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Microcaptive Advisers File Petition for Interlocutory Appeal

FEB. 22, 2021

Benyamin Avrahami et al. v. Celia Clark et al.

DATED FEB. 22, 2021
DOCUMENT ATTRIBUTES

Benyamin Avrahami et al. v. Celia Clark et al.

[Editor's Note:

The excerpts record can be viewed in the PDF version of the document.

]

Benjamin Avrahami; Orna Avrahami; Feedback Insurance Company LTD; BYS Company ACC; Chandler One LLC; Junction Development LLC; O&E Corporation; White Mountain Equities LLC; and White Knight Investment ACC, on behalf of themselves and all others similarly situated,
Plaintiffs-Appellees-Respondents
v.
Celia Clark; Clark & Gentry PLLC,
Defendants-Appellants-Petitioners

United States Court of Appeals
for the Ninth Circuit

On Appeal from the United States District Court
for the District of Arizona
No. 2:19-cv-04631-SPL
Hon. Steven P. Logan

Petition for Permission to Appeal
Under 28 U.S.C. § 1292(b)

Scott M. Zerlaut
Paul J. McGoldrick
Shorall McGoldrick Brinkmann
1232 E. Missouri Ave.
Phoenix, AZ 85014
(602) 230-5400
scottzerlaut@smbattorneys.com
paulmcgoldrick@smbattorneys.com
Attorneys for Defendants-Appellants-Petitioners

Disclosure Statement

Defendant/Petitioner/Appellant Clark & Gentry PLLC is a professional limited liability company. It has no parent corporation and none of its stock is owned by a publicly held corporation.

Dated February 22, 2021.

Scott M. Zerlaut
Shorall McGoldrick Brinkmann
Attorneys for Defendants/Petitioners/Appellants

Celia Clark and Clark & Gentry PLLC (collectively “Clark”) seek interlocutory review of the district court's order [ER-003] directing them to disclose their own clients' confidential information protected under Ethics Rule 1.6 and the attorney-client privilege. Interlocutory review is the only way to protect their clients' interests from being harmed by this disclosure — post-judgment appeal would be wholly ineffective at doing so. Recognizing this, the district court certified this issue for interlocutory appeal under 28 U.S.C. § 1292(b). [ER-005.]

I. Relevant Facts and Procedural History

Factual Background. This legal-malpractice and fraud case arises from professional services in connection with creating and operating a microcaptive insurance company.1 The Plaintiffs are Benyamin and Orna Avrahami; their real-estate holding companies;2 and their microcaptive-insurance company, Feedback Insurance Company Ltd. (collectively “the Avrahamis”). [ER-049, 054-055.] The Avrahamis filed this lawsuit against their attorneys, accountants, actuaries, management company, and a reinsurer, alleging malpractice and fraud related to their roles in creating and operating Feedback, which the Avrahamis allege resulted in liability for unpaid taxes on their 2009 and 2010 tax returns. [ER-049-197.] The Avrahamis' tax liability was determined in a case of first impression in the United States Tax Court, Avrahami v. Comm'r of Internal Revenue, 149 T.C. 144, 207 (2017).3 In a nutshell, the Tax Court held that Feedback was not a bona fide insurance company because it did not provide for adequate risk distribution, and thus it determined that the premiums that the Avrahamis paid to Feedback were not tax deductible. See generally id. Clark and the other Defendants all disagree with the Tax Court.

Rather than appealing the Tax Court decision, the Avrahamis decided to sue Clark and the other Defendants. Their Complaint also seeks to certify a class under Fed. R. Civ. P. 23. [ER-049.] In a nutshell, the Avrahamis allege that the various Defendants committed malpractice, at best, or fraud and racketeering, at worst, when they advised the Avrahamis and their other clients that they would set up microcaptive insurers that would provide bona fide insurance and that their premiums would be tax deductible. [ER-154-192.]

Celia Clark and Clark & Gentry are New York attorneys whose practice included providing legal services to clients desiring to set up microcaptive-insurance companies. [ER-56. ]4 Clark came to represent the Avrahamis in 2007 when the Avrahamis told their Phoenix-based tax and estate lawyers at Fennemore Craig that they were interested in forming a microcaptive-insurance company as part of their tax strategy, and Fennemore Craig put them in touch with Clark. [ER-074.] Clark agreed to provide legal services to the Avrahamis to assist them to create and maintain a microcaptive insurer. [ER-074.] Clark then engaged Defendant ACR to provide actuarial services and Defendant Heritor Management to provide insurance administration and management services, and oversaw the formation and incorporation of the Avrahamis' microcaptive insurance company, Feedback, and its participation in reinsurance and risk distribution pools. [ER-075, 078, 087.] Fennemore Craig and the Avrahamis' accountants at McEntee & Associates continued to provide tax and estate-planning services. [ER-47, generally.]

