Law Firm Urges Fifth Circuit to Reverse John Doe Summons Decision

TAYLOR LOHMEYER LAW FIRM, PLLC,
Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.

In The United States Court of Appeals
For the Fifth Circuit

On Appeal from Cause No. 5:18CV1161
United States District Court for the Western District of Texas

PLAINTIFF-APPELLANT'S BRIEF

CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY

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

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

COUNSEL FOR TAYLOR LOHMEYER LAW FIRM, PLLC

CERTIFICATE OF INTERESTED PERSONS

The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of Rule 28.2.1 have an interest in this case. These representations are made so that the Judges of this Court may evaluate possible disqualification or recusal.

A. Parties:

B. Attorneys:

Steven J. Knight
Attorney of Record for Plaintiff-Appellant

STATEMENT REGARDING ORAL ARGUMENT

Appellant requests oral argument because it would materially benefit the Court in fully understanding the troubling ramifications of the district court's erroneous and unprecedented order that fails to protect documents containing the identities of the firm's clients who received privileged legal advice of which the IRS is aware, according to its agent's sworn declaration. These documents are protected by the attorney client privilege, and the district court's order enforcing Appellee's summons must be reversed.

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TABLE OF CONTENTS

CERTIFICATE OF INTERESTED PERSONS

STATEMENT REGARDING ORAL ARGUMENT

TABLE OF CONTENTS

JURISDICTIONAL STATEMENT

ISSUE PRESENTED

STATEMENT OF THE CASE

SUMMARY OF THE ARGUMENT

ARGUMENT AND AUTHORITIES

CONCLUSION

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

ECF CERTIFICATION

TABLE OF AUTHORITIES

Cases

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

DeGuerin v. United States, 214 F.Supp.2d 726 (S.D. Tex. 2002)

Doe v. A Corp., 709 F.2d 1043 (5th Cir. 1983)

Fisher v. United States, 425 U.S. 391 (1976)

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

In re Grand Jury Proceedings (Jones), 517 F.2d 666 (5th Cir. 1975)

In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 91 F.2d 1118 (5th Cir. 1990)

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

Hanse v. United States, 2018 WL 1156201 (N.D. Ill. March 5, 2018)

Hunt v. Blackburn, 128 U.S. 464 (1888)

Nunez v. Allstate Ins. Co., 604 F.3d 840 (5th Cir. 2010)

In Matter of Oil and Gas Producers Having Processing Agreements with Kerr-McGee Corporation, 500 F.Supp. 440 (W. D. Okla.)

Tillotson v. Boughner, 350 F.2d 663 (7th Cir. 1965)

United States v. Bauer, 132 F.3d 504 (9th Cir. 1997)

United States v. Campbell, 73 F.3d 44 (5th Cir.1996)

United States v. Chen, 99 F.3d 1495(9th Cir. 1995)

United States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982)

United States v. Euge, 444 U.S. 707 (1980)

United States v. LaSalle National Bank, 437 U.S. 298 (1978)

United States v. Liebman, 569 F.Supp. 761 (D. N. J. 1983)

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

United States v. Neal, 27 F.3d 1035 (5th Cir.1994)

United States v. Powell, 379 U.S. 48 (1964)

Untied States v. BDO Steidman, 337 F.3d 802811 (7th Cir. 2003)

Upjohn v. U.S., 449 U.S. 383 (1981)

Wells v. Rushing, 755 F.2d 376 (5th Cir.1985)

Statutes

26 U.S.C. § 7602

26 U.S.C. §§ 7602 and 7609(f)

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JURISDICTIONAL STATEMENT

Taylor Lohmeyer Law Firm, PLLC (“Taylor Lohmeyer”) filed a civil action against the United States of America (“Government”) seeking to quash a John Doe summons that the Government issued pursuant to I.R.C. § 7609(f). ROA.5. The district court had subject matter jurisdiction over Taylor Lohmeyer's civil action under 28 U.S.C. §§ 1331 and 1340. The Government filed a counter-petition to enforce the John Doe summons, invoking jurisdiction under 26 U.S.C. §§ 7402 and 7406(a) and 28 U.S.C. §§ 1340 and 1345. ROA.68. On May 15, 2019, the district court granted the Government's counter-petition to enforce the John Doe Summons. ROA.255. On June 3, 2019, Taylor Lohmeyer timely filed its notice of appeal. ROA.269.

