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Keywords

litigationattorneyappealcorporationcivil procedurework-product doctrine

litigationattorneylawyerprecedentwork-product doctrine

Related Cases

U.S. v. Adlman, 134 F.3d 1194, 81 A.F.T.R.2d 98-820, 98-1 USTC P 50,230, 39 Fed.R.Serv.3d 1189

Facts

Sequa Corporation, an aerospace manufacturer, contemplated merging its subsidiaries, which was expected to result in significant tax losses and a refund that would likely be challenged by the IRS. Monroe Adlman, Sequa's Vice President for Taxes, commissioned an accountant to prepare a memorandum analyzing the tax implications and potential IRS challenges. The IRS later requested this memorandum during an audit, but Adlman claimed it was protected by work-product privilege. The district court initially ruled against this claim, leading to the appeal.

In the spring of 1989, Sequa contemplated merging Chromalloy and ARC. The contemplated merger was expected to produce an enormous loss and tax refund, which Adlman expected would be challenged by the IRS and would result in litigation.

Issue

Whether the memorandum prepared for an attorney assessing the likely result of expected litigation is protected under the work-product doctrine, despite being intended to assist in a business decision.

Specifically, we must address whether a study prepared for an attorney assessing the likely result of an expected litigation is ineligible for protection under the Rule if the primary or ultimate purpose of making the study was to assess the desirability of a business transaction, which, if undertaken, would give rise to the litigation.

Rule

Documents prepared 'in anticipation of litigation' are protected under Federal Rule of Civil Procedure 26(b)(3) if they reveal mental impressions, conclusions, opinions, or theories concerning the litigation.

The work-product doctrine, codified for the federal courts in Fed.R.Civ.P. 26(b)(3), is intended to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy 'with an eye toward litigation,' free from unnecessary intrusion by his adversaries.

Analysis

The court determined that the memorandum was created because of anticipated litigation regarding the IRS's likely challenge to Sequa's tax refund claim. The court emphasized that the work-product protection applies even if the document also serves a business purpose, as long as it was prepared due to the prospect of litigation. The district court's failure to apply the correct standard for work-product privilege warranted vacating its decision.

We believe that a requirement that documents be produced primarily or exclusively to assist in litigation in order to be protected is at odds with the text and the policies of the Rule.

Conclusion

The court vacated the district court's ruling and remanded the case for reconsideration of whether the memorandum was protected work product under the correct standard.

We therefore remanded for reconsideration whether the Memorandum was protected work product.

Who won?

The taxpayer, Sequa Corporation, prevailed because the court recognized the work-product privilege for the memorandum prepared in anticipation of litigation.

Sequa's accountant at Arthur Andersen concurred, opining that 'any corporate tax executive would have realistically predicted that this capital loss would be disputed by the IRS' because of the 'unprecedented and creative nature of the reorganization.'

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