Law Firms Seeks Rehearing in John Doe Summons Enforcement Case

STATEMENT OF COUNSEL

This case involves a question of exceptional importance: Can the Internal Revenue Service compel a United States law firm to reveal the identities of its United States clients so it can investigate them for suspected tax violations? The Panel answered yes, holding that for a law firm's clients' identities to be privileged, the Government must know the “substance of the legal advice” or “the content of any specific legal advice.” The Panel's opinion conflicts with the following decisions of the United States Court of Appeals for the Fifth Circuit, warranting consideration by the full court to secure and maintain uniformity of the Court's decisions:

• United States v. Jones, 517 F.2d 666 (5th Cir. 1975);

• In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 913 F.2d 1118 (5th Cir. 1990); and

• In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423 (5th Cir. 1991).

The Panel's decision also conflicts with the following decisions of other United States Courts:

• United States v. Liebman, 742 F.2d 807 (3rd Cir. 1984); and

• Baird v. Koerner, 279 F.2d 623 (9th Cir. 1960).

Steven J. Knight
Counsel for Plaintiff-Appellant

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TABLE OF CONTENTS

CERTIFICATE OF INTERESTED PERSONS

STATEMENT OF COUNSEL

TABLE OF CONTENTS

STATEMENT OF THE ISSUES TO MERIT EN BANC CONSIDERATION

STATEMENT OF THE COURSE OF PROCEEDINGS AND DISPOSITION OF THE CASE

STATEMENT OF FACTS

ARGUMENT AND AUTHORITIES

CONCLUSION

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

THE PANEL'S OPINION

TABLE OF AUTHORITIES

Cases

Baird v. Koerner, 279 F.2d 623 (9th Cir. 1960)

Matter of Grand Jury Proceeding, Cherney, 898 F.2d 565 (7th Cir. 1990)

In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 913 F.2d 1118 (5th Cir. 1990)

In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423 (5th Cir. 1991)

NJLRB v. Harvey, 349 F.2d 900 (4th Cir. 1965)

Tillotson v. Boughner, 350 F.2d 663666 (7th Cir. 1965)

United States v. BDO Seidman, 337 F.3d 802 (7th Cir. 2003)

United States v. Jones, 517 F.2d 666 (5th Cir. 1975)

United States v. Liebman, 742 F.2d 807 (3rd Cir. 1984)

Statutes

26 U.S.C. § 7525

26 U.S.C. §§ 6111 and 6112

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STATEMENT OF THE ISSUES TO MERIT EN BANC CONSIDERATION

1. The Panel's holding that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply conflicts with Fifth Circuit precedent.

2. The Panel's opinion conflicts with authoritative decisions of other United States Courts of Appeals.

3. The Panel's reliance on the Seventh Circuit's United States v. BDO Seidman decision is misplaced.

STATEMENT OF THE COURSE OF PROCEEDINGS AND DISPOSITION OF THE CASE

The Internal Revenue Service suspects that Taylor Lohmeyer Law Firm, PLLC (“Taylor Lohmeyer”) — a law firm that specializes in tax law — gave its United States clients erroneous tax advice that it suspects may have resulted in the underreporting of taxable income. ROA.174, 177, 191. To investigate potential tax deficiencies, the IRS served Taylor Lohmeyer with a broad summons, seeking all documents from January 1, 1995, through December 31, 2017, that reflect the identities of its United States clients to whom it provided certain tax-planning legal services. ROA.94. Taylor Lohmeyer filed a petition to quash the summons, arguing that its clients' identities are protected by the attorney-client privilege. ROA.5, 8. The Government filed a counter-petition to enforce the summons. ROA.68. Following additional briefing and a hearing, (ROA.103, 124, 139, 227, 234, 245 and 274), the district court granted the Government's counter-petition, prompting this appeal. ROA.255, 269. On April 24, 2020, the Panel (Judges Barksdale, Higginson, and Duncan) affirmed the district court's order. App. A.

STATEMENT OF FACTS

Internal Revenue Service Agent Joy Russell-Hendrick investigates taxpayers who she suspects of using offshore transactions for tax-avoidance purposes. ROA.162-63. Russell-Hendrick acknowledges that those taxpayers seek out professional legal advice to accomplish their goals. ROA.166-67. Russell-Hendrick claims that one such taxpayer, “Taxpayer-1,” hired Taylor Lohmeyer for legal advice on how he could save taxes on his investment activities. ROA.170. According to Russell-Hendrick, Taylor Lohmeyer helped Taxpayer-1 set up an offshore structure and erroneously advised him that “no income was reportable from the offshore arrangement” and that “he could borrow money from the offshore structure without U.S. tax obligations.” ROA.174, 177. Russell-Hendrick says that, as a result of Taylor Lohmeyer's legal advice, Taxpayer-1 had unpaid income tax liability. ROA.185.

