UNITED STATES OF AMERICA v. Sanmina Corporation and Subsidiaries

Filing 62

ORDER GRANTING 54 MOTION TO STAY. Signed by Judge William Alsup. (whalc2S, COURT STAFF) (Filed on 12/4/2018)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA,

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For the Northern District of California

United States District Court

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Petitioner,

No. C 15-00092 WHA

v.
SANMINA CORPORATION AND
SUBSIDIARIES,

ORDER GRANTING MOTION
TO STAY

Respondent.

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INTRODUCTION

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In this action to enforce an IRS summons, respondent moves to stay the production of

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two memoranda pending its appeal of an order finding waiver of the attorney-client privilege

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and attorney work-product doctrine. For the reasons stated herein, respondent’s motion is

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GRANTED.

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STATEMENT

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The Internal Revenue Service seeks production of two memoranda that respondent

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Sanmina Corporation and subsidiaries relied on to validate a $503 million deduction which

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offset all of its taxable income for the 2008 tax year (Dkt. No. 8 at 18). The IRS issued a

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summons on December 18, 2013, demanding Sanmina produce the memoranda in question

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(Dkt. No. 1-2, Exh. A at 3). Sanmina declined to produce the memoranda, invoking the

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attorney-client privilege and attorney work-product doctrine. In January 2015, the IRS filed a

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petition to enforce the summons (Dkt. No. 1). An order dated May 2015 denied enforcement of

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the summons and the IRS appealed (Dkt. Nos. 15, 19). Our court of appeals remanded the

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matter on December 20, 2017 to determine: (1) whether the memoranda are privileged in the

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first instance, and (2) whether such privilege was waived (Dkt. No. 36). An order dated

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October 2018 affirmed that the memoranda were originally protected by the attorney-client

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privilege and as attorney work-product, but ultimately concluded that both grounds had been

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waived (Dkt. No. 51). Sanmina now moves to stay production of the memoranda pending the

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outcome of its appeal.
This order follows full briefing. Pursuant to Civil Local Rule 7-1(b), this order finds

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For the Northern District of California

United States District Court

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Sanmina’s motion suitable for submission without oral argument and hereby VACATES the

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hearing scheduled for December 13.

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ANALYSIS
Whether to issue a stay is within the district court’s discretion. “The party requesting a

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stay bears the burden of showing that the circumstances justify an exercise of that discretion.”

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Nken v. Holder, 556 U.S. 418, 434 (2009). This requires the court to weigh four factors:

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(1) whether the stay applicant has made a strong showing that he is
likely to succeed on the merits; (2) whether the applicant will be
irreparably injured absent a stay; (3) whether issuance of the stay
will substantially injure the other parties interested in the
proceeding; and (4) where the public interest lies.

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Ibid. For the second Nken factor, our court of appeals has explained that a petitioner must

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“demonstrate that irreparable harm is probable” absent a stay, and that “if the petitioner has

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not made a certain threshold showing regarding irreparable harm . . . then a stay may not issue,

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regardless of the petitioner’s proof regarding other stay factors.” Leiva-Perez v. Holder, 640

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F.3d 962, 965–68 (9th Cir. 2011) (emphasis added). This order finds that the balance of

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equities weigh in favor of granting a stay.

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Sanmina claims it would be severely and irreparably injured if it had to turn over

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documents that were later adjudicated to be privileged (Dkt. No. 54 at 3). This order agrees.

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While Sanmina has not made a strong showing that it is likely to succeed on the merits,

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Sanmina’s burden with regard to irreparable harm is “higher than it is on the likelihood of

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success prong, as it must show that an irreparable injury is the more probable or likely

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outcome.” Leiva-Perez, 640 F.3d at 968. The threshold for the second prong is higher than

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that of the first prong because, while “a court often cannot reasonably determine whether the

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petitioner is more likely than not to win on the merits, [ ] typically it is easier to anticipate what

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would happen as a practical matter following the denial of a stay.” Ibid. If a stay is denied and

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the memoranda are ordered produced, privilege cannot be restored.

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Each argument is discussed in turn.
First, the IRS argues that any harm Sanmina might suffer is not irreparable. The IRS

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For the Northern District of California

United States District Court

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The IRS makes three arguments to support its position that a stay should not issue.

cites to Church of Scientology of California v. United States, 506 U.S. 9, 12–13 (1992), for the

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proposition that though “a court may not be able to return the parties to the status quo

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ante—there is nothing a court can do to withdraw all knowledge or information that IRS agents

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may have acquired by examination of the tapes—a court can fashion some form of meaningful

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relief in circumstances such as these.” While the possibility of effectuating some sort of relief

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might be sufficient to prevent Sanmina’s appeal from being moot, the Supreme Court has not

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blessed the compelled production of potentially privileged documents pending appeal. As

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such, this order finds that absent a stay, Sanmina will still be irreparably harmed, even if some

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of the harm could be later mitigated.

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Second, the IRS asserts that a stay would harm both its own interest and the public

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interest. When the government is the opposing party, the balance of hardships and public

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interest prongs are merged. Leiva-Perez, 640 F.3d at 970. The IRS argues that under the

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relevant statute of limitations, it has until December 2019 to assess Sanmina’s tax liability and

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an open-ended stay could impede their tax collection efforts, harming its interest (Dkt. No. 60

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at 7–8). Third, the IRS argues that the public’s interest in the expeditious assessment and

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collection of taxes weighs against granting a stay (Id. at 7). This order disagrees.

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Given that the appeal has already commenced and that the matter came back here on a
limited remand, our court of appeals is presumably close to a decision. It will not injure the

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IRS or the public interest to wait a few more months or weeks for that appellate decision.

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Thus, this order maintains the memoranda’s privilege.

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CONCLUSION

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In sum, Sanmina has demonstrated it will suffer irreparable harm absent a stay.

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Accordingly, Sanmina’s request for a stay pending appellate decision is GRANTED. Sanmina

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does not have to produce the memoranda in question until, if ever, an affirmance, or other

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order, by our court of appeals. But upon affirmance by our court of appeals, Sanmina must

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turn over the memoranda in question to the IRS within 14 CALENDAR DAYS. The December 13

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hearing is hereby VACATED.

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For the Northern District of California

United States District Court

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IT IS SO ORDERED.

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Dated: December 4, 2018.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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