In Re Grand Jury Proceedings. Sam Rabin, Witness-Appellee v. United States of America, Movant-Appellant

TJOFLAT, Chief Judge,

concurring:

The last link doctrine is now part of this circuit’s law, and we are required to apply that doctrine as best we can. Because I think that the court today correctly applies the last link doctrine, I fully concur in the court’s opinion and disposition of this case. The doctrine’s justification, however, continues to elude me, and, if we were sitting en banc today, I would suggest that we do away with it altogether. I write to explain briefly my objections to the doctrine.

The fundamental problem with the last link doctrine is its inherent inconsistency with the crime/fraud exception to the attorney-client privilege. In Baird v. Koerner, 279 F.2d 623, 632 (9th Cir.1960), the Ninth Circuit held that a client’s identity should not be privileged when the attorney is employed “with respect to future criminal or fraudulent transactions.” (Emphasis in original.) The court went on to hold that the attorney’s employment in that case had “no reference to future criminal or fraudulent transactions involving the clients.” Id. at 634 (emphasis in original). At the time Baird was decided, the first holding was correct, and the second holding, although questionable, might have been justifiable. 1 The strengthening of the crime/fraud exception over the three decades since Baird , however, has made the court’s holdings regarding that exception wholly indefensible today. The following discussion demonstrates why Baird and the district court’s opinion below cannot be squared with the modern conception of the crime/fraud exception. By examining both Baird and the present case in detail, I hope to demonstrate that the last link doctrine serves no legitimate purpose.

*1280 A.

The attorney-client privilege is founded upon our society’s interest in promoting the administration of justice through the provision of competent legal advice. In light of this goal, courts have created an exception to the privilege when the attorney-client relationship has been used to pervert the administration of justice. As Justice Cardozo said, “[t]he privilege takes flight if the relation is abused. A client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law.” Clark v. United States, 289 U.S. 1, 15 , 53 S.Ct. 465, 469 , 77 L.Ed. 993 (1933).

Although Justice Cardozo framed the exception in broad terms, courts, until recently, limited the exception to rather narrow situations. Thus, when Baird was decided, most courts applied the exception only when the advice at issue was obtained in furtherance of future criminal or fraudulent conduct. See, e.g., Sawyer v. Barczak (In re Sawyer’s Petition), 229 F.2d 805, 808-09 (7th Cir.), cert. denied, 351 U.S. 966 , 76 S.Ct. 1025 , 100 L.Ed. 1486 (1956); United States v. Bob, 106 F.2d 37, 40 (2d Cir.), cert. denied, 308 U.S. 589 , 60 S.Ct. 115 , 84 L.Ed. 493 (1939); see also 2 E. Conrad, Modern Trial Evidence § 1083, at 259 (1956); 8 J. Wigmore, Evidence § 2298, at 573 (McNaughton rev. ed 1961). I am not aware of any cases decided prior to Baird that applied the crime/fraud exception to communications related to concealing evidence of past criminal or fraudulent conduct. Therefore, the Baird court justifiably held that the crime/fraud exception did not apply in that case because the attorney’s services were not used to further future criminal or fraudulent activity — the false returns had already been filed. 2

