Opinion
2210-20
02-28-2024
DARIUSZ J. NASIEK & SARA NASIEK, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler, Judge
On September 12, 2023, respondent filed a Motion to Compel Production of Documents (Motion), requesting that this Court order petitioners to produce to respondent the documents set forth in Exhibit A, on the grounds that petitioners have waived any privilege as to each of the documents listed therein. Respondent's Motion also seeks an order from this Court requiring petitioners to produce all remaining documents on the four privileges logs attached as Exhibits B, C, D and E, on the grounds that the logs are deficient; or, in the alternative, that petitioners are required to amend and update the logs to comply with our Rules. On October 30, 2023, petitioners filed an Objection to Motion to Compel Production of Documents, and on November 8, 2023, they filed a First Supplement to Objection to Motion to Compel Production of Documents Respons[iv]e to Subpoenas Duces Tecum (collectively, their Objection).
Background
The following facts are derived from the parties' pleadings, motion papers, and exhibits attached thereto. These facts are stated solely for the purpose of deciding the Motion before us and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
In December 2022 and January 2023, respondent served several subpoena duces tecum to third parties. In response, these third parties produced documents responsive to the subpoenas, and they also withheld certain documents identified as being subject to an asserted privilege. On the basis of petitioners' review of these documents, four privilege logs were created, which are attached to respondent's Motion, as Exhibits B, C, D and E.
After the Motion was filed, petitioner reexamined the four logs and has updated the logs with respect to the so-called Guardian Life Insurance and Morgan Stanley privilege logs.
Respondent contends that petitioners' privilege logs make clear that petitioners have waived any privilege that they might hold over several email communications since the communications included third party recipients who are neither attorneys nor federally authorized tax practitioners under section 7525.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times.
In their Objection, petitioners dispute respondent's arguments and contend that the majority of the email recipients were in fact attorneys or federally authorized tax practitioners under section 7525. Petitioners, however, do acknowledge that some email recipients were neither attorneys nor federally authorized tax practitioners but assert that any waiver was not intentional or knowingly made by including these recipients.
Moreover, petitioners name Messrs. Ricca, Murphy and D'Addona as financial advisors or insurance advisors and contend that by including them on email communications, their action was not an intentional waiver of privilege. Petitioners also dispute that their privilege logs are deficient, since the logs include the names of all authors, recipients, dates, and subject matter for each email.
In their supplemental objection, petitioners furnished an updated privilege log related to Morgan Stanley.
Discussion
Proceedings in the Tax Court are conducted in accordance with the Federal Rules of Evidence. See I.R.C. § 7453 ; Rule 143. The Federal Rules of Evidence incorporate the common law rules of privilege. See AD Inv. 2000 Fund LLC v. Commissioner, 142 T.C. 248, 254 (2014); Fed.R.Evid. 501.
Section 7453 provides in pertinent part that "proceedings of the Tax Court and its divisions shall be conducted in accordance with such rules of practice and procedure (other than rules of evidence) as the Tax Court may prescribe and in accordance with the Federal Rules of Evidence."
"As construed under Federal common law, the attorney-client privilege exists 'to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.'" AD Inv. 2000 Fund LLC, 142 T.C. at 254 (quoting Upjohn v. United States, 449 U.S. 383, 389 (1981)). Disclosure of a privileged communication may result in a waiver of the attorney-client privilege. Bernardo v. Commissioner, 104 T.C. 677, 682 (1995). The party asserting the attorney-client privilege must prove that he or she has not waived the privilege. Id.
Blanket claims of privilege without any allegations that the production of the documents requested would reveal, directly or indirectly, confidential communications between the taxpayer and the attorney, or without any allegations that the particular documents were related to the securing of legal advice, are insufficient to sustain a claim of attorney-client privilege. Zaentz v. Commissioner, 73 T.C. 469, 475 (1979).
In this case, there is no need for us to analyze whether privilege exists over the documents being withheld from production. Respondent's Motion invites us to "assume as much" since even if there is a privilege, any such privilege has been waived by petitioner.
In Bernardo, we were faced with a similar privilege issue; namely, the inclusion of a third-party expert (in Bernardo it was an appraiser) in petitioners' communications with legal counsel, and whether their receipt constitutes a waiver of privilege. Citing to the Court of Appeals for the District of Columbia we stated federal courts "adhere[] to the axiom that the attorney-client privilege must be 'strictly confined within the narrowest possible limits consistent with the logic of its principle.'" Bernardo, 104 T.C. at 683 (quoting In re Sealed Case, 676 F.2d 793, 807 n.44 (D.C. Cir. 1982)). Now looking to precedent from the U.S. Court of Appeals for the Third Circuit, the likely venue of an appeal of this case, our analysis results in the same strict construction of privilege. See United States v. Rockwell Intern., 897 F.2d 1255, 1265 (3rd Cir. 1990).
Upon reviewing the documents listed in the privilege logs, in camera, it is apparent that several email communications between counsel and petitioners also included third parties. Petitioners have failed to present evidence that these third parties were in any way blanketed by a Kovel agreement. Accordingly, with respect to these email communications, we find petitioners have expressly waived any applicable privilege over them.
See United States v. Kovel, 296 F.2d 918, 921-23 (2nd Cir. 1961)
Respondent's Motion also contends that this waiver extends to all communications involving the same subject matter as the communications disclosed to these third parties. Respondent cites us to the statement that voluntary disclosure to a third party "implies a waiver of all communications on the same subject." See Bernardo, 104 T.C. at 684. In other words, respondent contends that they are entitled to see the entire "email chain" of communications when disclosed by petitioners. We agree with respondent's contention. Based on the Court's in camera review, there are instances where potentially privileged communications between Dr. Nasiek and his attorney (or federally authorized tax practitioner) were subsequently forwarded to third party financial or insurance advisors (e.g., Michael Ricca of Morgan Stanley) for further advice. This action by petitioners constitutes a "subject matter waiver" of the entire email chain, including those emails that were potentially subject to privilege.
Now turning to the question of the logs themselves, we find petitioners have otherwise carried their burden that the remaining documents are privileged. As respondent contends in his Motion, it is up to the party asserting privilege to identify the author, date, subject matter, and facts establishing privilege for each withheld document. See Pacific Mgt. Grp v. Commissioner, T.C. Memo. 2015-97, at *6. An attorney preparing a privilege log must balance the need to show that specific communications are privileged against the risk of inadvertently waiving the attorney-client privilege by disclosing too much information. Id. at *7. In assessing the adequacy of a privilege log, we should be mindful of this consideration. Id. We agree with petitioners and find that the privilege logs (as supplemented) are sufficiently detailed.
Considering the foregoing, it is
ORDERED that respondent's Motion to Compel Production of Documents, filed on September 12, 2023, is granted in part, in that petitioners are to produce, within fifteen days from the date of service of this Order, those documents set forth in Exhibit A to respondent's Motion. It is further
ORDERED that respondent's Motion to Compel Production of Documents, filed on September 12, 2023, is otherwise denied.