Aroeste v. The United States of America

Opinion

1 2 3 4 5 6 7 10 11 ALBERTO AROESTE and ESTELLA Case No.: 22-cv-682-AJB-KSC AROESTE, 12 ORDER ON JOINT DISCOVERY Plaintiffs, 13 MOTION [Doc. No. 63] v. 14 THE UNITED STATES OF AMERICA, 15 Defendant. 16

17 I. Introduction 18 This is a relatively low-stakes case concerning roughly $3,000 in penalties paid to 19 the IRS, but the discovery dispute presently before the Court, in which the parties dispute 20 whether nine pages of documents have been appropriately redacted, has managed to raise 21 not one but two questions of first impression in the Ninth Circuit. The first question 22 presented is this: does 26 U.S.C. section 6103, a relatively obscure provision of the Internal 23 Revenue Code, require the United States to withhold documents in discovery because those 24 documents contain information gleaned from the tax returns of third parties? Although the 25 Court suspects the answer is “no,” the Court need not resolve this complicated issue 26 because the second question presented by the parties’ discovery dispute ultimately proves 27 dispositive. That second question is as follows: are legal memoranda prepared by attorneys 28 1 in the IRS Office of Chief Counsel during taxpayer audits protected from disclosure by the 2 attorney-client privilege, or are they discoverable because they constitute so-called “agency 3 law”? Because the Court concludes the memoranda are privileged under Ninth Circuit law, 4 plaintiff’s Motion to Compel production of the two memoranda at issue must be DENIED. 5 II. Factual and Procedural History 6 Plaintiffs Alberto and Estella Aroeste sued the United States under the Little Tucker 7 Act to recoup penalty payments (and to discharge their liability for penalties still 8 outstanding) imposed by the IRS because the Aroestes did not file a Report of Foreign 9 Bank and Financial Accounts (“FBAR”) for the years 2012 and 2013. Doc. No. 1 ¶ 9. The 10 IRS assessed the FBAR penalties at issue after an extensive administrative audit of certain 11 of plaintiffs’ tax years through 2015. See Doc. No. 1 ¶¶ 11, 40-44. The United States 12 counterclaimed against plaintiffs to recover the balance of unpaid penalties. Doc. No. 11.1 13 The Aroestes’ total liability to the federal government following the audit was 14 approximately $3,000,000, but the FBAR penalties at issue in this case account for only a 15 small portion of that sum because the bulk of the Aroestes’ tax and penalty liability arose 16 from unfiled information returns and unpaid taxes. See generally Doc. No. 42 at 2. Neither 17 the unpaid taxes nor the penalties for failing to file information returns are at issue in this 18 lawsuit. See id. 19 Both plaintiffs previously sought discovery of the entire administrative record 20 generated during the IRS audit. See Doc. No. 36. The Court granted plaintiffs’ motion to 21 compel in part, ordering defendant to produce “all portions of the administrative 22 record . . . which are relevant to Mr. Aroeste’s residency under the [United States – Mexico 23 Income Tax] Treaty during the tax years 2012 and 2013.” See Doc. No. 42 at 12. As the 24 Court noted in its earlier Order, Mr. Aroeste’s residency under the Treaty is a dispositive 25

26 27 1 The parties have settled the matter in part, resolving the disputed penalties assessed against Estella Aroeste, and all claims related to Estella have been dismissed upon the 28 1 legal question in this case that determines whether FBAR penalties were rightly assessed 2 against him. See id. at 7. Defendant produced the discovery as ordered. See Doc. No. 48. 3 The parties now jointly move the Court to resolve a dispute arising from that document 4 production. See Doc. No. 63 (the “Joint Motion”). The parties specifically dispute whether 5 defendant appropriately redacted two IRS memoranda that are part of the administrative 6 record. See id. at 2, 5. 