Amicus Curiae Brief — Textron Inc. v. United States

™e Court 11S.

JAN 27 2010

OPFICE OF THE CLERK

No. 09-750

In the

Supreme Court of the Gnited States

TEXTRON INC. AND SUBSIDIARIES.,

PETITIONER,

UNITED STATES,

RESPONDENT.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIRST CIRCUIT

BRIEF OF AMICUS CURIAE CHAMBER OF

COMMERCE OF THE UNITED STATES OF

AMERICA IN SUPPORT OF PETITIONER

ROBIN S. CONRAD

AMAR D. SARWAL

NATIONAL CHAMBER

LITIGATION CENTER, [NC.

1615 H Street, NW

Washington, DC 20062

(202) 463-5337

RICHARD P. BRESS

Counsel of Record

SEAN P. KRISPINSKY

LATHAM & WATKINS LLP

555 11TH STREET, NW

SUITE 1000

WASHINGTON, DC 20004

(202) 637-2200

ROBERT J. MALIONEK

ADAM J. GOLDBERG

BLAKE T. DENTON

LATHAM & WATKINS LLP

885 THIRD AVENUE

NEW YORK, NY 10022

(212) 906-1200

Counsel for Amicus Curiae

—

— -—_—_—_——

i

TABLE OF CONTENTS

Page

Tn I i

pr 8 Es BP hig, 3) 4 5) ao il

INTERESTS OF AMICUS CURIA Biiniccccccccccceceeseeceeee: 1

pS | __,_EARTSI Eee a Na EC ern Oe A EOoe 4

[. THE FIRST CIRCUITS DECISION

IGNORES THE LANGUAGE OF RULE

26(B)\(3) AND THE PURPOSES OF THE

WORK PRODUCT PRIVILEGE .............sccssrssssseees 4

Il. THE FIRST CIRCUIT'S “FOR USE” TEST

THREATENS TO UNDERMINE THE

ATTORNEY-CLIENT RELATIONSHIP

AND PUNISH BUSINESSES FOR THEIR

PRUDENT RELIANCE ON COUNSEL............ 1]

A. Internal Investigations and Compliance....... 14

EE TC 18

C. Analysis of Complex Transactions................. 20

Il.THE BUSINESS COMMUNITY NEEDS

THIS COURT'S GUIDANCE ................... eucaual 21

SI NMMTIIIDT ciisciicciescninniinnsinhcaieieccheielliateampeniaiieeiediteaiteabiaiamaiiia 22

ii

TABLE OF AUTHORITIES

CASES

Bituminous Casualty Corp. v. Tonka Corp.,

140 F.R.D. 381 (D. Minn, 1992)........ccccceeereee

Black & Decker Corp. v. United States,

219 F.R.D. 87 (D. Md. 2008) .........ccccccecseseeseeees

Delaney, Migdail & Young Chartered v. IRS,

826 F.2d 124 (D.C. Cir, 1987) .....cccccrersecrereeees

ECDC Environmental, L.C. v. New York

Marine & General Insurance Co.,

96 Civ. 6033 (BSJ)(HBP), 1998 WL 614478

Cees 0c SUN Gy Bie Pocecscccvcsconcevezesceecsacoeneeces

EEOC »v. Lutheran Social Services,

186 F.3d 959 (D.C. Cir. 1999) ..........cccsrscsessoeeee

Inve Grand Jury Investigation,

599 F.2d 1224 (Sd Cir. 1979)......ccerscrveersreseveres

In re Grand Jury Subpoena,

220 F.R.D. 1380 (D. Mass. 2004)..............cc00000e

Hickman v. Taylor,

Se pe NEED sicapbicnsconssessscssasdccusesmnesenssvsens

Kungys v. United States,

Fe FINE CIO toccsenceneisccscsesnececcescsnssececoenees

capidpnsniata 9

iii

TABLE OF AUTHORITIES

Page(s)

Long-Term Capital Holdings v. United States,

No. 3:01 CV 1290 (JBA), 2002 WL 31934139

Ce, CII, SI Se IY corrreietcccectinndontcecascnenncenienscavoces 8

Martin v. Bally’s Park Place Hotel & Casino,

Dee Be Te CO CAE, TG) cccesceceecesvivcsesonssiassonncceces 16

Merrill Lynch & Co. v. Allegheny Energy, Inc.,

SED F'L.D. G41 CE.DN LT . BIE) cccsvccscccesesccesosveeses 15, 20

NLRB »v. Sears, Roebuck & Co.,

ee Be IE illic sacicsssicintvasheincsnsinnssiovenicrateiivianitecns 4,8

United States v. Adlman,

134 F.3d 1194 (2d Cir. 1998)..............scssscsssresees passim

United States v. Arthur Young & Co.,

AGE U.S. 805 (1984) ..cccsssssccssecccsccsssssessseesssssuecececessen 9, 10

United States v. Huge,

Ne ITI cu satin sein sacondcorarsendocenubennainneicieecaes 9

United States v. Roxwerthy,

A5T FBG GOO (SE Cll, ZO0G) ..ccccrsescessssecscovsansacscssnes 8, 10

Upjohn Co. v. United States,

a I EY arse cncenlascsancsdnsiseemseduusenestenns 2,6, 21

STATUTES, RULES AND REGULATIONS

BEF er PE OW vitesesansesevinscnpsctiptenscssnsntcsseacscouianting 17

iv

TABLE OF AUTHORITIES

BE UE Bike Oe SRE A hiticccvvncsscinientenictatiadaameds 18

Bas We EE I cries sareutanbevenisvennncxeessneoptssenmbinsiensamamaael 10

Bee Oe ID carseat ciesdiceaai con sdaioce es eteneadoaaddabeeemberaomennernenia 10

