Jeffrey and Virginia M. Hambarian v. Commissioner ( 2002 )

118 T.C. No. 35UNITED STATES TAX COURT
JEFFREY HAMBARIAN AND VIRGINIA M. HAMBARIAN, ET AL.,1
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 11856-99, 7973-00, Filed June 13, 2002.
3042-01, 3101-01.
P is a defendant in a criminal proceeding. The
transactions and circumstances which gave rise to the
criminal proceeding were also the predicate for R’s
civil tax determination. P’s criminal defense attorney
selected 100,000 pages of documents from a much larger
universe of documents that were in the possession of
the prosecuting attorney. The documents were converted
by P’s defense attorney into computer searchable media.
R seeks the production of copies of the documents and
computer searchable media. P resists turning over the
documents or media on the grounds that his defense
1
Cases of the following petitioners are consolidated
herewith: Jeffrey Hambarian and Virginia M. Hambarian, docket
No. 7973-00, Virginia M. Hambarian, docket No. 3042-01, and
Jeffrey A. Hambarian, docket No. 3101-01.
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attorney’s selection of the particular documents
reflects his mental impressions and is therefore
protected work product. The documents sought are
otherwise discoverable.
Held: The mere selection of particular documents
by P’s defense attorney does not automatically
transmute the documents into work product. Held,
further, as P has failed to make the requisite showing
of how the disclosure of the documents selected would
reveal the defense attorney’s mental impressions of the
case, the requested documents and computerized
electronic media are not protected by the work product
doctrine.
Mark M. Hathaway and James D. McCarthy, Jr., for
petitioners.
Louis B. Jack and Nicholas J. Richards, for respondent.
OPINION
GERBER, Judge: Respondent moved to compel the discovery of
documents and computer searchable electronic media from
petitioners. The documents were obtained by Jeffrey Hambarian’s
(petitioner’s) defense attorneys in a criminal case. Petitioners
refused to turn over the documents, asserting the protection of
the work product doctrine. In particular, we consider whether
the selection of particular documents from a larger universe
causes otherwise discoverable documents to become protected work
product.
Background
These consolidated cases involve determinations that
petitioners’ income was understated and that the understatement
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was fraudulent.2 Concerning the same circumstances that gave
rise to respondent’s determination, the State of California
indicted Mr. Hambarian on the following charges: Grand theft,
presenting false claims, commercial bribery, breach of fiduciary
duty, receipt of corporate property, filing false State income
tax returns with intent to defraud, and money laundering. The
criminal prosecution has been delayed for approximately 2 years
due to a formal conflict of interest inquiry. The inquiry
involves the contention that the Orange County District
Attorney’s Office should be removed from the case because that
office was assisted by an accountant who was employed by the City
of Orange, the same entity that Mr. Hambarian allegedly
defrauded.
Petitioners contend that respondent is on an overreaching
“fishing expedition” in an attempt to bolster an inadequate
determination. Petitioners allege that respondent had based his
deficiency determination on newspaper articles and a summary of
2
Petitioners resided in Anaheim Hill, California, at the
times their petitions were filed in these consolidated cases.
Respondent determined that the fraud penalty applied to both
petitioners. Petitioner Virginia Hambarian has contended that
she was not involved in her husband’s (Jeffrey Hambarian)
criminal matter and that, in any event, she is not authorized to
require the turnover of document or materials in the possession
of her husband’s criminal defense attorney. This Court has not
addressed the merits of Virginia Hambarian’s claim that she is
not liable for the income tax deficiencies or penalties.
Accordingly, we are not able, at this time, to determine whether
the documents would be relevant as to her.
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checks prepared by the accountant who is central to the conflict
of interest dispute. Continuing in that vein, petitioners
contend that respondent is attempting to bolster his
determination by attempting to discover documents in petitioners’
possession.
The documents sought by respondent were initially acquired
by the office of the Orange County District Attorney (prosecuting
attorney) in connection with the investigation/prosecution of
petitioner. We surmise that the documents, in great part, were
acquired from Orange County and/or petitioner’s business which
performed contract services for the county. As part of the
pretrial process in the criminal case, the prosecuting attorney
selected approximately 10,000 pages of documents from the
significantly larger universe of documents acquired and held by
the prosecuting attorney. Those documents were selected based
upon the prosecuting attorney’s judgment that they were relevant
and/or discoverable in connection with the criminal proceeding
against petitioner. Each page of the selected documents was
Bates stamped and turned over to petitioner’s defense attorneys,
who, in turn, converted the documents into searchable electronic
media (PDF format using Adobe Acrobat software). The prosecuting
attorney also turned over two discs (CD-ROM) containing images of
the front and back of checks which had been scanned into
searchable electronic media.
