UNITED STATES OF AMERICA, PETITIONER V. FRANK S. ZOLIN, ET AL. No. 88-40 In The Supreme Court Of The United States October Term, 1988 The Solicitor General, on behalf of the United States of America, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Ninth Circuit in this case. Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Ninth Circuit PARTIES TO THE PROCEEDING In addition to the parties named in the caption, Mary Sue Hubbard and the Church of Scientology of California intervened in the district court and are respondents here. TABLE OF CONTENTS Questions Presented Parties to the proceeding Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion OPINIONS BELOW The order of the en banc court vacating the order granting rehearing (App., infra, 1a-9a) is reported at 842 F.2d 1135. The earlier order of the en banc court granting rehearing (App., infra, 10a) is reported at 832 F.2d 127. The opinion of the panel (App., infra, 11a-24a) is reported at 809 F.2d 1411. The March 12, 1985, interim order of the district court (App., infra, 30a-32a), the April 30, 1985, order of the district court (App., infra, 27a-29a), and the June 10, 1985, order of the district court denying reconsideration (App., infra, 25a-26a) are unreported. JURISDICTION The judgment of the court of appeals was entered on February 9, 1987. A petition for rehearing was granted on November 6, 1987 (App., infra, 10a), and that order was vacated as improvidently granted on March 28, 1988 (App., infra, 2a). On June 20, 1988, Justice O'Connor extended the time to petition for a writ of certiorari to and including July 8, 1988. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED Section 7602 of the Internal Revenue Code of 1954 (26 U.S.C.) provides in pertinent part: EXAMINATION OF BOOKS AND WITNESSES (a) AUTHORITY TO SUMMON, ETC. -- For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect to any internal revenue tax, or collecting any such liability, the Secretary is authorized -- (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry; (2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and (3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry. * * * * * Section 7604(a) of the Internal Revenue Code of 1954 (26 U.S.C.) provides in pertinent part: ENFORCEMENT OF SUMMONS. (a) JURISDICTION OF DISTRICT COURT -- If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data. * * * * * Section 7421(a) of the Internal Revenue Code of 1954 (26 U.S.C.) provides in pertinent part: PROHIBITION OF SUITS TO RESTRAIN ASSESSMENT OR COLLECTION (a) TAX -- Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed. * * * * * QUESTIONS PRESENTED 1. Whether, in the course of an action brought by the Internal Revenue Service to enforce a summons, the court may place restrictions on the disclosure of the summoned information. 2. Whether a prima facie case for the invocation of the crime-fraud exception to the attorney-client privilege must be established by independent evidence, or, alternatively, whether the applicability of that exception can be resolved by an in camera inspection of the allegedly privileged material. STATEMENT 1. In July 1984, the Criminal Investigative Division of the Internal Revenue Service (IRS) began investigating the tax returns of L. Ron Hubbard and others for tax years 1979-1983. Prior to the commencement of the investigation, Los Angeles newspapers had reported that former officials of the Church of Scientology had testified in Church of Scientology v. Gerald Armstrong, No. C 420 153 (Cal. Super. Ct.), that various Church of Scientology entities had transferred millions of dollars to Hubbard in the late 1970s and early 1980s. In October 1984, the IRS served an administrative summons on the Clerk of the California Superior Court, an office now occupied by respondent Zolin, seeking a number of documents contained in the record of the Armstrong case. The Clerk's office produced some of the documents, but it refused to produce 13 documents that had been ordered sealed by the Superior Court. The government then initiated this proceeding in the United States District Court for the Central District of California to enforce the summons. App., infra, 12a. Respondents Mary Sue Hubbard and Church of Scientology intervened to oppose enforcement of the summons. They contend, inter alia, that the summons had been issued for the improper purpose of gathering information for use by other government agencies. After an evidentiary hearing, the district court rejected this contention. The court stated that the "Church has failed to raise any doubt of the good faith of the Internal Revenue Service in pursuing this summons enforcement proceeding" (App., infra, 27a). The court explained that the summons was validly issued pursuant to a bona fide criminal tax investigation of L. Ron Hubbard and that "the agent issuing the summons was in good faith in doing so, and did not do so for an improper purpose, or to harass the taxpayer, or for a collateral purpose" (ibid.). The court therefore enforced the summons in part, ordering production of the five disputed documents that it found to be relevant and not privileged (id. at 28a). The court's order further provided that the documents produced "shall not be delivered to any other government agency by the IRS unless criminal tax