Preview
FILED: NEW YORK COUNTY CLERK 08/28/2012 INDEX NO. 650159/2010
NYSCEF DOC. NO. 104 RECEIVED NYSCEF: 08/28/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10
on Behalf of Each of Them Individually And
On Behalf Of Starrett City Preservation LLC,
Derivatively,
Plaintiffs,
- against -
CAROL GRAM DEANE, THE ESTATE OF
DISQUE D. DEANE by CAROL G. DEANE,
as TEMPORARY EXECUTRIX, SALT
KETTLE LLC, ST. GERVAIS LLC,
STARRETT CITY PRESERVATION LLC,
DD SPRING CREEK LLC, SK SPRING
CREEK LLC, SPRING CREEK PLAZA
LLC, DD SHOPPING CENTER LLC and
SK SHOPPING CENTER LLC,
Defendants.
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PLAIN'T'IFFS' M~1~OI~4NDUM Off' L~VV TN S[JPPOR'T OF
THEIR MOTION TO COMPEL DOCUIWIENTS AND TESTIII~IONY
1576696.2
TABLE OF CONTENT'S
Page
Tableof Authorities ........................................................................................................................ ii
PreliminaryStatement ......................................................................................................................1
STATEMENTOF FACTS ..............................................................................................................2
Berdon Is Retained As Accountants and as Litigation Consultants ...................................3
Defendants and Berdon Assert the Kovel Privilege ............................................. ..............5
ARGUMENT...................................................................................................................................6
I. THE KOVEL DOCTRINE IS A NARROW EXTENSION TO THE
ATTORNEY-CLIENT PRIVILEGE THAT PROTECTS ONLY
COMMUNICATIONS MADE IN FURTHERANCE OF AN
ACCOUNTANT'S ROLE AS INTERPRETER OF COMPLEX
ACCOUNTINGPRINCIPLES............................................................................ ~:
II. DEFENDANTS CANNOT MEET THEIR BURDEN OF
DEMONSTRATING THAT THE COMMUNICATIONS WITH
BERDON FALL WITHIN THE KOVEL DOCTRINE....................................... ...........9
A. Berdon's Communications With Counsel Were Not For
Translation Purposes ..............................................................................................10
B. Berdon Was Simultaneously Communicating With Counsel
And Providing Business Services On The Same Issues;
Defendants Cannot, Therefore, Meet Their Burden Of
Identifying Privileged Communications ................................................................14
III. DEFENDANTS HAVE NOT MET THEIR BURDEN OF ESTABLISHING THE
KOVEL PRIVILEGE WITH RESPECT TO DOCUMENTS WITHHELD FROM
PRODUCTION..................................................................................................................19
Conclusion.....................................................................................................................................22
i
1576696.2
T~SLE OF Ai1TI~0I2ITIES
Pages)
CASES
Blumenthal v. Drudge,
186 F.R.D. 236 (D.D.C. 1999)...................................................................................................9
Const~. Indus. Services Corp. v. Hanover Ins. Co.,
206 F.R.D. 43 (E.D.N.Y. 2001) ...............................................................................................13
Delta Fin. Corp. v. Morrison,
13 Misc. 3d 441, 820 N.Y.S.2d 745 (Nassau Sup. 2006) ................................... 6, 7, 18, 20, 21
First Interstate Credit Alliance, Inc. v. ArthuY Anderson & Co.,
150 A.D.2d 291, 541 N.Y.S.2d 433 (1st Dept 1989) ...............................................................6
Green v. Beep,
2010 WL 3422723 (S.D.N.Y. Aug. 24, 2010) ....................................................................... 7-8
In re G-IHoldings Inc.,
218 F.R.D. 428. (D.N.J. 2003) ....................................................................................................7
Kelley v. Microsoft Copp.,
.....18
2009 WL 168258 (W.D. Wash. 2009) ...................................................,.,.....................
People v. Osorio,
75 N.Y.Zd 82, 550 N.Y.S.2d 612 (1989) ...................................................................................7
Spectrum Sys. Int'Z Corp. v. Chem. Bcznk,
78 N.Y.2d 371, 575 N.Y.S.2d 809 (1991) .................................................................................9
United States v. Acke~t,
169 F.3d 136 (2d Cir. 1999).............................................................................................7, 8, 15
United States v. Adlman,
68 F.3d 1495 (2d Cir. 1995).............................................................................................7, 9, 15
United States v. ChevYOnTexaco Corp.,
241 F. Supp. 2d 1065 (N.D. Cal. 2002) .....................................................................................8
United States v. El Paso Co.,
682 F.2d 530 (5th Cir. 1982) ...................................................................................................15
United States v. Hatfield,
2010 WL 183522 (E.D.N.Y. Jan. 8, 2010) ..........................................................8, 9, 16, 17, 18
ii
1576696.2
United States v. Kovel,
296 F.2d 918 (2d Cir. 1961)............................................................................................. passim
von Bulow by Auersperg v. von Bulow,
811 F.2d 136 (2d Cir. 1987) .......................................................................................................9
iii
1 576696.2
Plaintiffs Harvey Rudman and Harold Kuplesky, acting individually and
derivatively on behalf of Starrett City Preservation LLC ("Preservation"), submit this
memorandum of law, together with the Affirmation of Jacqueline G. Veit, dated August 16,
2012, and the exhibits thereto ("Veit Aff."), in support of their motion to compel the production
of documents and testimony withheld on the grounds that such material allegedly is protected by
the attorney-client privilege and a limited extension of that privilege initially recognized in the
Second Circuit case United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) (the "Kovel doctrine" or
the "Kovel privilege"). This motion relates to 78 documents withheld from production by
defendants and by their accountants, Berdon LLP ("Berdon"), as well as testimony by Stuart
Kotler ("Kotler"), a tax partner at Berdon.
Preliminary Statement
Berdon simultaneously provided (i) tax and accounting services to Preservation
and other related entities, and (ii) alleged "litigation consultant" services to defense counsel.
Berdon provided both of these services through the same individuals at the firm. Defendants
have broadly withheld from discovery all communications between Berdon and defense counsel,
as well as certain documents between Berdon and defendants and internal communications at
Berdon, as purported attorney-client communications under the Kovel doctrine.
Defendants have a fundamental misunderstanding of the scope of the Kovel
doctrine, and they are not entitled to its protections. This doctrine only protects an accountant's
communications with a lawyer by which the accountant acts as an interpreter of the client's
financial and accounting matters to enable the lawyer to render legal advice to the client. It does
not protect the disclosure of all communications between the lawyer and the accountant,
regardless of their topic or purpose. Here, the record fails to establish that any of the
15766962
communications involved interpreting accounting matters for the attorney, and thus defendants
have not established any basis for asserting the privilege.
Moreover, in light of Berdon's dual role — concurrently providing litigation and
business services, with the same issues arising in each — defendants cannot meet their burden of
establishing a valid privilege. Communications with accountants relating to business, tax and
accounting services for a client, even if the communications include attorneys, fall outside the
scope of Kovel. Defendants cannot cloak their accountants' communications with counsel (and
others) with a "litigation services" label and thereby transform discoverable business
communications into privileged matters. The record shows that the same issues were being
considered by Berdon for purposes of preparing tax returns (in a way that adversely affected
plaintiffs) at the same time that they were being discussed with counsel, making it impossible for
defendants to distinguish between privileged and non-privileged communications.
