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United States v. Cortese

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


decided: August 10, 1976.

UNITED STATES OF AMERICA AND JOSEPH A. DOLLARD, SPECIAL AGENT, INTERNAL REVENUE SERVICE, PETITIONERS-APPELLEES
v.
AMERICO V. CORTESE, PROTHONOTARY COURT OF COMMON PLEAS, PHILADELPHIA COUNTY, PENNSYLVANIA, RESPONDENT-APPELLANT

Seitz, Chief Judge, Adams and Hunter, Circuit Judges.

Author: Hunter

HUNTER, Circuit Judge:

We must decide whether contingent fee agreements filed with the Prothonotary of the Court of Common Pleas under Rule 202 of that court ("Local Rule 202") are privileged as a matter of federal common law from compulsory production to the Internal Revenue Service ("IRS") under a summons issued pursuant to 26 U.S.C. § 7602.*fn1 On the basis of our decision also filed this day, in In re Grand Jury Impaneled January 21, 1975, 541 F.2d 373 (3d Cir. 1976), we conclude that the agreements are not privileged and accordingly will affirm the district court's order enforcing the IRS summons.

In the course of its investigation of the tax liabilities of attorney Nathan Berlant, the IRS, on October 9, 1975, issued a summons to the Honorable Americo V. Cortese, the Prothonotary of the Court of Common Pleas of Philadelphia County. The summons sought all contingent fee agreements and statements of distribution filed with the Prothonotary between 1971 and 1974 by the taxpayer or which bore his name. App. at 2a. At the time of issuance of the summons, attorneys in Philadelphia were required by Local Rule 202 to file copies of such agreements and statements with the Prothonotary.*fn2 Section (f) of Local Rule 202 provided that these copies "shall be impounded subject to inspection only by Order of the Court, by the client or by the Disciplinary Board of the Supreme Court of Pennsylvania." The Prothonotary refused to produce the requested records on the ground, inter alia, that they were privileged.

Proceedings to enforce the summons under 26 U.S.C. § 7604 were begun in the district court by the government on December 4, 1975. The Prothonotary moved to dismiss the summons. After a hearing on the petition to enforce the summons, and the filing of an amicus curiae brief by the Philadelphia Bar Association in support of the Prothonotary's motion to dismiss,*fn3 the district court, on March 31, 1976, issued an opinion and order enforcing the summons and denying the motion to dismiss. Notice of appeal was filed by the Prothonotary on April 12, 1976. Enforcement of the summons was stayed pending disposition of the instant appeal. App. at 84a. On April 28, 1976, this court expedited the appeal and listed it for disposition with In re Grand Jury Impaneled January 21, 1975, supra.

The Prothonotary contends, inter alia,*fn4 that contingent fee agreements filed under Local Rule 202 are privileged as a matter of federal common law from production pursuant to an IRS summons. In In re Grand Jury Impaneled January 21, 1975, supra, we assumed arguendo that as a matter of Pennsylvania law retainer agreements filed under Local Rule 202 were privileged against use in any investigation or court proceeding. We nevertheless held that any assumed state-created required reports privilege would not be recognized as a matter of federal common law so as to defeat a federal grand jury's subpoena. Enforcement of the grand jury subpoena would not, in our view, seriously frustrate the Court of Common Pleas' interest in voluntary compliance with its filing requirements. Thus, on balance we concluded that the assumed state-created privilege must yield to the grand jury's need for the information in order effectively to conduct its investigation.

We consider our decision in In re Grand Jury Impaneled January 21, 1975, supra, to control here. The scope of inquisitorial power granted the IRS Commissioner in 26 U.S.C. § 7602 is not unlike that vested in federal grand juries.*fn5 And for the reasons stated in our earlier decision, we do not think the Court of Common Pleas' interest in voluntary compliance will be seriously impaired by enforcement of the instant summons. To enforce a summons, the IRS must show:

(1) That the investigation has a legitimate purpose and that the inquiry may be relevant to that purpose, (2) that the information sought is not already within the government's possession and (3) that the steps required by the Internal Revenue Code have been followed . . .

United States v. McCarthy, 514 F.2d 368, 372 (3d Cir. 1975). The enforcement proceeding is no mere "rubber stamp approval." United States v. First National Bank, 540 F.2d 619 (3d Cir. 1976); see United States v. Bisceglia, 420 U.S. 141, 146, 43 L. Ed. 2d 88, 95 S. Ct. 915 (1975). As in In re Grand Jury Impaneled January 21, 1975, supra, the reasons generally asserted in support of federal court recognition of a state's required reports privilege are also not present here. After consideration of the asserted interests underlying Local Rule 202(f) and the federal government's interest in ensuring compliance with its tax laws, see United States v. Bisceglia, supra, we conclude that the federal interest must here prevail. See Falsone v. United States, 205 F.2d 734, 742 (5th Cir.), cert. denied, 346 U.S. 864, 98 L. Ed. 375, 74 S. Ct. 103 (1953).

The district court's order shall be affirmed.


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