United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 26, 2010 Decided June 29, 2010
No. 09-5171
UNITED STATES OF AMERICA,
APPELLANT
v.
DELOITTE LLP,
APPELLEE
DOW CHEMICAL COMPANY,
INTERVENOR
Appeal from the United States District Court
for the District of Columbia
(No. 1:08-mc-00411-RJL)
Judith A. Hagley, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Gilbert S. Rothenberg, Deputy Assistant Attorney General, and
Robert W. Metzler, Attorney. Andrew Weiner, Attorney, and R.
Craig Lawrence, Assistant U.S. Attorney, entered appearances.
Hartman E. Blanchard, Jr. argued the cause for intervenor
Dow Chemical Company on behalf of appellee. With him on
the brief were Christopher P. Murphy and John B. Magee.
Michael D. Warden entered an appearance.
2
Before: SENTELLE, Chief Judge, and BROWN and GRIFFITH,
Circuit Judges.
Opinion for the Court filed by Chief Judge SENTELLE.
SENTELLE, Chief Judge: The United States appeals from a
district court order denying its motion to compel Dow Chemical
Company’s independent auditor, Deloitte & Touche USA, LLP,1
to produce three documents in connection with ongoing tax
litigation between Dow and the government. The district court
ruled that all three documents were protected from discovery
under the work-product doctrine. On appeal, the government
contends that one of the documents is not work product because
it was prepared by Deloitte during the audit process. In
addition, while it concedes that the other two documents are
work product, it argues that Dow waived work-product
protection when it disclosed them to Deloitte. We vacate the
district court’s decision that the document prepared by Deloitte
is work product and remand for in camera review to determine
whether it is entirely work product. With respect to the other
two documents, we affirm the district court’s decision that Dow
did not waive work-product protection when it disclosed them
to Deloitte.
I. Background
This discovery dispute arises from ongoing tax litigation in
the U.S. District Court for the Middle District of Louisiana. The
litigation concerns the tax treatment of two partnerships owned
by Dow Chemical Company and two of its wholly-owned
subsidiaries. The first of these partnerships was Chemtech
Royalty Associates, L.P. (Chemtech I); it was succeeded by
Chemtech II, L.P. (Chemtech II). In 2005, Dow filed a civil suit
1
Deloitte & Touche USA, LLP is now known as Deloitte LLP.
3
challenging IRS adjustments to partnership returns filed by
Chemtech I and Chemtech II. Chemtech Royalty Assocs., L.P.
v. United States, No. 05-944 (M.D. La. filed July 13, 2005).
During discovery, the government subpoenaed documents from
Dow’s independent auditor, Deloitte & Touche USA, LLP.
Since the subpoena sought production in Washington, D.C., it
issued from the U.S. District Court for the District of Columbia.
Deloitte produced a number of documents, but refused to
produce three documents Dow identified as attorney work
product. In response, the government filed a motion to compel
production.
The three disputed documents are described in Dow’s
privilege log and in a declaration by William Curry, Dow’s
Director of Taxes. The first document is a 1993 draft
memorandum prepared by Deloitte that summarizes a meeting
between Dow employees, Dow’s outside counsel, and Deloitte
employees about the possibility of litigation over the Chemtech
I partnership, and the necessity of accounting for such a
possibility in an ongoing audit. This meeting took place after
Dow informed Deloitte about the likelihood of litigation over
the Chemtech I transaction. The second is a 1998 memorandum
and flow chart prepared by two Dow employees—an accountant
and an in-house attorney. The third is a 2005 tax opinion
prepared by Dow’s outside counsel. Curry’s declaration
explains that the second and third documents were disclosed to
Deloitte so that it could “review the adequacy of Dow’s
contingency reserves for the Chemtech transactions.”
According to Curry, Deloitte “compelled Dow’s production of
these documents by informing the company that access to these
documents was required in order to provide Dow with an
unqualified audit opinion for its public financial statements.”
