# State Tax Assessor v. Kraft Groods Group, Inc. > Superior Court of Maine · June 7, 2017 URL: https://www.frixlaw.com/law-library/cases/10811345 ## Case - **Court:** Superior Court of Maine - **Decided:** June 7, 2017 - **Precedential status:** Unpublished - **Opinion:** Opinion - **Judges:** M. Michaela Murphy - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10811345 ## Opinion text STATE OF MAINE BUSINESS & COUNSUMER DOCKET CUMBERLAND, ss. DOCKET NO. BCD-AP-16-02 / STATE TAX ASSESSOR, ) ) Petitioner, ) ) v. ) ORDER ON CROSS MOTIONS FOR ) SUMMARY JUDGMENT KRAFT FOODS GROUP, INC., et al., ) ) Respondents. ) Pending before the Court are two cross-motions for summary judgment in two complex consolidated appeals of tax assessments levied against Kraft Foods Group, Inc., et al. for the 2010 tax year. Oral argument was held on August 9, 2018. Jonathan A. Block., Esq. represented Kraft Foods Group, Inc., et al. and Thomas A. Knowlton, Esq., represented the State Tax Assessor. BACKGROUND This consolidated case deals with two appeals stemming from an audit of a corporate taxpayer's 2010 corporate income tax return. The first appeal is brought by the taxpayer and the second is brought by the State Tax Assessor (the "Assessor"). In State Tax Assessor v. Kraft Foods Group, Inc., No. BCD-AP-16-02, the Assessor appeals from a decision of the Maine Board of Tax Appeals (the "Board") which ruled substantially in favor of Kraft Foods Group, Inc. and the affiliated group of taxable corporations with which it derives income from a unitary business 1 ( collectively "Kraft'') on its appeal to the Board of an assessment of corporate income tax, interest, 1 As explained in more detail below, Maine taxes the net income of"the entire group" of"taxable corporations that derive income from a unitary business caITied on by 2 or more members ofan affiliated group[,]" 36 M.R.S. § 5200(4); and "[f]or purposes of calculating the sales factor, 'total sales of the taxpayer' includes sales of the taxpayer and of any member of an affiliated group with which the taxpayer conducts a unitary business." 36 M.R.S. § 5211(14). In this Order, the Court uses "affiliated group" as shorthand to refer to "the affiliated group of taxable corporations with which Kraft Foods Group, Inc. derives income from a unitary business." 1 and penalties made by the Assessor in August 2013 pursuant to an audit of Kraft's 2010 corporate income tax return (the ".First Assessmenr). In the consolidated appeal of Kraft Foods Global, Inc. v. State Tax Assessor, No. BCD-AP-17-09, Kraft appeals from a decision on reconsideration issued by the Assessor on October 27. 2017, upholding an assessment disallowing a $306,729,484 capital Joss carryforward that Krnft claimed on its 2010 Maine corporate income tax return (the "Second Assessment»). Kraft was, at alJ relevant times, engaged in th~ business of manufacturing and selling a variety of food products in Maine and across the country, (Stip., 150.) Throughout the 1980s and 1990s, Kraft purchased two companies that manufactured and sold frozen pizzas (Tombstone Pizza Company and Jack's Frozen Pizza), developed its own frozen pizza product (marketed as Di Giorno in the United States), and obtained a license to distribute a line of frozen pizzas under the California Pizza Kitchen brand nai:ne, Through these actions over the years Kraft added frozen pizzas to its diverse prodnet line. (Stip. !~ 2-3 1 7-8. 10-13 .) Collectively, this frozen pizza business (the intangible and tangible assets, i.e. machinery, patents, trademarks, and goodwill used to 0 manufacture and market frozen pizza) is referred to as the "Pizza Assets in this Order . . On March 1, 2010, Kraft sold these Pizza Assets to Nestle USA, Inc, (''Nestle,,) for $3,681,000,000, resulting in $3,349,462,365 in federal taxable income. (Stip. ~! 