Opinion ID: 2979340
Heading Depth: 2
Heading Rank: 3

Heading: Disclosure and Admission of Documents

Text: New Phoenix’s final argument on appeal is that the tax court improperly required the disclosure of certain documents, later admitted into evidence,8 that it claims are subject to protection as attorney work product or under the attorney-client privilege.9 New Phoenix asserts that by requiring disclosure of those documents and by admitting them into evidence, the tax court committed reversible error because the tax court relied on these documents in disregarding its defenses to penalties. The tax court admitted the documents after concluding that they were encompassed in New Phoenix’s “subject-matter” waiver of any privileges applicable to material related to the Jenkins & Gilchrist tax opinion, by reason of New Phoenix’s assertion of the reasonable cause defense. We review de novo both the issue of whether a party has waived an evidentiary privilege and the scope of any valid waiver. See In re Grand Jury Proceedings Oct. 12, 1995, 78 F.3d 251, 253-54 (6th Cir. 1996). Both the attorney-client privilege and work-product protection are waived by voluntary disclosure of private communications to third parties. United States v. Dakota, 197 F.3d 821, 825 (6th Cir. 1999); In re Columbia/HCA Corp., 293 F.3d 289, 306 (6th Cir. 2002) (“[T]here is no compelling reason for differentiating waiver of work product from waiver of attorney-client privilege.”). 8 The tax court generally follows the rules of evidence applicable to non-jury civil proceedings in federal district court, meaning the Federal Rules of Evidence. Tax Ct. R. 143(a). 9 New Phoenix also contends that the exhibits were admitted without proper authentication. See Fed. R. Evid. 901. Although New Phoenix objected to the admission of the exhibits on the grounds of attorney-client privilege or work product protection, it did not object on the grounds of authentication. Therefore, it has waived any such objection, and we review it for plain error, see Fed. R. Evid. 103(a)(1), and conclude that any error did not affect New Phoenix’s substantial rights. See Fed. R. Evid. 103(d). 15 When the disclosure is made in a Federal proceeding or to a Federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a Federal or State proceeding only if: (1) the waiver is intentional; (2) the disclosed and undisclosed communications or information concern the same subject matter; and (3) they ought in fairness to be considered together. Fed. R. Evid. 502(a); see also United States v. Collis, 128 F.3d 313, 320 (6th Cir. 1997). New Phoenix first argues that “there is no evidence that Jenkens’ [sic] opinion [in support of the BLISS transaction] was ever privileged,” and therefore its disclosure did not waive any privileges protecting other documents. The attorney-client privilege attaches to confidential communications relating to any legal advice sought from a professional legal adviser in his capacity as such. See Reed v. Baxter, 134 F.3d 351, 355–56 (6th Cir. 1998) (citing Fausek v. White, 965 F.2d 126, 129 (6th Cir. 1992)). Despite New Phoenix’s contention, the tax opinion constitutes just this sort of confidential communication: it recites facts communicated by New Phoenix for that purpose of obtaining legal advice, and it contains a prominent heading on the first page indicating “CONFIDENTIAL” and “ATTORNEY-CLIENT PRIVILEGED.” New Phoenix’s argument that it always intended to disclose this document to its accountants and auditors does not change the document’s confidential and privileged nature, because it could make such a disclosure consistent with the privilege. See United States v. Deloitte LLP, 610 F.3d 129, 139-41 (D.C. Cir. 2010) (holding that there was no waiver if disclosed to auditor). Nor is this ruling inconsistent with the tax court’s decision that the tax opinion was not the product of a neutral advisor. The fact that the advice of the attorneys cannot be relied upon for the purpose of evading a penalty does not mean that there was not an attorney-client relationship between New Phoenix and Jenkens & Gilchrist. In other 16 words, the fact that an attorney has a conflict of interest does not mean that the client forfeits the benefit of the attorney-client privilege. Having determined that the tax opinion was subject to the attorney-client privilege, the next question is whether New Phoenix intentionally waived that privilege with respect to the opinion and any “disclosed and undisclosed communications or information concern[ing] the same subject matter” that “ought in fairness . . . be considered” with the tax opinion. Fed. R. Evid. 502(a). The tax court correctly held that New Phoenix had voluntarily waived its privilege by raising a reasonable cause defense premised on a claim of reasonable reliance on the Jenkens & Gilchrist tax opinion. By asserting this defense, New Phoenix has put the subject matter of the tax opinion at issue, making its disclosure appropriate: “[L]itigants cannot hide behind the privilege if they are relying upon privileged communications to make their case. ‘The attorney-client privilege cannot at once be used as a shield and a sword.’” In re Lott, 424 F.3d 446, 454 (6th Cir. 2005) (quoting United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991); see also Glenmede Trust Co. v. Thompson, 56 F.3d 476, 486 (3d Cir. 1995) (holding that the attorney-client privilege may be waived by a client who asserts reliance on the advice of counsel as an affirmative defense); In re G-I Holdings, Inc., 218 F.R.D. 428, 433 (D.N.J. 2003) (holding that debtors had already placed their consultations with counsel at issue through discovery responses and could not subsequently assert any privileges with respect to that subject). Therefore, New Phoenix’s assertion of the reasonable cause defense waives its claims of work-product protection and attorney-client privilege with respect to any material concerning the subject matter of the tax opinion. Nevertheless, New Phoenix asserts that this subject-matter waiver does not apply to all of the documents ordered to be disclosed and then admitted into evidence by the tax court. 17 Unquestionably, the majority of the challenged documents were related to the Jenkens & Gilchrist tax opinion in support of the BLISS transaction. As such, any privilege attached to them was waived by the reliance on that opinion to avoid the assessment of penalties. To the extent that some of the documents were unrelated to this subject matter, we need not resolve whether the tax court properly found the attorney-client privilege and work product protection waived because we conclude that their admission was clearly harmless. See Fed. R. Civ. P. 61; Fed. R. Evid. 103(a). Most importantly, all of the documents subject to the tax court’s disclosure order related to the subjective knowledge and motivations of New Phoenix’s agents during the execution of the BLISS transaction and the preparation and filing of New Phoenix’s 2001 tax return. These considerations were wholly irrelevant to the portions of the tax court’s decision that New Phoenix now challenges on appeal. The tax court’s finding that BLISS transaction was an economic sham was based solely on its conclusion that the transaction lacked economic substance. The holding that the reasonable cause exception did not negate the assessment of penalties against New Phoenix is supported by the tax court’s determination that Jenkens & Gilchrist’s conflict of interest rendered New Phoenix’s reliance on the tax opinion unreasonable. For these reasons, the tax court’s disclosure order and corresponding evidentiary decisions do not provide grounds to reverse its decision.