Securities and Exchange Commission v. Alderson et al
Filing
77
OPINION AND ORDER re: 49 LETTER MOTION for Discovery Letter Brief in Opposition to Maintaining Privilege over Tax Opinions addressed to Judge Valerie E. Caproni from Mark Landau dated 3/21/2019. filed by Bradley Hamilton, 42 LETT ER MOTION to Compel MarketCounsel, LLC to Comply with Rule 45 Subpoena Duces Tecum addressed to Judge Valerie E. Caproni from Haimavathi V. Marlier dated March 1, 2019. filed by Securities and Exchange Commission, 54 THIRD PARTY LE TTER MOTION for Discovery Letter Reply in Support of Maintaining Privilage Over Tax Opinions addressed to Judge Valerie E. Caproni from Non-party Brite Advisors USA, Inc. dated 3/28/19. filed by Non-party Brite Advisors USA, Inc. f/k/a deVe re USA, Inc. For the foregoing reasons, the SEC's motion to compel production of communications between MarketCounsel and DVU is GRANTED as to Entry Nos. 145 and document CTRL00465984 as identified on the Privilege Log. MarketCounsel is directe d to produce thedocuments by June 14, 2019, or on a date mutually agreeable to MarketCounsel and the interested parties. DVU's claim of privilege and work product protection over the 2011 and 2013 Carlton Fields tax opinions is DENIED. To the e xtent that Defendants do not have copies of the taxopinions, the SEC is directed to produce the opinions to Defendants by June 14, 2019, or on adate mutually agreeable to the interested parties. The Clerk of Court is respectfully directed to terminate docket entries 42, 49, and 54. SO ORDERED. (Signed by Judge Valerie E. Caproni on 6/10/2019) (anc)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE COMMISSION,:
:
Plaintiff,
:
:
-against:
:
BENJAMIN ALDERSON, and
:
BRADLEY HAMILTON,
:
:
Defendants.
:
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VALERIE CAPRONI, United States District Judge:
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 06/10/2019
18-CV-4930 (VEC)
OPINION AND ORDER
The Securities and Exchange Commission (“SEC”) accuses Defendants of violating
Section 206 of the Investment Advisors Act of 1940 (codified at 15 U.S.C. § 80b-6) by, among
other things, misrepresenting the tax consequences of an investment option offered by their
former employer, Brite Advisors USA, Inc. (formerly deVere USA, Inc. and hereinafter
“DVU”). DVU has now asserted attorney-client privilege and work-product protection over
documents that may be relevant to Defendants’ ability to mount a defense. Those documents
consist of tax opinions, which were prepared by DVU’s outside counsel, and communications
between DVU and attorneys at a compliance consulting firm, MarketCounsel, LLC
(“MarketCounsel”). As to the tax opinions, the Court concludes that they are not work product
and that DVU has waived any attorney-client privilege by voluntarily disclosing the opinions to a
third party. As to the MarketCounsel communications, the Court concludes that only Entry Nos.
46 and 47 of the privilege log, excluding document CTRL00465984, are privileged and protected
from disclosure.
I.
BACKGROUND
DVU is a registered investment adviser whose client-base consisted primarily of British
nationals residing in the United States. Compl. (Dkt. 1) ¶¶ 20–21. Between June 2013 and
March 2017, DVU, through its investment adviser representatives, advised its British clients to
withdraw the cash value of their pensions in the United Kingdom and transfer the money to an
off-shore pension plan, known as a Qualifying Recognized Overseas Pension Scheme
(“QROPS”). Id. ¶¶ 2, 21. At all relevant times in the Complaint, Alderson was DVU’s CEO,
Alderson Answer (Dkt. 25) ¶ 1, and Hamilton was a DVU Area Manager, Hamilton Answer
(Dkt. 26) ¶ 2. Both Alderson and Hamilton were also investment advisers, who counseled
clients to transfer their pensions to a QROPS. Alderson Answer ¶ 2; Hamilton Answer ¶ 2.
