United States v. Captive Alternatives, LLC

            UNITED STATES DISTRICT COURT                             
             MIDDLE DISTRICT OF FLORIDA                              
                   TAMPA DIVISION                                    


UNITED STATES OF AMERICA,                                                 

Petitioner,                                                          

v.                                            Case No. 8:22-cv-406-TPB-CPT 

CAPTIVE ALTERNATIVES, LLC,                                                

Respondent.                                                          
_______________________________/                                          


                       O R D E R                                     
Before the Court are Respondent Captive Alternatives, LLC’s (Captive) Motion 
for Non-Waiver and Clawback Order (Doc. 78) and Petitioner United States’1 response in 
opposition (Doc. 80).  After careful review and with the benefit of oral argument, 
Captive’s motion is denied.                                               
                           I.                                        
The procedural history of this case is recounted in detail in a prior decision of 
the Court and need only be summarized here.   See (Docs. 71, 77).  Captive operates a 
risk  management  program  that  allows  businesses  directly  to  procure  insurance 

1 Although the Department of Justice’s Tax Division filed the government’s response, the Petitioner 
will be referred to herein as the Internal Revenue Service (IRS) because it is the “real party in interest.” 
United States v. Moore, Ingram, Johnson & Steele, LLP, 

2022 WL 3134374

, at *1 n.1 (11th Cir. Aug. 5, 
2022) (per curiam).                                                       
coverage.  (Doc. 51-1 at ¶¶ 4, 5).  In October 2021, the IRS served Captive with an 
administrative summons (Summons) (Doc. 1-2) pursuant to 

26 U.S.C. § 7602

 seeking 
the disclosure of twenty-nine categories of records, plus subparts, for the time period 

beginning on January 1, 2011.  (Doc. 1-2; Doc. 51-1 at ¶ 13; Doc. 51-2 at ¶ 14).  When 
Captive failed to respond, the IRS filed a petition in February 2022 to enforce the 
Summons.  (Doc. 1).                                                       
After  evaluating  that  submission,  which  included  a  declaration  by  an  IRS 
Revenue Agent, the undersigned determined that in accordance with the analytical 

framework enunciated by the Supreme Court in United States v. Powell, 

379 U.S. 48

 
(1964), the government made a prima facie showing that (1) “the [IRS’s] investigation 
[was] being conducted for a legitimate purpose;” (2) “the sought-after documents 
[might] be relevant to that purpose;” (3) “the requested information [was] not already 

within the IRS’s possession;” and (4) “the administrative steps required by the Internal 
Revenue  Code  ha[d]  been  substantially  followed.”    (Doc.  4).    The  undersigned 
therefore directed Captive to show cause at a hearing ultimately set for August 2022 
as to why it should not be compelled to comply with the Summons.  (Docs. 4, 42).    
Following the show cause hearing and after further briefing by the parties, the 

undersigned issued a report and recommendation (R&R) recommending that the 
presiding  District  Judge  largely  grant  the  IRS’s  petition  and  instruct  Captive  to 
produce (i) all responsive documents and materials, other than correspondence or 
records of communications, within forty-five days of the Court’s Order; and (ii) all 
non-privileged correspondence or records of communications within sixty days of the 
Court’s  Order,  along  with  a  privilege  log.    (Doc.  71).2    In  arriving  at  this 
recommendation, the undersigned determined, inter alia, that Captive had not met its 
“heavy burden” of disproving the four Powell factors described above.  

Id.

   

One month after the R&R’s issuance, the parties filed a joint motion requesting 
that the presiding District Judge adopt the R&R, with the minor caveats that Captive 
be permitted to “make document productions on a rolling basis,” and that the covered 
“time period from which Captive . . . must produce responsive documents . . . be 
modified to January 1, 2011[,] through February 28, 2023.”  (Doc. 76).  Of significance 

here, the parties also included the following additional caveat:          
The parties are discussing whether an order pursuant to Federal Rule of 
Evidence 502 may be appropriate.  Therefore, the parties will negotiate, 
in good faith, proposed language for such an order, and, if successful, 
jointly petition the [C]ourt for the entry of such an order.  If the parties 
are unsuccessful and fail to reach an agreement on proposed language for 
such an order, the parties agree that [Captive] will retain its ability to 
petition the [C]ourt in its own right for the entry of such an order.  [The 
IRS] agrees that [Captive] may file a petition seeking such an order.   

