2010 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 7-1-2010 

# U SA v . S t eve n T re nk P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 09-2486

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2010

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

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w Di git al Reposit ory

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w . vi ll anova . e du . Re c omme nde d C it at ion " U SA v . S t eve n T r e nk " (2010). 2010 D e cisio n s . P ape r 1050. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2010/1050NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N o. 09- 2486 UNI TE D ST ATE S OF AM ERI CA

v. S T E V E N T R E N K , P re s id e n t, G o ld C ro w n In s u ra n c e L td ., S u c c e s s o r i n In te re s t to T e c h tr o n In c . & S u b s ., S u c c e s s o r i n In te re s t T o T e c h tr o n H o ld in g s , In c . & S u b s ,

A ppel l ant APP EAL F ROM THE UNI TE D ST ATE S DI S TRI CT C OURT

FOR TH E DI STRI CT O F NEW J ERSEY ( D . C . C i vi l N o. 06- cv- 01004) D i s t r i ctJ udge: H onor abl e M aryL . C ooper Subm i t t ed U nderT hi r d C i r cui tL A R 34. 1( a)

J une 30, 2010 B efor e: SL O V I T E R , B A R R Y and H A R D I M A N , C i r cui tJ udges

( O pi ni on Fi l ed: J ul y01, 2010)

OP I NI ON

B A R R Y , C i r cui tJ udge A ti s s ue on thi s appea l i s w hetherthe D i s t r i ctC our terr ed i n gr ant i ng the I nt ernal-2-

R evenue Ser vi ce’ s ( t he “I R S”) pet i t i on t o enfor ce a s um m ons forthe pr oduct i on of c e rt a in d o c u m e n ts p u rs u a n t to th e c ri m e -f ra u d e x c e p tio n to th e a tto rn e y -c lie n t p ri v ile g e . W e w i l l r emand t he mat t ert o t he D i s t r i ctC our tw i t h i ns t ruct i ons t o pr ovi de appe l l ant St even Tr enk w i t h an oppor tuni t yt o ar gue aga i ns tthe appl i cat i on of the cr i m e- fr aud exce pt i on. BA CKGROUND On Au g u s t2 6 , 2 0 0 5 , t h e I RS i s s u e d a s u mm o n s t o T r e n k , p r e s i d e n to f Go l d Cr o wn In su ra n c e , L td ., th e c o rp o ra te s u c c e ss o r to T e c h T ro n H o ld in g s, In c . (“T e c h T ro n ” ), in fur t her ance of i t s exami nat i on t o det erm i ne TechTron’ s fede r al i ncome t ax l i abi l i t yfor t he t axabl e y earendi ng D ece m ber31, 2000. T he I R S al l eged thatT echTr on r ece i ved $5. 2 m i l l i on i n l i t i gat i on s et t l ementpr ocee ds , w hi ch i ttr ans ferr ed t o a w hol l y - ow ned s ubs i di aryi n excha nge fora demand not e for$5. 2 m i l l i on fr om the s ubs i di ary . T echTr on th e n tra n sf

e rre d th e d e m a n d n o te to a n a tto rn e y ’s tru st a c c o u n t, an d o n its c o rp o ra te in c o m e tax re tu rn “ re p o rte d th e $ 5 .2 m ill io n a n d d e d u c ted $ 5 .2 m ill io n , ef f e c tiv e ly e lim in a tin g ” th a t am o u n t f ro m tax a b le in c o m e . (A p p . at 5 9 .) T h e IR S c laim s th a t th is w as an “a bus i ve t ax avoi dance s cheme” thatenabl ed TechTron t o avoi d pay i ng t axes on th e s e ttle m e n t p ro c e e d s w h ile s till m a in ta in in g c o n tr o l o v e r t h o s e f u n d s . (I d. at78. ) T he s um m ons i ns t ruct ed Tre nk t o appea rfora hea r i ng t o gi ve t es t i m onyand t o pr oduce var i ous document s and dat a. O n M arc h 3 , 2 0 0 6 , the g o v ern m en t fi led a p eti ti o n to en fo rce the s u m m o n s. InW e u se th e sa m e id e n tific a tio n lette rs u se d b e f o re th e D istric t C o u rt. 1 -3- re sp o n se , T re n k m a in tain e d th a t h e w a s n o t in p o ss e ss io n o f a n yd o c u m e n ts re sp o n siv e to t he s um m ons “w i t h t he exc ept i on of the [f our ] document s w hi ch ar e bei ng w i t hhel d as pr i vi l eged. ” (I