The IRS determined that other unknown United States citizens retained Taylor Lohmeyer for similar advice, and it set out to investigate them for possible tax deficiencies. ROA.191. To learn their identities, the Government filed an ex parte petition for leave to serve a “John Doe” summons to Taylor Lohmeyer, which the court granted. ROA.192; see also ROA.8.

The summons directs Taylor Lohmeyer to produce “[d]ocuments . . . reflecting any U.S. client . . . on whose behalf you . . . formed any foreign entity”; “all records of communications with clients pertaining to the arrangements for the procurement of the offshore financial accounts”; and “[t]he names of all persons acting as advisors and the names of all persons . . . acting as clients on the subject matter covered by the document.” ROA.96-99.

Taylor Lohmeyer filed a petition to quash the summons because the attorney-client privilege protects clients' identities when the Government suspects it knows their motive for hiring the firm and wants to investigate them for suspected violations. See United States v. Jones, 517 F.2d 666, 674 (5th Cir. 1975); In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 913 F.2d 1118, 1125 (5th Cir. 1990) (“Reyes-Requena I”); In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423, 1431 (5th Cir. 1991) (“Reyes-Requena II”). In response, the Government filed a counter-petition to enforce the summons, which the district court granted. See ROA.68, 80, 265.

On appeal, the Panel recognized that the Government issued the summons to ascertain the identities of Taylor Lohmeyer's United States clients who the Government suspects underpaid their taxes after consulting with the firm. The Panel held, however, that the attorney-client privilege does not apply to their identities because Russell-Hendrick did not state that the Government knows the “substance of the legal advice” or “the content of any specific legal advice.” Id. at 10-11.

The Panel erred; there is no such requirement in this Circuit or any other circuit that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply. Under Jones, Reyes-Requena I, and Reyes Requena II, Taylor Lohmeyer's clients' identities are privileged as a matter of law, and the law firm had a duty to conceal its clients' identities from the IRS. Because the Panel's contrary opinion undermines the attorney-client privilege and conflicts with Fifth Circuit precedent, Taylor Lohmeyer respectfully requests the En Banc Court to grant rehearing and restore uniformity of the law in this Circuit.

ARGUMENT AND AUTHORITIES

I. The Panel's holding that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply conflicts with Fifth Circuit precedent.

Where there exists an attorney-client relationship, and the Government wants to learn a law firm's clients' identities to investigate suspected wrongdoing, documents reflecting the clients' identities are protected by the attorney-client privilege. There is no requirement that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply. Jones, Reyes-Requena I, Reyes Requena II make these points clear.

In Jones, a grand jury was investigating individuals (“the known clients”) suspected of drug and tax offenses. Jones, 517 F.2d at 668. The known clients were represented by counsel whose fees were paid by other persons whose identities were unknown to the government (“the unknown clients”). The government believed that certain individuals in the community — not necessarily, but possibly, the unknown clients — had underreported income. Id. at 673. To determine whether it was the unknown clients who may have violated the law, the government issued a subpoena to the attorneys, seeking “all records, retainer agreements, books, records, and/or receipts showing payment of attorneys' fees” for the known clients. Id. The attorneys objected because, as noted, the fee-payers were also clients. Id. at 669. Unaware of any specific legal advice the attorneys provided to the unknown clients or even why they retained the attorneys, the government persisted in seeking their identities “to use those disclosures . . . in whatever manner proved fruitful.” Id. Ultimately, the attorneys were found in contempt.

On appeal, this Court held that that the identities of the unknown clients were privileged because, if the government is correct in its uncorroborated suspicion that they were the individuals who underreported income, then the government is likely aware of their possible motive for hiring the attorneys, rendering their identities privileged. As the Court explained: “[T]he income tax aspects of the government's inquiry demonstrate a strong independent motive for why the unidentified clients could be expected to seek legal advice, and reasonably anticipate that their names would be kept confidential. The attorney-client privilege protects the motive itself from compelled disclosure, and the exception to the general rule protects the clients' identities when such protection is necessary in order to preserve the privileged motive.” Id. at 674-75. The Court further explained: “The purpose of the privilege would be undermined if people were required to confide in lawyers at the peril of compulsory disclosure every time the government decided to subpoena attorneys it believed represented particular suspected individual.” Id. at 674. Under these circumstances, “an attorney must conceal even the identity of a client, not merely his communications.” Id. at 671.