Berdon's accounting and tax work for 2010 will be evidence in this case, and is
hotly contested. Its work conveniently. is based on interpretations of the Preservation operating
agreement that are fully aligned with the defendants' interpretation, and contrary to plaintiffs'
interpretation and the evidence supporting that position. In discovery, plaintiffs are entitled to
explore defense counsel's communications with the accountants on matters at issue in the
accountants' on-going accounting work. Such evidence may reveal bias, even improper
influence, but under no circumstances can it be precluded from discovery under a guise of
privilege.
S'~'~'~'Ett'i~NT OF FACTS
Plaintiffs filed this action to, among other things, recover amounts that they are
entitled to as members of Preservation pursuant to Preservation's operating agreement (the
"Preservation Agreement"). As set forth in detail in the Second Amended Complaint, the
2
1576696.2
general partners of Starrett City Associates L.P. ("SCA") assigned their economic interest in
SCA to Preservation. The value of that interest increased substantially with a refinancing
transaction that occurred on or about December 17, 2009. As part of that transaction, certain
assets of SCA (including vacant land parcels) were transferred to a new entity, defendant Spring
Creek Plaza, LLC ("Plaza"), in which the SCA general partners, and thus Preservation, hold a
comparable interest. Defendant Carol Deane (personally or through entities) is the managing
member of Preservation and Plaza and controls the managing general partner of SCA.
The initial complaint in this action was filed March 2010, and the Second
in
Amended Complaint was filed on October 6, 2010. After the complaint was filed, plaintiffs
received partial payments of amounts due to them, which defendants calculated as a portion of
the cash proceeds of the refinancing loan. On or about November 8, 2010,. Carol Deane, as
Preservation's managing member, reduced plaintiffs' "sharing ratios" in Preservation to zero,
and plaintiffs received no further compensation. Defendants the position this case that
in
take
plaintiffs are entitled to nothing further, either as a result of the refinancing transaction or in
connection with the elimination of their sharing ratios. Plaintiffs maintain, among other things,
that their sharing ratios cannot be eliminated until they receive their shares of the cash and
noncash proceeds of the refinancing transaction, which has not occurred.
Berdoiz Is Retairzecl As Accountants and as Lztigatioiz Coizsultants
In September 2010, SCA, Plaza and Preservation retained Berdon as their
accountants to prepare tax returns and, for SCA and Plaza, to prepare financial statements and
conduct audits. The Preservation tax returns for 2010, including K-1s to all members including
plaintiffs, are dated August 24, 2011, and thus they, and the accounting work associated with
3
them, were completed by Berdon before then. (Kotler Tr. 159-160.)' Tax returns and financial
statements for the other entities for 2010 were also prepared in 2011. Berdon has also been
retained to provide accounting services for Carol Deane personally and for other Deane-related
entities. (Kotler Tr. at 31:8-33:4.)
At about the same tune, Berdon was retained by defense counsel pursuant to an
agreement dated "as of October 8, 2010" to serve as "litigation consultants" to defense counsel in
this case. (Veit Aff. Ex. A.) The individuals at Berdon who provided the tax services for SCA,
Plaza and Preservation also served as the litigation consultants to defense counsel, and all of the
services were provided at the same time. (Kotler Tr. 37:22-38:3, 38:17-21.)
Berdon's accountants addressed the same issues for purposes of preparing the
2010 tax returns for Preservation that they discussed with defense counsel (principally Kenneth
.Warner) in connection with their purported litigation services.
For example, Kotler, a tax partner at Berdon who provided both tax services and
so-called "litigation consultant" services to defense counsel, testified that in undertaking
accounting work and preparing tax returns for Preservation that are at issue in this case, Berdon
relied on Section 3.3 of the Preservation Agreement. In this litigation, defendants rely on their
interpretation of Section 3.3 as a primary defense to plaintiffs' claims. Although plaintiffs flatly
disagree, defendants claim that Section 3.3 (i) authorized Carol Deane, as managing member, to
limit distributions from Preservation to its members to an aggregate of $10 million, (ii) allowed
Ms. Deane to reduce members' sharing ratios to zero once at least $10 million was distributed,
and. (iii) allowed members' sharing ratios to be reduced to zero without any further
~ "Kotler Tr." refers to the deposition transcript of Stuart Kotler, a tax partner at Berdon, annexed as Ex.
B to the Veit Aff. "Sutz Tr." refers to the deposition transcript of Iris Sutz, annexed as Ex. H to the Veit
Aff.
4
576696.2
compensation. Kotler testified that he had discussions with Warner about Section 3.3 and other
provisions of the Preservation Agreement prior to Berdon's completion of Preservation's tax
return. (See, e.g., Kotler Tr. 95-98, 132-134, 125-127, 138-141.) A1178 of the allegedly
privileged communications reflected on the privilege logs occurred during that time as well.
(Veit Aff. Exhs. D, E.)
Not surprisingly, Berdon interpreted Section 3.3 the same way that defendants do
in this litigation. Berdon determined that once an event occurred that enabled $10 million to be
distributed, such that Carol Deane allegedly was entitled to reduce the members' sharing ratios to
zero, all members' capital accounts became zero, and Carol Deane's became 100%. (Kotler Tr.
161:11-17, 162:14-22, 163-167.) In addition, Berdon determined that plaintiffs were not entitled
to any portion of a large tax deduction that Preservation and its members were to enjoy, because
their sharing ratios were reduced to zero in November 2010, allegedly pursuant to Section 3.3.
(Kotler Tr. 170-172.) After a year of planning, in December 2010 Plaza donated the vacant land
parcels that it received part of the refinancing transaction to charity. The donation gave rise to
as
a $53.9 million tax deduction, of which 19.9% of that deduction - totaling approximately $10.7
million -- passed through Plaza to Preservation. Berdon took the position in preparing the 2010
tax returns that plaintiffs were not entitled to any portion of the deduction, and that Carol Deane
(who allegedly holds approximately a 40%interest in Preservation after taking plaintiffs' shares
for herself was entitled to 89% of it (a $9.5 million deduction). (Kotler Tr. 193-194.) Plaintiffs
dispute all of these conclusions in this litigation.
Defendants and BeNdotz AsseNt the Kovel Privilege
On May 26, 2011, plaintiffs served a subpoena on Berdon seeking the production
of documents and deposition testimony. On January 20, 2012, Berdon advised that it withheld
5
1576696.2
dozens of documents from production, claiming (as instructed by defendants' counsel) that such
material was protected under the hovel doctrine.
On January 31, 2012, and for months thereafter, plaintiffs' counsel sent letters and
einails objecting to the withholding of those documents under the guise of Kovel. (Veit Aff.
Exhs. C, F, G.) Defendants and Berdon were encouraged to share any legal authority they had to
support their interpretation of the Kovel doctrine. To date, neither Berdon nor defense counsel
has provided a substantive response or any legal authority for their position. (Veit Aff. ¶ 6.)
Berdon produced some of the documents previously withheld, but defendants maintained the
claim of privilege for 78 documents.2
On July 10, 2012, Kotler's deposition was conducted. During his examination,
defendants improperly invoked the Kovel privilege on a number of occasions and instructed him
not to answer questions. Defense counsel would not even allow Kotler to respond to questions
aimed at determining whether a particular communication fell within the scope of the Kovel
privilege in the first instance. This motion followed.
ARGUlVIENT
I.