7 The parties have no real disagreement over the nature and substance of the 8 memoranda, which together total only nine pages. See Doc. No. 63 at 2, 6. Each 9 memorandum was drafted by a staff attorney with the IRS’s Office of Chief Counsel 10 (“OCC”) at the request of an IRS field agent conducting an audit of third-party taxpayers, 11 and each memo discusses specific issues that arose during those audits. See id.2 As the 12 parties note with reference to their evidentiary submissions, the memoranda were used by 13 the agent auditing the Aroestes because specific issues pertaining to the Aroestes also arose 14 during the audits of the third-party taxpayers. Accordingly, the agent auditing the Aroestes 15 consulted the old memos for guidance on the proper application of various tax law 16 doctrines. See Doc. No. 63 at 3, 6, Ex. 1, Ex. 2. Plaintiffs have not seen the redacted 17 portions of the documents, but they contend defendant has redacted more information than 18 is warranted by controlling law—although they concede at least some information can be 19 redacted to avoid the disclosure of third-party taxpayer information. Id. at 4. Defendant 20 contends it has only redacted those portions of the memoranda to which plaintiffs are not 21 entitled. Id. at 9. Neither party objects to the Court reviewing the material in camera to 22 resolve the dispute, and defendant lodged the documents at issue for the Court’s review. 23 See Doc. No. 60. 24 //// 25 //// 26

27 2 As the IRS’s Internal Revenue Manual indicates, the OCC is generally responsible 28 1 III. Whether Defendant Properly Redacted the Two Memoranda 2 A party seeking discovery may move the Court to issue an order compelling 3 production. Fed. R. Civ. P. 37(a). This Court has broad discretion to permit or deny 4 discovery. Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002). Discovery must be 5 “relevant to any party's claim or defense and proportional to the needs of the case.” See 6 Fed. R. Civ. P. 26(b)(1). If the information sought is relevant, the party resisting discovery 7 bears the ultimate burden of convincing the Court discovery should not be permitted. See 8 V5 Techs v. Switch, Ltc., 334 F.R.D. 306, 309 (D. Nev. 2019) (citing Blankenship v. Hearst 9 Corp., 519 F.2d 418, 429 (9th Cir. 1975)). Based on the parties’ Joint Motion, the Court 10 discerns two separate bases for defendant’s decision to withhold the information. 11 Defendant claims (A) 26 U.S.C. section 6103 prohibits disclosure of the redacted portions 12 of the memoranda; and (B) the redacted portions of the document fall within the attorney- 13 client privilege. The Court will address both claims. 14 (A) Whether 26 U.S.C. Section 6103 Supplies a Basis for an Objection 15 Defendant contends redaction is necessary to prevent the disclosure of “return 16 information” that is confidential by statute. See Doc. No. 63 at 5. Under the Internal 17 Revenue Code, income tax returns and “return information” are confidential and cannot be 18 disclosed by the IRS. See 26 U.S.C. § 6103(a). The non-disclosure requirement at issue 19 here has numerous statutory exceptions. See 28 U.S.C. § 6103(c)-(o). But the Aroestes, as 20 private litigants in a civil matter, are not among the parties to whom section 6103 expressly 21 authorizes disclosure of returns and return information. See id. 22 “Return information,” as used in the statute, carries the following broad definition: 23 (A) a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net 24 worth, tax liability, tax withheld, deficiencies, overassessments, or tax 25 payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, 26 recorded by, prepared by, furnished to, or collected by the Secretary with 27 respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this 28 1 title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense, 2 (B) any part of any written determination or any background file document 3 relating to such written determination (as such terms are defined in section 6110(b)) which is not open to public inspection under section 6110, 4 (C) any advance pricing agreement entered into by a taxpayer and the 5 Secretary and any background information related to such agreement or any application for an advance pricing agreement, and 6 (D) any agreement under section 7121, and any similar agreement, and any 7 background information related to such an agreement or request for such an agreement . . . . 8

