On July 19, 2011, the Sixth Circuit rejected the attempt of an in-house attorney to raise the issue of attorney-client privilege to reverse his conviction for conspiracy to defraud the United States. For this and other reasons, in United States v. Fisher (6th Cir. 09-2460) (PDF), the Court affirmed the conviction of Edward Fisher, who served as in-house general counsel to Simplified Employment Services, Inc. (“SES”), a professional-employment organization that administered its clients’ payrolls, issued employee checks and remitted employment taxes to the IRS.
The underlying facts date back over a decade, when SES failed to file quarterly payroll tax returns on IRS Form 941 for the years 1997 – 1999. According to the Court, after the IRS discovered that the returns were missing, SES’s CEO, Dennis Lambka, instructed his assistant to file false Form 941’s for the missing years, which would show that SES had no outstanding payroll tax liability when, in fact, its liabilities were nearly $52 million. Lambka also allegedly informed the highest-ranking executives of the scheme, including Fisher. And although SES hired an outside attorney from Latham & Watkins LLP to aid in resolving SES’s tax problems, Lambka, Fisher and other executives allegedly agreed to keep the counsel from Latham in the dark about the origin of the false tax returns. In addition, according to the Court, SES adopted Fisher’s recommendation that SES “back out” payroll taxes owned by SES on behalf of certain of SES’s clients, a scheme that effectively shifted the tax burden from SES to these clients. When these schemes were uncovered, Fisher was indicted for conspiracy to defraud the United States and conspiracy to commit bank fraud, convicted of the former charge and acquitted of the latter, and sentenced to 41 months in prison with an order to pay restitution in the amount of $10 million. During jury deliberations, however, jurors had asked the district court two questions regarding whether attorney-client privileges applied to Fisher — an issue that had not been brought up by either side during trial. The court declined to answer the questions directly, informing the jury that the questions were not necessary to determine whether Fisher was guilty and stating that the answers to such questions were “not simple or easy to summarize.” On appeal, Fisher raised three assignments of error, including whether the district court’s answer to the jurors’ questions constituted reversible error.
Writing for a unanimous panel that included Judges Cole and Clay, Judge Gilman rejected each of Fisher’s assignments of error, including the claim raised about attorney-client privilege. The Court found that the jurors’ questions regarding the privilege “were not relevant to the crimes charged and therefore did not require answers.” Although Fisher claimed otherwise, the Court noted that the government’s theory of liability was not based upon whether Fisher had an affirmative duty to inform the IRS or outside counsel from Latham that SES had filed false tax returns. Rather, the government sought to prove that “Fisher was an active participant in the conspiracy,” and the Court found that “the evidence of wrongdoing that was presented would support a guilty verdict regardless of whether Fisher did or did not have a duty to inform [outside counsel from Latham] and/or the IRS of SES’s illegal activity.”
Fisher stands out as a novel attempted use of the attorney-client privilege to insulate an in-house attorney from criminal activities in which the attorney was an active participant — a proposition which the Sixth Circuit rejected. But because the privilege issue materialized so late in the trial — during jury deliberations on Fisher’s guilt — it remains unknown whether the attorney-client privilege would have provided any protection to the attorney if it had been asserted at an earlier point in the trial or during pre-trial proceedings.