`~`H~I{O~EL DOCTRINE IS A NARROW EXTENSION TO THE
AT"I'ORNEY-CLIENT PRIVILEGE 'I'~3AT' PROTECTS ONLI'
COTVIIVIUNICA'I'IONS 1t~~DE IN FURTHERANCE OF AN ACCOITNTANT''S
ROLE AS IN'~'ERI'I~ETER. 4~' C011~PLEX r~CCOUNTING I'RINCIPL~S
Generally, a client's communications with its accountants are not privileged under
New York law and are subject to full disclosure. First Interstate Credit Alliance, Inc. v. Arthur
AndeYSOn & Co., 150 A.D.2d 291, 292, 541 N.Y.S.2d 433 (1St Dept 1989); Delta Fin. Corp. v.
Z A revised privilege log from Berdon was provided, and is submitted herewith. Veit Aff. Ex. D.
Defendants" Kovel privilege log appears to contain only four documents that are not also on the Berdon
log. Veit Aff. Ex. E.
G
576696.2
Morrison, 13 Misc. 3d 441, 445, 820 N.Y.S.2d 745, 748 (Nassau Sup. 2006); United States v.
Adlman, 68 F.3d 1495, 1499 (2d Cir. 1995) ("[IJn general, communications between accountants
and their clients enjoy no privilege."). It follows that where an accountant is made privy to an
attorney-client coininunication, the privilege is waived as to that communication because the
accountant is not deemed to be within the group of individuals to whom the privilege applies.
Delta Fin. Corp., 13 Misc. 3d at 444-45.
Kovel created an exception to this waiver rule under which "the inclusion of a
third party in attorney-client communications does not destroy the privilege if the purpose of the
third party's participation is to improve the comprehension of the communications between
attorney and client." Aclze~t, 169 F.3d at 139. The party seeking to invoke the protection must
demonstrate that "the presence of the accountant is necessary, or at least highly useful, for the
effective consultation between the client and the lawyer." Kovel, 296 F.2d at 922.3
Kovel and its progeny have made it clear that the Kovel doctrine only applies
where the accountant is performing "a role analogous to an interpreter in helping the attorney
understand financial information passed to the attorney by the client." Ackert, 169 F.3d at 139;
see also In re G-IHoldings Inc., 218 F.R.D. 428, 434-35 (D.N.J. 2003) ("The Kovel court .. .
carefully limited the attorney-client privilege between an accountant and a client to when the
accountant functions as a `translator' between the client and the attorney."). The advice further
must be "necessary" to the provision of legal services. Green v. Beet, 2010 WL 3422723
3 The Kovel doctrine has been recognized by the courts of the State of New York, although there are few
published state court decisions addressing it. See, e.g., People v. Osorio, 75 N.Y.2d 82, 84, 550 N.Y.S.2d
612, 615 (1989) (in criminal case addressing whether communications with co-defendant acting as
foreign language interpreter were privileged, Court of Appeals cited Kovel and other cases in support of
the proposition that "communications made to counsel through a hired interpreter, or one serving as an
agent of either attorney or client to facilitate communication, generally will be privileged"); Delta Fin.
Copp., 13 Misc. 3d at 441 (rejecting assertion of Kovel privilege with respect to communications with
accountant).
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(S.D.N.Y. Aug. 24, 2010) ("[T]he `necessity' element means snore than just useful and
convenient, but rather requires that the involvement of the third party be nearly indispensable or
serve soiree specialized purpose in facilitating the attorney-client communication")
On the other hand, "[i]f what is sought is not legal advice but only accounting
service, ... or if the advice sought is the accountant's rather than the lawyer's, no privilege
exists." Kovel, 296 F.2d at 922 (internal citations omitted). "The interpreter analogy and the
statement that the accountant is needed to facilitate the client's consultation both strongly
indicate that Kovel did not intend to extend the privilege beyond the situation in which an
accountant was interpreting the client's otherwise privileged communications or data in order to
enable the attorney to understand those communications or that client data." United States v.
ChevronTexaco Corp., 241 F. Supp. 2d 1065, 1071 (N.D. Cal. 2002).
"[AJ communication between an attorney and a third does not become
party
shielded by the attorney-client privilege solelybecause the communication proves important to
the attorney's ability to represent the client." Ackert, 169 F.3d at 139. Toward this end,
communications with an accountant do not become privileged under the Kovel rule
"notwithstanding [an] assumption that those conversations significantly assisted the attorney in
giving his client legal advice." Id.
As one court recently explained:
[T]he Second Circuit did not bless all attorney-accountant
relationships as privileged. Instead, it distinguished between
accountants hired to aid attorneys in understanding `[a]ccounting
concepts,' and those hired to perform `only accounting service.' In
the former case, accountants function much like translators,
enabling attorneys to comprehend the `foreign language' of
accounting. In the latter, the advice being sought is `the
accountant's rather than the lawyer's,' meaning that no privilege
attaches.
15766962
United States v. Hatfield, 2010 WL 183522, at *1 (E.D.N.Y. Jan. 8, 2010) (internal citations
omitted).
The Kovel protection that defendants cling to, like any other privilege, "must be
narrowly construed; and its application must be consistent with the purposes underlying the
immunity." Spectrum Sys. Intl Corp. v. Chenz. Banlz, 78 N.Y.2d 371, 377, 575 N.Y.S.2d 809,
813 (1991); Blufnenthal v. Drudge, 186 F.R.D. 236, 243 (D.D.C. 1999) (Kovel extension of the
attorney client privilege "must be `strictly confined within the narrowest possible limits
consistent with the logic of its principle"').
II.
DEFENDANTS CANNOT lYIEET ~H~IR BURDEN OF DElVIONST~TTNG 'THAT TAE
COIt'INIUNICATIONS WITH BERDON FALL WITHIN 'FHE KO~EL DOCTRINE
Defendants have the burden of demonstrating that each of the communications
>they seek to protect falls within the scope of the Kovel doctrine. Spectrum Sys. Intl Corp., 78
N.Y.2d at 377 (party asserting the privilege has the burden of establishing it); Adlman, 68 F.3d at
1500 (same). "That burden is not, of course, discharged by mere conclusory or ipse dixit
assertions, for any such rule would foreclose meaningful inquiry into the existence of the
relationship, and any spurious claims could never be exposed." von Bulow by Auersperg v. von
Bulow, 811 F.2d 136, 146 (2d Cir. 1987).
Defendants cannot meet this burden for two reasons, either of which is sufficient
to preclude application of the privilege. First, the record does not establish that the
communications with Berdon were for purposes of providing translation services to counsel, and
thus they are not protected by the privilege. Second, because the communications were so
intertwined with the tax and accounting services that the accountants were simultaneously
1576696.2
providing to the client, defendants cannot parse potentially privileged communications from
clearly discoverable ones.
~i. Berdon's Communications With Counsel Were T~1ot For Translation
Purposes
Defendants are attempting to foreclose discovery of all substantive
communications between defense counsel and Berdon, regardless of their content or purpose,
under the Kovel doctrine. Courts have rejected such a broad invocation of the privilege. The
record reveals that the communications with counsel and the other materials withheld were not
for translation purposes and are not privileged.
In statements on the record, Warner made clear that he considered any questions
that probed into his communications with the accountants "related to litigation support," and
therefore "invading privilege." (Kotler Tr. 92:5-20; see also zd. 87:12-88:11, 91:14-22, 113:10-
l3; Sutz Tr. 493:15-495:14.) He therefore asserted the privilege with respect to all
communications between them. Following counsel's direction, Kotler refused to testify about
the substance of numerous conversations that he had with Warner. In a few instances he
admitted that his communications with counsel were not for purposes of providing translation
services, yet counsel continued to invoke the privilege to preclude discovery. In others, Kotler
dodged questions designed to discover the purpose of the communications with counsel,
invoking the (irrelevant) mantra in response that the conversations were "in connection with the
litigation."
