Free Response to Motion - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS GRAPEVINE IMPORTS, LTD., T-TECH, INC., as Tax Matters Partner Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. § § § § § § § § § §

NO. 05-296T (Judge Allegra)

UNITED STATES OF AMERICA'S RESPONSE TO PLAINTIFFS' MOTION TO COMPEL

Respectfully Submitted

GROVER HARTT, III Attorney of Record Tax Division U.S. Department of Justice 717 N. Hardwood, Suite 400 Dallas, Texas 75201 (214) 880-9721 (Main) (214) 880-9741 (Fax) EILEEN J. O'CONNOR Assistant Attorney General DAVID D. GUSTAFSON Chief, Court of Fed. Claims Section CHRISTOPHER R. EGAN Of Counsel

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TABLE OF CONTENTS

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARGUMENT AND AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Plaintiffs have failed to establish that the documents they seek are relevant. . . . . . . 11 B. The withheld communications are privileged. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 C. Since the witness has been withdrawn, the privileges protecting the communications from disclosure remain valid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 D. Plaintiffs cannot selectively use portions of Ms. Kiger's report and deposition. . . . . 18 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

TABLE OF AUTHORITIES CASES Am. Soc'y of Pension Actuaries v. IRS, 746 F. Supp. 188, 192 (D.D.C. 1990) . . . . . . . . . . . . . . 15 American Standard Inc. v. Pfizer Inc., 828 F.2d 734 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . 14 Anderson v. Torrington Co., 120 F.R.D. 82 (N.D. Ind. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Blazar v. OMB, No. 92-2719, slip op. at 14 (D.D.C. Apr. 15, 1994) . . . . . . . . . . . . . . . . . . . . . 15 Bureau of Nat'l Affairs, Inc. v. United States Dep't of Justice, 742 F.2d 1484 (D.C. Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Byrnes v. IDS Realty Trust, 85 F.R.D. 679 (S.D.N.Y. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Coastal States Gas Corp. v. DOE, 671 F.2d 854 (D.C. Cir. 1980) . . . . . . . . . . . . . . . . . . . . 12, 13 Dayton-Phoenix Group, Inc. v. General Motors Corporation, 1997 WL 1764760 (S.D. Ohio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Defenders of Wildlife v. United States Dep't of the Interior, No. 03-1192, 2004 WL 842374 (D.D.C. Apr. 13, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 U.S. Response to Motion to Compel 2

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Flamingo Fishing Corp. v. United States, 31 Fed. Cl. 655 (1994) . . . . . . . . . . . . . . . . . . . . . . . 11 FMC Corporation v. Vendo Company, 196 F. Supp.2d 1023 (E.D. Cal. 2002) . . . . . . . . . . . . . 17 Garity v. United States, 81-2 T.C. (CCH) ¶ 9599, 1980 WL 1765 (E.D. Mich. 1980) . . . . . . . . 12 Grapevine Imports, Ltd. v. United States, 71 Fed. Cl. 324, 343 (2006) . . . . . . . . . . . . . . . . . . . . 6 Gulf Oil Company v. Schlesinger, 465 F. Supp 913 (E.D. Pa. 1979) . . . . . . . . . . . . . . . . . . . . . 13 Hickman v. Taylor, 329 U.S. 495 (1947) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 In re Ampicillin Antitrust Litigation, 81 F.R.D. 377, 389-90 (D.D.C. 1978). . . . . . . . . . . . . . . . 13 In re Pioneer Hi-Bred International, Inc., 238 F.3d 1370 (Fed. Cir. 2001). . . . . . . . . . . . . . . . . . 7 In re Shell Oil Refinery, 132 F.R.D. 437, 440 (E.D. La. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . 17 In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 806 (Fed.Cir.2000) . . . . . . . . . . . . . . . . . 13 Knogo Corp. v. United States, 1980 WL 39083, 1980 U.S.Ct. Cl. LEXIS 1262 (Ct. Cl. Trial Div.1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 LaRocca v. State Farm Mutual Automobile Ins. Co., 47 F.R.D. 278 (W.D. Pa. 1969) . . . . . . . . 14 Mantolete v. Bolger, 96 F.R.D. 179 (D.Ariz. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Marriott International Resorts, L.P. v. United States, 437 F.3d 1302 (Fed. Cir. 2005) . . . . . . . 15 Natta v. Hogan, 392 F.2d 686 (10th Cir.1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Peterson v. Willie, 81 F.3d 1033 (11th Cir. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Radiant Burners, 207 F. Supp. 771 (N.D. Ill. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Renegotiation Bd. v. Grumman Aircraft Engineering Corp., 421 U.S. 168 (1975) . . . . . . . 13, 15 Schefler v. United States, 702 F.2d 233 (D.C.Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Tax Analysts v. I.R.S., 117 F.3d 607 (D.C.Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 United States v. Jenkens & Gilchrist, P.C., 2004 WL 1245802 (N. D. Ill. 2004) . . . . . . . . . . . . . 8 U.S. Response to Motion to Compel 3