173, 176-177.) Nestle paid the sale price to two members of Kraft's affiliated group: Kraft Pizza Corporation• ( 11 KPC") 1 Kraft Foods Global Brands, Inc. (Stip.1[ 177.) Kraft subsequently filed a timely 2010 Maine corporate income tax return that included KPC in its Maine unitary group and included as • KPC formed in 1995 from a merger of Jack's Fro1.en Piz1.a, Inc. and Tombstone PiZ7.a Corporation. (Slip. 1f 10.) Thereafter, until March 20 IO, I 2016, the Assessor served a subpoena on non-pa1ty Mondelez, Kraft's former corporate parent, for the production of tluee categories of documents. (Assessol' Mot. Compel 4; Mondelez Opp 1n to Mot. Compel 1 n. l .) Mondelez provided documents in response to the second and third categories. (Id.) Category 1 of the subpoena requested all minutes of board of directors, and committees thereof, for the period of January 2009 through December 2011 for Kraft Foods, Inc., which is not a patty to the action, and all four K.raft Respondents. (Id. at 4-5,) The Assessor later agreed to remove the year 2011 from its request, thus limiting the scope of category 1 to the years 2009 and 2010. (Id. at 5-6.) The Assessor also contends that Kraft Food Group, Inc. did not exist during 2009 and 20 IO and that Cadbury Adams USA LLC only joined the Kraft-affiliated group during 2010. (Id at 6.) Thus, according to the Assessor, its subpoena is essentially limited to only the minutes from KPC, Kraft Foods, Inc., and Kraft Foods Global, Inc, for the two years. (Id.) The parties agree that some of the requested meeting minutes have already been p1'ovided to the Assessor by Kraft. (Mondelez Opp'n to Mot. Compel 4; Assessor Reply to Mot. Compel 2.) Mondelez objects to producing the remaining doc4ments in Category 1. (Mondelez Opp'n to Mot. Compel 1.) The Assessor asserts that category 1 of its subpoena is neither overbroad nor unduly burdensome on Mondelez, (Assessor Mot. Compel 5-6.) The Assessor also asserts that documents sought in category 1 of its subpoena are both relevant and "reasonably calculated to lead to the discovery of admissible evidence," (Jd at 6.) The Assessor contends Kraft will argue, as it did before the Board, that KPC is separate from and unrelated to Kraft's other businesses, and therefore, the xegular apportionment formula does not fairly reflect KPC's business activity in Maine. (Id.) The Assessor asserts the Category 1 documents, the minutes 5 from board of directors meeting and committees thereof, are directly l'elevant to whether Kraft and KPC are a "unitaiy business" under Maine Income Tax Law. (Id. at 7.) The Assessor further contends that Kraft is also seeking the abatement of penalties on the grounds that it had "substantial authority" for its filing position that the sale of the Frozen Food Assets was not part of Krnft's unitary business income. (Id. at 7-8.) The Assessor argues that the Category 1 documents are also relevant to its position that no well-reasoned construction of the tax statute would support Kraft's position. (Id. at 8.) In response, Mondelez contends the Assessor mischaractel'izes Kraft's position. (Mondelez Opp'n to Mot. Compel 2.) Kraft is no longer asserting that KPC's business was separate from and unrelated to its other activities in Maine. (Id.) Rather, Kraft is. now simply arguing that the one-time gain from the sale of the Frozen Food Assets was umelated to Kraft's activities in Maine and that it was entitled to an alternative apportionment method for the one­ time gain. (Id. at 2-3.) Mondelez contends, because Kraft is no longer arguing that KPC was separate from its unitary business, the requested meeting minutes are not relevant to whether an alternative apportionment method was appropriate. (Id at 3.) Mondelez further argues the requested documents are also irrelevant to the abatement of assessed penalties. (Id.) Though Kraft has abandoned its argument that KPC was not a part of its unitary business, Kraft still contends that it had 0 substantial authority" for its position when it filed its return for 2010. (Id.) Mondelez contends that the Assessor no longer needs to demonstrate that Kraft and KPC were a unitmy business. (Id.) According to Mondelez, the question of whether Kraft had substantial authority for its position concerns only the state of the legal authority at the time the return was filed. (Id.) 6 In its reply, the Assessor argues that, regardless of Kraft,s new position, it should be permitted to both discover and present evidence regarding l(PC's and Kraft's business activities in order to demonstrate there is no basis for treating the sale of the Frozen Food Assets differently from Kraft's unitaiy business activities. (Assesso1· Reply to Mot. Compel 3-4.) The Assessor also argues that whether Kraft had "substantial authority" for its position when it filed its return for 2010 does not merely turn on the state of the law at that time, but necessarily requires the application of the law to facts about Kraft's businesses. (Id. at 4.) Thus, according to the Assessor, it should be permitted to discover evidence tending to support its position, (Id. at 4-5.) Pursuant to the Maine Rules of Civil Procedure, the court may issue orders as justice requires to prntect any party or person from whom discovery is sought from any undue burden or expense, M.R. Civ. P. 26(c), 45(c)(l). However, the purpose of the discovery rules is to enforce full disclosure. St. Paul Ins. Co. v. Hayes, 2001 ME 71, 18,770 A.2d 611. Thus, the rules of discove1-y are to be construed libernlly. Id Maine Rule of Civil Procedure 26(b) provides: Pa1ties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discove1y or to the claim or defense of any other pru.