Opinion
17483-21
02-21-2024
ARDAN HOLDINGS, LLC, ARDAN INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Jennifer E. Siegel Special Trial Judge
This case is set for trial at a special session of the Court starting on Monday, February 26, 2024, in Columbia, South Carolina. The case arises from a contested donation of a conservation easement and, as noted in Judge Holmes's Order served January 26, 2024, the parties have filed a large number of discovery and other pretrial motions. Among those motions was petitioner's motion to compel production of documents filed January 12, 2024. In his Order, Judge Holmes directed respondent to
submit the documents listed in his responses to requests 2 and 4 to the Court for an in camera review. Respondent shall submit these documents in two sets, one redacted and one unredacted, both in double-sealed envelopes marked "FOR JUDGE'S EYES ONLY." Respondent shall also include a copy of his privilege log. Respondent must submit only documents that he redacted in his production to petitioner.
By Order served February 13, 2024, the undersigned was directed to conduct the in camera review to determine what additional portions, if any, of the redacted materials must be produced. As discussed more fully below, the Court will direct respondent to disclose some of the contested material as outlined on the attached spreadsheet.
I. Discovery Generally
Rule 70(b) provides that "[d]iscovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case." The party opposing the production of information has the burden of establishing that the documents sought are irrelevant or that they are otherwise not discoverable. See Bernardo v. Commissioner, 104 T.C. 677, 682 (1995). Accordingly, respondent bears the burden here.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Section 7453 provides that, with exceptions not relevant here, "the proceedings of the Tax Court and its divisions shall be conducted in accordance with . . . the Federal Rules of Evidence." See also Rule 143(a). Rule 501 of the Federal Rules of Evidence provides that "[t]he common law--as interpreted by United States courts in the light of reason and experience--governs a claim of privilege unless any of . . . [the United States Constitution, a federal statute, or rules prescribed by the Supreme Court] provides otherwise." And under the rule of Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971), we will follow a Court of Appeals decision which is squarely on point where appeal from our decision lies to that Court of Appeals. As the parties have agreed, appeal in this case would lie in the United States Court of Appeals for the Eleventh Circuit. See sec. 7482(b).
II. Claims of Privilege
Because respondent is the party opposing production, the burden is on him to establish that privilege applies to the documents or parts of documents he has redacted. See Bernardo, supra, 104 T.C. at 682. Several of the redactions obfuscated material not obviously subject to a privilege. The inadequate privilege log did not help. See, e.g., Pac. Mgmt. Grp. v. Commissioner, T.C. Memo. 2015-97 at *2 (explaining that, at a minimum, a privilege log must include the subject matter of the documents as well as facts establishing each element of the privilege claim); United States v. W. Elec. Co., Inc., 132 F.R.D. 1, 3 (D.D.C. 1990). In instances where the applicable privilege is neither stated nor self-evident, the Court will direct disclosure.
Respondent made only a few types of privilege claims on the log provided. One claim was that some of the redacted information would have disclosed "other taxpayer information." This was not always accurate. To the extent a redaction was protecting another taxpayer's information or identity, we will allow those redactions to stand. To the extent it was an inaccurate claim, we will direct disclosure. The majority of the privilege claims, however, fall into either of two categories: attorney-client and deliberative process.
A. Attorney Client Privilege
The attorney-client privilege "applies to communications made in confidence by a client to an attorney for the purpose of obtaining legal advice, and also to confidential communications made by the attorney to the client if such communications contain legal advice or reveal confidential information on which the client seeks advice." Bernardo, 104 T.C. at 682 (quoting Hartz Mountain Indus. v. Commissioner, 93 T.C. 521, 525 (1989)); see also Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).
For many of the documents, other than boilerplate signature blocks automatically applied to all of the sender's email communications, there was nothing obvious to indicate that redacted material might be protected. Respondent made no effort to justify the redactions, and thus the Court is ordering much of the material disclosed.
B. Deliberative Process Privilege
Respondent claimed that most of his redactions fall under a "deliberative process" privilege. The burden is on the agency to show that the privilege applies. See Coastal States Gas Corp. v. DOE, 617 F.2d 854, 866 (D.C. Cir. 1980); ACLU v. DOJ, 655 F.3d 1, 5 (D.C. Cir. 2011).
The deliberative process privilege generally protects the decision making process of government agencies, shielding "from disclosure documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." U.S. Fish & Wildlife Serv. v. Sierra Club, Inc., 592 U.S. 261, 267 (2021) (internal quotation marks omitted) (citing NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975)). For a document to be protected under this privilege, respondent must show that the document is both predecisional and deliberative. U.S. Fish & Wildlife Serv., 592 U.S. at 268; Fla. House of Representatives v. U.S. Dep't of Com., 961 F.2d 941, 945 (11th Cir. 1992). A document is predecisional if it was "generated before the agency's final decision on the matter" and deliberative if it was "prepared to help the agency formulate its position." U.S. Fish & Wildlife Serv., 592 U.S. at 268.
