Or rather, closing the book on Securitas Holdings, Inc. and Subsidiaries, Docket No. 21206-10, this iteration filed 7/2/13, Judge Buch confirming the conclusion of STJ Lew (What a Great Name!) Carluzzo back on 5/29/13 that Securitas, for itself, its holdings and its subsidiaries, waived its Section 7525 privilege, and must lay down all its communications with its tax adviser.

For the run-up, see my blogpost “Privilege Lost”, 5/29/13.

STJ Lew was in only to decide the evidentiary question: were the documents privileged per Section 7525, and, if so, had Securitas waived the privilege by spilling some of the beans to the Illinois State Department of Insurance? STJ Lew said yes, you’ll recall, the documents were privileged but the Illinois letter waived subject matter privilege, that is, every document dealing with the subject matter was unprivileged.

Judge Buch gets the reconsideration motion because he’s going to try the main case later on this month.

Judge Buch: “Subject matter waiver occurs when a party discloses privileged information to its advantage, such that fairness dictates that other privileged information concerning the same subject matter should fairly be considered to place the disclosed information in context.” Order, at p. 1, footnote 2.

Securitas, obviously less than convulsed with delight at STJ Lew’s stripping of the veil over their hush-hush discussions with said adviser, moves for reconsideration.

They lose.

Securitas argues that FRE Section 502 would keep the documents privileged. No it wouldn’t, says Judge Buch, and anyway Securitas never raised Section 502 before, and reconsideration is not the place to argue what you should have argued before.

Section 502 only protects disclosures made in state proceedings. But the letter that made the disclosure wasn’t part of any proceeding, that is, “‘the regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment’. Black’s Law Dictionary 1324 (9th ed. 2009).” Order, at p. 6, footnote 12. The letter was part of an application required by Illinois law whether or not there was a proceeding.

Centaur, the Securitas subsidiary in question, was in a rehabilitation proceeding, a species of insolvency proceeding, but the letter would have had to have been written, proceeding or no proceeding, if Centaur wanted to do whatever it was asking Illinois for permission to do.

Frankly, I don’t think much of this argument. There was a proceeding, akin to a bankruptcy, and it involved rehabilitating Centaur. And even though the Committee report on Section 502 says it wasn’t intended to change settled law on waiver of privilege, it does speak to the waiver in the State proceeding context, so I suppose it merely repeats the settled law. Whether the letter would have been required without a proceeding is beside the point, as if there hadn’t been a proceeding there never would have been a letter.

Finally, Securitas claims STJ Lew didn’t have authority to render a “decision” per Section 7443A)(c), as Section 7443A(b)(7) only gives him the right to hear, not decide, a case other than those specifically listed in Section 7443A(b)(1) through (6), not the catch-all provision (7). And this is a (b)(7) case.

Judge Buch: “Securitas correctly observes that section 7443A(c) limits the authority of a special trial judge to make a decision of the court in matters assigned under section 7443A(b)(7); however, in this instance, Special Trial Judge Carluzzo did not make a ‘decision’ as that term is used in section 7443A.

“In the Tax Court, ‘decision’ is a term of art. In a deficiency proceeding such as this, the ‘decision’ is the document that is entered showing the amount of the deficiency (if any) that the Court has determined. Special Trial Judge Carluzzo issued an interlocutory order, not a decision.” Order, p. 7.

And Securitas’ argument that Rule 183, which applies to cases “tried” by an STJ, wasn’t followed is irrelevant. There was no “trial”; there was a hearing on a motion.

Securitas loses. But if I were them, and if an appeal is possible, I’d appeal.

As always, I welcome comments from practitioners.