From Casetext: Smarter Legal Research

U.S. v. Ackert

United States Court of Appeals, Second Circuit
Feb 26, 1999
169 F.3d 136 (2d Cir. 1999)

Summary

holding that the privilege was destroyed because the third party agent was not acting "as a translator or interpreter of client communications"

Summary of this case from Ravenell v. Avis Budget Grp., Inc.

Opinion

Nos. 97-6293(L), 97-6333

Argued: June 18, 1998

Decided: February 26, 1999

The United States of America appeals from a ruling of the district court (William I. Garfinkel, Magistrate Judge) that Paramount Corporation's attorney-client privilege shields conversations between Paramount's tax counsel and an investment banker who proposed a transaction to Paramount, where Internal Revenue Service sought the testimony of the investment banker. Paramount cross-appeals from the court's order enforcing the summons.

Affirmed in part, reversed in part, and remanded.

KENNETH W. ROSENBERG, Washington, D.C. (Loretta C. Argrett, Assistant Attorney General, Washington, D.C.; Charles E. Brookhart, Department of Justice; John H. Durham, United States Attorney for the District of Connecticut, Of Counsel), for Petitioner-Appellant-Cross-Appellee.

MARIA T. VULLO, New York, N Y (H. Christopher Boehning and Lavatus V. Powell, III, Paul, Weiss, Rifkind, Wharton Garrison, New York, NY, Of Counsel), for Intervenors-Appellees-Cross-Appellants.

David H. Braff and Michael W. Martin, Sullivan Cromwell, New York, N Y (On the Brief), for Respondent-Appellee.

Before: JACOBS and LEVAL, Circuit Judges, and MURTHA, Chief District Judge.

The Honorable J. Garvan Murtha, Chief District Judge of the United States District Court for the District of Vermont, sitting by designation.


The United States of America appeals from a decision of the district court (William I. Garfinkel, Magistrate Judge) in a tax summons enforcement proceeding, barring the Internal Revenue Service from questioning Respondent David A. Ackert, an investment banker, about his conversations with Paramount Corporation's counsel, by reason of Paramount's attorney-client privilege. We reverse.

BACKGROUND

The relevant facts are not in dispute. In 1989, Goldman, Sachs, and Co., an investment banking firm, approached Paramount with an investment proposal. The proposed transaction was expected to reduce Paramount's federal income tax liability by generating significant capital losses that would offset Paramount's recent capital gains from the sale of a subsidiary.

Ackert, at the time was employed by Goldman, Sachs. Along with other Goldman, Sachs representatives, Ackert pitched the investment proposal to representatives of Paramount at an initial meeting on September 15, 1989.

Although Ackert is an attorney, he functioned solely as an investment banker while at Goldman, Sachs. Although he discussed the possible tax consequences of investments with potential clients, including Paramount, he did not provide them with legal or tax advice.

After the September 15 meeting, Eugene I. Meyers, Paramount's senior vice president and tax counsel, conducted legal research and analysis in order to advise Paramount about the tax implications of the proposed investment. In the course of this research, Meyers contacted Ackert, and the two men had several follow-up meetings to discuss various aspects of the Goldman, Sachs proposal. Meyers initiated these discussions to learn more about the details of the proposed transaction and its potential tax consequences, so that he could advise his client, Paramount, about the legal and financial implications of the transaction.

Paramount ultimately decided to enter into the proposed investment, but used the services of another investment banker, Merrill Lynch Co. Paramount paid Goldman, Sachs a fee of $1.5 million for services rendered in connection with its proposal.

Seven years later, in 1996, the Internal Revenue Service was conducting an audit of Paramount and its subsidiaries for its 1989 through 1992 tax years. In connection with the audit, the IRS issued a summons to Ackert seeking his testimony about the 1989 investment proposal. Paramount asserted the attorney-client privilege with respect to questions concerning any conversations Ackert had with Meyers or in Meyers' presence.