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Wolt v. Sherwood, 828 F. Supp. 1562, 1568 (D. Utah 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 XCEL Energy, Inc. v. United States, 237 F.R.D. 416, 418 (D. Minn. 2006) . . . . . . . . . . . . . 11, 15 Yankee Atomic Co. v. United States, 54 Fed. Cl. 306 (2002) . . . . . . . . . . . . . . . . . . . . . . . . 12, 14

RULES Fed.R.Civ.P. 26(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 17

U.S. Response to Motion to Compel

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS GRAPEVINE IMPORTS, LTD., T-TECH, INC., as Tax Matters Partner Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. § § § § § § § § § §

NO. 05-296T (Judge Allegra)

UNITED STATES OF AMERICA'S RESPONSE TO PLAINTIFFS' MOTION TO COMPEL Plaintiffs' motion to compel is a red herring. In their eagerness to precipitate a diversionary discovery dispute, plaintiffs prematurely filed a motion to compel that is factually incorrect and legally unsound. This response will explain how the United States sought to avoid a dispute over privileged documents that had been provided to its expert witness by withdrawing that witness in a clear and unequivocal manner. The documents involved are protected by the attorney-client, attorney work product, and deliberative process privileges. Although plaintiffs have the burden as the movants, they have not provided a single case, much less any controlling authority, in which a court has compelled the production of otherwise privileged documents shown to an expert witness who has been withdrawn and will not testify at trial. Accordingly, their motion is without merit. BACKGROUND In its June 14, 2006 opinion, the Court stated that it intended to schedule an evidentiary hearing to consider the applicability of six-year statute of limitations to the 1999 tax year of Joseph and Virginia Tigue, the only two taxpayers involved in this case.

U.S. Response to Motion to Compel

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[T]he court believes that, in the case sub judice, the complex factual underpinnings of these issue have not yet adequately been explored or developed. Accordingly, the court will schedule an evidentiary hearing on this matter, which may, as appropriate, include expert testimony. Grapevine Imports, Ltd. v. United States, 71 Fed. Cl. 324, 343 (2006)(emphasis added). Following a telephonic conference with the parties on August 1, 2006, the Court entered a scheduling order that included, among other things, dates for the designation of expert witnesses, exchange of their reports, and their depositions. Contrary to the misstatements in plaintiffs' motion to compel, the Court did not order the parties to present expert testimony. On August 31, 2006, the United States designated Cheryl Kiger, an IRS Technical Adviser - Abusive Transactions stationed in St. Louis, as its expert witness. As explained in her resume, Ms. Kiger has acted as conduit between IRS counsel and examination personnel on legal issues. This work included helping examination personnel identify and describe issues requiring legal advice and presenting those requests to IRS counsel. In turn, she relayed the attorneys' replies and requests for additional information to the examination personnel. Ms. Kiger prepared a report for use in this case that was provided to plaintiffs on October 4, 2006.1 On October 27, 2006, each party took the deposition of the opposing party's expert. In response to plaintiffs' request for all correspondence between counsel and Ms. Kiger, the United

The date for this exchange of reports in the Court's order was September 29, 2006. In plaintiffs' motion to compel (p. 2), they note that the exchange occurred on October 4, 2006, "after an extension at the Government's request." We are compelled to point out that the extension occurred because plaintiffs provided us with workpapers prepared by the Tigues' tax accountant that in turn were included in their expert's report on the afternoon of September 28, 2006 ­ the day before the reports were due. The brief extension was agreed to in order to allow the United States to review these documents that had not previously been made available to it. Absent this unexpected development, the reports would have been exchanged on September 29, 2006. U.S. Response to Motion to Compel 6