The privilege log describes the subject matter of these
documents as “[t]ax issues related to the Chemtech partnership”
and states that each one is a “[d]ocument prepared in
4
anticipation of litigation.” We will refer to the first document,
which was prepared by Deloitte, as the “Deloitte
Memorandum,” and the second and third documents, which
were created by Dow, as the “Dow Documents.”
The district court denied the government’s motion to
compel without reviewing the disputed documents in camera.
United States v. Deloitte & Touche USA LLP, 623 F. Supp. 2d
39, 40-41 (D.D.C. 2009). It concluded that the Deloitte
Memorandum was work product because it was “prepared
because of the prospect of litigation with the IRS over the tax
treatment of Chemtech.” Id. at 40 n.1. The court further
concluded that, although the document was created by Deloitte,
it was nonetheless Dow’s work product because “its contents
record the thoughts of Dow’s counsel regarding the prospect of
litigation.” Id. In addition, the court rejected the government’s
contention that Dow had waived work-product protection for the
three documents. The court acknowledged that disclosing work
product to a third party can waive protection if that disclosure is
“inconsistent with the maintenance of secrecy from the
disclosing party’s adversary,” id. at 41 (quoting Rockwell Int’l
Corp. v. U.S. Dep’t of Justice, 235 F.3d 598, 605 (D.C. Cir.
2001)), but concluded that Dow’s disclosure to Deloitte was not
inconsistent with maintaining secrecy because (1) Deloitte was
not a potential adversary and (2) nothing suggested that it was
unreasonable for Dow to expect Deloitte to maintain
confidentiality, id. The government appeals this ruling, and
Dow has intervened to assert work-product protection. Since the
government’s motion to compel was the sole issue before the
district court, its disposition of that motion was an appealable
final judgment. In re Multi-Piece Rim Prods. Liab. Litig., 653
F.2d 671, 676 (D.C. Cir. 1981).
5
II. Analysis
The government contends that the Deloitte Memorandum
is not attorney work product. Alternatively, it argues that even
if the Deloitte Memorandum is work product, Dow waived
work-product protection when it orally disclosed the information
recorded therein to Deloitte. Turning to the Dow Documents,
the government concedes they are attorney work product, but
argues that Dow waived work-product protection when it gave
them to Deloitte. We generally review the district court’s
discovery orders for abuse of discretion. United States v.
Williams Cos., 562 F.3d 387, 396 (D.C. Cir. 2009). If the
district court applied an incorrect legal standard, however, we
review de novo. In re Sealed Case, 146 F.3d 881, 883-84 (D.C.
Cir. 1998).
A. The Work-Product Doctrine
The Supreme Court established the work-product doctrine
in Hickman v. Taylor, 329 U.S. 495 (1947), which held that an
attorney’s notes recording his interviews with witnesses to the
litigation-prompting incident were protected from discovery. Id.
at 509-10. The Court recognized that to prepare for litigation,
an attorney must “assemble information, sift what he considers
to be the relevant from the irrelevant facts, prepare his legal
theories and plan his strategy without undue and needless
interference.” Id. at 511. This preparation “is reflected . . . in
interviews, statements, memoranda, correspondence, briefs,
mental impressions, personal beliefs, and countless other
tangible and intangible ways.” Id. The Court reasoned that
giving opposing counsel access to such work product would
cause significant problems:
[M]uch of what is now put down in writing would remain
unwritten. An attorney’s thoughts, heretofore inviolate,
6
would not be his own. Inefficiency, unfairness and sharp
practices would inevitably develop in the giving of legal
advice and in the preparation of cases for trial. The effect
on the legal profession would be demoralizing. And the
interests of the clients and the cause of justice would be
poorly served.
Id. Consequently, the Court concluded that attorney work
product is protected from discovery unless “the one who would
invade that privacy” carries the burden of “establish[ing]
adequate reasons to justify production through a subpoena or
court order.” Id. at 512.