According to the SEC, Defendants and other DVU advisers earned a commission equal to
3.5 % of each client’s cash transfer, a conflict of interest required to be disclosed under the
Investment Advisers Act. Compl. ¶ 4; Hamilton Answer ¶¶ 3–4. DVU advisers also allegedly
misrepresented the range of investment options available through the QROPS, as well as the
associated tax consequences. Hamilton Answer ¶¶ 6, 8. Defendants intend to argue, at least as
to the alleged misrepresentation of tax consequences, that they relied in good faith on the advice
of counsel. Alderson Answer at 18 (“Alderson at all times relied in good faith upon the advice
and supervision of DVU and deVere Group’s Legal and Compliance Departments[.]”); Hamilton
Answer ¶ 115 (“Defendant Hamilton, in good faith, relied upon the instructions and advice of his
superiors at DVU and DVG, and DVU’s Chief Compliance Officer and Counsel.”).
Tax opinions obtained by DVU from its outside counsel, Carlton Fields, and advice
provided by a compliance consultant, MarketCounsel, are purportedly relevant to Defendants’
advice-of-counsel defense. DVU has refused to allow Defendants to use those documents and
has asserted attorney-client privilege and work-product protection to resist their production. See
2
United States v. Wells Fargo Bank, N.A., 132 F. Supp. 3d 558, 566 (S.D.N.Y. 2015) (holding that
employee is unable to assert advice-of-counsel defense when employer refuses to waive
attorney-client privilege).
A. DVU’s Relationship with MarketCounsel
MarketCounsel is a consulting firm staffed with licensed attorneys. DVU retained it in
August 2012 to assist with compliance with federal securities laws. Byrne Decl. (Dkt. 48) ¶¶ 8,
13.
In October 2014, the SEC commenced an examination of DVU. See Byrne Decl. ¶ 17.
Throughout the course of the SEC’s examination, DVU’s in-house counsel sought and received
advice from MarketCounsel’s compliance personnel, who, although licensed attorneys, were
retained pursuant to an agreement that expressly disclaimed the existence of an attorney-client
relationship. Those communications, as reflected in DVU’s privilege log, are now the subject of
the SEC’s motion to compel and have been submitted to the Court for in camera review.
The manner in which MarketCounsel structures its client relationships merits discussion.
Brian Hamburger, an attorney, co-founded MarketCounsel, LLC, and the Hamburger Law Firm,
a related entity. Dkt. 43 ¶¶ 9–10. The Hamburger Law Firm offers a traditional, billable
arrangement for legal representation and advice, whereas MarketCounsel offers membership
packages with varying levels of compliance-related services other than legal representation and
advice. The two entities, however, are cross-staffed, such that an associate of the Hamburger
Law Firm who provides legal advice to clients is simultaneously a compliance consultant who
provides non-legal services. Prospectus (Dkt. 43-9) at 4, 6. The theoretical line between legal
and non-legal services blurs even further when MarketCounsel promotes the latter by
emphasizing the legal experience of its compliance personnel. Prospectus at 5 (“Each
compliance professional is a seasoned securities attorney with years of experience as well as
3
often having skills garnered from employment within the securities industry. This depth of
knowledge allows our members to have such confidence in our interactions.”).
In what appears to have been a penny wise but pound foolish decision, DVU opted for
membership with MarketCounsel, rather than the more expensive law firm engagement. See
Byrne Decl. ¶ 13. MarketCounsel’s membership prospectus contains numerous disclaimers
regarding the nature of the relationship between its clients and the compliance professionals who
happen to be attorneys. The prospectus specifically states that “under a MarketCounsel
engagement, our staff attorneys do not serve as attorneys for our members. These same
individuals may be engaged to serve as attorneys for our members through our separate but
affiliated law firm, the Hamburger Law Firm. This representation is done under a separate
written agreement and fee.” Prospectus at 6. The prospectus notes that, in keeping with ethical
guidelines regarding the practice of law, MarketCounsel, as a consulting firm, “is unable to
perform” traditional legal services. Id.
The terms and conditions of the prospectus also emphasize, more than once, that
MarketCounsel “do[es] not provide legal or accounting services and [that] no portion of the
Services should be considered legal advice.” Id. at 14. “Services” is broadly defined as the
specifically delineated member benefits, as well as any “Supplemental Services” provided by
MarketCounsel that are not included in the membership. Id. The prospectus further explains
that, “[w]hile certain of MarketCounsel’s employees are attorneys, none of them are providing
legal advice to you under this Agreement. Communications between you and us under this
Agreement are not protected by any privilege, attorney-client or otherwise.” Id.
In early October of 2014, DVU renewed its membership with MarketCounsel, again
opting against an engagement with the Hamburger Law Firm. Ellis Decl. (Dkt. 43), Exs. L, M.