1

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States determined that certain privileged documents had been provided to her. Mindful of the rule in the Federal Circuit that the attorney-client privilege and the work product doctrine do not apply to documents provided to an expert witness2, the United States ultimately decided to withdraw Ms. Kiger as an expert witness at the evidentiary hearing rather than produce the documents. Once this decision had been made, it was immediately communicated to the Court and the plaintiffs in our Notice of Withdrawal of Expert Witness filed on December 13, 2006 (Dkt. No. 61). We also advised plaintiffs by a letter that same day and stated that their pending request for the production of the communications with Ms. Kiger was now moot. Pltfs' M/Compel, Ex. F.3 After receipt of the letter, plaintiffs' counsel telephoned the undersigned counsel for the United States and stated that he did not consider the request moot. We explained that Ms. Kiger would not be called as a witness and that her report would not be offered, and, consequently, there was no reason to provide the documents. After it appeared that an impasse had developed, we also stated that we would begin preparing an index of withheld documents. That same day (December 13, 2006), we sent a second letter to plaintiffs' counsel reiterating that Ms. Kiger would not be a witness in this case. See Ex. A to the Hartt Declaration filed in support of this response. Our hope was to forestall the dispute that the plaintiffs have insisted upon provoking. Plaintiffs' request for production was served on November 22, 2006. Pltfs' M/Compel, Ex. D. Although they purported to shorten the response date to December 1, 2006, there is no

2

In re Pioneer Hi-Bred International, Inc., 238 F.3d 1370 (Fed. Cir. 2001).

Plaintiffs neglected to submit their exhibits with a supporting declaration, but we do not dispute their genuineness. U.S. Response to Motion to Compel 7

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authority for this unilateral action. After filing our Brief in Support of the Application of the Six-Year Statute of Limitations on December 20, 2006, we served -- via courier -- a timely response to Plaintiffs' Request for Production on December 22, 2006. Hartt Decl., Ex. B. This response identified four categories of documents: 1. IRS Administrative Documents ­ 593 pages of the administrative file related to this case that had been provided to Ms. Kiger and provided to plaintiffs with our initial disclosures. 2. Jenkens Promoter Documents ­ A total of 156 pages from the documents grudgingly produced by the law firm of Jenkens & Gilchrist (the promoter of this tax shelter) after the district court for the Northern District of Illinois ordered it to comply with the IRS summons. United States v. Jenkens & Gilchrist, P.C., 2004 WL 1245802 (N. D. Ill. 2004). These documents relate to Joseph J. Tigue and Virginia B. Tigue since they each formed separate limited liability companies ("LLCs") to execute their Son of BOSS transaction. 3. Kiger Report Documents ­ All of the documents referred to and relied upon by Ms. Kiger were provided to plaintiffs in two binders which they were given her report. Note: All of the documents in categories 1 through 3 were given to plaintiffs prior to their request for production; indeed most of them were their own documents or IRS publications. 4. Kiger Communications ­ These documents had not been previously provided to plaintiffs. In our response to their request for production, we furnished plaintiffs with an extensive index of these documents and identified which communications were being produced and which ones were being withheld as privileged. The privileges asserted for each document withheld were identified. Some of the communications withheld were "e-mail chains," i.e., a series of e-mails with responses added to responses. Only those portions of the e-mail chains U.S. Response to Motion to Compel 8