prosecution is sought or an Order of Court is obtained" (App., infra, 29a). In denying the government's subsequent motion for reconsideration, the court explained this restriction as follows (id. at 26a): "Since the entire basis of the summons proceeding was to obtain material for a tax investigation, the court thinks it reasonable to restrict the use of the material for that purpose, unless a criminal prosecution is instituted. If exigencies of other litigation make it necessary, the IRS is free to make its case for an exception to this court." The court also denied enforcement of the summons in part, ruling that eight of the documents were either irrelevant or privileged. In particular, the court ruled that Exhibit 5C, tape recordings of two meetings between various attorneys and representatives of L. Ron Hubbard and the Church of Scientology that are known as the "MCCS tapes," was protected by the attorney-client privilege. The government argued that the "crime-fraud" exception to the attorney-client privilege was applicable, /1/ relying on affidavits from a special agent that contained partial transcripts of the tapes and that stated that the excerpts and his discussions with former Church employees had given the agent reason to believe that the meetings were part of a criminal conspiracy to defraud the United States (see App., infra, 23a-24a, 28a). /2/ The court found that the government had not demonstrated the applicability of the crime-fraud exception, stating that "(t)he quoted excerpts tend to show or admit past fraud but there is no clear indication that future fraud or crime is being planned" (id. at 28a). The government sought reconsideration on the ground that the court should not have rejected the applicability of the exception without an in camera inspection of the complete tapes. The court denied the motion (App., infra, 25a-26a). /3/ 2. A panel of the court of appeals affirmed (App., infra, 11a-24a). The court rejected the government's contention that the district court had exceeded its authority in a summons enforcement proceeding by imposing limitations on the IRS regarding disclosure of the summoned information (id. at 18a-19a). Relying on its prior decision in United States v. Author Services, Inc., 804 F.2d 1520, 1525 (9th Cir. 1986), which in turn had relied upon United States v. Texas Heart Inst., 755 F.2d 469, 481 (5th Cir. 1985), the court concluded that "(a) district court may, when appropriate, condition enforcement of a summons on the IRS's agreeing to abide by disclosure restrictions" (App., infra, 19a). The panel also affirmed that trial court's ruling that the crime-fraud exception was not applicable to the MCCS tapes (App., infra, 21a-24a). Citing United States v. Shewfelt, 455 F.2d 836 (9th Cir.), cert. denied, 406 U.S. 944 (1972), the panel explained that circuit precedent had established the rule that the crime-fraud exception could be invoked to justify disclosure of otherwise privileged communications only where the government establishes "'a prima facie case of fraud independently of said communications'" (App., infra, 21a, quoting 455 F.2d at 840 (emphasis in original)). While noting that "Shewfelt's independent evidence requirement ha(d) been strongly criticized" and rejected by other courts, and that another Ninth Circuit decision, United States v. Friedman, 445 F.2d 1076, cert. denied, 404 U.S. 958 (1971), had "implicitly recognized that a district court may examine the disputed communications themselves in order to determine the applicability of the 'crime-fraud' exception," the panel concluded that it was bound to follow the independent evidence rule of Shewfelt unless that case was overruled en banc (App., infra, 22a-23a). Applying that rule, the panel concluded that the independent evidence in this case, consisting of the special agent's declarations describing his conversations with certain former Church employees (but not the partial transcripts of the tapes), "while not altogether insubstantial, (was) not sufficient to make out the requisite prima facie showing of intended illegality" (id. at 23a-24a). 3. The court of appeals ordered the case reheard en banc (App., infra, 10a). Following supplemental briefing and oral argument, however, the en banc court entered an order vacating "as improvidently granted" the previous order granting rehearing en banc (id. at 1a-2a). The order explained that there was no conflict between United States v. Shewfelt, supra, and United States v. Friedman, supra, because Friedman did not discuss whether there was an independent evidence requirement. The en banc court confirmed that Shewfelt was the law of the circuit on this point, holding that "the government must make a prima facie showing, independent of the communications involved, that the attorney-client communications were in furtherance of an intended or present illegality" (App., infra, 2a). The en banc court also ordered withdrawn the six paragraphs in the panel opinion that had noted and discussed the criticisms of Shewfelt (see App., infra, 21a-23a). Id. at 2a. Three judges dissented from the en banc court's order, arguing that rehearing en banc had not been improvidently granted and that the en banc court should overrule Shewfelt (App., infra, 2a-9a). The dissenters criticized the