Procedural History of the Issue Presented to this Court. The Avrahamis served Clark with interrogatories and requests for production. [ER-009, 018.] This discovery is intended to help establish the existence of a class, which the Avrahamis define as follows:

All Persons who, from January 1, 2005 to the present, inclusive were assessed back-taxes, penalties, and/or interest by the Internal Revenue Service as a result of their involvement, either directly or indirectly through an ownership stake in another entity, in a Captive Insurance Strategy designed, marketed, sold, implemented or managed by Clark and/or Clark & Gentry or its predecessors. Excluded from the Class are: Defendants; Defendants' parents, subsidiaries, and affiliates; anyone receiving referral fees for the plans; and federal governmental entities.

[ER-126.]

The interrogatories seek information that ER 1.6 unquestionably prohibits Clark from voluntarily producing. Much of the information requested also falls within the attorney-client privilege:

  • Interrogatory No. 1: “Identify all persons who from January 1, 2005, to present . . . participated in a microcaptive insurance company designed . . . by any of the Clark Defendants.” [ER-010.]

  • Interrogatory No. 3: “Identify which of the persons identified in response to interrogatory 1, above, to your knowledge or information have been assessed back taxes, penalties, and/or interest by the Internal Revenue Service as a result of their involvement in a microcaptive insurance company. . . .” [ER-012.]

  • Interrogatory No. 4: “Identify which of the persons identified in response to interrogatory 1, above, [who] to your knowledge or information have been audited, in whole or in part, regarding their involvement in a microcaptive insurance company. . . .” [ER-013.]

  • Interrogatory No. 5: “For each of the persons identified in response to interrogatory 1, above, identify the name or entity name of any risk distribution program, such as a reinsurance pool, in which the person was involved.” [ER-013.]

  • Interrogatory No. 6: “For each of the persons identified in response to interrogatory 1, above, identify the total amount of premiums paid directly or indirectly through an ownership stake in another entity by such person in each year for each type of microcaptive insurance (e.g., terrorism insurance).” [ER-013.]

Similarly, the requests for production also seek confidential and attorney-client privileged information:

  • Request No. 1: “All documents that constitute or reflect correspondence, external or internal, between or among any of the Defendants, or between one or more of the Defendants and any non-client, related in any way to microcaptive insurance.” [ER-019.]

  • Request No. 2: “All documents that constitute, reflect, or refer to any agreements between any of the Defendants, and/or any Defendants and any person or entity other than a client, related in any way to microcaptive insurance.” [ER-021.]

  • Request No. 3: “All documents reflecting or regarding any payment or transfer of fees, commissions, or other monies between two or more of the Defendants, or between one or more of the Defendants and any non-client, related in any way to microcaptive insurance.” [ER-022.]

  • Request No. 4: “All documents that constitute, reflect, or refer to research . . . regarding microcaptive insurance and/or tax deductions therefrom, including but not limited to reinsurance, risk distribution, premiums, and/or loans to related persons or entities.” [ER-023.]

  • Request No. 5: “All documents that constitute, reflect, or refer to any oral or written statements made by any of the Defendants related in any way to microcaptive insurance. . . .” [ER-024.]

  • Request No. 6: “All documents that refer or relate to any judicial or administrative proceedings or investigations regarding microcaptive insurance to which Clark and/or Clark & Gentry have been parties, witnesses, deponents, interviewees, and/or recipients of subpoenas and/or requests for information.” [ER-024.]

  • Request No. 7: “All documents that . . . relate to insurance claims made, or the lack thereof, to any microcaptive insurance company and/or reinsurance company or risk pool in which Clark, Clark & Gentry, and/or any predecessor of Clark & Gentry was involved.” [ER-025.]

  • Request No. 9: “All documents that refer or relate to any IRS audit of any microcaptive or its owners, and/or any assessment of back taxes, penalties, and/or interest upon any microcaptive or its owners, who engaged in microcaptive insurance with which Clark, Clark & Gentry, and/or any predecessor of Clark & Gentry was involved.” [ER-026.]

