Opinion ID: 614361
Heading Depth: 1
Heading Rank: 1

Heading: Throckmorton

Text: Taxpayers also argue that the judgment should be vacated because William Saunders, Taxpayers' business partner and at times their attorney, served as an informant against them for the government. This, they argue, violates United States v. Throckmorton , in which the Supreme Court held that a suit could be resurrected in a case where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client's interest to the other side. 98 U.S. at 66. In such a case there has never been a real contest in the trial or hearing of the case. Id. We have reaffirmed this principle, stating that in such a case a party is fraudulently prevented from presenting his claim or defense. Kimes v. Stone, 84 F.3d 1121, 1127 n. 3 (9th Cir. 1996) (internal quotation marks omitted). Taxpayers rely on a series of memoranda they uncovered through FOIA. In a 1960 memorandum from IRS Agent James Griffin to the IRS Audit Division, Griffin noted that Saunders reported in confidence that Stonehill had forwarded a check from a Swiss bank account to Honolulu. Griffin also provided instructions to prevent Saunders from being compromised. In another memorandum, written shortly thereafter, Louis Blissard, the U.S. Attorney in Hawaii, wrote to Lukban with information from William Saunders, an attorney who is in some business ventures with Stonehill. In July 19, 1967, Fred Ugast, Chief of the General Litigation Section of the DOJ Tax Division, wrote to Lester Uretz, IRS Chief Counsel, that [i]t is anticipated that one of the key witnesses in [the Stonehill] case will be an attorney in Honolulu, Hawaii, named William W. Saunders. Ugast's memorandum then discusses a tape recording of an interview of Saunders made by Special Agent Davis. It is unclear what subjects Saunders discussed in this interview, and whether Stonehill and the rest of his litigation team were aware of Saunders's proposed testimony. Taxpayers also note that, based on the information Taxpayers obtained through FOIA, Stonehill sued Saunders in Hawaii state court for breach of the fiduciary duty of confidentiality and breach of the duty of undivided loyalty. Although the jury found that Saunders had breached these duties, it awarded no damages because it found no legal causation. Although it is clear that Saunders did cooperate with the government, we reject Taxpayers' Throckmorton claim. It is unclear the extent to which there was an overlap between the time in which Saunders was actively informing on Stonehill and Brooks and the time in which he served as their attorney. During some of the litigation of this case Saunders was on Taxpayers' team of attorneys. He was on the team for the tax lien foreclosures in Hawaii, and he was the attorney of record in Taxpayers' answer to the complaint in the original tax case. However, the memorandum describing Saunders's in confidence communication with the IRS, by far Taxpayers' best evidence of Saunders's cooperation with the government, was sent in 1960. Although in his complaint against Saunders in Hawaii state court Stonehill claimed that he entered into an attorney-client relationship with Saunders in 1959, it seems more likely that at that time Saunders was just a business associate and was not serving as Taxpayers' attorney. A government memorandum from October 15, 1962, suggests that Saunders obtained power of attorney for Stonehill for the first time in June, 1962. The memorandum states, To our knowledge this association was not an attorney-client relationship [during the business ventures]; therefore, Saunders can be considered a third party with regard thereto. At best, the record is unclear concerning whether Saunders and Stonehill were in an attorney-client relationship when Saunders informed on Stonehill. That is, to the extent Saunders did inform on Taxpayers, there is insufficient evidence to show that anything Saunders did prevented Taxpayers from receiving a real contest in the trial or hearing of the case. Throckmorton, 98 U.S. at 66. We therefore reject Taxpayers' Throckmorton claim.