The deliberative process privilege is not absolute. See, e.g., Rutter v. Commissioner, 81 T.C. 937, 949 (1983); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971). The privilege does not protect factual or investigative material. See, e.g., Vaughn v. Rosen, 532 F.2d 1136, 1144 (D.C. Cir. 1975); P.T. & L. Construction Co., Inc. v. Commissioner, 63 T.C. 404 (1974); EPA v. Mink, 410 U.S. 73, 87-91 (1973). The material "must make recommendations or express opinions on legal or policy matters." United States v. Zak, 2021 U.S. Dist. LEXIS 181545, at *7 (N.D.Ga. July 8, 2021), (quoting Paisley v. CIA, 712 F.2d 686, 698-99 (D.C. Cir. 1983), vacated in part on other grounds, 724 F.2d 201 (D.C. Cir. 1984)). If the communication in dispute does not pertain to deliberations within an agency, it cannot be protected under the deliberative process privilege. This includes severable portions of text. See, e.g., Army Times Publ'g Co. v. Dep't of Air Force, 998 F.2d 1067, 1071 (D.C. Cir. 1993).
In other words, not all government communications are protected. Many of the emails provided for the Court's in camera review contained factual information, chit chat, vacation coverage planning, and comments like "see attached" and "FYI." These are not deliberative communications. Blanket assertions of deliberative process privilege are not favored, and the privilege should be narrowly construed. See, e.g., Arthur Andersen & Co. v. IRS, 679 F.2d 254, 257 (D.C. Cir. 1982), citing Taxation with Representation Fund v. IRS, 646 F.2d 666, 679 (D.C. Cir. 1981); First Heights Bank, FSB v. United States, 46 Fed.Cl. 827, 829-30 (2000). The Court will direct respondent to disclose all of the non-deliberative communications within the email threads provided.
III. Waiver of Privilege
A privilege may be waived with respect to materials that are otherwise disclosed. See, e.g. Brown v. Commissioner, T.C. Memo. 1994-282 (privilege waived if materials that were protected in one area of the disputed documents are later disclosed in another area). Respondent was sometimes inconsistent in his redactions. For example, the date "9/11/2021" was redacted in an email at Bates #0309. That same piece of text, "9/11/2021," is later disclosed at Bates #7610. Because the date was disclosed in the same email thread provided elsewhere in the record, respondent has waived any claim of privilege over the date at Bates #0309. In instances like the one described, we will direct respondent to disclose the sometimes-redacted information.
Similarly, the parties filed a joint First Stipulation of Facts on December 22, 2023. The stipulation and its exhibits show several instances where copies of documents provided for the in camera review were available with little or no redaction (compare Bates ##12373-12377 with Exhibit 45-J). To the extent a document was provided elsewhere in the record, the Court will direct respondent to make conforming disclosures.
Additionally, in more than one instance, respondent claimed a privilege (e.g., confidentiality of information belonging to a different taxpayer) that did not apply (it was not, in fact, information for a different taxpayer). Even if the document might have been considered privileged under a different theory, it is not the Court's job to police a party's documents for them. We considered only the privilege claims as made. If the claim does not obviously apply, the Court will direct respondent to disclose the document or portion thereof.
IV. Failure to Comply with the Court's Order
The Order directing the submission of documents to the Court for an in camera review specified that "Respondent must submit only documents that he redacted in his production to petitioner." (Emphasis added). But the documents we received did not always include all of the pages identified in respondent's log. For example, the document identified as No. 52 on the log should have included Bates ##1810-1812, yet the Court was provided only one page to review: Bates #1811. Documents Nos. 4, 19, 28, 42, 52, 67, 69, 73, 82, 105, 111, 122, 128, 129, 134, 140, 165, 177, 182, 198, 201, 217, 219, 236, 237, 241, 245, and 284 were also missing pages.
It is possible that respondent misunderstood the assignment and submitted only those pages which contained redactions of some sort. If that is the case, there should be no problem with the Court's direction to produce the missing pages in their entirety and without redaction. If those missing pages contained redactions, respondent failed to meet his burden to establish a privilege as a result of his failure to provide those pages for review.
Upon due consideration of the foregoing, it is
ORDERED that respondent is directed to make the disclosures identified in the attached spreadsheet, as soon as practicable and no later than Friday, February 23, 2024.