majority for "perpetuat(ing) a maverick version of the attorney-client privilege" that "clashes with that of a majority of other circuits," noting that "the attorney-client privilege, as a rule of evidence for the federal courts, has an overriding need for national uniformity" (id. at 3a). The dissenters noted that "(e)very circuit to face the situation this case presents has allowed in camera inspection," citing cases from six different courts of appeals (id. at 4a). The dissenters then discussed the merits of the independent evidence rule (id. at 4a-8a) and concluded that they "would overrule Shewfelt, eliminate the independent evidence requirement, and allow in camera inspection of suspect communications" (id. at 8a). REASONS FOR GRANTING THE PETITION This case presents two distinct questions that are of considerable importance to the exercise of the IRS's summons authority and on each of which there exists a direct conflict in the circuits. First, the court of appeals' holding that it is appropriate in a summons enforcement proceeding for a district court to impose limitations on the dissemination by the IRS of the summoned information poses a serious threat to the expeditious enforcement of summonses. This Court has recognized that summons enforcement proceedings should be summary in nature and limited to the determination of the IRS's right to obtain needed information. See Donaldson v. United States, 400 U.S. 517, 529 (1971); United States v. Powell, 379 U.S. 48, 57-58 (1964). The expansion of the scope of summons enforcement proceedings sanctioned by the court of appeals here substantially departs from that model by prolonging the proceedings and by interjecting into them extraneous and difficult issues concerning the allowable scope of IRS disclosures of tax return information. Second, the court of appeals' "maverick" (App., infra, 3a) approach to the crime-fraud exception poses a serious practical obstacle to the invocation of that exception because independent evidence that an attorney-client communication involves a crime or a fraud often will not be available. The result is that communications that, upon examination, would reveal themselves to be clearly outside the scope of the attorney-client privilege nevertheless will be withheld from government legislators. Thus, two separate aspects of the decision below threaten to create severe obstacles for the IRS in conducting its tax investigations. Because each of these important holdings directly conflicts with decisions of other courts of appeals, this Court should grant certiorari to resolve the conflicts. 1. a. The decision below, and the Ninth Circuit's prior decision in United States v. Author Services, Inc., 804 F.2d 1520, 1525-1526 (1986), on which the court below relied, directly conflict with the rule adopted by the Fifth Circuit en banc in United States v. Barrett, 837 F.2d 1341 (1988), petition for cert. pending, No. 87-1705. Author Services involved another IRS summons issued in the course of the same tax investigation involved in the present case. The court enforced the summons, but it also upheld the portion of the district court's order that prohibited the IRS from delivering the summoned documents to any agency or individual without a court order, unless a criminal tax prosecution was being sought. The court of appeals found that this condition was justified because the many levels of ongoing litigation between the Church of Scientology and the government had given the district court the "fear 'that information acquired for one purpose may be in effect used for civil discovery in the other'" (804 F.2d at 1526). The court of appeals concluded that the imposition of conditions upon disclosure of summoned information is justified by the court's "broad authority, under 26 U.S.C. Section 7402(a) (1982), to issue any orders or decrees 'as may be necessary or appropriate for the enforcement of the internal revenue laws'" (804 F.2d at 1525); on the facts there, the court concluded that the condition imposed by the district court was "a wise exercise of control, serving the interests of judicial economy" (id. at 1526). Here, the court of appeals simply followed Author Services in upholding the same condition upon the disclosure of information obtained pursuant to another summons issued in the course of the same investigation of the Church of Scientology (App., infra, 19a). The Ninth Circuit's decisions allowing the conditional enforcement of summonses cannot be reconciled with the rule established in the Fifth Circuit. The latter court originally reached the same conclusion as the Ninth Circuit on this issue in United States v. Texas Heart Inst., 755 F.2d 469 (5th Cir. 1985), and, indeed, that decision was cited by the Ninth Circuit both in Author Services (804 F.2d at 1525) and in the present case (App., infra, 19a). In Texas Heart, pursuant to a criminal tax investigation of Dr. Bernard Barrett, the IRS had issued summonses to several hospitals seeking lists of Dr. Barrett's patients. All but four of the hospitals complied with the summonses. The IRS then sent form letters to each of the patients stating that Dr. Barrett was under investigation by the IRS and requesting information about the fees paid to him. In an action brought by the IRS to enforce the