morning everyone judge callahan and i would like to welcome and thank judge bolton from the district of arizona who is sitting with us this morning welcome and thank you you would also like to welcome the class who is here watching the proceedings thank you very much for taking the time to come and participate in our judicial system we hope that we don't bore you too much the cases will be called in the order listed on the docket the st case on mind and in particular the record that we have right now is the record created by judge also who reviewed in camera the attorney memos and what he concluded is that constitute and i'll quote it legal advice communicated in confidence to send me an executives that's critically important finding because that renders the contents of those attorney memos core work product the other side disputing that at this point though aren't we focused on wafer to a large extent we are focused on way every year and so since you don't have a lot of time and if excepting that that that that has been found i'm curious about the findings that the judge made regarding waiver and how the judge treated just in terms of i wasn't there last time but i'm here today and it would seem you st had i memos to d l a piper not for the purpose of obtaining legal advice for the but for the purpose of determining the value of sand minas common stock and so that's a finding of fact then you would have to show that it's documents to deal with a paper for the purpose of providing this valuation analysis and the declaration of bryan dawe as clearly that d l a piper was consulted for tax advice as well concerning the well i know that that's what i know that your lawyer said that but there's not something from d l a that says we were contacted to do about the fair market value and consulted for outside legal counsel or whatever so there's there's nothing from also relied upon the actual report that was prepared by deal a piper that said that's what they asked us to do there's no question that deal a paper was asked to advice on the propriety of the deduction in addition to providing the appraisal report a but what i'd like to say before we leave that could you point us in the record what portion of the record you're in line upon to support advice so that's why the question the judge callahan raised is how can debt ruling by the court be clearly erroneous if there is no clear evidence in the record that there was legal advice stopped the record i i understand that point iran or and it does not say legal advice in mr dulcie's declaration so if that's the sit if the court is of the mind that that the the court in the situation where i must presume that mr starr the deal a piper was consulted for other than legal advice then so be it i don't think that changes the law you have to if we can't find clear error in the district court's finding do we have an option to proceed in the any other way i know your honor but it doesn't change the outcome ok and bellus why because the key to waiver is disclosure and disclosure must be of the contents of the attorney memos and the attorney memos contents were never disclosed to anyone who was not in a confidential relationship with semin and that includes deal a piper and as we pointed out in our reply brief the government agreed with that and now assist the government actually castigated us below because we argued that and in substance of course the providing of the the memos to deal i piper didn't effectuate a waiver and d l a piper and the government said that's not what we're arguing at all and we quote that specifically in page three of our reply so that the government itself disclaimed that argument they are now claiming that d l a piper functioned as a conduit i believe that there are now it would be under that that the conduit language comes in if you're going for work product right that that's it would be because that's correct it would seem to me that it's possible that you could argue that judge al cept conflated attorney client privilege with work product privilege and didn't separate those out and the case law isn't entirely clear in the th circuit exactly what the test is for work product but let's assume that it is admissible you're arguing that's cancer you're saying you could lose on the attorney client privilege but prevail on the work product privilege and they still don't get it that's correct your honor because the work product privilege in order for that to be aware of or there must be a disclosure twin adversary what the law isn't as clear as it could be i mean i looked and there's the d c circuit you know thirst i mean there's different tast i mean i think we would have to publish in that area and say exactly what the test is if the test is that's what you're saying under if if if there is a test that you either have to be an adversary or you have to be a conduit to an adversary and we would have to clarify what that test would the st time with this ok i really am trying to get to the bottom you know there's a part of me that i always like to figure out what are people fighting about why are they fighting about certain things because it seems and correct me if i'm wrong along the way this is pretty early in the proceedings it would seem to me if if if the litigation goes forward let's just say on the it work product you prevail you don't have to get it right now if you want to offer that fair market value if you want to offer them as an expert on fair market value that they're going to you're going to have to turn over what the person relied upon in order to come to that conclusion at some point if you want to you can be sheltered from that forever the if if st of all i agree with your honor and i'm glad your honor is the point that this is not the time when when deal i pipe or is functioning as an expert this is not even litigation over the propriety of the worthless stock to adduction this is just a summons proceeding that functions like a subpoena but if the deal white paper weren't valid gys to be an expert which is what