9 See 26 U.S.C. § 6103(b)(2). “[B]ut [‘return information’] does not include data in a form 10 which cannot be associated with, or otherwise identify, directly or indirectly, a particular 11 taxpayer.” See id. 12 The Supreme Court has construed the term “return information” as it is used in 13 section 6103 and concluded the broad definition encompasses (and accordingly forbids 14 disclosure of) essentially any information in the IRS’s possession that is particular to a 15 taxpayer and that taxpayer’s tax returns. See Church of Scientology v. IRS, 484 U.S. 9, 15- 16 17 (1987); see also Tax Analysts v. IRS, 117 F.3d 607, 611 (D.C. Cir. 1997) (noting “return 17 information” is not limited solely to information that directly identifies a taxpayer). 18 In this case, the government contends it “redacted the identities and all ‘return 19 information’ of . . . third-party taxpayers,” but “did not redact portions that were not 20 personally identifying material or return information.” Doc. No. 63 at 6. Plaintiffs believe 21 defendant’s “redactions as they currently stand go far beyond those necessary to comply 22 with section 6103.” Id. at 5. The parties do not dispute, and the Court’s in camera review 23 has confirmed, that virtually all case-specific analysis was removed from the memoranda. 24 See id. at 4-5, 7. The parties, in jointly requesting in camera review, want the Court to 25 review the redacted, case-specific information and decide whether it comprises “return 26 information” within the scope of section 6103. The parties both assume it is proper for the 27 United States to object based on section 6103, and they only disagree about the scope of 28 1 what can be withheld under the statute. But this Court is not convinced section 6103 applies 2 in discovery proceedings. If it does not apply, there is nothing for the Court to decide. 3 As the parties both note, it is well settled that section 6103 prevents the disclosure 4 of “return information” in response to requests under the Freedom of Information Act 5 (“FOIA”). See Church of Scientology of Cal. v. I.R.S., 484 U.S. 9 (1987); Shannahan v. 6 IRS, 672 F.3d 1142 (9th Cir. 2012); accord Tax Analysts v. I.R.S., 117 F.3d 607 (D.C. Cir. 7 1997); Taxation with Representation Fund v. I.R.S., 646 F.2d 666 (D.C. Cir. 1981). But 8 this is not a FOIA case. Plaintiff has asked for the documents through a discovery request 9 made under the Federal Rules of Civil Procedure. This Court is unaware of a binding 10 Supreme Court or Ninth Circuit case that resolves the issue of whether section 6103 11 provides a basis to withhold discovery.3 12 The persuasive authority on the issue goes both ways. Some courts, none of which 13 bind this Court, have implicitly construed the statue as permitting the government to 14 withhold “return information” in discovery. See Cencast Servs., L.P. v. United States, 91 15 Fed. Cl. 496, 509 (2010); First Heights Bank, F.S.B. v. United States, 46 Fed. Cl. 312, 322- 16 23 (2000). Neither court analyzed the issue at the trial level. They both just assumed section 17 6103 supplied the government with a viable discovery objection. When both those 18 decisions went up on appeal, the Federal Circuit did not address the issue at all. See 19 generally Cencast Servs., L.P. v. United States, 729 F.3d 1352 (Fed. Cir. 2013), cert. 20 denied, 134 S. Ct. 2841 (2014); First Heights Bank v. United States, 422 F.3d 1311 (Fed. 21 22 23 24 3 As concerns whether authority is binding or persuasive: because this is a tax case 25 arising under the Little Tucker Act, appellate jurisdiction lies with the Ninth Circuit. See 28 U.S.C. § 1295(a)(2). Had this case been filed in the Court of Federal Claims, which has 26 concurrent jurisdiction over Little Tucker Act claims under 28 U.S.C. section 1346(a), 27 appellate jurisdiction would lie with the Federal Circuit. Id. This Court will accordingly follow the Ninth Circuit as binding authority, but the decisions of the Federal Circuit are 28 1 Cir. 2005). This Court is not inclined to blindly follow decisions from outside the Ninth 2 Circuit that provide no analysis of any kind on a potentially dispositive legal question. 3 In contrast, the District Court for the District of Columbia, which also does not bind 4 this Court, went the other way and concluded section 6103 does not prevent discovery of 5 “return information” in a civil case. See McSurely v. McAdams, 502 F. Supp. 52 (D.D.C. 6 1980). The court relied on the history of section 6103, which was enacted to prevent 7 political bullying by actors in the executive branch of the federal government from gaining 8 access to the personal information included in tax returns filed by private citizens, a 9 practice that had become endemic during certain political administrations of the late 60s 10 and early 70s. See id. at 56; accord Commodity Futures Trading Comm’n v. Collins, 997 11 F.2d 1230, 1233 (7th Cir. 1993); Stokwitz v. United States, 831 F.2d 893, 894-95 (9th Cir. 12 1987); Heathman v. U.S. Dist. Ct. for the Cent. Dist. of Cal., 503 F.2d 1032, 1035 (9th Cir. 13 1974). The court also concluded that any residual privacy concerns can be managed by 14 “properly tailored protective orders” that would prevent disclosure of any third parties’ 15 personal information. McSurely, 502 F. Supp. at 56-57. 