ISSUE PRESENTED

The Government learned that Taylor Lohmeyer provided legal advice to its clients that it claims could have resulted in the underreporting of taxes. Intending to investigate the clients but unaware of their identities, the Government issued a summons to the law firm for all documents reflecting their identities. Taylor Lohmeyer objected to and moved to quash the summons because all responsive documents are protected by the attorney client privilege given the Government's awareness of the legal advice. The Government filed a counter-petition to enforce the summons. Did the district court abuse its discretion by ordering enforcement?

Yes. The rule in this circuit and others is that when the Government knows the substance of confidential legal advice that a law firm has provided to a client and then issues a summons to the law firm for all documents reflecting the identities of clients to whom the law firm provided the legal advice, all responsive documents are protected by the attorney client privilege as a matter of law.

STATEMENT OF THE CASE

Introduction

This is an important case that, for understandable reasons, has garnered national attention.¹ “The attorney-client privilege,” after all, “is the oldest of the privileges for confidential communications known to the common law.” Upjohn v. U.S., 449 U.S. 383, 390 (1981) (citing 8 J. Wigmore, Evidence § 2290) (McNaughton rev. 1961)). “Its purpose is 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.” Id. “The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.” Id.

As the United States Supreme Court explained over a century ago:

The rule which places the seal of secrecy upon communications between client and attorney is founded upon the necessity, and the interest and administration of justice, of the aid of persons having knowledge of the law and skilled in its practice, which assistance can only be safely and readily availed of when free from the consequences or the apprehension of disclosure.

Hunt v. Blackburn, 128 U.S. 464, 470 (1888).

The Government's position in this case — that once it becomes aware of confidential legal advice that a law firm provided to its clients, it can flex its subpoena-power muscle and compel the law firm to reveal their identities and possibly subject them to future audits — undermines the sanctity of the privilege and is a gross abuse of power.

The district court's unprecedented adoption of the Government's position is contrary to established precedent, violates public policy, upsets the proper administration of justice, and shakes the foundation of the legal system. The order must be reversed.

The confidential legal advice

Revenue Agent Joy Russell-Hendrick describes herself as an “Offshore Special Matters Expert in the Special Enforcement Program of the Internal Revenue Service,” which she says “develops . . . techniques for identifying United States taxpayers who are involved in abusive offshore transactions . . . for tax-avoidance purposes.” ROA.162-63. According to Russell-Hendrick, those taxpayers “relied on U.S. professionals to . . . provide legal advice” with regard to tax-avoidance transactions. ROA.166-67 (emphasis added).

Russell-Hendrick claims that one such taxpayer she investigated, “Taxpayer-1,” hired Taylor Lohmeyer — a law firm specializing in estate planning, tax law, and international tax law — for tax planning legal advice. ROA.167. Specifically, according to Russell-Hendrick, “Taxpayer-1 came to Taylor seeking advice on how he could save some tax on his investment activities because Taxpayer-1 had heard that Taylor was familiar with taxation matters involving foreign trusts.”² ROA.170.

According to Russell-Hendrick, Taylor helped Taxpayer-1 set up an offshore structure and advised him that (i) “he could borrow money from the offshore structure without U.S. tax obligations,” ROA.177, (ii) “no income was reportable from the offshore arrangement,” ROA.174, and (iii) “the safest thing for him to do was to make it a U.S. trust and just go under the usual rules” out of concern about legislation that “would have taxed income and gains of all foreign trusts, no matter how creative.” ROA.179.

Russell-Hendrick states that “[t]he structure established by Taylor for Taxpayer-1 is premised on the principle that a U.S. beneficiary is not taxed on current earning of, or distributions from a trust allegedly formed and funded by a foreign person.” ROA.179. Thus, according to Russell-Hendrick, “[o]n the advice of Taylor . . . Taxpayer-1 never told his return prepare about the offshore structure” and “neither the incentive fees nor the earnings from those fees were reported on his returns for the years in question.” ROA.174.

According to Russell-Hendrick, as a result of Taxpayer-1's reliance on Taylor's legal advice, he had had unpaid income tax liability and “agreed to pay almost $4 million to resolve his unpaid tax, interest, and penalties.” ROA.185.