summonses issued to the four hospitals that had not complied, the district court refused to enforce the summonses, objecting in part to the form letters that were being sent to the patients whose identities were divulged by the hospitals. The court of appeals reversed and ordered the summonses enforced, holding, inter alia, that Barrett's assertion that the IRS had violated 26 U.S.C. 6103 in disclosing to his patients that he was under investigation provided no basis for doubting the IRS's good faith in issuing the summonses and therefore no basis for not enforcing them. /4/ The court added, however, that if the district court determined that improper disclosures had been made to the patients, the "enforcement of the summonses may be conditioned on an IRS agreement to cease such improper disclosures" (755 F.2d at 481). The Fifth Circuit, however, has specifically overruled Texas Heart, and its rule is now in direct conflict with that of the Ninth Circuit. United States v. Barrett, 804 F.2d 1376 (1986), rev'd en banc, 837 F.2d 1341 (1988), petition for cert. pending, No. 87-1705, involved another summons in the same investigation, which was addressed to Barrett's professional corporation. The panel, concluding that it was bound by Texas Heart, ordered the district court to consider whether the summons should be conditionally enforced. The full court granted the government's petition for rehearing en banc, however, and affirmed the district court's decision to enforce the summons unconditionally. The en banc court held that a district court lacks the power to impose conditions upon the enforcement of a summons, and it explicitly overruled both Texas Heart (837 F.2d at 1351) and an earlier decision, Dunn v. Ross, 356 F.2d 664 95th Cir. 1966), to the extent that it could be read "to endorse the district court's ability to conditionally enforce a summons" (837 F.2d at 1350). The conflict between the Fifth and Ninth Circuits on this issue could not be clearer. /5/ In Author Services, the Ninth Circuit rejected the government's contention that "the court is limited to either enforcing a summons or denying enforcement," stating that "(c)learly this is not the case" (804 F.2d at 1525). By contrast, the en banc court in Barrett explicitly held that, "(i)n a summons enforcement proceeding, the district court's only task is to determine whether the summons should or should not be enforced" (837 F.2d at 1350). And the court of appeals here expressly held that, in the Ninth Circuit, "(a) district court may, when appropriate, condition enforcement of a summons on the IRS' agreeing to abide by disclosure restrictions" (App., infra, 19a). The Barrett court held, to the direct contrary, that "(t)he district court does not have the power to conditionally enforce the summons" (837 F.2d at 1350). b. Because the question of the power of a district court to place conditions on the enforcement of a summons has a substantial effect on the IRS's ability to conduct its investigation, it is important that the conflict in the circuits on this point be resolved. It is well established that summons enforcement proceedings are designed to be "summary" in nature. Donaldson v. United States, 400 U.S. at 529; see also, e.g., United States v. Rylander, 460 U.S. 752, 756 (1983); United States v. Kis, 658 F.2d 526, 535-536 (7th Cir. 1981); United States v. Davis, 636 F.2d 1028, 1038 (8th Cir.), cert. denied, 454 U.S. 862 (1981); M. Saltzman, IRS Practice and Procedure Paragraph 13.04, at 13-25 to 13-27 (1981). An expeditious mechanism for enforcement is essential because delay can seriously interfere with the IRS's exercise of its investigative authority. Thus, this Court has limited the right of taxpayers to intervene in summons enforcement proceedings (Donaldson v. United States, supra), "apparently out of concern for the ability of a taxpayer to delay the investigative process by forcing protracted enforcement proceedings" (M. Saltzman, supra, at 13-25). And the Court has rejected the introduction into summons enforcement proceedings of issues going beyond the traditional inquiry into "institutional good faith," noting that the additional inquiries would cause "undesirable" delays. United States v. LaSalle Nat'l Bank, 437 U.S. 298, 316 (1978). Congressional enactments stimulated by those decisions have been responsive to the same concerns. See 26 U.S.C. 7602(c), 7609(c); S. Rep. 97-494, 97th Cong., 2d Sess. 285 (1982); H.R. Rep. 94-658, 94th Cong., 2d Sess. 309 (1976). The decision of the court of appeals ignores this clearly established statutory policy to avoid delay, and it therefore poses a serious threat to the IRS's ability to conduct efficient tax investigations. As the court of appeals frankly acknowledged (App., infra, 19a), "(t)he district court's order in this case created a mechanism whereby the district court could monitor the IRS' use of the summoned documents." Thus, far from the "summary" enforcement proceeding, the court of appeals has sanctioned a procedure under which the IRS's investigation will be subject to constant scrutiny and attack by the summoned party. In the context of a criminal investigation, litigation over IRS summonses typically is a struggle between the government's efforts to obtain information in a timely fashion and the taxpayer's