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United States v. Brown

May 9, 1973

UNITED STATES OF AMERICA AND WALLACE S. OSHIRO, SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONERS-APPELLEES,
v.
EARL BROWN, AS PARTNER OF ARTHUR ANDERSEN & COMPANY, RESPONDENT-APPELLANT, AND DELBERT W. COLEMAN, INTERVENOR-APPELLANT.



Author: Sprecher

Before SPRECHER, Circuit Judge, GRANT*fn*, Senior District Judge, and GORDON*fn**, District Judge.

SPRECHER, Circuit Judge.

On September 11, 1972, the district court for the Northern District of Illinois, following an in camera inspection and an evidentiary hearing, ruled that the accounting firm of Arthur Andersen & Company was required to comply with a summons issued by the Internal Revenue Service to produce certain documents concerning its client, Delbert Coleman.*fn1 Coleman, allowed to intervene in this action by the district court, appealed the court's order requiring production of the Andersen documents. Earl Brown, a partner of Arthur Andersen, has appealed, asking this court to disapprove certain unfavorable references to the Andersen firm made by the district court in its opinion, 349 F. Supp. 420. On October 25, 1972, this Court entered an order staying enforcement of the district court order pending disposition of the appeals.

This action began with an Internal Revenue Service investigation of Coleman for the years 1965 through 1969. Pursuant to 26 U.S.C. § 7602*fn2 a summons was served on Arthur Andersen & Company, demanding all records pertaining to Coleman. A second summons was issued on the firm on May 26, 1971, after Andersen refused to produce a portion of these records. Andersen thereafter formally protested that some of the required documents were protected by the attorney-client privilege and attorney's work product doctrine.*fn3 A preliminary hearing was held in the district court and Andersen agreed to turn over additional documents. Three more documents were produced subsequent to the trial in this case. This appeal concerns only two remaining documents.

The first of these (Document 7) is a three-page memorandum, dated October 7, 1968, prepared by David N. Hurwitz, an attorney and member of the law firm of Marshall, Bratter, Greene, Allison & Tucker, which represented Coleman, as well as a cover letter regarding the memorandum. The memorandum summarizes notes and legal judgments made by attorney Hurwitz at a meeting attended by Mr. Seiden, an aide to Coleman, Mr. Ruther, an associate of Arthur Andersen, and Hurwitz, on October 2, 1968.

The second (Document 8) consists of six pages of handwritten notes prepared by Andersen's Ruther at the October 2, 1968 meeting concerning the accounting assistance rendered by Ruther at that meeting.

The purpose of the October meeting was to discuss the tax consequences of a potential Coleman business transaction. The IRS states as its reason for seeking the documents a need to gain a full understanding of the details of this transaction and thereby to ascertain whether Coleman properly reported the tax consequences.

I.

The classic statement of the attorney-client privilege is the formulation in 8 Wigmore, Evidence § 2292:

"(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived."

It is clear from this definition that neither document is protected by the privilege. In regard to the handwritten notes taken by accountant Ruther concerning accounting assistance, although the attorney-client privilege may in some instances extend to communications to accountants providing assistance to an attorney, "(what) 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. Kovel, 296 F.2d 918, 922 (2d Cir. 1961) (emphasis in original). In this case the accounting firm was retained by the taxpayer and not the attorney, and the accountant's presence at the October meeting was requested by the taxpayer's assistant and not by the attorney. We agree with the district court that "[notes] taken by an accountant at such a meeting should not be considered privileged simply because an attorney is present at the meeting." We also agree that there has been an insufficient showing that these notes reflect communications between an attorney and his client.

Nor is Document 7 covered by the attorney-client privilege. In the first place, there is severe doubt that this document, held in the files of the accountant and not in those of the attorney, retained any confidential nature. See Couch v. United States, 409 U.S. 322, 335, 93 S. Ct. 611, 619, 34 L. Ed. 2d 548 (1973), where the Supreme Court stated that "there can be little expectation of privacy where records are handed to an accountant, knowing that mandatory disclosure of much of the information therein is required in an income tax return." Furthermore, the Supreme Court held in Hickman v. Taylor, 329 U.S. 495, 508, 67 S. Ct. 385, 91 L. Ed. 451 (1947), that the privilege did not attach to "memoranda, briefs, communications and other writings prepared by counsel for his own use in prosecuting his client's case; and it is equally unrelated to writings which reflect an attorney's mental impressions, conclusions, opinions or legal theories." The district court found that the document in question summarized attorney Hurwitz' notes and legal judgments made at the October meeting. Our agreement with that conclusion disposes of this question.

The contention that the documents are nevertheless protected from discovery by the attorney's work product doctrine is equally without merit. The Supreme Court in Hickman v. Taylor, supra, held that papers prepared by an attorney which were unprotected by the attorney-client privilege might still be immune from production under the work product doctrine. Under this doctrine, documents written in preparation for litigation are immune from discovery absent an adequate showing of necessity. One court has held that the power of the Commissioner of Internal Revenue to investigate the records of taxpayers makes doubtful the relevancy of the work product privilege enunciated in Hickman to a proceeding for the enforcement of the Commissioner's summons. United States v. McKay, 372 F.2d 174, 176 (5th Cir. 1967). The Supreme Court has also noted the strong Congressional evidence of intent that the Commissioner of Internal Revenue not be impeded in his investigation of taxpayers:

"Section 7601 of the 1954 Code, 26 U.S.C. § 7601, directs the Secretary or his delegate 'to the extent he deems it practicable' to cause Treasury Department officers or employees 'to proceed... and inquire after and concerning' all persons 'who may be liable to pay any internal revenue tax.' The section thus flatly imposes upon the Secretary the duty to canvass and to ...


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