Around the time of the renewal, the SEC commenced its examination of DVU and submitted a
4
number of requests for information. See Byrne Decl. ¶ 17; Privilege Log (Dkt. 48-1). As
indicated in DVU’s privilege log, MarketCounsel, chiefly through staff attorney Meredith
Abrams, provided advice and support to DVU’s in-house counsel, Martin Byrne, throughout the
examination. See id. DVU claims attorney-client privilege over all 47 entries in the privilege
log and work-product protection as to Entry Nos. 46 and 47.
As confirmed by the Court’s in camera review, the communications identified in the
privilege log, which are the subject of the SEC’s motion to compel production, consist primarily
of Byrne’s requests for advice on the SEC examination and exchanges of draft responses to the
SEC’s information requests. See id.
B. DVU’s Tax Opinions
DVU also claims attorney-client privilege and work-product protection over a 2011 tax
opinion and a 2013 supplemental opinion provided by DVU’s counsel, Carlton Fields. Both
opinions address the United States tax consequences of QROPS. Napierala Decl. (Dkt. 45) ¶¶ 4–
5. DVU and Defendants largely dispute whether the tax opinions were intended to be and in fact
were kept confidential.
DVU provided the 2011 tax opinion to Alderson, who at the time was working for
DVU’s parent company. DVU recruited Alderson to be DVU’s CEO and provided the tax
opinion to Alderson to prove that the investment scheme was legal. Alderson Decl. (Dkt. 52-1)
¶¶ 4–6.
Defendants aver that the 2011 and 2013 tax opinions were intended to be relied upon by
DVU’s investment advisers in their conversations with prospective clients. Id. ¶¶ 8–9; Hamilton
Decl. (Dkt. 50) ¶ 3. Depositions of other investment advisers confirm that they were instructed
to tell clients, if asked, that DVU had obtained tax opinions indicating that QROPS would not be
taxable in the United States. Dkts. 51-2, 51-3. Although it appears that the conclusions of the
5
tax opinions were shared with DVU clients, there is no indication that the tax opinions
themselves were directly provided to any clients.
In or about September and October of 2013, Alderson, in his capacity as DVU’s CEO,
transmitted the 2011 and 2013 tax opinions to DVU’s accounting firm, BDO USA, LLP.
Alderson Decl. ¶ 10; Byrne Supp. Decl. (Dkt. 56) ¶¶ 11–12. DVU had a practice of referring
clients or prospective clients who had questions about the tax consequences of the QROPS to
BDO for a consultation. Alderson Decl. ¶¶ 10–11; Dkts. 51-2. DVU sent the opinions to BDO
so that James Cassidy, BDO’s Senior Tax Director, could incorporate the opinions’ conclusions
into BDO’s advice to clients—and presumably reach the same conclusion that the QROPS was
not taxable in the United States. See Alderson Decl. ¶ 11.
DVU’s in-house counsel reportedly told Defendants that the 2013 opinion was solely for
internal use and was not to be distributed externally. Byrne Supp. Decl. ¶ 13. Both tax opinions
also contained a boilerplate disclaimer that the “[o]pinions can be relied upon solely by” DVU
and that the “opinion[s] [are] not to be quoted, in whole or in part, without the express prior
written consent of” DVU’s counsel, Carlton Fields. Id. ¶ 14.
Copies of the tax opinions are currently in the SEC’s possession. Pursuant to Rule
26(b)(5)(B), the agency has, however, sequestered those opinions without review pending a
ruling on DVU’s claim of privilege. Napierala Decl. ¶ 8.
II.
DISCUSSION
DVU has the burden of showing that the MarketCounsel communications and the Carlton
Fields tax opinions are protected by attorney-client privilege or the work-product doctrine. See
In re Cty. of Erie, 473 F.3d 413, 418 (2d Cir. 2007). The attorney-client privilege attaches “(1)
where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as
such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client,
6
(6) are at his instance permanently protected (7) from disclosure by himself or by the legal
advisor, (8) except the protection be waived.” United States v. Int’l Bhd. of Teamsters,
Chauffeurs, Warehousemen & Helpers of Am., AFL-CIO, 119 F.3d 210, 214 (2d Cir. 1997)
(citation omitted); United States v. Tomero, 471 F. Supp. 2d 448, 450–51 (S.D.N.Y. 2007)
(same). The work-product doctrine, codified in Rule 26(b)(3) of the Federal Rules of Civil
Procedure, protects documents that “can fairly be said to have been prepared or obtained because
of the prospect of litigation.” United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998).