The Government seeks-out other firm clients

Based on her investigation of Taxpayer-1, Russell-Hendrick became convinced that Taylor Lohmeyer gave the same legal advice to many other firm clients, who she believes relied on the advice to avoid paying taxes. ROA.185, 187, 198. Therefore, as Russell-Hendrick explains, the IRS began “pursuing an investigation to develop information about other unknown clients of Taylor Lohmeyer . . . who may have failed to comply with the internal revenue laws by availing themselves of similar services that Taylor Lohmeyer . . . provided to Taxpayer-1.” ROA.191.

To learn their identities, the Government filed an ex parte petition for leave to serve a “John Doe Summons” to Taylor Lohmeyer.³ ROA.192; see also ROA.8. The Government supported its petition with Russell-Hendrick's detailed declaration, in which she attested — under penalty of perjury — to the above-described legal advice Taylor Lohmeyer gave to Taxpayer-1 and her “reasonable belief” that the firm gave the same advice to other unknown clients. See ROA.162-200.

To connect the confidential legal advice to the unknown clients, the Government asked the district court to order Taylor Lohmyer to produce identity documents, spanning from January 1, 1995, through December 31, 2017, including:

• “Documents, including . . . client account records and client billing records reflecting any U.S. clients at whose request . . . you . . . acquired or formed any foreign entity, . . . foreign financial account, or assisted in the conduct of any foreign financial transaction.”

• “All . . . data . . . concerning the provision of services to U.S. clients relating to setting up offshore financial accounts . . . including . . . client forms . . . invoices and statements . . . all records of communications with clients . . . and billing statements and records of payments remitted by clients.”

• “All . . . data . . . concerning the provision of services to U.S. clients relating to the acquisition, establishment or maintenance of offshore entities or structures of entities, including . . . documents describing the service . . . all records of communications with clients . . . and billing statements and records of payments remitted by clients.”

• “The names of all persons or entities acting as advisors and the names of all person or entities acting as clients on the subject matter covered by the document.”

ROA.96-100 (emphasis added).

According to Russell-Hendrick, the summons will uncover “substantial evidence regarding the identity of the U.S. taxpayers with offshore structures used to avoid or evade taxes” based on Taylor Lohmeyer's legal advice. ROA.192; see also ROA.94.

By virtue of the ex parte nature of the Government's filing, Taylor Lohmeyer was not given the opportunity to review and object to the summons, and thus the district court granted the Government's request to serve it. ROA.8; see also ROA.280 (“I just get one version of the story”).

Taylor Lohmeyer challenges the summons

Taylor Lohmeyer filed a petition to quash the summons and a supporting memorandum because it is well established in the Fifth Circuit and elsewhere that documents reflecting the identity of a law firm's client who is unknown by the Government become protected by the attorney client privilege if the Government is aware of a confidential communication between the firm and the unknown client. ROA.5, 8. As one court explained, “[t]he law in the Fifth Circuit is clear,” “[i]f revelation of a client's identity would also reveal a privileged communication, both the identity and the communication are privileged.” DeGuerin v. United States, 214 F.Supp.2d 726 (S.D. Tex. 2002).⁴

As set forth in Taylor Lohmeyer's memorandum, the case that is, perhaps, most analogous to this one is United States v. Liebman, 742 F.2d 807 (3rd Cir. 1984).⁵ There, the IRS accused a law firm of erroneously advising its clients that attorneys' fees they paid the firm for transactional work were tax deductible. Because the IRS did not know the identities of clients who received this advice, it issued a summons to the law firm, seeking all documents (including the ordinary transactional documents) that would help the IRS learn of their identities. The law firm objected, claiming that the documents were protected by the attorney client privilege because their production would link the known confidential advice with the unknown clients who received it. The Third Circuit agreed, holding that responsive documents, including ordinary transactional documents, are privileged under these circumstances 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.

In response to Taylor Lohmeyer's petition to quash and memorandum, the Government filed a counter-petition to enforce the summons. ROA.68. Ignoring Russell-Hendrick's sworn declaration that the purpose of the summons was to ascertain the identities of the law firm's clients who received known legal advice, the Government posited that the attorney client privilege does not apply to the extent responsive documents do not reflect the legal advice, such as transactional documents that merely reveal client identities. See ROA.80. Taylor Lohmeyer filed a response to the Government's counter-petition, further establishing that, under cases like Liebman and Jones, the documents do not have to reflect the legal advice to fall under the rule. Rather, they are all privileged because they link known confidential communications to unknown clients. See ROA at 103-113.

