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United States v. Deloitte LLP

June 29, 2010


Appeal from the United States District Court for the District of Columbia (No. 1:08-mc-00411-RJL).

The opinion of the court was delivered by: Sentelle, Chief Judge

Argued February 26, 2010

Before: SENTELLE, Chief Judge, andBROWN and GRIFFITH, Circuit Judges.

The United States appeals from a district court order denying its motion to compel Dow Chemical Company's independent auditor, Deloitte & Touche USA, LLP,*fn1 to produce three documents in connection with ongoing tax litigation between Dow and the government. The district court ruled that all three documents were protected from discovery under the work-product doctrine. On appeal, the government contends that one of the documents is not work product because it was prepared by Deloitte during the audit process. In addition, while it concedes that the other two documents are work product, it argues that Dow waived work-product protection when it disclosed them to Deloitte. We vacate the district court's decision that the document prepared by Deloitte is work product and remand for in camera review to determine whether it is entirely work product. With respect to the other two documents, we affirm the district court's decision that Dow did not waive work-product protection when it disclosed them to Deloitte.

I. Background

This discovery dispute arises from ongoing tax litigation in the U.S. District Court for the Middle District of Louisiana. The litigation concerns the tax treatment of two partnerships owned by Dow Chemical Company and two of its wholly-owned subsidiaries. The first of these partnerships was Chemtech Royalty Associates, L.P. (Chemtech I); it was succeeded by Chemtech II, L.P. (Chemtech II). In 2005, Dow filed a civil suit challenging IRS adjustments to partnership returns filed by Chemtech I and Chemtech II. Chemtech Royalty Assocs., L.P. v. United States, No. 05-944 (M.D. La. filed July 13, 2005). During discovery, the government subpoenaed documents from Dow's independent auditor, Deloitte & Touche USA, LLP. Since the subpoena sought production in Washington, D.C., it issued from the U.S. District Court for the District of Columbia. Deloitte produced a number of documents, but refused to produce three documents Dow identified as attorney work product. In response, the government filed a motion to compel production.

The three disputed documents are described in Dow's privilege log and in a declaration by William Curry, Dow's Director of Taxes. The first document is a 1993 draft memorandum prepared by Deloitte that summarizes a meeting between Dow employees, Dow's outside counsel, and Deloitte employees about the possibility of litigation over the Chemtech I partnership, and the necessity of accounting for such a possibility in an ongoing audit. This meeting took place after Dow informed Deloitte about the likelihood of litigation over the Chemtech I transaction. The second is a 1998 memorandum and flow chart prepared by two Dow employees-an accountant and an in-house attorney. The third is a 2005 tax opinion prepared by Dow's outside counsel. Curry's declaration explains that the second and third documents were disclosed to Deloitte so that it could "review the adequacy of Dow's contingency reserves for the Chemtech transactions." According to Curry, Deloitte "compelled Dow's production of these documents by informing the company that access to these documents was required in order to provide Dow with an unqualified audit opinion for its public financial statements." The privilege log describes the subject matter of these documents as "[t]ax issues related to the Chemtech partnership" and states that each one is a "[d]ocument prepared in anticipation of litigation." We will refer to the first document, which was prepared by Deloitte, as the "Deloitte Memorandum," and the second and third documents, which were created by Dow, as the "Dow Documents."

The district court denied the government's motion to compel without reviewing the disputed documents in camera. United States v. Deloitte & Touche USA LLP, 623 F. Supp. 2d 39, 40-41 (D.D.C. 2009). It concluded that the Deloitte Memorandum was work product because it was "prepared because of the prospect of litigation with the IRS over the tax treatment of Chemtech." Id. at 40 n.1. The court further concluded that, although the document was created by Deloitte, it was nonetheless Dow's work product because "its contents record the thoughts of Dow's counsel regarding the prospect of litigation." Id. In addition, the court rejected the government's contention that Dow had waived work-product protection for the three documents. The court acknowledged that disclosing work product to a third party can waive protection if that disclosure is "inconsistent with the maintenance of secrecy from the disclosing party's adversary," id. at 41 (quoting Rockwell Int'l Corp. v. U.S. Dep't of Justice, 235 F.3d 598, 605 (D.C. Cir. 2001)), but concluded that Dow's disclosure to Deloitte was not inconsistent with maintaining secrecy because (1) Deloitte was not a potential adversary and (2) nothing suggested that it was unreasonable for Dow to expect Deloitte to maintain confidentiality, id. The government appeals this ruling, and Dow has intervened to assert work-product protection. Since the government's motion to compel was the sole issue before the district court, its disposition of that motion was an appealable final judgment. In re Multi-Piece Rim Prods. Liab. Litig., 653 F.2d 671, 676 (D.C. Cir. 1981).

II. Analysis

The government contends that the Deloitte Memorandum is not attorney work product. Alternatively, it argues that even if the Deloitte Memorandum is work product, Dow waived work-product protection when it orally disclosed the information recorded therein to Deloitte. Turning to the Dow Documents, the government concedes they are attorney work product, but argues that Dow waived work-product protection when it gave them to Deloitte. We generally review the district court's discovery orders for abuse of discretion. United States v. Williams Cos., 562 F.3d 387, 396 (D.C. Cir. 2009). If the district court applied an incorrect legal standard, however, we review de novo. In re Sealed Case, 146 F.3d 881, 883-84 (D.C. Cir. 1998).

A. The Work-Product Doctrine

The Supreme Court established the work-product doctrine in Hickman v. Taylor, 329 U.S. 495 (1947), which held that an attorney's notes recording his interviews with witnesses to the litigation-prompting incident were protected from discovery. Id. at 509-10. The Court recognized that to prepare for litigation, an attorney must "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." Id. at 511. This preparation "is reflected . . . in interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and intangible ways." Id. The Court reasoned that giving opposing counsel access to such work product would cause significant problems:

[M]uch of what is now put down in writing would remain unwritten. An attorney's thoughts, heretofore inviolate, would not be his own. Inefficiency, unfairness and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial. The effect on the legal profession would be demoralizing. And the interests of the clients and the cause of justice would be poorly served.

Id. Consequently, the Court concluded that attorney work product is protected from discovery unless "the one who would invade that privacy" carries the burden of "establish[ing] adequate reasons to justify production through a subpoena or court order." Id. at 512.

The work-product doctrine announced in Hickman was subsequently partially codified in Federal Rule of Civil Procedure 26(b)(3), which states:

(A) Documents and Tangible Things. Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent).

FED. R. CIV. P. 26(b)(3)(A). Rule 26(b)(3) allows a court to order disclosure when the requesting party can show a "substantial need" for the material and an inability to procure equivalent information "without undue hardship." FED. R.CIV. P. 26(b)(3)(A)(ii). When a court orders disclosure under this exception, however, it must still "protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation." FED. R. CIV. P. 26(b)(3)(B). This type of work product, which is often described as ...

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