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In addition to the documents turned over by the prosecuting
attorney, petitioner’s defense attorney was permitted to review
the evidence log and inspect the entire universe of documents in
the possession of the prosecuting attorney. In that regard, the
evidence log is approximately 400 pages long. The defense
attorney was permitted to access, review, and copy documents from
that universe. The documents were stored in boxes, and the
prosecuting attorney made a record of the defense attorney’s
access to particular boxes of documents. The defense attorney
selected specific documents and photocopied them using a
procedure that would ensure that the prosecuting attorney could
not readily determine which specific documents or pages were
being copied by the defense attorney. The prosecuting attorney,
however, was aware of the overall contents of each box accessed
by the defense attorney. The defense attorney copied
approximately 100,000 pages of the documents selected under the
above-described procedures. The defense attorney converted the
documents into searchable electronic media.
Respondent attempted to obtain access to the documents in
the possession of the prosecuting attorney. The prosecuting
attorney refused to turn over any documents or information
without a subpoena. Respondent points out that a Tax Court
subpoena is only returnable at the time of trial, so that he was
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forced to seek the documents and information by means of
discovery.
Respondent’s discovery requests seek from petitioners the
documents that had been received from the prosecuting attorney,
along with copies of the electronic media data bases and/or the
CD ROM. Respondent also seeks to obtain the documents selected
by petitioner’s defense attorney. Petitioners refused to turn
over the requested documents.3 Petitioners contend that some of
the documents received from the prosecuting attorney have
annotations made by Mr. Hambarian’s defense counsel. Petitioners
point out that their cost to convert the documents to electronic
media was approximately $70,000. Respondent is seeking the
electronic data bases and the hard copy of the documents and has
offered to pay costs of reproduction.
Discussion
The question we consider here is whether the compilation of
documents and/or the creation of electronic data bases are
protected under the attorney work product doctrine which
originated in Hickman v. Taylor, 329 U.S. 495, 511 (1947). The
3
Petitioners are represented in these consolidated cases by
different attorneys from those who represent petitioner, Jeffrey
Hambarian in the defense of his criminal indictment. Petitioners
raised the point that the requested documents and materials are
in the possession of Jeffrey Hambarian’s criminal defense
attorney and that petitioners and their Tax Court attorneys are
not in possession of the requested matter. We fail to understand
why that distinction should make any difference in our
consideration of the present discovery requests.
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work product privilege is intended to protect documents that
reveal an attorney’s mental impressions and legal theories and
that were prepared in contemplation of litigation. Id. at 509-
510. The Supreme Court, in holding that certain documents were
privileged, explained:
Proper preparation of a client’s case demands that * *
* [an attorney] assemble information, sift what he
considers to be the relevant from the irrelevant facts,
prepare his legal theories and plan his strategy
without undue and needless interference. * * * This
work is reflected, of course, in interviews,
statements, memoranda, correspondence, briefs, mental
impressions, personal beliefs, and countless other
tangible and intangible ways * * *
Id. at 511.
There is no doubt that the documents compiled by the
prosecuting and defense attorneys were organized in contemplation
of litigation. With respect to the 10,000 Bates numbered pages
received from the prosecuting attorney by petitioner’s defense
attorney, there is no need to protect them, even if they did
reflect the prosecuting attorney’s mental impressions. Any
privilege that may have attached to the 10,000 pages when they
were compiled by the prosecuting attorney was abandoned when the
documents were turned over or disclosed to petitioner’s defense
attorney.4
4
If petitioner’s defense attorney had placed notations on
the documents that constitute work product, those notations may
be excised to the extent that petitioners can show that such
notations are privileged.
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Petitioners place heavy reliance on Sporck v. Peil, 759 F.2d
312 (3d Cir. 1985), a case in which the Court of Appeals for the
Third Circuit found that a selection and compilation of documents
was work product. Respondent contends that the facts in
petitioner’s case are distinguishable from Sporck. The question
in Sporck arose in connection with an attorney’s preparation for
a deposition of his client. That preparation included the
attorney’s selection of documents that were placed in a folder
for preparing the witness and for transportation to the situs of
the deposition.
The deposition documents in Sporck had been selected by the
attorney from a larger universe of more than 100,000 documents.
The 100,000 document universe had, in turn, been selected by the
attorney from a substantially larger universe of documents
(several hundred thousand documents) that had been produced in
response to discovery. It was conceded that the contents of the
documents did not contain work product. Further complicating the
circumstances in Sporck was the fact that the deponent stated
that he had examined documents in preparation for the deposition,
and the cross-examining attorney asked that the documents be
identified and produced.
The issue in Sporck was described as “whether the selection
process of defense counsel in grouping certain documents together
out of the thousands produced in this litigation is work
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product”. Id. at 315. In reaching its decision, the Court of
Appeals for the Third Circuit concluded that “Because
identification of the documents as a group will reveal defense
counsel’s selection process, and thus his mental impressions,
* * * [we agree] that identification of the documents as a group
must be prevented to protect defense counsel’s work product.”