The United States filed suit in the district court, seeking to enforce the summons through an order directing Ackert to appear before the IRS and answer its questions. By consent of the parties, the petition was referred to Magistrate Judge Garfinkel. Paramount intervened.

The magistrate judge granted the petition to enforce the IRS summons, but initially deferred ruling on the attorney-client privilege. The IRS agreed to question Ackert about the allegedly privileged communications in the magistrate's courtroom, so that Paramount could assert its objections and the judge could rule on them contemporaneously. Paramount objected to questions about the conversations between Ackert and Meyers subsequent to the initial September 15, 1989, meeting. The magistrate judge heard argument from Paramount and the United States, and conducted an in camera interview with Ackert about the substance of these conversations.

Following the in camera proceedings, the magistrate judge ruled in favor of Paramount, concluding that the government's inquiry into the Ackert-Meyers conversations "would invade privileged communications." The United States appeals from this ruling. Paramount also appeals from the order that enforced the summons directing Ackert's appearance.

The magistrate judge said little in explanation of his ruling, but had indicated earlier that if Meyers had been collecting information from Ackert about the proposed investment in order to give legal advice to Paramount, the conversations would be privileged. We understand that to be the basis of his ruling.

DISCUSSION

Recognizing that the attorney-client privilege generally applies only to communications between the attorney and the client, and that Ackert was not Meyers's client, Paramount seeks to justify its assertion of the privilege by reference to Judge Friendly's opinion in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). Kovel held that the privilege can protect communications between a client and his accountant, or the accountant and the client's attorney, when the accountant's role is to clarify communications between attorney and client. See id. at 922. If a client and attorney speak different languages, an interpreter could help the attorney understand the client's communications without destroying the privilege. Kovel recognized that an accountant can play a role analogous to an interpreter in helping the attorney understand financial information passed to the attorney by the client. Id.

Paramount contends that the Ackert-Meyers conversations mirror the accountant-attorney relationship described in Kovel. Paramount emphasizes that Meyers contacted Ackert seeking information about the details of the proposed investment for the sole purpose of providing legal advice to Paramount. It asserts that "it was impossible for Mr. Meyers to advise Paramount without these further contacts with Mr. Ackert, because he could not otherwise fully define the factual, and therefore legal, nature of the proposal." Paramount Br. at 21.

We respectfully disagree with both the magistrate judge's explanation for his ruling and with the argument offered by Paramount on appeal in support of the ruling.

We assume, as did the magistrate judge, that Meyers interviewed Ackert in order to gain information and to better advise his client Paramount. That, however, is insufficient to give rise to the privilege. The purpose of the privilege is "to encourage clients to make full disclosure to their attorneys." Fisher v. United States, 425 U.S. 391, 403 (1976). To that end, the privilege protects communications between a client and an attorney, not communications that prove important to an attorney's legal advice to a client. Thus, a communication between an attorney and client may be privileged even if it turns out to be unimportant to the legal services provided. See 8 Wigmore on Evidence § 2292, at 554 (McNaughton rev. ed. 1961)(listing essential elements of privilege); Scott N. Stone Robert K. Taylor, 1 Testimonial Privileges §§ 1.24-1.35 (2d ed. 1995) (discussing scope of privilege). Conversely, a communication between an attorney and a third party does not become shielded by the attorney-client privilege solely because the communication proves important to the attorney's ability to represent the client. See Hickman v. Taylor, 329 U.S. 495, 508 (1947); Colton v. United States, 306 F.2d 633, 639 (2d Cir. 1962); 8 Wigmore on Evidence § 2317 at 619 ("It is . . . not sufficient for the attorney, in invoking the privilege, to state that the information came somehow to him while acting for the client nor that it came from some particular third person for the benefit of the client.")(emphasis omitted). Accordingly, we reject the magistrate judge's explanation for extending Paramount's privilege to conversations between its counsel and an independent investment banker, notwithstanding our assumption that those conversations significantly assisted the attorney in giving his client legal advice about its tax situation.

