Opinion
17379-19 17380-19 17381-19 17382-19
06-10-2022
GREEN VALLEY INVESTORS, LLC, BOBBY A. BRANCH, TAX MATTERS PARTNER, ET. AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler Judge
On December 1, 2021, petitioner, in each of these consolidated cases, filed Motions for Protective Order from this Court, Pursuant to Rule 103. In the Motions, petitioner requested that this Court enter an order prohibiting respondent's counsel from further contacting individual investors of the LLCs, prohibiting respondent's counsel from reviewing any information they received from individual investors, and requiring respondent's counsel to provide an accounting of any information they have received from individual investors.
In these consolidated cases, Bobby A. Branch is the petitioner and tax matters partner for four entities: Green Valley Investors, LLC (Green Valley); Vista Hill Investments, LLC (Vista Hill); Big Hill Partners, LLC (Big Hill); and Tick Creek Holdings, LLC (Tick Creek). In this order we refer to these entities individually as "LLC" and collectively as "the LLCs." Since Mr. Branch is the tax matters partner in each of these consolidated cases, we will collectively refer to tax matters partner for the four LLCs in the singular and as "petitioner" throughout this opinion.
On December 22, 2021, respondent filed an objection in each consolidated matter to petitioner's Motions for Protective Order. By Order served on January 11, 2022, we granted petitioner's Motions for Protective Order, directing that respondent's counsel provide copies of any information received from any individual investors of the LLCs, to petitioner's counsel on or before January 28, 2022.
On February 10, 2022, respondent filed Motions for Reconsideration of the Court's protective order served on January 11, 2022. Based on good cause shown, we granted respondent's Motions for Reconsideration, dated February 10, 2022, thereby vacating the Court's order served on January 11, 2022, previously granting petitioner's Motions for Protective Order.
In our February 16, 2022 Order, we directed that respondent: (1) will initiate no further communications with the individual investors of the LLCs until petitioner's Motions for Protective Order are resolved, and (2) temporarily sequester any information received from individual investors or their attorneys, pending resolution of petitioner's Motions for Protective Order.
Also in our February 10, 2022, order, we directed the parties to advise the Court on the following issues: (1) how many of the individual investors are represented by their own counsel (wholly separate from the TMP's counsel); (2) to the extent respondent seeks to contact individual investors who are not separately represented by an attorney, how respondent would handle any inadvertent disclosures of privileged information; (3) if respondent receives documents from individual investors or their counsel, when and how would respondent be obligated to share those documents with petitioner's counsel; and (4) what showing petitioner can make that the individual investors, who are admittedly "constituents of the organization," and either "supervise[], direct[] or regularly consult[]" with the TMP or organization's lawyer concerning the matter or "ha[ve] authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization" as contemplated by Comment 7 to ABA Model Rule 4.2. Model Rules of Pro. Conduct r. 4.2 cmt. 7 (Am. Bar Ass'n 2002).
The parties and the undersigned held conference calls on April 11, 2022, and May 20, 2022. The Court sought an amicable resolution of this matter without its intervention; however, despite good faith efforts on the part of all parties, a resolution was not reached. Accordingly, the Court is now prepared to rule on petitioner's Motions for Protective Order.
Similarly, on April 8, 2022, respondent filed Motions to Strike the Declaration of Clark D. Cunningham, which were attached to petitioner's March 14, 2022, status reports, in each of these consolidated matters. Pursuant to this Court's Order, petitioner filed on May 4, 2022, a response in each of these cases to respondent's Motions to Strike the Declaration of Clark D. Cunningham.
Background
The following facts are drawn from the parties' pleadings, including petitioner's Motions for Protective Order, respondent's December 22, 2021 objection, respondent's Motions to Strike, petitioner's response thereto, the parties' status reports filed on March 14, 2022, and supplemental status reports filed on May 18, 2022, and the parties' respective written objections. These facts are stated solely for purposes of ruling on the parties' motions herein.
Petitioner argues respondent's communications with individual investors violate the rules of professional conduct. Petitioner also argues that respondent's requests invade the LLCs' attorney-client privilege. Finally, petitioner argues that respondent's requests are misleading and an improper attempt to circumvent this Court's limitations on discovery.
In his response, respondent argues that petitioner has failed to show good cause for a protective order. In rebuttal, respondent also argues its communications with individual investors are appropriate, the information sought is not privileged, and the requests made are relevant and do not circumvent this Court's limitations on formal discovery.
Discussion
Generally, informal requests for information or interviews "are not subject to restriction under Rule 103" because they "do not fall within our discovery procedures." Fu Inv. Co. v. Commissioner, 104 T.C. 408, 410 (1995). Respondent has made informal requests for information to certain individuals who invested in the transactions in question. It is undisputed that these individual investors are not represented by petitioner's counsel. Accordingly, Rule 103 does not seem to apply here since the requests being made are informal and do not fall within our Rules for discovery. Id.
Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure.
If an individual investor declines an informal overture, respondent might follow-up with a motion to compel deposition or a trial subpoena. The individual investor might challenge such formal process as burdensome, but that would present a different question for another day.
Nevertheless petitioner argues a protective order is necessary since respondent's informal requests breach certain ethical obligations. See id. at 410-11 (noting that we have "inherent powers" to "control the conduct of attorneys" and "prevent injustice"). Rule 201(a) requires practitioners to "carry on their practice in accordance with the letter and spirit of the Model Rules. . ." Petitioner contends that respondent's counsel's actions in seeking information from the individual investors violates Model Rule 4.2.
Model Rule 4.2 is captioned, "Communication with Person Represented by Counsel" and provides:
In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer . . . Model Rules of Pro. Conduct r. 4.2 (Am. Bar Ass'n 1983).