·ty 1 ••• It is not ground for objection that the information sought will be inadmissible at the trial if the information souglit appears reasonably calculated to lead to the discovery of admissible evidence.,, M.R. Civ. P. 26(b)(l) (emphasis supplied). "Discove1y is not necessarily limited to the issues framed by the pleadings or even to the subject matter of the merits of the case, ... ,, 2 Harvey, Maine Civil Practice § 26:3 at 627 (3d ed. 2011) (footnote omitted). "The rule contemplates the disclosure of information that will permit the parties to define the issues and to obtain evidence on all matters potentially involved in the litigation, whether or not those matters relate to specific evidence that will be introduced at trial.,, Id § 26:3 at 627-28. "[A] party is not limited to 7 discovery related to its adversary's framing of the issues or even to the merits of the case, as long as the discovery properly relates to the subject matter involved in the action. Thus, a party may pursue discovery based on its own theory of the case, .. " Id. § 26: 3 at 629 (footnote omitted). Although Kraft has changed its position, the Assessor is permitted to discover evidence related to its theory that thete is no basis for treating the sale of the Frozen Food Assets differently from Kraft's unitary business activities. The l'equested Category 1 documents relate to that subject, and therefore, appear to be "reasonably calculated to lead to the discovery of admissible evidence." Moreover, Mondelez has failed to demonstrate that the Assessor's request is overbroad or unduly burdensome. Mondelez has conceded that it has already provided some of the requested documents to Kraft. (Mondelez Opp'n to Mot. Compel 4.) Therefore, the Assessor's motion for an order compelling Mondelez to comply with the subpoena for the production of documents shall be granted. IV. ASSESSOR'S MOTION TO COMPEL KRAFT TO PROVIDE DEPOSITION TESTIMONY On February 1, 2017, the Assessor served Notices of Deposition on tln·ee of the Kraft Respondents;' Kraft Foods Global, Inc., Krnft Foods Group, Inc., and KPC. (Assessor Mot. Compl. 4.) The three Notices llsted twenty-seven items for deposition. (Id.) The Assessor now seeks an order compelling Kraft to provide deposition testimony regarding rtem Nos. 13 and 25 in the Notices. (Id.) Item No, 13 seeks deposition testimony regarding Kraft's "'state income tax returns and combined reports filed by Kraft Foods and its affiliates for 2008 - 2011 in others states, including without limitation California, Illinois, Kansas, Montana, and Wisconsin, and any audits or assessments by those states related to those returns."' (Id. at 5.) The Assessor concedes it is willing to limit its request to 2008 - 2010. (Id.) Item No. 25 seeks deposition testimony regarding "'financial statements prepared by or on behalf of Kraft Foods and its 8 affiliates for 2008 - 2011, including without limitation any statements or disclosures concerning potential state income tax liabilities resulting from the capital gain at issue in this case... ''' (Id at 9.) The Assessor concedes it is willing to limit its request to 2009 - 2011. (Id) A. Item No. 13: Krnft' s income tax returns filed in other states for 2008 - 2010 The Assessor contends that KrafCs primary objection to providing deposition testimony regarding its income tax retw·ns filed in other states is a lack ofrelevancy. (Id at 5,) According to the Assessor, Kraft's position is that its filing position in other states is no longer relevant because Kraft has stipulated that that KPC was pait of its unitary business in 2010. (Id.) However, the Assessor contends that Kraft has not stipulated to any of the predicate facts establishing it is a unitary business and that those predicate facts are stil! l'elevant to the primaty issue in the case: whethe1· KPC's sale of the Frozen Food Assets is sufficiently unrelated Kraft's business activities in Maine to warrant