d. a t 1 2 0 .) H e p ro p o se d th a t “th e C o u rt re v iew th e [ f o u r] d o c u m e n ts [b eing w ith h eld] i n ca m era t o det erm i ne w hethertheys houl d be di s cl os ed t o t he G overnm ent . ” ( D . N . J . D ocket , 06- cv- 01004, D oc. N o. 9 at25. ) O n N ovember20, 2006, th e D istric t C o u rt e n f

o rc e d th e su m m o n s. W ith re sp e c t to th e f o u r d o c u m e n ts w ith h e ld underT r enk’ s “bl anketas s er t i on” of pr i vi l ege, A pp. at132, i tor der ed thatT r enk “s etup a n in c a m e ra re v iew o f

th e a f o re m e n tio n e d f

o u r d o c u m e n ts” so th a t h e w o u ld b e a b le to expl ai n ex p a rte w h yth e d o c u m e n ts s h o u ld n o t b e p ro d u c e d , i d. at 13 2 , 1 4 7 . T h e C o u rt added thati f he f

ai l ed t o arr ange the r evi ew , “the oppor tuni t yt o do s o w i l l be dee m ed w ai ved, and . . . t he C our t , on pet i t i oner ’ s appl i cat i on, w i l l di r ectthatthe af or ement i oned document s be pr oduced i m m edi at el y . ” (I d. a t 1 4 7 .) B ylette r d a ted D e c e m b e r 7 , 2 0 0 6 , T re n k ’s a tto rn e ysu b m itt e d th e f o u r d o c u m e n ts (D o cu m en ts A -D ) fo r i n ca m era i ns pect i on and r efe r r ed the D i s t r i ctC our tt o a 1 p re v io u slysu b m itt e d m e m o ra n d u m se tti n g o u t T re n k ’s a rg u m e n ts w h yth e d o c u m e n ts s houl d notbe di s cl os ed. O n J anuary22, 2007, the C our tgr ant ed Tre nk’ s part i al m ot i on forr econs i der at i on, t her ebyr ever s i ng i t s pr evi ous or derenfor ci ng the s um m ons , butt he ef fe ct of that ruli n g o n the C o u rt ’s ea rl ier i n stru cti o n s to T ren k to arran g e f o r i n ca m era re v ie w o f

th e f o u r d o c u m e n ts w a s u n c le a r.A l t h o u g h i tw a s t h e D i s t r i c tC o u r t ’ s i n t e n t i o n t o “ a d d r e s s a l l r e l e v a n t. . . a t t o r n e y- 2 cl i entpr i vi l ege i s s ues ” att he hea r i ng, thatt opi c w as notexpl or ed i n det ai l and the cr i m ef ra u d e x c e p tio n w a s n o t d is c u s s e d . (A p p . a t 2 7 , 2 7 2 , 5 0 2 -0 5 .) -4- T ren k n ev er a rran g ed fo r ex p a rte rev iew , an d h e m aintains that the D istri ct C o u rt n ev er e x p ec ted th at he d o so in li g h t of it s ac ti o n o n the m o ti o n fo r reco n side rati o n . In M ar ch and A pr i l 2007, t he C our ts chedul ed an e vi dent i aryhear i ng t o addr es s w hether T r enk w as i n pos s es s i on of r el evantdocument s . A ft erthe fi r s tdayof the hea r i ng, 2 T r enk’ s at t or neyi dent i fi ed s even other“pr i vi l eged doc um ent s w hi ch mayar guabl ybe w i t hi n t he s cope of

t he s um m ons , ” A pp. at554, and as ked, byl ett erdat ed A pr i l 20, that the C o u rtrev iew thes e d o cu m en ts ( D o cs. E -K ) “ i n cam er a al ong w i t h t he or i gi nal four document s , ” i d. at555. O n February26, 2009, the C our tfound thatthe cr i m e- fr aud e x c e p tio n a p p lie d to D o c u m e n ts A th ro u g h K a n d o rd e re d T re n k to p ro d u c e th e m . DI S CU S S I ON T r enk t i m el yappea l ed the D i s t r i ctC our t ’ s or derw i t h r es pectt o t he pr oduct i on of D ocument s D t hr ough K . H e ar gues thathe w as deni ed the oppor tuni t yt o r efut e the appl i cat i on of the cr i m e- fr aud exc ept i on, and that , i n anyevent , the exc ept i on s houl d not b e a p p li ed to D o cu m en ts G , H , I an d J, w h ich w ere p rep are d af ter th e re leva n t t ax return w a s f ile d . A . Juri s di ct i on and St andard of R evi ew T he D i s t r i ctC our thad j ur i s di ct i on pur s uantt o 26 U . S. C . § 7604, and our j ur i s di ct i on on appea l i s bas ed on 28 U . S. C . § 1291. O urr evi ew of the l egal i s s ues-5-

