*Cross-posted at Forbes’ On the Docket
The Supreme Court declined on Monday to review an important case that many in-house counsel across America had been watching closely. The Court’s denial of certiorari in Textron v. United States leaves in place a controversial en banc decision by the U.S. Court of Appeals for the First Circuit that drastically undermines the important work-product privilege on which corporate counsel have long relied when representing their clients. Reversing both an earlier panel opinion and a district court order—both of which ruled that Textron’s tax accrual work papers were protected as attorney work product—the en banc First Circuit effectively eviscerated a venerable staple of American legal culture and practice for over 60 years.
The case arose in connection with an IRS audit of Textron’s tax returns. Although Textron produced several thousand pages of documents in response to the IRS’s demands, it withheld as privileged certain tax accrual work papers, which were prepared by its in-house lawyers and accountants. These papers contained the legal opinions and conclusions of Textron’s counsel and tax advisers as to certain issues where the tax laws were vague and possibly subject to challenge by the IRS, as well as percentage estimates of Textron’s likelihood of prevailing on these issues in litigation, including the dollar amount of tax reserves needed for Textron’s potential tax liabilities if its legal positions were ultimately unsuccessful. Such opinion work product, which consists of the mental impressions and legal theories of in-house attorneys, lies at the very heart of the work-product privilege first announced in 1947 by the Supreme Court in Hickman v. Taylor. Continue reading