This case involves a tax dispute centering on whether certain “purported” insurance and reinsurance transactions “lacked economic substance.” Following an in camera review of communications identified in Respondents’ privilege logs, the Court denied Petitioner’s motion to compel the production of communications between Respondents’ and counsel. Petitioner’s argued the privilege was waived upon Respondents’ assertion of the advice of counsel defense, and that the substance of the insurance transactions were put in issue, including all underlying facts claimed protected by the attorney-client privilege. Respondents’ argued the subject matter in the withheld emails is not related to the reasonable cause and good-faith defense raised in their petition before the Tax Court.
The Court, looking at “counsel, ownership history, management, insured operation/ownership, and personnel” and the “real-world structure of the relationships, including the joint retention of the law firm and need for legal advice on identical issues and concerns”, found a common-interest privilege existed “despite the separate ownership of the later captives”, and thus, there was no third-party waiver.
With respect to whether Respondents’ advice of counsel or “reasonable cause” defense put the communications at issue, the Court held that, because the Tax Court litigation is in an early stage, if Respondents persist in asserting the “reasonable cause” defense, then “disclosure of privileged documents may later result before the Tax Court. This, however, is a strategic choice that must be made by Respondents in the Tax Court proceedings at some later point in time. Should Respondents make the strategic choice to persist with their ‘reasonable cause’ defense and produce the privileged communications setting forth the legal advice they purportedly relied on, the Tax Court will be in a far better position to determine which of these emails are related to the legal advice.” , 4:16-mc-00003, 00004, 00005 (USDC W.D. Ky. July 7, 2017)