as s oci at ed w i t h t he appl i cat i on of the cr i m e- fr aud exc ept i on i s pl enary , and “[ o] nce the c o u r td e t e r m i n e s t h e r e i s s u f f i c i e n te v i d e n c e o f

a c r i m e o rf

r a u d t o w a i v e th e a t t o r n e ycl i entpr i vi l ege, w e r evi ew i t s j udgm entforabus e of di s cr et i on. ” I n r e I m pounded , 241 F .3 d 3 0 8 , 3 1 2 , 3 1 8 (3 d C ir . 2 0 0 1 ).

B . T he C ri m e- F raud E x cept i on t o t he A t t orney-C l i ent P ri vi l ege T he att or ney - cl i entpr i vi l ege pr ot ect s confi dence s s o as t o “enc our age f ul l and fr ank comm uni cat i on betw een a t t or ney s and thei rcl i ent s and ther ebypr om ot e . . . the obs ervance of l aw and admi ni s t r at i on of j us t i ce. ” U n itedS ta tes v . Zo lin , 491 U . S. 554, 562 ( 1989) ( quot i ng U

pj ohn C o. v. U

ni t ed Stat es , 449 U . S. 383, 389 ( 1981) ) . W her e the cl i entabus es t he pr i vi l ege byus i ng the att orney ’ s couns el t o fac i l i t at e a f utur e or cont i nui ng cr i m e orfr aud, how ever , “the pr i vi l ege c an be ove r r i dden. ” In re G randJury I nves t igat i on , N o . 0 6 -1 4 7 4 , 4 4 5 F .3 d 2 6 6 , 2 7 4 (3 d C ir. 2 0 0 6 ). T h e p a rtyse e k in g to a p p ly t he cr i m e- fr aud exc ept i on m us t“make a pr i m a fa ci e s how i ng that( 1) the cl i entw as comm i t t i ng ori nt endi ng t o comm i ta fr aud orcr i m e, and ( 2) the att orney - cl i ent comm uni cat i ons w er e i n fur t her ance of thatal l eged c r i m e orfr aud. ” In re G randJury Subpoena , 2 2 3 F .3 d 2 1 3 , 2 1 7 (3 d C ir . 2 0 0 0 ) ( in te rn a l c ita tio n s o m itte d ). I n Zo lin , t he Supr eme C our thel d t hatdi s t r i ctcour t s coul d “conduc tan i n ca m era revi ew of all eged l ypri vil eged com m un i cat i on s t o d et erm i ne w hethertho se comm uni cat i ons fal l w i t hi n t he cr i m e- fr aud exc ept i on. ” 491 U . S. at565. I texpl ai ned th a t b e f o re d o in g so , “th e ju d g e sh o u ld re q u ire a sh o w in g o f a f a c tu a l b a sis a d e q u a te to-6-

su p p o rt a g o o d f

a ith b e lief

. . . tha t i n ca m era r evi ew of the mat er i al s m ayr evea l evi dence t o es t abl i s h . . . t hatt he cr i m e- fr aud exc ept i on appl i es . ” I d. at572 ( i nt ernal quot at i ons and ci t at i on om i t t ed) . T hi s i s notan i s s ue w her e – as i n T r enk’ s cas e – the part yi nvoki ng the p ri v il eg e f

ree lysu b m it s the d o cu m en ts fo r i n cam er a re v ie w . W e have s ubs equent l yexpl ai ned, how ever , thatw hethert o a p p ly the cr i m e- fr aud exce pt i on i s a s epar at e, m or e demandi ng under t aki ng: “I f the part ys eeki ng t o appl yt he exce pt i on has m ade i t s i ni t i al s how i ng, then a mor e form al pr ocedur e i s r equi r ed than that ent i t l i ng pl ai nt i ff t o i n ca m era r evi ew . ” H ai nes v. Ligget tG r oup I nc. , 975 F. 2d 81, 96- 97 (3 d C ir. 1 9 9 2 ). In ter m s o f p ro c e ss , this m e a n s th a t “w h e re a f a c t f in d e r u n d e rta k e s to w ei gh evi dence i n a pr ocee di ng s eeki ng an exc ept i on t o t he pr i vi l ege, the part yi nvoki ng t he pr i vi l ege ha s t he abs ol ut e r i ghtt o be hea r d byt es t i m onyand ar gum ent . ” I d. a t 9 7 . C . The Lackof

