Wells Fargo & Company v. United States of America
Filing
480
ORDER - Plaintiff's objection 440 is OVERRULED. The special master's orders and report ECF Nos. 434 , 435 , 438 are AFFIRMED and ADOPTED. (Written Opinion). Signed by Judge Patrick J. Schiltz on 06/16/14. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
WELLS FARGO & COMPANY, on behalf
of itself and the members of its affiliated
group filing a consolidated return,
Case No. 09-CV-2764 (PJS/TNL)
Plaintiff,
ORDER
v.
UNITED STATES OF AMERICA,
Defendant.
B. John Williams, Jr., Julia M. Kazaks, Alan Swirski, and Cary Pugh, SKADDEN,
ARPS, SLATE, MEAGHER & FLOM LLP; Walter A. Pickhardt, Charles F. Webber,
and Martin S. Chester, FAEGRE BAKER DANIELS LLP; Jeffrey A. Sloan, WELLS
FARGO & COMPANY, for plaintiff.
Dennis M. Donohue, John L. Schoenecker, Kari M. Larson, William E. Farrior, and Alan
S. Kline, UNITED STATES DEPARTMENT OF JUSTICE, for defendant.
This matter is before the Court on the objection of plaintiff Wells Fargo & Company
(“Wells Fargo”) to the special master’s December 6, 2013 order and report resolving a dispute
over whether certain of Wells Fargo’s documents are privileged.1 The Court has conducted a de
novo review pursuant to ¶ 8 of the Court’s order appointing the special master. See ECF
No. 102. Having carefully reviewed the disputed documents, the Court finds that the documents
are not privileged and therefore affirms the order and report.
1
On December 25, 2013, the special master issued an order revising and correcting his
earlier order. ECF No. 438.
A. Background
The parties’ dispute concerns two privileges: the attorney-client privilege and the
“federally authorized tax practitioners” privilege created by 26 U.S.C. § 7525.
Section 7525(a)(1) provides as follows:
With respect to tax advice, the same common law protections of
confidentiality which apply to a communication between a
taxpayer and an attorney shall also apply to a communication
between a taxpayer and any federally authorized tax practitioner to
the extent the communication would be considered a privileged
communication if it were between a taxpayer and an attorney.
Under § 7525(b), however, there is an exception to the privilege: the privilege does not apply to
written communications “in connection with the promotion of the direct or indirect participation
of the person in any tax shelter . . . .”
Before they submitted their dispute to the special master, the parties first attempted to
resolve it by agreeing to a “quick peek” procedure. Under this procedure, Wells Fargo provided
the disputed documents to Rick Watson, a trial attorney in the tax division of the Department of
Justice who had no connection to this case. The Court entered an order under which Watson was
to review the disputed documents and produce a list of documents that he believed were not
privileged. ECF No. 236 ¶ 9. The government would thereafter be precluded from challenging
Wells Fargo’s claim of privilege as to any document that had not been included on Watson’s list.
Id. ¶ 12.
Following the quick-peek procedure, 161 privilege-log entries remained in dispute. The
parties submitted briefing and supporting materials regarding those documents to the special
master, who issued a report and order. Wells Fargo now objects to portions of that order.
-2-
B. Special Master’s Authority
Wells Fargo’s first objection concerns the scope of the special master’s authority under
the Court’s quick-peek order. According to Wells Fargo, Watson determined that certain
documents were within the scope of the § 7525(a) privilege, but found that the § 7525(b)
exception to the privilege applied. On review, the special master agreed with Wells Fargo that
the § 7525(b) exception did not apply, but nevertheless held that some of the documents were not
protected because they were not within the scope of the § 7525(a) privilege in the first place.
Wells Fargo contends that the special master had no authority to make the latter determination
because Watson had already determined that the documents were within the scope of the
§ 7525(a) privilege.