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containing privileged communications were redacted; the other portions were produced. At this point, plaintiffs have been provided with all of the documents responsive to their very broad request for production except for those the United States asserts are subject to the attorney-client, attorney work product, or deliberative process privileges. A detailed log describing those documents withheld and the privileges applicable to them has been given to the plaintiffs. Accordingly, many of the extravagant complaints in their hasty motion to compel are now moot ­ just as we said they would be in our first letter of December 13, 2006. It would be useful at this stage to consider the nature of the withheld documents. As the index makes manifestly clear, the communications are e-mails to or from various IRS Chief Counsel attorneys that either included Ms. Kiger as an addressee or were "copied" to her. In one instance, she was given a copy of a memorandum prepared by a Department of Justice attorney assigned to this case that discussed one of the legal issues involved. The nature of the withheld documents is crucial. The Court will recall that earlier this year, shortly before the hearing on April 11, 2006, plaintiffs suddenly submitted a collection of e-mails by and between various IRS examination personnel and several IRS attorneys. These e-mails had been obtained in the prior year by plaintiffs' counsel by virtue of a Freedom of Information Request filed on behalf of another client. Nevertheless, they were not made part of this case until shortly before the hearing. In conjunction with plaintiffs' attempt to use those e-mails, the Court expressed its reluctance to ascribe much significance to the thoughts and comments of individual IRS employees. Now, once again, the Court is confronted with a similar ploy. The documents at the heart of this dispute consist of the thoughts and observations, and in some instances the questions, of various government employees involved with the pursuit of those taxpayers who participated U.S. Response to Motion to Compel 9

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in the Son of BOSS tax shelter. What is different this time is that attorneys for the government were involved in all of these communications, AND, that these communications have not been made public. This difference is significant. After repeated reassurances that they seek no privileged documents (Pltfs' M/Compel, pp. 1, 3, 7, and 8), plaintiffs finally tell the Court why they want the documents in the last sentence of the last paragraph of the last page of their motion to compel: "The probative value of this material is great to the Plaintiffs, as the disclosure of the correspondence is required under Rule 26(a) and as the material will assist the Plaintiffs in discovering the basis of Ms. Kiger's expert opinions." Pltfs' M/Compel, p. 10. The incomprehensible hollowness of this statement is obvious. What possible probative value can there be to communications with a witness who will not testify? The plaintiffs are being disingenuous. They cannot cross-examine a witness who will not testify. What they are really hoping to find are comments by an individual government attorney that they can then attempt to twist into a contrived statement they would argue supports their theories in this case. This is a pointless endeavor. Even if we were to assume for the sake of argument only that such comments existed, they would not bind the government. Finally, before we turn to an analysis of the relevant authorities, we wish to direct the Court's attention to one other recurring misstatement by the plaintiffs. Both in their motion to compel and their "Memorandum of Law in Advance of Evidentiary Hearing," they assert that Ms. Kiger's report and/or her testimony would be favorable to the plaintiffs. Perhaps the plaintiffs are hoping to lure us into a discussion of Ms. Kiger's views in order to promote their waiver theories. If so, we decline the gauntlet. For present purposes, we categorically reject the assertion. Later, we will call the plaintiffs' bluff on this assertion. U.S. Response to Motion to Compel 10

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ARGUMENT AND AUTHORITIES A. Plaintiffs have failed to establish that the documents they seek are relevant. The simple and obvious answer to the plaintiffs' discovery gambit is that the communications between Ms. Kiger and the attorneys are not relevant. If the documents sought will not be admissible at trial or lead to admissible evidence, then there is no need to decide whether they are privileged. See e.g, XCEL Energy, Inc. v. United States, 237 F.R.D. 416, 418 (D. Minn. 2006).4 The Court of Federal Claims reached a similar conclusion in Flamingo Fishing Corp. v. United States, 31 Fed. Cl. 655 (1994).5 The communications are irrelevant

According to the court, The same issue which faces the Court, here, confronted the Court in Mayes v. United States, 1986 WL 10093 (W.D. Mo., June 12, 1986). There, the plaintiffs in a tax refund suit sought to discover an internal agency memorandum, which was prepared by an Internal Revenue Service ("IRS") agent during the administrative appeal of the plaintiffs' claims. Finding the memorandum irrelevant, the Court denied the discovery, reasoning as follows: The legal and factual analysis undertaken by the IRS is of no concern to the court; instead, the issues are subject to de novo review. * * * In other words, the court is to "place itself in the shoes of the commissioner" and apply the law to the facts presented. * * * Even if an assessment was made on erroneous grounds, it must be upheld if it is appropriate on any theory. *** Similar reasoning appears to be appropriate in this case. The court will not be reviewing the analysis followed by the IRS employee or the reasons why the IRS made the assessment. As the cases cited earlier indicate, it will be of no moment whether the IRS employee was correct or not in his interpretation of the law at the administrative stage. The court's determination of plaintiff's correct tax liability will be made by examining the deduction in question in light of the underlying facts and the applicable law. Given these circumstances, the court concludes that the portion of the supporting statement comprising the IRS employee's legal analysis is not relevant to any of the issues herein and is thus outside the scope of discovery. Mayes v. United States, supra at *2-3 [citations omitted].