In Reyes-Requena I, this Court further commented on the rule from Jones. There, the government issued a subpoena for records dealing with fee arrangements to attorney DeGeurin, who had been hired to represent criminal defendant Reyes-Requena. Reyes-Requena I, 913 F.2d at 1120 (Hon. Judge Edith Jones). DeGeurin filed a motion to quash the subpoena, arguing that the records were privileged under Jones. Id. The district court granted DeGeurin's motion to quash, and the government appealed. Id.

On appeal, this Court recognized that “Jones seems reconcilable with, if perhaps a modest extension of, the now-settled principle that the attorney-client privilege shields the identity of a client or fee information only where revelation of such information would disclose other privileged communications such as the confidential motive for retention.” Id. at 1126. The Court held that the privilege did not apply, however, “[b]ecause DeGeurin has never averred that the anonymous benefactor of Reyes-Requena (if there is one) was his client.” Id. at 1124.

After the Court reversed and remanded in Reyes-Requena I, the government again sought the anonymous payer's identity to charge in a conspiracy. Reyes-Requena II, 926 F.2d at 1432 (Hon. Judge King). DeGeurin and the anonymous payer submitted sealed affidavits to establish that the payer was a client who also retained DeGeurin in connection with the same criminal matter for which DeGeurin represented Reyes-Requena. Id. at 1432. The district court determined that the payer's identity was privileged under Jones because “[i]f DeGeurin reveals the identity of Intervenor, the confidential motive of Intervenor's retention of DeGeurin will be exposed as apparent.” Reyes-Requena, 752 F.Supp. 239, 242 (S.D. Tex. 1990).

Despite the fact that the Government did not know the substance or content of DeGeurin's specific legal advice, this Court upheld the privilege. “We protect the client's identity . . . in such circumstances,” the Court explained, “not because they might be incriminating but because they are connected inextricably with a privileged communication — the confidential purpose for which he sought legal advice.” Reyes-Requena II, 926 F.2d at 1431. Judge King offered the following important example:

[A] client may wish to consult an attorney concerning adopting a child but not wish the matter to be made public. Such an individual normally will reveal the nature of his problem as well as his identity, and reasonably expects both to remain confidential. If the disclosure of the client's identity will also reveal the confidential purpose for which he consulted an attorney, we protect both the confidential communication and the client's identity as privileged.

Id. at 1431.

Reyes-Requena II and Jones underscore that the Panel's requirement that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply is plain error. In Jones, there was no mention of legal advice. In Reyes-Requena II the government lacked knowledge, which is why DeGeurin submitted the sealed affidavits. The reason the attorney-client privilege applied in those cases was that an attorney-client relationship existed and the Government wanted to investigate the clients of suspected wrongdoing in relation to the attorney consultation.

Similar to the government's suspicion in Jones that the unknown clients hired the attorneys in relation to suspected tax issues, and similar to its suspicion in Reyes-Requena II that that the unknown client hired the attorney in connection with a suspected criminal conspiracy, here, the Government suspects that Taylor Lohmeyer gave its clients erroneous tax advice, and it wants to investigate them for potential tax deficiencies. ROA.174, 177, 191. Documents that are responsive to the summons necessarily reveal their identities, thereby enabling the Government to discover and investigate the United States clients who retained the firm for this suspected purpose. Their identities are connected inextricably with the confidential purpose for which they sought legal advice, rendering all documents that could be used to ascertain their identities privileged as a matter of law.

Notably, applying the attorney-client privilege in this case is consistent with the important example Judge King offered in Reyes-Requena II. Just as persons who consult with a law firm about adoptions have a right to keep the fact of that consultation private (even if the Government wants to investigate them for suspected wrongdoing in connection with the adoptions), Taylor Lohmeyer's clients have a right to seek out tax advice and keep the fact of that consultation private, despite the Government's suspicion of wrongdoing. The attorney-client privilege must be upheld even when doing so “may prevent the Government from obtaining useful information.” Reyes-Requena II, 926 F.2d at 1432.

Although Jones is this Circuit's leading opinion in this area of the law, the Panel mentioned it just once in passing and offered no analysis. As for Reyes-Requena II, the Panel said it is distinguishable because (i) the anonymous client in that case intervened, and (ii) the court considered sealed evidence that established the existence of an attorney-client relationship that pertained to the same criminal issue for which DeGeurin represented Reyes-Requena. Neither observation renders Reyes-Requena II inapplicable.