A. DVU’s communications with MarketCounsel, with few exceptions, are not
protected by attorney-client privilege or the work-product doctrine.
DVU asserts attorney-client privilege over all 47 entries in its privilege log and workproduct protection over Entry Nos. 46 and 47. Entry Nos. 1 through 45 on the Privilege Log are
not privileged because DVU could not have reasonably believed that MarketCounsel’s
compliance professionals were acting as attorneys. With the exception of the communication
designated as CTRL00465984 on the privilege log, Entry Nos. 46 and 47 are, however, protected
by the attorney-client privilege because they concerned requests for legal advice outside the
scope of the membership agreement; those entries are also entitled to work-product protection
because they were prepared in anticipation of litigation.
As to attorney-client privilege, the only dispute is whether DVU and MarketCounsel’s
consultants, who happen to be attorneys, had a relationship that could give rise to attorney-client
privilege.1 The Court must “construe the privilege narrowly because it renders relevant
information undiscoverable” and must “apply it ‘only where necessary to achieve its purpose.’”
In re Cty. of Erie, 473 F.3d at 418 (quoting Fisher v. United States, 425 U.S. 391, 403 (1976)).
DVU does not assert that MarketCounsel’s services were “necessary” to enable effective consultation
between DVU and its in-house counsel. See United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961); DVU Br.
(Dkt. 64) at 4–5 (“With respect to the Logged Communications, DVU has not asserted the Kovel privilege.”).
1
7
For privilege to attach to the communications at issue, DVU must have sought legal advice from
MarketCounsel’s consultants in their capacity as attorneys. Tomero, 471 F. Supp. 2d at 450–51.
DVU and MarketCounsel need not have had an actual attorney-client relationship, so long as
DVU had a reasonable, good-faith belief that it was seeking legal advice from MarketCounsel’s
consultants in their capacity as attorneys. See United States v. Keplinger, 776 F.2d 678, 701 (7th
Cir. 1985); Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 210 (S.D.N.Y. 2009).
The SEC makes a persuasive argument that DVU could not have had a good faith belief
that MarketCounsel’s consultants were acting in their capacity as attorneys because DVU had
repeatedly rejected an attorney-client relationship with the Hamburger Law Firm in favor of a
MarketCounsel membership (whose terms and conditions expressly disclaim any attorney-client
relationship or privilege whatsoever). While DVU argues that it chose the membership in part
because MarketCounsel employed the same attorneys as the Hamburger Law Firm and offered
access to those attorneys through the membership, the conditions of membership made clear that
any advice given by those attorneys, although informed by their legal training and experience,
should not be relied upon as legal advice or viewed as part of an attorney-client relationship.
The disclaimer that communications with MarketCounsel were not privileged is strong
circumstantial evidence that DVU could not have expected their exchanges to be protected from
disclosure.
The Court concludes that the disclaimers and the absence of a representation agreement,
although not dispositive,2 create a strong presumption that the communications are not protected
by attorney-client privilege. The existence of attorney-client privilege depends on the
“No special formality is required to demonstrate the establishment of the [attorney-client] relationship.”
ProThera, Inc., 670 F. Supp. 2d at 210.
2
8
reasonableness of the putative client’s belief that he or she is seeking legal advice from an
attorney. See Catizone v. Wolff, 71 F. Supp. 2d 365, 371 (S.D.N.Y. 1999). The reasonableness
of that belief must be informed, at least in part, by the putative lawyer’s expressed refusal to
serve as the putative client’s attorney. An attorney engagement, like any other professional
relationship, derives from mutual consent.3 Accordingly, absent circumstances that suggest
otherwise, the Court presumes that a communication between a person and a lawyer is not
privileged when it follows an unequivocal disclaimer that the latter is not providing legal advice
and is not acting in his or her capacity as an attorney.
Here, the disclaimers in the membership prospectus were clear, specific, and repeated ad
nauseam. Moreover, DVU, through its in-house counsel, was given at least two opportunities to
weigh the advantages of a law firm engagement, which would have created an attorney-client
relationship, against a less expensive non-law firm membership, which would not. By all
indications, DVU’s in-house counsel was a sophisticated actor who was aware of the differences
in the services being offered and intentionally recommended that DVU pursue the membership
option. See Dkt. 43-12 (“Im [sic] going to advise Ben to take membership . . . . Will discuss with
him and confirm.”). DVU’s knowing acceptance of MarketCounsel’s disavowal of any attorneyclient relationship and any communications privilege establishes the baseline for their
relationship.