I, To SR cstiettentcceeceeinkdincaniananein 10

Federal Rule of Civil Procedure 26(b)(8) ................ec eee 1

OTHER AUTHORITY

Codification of Accounting Standards, Loss

Contingencies, 450-20 (FASB 2009)................... 18, 19

2 Edna Selan Epstein, The Attorney-Client

Privilege and the Work-Product Doctrine

SRR ren ae RE na em AE 13

FASB Interpretation No. 48: Accounting for

‘Uncertainty in Income Taxes (June 2006)............. 6, 7

Michelle M. Henkel, Textron Eviscerates the 60-

Year-Old Work Product Privilege, 125 Tax

I TI IIE ceesaiscvssciinencecesunnsucesnrccsuuvessesaceistsarcencens 12

Priya Cherian Huskins, FCPA Prosecutions:

Liability Trend to Watch, 60 Stan. L. Rev.

Se EE ac taiserceiacecdnceainloriciariosnsnctsictseccoresieniens ee: hy

Vv

TABLE OF AUTHORITIES

Re CS TE cesitcecesechenstncctsnncmee

Anne King, Comment, The Common Interest

Doctrine and Disclosures during

Negotiations for Substantial Transactions,

74 U. Chi. L. Rev. 1411 (2007) ............. eee

Restatement (Third) of the Law Governing

SAFES CD tcentinitimnaneemamamiaaane

Paul D. Sarkozi, Internal Investigations: An

Overview of the Nuts and Bolts and Key

Considerations in Conducting Effective

Investigations, in Internal Investigations:

Legal Ethical & Strategic Issues (PLI Corp.

Law Practice, Course Handbook Series No.

DI IT siccernnerccnsseuenissinsanticinumemmaannaiea

SEC »v. Halliburton Co. & KBR, Inc.,

Litigation Release No. 20897A (SEC Feb.

D5, SND seccscrtassssssskeonnreonteninicmenamnaeaaain

John E. Sexton, A Post-Upjohn Consideration

of the Corporate Attorney-Client Privilege,

57 N.Y.U. L. Rev. 448 (1982)............c.ssesecoseee

8 Charles Aian Wright et al., Federal Practice

and Procedure § 2024 (2d ed. 1994) ...............

wien 13

vi

TABLE OF AUTHORITIES

Page(s)

Yin Wilczek, Khuzami: SEC in Final Stages on

Cooperation Agreement, Skeptical of Work

Paper Shield, 5 Acct. Pol’y & Prac. Rep.

CaP CEMOG, 1B, SOUR) csoccecccvvesessvcecsovcesessccsssescess 12

David M. Zornow & Keith D. Krakaur, On The

Brink Of A Brave New World: The Death Of

Privilege In Corporate Criminal

Investigations, 37 Am. Crim. L. Rev. 147

Nee ra ciccsscsscraseesceveseorsensesesseceoseesossassne 15

1

INTERESTS OF AMICUS CURIAE

The Chamber of Commerce of the United States

of America (the “Chamber”) is the world’s largest

business federation. It represents 300,000 direct

members and indirectly represents an underlying

membership of more than three million companies and

professional organizations of all sizes and in all

industries._ The Chamber advocates issues of vital

concern to the nation’s business community in matters

before the courts, Congress, and the Executive Branch.

The Chamber frequently appears as an amicus in this

Court in cases that affect the interests of American

businesses and the public welfare, drawing on the vast

experience of its members to illustrate the practical

ramifications of legal disputes. And when misguided

decisions of lower courts on matters of great

importance threaten the interests of the business

community and the greater public, the Chamber

supports petitions for this Court’s review. This is such

a case.

This case addresses the meaning and scope of the

work product privilege codified in Federal Rule of Civil

Procedure 26(b)(3), which protects from discovery

1 Pursuant to Supreme Court Rule 37.6, amicus states that no

counsel for a party authored this brief in whole or in part; and no

such counsel or any party made a monetary contribution intended

to fund the preparation or submission of this brief. No person or

entity, other than the amicus and its counsel, made a monetary

contribution intended to fund the preparation and submission of

this brief. Counsel of record for all parties were notified ten days

prior to filing and have consented to the filing of this brief.

Counsel for Petitioner filed a blanket letter of consent with this

Court on January 4, 2010, and a letter of consent from Respondent

has been submitted to the Clerk concurrently with this filing.

2

materials “prepared in anticipation of litigation or for

trial.” The First Circuit’s decision artificially limits

this privilege to documents prepared “for use’ in

litigation. Pet.App. 1la-18a. That construction departs

from the text of Rule 26(b)(3), rendering ‘ia

anticipation of litigation” meaningless, and divorces the

rule from its underlying purpose—to protect attorneys’

theories, strategies, and assessments of potential and

ongoing litigation, whether prepared “for use” in

litigation or not. From a practical perspective,

moreover, the “for use” test ignores the manner in

which modern businesses rely upon legal counsel. If

not reversed, the First Circuit’s decision will gravely

impact the ability of businesses to make well-informed,

prudent decisions and ensure compliance with the law.