an alternative apportionment method. (Id.) The Assessor asserts that testimony regarding Kraft's income tax returns for other states is discoverable because it is reasonably likely to lead to admissible evidence regarding Kraft bt1siness activities. (Id. at 6.) The Assesso1· cites Gannett Co. v. State Tax Assessor, 2008 ME 171, ~ 6, 959 A.2d 74~, for the proposition that our Law Court has found a taxpayer's income tax returns for other states to be relevant to determining whether the taxpayer's activities comprised a unitary business and whethel' a large capital gain was apportionable to Maine, (Id. at 6-7.) The court disagrees with the Assessol"s interpretation of Gannett. As part of its recitation of the background facts in Gannett, the Law Court noted that the taxpayer had filed as a unitary business in nine other states for 1998 - 2000 and that the taxpayer had also declared in its 2000 Kansas income tax retum that the affiliate which generated the capital gain at issue was part of its unitary business. Gannett) 2008 ME 171) ,r 6, 959 A.2d 741. However, in its analysis 9 of whether the taxpayer and its affiliates constituted a unitary business, the Law Court did not mention or consider the taxpayer's income tax returns for other states. Id fil I 5w27. Rather, the Law Couit analyzed the facts and circumstances of the taxpayer's actual activities to detel'mine whether the taxpayer and its affiliates demonstrated the "hallmarks" of a ·unitmy business: functional integl'ation, centralized management, and economies of scale. Id. 1 13. The Law Court found the taxpayer and its affiliates to be a unitary business based on the taxpayer's "provision of intercompany services, the sharing of expertise among affiliates, its centralized health and benefit plans, the interlocking directors and officers, and its cash management system," not its income tax returns from other states, Id. ~ 27. Similarly, in its analysis whether the State's apportionment formula was fair or resulted in a gross distortion, the Law Court again looked to the facts and circumstances of the taxpayer's activities in Maine. Id. 11 28M36, The Law Comfs conclusion that the State's apportionment formula did not result in a gross distortion was not based on the taxpayer's filing positions in other states. Id. 1 36. Therefore, Gannett does not stand for the broad proposition asserted by the Assessor. Kraft objects to the Assessor's request for deposition testimony regarding its income tax returns, combined reports, and any related audits or assessments on the ground that the request is unduly burdensome, ovetbroad, and not reasonably calculated to lead to the discovery of admissible evidence. (Kraft Opp'n to Mot. Compel 1-2.) Kraft notes that the Superior Court has previously denied a discovery request by the Assessor for a taxpayer's filing position in other states. (Id. at 2, Attach. A.) However, the Superior Court order cited by Kraft is a two~page order following an in-chambers, Rule 26(g) conference with the court. (Id. Attach. A.) The order simply states that the Assessor's request fol' the petitioner's filing position in other states is 10 denied without prejudice. (Id.) The order provides no explanation or context for the court's ruling and is, therefore, unpersuasive to this court. (Id.) At oral argument, Kraft provided the com1 with an opinion fro_m the Oregon Tax Court, Oracle Corp. v. Dep 't ofRevenue, 2010 Ore. Tax LEXIS 32 (Or. T.C. Feb. 11, 20 l 0), in which the Oregon Department of Revenue ~rgued that the Tax Couit should fashion an equitable doctrine estopping a taxpayer from taking different positions regarding the same income in different states. Id. at *6-7. The Oregon court noted many policy reasons for declining to adopt such a rule, namely that it would be unfair, unworkable, create illogical results, and would compromise the principals of federalism and another state's inte1'est in maintaining its own tax laws and interpreting them in its own fashion. Id at *8-12. The Oregon coU1t declared, "the question of whether an item of income is business or nonbusiness must be governed by Oregon law, ... " Id. at *10. Oregon Tax Court's opinion is persuasive. Like that case, the questions at issue here, whether the alternative apportionment method was appropriate and whether Kraft had substantial authority for its filing position, must governed by Maine law and decided based on the patticular facts of this case. Thus, K:rnft's income tax retums, combined