The Avrahamis effectively seek production of all of Clark's microcaptive-insurance clients' files. Clark has approximately 300 microcaptive client files, each consisting of an estimated 2000 pages on average.5 [ER-041.] Clark objected to this discovery, asserting that the requests are overbroad in that they sought privileged and confidential information; they are irrelevant to the Avrahamis' claims; they are unduly burdensome and disproportionate to the needs of this litigation; and are in part ambiguous about what was being requested. [ER-009-017, 018-030, 039-048.]

The district court judge directed the parties to submit a joint statement describing their dispute [Doc. 132],6 and a hearing was held on January 25, 2021 [Doc. 134]. The district court then entered the following order:

The Court finds Plaintiffs' First Set of Interrogatories, Nos. 1–5, and Plaintiffs' Requests for Production, Nos. 1–3 and 6 relevant to the Fed. R. Civ. P. (“Rule”) 23(a) class certification factors and not subject to the attorney-client privilege. The Court finds Requests for Production Nos. 4, 7, and 9 relevant to the Rule 23(a) class certification factors but subject in part to the attorney-client privilege and work-product privilege, only with respect to attorney-client communications for purpose of legal advice or work in preparation of litigation. Defendants' clients' identities are not subject to the privilege for the reasons Plaintiffs' counsel provided at the hearing on January 25th.

Therefore,

IT IS ORDERED that Defendants' objections to Plaintiffs' First Set of Interrogatories Nos. 1–5 are overruled. The Clark Defendants have ten days from the date of this Order to answer Plaintiffs' Interrogatories.

IT IS FURTHER ORDERED that Defendants' objections to Plaintiffs' Requests for Production Nos. 1–3 and 6 are overruled. The Clark Defendants have ten days from the date of this Order to produce the requested documents.

IT IS FURTHER ORDERED that Defendants' objections to Plaintiffs' Requests for Production Nos. 4, 7, and 9 are sustained only as to documents containing attorney-client communications for purposes of legal advice or attorney work product. The Clark Defendants' have ten days from the date of this Order to produce the requested documents and a Rule 26(b)(5) privilege log for those documents subject to privilege.

[ER-003-004.]

The district court modified that order on February 12, 2021, to certify it for interlocutory appeal under 28 U.S.C. § 1292(b), allowing Clark to seek review of whether ER 1.6 or the attorney-client privilege protect its clients' identities and files from disclosure. [ER-005-008.] Clark also intends to appeal under 28 U.S.C. § 1291 and the collateral-order doctrine, and will show that Mohawk Indus. Inc. v. Carpenter, 558 U.S. 100, 103 (2009), does not apply on that issue. Clark presently seeks permissive review in the event that this Court disagrees with Clark's interpretation of the Mohawk Industries decision.

II. The Questions Presented

1. Is the dubious suitability of the Avrahamis' claims for class-action treatment sufficient to overcome the compelling policies underlying confidentiality and the attorney-client privilege?

2. Does the attorney-client privilege protect Clark's clients' identities from disclosure to private litigants when that disclosure would necessarily reveal the confidential communications and advice that they received about microcaptive insurance and the tax deductibility of premiums?

III. The Relief Sought

Clark asks this Court to accept interlocutory review under 28 U.S.C. § 1292(b) so that it can reverse the district court's abuse of discretion and sustain Clark's confidentiality and privilege objections to the Avrahamis' discovery.

IV. Why this Court Should Permit Interlocutory Appeal and Grant the Relief Sought

The district court's January 26, 2021 order (as amended by its February 12, 2021 order) directs Clark to produce client documents and information that Clark is required to keep confidential under ER 1.6 and that fall with the attorney-client privilege. This information includes the identities of Clark's microcaptive-insurance clients and nearly all of the information in their case files — which certainly includes financial, business-strategy, and insurance-claims information that could be used to Clark's various client's commercial and personal disadvantage.7 There can be no meaningful post-judgment review of this order: The harm to Clark's clients will have already been suffered by then, and the cat cannot be put back into the bag. It will be the fact of the disclosure, not a judgment against Clark, that will harm them.