“In light of the vast and complicated array of

regulatory legislation confronting the modern

corporation, corporations, unlike most individuals,

‘constantly go to lawyers to find out how to obey the

law ....” Upjohn Co. v. United States, 449 U.S. 383,

392 (1981) (citation omitted). Numerous decisions

routinely facing American businesses require an

assessment of potential liability and litigation

strategies and risks. These run the gambit from

internal investigations evaluating legal risks and

ensuring compliance with the law to mandatory

analyses of potential liabilities for financial reporting

purposes and legal assessments undertaken to evaiuate

or accomplish complex corporate transactions. Al!

require counsei candidly to assess litigation risks, legal

strategies, and settlement positions. Yet, because they

are generally not prepared “for use” in litigation, the

First Circuit’s decision renders counsel’s recorded

analyses and impressions wholly discoverable by

3

litigation adversaries, who will use them as a

“roadmap” in the _ litigation—undermining the

traditional notions of justice in our adversary system

that this Court sought to protect through the work

product privilege. Under the First Circuit’s narrow

conception of the privilege, “{ijnefficiency, unfairness

and sharp practices” will “inevitably develop in the

giving of legal advice,” and “[aJ]n attorney’s thoughts,

heretofore inviolate,” will “not be his own.” Hickman

v. Taylor, 329 U.S. 495, 511 (1947). If left standing, the

First Circuit’s fundamentally misguided rule will not

only ‘frustrate businesses’ legitimate interests in

proactive investigation, prudent decisionmaking, and

legal compliance, but will also harm the interests of

regulatory agencies and the greater public in fostering

corporate self-reporting and compliance with an

increasingly-complex array of regulations governing

corporate conduct.

The decision below exacerbates a vexing conflict

among:the Courts of Appeals about the meaning and

scope of the work product privilege, and no interests

would-be served by delaying this Court’s review. By

announcing a new and far more limited standard that

conflicts with the law of every other circuit, the First

Circuit’s opinion creates great uncertainty for

companies that have come to rely on the work product

privilege in carrying out’ every _ transaction,

investigation, and action that calls for litigation

analysis. Because many businesses never can be

certain where work prod. <t issues will be litigated, the

First Circuit’s “for use” test threatens, de facto, to

become the law of the land. The Chamber urges this

Court to grant certiorari now to provide members of

the business community with clear guidance on the

4

scope of the work product privilege and clarify the

approach courts should use in determining whether

materials are protected under Rule 26(b)(3). There is

no reason to allow this issue to percolate any further.

As Judge Torruella stated in his dissent below, “[t]he

time is ripe for the Supreme Court to intervene and set

the circuits straight on this issue which is essential to

the daily practice of litigators across the country.”

Pet.App. 45a (Torruella, J., dissenting).

ARGUMENT

I. THE FIRST CIRCUITS DECISION

IGNORES THE LANGUAGE OF RULE

26(B)(3) AND THE PURPOSES OF THE

WORK PRODUCT PRIVILEGE

“Nowhere does Rule 26(b)(8) state that a

document must have been prepared to aid in the

conduct of litigation in order to constitute work

product, much less primarily or exclusively to aid in

litigation.” United States v. Adlman, 184 F.3d 1194,

1198 (2d Cir. 1998). To the contrary, Rule 26(b)(3)

expressly protects from discovery those materials

“prepared in anticipation of litigation or for trial.” As

this Court has recognized, the rule covers more than

materials prepared for use in litigation: “Whatever the

outer boundaries of the attorney’s work-product rule

are, the rule clearly applies to memoranda prepared by

an attorney in contemplation of litigation which set

forth the attorney’s theory of the case and his litigation

strategy.” NLRB v. Sears, Roebuck & Co., 421 US.

132, 154 (1975) (emphasis added). Under its “for use”

test, however, the First Circuit has effectively limited

the work product privilege to materials prepared “for

use in” litigation, rendering “in anticipation of

5

litigation” meaningless. This narrowing construction

finds no support in the text or well-established rules of

construction, which dictate that “no provision ... be

construed to be entirely redundant.” Kungys v. United

States, 485 U.S. 759, 778 (1988) (plurality).

The First Circuit’s’ interpretation also

undermines the purposes of the work product

privilege. This Court first endorsed the work product

privilege in Hickman v. Taylor, 329 U.S. 495 (1947).

Hickman held that an attorney’s witness interview

memoranda, created during the course of an accident

investigation, were protected “attorney work product”

and thus not discoverable in subsequent litigation

arising from the accident. Jd. at 511. The Court’s

conclusion was grounded both in common law and

practical considerations—privacy, efficiency and

fairness in the administration of justice. As the Court

explained, “it is essential that a lawyer work with a

certain, degree of privacy, free from unnecessary

intrusion by opposing parties and their counsel.” Jd. at

510. Our adversarial system requires that an attorney

be able to “assemble information, sift what he considers

to be the relevant from the irrelevant facts, prepare his

legal theories and plan his strategy without undue and

needless interference.” Jd. at 6511. Thus, the

“interviews, statements, memoranda, correspondence,

briefs, mental impressions, [and] personal beliefs” —the

core “work product of the lawyer’—must be

privileged. Jd. Otherwise, “much of what is now put

down in writing would remain unwritten,” and “[aJn

attorney’s thoughts, heretofore inviolate, would not be

his own.” Id. These “historical and ... necessary”

principles, id., which lay the foundation for Rule

26(b\(3), Upjohn, 449 U.S. at 398 (1981), “promote

6

justice,” “protect ... clients’ interests,” and are

essential to “an orderly working of our system of legal

procedure,” Hickman, 329 U.S. at 511-12. Without the

work product privilege, “[i]nefficiency, unfairness, and

sharp practices would inevitably develop.” Jd. at 511.