4

The court quoted a district court that had explained: "`[T]he opinions, impressions, conclusions and reasoning of IRS agents are irrelevant to the validity of the assessment against plaintiff···· Resolution of these issues depends solely on application of the pertinent law to the facts of this case; ··· the opinions of individual IRS agents U.S. Response to Motion to Compel 11

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because (1) they cannot be used to cross-examine a witness who will not testify, and (2) they cannot be used independently to bind the government to a view expressed an individual government employee in a private discussion. B. The withheld communications are privileged. In their motion to compel, the plaintiffs do not discuss and apparently do not dispute the privileged nature of the documents at issue. It is elementary that communications between a party and its attorney are subject to the attorney-client privilege when they involve the communication of information the attorney needs to render legal advice to the client and the advice so rendered.6 Another judge of this Court has provided a thorough consideration of the rule in this Circuit that the attorney-client privilege protects confidential communications not just confidential information. In Yankee Atomic Co. v. United States, 54 Fed. Cl. 306 (2002), the court explained: However, unlike the D.C. Circuit in Coastal States [Coastal States Gas Corp. v. DOE, 671 F.2d 854 (D.C. Cir. 1980], Schlefer [Schefler v. United States, 702 F.2d 233 (D.C.Cir.

regarding their propriety are immaterial.' Garity v. United States, 81-2 T.C. (CCH) ¶ 9599 1980 WL 1765 (E.D. Mich. 1980)." 31 Fed. Cl. at 658. Wright & Miller provides a concise summary of the elements of the attorney-client privilege: There are a number of ways to organize the essential elements of the attorney-client privilege to provide for an orderly analysis. One of the most popular is Wigmore's schema: (1) Where legal advice of any kind is sought (2) from a professional adviser in his capacity as such, (3) the communications relating to that purpose (4) made in confidence (5) by the client (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the privilege be waived. 24 Federal Practice & Procedure § 5473 (footnotes omitted). Presumably, the only factor that the plaintiffs would challenge is the waiver issue. U.S. Response to Motion to Compel 12
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1983)], or Tax Analysts [Tax Analysts v. I.R.S., 117 F.3d 607 (D.C.Cir. 1997)], the Federal Circuit has never expressly limited the attorney-to-client communications privilege to communications revealing confidential information, as opposed to confidential communication. But see American Standard, 828 F.2d at 744-46. Instead, in In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 806 (Fed.Cir.2000), the court observed that "[i]f an attorney-client communication could be discovered if it contained information known to others, then it would be the rare communication that would be protected and, in turn, it would be the rare client who would freely communicate to an attorney." (quoting Knogo Corp. v. United States, 1980 WL 39083, 1980 U.S.Ct. Cl. LEXIS 1262, at *13 (Ct. Cl. Trial Div.1980)). The distinction between information and communication is critical because the attorney-client privilege protects the information that was communicated with the expectation of privacy, but not the underlying factual information. 3 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence, § 503.14[4][a] (Joseph M. McLaughlin, ed., Matthew Bender 2d ed.2002) ("Thus, for example, if the privilege is invoked, a client may not be asked the question: 'What did you tell your attorney about the amount claimed as a business expense?' However, the client may be asked the question: 'Did you spend the amount claimed as a business expense for meals or for travel?' ") While most courts have properly construed the privilege as protecting communications and not the underlying facts or information; see Natta v. Hogan, 392 F.2d 686, 692-93 (10th Cir.1968) (refusing to force disclosure of attorney-client communications even though they were based on publicly-available documents); Byrnes v. IDS Realty Trust, 85 F.R.D. 679, 683 (S.D.N.Y.1980) (the fact that information is non-confidential will not defeat the privilege as long as the communication was made in confidence); In re Ampicillin Antitrust Litigation, 81 F.R.D. 377, 389-90 (D.D.C.1978) (it is not necessary that information be confidential as long as the communication of the information was made in confidence), some courts have had difficulty distinguishing the two concepts and "have rendered questionable decisions." 1 Paul R. Rice, Attorney-Client Privilege in the United States § 5:1, at 19, 33 (2d *315 ed.1999) (listing Coastal States, Schlefer, and Tax Analysts as examples of cases where the court confused confidential communications with non-confidential information). Therefore, the court rejects plaintiffs' argument, based on Coastal States and Schlesinger [Gulf Oil Company v. Schlesinger, 465 F. Supp 913 (E.D. Pa. 1979)], that an attorney's interpretation of a statute, regulation, or contract is discoverable merely because the underlying information is public. Neither are these interpretations discoverable based on plaintiffs' argument that they constitute secret law. As discussed in connection with the deliberative process privilege, the Supreme Court held in Sears, Roebuck [NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975)], 421 U.S. at 159-162, 95 S.Ct. 1504, and Grumman Aircraft [Renegotiation Bd. v. Grumman Aircraft Engineering Corp., 421 U.S. 168 U.S. Response to Motion to Compel 13

