Page 3 - United States v. Adlman: Defining the scope of the Kovel Privilege and Work Product Doctrine

COL. COLUMNS I tax practice & procedure
the district court’s holding that the work product doctrine was inapplicable based on its determination that the district court used the wrong legal standard, as the “in anticipation of litigation” requirement precludes documents created before the events that give rise to the anticipated litigation or the threat of an actual claim from work product protection (although it does necessitate that the documents were created with the “focus on a specific claim”). Under this definition, documents prepared in the course of an IRS examination may be characterized as “in anticipation” of future tax court, claims court, or district court litigation and afforded work product protection.
On remand, the district court held that the memoranda were still not protected by the work product doctrine based on its finding that the primary purpose in creating the memoranda was to determine whether or not Sequa should go through with the proposed merger, and the memoranda were therefore not created “principally or exclusively to assist in anticipated or ongoing litigation.”
The district court’s decision was again appealed and reviewed in United States v. Adlman [134 F.3d 1194 (2d Cir. 1998)] (Adlman II). In Adlman II, the Second Circuit held that the language “in anticipation of litigation” requires a showing that a document was “created because of anticipated litigation, and would not have been prepared in substantially similar form but for the prospect of that litigation.” Under this “because of” test, documents are not automatically excluded from work product protection simply because they were also motivated by a business purpose. As such, this test embraces the dual- purpose doctrine, under which documents motivated by more than one purpose are still eligible for work product protection.
The Third, Fourth, Seventh, Eighth and D.C. Circuits also employ the because of test in determining the applicability of the work product doctrine. By contrast, the Fifth Circuit applies the “primarily to assist in litigation” test, wherein work product protection extends only to documents created with the primary purpose of aiding in possible future litigation. This is a bright line rule that requires the automatic denial of work product protection to documents created for a business purpose. Furthermore, the First Circuit recently applied an alternate, more stringent “prepared for use in litigation” test in determin- ing the applicability of the work product doctrine [U.S. v. Textron, Inc., 577 F.3d 21 (1st Cir. 2009)].
The “because of” test has its own limitations; the work product protection does not apply to documents that were “prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation” (Adlman II). When a document was created because of the prospect of lit- igation in order to analyze the likely outcome of that litigation, it does not lose work product protection under this test merely because it was created in order to assist with a business decision
influenced by the likely outcome of the anticipated litigation. As reasoned by the Second Circuit, the work product doctrine and Rule 26(3)(b) of the Federal Rules of Civil Procedure grant a special level of protection against the disclosure of documents that reveal an attorney’s (or her agent’s) opinions and legal the- ories concerning litigation. Excluding documents from work prod- uct protection merely because they were prepared to assist in the making of a business decision expected to result from the litigation would undermine not just the text of the rule, but also the purpose of the work product doctrine.
By adopting the because of litigation test instead of the pri- marily to assist in litigation test, the Second Circuit again reject- ed a bright line rule in favor of a facts and circumstances–ori- ented analysis.
A Common Sense Approach
In Adlman I, the Second Circuit refused to apply the attor- ney-client privilege to communications made to an accountant outside the scope of an attorney providing legal advice to the client. Whether communications with a Kovel accountant are privileged depends upon whether the purpose of the commu- nications and work performed was to solicit and provide accounting services or aid in the rendering of legal services. Adlman I also suggests that the privilege is most likely to be recognized when: 1) there is contemporaneous documentation memorializing the engagement between the attorney and the accountant, 2) there is no preexisting relationship between the accountant and the client, 3) the attorney initiated or received the accountant’s communications, and 4) the accountant’s advice was provided directly to the attorney.
In Adlman II, the Second Circuit rejected the restrictive pri- marily to assist in litigation test, which would summarily exclude from work product protection any document analyzing an anticipated litigation if its purpose was to assist in making a business decision. Instead, the Second Circuit adopted the more expansive because of test. In so doing, the Second Circuit preserved the balance between the need for the disclosure of all relevant information and the need to encourage free and open discussions by clients in the course of legal representation established through the work product doctrine.
In both Adlman I and Adlman II, the Second Circuit rejected bright line rules in favor of case-by-case analyses that require courts to carefully examine all of the facts and circumstances in order to determine whether the production of the documents is consistent with the policy and purpose of the attorney-client privilege and work product doctrine. q
Juliet L. Fink, JD, is an attorney at Kostelanetz & Fink, LLP in New York, N.Y. Her practice focuses on federal and state criminal and civil tax matters.
60
JANUARY 2017 / THE CPA JOURNAL