Id.

  The presiding District Judge subsequently issued an Order adopting the R&R 
subject to these conditions and directed that Captive disclose the requested items and 
a privilege log by October 1, 2023.  (Doc. 77).                           
Since the entry of the District Judge’s Order, the parties have been unable to 
reach an agreement regarding the Rule 502(d) issue, which has led to the instant 

2 The R&R exempted from this production requirement those documents that Captive had already 
turned over, or caused to be turned over, to the IRS’s civil examination team after the Summons was 
issued.  (Doc. 71).                                                       
motion being filed by Captive.  By way of that submission, Captive asks the Court to 
enter a Rule 502 order providing for the non-waiver and “claw back” of any privileged 
materials Captive turns over to the IRS.  (Docs. 78, 78-1).  Specifically, Captive 

requests that the Court issue an order (1) authorizing Captive “to produce summonsed 
materials to the IRS without first reviewing every record for privilege;” (2) stating that 
Captive would not be deemed to waive any privilege or protection as a result of such 
disclosures in connection with the litigation pending before the Court or “in any other 
federal or state proceeding;” (3) precluding the IRS and the Department of Justice’s 

Tax Division from “mak[ing] any public use of any document produced pursuant to 
the Summons without first giving Captive . . . ten days advance notice;” and (4) 
allowing Captive thereafter to assert a claim of privilege in writing within ten days, 
which  would  then  foreclose  the  government  from  making  any  public  use  of the 
document until the privilege question was resolved either by the parties or the Court.  

(Doc. 78-1) (footnote omitted).  In support of this proposed order, Captive explains 
that  the  items  it  must  deliver  to  the  IRS  “total  over  1.1  million,”  and  that  the 
protections it seeks are necessary given the “costs associated with reviewing and 
producing such a significant volume of documents and the near inevitability of making 
mistakes in doing so.”  (Doc. 78 at 2–3).  The IRS opposes Captive’s motion.  (Doc. 

80).                                                                      
                          II.                                        
The legal principles governing this action are also set forth in the Court’s prior 
decision (Docs. 71, 77) but bear repeating here, at least in part.  The IRS has “‘broad’ 
and  ‘expansive”  authority  to  investigate  and  to  issue  administrative  summonses 
pursuant to 

26 U.S.C. § 7602

.  Moore, 

2022 WL 3134374

, at *2 (quoting La Mura v. 
United States, 

765 F.2d 974, 979

 (11th Cir. 1985)); see also United States v. Arthur Young 

& Co., 

465 U.S. 805

, 816–17 (1984); United States v. Euge, 

444 U.S. 707

, 716 n.9 (1980).  
The purpose of this extensive investigative license afforded the IRS “is not to accuse, 
but to inquire.”  United States v. Bisceglia, 

420 U.S. 141

, 145–46 (1975).  Consistent with 
this purpose, summons enforcement proceedings are considered to be “summary in 

nature.”  United States v. Clarke, 

573 U.S. 248

, 253–54 (2014) (quoting United States v. 
Stuart, 

489 U.S. 353, 369

 (1989)).                                        
To safeguard against any abuse of this authority, the judiciary—not the IRS—
is charged with enforcing IRS summonses.  Presley v. United States, 

895 F.3d 1284, 1288

 
(11th Cir. 2018).  The judiciary’s responsibilities in carrying out this duty center around 

analyzing the four Powell factors.  

Id.

 at 1288–89 (citing Powell, 379 U.S. at 57–58).  
Ultimately, however, a court’s function in enforcement proceedings is “narrowly 
circumscribed”  and  is  essentially  limited  to  asking  “whether  the  ‘IRS  issued  a 
summons in good faith.’”  

Id.

 at 1289 (quoting United States v. Clarke, 

573 U.S. 248

, 
254 (2014)).  A court’s role does not include “oversee[ing] the [IRS’s] determinations 

to investigate,’” 

id.