The Government filed a reply, once again arguing that the attorney client privilege applies only to documents reflecting legal advice. See ROA.129-131. The Government also urged the district court to not follow Liebman, claiming it to be distinguishable because “the Third Circuit held that the summoned client identities were protected under the attorney-client privilege because the summons was framed in terms of the advice given — the summons sought the identities of those clients who had been advised that they could deduct, rather than amortize, certain fees paid to them.” ROA.133 (citing Liebman, 742 F.2d at 809) (emphasis added). Thus, Liebman does not apply, according to the Government, because the summons in that case specifically targeted confidential attorney client communications and not merely transactional documents reflecting client identities. However, the Government significantly misconstrued the Third Circuit's opinion.

The summons in Liebman was not framed in terms of the advice given. Rather, as in this case, the IRS agent's declaration recounted the fact that the IRS was aware of the confidential communications. See Liebman, 742 F.2d at 809 (“[T]he affidavit . . . goes on to reveal . . . that 'taxpayers . . . were advised . . . that the fee was deductible for income tax purposes'”). All that was lacking was the identities of the clients who received the advice. Because the IRS did not know the identities, the summons 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 partnerships interest” — a request that mentions nothing about the legal advice and includes documents nor ordinarily privileged. Id. at 808. However, because the IRS was aware of the legal advice and the summons was framed in terms of identifying the clients who used the firm for the transactions, the Third Circuit held that all responsive documents are categorically privileged.

The district court set the attorney client privilege issue for hearing. Before the hearing, Taylor Lohmeyer submitted additional briefing and evidence, including Fred Lohmeyer's declaration. ROA.139. Lohmeyer attested that he has access to eight client files responsive to the summons⁶; the clients all “sought estate planning and tax advice with the primary goals of asset protection and tax reduction”; based on his review of Russell-Hendrick's declaration, “the substance of the communications with the [clients] is already known to the Government”; “the disclosure of the identity of the [clients] would yield substantially probative links respecting the advice given”; and “the mere disclosure of the clients' identities would reveal the substance of the ongoing legal advice to the clients, including the confidential reasons our clients sought our legal advice in the first place.” ROA.149-153

The hearing

During the hearing, the Government's counsel acknowledged, consistent with Jones and Liebman, that “if the IRS already knows the substance of the communication between the client and the lawyer, then by conveying the identity you are, in fact, disclosing privilege, because you already know what the communications were, you already know the confidential communications, you just don't know who it was done by.” ROA.282.

However, once again disregarding Russell-Hendrick's sworn declaration that the summons is intended to ascertain the identities of unknown clients who received known legal advice, he argued that only documents reflecting the legal advice are privileged and that, in this situation, Taylor Lohmeyer must claim the privilege on a document-by-document basis and support any privilege claim with a privilege log. ROA. 284, 293.

The district court sides with the Government

In granting the Government's counter-petition to enforce, the Court offered no substantive analysis of Liebman, other than to credit the Government's (erroneous) effort to distinguish it. ROA.263 (citing ROA.133) (“The Government distinguishes Liebman . . .”). Instead, the Court cited Hanse v. United States, 2018 WL 1156201, *6 (N.D. Ill. March 5, 2018), for the proposition that “a blanket assertion of privilege, which did not properly assert attorney-client privilege on a document-by-document basis, was insufficient to challenge the validity of the IRS summons.” ROA.265. The district court ordered that “if Taylor Lohmeyer wishes to assert any claims of privilege as to any responsive document, it may then do so, provided that any claim of privilege is supported by a privilege log which details the foundation for each claim on a document-by-document basis.” ROA.265.

Taylor Lohmeyer timely filed this appeal. ROA.267.

SUMMARY OF THE ARGUMENT

The Government's power to issue summonses is not unlimited, and it is the job of the federal court system to assure its citizens are protected from an abuse of power. One way the Government abuses its power is when it seeks to invade the attorney client privilege — “the most sacred of all legally recognized privileges and its preservation is essential to the just and orderly operation of our legal system.” United States v. Bauer, 132 F.3d 504, 510 (9th Cir. 1997).

