The opinion of the court was delivered by: NEALON
This action has been brought pursuant to Section 7402(b) of the Internal Revenue Code of 1954, for the purpose of judicially enforcing an Internal Revenue summons issued to Melvyn R. Bowman, as resident partner of the accounting firm of Main, LaFrentz and Company.
The summons herein involved was issued by the petitioner, John P. Wright, Special Agent of the Internal Revenue Service, on May 20, 1964, in connection with an investigation by the Internal Revenue Service of the tax liabilities of New Enterprise Stone & Lime Company for the years 1956 through 1962, and directed respondent to produce for examination certain work papers, schedules, memoranda, correspondence and accounting reports prepared by his firm for said company. On June 2, 1964, the respondent, Melvyn R. Bowman, appeared in response to the summons, but refused to comply, relying on the provisions of Title 63 of Purdon's Pennsylvania Statutes Annotated, Section 9.11a, which makes communications between an accountant and his client privileged.
A hearing was held before this Court on October 2, 1964, and at that time C. Galen Detwiler, Dale W. Detwiler, Emmert I. Detwiler, Paul I. Detwiler, all brothers, and New Enterprise Stone & Lime Company, Inc., New Enterprise Equipment & Supply Company, Inc., and Somerset Limestone Company, Inc., of which corporations the Detwiler brothers are the sole stockholders, were allowed to intervene. The documents requested in the summons pertain to the above-mentioned corporation. The respondent, Melvyn R. Bowman, argued that his refusal to comply with the summons was justified in light of the Accountant-Client Privilege in Pennsylvania and, in the alternative, that the summons issued is too broad and too vague and, therefore, should be set aside. The intervening respondents contend that the Accountant-Client Privilege applies and, also, that their rights under the Fourth and Fifth Amendments of the United States Constitution and under the provisions of § 7605 of the Internal Revenue Code of 1954 would be violated if obedience to the summons was ordered.
The first question raised by both the respondent and respondent-intervenors is whether or not the State-created privilege of confidential communications between a Certified Public Accountant and his client is applicable in an investigation before a Special Agent of the Internal Revenue Service. The Pennsylvania Statute relating to the privilege reads as follows:
' § 9.11a Privileged communication
'Except for permission of the client or person or firm or corporation engaging him or the heirs, successors or personal representatives of such client or person or firm or corporation, a certified public accountant or a person employed by a certified public accountant shall not be required to, and shall not voluntarily, disclose or divulge information of which he may have become possessed relative to and in connection with any professional services as a certified public accountant other than the examination of audit of or report on any financial statements, books, records or accounts, which he may be engaged to make or requested by a prospective client to discuss. The information derived from or as the result of such professional services shall be deemed confidential and privileged: Provided, however, That nothing herein shall be taken or construed as modifying, changing or affecting the criminal or bankruptcy laws of this Commonwealth or of the United States. § 1947, May 26, P.L. 318, § 11.1, added 1961, Sept. 2, P.L. 1165, § 8.'
The respondent and respondent-intervenors contend that just as the confidential relationship between attorney and client is recognized in both State and Federal proceedings, so, too, should the accountant-client relationship be equally recognized. In support of his argument, the respondent relies on Baird v. Koerner, Special Agent, Internal Revenue Service, 279 F.2d 623, 95 A.L.R.2d 303 (9th Cir. 1960). The petitioner, on the other hand, asserts that a State evidentiary statute is not applicable to a Federal administrative proceeding which is being conducted pursuant to the provisions of Section 7602 of the Internal Revenue Code of 1954. In support of this argument the petitioner cites Falsone v. United States, 205 F.2d 734 (5th Cir. 1953), certiorari denied 346 U.S. 864, 74 S. Ct. 103, 98 L. Ed. 375; In Re Albert Lindley Lee Memorial Hospital, 209 F.2d 122 (2d Cir. 1953); F.T.C. v. St. Regis Paper C., 304 F.2d 731 (7th Cir. 1962).
The law is clear that investigations by Federal administrative agencies are not judicial proceedings and are not, therefore, restricted by rules of evidence applicable in courts of law. In Re Albert Lindley Lee Memorial Hospital (supra); In Re Colton v. United States, 306 F.2d 633 (2d Cir. 1962). Furthermore, 'investigators for federal purposes may not be prevented by matters depending upon state law.' United States v. Murdock, 284 U.S. 141, 149, 52 S. Ct. 63, 64, 76 L. Ed. 210 (1931). In the case at bar the respondent's papers are being summoned by an administrative agency of the Federal government. Such an investigation is not a judicial proceeding to which a State evidentiary statute should apply. Moreover, it is well established that there is no accountant-client privilege recognizable in the Federal system. Petition of Borden Co., 75 F.Supp. 857 (E.D.Ill.1948); United States v. Culver, 224 F.Supp. 419 (D.C.Md.1963); In Re Kearney, 227 F.Supp. 174 (S.D.N.Y.1964). In recent years legislation has been enacted in several States extending the privilege to accountants, journalists and psychologists, but in none of these instances have the Federal Courts given recognition to the State-created privilege.
The Court of Appeals for the Third Circuit has not had an opportunity to pass on the question of the applicability of Pennsylvania's statute involved herein, but in the recent case of Lustman v. C.I.R., 322 F.2d 253 (3d Cir. 1963), Falsone v. United States (supra) was cited with approval. The Court noted as follows:
'Confidential communications between a client and an accountant are not generally recognized as privileged. There is no sanction for the privilege in common law. See Wigmore, Evidence, § 2286 (McNaughton rev. 1961). And there is no state or federal statute applicable here which would confer such privilege. Moreover, where records relating to tax liability are the subject matter of inquiry, the Internal Revenue Code, Section § 7602 (26 U.S.C.A. 7602), negates any privilege which might otherwise exist. See Falsone v. United States, 5 Cir. 1953, 205 F.2d 734, cert. den. 346 U.S. 864, 74 S. Ct. 103, 98 L. Ed. 375; In the Matter of James E. Fahey, D.C.Ky.1961, 192 F.Supp. 492, aff'd 6 Cir. 1961, 300 F.2d 383.'
In my opinion, the decision in the Falsone case (supra) is based on sound and logical reasoning. The great weight of authority appears to be in agreement with it. Indeed, Professor Wigmore has cautioned against the expansion of privileges, stating:
'For more than three centuries it has now been recognized as a fundamental maxim that the public (in the words sanctioned by Lord Hardwicke) has a right to every man's evidence. When we come to examine the various claims of exemption, we start with the primary assumption that there is a general duty to give what testimony one is capable of giving, and that any exemptions which may exist are distinctly exceptional, being so many derogations from a positive general rule. * * * '* * * The investigation of truth and the enforcement of testimonial duty demand the restriction, not the expansion, of these privileges. They should be recognized only within the narrowest limits required by principle. Every step beyond these limits helps to provide, without any real necessity, an obstacle to the administration of justice.' 8 Wigmore on Evidence (3d ed.), Sec. 2192, pp. 64, 67.
Therefore, it is the conclusion of this Court that the Pennsylvania accountant-client privilege does not extend to an accountant summoned by a Special Agent of the Internal Revenue pursuant to the authority of ...