Opinion
Civil Action No. 1:CV-03-0421.
August 11, 2004
ORDER
THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:
We are considering Plaintiffs' motion to compel the United States to release redacted portions of a memorandum prepared by an Internal Revenue Service ("IRS") appeals officer. (doc. 15). The government contends that the deliberative process privilege applies to the redacted section of the memorandum, which precludes Plaintiffs from viewing it.
By way of brief factual background, on March 10, 2003, Plaintiffs filed this action seeking the recovery of federal estate taxes and interest which they claim was erroneously and illegally assessed and collected against the estate of Rosie Knepp and two trust accounts. Prior to her death, Ms. Knepp won a Pennsylvania lottery award which was to pay her, or her estate, an annual gross payment of $631,375 for a term of twenty-one years. She established a trust to provide for taxes due upon her death. However, at the time of her death, on August 1, 1997, the trust lacked sufficient funds to pay decedent's inheritance and estate taxes, funeral and administration costs. To cover these expenses, Plaintiffs borrowed $1,715,000 from Omega Bank. This loan is being repaid exclusively with funds received from the annual lottery payments.
In September 1999 and March 2000, Plaintiffs filed claims for refunds with the IRS for overpaid taxes. They contend the interest paid on the loan from Omega Bank is actually and necessarily incurred in the administration of the estate, and is a deductible administrative expenses. In April and May 2001, the IRS disallowed the claims, and Plaintiffs' filed formal protests. As a result, the IRS transferred the matter to its appeals office, which assigned the matter to appeals officer Eugene Lowicki.
In April 2003, Lowicki told counsel for the plaintiffs that the estate was entitled to deduct the interest on the loan as an administrative expense, but that he had not acted on his conclusion because the immediate action was filed. Following the conversation, Lowicki sent an Appeals Transmittal and Case Memorandum to the IRS' district counsel ("the memorandum"). (doc. 15, ex. A). The government produced this memorandum during discovery; however, portions of it were redacted. Plaintiffs contend that the redacted sections include Lowicki's reasoning and conclusions which are favorable to them. The government argues that the redaction is proper pursuant to the deliberative process privilege.
The deliberative process privilege permits the government to withhold documents containing "confidential deliberations of law or policymaking, reflecting opinions, recommendations or advice." In re Grand Jury, 821 F.2d 946, 959 (3d Cir. 1987) (citing NLRB v. Sears Roebuck Co., 421 U.S. 132, 15 — 54, 95 S.Ct. 1504, 1516-18, 44 L.Ed.2d 29 (1975)). The purpose of the privilege is to prevent injury to the quality of agency decisions. Sears Roebuck Co., 421 U.S. at 151, 95 S.Ct. at 151. It recognizes "that were agencies forced to operate in a fishbowl, the frank exchange of ideas and opinions would cease and the quality of administrative decisions would consequently suffer." Redland Soccer Club v. Dept. of the Army of the United States, 55 F.3d 827, 854 (3d Cir. 1995) (citation omitted). The deliberative process privilege does not protect factual information, even if such information is contained in an otherwise protected document, as long as the information is severable. See In re Grand Jury, 821 F.2d at 959. In addition, it does not protect communications made subsequent to an agency decision. Redland, 55 F.3d at 854 (citation omitted).
The government must demonstrate the applicability of the privilege. Id. Two critical factors in determining the applicability of the privilege are whether the document is pre-decisional (i.e., created before adoption of the agency policy) and whether it is deliberative (i.e., reflects the give and take of the consultive process). Coastal States Gas Corp. v. Dept. of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980). However, the government must present more than a bare conclusion or statement that the documents sought are privileged. Redland, 55 F.3d at 854 (citing Schreiber v. Society for Savings Bank Corp., 11 F.3d 217, 221 (D.C. Cir. 1993)).
If the court determines that the privilege applies, it must balance the relative interests of the parties, with the party seeking discovery bearing the burden of showing that its need outweighs the government's interest. Redland, 55 F.3d at 854. When balancing interests, the court should consider, at a minimum, the: "i) relevance of the information sought to be protected; ii) availability of other evidence; iii) seriousness of the litigation and the issue involved; iv) role of the government in the litigation; [and] v) possibility of future timidity by government employees who will be forced to recognize that their secrets are violable." Id. at 854 (quoting First E. Corp. v. Mainwaring, 21 F.3d 465, 468 n. 5 (D.C. Cir. 1994)).
Here, the government argues that the redacted portion of the memorandum contains Lowicki's discussion and recommendation for how the IRS should have handled Plaintiffs' claims prior to the initiation of this litigation. Plaintiffs contend that the government excluded these recommendations because they bolster the estate's position.
We note that the government did not submit an affidavit supporting their position. See Redland, 55 F.3d at 854 (discussing the government's affidavits about internal, pre-decisional memoranda recommending courses of agency activity).
At this time, we are unable to analyze whether the redacted portion of the memorandum is privileged, and, if it is, to balance the parties' interests based on the factors set forth above. Thus, we will order the government to produce the redacted section of the memo so that we may review it in camera. As other courts have pointed out, " in camera review is a highly appropriate and useful means of dealing with claims of governmental privilege." Redland, 55 F.3d at 855. (citations omitted).
Additionally, if the privilege does apply, it is doubtful that the government waived it though Lowicki's statements or the release of the other portions of the memorandum. The deliberative process cannot be inadvertently waived. Redland, 55 F.3d at 856. Moreover, no waiver will be found unless that disclosure was authorized by the agency and was voluntary. DiPace v. Goord, 218 F.R.D. 399, 407 (S.D.N.Y. 2003) (collecting cases). No evidence presented supports the finding that Lowicki was authorized to comment on the memorandum. Also, the unredacted portion of the memorandum contains the factual background of the case and summaries of other proceedings, which are not covered by the privilege.
The government also argues that the redaction sections of the memorandum are protected by the attorney-client privilege and the work-product privilege. Here, Lowicki discussed the contents of the memorandum with Plaintiffs' attorney and thus waived the privilege. When one voluntarily discloses privileged communications to a third party, the attorney-client privilege is waived. Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1424 (3d Cir. 1991).
Turning to the work-product privilege, the Supreme Court has recognized a qualified privilege for certain materials prepared by an attorney acting for his client in anticipation of litigation. United States v. Nobles, 422 U.S. 225, 237-38, 95 S.Ct. 2160, 2169-70, 45 L.Ed.2d 141 (1975). "[T]he burden of showing that the materials were prepared in anticipation of litigation is on the party asserting the privilege," and "[t]his burden entails a showing that the documents were prepared for the purpose of assisting an attorney in preparing for litigation, and not for some other reason." Alexander v. Federal Bureau of Investigation, 192 F.R.D. 42, 46 (D.D.C. 2000).
Here, the government makes a cursory statement that the memorandum was prepared in anticipation of litigation. However, the cover sheet of the memorandum indicates the case was "forwarded to District Counsel in Pittsburgh, PA because the estate filed a complaint in Federal District Court for the refund of the Federal Estate tax, precluding an appeals settlement." (doc. 15, ex. A). Based on this, it appears the memorandum was drafted by Lowicki, an appeals officer, to evaluate a settlement, rather than in anticipation of this litigation. However, it is likely that our in camera review of the redacted portion of the memorandum will aid in our final determination.
AND NOW, this 11th day of August, 2004, upon consideration of Plaintiffs' motion to compel the United States to release redacted portions of a memorandum prepared by an IRS appeals officer, it is Ordered that within ten (10) days of the date of this order the government shall submit to the court a complete and unmarked copy of the memorandum for in camera inspection.