H e ar i ng T r enk ar gues t hatt he D i s t r i ctC our terr ed bynotpr ovi di ng hi m w i t h an oppor tuni t yt o addr es s t he cr i m e- fr aud exc ept i on, w hi ch the C our tappl i ed, w i t hout n o ti ce , in it s F eb rua ry2 6 , 2 0 0 9 o rde r. W e a g ree that alth o u g h the d o cu m en ts w ere p rop erlyb ef

o re the C o u rtfo r i n ca m era i ns pect i on, the C our ts houl d nothave a ppl i ed an exce pt i on t hat“br eak[ s ] t he s eal of a hi ghl ypr ot ect ed pr i vi l ege” w i t houtfi r s tnot i fy i ng T re n k a n d p ro v id in g h im w ith a n o p p o rt u n ity f o r a rg u m e n t. See i d. at96. A tfi r s tbl us h, i ti s t empt i ng t o concl ude thatT r enk had hi s chanc e forar gum ent butw ai ved i t . I n i t s N ovember20, 2006 or der , the D i s t r i ctC our tpr ovi ded Tre nk the-7-

oppor tuni t yt o ar gue ex p a rte atan i n ca m era hear i ng w hythe document s s houl d be p rotec ted f

rom d iscl o su re. I t exp lai n ed that if T ren k d id n o t arrang e f o r i n ca m era r evi ew , t he cha nce t o do s o w oul d be w ai ved and he w oul d be or der ed t o pr oduce the d o c u me n t s . T r e n k s u b mi t t e d Do c u me n t s A th r o u g h D b yl e t t e rf o rth e Co u r tt o r e v i e w, and nothi ng m or e. H e l at ers enta s econd l ett er , expl ai ni ng thathe found a ddi t i onal r e s p o n s i v e d o c u me n t s , Do c u me n t s E th r o u g h K, wh i c h h e a s k e d th a tth e Co u r tr e v i e w “ in cam er a alon g w ith the o ri g inal fo u r do cu m en ts. ” (A p p . at 55 5 . ) I ti s nots uffi ci ent l ycl earfr om the r ecor d befor e us , how ever , thatT r enk had the o p p o rtu n ityto a p p e a r b e f o re th e D istric t C o u rt ex p a rte to arg u e f o r his p o sit ion . In g ra n tin g T re n k ’s p a rtial m o tio n f o r re c o n sid e ra tio n o n Ja n u a ry2 2 , 2 0 0 7 , the C o u rt – r eas onabl ys o – appea r s t o have a bandoned i t s i ni t i al pl an t o us e i n cam er a re v iew to deci de w hethert he document s s houl d be pr oduced a nd, i ns t ead, el ect ed t o defe rrul i ng on t he i s s ue unt i l aft eran evi dent i aryhear i ng. B utthe s ubs equenthear i ng thatt ook pl ace w as pri m ari l yfor “t he li m i t ed p urpose o f al l ow i ng the C ou rtt o . . . m ake an exp res s det erm i nat i on on w hetherT r enk w as i n pos s es s i on orcontr ol of the r eques t ed document s . ” (Id . at27. ) T he C our tthen, i n i t s February26, 2009 or der , appl i ed the cr i m e- fr aud exc ept i on w i t houthavi ng hear d fr om T r enk on the s ubj ect . I n doi ng s o, “the p artyinv o k ing the [ att o rne y -cli en t] p ri v il eg e,” w as d en ied h is “ab so lute ri g h t t o b e h ea rd byt es t i m onyand ar gum ent . ” See H ai nes , 9 7 5 F .2 d a t 9 7 . A lth o u g h it w a s a ss u re d ly uni nt ended, t hi s out come i s t r oubl i ng w hen dea l i ng, as w e ar e, w i t h an “a nci entand-8-