With respect to the former, there is no requirement that the unknown client must intervene for the attorney-client privilege to apply; otherwise, Jones would have been decided differently. With respect to the latter, if the Panel is suggesting that Taylor Lohmeyer did not offer evidence of the existence and nature of the attorney-client relationship, then it is mistaken. Those details were addressed at length in Fred Lohmeyer's affidavit.¹ See ROA.149-153. Taylor Lohmeyer also offered to submit the entire un-redacted client files for an in-camera review. ROA.147.

But even if Taylor Lohmeyer had not presented this evidence, the attorney-client privilege would still apply. In Reyes-Requena II, the only reason the evidence became necessary was that DeGeurin did not claim that the anonymous payer was a client in Reyes-Requena I. Here, the Government does not dispute that each and every United States citizen who it wants to investigate was a law firm client. Nor does it dispute knowing their motive for hiring the firm; it simply wants to use the summons to link that motive to their identities so it can investigate them for suspected tax deficiencies.

Under Jones, Reyes-Requena I, and Reyes-Requena II, the attorney-client privilege precludes the Government from compelling a law firm to disclose its clients' identities under these circumstances. The Panel's contrary opinion undermines the attorney-client privilege and conflicts with established Fifth Circuit case law. Taylor Lohmeyer respectfully requests the En Banc Court to grant rehearing and restore uniformity of the law in this Circuit.

II. The Panel's opinion conflicts with authoritative decisions of other United States Courts of Appeals

The Panel's holding that Taylor Lohmeyer's clients' identities are not privileged not only conflicts with the Fifth Circuit authority discussed above, it conflicts with several important decisions from other Circuits.

In United States v. Liebman, 742 F.2d 807 (3rd Cir. 1984), the IRS accused a law firm of erroneously advising its clients that attorneys' fees they paid for transactional work were tax deductible. Because the IRS did not know the clients' identities but wanted to investigate them for suspected tax deficiencies, it issued a summons to the law firm, seeking all documents (including the ordinary transactional documents) that would help the IRS learn their identities. The law firm objected, claiming that the documents were protected by the attorney-client privilege. The Third Circuit agreed, holding that responsive documents, including ordinary transactional documents, are privileged because the “identity, when combined with the substance of the communication as to deductibility that is already known, would provide all there is to know about a confidential communication between the taxpayer-client and the attorney.” Id. at 810.

Here, as in Liebman, the Government submitted an IRS agent's declaration to attempt to justify the summons; the declaration sets forth the agent's belief that the firm gave erroneous legal advice in connection with transactional work; the IRS is unaware of the identities of the firm's clients; and the IRS issued a summons for all documents that reveal the clients' identities. Clearly, this case also “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. at 809.

The Panel held that Liebman is distinguishable because the IRS agent who signed the affidavit in support of the John Doe summons in that case expressed actual knowledge of the firm's tax advice whereas “Agent Russell-Hendrick's 2018 declaration did not state the Government knows the substance of the legal advice” but instead outlined her “reasonable basis” for believing the client's motives for hiring the firm. App. A at 10. The Panel also stated that Russell-Hendrick's declaration targeted clients who “may have failed to comply” with the law (emphasis by Panel), suggesting that the declaration in Liebman targeted clients who the government knew violated the law. Id. at 10; see also id. at 11 (“not the same as the Government's knowing whether any Does engaged in allegedly fraudulent conduct”). The Panel reads too much into these supposed differences.

With respect to the former, Jones and Reyes-Requena II make it clear that there is no requirement that the Government has to know the substance or content of the specific legal advice for the privilege to apply. As noted, in Jones, there was no mention of any legal advice. Moreover, the Court cautioned the government that being vague about the extent of its knowledge or objectives would not undermine the privilege. Jones, 517 F.2d at 675 (“the government should not read this opinion as an invitation to tighten the web of secrecy surrounding its objectives and the nature and extent of information already in its hands”). In Reyes Requena II, the fact that the nature of the attorney-client engagement had to be explained to the court in sealed filings underscores that the government had no knowledge of the advice, yet the privilege applied.

With respect to the Panel's implication that the agent in Liebman targeted clients who the government knew violated the law, the Panel is incorrect. As the Third Circuit stated, “it is by no means clear that all the clients whose identities would be revealed did take the deduction.” Liebman, 742 F.2d at 810 n. 4. Despite this, the government's summons in Liebman broadly requested all “books, records, papers, billing ledgers and any other data which contains, reflects, or evidences the names, addresses and/or social security numbers of clients who paid fees in connection with the acquisition of real estate partnership interests in 1978, 1979, or 1980.” Id. at 808. The summons in this case seeks the same type of information. See App. A at 11.