That presumption may nonetheless be rebutted if DVU’s relationship with
MarketCounsel underwent a material transformation, either by express agreement or if the scope
3
Disclaimers are generally an important consideration when determining the nature of the relationship
between an attorney and a non-attorney. For instance, according to Rule 5.7 of New York State’s Rules of
Professional Conduct, the disciplinary rules do not apply to an attorney providing what could otherwise be
reasonably construed as legal services if the attorney “has advised the person receiving the services in writing that
the services are not legal services and that the protection of a client-lawyer relationship does not exist.” New York
State Unified Court System, Part 1200 Rules of Professional Conduct, Rule 5.7(a)(3)–(4) (Jan. 1, 2017), available at
https://www.nycourts.gov/LegacyPDFS/rules/jointappellate/ NY-Rules-Prof-Conduct-1200.pdf.
9
of services rendered by MarketCounsel clearly exceeded what was originally contemplated by
the membership agreement. Those circumstances could support a reasonable belief that an
attorney-client relationship had developed over time, even if one did not exist initially.
After reviewing the documents in camera, the Court concludes that the communications
identified in Entry Nos. 1–45 stayed within the bounds of the membership agreement, and that
DVU’s relationship with MarketCounsel never evolved to that of attorney-client. Although
MarketCounsel’s attorneys frequently provided what otherwise might reasonably be considered
legal services during the course of the SEC examination, the membership agreement specifically
contemplates the provision of such services—and regards those services to be outside the scope
of any attorney-client relationship. Indeed, the membership prospectus states that
MarketCounsel will “provide counsel” “through the entire examination cycle, from notification
of the upcoming examination through the receipt of any deficiency letter.” Prospectus at 4.
Virtually all of the communications listed on the privilege log consist of advice provided during
the SEC examination process. See Privilege Log, Entry Nos. 1–41, 45. Entry Nos. 42–44 do not
pertain to the SEC examination but do not appear to be beyond the scope of the membership
agreement either.
Entry Nos. 46 and 47 include discussions of services that were not available under the
MarketCounsel membership, however. As indicated in the privilege log, those communications
occurred after the SEC had already issued its post-examination findings. In those
communications, DVU sought legal advice from MarketCounsel regarding its response to those
findings. Although no legal advice was ultimately given,4 communications made in an effort to
4
In these communications, the MarketCounsel attorney stated clearly that DVU was seeking legal advice,
which the attorney could not provide under the existing relationship with DVU.
10
obtain legal advice are protected by attorney-client privilege. See In re Cty. of Erie, 473 F.3d at
419. And because the membership agreement explicitly viewed the issuance of a deficiency
letter as the bright line separating MarketCounsel’s compliance services from Hamburger Law
Firm’s legal services, DVU’s post-findings communications are best seen as statements made for
the purpose of obtaining legal advice. Entry No. 46, however, contains a forwarded email
(CTRL00465984) dated Nov. 19, 2014, which predated the SEC’s findings and was sent to DVU
with the express understanding that it had been created pursuant to the terms of the membership
agreement. The Court therefore holds that Entry Nos. 46 and 47, with the exception of
CTRL00465984, are protected by attorney-client privilege.
Entry Nos. 46 and 47, with the exception of CTRL00465984, are also protected under the
work-product doctrine, which shields documents generated “because of the prospect of
litigation.” Adlman, 134 F.3d at 1202. As mentioned previously, the disputed communications
were drafted as part of DVU’s effort to craft a response to the SEC’s deficiency letter. By that
point, the prospect of litigation was sufficiently likely that the Court cannot say, after reviewing
the documents in camera, that the documents “would have been created in essentially similar
form irrespective of [the anticipated] litigation.”5 Adlman, 134 F.3d at 1202; In re Veeco
Instruments, Inc. Sec. Litig., No. 05-MD-01695, 2007 WL 724555, at *4 (S.D.N.Y. Mar. 9,
2007). As to the communication that is designated CTRL00465984, the Court finds that, at the
time of its creation, the possibility of litigation was too remote for the prospect of litigation to
have had a significant impact on the substance of the document.
