. Gussin testified that Ernst & Young had in its possession the K-1 forms, showing the income for each individual investment item. Gussin stated that he had no bank accounts, that he did not own the home in which he and his wife resided, and that he did not know when the home was acquired. The 1994 tax return also showed $161,000 in "other gains and losses." Gussin denied ownership of any significant individual assets, despite the fact that in the mid-1980s he received $6.7 million for the sale of a business.

At the deposition, Sears's counsel questioned Gussin regarding his assets.

Q: Now who has the papers that would reflect the actual ownership of these various investments?

A: Probably in--probably, I'm just trying to think, probably in the office.

Q: What office?

A: That my son has.

* * * * * *

Q: All right. Would Ernst & Young have the papers also?

A: I imagine. I don't know. They did the tax return. You could ask them.

(Emphasis added). Sears also deposed Mr. Gussin's wife, Jocelyn. Ms. Gussin testified that, "she was born into money," and that she was involved in a shoe store business with her husband. The shoe business was sold in the mid-1980's for $20 million, and, in return for his one-third interest in the business, Mr. Gussin received approximately $6 million. Ms. Gussin testified that she had no idea what investments Mr. Gussin owned or presently owns, and she had no idea what he did with the money he received from the sale of the shoe store. She testified that Ernst & Young had all the papers that were used to prepare the tax returns.

Thereafter, Sears served a subpoena on Ernst & Young in Maryland in order to discover the assets and general financial condition of Paul Gussin. ² The subpoena directed Ernst &amp Young to designate a representative to testify as to matters concerning Gussin and to produce documents, inter alia, relating to Gussin's ownership interest in the investments listed in his 1994 federal income tax return. Ernst & Young filed an objection to the subpoena, indicating that it would turn over the documents and comply with the subpoena so long as a court order was entered to that effect. Sears filed a written response to Ernst & Young's objection.

On July 11, 1997, Judge Thomas Smith held a hearing in the Circuit Court for Prince George's County. In response to Ernst & Young's objection to the subpoena, Sears made several arguments. First, Sears argued that Gussin waived the accountant-client privilege by his statement, "you can ask them," at his deposition. Second, Sears argued that Gussin made a fraudulent conveyance, in violation of Subtitle 2 of Title 15 of the Commercial Law Article of the Maryland Code (1975, 1990 Repl.Vol., 1997 Supp.), to his wife or some other individual, thereby precluding Gussin from relying on the privilege.

The record reflects that the waiver and fraud arguments were the only two issues raised by Sears at the hearing before Judge Smith. Sears did not argue that the documents themselves were not privileged information. The circuit court sustained Ernst & Young's objection and quashed the subpoena in its entirety, finding that Gussin asserted the accountant-client privilege and that the privilege had not been waived. Sears filed a timely appeal to the Court of Special Appeals and we granted certiorari on our own motion prior to consideration by the intermediate appellate court.

II.

Before this Court, Sears contends that the accountant-client privilege established in § 9-110 of the Courts & Judicial Proceedings Article should not apply in this case for several reasons: (1) Gussin expressly permitted Ernst & Young to disclose the information and/or Gussin waived the privilege by his conduct at his deposition; and (2) the discovery Sears seeks falls within the "fraud exception" to the privilege, recognized in Dixon v. Bennett, 72 Md.App. 620, 642, 531 A.2d 1318, 1329 (1987), cert. denied, 311 Md. 557, 536 A.2d 664 (1988). Sears initially contends that Gussin's statement, "you can ask [Ernst & Young]," operated as express permission for disclosure, thereby waiving the accountant-client privilege, because it gave Sears permission to deal with Ernst & Young regarding his investment income. Sears also argues that Gussin cannot rely on the accountant-client privilege because there is evidence that he was involved in fraud. Sears maintains that there is evidence "that Gussin may be committing fraud, or has committed a fraud, to avoid paying creditors." Sears's fraud argument is based on Mr. and Ms. Gussin's deposition testimony that, notwithstanding both Gussin's receipt of $6 million in the mid-1980s and the 1994 tax return reporting investment income of $247,787, Gussin nonetheless testified, "I don't have any money." Sears concedes in its brief that it does not, and, indeed, cannot allege that Ernst & Young participated in or furthered fraudulent activity, or was even aware of any fraudulent conduct. Sears simply argues that they are entitled to discover the documents under the fraud exception because Ernst & Young has access to documents showing assets presently or previously owned by Gussin.

In response, Ernst & Young, on behalf of Gussin, argues that Gussin never waived the privilege or gave express permission for the documents to be released. Ernst & Young argues that Gussin's deposition statement, "you can ask them," was merely Gussin suggesting that Ernst & Young was more likely to know which documents were in its possession than Gussin. Furthermore, if Gussin's statement was an invitation to approach his accountant, Ernst & Young contends that this statement was merely an invitation to ask Ernst & Young about whether the accountant had possession of the documents pertaining to Gussin, not permission for Sears to discover the content of those documents. According to Ernst & Young, Gussin's deposition testimony was not a partial waiver of the privilege. Second, Ernst & Young argues that even if the accountant-client privilege could be waived in a manner other than by express permission, nothing in Gussin's testimony could be taken as an implied waiver of the privilege. Ernst & Young asserts that it is obvious that Gussin intended to keep his financial affairs confidential.

Finally, as to any purported "fraud exception" to the accountant-client privilege, Ernst & Young argues that the Court of Special Appeals erred in Dixon by recognizing a fraud exception to the accountant-client privilege. In addition, even if this Court were to adopt a fraud exception to the privilege, this case would not fall within that exception because Sears has not made the requisite prima facie showing of fraud.

III.

The privilege against disclosure by a licensed, certified public accountant of the contents of any communication made by a client who employs the accountant to audit, examine, or report any account, book, record, or statement of the client, and any information derived from the client while rendering professional services, is found in Courts & Judicial Proceedings Article § 9-110. The statute provides in pertinent part:

(b) Privilege--In general.--Except as provided in subsections (c) and (d) of this section or unless expressly permitted by a client or the personal representative or successor in interest of the client, a licensed certified public accountant or firm may not disclose:

(1) The contents of any communication made to the licensed certified public accountant or firm by a client who employs the licensed certified public accountant or firm to audit, examine, or report on any account, book, record, or statement of the client;

(2) Any information that the licensed certified public accountant or firm, in rendering professional service, derives from:

(i) A client who employs the licensed certified public accountant or firm; or

(ii) The material of the client.

* * * * * *

(d) Privilege--Exceptions. --The privilege against disclosure required by subsection (b) of this section does not affect:

(1) The bankruptcy laws;

(2) The criminal laws of the State; or

(3) A regulatory proceeding...