The breadth of the crime/fraud exception, however, has increased considerably since Baird . The exception now extends not only to communications made in furtherance of present or continuing illegal activity, see In re Grand Jury Proceedings of Fine, 641 F.2d 199, 203 (5th Cir. Unit A Mar. 1981); Developments in the Law— Privileged Communications, 98 Harv.L.Rev. 1450, 1509-10 (1985) [hereinafter Privileged Communications], but also to communications that use the relationship to conceal evidence of prior illegal activity, see, e.g., In re Grand Jury Investigation (Schroeder), 842 F.2d 1223, 1227 (11th Cir.1987); In re Sealed Case, 754 F.2d 395, 399-403 (D.C.Cir.1985); Sound Video Unlimited, Inc. v. Video Shack Inc., 661 F.Supp. 1482, 1486 (N.D.Ill.1987); Privileged Communications, supra, at 1511-12. To invoke the exception in this circuit, 3 a party must show only two things. First, the party must make “a prima facie showing that the client was engaged in criminal or fraudulent conduct when he sought the advice of counsel, that he was planning such conduct when he sought the advice of counsel, or that he committed a crime or fraud subsequent to receiving the benefit of counsel’s advice.” Schroeder, 842 F.2d at 1226 . Second, the party must make a showing “that the attorney’s assistance was obtained in furtherance of the criminal or fraudulent activity or was closely related to it.” Id. The party seeking to invoke the exception, however, need not show that the attorney knew, or had reason to know, that his services were being used by the client to further a crime or fraud. See Clark, 289 U.S. at 15 , 53 S.Ct. at 469-70 ; United *1281 States v. Ballard, 779 F.2d 287, 292 (5th Cir.), cert. denied, 475 U.S. 1109 , 106 S.Ct. 1518 , 89 L.Ed.2d 916 (1986); see, e.g., Schroeder, 842 F.2d at 1227 .

B.

If Baird were being decided today, the court should hold, based on the crime/fraud exception, that information regarding the clients’ identities is not privileged. Section 7201 of the Internal Revenue Code makes willfully attempting to evade or defeat, in any manner, any taxes imposed by the Code a felony. The Supreme Court, in United States v. Beacon Brass Co., 344 U.S. 43, 45-46 , 73 S.Ct. 77, 79 , 97 L.Ed. 61 (1952), held that conduct occurring after the filing of the false return would constitute an attempt to evade taxes if the conduct was designed to conceal the unreported income. See H. Balter & J. Guidotti, Tax Fraud and Evasion 1112.02[l][b] (5th ed. 1983). The IRS special agent in Baird presented strong evidence that the attorney’s clients believed they underpaid their taxes and were attempting to conceal their identities. Furthermore, the letter from the attorney to the IRS clearly indicated that his services had been used to help the clients conceal their identities. Thus, the evidence in Baird suggested that the attorney’s services were related not only to concealing evidence of a past crime but also, under Beacon Brass, to the ongoing crime of tax evasion. The evidence was more than sufficient to make a prima facie showing that the crime/fraud exception applied to the clients’ communication of their identities and their motives to the attorney. Consequently, the modern view of the crime/fraud exception would require disclosure of the clients’ identities in Baird even though such disclosure would reveal their motives for retaining the attorney’s services.

C.

Applying the crime/fraud exception to the case at hand again shows the inherent inconsistency between that exception and the last link doctrine. Because bank records are not privileged, the only situation in which the government would seek the attorney’s records relating to the amount of fees paid is when the client has paid some or all of the fees in cash. Conducting business transactions in cash in order to avoid bookkeeping and bank records is a very common means of hiding income and evading taxes. See H. Balter & J. Guidotti, supra H 2.01[2], at 2-4. In fact, several courts have held that evidence of substantial cash transactions can support a finding that the taxpayer willfully attempted to avoid paying taxes. See, e.g., United States v. Hughes, 766 F.2d 875, 878 (5th Cir.1985); United States v. White, 417 F.2d 89, 92 (2d Cir.1969), cert. denied, 397 U.S. 1030 , 90 S.Ct. 1256 , 25 L.Ed.2d 543 (1970). Indeed, any time the alleged misconduct has as its motive pecuniary gain, it is reasonable to assume that conducting business transactions in cash would be a common method of hiding evidence of a sudden acquisition of wealth from the alleged misconduct. Cf. United States v. Morris, 647 F.2d 568, 572 (5th Cir. Unit B June 1981) (when there is other evidence of guilt, and crime is one normally committed for pecuniary gain, evidence of sudden acquisition of wealth admissible); United States v. Tramunti, 513 F.2d 1087, 1105 (2d Cir.) (same), cert. denied, 423 U.S. 832 , 96 S.Ct. 54 , 46 L.Ed.2d 50 (1975).