16 Although this Court is not bound by McSurely, the Court finds the logic and 17 reasoning of McSurely persuasive because it analyzed what Congress intended when it 18 enacted section 6103 rather than simply assuming the statute applies in the context of a 19 discovery dispute. The purposes of section 6103 are not implicated in this case, however, 20 because the Aroestes are not Nixon-era hatchetmen engaged in the Cold War skullduggery 21 that prompted Congress to enact section 6103 in the first place. Accordingly, the Court 22 concludes section 6103 is likely not a valid basis for objecting to discovery. Nevertheless, 23 the Court need not resolve this tricky section 6103 question because, as the Court will 24 explain, the issue of privilege proves dispositive. 25 (B) The Redacted Portions of the Memoranda Fall Within the Attorney-Client 26 Privilege and Are Not Discoverable 27 Even if 26 U.S.C. section 6103 is wholly inapplicable to discovery, defendant could 28 properly withhold the information if it were protected by a privilege. Accordingly, 1 defendant argues the two memoranda at issue here must be redacted because they include 2 “confidential communications and legal advice [that] are protected by the attorney-client 3 privilege.” See Doc. No. 31 at 5. Plaintiffs conversely contend the memoranda contain 4 “agency law,” which is discoverable because “the government cannot shield by claim of 5 privilege . . . the established rules it enforces upon the public.” See Doc. No. 63 at 2-3. 6 Plaintiff cites three cases to support this position: Tax Analysts v. IRS, 117 F.3d 607, 617 7 (D.C. Cir. 1997); Taxation with Representation Fund v. IRS, 646 F.23d 666, 683 (D.C. Cir. 8 1981); and Coastal States Gas Corp. v. Dep’t of Energy, 617 F.2d 854, 868 (D.C. Cir. 9 1980).4 10 Neither the Supreme Court nor the Ninth Circuit has issued a decision on all fours 11 with this case or which addresses the specific “agency law” question presented by plaintiff. 12 This Court must therefore approach the question from the top down. Privileged material is 13 generally protected from discovery. See Fed. R. Civ. P. 26(b)(1). Federal common law 14 controls any privilege claim made in this case. See Fed. R. Evid. 501; Keith H. v. Long 15 Beach Unified Sch. Dist., 228 F.R.D. 652, 656 (C.D. Cal. 2005). 16 Under federal law: 17 The attorney-client privilege protects confidential communications between attorneys and clients, which are made for the purpose of giving legal advice. 18 The party asserting the attorney-client privilege has the burden of establishing 19 the relationship and privileged nature of the communication. The attorney- client privilege exists where: (1) [ ] legal advice of any kind is sought (2) from 20 a professional legal adviser in his capacity as such, (3) the communications 21 relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal 22 23 24 4 Although plaintiffs cite Taxation with Representation Fund for the proposition that 25 “agency law” is discoverable over an attorney-client privilege objection, that case does not actually address the attorney-client privilege at all. See generally 646 F.2d 666. Rather, the 26 court in Taxation with Representation Fund determined whether several different 27 categories of IRS internal memoranda were protected by the “deliberative process privilege.” See id. at 681-84. Because the deliberative process privilege is not at issue in 28 1 adviser, (8) unless the protection be waived. Voluntary disclosure of privileged communications constitutes waiver of the privilege for all other 2 communications on the same subject. 3 4 See United States v. Richey, 632 F.3d 559, 566 (9th Cir. 2011) (internal citations and 5 quotation marks omitted). Defendant bears the ultimate burden of proving the privilege 6 applies. United States v. Ruehle, 583 F.3d 600, 608 (9th Cir. 2009) (citing United States v. 7 Munoz, 233 F.3d 1117, 1128 (9th Cir. 2000)). 8 As the Court will explain, Tax Analysts and Coastal States are closely on point with 9 this case. Although neither out-of-circuit case binds this Court, the Court will nonetheless 10 consider them as persuasive authority. The Court will first determine whether Tax Analysts 11 and Coastal States correctly state the law or whether they conflict with any binding 12 authority. Having decided what law to follow, the Court will determine whether the 13 material is privileged under the appropriate legal standards. 