In certain circumstances, documents reflecting the identities of law firm clients are protected under this privilege. Specifically, if a party, such as the Government, becomes aware of privileged and confidential legal advice that a law firm has provided to its clients, and the Government wants to discover the clients' identities to investigate them in relation to the advice, all documents that may reveal their identities are categorically privileged.

Here, the record conclusively establishes that (i) the Government became aware of confidential legal advice that Taylor Lohmeyer provided to its clients; (ii) the Government believes the advice, if followed, resulted in the underpayment of taxes; (iii) the Government does not know the identities of the clients that it would like to investigate for tax deficiencies; and (iv) the Government issued a summons to Taylor Lohmeyer that is specifically designed to enable it to track down the clients.

As a matter of law, all documents responsive to the summons are privileged, and the district court's erroneous order the enforcing the summons must be reversed.

ARGUMENT AND AUTHORITIES

I. The district court reversibly erred by granting the Government's counter-petition to enforce the summons.

A. Standard of Review

Courts have a duty to ensure that the IRS does not exceed its summons authority, or invade traditional privileges. “It is the court's process which is invoked to enforce the administrative summons and a court may not permit its process to be abused.” United States v. Powell, 379 U.S. 48, 58 (1964). As one court explained, “[b]oth the Constitution and the Congress . . . have placed the federal courts between the government and the person summoned to protect against the abusive use of governmental powers.” In Matter of Oil and Gas Producers Having Processing Agreements with Kerr-McGee Corporation, 500 F.Supp. 440, 443 (W. D. Okla.). Thus, courts “must not cavalierly accede to governmental requests but [are] required to conscientiously discharge [their] duty to protect the citizenry from an abusive exercise of governmental powers.” Id.

Indeed, “[t]he Service does not enjoy inherent authority to summon production of the private papers of citizens. It may exercise only that authority granted by Congress.” United States v. LaSalle National Bank, 437 U.S. 298, 316 n. 18 (1978); see also 26 U.S.C. § 7602 (granting IRS summons authority). In addition to the limitations imposed by statute, the Government's summons authority is “subject to the traditional privileges and limitations.” United States v. Euge, 444 U.S. 707, 714 (1980).

“The application of the attorney client privilege is a question of fact, to be determined in light of the purpose of the privilege and guided by judicial precedents.” United States v. Neal, 27 F.3d 1035, 1048 (5th Cir.1994). The Court reviews the district court's application of the controlling law de novo. United States v. Campbell, 73 F.3d 44, 46 (5th Cir.1996). It reviews the district court's factual findings under the clearly erroneous standard, and it reviews evidentiary rulings for an abuse of discretion. Campbell, 73 F.3d at 47. A district court abuses its discretion when its ruling is based on an erroneous view of the law. Nunez v. Allstate Ins. Co., 604 F.3d 840, 844 (5th Cir. 2010).

B. Documents responsive to the summons are protected by the attorney client privilege.

1. The district court failed to apply binding Fifth Circuit authority.

As noted, “[t]he attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.” Upjohn, 449 U.S. at 390. “Its purpose is 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.” Id. The privilege protects communications from the client to the attorney made in confidence for the purpose of obtaining legal advice. See Fisher v. United States, 425 U.S. 391, 403 (1976). It also “shields communications from the lawyer to the client . . . that . . . contain advice or opinions of the attorney.” Wells v. Rushing, 755 F.2d 376, 379 n. 2 (5th Cir.1985). Thus, “[a] client is entitled to hire a lawyer, and have his secrets kept, for legal advice regarding the client's business affairs.” United States v. Chen, 99 F.3d 1495, 1501(9th Cir. 1995). “The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.” Upjohn, 449 U.S. at 390.

With respect to law firm client identities, “[t]he law in the Fifth Circuit is clear,” “[i]f revelation of a client's identity would also reveal a privileged communication, both the identity and the communication are privileged.” DeGuerin v. United States, 214 F.Supp.2d 726, 737 (S.D. Tex. 2002). Put differently, “[j]ust as the client's verbal communications are protected, it follows that other information, not normally privileged, should also be protected when so much of the substance of the communications is already in the government's possession that additional disclosures would yield substantially probative links in an existing chain of inculpatory events or transactions.”⁷ Jones, 517 F.2d at 674.