Therefore, when the client has been charged with misconduct involving pecuniary gain 4 and the client obviously has paid his attorney’s fees in cash, the two-prong showing required to invoke the crime/fraud exception should be satisfied. See, e.g., Schroeder, 842 F.2d at 1226-27 . Assuming that the government can make a prima facie showing that the client has *1282 engaged in the misconduct, then the second showing logically follows: by paying fees in cash rather than by some means that would leave a public record of payment, the client might have been hiding his ill-gotten gain. In other words, the communicative act of paying fees would have been in furtherance of a crime or fraud. Thus, by showing that the client paid fees but that no record of those fees exists (implying payment in cash), the government provides enough evidence to show that “the attorney’s assistance was obtained in furtherance of the criminal or fraudulent activity or was closely related to it.” Id. at 1226 . Consequently, the attorney’s records of the amount of fees paid should not be privileged: either the client has paid by some method that leaves a public record (e.g., by check), thus making the attorney’s records nonconfidential, or the client has paid in cash, thus invoking the crime/fraud exception.

This conclusion is not a new one. Decisions binding on this panel have reached the same result. In Pollock v. United States, 202 F.2d 281 (5th Cir.), cert. denied, 345 U.S. 993 , 73 S.Ct. 1133 , 97 L.Ed. 1401 (1953), the government prosecuted the client for tax evasion using the net worth and gross expenditure methods. 5 Evidence was admitted at trial showing that the taxpayer had given substantial amounts of cash to his attorney who then applied the cash to the purchase price of real estate acquired for the taxpayer. Id. at 285. The court held that that information was not privileged, in part because the attorney was not acting in his professional capacity. Id. at 286. It then stated, however, that “[m]ore important, where the party is being tried for a crime in furtherance of which the communication to the attorney was made and evidence has been introduced giving color to the charge, it is well settled that the communication is no longer privileged.” Id. Although Pollock does not deal with fees paid in cash, the principle is the same: the attorney-client privilege takes flight when the client, charged with conduct resulting in pecuniary gain, hands over substantial amounts of cash to his attorney. Whether the cash is used to pay the attorney’s fees or to buy property, the relationship has been abused.

This court reached the same conclusion in Schroeder. In that case, the evidence suggested that the attorney was used not only to help the client establish certain companies but also to help the client dispose of unreported income. 842 F.2d at 1227 & n. 5. The Schroeder court held that “the requirement that legal advice must be related to the client’s criminal or fraudulent conduct should not be interpreted restrictively.” It then held that “any legal assistance [the client] received in disposing of income he did not report is related to his tax evasion,” regardless of whether the attorney knew he was helping the client to evade taxes. Id.

I submit that these considerations and precedents should control our decision in this case. The Government certainly has submitted more than enough evidence to satisfy the first prong of the crime/fraud test. See id. at 1226 . Furthermore, the foregoing discussion has shown that, because Garcia obviously paid his attorney’s fees in cash, the second prong of the test also has been met. Even if Rabin did not know he was helping Garcia to hide relevant evidence of the alleged misconduct, he was in fact assisting Garcia in disposing of, or concealing, possibly unreported income or *1283 unexplained wealth. Simply by paying for services in cash, Garcia might have concealed relevant evidence, and such a method of conducting a business transaction, standing alone, would further the alleged misconduct. In this case, therefore, the crime/fraud exception should apply to the communicative act of paying fees.

D.

Although I have examined in detail only two cases, an examination of all of the last link doctrine cases of which I am aware would demonstrate that the court applying the doctrine (whether properly or improperly) failed adequately to consider the crime/fraud exception. As one commentator has noted,

One who reviews the [last link doctrine] cases will ... be struck by the prevailing flavor of chicanery and sharp practice pervading most of the attempts to suppress proof of professional employment, and general application of a rule of disclosure seems the approach most consonant with the preservation of the repute of the lawyer’s high calling.

McCormick on Evidence § 90, at 216-17 (3d law. ed. 1984).