Confidentiality Under ER 1.6. Arizona's ER 1.6(a)8 states that a “lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted or required by paragraphs (b), (c) or (d), or ER 3.3(a)(3).” This includes a client's identity. See, e.g., In re Conduct of Phillips, 107 P.3d 615, 622 (Or. 2005); United States v. Monnat, 853 F. Supp. 1301, 1303-04 (D. Kan. 1994); Am. Can Co. v. Citrus Feed Co., 436 F.2d 1125, 1128 (5th Cir. 1971). Although ER 1.6(d)(5) permits compliance with a court's “final order” compelling disclosure, ER 1.6(e) obligates lawyers to undertake “reasonable efforts” to oppose such disclosure.

This rule “also applies to disclosures by a lawyer that do not in themselves reveal protected information but could reasonably lead to the discovery of such information by a third person.” Id., cmt. 4. The duty of confidentiality applies “not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.” ER 1.6, cmt. 3. Moreover, confidentiality under ER 1.6 “is much broader than the attorney-client privilege.” Samaritan Found. v. Goodfarb, 176 Ariz. 497, 506, 862 P.2d 870, 879 (1993). The obvious reason for Rule 1.6 is to protect “the trust that is the hallmark of the client-lawyer relationship.” Id., cmt. 2.

It seems axiomatic that a party cannot overcome the compelling policies underlying confidentiality unless, at a minimum, the information sought is sufficiently relevant to a claim or defense. In this case, relevance cannot be divorced from the suitability of the Avrahamis' claims for class-action treatment.

A plaintiff seeking to certify a class must show (i) “numerosity, commonality, typicality, and adequacy; ” (ii) that questions of fact and law common to the members of the class predominate over questions affecting only individual members; and (iii) that a class action is the superior means to litigate. Fed. R. Civ. P. 23(a) and (b); Gonzalez v. United States Immigration & Customs Enf't, 975 F.3d 788, 807 (9th Cir. 2020). The claims asserted against Clark [ER-049] boil down to legal malpractice and fraud in connection with providing legal representation. Those claims underly each of the other claims. The Complaint, on its face, shows that the commonality and typicality requirements are unlikely to be satisfied, and that a class action will not be the superior means to litigate.

Clark did not use a “one-size-fits all” or “cookie-cutter” approach with her clients' microcaptive-insurance needs. [ER-041.] A microcaptive insurance company is created to effectively self-insure its owners' unique risks. [See ER-070.] A microcaptive insurance company is created for each client. Each client has a different business plan and has different insurance needs. The type of risk insured, how that risk is distributed, and the premiums paid differ depending on each client's needs and business risks. [ER-011, 041.] How each microcaptive insurer or reinsurer is capitalized also varies according to a variety of factors. [Cf. ER-120.] The claims histories for each such microcaptive insurer necessarily will vary. Likewise, each client's sophistication and experience with microcaptive insurance and tax strategies will vary.

Class certification is inappropriate when the putative class representative or the class members are subject to unique or fact-specific defenses. See, e.g., Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992); Hoexter v. Simmons, 140 F.R.D. 416, 423 (D. Ariz. 1991) (rejecting the plaintiffs as class representatives because they were “subject to unique defenses concerning their reliance”). Here, Clark and the other Defendants will defend this case in part by proving that the Avrahamis were sophisticated businessfolk who were actively involved in — in fact, they initiated — setting up their microcaptive insurer (Feedback). Their own financial dealings, including distributions and loans involving Feedback, raised red flags for the IRS and contributed to the Tax Court determining that Feedback was not a bona fide insurance company.

Moreover, each putative class member will have to make an individualized showing that each of the elements of professional negligence and fraud are met. A class action is just not a suitable mechanism to prosecute such claims — it certainly is not the superior option.

In light of the dubious suitability of the Avrahamis' claims for class-action treatment, the relevance of Clarks' clients' identities and their case files is too tenuous to overcome the important policies underlying confidentiality.

Attorney-Client Privilege. Clark also asserts that the attorney-client privilege protects its clients' identities and case files. Clark acknowledges that this privilege ordinarily does not extend to client identities, In re Osterhoudt, 722 F.2d 591, 592 (9th Cir. 1983), and that this Circuit has held that client names are not usually protected even when their disclosure might lead to the clients becoming IRS targets, Reiserer v. United States, 479 F.3d 1160, 1166 (9th Cir. 2007). But as the court below noted, in that situation, it is the government seeking disclosure, not private litigants. Id. [ER-007.] That seems to be true in all of the cases where an attorney sought to protect its clients' identities. See, e.g., Tillotson v Boughner, 350 F2d 663 (7th Cir. 1965); Baird v. Koerner, 279 F.2d 623, 634–35 (9th Cir. 1960); United States v. Blackman, 72 F.3d 1418, 1424 (9th Cir. 1995).