Indeed, “[t]he 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 individuals.” Id. at 674. Thus, in those circumstances, the “attorney must conceal . . . the identity of a client, not merely his communications, from inquiry.” Id. at 671; see also In re Grand Jury Subpoena for Attorney Representing Criminal Defendant Reyes-Requena, 91 F.2d 1118, 1125 (5th Cir. 1990) (recognizing “the now-settled principle that the attorney-client privilege shields the identity of a client . . . where revelation of such information would disclose other privileged communications”).⁸

Here, according to Russell-Hendrick's sworn declaration, the Government knows that Taylor Lohmeyer advised its clients, among other things, that (i) they “could borrow money from the offshore structure without U.S. tax obligations,” ROA.177, (ii) “no income was reportable from the offshore arrangement,” ROA.174, and (iii) they should modify the trust arrangement out of concern about legislation that “would have taxed income and gains of all foreign trusts, no matter how creative.” ROA.179. Additionally, Lohmeyer attested that the clients all “sought estate planning and tax advice with the primary goals of asset protection and tax reduction”; based on his review of Russell-Hendrick's declaration, “the substance of the communications with the [clients] is already known to the Government”; “the disclosure of the identity of the [clients] would yield substantially probative links respecting the advice given”; and “the mere disclosure of the clients' identities would reveal the substance of the ongoing legal advice to the clients, including the confidential reasons our clients sought our legal advice in the first place.” ROA.149-153.

Convinced that those clients acted on the law firm's advice to avoid paying taxes, the IRS opened an investigation “to develop information about other unknown clients of Taylor Lohmeyer . . . who may have failed to comply with the internal revenue laws by availing themselves of similar services that Taylor Lohmeyer . . . provided to Taxpayer-1.” ROA.191.

Because the Government is aware of the firm's legal advice, but unaware of the clients' identities, its summons was designed to target “substantial evidence regarding the identity of the U.S. taxpayers with offshore structures used to avoid or evade taxes” based on Taylor Lohmeyer's legal advice. ROA.192; see also ROA.94. As a matter of law, all responsive documents are privileged. See Jones, 517 F.2d at 674 (“information, not normally privileged, should . . . be protected when . . . the substance of the communications is already in the government's possession”); Reyes-Requena, 91 F.2d at 1125 (“the attorney-client privilege shields the identity of a client . . . where revelation . . . would disclose other privileged communications”); DeGuerin, 214 F.Supp.2d at 737 (“[i]f revelation of a client's identity would also reveal a privileged communication, both the identity and the communication are privileged”); Liebman, 742 F.2d at 810 (“identity, when combined with the . . . communication . . . that is already known, would provide all there is to know about a confidential communication between the taxpayer-client and the attorney”).

2. Liebman exemplifies the proper application of the privilege rule.

As noted, in Liebman, the IRS claimed that the law firm erroneously advised its clients that the attorneys' fees that they paid the firm for the acquisition of real estate partnership interests were tax deductible. Liebman, 742 F.2d at 808. Because the IRS did not know the identities of the firm's clients, it issued a summons for the firm's “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.” Id. Responsive documents would include the firm's transactional work — documents that ordinarily may not be privileged.

Because the IRS knew the confidential legal advice the firm gave to unknown clients, the law firm asserted a blanket objection to producing any documents, claiming they were protected by the attorney client privilege. Id. (“Liebman and his firm objected that enforcement of the summons would violate the attorney-client privilege”); see also United States v. Liebman, 569 F.Supp. 761, 763 (D. N. J. 1983) (“In response to the summons, the respondent law firm refused to produce the requested records or to reveal information that might have aided the Internal Revenue Service . . . in identifying their clients”). The district court rejected the firm's attorney client privilege claim, and the firm appealed.

In deciding whether all responsive documents, including the transactional documents, were privileged in this situation, the Third Circuit reviewed the summons in the context of the IRS agent's declaration. Because the affidavit revealed that the IRS was aware of the firm's legal advice, the court reversed the district court, holding “this 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.” Liebman, 742 F.2d at 809. Therefore, “[i]f appellants were required to identify their clients as requested, that 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. Accordingly, “[d]isclosure of the identity of the client would breach the attorney client privilege to which that communication is entitled.” Id.