At first, Model Rule 4.2 does not seem to apply here; however, petitioner
astutely directs to Comment 7, which provides:
In the case of a represented organization, this Rule prohibits communications with a constituent of the organization who supervises, directs or regularly consults with the organization's lawyer concerning the matter or has authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability. See Model Rules of Pro. Conduct r. 4.2 cmt. 7 (Am. Bar Ass'n 2002).
The question now becomes whether respondent's counsel's communications with the individual investors are prohibited by Model Rule 4.2 and specifically Comment 7. Based on the comment, we will focus our analysis here on whether the individual investors are someone "who supervises, directs or regularly consults with the organization's lawyer concerning the matter" or "has authority to obligate the organization with respect to the matter."
Courts have found there to be three prongs to Comment 7 of Rule 4.2; with two being applicable or relevant here. See Public Service Elec. and Gas Co. v. Associated Elec. & Gas Ins. Services, Ltd., 745 F.Supp. 1037, 1039 (D.N.J. 1990)
While the individual investors are certainly not disinterested parties and will be impacted by the results of this case, there is nothing in the record (other than argument) from petitioner to suggest that they supervise, direct, or regularly consult with the LLCs' counsel concerning the matter, nor do they hold any authority to obligate the LLCs. Accordingly, we conclude Rule 4.2 does not prohibit respondent's counsel from contacting these individual investors, since they do not regularly consult with the LLCs' counsel concerning this matter or have authority to obligate the LLCs with respect to the matter.
Petitioner also contends that respondent's informal requests "call for privileged information" and "invade the [LLCs'] privilege." We rejected a substantially similar argument in Fu Inv. Co., 104 T.C. at 415-16. Here, as there, petitioner has raised only "general assertions that the . . . [individual investors] were privy to privileged communications." Id. at 415. As we explained in Fu Inv. Co., bare assertions of privilege are not sufficient to warrant a protective order. Id. at 416; see also Von Bulow v. Von Bulow, 811 F.2d 136, 146 (2d Cir. 1987). However, respondent still has an obligation to "refrain from eliciting or inducing statements . . . that involve privileged communications." Fu Inv. Co., 104 T.C. at 416 (citing Model Rules of Pro. Conduct r. 4.4 (Am. Bar Ass'n 1992)).
In Fu Inv. Co., 104 T.C. at 415, we noted that "circumstances may arise where certain precautions (including a narrowly drawn protective order) may be warranted." In that case, we denied the taxpayer's Rule 103 motion but instructed the Commissioner to "advise each former employee that [the IRS and the taxpayer] are adverse parties" and "explain his role in the information gathering process." Id. at 416. Like in Fu Inv. Co., 104 T.C., we find a narrowly defined protective order, as discussed below, in these cases would be helpful to the litigants to address inadvertent disclosures of potentially privileged information.
The Court further notes should an individual investor inadvertently divulge privileged information, respondent may have an obligation to take corrective action under the Federal Rules of Evidence. See Fed. R. Evid. 502(b) (listing circumstances where disclosure does not waive privilege).
Based on the parties' proposals found in their status reports to handle inadvertent disclosures, the Court will require prior notification by respondent of all informal interviews (if any) so that petitioner's counsel may be present. Further, in the event respondent's counsel receives written documents to which there is likely to be an applicable privilege held by petitioner or individual investors, the Court directs respondent to immediately sequester the document(s) and notify petitioner's counsel promptly to meet and confer as to whether an agreement can be reached as to how to address the disclosure and whether the disclosure was inadvertent.
Petitioner, with his status reports, submitted an unsworn declaration from an ethics professor. The declaration offers the professor's legal opinion on Model Rule 4.2 Comment 7. Respondent has moved to strike this declaration for noncompliance with Rule 143(g), which requires (among other things) that expert witness testimony take the form of a report, exchanged in advance with the opposing party, and that the expert be available for cross-examination. Respondent also contends the declaration violates the Federal Rules of Evidence and is an improper attempt at advocacy, rather than an independent expert opinion.
We agree with respondent that the declaration should be disregarded as impermissible advocacy in contravention of Federal Rule of Evidence 702. The declaration improperly expresses the declarant's legal opinion regarding the legal issue currently before the Court and how it should be decided. See, e.g., Hosp. Corp. of Am. & Subs. v. Commissioner, 109 T.C. 21, 59 (1997) ("Testimony that expresses a legal conclusion and does not assist the trier of fact is not admissible."); Alumax, Inc. v. Commissioner, 109 T.C. 133, 171 (1997) ("We shall disregard any opinion of an expert that constitutes nothing more than that expert's legal opinion or conclusion about a particular matter."), aff'd, 165 F.3d 822 (11th Cir. 1999).
For these reasons, it is
ORDERED that petitioner's Motions for Protective Order Pursuant to Rule 103, filed December 1, 2021, are denied, in part, to the extent it seeks to prohibit respondent's counsel from contacting any individual investor of the LLCs under ABA Model Rule 4.2. It is further
ORDERED that petitioner's Motions for Protective Order Pursuant to Rule 103, filed December 1, 2021, are granted, in part, to (i) require prior notification by respondent of all informal interviews of individual investors (if any) so that petitioner's counsel may be present; and (ii) in the event respondent's counsel receives written documents to which there is likely to be an applicable privilege held by the individual investor or petitioner, respondent is to immediately sequester the document(s) and promptly notify petitioner's counsel to meet and confer as to whether an agreement can be reached to address the disclosure and whether the disclosure was inadvertent. It is further, ORDERED that respondent's Motions to Strike, filed April 8, 2022, are granted and petitioner's unsworn declarations, which were filed with his status reports, are stricken from the record in these proceedings.