v a lu a b le p ri v ile g e .” U

ni t ed Stat es v. D oe , 4 2 9 F . 3 d 4 5 0 , 4 5 3 (3d C ir . 2 0 0 5 ). On e f u r t h e rp o i n ti s wo r t h me n t i o n i n g . I ti s a b u n d a n t l yc l e a rth a tb e t we e n th e t i me w h en the D istri ct C o u rtfirstinstructed T ren k to arran g e f o r i n ca m era re v iew in its N ovember20, 2006 or derand w hen i tpart i al l yvaca t ed thator deron J anuary22, 2007, T r enk expe ct ed that– even i f i tw er e gr ant ed – hi s m ot i on forr econs i der at i on w oul d have no i m pacton t he C our t ’ s N ovember20 i ns truct i ons . H i s D ece m ber7, 2006 l et t eras ki ng t he C our tt o r evi ew D ocument s A t hr ough D s t at es that“[t ] he out come of t he [r econs i der at i on] m ot i on w i l l have no e ffe cton w hetherthe al l egedl ypr i vi l eged document s s houl d be pr oduced. ” ( A pp. at536. ) R atherthan arr ange t o be pr es entforan i n ca m era r evi ew , he qui t e l i t er al l y“mai l ed i ti n. ” I ti s uncl ear , how ever , w hetherthe C o u rt w a s u n d e r th e sa m e im p re ss io n a b o u t th e im p a c t o f h is m o tio n , ex p lain in g a t a hear i ng on M ar ch 27, 2007 t hat“the mot i on forr econs i der at i on over s hadow ed” the pr i vi l ege di s put e and s o i t“di dn’ tm ake the [ i n ca m era ] r evi ew . ” (I d. at272. ) T hus , on t h i s r e c o r d , w e c a n n o ts a y t h a tT r e n k w a s g i v e n th e o p p o r tu n i t y r e q u i r e d b y H aines to ar gue aga i ns tt he appl i cat i on of the cr i m e- fr aud exc ept i on. A l t hough the pr act i ce of m ak ing d o cu m en ts av ail ab le fo r i n ca m era i ns pect i on “i s w el l es t abl i s hed i n t he fe der al cour t s , ” Zo lin , 491 U . S. at569, i tdoes notdepr i ve the part yi nvoki ng the pr i vi l ege of t he o p p o rt u n ity to c o n te s t th e a p p lic a tio n o f th e c ri m e -f

ra u d e x c e p tio n , H

ai nes , 975 F. 3d atT h e g o v ern m en t cl aim s tha t T ren k fa il ed to sh o w that the d o cu m en ts atissue are 3 pr i vi l eged. T he D i s t r i ctC our ti ni t i al l yrul ed on the cr i m e- fr aud exc ept i on w i t hout d e v e lo p in g th is is s u e , a n d s o w e a re u n a b le to c o n s id e r i t o n a p p e a l. -9- 9 6 -9 7 ; s ee I

n r e G r and Jur

y Subpoena , 223 F. 3d at218. 3 D . The D oc um e nt s Pre par e d A f t e r Fi l i ng T renk argues t hat the cri m e-fr aud excep t i on shou l d n ot appl yt o those do cum ents – G , H , I , and J – t hatw er e pr epar ed af t erthe r el evantt ax r eturn w as fi l ed, beca us e t ax v iolati o n s are co m p let ed w h en the c o n test ed tax re turn is fil ed . T h e D istri ct C o u rt re jec ted th is a rg u m e n t, fin d in g in ste a d th a t th e a lleg e d f ra u d w a s in se e k in g to a v o id t axat i on of the s et t l ementnotj us tdur i ng the 2000 t ax y ear , butal s o “i n eac h s ubs equent y ear . ” ( A pp. at30. ) I n i t s vi ew , “the fr aud al l eged . . . i s ongoi ng s o l ong as [TechTron] avoi ds pay i ng t axes on t he i ncome. ” (I d. ) W e agr ee; i ndeed, ther e i s l i t t l e val ue i n fi l i ng a fraudu l ent t ax return i f t he im propri et yw i l l be d i scl osed sho rt l ythereaft er. W e al so agr ee thatt he ca s es T r enk ci t es – U n itedS ta tes v . H

a b ig , 390 U . S. 222 ( 1968) and Sans one v. U

ni t ed Stat es , 380 U . S. 343 ( 1965) – ar e di s t i ngui s habl e. I n t hos e ca s es , t he asse rt ed w ron g d o ing w as f il ing the f

rau d u lent tax re turn s; ho w ev er, i t i s T ec h T ron ’s a l l e g e d l y on- goi ngeff

or t s t o el i m i nat e the l i t i gat i on s ett l ementfr om t axabl e i ncome t hat ar e ati s s ue her e. T o t he ext entt hatthe C our t , on r emand, det erm i nes thatthe cr i m e- fr aud exce pt i on appl i es , D ocument s G , H , I , and J w oul d notbe pr ot ect ed bas ed on the dat e of t hei rpr epar at i on.-10- CO NC L US I ON Fort he r eas ons above, w e w i l l r emand t hi s m at t ert o t he D i s t r i ctC our ts o t hat T r enk mayhave a n oppor tuni t yt o pr es entar gum ent s agai ns tthe appl i cat i on of the cr i m ef r a u d e x c e p t i o n t o Do c u me n t s D th r o u g h K.