The work-product doctrine announced in Hickman was
subsequently partially codified in Federal Rule of Civil
Procedure 26(b)(3), which states:
(A) Documents and Tangible Things. Ordinarily, a party
may not discover documents and tangible things that are
prepared in anticipation of litigation or for trial by or for
another party or its representative (including the other
party’s attorney, consultant, surety, indemnitor, insurer, or
agent).
FED. R. CIV. P. 26(b)(3)(A). Rule 26(b)(3) allows a court to
order disclosure when the requesting party can show a
“substantial need” for the material and an inability to procure
equivalent information “without undue hardship.” FED. R. CIV.
P. 26(b)(3)(A)(ii). When a court orders disclosure under this
exception, however, it must still “protect against disclosure of
the mental impressions, conclusions, opinions, or legal theories
of a party’s attorney or other representative concerning the
litigation.” FED. R. CIV. P. 26(b)(3)(B). This type of work
product, which is often described as opinion work product, “is
virtually undiscoverable.” Dir., Office of Thrift Supervision v.
7
Vinson & Elkins, LLP, 124 F.3d 1304, 1307 (D.C. Cir. 1997).
B. The Deloitte Memorandum
The government makes two categorical arguments that the
Deloitte Memorandum cannot be work product. First, it argues
that the Deloitte Memorandum cannot be work product because
it was created by Deloitte, not Dow or its representative.
Second, it argues that the Deloitte Memorandum cannot be work
product because it was generated as part of the routine audit
process, not in anticipation of litigation. If either argument is
correct, the Deloitte Memorandum cannot be work product,
regardless of its contents. We reject both arguments, but
nevertheless conclude that the district court lacked sufficient
information to determine that the entire Deloitte Memorandum
is work product.
1
The government first contends that Dow cannot claim work-
product protection for the Deloitte Memorandum because it was
prepared by Deloitte. Rule 26(b)(3) only protects “documents
and tangible things that are prepared . . . by or for another party
or its representative.” FED. R. CIV. P. 26(b)(3)(A). Given this
language, the government argues that the Deloitte Memorandum
is not work product because Deloitte is not Dow’s
representative. It relies principally on United States v. Arthur
Young & Co., 465 U.S. 805 (1984), in which the Supreme Court
refused to recognize an accountant work-product privilege. In
Arthur Young, the Court contrasted the role of an attorney with
that of an accountant, explaining that an attorney is “a loyal
representative whose duty it is to present the client’s case in the
most favorable possible light,” whereas an independent certified
public accountant has a “public responsibility” and “owes
ultimate allegiance to the corporation’s creditors and
8
stockholders, as well as to the investing public.” Id. at 817-18.
In the government’s view, Arthur Young demonstrates that
Deloitte cannot be Dow’s representative, which in turn means
that the Deloitte Memorandum cannot be work product under
the plain language of Rule 26(b)(3). Dow counters that the
“representative” for purposes of Rule 26(b)(3) is its counsel,
whose thoughts and opinions are recorded in the document. In
addition, it argues that the Deloitte Memorandum is work
product because it contains the same type of opinion work
product that is found in the Dow Documents, which the
government concedes are work product.
Even if the government is correct in asserting that the
Deloitte Memorandum falls outside the definition given by Rule
26(b)(3), this does not conclusively establish that it is not work
product. The government mistakenly assumes that Rule
26(b)(3) provides an exhaustive definition of what constitutes
work product. On the contrary, Rule 26(b)(3) only partially
codifies the work-product doctrine announced in Hickman. Rule
26(b)(3) addresses only “documents and tangible things,” but
Hickman’s definition of work product extends to “intangible”
things. 329 U.S. at 511. Moreover, in Hickman, the Court
explained that the attorney’s “mental impressions” were
protected from discovery, so that he could not be forced to
“repeat or write out” that information in discovery. Id. at 512-
13. Thus Hickman provides work-product protection for
intangible work product independent of Rule 26(b)(3). Accord
In re Seagate Tech., LLC, 497 F.3d 1360, 1376 (Fed. Cir. 2007);
In re Cendant Corp. Sec. Litig., 343 F.3d 658, 662 (3d Cir.