attempts to delay the investigation. Allowing taxpayers to litigate hypothetical or anticipatory disclosure questions in summons enforcement proceedings would lead to the courts' repeated involvement at each new step of the investigation, which has the potential to cause significant delays while the courts supervise the government's use of the summoned material. /6/ Thus, if permitted to stand, the court of appeals' decision would have deleterious effects on the enforcement of the tax laws because it would "'stultify' and unduly delay the investigation sought by the IRS" into violations of those laws. United States v. Ernst & Whinney, 750 F.2d 516, 520 (6th Cir. 1984) (quoting Donaldson v. United States, 400 U.S. at 531). c. The decision below is erroneous. This Court has repeatedly emphasized that the role of the judiciary in a summons enforcement action is a limited one -- to guard against abuses of the power to summon documents or testimony. See, e.g., United States v. Bisceglia, 420 U.S. 141, 150 (1975); United States v. Powell, 379 U.S. at 57-58. That role plainly does not encompass supervising the investigation and the manner in which the IRS uses the summoned material. The summons power, of course, is not absolute; as this Court made clear in Powell, the court may refuse to enforce the summons if it finds that it was not issued in good faith -- i.e., if the summons is not relevant to an investigation conducted pursuant to a legitimate purpose. Id at 58. If a summons meets that good faith threshold, however, the Court has consistently held that restrictions on the IRS's summons authority should not be imposed "'absent unambiguous directions from Congress.'" United States v. Arthur Young & Co., 465 U.S. 805, 816 (1984) (quoting United States v. Bisceglia, 420 U.S. at 150). Here, both courts below agreed that the summons met the Powell standards and should be enforced. And the courts did not suggest that any future disclosures by the IRS would create any question about the good faith of the investigation; despite the Church's allegations that other government agencies were concerned with its operations, the district court found that the Church had "failed to raise any doubt of the good faith of the Internal Revenue Service in pursuing this summons enforcement proceeding" (App., infra, 27a). This conclusion was clearly correct because the question of good faith in issuing a summons (i.e., whether it is issued in aid of an investigation conducted pursuant to a legitimate purpose) is wholly independent of the question whether the IRS has made disclosures that violate Section 6103. As one court of appeals has stated in rejecting a similar objection to enforcement of a summons on the ground that there had been Section 6103 violations, evidence of unlawful disclosures "does not reflect on the good faith of the investigation itself" (United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1448 (10th Cir. 1985)). See also United States v. Chemical Bank, 593 F.2d 451, 456 (2d Cir. 1979). /7/ The Fifth Circuit correctly stated in Barrett that the court's role in a summons enforcement proceeding is limited to determining whether the summons was issued in good faith and "(t)here is no statutory authority, nor congressional indication that existing statutes supply the authority, nor Supreme Court authority, to allow the district court to make any consideration except whether to enforce or not to enforce the summons" (837 F.2d at 1350). The apparent purpose of the conditions on disclosure imposed by the district court here was to ensure that the IRS would not violate the confidentiality protections of Section 6103 in its future use of the summoned material; in the words of the court of appeals, the enforcement order established "a mechanism whereby the district court could monitor the IRS's use of the summoned documents" (App., infra, 19a). But Congress established a remedial framework for enforcing Seciton 6103, and there is no reason to conclude that those remedies are inadequate when the documents in question have been obtained by means of a summons. Therefore, the court below erred in interfering with the established, summary nature of summons enforcement proceedings in an effort to augment judicially the statutory framework for enforcing Section 6103. Congress created both a civil damage remedy for violations of Section 6103 (see 26 U.S.C. 7431) and criminal sanctions against federal employees who make unlawful disclosures (see 26 U.S.C. 7213(a)). But Congress did not provide a means for an individual to seek injunctive relief against possible future violations of Section 6103. /8/ Thus, if a person believes that the IRS is planning to make an unlawful disclosure of confidential tax return information that he supplied to the agency, he cannot bring suit to enjoin or prevent that disclosure; rather, he is limited to the remedy provided by Congress of seeking damages, if, in fact, such a disclosure actually occurs. There is no reason why a different rule should obtain where the confidential information was obtained by means of a summons. If the summons meets the traditional criteria for enforcement, then the district court is obliged to enforce it and order the material turned over to the IRS. The investigation should not be