The forced disclosure of Textron’s tax accrual

workpapers violates the fundamental principles that

animated this Court in Hickman. These workpapers

include spreadsheets and supporting documentation

that together reflect the opinions of Textron’s

attorneys about the company’s potential tax liability,

including the likelihood that Textron would prevail in

litigation with the IRS over Textron’s tax positions.

See Pet.App. 92a-98a. The First Circuit nonetheless

excluded Textron’s tax accrual workpapers from the

protection of the privilege based on its finding that

they are “independently required by statutory and

audit requirements.” Pet.App. 9a.2 But there is “no

basis for adopting a test under which an attorney’s

assessment of the likely outcome of litigation is freely

available to his litigation adversary merely because the

document was created for a business purpose rather

than for litigation assistance.” Adiman, 134 F.3d at

1200. Regardless of whether counsel’s evaluation of

potential litigation is created “for use” in that litigation

2 This finding, however, is not supported by law or the record.

Although companies create tax accrual workpapers to assist in the

financial reporting process, no statute, regulation or audit

standard requires the creation of such documents. Moreover,

when the Financial Accounting Standards Board (“FASB”)

promulgated FASB Interpretation No. 48: Accounting for

Uncertainty in Income Taxes (June 2006), FASB stated that it

“does not intend to imply a documentation requirement” in

connection with a company’s accounting for contingent tax

reserves in its financial statements. Jd. at app. A, Al.

7

or—like Textron’s tax accrual workpapers—for

another purpose that requires the anticipation and

analysis of litigation, it may equally comprise

“analys[es] that candidly discuss[] the attorney’s

litigation strategies, appraisal[s] of likelihood of

success, and perhaps the feasibility of reasonable

settlement,” thus “fallf{ing] squarely within Hickman’s

area of primary concern.” Jd. When businesses

analyze their tax accrual positions for purposes of

financial reporting, they must, as a practical matter,

turn to counsel. This is manifest under current U.S.

Generally Accepted Accounting Principles (“GAAP”)

reporting requirements. In 2006, F ASB explained that

the analysis of whether a company is likely to succeed

in its tax position—and thus whether it must accrue for

and disclose a potential loss—‘“is a matter of judgment

based on the facts and circumstances of that position

evaluated in light of all available evidence.” FASB

Interpretation No. 48, at 5. It is also “a matter of tax

law” and, “in some cases, the law is subject to varied

interpretation, and whether a tax position will

ultimately be sustained may be uncertain.” /d. at 2. A

company must consider the ultimate result of a

challenge to its tax positions through litigation, and

also must presume that tax authorities have complete

knowledge of all relevant information.

The potential for litigation in these circumstances,

moreover, is very real. Hvery tax return filed by

Textron is audited by the IRS. Pet.App. 50a. And

these audits often lead to litigation.* Pet.App. 90a-9la.

3 Most courts that have addressed the issue have recognized

that “litigation” is not limited to the context of a civil or criminal

trial. The work product privilege covers materials prepared in a

range of adversary postures; “[a]dversarialness’ is the touchstone

8

After all, as the District Court found, it was only

becanse of the realistic prospect of disputes with the

IRS that Textron’s counsel created materials

evaluating the likelihood of success in litigation and

potential litigation strategies. See Pet.App. 108a (“{I]t

is clear that the opinions of Textron’s counsel . .. would

not have been prepared at all ‘but for’ the fact that

Textron anticipated the possibility of litigation with the

IRS.”).. Further, these materials undeniably reflect

counsel’s “thoughts,” “mental impressions,” and

“opinions,” and are therefore the core “work product”

of Textron’s attorneys, see Hickman, 329 U.S. at 511,

as they “will inexorably contain [counsel’s] theory of

the case and may communicate ... some litigation

strategy or settlement advice.” Sears, Roebuck & Co.,

421 U.S. at 169-60; see also Roxworthy, 457 F.3d at 595,

597 (tax opinion rendered by an accounting firm at the

request of counse) prior to the filing of a tax return is

work product); Long-Term Capital Holdings v. United

of this approach to the ‘litigation’ question.” Jn re Grand Jury

Subpoena, 220 F.R.D. 130, 147 (D. Mass. 2004). The Restatement

of the Law Governing Lawyers thus defines “litigation” in the

work product context to include an “adversarial proceeding before

an administrative agency, an arbitration panel or a claims

commission, and alternative-dispute-resolution proceedings such

as mediation or mini-trial,” or any proceeding in which “evidence

or legal argument is presented by parties contending against each

other with respect to iegally significant factual issues.”

Restatement (Third) of the Law Governing Lawyers § 87 cmt. h

(2000). This amply covers Textron’s anticipated adversarial

administrative proceedings and other disputes with the IRS. As

the Sixth Circuit has explained, “a document prepared in

anticipation of dealing with the IRS ... may very well have been

prepared in anticipation of an administrative dispute and this may

constitute litigation within the meaning of Rule 26.” See United

States v. Roxworthy, 457 F.3d 690, 600 (6th Cir. 2006) (internal

quotation marks omitted).

9

States, No. 3:01 CV 1290 (JBA), 2002 WL 31934139, at

*8 (D. Conn. Oct. 30, 2002) (legal opinion obtained prior

to sale of preferred stock is privileged against IRS

subpoena); Black & Decker Corp. v. United States, 219

F.R.D. 87, 91 (D. Md. 2003) (documents containing tax

analysis prior to filing tax return are work product).