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(1975)], 421 U.S. at 186, 95 S.Ct. 1491, that documents not having precedential value, and that are superceded by final agency action, do not constitute secret law unless expressly adopted in a final disposition. Plaintiffs here have failed to identify a single document in the revised privilege log that has the characteristics of secret law. Yankee Atomic at 314-315 (footnotes omitted). See also American Standard Inc. v. Pfizer Inc., 828 F.2d 734, 745 (Fed. Cir. 1987). It is also elementary that documents prepared by or at the behest of an attorney in connection with or anticipation of litigation are exempt from disclosure by virtue of the work product doctrine first recognized in Hickman v. Taylor, 329 U.S. 495 (1947). Thoughts and impressions of the attorney constitute work product. In Anderson v. Torrington Co., 120 F.R.D. 82 (N.D. Ind. 1987), the court explained: Work-product is the privilege of the attorney and not the client, and is based on the attorney's right to enjoy privacy in the course or preparation of his suit. LaRocca v. State Farm Mutual Automobile Ins. Co., 47 F.R.D. 278 (W.D. Pa. 1969), citing Radiant Burners, 207 F. Supp. 771 (N.D. Ill. 1962). Three tests must be satisfied to invoke the qualified privilege. The material must (1) be documents and tangible things, (2) prepared in anticipation of litigation or for trial, (3) by or for another party or by or for that other party's representative. Fed.R.Civ.P. 26(b)(3); 8 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2024, at 196-197 (1970). The IRS attorneys involved in the communications are members of the Chief Counsel's "Son of BOSS Executive," and, in that capacity, have been engaged in the development of the Service's legal positions in this and other Son of BOSS cases. Moreover, they began working directly with the Department of Justice attorneys assigned to this case shortly after it was filed over a year ago. The Court will recall that our initial motion for partial summary judgment on the limitations issue was filed on August 12, 2005. Our renewed motion that included the six-year statute of limitations was filed on November 28, 2005. Besides these two familiar privileges, the documents in dispute here are also subject to the U.S. Response to Motion to Compel 14

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deliberative process privilege. The attorneys representing the United States in this case are, of course, all employees of the executive branch of the government. Besides being protected by the attorney-client and attorney work product privileges, their internal discussions of the issues in this case leading to the positions taken before this Court need to be full and frank.7 The deliberative process privilege extends to those within another agency (here the IRS) that consults with another agency having ultimate decision-making authority (here the Department of Justice).8 For that reason, they are also protected by the deliberative process privilege. We realize that the assertion of this privilege requires a declaration of the type endorsed by Marriott International Resorts, L.P. v. United States, 437 F.3d 1302 (Fed. Cir. 2005), and have requested