For example, Kotler communicated with Warner about the terms of the
Preservation Agreement that are central to this litigation, such as Section 3.3 in the Agreement.
When asked whether those discussions were for purposes of enabling Warner to understand
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1 576696.2
financial information or accounting information of the client, Kotler said no, but defendants
nonetheless asserted the Kovel privilege to preclude discovery:
Q. And in those conversations, and we are talking
about section 3.3 right now, was —the discussions
that you were having with Mr. Warner about 3.3,
were you doing it for the purpose of assisting or
interpreting for Mr. Warner information relating to
the financial information and financial and
accounting systems of the Deane entities or were
you doing it for some other purpose?
A. Any conversationsIhad with Mr. —with Mr.
Warner were in connection with the litigation
matter.
(Kotler Tr. 132:23 — 133:12.) When counsel pressed for an answer to his question, Kotler
testified that his conversations about Section 3.3 with Warner were "not about accounting
principles" but instead he was "responding to any questions hemight have of me in connection
with the litigation." (Id. 13323 — 134:1.8.) Kotler also testified that Warner expressed his own
views to Kotler about what Section 3.3 meant, but testimony about these communications were
objected to by Warner and stonewalled by Kotler's steadfast response, picked up from Warner's
objections, that such conversations were "in connection with the litigation matter." (Id. 133:23 —
134:18.)
Similar testimony was provided when Kotler was asked about the reduction of
plaintiffs' sharing ratios to zero and what they are entitled to receive in that circumstance.
Again, Kotler admitted that the translation function was not at issue in his discussions with
counsel, but nonetheless the privilege was asserted to preclude questioning:
Q. Did you participate in any discussion where
anybody expressed the view that if their [plaintiffs']
sharing ratios were being reduced to zero, that they
were entitled to the fair value of what their
percentages represented prior to the reduction?
11
576696.2
A. Yes, Ihad those discussions with Mr. Warner.
Q. Did you express a view to Mr. Warner during those
conversations on that issue?
A. Yes,Idid.
Q. What was the view that you expressed?
Mr. Warner: The witness cannot answer that question.
Q. Well, when you were having these conversations
with Mr. Warner, were you interpreting for him the
information about the Deane entity finances or
accounting practices?
A. No, we were discussing it in the context of the.
specific litigation.
(Kotler Tr. 138:16 -141:4.)
At other times, Kotler simply avoided the questions, instead reiterating his
as
answer Warner's misguided view that all communications with counsel about the litigation are
privileged. In this example, Kotler was asked about conversations about the meaning of the term
"payments" in the Preservation Agreement, which is also in dispute in this case:
Q. Did you have that conversation with Mr. Warner
about the word payments in order to explain or
translate to Mr. Warner anything about the finances
or accounting practices of the Deane entities?
A. Ihad the conversation with Mr. Warner regarding —
regarding the litigation.
Q. Did — in connection with —with that conversation
did you provide Mr. Warner with any advice or
guidance from an accounting perspective?
A. Iprovided Mr. Warner with any thoughtsIhad in
connection with the litigation.
12
1 576696.2
Q. Can you answer the question the way Iposed it?
A. IthinkIdid.
(Kotler Tr. 93:6 - 94:6.) Plaintiffs' counsel asked whether, during that conversation, Warner told
Kotler his own view of the significance of the word "payments" in the Preservation Agreement.
Warner shut down that line of questioning, claiming that such communications were privileged
under Kovel. (Id. 95:21-98:14.)
Defendants' interpretation of the privilege "takes the holding in Kovel too far."
Constr. Indus. Services Co~^p. v. Hanover Ins. Co., 206 F.R.D. 43, 47 (E.D.N.Y. 2001) (rejecting
plaintiffs' argument that communications between its attorney and an outside accounting
consultant were privileged). The Kovel doctrine was not created to shield communications
between a lawyer and an accountant about a litigation, or about the terms of contracts central to a
litigation. The privilege does not protect, for example, an attorney's statements to the accountant
about the meaning of key provisions, or his statements about the litigation generally. Nor, for
that matter, does it protect the accountant's views about those contractual provisions; his
business or tax advice for the client, including based on what he reads in such contracts; or his
"thoughts" on the litigation. Rather, what is privileged under this doctrine are communications
by the accountant to counsel in which he interprets financial or accounting records of the client
for purposes of assisting in the provision of legal advice. Defendants have not shown that any of
the withheld communications were for this limited purpose, and the record establishes otherwise.
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576696.2
B. Berdon Was Simultaneously Communicating With Counsel end Providing
Business Services On The Same Issues; Defendants Cannot, Therefore, l~!Ieet
Their Burden Of Identifying Privileged Communications
Starting in September 2010, Berdon became the outside accountants for SCA,
Plaza and Preservation, including for purposes of preparing their tax returns. Preservation's tax
returns were not completed until the end of August 2011.
The analysis and work papers of Berdon in preparing Preservation's 2010 tax
returns, as well as the tax returns themselves, are squarely at issue in this litigation. Among
other things, Plaintiffs maintain that the reduction of their sharing ratios to zero in November
2010 was improper; that they were not compensated properly for the reduction in their
membership interest; and that as an accounting and tax matter, Preservation improperly
eliminated their capital accounts and mischaracterized their rights and interests in the 2010 tax
returns. This includes precluding them from receiving any part of the $10.7 million deduction
that Preservation. received from Plaza's donation of the vacant parcels to charity.
Iris Sutz, the CFO of SCA who was the business person responsible for the books
and records of Preservation, testified that Berdon determined how plaintiffs and the other
members should be treated with respect to these issues — including the manipulation of the
capital accounts after the refinancing, how the reduction in the sharing ratios would be handled
for tax purposes, and the distribution of the $10.7 million deduction among Preservation's
members. (Sutz Tr. 65:8-16; 223:10-20; 228:10-229:4, 247:5-23.) Kotler, in turn, testified that
Berdon resolved issues for purposes of preparing Preservation's 2010 tax returns based on their
interpretation of Section 3.3 and other provisions of the Preservation Agreement —the same
provision that is the centerpiece of defendants' defense in this case. (See, e.g., Kotler Tr. 104-
105.) Not surprisingly, Berdon's interpretation of Section 3.3 fits squarely with defendants'
interpretation. (Id. 114-117) Kotler admitted that he communicated with Warner about Section
14
1576696.2
3.3 at the same tune that he was interpreting the Preservation Agreement for purposes of
preparing the 2010 Preservation tax returns. (Id. 125:18-127:5)
Berdon's accounting and tax services, including its communications with business
people and counsel related to these services and analyses, are fully discoverable. See Ackert, 169
F.3d at 139-140 (communication between counsel and accountant concerning tax implications of
proposed transaction not privileged); Adlman, 68 F.3d at 1500 ("If the facts were that [counsel]
furnished information to [the accountant] to seek [the accountant's] expert advice on the tax
implications of the proposed transaction, no privilege would apply.")4
Defendants cannot meet their burden of establishing a valid Kovel privilege under
these circumstances. First, Berdon and defense counsel made no effort to separate "privileged"
communications business communications. Defendants could have hired a different
from
accounting to provide the "litigation consultant" services, or could have set up a Chinese.
firm
wall or other mechanism within Berdon to the rendering of services separate
from
business
keep
the litigation consulting services. Here, the precise opposite occurred: the accountants within
Berdon who provided the litigation services were the same individuals who provided the on-
going tax and accounting services to the defendants, and they did so at the same time. Further,
those individuals discussed with defense counsel the precise matters needed to undertake
accounting analyses and prepare the tax returns.