5
The SEC has not argued that, notwithstanding any work-product protection, it is nonetheless entitled to the
documents. See Adlman, 134 F.3d at 1197 (“‘[D]ocuments “prepared in anticipation of litigation or for trial’ are
discoverable only upon a showing of substantial need of the materials and inability, without undue hardship, to
obtain their substantial equivalent elsewhere.” (quoting Federal Rule 26(b)(3) of Civil Procedure)).
11
Thus, for the vast majority of the communications at issue, the Court concludes that they
are not privileged. The purpose of the attorney-client privilege is “to encourage attorneys and
their clients to communicate fully and frankly.” In re Cty. of Erie, 473 F.3d at 418. DVU will
not now be heard to bemoan the lack of such a safe space when its in-house counsel repeatedly
opted for a service that disavowed that protection. The Court therefore grants the SEC’s motion
to compel production as to Entry Nos. 1–45 of the privilege log and as to the email logged as
CTRL00465984.
B. DVU’s Tax Opinions
DVU asserts attorney-client privilege and work-product protection over a 2011 tax
opinion and a 2013 supplemental opinion, both prepared by Carlton Fields. The Court concludes
that any privilege was waived as a result of disclosure to the accounting firm, BDO, because the
common interest exception is inapplicable. The Court further finds that the tax opinions were
not prepared because of litigation and therefore do not constitute work product.
Defendants contend that DVU has not met its burden of showing that the tax opinions
were intended to be and in fact were kept confidential. The conclusions of the tax opinions were
not kept confidential and were disclosed to clients and prospective clients—but extrajudicial
disclosure of the conclusions may not result in a subject-matter waiver as to the undisclosed
portions of the opinions. See In re von Bulow, 828 F.2d 94, 102 (2d Cir. 1987) (“Applying the
fairness doctrine, we hold therefore that the extrajudicial disclosure of an attorney-client
communication—one not subsequently used by the client in a judicial proceeding to his
adversary’s prejudice—does not waive the privilege as to the undisclosed portions of the
communication.”). Defendants also argue that disclosure of the 2011 opinion to Alderson
effected a waiver, but Alderson was an employee of DVU’s parent company at the time. The
12
Court does not have to decide the significance of those two disclosures, however, because
DVU’s transmission of the tax opinions to BDO alone constitutes a waiver.
Ordinarily, voluntary disclosure of an otherwise privileged document to a third party
waives privilege. In re Grand Jury Proceedings, 219 F.3d 175, 184 (2d Cir. 2000) (“Clearly,
when the corporation as an entity makes the strategic decision to disclose some privileged
information, the courts may find implied waiver, as they do in cases involving individuals.”).
When an officer of a corporate entity discloses a privileged communication, courts must consider
whether treating the disclosure as an implied waiver would be unfair. Id. at 186. In this case,
Alderson, as DVU’s CEO and senior manager, made a calculated decision to send the tax
opinions to BDO, apparently in an effort to induce BDO to reach the same conclusions as
Carlton Fields had reached, so as to convince prospective clients of the tax benefits of the
QROPS. Accordingly, Alderson was acting to further DVU’s business interests when he
transmitted the opinions. The Court therefore finds that Alderson’s disclosure was voluntary,
made on behalf of DVU as its chief officer, and that, unlike the case of an inadvertent disclosure
by an ill-informed agent acting in his individual capacity, Alderson’s disclosure may fairly be
regarded as an implied waiver by the corporate entity. Cf. id. at 185, 188 (holding that corporate
officer may not have waived privilege when he testified in individual capacity before grand
jury).
DVU argues that the transmission of the tax opinions to BDO does not constitute an
implied waiver because DVU and BDO were engaged in a “common legal enterprise” as defined
in Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015). In Schaeffler, an automotive parts
company encountered financial trouble while owing €11 billion to a consortium of banks. Id. at
37. In an effort to remain solvent, the company and its majority owner began exploring ways to
refinance the debt and to restructure the company. Id. During that process, the company
13
anticipated that its refinancing and restructuring efforts would draw IRS scrutiny and,
accordingly, obtained a tax memo from Ernst and Young discussing the tax consequences of the
financial maneuvers it was considering. Id. at 37–38, 40 (noting that tax practitioner privilege is
functional equivalent of attorney-client privilege). The IRS sought the memo and argued that it
was not privileged because the company had shared it with the consortium of banks. Id. The
Schaeffler Court disagreed and held that the voluntary disclosure did not waive privilege because
the company and the banks were engaged in a “common legal enterprise” to obtain favorable tax
treatment for the company, whose insolvency would imperil the banks’ €11 billion loan. Id. at
40–42. As part of that joint enterprise, the company, Ernst and Young, and the company’s
outside counsel “worked closely with the Bank Consortium . . . in effectuating the refinancing
and restructuring [and] also in analyzing the tax consequences” of the underlying transactions.
