United States v. Hodge & Zweig

United States Court of Appeals, Ninth Circuit
548 F.2d 1347 (1977)

ELI5:

Rule of Law:

Information regarding a client's identity and fee arrangements is not protected by the attorney-client privilege when the legal representation was secured in furtherance of a continuing criminal or fraudulent activity. This crime-fraud exception applies even if disclosure would otherwise be privileged because it would implicate the client in the criminal activity for which legal advice was sought.

Facts:

Richard Hodge and Robert Zweig, partners in a law firm, represented Joseph Ernest Sandino, Jr., and several of his associates, including Rena Sandino Joseph and Cindy Purdy.
Their representation was in connection with a federal grand jury investigation into an alleged drug importation conspiracy involving Sandino and his associates.
The government's indictment alleged that as part of the conspiracy, the conspirators had an agreement to provide bail and legal services for participants who were apprehended by law enforcement.
The Internal Revenue Service (IRS) began a separate investigation into Sandino's tax liability for the years 1970, 1971, and 1972.
In November 1973, an IRS Special Agent issued a summons to Hodge and Zweig, demanding business records concerning payments from Sandino for himself and others, and payments from others on behalf of Sandino.
Hodge and Zweig refused to comply with the summons, asserting the attorney-client privilege and the Fifth Amendment privilege against self-incrimination on behalf of themselves and their clients.
Sandino, Joseph, and Purdy ultimately pleaded guilty to conspiracy charges related to the drug investigation.

Procedural Posture:

The United States and an IRS Special Agent petitioned the U.S. District Court for the Northern District of California for enforcement of an administrative summons issued to the law firm of Hodge and Zweig.
The district court granted the petition and issued an order directing the attorneys to comply with the summons.
Hodge and Zweig, the defendants, appealed the district court's enforcement order to the United States Court of Appeals for the Ninth Circuit.

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Issue:

Does the attorney-client privilege protect an attorney from disclosing client identity and fee arrangement information to the IRS when there is a prima facie case that the legal services were retained in furtherance of a continuing criminal enterprise?

Opinions:

Majority - Kennedy, J.

No, the attorney-client privilege does not protect client identity and fee arrangement information when the government makes a prima facie showing that the legal representation was secured in furtherance of a continuing crime or fraud. The general rule is that a client's identity and fee arrangements are not confidential communications protected by the privilege. An exception, known as the Baird rule, protects such information where its disclosure would implicate the client in the very criminal activity for which legal advice was sought. However, this exception is overcome by the well-established principle that the attorney-client privilege does not apply where legal services are secured to further a continuing crime or fraudulent scheme (the crime-fraud exception). Here, the government established a prima facie case that paying legal fees was an integral part of the ongoing drug conspiracy. The guilty pleas to an indictment that specifically alleged an agreement to furnish legal fees for apprehended co-conspirators served as strong evidence. Therefore, because the legal services were retained in furtherance of the criminal conspiracy, the crime-fraud exception applies, and the information regarding client identity and fee arrangements is not privileged and must be disclosed.

Analysis:

This decision clarifies the hierarchy and interplay between key doctrines of attorney-client privilege. It establishes that the crime-fraud exception serves as a crucial limitation on the privilege, capable of overriding the protective exception established in cases like Baird v. Koerner. The ruling reinforces that the privilege is not absolute and cannot be used as a shield for ongoing criminal activity. The case also significantly clarified the Donaldson rule regarding IRS summonses, holding that the critical point for terminating the summons power is the formal recommendation for prosecution to the Department of Justice, not an earlier internal recommendation, thereby broadening the IRS's investigative authority in cases with parallel civil and criminal components.

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