The admonitions in Hickman regarding the

unfairness and sharp practices that result when work

product is not privileged are also vividly illustrated and

borne out in this case. The government

unapologetically concedes that it seeks these

workpapers because they are a roadmap to Textron’s

self-assessed “soft spots” in its tax return. Appellant

Br. at 31-32 (1st Cir. Jan. 25, 2008). The IRS admits

that it does not want the workpapers for their factual

content because the IRS indisputably has access to all

of the facts underlying Textron’s tax positions. Rather,

the IRS intends to use the legal analysis of Textron’s

counsel»as a “tool” in “the IRS’s arsenal” that will

“ease” its ability to challenge Textron’s tax positions.

Petition for Rehearing En Banc at 14-15 n.12 (1st Cir.

Mar. 9, 2009). But “|djiscovery was hardly intended to

enable a learned profession to perform its functions

either without wits or on wits borrowed from the

adversary.” Hickman, 329 U.S. at 516 (Jackson, J.,

concurring). And the IRS has no special warrant or

need for exception. The IRS’ summons power is

“subject to the traditional privileges and limitations,”

United States v. Arthur Young & Co., 465 U.S. 805, 816

(1984) (quoting United States v. Fuge, 444 U.S. 707, 714

(1980)),4 but it has ample tools to require taxpayers to

4 In Arthur Young, this Court held that the government was

entitled to workpapers created by a corporation's independent

auditor regarding the corporation’s tax return, 466 U.S, at 813-14,

10

disclose relevant factual information.5 Permitting the

IRS, in addition, to demand the tax accrual workpapers

of businesses during audits—which are inherently

adversarial—would foster exactly the sort of sharp

practices forbidden by the work product privilege. See

Roazworthy, 457 F.3d at 595 (“(TJhe IRS would appear

to obtain an unfair advantage by gaining access to

KPMG’s detailed legal analysis of the strengths and

weaknesses of [the taxpayer’s] position. This factor

weighs in favor of recognizing the documents as

privileged.”); Delaney, Migdail & Yowng Chartered v.

IRS, 826 F.2d 124, 127 (D.C. Cir. 1987) (where

but nothing in that decision suggested workpapers created by the

taxpayer's counsel lose their privileged status merely because

they are shared with an auditor. To the contrary, the Court

explained that the policies supporting the work product privilege

were not implicated in Arthur Young because an independent

auditor’s “public watchdog” function is fundamentally different

from a lawyer’s role as counsel and advocate for his client. See id.

at 817-18 (“The Hickman work-product doctrine was founded

upon the private attorney’s role as the client’s confidential advisor

and advocate, a loyal representative whose duty it is to present

the client’s case in the most favorable possible light. An

independent certified public accountant performs a different

role.”).

5 For example, the IRS has authority to create the forms

(including tax return forms) with the specific information that the

IRS deems necessary to be provided by taxpayers, see I.R.C.

§ 6011(a); to require disclosure of specific transactions such as the

kinds of “listed” transaction by Textron that the IRS is

evaluating, see Treas. Reg. § 1.6011-4; to require the detailed

disclosure of book-tax differences, see IRS Schedule M-3 (Form

1120, used by the IRS in corporate taxpayer audits); to obtain,

during an audit, factual information needed to ascertain the

correctness of a tax return or determine a taxpayer's correct

liability, see I.R.C. §7602(a); and to issue administrative

summonses for records and testimony not only of the taxpayer and

its employees but also of third parties, id. §§ 7602(a)(2), (3).

11

requesting party sought “attorneys’ assessment of the

program’s legal vulnerabilities in order to make sure it

does not miss anything in crafting its legal case,” it was

“precisely the type of discovery the Court refused to

permit in Hickman”). Without work product privilege,

companies would be forced to turn over their most

sensitive tax analyses to the IRS as well as other

regulatory agencies and private litigants. See Pet. at

26. Any short-term benefit the First Circuit’s decision

provides to the Government or, the plaintiffs’ bar,

however, would be far outweighed by the obstacles it

creates for companies attempting to obtain efficient

and candid advice of counsel and to coiuply fully with

their financial reporting obligations.

Il. THE FIRST CIRCUIT'S “FOR USE” TEST

THREATENS TO UNDERMINE THE

ATTORNEY-CLIENT REI ATIONSHIP

AND PUNISH BUSINESSES FOR THEIR

PRUDENT RELIANCE ON COUNSEL

Beyond the specific tax accrual workpaper

context’ addressed in this case, the “for use” test

adopted by the First Circuit threatens to destroy

businesses’ ability to obtain candid and thorough

analyses of litigation-related business matters. Unless

this decision is reversed, it will directly harm American

businesses, sharehoiders, regulatory agencies, and the

public interest. Today, businesses routinely use

counsel, inter alia, in (i) internal investigations to

evaluate potential legal risks and ensure compliance

with the law; (ii) legal analyses necessary to fulfill

financial reporting obligations; and (iii) assessments of

impending or current litigation affecting complex

corporate transactions. In all of these contexts,

companies routinely employ lawyers to evaluate

12

litigation risks, strategies, and settlement positions “in

anticipation of” litigation to help them comply with

legal obligations and make better business decisions.