Instructive here is United States v. Liebman, 742 F.2d 807 (3d Cir. 1984). Although that case also arose from the IRS's efforts to discover an attorney's clients' identities, it is otherwise almost directly on point. The appellants were tax attorneys who investigated and evaluated “real estate partnerships for clients who want to invest for tax purposes.” Id. at 808. They charged fees only to those clients who actually invested in one of these partnerships. The attorneys conceded that they advised each of these clients that their fees were tax-deductible legal expenses. The IRS disputed that the fees were legal expenses, asserting instead that they were nondeductible brokerage charges. Id. After discovering that some clients had deducted the lawyers' fees, the IRS “sought to ascertain the names of others who might have done the same by various cross-matching methods.” Id. The attorneys objected, asserting that the attorney-client privilege protected their clients' identities. Id. The Third Circuit agreed. Id. at 810-11. It held that the disclosure of the clients' identities would effectively disclose the content of privileged communications because the IRS could match up their names to those who were advised that the fees were deductible legal expenses. Id. at 809. By seeking the names of clients that “were advised by Liebman & Flaster that the fee was deductible for income tax purposes,” that case “falls within the situation where 'so much of the actual communication had already been established, that to disclose the client's name would disclose the essence of a confidential communication.'” Id. (quoting United States v. Jeffers, 532 F.2d 1101, 1115 (7th Cir.1976).

That holding is consistent with the rule in this Circuit that the attorney-client privilege protects client identities when the “disclosure of the identity of the client was in substance a disclosure of the confidential communication in the professional relationship between the client and the attorney.” In re Osterhoudt, 722 F.2d at 593 (explaining Baird v. Koerner, 279 F.2d 623).

The Liebman case is directly analogous to the Avrahamis' efforts to seek the names of Clark's other clients who, the Avrahamis claim, were also advised that their microcaptive-insurance premiums were tax deductible or had other tax advantages. [ER-094-102, 127-129.] By revealing their names, Clark would be revealing that they had received privileged communications regarding the legality of microcaptive insurers and the tax deductibility of their premiums.9 Moreover, the policy for compelling disclosure of client names is much less compelling in the context of private litigation than it is where the information is sought in an IRS investigation.

Continuing Confidentiality. The Avrahamis will argue that much of this information has already been revealed to the IRS, that it has been shared between various of Clarks' clients, and that the Avrahamis have already obtained much of it anyhow. Ultimately, however, the fact that the IRS (or even the Avrahamis) may know some (or even all) of Clark's clients' identities does not relieve Clark of the duty to keep their identities confidential. Client information remains confidential even if it becomes publicly known. ABA Annotated Model Rules of Professional Conduct at 109 (8th ed. 2015) (noting that ER 1.6 has “no exception permitting disclosure of information that has been previously disclosed or is publicly available”); see also In re Anonymous, 654 N.E.2d 1128, 1129 (Ind. 1995) (concluding that a lawyer violated ER 1.6 by disclosing information related to a client representation, even though the information “was readily available from public sources and not confidential in nature”); Lawyer Disciplinary Bd. v. McGraw, 461 S.E.2d 850, 860 (W. Va. 1995) (“[t]he ethical duty of confidentiality is not nullified by the fact that the information is part of a public record or by the fact that someone else is privy to it”); In re Harman, 628 N.W.2d 351, 360–61 (Wis. 2001) (concluding that a lawyer's dissemination of a client's medical records without her consent violated client-lawyer confidentiality, even though those records had been made a part of a medical malpractice action).

Sharing client identities with other clients or with the co-Defendants was at least implicitly authorized by the very nature of the business ventures between those clients related to reinsurance and risk sharing pools.10 Sharing identities among co-clients who are in a common business venture is much different from sharing their identities with third parties. Regardless, the Avrahamis' discovery — however that may have happened — of the names of Clarks' other clients does not grant them a right to look at their confidential files. Likewise, Clark's clients' mandated disclosure to the IRS under Notice 2016-66 does not extinguish the privilege or confidentiality of their clients' identities and files — especially with respect to third-party private litigants such as the Avrahamis.