repo1ts, and related audits or assessments from other states are likely i1Televant. However, this court is not being asked to decide the relevancy or admissibility of the requested income tax returns and related documents at this time. The court is being asked to decide whether the tax retmns and related documents are simply discoverable. As discussed above, information is discoverable if it "appears reasonably calculated to lead to the discovery of admissjble evidence." M.R. Civ. P. 26(b)(l). The Rules of Civil Procedure contemplate the disclosure of all matters potentialJy involved in the litigation, whether or not those matters relate to specific evidence that will be introduced at trial. 2 Harvey, Maine Civil Practice § 26:3 at 11 627~28. Although Kraft's income tax returns, combined reports, and any related audits or assessments may not be relevant or admissible, the tax returns and related documents may contain predicate facts and information regarding Kraft's business activities that may be relevant to the issues in this case and admissible at a later trial. Therefore, Kraft's income tax returns, combined reports, and any related audits or assessments from other states are discoverable. However, the court agrees with Kraft that the ·Assessor's request for testimony from three of Kraft entities regarding all income tax returns, combined repo1ts, and any related audits 01· assessments from other states without limitation for a thl.·ee~year period is overbroad and unduly burdensome. Kraft represents that it conducts business in all fifty states. (Kraft Opp 111 to Mot. Compel 1.) Thus, each deponent must be prepared to testify regarding 147 tax returns, combined. reports, and any related audits or assessmen~s. (Id at l-2.) Moreove1', the fact that each state has its own statutes, regulations, case law, administrative interpretations, and policies that govern its tax laws would make providing accurate testimony even more unduly burdensome on Kraft. (Id. at 2.) On a motion to compel discovery, the comt may make such protective orders as justice requires to protect a party from annoyance, embarrassment, oppression, or undue burden or expense. M.R. Civ. P. 26(c), 37(a)(2). As discussed above, the Assessor's Notices specifically identified the income tax returns and combined reports for the states of California, Illinois, Kansas, Montana, and Wisconsin, and any audits or assessments by those states related to those returns. (Kraft Mot. Compel 5.) The Assessor has already conceded it is willing to limit its request to 2008 - 2010. (Id,) Therefore, the court shall compel Ki·aft to prnvide depositi~n testimony regarding only those five states for the period of 2008 - 2010. If the Assessor wishes to depose any Kraft entities regarding its income tax returns, combined repo1ts, and any related 12 audits 01· assessment for states othel' than those five> the Assessor must make a motion with this court explaining why those tax returns are likely to lead to discoverable evidence. B. Item No. 25: Information about tax accrual work papers and other documents prepared by Kraft in connection witb Kraft's 2009-2011 financial statements In its motion, the Assessor clarifies that Item No. 25 of its Deposition Notices seeks testimony from the Kraft entities regarding 1'any tax accrual wod( papers and related documents in w11ich Kraft disclosed internally (and to its independent auditors) its estimates of potential state income tax liabilities resulting from the $3 billion capital gain at issue here." (Kraft Mot. Compel 9.) The Assessor contends that these documents are prepared by Kraft as patt of its obligations under federal securities Jaw. (Id) According to the Assessor, as part of its annual public financial statements, Knrft must calculate its reserves for contingent tax liabilities and have those reserves certified by an independent auditor. (Id.) The Assessor contends that Kraft objects to its request on the grounds that those requested documents are protected by the work­ prnduct doctrine. (Id.) The Assessor asserts that the First Circuit, in United Stales v. Textron Inc., 577 F.3d 21 (1st Cir. 2009) (en bane), cert. denied> 560 U.S. 924 (2010), has ruled that these exact type of work papers and documents are not protected by the work-product doctdne. (Id. at 9-10.) The Assessor. contends that the Textron is consistent with the work-product doctrine under Maine law. (Id. at 10.) In support of its opposition, Kraft has provided an