In a world governed by the “for use” test, adverse

parties will routinely demand access to counsel’s notes,

analyses and other materials underlying counsel’s

work—but not necessarily shared with the client and

protected by the attorney-client privilege—and

businesses that diligently and aggressively investigate

and consider issues arising from anticipated or ongoing

litigation will be forced to divulge these sensitive

materials to regulatory agencies or other adversaries.®

The “for use” test thus will create an incentive not to

investigate or consider such issues, which will harm the

interests of companies, shareholders and ultimately the

public at large. See EEOC v. Lutheran Social Servs.,

186 F.3d 959, 966 (D.C. Cir. 1999) (“Weakening the

ability of lawyers to represent clients at the pre-claim

stage of anticipated litigation [by reducing work

product protection] would inevitably reduce voluntary

compliance with the law, produce more litigation, and

increase the workload of government law-enforcement

agencies.”) (internal quotation marks omitted).

Under the First Circuit’s narrow conception of

the work product privilege, companies will face the

6 Indeed, in civil suits against corporate defendants, plaintiffs

stand to benefit from the Textron decision, see Michelle M.

Henkel, Textron Hviscerates the 60-Year-Old Work Product

Privilege, 125 Tax Notes 237, 241 (2009), and SEC Enforcement

Director Robert Khuzami recently announced that, in light of the

Textron decision, nc company documents in the possession of an

auditor should be regarded as privileged work product. See Yin

Wilczek, Khuzami: SEC in Final Stages on Cooperation

Agreement, Skeptical of Work Paper Shield, 5 Acct. Pol’y & Prac.

Rep. (BNA) 1118 (Dec. 11, 2009).

13

constant threat of disclosure to litigation adversaries of

their counsel’s findings and analyses, because the most

sensitive materials prepared by counsel often are not

prepared for conveyance to the client, and they

therefore fall entirely outside the protection of the

attorney-client privilege. See 2 Edna Selan Epstein,

The Attorney-Client Privilege and the Work-Product

Doctrine 791 (5th ed. 2007) (“([T]he [attorney-client]

privilege extends only to client communications, while

work product encompasses much that has its source

outside client communications ....”). Often, these

documents are created to preserve the results of

counsel’s investigations and formulate the finalized

advice that is shared with the client. See Hickman, 329

U.S. at 511 (“Proper preparation of a client’s case

demands that [the lawyer] assembie information, sift

what he considers to be the relevant from the

irrelevant facts, prepare his legal theories and plan his

strategy. .... This work is reflected, of course, in

interviews, statements, memoranda, correspondence,

briefs, :mental impressions, personal beliefs, and

countless other tangible and intangible ways ....”).

And many documents, including audit letters and tax

accrual workpapers, are outside the attorney-client

privilege because they are prepared in order to be

shared with third parties assisting the client. 8 Charles

Alan Wright et al. Federal Practice and Procedure

§ 2024 (2d ed. 1994). By eviscerating the work product

privilege for all of these documents because they were

not prepared for 1:2 in the litigation assessed, the

First Circuit’s test places “an untenable”—and

unfair—“choice upon a corapany”:

If the company declines to make such analysis

or scrimps on candor and completeness to

14

avoid prejudicing its litigation prospects, it

subjects itself ... to ill-informed decision-

making. On the other hand, a study reflecting

the company’s litigation strategy and its

assessment of its strengths and weaknesses

cannot be turned over to litigation adversaries

without serious prejudice to the company’s

prospects in the litigation.

Adiman, 134 F.3d at 1200. ©

A review of the contexts in which counsel

routinely prepare analyses that would be instantly

discoverable under the First Circuit’s test illustrates

the gravity and importance of these issues and the

need for immediate review.

A. Internal Investigations and Compliance

Courts and the business community have long

appreciated that “[vjoluntary compliance with the law

often depends on sound legal advice” and “sound legal

advice in turn often depends on the attorney-client and

work product privileges.” Lutheran Social Servs., 186

F.3d at 966. This is because “[a] corporation’s attorney

...1S positioned to impart ‘preventive’ legal advice; she

acts as a private law enforcement agent.” John E.

Sexton, A Post-Upjohn Consideration of the Corporate

Attorney-Client Privilege, 57 N.Y.U. L. Rev. 448, 475

(1982). In particular, companies regularly commission

internal investigations, led by counsel, upon discovery

of potential violations of law or significant risks posed

by company actions or products. These investigations

are necessary to determine the relevant context and

potential legal implications, and allow the company to

take appropriate corrective action. And courts have

recognized that because the “suspicion” of legal

violations signals the possibility that litigation—

15

“criminal prosecutions, derivative suits, securities

litigation, or even litigation ... to recover ... illegal

payments”—may occur, internal investigations into

such violations are performed “in contemplation of

litigation.” In re Grand Jury Investigation, 599 F.2d

1224, 1227, 1229-30 (8d Cir. 1979); see also Merrill

Lynch & Co. v. Allegheny Energy, Inc., 229 F.R.D. 441,

445-49 (S.D.N.Y. 2004) (holding that corporate

counsel’s internal investigative material, shared with

outside auditors in connection with an audit of internal

controls, was privileged work product). Indeed, in

these circumstances, “the potential for litigation [is]

immeasurably intensified by [the company’s] legal

obligations to report any wrongdoing to _ its

stockholders and to various governmental agencies.”

In re Grand Jury Investigation, 599 F.2d at 1229.

Nevertheless, under the First Circuit’s test,

because they are prepared under compulsion of law or

for purposes of voluntary compliance and not “for use”

in litigation, most internal investigative materials

prepared by counsel—including notes and other

materials underlying the investigation but not shared

with the client—would no longer be protected as work

product. The resulting “chilling effect” would inhibit “a

company seeking legal advice.” David M. Zornow &

Keith D. Krakaur, On The Brink Of A Brave New

World: The Death Of Privilege In Corporate Criminal

Investigations, 37 Am. Crim. L. Rev. 147, 149 (2000).

