United States v. Deloitte LLP
76 Fed. R. Serv. 3d 1367, 391 U.S. App. D.C. 318, 610 F. 3d 129 (2010)
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Rule of Law:
Disclosing attorney work product to a third party, such as an independent auditor, waives the protection only if the disclosure is inconsistent with maintaining secrecy from an adversary. A document created by a third party may still be protected as work product if it records the mental impressions and legal theories of a party's counsel developed in anticipation of litigation.
Facts:
- Dow Chemical Company (Dow) and its subsidiaries owned two partnerships, Chemtech I and Chemtech II, whose tax treatment Dow anticipated would lead to litigation with the IRS.
- In 1993, Dow employees, Dow's outside counsel, and employees from its independent auditor, Deloitte & Touche (Deloitte), met to discuss the potential IRS litigation and its accounting implications for an ongoing audit.
- Following the meeting, Deloitte prepared a draft memorandum summarizing the discussion regarding the potential litigation (the 'Deloitte Memorandum').
- In 1998, a Dow accountant and an in-house attorney prepared a memorandum and flow chart concerning tax issues related to the Chemtech partnerships (the 'Dow Documents').
- In 2005, Dow's outside counsel prepared a tax opinion on the same subject matter (also part of the 'Dow Documents').
- Dow disclosed the 1998 and 2005 documents to Deloitte after Deloitte informed Dow that access was required for Deloitte to provide an unqualified audit opinion on Dow's public financial statements.
Procedural Posture:
- Dow Chemical Company sued the United States in the U.S. District Court for the Middle District of Louisiana, challenging IRS tax adjustments.
- During discovery, the United States served a subpoena on Dow's independent auditor, Deloitte & Touche, from the U.S. District Court for the District of Columbia.
- Deloitte withheld three documents, which Dow identified as protected attorney work product.
- The United States filed a motion to compel production of these documents in the D.C. District Court.
- The D.C. District Court denied the government's motion, holding that all three documents were protected by the work-product doctrine and that the protection had not been waived.
- The United States, as the appellant, appealed the district court's denial to the U.S. Court of Appeals for the D.C. Circuit, with Dow Chemical Company intervening as the appellee.
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Issue:
Does a company waive work-product protection by disclosing documents prepared in anticipation of litigation to its independent auditor for the purpose of obtaining an unqualified audit opinion?
Opinions:
Majority - Chief Judge Sentelle
No. A company does not waive work-product protection by disclosing documents to its independent auditor because such disclosure is not inconsistent with the maintenance of secrecy from the company's adversary. The work-product doctrine's purpose is to protect the adversary process, and waiver occurs only when disclosure makes it more likely that the material will fall into an adversary's hands. Here, the independent auditor, Deloitte, is neither a potential adversary nor a conduit to an adversary. An auditor's duty to scrutinize a company's finances does not create the kind of adversarial relationship contemplated by the work-product doctrine. Furthermore, auditors have a professional obligation of confidentiality (under AICPA rules), which provides the disclosing party with a reasonable expectation that the information will be kept secret. With respect to the memorandum prepared by Deloitte, a document can be protected work-product even if created for a dual business purpose (the audit) and not prepared directly by the party or its representative, so long as it was prepared 'because of' the prospect of litigation and contains the mental impressions of counsel. However, the court remanded for an in camera review to determine if the entire document qualified as work product or if non-privileged material could be redacted.
Analysis:
This decision provides critical protection for corporations required to undergo independent financial audits, clarifying that they can share litigation-related analyses with their auditors without waiving work-product protection. The court firmly distinguishes the flexible waiver standard for work product from the stricter waiver standard for attorney-client privilege, reinforcing the idea that work product's purpose is to protect against adversaries, not to maintain absolute secrecy. By holding that an independent auditor is not an 'adversary' or a 'conduit' to one, the ruling prevents litigants, particularly the government, from using the audit process as a backdoor discovery tool to obtain an opponent's litigation strategy. This precedent solidifies the 'because of' test for dual-purpose documents in the D.C. Circuit and harmonizes its approach with that of most other circuits.