affidavit from its Director of State Income Taxes describing the requested documents. (See Lebiecld Aff.) According to Kraft, the requested documents consist of (1) memoranda prepared by the Chicago law firm Horwood, Mat'cus and Berk ("HMB"), at the request of Kraft's Senior Manager of State Income Taxes and Senior Director of State Taxes, analyzing the potential for and risks of litigation in Maine and other states associated with Kmft,s position on the capital gain at issue in this case, and (2) a 13 spreadsheet prepared by Kraft's Senior Manager of State Income Taxes and Senior Dit'ector of State Taxes based on the memoranda, refl,ecting HMB's judgment regarding the chances of success in litigation and dollar amounts associated the position taken on the gain in each state. (Id. ~ 5.) Kraft asserts HMB regularly represents Kraft with respect to tax issues, that the memoranda were shared only with Kraft>s Senior Vice P1'esident of Taxes, and that the memoranda were not shared with anyone outside the company. (Id. ~~ 7-8, 10.) The spreadsheet was provided to Kraft's auditors to support its reserves for contingent tax liabilities, (Id ~ 9.) Kraft asserts that the memoranda are pl'otected from disclosure by the attorney-client privilege, and that both the memoranda and the spreadsheet are protected by the work-product doctrine. (Kraft Opp'n to Mot. Compel 4, 6.) Kraft contends that the Textron case relied on by the Assessor is inconsistent with Maine law and that this couit should adopt the approach of other federal and state courts regarding the wol'k-product doctrine. (Id. at 7-9.) Kraft also asserts that the spreadsheet is in·elevant to remaining issues in this case. (Id. at 5-6.) Foremost, a client has the privilege to refuse or prevent disclosure of any confidential communication between the attorney and client. M.R. Evict. 502(b). A communication is "confidential" if it is (1) made to facilitate the rendition of legal services to the client and (2) not intended to be disclosed to any thitd party other than those to whom the client revealed the information in the process of obtaining professional legal services. M.R. Evid, 502(a)(5); see Fiber Materials, Inc. v. Subilia, 2009 ME 71, ~ 11 n.1, 974 A.2d 918. A person waives the privilege if he or she 11 voluntarily discloses or consents to the disclosure of any significant pait of the privileged matter." Me. R. Evid. 51 O(a). The Law Court has stated, "a pl'ivilege is_ waived when a 'significant part' or 'key element' of the privileged communication has been disclosed by 14 the party claitning entitlement to the privilege." Jensen v. S.D. Warren Co., 2009 ME 35, ·~ 31, 968 A.2d 528 (internal citation omitted). According to the affidavit of Kraft's Director of State Income Taxes, the . memoranda were confidential conununications between a law firm and Kraft assessing the potential for and risk of litigation in Maine and other states that were not disclosed to anyone outside of Kraft. Therefore1 the memoranda constitute a privileged communication between attorney and client. However, according to Kraft's affidavit, the spreadsheet was prepared "based on the HMB memoranda, reflecting HMB's judgment with respect to the chances of success in litigation.. ," and shared with Kraft's auditors. (Lebiecki Aff. ,r,r 5, 9.) Therefore, based on Kraft's affidavit, a "key element" of the privileged communication has been disclosed by Kraft to a third party. Thus, attorney-client privilege has been waived, Regarding the work-product doctrine·, the First Circuit in Textron addressed whether the exact type of "tax accrnal WOl'k papers" at issue in this motion were protected by work-product doctrine. Textron, 577 F.3d at 22-23. The majority stated that the work-product doctrine prevents disclosure of documents and other tangible things '"J]repared in anticipation of litigation or for trial."' Id. at 27 (quoting Fed. R. Civ. P, 26(b)(3)). It is not enough that the subject matter of a document might conceivably be litigated, tne mate1ials must be "prepared for" litigation or trial. Id. at 29. According to the majority, "Even if pl'epared by lawyers and reflecting legal thinking, materials assembled in the ordinary coUl'se of business, or pursuant to public requirements unrelated to litigation, or for other nonlitigation purposes are not under the qualified immunity ... '' Id. at 30 (internal quotations, alterations, and citation omitted). Thus, "work product protection does not extend to documents