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United States v. All Assets Held at Bank Julius Baer & Co., Ltd.

United States District Court, District of Columbia

June 3, 2016




         This case was referred to the undersigned for the management of discovery. Currently ripe is Claimant Pavel Lazarenko’s motion for protective order relating to his request for a private letter ruling from the Internal Revenue Service. After reviewing the entire record, [1] the Court will deny the motion.


         The factual background concerning this in rem asset forfeiture action has been described in multiple opinions by Judge Friedman. See, e.g., United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 772 F.Supp.2d 191, 194 (D.D.C. 2011). This Court will not repeat that lengthy history here. The facts that are pertinent to adjudication of Claimant’s motion are summarized below.

         In its First Amended Complaint, the United States seeks the forfeiture of more than $250 million deposited in over twenty bank accounts located in Guernsey, Antigua and Barbuda, Switzerland, Lithuania, and Liechtenstein. First Amended Complaint [Dkt. 20] ¶¶ 1, 5. The government alleges that the money in those accounts is traceable to a "variety of acts of fraud, extortion, bribery, misappropriation, and/or embezzlement" committed by Claimant, the former Prime Minister of Ukraine, or by his associates, between 1992 and 1998. Id. ¶¶ 6, 8, 10. The United States asserts its right to the funds pursuant to federal statutes that provide for the forfeiture to the government of funds traceable, or otherwise related to or involved in, criminal activity that occurred at least in part in the United States. Id. ¶ 1.

         On January 6, 2016, Claimant provided the government with a declaration stating that he had filed a request for private letter ruling ("PLR Request") with the Internal Revenue Service. Mot. at 1. More specifically, he made the Request to the IRS Associate Chief Counsel (International). PLR Request at 1. A private letter ruling ("PLR") is a written determination issued to a taxpayer by the IRS in response to a taxpayer inquiry regarding his status for tax purposes or the tax effects of certain transactions. Rev. Proc. 2016-1 § 2.01, 2016 WL 20933 (Jan. 4, 2016). In a PLR, the IRS interprets the tax code in reference to the taxpayer’s specific circumstances. Id. Certain information must be set forth in a PLR request, including a complete statement of all facts relating to the transactions at issue, legal analysis of those facts under the relevant law, and a statement of supporting and contrary authorities in relation to the taxpayer’s legal position. Id. § 7.01(1), (2)(c), (8), (9). The IRS will issue a PLR in response to a PLR request "when appropriate in the sound interest of tax administration." Id. § 2.01.

         Claimant, asserting the work-product doctrine over his PLR Request, has not produced it to the government. At a hearing on January 7, 2016, the Court set a briefing schedule for Claimant to seek a protective order prohibiting disclosure of the PLR Request, and any subsequent PLR, to Plaintiff. Jan. 11, 2016 Order [Dkt. 544]. At the Court’s request, see Mar. 23, 2016 Minute Order, Claimant filed the PLR Request ex parte and under seal for the Court’s in camera review. See PLR Request.

         Claimant asks the Court to shield both his PLR Request and any resulting PLR from disclosure to the government in this matter. Mot. at 4-7. Claimant contends that his PLR Request qualifies as opinion work product because it was prepared by his attorneys and analyzes the complex issues surrounding his potential tax liability. Id. at 5-6. In Claimant’s view, even the facts stated in the PLR Request "were included solely to facilitate the processing of this request for legal advice" and therefore should be protected as opinion work product as well. Id. at 5. Further, Claimant argues that his disclosure of the PLR Request to the IRS does not waive any work-product protection the Request enjoys because the IRS is not his adversary. Id. at 6. Finally, Claimant posits that the government has not demonstrated a "substantial need" for the PLR Request because it "is free to conduct its own legal analysis to determine if [Claimant] was required to file tax returns." Id. In passing, Claimant also argues that any PLR issued in response to the Request will not be relevant to this litigation because it would merely represent the views of a third party as to Claimant’s tax liabilities. Id.[2]

         The government opposes Claimant’s motion. Opp. at 1. First, Plaintiff argues that any work-product claim as to the PLR Request or the PLR has been waived. Id. at 9-10. This is because Claimant disclosed his PLR Request to the IRS, which in turn must make his Request and any subsequent PLR "‘open to public inspection.’" Id. at 10 (quoting 26 U.S.C. § 6110(a)).

         According to Plaintiff, although the IRS does redact some identifying information in the PLR Request and PLR, the factual information proffered in the Request would be disclosed. Id. Additionally, disclosure of the PLR Request to the IRS waived any work-product protection the document might have enjoyed because the IRS is Claimant’s potential adversary in future proceedings relating to his alleged failure to file tax returns. Id. at 11-12. Moreover, Plaintiff contends that Claimant has waived work-product protection by previously offering to permit discovery of his PLR Request, although Claimant eventually reneged on that promise. Id. at 14- 15.