2003); United States v. 266 Tonawanda Trail, 95 F.3d 422, 428
n.10 (6th Cir. 1996).
The government focuses on Deloitte’s role in creating the
document and on its relationship to Dow. Under Hickman,
however, the question is not who created the document or how
9
they are related to the party asserting work-product protection,
but whether the document contains work product—the thoughts
and opinions of counsel developed in anticipation of litigation.
The district court found that the memorandum records those
thoughts, even though Deloitte and not Dow or its attorney
committed them to paper. The work product privilege does not
depend on whether the thoughts and opinions were
communicated orally or in writing, but on whether they were
prepared in anticipation of litigation. Thus Deloitte’s
preparation of the document does not exclude the possibility that
it contains Dow’s work product.
2
The government next contends that the Deloitte
Memorandum cannot be work product because it was generated
during an annual audit, not prepared in anticipation of litigation.
The courts are not unanimous on the proper test for determining
whether a document was prepared “in anticipation of litigation.”
Under the test adopted by most circuits, the question is whether
the document was created “because of” the anticipated litigation.
See, e.g., Sandra T.E. v. S. Berwyn Sch. Dist. 100, 600 F.3d 612,
622 (7th Cir. 2010); In re Prof’ls Direct Ins. Co., 578 F.3d 432,
439 (6th Cir. 2009); In re Grand Jury Subpoena, 357 F.3d 900,
907 (9th Cir. 2004); PepsiCo, Inc. v. Baird, Kurtz & Dobson
LLP, 305 F.3d 813, 817 (8th Cir. 2002); Maine v. U.S. Dep’t of
the Interior, 298 F.3d 60, 68 (1st Cir. 2002); Montgomery
County v. MicroVote Corp., 175 F.3d 296, 305 (3d Cir. 1999);
United States v. Adlman, 134 F.3d 1194, 1195 (2d Cir. 1998);
Nat’l Union Fire Ins. Co. v. Murray Sheet Metal Co., 967 F.2d
980, 984 (4th Cir. 1992). The Fifth Circuit, however, requires
that anticipation of litigation be the “primary motivating
purpose” behind the document’s creation. United States v. El
Paso Co., 682 F.2d 530, 542 (5th Cir. 1982).
10
Like most circuits, we apply the “because of” test, asking
“whether, in light of the nature of the document and the factual
situation in the particular case, the document can fairly be said
to have been prepared or obtained because of the prospect of
litigation.” In re Sealed Case, 146 F.3d at 884 (quotation
omitted). In addition, while this standard addresses a
“document,” it applies equally to work product in other forms.
Thus for the Deloitte Memorandum, the question is whether it
records information prepared by Dow or its representatives
because of the prospect of litigation.
In the government’s view, the Deloitte Memorandum was
prepared not “because of the prospect of litigation,” but as part
of the routine audit process. The government asserts that a
document’s function, not its content, determines whether it is
work product. For this proposition the government relies on
Delaney, Migdail & Young, Chartered v. IRS, 826 F.2d 124
(D.C. Cir. 1987). In Delaney, a law firm sought to obtain under
the Freedom of Information Act memoranda and supporting
documents relating to the government’s legal analysis of an
Internal Revenue Service program concerning the use of
statistical sampling in auditing large accounts. In that case it
was the IRS that asserted work-product protection. The court
held that the documents were work product because they
“advise[d] the agency of the types of legal challenges likely to
be mounted against a proposed program, potential defenses
available to the agency, and the likely outcome.” Id. at 127. In
its reasoning, the court noted that a previous work-product
decision had identified “the function of the documents as the
critical issue.” Id. at 127 (citing Coastal States Gas Corp. v.
Dep’t of Energy, 617 F.2d 854, 858 (D.C. Cir. 1980)). The
government seizes on this language, arguing that the Deloitte
Memorandum is not work product because its function was to
facilitate Deloitte’s audit, not to prepare Dow for litigation.
