A Special Investigation No. 202, In re

• Decision Date: 09 November 1982
• Docket Number: No. 378,378
• Citation: 53 Md.App. 96,452 A.2d 458
• Parties: , 33 A.L.R.4th 529 In re A SPECIAL INVESTIGATION # 202.
• Court: Court of Special Appeals of Maryland

Page 96

53 Md.App. 96

452 A.2d 458, 33 A.L.R.4th 529

In re A SPECIAL INVESTIGATION # 202.

No. 378.

Court of Special Appeals of Maryland.

Nov. 9, 1982.

Stephen M. Schenning, Asst. Atty. Gen., with whom were Stephen H. Sachs, Atty. Gen., John Claude Charbonneau, and Stefan D. Cassella, Asst. Attys. Gen., on the brief, for appellant.

Ira C. Cooke and M. Albert Figinski, with whom were David R. Sonnenberg, Baltimore, on the brief, for appellees.

Argued before LISS, ADKINS and ALPERT, JJ.

LISS, Judge.

Pursuant to letters from the Governor of Maryland to the Attorney General dated November 21, 1979, July 7, 1981, and February 9, 1982, the Medicaid Fraud Control Unit of the Office of the Attorney General has been conducting an investigation of a hospital and a nursing home located in Prince George's County, both of which are recipients of funds from the State Medical Assistance Program (Medicaid). In the course of the investigation, the Attorney General determined that a land holding joint venture is the lessor of the physical premises to the hospital. It has further been determined that the same joint venture is responsible for large scale construction projects for the hospital. In addition, it was discovered that the persons who own virtually all of the stock of the hospital are the partners in the subject joint venture.

One of the appellees herein is a certified public accountant (hereafter "Accountant") who has performed certain accounting services for the joint venture. On October 26, 1981, the Grand Jury for Baltimore City issued a subpoena duces tecum directed to the Accountant to produce "all records, including accountant's workpapers, financial reports, tax returns and any other documents pertaining to [the subject joint venture] for the years 1975 through 1980." The subpoena directed the production of these records before November 6, 1981.

On November 6, 1981, a motion to quash the subpoena was filed by appellees A and B, who are the principal owners of the hospital and the nursing home, as well as the joint venture, and by the Accountant. As grounds for this motion to quash, appellees alleged that: 1) the subpoena was beyond the scope of the authority granted to the Attorney General by the Governor; 2) the subpoena was in violation of the accountant/client privilege established by Maryland Code (1974, 1980 Repl.Vol.) of the Courts and Judicial Proceedings Article; and 3) that the materials sought by the subpoena were sought for an improper purpose. At a hearing before the Criminal Court of Baltimore on January 14, 1982, appellees advanced issues (1) and (2) in oral argument but asked the court to consider issue (3) only in terms of certain "prophylactic" remedies which might be required should the court reject the other grounds and deny the motion to quash. Also, in a letter delivered to the court on the day before the hearing and in oral argument, appellees raised an additional issue; i.e., whether the subpoena duces tecum was still enforceable once the term of the Grand Jury which issued the subpoena had expired.

In response to the motion to quash, the State filed a memorandum of points and authorities arguing that appellees A and B lacked standing to challenge the subpoena because the accountant/client privilege does not apply to a criminal investigation and that the subpoena was within the authority of the Attorney General. The State also specifically denied that the records sought by the subpoena were being sought for any purpose other than a bona fide criminal investigation being conducted by the Attorney General in conjunction with the Grand Jury for Baltimore City. Later the State filed a supplemental pleading responding to appellees' argument regarding the expiration of the Grand Jury.

A hearing on these issues was scheduled before the trial judge on January 6, 1982; it was continued to January 14, 1982 at the request of appellees' counsel. Since the term of the Grand Jury which issued the subpoena duces tecum was to expire on January 8, 1982, the trial judge issued an order on January 6, 1982, directing that all documentary and testimonial evidence obtained by that Grand Jury be impounded in the Office of the Attorney General for its presentation to the succeeding Grand Jury and further directing that the Attorney General accept delivery of all documents produced in compliance with any subpoena duces tecum issued by the Grand Jury but which had not been produced before the Grand Jury on or before the expiration of its term because the responding party either requested an extension of time or because a motion to quash such a subpoena duces tecum was in litigation at the time the term of the Grand Jury expired.

