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08/21/87 Delaney, Migdail & Young, v. Internal Revenue Service

August 21, 1987

DELANEY, MIGDAIL & YOUNG, CHARTERED, APPELLANT

v.

INTERNAL REVENUE SERVICE 1987.CDC.368 DATE DECIDED: AUGUST 21, 1987



UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

Appeal from the United States District Court for the District of Columbia, Civil Action No. 85-01794.

APPELLATE PANEL:

Wald, Chief Judge, Williams, Circuit Judge, and Will,* Senior District Judge. Opinion for the Court filed by Circuit Judge Williams.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILLIAMS

This case presents issues concerning the scope and application of the attorney work product privilege under the Freedom of Information Act , 5 U.S.C. § 552 (1982 & Supp. III 1985).

The Internal Revenue Service has adopted a system of statistical sampling to audit large accounts. From the audit of a portion of the items in an account balance or in a class of transactions, the IRS infers conclusions as to the entire balance or class. Before adopting the program, it had its attorneys prepare two memoranda analyzing the legal ramifications of the system. Relying at least partially on these memoranda, it concluded that statistical sampling presented an acceptable legal risk and authorized the program. The IRS made the decision public in § 42(18) *fn1 of its Internal Revenue Audit Manual, stating: "The Office of the Chief Counsel and the Department of Justice have jointly analyzed the legal ramifications of [the statistical sampling program] and have concluded that substantial authority exists for [such program]."

Plaintiff, a law firm with an active tax practice, filed a FOIA request for production of all memoranda and supporting documents relating to the government's legal analysis of the program. The IRS responded by declaring all of the requested materials privileged from disclosure under 5 U.S.C. § 552(b). Plaintiff filed an administrative appeal contesting the claim of privilege, and, after the IRS failed to act on the appeal for four months, initiated this action in the District Court.

While plaintiff's motion for summary judgment was pending, the IRS produced sanitized versions of the two memoranda.1 In its letter to plaintiff releasing these documents, the IRS expressly waived any claim of attorney-client or deliberative process privilege, but asserted the attorney work product privilege with respect to the excisions. *fn2 Plaintiff pressed for disclosure of the withheld material, but the District Court entered summary judgment in favor of the IRS.

Plaintiff now asserts that the District Court (1) erred in regarding the excisions as attorney work product and (2) lacked the information minimally necessary to evaluate the IRS's claim of privilege. I. WORK PRODUCT: THE REQUIREMENT OF PREPARATION IN ANTICIPATION OF

FOIA excepts from the general rule of disclosure memoranda "which would not be available by law to a party . . . in litigation with the agency." 5 U.S.C. § 552(b)(5) (1982). This exemption encompasses the attorney work-product rule. Federal Trade Commission, et al. v. Grolier, Inc., 462 U.S. 19, 20, 76 L. Ed. 2d 387, 103 S. Ct. 2209 (1983). See also Martin v. Office of Special Counsel, MSPB, 260 U.S. App. D.C. 382, 819 F.2d 1181, 1186 (D.C. Cir. 1987) (Exemption 5 encompasses all materials not normally discoverable in civil discovery).

The work product privilege enables a lawyer to develop his mental impressions and legal theories without fear of having his adversaries rummage through them at leisure. See Hickman v. Taylor, 329 U.S. 495, 510-11, 91 L. Ed. 451, 67 S. Ct. 385 (1947). The privilege is, however, limited to documents prepared in anticipation of litigation. See Fed. R. Civ. P. 26(b)(3); Coastal States Gas Corp. v. Department of Energy, 199 U.S. App. D.C. 272, 617 F.2d 854, 864 (D.C. Cir. 1980) (quoting Jordan v. United States Department of Justice, 192 U.S. App. D.C. 144, 591 F.2d 753, 775 (D.C. Cir. 1978) (en banc)).

Though not seriously contesting the proposition that the memoranda in question were prepared in anticipation of litigation in the normal sense of the phrase, plaintiff rests its case on our observation in Coastal States that this prerequisite is not met unless the agency established "that a specific claim had arisen, was disputed . . ., and was being discussed in the memorandum." 617 F.2d at 866. While the observation was completely appropriate in the context of Coastal States, we think it clear that the court there did not intend to lay down the blanket rule that plaintiff now asserts.

The court in Coastal States identified the function of the documents as the critical issue. Id. at 858 (citing National Labor Relations Board v. Sears, Roebuck & Co., 421 U.S. 132, 44 L. Ed. 2d 29, 95 S. Ct. 1504 (1975)). The documents withheld consisted of a large body of legal memoranda prepared by Department of Energy attorneys in response to questions raised by DOE auditors investigating individual firms for compliance with petroleum pricing and allocation regulations. The memoranda were of two types and served two separate functions. The vast majority were "neutral, objective analyses of agency regulations [resembling] question and answer guidelines which might be found in an agency manual." 617 F.2d at 863. Although technically non-binding, these memoranda, like an agency manual, formed a body of interpretive law to which the DOE accorded precedential effect in later cases. A small minority of the documents advised DOE auditors how to proceed further with specific investigations where illegal violations had been uncovered. The DOE did not attempt to distinguish the two types of documents; rather it asserted one blanket claim of privilege on the theory that any of the underlying audits was potentially the subject of litigation.

The court rejected the agency's contention that any document prepared by an attorney in the context of an audit was automatically privileged from disclosure as work product. In drawing a line between the two classes of documents at issue, it regarded as pivotal the question whether a specific claim had arisen. The memoranda containing mere "neutral, objective analyses of agency regulations" could not meet the test, but the more pointed documents might. (The court ...


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