Case 3:15-cv-03018-JAF Document 75 Filed 01/15/16 Page 1 of 4

UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO

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WAL-MART PUERTO RICO, INC.

Plaintiff,

Civil No. 3:15-CV-03018 (JAF)

v.
JUAN C. ZARAGOZA-GOMEZ, in his official
capacity as Secretary of the Treasury of the
Commonwealth of Puerto Rico
Defendant.
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MEMORANDUM ORDER

On the afternoon of January 15, 2016, plaintiff Wal-Mart Puerto Rico, Inc. (Wal-Mart

PR) moved the court to compel third-party KPMG, defendants external financial auditor, to

produce materials responsive to Wal-Mart PRs subpoena, dated December 30, 2015. (ECF

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Nos. 70 (motion); 70-1 (subpoena).) Wal-Mart PR informs the court that KPMG alleges that

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defendant has ordered KPMG to withhold production of the materials on the ground that some

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of it constitutes confidential communication between accountant and client. (ECF No. 70 at 1-

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2.) Because Wal-Mart PR is scheduled to depose KPMG on January 20, 2016, Wal-Mart PR

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asks the court to order KPMG to produce the material forthwith. (ECF No. 70 at 4-5.) The

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court ordered defendant to respond to the motion within the next seven hours, i.e., by 10:00

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p.m. the same day. (ECF No. 71.) Wal-Mart PR filed additional briefing in support of the

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motion. (ECF No. 72.) Defendant then responded in opposition to the motion. (ECF No. 73.)

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This is a federal-question case involving only federal causes of action. (See ECF No. 1

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at 31-35.) Under Rule 501 of the Federal Rules of Evidence, federal common law governs all

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claims of privilege unless federal constitutional or statutory law, or a rule prescribed by the

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United States Supreme Court, provides otherwise. Fed. R. Evid. 501; see also Fashion House,

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Inc. v. K Mart Corp., 892 F.2d 1076, 1095 n.11 (1st Cir. 1989). [N]o confidential accountant-

client privilege exists under federal law. Cavallaro v. United States, 284 F.3d 236, 246 (1st

Cir. 2002) (quoting Couch v. United States, 409 U.S. 322, 335 (1973)). There is no common

law accountant-client privilege, and the limited statutory accountant-client privilege that

Congress enacted under 26 U.S.C. 7525(a)(1) only extends to communications that would

be privileged were they between a taxpayer and an attorney, and therefore would provide . . .

no further protection than the attorney-client privilege, which has not been raised here.

United States v. Bisanti, 414 F.3d 168, 170 & n.1 (1st Cir. 2005). Because Wal-Mart PRs suit

is not a tax proceeding brought by or against the United States, the limited statutory privilege

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does not apply here. See 26 U.S.C. 7525(a)(2). By contrast, Puerto Rico recognizes an

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accountant-client privilege. See Arthur Young & Co. v. Vega, 136 D.P.R. 157 (P.R. 1994).

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The privilege is currently codified in Rule 504 of the Puerto Rico Rules of Evidence of 2009.

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See 32 L.P.R.A., App. VI, R. 504.

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The court finds that the accountant-client privilege does not apply under federal law and

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that the Commonwealth version of that privilege does not apply, either. Indeed, for decades

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now, this court has routinely declined invitations to recognize Puerto Ricos accountant-client

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privilege in a federal-question case. See, e.g., Coastal Fuels Inc. v. Caribbean Petroleum

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Corp., 830 F. Supp. 80, 81 (D.P.R. 1993); Rapidforma Del Caribe, Inc. v. United States, 636

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F. Supp. 465, 467 (D.P.R. 1986). Moreover, even if this court were to find that the Puerto

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Rico privilege should be recognized under Federal Rule of Evidence 501, the privilege would

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still not apply here because it expressly exempts from its scope matters of pressing public

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interest. See 32 L.P.R.A., App. VI, R. 504(c)(6).

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The court finds that the subpoenaed financial statements, communications, and

materials about the Commonwealth that KPMG currently possesses are of pressing public

interest as they apply to this case. It is of pressing public interest that Wal-Mart PRs facial

challenge to the Commonwealth tax law is resolved promptly, fairly, and correctly. The

challenged tax will either help fund the Commonwealth in a time of great fiscal need by

ensuring that local corporations pay an appropriate minimum tax or be enjoined as violative of

core federal principles, assuming that jurisdiction exists under the Butler Act. These interests

will be needlessly frustrated, if not denied, if defendant were to block the courts jurisdictional

inquiry by invoking a general local privilege that does not even exist under federal law. 1

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In their response in opposition to Wal-Mart PRs motion to compel discovery,

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defendant claims that their objection to KPMGs production of documents is not based on the

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accountant-client privilege, but on the fact that most of the documents provided to Defendant

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by KPMG for examination before production do not respond to the specific requests made by

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Wal-Mart [PR] in its subpoena, and more importantly, . . . must not be disclosed by KPMG

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under the Confidentiality Clause contained in the services contract between KPMG and

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defendant.

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agreement simply raises, albeit without the support of a promulgated rule of evidence, a

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contract-based version of the accountant-client privilege. Defendant does not raise any other

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basis for claiming that the subpoenaed information is privileged or subject to protection. See

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Fed. R. Civ. P. 26(b)(5)(A). As explained above, the asserted privilege is not recognized in
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(ECF No. 73 3.)

However, defendants invocation of this confidentiality

Under Puerto Rico law, only a natural or juridical person who is the actual client of the accountant
may invoke the accountant-client privilege. 32 L.P.R.A., App. VI, R. 504(a)(2). Due to the grounds of our
disposition, the court does not have occasion to determine whether the Commonwealth is a juridical person
under Puerto Rico law or whether the Secretary of Treasury is the actual client of KPMG.

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federal-question cases.

And, private parties cannot contract around the Federal Rules of

Evidence to preclude an otherwise valid subpoena. In addition, defendant has not provided the

court with any basis for finding that KPMGs production of materials in response to the

subpoena is non-responsive. If the materials are, indeed, non-responsive, Wal-Mart PR may

bring that claim before the court.

In closing, the court observes that defendant pointedly reserves the right to hold

KPMG responsible for any unrequested disclosure of documents and information covered by

their contractual confidentiality clause. (ECF No. 73 5.) In order to settle the matter and

defuse any fear of future liability, the court hereby orders KPMG to produce the materials that

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they had previously identified as responsive to Wal-Mart PRs subpoena. Any interference by

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any party of this production will face the possibility of civil contempt.

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Accordingly, the court hereby GRANTS the motion to compel discovery, filed under

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ECF No. 70, and orders defendant and KPMG to produce, forthwith, the materials requested in

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Wal-Mart PRs subpoena, dated December 30, 2015. Production must be completed by noon,

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local time, on Saturday, January 16, 2016. Failure to do so will incur severe sanctions under

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Federal Rule of Civil Procedure 37(b)(2), including contempt proceedings.

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IT IS SO ORDERED.

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San Juan, Puerto Rico, this 15th day of January, 2016.

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S/Jos Antonio Fust

JOSE ANTONIO FUSTE
U. S. DISTRICT JUDGE