Work product protection, tax accrual documents, and United States v. Textron, Inc.: why the First Circuit got it right for the wrong reasons.

Author:Roberts, Stacey
  1. INTRODUCTION

    The work product rule protects documents and other materials prepared in anticipation of litigation. (1) Originally established through case law and now codified by statute, the doctrine protects an attorney's litigation strategy from discovery by opposing counsel. (2) Though sometimes referred to as a privilege exception within the rubric of the attorney-client privilege, the protection of work product can be distinguished in two fundamental ways. (3) First, the doctrine may be overridden by a showing of "substantial need" and "undue hardship" under the Federal Rules of Civil Procedure, whereas the attorney-client protection may never be overcome. (4) Second, the work product doctrine is broader than the protection afforded by the attorney-client privilege because it applies to more than just the communication between an attorney and her client; it includes any document or material prepared in "anticipation of litigation" regardless of whether an attorney produced the materials sought. (5) The scope and nature of the phrase in "anticipation of litigation" is the source of considerable contention. (6)

    While granting broad protection, the work product doctrine does not protect "[m]aterials assembled in the ordinary course of business, or pursuant to public requirements unrelated to litigation." (7) Current controversy exists between the federal circuits over the breadth of protection the work product doctrine grants to "dual purpose" documents--those documents created both in the ordinary course of business and in anticipation of litigation. (8) The majority of circuits apply the "because of" test which provides blanket protection for documents prepared in anticipation of litigation, and often protects even those documents also prepared during the ordinary course of business or for some other purpose. (9) The minority of circuits have adopted the "primary purpose" test which grants substantially narrower protection to documents created for more than one purpose. (10) Under the "primary purpose" test, courts shield documents from discovery only when the possibility of litigation is the "primary motivating force" behind the document preparation. (11)

    The controversy of whether the work product doctrine protects documents created for more than one purpose is particularly highlighted in the context of tax accrual work papers, documents that corporations must prepare to comply with federal securities law. (12) This Note addresses the methods circuit courts have employed in their application of the work product doctrine to documents created for more than one purpose, emphasizing how the doctrine applies to tax accrual papers. (13) Part II traces the evolutionary history of the work product doctrine, from its origins in case law to its statutory codification, and discusses the current circuit split regarding the doctrine's application to dual purpose documents. (14) Part III details the case law establishing the different work product tests and focuses particularly on the two circuit decisions directly addressing the issue in the tax accrual papers context. (15) It explores the First Circuit's approach in United States v. Textron, Inc., (16) where a divided en banc court found that the work product doctrine did not afford protection to tax accrual papers. (17) This Note argues that a court need not apply a work product protection test when a statute compels production of a requested document, that publicly-traded companies are precluded from asserting a work product defense against the IRS's discovery request of its tax accrual work papers, and, even if a court grants protection, an IRS summons can overcome the doctrine because the government has the right to demonstrate that it has a substantial need to access the documents. (18)

  2. HISTORY

    Discovery is the court-mandated production of information from other parties and non-party witnesses. (19) The Federal Rules of Civil Procedure establish a broad scope of discovery by stating that "[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense." (20) In mandating the production of information, courts have discretionary power to limit what is discoverable, though the information may be relevant to a party's claim or defense to "protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." (21) Prior to 1970, the only codified limits to the broad scope of the rules circumscribing discovery was this open-ended language. (22) The Supreme Court, however, set forth a discovery limitation in Hickman v. Taylor (23)

    In Hickman, the Court faced the question of whether a potential plaintiff may request that an attorney turn over all documents written and prepared to defend against potential lawsuits following a boating accident. (24) The plaintiff specifically requested two types of documents: the written statements the attorney had recorded and unrecorded oral statements from interviews conducted with witnesses. (25) The trial court held the attorney in contempt for refusing to disclose the requested information. (26) The Third Circuit overturned the trial court's ruling, and expanding the role of discovery."). held that "'privilege' as used in the Rules comprehends the material asked for...." (27) Affirming the Third Circuit's decision, the Supreme Court created and defined "work product" as a doctrine that protects discovery of tangible documents and other things prepared in anticipation of litigation. (28) The Court alluded to two distinct types of work product: "ordinary" work product and "core" or "opinion" work product. (29) The Court explicitly stated that documents and other materials falling under the work product definition are discoverable only upon a "showing of necessity." (30)

    Congress amended the Federal Rules of Civil Procedure in 1970 to include a codification of the work product rule set forth in Hickman. (31) Rule 26 provides:

    Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative ... [however if] ... the court orders discovery of those materials, it must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation. (32) The amended rules codified and expanded Hickman by broadening the umbrella of protection to include materials prepared by an attorney and those prepared by or for a party's representative, such as a document prepared by an insurer or an agent. (33)

    The Court has consistently reaffirmed Hickman and the "strong public policy" underlying the work product privilege. (34) The Court has made clear that documents that "tend[] to reveal the attorney's mental process" receive particular protection that is not afforded to factual material. (35) This special treatment for the opinion work product is justified because "[a]t its core, the work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which [s]he can analyze and prepare [her] client's case." (36)

    It is critical to note that the amended rules simply state that only documents prepared in "anticipation of litigation or for trial" are protected. (37) The advisory committee notes specifically state that "[m]aterials assembled in the ordinary course of business, or pursuant to public requirements unrelated to litigation, or for other non-litigation purposes are not under the qualified immunity provided by [Federal Rule 26(b)(3)(A)]." (38) Such a qualification is particularly important when applying the work product doctrine in the context of dual purpose documents, i.e., documents that are prepared in anticipation of litigation and also for ordinary business purposes. (39) The circuits have developed two tests by determining whether the work product doctrine should protect dual purpose documents. (40) A majority of circuits employ the "because of test while a circuit minority applies the "primary purpose" test. (41) The fundamental question employed in the "because of" test is whether the document in question was prepared because of the prospect of litigation. (42) If so, then the document is protected by the work product doctrine. (43) Under the "primary purpose" test, work is only protected when it is primarily motivated to provide support in potential future litigation. (44) Compared to the "because of" test, the "primary purpose" test provides much narrower protection to documents. (45)

  3. FACTS

    1. The "Because of" Test

      The United States Court of Appeals for the Third Circuit squarely addressed the work product doctrine in In re Grand Jury Proceedings. (46) The case involved an appeal of a district court order directing an attorney to testify before a grand jury and produce subpoenaed documents. (47) The Third Circuit held that documents generated by a law firm in connection with its representation of a corporation qualified for consideration of the work product privilege. (48) The court reasoned that even though the documents may not have been prepared specifically in connection with the grand jury investigation, they could have been prepared because of the civil litigation that gave rise to the grand jury investigation. (49)

      The Eighth Circuit addressed the question in Simon v. G.D. Searle & Co. (50) In this products liability action against a manufacturer, the district court ordered production of certain corporate risk management documents. (51) The Eighth Circuit ultimately determined that these documents were not protected. (52) The court reasoned that the documents only revealed aggregate liability reserve figures rather than individual case reserve figures; the court concluded that the documents were prepared for business planning purposes rather than in anticipation of litigation. (53)

      The Fourth Circuit...

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