Court Opinion

ID: 769660
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:04:10+00
Date Added: 2024-06-11T09:52:29.329429
License: Public Domain

220 F.3d 568 (7th Cir. 2000)
IN THE MATTER OF GRAND JURY PROCEEDINGS,  Involving William Thullen and Kenneth Dvorak, Witnesses Before the Special January, 1999-2 Grand JuryAppeal of: Basaam OsmanandCross-Appeal of: United States of America.
Nos. 99-3131 & 99-3317
In the United States Court of Appeals For the Seventh Circuit
Argued February 17, 2000Decided July 18, 2000

Appeals from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 96 GJ 791--Marvin E. Aspen, Chief Judge.
Before HARLINGTON WOOD, JR., COFFEY and RIPPLE, Circuit  Judges.
RIPPLE, Circuit Judge.

1
A grand jury  investigating alleged tax fraud by Dr. Basaam  Osman subpoenaed numerous documents from  accountants hired by his attorneys. Dr. Osman  sought to block production of the documents. He  claimed that the accountants were agents of law  firms representing him in the grand jury  investigation and, thus, that the documents were  subject to the attorney-client privilege. The  district court, after reviewing the disputed  materials in camera, required the production of  some of the documents. The court allowed others  to be withheld on the ground that the attorney-  client privilege was a shield to their  production. Dr. Osman appeals the district  court's order determining that the attorney-  client privilege does not protect certain  documents in the possession of his accountants.  The United States cross-appeals, claiming that in  that same order, the district court erroneously  applied the privilege to other documents. For the  reasons set forth in the following opinion, we  vacate the judgment of the district court and remand this case to permit the district court to  make further findings as to whether the documents  in question are subject to the attorney-client  privilege.

I  BACKGROUND

2
Dr. Basaam Osman is currently under  investigation for tax fraud by a grand jury in  the Northern District of Illinois. The grand jury  is investigating fraud allegedly perpetrated by  Dr. Osman in connection with both his personal  and medical business tax filings between 1985 and  1997. We begin by setting forth, in summary  fashion, the history of this investigation.

3
In 1994, the Criminal Investigations Division of  the Internal Revenue Service ("IRS") initiated a  criminal investigation of Dr. Osman, focusing on  the years 1985 to 1993. Dr. Osman retained the  law firm of von Mandel & von Mandel to represent  him. The von Mandel law firm then hired an  accounting firm, Terrell, Weiss & Sugar Ltd., to  assist it in defending Dr. Osman. The initial  criminal investigation evolved into a civil  audit. In May 1995, Dr. Osman, with the  assistance of the von Mandel and Terrell firms,  provided the IRS with tax returns for the years  1985 to 1993. Von Mandel's professional  representation of Dr. Osman ended later that same  year.

4
In 1996, however, a grand jury investigation of  Dr. Osman began. The initial scope of this  investigation was to consider allegations that  Dr. Osman failed to file individual and corporate  tax returns after the IRS had concluded its  earlier audit. For this investigation, Dr. Osman  retained the law firm of Cotsirilos, Stephenson,  Tighe & Streicker. The Cotsirilos law firm then  hired another accounting firm, Czurylo, Thullen &  Rodgers, to assist in the representation of Dr.  Osman.

5
In November 1998, a grand jury subpoena sought  the production of all correspondence to or from  the two accounting firms that had been written in  the course of their work on Dr. Osman's matters.  The two accounting firms produced over 2000  documents, but each withheld certain documents  based on Dr. Osman's claim of attorney-client  privilege. The Terrell accounting firm withheld  51 pages of material; the Czurylo accounting firm  retained 78 pages.

6
In March 1999, Kenneth Dvorak and William  Thullen testified before the grand jury. Dvorak,  an accountant with the Terrell firm, testified  that he had prepared Dr. Osman's tax returns for  the years 1985 to 1993 and explained that his  accounting firm was hired by the von Mandel law  firm for the sole purpose of preparing tax  returns. Thullen, an accountant with the Czurylo  firm, testified that he was hired by an attorney  with the Cotsirilos firm for the sole purpose of  preparing tax returns.

