Thursday, July 19, 2012

Defendant Waives Attorney-Client Privilege by Asserting Reliance on FBAR Advice Defense (7/19/12)

In United States v. Kerr, 2012 U.S. Dist. LEXIS 98836 (D AZ 2012), here, a case with two U.S. taxpayers and their lawyer as defendants, the court held that the indicted U.S. taxpayers' claims of reliance constituted a waiver of their attorney-client privilege with respect to communications with their lawyer, the one that was indicted with them.  (The indictment in the case was discussed in a prior blog, 2 Taxpayers and their U.S. Lawyer Indicted re Foreign Accounts (2/1/12), here.)  The Government had argued alternatively that the crime-fraud exception applied, but the holding on waiver mooted the need for the court to address that alternative holding.

The Court's analysis of the waiver holder is short, so I cut and paste it here:
Attorney-client privilege may be waived where a party raises a claim or defense that, in fairness, requires the disclosure of protected communication. See Chevron Corp., 974 F.2d at 1162. In Chevron, the plaintiff sought to compel disclosure of documents that supported the defendant's affirmative claim that "[i]nsofar as the decision to proceed with an investment in Chevron was based upon tax considerations, it was made in reliance upon the advice of our tax counsel." Id. at 1163. In response, the defendant refused to supply the documents, arguing that the communications were protected by attorney-client privilege. The Ninth Circuit disagreed, holding that the defendant could not "invoke the attorney-client privilege" to deny the plaintiff of the information it needed to demonstrate the defendant's violation of disclosure requirements. Id. As a result, the defendant was found to have implicitly waived the attorney-client privilege with respect to all relevant communications. 
Similarly, to the extent that Kerr claims that both his and Quiel's failure to file FBARs and their filing of allegedly false tax returns were based on the advice of counsel, Kerr places at issue the reporting and tax advice they received from Rusch. As Kerr argues in his Response, "the defendants were merely following Rusch's advice and did not engage in 'willful' misconduct, as required by the relevant statute." Doc. 76 at 7. Consequently, Kerr cannot invoke the attorney-client privilege to deny the government the very communications and information it must refute in order to prove that Defendants conspired to defraud the United States, willfully failed to file FBARs, and willfully filed false tax returns for tax years 2007 and 2008. 
The Government also contends that Kerr further waived attorney-client privilege by disclosing "privileged communications contained in emails the government does not have in its possession." Doc. 80 at 6. For example, Kerr's Response references an email sent by Rusch to Defendants on October 12, 2006. Kerr claims that in this email "Rusch told the defendants that . . . they would have limited FBAR reporting requirements" and that "Rusch assured the defendants that the scenario was 'very clean' and that any U.S. reporting would be based on the Swiss tax return." Doc. 76 at 4. Kerr also argues that in an email sent April 16, 2007, "Rusch told Quiel and his accountant how to report on his 2006 FBAR. Quiel followed these instructions." Id. 
Due to Kerr's voluntary disclosure of these emails in support of a reliance defense, the Government argues that "[Kerr] cannot now claim that the government is only entitled to that which he is willing to disclose and nothing more." Doc. 80 at 6. The Court agrees. Under the Amlani test, Kerr effectively waived attorney-client privilege because: (1) he asserted the privilege as a result of some affirmative act; (2) he placed privileged information at issue; and (3) allowing the claim of privilege would deny the government access to vital information. See Amlani, 169 F.3d at 1195.

2 comments:

  1. Co National MemberJuly 30, 2012 at 10:18 PM

    So I take it this is bad news for Kerr? Do you know when this will go to trial?

    ReplyDelete
  2. tax lawyer floridaAugust 6, 2012 at 1:46 AM

    Thank you! Very helpful post! Best.
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    ReplyDelete

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