Further, “a lawyer is required to maintain the confidentiality of all information relating to representation, regardless of the fact that the information can be discovered elsewhere.” Ariz. State Bar Ethics Comm. Op. 00-11 (Nov. 2000). Hence, the fact that the IRS, or other clients, or other Defendants know the identities of some of Clark's clients does not terminate Clark's duty of confidentiality. Nor can the compelled disclosure of Clark's clients' identities to the IRS in the Avrahami Tax Court case relieve it of its obligations under the attorney-client privilege.

Standards for Interlocutory Review. A district court may certify an otherwise non-appealable order for interlocutory appeal under § 1292(b) if the court expressly states that its “order (1) 'involves a controlling question of law[;]'” (2) 'as to which there is a substantial ground for difference of opinion[;]' and (3) 'an immediate appeal from the order may materially advance the ultimate termination of the litigation[.]'” Villarreal v. Caremark LLC, 85 F. Supp. 3d 1063, 1067 (D. Ariz. 2015) (quoting § 1292(b)). The district court made that express determination [ER-005], and Clark respectfully urges this Court to accept review.

The issue presented “need not be 'dispositive of the lawsuit in order to be considered controlling.'” Id. at 1068 (quoting Sierra Foothills Pub. Util. Dist. v. Clarendon Am. Ins. Co., No. CVF050736AWISMSNEWDJ, 2006 WL 2085244, at *2 (E.D. Cal. July 25, 2006)). A question is “controlling” if “resolution of the issue on appeal could materially affect the outcome of litigation in the district court.” Id. (quoting Kight v. Eskanos & Adler, P.C., No. CIV. 05CV1999-L(AJB), 2007 WL 173825, at *2 (S.D. Cal. Jan. 8, 2007)). Resolution of the privilege and confidentiality issues could affect the outcome of class certification by limiting the number of clients that might arguably fall within the definition of the Avrahami class. The district court recognized this when it certified this issue for interlocutory appeal. [ER-007.]

Moreover, if interlocutory appeal “promises to advance the time for trial or to shorten the time required for trial, appeal is appropriate.” Id. at 1072 (quoting Lillehagen v. Alorica, Inc., No. SACV 13-0092-DOC, 2014 WL 2009031, at *7 (C.D. Cal. May 15, 2014)). If the Court of Appeals vacates the January 26 Order, that could substantially shorten litigation because it will reduce or eliminate the amount of discovery related to various putative class members claims — which is certain to be a time-consuming exercise. That would both “advance the time for trial” and “shorten the time required for trial.” See id. The district court recognized this as well. [ER-007.]

Finally, there is a “substantial ground for difference of opinion” if “novel and difficult questions of first impression are presented.” Couch v. Telescope Inc., 611 F.3d 629, 633 (9th Cir. 2010) (quoting 2 Federal Procedure, Lawyers Edition § 3:212 (2010)). Courts within the Ninth Circuit have held that fee or retainer agreements are not privileged, but those cases concerned agreements with clients whose identities were previously known. Gusman v. Comcast Corp., 298 F.R.D. 592, 599–600 (S.D. Cal. 2014); Hoot Winc, LLC v. RSM McGladrey Fin. Process Outsourcing, LLC, 2009 WL 3857425, at *1–2 (S.D. Cal. Nov. 4, 2009); see also Carrizosa v. Stassinos, No. C 05-2280 RMW RS, 2006 WL 2529503, at *1 (N.D. Cal. Aug. 31, 2006). Here, where the Avrahamis may or may not know Clark's clients' identities, the answer is unclear. Moreover, as the district court recognized, application of these rules in private litigation “is murkier.” [ER-007.]

Finally, the Supreme Court has weighed in to encourage interlocutory appeals of questions of attorney-client privilege. In Mohawk Indus. Inc. v. Carpenter, 558 U.S. 100, 103, 114 (2009), after first holding that orders adverse to the attorney-client privilege do not qualify for immediate appeal under the collateral-order doctrine, the Court told district courts that they “should not hesitate to certify an interlocutory appeal in such cases”:

[W]ere attorneys and clients to reflect upon their appellate options, they would find that litigants confronted with a particularly injurious or novel privilege ruling have several potential avenues of review apart from collateral order appeal. First, a party may ask the district court to certify, and the court of appeals to accept, an interlocutory appeal pursuant to 28 U.S.C. § 1292(b). The preconditions for § 1292(b) review — “a controlling question of law,” the prompt resolution of which “may materially advance the ultimate termination of the litigation” — are most likely to be satisfied when a privilege ruling involves a new legal question or is of special consequence, and district courts should not hesitate to certify an interlocutory appeal in such cases.