Id. at 38. The sharing of the tax memorandum was, therefore, in service of that enterprise, in that
it helped the parties structure their arrangements to increase the likelihood of obtaining a desired
tax treatment from the IRS, thereby further benefiting the financial condition of the company and
the financial institutions.
The relationship between DVU and BDO differs in many material respects from the facts
of Schaeffler and does not constitute a “common legal enterprise.” Based on the limited facts
that DVU has provided, it appears that DVU referred clients who wanted more information or
otherwise had doubts about the tax consequences of following DVU’s investment advice to
BDO. DVU does not dispute that those clients independently paid BDO for personalized tax
advice. Hamilton Br. (Dkt. 49) at 3 (citing Alderson Depo. (Dkt. 51-1) at 180). DVU,
apparently in an effort to influence BDO’s conclusions, sent its tax opinions to BDO, so that
BDO might corroborate DVU’s representations to its clients. BDO, however, would have been
paid by the referred clients regardless of whether it opined that the QROPS was not taxable. To
14
the extent that BDO had any other stake in this scheme, at most it had an incentive to corroborate
DVU’s conclusions to maintain the health of the referral relationship.
The first critical difference between this case and Schaeffler is that BDO, unlike the bank
consortium, had no stake in the tax treatment of the QROPS. BDO had an interest in its clients’
fees, a general desire to maintain a positive relationship with DVU, and a stake in its own
reputation as the provider of accurate tax advice. None of those interests depends on the
accuracy of Carlton Fields’ opinion that the QROPS was not taxable under United States law.
As for client fees, BDO would have been paid regardless of the QROPS’s future tax status. As
for DVU’s referral relationship, BDO may have had an incentive to tell clients that the QROPS
was non-taxable, but BDO did not need the QROPS to in fact be non-taxable in order to remain
in DVU’s good graces. And as for its institutional reputation, BDO had a generalized interest in
providing accurate advice, but, again, not a direct stake in whether DVU’s product would in fact
be non-taxable. Thus, unlike Schaeffler, where the banks stood to benefit from the company’s
tax breaks and thus had a joint interest in structuring the refinancing so those tax benefits would,
in fact, materialize, BDO had no stake in the QROPS’s taxability.
Second, even assuming that BDO may have had some preference for the QROPS to be
deemed non-taxable because it would benefit DVU, a source of referrals, DVU has not met its
burden of showing that DVU and BDO were engaged in a joint enterprise to make the QROPS
non-taxable under federal law. In Schaeffler, the Second Circuit found a common enterprise
because the company and the banks, as well as their counsel, were not only jointly investigating
the legal and tax consequences of the restructuring and refinancing but were also coordinating
and conforming the structure of their transaction in response to those legal conclusions. 806
F.3d at 41–42. Here, there is insufficient evidence for this Court to conclude that DVU ever
sought advice from BDO for purposes of conforming an investment product to federal tax law;
15
nor is there any evidence that DVU and BDO ever worked together to design the investment
scheme to obtain a tax benefit. To the extent that BDO reached conclusions about the taxability
of QROPS, it was apparently to provide advice to BDO’s own clients, who were referred by
DVU, but not to DVU itself. Thus, DVU has not proven the existence of an agreement of the
sort in Schaeffler, i.e. one that would constitute a “joint . . . strategy . . . decided upon and
undertaken by the parties and their respective counsel.” Id. at 40 (citation omitted).