11
We think the government misreads Delaney. While
Delaney used the term “function,” it was not considering any
distinction between function and content in determining whether
a document constituted work product. On the contrary, the court
evaluated the function of the IRS documents at issue by
examining their contents. It contrasted the documents at issue
in the Coastal States case, which were like “an agency manual,
fleshing out the meaning of the statute it was authorized to
enforce,” with the documents at issue in Delaney, which were
memoranda describing potential legal challenges, possible
defenses, and likely outcomes. Id. Delaney does not support the
proposition that we should look solely to a document’s function
divorced from its contents in determining its status as work
product.
The government also relies on two decisions holding that a
corporation’s tax accrual workpapers were not prepared in
anticipation of litigation. In El Paso, the Fifth Circuit applied
the “primary motivating purpose” standard and concluded that
El Paso’s tax accrual workpapers were not work product because
the company’s primary motivation in creating them was “to
bring its financial books into conformity with generally accepted
auditing principles” as required by federal securities laws. 682
F.2d at 543. The court reasoned that the “primary motivating
force . . . [was] not to ready El Paso for litigation over its tax
returns,” but “to anticipate, for financial reporting purposes,
what the impact of litigation might be on the company’s tax
liability.” Id.
In United States v. Textron Inc., 577 F.3d 21 (1st Cir. 2009)
(en banc), the First Circuit likewise held that a corporation’s tax
accrual workpapers were not prepared in anticipation of
litigation. Applying the “because of” test, the court concluded
that the workpapers were “tax documents and not case
preparation materials” that were “prepared in the ordinary
12
course of business” and that their only purpose was “to support
a financial statement and the independent audit of it.” Id. at 28,
30. It found no evidence that the workpapers were prepared for
“potential use in litigation” or that they “would in fact serve any
useful purpose for Textron in conducting litigation if it arose.”
Id. at 30.
The government argues that El Paso and Textron
demonstrate that when a document is created as part of an
independent audit, as the Deloitte Memorandum was, its sole
function is to facilitate that audit, which means it was not
prepared in anticipation of litigation. Neither case convinces us.
El Paso was decided under the “primary motivating purpose”
test, which is more demanding than the “because of” test we
employ. Under the more lenient “because of” test, material
generated in anticipation of litigation may also be used for
ordinary business purposes without losing its protected status.
For example, in Adlman, the Second Circuit considered whether
a document containing legal analysis about possible future
litigation qualified as work product when it was procured to
assist the parties in deciding whether to go through with a
proposed merger. The court held that
a document created because of anticipated litigation, which
tends to reveal mental impressions, conclusions, opinions
or theories concerning the litigation, does not lose
work-product protection merely because it is intended to
assist in the making of a business decision influenced by the
likely outcome of the anticipated litigation. Where a
document was created because of anticipated litigation, and
would not have been prepared in substantially similar form
but for the prospect of that litigation, it falls within Rule
26(b)(3).
13
134 F.3d at 1195. Under this same reasoning, material
developed in anticipation of litigation can be incorporated into
a document produced during an audit without ceasing to be work
product. Textron, which did apply the “because of” standard, is
distinguishable because it turned on the court’s examination of
the particular documents at issue. While the court concluded
that those documents were not work product, it did not exclude
the possibility that other documents prepared during the audit
process might warrant work-product protection. Moreover,
Judge Torruella’s dissenting opinion in Textron makes a strong
argument that while the court said it was applying the “because
of” test, it actually asked whether the documents were “prepared
for use in possible litigation,” a much more exacting standard.
577 F.3d at 32.
In short, a document can contain protected work-product
material even though it serves multiple purposes, so long as the
protected material was prepared because of the prospect of
litigation.
3
Rejecting the government’s categorical arguments
establishes only that the Deloitte Memorandum may be
protected work product under the law; we must now determine
whether it is. On examination of the record, we conclude that
the district court did not have a sufficient evidentiary foundation
for its holding that the memorandum was purely work product.
