Tax Court Order Sets Out Quick Peek Process in Discovery Dispute

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A couple of weeks ago the Tax Court issued an order in the ongoing dispute between IRS and Guidant relating to over billions in adjustments for the years 2001-07 involving transfer pricing and the transfer of intangibles to foreign corporations (as well an accuracy-related penalty). We have on occasion in the blog discussed the high stakes and intense battles surrounding privilege disputes (see for example DOJ and Davis Polk Take off the Gloves in Recent Discovery Dispute Involving GE’s $660 Million Tax Refund Suit).

There have been a series of discovery disputes in the Guidant case, which is not surprising for a case of this size. In the latest dispute, Guidant has been seeking documents from IRS, and IRS has claimed deliberative process privilege for over 4,000 documents. Guidant filed a motion to compel. IRS had sent across privilege logs and Guidant thought the logs were “inadequate and fail to provide the necessary information to support the privilege or at the minimum are deficient in a number of formatting and practical issues or have missing essential information.” The taxpayers argued that “hundreds of entries on respondent’s logs fail to identify the deliberative process involved and fail to identify the decision to which they relate.” The taxpayers suggested that the Court “issue a Protective Order for the benefit of respondent if respondent would release the documents to petitioners during discovery.” IRS felt that the Protective Order “would not adequately protect respondent and suggested “that a sampling of the thousands of documents claimed to be subject to the privilege be examined in camera by the Court.” The taxpayers objected to the sampling because they felt that it “would be inherently biased because respondent would know what the documents contained because they had possession of them but petitioners would not know.”

With that impasse, the order notes that the parties agreed to use a “quick peek” procedure to resolve the dispute, with the requirement that the parties file a status report. I was not familiar with that process, and briefly describe it below.

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A 2015 New York Law Journal article from attorneys Christopher Boehning and Daniel Toal at Paul Weiss discusses their use and defines them as follows:

Under “quick peek” agreements, parties to a litigation may produce documents after little to no privilege review, subject to the understanding that any privileged documents disclosed will be returned to the party who produced them free from the recipient’s assertion of waiver.

Quick peek agreements grew out of 2008 changes to the Federal Rules of Evidence (FRE) that sought to mitigate the risks of inadvertent waivers of privilege. FRE 502(b) provides that if a party takes reasonable steps to prevent disclosure a mistaken production of privileged material does not waive the privilege. The FRE 502(b) change resolved conflicts in common law and were significant. In addition to FRE 502(b), as the 2015 NY Law Journal article states “FRE 502(d) is even more sweeping. Under that provision, parties may ask a court to enter an order specifying that the parties’ production of privileged material does not constitute waiver, even if the parties fail to take reasonable steps to prevent its disclosure.”

From FRE 502(d) (and Advisory Committee Notes accompanying Federal Rule of Civil Procedure 26(b)(2)) is how we get to quick peek. The Paul Weiss authors state that FRE 502(d) has encouraged the use of quick peek agreements, which has the potential to speed discovery because it reduces the amount of privilege review before production.

Observations on the Procedure

As my recent Tax Court experience is in tax clinic cases where discovery was rare, I sought thoughts on the process from Sean Akins, Special Counsel at Covington, co-author of Thomson Reuters’ Litigation of Federal Tax Controversies and former Procedurally Taxing guest poster. While Sean likewise has no direct experience with the process, he does have significant insight, noting that quick peek “is consistent with the Tax Court’s practice of seeking to have the parties communicate and cooperate to the greatest extent possible” and that he “suspects that the Court hopes that the parties will be able to agree that certain documents are truly protected by the deliberative process privilege, some are not, and as to the others there remains a fair dispute.” As Sean observes, even if the parties still may dispute whether privilege attaches, it could lessen the need for further court intervention “because Petitioners will have the opportunity to review the substance of the documents, and it may be that they elect not to challenge the privilege claim if they determine some of the documents lack relevance/materiality.”

Sean also however expressed “a little surprise” at its use in the context of the government claiming deliberative process privilege:

[T]the quick peek method was utilized concerning documents purportedly subject to the deliberative process privilege.  The theory behind that privilege, as I understand it, is that assuring government employees of confidentiality with respect to their decision-making process should permit those individuals to provide more candid advice.  Allowing a quick peek, even if the privilege attaches and remains unwaived, cuts against this, as the decision-making process is revealed.  Somewhat ironically, the IRS resisted the notion that a protective order would adequately protect the IRS should the documents be produced to Petitioners.  But, nothing in the Order that the Court issued would preclude Petitioners or their counsel from disclosing to others the substance of what they learned during the quick peek process.  In the absence of protections against such disclosure, I would have opted for a protective order.

Sean adds that “he would be interested to keep an eye on this and see how it is ultimately resolved, and whether the parties are again before the Court with a more narrow set of documents requiring an in camera review.” We will keep an eye on the Guidant case and also for other orders where the Tax Court uses this approach.

For those interested I include the language from the order setting out the procedure:

  1. Respondent does not waive any privilege it has asserted with respect to deliberative due process or any other privilege it has previously asserted in this case. The privilege is not waived in this litigation and any disclosure is also not a waiver in any other Federal or State proceeding.
  2. Counsel for respondent shall disclose each document for which he claims privilege and counsel for petitioners shall review such document but is not permitted to retain or copy such document unless both counsel agree otherwise or except as provided.
  3. All documents which both counsel agree are properly claimed as privileged shall remain so and respondent shall not be required to produce that document further. All documents which both counsel believe are not properly claimed as privileged shall be immediately produced and given to petitioners.
  4. The parties shall file a status report after they have concluded their quick peek procedure.
Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

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