In Textron, the IRS sought documents prepared by tax attorneys in evaluating and supporting the adequacy of the defendant’s tax liability reserve. The defendant’s tax lawyers’ work involved identifying “potentially debatable” items in Textron’s return and evaluating the IRS’ chances of success in a dispute. Thus, the documents included not only lists of the “debatable” items, but also (according to the District Court) “estimates by Textron’s counsel expressing, in percentage terms, their judgments regarding Textron’s chances of prevailing in any litigation over those issues.”
The District Court ruled that the documents were protected by the work product doctrine under the First Circuit’s “because of” test. The court found that the reserve would not need to be established at all, and the attorneys would not have performed their evaluation, if not for the possibility of litigation, and therefore the materials were prepared “because of” litigation and were protected.
A panel of the First Circuit upheld the District Court’s decision, but after an en banc re-hearing the decision was overturned. The en banc court examined the phrase in the Federal Rules delineating the scope of the doctrine – materials “prepared in anticipation of litigation or for trial” – and found that even materials prepared only “in anticipation of litigation” must still be prepared “for” litigation in order to be protected. In other words, “it is not enough to trigger work product protection that the subject matter of a document relates to a subject that might conceivably be litigated.” It is the use, and not the substance, of the materials that determines whether they are protected. The opinion went so far as to appeal to the common sense of lawyers: “Every lawyer who tries cases knows the touch and feel of materials prepared for a current or possible (i.e., ‘in anticipation of’) law suit … No one with experience of law suits would talk about tax accrual work papers in those terms.”
The decision was issued over a strong dissent, which asserted, citing Justice Stewart, that “lower courts deserve more guidance than a simple reassurance that a bare majority of the en banc court knows work product when it sees it.” The dissent noted that the majority had in fact overruled the “because of” test by focusing on the actual “use” of the materials. The dissent also argued that the majority had ignored the doctrine’s purpose of preventing litigants from “free-riding” off another’s work. Quoting the Second Circuit, the dissent pointed out that the new rule leaves unprotected materials “fall[ing] squarely within Hickman’s area of primary concern – analysis that candidly discusses the attorney’s litigation strategies, appraisal of likelihood of success, and perhaps the feasibility of reasonable settlement.”