delayed while the court embarks on a course of litigation (and presumably appellate litigation) about whether certain conditions should or should not be included in the particular enforcement order. Nor is the court empowered to monitor the IRS's investigation to prevent the disclosure of that material in violation of Section 6103; rather, if such a disclosure occurs, the aggrieved person may invoke the remedies provided by Congress. Indeed, the condition imposed by the courts in this case on enforcement of the summons violates the specific restrictions of the Tax Anti-Injunction Act, 26 U.S.C. 7421(a). That statute generally withdraws jurisdiction from the courts to hear suits for the "purpose of restraining the assessment or collection of any tax," and it has been broadly construed to apply to any IRS activitiy necessary to determine tax liability, including investigative activity. Thus, the courts have held that the Act applies to bar "a taxpayer seeking to enjoin the IRS from acquiring or using the information necessary" to determine tax liability. United States v. First Family Mortgage Corp., 739 F.2d 1275, 1278 (7th Cir. 1984). See, e.g., Lowrie v. United States, 824 F.2d 827, 830-831 (10th Cir. 1987); Black v. United States, 534 F.2d 524, 526-527 (2d Cir. 1976); see also Bob Jones Univ. v. Simon, 416 U.S. 725, 738-739 (1974). This case falls within the proscription of the Anti-Injunction Act. The district court has restrained the IRS's conduct of its investigation by enjoining it (pending a further court order) from making full use of material that is lawfully in it its possession pursuant to a valid summons. 2. a. The court of appeals' restrictive view of the crime-fraud exception to the attorney-client privilege directly conflicts with the prevailing rule in the other courts of appeals. The en banc court in this case stated unequivocally that United States v. Shewfelt, 455 F.2d 836 (9th Cir.), cert. denied, 406 U.S. 944 (1972), remains the law of the Ninth Circuit. In Shewfelt, the court had stated that "before the privileged status of (attorney-client) communications can be lifted, the government must first establish a prima facie case of fraud independentsly of the said communications" (455 F.2d at 840 (emphasis added)), and the court restated that rule in essentially the same terms in this case (App., infra, 2a). As the dissenters from the en banc ruling stated, this independent evidence requirement has never been adopted by another court of appeals and constitutes "a maverick version of the attorney-client privilege" that "clashes with that of a majority of other circuits" (id. at 3a). The Eighth Circuit explicitly rejected the Shewfelt rule in In re Berkley & Co., 629 F.2d 548 (1980). The company from which documents had been subpoenaed by a grand jury in that case had relied on Shewfelt in arguing that independent evidence of crime or fraud was necessary to defeat its claim of attorney-client privilege. The Eighth Circuit flatly rejected that claim, noting that "(t)he cases relied on in Shewfelt * * * do not support the independent evidence restriction" (629 F.2d at 553 n.9). Moreover, as the dissenters in this case stated (App., infra, 4a), several other courts of appeals have approved in camera inspection of the documents in question in order to determine the applicability of the crime-fraud exception. See, e.g., In re Antitrust Grand Jury, 805 F.2d 155, 168-169 (6th Cir. 1986); In re Sealed Case, 754 F.2d 395, 400 (D.C. Cir. 1985); In re John Doe Corp., 675 F.2d 482, 490 (2d Cir. 1982); In re Special Sept. 1978 Grand Jury II, 640 F.2d 49, 59-61 (7th Cir. 1980); In re Grand Jury Proceedings (FMC Corp.), 604 F.2d 798, 800 (3d Cir. 1979); Union Camp Corp. v. Lewis, 385 F.2d 143, 144 (4th Cir. 1967); see also In re Sealed Case, 676 F.2d 793, 815 (D.C. Cir. 1982) (footnote omitted) (opinion of Wright, J.) ("the subpoenaed material itself may provide prima facie evidence of a (crime or fraud)"). The rule reaffirmed by the Ninth Circuit in this case necessarily rejects the use of in camera inspection and cannot be squared with these decisions. b. The Ninth Circuit clearly erred in adopting a rule that prevents the invocation of the crime-fraud exception unless the government can produce independent evidence that the communication in question relates to a crime or a fraud. Analysis of the issue points inexorably to the conclusion that the applicability of the crime-fraud exception may be demonstrated by an in camera inspection of the communication in question. The purpose of the attorney-client privilege is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice" (Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). The privilege applies where it is necessary to achieve its purpose, but it does not absolutely apply to all communications between attorney and client. See Fisher v. United States, 425 U.S. 391, 403 (1975). In particular, it does not apply when a client consults an attorney for advice in carrying on a contemplated or ongoing crime or fraud. See Clark v. United States, 289 U.S. 1, 15-16 (1933). In such a case, the communication is not designed to promote "the observance of law and administration of justice" (Upjohn Co. v. United States, 449 U.s. at 389), but to subvert it; extending a privilege to this