Id.The Court in Sporck did not hold that any selection of
otherwise discoverable documents by an attorney would convert the
documents into work product. The protection of the work product
doctrine may be applied only to situations where the attorney’s
mental impressions would be disclosed by the discovery or handing
over of the selected materials. Cases decided since Sporck have
emphasized this distinction. Several courts have held that the
mere selection and/or organizing of otherwise discoverable
documents does not make them into work product. See, e.g.,
Audiotext Communications Network, Inc. v. U.S. Telecom, Inc., 164
F.R.D. 250, 252 (D. Kan. 1996); Wash. Bancorporation v. Said 145
F.R.D. 274, 277 (D.D.C. 1992). In that same vein and germane to
our facts, an attorney’s conversion of paper documents into
electronic media, by itself, does not make otherwise discoverable
documents into work product. See, e.g., Hines v. Windnall, 183
F.R.D. 596 (N.D. Fla. 1998); Fauteck v. Montgomery Ward & Co., 91
F.R.D. 393 (N.D. Ill. 1980).
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In particular it has been held that for the work product
privilege to apply to an attorney’s selection of documents, a
court should first determine that (1) disclosure of the documents
would create a “real, nonspeculative danger of revealing the
lawyer’s thoughts”, and (2) the lawyer had a justifiable
expectation that such mental impressions revealed by the
materials would remain private. See In re San Juan Dupont Plaza
Hotel Fire Litig., 859 F.2d 1007, 1015-1016 (1st Cir. 1988).5
Similarly, other courts have refined and distinguished the Sporck
holding. See, e.g., Resolution Trust Corp. v. Heiserman, 151
F.R.D. 367, 374-375 (D. Colo. 1993); Pepsi-Cola Bottling Co.
Pittsburgh, Inc. v. Pepsico, Inc., No. 01-2009-KHV, slip op. at 6
(D. Kan., Nov. 8, 2001).
5
In Sporck v. Peil, 759 F.2d 312, 319 (3d Cir. 1985), this
same point was raised, as follows, in a dissenting opinion:
The problem with * * * [the majority’s] theory is
that it assumes that one can extrapolate backwards from
the results of a selection process to determine the
reason a document was selected for review by the
deponent. There are many reasons for showing a
document or selected portions of a document to a
witness. The most that can be said from the fact that
the witness looked at a document is that someone
thought that the document, or some portion of the
document, might be useful for the preparation of the
witness for his deposition. This is a far cry from the
disclosure of the a [sic] lawyer’s opinion work
product. Even assuming that the documents were
selected by the petitioner’s attorney, the subject
matter is so undifferentiated that its potential for
invasion of work product is minuscule at best.
[Citations omitted.]
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Accordingly, the Sporck holding has been interpreted to
require that the attorney’s mental impressions would be revealed
by the disclosure of the documents selected by an attorney in
contemplation of litigation. For instance, the defense attorney
in Sporck selected a limited quantity of documents, which fit in
a folder. Conceivably, such a discrete selection from a universe
consisting of more than 100,000 documents could have disclosed
the attorney’s mental impression regarding the defense of and
preparation for a deposition. In stark contrast, petitioner’s
defense attorney selected 100,000 pages of documents from a
larger universe of documents. Given the huge volume of otherwise
discoverable documents, we are constrained from concluding that
the mental impressions of petitioner’s defense attorney could be
gleaned or discerned if the documents were revealed to a third
person.
In the case before us, the prosecuting attorney selected
10,000 pages and petitioner’s defense attorney selected 100,000
pages from a larger universe of documents maintained by the
prosecuting attorney. Given the large volume of documents
(pages) involved, there is little or no likelihood that the
defense attorney’s mental impressions would be discernable.
We are also cognizant that the case before this Court is a
civil proceeding and that the parties are urged and required to
exchange documents and to stipulate them in preparation for
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trial. See Rule 91, Tax Court Rules of Practice and Procedure;
Branerton Corp. v. Commissioner, 61 T.C. 691 (1974). To the
extent that the subject documents are the predicate for the
factual development of this case, this Court has always
encouraged that such potential evidence be exchanged. The
factual basis for the prosecution of petitioner and the merits of
this income tax case involve, to a substantial extent, the same
transactions and events. It is highly likely that the selection
of the relevant documents by the prosecuting and defense
attorneys resulted in the selection of documents that are germane
and relevant to the merits of the controversy before this Court.
We are far from persuaded, in the circumstances of this
case, that 100,000 pages of materials selected by petitioner’s
defense attorney reveal his mental impressions. In addition, we
are concerned that a finding of protected work product with
respect to the selection of 100,000 pages of otherwise
discoverable materials would permit an excessively pervasive use
of the work product doctrine. Such use could easily evolve into
abuse accomplished by the mere selection of documents from a
larger universe. Petitioner has only generally alleged that the
defense attorney’s mental impressions would be compromised.
Petitioner has not described with any specificity the reason why
the selection would reveal the mental impressions of the defense
attorney. This showing could have been made in camera, if its
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disclosure would have been damaging to petitioner’s defense of
his criminal case. Without some showing or assurance that the
mental impressions of petitioner’s attorneys would be revealed,
the work product doctrine is not applicable under the
circumstances of this case.
To reflect the foregoing,
An appropriate order will be
issued granting respondent’s motion
to compel.