279 F.2d 623 (9th Cir. 1960)
In 1957, Laurence P. Koerner, a Special Agent of the Internal Revenue Service, petitioned the United States District Court to enforce a summons against Alva C. Baird, an attorney practicing in Los Angeles, California.1 Baird had been admitted to practice law since 1920 and had previously served as Division Counsel for the Pacific Division of the Internal Revenue Service from 1938 until his resignation in 1943.2 Since then, Baird maintained a practice focused on tax matters, including representation of taxpayers in fraud and criminal cases.3
Early in August 1956, Baird consulted with accountants regarding the income tax returns of undisclosed taxpayers.4 The accountants determined that the returns were incorrect and taxes were understated.5 In the middle of August 1956, the taxpayers' attorney met with Baird in his Los Angeles office, discussed the facts without revealing the clients' identities, and delivered $12,706.85, the amount of tax due plus interest to September 1, 1956, along with a fee for Baird's services.6 On August 20, 1956, Baird transmitted a cashier's check for that amount to the District Director of Internal Revenue in Baltimore, Maryland, accompanied by a letter stating that the check represented additional amounts due from one or more unnamed taxpayers.7
On November 27, 1957, Koerner issued a summons requiring Baird to identify the attorneys, accountants, and taxpayers involved.8 Baird appeared on December 16, 1957, and declined to provide the names, asserting that he did not know the taxpayers' identities and that information about the attorneys and accountants was privileged.9 Koerner then filed a petition to enforce the summons, and after motions to dismiss were denied, the district court held a hearing on the order to show cause.10
At the hearing, Baird refused to answer questions about the identity and addresses of his employers and was adjudged in civil contempt, committed to custody until he complied, with a stay granted for appeal.11 Baird appealed the contempt judgment and order requiring him to answer the question about his clients, while the government cross-appealed the portion of the judgment that did not require answers regarding other attorneys and accountants.12
Whether state or federal law governs the determination of the attorney-client privilege in a proceeding to enforce an Internal Revenue Service summons?13
Federal courts follow the law of the forum state on questions of attorney-client privilege in civil cases. The privilege arises from the state-created attorney-client relationship. No federal statute or rule of evidence displaces that body of state law.14
Yes. The court examined Rule 43(a) of the Federal Rules of Civil Procedure and determined that, absent a controlling federal statute, the competency of evidence including claims of privilege is governed by the rules of the forum state.15 Because each state creates and regulates the attorney-client relationship, the scope of the resulting privilege necessarily varies from state to state and must be measured by the law of the state in which the attorney practices.16
The communications at issue occurred entirely within California when the taxpayers' attorney met with Baird in his Los Angeles office and delivered funds for transmission to the Internal Revenue Service.17 No federal common law rule was found that would require a different result or that would compel disclosure of client identity contrary to state law.18
State law governs the determination of the attorney-client privilege in this proceeding to enforce an Internal Revenue Service summons.19
Whether the attorney-client privilege protects the identity of clients who employed an attorney to transmit a voluntary tax payment to the Internal Revenue Service?20
Under California law, the identity of a client is protected by the attorney-client privilege. This protection applies when disclosure of the name would be material only for the purpose of showing an acknowledgment of guilt on the part of the client of the very offenses for which the attorney was employed.21
Yes. The taxpayers voluntarily paid additional income taxes plus interest through their attorney without any pending Internal Revenue Service investigation or audit of their returns.22 The payment of the precise sum calculated by the accountants and transmitted anonymously through Baird demonstrates the clients' recognition that they had understated their tax liabilities in prior years.23 Requiring disclosure of the clients' names would allow the government to identify and investigate precisely those taxpayers whose voluntary payment already constitutes an admission of underpayment.24
The established facts show that the clients' general attorney consulted Baird in August 1956 without revealing identities. The attorney paid a fee for advice on procedural and tactical steps. The attorney delivered the cashier's check that Baird forwarded to the District Director in Baltimore with a letter stating that the funds represented additional taxes due from unnamed taxpayers.25 These circumstances fall squarely within the California exception to the general rule that client identity is not privileged, and the court found no countervailing public-policy factor, such as pending litigation initiated by the clients or involvement in future criminal conduct, that would overcome the privilege.26
The attorney-client privilege protects the identity of the clients who employed the attorney to transmit the voluntary tax payment.27