Sixth Circuit Holds that Courts Cannot Enjoin IRS From Receiving or Using Alleged Confidential Info from Former Attorney (11/13/19)

Note:  I posted this earlier on the Federal Tax Crimes Blog here, but since it overlaps with Federal Tax Procedure, I post it here.

In Gaetano v. United States, 2019 U.S. App. LEXIS 33164 (6th Cir. 2019), here, the Gaetanos (husband and wife) sued the United States to enjoin the IRS from receiving and using attorney-client confidential information that their former attorney, Goodman, did or might share with the IRS.  The Court opens with this good succinct introduction of the factual background and holding.

Richard and Kimberly Gaetano trusted Gregory Goodman as their legal advisor and business partner in running a cannabis operation. That trust was spurned.  The Gaetanos ended the relationship after ethics violations undid Goodman's license to practice law. He retaliated by assisting the Internal Revenue Service in a tax audit against them. Concerned about what Goodman might reveal, the Gaetanos sued the government to prevent it from discussing attorney-client confidences with him. The Anti-Injunction Act bars the lawsuit, and the Williams Packing exception does not apply. See 26 U.S.C. § 7421(a); Enochs v. Williams Packing & Navig. Co., 370 U.S. 1, 82 S. Ct. 1125, 8 L. Ed. 2d 292 (1962).

The district court dismissed the complaint.  On appeal, the Sixth Circuit held that dismissal was proper on jurisdictional grounds because of the Anti-Injunction Act, § 7421(a).  In summary, the Court held:

1.  The claim of violation of the Sixth Amendment right to counsel was improper because that is a right that attaches when prosecution is commenced.  There was no prosecution (at least not yet).

2.  The claim of violation of due process was improper.  The Court reasoned (cleaned up):

The Gaetanos next seek refuge in the Due Process Clause of the Fifth Amendment. As a creation of the common law, not the Constitution, the attorney-client privilege cannot by itself provide the basis for a due process claim. Support for the Gaetanos' position thus must come from somewhere else, in this instance from cases holding that deliberate preindictment intrusions into the attorney-client relationship may prove so pervasive and prejudicial as to imperil the fairness of subsequent proceedings.  

Vanishingly few decisions have found a due process violation for government intrusion into the attorney client relationship. The few cases generally involved nefarious government conduct,  such as infiltrating a defense lawyer's office. And in the lion's share of cases, courts treat these due process claims with suspicion. For our part, we have never found a Fifth Amendment violation on this ground. And we recently expressed our skepticism about the continued vitality of the "outrageous government conduct" defense, of which these claims are thought to be a subspecies. 

Even if this deliberate-intrusion concept could form the basis of a due process claim, the Gaetanos still would not prevail. Such claims require an ongoing, personal attorney-client relationship. That's not something the Gaetanos and Goodman have. Such claims also require a deliberate intrusion. But that's not what happened. The government never requested privileged information from Goodman. Such claims also require actual and substantial prejudice. But the Gaetanos seek relief outside the context of any enforcement proceeding, and they offer no explanation why the ordinary remedy—suppressing privileged evidence—would fail to protect them. No Fifth Amendment danger lurks.

3.  The Court rejected a claim under § 7525, noting that the privilege could be raised only to prevent compelled production of privileged information, but cannot be used to stop extrajudicial communications unrelated to  proceedings before a court.
4.  The Williams Packing exception to the AIA § 7421(a) prohibition of injunctions did not apply.  The Court said (cleaned up):

The Gaetanos add that federal courts have common law power to enjoin intrusions into the attorney-client relationship. In some settings, yes. But not here. Sure: The privilege can be raised by lawyers and their clients as a shield against compelled disclosure of protected information; it can be invoked to quash subpoenas; and it can supply the basis for protective orders. But the privilege cannot be used to stop extrajudicial communications unrelated to proceedings before a court. Judges have no roving commission to police voluntary, out-of-court communications. A court's authority to protect the attorney-client privilege doesn't apply to such communications any more than it does to an after-dinner conversation. 

Perhaps most importantly, we are not aware of any case using any such theory to shoehorn into the Williams Packing exception. Keep in mind that, so far as the record shows, the government has not done anything wrong. And keep in mind the threshold for impropriety. In United States v. Rogers, an IRS agent interviewed a criminal defendant's former tax lawyer and induced him to divulge privileged material. 751 F.2d 1074, 1075 & n.1 (9th Cir. 1985). Even though that lawyer failed to assert his ethical obligation to confidentiality, the court found no misconduct because the agents did not employ subterfuge to deprive the lawyer of the opportunity to decline to answer, and because the lawyer could have conveyed information to the agents that was not violative of his ethical duty of confidentiality. Other courts have reached the same conclusion on similar facts.  

This case is much farther from the line. The government counseled Goodman not to divulge privileged material, verified that he understood the difference between privileged and non-privileged material, and took steps to clear communications with legal counsel. To this day, the Gaetanos have not identified any privileged information in the three-page summary of the agent's call with Goodman.

JAT Comments: None.