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Oconee Landing Prop. v. Comm'r of Internal Revenue

United States Tax Court
Nov 17, 2022
No. 11814-19 (U.S.T.C. Nov. 17, 2022)

Opinion

11814-19

11-17-2022

OCONEE LANDING PROPERTY, LLC, OCONEE LANDING INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent


ORDER

Albert G. Lauber Judge

Trial of this conservation easement case commenced in Atlanta, Georgia, on November 14, 2022. On November 11, 2022, the Friday before the trial was to begin, counsel for Mercer Reynolds submitted to our chambers a Motion to Exclude Privileged Documents, requesting a ruling that certain documents should be excluded from evidence on the basis of attorney-client privilege. On November 14, 2022, this Motion was filed with the Court and argument was heard at the start of trial.

Mr. Reynolds is one of the two ultimate managing members of Oconee Landing Property, LLC, the partnership that donated the conservation easement, and of Oconee Landing Investors, LLC, the partnership's tax matters partner and the petitioner in this case. All the documents Mr. Reynolds seeks to exclude were created or maintained by the law firm Morris Manning & Martin, LLP (MMM). MMM had been retained by one or more Reynolds-related entities and by Oconee to provide advice in connection with the conservation easement transaction.

In the course of discovery MMM produced to petitioner from its files a large volume of documents relating to the conservation easement transaction. Petitioner's counsel in turn produced to the Internal Revenue Service (IRS or respondent) all of the documents that MMM had produced to petitioner. In so doing petitioner waived the attorney-client privilege as to all of these documents. Mr. Reynolds now seeks to assert the attorney-client privilege as to a subset of the documents. Most of the documents as to which he asserts privilege relate to the retention of Strategic Capital Partners to market and promote the easement transaction to investors. These documents are clearly relevant to issues presented by this case.

Proceedings in the Tax Court are conducted in accordance with the Federal Rules of Evidence (FRE). See § 7453; Rule 143. The FRE incorporate the common law rules of privilege, including the attorney-client privilege. See AD Inv. 2000 Fund LLC v. Commissioner, 142 T.C. 248, 254 (2014); Fed.R.Evid. 501, 1101(c). It is well established that the attorney-client privilege may be waived. See e.g., Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992); Hartz Mountain Industries, Inc. v. Commissioner, 93 T.C. 521, 525 (1989) (citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Disclosure of privileged communications to the IRS (or other Government agency) constitutes a waiver of the privilege. See Chevron, 974 F.2d at 1162 (finding that disclosure of privileged communications to an outside auditor constituted waiver of attorney-client privilege as to the tax matters discussed in the disclosed communications); Westinghouse Elec. Corp. v. Republic of Phil., 951 F.2d 1414, 1428 (3rd Cir. 1991) (noting that any disclosure to a government agency not for the purposes of obtaining legal advice waives the attorney-client privilege).

Unless otherwise indicated, all statutory references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Petitioner waived the attorney-client privilege as to the entire MMM production when its counsel produced all of those documents to the IRS in discovery. This waiver bound petitioner and its managing members, including Mr. Mercer as one of its two ultimate managing members. Mr. Reynolds does not dispute that petitioner's waiver of the privilege was knowing and intentional, and he does not contend that petitioner lacked authority to effectuate this waiver. We conclude that the attorney-client privilege has been waived as to all of the MMM-related documents and cannot be retroactively "un-waived" on the eve of trial.

While not disputing that petitioner's waiver of the privilege was intentional, Mr. Reynolds suggests that the waiver may have been inadvertent, at least as applied to the subset of documents as to which he now asserts privilege. But we would reach the same conclusion even if petitioner had withheld rather than disclosed that subset of documents. If privileged material is disclosed "in a Federal proceeding or to a Federal office or agency . . . the waiver extends to an undisclosed communication" if three conditions are met. Fed.R.Evid. 502(a). Those conditions are that (1) the waiver is intentional, (2) the disclosed and undisclosed communications concern the same subject matter, and (3) the two sets of communications "ought in fairness to be considered together." In considering whether the disclosed and undisclosed communications "ought in fairness to be considered together," undisclosed materials should be disclosed "to prevent a selective and misleading presentation of evidence to the disadvantage of the adversary." Judicial Conference Advisory Committee on Evidence Rules, Explanatory Note on Evidence Rule 502. These rules are designed to prevent a party from securing a tactical advantage by selectively disclosing information that would otherwise be privileged. Ibid.

We find that petitioner's waiver of the privilege was intentional and that all of the documents produced by MMM concern the same subject matter, viz., planning and transactions related to the conservation easement. We further conclude that all of the MMM-related documents "ought in fairness to be considered together." Mr. Reynolds in effect is seeking to waive the attorney-client privilege selectively. Petitioner, of which he is one of the ultimate managing members, decided to waive the privilege as to the MMM-related documents, presumably believing that at least some of the documents were helpful to its (and thus Mr. Reynolds') position. It would be unfair for Mr. Reynolds to retain this benefit and then seek to exclude other MMM-related documents that he believes may be less helpful to his position. We conclude that fairness dictates that all of the documents produced by MMM, as to which petitioner has waived privilege, ought to be considered together.

For these reasons and those set forth in the transcript of the proceedings, it is

ORDERED that Mercer Reynolds' Motion to Exclude Privileged Documents, submitted November 11, 2022, is denied. It is further

ORDERED that, in addition to regular service, the Court shall serve a copy of this Order on Counsel for Mercer Reynolds as follows:

Sarah E. Paul Eversheds Sutherland LLP The Grace Building, 40th Floor 1114 Avenue of the Americas New York, NY 10036-7703


Summaries of

Oconee Landing Prop. v. Comm'r of Internal Revenue

United States Tax Court
Nov 17, 2022
No. 11814-19 (U.S.T.C. Nov. 17, 2022)
Case details for

Oconee Landing Prop. v. Comm'r of Internal Revenue

Case Details

Full title:OCONEE LANDING PROPERTY, LLC, OCONEE LANDING INVESTORS, LLC, TAX MATTERS…

Court:United States Tax Court

Date published: Nov 17, 2022

Citations

No. 11814-19 (U.S.T.C. Nov. 17, 2022)