## Facts

- The IRS determined Fu Investment Co., Ltd. and Coco Palms Investment, Inc. were liable for substantial withholding of income tax at source for 1990 and 1991.
- Each corporation filed a Tax Court petition for redetermination.
- After answering, IRS counsel sought to interview three former employees of petitioners (a former secretary and two accounting supervisors) about disputed matters.
- Petitioners moved for a protective order to bar ex parte communications with the former employees or, alternatively, to require advance notice of interviews and permit petitioners’ counsel to attend to object to questions that might elicit privileged information.
- Petitioners submitted declarations from their general counsel asserting the former employees had been privy to confidential attorney-client communications about the issues in dispute, without identifying specific privileged communications at risk.
- IRS counsel opposed the motions, stated she would avoid eliciting privileged information, and agreed to pause interviews pending the court’s ruling.

## Issues

1. Whether Model Rule of Professional Conduct 4.2 prohibits IRS counsel from ex parte communications with petitioners’ former employees about the case.
2. Whether generalized assertions that former employees were exposed to attorney-client communications establish good cause for a protective order barring or conditioning such interviews.

## Decision

- The Tax Court denied petitioners’ motions for protective order.
- The court held Model Rule 4.2 did not bar ex parte interviews of petitioners’ former employees.
- The court held petitioners failed to carry their burden to justify a protective order because their privilege assertions were general and not supported by a particularized showing of likely disclosure of privileged communications.

## Legal Principles

- Model Rule 4.2’s no-contact rule, in the organizational context, generally concerns current constituents whose acts may be imputed to the organization or whose statements may constitute admissions; former employees are not treated as the represented “party” for this purpose.
- A corporate client’s attorney-client privilege belongs to the client and survives termination of the employment relationship; opposing counsel may not properly seek to elicit privileged communications, and a former employee may not properly disclose them.
- A party seeking a protective order bears the burden to show good cause through specific, fact-based support; conclusory claims that witnesses were “privy” to privileged communications are insufficient.
- Potential privilege concerns alone do not warrant blanket limits on informal witness interviews where ordinary privilege rules and counsel’s ethical duties provide protection.

## Conclusion

The Tax Court permitted the IRS to conduct ex parte interviews of petitioners’ former employees and denied protective relief because Model Rule 4.2 did not apply to former employees and petitioners did not make a specific evidentiary showing that privileged communications were likely to be disclosed absent court-imposed restrictions.


Fu Inv. Co., Ltd. v. Comm'r, 104 T.C. 408 (1995)