that are prepared in the ordinary course of pusiness or that would have been created in essentially similar form irrespective of the 15 · litigation." Id. (internal quotation and citation omitted). The First Circuit held that, because the tax accrual work papers were independently required by statutory and audit requirements and were prepared to supp01t financial filings and gain auditor approval, the tax accrual work papers were not '1prepared for" litigation. Id. at 26, 31-32. Accordingly, tax accrual work papers were not protected by the work-product doctrine. Id at 31-32. In a dissenting opinion, CircuifJudge Torruella argues that the majority in Textron have applied the wrong test for the work-prnduct doctrine. Textron, 577 F.3d at 32 (Tonuella, J. dissenting). Judge Tonuella contends that the majority's "prepared for" test is even na1TOwer than the widely rejected "primai-y purpose test." Id. According to Judge Torruella, the appropriate test is 11whether in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation." Id. (internal quotation and citation omitted) (emphasis in original). Judge Tonuella states the "because of' test is not limited to documents ''prepared for" use in litigation. Id. at 34. Quoting United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998), Judge To1Tuella states: The [work-product doctrine, codi£ed in Federal Rule 26(b)(3),] does not limit its protection to materials pl'epared to assist at trial. To the contrary, the text of the Rule clearly sweeps more broadly. It expressly states that work-product privilege applies not only to documents ccpreparecl ... for trial'' but also to those prepared "in anticipation of litigation." If the drafters of the Rule intended to limit its protection to documents made to assist in preparation for litigation, this would have been adequately conveyed by the phrase "prepared ... for trial." The fact that documents prepared "in anticipation of litigation" were also included confirms that the drnfters considered this to be a different, and broader category. Nothing in the Rule states or suggests that documents prepared ccin anticipation of litigation" with the purpose of assisting in the making of a business decision do not fall within its scope. id. (quoting Ad/man., 134 F.3d at 1198~99). Applying the "because of' test, Judge To11'uella concludes that tax accrual work papers am protected by the work-product doctdne. Id. at 40. 16 · According to Judge Torruella, the driving force behind the preparation of the tax accrual work papers was the need to reserve money in anticipation of lit~gation. Id. at 41. Although other business needs were also a motivating factor, those needs depended on anticipating litigation. Id at 41. In other words, the dual purposes for creating the tax accrual work papers, anticipating litigation and gaining auditor approval for financial filings, wel'e intertwined and the wade­ product doctrine should apply. Id. Regarding the exception to the "because of' test that documents prepared in the ordinary course of business or that would have been cl'eated in-espective of litigation are not protected, Judge Torruella states that the exception does not strip away work-product prntection for dual­ putpose documents. id. at 4142. Rather, the exception should simply be read to distinguish business and regulatory purposes from litigation and to clarify that, although dual-purpose docmnents are protected, thel'e is no work-product protection for but documents produced in the ordinal course of business "rather than" litigation. Id. at 42. Therefore, although the tax accrual work papers had a business and regulatory purpose. because the tax accrual work papers were prepared for the dual propose of anticipating litigation, they were not prepared irrespective of litigation and the exception does not apply. Id Under Maine law, a document is protected by the work-product doctrine, codified in Maine Rule of Civil Procedure 26(b)(3), "if it was C!'eated because of the party's subjective anticipation of future litigation." Springfield Terminal Ry. Co. v. Dept. of Transp., 2000 ME 126, ,r 16, 754 A.2d 353. "The preparer's anticipation of litigation must also be objectively reasonable." Id (internal citation and quotation omitted). "Moreover, the document must also be of a type that can be considered wol'lc product. A party generally must show that the documents were prepared principally or exclusively to assist in anticipated or ongoing 17 litigation." Id 