7
The Government then filed a motion to compel  production of the withheld documents. In a  proceeding involving the accounting firms and the  Government, but not Dr. Osman, the district court  ordered the accountants to produce the documents.  Dr. Osman filed an emergency motion to intervene,  and tendered the documents themselves for in  camera review by the district court. In August,  the district court entered an order requiring the  production of specific pages of the withheld documents 37 Terrell pages in their entirety, 2  Terrell pages in redacted form, 50 Czurylo pages  in their entirety, and 2 Czurylo pages in  redacted form. The district court allowed Dr. Osman to retain the remaining pages of the  documents. In its order, the district court  explained that it relied on a document-by-  document in camera examination of the contested  materials to decide whether the attorney-client  privilege applied to particular pages. It did not  provide an explanation of why each particular  page was or was not privileged.

8
Dr. Osman, confronted with this district court  order, produced all of the documents ordered  disclosed except for 8 pages of the Terrell  documents. He now appeals, asking that he be  allowed to retain those 8 pages. The Government  cross-appeals, arguing that it is entitled to  view the 12 Terrell pages and 26 Czurylo pages  that the district court allowed Dr. Osman to  continue to withhold and that it should be  allowed to view the redacted pages in their  entirety.

II  DISCUSSION

9
Dr. Osman claims that the documents in the  possession of the accounting firms are protected  by the attorney-client privilege. There is no  accountant-client privilege. See United States v.  Arthur Young & Co., 465 U.S. 805, 817-19 (1984);  Couch v. United States, 409 U.S. 332, 335 (1973);  United States v. Frederick, 182 F.3d 496, 500  (7th Cir. 1999), cert. denied, 120 S. Ct. 1157  (2000). However, material transmitted to  accountants may fall under the attorney-client  privilege if the accountant is acting as an agent  of an attorney for the purpose of assisting with  the provision of legal advice. "'[W]hat is vital  to the privilege is that the communication be  made in confidence for the purpose of obtaining  legal advice from the lawyer. If what is sought  is not legal advice but only accounting service .  . . or if the advice sought is the accountant's  rather than the lawyer's, no privilege exists.'"  United States v. Brown, 478 F.2d 1038, 1040 (7th  Cir. 1973) (quoting United States v. Kovel, 296  F.2d 918, 922 (2d Cir. 1961)).1

10
Although the violation of the attorney-client  privilege is a serious matter, our case law has  recognized consistently that the privilege is in  derogation of the search for the truth and,  therefore, must be strictly confined. See United  States v. White, 970 F.2d 328, 334 (7th Cir.  1992) (citing cases). In applying this principle,  we have held that material transmitted to an  attorney or the attorney's agent for the purpose  of using that information on a tax return is not  privileged. The preparation of tax returns is an  accounting service, not the provision of legal  advice. See Frederick, 182 F.3d at 500-01; United  States v. Lawless, 709 F.2d 485, 487 (7th Cir.  1983). On the other hand, information transmitted  to an attorney or to the attorney's agent is  privileged if it was not intended for subsequent  appearance on a tax return and was given to the  attorney for the sole purpose of seeking legal  advice. See Frederick, 182 F.3d at 500-01.  Documents used in both preparing tax returns and  litigation are not privileged. See id. at 501.

11
Dr. Osman, as the party seeking to establish the  privilege, bears the burden of demonstrating that  all of the requirements for invoking the  attorney-client privilege have been met. See  United States v. Evans, 113 F.3d 1457, 1461 (7th  Cir. 1997); Lawless, 709 F.2d at 487. The inquiry  into whether documents are subject to a privilege  is a highly fact-specific one. "Only when the  district court has been exposed to the contested  documents and the specific facts which support a  finding of privilege under the attorney-client  relationship for each document can it make a  principled determination as to whether the  attorney-client privilege in fact applies."  Holifield v. United States, 909 F.2d 201, 204  (7th Cir. 1990). An assertion of privilege  therefore must be made on a document-by-document  basis. See White, 970 F.2d at 334; Lawless, 709  F.2d at 487.