7

See e.g. XCEL Energy, supra, at 419: Even if the documents being sought by Xcel were somehow relevant, they would also appear to be subject to the governmental deliberative process privilege. Albeit in the context of the Freedom of Information Act, the Supreme Court has explained that "[t]he deliberative process privilege rests on the obvious realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and front page news, and its object is to *420 enhance 'the quality of agency decisions,' * * * by protecting open and frank discussion among those who make them within the Government * * *." (Citations omitted). Further, "predecisional" documents are not only those circulated within the agency, but can also be those from an agency lacking decisional authority which advises another agency possessing such authority. See Renegotiation Bd. v. Grumman Aircraft Eng'g Corp., 421 U.S. 168, 188 (1975); Bureau of Nat'l Affairs, Inc. v. United States Dep't of Justice, 742 F.2d 1484, 1497 (D.C. Cir. 1984); Defenders of Wildlife v. United States Dep't of the Interior, No. 03-1192, 2004 WL 842374, at **11-12 (D.D.C. Apr. 13, 2004) (protecting documents relating to ethics investigation that were prepared by Department of the Interior and given to Office of Government Ethics, which had final authority over investigation). Compare Blazar v. OMB, No. 92-2719, slip op. at 14 (D.D.C. Apr. 15, 1994) (finding recommendations made from OMB to the President to be predecisional), with Am. Soc'y of Pension Actuaries v. IRS, 746 F. Supp. 188, 192 (D.D.C. 1990) (ordering disclosure after finding that IRS's budget assumptions and calculations were "relied upon by government" in making final estimate for President's budget).
8

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the Service to provide such a declaration at the earliest possible date. For present purposes, however, the attorney-client and work product privileges provide more than an adequate justification for denying the motion to compel and the Court need not wait for the declaration asserting the additional deliberative process privilege. C. Since the witness has been withdrawn, the privileges protecting the communications from disclosure remain valid. In our conversations with plaintiffs' counsel on December 13, 2006, we stressed the point that Ms. Kiger had been withdrawn as a witness and would not testify, and, for that reason, that communications with her should remain privileged. In their motion to compel, plaintiffs have failed to offer a single case to refute that proposition. Instead, their cases concern whether a party may depose or call at trial an expert witness previously retained or consulted by the opposing party. Many of their cases involve a physical or mental examination of a party and raise issues under Rule 35 of the Federal Rules of Civil Procedure not relevant here. Other courts have considered whether the party had some unique need for the opposing party's expert witness due to an inability to obtain an expert of its own ­ another issue not relevant here. Plaintiffs' cases also give extensive consideration to the potential impact on a jury that learns an expert was originally hired by the other party ­ another issue not relevant here.9

One such case is Peterson v. Willie, 81 F.3d 1033 (11th Cir. 1966). On page 6 of their motion to compel, plaintiffs state "[T]he Eleventh Circuit has observed that designation of an expert witness to testify at trial can impose a duty disclose matters related to that expert's opinion even if the expert does not testify." There are two problems with this statement. First, Ms. Kiger has not been designated to testify at trial. Second, the statement ascribed to the Eleventh Circuit is difficult to sustain. Presumably, plaintiffs are referring to the paragraph beginning at the end of page 1037 of the opinion and continuing on the next page. The topic being discussed is disclosing to the jury that Dr. Lichtblau had previously been retained by the opposing party. No issue related to privileged communications provided to the witness is present. U.S. Response to Motion to Compel 16

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Next we come to the cases plaintiffs dismiss as distinguishable. Although they, like the others plaintiffs urge in support of their quest for the privileged communications provided to a withdrawn expert witness, are distinguishable since they do not involve that issue, they do provide general comments pertinent here. Even though Shell submitted the reports of Nordstrom and Nelson as preliminary reports of experts it expected to call at trial, Shell's later decision not to call them at trial is permissible. Prior to the court imposed deadline for exchange of witness lists, a party is free to make strategic decisions changing an anticipated witness to a non-witness. (Citations omitted). In re Shell Oil Refinery, 132 F.R.D. 437, 440 (E.D. La. 1990).10 In Dayton-Phoenix Group, Inc. v. General Motors Corporation, 1997 WL 1764760, * 2 (S.D. Ohio), the court noted that "Since the defendant will not call Walters to testify, the Plaintiff does not need to prepare to cross-examine him, and the purpose of Rule 26(b)(4)(A) will not be frustrated by preventing the Plaintiff fro deposing the expert." Some courts have also noted that Rule 26(b)(4)(B)11 which protects non-testifying expert witnesses is designed to promote fairness by precluding unreasonable access to an opposing party's diligent trial preparation. FMC Corporation v. Vendo Company, 196 F. Supp.2d 1023, 1046 (E.D. Cal. 2002)(citing Wolt v. Sherwood, 828 F. Supp. 1562, 1568 (D. Utah 1993). Since Ms. Kiger will not testify, there is no justification for breaching the privileged nature of the communications with the attorneys.