         Second, Plaintiff claims that even if Claimant’s work-product protection has not been waived, the PLR Request should be disclosed because the work-product doctrine does not apply here. Id. at 15. In this vein, Plaintiff argues that Claimant did not prepare the PLR Request in anticipation of litigation but instead in an effort to determine the tax effects of certain transactions. Id. at 16. Because Claimant’s PLR Request concerns his tax liabilities since 1999, which are not at issue in this case, Plaintiff claims that there should be no work-product protection for this document. Id. at 16-17. Additionally, even if the work-product doctrine did encompass the PLR Request, Plaintiff posits that it has a compelling need for the document in order to probe Claimant’s relationship to the defendant in rem assets. Id. at 18-19. Information regarding Claimant’s relationship to the assets is scant, and, in Plaintiff’s view, it cannot readily obtain the information in Claimant’s PLR Request from other sources. Id.

         In reply, Claimant contends that litigation over his tax liability is foreseeable and, as a result, his PLR Request was prepared in anticipation of litigation. Reply at 2. Claimant also challenges Plaintiff’s assertion that disclosure of the PLR Request to the IRS constitutes a waiver of work-production protection. Id. at 3. Claimant argues that any potential future adversaries of his at the IRS are auditors, not the IRS Office of Chief Counsel, to which the PLR Request was submitted. Id. His limited disclosure to that branch of the IRS does not mean that all IRS employees have access to it. Id. Thus, Claimant posits that he has not disclosed the PLR Request to a potential adversary. Id. at 3-4. Further, Claimant reiterates that the PLR Request will be made public only with redactions of personally identifying information, which would render it inadmissible against him in this case. Id. at 4-5. As a result, the mere fact that the PLR or PLR Request will be publicly disclosed would not rob them of work-product protection. Id. From Claimant’s perspective, Plaintiff’s request for his PLR Request is really an attempt to freeload on Claimant’s attorneys’ experience with and analysis of the intricate tax issues underlying this matter. Id. at 6. Finally, Claimant argues that his mere offer to produce the PLR Request to Plaintiff does not amount to waiver of his privilege claims. Id. at 8.


         A. Motion for Protective Order

         Federal Rule of Civil Procedure Rule 26(c) permits the court to issue protective orders to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. Fed.R.Civ.P. 26(c). Determining whether to grant a protective order is a matter of discretion for the trial court. See E.E.O.C. v. Nat’l Children’s Ctr., Inc., 146 F.3d 1042, 1047 (D.C. Cir. 1998). A protective order may be granted upon a showing of good cause. See Alexander v. FBI, 186 F.R.D. 99, 100 (D.D.C. 1998). "Protective orders are not permanent or immutable and may be modified to serve important efficiency or fairness goals." U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., No. Civ.99-3298, 01-MS-50(MDL)(RCL), 2004 WL 2009414, at *2 (D.D.C. May 17, 2004). Indeed, "Rule 26(c) is highly flexible, having been designed to accommodate all relevant interests as they arise." United States v. Microsoft Corp., 165 F.3d 952, 959 (D.C. Cir. 1999). The party seeking modification of an existing protective order bears the burden of showing that good cause exists for the modification. Pogue, 2004 WL 2009414, at *2.

         B. Public Disclosure of PLR Requests and PLRs

         The text of a PLR request and any resulting PLR are usually made open to public inspection. Rev. Proc. 2016-1 § 7.01(11), 2016 WL 20933; 26 U.S.C. § 6110(a). If a taxpayer desires it, he or she may ask the IRS to keep certain contents of a PLR request or any resulting PLR confidential. See Rev. Proc. 2016-1 § 7.01(11), 2016 WL 20933 ("The text of letter rulings and determination letters is open to public inspection under § 6110. . . . To help the Service make the deletions required by § 6110(c), a request for a letter ruling or determination letter must be accompanied by a statement indicating the deletions desired[.]"). 26 U.S.C. § 6110 governs what parts of a PLR request or a resulting PLR may be redacted. See 26 U.S.C. § 6110.

         Under section 6110, both the IRS’s advice to the taxpayer and the "background file documents, " i.e., the taxpayer’s PLR request, are generally treated as public documents except for specific categories of information that must be redacted. Id. § 6110(a), (c). The categories of information the IRS must redact include, among other things, "(1) names, addresses, and other identifying details of the person to whom the written determination pertains; . . . and (5) information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." Id. § 6110(c)(1), (5). Further, IRS regulations implementing section 6110 provide that the IRS may not disclose:

Any other information that would permit a person generally knowledgeable with respect to the appropriate community to identify any person. The determination of whether information would permit identification of a particular person will be made in view of information available to the public at the time the written determination or background file document is made open or subject to inspection and in view of information that will subsequently become available, provided the Internal Revenue Service is made aware of such information and the potential that such information may identify any person. The "appropriate community" is that group of persons who would be able to associate a particular person with a category of transactions one of which is described in the written determination or background file document. The appropriate community may vary according to the nature of the transaction which is the subject of the written determination.

26 C.F.R. § 301.6110-3(a)(1)(ii).

         C. Work-Product Protection

         The work-product doctrine is codified in Federal Rule of Civil Procedure 26(b)(3), which provides, in relevant part:

(A) Documents and Tangible Things. Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or ...

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