Waiver: Attorney-Client Privilege and Work-Product Protection Really Are Different
Two recent cases illustrate the very important difference between waiver analysis for attorney-client privilege and for work product protection. Because the analysis is different for each, while the attorney-client privilege has been waived, work product protection may not be, and the materials may remain protected.
In United States v. Textron, 507 F.Supp 2d 138 (D. R.I. 2007) and Regions Financial Corp. v. United States, 2008 U.S. Dist. LEXIS 41940 (D. S.D. Ala. 2008), in responding to an I.R.S. summons for documents, each of the companies withheld and redacted attorney-created materials under a claim of work product protection, even though the materials had been shared with the company’s outside auditor. Because the rule for attorney-client privilege is that waiver occurs when the material is shared with any third person, the exchange with the company’s auditor effected a waiver of that privilege. By contrast, because the rule for work product protection is that waiver occurs when confidential material is shared with an adversary or a conduit to an adversary, the work product protection was not waived, because the auditor was actively engaged in evaluating the tax issues for the company with the lawyers, and it was not, therefore, an adversary. The court in Textron listed multiple trial court citations for its statement that disclosure of attorney work product to a company’s auditor is not a waiver.
Without directly acknowledging the choice, both courts allowed the non-waiver of work product to trump the waiver of attorney-client privilege. Thus, the inter-party fairness rule of Hickman v. Taylor overrode the obstruction of the search for truth limit of attorney-client privilege.
Of course, the elements of work product protection had to be established. The material must be the work of a lawyer; it must have been created in anticipation of litigation; and it must be confidential. While noting that the more generous standard for judging “anticipation of litigation” is merely “because of the prospect of litigation” and the stricter standard is anticipation of litigation as the “primary motivating purpose,” both courts held that the stricter standard was satisfied, because the attorneys, auditors and company tax specialists were actively engaged in developing options in anticipation of a challenge from the Service. The withheld material was characterized as opinion work product; and while acknowledging some authority that such work product is never subject to compelled production, the courts addressed the I.R.S. assertion of sufficient need. They denied production, reasoning that the very extensive production already made had provided the factual information the agency was entitled to. It did not need and was not entitled to the attorneys’ mental impressions and opinions.
The lesson of these cases is that, where a company’s auditors are actively involved with counsel and other insiders in advising what actions the company should consider under a prospect of a government or private claim, the attorneys’ work, even where it is shared with the outside auditor, can be withheld as attorney opinion work product. Whether this rule is authoritatively accepted remains to be seen, as both Textron and Regions Financial are on appeal. The availability of the rule is, nonetheless, an important factor in structuring protection of confidential attorney advice when a claim is in prospect.