Another case reaching the same conclusion, but not cited by plaintiffs is Mantolete v. Bolger, 96 F.R.D. 179, 182 n. 2 (D.Ariz. 1982). This Court's discovery rules track Rule 26 of the Federal Rules of Civil Procedure. U.S. Response to Motion to Compel
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D. Plaintiffs cannot selectively use portions of Ms. Kiger's report and deposition. Plaintiffs repeatedly represent that Ms. Kiger was withdrawn because her testimony would favor their position on the six-year statute. Unlike the parties in the cases they cite in their motion, they are not asking this Court for permission to call Ms. Kiger as their own witness at the evidentiary hearing. They do state in their "Pretrial Memorandum" (Dkt. No. 63) at page 2, that they may submit portions of her deposition testimony as rebuttal evidence. Indeed, they have already presented the Court with a portion of her report in the Supplemental [Rebuttal] Report of their expert witness, Gerald Songy (Pltfs' Ex. 60). Submitting a report rebutting a report of a withdrawn witness is peculiar enough, but plaintiffs have had Mr. Songy redact from his rebuttal most ­ but not all ­ of the report he is rebutting. For some unexplained reason, in the midst of shadow-boxing with the heavily redacted Kiger Report, what he calls "Statement 5" of her report remains unredacted. Our point is simply this: Plaintiffs cannot have it both ways. In order to maintain the privileged nature of the attorney communications, we have announced our intention to withdraw Ms. Kiger as an expert witness and explained that withdrawal includes her report, her deposition, and the trial testimony that she might have otherwise given. This complete removal is the simple, obvious way to resolve this problem. Consistent with that approach, we have carefully avoided any discussion of her report or testimony. As we have explained in our Brief in Support of the Application of the Six-Year Statute of Limitations, because all of the essential facts are undisputed, we can establish that the Tigues omitted more than 25 percent of their gross income on their Form 1040 for 1999 without the need for expert testimony. For that reason, we are prepared to proceed without Ms. Kiger. U.S. Response to Motion to Compel 18

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In these circumstances, it would be grossly unfair to permit plaintiffs to characterize what Ms. Kiger said in her report or her deposition or to quote isolated comments and prohibit us from responding. Contrary to the situations in the cases cited by plaintiffs, we would actually be quite happy to use Ms. Kiger as a witness and would have done so but for the privilege issue that arose. To bring this matter to a close, we respectfully request the Court to include in its order disposing of this motion a statement that Ms. Kiger's report and deposition shall not be used for any purpose, or, alternatively, that it admit both her report and deposition testimony and draw its own conclusions. A litigant should not be forced to contest a matter with one hand tied behind his back. If the plaintiffs are allowed to use Ms. Kiger's report and deposition testimony, then we should be permitted to respond without waiving our privileges. CONCLUSION The United States was confronted with a choice: Produce the privileged documents provided to the expert witness or forego the witness. Like the some of the parties in of the cases cited in this response, the United States has elected to withdraw a previously designated expert witness. This decision was made in order to maintain the privileged nature of communications between the witness and government counsel. Since the witness will not testify, plaintiffs have no need for these documents, and there was no need for this motion to compel. They have utterly failed to sustain the burden placed upon them as the movants. Plaintiffs' motion to compel is a red herring, and it should be denied.

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Respectfully Submitted,

/s/ Grover Hartt, III GROVER HARTT, III Attorney of Record Tax Division U.S. Department of Justice 717 N. Hardwood, Suite 400 Dallas, Texas 75201 (214) 880-9721 (Main) (214) 880-9741 (Fax) EILEEN J. O'CONNOR Assistant Attorney General DAVID D. GUSTAFSON Chief, Court of Fed. Claims Section CHRISTOPHER R. EGAN Of Counsel

CERTIFICATE OF SERVICE I hereby certify that on December 29, 2006, I electronically filed the foregoing document with the Clerk of the Court using the ECF system, which will send notification of such filing to the following: Todd Welty Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P 901 Main Street, Suite 3700 Dallas, Texas 75202

/s/ Grover Hartt, III GROVER HARTT, III

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