Two Current Tax Controversies Utilize ‘Quick Peek’ Agreements to Resolve Privilege Disputes

Due to the enormous amount of electronic data stored by companies in the modern era, discovery requests can involve millions of documents which need to be reviewed prior to being turned over to the opposing party.  In conducting their analysis of this overwhelming quantity of information, litigants must, amongst other things, detect and exclude any privileged material.  Should a party inadvertently fail to do so before such records reach the hands of the opposing counsel, he/she will be deemed to waive privilege in many jurisdictions.  Given the massive quantity of data, however, such mistakes are practically unavoidable.

Federal Rule of Evidence (FRE) 502 was enacted in 2008 in an attempt to combat the issue of inevitable human error and the costs associated with parties’ efforts to avoid it.  FRE 502(d) allows parties to request the court to grant an order stipulating that a disclosure of privileged material does not waive any claims of privilege with respect to those documents.  If the court agrees to enter the order, it is controlling on third parties and in any other federal or state proceeding.

FRE 502(d) has led to the possibility of “quick peek” agreements where the parties give over all or a portion of their documents to opposing counsel without any privilege review whatsoever so that the recipient can identify which material he would like to retain.  The recipient, in turn, agrees not to assert a waiver claim on any document that the producing party intends to withhold from the requested documents as privileged.  These arrangements can dramatically ease the temporal and financial burdens of conducting a privilege review because they allow the producing party to focus only on those documents desired by the recipient while at the same time preserving their right to claim privilege on such documents.

Litigants in two high profile tax controversies have now entered into quick peek agreements to help resolve privilege discovery disputes in an efficient, cost-effective manner.  In United States v. Microsoft, No. 2:15-cv-00102 (WD WA), the parties have agreed to permit the government’s counsel to conduct a “limited time” inspection of some documents subject to privilege claims by Microsoft in a continuing investigation of the company’s transfer pricing practices.  In return, the United States and the Internal Revenue Service (IRS) have agreed that the production of these documents will not result in an automatic subject matter waiver or a waiver of privilege claims.  Presumably, the government’s “quick peek” at these potentially privileged documents will reduce the number of documents for which the court will be asked to make privilege determinations and hasten the resolution of the summons enforcement action.   Similarly, in Guidant LLC, F.K.A., Guidant Corporation, and Subsidiaries, et al. v. Commissioner, a US Tax Court case before Judge David Laro, the court ordered a quick peek procedure regarding the parties’ dispute pertaining to the privileged status of a large number of documents identified on the IRS’s privilege logs as being protected by the government’s deliberative process privilege.  The order specifically excluded documents for which claims of attorney-client privilege and work product protection are being claimed.  Stressing that the resolution of this discovery dispute is time-sensitive due to the approaching trial date, Judge Laro agreed to the parties’ request that the court enter such an order.  Under the terms of the order, the IRS is required to deliver all the disputed documents to Guidant’s counsel for review.  Guidant’s counsel will then have exactly one week to complete its initial review and produce a list of documents of which it demands production.

Whether these recent cases involving quick peek arrangements indicate a growing trend, or are just isolated cases, remains to be seen.  On the one hand, these agreements can potentially save a taxpayer substantial amounts of time and money and may also help avert what could be a disastrous mistake.  Yet there are risks associated with a quick peek arrangement.  As H.R. Haldeman once said, “You can’t put the toothpaste back in the tube.”  The receiving lawyer cannot (and will not want to) simply erase from his memory the privileged information he has seen.  Thus, even though the privileged material will technically be excluded from evidence, the disclosing counsel runs the risk of aiding his opponent in developing a litigation strategy.  All things considered, a quick peek agreement brings with it advantages and disadvantages that must be weighed on a case-by-case basis.

Joshua M. Ellenberg
Joshua (Josh) M. Ellenberg focuses his practice on US and international tax matters. Read Josh Ellenberg's full bio.

Robin L. Greenhouse
Robin L. Greenhouse represents businesses and individuals in resolving complex, large-dollar federal tax controversies. Robin is adept at using dispute resolution techniques, including fast track mediation, pre-filing agreements, Internal Revenue Service (IRS) appeals and post-appeals mediation, and has been the lead lawyer in significant litigation. Over her 30-year career as a government and private practice tax litigator, she has argued more than 100 cases in federal courts at every level. Read Robin Greenhouse's full bio.




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