14 (1) This Court Will Not Follow Tax Analysts and Coastal States Because They 15 Conflict with Ninth Circuit Law 16 Plaintiffs claim Tax Analysts is “the seminal case” on the issue of discovering 17 “agency law.” See Doc. No. 63 at 2. In Tax Analysts, the IRS claimed attorney-client 18 privilege over Field Service Advice memoranda (“FSAs”). See 117 F.3d at 618. FSAs are 19 memoranda prepared by attorneys working in the Office of Chief Counsel at the request of 20 IRS field agents. Id. at 609. “Each FSA includes a statement of issues, a conclusions 21 section, a statement of facts, and a legal analysis section.” Id. FSAs are objective analyses 22 that candidly discuss both the strengths and weaknesses of a particular case. Id. Although 23 FSAs are not binding on the IRS, they are “held in high regard” by field personnel and 24 “generally followed” by field agents conducting audits and other field work. Id. 25 The Tax Analysts court, following its earlier decision in Coastal States, held FSAs 26 were not per se privileged. Id. at 619. The court reasoned objective legal analyses by a 27 government lawyer on behalf of a government agency fundamentally differ from the 28 attorney-client communications between private litigants and their counsel because the 1 agency lawyer “rendering the opinion in effect is making law,” and the government cannot 2 treat as privileged this “body of private law, applied routinely as the government’s legal 3 position in its dealings with taxpayers.” Id. At the same time, the court noted (but did not 4 decide given the empty record) that FSA’s might be privileged in whole or in part if they 5 “reveal[ed] confidential information transmitted by field personnel regarding the scope, 6 direction, or emphasis of audit activity.” Id. at 619-20 (internal quotation marks omitted). 7 In Coastal States, the Department of Energy claimed privilege over “memoranda 8 from regional counsel to auditors working in [the] DOE’s field offices, issued in response 9 to requests for interpretations of regulations within the context of particular facts 10 encountered while conducting an audit of a firm.” 617 F.2d at 858. The Department 11 conducted the audits at issue in the case to ensure oil and gas producers were complying 12 with regulations for petroleum pricing and allocation. Id. If the auditors encountered any 13 problems with regulatory interpretation, “a request for advice would be sent to the regional 14 counsel, couched in a specific factual context, either real or hypothetical” and the response 15 “would be a legal memorandum, interpreting any applicable regulations in light of those 16 facts, and often pointing out additional factors which might make a difference in the 17 application of the regulation.” Id. at 858-59. 18 The court held the memoranda fell outside the attorney-client privilege. Id. at 863. 19 The court analogized the memoranda to “question and answer guidelines which might be 20 found in an agency manual” that do not contain “‘confidential information’ which an 21 auditor might have communicated to regional counsel.” Id. The Court distinguished a 22 situation in which the United States negotiated a contract with a private company, in which 23 case “the Government is dealing with its attorneys as would any private party seeking 24 advice to protect personal interests.” Id. (citing Mead Data Cent., Inc. v. U.S. Dep’t of the 25 Air Force, 566 F.2d 242 (D.C. Cir. 1977)). 26 The record in this matter demonstrates the memoranda at issue in this dispute are 27 substantially similar to the FSAs at issue in Tax Analysts. Like the FSAs in Tax Analysts, 28 the memoranda here include a statement of issues, a conclusions section, a statement of 1 facts, and a legal analysis section. They were prepared by attorneys working in the Office 2 of Chief Counsel at the request of IRS field agents. The memoranda here both present 3 objective applications of tax law provisions to the facts presented during taxpayer audits, 4 and they advise the field agents on the most probable result based on the taxpayers’ actions 5 (in both instances presenting potential alternative courses of conduct the taxpayers and the 6 IRS might follow). The record in this case does not support a finding one way or the other 7 as to how “authoritative” these memoranda are in a general sense, but the exhibits 8 submitted by the parties clearly demonstrate the IRS auditors followed the analyses 9 contained in both memoranda in multiple cases; with IRS agents calling one “a repeat 10 issue” and as to the other saying “[w]e have dealt with situations like this before.” See Doc. 11 Nos. 63-1, 63-2. 