# Amicus Curiae Brief — Textron Inc. v. United States

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1402%3A06

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2010
- **Citation:** 560 U.S. 924

## Text

™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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1402%3A06. Public record. Not legal advice.