Ultimately, Liebman applies the rule from Jones, Reyes-Requena I, and Reyes Requena II under an analogous set of facts. The Panel's attempt to distinguish it has caused it to adopt its new requirement that the Government must know the substance or content of the specific legal advice for the attorney-client privilege to apply. That sets a bar that is too high and has caused disunity between the Fifth Circuit and the Third Circuit.

In Baird v. Koerner, 279 F.2d 623 (9th Cir. 1960), another tax case, certain individuals whose identities were unknown to the government paid delinquent taxes after consulting with a tax attorney. Without knowing the substance or content of the specific legal advice, the government issued a summons to the attorney “to ascertain which taxpayers they think were delinquent, so that it may check records for that one year or several years.” Id. at 633. The Ninth Circuit held that their identities were privileged because if they were revealed to the government, it would disclose their general motive for consulting with the attorney — legal advice about taxes. Id. at 633 (“Certainly the payment and the feeling of guilt are the reasons the attorney here involved was employed”).

Consistent with Jones, Reyes-Requena I, Reyes-Requena II, and Liebman,² the clients' identities in Baird were privileged, not because the government knew the substance or content of the specific legal advice, but because there existed an attorney-client relationship and the government wanted to learn clients' identities to investigate suspected tax deficiencies.

This Court previously recognized that “[t]he exception announced in Baird . . . is as much part of this circuit's federal law of evidence as is the normal rule of no privilege. We so hold.” Jones 517 F.2d at 671. The Panel, however, did not mention Baird, and its opinion conflicts with this important Ninth Circuit case.

III. The Panel's reliance on the Seventh Circuit's United States v. BDO Seidman decision is misplaced.

Instead of following Jones, Reyes-Requena I, and Reyes-Requena II, the Panel relied on United States v. BDO Seidman, 337 F.3d 802 (7th Cir. 2003), which it states presents similar circumstances. App. A at 11. The circumstances in BDO were anything but similar.

In BDO, the IRS issued summonses to accounting firm BDO to investigate whether it complied with 26 U.S.C. §§ 6111 and 6112, which required it to register tax shelters with the IRS and “keep a list identifying each person to whom an interest of the tax shelter was sold.” Id. at 806. “The statutory registration and list-keeping provisions allow the IRS to identify . . . all of the participants in related tax-shelter investments.” Id. at 809. Several BDO clients intervened in the case, arguing that documents revealing their identities are privileged under 26 U.S.C. § 7525. Id. at 806-7. The court held that because the accounting firm was statutorily required to disclose its clients' identities to the IRS, there was no expectation that those clients' identities would receive the protection of the attorney-client privilege. Id. at 812.

This case is not similar to BDO. First, in BDO, the target of the investigation was the accounting firm, not its clients. The government was trying to determine whether BDO had disclosed all of the tax shelters it had sold and assess penalties against the accounting firm for any failures in disclosure. Second, the Seventh Circuit's basis for rejecting identity privilege was based on the fact that BDO's clients had no expectation of privacy due to the accounting firm's requirements to report sales of tax shelters to the IRS. By contrast, Taylor Lohmeyer had no obligation to report its clients to the IRS because they were not engaged in IRS listed transactions. ROA.149-153. Third, BDO involved a limited statutory privilege (§ 7525) that does not share the same import or historical footing as the attorney-client privilege. Moreover, the current version of that statute makes clear that the more limited privilege was never intended to apply “in connection with . . . any tax shelter.” 26 U.S.C. § 7525(b).

The Panel's reliance on the Seventh Circuit's BDO decision in lieu of this Circuit's precedent further underscores the need for en banc review.

CONCLUSION

Taylor Lohmeyer respectfully requests the En Banc Court to grant rehearing, reverse the order granting the Government's counter-petition to enforce the summons, and find, consistent with established case law, that the Government is not entitled to the privileged attorney-client information it seeks. Taylor Lohmeyer further requests any and all other general relief to which it may be entitled.

Respectfully submitted,

CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY

By: STEVEN J. KNIGHT
Texas Bar No. 24012975
steven.knight@chamberlainlaw.com
1200 Smith Street, Suite 1400
Houston, Texas 77002
(713) 654-9603

CHARLES J. MULLER III
Texas Bar No. 14649000
chad.muller@chamberlainlaw.com
LEO UNZEITIG
Texas Bar No. 24098534
leo.unzeitig@chamberlainlaw.com
112 East Pecan, Suite 1450
San Antonio, Texas 78205
(210) 253-8383

COUNSEL FOR PLAINTIFF-APPELLANT