 (quoting Clarke, 573 U.S. at 254), nor does it include “dictat[ing] 
how the IRS must conduct [its] investigation” or requiring the IRS to proceed by the 
“least intrusive way possible,” United States v. Greenberger, 

2016 WL 3912065

, at *8 
(N.D. Ga. Jan. 11, 2016) (internal quotation marks and citations omitted), report and 
recommendation adopted, 

2016 WL 3912060

 (N.D. Ga. June 21, 2016).  Additionally, 
because enforcement proceedings are not intended to “address the question of liability 
or wrongdoing,” courts ordinarily do not permit discovery in such matters.  Id. at *13 

(collecting cases); see also Axis v. U.S. I.R.S., 522 F. Appx 770, 778 (11th Cir. 2013) (per 
curiam) (“Summons enforcement proceedings should be summary in nature, and 
discovery  should  be limited.”)  (quoting  United States v. Stuart, 

489 U.S. 353, 369

 
(1989));  United States v. Judicial Watch,  Inc.,  

371 F.3d 824, 830

  (D.C.  Cir.  2004) 

(rejecting  the  respondent’s  argument  that  it  was  entitled  to  discovery  and  an 
evidentiary hearing regarding the IRS’s motive for an audit because the respondent 
failed to show “extraordinary circumstances”).                            
Despite their broad scope, enforcement proceedings are nonetheless “subject to 
the traditional privileges and limitations.”  Arthur Young & Co., 

465 U.S. at 816

 (citation 

and quotation marks omitted).  A respondent asserting a claim of attorney-client 
privilege must “generally” declare it “on a question-by-question and document-by-
document basis,” rather than through a categorical privilege log.  Moore, 

2022 WL 3134374

, at *4.                                                           
A “claw back” arrangement—like the one sought by Captive here—“allow[s] 

the return of documents that a party belatedly determines are protected by the attorney-
client privilege or [the] work product” doctrine.  Rajala v. McGuire Woods, LLP, 

2010 WL 2949582

, at *3 (D. Kan. July 22, 2010).  Such arrangements are governed by Rule 
502, which authorizes a court to enter an order directing that attorney client or work 
product  protections  are  not  waived  “by  disclosure  connected  with  the  [pending] 
litigation,” which, in turn, prevents the disclosure from constituting a waiver “in any 
other federal or state proceeding.”  Fed. R. Evid. 502(d).   As a result, once a court 
issues a Rule 502(d) order, the producing party can typically “claw back” a protected 

document that it produced to the receiving party.  See Ranger Constr. Indus., Inc. v. Allied 
World Nat’l Assurance Co., 

2019 WL 436555

, at *2 n.2 (S.D. Fla. Feb. 4, 2019).   
“[C]lawback orders are staples of modern complex commercial litigation,” S2 
Automation LLC v. Micron Tech., Inc., 

2012 WL 3150387

, at *4 (D.N.M. July 23, 2012) 

(citation omitted), and are regularly entered by courts in civil matters upon the parties’ 
joint request, Diaz v. Chapters Health Sys., Inc., 

2019 WL 1498873

, at *1 (M.D. Fla. Apr. 
1, 2019) (collecting cases).  A court may also enter a Rule 502(d) order over a party’s 
objection.  See Fed. R. Evid. 502(d), advisory committee notes (“Under the rule, a 
confidentiality order is enforceable whether or not it memorializes an agreement 

among the parties to the litigation.  Party agreement should not be a condition of 
enforceability of a federal court’s order.”).                             
That said, at least one court has taken a dim view of claw back arrangements in 
the context of enforcement proceedings where the IRS has not acquiesced to such a 
framework.  See, e.g., United States v. Artex Risk Solutions, Inc., 