After the hearing on January 14, 1982, the trial judge held this case under advisement until April 23, 1982, when he entered an order granting the motion to quash the Grand Jury subpoena duces tecum. The order reads as follows:

After hearing extensive arguments of counsel and upon a thorough review of the entire court file, including, particularly, the several memoranda of law filed by counsel, it is the 23rd day of April, 1982, hereby ADJUDGED and ORDERED, that the Motion to Quash Grand Jury Subpoena Duces Tecum is GRANTED.

AND IT IS FURTHER ORDERED, that if the Attorney General shows a reasonable basis supported by affidavit that the services of the accountant in question were sought or obtained as an aid in the planning or actual commission of something that the client knew or should have known was a crime or a fraud, then the herein Order is subject to further Order of this court.

The instant appeal followed. The State raises four issues to be determined by this appeal:

1. Did the lower court err in holding that the statutory accountant/client privilege was applicable in a criminal investigation unless the Attorney General shows a reasonable basis supported by affidavit that the services of the accountant in question were sought or obtained as an aid in the planning or actual commission of something that the client knew or should have known was a crime or a fraud?

2. Do appellees A and B have standing as members of the subject joint venture to contest the Constitutional and/or legal sufficiency of the subpoena duces tecum directed to their accountant?

3. Is the subpoena duces tecum in question within the authority of the Office of the Attorney General and the Grand Jury for Baltimore City?

4. Where a Grand Jury subpoena duces tecum is the subject of a pending motion to quash when the Grand Jury's term expires, and a court has ordered that all documents subpoenaed by this Grand Jury but not received by the Grand Jury at the time its term expires shall be turned over to a successor Grand Jury, may a witness be compelled to honor the subpoena before the successor Grand Jury?

The appellees suggest that an additional issue was raised at the trial level but concede that the trial court did not rule on it because of the ruling granting the motion to quash the subpoena duces tecum. That issue reads as follows:

5. Whether, under Article V, Section 3(a)(2) of the Maryland Constitution, the Governor may confer power to the Attorney General such as has been sought to be given in this matter?

1.

We have determined that the issue of primary importance in this case is the effect of the accountant/client privilege on the subpoena duces tecum issued by the Grand Jury requesting certain documents from the appellee Accountant.

Historically, no such testimonial privilege affecting communications between an accountant and his client was recognized under the common law. During the seventeenth and eighteenth centuries, when the common law first recognized most of the present-day privileges now existing under law, the activities of the accounting profession were very limited. Despite such a lack of foundation for this privilege in the common law, to date at least sixteen states and the Commonwealth of Puerto Rico have enacted accountant/client privilege statutes. See Privileged Communications--Accountants and Accounting, 66 Mich.L.Rev. 1264 (1968). It was held by the United States Supreme Court that federal law recognizes no confidential accountant/client privilege. Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973). ¹

Maryland is one of the states which has adopted an accountant/client privilege statute. The privilege was first enacted in 1924 as Maryland Code, Article 75A, § 11, entitled "Public Accountants." Chapter 585, Acts of 1924, declared the purpose of the statute "to better establish and regulate the practice of public accounting as a profession." In 1961, Article 75A was repealed and re-enacted with virtually no change in the privilege section except its renumbering as § 20. In 1970, the pertinent section was renumbered as § 21. Chapter 2 of the 1st Special Session of 1973 repealed Article 75A, § 21 and recodified it in new language as Maryland Code (1974, 1980 Repl.Vol.) § 9-110(a) and (b) of the Courts and Judicial Proceedings Article. Those sections now provide as follows:

(a) Privilege.--A certified public accountant, public accountant, or any person employed by him may not disclose the contents of any communication made to him by a person employing him to examine, audit, or report on any book, record, account, or statement nor may he disclose any information derived from the person or material in rendering professional service unless the person employing him or his personal representative or his successor in interest permits it expressly.

(b) Exception.--This privilege does not affect the criminal laws of the State or the bankruptcy laws.

The appellees point out in their brief that while this case was pending below the Attorney General by letter dated December 15, 1981 sought the introduction of what they perceived to be a clarifying change to § 9-110(b) of the Courts Article. They requested a member of the Legislature to introduce a...