Preview
FILED: NEW YORK COUNTY CLERK 08/28/2012 INDEX NO. 650159/2010 NYSCEF DOC. NO. 104 RECEIVED NYSCEF: 08/28/2012 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------x HARVEY RUDMAN and HAROLD KUPLESKY, Index No. 650159/10 on Behalf of Each of Them Individually And On Behalf Of Starrett City Preservation LLC, Derivatively, Plaintiffs, - against - CAROL GRAM DEANE, THE ESTATE OF DISQUE D. DEANE by CAROL G. DEANE, as TEMPORARY EXECUTRIX, SALT KETTLE LLC, ST. GERVAIS LLC, STARRETT CITY PRESERVATION LLC, DD SPRING CREEK LLC, SK SPRING CREEK LLC, SPRING CREEK PLAZA LLC, DD SHOPPING CENTER LLC and SK SHOPPING CENTER LLC, Defendants. ------------------------------------------------------------------x PLAIN'T'IFFS' M~1~OI~4NDUM Off' L~VV TN S[JPPOR'T OF THEIR MOTION TO COMPEL DOCUIWIENTS AND TESTIII~IONY 1576696.2 TABLE OF CONTENT'S Page Tableof Authorities ........................................................................................................................ ii PreliminaryStatement ......................................................................................................................1 STATEMENTOF FACTS ..............................................................................................................2 Berdon Is Retained As Accountants and as Litigation Consultants ...................................3 Defendants and Berdon Assert the Kovel Privilege ............................................. ..............5 ARGUMENT...................................................................................................................................6 I. THE KOVEL DOCTRINE IS A NARROW EXTENSION TO THE ATTORNEY-CLIENT PRIVILEGE THAT PROTECTS ONLY COMMUNICATIONS MADE IN FURTHERANCE OF AN ACCOUNTANT'S ROLE AS INTERPRETER OF COMPLEX ACCOUNTINGPRINCIPLES............................................................................ ~: II. DEFENDANTS CANNOT MEET THEIR BURDEN OF DEMONSTRATING THAT THE COMMUNICATIONS WITH BERDON FALL WITHIN THE KOVEL DOCTRINE....................................... ...........9 A. Berdon's Communications With Counsel Were Not For Translation Purposes ..............................................................................................10 B. Berdon Was Simultaneously Communicating With Counsel And Providing Business Services On The Same Issues; Defendants Cannot, Therefore, Meet Their Burden Of Identifying Privileged Communications ................................................................14 III. DEFENDANTS HAVE NOT MET THEIR BURDEN OF ESTABLISHING THE KOVEL PRIVILEGE WITH RESPECT TO DOCUMENTS WITHHELD FROM PRODUCTION..................................................................................................................19 Conclusion.....................................................................................................................................22 i 1576696.2 T~SLE OF Ai1TI~0I2ITIES Pages) CASES Blumenthal v. Drudge, 186 F.R.D. 236 (D.D.C. 1999)...................................................................................................9 Const~. Indus. Services Corp. v. Hanover Ins. Co., 206 F.R.D. 43 (E.D.N.Y. 2001) ...............................................................................................13 Delta Fin. Corp. v. Morrison, 13 Misc. 3d 441, 820 N.Y.S.2d 745 (Nassau Sup. 2006) ................................... 6, 7, 18, 20, 21 First Interstate Credit Alliance, Inc. v. ArthuY Anderson & Co., 150 A.D.2d 291, 541 N.Y.S.2d 433 (1st Dept 1989) ...............................................................6 Green v. Beep, 2010 WL 3422723 (S.D.N.Y. Aug. 24, 2010) ....................................................................... 7-8 In re G-IHoldings Inc., 218 F.R.D. 428. (D.N.J. 2003) ....................................................................................................7 Kelley v. Microsoft Copp., .....18 2009 WL 168258 (W.D. Wash. 2009) ...................................................,.,..................... People v. Osorio, 75 N.Y.Zd 82, 550 N.Y.S.2d 612 (1989) ...................................................................................7 Spectrum Sys. Int'Z Corp. v. Chem. Bcznk, 78 N.Y.2d 371, 575 N.Y.S.2d 809 (1991) .................................................................................9 United States v. Acke~t, 169 F.3d 136 (2d Cir. 1999).............................................................................................7, 8, 15 United States v. Adlman, 68 F.3d 1495 (2d Cir. 1995).............................................................................................7, 9, 15 United States v. ChevYOnTexaco Corp., 241 F. Supp. 2d 1065 (N.D. Cal. 2002) .....................................................................................8 United States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982) ...................................................................................................15 United States v. Hatfield, 2010 WL 183522 (E.D.N.Y. Jan. 8, 2010) ..........................................................8, 9, 16, 17, 18 ii 1576696.2 United States v. Kovel, 296 F.2d 918 (2d Cir. 1961)............................................................................................. passim von Bulow by Auersperg v. von Bulow, 811 F.2d 136 (2d Cir. 1987) .......................................................................................................9 iii 1 576696.2 Plaintiffs Harvey Rudman and Harold Kuplesky, acting individually and derivatively on behalf of Starrett City Preservation LLC ("Preservation"), submit this memorandum of law, together with the Affirmation of Jacqueline G. Veit, dated August 16, 2012, and the exhibits thereto ("Veit Aff."), in support of their motion to compel the production of documents and testimony withheld on the grounds that such material allegedly is protected by the attorney-client privilege and a limited extension of that privilege initially recognized in the Second Circuit case United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) (the "Kovel doctrine" or the "Kovel privilege"). This motion relates to 78 documents withheld from production by defendants and by their accountants, Berdon LLP ("Berdon"), as well as testimony by Stuart Kotler ("Kotler"), a tax partner at Berdon. Preliminary Statement Berdon simultaneously provided (i) tax and accounting services to Preservation and other related entities, and (ii) alleged "litigation consultant" services to defense counsel. Berdon provided both of these services through the same individuals at the firm. Defendants have broadly withheld from discovery all communications between Berdon and defense counsel, as well as certain documents between Berdon and defendants and internal communications at Berdon, as purported attorney-client communications under the Kovel doctrine. Defendants have a fundamental misunderstanding of the scope of the Kovel doctrine, and they are not entitled to its protections. This doctrine only protects an accountant's communications with a lawyer by which the accountant acts as an interpreter of the client's financial and accounting matters to enable the lawyer to render legal advice to the client. It does not protect the disclosure of all communications between the lawyer and the accountant, regardless of their topic or purpose. Here, the record fails to establish that any of the 15766962 communications involved interpreting accounting matters for the attorney, and thus defendants have not established any basis for asserting the privilege. Moreover, in light of Berdon's dual role — concurrently providing litigation and business services, with the same issues arising in each — defendants cannot meet their burden of establishing a valid privilege. Communications with accountants relating to business, tax and accounting services for a client, even if the communications include attorneys, fall outside the scope of Kovel. Defendants cannot cloak their accountants' communications with counsel (and others) with a "litigation services" label and thereby transform discoverable business communications into privileged matters. The record shows that the same issues were being considered by Berdon for purposes of preparing tax returns (in a way that adversely affected plaintiffs) at the same time that they were being discussed with counsel, making it impossible for defendants to distinguish between privileged and non-privileged communications. Berdon's