2014 WL 4493435

, at *5 

(N.D. Ill. Sept. 11, 2014).  In Aretx, the court rejected the respondent’s arguments that 
the IRS should be compelled to follow this type of approach, explaining:  
[The respondent] contends that it needs to be protected from inadvertent 
disclosures.  However, as [the United States] correctly points out, there 
is no requirement that the IRS enter into a Rule 502 [a]greement. . . . 
[The respondent] also argues that a Rule 502 agreement would have been 
a  “reasonable  accommodation”  by  the  IRS.  However,  the  IRS’s  
obligations are not governed by what [the respondent] believes to be 
reasonable and proper.  [The respondent] is required by law to provide 
the necessary information to the IRS regardless of [the respondent’s] 
opinion as to what the most reasonable method for production would be.  
[The respondent additionally] presents extensive arguments as to why the 
IRS’s reasoning for not entering into a Rule 502 agreement is flawed and 
how the IRS will not be prejudiced by such an agreement. . . .  However, 
it is for the IRS to decide whether it will enter into such an agreement, 
and the court will not review the IRS’s reasoning for such a decision.  
[The respondent] cannot force the IRS to enter into such an agreement.  
Nor can [the respondent] use the absence of a Rule 502 agreement as an 
excuse for refusing to provide the IRS with the requested information. 

Id.

  (internal citation omitted)                                          
In the end, the decision of whether to enter a Rule 502(d) order is left to a court’s 
sound discretion.  See Proxicom Wireless, LLC v. Target Corp., 

2020 WL 1671326

, at *1 
(M.D. Fla. Mar. 25, 2020).                                                
Against this backdrop, Captive’s motion fails.  To begin, as the IRS emphasizes, 
the instant proceeding is summary in nature and does not involve discovery as that 
term is understood in civil litigation.  Clarke, 816 F.3d at 1316–17; Greenberger, 

2016 WL 3912065

, at *13.  This action is thus distinct from other matters in which courts 
traditionally enter Rule 502(d) orders at a party’s request or for “good cause” shown.  
See, e.g., Rajala, 

2013 WL 50200

, at *4 (determining that a claw back provision was 
appropriate for good cause shown); Diaz, 

2019 WL 1498873

, at *1 (entering a Rule 
502(d) order upon the parties’ joint request).  Indeed, it appears that had Captive 
complied with the Summons upon receiving it, the IRS would not have initiated this 
proceeding and Rule 502(d) would not have come into play at all.3         
Undeterred, Captive points out—and the government acknowledges—that the 

IRS has agreed to the entry of a Rule 502(d) order in a few other proceedings.  In United 
States v. Microsoft Corp., No. 2:15-cv-102, at (Doc. 124) (W.D. Wash. May 25, 2016), 
for example, the IRS agreed that Microsoft could produce documents to the IRS which 
Microsoft knew or suspected were privileged, so that the IRS could take a “quick peek” 
at those materials without Microsoft waiving the privilege.  (Doc. 80-1).  Similarly, in 

United States v. Facebook, Inc., No. 3:16-cv-3777, at (Doc. 31) (N.D. Cal. Nov. 9, 2016), 
the IRS apparently agreed to a Rule 502(d) order so that it could conduct a “quick 
peek” at records which Facebook had previously identified as protected.  (Docs. 80 at 
14–15; 80-2).4                                                            

These cases are distinguishable.  In both actions, Microsoft and Facebook had 
already determined the privileged nature of the documents to which the claw back 
orders applied.  Further, in Microsoft, the parties’ claw back agreement did not—as 
Captive  proposes  it  be  permitted  to  do  here—entitle  Microsoft  to  produce  carte 
blanche all items responsive to the IRS’s summons with the ability to assert a privilege 

over the disclosed documents at some unspecified later date.  (Docs. 80 at 14; 80-1).     

3 The Court is unpersuaded by Captive’s related assertion that a Rule 502(d) order is necessary in this 
action to fend off “frequent discovery disputes” in the future.  (Doc. 78 at 13–14).  In the wake of the 
Court’s ruling on the enforceability of the Summons and this instant motion, there should be little, if 
anything, for the Court to decide moving forward.                         
4 This characterization of the Rule 502(d) order in Facebook is predicated upon the government’s 
representation regarding same.  See (Doc. 80 at 15–16).                   
Beyond  these  distinctions,  Microsoft  and  Facebook  appear  by  far  to  be  the 
exception rather than the rule.5  The IRS provides several reasons why this may be so.  
The first is reflected in guidance offered by the IRS’s Chief Counsel’s office, which 