We also reject Paramount's argument based on Kovel. That decision recognized that the inclusion of a third party in attorney-client communications does not destroy the privilege if the purpose of the third party's participation is to improve the comprehension of the communications between attorney and client. That principle, however, has no application to this case. Meyers was not relying on Ackert to translate or interpret information given to Meyers by his client. Rather, Meyers sought out Ackert for information Paramount did not have about the proposed transaction and its tax consequences. Because Ackert's role was not as a translator or interpreter of client communications, the principle of Kovel does not shield his discussions with Meyers. We therefore find that Paramount has failed to demonstrate a basis for asserting its attorney-client privilege based on Meyers's communications with Ackert.

We do not preclude the possibility that, as the examination of Ackert proceeds, Paramount might demonstrate circumstances bringing some particular question or questions put to Ackert within the scope of Paramount's privilege. But we reject the magistrate judge's broad ruling that the entire examination of Ackert on his communications with Meyers is protected by Paramount's privilege.

We find no merit in Paramount's cross-appeal from the district court's order enforcing the summons.

CONCLUSION

We affirm the magistrate judge's ruling granting enforcement of the IRS summons directed to Ackert. We reverse the ruling that questions put to Ackert concerning his communications with Meyers invade Paramount's attorney-client privilege.


Summaries of

U.S. v. Ackert

United States Court of Appeals, Second Circuit
Feb 26, 1999
169 F.3d 136 (2d Cir. 1999)

holding that the privilege was destroyed because the third party agent was not acting "as a translator or interpreter of client communications"

Summary of this case from Ravenell v. Avis Budget Grp., Inc.

holding that the fact that an attorney confers with an accountant or investment banker to obtain information to better advise a client does not give rise to the greatly enhanced privilege

Summary of this case from Cavallaro v. U.S.

holding that attorney-client privilege did not extend to a tax advisor because the attorney was not relying on the advisor to translate or interpret information given to the attorney by his client

Summary of this case from Santa Fe Pacific Gold Corp. v. United Nuclear Corp.

finding the analysis in Kovel did not apply because the third-party advisor in question was merely the source of factual information

Summary of this case from NEBCO, Inc. v. Butler

finding communications between a party's lawyer and an investment banker not privileged where the lawyer's purpose was "to gain information and to better advise his client"

Summary of this case from Wichansky v. Zowine

finding that exception did not apply where attorney sought out third party for information regarding proposed transaction and its tax consequences, but did not rely on third party to "translate or interpret information given to [attorney] by his client"

Summary of this case from Columbia Data Prods., Inc. v. Autonomy Corp.

rejecting privilege claim because information was obtained from non-client sources

Summary of this case from Felipe Vicini Llub. v. Uncommon Productions

rejecting extension of attorney-client privilege to conversations between client's counsel and an independent investment banker despite assumption that "those conversations significantly assisted the attorney in giving his client legal advice about its tax situation"

Summary of this case from Columbia Data Prods., Inc. v. Autonomy Corp.

noting that “a communication between an attorney and a third party does not become shielded by the attorney-client privilege solely because the communication proves important to the attorney's ability to represent the client”

Summary of this case from U.S. v. Mejia

stating that "the attorney-client privilege generally applies only to communications between the attorney and the client"

Summary of this case from Cavallaro v. U.S.

In Ackert, the court refused to extend the attorney-client privilege to protect communications between Paramount and a third-party investment banker from Goldman Sachs.

Summary of this case from D'Ambly v. Exoo

In Ackert, the Second Circuit held that the communications between the client's accountant and the client's attorney were not privileged even if the attorney had sought details about a proposed investment from the accountant in order to advise his client.

Summary of this case from M&C Holdings Del. P'ship v. Great Am. Ins. Co.

