Opinion ID: 409318
Heading Depth: 2
Heading Rank: 2

Heading: Is There an Accountant-Client Privilege As a Matter of Federal Common Law?

Text: 27 Federal Rule of Evidence 501 does not purport to enumerate a finite list of evidentiary privileges that are to be recognized in federal courts. Instead, the rule provides that in federal law proceedings, the privilege of a witness ... shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. Fed.R.Evid. 501. Rule 501 clearly provides federal courts with the statutory power to recognize new or novel evidentiary privileges. 16 However, there has been a notable hostility on the part of the (federal) judiciary to ... new privileges. In re Dinnan, 661 F.2d 426, 430 (5th Cir. 1981). This is because privileges contravene the fundamental principle that the public ... has a right to every man's evidence. Trammel v. United States, 445 U.S. 40, 100 S.Ct. 906, 912, 63 L.Ed.2d 186 (1980). (E)xceptions to the demand for every man's evidence are not lightly created nor expansively construed, for they are in derogation of the search for truth. United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 3108, 41 L.Ed.2d 1039 (1974). Therefore, the rule in this Circuit is that a new privilege should only be recognized where there is a compelling justification. In re Dinnan, 661 F.2d 426, 430 (5th Cir. 1981). 17 28 The Supreme Court has expressly disapproved of the so-called accountant-client privilege, stating that no confidential accountant-client privilege exists under federal law, and no state-created privilege has been recognized in federal cases. Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 619, 34 L.Ed.2d 548 (1973). Since Couch, the notion that the federal courts should recognize a general accountant-client privilege has been consistently rejected. See, e.g., United States v. El Paso, 682 F.2d 530, 540 (5th Cir. 1982) reh'g en banc denied, 688 F.2d 840; Thompson v. General Nutrition Corp., 671 F.2d 100, 103-104 (3d Cir. 1982); United States v. Davis, 636 F.2d 1028, 1043 (5th Cir. 1981). We find no compelling justification for a departure from these precedents. Accordingly, we conclude that there is no accountant-client privilege as a matter of federal common law. 29 C. Should a Federal Court Apply a Forum State's Rules of Evidentiary Privilege as a Matter of Comity? 30 Because this bankruptcy court action did not yet involve claims or defenses as to which state law supplied the rule of decision, the Bankruptcy Court was not required to apply Georgia's accountant-client privilege. Fed.R.Evid. 501. We have also found that there is no federal common law accountant-client privilege, Couch v. United States, supra. However, International Horizons has made one final argument that should be addressed: the appellant contends that the Bankruptcy Court should have applied Georgia's accountant-client privilege as a matter of comity. Thus, we are asked whether the fact that the courts of (Georgia) would recognize the privilege itself creates good reason for respecting the privilege in federal court, regardless of our independent judgment of its intrinsic desirability. ACLU v. Finch, 638 F.2d 1336, 1343 (5th Cir. 1981). 31 There is indeed authority for the proposition that federal courts should recognize state evidentiary privileges where this can be done at no substantial cost to federal policies. See Lora v. Board of Education, 74 F.R.D. 565, 576 (E.D.N.Y.1977); United States v. King, 73 F.R.D. 103, 105 (S.D.N.Y.1975). Accord, ACLU v. Finch, 638 F.2d 1336, 1342-45 (5th Cir. 1981). 32 We recognize that Georgia's legislature has decided that the accountant-client relationship needs the protection of an evidentiary privilege and that federal refusal to acknowledge this privilege might tend to undermine Georgia's policy of encouraging accountant-client candor. 18 However, recognition of the accountant-client privilege in bankruptcy proceedings would substantially thwart an important federal interest. A creditors committee is empowered by federal law to investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of such business. 11 U.S.C. § 1103(c)2. Application of an accountant-client privilege in federal bankruptcy proceedings would deny courts and creditors access to a vital source of information relating to a debtor's assets and liabilities. Thus, recognition of an accountant-client privilege in federal bankruptcy proceedings would completely undermine the important federal interest in providing bankruptcy courts and creditors with complete and accurate information regarding a debtor's financial condition. 33 It is true that Georgia may find it difficult to foster candor and confidential communications among its accountants and clients if other courts refuse to follow the State's rules of evidentiary privilege. However, Georgia would face this problem even if we were to extend the accountant-client privilege to federal bankruptcy proceedings, for Georgia's rules of evidentiary privilege might not be followed in the courts of neighboring states and will not be followed in federal criminal proceedings. See Fed.R.Evid. 501. 34 Thus, refusal to adopt Georgia's accountant-client privilege in federal bankruptcy proceedings would not, in and of itself undermine the State's policy of encouraging accountant-client candor. However, recognition of the privilege would significantly undermine the important federal interest in assuring complete and accurate disclosure in federal bankruptcy proceedings. Therefore, we must conclude that considerations of comity do not require us to embrace Georgia's accountant-client privilege. ACLU v. Finch, 638 F.2d 1336, 1342 (5th Cir. 1981) (comity does not require federal courts to follow Mississippi rules of evidentiary privilege). 19