Wells Fargo cites no language from the quick-peek order that supports its argument. That
is not surprising, as there is no such language in the order. The quick-peek order did not
authorize Watson to provide any commentary about why he believed certain documents were not
privileged. To the contrary, the order expressly limited Watson to listing only the log dates and
log entry numbers for documents he found to be unprotected. ECF No. 326 ¶ 9. Because the
quick-peek order did not authorize Watson to comment on the reasons for his decision, the order
obviously did not bind the government or the special master to the extraneous commentary that
Watson provided. The quick-peek order only precludes the government from contesting a
finding by Watson that a document is privileged; it does not preclude the government from
making any argument that it wishes to make regarding a finding by Watson that a document is
not privileged. See id. ¶ 12. Wells Fargo’s contention that the special master was bound by
Watson’s commentary is without merit.
-3-
Wells Fargo also contends that the special master should not have addressed the
government’s argument regarding § 7525(a) because the government failed to make that
argument in its opening brief. The Court disagrees. The government’s opening brief certainly
devoted more attention to § 7525(b) arguments, but it also raised § 7525(a) arguments. See ECF
No. 351 at 21 (the § 7525(a) privilege “does not apply to documents reflecting communications
regarding non-US tax matters” and “does not apply to documents which are not in fact
communications”).
Moreover, although it is true that courts normally do not address arguments raised for the
first time in reply briefs, that does not mean that courts are barred from doing so, nor that a court
commits reversible error if it chooses to do so. Wells Fargo does not contend that it was
prejudiced in any way by the timing of the government’s § 7525(a) argument, and Wells Fargo
has not identified a single argument that it was unable to make to the special master. The Court
therefore rejects Wells Fargo’s contention that the special master exceeded his authority in
finding that certain documents fell outside of the § 7525(a) privilege.
C. Attorney-Client Privilege
Wells Fargo next objects to the special master’s determination that certain documents are
not protected by the attorney-client privilege. Because this case arises under federal law, the
federal common law of privilege applies. Fed. R. Evid. 501; United States v. Zolin, 491 U.S.
554, 562 (1989).
Under the federal common law, the attorney-client privilege “protects confidential
communications between a client and her attorney made for the purpose of facilitating the
rendition of legal services to the client.” United States v. Yielding, 657 F.3d 688, 707 (8th Cir.
-4-
2011). A communication is not privileged, however, merely because it is made to an attorney.
United States v. Townsley, 843 F.2d 1070, 1086 (8th Cir. 1988). Instead, the communication
must be made for the purpose of obtaining legal advice or services. “Thus, where the attorney
acts merely as a . . . scrivener for the client, or as a business adviser, the privilege is
inapplicable.” United States v. Horvath, 731 F.2d 557, 561 (8th Cir. 1984) (citations omitted).
As the party invoking the privilege, Wells Fargo has the burden of establishing that the
privilege applies. Hollins v. Powell, 773 F.2d 191, 196 (8th Cir. 1985). This burden includes
establishing a factual basis for asserting the privilege. Rabushka ex rel. U.S. v. Crane Co., 122
F.3d 559, 565 (8th Cir. 1997).
1. Board Memorandum
Wells Fargo first objects to the special master’s determination that some 21 documents
relating to the drafting of a memorandum to Wells Fargo Bank, N.A.’s board of directors are not
privileged. The memorandum explained the STARS transaction to the board and apparently was
submitted to the board in connection with the board’s consideration of resolutions approving the
transaction. ECF No. 348 at 14. The documents in dispute consist both of standalone draft
versions of the memorandum and emails with draft versions attached.2 Wells Fargo contends
that these drafts and accompanying emails are privileged because they were circulated to Wells
Fargo’s in-house counsel during the drafting process. The Court disagrees.
With respect to about half of these documents, there is no evidence that they were
communicated to anyone at all, much less that they were communicated to Wells Fargo’s in2
Portions of some documents are bordered in green; with respect to those portions, the
government is deemed to concede privilege as a result of the quick-peek procedure. ECF
No. 435 at 20.
-5-
house counsel.3 For that reason alone, Wells Fargo has failed to meet its burden to show that
these documents are protected by the attorney-client privilege.