accounting and tax work for 2010 will be evidence in this case, and is hotly contested. Its work conveniently. is based on interpretations of the Preservation operating agreement that are fully aligned with the defendants' interpretation, and contrary to plaintiffs' interpretation and the evidence supporting that position. In discovery, plaintiffs are entitled to explore defense counsel's communications with the accountants on matters at issue in the accountants' on-going accounting work. Such evidence may reveal bias, even improper influence, but under no circumstances can it be precluded from discovery under a guise of privilege. S'~'~'~'Ett'i~NT OF FACTS Plaintiffs filed this action to, among other things, recover amounts that they are entitled to as members of Preservation pursuant to Preservation's operating agreement (the "Preservation Agreement"). As set forth in detail in the Second Amended Complaint, the 2 1576696.2 general partners of Starrett City Associates L.P. ("SCA") assigned their economic interest in SCA to Preservation. The value of that interest increased substantially with a refinancing transaction that occurred on or about December 17, 2009. As part of that transaction, certain assets of SCA (including vacant land parcels) were transferred to a new entity, defendant Spring Creek Plaza, LLC ("Plaza"), in which the SCA general partners, and thus Preservation, hold a comparable interest. Defendant Carol Deane (personally or through entities) is the managing member of Preservation and Plaza and controls the managing general partner of SCA. The initial complaint in this action was filed March 2010, and the Second in Amended Complaint was filed on October 6, 2010. After the complaint was filed, plaintiffs received partial payments of amounts due to them, which defendants calculated as a portion of the cash proceeds of the refinancing loan. On or about November 8, 2010,. Carol Deane, as Preservation's managing member, reduced plaintiffs' "sharing ratios" in Preservation to zero, and plaintiffs received no further compensation. Defendants the position this case that in take plaintiffs are entitled to nothing further, either as a result of the refinancing transaction or in connection with the elimination of their sharing ratios. Plaintiffs maintain, among other things, that their sharing ratios cannot be eliminated until they receive their shares of the cash and noncash proceeds of the refinancing transaction, which has not occurred. Berdoiz Is Retairzecl As Accountants and as Lztigatioiz Coizsultants In September 2010, SCA, Plaza and Preservation retained Berdon as their accountants to prepare tax returns and, for SCA and Plaza, to prepare financial statements and conduct audits. The Preservation tax returns for 2010, including K-1s to all members including plaintiffs, are dated August 24, 2011, and thus they, and the accounting work associated with 3 them, were completed by Berdon before then. (Kotler Tr. 159-160.)' Tax returns and financial statements for the other entities for 2010 were also prepared in 2011. Berdon has also been retained to provide accounting services for Carol Deane personally and for other Deane-related entities. (Kotler Tr. at 31:8-33:4.) At about the same tune, Berdon was retained by defense counsel pursuant to an agreement dated "as of October 8, 2010" to serve as "litigation consultants" to defense counsel in this case. (Veit Aff. Ex. A.) The individuals at Berdon who provided the tax services for SCA, Plaza and Preservation also served as the litigation consultants to defense counsel, and all of the services were provided at the same time. (Kotler Tr. 37:22-38:3, 38:17-21.) Berdon's accountants addressed the same issues for purposes of preparing the 2010 tax returns for Preservation that they discussed with defense counsel (principally Kenneth .Warner) in connection with their purported litigation services. For example, Kotler, a tax partner at Berdon who provided both tax services and so-called "litigation consultant" services to defense counsel, testified that in undertaking accounting work and preparing tax returns for Preservation that are at issue in this case, Berdon relied on Section 3.3 of the Preservation Agreement. In this litigation, defendants rely on their interpretation of Section 3.3 as a primary defense to plaintiffs' claims. Although plaintiffs flatly disagree, defendants claim that Section 3.3 (i) authorized Carol Deane, as managing member, to limit distributions from Preservation to its members to an aggregate of $10 million, (ii) allowed Ms. Deane to reduce members' sharing ratios to zero once at least $10 million was distributed, and. (iii) allowed members' sharing ratios to be reduced to zero without any further ~ "Kotler Tr." refers to the deposition transcript of Stuart Kotler, a tax partner at Berdon, annexed as Ex. B to the Veit Aff. "Sutz Tr." refers to the deposition transcript of Iris Sutz, annexed as Ex. H to the Veit Aff. 4 576696.2 compensation. Kotler testified that he had discussions with Warner about Section 3.3 and other provisions of the Preservation Agreement prior to Berdon's completion of Preservation's tax return. (See, e.g., Kotler Tr. 95-98, 132-134, 125-127, 138-141.) A1178 of the allegedly privileged communications reflected on the privilege logs occurred during that time as well. (Veit Aff. Exhs. D, E.) Not surprisingly, Berdon interpreted Section 3.3 the same way that defendants do in this litigation. Berdon determined that once an event occurred that enabled $10 million to be distributed, such that Carol Deane allegedly was entitled to reduce the members' sharing ratios to zero, all members' capital accounts became zero, and Carol Deane's became 100%. (Kotler Tr. 161:11-17, 162:14-22, 163-167.) In addition, Berdon determined that plaintiffs were not entitled to any portion of a large tax deduction that Preservation and its members were to enjoy, because their sharing ratios were reduced to zero in November 2010, allegedly pursuant to Section 3.3. (Kotler Tr. 170-172.) After a year of planning, in December 2010 Plaza donated the vacant land parcels that it received part of the refinancing transaction to charity. The donation gave rise to as a $53.9 million tax deduction, of which 19.9% of that deduction - totaling approximately $10.7 million -- passed through Plaza to Preservation. Berdon took the position in preparing the 2010 tax returns that plaintiffs were not entitled to any portion of the deduction, and that Carol Deane (who allegedly holds approximately a 40%interest in Preservation after taking plaintiffs' shares for herself was entitled to 89% of it (a $9.5 million deduction). (Kotler Tr. 193-194.) Plaintiffs dispute all of these conclusions in this litigation. Defendants and BeNdotz AsseNt the Kovel Privilege On May 26, 2011, plaintiffs served a subpoena on Berdon seeking the production of documents and deposition testimony. On January 20, 2012, Berdon advised that it withheld 5 1576696.2 dozens of documents from production, claiming (as instructed by defendants' counsel) that such material was protected under the hovel doctrine. On January 31, 2012, and for months thereafter, plaintiffs' counsel sent letters and einails objecting to the withholding of those documents under the guise of Kovel. (Veit Aff. Exhs. C, F, G.) Defendants and Berdon were encouraged to share any legal authority they had to support their interpretation of the Kovel doctrine. To date, neither Berdon nor defense counsel has provided a substantive response or any legal authority for their position. (Veit Aff. ¶ 6.) Berdon produced some of the documents previously withheld, but defendants maintained the claim of privilege for 78 documents.2 On July 10, 2012, Kotler's deposition was conducted. During his examination, defendants improperly invoked the Kovel privilege on a number of occasions and instructed him not to answer questions. Defense counsel would not even allow Kotler to respond to questions aimed at determining whether a particular communication fell within the scope of the Kovel privilege in the first instance. This motion followed. ARGUlVIENT I. `~`H~I{O~EL DOCTRINE IS A NARROW EXTENSION TO THE AT"I'ORNEY-CLIENT PRIVILEGE 'I'~3AT' PROTECTS ONLI' COTVIIVIUNICA'I'IONS 1t~~DE IN FURTHERANCE OF AN ACCOITNTANT''S ROLE AS IN'~'ERI'I~ETER. 4~' C011~PLEX r~CCOUNTING I'RINCIPL~S Generally, a client's communications with its accountants are not privileged under New York law and are subject to