1 17 (internal citation and quotation omitted). The test is "whether, in light of the nature of the doclllllent and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation," Id. {lnternal citation and quotation omitted), Our Law Court has also held that Ha document prepated in the 1·egular course of business may be prepared in anticipation of litigation when the paity's business is to prepare for litigation." Harriman v. Maddocks, 518 A.2d 1027, 1034 (Me. 1986) (internal citation and quotation omitted); see Springfield Terminal, 2000 ME 126, ~ 17 n.5, 754 A.2d 353 (stating Harriman remains good law). In Harriman, the plaintiffs sought to discover the entire claim file compiled by defendants' insurance adjuster. Harriman, 518 A.2d at 1031. The plaintiffs argued that evaluation of policyholdet claims is the regular business of an insurance company and not done in anticipation of litigation. Id. at 1034. However, the Court held that) because one of the routine functions of a claims adjuster is to prepare for litigation, documents prepared by an insurance adjustel' were protected by the work-product doctrine. Id. Maine law is consistent with Judge Torruella's dissent. It is a routine function of a law firm to anticipate and prepare for Htigation. The tax accrual work papers at issue in this motion contain a Jaw firm's legal analysis regarding the potential risk of litigation associated with Kraft's tax position. Thus, it can be fairly said that the tax accrual work papers were prepared because of the prospect of litigation. The fact that tax accrual work papers also have a dual business and regulatory function does not negate fact they were prepared because of the need to anticipate litigation by a law firm whose business it is to prepare for litigation. The documents' business and regulatory function is inteitwined witl}. the need to anticipate litigation. Therefore, the tax accrual work papers ate protected by the work-product doctrine. 18 Pursuant to Maine Rufe of Civil Procedure 26(b)(3), a party may still discover documents protected by the work-product doctrine "upon a showing that the pa1ty seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means." M.R. Civ. P. 26(b)(3), The Assessor has made no such showing. Therefore, the court declines to compel Kraft to provide deposition testimony regarding the tax accrual work papers and related documents. V. CONCLUSIONS The Kraft Respondents' motion to bifurcate is DENIED. The State Tax Assessor's motion for an order compelling non-party Mondelez International, Inc. to comply with a subpoena for the prnduction of documents is GRANTED. The State Tax Assessor's motion for an order compelling the Kraft Respondents to provide deposition testimony is GRANTED IN PART AND DENIED IN PART as follows: (1) The State Tax Assessol''s motion to compel Kraft Respondents to provide deposition testimony regarding state income tax returns, combined repo1ts, and any audits or assessments in others states is GRANTED IN PART. The Kraft Respondents shall provide deposition testimony regarding state income tax returns and combined reports filed by Kraft Foods and its affiliates for the states of California, Illinois, Kansas, Montana, and Wisconsin, and any audits or assessments by those states related to those returns for the period of 2008 - 2010. If the St~te Tax Assessor wishes to depose nny Kraft Respondents regarding income tax returns and combined reports filed in any other states and any related audits or assessments, the State Tax Assessor must make a motion with this court explaining why those tax returns are likely to lead to discoverable evidence. 19 (2) The State Assessor's motion to compel Kraft Respondents to provide deposition testimony regarding tax accrual work papers and related documents is DENIED. Pursiiant to Maine Rule Civil Procedure 79(a), the Clerk is hereby directed to incorporate this Order by reference in the docket. Dated M. Michaela Murphy Justice, Business and Consume1· Court Entered on the Docket: l, , ,.., ((1 Copies sent via Mail_ Electronically_L. 20 State Tax Assessor v. Kraft Foods Group, Inc., et al. BCD-AP-16-02 Plaintiff State Tax Assessor Thomas Knowlan, AAG. 6 State House Station Augusta, ME 04333 Defendant Kraft Foods Group, Inc. Jonathan A. Block, Esq. Kraft Foods Global, Inc 254 Commercial St. Kraft Pizza Company Portland, ME 04101 Cadbury Adams USA, LLC --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10811345. Public record. Not legal advice.