The harm done would far outweigh any momentary

advantage that the First Circuit’s rule provides the

IRS and other regulators.

For example, companies often turn to outside

counsel and consultants to investigate, diagnose, and

create remediation plans for potential environmental

16

harms and dangers. The process of evaluating and

remedying potentially disastrous toxic torts must be

undertaken in a quick and decisive fashion. See Martin

v. Bally’s Park Place Hotel & Casino, 988 F.2d 1252,

1263 (8d Cir. 1993) (“We should encourage the

voluntary, cooperative, and speedy resolution of

workplace safety problems ....”). The materials

developed in this context that reflect the mental

impressions of counsel, including materials not shared

with the client, have been traditionally afforded work

product protection, even though not created “for use”

in litigation. See id. at 1261 (work product privilege

applied to an outside consultant’s emissions report);

ECDC Envtl., L.C. v. N.Y. Marine & Gen. Ins. Co., 96

Civ. 6033 (BSJ)(HBP), 1998 WL 614478 (S.D.N.Y. June

4, 1998) (work product privilege applied to materials

created during the investigation of an accidental spill of

3,000 tons of “spoils” into the ocean); Bituminous Cas.

Corp. v. Tonka Corp., 140 F.R.D. 381 (D. Minn. 1992)

(work product privilege applied to materials generated

during the ccurse of discussions with an environmental

agency about the investigation and clean-up of

hazardous waste). By withholding the work product

privilege from these materials, the “for use” test will

discourage companies from employing counsel for such

investigations, or discourage counsel from documenting

their findings and analyses. This will undermine

governmental efforts to encourage corporate self-

evaluation and self-reporting, and benefit no one.

Companies also routinely employ counsel to aid

their efforts to comply with the anti-bribery provisions

of the Foreign Corrupt Practices Act (““FCPA”), 15

U.S.C. § 78dd-1 to -3, which prohibit U.S. companies

from making offers and payments with corrupt intent

17

to foreign officials for the purpose of obtaining or

retaining business. Violations of the FCPA can yield

hefty civil fines and, in some cases, criminal penalties.

SEC v. Halliburton Co. & KBR, Inc., Litigation

Release No. 20897A (SEC Feb. 11, 2009), available

at http://www.sec.gov/litigation/litreleases/2009/

Ir20897a.htm (detailing $579 in civil and criminal fines

for FCPA violations). FCPA violations are typically

discovered by companies themselves and confirmed

only after an internal investigation is completed. See

Priya Cherian Huskins, FCPA Prosecutions: Liability

Trend to Watch, 60 Stan. L. Rev. 1447, 1449 (2008).

Although these investigations are effectively compelled

by law, FCPA enforcement is nevertheless largely

dependent upon companies self-reporting to the

Government. See id. (“(TJhe SEC and the DOJ have

enthusiastically embraced the role that self-monitoring

and cooperation play in assisting their investigations.”).

By eliminating the privilege for materials generated

during such internal investigations, the “for use” test

will undermine the policies and enforcement of the

FCPA; again, with no corresponding benefit.

The Sarbanes-Oxley Act also effectively requires

businesses to undertake internal investigations.

“Under Sarbanes-Oxley, Audit Committees and

company management are required to address

whistleblower complaints and other indicia of potential

wrongdoing or face liability.” Paul D. Sarkozi, Internal

Investigations: An Overview of the Nuts and Bolts and

Key Considerations in Conducting § Effective

Investigations, in Internal Investigations: Legal

Ethical & Strategic Issues, at 95, 99 (PLI Corp. Law

Practice, Course Handbook Series No. 1564, 2006).

“Similarly, under Delaware and other states’ corporate

18

law, a failure to address ‘red flags’ may be found to

constitute a breach of fiduciary duty.” Jd. But under

the First Circuit’s test, even though public companies

that conduct investigations into whistleblower

allegations regarding “any provision of Federal law

relating to fraud against shareholders” (18 U.S.C.

§ 1514A(a)(1)) may very well “anticipate litigation,”

their counsel’s findings and analyses will no longer be

entitled to the protection of the work product privilege.

In this context too, the First Circuit’s test will

discourage the prudent investigations that the law

should foster and protect. Moreover, providing the

government with the power to obtain and rely upon

counsel’s’_ sensitive analyses in enforcement

proceedings against businesses risks abandoning our

adversarial system for one that is fundamentally

inquisitorial.

B. Financial Reporting

The First Circuit’s standard will also hamstring

companies’ ability to work efficiently with outside

counsel on analyses that relate to financial reporting, in

areas that extend far past the immediate context of tax

accrual workpapers. Under U.S. GAAP—more

specifically, FASB Accounting Standards Codification

Topic 450’—-companies must account in their financial

statements for “loss contingencies,” including

“fo]bligations related to product warranties and

product defects,” “{plending or threatened litigation”

and “{aletual or possible claims and assessments.”

Codification of Accounting Standards, Loss

Contingencies, 450-20-05-3, 05-10 (F ASB 2009). When

7 Topic 450 was formerly Statement o! Financial Accounting

Standards No. 5, or “FAS 5.”

19

considering whether they must make a disclosure or

record a loss, companies must consider, among other

things, the probability of an unfavorable outcome and

their ability to make a reasonable estimate of the

amount of loss. Jd. at 55-10. As with contingent tax

liabilities, the company is expected by FASB to seek

“(t]he opinions or views of legal counsel and other

advisors,’ who generally are in the best position to

analyze litigation risks, strategies, or settlement, as

well as the strengths and weaknesses of the company’s

positions. Jd. at 55-12. Such analyses are prepared by

counsel because of litigation (or potential litigation)

that counsel is overseeing and evaluating on a daily

basis. But because these analyses generally are not

prepared “for use” in the litigation, they would be

freely available to adverse parties under the First

Circuit’s standard.