12 Similarly, the description of the memoranda at issue in Coastal States closely tracks 13 the memoranda at issue here. Like the memoranda in Coastal States, the memoranda in 14 this case entered the administrative record because the auditors encountered problems 15 applying statutes and regulations to the Aroestes, and they sent out a request for advice to 16 the OCC couched in a specific factual context. OCC’s response came in the form of a legal 17 memorandum objectively interpreting the facts as they pertain to the plaintiffs. 18 This Court concludes, based on its independent research, that none of the Ninth 19 Circuit’s decisions stand on all fours with this case or address the questions presented in 20 Tax Analysts and Coastal States. Some district courts within the jurisdiction of the Ninth 21 Circuit have followed the Tax Analysts and Coastal States decisions, overruling privilege 22 objections for intra-agency educational and training resources (generated by legal counsel 23 working at the agency) when the material at issue included legal analysis based on 24 hypothetical situations. See ACLU of N. Cal. v. FBI, 146 F. Supp. 3d 1161, 1168 (N.D. Cal. 25 2015), rev’d on other grounds, 881 F.3d 776 (9th Cir. 2018); ACLU of San Diego & 26 Imperial Ctys. v. U.S. Dep’t of Homeland Sec., 8:15-cv-229-JLS-RNB, 2017 WL 9500949, 27 2017 U.S. Dist. LEXIS 222216, at *27-28 (C.D. Cal. Nov. 6, 2017). Other courts, without 28 considering the “seminal” D.C. Circuit cases on which the plaintiffs rely here, have applied 1 the privilege to correspondence between an IRS revenue agent collecting tax liabilities and 2 an attorney in the OCC providing “legal advice concerning [the agent’s] collection of . . . 3 outstanding tax liabilities, and the alter ego or successor liability status of entities that might 4 be pursued for collection.” See Trucept, Inc. v. IRS, 15-cv-447-BTM-JMA, 2017 WL 5 2869531, 2017 U.S. Dist. LEXIS 103641, at *17-19 (S.D. Cal. July 5, 2017); Am. Marine, 6 LLC v. IRS, 15-cv-455-BTM-JMA, 2017 WL 3194167, 2017 U.S. Dist. LEXIS 118107, at 7 *16-18 (S.D. Cal. July 26, 2017). 8 The two ACLU cases are factually distinguishable because the documents at issue 9 here are legal memoranda analyzing case-specific facts rather than training materials 10 explicitly prepared for general usage by agency personnel. American Marine and Trucept 11 might be factually closer, since it appears from those cases that OCC lawyers were advising 12 field agents during an administrative audit. Both decisions, however, provide very little 13 analysis to support the conclusion the privilege applies, and neither decision addresses the 14 issues presented by Tax Analysts. Moreover, it is not clear whether the documents at issue 15 in American Marine and Trucept were memoranda advising on how the agency would treat 16 taxpayers generally, which would be discoverable “agency law” under Tax Analysts, or if 17 they were the kind of confidential information transmitted by field personnel regarding the 18 scope, direction, or emphasis of audit activity the Tax Analysts court would have 19 considered privileged. The Court, accordingly, declines to follow either set of cases. 20 The most salient critique of Tax Analysts and Coastal States comes from the Court 21 of Federal Claims. See Cencast Servs., L.P. v. United States, 91 Fed. Cl. 496 (2010). In 22 Cencast, the court noted both Tax Analysts and Coastal States relied on a body of D.C. 23 Circuit case law focusing on whether the information communicated between the agency 24 attorney and the agency is confidential rather than on whether the communication itself is 25 made in confidence between attorney and client notwithstanding the potentially public 26 nature of the information conveyed. See id. at 503-04. Unlike the D.C. Circuit, the Cencast 27 court noted the Federal Circuit treats any confidential communication between an attorney 28 and a client as privileged, even if that communication includes information that is not itself 1 strictly confidential. Id.; see also Yankee Atomic Elec. Co. v. United States, 54 Fed. Cl. 2 306, 313 (“[U]nlike the D.C. Circuit . . . the Federal Circuit has never expressly limited the 3 attorney-to-client communications privilege to communications revealing confidential 4 information, as opposed to confidential communication.”). 