Dueling approaches to dual purpose documents: the reaches of the work product doctrine after Textron.

• Author: LaBoda, Olivia K.

"[Work product protection] is less clear ... as to documents which, although prepared because of expected litigation, are intended to inform a business decision influenced by the prospects of the litigation." (1)

1. INTRODUCTION

   In a highly anticipated decision, the United States Court of Appeals for the First Circuit held that a company's tax accrual work papers are not protected under the work product doctrine. (2) In United States v. Textron Inc., the First Circuit applied the unprecedented test that materials must be prepared "for use in litigation" to be protected. (3) The Textron decision provoked controversy because its interpretation of the work product doctrine significantly limits the types of documents afforded protection. (4)

   In reaching its decision, the First Circuit stressed that Textron's tax accrual work papers were dual purpose documents, i.e., prepared for both a business purpose and a possible business litigation purpose. (5) Prior to Textron, courts commonly applied two different approaches to the work product doctrine: a broad test that protected dual purpose documents and a narrow test that did not protect dual purpose documents. (6) The test established in Textron departed from the First Circuit's previous broad interpretation of the work product doctrine, under which the tax accrual work papers would likely have been protected. (7)

   Following Textron, the scope of protection for dual purpose documents under the work product doctrine is unclear. (8) While Textron put in-house tax professionals on edge, its effects will likely extend to areas beyond tax law because the First Circuit focused on the dual purpose nature of the tax accrual work papers in reaching its decision. (9) Many other areas of law rely on similar dual purpose documents, which could potentially be damaging if an opponent were able to gain access to these documents during the course of litigation. (10)

   This Note will begin by looking at the public policy rationale underlying the Supreme Court's establishment, and Congress's codification, of the work product doctrine. (11) It will then look at the state of the work product doctrine before the First Circuit's Textron decision. (12) The Note will then discuss the Textron decision and how the First Circuit developed its new "for use in litigation" test. (13) The Note will then examine the protection currently afforded to dual purpose documents in the areas of environmental law and insurance law. (14) The analysis will argue that the Textron test will have broad ramifications beyond the context of tax accrual work papers, and it will discuss the negative consequences on environmental law and insurance law if dual purpose documents are no longer shielded from discovery by the work product doctrine. (15)

2. HISTORY

   1. Work Product Doctrine Pre-Textron

      1. Public Policy Justifications

         The 1947 Supreme Court opinion in Hickman v. Taylor (16) first established the work product doctrine. (17) In Hickman, the Court rejected the plaintiff's attempts to discover notes taken by the defendant's attorney while interviewing prospective witnesses for trial. (18) In protecting the notes of the defendant's attorney, the Court recognized the importance of providing a sphere of privacy that permits a lawyer to analyze a client's case and prepare for trial without the threat of intrusion by opposing counsel. (19) The Court attempted to preserve the quality of legal representation through the sphere of privacy. (20) Under the Court's rationale, documents revealing an attorney's mental processes, known as "opinion work product," merit special protection. (21) Since the Hickman decision over sixty years ago, the Supreme Court has repeatedly recognized the public policy grounds underlying the work product doctrine. (22)

         Rule 26(b)(3) of the Federal Rules of Civil Procedure later codified the work product doctrine by protecting documents "prepared in anticipation of litigation or for trial" from discovery by the opposing party. (23) However, Rule 26(b)(3) also provides for an exception if the opposing party shows a "substantial need for the materials ... and cannot, without undue hardship, obtain their substantial equivalent by other means." (24) Even upon this showing, Rule 26(b)(3) further provides that the court "must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney." (25) In addition to the limitations Congress explicitly imposed on the scope of the work product doctrine through the language of Rule 26(b)(3), the advisory committee's notes to Rule 26(b)(3) further limit its scope by stating that materials prepared in the ordinary course of business, pursuant to public requirement, or for nonlitigation purposes, are not given protection under this Rule. (26) Therefore, the work product doctrine does not protect all materials prepared by a lawyer. (27)