Taylor Lohmeyer's clients are entitled to the same protections. 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 to clients in connection with certain transactional work⁹; the IRS is unaware of the identities of the firm's clients who received the advice; 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.

In reaching the opposite conclusion, the district court failed to follow binding Fifth Circuit precedent and it disregarded Liebman, which is factually indistinguishable. All documents responsive to the summons are protected by the attorney client privilege as a matter of law. The district court's order granting the Government's counter-petition to enforce the summons must be reversed.

C. A document-by-document review is an exercise in futility.

In granting the Government's counter-petition, the district court not only ignored the controlling legal principles discussed above, it also erroneously credited the Government's attempt to distinguish Liebman¹⁰ and accepted the Government's argument that a document-by-document review and a privilege log are required.

With respect to the former, according to the Government, the only reason the Third Circuit held that the documents were privileged was because the “summons was framed in terms of the advice given — the summons sought the identities of those client who had been advised that they could deduct, rather than amortize, certain fees paid to them.” ROA.133; see also ROA.240 (“the IRS summons in Liebman was drafted in terms of the advice provided by the attorneys”). As explained earlier, that is not the case. The summons, which said nothing about legal advice, broadly described “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.” See Liebman, 742 F.2d at 808. The summons in this case seeks the same kind of information, all of which is intended to reveal client identities so the Government can link the clients to the firm's advice.

With respect to the latter, the district court relied on Hanse v. United States, No. 17-cv-4573, 2018 WL 1156201 (N.D. Ill. March 5, 2018), and United States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982), for the proposition that a “blanket” or categorical assertion of privilege is not proper and that privilege must be asserted on a document-by-document basis with a privilege log. ROA.264-266. However, neither case is on point.

In Hanse, a taxpayer, whose identity was already known, was being investigated in connection with a transfer to a law firm's trust account. The IRS requested documents between that known taxpayer and the firm. The taxpayer objected, claiming that some of the documents were privileged. The court rejected the taxpayer's blanket privilege claim, noting that he did not even establish that he was a client of the firm.

Under Hanse, where the Government seeks a category of documents related to a known taxpayer that may include, in part, privileged advice, a claim of privilege must be asserted on a document-by-document basis. Here though, the Government maintains that it is already aware of the privileged advice; it just lacks awareness of the identities of the clients who received the advice. Thus, according to the Government, the purpose of the summons is to “develop information about other unknown clients of Taylor Lohmeyer.” ROA.192. In this situation, all responsive documents are protected by the privilege because the Government is not entitled to any information that would enable it to link the unknown identities with the known advice. Thus, there is no need to perform a document-by-document review or produce a privilege log.

In El Paso, the IRS issued a summons for El Paso's “tax pool liability analysis” — documents that included privileged information prepared by attorneys and non-privileged information prepared by ordinary accountants. El Paso, 682 F.2d at 530. El Paso asserted a blanket attorney client privilege as to all documents. The Fifth Circuit explained that, under the circumstances, a blanket assertion of privileged is improper. Id. at 541.

El Paso does not support the district court's order for several reasons. First, the case did not involve a summons issued to a law firm. Second, the IRS knew the identity of the taxpayer and was not seeking the documents to draw a link between privileged attorney client communications and the identities of the recipients of the information. Third, and perhaps most importantly, documents responsive to the summons included privileged and non-privileged documents, necessitating a document-by-document review and a privilege log. Here, as stated throughout this brief, a document-by-document review is unnecessary because all of the documents are necessarily privileged because the Government will use them to track down the law firm's clients.¹¹

Lastly, Taylor Lohmeyer, which does not own the privilege, is not at liberty to divulge the identities of its clients to whom it provided privileged legal advice that is known by the Government. Indeed, Taylor Lohmeyer has a duty to preserve the privilege and maintain client confidences. See Doe v. A Corp., 709 F.2d 1043, 1046 (5th Cir. 1983) (“The Code of Professional Responsibility seeks to safeguard both the attorney client privilege and other confidential information”); see also Jones, 517 F.2d at 671 (the “attorney must conceal . . . the identity of a client, not merely his communications, from inquiry”).

CONCLUSION

Based on the foregoing, Taylor Lohmeyer respectfully requests the Court to 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