type of communication would not advance any desirable policy and would deny to the courts what may be highly probative evidence. Thus, when an attorney-client communication is related to criminal or fraudulent activity, it is not privileged and should not be treated as if it were. This is equally true whether the relation to crime or fraud can be demonstrated only be examination of the communication itself or whether it can also be shown by evidence independent of such examination. There is no rationale for a rule that would apply the crime-fraud exception to the privilege only in the latter case, but not in the former, and the Ninth Circuit makes no attempt either in this case or in Shewfelt to justify such a rule. The validity of many kinds of claims of privilege is commonly resolved by means of an in camera examination, and there is no reason why utilization of that procedure is any less appropriate when the issue is the applicability of the crime-fraud exception. See e.g., Kerr v. United States Dist. Court, 426 U.S. 394, 405-406 (1976); United States v. Nixon, 418 U.S. 683, 713-714 (1974); Halkin v. Helms, 598 F.2d 1, 5-6 (D.C. Cir. 1978). This Court's recent decision in Bourjaily v. United States, No. 85-6725 (June 23, 1987), further undermines any argument for the independent evidence requirement. There, the Court concluded that a previously-recognized independent evidence requirement for invocation of the co-conspirator hearsay exception (Fed. R. Evid. 801(d)(2)(E)) is no longer good law in modern practice under the Federal Rules of Evidence. The Court explained that there is no reason to exclude any probative evidence from the determination whether the exception should apply and that this approach is embodied in the language of the new Rules (see Rule 104(a)). /9/ The present case is an even stronger one for rejection of an independent evidence requirement than was Bourjaily. The independent evidence rule there was supported to some extent by the fact that the evidence whose admissibility was in doubt was hearsay and thus presumptively unreliable; it was arguable, therefore, that hearsay should not be viewed as probative evidence on the question whether the exception should apply. Here, by contrast, there is no doubt as to the reliability of the evidence; in camera examination of the disputed communication is often the most reliable way of determining whether it is related to a crime or a fraud. See, e.g., In re Antitrust Grand Jury, 805 F.2d at 168. Moreover, the independent evidence rule at issue in Bourjaily had been fairly well established prior to the promulgation of the Rules of Evidence; here, by contrast, the Ninth Circuit's rule that independent evidence is required for invocation of the crime-fraud exception is at odds with prior law and the rule in other circuits. If permitted to stand, the decision below would significantly impair IRS investigations (and other law enforcement investigations) in the Ninth Circuit. The actual contents of an attorney-client communication will often be the best evidence of whether the crime-fraud exception is applicable. Thus, permitting in camera inspecton of such communications is the most precise and efficient way of determining whether the claim of attorney-client privilege should be upheld. Moreover, in many cases, the contents of the communication will be the only evidence of whether it is related to crime or fraud. Accordingly, as one district court in the Ninth Circuit stated in declining to follow Shewfelt, the independent evidence rule, "in most instances, simply serve(s) to insulate dishonest attorneys from prosecution for obstruction of justice." United States v. King. 536 F. Supp. 253, 262 (C.D. Cal. 1982). See also App., infra, 5a. Probative evidence of crimes would be denied to investigators for no reason, since it is undisputed that protection of an attorney-client communication that is related to crime or fraud does not advance the purposes of the privilege. In light of the harmful consequences of the Ninth Circuit's independent evidence requirement, the fact that most courts of appeals have concluded that such a requirement is unnecessary and inappropriate, and the desirability of a uniform rule on this important evidentiary question of nationwide application, this Court should resolve the conflict in the circuits and harmonize the Ninth Circuit's approach to the crime-fraud exception with the rule prevailing in other courts of appeals. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. CHARLES FRIED Solicitor General WILLIAM S. ROSE, JR. Assistant Attorney General LAWRENCE G. WALLACE Deputy Solicitor General ALAN I. HOROWITZ Assistant to the Solicitor General CHARLES E. BROOKHART JOHN A. DUDECK, JR. Attorneys JULY 1988 /1/ It is well established that the attorney-client privilege does not protect communications made in furtherance of a crime or fraud. To invoke this exception, there must be a prima facie showing that the client was engaged in or planning criminal or fraudulent conduct and that the attorney's advice was in furtherance of or closely related to the criminal or fraudulent activity. See e.g., Clark v. United States, 289 U.S. 1, 15-16 (1933); In re Grand Jury Investigation, 842 F.2d 1223, 1226-1227 (11th Cir. 1987). /2/ The affidavits alleged