In Ackert, the Second Circuit characterized the holding in Kovel as "recogniz[ing] that the inclusion of a third party in attorney-client communications does not destroy the privilege if the purpose of the third party's participation is to improve the comprehension of the communications between attorney and client."

Summary of this case from In re Application of Sampedro

In Ackert, the Second Circuit explained that "Kovel held that the privilege can protect communications between a client and his accountant, or the accountant and the client's attorney, when the accountant's role is to clarify communications between attorney and client."

Summary of this case from Firefighters' Ret. Sys. v. Citco Grp. Ltd.

stating that gaining information to "better advise" a client is insufficient for attorney-client privilege to attach and that "a communication between an attorney and a third party does not become shielded by the attorney-client privilege solely because the communication proves important to the attorneys' ability to represent the client."

Summary of this case from UPMC v. CBIZ, Inc.

In Ackert, counsel for Paramount Corporation ("Paramount") had several conversations with a third-party investment banker concerning an investment proposal the investment banking firm had made to Paramount "to learn more about the details of the proposed transaction and its potential tax consequences, so that he could advise his client... about the legal and financial implications of the transaction."

Summary of this case from Narayanan v. Sutherland Global Holdings Inc.

In Ackert, an investment banker working for Goldman, Sachs approached Paramount Corporation with an investment proposal, and Paramount's tax counsel subsequently conferred with the banker about the tax implications of the proposed investment.

Summary of this case from Crane Sec. Techs., Inc. v. Rolling Optics, AB

In Ackert, the Second Circuit reversed the District Court's ruling that conversations between a corporate attorney and an investment banker, who was also an attorney, were privileged because the purpose of the conversation was for the attorney to better understand a transaction to provide better legal advice to the parties joint client.

Summary of this case from Premier Dealer Servs., Inc. v. Duhon

endorsing Kovel's holding and distinguishing it from the facts of the case

Summary of this case from Heriot v. Byrne

focusing on the purpose of the attorney-client privilege to determine whether the communications with a third party were protected

Summary of this case from Heriot v. Byrne

In Ackert, the court refused to extend the attorney-client privilege to protect communications between Paramount and a third-party investment banker from Goldman Sachs.

Summary of this case from La. Mun. Police Emps. Ret. Sys. v. Sealed Air Corp.

In United States v. Ackert, 169 F.3d 136 (2d Cir.1999), the Second Circuit was again presented with a request for a derivative extension of the attorney-client privilege, this time to a third-party investment banker.

Summary of this case from La. Mun. Police Emps. Ret. Sys. v. Sealed Air Corp.

In Ackert, tax counsel to Paramount Corporation sought the advice of investment banker David Ackert of Goldman Sachs. Tax counsel initiated the discussions to " learn more about the details of the proposed transaction and its potential tax consequences so that he could advise his client, Paramount, about the legal and financial implications of the transaction."

Summary of this case from In re G-I Holdings Inc.

In Ackert, tax counsel to Paramount Corporation sought the advice of investment banker David Ackert of Goldman Sachs. Tax counsel initiated the discussions to "learn more about the details of the proposed transaction and its potential tax consequences so that he could advise his client, Paramount, about the legal and financial implications of the transaction."

Summary of this case from In re G-I Holdings Inc.

In Ackert, a non-practicing attorney working as a financial advisor was brought in on discussions relating to the taxes of a proposed investment.

Summary of this case from Yoder v. Long
Case details for

U.S. v. Ackert

Case Details

Full title:UNITED STATES OF AMERICA, PETITIONER-APPELLANT-CROSS-APPELLEE, v. DAVID A…

Court:United States Court of Appeals, Second Circuit

Date published: Feb 26, 1999

Citations

169 F.3d 136 (2d Cir. 1999)

Citing Cases

Gen. Elec. Co. v. L3harris Techs.

The privilege “generally applies only to communications between the attorney and the client.” United States …

Monterey Bay Military Hous. v. Ambac Assurance Corp.

In United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961), the Second Circuit held that the…