US v. Zolin

MCCS Litigation


UNITED STATES of America, Petitioner/Appellee/Cross-Appellant,
Frank S. ZOLIN, Respondent/Appellee,
Church of Scientology of California and Mary Sue Hubbard,
Nos. 85-6065, 85-6105.
United States Court of Appeals,
Ninth Circuit.
June 20, 1990.

In connection with tax investigation, United States brought action to compel
state court clerk to produce sealed documents. Church and taxpayer's wife
intervened. The United States District Court for the Central District of
California, Harry L. Hupp, J., ordered production of some, but not all,
documents. Intervenors appealed, and United States cross-appealed. The Court
of Appeals, 809 F.2d 1411, affirmed. Thereafter, the Court of Appeals,
832 F.2d 127, granted en banc rehearing and withdrew prior panel
assignment. Subsequently, the Court of Appeals, 842 F.2d 1135, vacated its
order for en banc hearing. The Supreme Court, 109 S.Ct. 2619, affirmed in
part, vacated in part, and remanded. On remand, the Court of Appeals, Farris,
Circuit Judge, held that tapes in question were admissible under crime-fraud
exception to attorney-client privilege.
Reversed and remanded.

Tapes of project meetings were admissible under crime-fraud exception to
attorney-client privilege, as transcripts of those tapes, along with
independent evidence, demonstrated that attorney was retained in order to
promote intended or continuing criminal or fraudulent activity; purpose of
project was to cover up past criminal wrongdoing, and project involved
discussion and planning for future frauds against Internal Revenue Service.
18 U.S.C.A. s 371.
*1345 Gary R. Allen, Tax Div., Dept. of Justice, Washington, D.C., for
Eric M. Lieberman, Rabinowitz, Boudin, Standard, Kninsky & Lieberman, New York
City, for intervenors/appellants/cross-appellees.
Frederick Bennett, County Counsel, Los Angeles, Cal., for respondent/appellee.
On Remand from the United States Supreme Court.

Before GOODWIN, Chief Judge, BROWNING and FARRIS, Circuit Judges.

FARRIS, Circuit Judge:
The facts of this case are set forth in our previous opinion, United
States v. Zolin, 809 F.2d 1411 (9th Cir.1987), aff'd in part and vacated in
part, 491 U.S. 554, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). We now resolve
whether tapes of two meetings of the Mission Corporate Category Sortout project
are admissible under the crime-fraud exception to the attorney-client privilege
in light of the Supreme Court's ruling in United States v. Zolin, 491 U.S.
554, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). We hold that the tapes are
"To invoke the [crime-fraud] exception successfully the party seeking
disclosure ... must make out a prima facie case that the attorney was retained
in order to promote intended or continuing criminal or fraudulent activity."
United States v. Hodge & Zweig, 548 F.2d 1347, 1353, 1354 (9th Cir.1977).
The Government has presented the following evidence of intended illegality:
(1) Agent Petersell's Supplemental Declaration of March 8, 1985, (2)
Petersell's Supplemental Declaration of March 15, 1985, and (3) partial
transcripts of the tapes themselves. [FN1]

FN1. The Government has also attempted to present the declaration of Agent
Philip Xanthos as evidence, but we have already denied the Government
permission to present this declaration and will not consider it here. See
March 3, 1987 Order.

In our first Zolin opinion we examined only the independent evidence
presented--items one and two above--and held that "while not altogether
insubstantial, [this evidence] is not sufficient to make out the requisite
prima facie showing of intended illegality." 809 F.2d at 1419. In its
decision, the Supreme Court held that
evidence that is not "independent" of the contents of allegedly privileged
communications--like the partial transcripts in this case--may be used not only
in the pursuit of in camera review, but also may provide the evidentiary basis
for the ultimate showing that the crime-fraud exception applies.
Zolin, 109 S.Ct. at 2632 n. 12. We must therefore examine the transcripts
and determine whether they, along with the independent evidence already
reviewed, demonstrate sufficient evidence of intended illegality to establish
that the tapes are within the crime-fraud exception. We hold that they do.
The partial transcripts demonstrate that the purpose of the MCCS project was
to cover up past criminal wrong-doing. The MCCS project involved the
discussion and planning of future frauds against the IRS, in violation of 18
U.S.C. s 371. See, e.g., United States v. Carruth, 699 F.2d 1017, 1021 (9th
Cir.1983), cert. denied, 464 U.S. 1038, 104 S.Ct. 698, 79 L.Ed.2d 164
(1984). The figures involved in MCCS admit on the tapes that they are
attempting to confuse and defraud the U.S. Government. The purpose of the
crime-fraud exception is to exclude such transactions from the protection of
the attorney-client privilege.
*1346 We therefore reject the district court's holding that the Government
did not make out a case of intended illegality. In light of the Supreme
Court's holding that the tapes themselves can be examined for proof that would
establish the crime-fraud exception, the transcripts can be examined, and they
appear to make out the Government's case on intended illegality. On remand the
district court should admit the MCCS tapes into evidence, subject to any
objections the parties might make at that time. [FN2]

FN2. The issue of the potential illegality of the transcripts, mentioned
by the Supreme Court, see Zolin, 109 S.Ct. at 2624 n. 5, is not properly
before this court. The Church did not raise this issue in its original
appeal, and we will not consider it on a later remand. See Nilsson,
Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 F.2d
1538, 1547-48 (9th Cir.1988).