takes  the  position  that  claw  back  arrangements  “should  be  avoided”  due  to  the 
problems they can cause.6  See Chief Counsel Notice CC-2009-023 (Chief Counsel 
Notice)  found  at  https://www.irs.gov/pub/irs-ccdm/cc-2009-023.pdf  (last  visited 
Aug. 29, 2023).  As pertinent here, one of the concerns identified in the Chief Counsel 
Notice is that when the IRS enters into a Rule 502(d) agreement with a party whose 

activities are under investigation, the IRS—as the receiving party—bears the burden 
of  “identifying  potentially  privileged  documents  and  [then]  giving  notice  to  the 
producing  party  that  the  produced  documents  contained  privileged  or  protected 
information.”  

Id.

                                                        

This, in fact, is precisely the approach Captive contemplates here.  Its proposed 
Rule 502(d) order would “authorize[ it] to produce summonsed materials to the IRS 
without first reviewing every record for privilege” (Doc. 78-1), thereby seemingly 
relieving Captive of any responsibility for designating protected records as such before 
turning them over to the IRS, see Arconic Inc. v. Novelis Inc., 

2019 WL 911417

, at *3 


5 The IRS represents that Microsoft and Facebook are the only two instances where a Rule 502(d) order 
has been entered in a summons enforcement proceeding.  (Doc. 80 at 14).  A third matter cited by 
Captive, United States v. Seivers, No. 2:20-cv-720-DSC, at (Docs. 1, 16) (W.D. Penn. May 19, 2020), 
seemingly involved a complaint seeking unpaid tax penalties, as opposed to the enforcement of a 
summons.                                                                  
6 Rule 502 applies in Tax Court.  See https://www.irs.gov/pub/irs-ccdm/cc-2009-023.pdf (last visited 
Aug. 29, 2023).                                                           
(W.D. Pa. Feb. 26, 2019) (recognizing the concern that a Rule 502(d) “‘not be used as 
a cost-shifting tool allowing the producing party to make a ‘data dump’ and requiring 
the requesting party to identify privileged documents’”) (quoting The Sedona Conference 

Commentary on Protection of Privileged ESI, 17 SEDONA CONF. J. 95, 136 (2016)).  This, 
in turn, would leave it to the IRS to discern whether a document disclosed by Captive 
contained privileged information, assess whether its disclosure to a “third party” could 
defeat that privilege, and so inform Captive if it would.  Such notice could then provide 
Captive—the entity being investigated—with insight into the particulars of the IRS’s 

inquiry, including the entities and/or individuals with whom the IRS wishes to share 
the summonsed materials.  (Doc. 80 at 8–9).  Not surprisingly, the IRS represents that 
this procedure “may impede [its] investigation.”  Id. at 9.               
Captive’s sought-after Rule 502(d) order poses other concerns as well.  As the 

IRS highlights, unlike a civil proceeding where each side’s attorneys would review the 
items exchanged, the IRS agents investigating Captive are not trained to evaluate 
whether a communication is subject to the attorney client privilege.7  Id. at 13.  As a 
result, the “potentially privileged nature” of certain communications might not be 
“readily apparent to [those] agents.”  Id. at 14.  Further compounding this problem is 

that  the  information  needed  to  make  such  determinations  may  be  solely  within 
Captive’s possession.  Id. at 13–14.                                      

7 The IRS attests in this respect that although it is represented in this proceeding by the Justice 
Department, that representation is limited to the enforcement proceeding and does not encompass the 
review of records Captive turns over, except to the extent such review relates to a motion for contempt.  
(Doc. 80 at 13 n.6).                                                      
An  additional  issue  with  Captive’s  requested  Rule  502(d)  order  is  its 
requirement that the IRS not “make any public use” of the disclosed records without 
first affording Captive ten days’ notice.  (Doc. 78-1 at 3).  Originally, Captive defined 

“public use” vaguely as “any disclosure to a third party that could defeat a claim of 
privilege or other protection” but that did not limit “intra-agency use or disclosure of 
documents.”  Id. at 3.  In a recent “status update,”8 however, Captive revised its 
definition of “public use” to encompass:                                  
[P]roviding a third party with physical possession of a document and/or 
the publication of any document, including through the filing of any 
document on a public docket.  It does not include the use or disclosure of 
a document during an interview conducted in the course of the IRS’s  
examination, so long as the interviewee is not allowed to retain physical 
possession of said document following the interview.  Nothing [in] this 
definition limits intra-agency use or disclosure of documents produced 
pursuant to this Order.  And the IRS remains subject to the limitations 
on disclosure imposed by 

26 U.S.C. § 6103

.                           

