Supreme Court Denies Certiorari in Textron Case
In a case that would have resolved a clear Circuit conflict and more clearly defined the boundaries of work product protection in federal courts, the Supreme Court has denied certiorari in Textron and Subsidiaries v. U.S.
Last year, the First Circuit adopted a third test for the application of work product protection where there are dual purposes for creating the documents; U.S. v. Textron, Inc., 577 F.3d 21 (1st Cir. 2009): Textron’s in-house tax lawyers annually prepare spreadsheets establishing reserves for tax liability contingencies, and then add a specific percentage to each matter representing their judgment of the probability that the IRS would win if the company’s tax treatment should be challenged. Those percentages are then applied to the amount at issue and the results are combined in one tax reserve number for the company’s financial statements. Textron shows its work papers supporting the calculations to its outside auditor, but does not provide copies to them. Only the consolidated reserve number is publicly reported. The IRS identified a number of transactions it considered potentially abusive and subpoenaed Textron’s tax lawyers’ work papers and back-up emails. Textron refused to produce those documents on grounds of privilege. Rejecting all other asserted privileges, the district court held that the work product protection had been established under prior First Circuit precedent for dual-purpose documents in Maine v. U.S. Dept. of the Interior, 298 F.3d 60 (1st Cir. 2002). Maine had relied on the Second Circuit’s decision in United States v. Adlman, 134 F.3d 1194 (2nd Cir. 1998).
Reversing the district court, three of the five First Circuit judges purported to follow the court’s Maine precedent, while holding that the Textron lawyers’ work papers could only be work-product protected if they had been specifically prepared for use in litigation. Because there was a business purpose for preparing them and only the possibility of litigation, the majority concluded that the documents were outside the work product protection. The minority contended that Maine required protection of the documents, arguing that that decision had adopted a less restrictive “because of” test, which, considering the Textron's lawyers' percentage calculations, clearly required protection of the Textron papers. Referring to Hickman v. Taylor and Fed. R. Civ. Pro. 26(b)(3), the minority noted that the lawyers’ probability of success percentages were quintessential lawyers’ mental impressions. The minority then urged the Supreme Court to resolve the apparent conflict among the First Circuit’s new rule, the Second Circuit’s Adlman rule and the Fifth Circuit’s “primary purpose” rule announced in U.S. v. El Paso, 682 F.2d 530 (5th Cir. 1982). On May 24, 2010, the Supreme Court denied certiorari: Textron Inc. and Subsidiaries v. U.S, No. 09-750.