Page 2 - United States v. Adlman: Defining the scope of the Kovel Privilege and Work Product Doctrine

interviews, statements, memoranda, correspondence, briefs, mental impressions, and other tangible things obtained or cre- ated by or for an attorney during or in anticipation of litigation by or for an attorney. The work product doctrine is also codified in Rule 26(b)(3)(A) of the Federal Rules of Civil Procedure and Rule 16(b)(2) of the Federal Rules of Criminal Procedure, which provide qualified protection for materials prepared by or at the direction of an attorney in anticipation of litigation or for trial. Under Rule 16 of the Federal Rules of Criminal Procedure, there is no exception for the discovery of documents constituting work product under the rule; however, the common law work product doctrine and Rule 26 can be overcome if the opposing party has a “substantial need” for the documents and cannot “without undue hardship, obtain their substantial equivalent by other means.” This exception is limited, however, and does not extend to documents that reflect an attorney’s or other representative’s mental impressions, conclusions, opin- ions, or legal theories.
Though the work product doctrine is separate and distinct from the attorney-client privilege, in the case of attorney-engaged accountants, the existence of a valid Kovel relationship may determine (or influence) whether a document or communication is protected work product. Accordingly, attorneys and accoun- tants engaged in Kovel relationships should take appropriate steps in order to ensure that their communications and documents are in fact protected.
Adlman I: A Lesson on How to Preserve the Privilege
In United States v. Adlman [68 F.3d 1495 (2d Cir. 1995)] (Adlman I), the government brought an action to enforce an IRS summons issued to Monroe Adlman, the in-house counsel and vice president of taxes of the Sequa Corporation. The sum- mons sought the production of a preliminary and final draft of a memorandum prepared by Sequa’s auditors, Arthur Anderson, at Adlman’s request, in order to determine the likely tax implications of a proposed merger. Adlman refused to pro- duce the memoranda, contending (among other things) that they were prepared under a Kovel engagement and therefore
protected by attorney-client privilege.
Under Kovel, the party asserting the privilege must establish
that the communications or materials at issue were made for the purpose of obtaining legal advice from an attorney. [See also Schaeffler v. United States, 806 F.3d 34, 40 (2d Cir. 2015), stating that “the purpose of the communications must be solely for the obtaining or providing of legal advice,” emphasis added.] If the communications/materials were made for the purpose of obtaining accounting services, or if the advice sought was really the accountant’s rather than the attorney’s, no privilege exists. Accordingly, to satisfy the Kovel test, Adlman had to establish that the memoranda at issue were ren-
dered to increase his understanding of the tax code so he could provide legal advice to Sequa.
The district court examined the structure of the relationship between Andersen, Adlman, and Sequa, as well as the nature of Andersen’s work, and found that the structure of the rela- tionship and nature of that work supported a finding that Sequa provided information to Andersen in order to seek its advice on the tax implications of the proposed merger, and therefore the attorney-client privilege did not apply. The court noted that Adlman was also an officer of Sequa, there was no separate retainer agreement or billing statements distinguishing the preparation of the memoranda from other accounting work Andersen performed for Sequa, Andersen provided advising services directly to Sequa regarding the proposed merger, and Andersen prepared the memoranda because Adlman lacked the expertise to do so himself.
On appeal, the Second Circuit affirmed the district court’s deci- sion. Though the district court’s denial of attorney-client privilege hinged largely on the lack of proof showing that Andersen was working under a different arrangement from that governing the rest of its work for Sequa, the Second Circuit stated that there is no per se requirement for a separate retainer agreement or indi- vidualized billing statements in order for Kovel to apply. The Second Circuit explained that the district court’s observation that the assertion of attorney-client privilege was weakened by the absence of a contemporaneous retainer agreement “was merely an application of common sense to the circumstances” and not “an elevation of form over substance.”
Adlman I makes clear that there are no uniform rules for making such a determination. Rather, deciding whether attor- ney-client privilege exists requires “common sense in light of reason and experience” and should be determined “on a case- by-case basis.” Nevertheless, Adlman I demonstrates the need to structure and document a Kovel arrangement with detail and care in order to ensure that the privilege is preserved.
Adlman II: The Expansion of the Work Product Doctrine
In addition to asserting attorney-client privilege, Adlman also refused to produce the memoranda at issue based on the work product doctrine. The district court held that the memoranda were not protected by the work product doctrine because they could not have been created in the anticipation of litigation. The district court’s reasoning was twofold: first, the memoranda were not protected by the work product doctrine because at the time of their creation neither the litigation nor the events giving rise to the memoranda (i.e., the proposed merger) had yet occurred; and second, in order for the memoranda to be prepared in anticipation of litigation, there must be a specific claim that makes the prospect of litigation identifiable, which was absent at the time the mem- oranda were prepared. In Adlman I, the Second Circuit reversed
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