Tuesday, October 05, 2010

DC Circuit Court Panel's Deloitte Ruling Not Appealed to Supreme Court

It has been reported (Miller & Chevalier tax appellate blog) that the US Government has not filed a petition for certiorari seeking Supreme Court review of a decision by a panel of the DC Circuit Court of Appeals that a memo prepared by a company’s outside audit firm recounting the thoughts of corporate counsel on the prospect of tax litigation over company partnerships could be protected attorney work product. Similarly, the company’s disclosure to the independent auditor of a tax opinion on company partnerships by outside counsel did not constitute a waiver of the work product privilege. Disclosure to an adversary or a conduit to an adversary could waive the privilege, noted the DC Circuit appeals court panel, but a company’s independent outside auditor of its financial statements is neither an adversary of the company nor a conduit to its adversaries. The government sought production of the documents in connection with ongoing tax litigation with the company. (US v. Deloitte LLP, US Court of Appeals for the DC Circuit, No. 09-5171, June 29, 2010).

The Supreme Court did rule in US v. Arthur Young that there is no auditor-client work product privilege. But the fact that it was the audit firm that prepared the memo on counsel thoughts did not turn this into an auditor-client case. The memo, while put out by the auditor, contained the thoughts of counsel on the prospects of litigation over the tax treatment of the company’s partnerships. Under the Supreme Court Hickman v. Taylor doctrine creating the attorney work product privilege, the question to ask is not who created the document but whether the document contained the thoughts of counsel developed in anticipation of litigation. Further, the fact that the document was generated during the firm’s annual audit of the company’s financial statements did not defeat the privilege since a document can be protected work product even when it serves multiple purposes so long as it was prepared because of the prospect of litigation.