full disclosure. First Interstate Credit Alliance, Inc. v. Arthur AndeYSOn & Co., 150 A.D.2d 291, 292, 541 N.Y.S.2d 433 (1St Dept 1989); Delta Fin. Corp. v. Z A revised privilege log from Berdon was provided, and is submitted herewith. Veit Aff. Ex. D. Defendants" Kovel privilege log appears to contain only four documents that are not also on the Berdon log. Veit Aff. Ex. E. G 576696.2 Morrison, 13 Misc. 3d 441, 445, 820 N.Y.S.2d 745, 748 (Nassau Sup. 2006); United States v. Adlman, 68 F.3d 1495, 1499 (2d Cir. 1995) ("[IJn general, communications between accountants and their clients enjoy no privilege."). It follows that where an accountant is made privy to an attorney-client coininunication, the privilege is waived as to that communication because the accountant is not deemed to be within the group of individuals to whom the privilege applies. Delta Fin. Corp., 13 Misc. 3d at 444-45. Kovel created an exception to this waiver rule under which "the inclusion of a third party in attorney-client communications does not destroy the privilege if the purpose of the third party's participation is to improve the comprehension of the communications between attorney and client." Aclze~t, 169 F.3d at 139. The party seeking to invoke the protection must demonstrate that "the presence of the accountant is necessary, or at least highly useful, for the effective consultation between the client and the lawyer." Kovel, 296 F.2d at 922.3 Kovel and its progeny have made it clear that the Kovel doctrine only applies where the accountant is performing "a role analogous to an interpreter in helping the attorney understand financial information passed to the attorney by the client." Ackert, 169 F.3d at 139; see also In re G-IHoldings Inc., 218 F.R.D. 428, 434-35 (D.N.J. 2003) ("The Kovel court .. . carefully limited the attorney-client privilege between an accountant and a client to when the accountant functions as a `translator' between the client and the attorney."). The advice further must be "necessary" to the provision of legal services. Green v. Beet, 2010 WL 3422723 3 The Kovel doctrine has been recognized by the courts of the State of New York, although there are few published state court decisions addressing it. See, e.g., People v. Osorio, 75 N.Y.2d 82, 84, 550 N.Y.S.2d 612, 615 (1989) (in criminal case addressing whether communications with co-defendant acting as foreign language interpreter were privileged, Court of Appeals cited Kovel and other cases in support of the proposition that "communications made to counsel through a hired interpreter, or one serving as an agent of either attorney or client to facilitate communication, generally will be privileged"); Delta Fin. Copp., 13 Misc. 3d at 441 (rejecting assertion of Kovel privilege with respect to communications with accountant). 7 1 576696.2 (S.D.N.Y. Aug. 24, 2010) ("[T]he `necessity' element means snore than just useful and convenient, but rather requires that the involvement of the third party be nearly indispensable or serve soiree specialized purpose in facilitating the attorney-client communication") On the other hand, "[i]f what is sought is not legal advice but only accounting service, ... or if the advice sought is the accountant's rather than the lawyer's, no privilege exists." Kovel, 296 F.2d at 922 (internal citations omitted). "The interpreter analogy and the statement that the accountant is needed to facilitate the client's consultation both strongly indicate that Kovel did not intend to extend the privilege beyond the situation in which an accountant was interpreting the client's otherwise privileged communications or data in order to enable the attorney to understand those communications or that client data." United States v. ChevronTexaco Corp., 241 F. Supp. 2d 1065, 1071 (N.D. Cal. 2002). "[AJ communication between an attorney and a third does not become party shielded by the attorney-client privilege solelybecause the communication proves important to the attorney's ability to represent the client." Ackert, 169 F.3d at 139. Toward this end, communications with an accountant do not become privileged under the Kovel rule "notwithstanding [an] assumption that those conversations significantly assisted the attorney in giving his client legal advice." Id. As one court recently explained: [T]he Second Circuit did not bless all attorney-accountant relationships as privileged. Instead, it distinguished between accountants hired to aid attorneys in understanding `[a]ccounting concepts,' and those hired to perform `only accounting service.' In the former case, accountants function much like translators, enabling attorneys to comprehend the `foreign language' of accounting. In the latter, the advice being sought is `the accountant's rather than the lawyer's,' meaning that no privilege attaches. 15766962 United States v. Hatfield, 2010 WL 183522, at *1 (E.D.N.Y. Jan. 8, 2010) (internal citations omitted). The Kovel protection that defendants cling to, like any other privilege, "must be narrowly construed; and its application must be consistent with the purposes underlying the immunity." Spectrum Sys. Intl Corp. v. Chenz. Banlz, 78 N.Y.2d 371, 377, 575 N.Y.S.2d 809, 813 (1991); Blufnenthal v. Drudge, 186 F.R.D. 236, 243 (D.D.C. 1999) (Kovel extension of the attorney client privilege "must be `strictly confined within the narrowest possible limits consistent with the logic of its principle"'). II. DEFENDANTS CANNOT lYIEET ~H~IR BURDEN OF DElVIONST~TTNG 'THAT TAE COIt'INIUNICATIONS WITH BERDON FALL WITHIN 'FHE KO~EL DOCTRINE Defendants have the burden of demonstrating that each of the communications >they seek to protect falls within the scope of the Kovel doctrine. Spectrum Sys. Intl Corp., 78 N.Y.2d at 377 (party asserting the privilege has the burden of establishing it); Adlman, 68 F.3d at 1500 (same). "That burden is not, of course, discharged by mere conclusory or ipse dixit assertions, for any such rule would foreclose meaningful inquiry into the existence of the relationship, and any spurious claims could never be exposed." von Bulow by Auersperg v. von Bulow, 811 F.2d 136, 146 (2d Cir. 1987). Defendants cannot meet this burden for two reasons, either of which is sufficient to preclude application of the privilege. First, the record does not establish that the communications with Berdon were for purposes of providing translation services to counsel, and thus they are not protected by the privilege. Second, because the communications were so intertwined with the tax and accounting services that the accountants were simultaneously 1576696.2 providing to the client, defendants cannot parse potentially privileged communications from clearly discoverable ones. ~i. Berdon's Communications With Counsel Were T~1ot For Translation Purposes Defendants are attempting to foreclose discovery of all substantive communications between defense counsel and Berdon, regardless of their content or purpose, under the Kovel doctrine. Courts have rejected such a broad invocation of the privilege. The record reveals that the communications with counsel and the other materials withheld were not for translation purposes and are not privileged. In statements on the record, Warner made clear that he considered any questions that probed into his communications with the accountants "related to litigation support," and therefore "invading privilege." (Kotler Tr. 92:5-20; see also zd. 87:12-88:11, 91:14-22, 113:10- l3; Sutz Tr. 493:15-495:14.) He therefore asserted the privilege with respect to all communications between them. Following counsel's direction, Kotler refused to testify about the substance of numerous conversations that he had with Warner. In a few instances he admitted that his communications with counsel were not for purposes of providing translation services, yet counsel continued to invoke the privilege to preclude discovery. In others, Kotler dodged questions designed to discover the purpose of the communications with counsel, invoking the (irrelevant) mantra in response that the conversations were "in connection with the litigation." For example, Kotler communicated with Warner about the terms of the Preservation Agreement that are central to this litigation, such as Section 3.3 in the Agreement. When asked whether those discussions were for purposes of enabling Warner to understand 10 1 576696.2 financial information or accounting information of the client, Kotler said no, but defendants nonetheless asserted the