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In Asset Forfeiture Action, Claimant’s Motion for Protective Order Relating to IRS Private Letter Ruling is Denied

United States v. All Assets Held at Bank Julius Baer & Co.
Civ. No. 04-798 (PLF/GMH) (D.D.C. June 3, 2016) U.S. District Court for the District of Columbia

by Matthew S. Sarna, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2004cv0798-713

In United States v. All Assets Held at Bank Julius Baer & Co., Civ. No. 04-798 (PLF/GMH) (D.D.C. June 3, 2016), an asset forfeiture action, the Court denied Claimant Pavel Lazarenko, former Prime Minister of Ukraine’s, motion for a protective order relating to his request for a private letter ruling (“PLR”) from the Internal Revenue Service (“IRS”) under Fed. R. Civ. P. 26(c). The Court ruled that although the Claimant’s PLR request was properly viewed as attorney work product, an IRS PLR drafted in response to the request could not enjoy work-product protection. Further, the Court found that Claimant waived work-product protection by disclosing to a conduit of a probable adversary.

The United States, in its first amended complaint, sought the forfeiture of over $250 million deposited in more than twenty banks accounts in Guernsey, Antigua and Barbuda, Switzerland, Lithuania, and Lichtenstein. The United States alleged that the money in these accounts was traceable to acts of fraud, extortion, misappropriation, and/or embezzlement committed by Pavel Lazarenko. On January 6, 2016, the Claimant declared that he had filed a request for a PLR with the IRS, asking for an analysis of his tax status in connection with certain transactions. Claimant asserted that this request and any resulting ruling was protected by the work-product doctrine, and thus should be protected from disclosure to the government. In response to the motion, the government put forth three arguments. First, Plaintiffs argued that the work-product doctrine did not apply because the PLR request was not prepared in anticipation of litigation, but instead to simply determine the tax effects of certain transactions. Second, Plaintiffs argued that any work-product claim concerning the request or ruling had been waived. Third, Plaintiffs posited that even if the work-product doctrine did apply and there was no waiver, the government had a compelling need for the document in order to analyze the Claimant’s relationship to the defendant in rem assets.

Under the work-product doctrine, Fed. R. Civ. P. 26(b)(3), the determinative question is whether the document at issue was prepared “in anticipation of litigation.” The D.C. Circuit applies the “because of” test, inquiring “whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.” FTC v. Bochringer Ingelheim Pharmaceuticals, Inc., 778 F.3d 142, 149 (D.C. Cir. 2015) (quoting United States v. Deloitte LLP, 610 F.3d 129, 137 (D.C. Cir. 2010)). It follows that “the lawyer must have had a subjective belief that litigation was a real possibility, and that belief must have been objectively reasonable.” In re Sealed Case, 147 F.3d 881, 884 (D.C. Cir. 1998).

Lazarenko’s PLR request was drafted by his attorneys for the purpose of seeking the IRS Office of Chief Counsel’s legal analysis on the tax implications of specific transactions. Unique to PLR requests is the consideration that, “[w]hen one is seeking to obtain a private letter ruling, one is aware that the IRS may not grant that ruling. Therefore, litigation is more likely a possibility than in the context of filing a tax return.” Union Pacific Resource Group, Inc. v. Penzoil Co., Misc. No. 97-64 JJF, 1997 U.S. Dist. LEXIS 24216, at *26 (D. Del. Sept. 2, 1997). Requesting such a ruling complies with both subjective and objective reasonableness standards laid out in In re Sealed Case, and accordingly, this Court determined that Lazarenko’s PLR request was appropriately prepared in anticipation of litigation, and thus should be afforded protection as attorney work-product.

While Lazarenko’s PLR request was initially found to be protected under the work-product doctrine, any resulting ruling in response to the request could not be. The core of the work-product doctrine protects from disclosure an attorney’s efforts to prepare his client’s case. See Hickman v. Taylor, 329 U.S. 495, 510–11 (1947). Any response to the PLR request would not be drafted by Lazarenko’s counsel, but rather by a representative of the IRS, removing any response documents from the scope of protection. Additionally, the United States Tax Court itself held in Teichgraeber v. Comm’r., 64 T.C. 453, 455 (1975), that PLRs as not work product because they simply are responses to taxpayers’ requests for the Service’s views on contemplated transactions. Further, disclosure of such response documents would not reveal Lazarenko’s counsel’s initially protected mental impressions. If protection did apply, the Court proffered that the same logic could be applied to prohibit disclosure of a court’s opinion because it analyzes one party’s legal arguments. Applying this reasoning, the Court found that any PLR response to Lazarenko’s request would not be protected as work-product.

Moving on to Plaintiff’s next argument, the Court found through a “straight-forward” application of the principles of waiver, that Lazarenko had waived any possible work-product protection by disclosing work-product to a probable adversary. First, Claimant’s argument itself revealed that the IRS is not a “theoretical adversary” but rather could bring legal action against Lazarenko if the PLR request revealed unpaid tax liabilities. Such a disclosure is “inconsistent with the maintenance of secrecy from [an] adversary,” as mandated by Deloitte and Rockwell Int’l Corp. v. Dep’t of Justice, 235 F.3d 598, 605 (D.C. Cir. 2001). In response, Claimant attempted, to no avail, to argue that this case was similar to Deloitte. See 610 F.3d at 139–41 (concluding that a corporation’s disclosure of documents to an independent auditor does not waive work-product protection for those documents). However, this Court distinguished the two cases, explaining that disclosure to an independent auditor, which was a not a potential adversary, is “wholly different” from disclosure to the IRS.

Second, the Court disagreed with Claimant’s argument that specific disclosure to only the IRS Office of Chief Counsel undermined a case for waiver. Referencing Rev. Proc. 2016-1 § 11.03, 2016 WL 20933, the Court explained that IRS Revenue Procedures contemplate collaboration between the branches of the IRS, as needed, in responding to a PLR request. At a minimum, disclosure to the Office of Chief Counsel significantly increased the likelihood that Lazarenko’s request would be distributed throughout the IRS generally, effectively robbing it of protection. Accordingly, disclosure to the Office of Chief Counsel, at least, was a disclosure to a “conduit of an adversary,” Deloitte, 6110 F.3d at 141, and as such, Claimant forfeited any reasonable expectation of privacy.

Third, because the Court determined that Lazarenko voluntarily waived work-product protection, the Court did not need to reach the question of whether the government’s compelling need for the document in question overrode its protection.

In light of the facts presented, the Court held that although Lazarenko’s PLR request was initially considered protected by the work-product doctrine, though any subsequent response would not be covered, Lazarenko waived his protection by voluntarily disclosing his work-product to a conduit of a probable adversary. Accordingly, Claimant’s motion for protective order was denied.


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