5 After distinguishing Tax Analysts and Coastal States based on the differing tests for 6 privilege, the Cencast court upheld privilege claims over a number of documents, including 7 several IRS field memoranda not meaningfully different from the documents at issue in 8 this case. See Cencast Servs., 91 Fed. Cl. at 505-08. The court reasoned that, under Federal 9 Circuit law, “[c]onfidential communications between agency personnel and agency 10 attorneys may be privileged even if the underlying information is not confidential in 11 nature.” Id. at 504. If the Ninth Circuit test for privilege is indistinguishable from the test 12 used in the Federal Circuit, then the logic of Cencast Services suggests that OCC 13 memoranda are protected by the attorney-client privilege. 14 In the Ninth Circuit, the attorney-client privilege protects against the compelled 15 disclosure of confidential communications between attorney and client regardless of 16 whether the factual information conveyed is confidential or discoverable by other means. 17 See Murdoch v. Castro, 609 F.3d 983, 995 (9th Cir. 2010); Gomez v. Vernon, 255 F.3d 18 1118, 1131 (9th Cir. 2001); Dolby Labs. Licensing Corp. v. Adobe, Inc., 402 F. Supp. 3d 19 855, 863 (N.D. Cal. 2019); Methode Elecs., Inc. v. Finisar Corp., 205 F.R.D. 552, 556 20 (N.D. Cal. 2001). Thus, this Circuit’s privilege law is more in accord with the Federal 21 Circuit’s doctrines than it is with the D.C. Circuit’s. The legal basis for Tax Analysts and 22 Coastal States decisions is incompatible with controlling precedent in the Ninth Circuit 23 because whether the information conveyed in the legal memoranda was kept strictly 24 confidential within the agency is immaterial to whether the communications themselves 25 are privileged. Unless and until the Ninth Circuit expressly adopts the logic of Tax Analysts 26 and Coastal States as an exception to its attorney-client privilege jurisprudence, this Court 27 is bound to reject the D.C. Circuit’s case law. Accordingly, in this Circuit, agency legal 28 1 memoranda prepared for the purpose of giving legal advice during an audit are protected 2 by the attorney-client privilege if they otherwise fit the Ninth Circuit’s test for privilege. 3 (2) Applying Ninth Circuit Law, the Memoranda Are Protected by the 4 Attorney-Client Privilege 5 In the Ninth Circuit, government agencies may claim the attorney-client privilege 6 when the agencies receive legal advice from government lawyers. See generally Maricopa 7 Audubon Soc’y v. U.S. Forest Serv., 108 F.3d 1089, 1092 (9th Cir. 1997); accord Coastal 8 States, 617 F.2d at 863; Deseret Mgmt. Corp. v. United States, 76 Fed. Cl. 88, 91 (2007); 9 cf. NLRB v. Sears, Roebuck & Co, 421 U.S. 132, 154 (1975) (noting “case law clearly 10 makes the attorney's work-product rule of Hickman v. Taylor, 329 U.S. 495 (1947), 11 applicable to Government attorneys in litigation”). For defendant to support its privilege 12 claim, the production of a privilege log (optionally coupled with in camera review) is 13 generally sufficient to sustain a claim of privilege under Ninth Circuit law. See Dole v. 14 Milona, 889 F.2d 885, 890 (9th Cir. 1989). 15 Defendant produced a privilege log that identifies the documents by Bates number, 16 document type, author, and recipient; provides a brief description for the basis of the 17 privilege claim; and states whether the document was withheld in whole or in part. 18 Defendant also lodged the documents at issue for in camera review, and it appropriately 19 highlighted the information claimed to be privileged. Both the privilege log and the 20 documents themselves indicate the memoranda constitute communications from OCC 21 attorneys to IRS field agents in which the field agents establish they are seeking legal 22 advice from professional legal advisors in their capacity as such. Moreover, the memoranda 23 expressly indicate they are confidential and must be kept so to preserve a privilege, which 24 establishes the “confidential communication” element of the attorney-client privilege. The 25 two documents thus present a straightforward application of the attorney-client privilege, 26 and this Court must only determine if the privilege has been waived. 