(Docs. 84, 84-1).                                                         
Despite  this  newly  proposed  modification,  the  above  language  would  still 
seemingly prohibit the IRS from using the documents Captive produces during a 
separate  proceeding  without  first  notifying  Captive  and  permitting  Captive  an 
opportunity to assert a privilege.  This, in turn, could force the IRS to abandon its use 
of that record in the separate proceeding, including a separate proceeding brought by 
the IRS to enforce penalties against Captive.                             

8 This filing was submitted without leave of the Court.                   
Captive’s proposed Rule 502(d) order is problematic in another respect as well.  
As the IRS observes, the order places no temporal restriction on when Captive may 
designate a document as privileged.  (Doc. 80 at 16).  Accordingly, Captive could 

theoretically challenge the IRS’s use of the materials years after their production.  Id. 
at 17.  Such an unlimited time frame could likewise be read to oblige the Court to 
retain jurisdiction indefinitely over any dispute regarding the use of such information.  
The Court is disinclined to take on such an unbounded commitment.         
In an effort to overcome these concerns, Captive—as alluded to above—asserts 

that there are over 1.1 million responsive documents consisting primarily of emails 
and  other  electronically  stored  information  and  estimates  that  “conducting  a 
document-by-document review of that entire set would likely stretch into the low seven 
figures.”  (Doc. 78 at 2, 13).  The Court, however, has already rejected Captive’s 
objection  to  the  Summons  on  the  grounds  that  complying  with  it  would  be 

burdensome.    (Doc.  71  at  14,  18)  (concluding  that  “[t]he  fact  that  Captive’s 
compilation and inspection of these documents may be burdensome does not defeat 
the Summons,” despite Captive’s argument that it would be forced to conduct an 
“extensive privilege review”); (Doc. 77) (adopting this analysis and directing that 
Captive disclose the responsive items by October 1, 2023).                

Captive alternatively suggests that the IRS violated the terms of the parties’ 
agreement by failing to “substantively negotiate” the terms of a proposed Rule 502(d) 
order with Captive.  (Doc. 78 at 2).  This contention is unavailing.  In waiving any 
objections to the R&R, the parties informed the Court in their joint notice that they 
were “discussing whether an order, pursuant to [Rule] 502, may be appropriate.”  (Doc. 
76) (emphasis added).  The parties further advised that if those conversations proved 
unsuccessful, Captive could seek relief with the Court.  Jd. 
 Consistent with these representations, the IRS attests in its response that at the 
time the presiding District Judge adopted the R&R: 
 [T]he  [IRS]  was  still  considering  [the  matter  of the  proposed  502(d) 
 order], which is why [it] could not commit to agreeing to [one].  Contrary 
 to  [Captive’s]  representations,  the  [IRS]  continued  to  discuss  and 
 consider this matter in good faith.  [The IRS] considered the relevant law 
 and  [its]  policies  (see IRS  Chief Counsel Notice),  discussed  this  with 
 [Captive], and considered [Captive’s] claimed need for an order.  But, as 
 discussed [in the IRS’s response], there is no basis to enter into such an 
 agreement.  This is not acting in bad faith. 
(Doc. 80 at 5) (footnote omitted).  In light of these attestations and the above language 
in the parties’ joint notice, Captive’s claim that the IRS breached its agreement with 
Captive is unsupported. 
                                III. 
 For the reasons set forth above, Captive’s Motion for Non-Waiver and Clawback 
Order (Doc. 78) is denied. 
 SO ORDERED in Tampa, Florida, this 29th day of August 2023. 
                           Niacin   P
                          HONORABLE CHRISTOPHER P. TUITE 
                          United States Magistrate Judge 

Copies to: 
Counsel of record 

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