judge allsup did at oral argument and then disclaimed it and in his ruling what we would have to turn over the facts and data on which they relied not the entirety of the attorney memos that that's what the rules currently say so we would not even if we were to view deal a paper as a testifying expert have to provide the government with the attorney in our case well let's just say that i arrest decides they're not going to give you this you're not going to be able to take this deduction then if you want to geisha and if they disallow you or your deduction then m i a correct that then you have to pay what you owe on your taxes to ever bring a lawsuit in court right your honor i apologize i'm not a tax lawyer ok i can tell you that if you've ever that i'm trying to figure out why does the i r s want to know what the lawyers think of your case is there some way that that you have to pay less if you had a good faith if let's let's just say your lawyer let's say i'm saying this hypothetically let's say the lawyer memos say this can be the argument that you make but i think you're going to lose on that and i think you're going to lose for x y and z and why would they want that information how with that that i should going forward that would not affect the issue of whether the worthless stock to duction was valid or not but it could affect penalties that they could impose upon constituted a waiver of attorney work product face they argued instead that by turning over the d l a piper report to the government that that constituted a work product waiver and now on appeal in distinction from what they argued below they are now arguing that by giving the report i'm sorry by giving the memos to deal with a paper there was a waiver but as we said and that's on page three of our reply brief they expressed we disavowed just about that if i could just wrap up by saying this it is virtually impossible to get core work product and the reason i started with judge also finding is although he ruled against us he found that this is core work product the government is trying to get the thoughts and analysis of sand menas council and there has to be an overwhelmingly good basis to do all that and that is correct but the waiver exists for a reason i mean even though it's virtually impossible it's not impossible that that's true but they have not shown where ever because we haven't disclosed the contents to an adversary in less deal a paper is considered a conduit to an adversary which as your honor met noted and as we noted the government's they didn't consult daylight for legal purposes because if they had consulted legal d l a for outside counsel i mean we know that the two to attorney declaration so let's assume that they are  in house counsel there could be reasons that legally you would want to consult outside counsel before you would take a five hundred or what is a five hundred and three million dollars stock deduction  so if in fact that had been the finding then we would have to look a little bit we would have to look a little bit differently but if we accept that as something we have to take the work product seems to be a different tast and so how if that work product i don't know why you can't do your own research i don't know why you would be entitled to know let's let's assume bed said that the attorney told them well here's a way that you can go and this is what i would say this is your best argument but i don't think i'm not advice you need to do that because i think if you're going to lose why would you be entitled to that question is what i mean that's pretty core  a paper in the report the they ordinarily would have valued this transaction at the book value but they didn't do that based on based on is the language in the report based on the  can't you just look at that report they submit it and say this isn't good enough we're not given it to you and this is what this is taxes that we're going to assess why do you need to know what the lawyer told them i think if i may and i ha decided to withdraw the report rather than turn over the documents that course but you just look at it and say and you get further in the litigation just say hey this isn't good enough well the plans of administrative proceeding is to put the i r s to make an informed decision about whether to proceed with litigation so why should why can't you do your own research on this i mean you guys are tax experts you know you see i know more about taxes then he kept on me wasn't a tax lawyer and i'm trying to ask this so there are plenty of things i don't know about taxes too but i can't i was of course could do it's own evaluation but it's entitled to ask the taxpayer can't take a deduction without a good faith belief that it's entitled to that action and so the i r s is entitle to ask about both what is the true value of that stock and also did you have a good faith believe that that was the value so but if they told him if they don't have a good faith belief because their attorney told them i don't think you're going to win why are you entitled to that attorney why isn't that work product with the court the district court judge also did find that it was work product he found that it was waived because of the reference in the report and because the memos were turned over to d l a piper and deal with paper we lied on them and so counsel is your argument that if you can look at the source documents that gives you a basis to determine whether or not there was a good faith reliance on those documents and taking the actions that your argument it would allow us to understand what the reasoning is of the d l a piper report and disregarding these facts when the i r s considers the value for the on its own it would like to know is this what is the stock worth any information that informs the his ability to analyze what that stock is worth is going to help the i r s to make the correct the best decision that can about that question well but it also gives you access to stuff that you would never have access to otherwise so i mean if