12
The district court correctly recognized the  important role that in camera inspection of  disputed documents often plays in a determination  of the existence of the privilege. See United  States v. Zolin, 491 U.S. 554, 568-69 (1989)  (citing, inter alia, Lawless). Indeed, it  sometimes may be apparent from the face of a  document that it is not privileged because the  document contains information that necessarily  would have been submitted for the preparation of  a tax return. See Lawless, 709 F.2d at 488.  However, when the circumstances suggest that a  document might be privileged, it is important  that the district court consider the totality of  those circumstances in making its determination  as to whether the privilege must be recognized.  For instance, a document that appears privileged  may have lost that privilege through disclosure  or transmittal to a third party. See In re  Pebsworth, 705 F.2d 261, 262 (7th Cir. 1983); see  also United States v. Hamilton, 19 F.3d 350, 353  (7th Cir. 1994); Powers v. Chicago Transit Auth.,  890 F.2d 1355, 1359 (7th Cir. 1989). Similarly,  the purpose of a document may not be apparent on  its face, and it may be necessary to rely on the  testimony of those involved in the production and  handling of a document to determine the purpose  for which it was produced. See Motley v. Marathon  Oil Co., 71 F.3d 1547, 1550-51 (10th Cir. 1995);  United States v. Rockwell Int'l, 897 F.2d 1255,  1264-65 (3d Cir. 1990). In short, in camera  review, although important, often cannot  determine definitively whether a document was  transmitted in such a way as to destroy any  privilege or was created for an unprivileged  purpose.

13
In assessing the district court's order in this  case, we necessarily are bound by the record  before us. Accepting, as we must, that  limitation, we cannot determine how the district  court evaluated the testimony of the accountants.  The accountants testified that they were hired  solely to prepare tax returns, but their  assertion is disputed by Dr. Osman. The district  court's order does not discuss the accountants'  testimony or Dr. Osman's response to it. Nor do  we have specific findings concerning whether any  of the documents at issue were generated for the  purpose of preparing tax returns or transmitted  to a tax preparer for the purpose of preparing a  return. Finally, the record before us does not  address the possibility that a document created  for a privileged purpose might have been handled  in a manner that destroyed that privilege.

14
We therefore must remand this matter to the  district court to permit that court to enter more  extensive findings on whether, in light of the  purpose, use, or transmission of these documents,  any privilege exists.2 In making these  findings, the district court should consider the  "totality of the circumstances" surrounding each  document. See Diversified Indus., Inc. v.  Meredith, 572 F.2d 596, 610 n.3 (8th Cir. 1978)  (en banc) ("The totality of the circumstances  indicates that the communications were  privileged."). In the course of deciding whether  particular documents are privileged, the district  court should enter specific findings regarding  the purpose and history of each document in order  to allow for meaningful appellate review.3

Conclusion

15
For the foregoing reasons, the judgment of the  district court is vacated, and the case is  remanded for further proceedings consistent with  this opinion.

VACATED AND REMANDED

Notes:

1
 Accord Linde Thomson Langworthy Kohn & Van Dyke,  P.C. v. Resolution Trust Corp., 5 F.3d 1508,  1514-15 (D.C. Cir. 1993); United States v.  Bornstein, 977 F.2d 112, 117 (4th Cir. 1992);  United States v. Davis, 636 F.2d 1028, 1043 (5th  Cir. Unit A 1981); United States v. Cote, 456  F.2d 142, 144 (8th Cir. 1972).

2
 Other courts of appeals have taken the same  course in similar circumstances. See Bornstein,  977 F.2d at 116-17 (remanding for a determination  of whether papers were produced to assist  individual in his capacity as a lawyer or in his  capacity as an accountant/tax preparer); Rockwell  Int'l, 897 F.2d at 1264-65 (requiring the  district court, on remand, to determine whether  material was legal advice).

3
 The district court may determine, in its  discretion, to consider additional testimony on  this subject.