As applied in this context, the First Circuit’s

standard would lead to absurd and confused results.

For instance, a company may request two identical

analyses of litigation risks from the exact same counsel,

but depending on the “use” for which the company

seeks the analyses, counsel’s underlying materials will

be’ privileged in one instance and fair game for

adversaries in the other. If the analyses are prepared

to develop the company’s strategy for actual use in the

litigation, the underlying materials will likely be

privileged. But if they are prepared to help the

company gauge its potential litigation exposure in the

context of financial reporting under FASB ASC Topic

450, or in cooperation with outside auditors,’ the

8 As one court has explained, sharing privileged materials

between a company and its auditor “is precisely the type of limited

alliance that courts should encourage,” because it furthers the

20

underlying materials would not be privileged. Even

though “audit letters” from counsel to outside auditors

constitute “legal analysis that falls squarely within

Hickman’s area of primary concern—analysis that

candidly discusses the attorney’s litigation strategies,

appraisal of likelihood of success, and perhaps the

feasibility of reasonable settlement,” Adlman, 134 F.3d

at 1200—businesses would be forced to share these

audit letters with adversaries, as well as a host of other

sensitive analyses of “loss contingencies” regarding

litigation or potential litigation. This development

would seriously harm American businesses, many of

which are regularly involved in high-stakes commercial

litigation that could be dramatically influenced by the

discoverability of their counsels’ candid litigation

analyses.

C. Analysis of Complex Transactions

Finally, corporations regularly rely on _ the

assistance of counsel when engaging in business

transactions that may result in litigation. See, e.g., id.

at 1195, 1199 (noting that legal analysis of corporate

transactions should be privileged because “whether to

undertake the transaction and, if so, how to proceed

with the transaction, may well be influenced by the

company’s evaluation of the likelihood of success in

litigation”). For example, when conducting diligence

with respect to such a business combination, a company

will request an assessment of the impact of the

counterparty’s pending or potential litigation on the

combined enterprise. Because the point of such

analyses is to assess the outcome of litigation or

anticipated _ litigation, these materials have

company’s and the public’s interests in detecting and rooting out

corporate malfeasance. Merrill Lynch & Co., 229 F.R.D. at 448.

21

traditionally been protected by the work product

privilege on behalf of the combined entity. See id. at

1199-200; see also Anne King, Comment, The Common

Interest Doctrine and Disclosures during Negotiations

for Substantial Transactions, 74 U. Chi. L. Rev. 1411,

1423 n.70, 1424 n.77, 1425 n.80, 1429 n.107 (2007)

(discussing application of work product privilege in the

context of mergers and collecting cases). Because they

are not prepared “for use” in litigation, however, the

First Circuit’s test categorically excludes their

protection. By discouraging companies from relying on

or requesting these analyses, the “for use” test will

reduce the effectiveness of diligence that companies

engage in before undertaking such transactions and,

ultimately, benefit no one.

Ill. THE BUSINESS COMMUNITY NEEDS

THIS COURT’S GUIDANCE

As this Court has recognized, “[a]n uncertain

privilege, or one that purports to be certain but results

in widely varying applications by the courts, is little

better than no privilege at all.” Upjohn, 449 U.S. at

393. There is now a well-defined three-pronged split on

the appropriate standard for discerning whether

materials are entitled to work product protection: the

majority “because of’ test; the Fifth Circuit’s “primary

motivating purpose” test; and the First Circuit’s new

“for use” test. See Pet. at 12-16. This spit leaves the

Chamber and its members unable to assess whether

their attorneys’ materials will be privileged or subject

to subpoena or discovery, and for many of the

Chamber’s members will effectively make the most

limited conception of the privilege—that afforded by

the First Circuit’s “for use” test—the law of the land.

22

The “for use” test provides litigants seeking the

disclosure of sensitive legal analyses and related

materials with a massive incentive to forum shop and

file suit in the First Circuit whenever possible. And

forum shopping will often be possible because

American businesses typically are subject to suit in

numerous jurisdictions. Companies potentially subject

to suit in the First Circuit will, as a practical matter, be

forced to assume that the “for use” test applies when

dealing with counsel in their internal investigations,

financial reporting, and transactions. Without review

by this Court, these companies will need to alter

fundamentally (and for the worse) the ways in which

they ensure legal compliance and make significant

business decisions, and the business community will be

forced to grapple with a new reality of unfair and

abusive practices by government agencies and

litigation adversaries.

CONCLUSION

The petition for certiorari should be granted, and

the judgment should be reversed.

23

Respectfully submitted,

ROBIN S. CONRAD RICHARD P. BRESS

AMAR D. SARWAL Counsel of Record

NATIONAL CHAMBER SEAN P. KRISPINSKY

LITIGATION CENTER, INC. LATHAM & WATKINS LLP

1615 H Street, NW 555 11TH STREET, NW

Washington, DC 20062 SUITE 1000

(202) 463-5337 WASHINGTON, DC 20004

(202) 637-2200

ROBERT J. MALIONEK

ADAM J. GOLDBERG

BLAKE T. DENTON

LATHAM & WATKINS LLP

885 THIRD AVENUE

NEW YORK, NY 10022

(212) 906-1200

Counsel for Amicus Curiae