the long if the law favors them why isn't that enough to if the law favors them you can do your research on the law and if they found a loophole that works for them albeit and sometimes they do and if you look if you do the research and find you're right there is a loophole that allows you to do that why does it matter what their state of mind was because the law allows it doesn't isn't that person a good faith if if they're allowed under the law why do you need to know what they thought if they're allowed to deduction they'll be able to get those duction but in a case like this where there's a valuation issue there's often a dispute about the amount of the deduction or the size of the value and to determine that so isn't this just a little early to say hey give me everything out to get me all your work product give me everything you've done again i agree that if san marino were to withdraw its reliance on this report then the i r s would not have much call to go forward saying that they want the memos that underlie the report but the i r s as the judge also said nobody could fairly evaluate this report without being able to see the memos that underlie it because the report only touches upon the reasoning so why not just then if you just get the facts don't you have all the facts you have all the facts that you could research the law the facts would have supported the book is it the facts what  supported the book valuation the facts are that the contract and the amounts of the contract that was in the that they entered between the entities in order to show  a debt that they now say was worthless the council just to bring us back to what we have to decide here to day we have to decide whether or not judge alsop was correct in determining that the work product privilege had been waived what is our standard of review from your perspective standard of review for work product for us to make the decision whether or not judge erred i believe you'd review that ultimate question he aired could you talk with us about the well the waiver of the work product you found that the memos were it was necessary to read the manuals in order to understand the report and because of that because sonny and i has relied on that report and given it to the i r s therefore if we have the privilege with respect to the  information given to the arias it would have to be through the d l a as a conduit that your argument yes through the d l a piper report do you agree that the test is that it has to be that it's different than the attorney two right right and he appeared to conflate the two and just cited a while so if and the th circuit hasn't exactly clearly set out but let's say we set out that it has to be to an adversary or it has  reach the same conclusion yes counsel the the government's lawyer said well san marino can always withdraw the report and its reliance on it if you don't want to disclose some of the documents that were the report was based on is that something that san mena could do at this point i know you are required to substantiate the worthless stock to duction i think judge callahan had the analysis right which was we're not at the stage right now where we're doing anything other than submitting tax returns which the i r s is analyzing investigating to determine what position they want to take on the reasonableness or the propriety of the worth of stock to duction and if that report is required to substantiate th deduction doesn't that strengthen the government's argument no your honor because the report is still it's still an argument that the disclosure of the report to d l a piper somehow constituted a conduit to an adversary the report was not i'm sorry the turning memos were never disclosed to any adversary and it's not possible to construe d l a piper as an adversary i believe that it's well i don't because judge also didn't distinguish between attorney client privilege an attorney work product it's not entirely clear to me that he did that but i think that he certainly believed essentially what your honor has just said i know that's not well articulated but i didn't understand it doesn't mean it's not well articulated but i didn't understand what you just sat i don't believe the judge also ever came out and said that no part of the content of the attorney memos were were disclosed to the i r s if they were disclose indirectly by d l a piper relying on them but i think that was the avenue of the analysis that's not a base that's not a basis for attorney work product waiver your honor and i do want to make i know what about time what about the issue of fairness thing that you say well it's not waived but we're still relying on it but you can't see it isn't part of the waiver analysis whether it be fundamentally unfair to continue to protect the document upon which the d l a piper relied legal no no i'm talking when i say the legal advice of sammy is counsel i'm talking about the legal advice of the attorney memos that it's fundamentally unfair for the i r s to have access to that and in fact even if d l a piper were viewed as a testifying expert which they're not the government still wouldn't be entitled to those the core work product in those memos because under the federal rules civil procedure they are only entitled to the facts and data and if i could just make one further point i know i'm way out of time as the record makes clear all of the underlying transactional documents were disclosed to the i r s to look at the deal a paper report doesn't sit on its own it sits on a stack of transactional documents that describe all of these transactions and the reasons for them and the attorney memos are simply mentioned in a footnote as part of the d l a piper analysis it just simply does not fit under any of the rubric of waiver of attorney work product because there is no disclosure direct or indirect to an adversary and of course daily versus garrett has been submitted on the breeze let's guess on calendar for argument it's guys this development partnership versus guys this power company