And finally, even assuming the existence of a joint strategy to achieve a particular legal
outcome, a disclosure is only protected by the common interest doctrine if the disclosure was
made in furtherance of that legal objective. In Schaeffler, one could conclude that the company
provided the tax opinions to the bank consortium so that the banks would accede to a refinancing
structure that would enable the company to qualify for a tax benefit. See 806 F.3d at 41–42. In
this case, even if the Court were to conclude that DVU and BDO worked together, at least at
some point, to obtain a particular tax benefit, there is no indication that Alderson sent the tax
opinions to BDO to achieve that purpose. Indeed, by the time that Alderson disclosed the tax
opinions to BDO, DVU was already convinced that QROPS was non-taxable. Notably, Alderson
did not solicit any input or comment from BDO regarding Carlton Fields’ tax opinions. Rather,
the only apparent objective was to convince BDO to echo DVU’s advice to prospective clients.
To the extent that BDO may have complied with DVU’s instructions, BDO and DVU were
colluding to drum up business for DVU, not to obtain a particular tax treatment for DVU’s
investment product. Such an effort does not have a sufficient legal character to constitute a
“common legal enterprise.”
The tax opinions are also not work product. Documents are entitled to work-product
protection if they were prepared “because of” the prospect of litigation. Adlman, 134 F.3d at
1202. “Conversely, protection will be withheld from ‘documents that are prepared in the
16
ordinary course of business or that would have been created in essentially similar form
irrespective of the litigation.’” Schaeffler, 806 F.3d at 43 (quoting Adlman, 134 F.3d at 1202).
In this case, DVU obtained the tax opinions to assess the viability of QROPS as a business model
and to improve DVU’s sales pitch to investors, rather than in anticipation of litigation.
According to Defendants and the deposition testimony of other DVU employees, the tax
opinions were intended to legitimize DVU representatives’ investment advice, enabling them to
present the QROPS as non-taxable and therefore more attractive as an investment option. Based
on the Court’s review of the 2013 opinion, DVU appears to have obtained the supplemental
opinion because the 2011 opinion did not address the tax consequences for one potential type of
income. Notably, DVU also “makes no affirmative claim that it would have declined to
investigate” the taxability of the QROPS “or that the documents would have been produced in a
different form absent the threat of litigation.” In re Welspun Litig., No. 16-CV-6792, 2017 WL
10311206, at *3 (S.D.N.Y. Oct. 31, 2017). Because the tax opinions were produced in the
ordinary course of DVU’s business and would have been created for use by DVU’s
representatives even absent any prospect of litigation,6 the Court concludes that the opinions are
not protected work product.
In sum, the Court holds that DVU has failed to meet its burden of showing that the tax
opinions are protected by attorney-client privilege or the work-product doctrine. Accordingly,
6
DVU claims that the tax opinions were obtained in part because the supposed novelty of the QROPS raised
the specter of litigation. Byrne Supp. Decl ¶ 10. The Court finds DVU’s generic and conclusory statement of
novelty to be unpersuasive. As another court has held, “the mere fact that [a corporation] anticipated that [a possible
misrepresentation of a product feature] might result in litigation is insufficient to trigger work-product protection.”
See In re Welspun Litig., No. 16-CV-6792, 2017 WL 10311206, at *3 (S.D.N.Y. Oct. 31, 2017). Without more, a
general sense that the QROPS was “novel,” divorced from any explanation as to how that novelty translates into
litigation risk for DVU, rather than merely unexpected tax liability for DVU’s clients, and occurring well before the
SEC commenced its examination in October of 2014, is nothing more than a hunch. That speculative possibility
cannot convert a document into work product, because such a remote risk is unlikely to substantially affect the
document’s creation.
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the parties may, consistent with Rule 26(b)(5)(B) of the Federal Rules of Civil Procedure, use or
disclose the 2011 and 2013 tax opinions currently sequestered by the SEC.
III.
CONCLUSION
For the foregoing reasons, the SEC’s motion to compel production of communications
between MarketCounsel and DVU is GRANTED as to Entry Nos. 1–45 and document
CTRL00465984 as identified on the Privilege Log. MarketCounsel is directed to produce the
documents by June 14, 2019, or on a date mutually agreeable to MarketCounsel and the
interested parties.
DVU’s claim of privilege and work product protection over the 2011 and 2013 Carlton
Fields tax opinions is DENIED. To the extent that Defendants do not have copies of the tax
opinions, the SEC is directed to produce the opinions to Defendants by June 14, 2019, or on a
date mutually agreeable to the interested parties.
The Clerk of Court is respectfully directed to terminate docket entries 42, 49, and 54.
SO ORDERED.
_________________________________
VALERIE CAPRONI
United States District Judge
Date: June 10, 2019
New York, New York
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