Kovel privilege to preclude discovery: Q. And in those conversations, and we are talking about section 3.3 right now, was —the discussions that you were having with Mr. Warner about 3.3, were you doing it for the purpose of assisting or interpreting for Mr. Warner information relating to the financial information and financial and accounting systems of the Deane entities or were you doing it for some other purpose? A. Any conversationsIhad with Mr. —with Mr. Warner were in connection with the litigation matter. (Kotler Tr. 132:23 — 133:12.) When counsel pressed for an answer to his question, Kotler testified that his conversations about Section 3.3 with Warner were "not about accounting principles" but instead he was "responding to any questions hemight have of me in connection with the litigation." (Id. 13323 — 134:1.8.) Kotler also testified that Warner expressed his own views to Kotler about what Section 3.3 meant, but testimony about these communications were objected to by Warner and stonewalled by Kotler's steadfast response, picked up from Warner's objections, that such conversations were "in connection with the litigation matter." (Id. 133:23 — 134:18.) Similar testimony was provided when Kotler was asked about the reduction of plaintiffs' sharing ratios to zero and what they are entitled to receive in that circumstance. Again, Kotler admitted that the translation function was not at issue in his discussions with counsel, but nonetheless the privilege was asserted to preclude questioning: Q. Did you participate in any discussion where anybody expressed the view that if their [plaintiffs'] sharing ratios were being reduced to zero, that they were entitled to the fair value of what their percentages represented prior to the reduction? 11 576696.2 A. Yes, Ihad those discussions with Mr. Warner. Q. Did you express a view to Mr. Warner during those conversations on that issue? A. Yes,Idid. Q. What was the view that you expressed? Mr. Warner: The witness cannot answer that question. Q. Well, when you were having these conversations with Mr. Warner, were you interpreting for him the information about the Deane entity finances or accounting practices? A. No, we were discussing it in the context of the. specific litigation. (Kotler Tr. 138:16 -141:4.) At other times, Kotler simply avoided the questions, instead reiterating his as answer Warner's misguided view that all communications with counsel about the litigation are privileged. In this example, Kotler was asked about conversations about the meaning of the term "payments" in the Preservation Agreement, which is also in dispute in this case: Q. Did you have that conversation with Mr. Warner about the word payments in order to explain or translate to Mr. Warner anything about the finances or accounting practices of the Deane entities? A. Ihad the conversation with Mr. Warner regarding — regarding the litigation. Q. Did — in connection with —with that conversation did you provide Mr. Warner with any advice or guidance from an accounting perspective? A. Iprovided Mr. Warner with any thoughtsIhad in connection with the litigation. 12 1 576696.2 Q. Can you answer the question the way Iposed it? A. IthinkIdid. (Kotler Tr. 93:6 - 94:6.) Plaintiffs' counsel asked whether, during that conversation, Warner told Kotler his own view of the significance of the word "payments" in the Preservation Agreement. Warner shut down that line of questioning, claiming that such communications were privileged under Kovel. (Id. 95:21-98:14.) Defendants' interpretation of the privilege "takes the holding in Kovel too far." Constr. Indus. Services Co~^p. v. Hanover Ins. Co., 206 F.R.D. 43, 47 (E.D.N.Y. 2001) (rejecting plaintiffs' argument that communications between its attorney and an outside accounting consultant were privileged). The Kovel doctrine was not created to shield communications between a lawyer and an accountant about a litigation, or about the terms of contracts central to a litigation. The privilege does not protect, for example, an attorney's statements to the accountant about the meaning of key provisions, or his statements about the litigation generally. Nor, for that matter, does it protect the accountant's views about those contractual provisions; his business or tax advice for the client, including based on what he reads in such contracts; or his "thoughts" on the litigation. Rather, what is privileged under this doctrine are communications by the accountant to counsel in which he interprets financial or accounting records of the client for purposes of assisting in the provision of legal advice. Defendants have not shown that any of the withheld communications were for this limited purpose, and the record establishes otherwise. 13 576696.2 B. Berdon Was Simultaneously Communicating With Counsel end Providing Business Services On The Same Issues; Defendants Cannot, Therefore, l~!Ieet Their Burden Of Identifying Privileged Communications Starting in September 2010, Berdon became the outside accountants for SCA, Plaza and Preservation, including for purposes of preparing their tax returns. Preservation's tax returns were not completed until the end of August 2011. The analysis and work papers of Berdon in preparing Preservation's 2010 tax returns, as well as the tax returns themselves, are squarely at issue in this litigation. Among other things, Plaintiffs maintain that the reduction of their sharing ratios to zero in November 2010 was improper; that they were not compensated properly for the reduction in their membership interest; and that as an accounting and tax matter, Preservation improperly eliminated their capital accounts and mischaracterized their rights and interests in the 2010 tax returns. This includes precluding them from receiving any part of the $10.7 million deduction that Preservation. received from Plaza's donation of the vacant parcels to charity. Iris Sutz, the CFO of SCA who was the business person responsible for the books and records of Preservation, testified that Berdon determined how plaintiffs and the other members should be treated with respect to these issues — including the manipulation of the capital accounts after the refinancing, how the reduction in the sharing ratios would be handled for tax purposes, and the distribution of the $10.7 million deduction among Preservation's members. (Sutz Tr. 65:8-16; 223:10-20; 228:10-229:4, 247:5-23.) Kotler, in turn, testified that Berdon resolved issues for purposes of preparing Preservation's 2010 tax returns based on their interpretation of Section 3.3 and other provisions of the Preservation Agreement —the same provision that is the centerpiece of defendants' defense in this case. (See, e.g., Kotler Tr. 104- 105.) Not surprisingly, Berdon's interpretation of Section 3.3 fits squarely with defendants' interpretation. (Id. 114-117) Kotler admitted that he communicated with Warner about Section 14 1576696.2 3.3 at the same tune that he was interpreting the Preservation Agreement for purposes of preparing the 2010 Preservation tax returns. (Id. 125:18-127:5) Berdon's accounting and tax services, including its communications with business people and counsel related to these services and analyses, are fully discoverable. See Ackert, 169 F.3d at 139-140 (communication between counsel and accountant concerning tax implications of proposed transaction not privileged); Adlman, 68 F.3d at 1500 ("If the facts were that [counsel] furnished information to [the accountant] to seek [the accountant's] expert advice on the tax implications of the proposed transaction, no privilege would apply.")4 Defendants cannot meet their burden of establishing a valid Kovel privilege under these circumstances. First, Berdon and defense counsel made no effort to separate "privileged" communications business communications. Defendants could have hired a different from accounting to provide the "litigation consultant" services, or could have set up a Chinese. firm wall or other mechanism within Berdon to the rendering of services separate from business keep the litigation consulting services. Here, the precise opposite occurred: the accountants within Berdon who provided the litigation services were the same individuals who provided the on- going tax and accounting services to the defendants, and they did so at the same time. Further, those individuals discussed with defense counsel the precise matters needed to undertake accounting analyses and prepare the tax returns.