U.S. v. Ackert
| Decision Date | 26 February 1999 |
| Docket Number | Docket Nos. 97-6293,97-6333 |
| Citation | 169 F.3d 136 |
| Parties | -1040, 99-1 USTC P 50,298 UNITED STATES of America, Petitioner-Appellant-Cross-Appellee, v. David A. ACKERT, Respondent-Appellee, Paramount Communications, Inc. (now Viacom International, Inc.), CPW Investments Ltd., CPW Holdings, Inc., Nieu Oranjestad Partnership, Nieuw Oranjestad Partnership and Maarten Investerings Partnership, Intervenors-Defendants-Appellees-Cross-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Kenneth W. Rosenberg, Washington, D.C. (Loretta C. Argrett, Assistant Attorney General, Washington, D.C.; Charles E. Brookhart, Department of Justice; John H. Durham, United States Attorney for the District of Connecticut, Of Counsel), for Petitioner-Appellant-Cross-Appellee.
Maria T. Vullo, New York, NY (H. Christopher Boehning and Lavatus V. Powell, III, Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, Of Counsel), for Intervenors-Appellees-Cross-Appellants.
David H. Braff and Michael W. Martin, Sullivan & Cromwell, New York, NY (On the Brief), for Respondent-Appellee.
Before: JACOBS and LEVAL, Circuit Judges, and MURTHA, Chief District Judge. *
The United States of America appeals from a decision of the district court (William I. Garfinkel, Magistrate Judge ) in a tax summons enforcement proceeding, barring the Internal Revenue Service from questioning Respondent David A. Ackert, an investment banker, about his conversations with Paramount Corporation's counsel, by reason of Paramount's attorney-client privilege. We reverse.
The relevant facts are not in dispute. In 1989, Goldman, Sachs, and Co., an investment banking firm, approached Paramount with an investment proposal. The proposed transaction was expected to reduce Paramount's federal income tax liability by generating significant capital losses that would offset Paramount's recent capital gains from the sale of a subsidiary.
Ackert, at the time was employed by Goldman, Sachs. 1 Along with other Goldman, Sachs representatives, Ackert pitched the investment proposal to representatives of Paramount at an initial meeting on September 15, 1989.
After the September 15 meeting, Eugene I. Meyers, Paramount's senior vice president and tax counsel, conducted legal research and analysis in order to advise Paramount about the tax implications of the proposed investment. In the course of this research, Meyers contacted Ackert, and the two men had several follow-up meetings to discuss various aspects of the Goldman, Sachs proposal. Meyers initiated these discussions to learn more about the details of the proposed transaction and its potential tax consequences, so that he could advise his client, Paramount, about the legal and financial implications of the transaction.
Paramount ultimately decided to enter into the proposed investment, but used the services of another investment banker, Merrill Lynch & Co. Paramount paid Goldman, Sachs a fee of $1.5 million for services rendered in connection with its proposal.
Seven years later, in 1996, the Internal Revenue Service was conducting an audit of Paramount and its subsidiaries for its 1989 through 1992 tax years. In connection with the audit, the IRS issued a summons to Ackert seeking his testimony about the 1989 investment proposal. Paramount asserted the attorney-client privilege with respect to questions concerning any conversations Ackert had with Meyers or in Meyers' presence.
The United States filed suit in the district court, seeking to enforce the summons through an order directing Ackert to appear before the IRS and answer its questions. By consent of the parties, the petition was referred to Magistrate Judge Garfinkel. Paramount intervened.
The magistrate judge granted the petition to enforce the IRS summons, but initially deferred ruling on the attorney-client privilege. The IRS agreed to question Ackert about the allegedly privileged communications in the magistrate's courtroom, so that Paramount could assert its objections and the judge could rule on them contemporaneously. Paramount objected to questions about the conversations between Ackert and Meyers subsequent to the initial September 15, 1989, meeting. The magistrate judge heard argument from Paramount and the United States, and conducted an in camera interview with Ackert about the substance of these conversations.
Following the in camera proceedings, the magistrate judge ruled in favor of Paramount, concluding that the government's inquiry into the Ackert-Meyers conversations "would invade privileged communications." The United States appeals from this ruling. Paramount also appeals from the order that enforced the summons directing Ackert's appearance.
The magistrate judge said little in explanation of his ruling, but had indicated earlier that if Meyers had been collecting information from Ackert about the proposed investment in order to give legal advice to Paramount, the conversations would be privileged. We understand that to be the basis of his ruling.
Recognizing that the attorney-client privilege generally applies only to communications between the attorney and the client, and that Ackert was not Meyers's client, Paramount seeks to justify its assertion of the privilege by reference to Judge Friendly's opinion in United States v. Kovel, 296 F.2d 918 (2d Cir.1961). Kovel held that the privilege can protect communications between a client and his accountant, or the accountant and the client's attorney, when the accountant's role is to clarify communications between attorney and client. See id. at 922. If a client and attorney speak different languages, an interpreter could help the attorney understand the client's communications without destroying the privilege. Kovel recognized that an accountant can...
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