Id. at 110–11.

This Circuit has accepted interlocutory review of orders related to the attorney-client privilege in several other cases. For instance, in Transamerica Computer Co. v. Int'l Bus. Machines Corp., 573 F.2d 646, 647 (9th Cir. 1978), the court accepted interlocutory review of an order holding that a party did not waive the attorney-client privilege. Similarly, in In re Boileau, 736 F.2d 503, 504 (9th Cir. 1984), the court accepted interlocutory review of an order compelling production of documents claimed to be protected under the privilege. And in Tennenbaum v. Deloitte & Touche, 77 F.3d 337, 338–39 (9th Cir. 1996), the court accepted interlocutory review to determine “whether a promise by a holder of the attorney-client privilege to waive the privilege, contained in a written settlement agreement in one lawsuit, waives the holder's right to claim that privilege in a separate lawsuit, in the absence of the holder's disclosure of a privileged communication.”

Other circuits have also accepted interlocutory review of questions of attorney-client privilege. For instance, in Garner v. Wolfinbarger, 430 F.2d 1093, 1096-97 (5th Cir. 1970), the Fifth Circuit accepted review, holding that the “availability vel non of the privilege of the corporation as against its stockholders is a 'controlling question of law' as opposed to a question of fact or matter for the discretion of the trial court.”). And in Drummond Co., Inc. v. Conrad & Scherer, LLP, 885 F.3d 1324, 1328 (11th Cir. 2018), the Eleventh Circuit accepted review to determine “whether the crime-fraud exception may be applied to overcome C&S's assertion . . . that its materials related to other lawsuits where it served as counsel are protected as attorney work product when the firm's clients in those lawsuits were innocent of any wrongdoing.”

Conclusion

Immediate review of the district court's order compelling Clark to disclose its clients' identities is the only way that order can be effectively and meaningfully reviewed. Clarks' clients' interests in keeping their identities confidential will be irreparably damaged once they are disclosed — the cat cannot be put back into the bag. That error simply cannot be corrected after trial. In fact, the damage will be suffered even if Clark prevails at trial. For these reasons, this Court should accept review of the district court's order compelling Clark to disclose the identities of its clients.

Dated February 22, 2021.

Scott M. Zerlaut
Attorney for Defendants/Appellants/Petitioners

Celia Clark and Clark & Gentry PLLC

FOOTNOTES

1In a microcaptive insurance company, the insurer and insured are related by ownership and its premiums are kept below a statutory threshold. [ER-070.]

2These holding companies are BYS Company ACC, Chandler One LLC, Junction Development LLC, O&E Corporation, White Mountain Equities LLC, and White Knight Investments ACC. [ER-055.]

3The Avrahami Tax Court noted that the IRS first began to give “increased scrutiny” to microcaptive-insurance transactions in 2015, and that the Avrahamis' tax case was the first to proceed to trial. Id. at 173. The court also acknowledged that there were then no cases addressing microcaptive insurers and their “interplay” with the relevant tax code. Id. at 207.

4Celia Clark and her husband and law partner, Edgar Gentry, are in the process of retiring to Florida and have largely ceased representing clients.

5The Avrahami file has been produced in its entirety.

6The parties' joint statement was limited to three pages; thus, they did not have an opportunity to fully brief their positions.

7The January 26 order does protect actual communications between Clark and Clark's clients for purposes of legal advice and attorney work product.

8Arizona's Ethics Rules are found at Arizona Supreme Court Rule 42. The Avrahamis are Arizona residents. New York, where Clark is admitted, enacted a similar version of ER 1.6. Both are based upon the ABA's Model Rules.

9For instance, the Avrahamis allege that Clark represented to its clients that the microcaptive insurers were “completely legal tax-advantaged insurance strategies” that were “fully deductible for tax purposes as an insurance expense and not illegal tax shelters.” [ER-063-064.]

10Given an opportunity to establish the record, Clark could show that these disclosures were explicitly authorized in writing.

END FOOTNOTES

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