27 The attorney-client privilege protects entire communications from disclosure. See 28 Upjohn Co. v. United States, 449 U.S. 383, 395-96 (1981). The “communications” at issue 1 here are the two memoranda in their entirety, each of which was drafted by an OCC 2 attorney and directed to an IRS agent working in the field. The IRS has disclosed those 3 portions of the memoranda which discuss the applicable law in a general sense and 4 withheld those portions applying that law to the facts of the particular cases. But an 5 attorney’s legal advice covers briefing his client on “what the law is” just as much as it 6 covers briefing the client on how the law should be applied in a particular case. If any part 7 of these documents were privileged, then all parts of the document are privileged. 8 Defendant chose to reveal some of these privileged documents to plaintiffs, but it withheld 9 certain information. 10 The adage about using the privilege as both a “shield” and a “sword” prevents parties 11 from selectively disclosing privileged information such that good evidence is presented to 12 the other party while adverse facts remain concealed behind the privilege. See generally 13 United States v. Sanmina Corp. & Subsidiaries, 968 F.3d 1107, 1121-22 (9th Cir. 2020); 14 Weil v. Investment/Indicators, Research & Mgmt., Inc., 647 F.2d 18, 24 (9th Cir. 1981); 15 see also Elec. Sci. v. Scanning, Inc., 175 F.R.D. 539, 543 (N.D. Cal. 1997) (“[A] 16 sophisticated party who intentionally discloses the most significant part of an otherwise 17 privileged communication, in an act calculated to advance that party's commercial 18 interests, cannot establish, as the law would require, that the party reasonably believed that 19 it would be able to preserve the confidentiality of the other parts of the communication.”); 20 accord Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1427 n.13 21 (3d Cir. 1991) (“When a party discloses a portion of otherwise privileged materials while 22 withholding the rest, the privilege is waived only as to those communications actually 23 disclosed, unless a partial waiver would be unfair to the party's adversary.”); First Heights 24 Bank, F.S.B. v. United States, 46 Fed. Cl. 312, 316 (2000) (“When a party discloses 25 privileged material for strategic purposes, this may imply a waiver of privilege with respect 26 to all other communications on the same subject.”). 27 The kind of “unfairness” required for a privilege waiver here is not met simply by 28 showing plaintiff some of the privileged material, but it would be met if defendant tried to 1 |/use the unredacted portions of the documents against plaintiffs while at the same time 2 || withholding the redacted portions of the documents as privileged. See Electro Sci. Indus v. 3 || Gen. Scanning, Inc., 175 F.R.D. 539, 543 (N.D. Cal. 1997); Volcan Grp., Inc. v. T-Mobile 4 || USA, Inc., C10-711 RSM, 2011 U.S. Dist. LEXIS 142159, at *8-9 (W.D. Wash. Dec. 9, 5 2011); cf Columbia Pictures Indus. v. Krypton Broad. of Birmingham, Inc., 259 F.3d 1186, 6 || 1196 (9th Cir. 2001) (holding a district court properly precluded a litigant from relying on 7 || an “advice of counsel” defense when he asserted the attorney-client privilege as a means 8 frustrating discovery into the factual basis of the defense). 9 At this point, the record before this Court does not show defendant seeks to use the 10 unredacted portions of the memoranda as a means of defeating plaintiffs’ claims while at 11 |/the same using privilege to prevent plaintiffs from fully exploring the contents of the 12 ||documents. Accordingly, the Court finds fairness does not require disclosure of the 13 |}material withheld as privileged, and the Court does not find defendant has waived the 14 || privilege. Defendant’s attorney-client privilege objection is SUSTAINED. 15 IV. Conclusion and Order 16 The Court has concluded the redacted portions of the two memoranda at issue fall 17 || within the attorney-client privilege. Accordingly, the Court need not determine whether 18 section 6103 supplies a valid basis for objection. Because defendant’s objection on the 19 || basis of the attorney-client privilege is sustained, plaintiff's motion to compel production 20 || of the redacted portions of the two documents is DENIED. 22 || Dated: August 15, 2023 Jl. Lan) 23 Mian □□ Hori. Karen 8S. Crawford United States Magistrate Judge 25 26 27 28