that the taped meetings, part of the MCCS (Mission Corporate Category Sortout) Project, "focused generally on the intentional violation of the tax laws," specifically, "(i) a proposed scheme whereby the Church's cash transfers to Hubbard would be disguised as payments for services rendered (allegedly to insulate Hubbard from tax liability and to protect the Church's tax-exempt status), and (ii) a proposed scheme whereby Hubbard would be able to control royalty income * * * without that control being traceable to him" (App., infra, 23a-24a). /3/ The court stated that, "(w)hile * * * at one time (listening to the tapes in toto was) discussed with counsel, thereafter Mr. Petersell's declaration was submitted, and no one suggested that this was an inadequate basis on which to determine the attorney-client privilege question" (App., infra, 25a-26a). In fact the pleadings filed with the court together with the Petersell declarations on March 8 and 15, 1985, specifically requested the court to listen to the tapes themselves if the court concluded that the partial transcripts and the special agent's declarations did not sufficiently demonstrate the applicability of the crime-fraud exception. See Mar. 8, 1985 Government's Response to Intervenor's Opposition at 6; Mar. 15, 1985, Petitioner's Memorandum in Response to Court's Request and for Partial Reconsideration of Interim Ruling at 11. The court of appeals did not address the question of the sufficiency of the in camera showing because it concluded that the contents of the tapes themselves could not be used to demonstrate the applicability of the crime-fraud exception (see pages 7-8, infra). /4/ Section 6103(a) generally prohibits the IRS from disclosing tax "return information" except in the circumstances specifically permitted by that section. See generally Church of Scientology v. IRS, No. 86-472 (Nov. 10, 1987), slip op. 1-3. Section 6103 then sets forth in considerable detail the circumstances under which such disclosures are authorized to certain identified parties, including specified government agencies, congressional committees, and representatives of a taxpayer. See 26 U.S.C. 6103(c)-(o). The information that Barrett was under investigation falls within the definition of "return information" that is protected by Section 6103. The government's position was that the disclosure in the letters was authorized by 26 U.S.C. 6103(k)(6), which permits the disclosure of return information "to the extent * * * necessary in obtaining information" in connection with an audit or other investigation related to the enforcement of the revenue laws. /5/ Indeed, the en banc Fifth Circuit in Barrett expressly acknowledged (837 F.2d at 1351 n.11) the contrary Ninth Circuit decisions in Author Services and in the present case. /6/ The actual litigation that would ensue in the course of this "monitoring" of the investigation would likely be protracted because it would often center upon complex and difficult questions of interpreting 26 U.S.C. 6103, particularly the scope of the subsection authorizing disclosure when necessary for law enforcement purposes (Section 6103(k)(6)). /7/ By the same token, the courts of appeals have held that the question whether the IRS has complied with the provisions of the Privacy Act, 5 U.S.C. 552a, is irrelevant to whether a summons should be enforced. United States v. McAnlis, 721 F.2d 334, 337 (11th Cir. 1983), cert. denied, 467 U.S. 1227 (1984); United States v. Berney, 713 F.2d 568, 572-573 (10th Cir. 1983). /8/ 26 U.S.C. 6110 authorizes disclosure and public inspection of certain "written determination(s)," including private letter rulings. That provision requires the IRS to give pre-disclosure notice to person to whom the determination pertains, and it gives those persons, if they object to the IRS's failure to make a deletion in order to preserve their confidentiality, the right to seek a pre-disclosure determination in the Tax Court of their right to such a deletion (Section 6110(f)(3)). There is no analogous right to go to court to challenge a proposed disclosure under Section 6103. /9/ The Federal Rules of Evidence do not govern the outcome here because Congress decided to leave to the common law evidentiary rules related to privileges, rather than to address them directly in the Rules. See Fed. R. Evid. 501. It is noteworthy, however, that the proposed rules that had been drafted to address questions of privilege clearly demonstrate that the Ninth Circuit's independent evidence rule is not supported by prior law. Proposed Rule of Evidence 5-03(d) set forth several exceptions to the attorney-client privilege, including the crime-fraud exception (Proposed Rule of Evidence 5-03(d)(1)), which were described by the drafters of the rules as "incorporat(ing) well established exceptions." 46 F.R.D. 251, 256 (1969). The Advisory Committee's Note on the crime-fraud exception specifically stated that "(n)o preliminary finding that sufficient evidence aside from the communication has been introduced to warrant a finding that the services were sought to enable the commission of a wrong is required" (id. at 256). Thus, the Ninth Circuit's independent evidence rule is at odds with the established common law practice in administering the crime-fraud exception. Appendix