Even if Wells Fargo could show that all 21 of the documents were circulated to its inhouse attorneys, the Court could not find that the documents were privileged, because Wells
Fargo has failed to establish that the documents were circulated for the purpose of obtaining legal
advice or services. Wells Fargo argues that the Court can infer that drafts of the memorandum
sent to in-house counsel were implicit requests for legal advice or services regarding the
memorandum. In particular, Wells Fargo contends that legal review of the drafts was necessary
to “ensure compliance by Wells Fargo with corporate governance principles, a legal duty” and to
“ensur[e] that Wells Fargo Bank is properly empowered to take certain actions . . . .” ECF
No. 362 at 19. But Wells Fargo offers no evidence to support these rather vague and abstract
assertions. By contrast, the government offers concrete evidence that Wells Fargo’s in-house
attorneys were involved in non-legal aspects of implementing the STARS transaction. See
Larson Decl., July 30, 2012 [ECF No. 352-1] Ex. 23 (email suggesting that attorney was
involved in reviewing balance sheets); id. Ex. 25 (email suggesting that attorney was involved in
selecting loans for inclusion in the transaction). Under these circumstances, it is as likely that
these attorneys were being asked to ensure the factual accuracy of the drafts as it is that these
attorneys were being asked to provide legal advice.
3
These documents include Nos. 1076, 1078, and 1089 in the revised June 6, 2011 log and
Nos. 15, 50, 94, 237, 268, 269, 306, 331 in the revised June 13, 2011 log. The log entries for all
of these documents fail to identify any recipient, and none of the documents include an
accompanying email.
-6-
Wells Fargo compares this case to ADT Security Services, Inc. v. Swenson, in which this
Court found that certain emails to counsel were implicit requests for legal advice. No. 07-CV2983, 2010 WL 2954545, at *4-5 (D. Minn. July 26, 2010). In ADT Security, however, the
emails in question concerned the company’s response to media coverage of a pending lawsuit
involving the company. Id. at *5. It was not difficult to infer that the emails sought legal advice
about the content of that response. Here, by contrast, there is little basis to infer that anyone was
seeking legal advice regarding the draft versions of the memorandum. The Court therefore finds
that Wells Fargo has failed to carry its burden to show that the drafts were communicated to its
in-house attorneys for the purpose of obtaining legal advice or other legal services.
2. October 2002 Email
Wells Fargo next objects to the special master’s determination that an October 30, 2002
email from Gary Peterson to Robert Kaukol is not privileged.4 Gary Peterson is the director of
Wells Fargo’s state and local tax department; Robert Kaukol is an in-house attorney at Wells
Fargo.5 Pl.’s Ex. 8 [ECF No. 349-2 at 80]. The email is embedded in a larger chain, the
remainder of which the special master found to be privileged. Wells Fargo contends that the
email is privileged because it “addressed legal aspects of revising transaction documents for the
STARS transaction.” ECF No. 440 at 12. The Court disagrees. The tenor of the email suggests
that Peterson is unhappy about substantive changes to certain documents because they affect the
4
This email is part of Document No. 78 in the revised June 6, 2011 privilege log. Pl.’s
Ex. 7 [ECF No. 349-2 at 77]. The email in question comprises Blocks 6 and 7 of the document;
the special master’s report explains how the blocks are numbered.
5
According to Wells Fargo, Gary Peterson is a “federally authorized tax practitioner” for
purposes of the statutory privilege in 26 U.S.C. § 7525. ECF No. 348 at 5 n.10. In its objection,
however, Wells Fargo does not contend that this email is privileged under § 7525.
-7-
economic terms of the STARS transaction; Peterson does not appear to be seeking any legal
advice. The Court therefore overrules Wells Fargo’s objection as to this document.
ORDER
Based on all of the files, records, and proceedings herein, IT IS HEREBY ORDERED
THAT:
1.
Plaintiff’s objection [ECF No. 440] is OVERRULED.
2.
The special master’s orders and report [ECF Nos. 434, 435, 438] are AFFIRMED
and ADOPTED.
Dated: June 16, 2014
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
-8-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?