Cases may arise in which the client’s identity or the amount of fees paid is justifiably privileged. For example, a client may reasonably expect his identity to be kept confidential when his motive for consulting with an attorney is to disclose the wrongdoing of others. See In re Kaplan, 8 N.Y.2d 214 , 203 N.Y.S.2d 836, 839 , 168 N.E.2d 660, 661 (1960) (“Since the client’s communication to [his attorney] was made in the aid of a public purpose to expose wrongdoing and not ... to conceal wrongdoing, the seal of secrecy should cover the client’s name_”). Those situations can be handled just as well, however, with a straightforward analysis of the attorney-client privilege unencumbered by the last link doctrine.

In sum, the last link doctrine serves no legitimate purpose. While couched in terms of fairness to the client and promotion of the administration of justice, it simply allows clients to further their misconduct by hiding relevant evidence. Clients with reasonable and just concerns about disclosure of their identities, the amount of their attorneys’ fees, or other normally nonprivileged information undoubtedly will find protection in the law without the aid of the last link doctrine. Therefore, I think it is time for the en banc court to take a careful and critical look at this ill-conceived doctrine.

Before TJOFLAT, Chief Judge, FAY, KRAVITCH, JOHNSON, HATCHETT, ANDERSON, CLARK, EDMONDSON and COX, Circuit Judges.

BY THE COURT:

A majority of the judges in active service, on the court’s own motion, having determined to have this case reheard en banc,

IT IS ORDERED that the above cause shall be reheard by this court en banc with oral argument during the week of October 8,1990, on a date hereafter to be fixed. The clerk will specify a briefing schedule for the filing of en banc briefs. The previous panel’s opinion is hereby VACATED.

. See infra note 2.

. I use the term "justifiably” with caution. Pri- or to Baird , the Supreme Court held that "[t]he language of [I.R.C.] § 145(b) [ (1939) ] which outlaws willful attempts to evade taxes ‘in any manner' is clearly broad enough to include false statements made to Treasury representatives for the purpose of concealing unreported income.” United States v. Beacon Brass Co., 344 U.S. 43, 45-46 , 73 S.Ct. 77, 79 , 97 L.Ed. 61 (1952). A reasonable interpretation of this holding could lead to the conclusion that the clients in Baird retained the attorney’s services to help them conceal unreported income from the government by not disclosing whose returns were deficient. If this characterization of Baird is correct, then, under Beacon Brass, the attorney's services were used to further criminal or fraudulent conduct, and that conduct could be deemed to be future conduct.

. Most circuits have adopted a test similar to the one articulated by this court in Schroeder, 842 F.2d at 1226 . See, for example, the cases cited in Schroeder, 842 F.2d at 1226-27 .

. When the misconduct alleged does not involve some type of pecuniary gain, I can conceive of no situation in which evidence of amount of fees paid would be relevant, although I do not exclude the possibility that the evidence might be germane to a collateral issue in a case not involving pecuniary gain. Evaluating the entire universe of cases in which the amount of fees might be relevant, however, is not necessary to show the basic inconsistency between the last link doctrine as applied to amount of attorney’s fees and the crime/fraud exception.

. In a net worth case, the government independently ascertains the taxpayer’s beginning net worth (assets minus liabilities), adds the taxpayer’s reported income over the period in question, and checks the sum against his ending net worth. See H. Balter & J. Guidotti, supra ¶ 10.04[10][b], Unless rebutted by the taxpayer, proof that the taxpayer’s net worth increased, that the increase was the result of taxable income, and that the taxpayer willfully failed to report the income is sufficient to make out a case of tax evasion. See Holland v. United States, 348 U.S. 121, 137-39 , 75 S.Ct. 127, 136-37 , 99 L.Ed. 150 (1954). Closely related to the net worth method, the gross expenditure method ignores the taxpayer’s net worth and focuses on cash flow during the period in question. Following this method, a court asks whether the reported income was sufficient to meet proven expenditures during the period under investigation. See H. Balter & J. Guidotti, supra ¶ 10.04[10][d].