      2. Approaches of Various Circuits Pre-Textron

         1. Narrow Interpretation

            Before the Textron decision, most circuits took either a narrow or a broad approach to the work product doctrine. (28) In those circuits that follow the narrow approach, the work product doctrine applies only to documents whose creation is "primarily motivated to assist in future litigation." (29) According to this interpretation, the work product doctrine would not protect dual purpose documents prepared both in anticipation of future litigation and for use in a business decision. (30)

            The Fifth Circuit adopted the narrow approach in United States v. El Paso Co., (31) in which the El Paso Company sought to withhold its tax accrual work papers from the Internal Revenue Service (IRS) during a routine audit. (32) When the IRS requested El Paso's tax accrual work papers, the company refused to comply, claiming the work product doctrine protected the papers. (33) Although the Fifth Circuit recognized the important policy rationales underlying the work product doctrine, the court stated that those rationales did not apply because the primary motivation behind the preparation of the tax accrual work papers was to conform to auditing principles compelled by the securities laws. (34) Because El Paso created the tax pool analysis with its business needs in mind rather than its legal ones, work product protection would not have affected whether it would create the documents. (35) Having a primary purpose other than litigation increases the chances that a company will commit its work to writing because the documents need to be created whether or not protected by the work product doctrine; therefore, the quality of legal representation is not a concern. (36)

            In deciding whether El Paso's tax accrual work papers were prepared "in anticipation of litigation," the court followed a test it had previously used, which did not require litigation to be imminent, as long as possible future litigation was the primary motivation behind the creation of the documents. (37) While the creation of tax accrual work papers involves an analysis of the potential impact of an IRS audit, litigation, and settlement on a company's tax liability, a company's primary purpose for preparing tax accrual work papers is for the financial reporting purpose of ensuring that the company has set aside sufficient funds for a contingent tax liability. (38) Thus, the court felt the tax accrual work papers were more characteristic of unprotectable, ordinary business materials, rather than protectable materials regarding litigation strategy. (39)

         2. Broad Interpretation

            The broad approach to the work product doctrine protects documents that are prepared "because of anticipated litigation. (40) Under this approach, the work product doctrine protects documents that would not have been prepared in substantially the same form but for the prospect of litigation. (41) Following the broad interpretation, the work product doctrine may protect dual purpose documents. (42)

            Several circuit courts have adopted the broad interpretation of the work product doctrine. (43) The Second Circuit adopted the "because of test in United States v. Adlman (44) In Adlman, during the course of an audit of a recently restructured company, the IRS requested production of a memorandum prepared before the restructuring that included an evaluation of the tax implications of the proposed restructuring plan. (45) While considering the proposed merger, the company's attorney requested preparation of the memorandum to assist in making the decision. (46) Among other information, the memorandum included a detailed legal analysis of challenges the IRS would likely make in response to the merger and the resulting tax refund claim, proposed legal theories or strategies the company could adopt in response to IRS challenges, and predictions regarding the outcome of litigation with the IRS. (47) The company responded to the IRS's request for production by withholding the memorandum, asserting that it fell under the work product doctrine. (48)

            The Second Circuit interpreted the phrase "prepared in anticipation of litigation" by looking to the plain language of Rule 26(b)(3) and the policies underlying the work product doctrine. (49) In doing so, the court reasoned that a document's purpose in making a business decision is irrelevant to the issue of whether it is afforded protection under the work product doctrine because the text and policies of the work product doctrine do not justify a company having to choose between making ill-informed business decisions and prejudicing its prospects in litigation. (50) If the court required a company to turn over documents revealing litigation strategy to the opposing party because the company prepared the documents to assist in making a business decision it expected to result in litigation, it would undermine the purpose of the work product doctrine--to protect documents that reveal an attorney's opinions and legal theories about potential litigation. (51) The...