According to the record, the document was created during
Deloitte’s preparation of an audit report which in Deloitte’s
view required consideration of potential litigation. The meeting
generating the document included both Deloitte and Dow
employees, as well as Dow’s outside counsel. The document
itself was prepared by a third party. While none of this negates
the possibility of work-product privilege, it could make it likely
14
that the document includes other information that is not work
product. According to Dow’s privilege log and the Curry
declaration, the memorandum does contain thoughts and
analyses by legal counsel, but this does not rule out or even
render unlikely the possibility that it also includes other facts,
other thoughts, other analyses by non-attorneys which may not
be so intertwined with the legal analysis as to warrant protection
under the work-product doctrine. We will therefore remand this
question to the district court for the purpose of independently
assessing whether the document was entirely work product, or
whether a partial or redacted version of the document could have
been disclosed. Accordingly, we vacate the district court’s
decision that the Deloitte Memorandum was work product and
remand so that the district court can examine the document in
camera to determine whether it is entirely work product. See In
re Sealed Case, 146 F.3d at 886-88 (remanding for in camera
review to determine whether documents were prepared in
anticipation of litigation); In re Sealed Case, 29 F.3d 715, 718
(D.C. Cir. 1994) (same).
C. The Dow Documents
Although the government concedes that the Dow
Documents are work product, it contends that Dow waived
work-product protection by disclosing them to Deloitte. To the
best of our knowledge, no circuit has addressed whether
disclosing work product to an independent auditor constitutes
waiver. Among the district courts that have addressed this issue,
most have found no waiver. E.g., Regions Fin. Corp. v. United
States, No. 2:06-CV-00895-RDP, 2008 WL 2139008, at *8
(N.D. Ala. May 8, 2008) (slip op.); Lawrence E. Jaffe Pension
Plan v. Household Int’l, Inc., 237 F.R.D. 176, 183 (N.D. Ill.
2006); In re JDS Uniphase Corp. Sec. Litig., No. C-02-1486
CW, 2006 WL 2850049, at *1 (N.D. Cal. Oct. 5, 2006)
(unpublished decision); Am. S.S. Owners Mut. Prot. & Indem.
15
Ass’n v. Alcoa S.S. Co., No. 04-Civ-4309, 2006 WL 278131, at
*2 (S.D.N.Y. Feb. 2, 2006) (unpublished decision); Frank Betz
Assocs., Inc. v. Jim Walter Homes, Inc., 226 F.R.D. 533, 535
(D.S.C. 2005); Merrill Lynch & Co., Inc. v. Allegheny Energy,
Inc., 229 F.R.D. 441, 447-49 (S.D.N.Y. 2004); In re Honeywell
Int’l, Inc. Sec. Litig., 230 F.R.D. 293, 300 (S.D.N.Y. 2003);
Gutter v. E.I. Dupont de Nemours & Co., No. 95-CV-2152, 1998
WL 2017926, at *5 (S.D. Fla. May 18, 1998) (unpublished
decision); In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260, 1993
WL 561125, at *6 (S.D.N.Y. Dec. 23, 1993) (unpublished
decision). At least two courts have found waiver. Medinol, Ltd.
v. Boston Scientific Corp., 214 F.R.D. 113, 115-17 (S.D.N.Y.
2002); In re Diasonics Sec. Litig., No. C-83-4584-RFP, 1986
WL 53402, at *1 (N.D. Cal. June 15, 1986) (unpublished
decision).
While voluntary disclosure waives the attorney-client
privilege, it does not necessarily waive work-product protection.
United States v. Am. Tel. & Tel. Co., 642 F.2d 1285, 1299 (D.C.
Cir. 1980) (AT&T). As we explained in AT&T, the attorney-
client privilege and the work-product doctrine serve different
purposes: the former protects the attorney-client relationship by
safeguarding confidential communications, whereas the latter
promotes the adversary process by insulating an attorney’s
litigation preparation from discovery. Id. Voluntary disclosure
waives the attorney-client privilege because it is inconsistent
with the confidential attorney-client relationship. Id. Voluntary
disclosure does not necessarily waive work-product protection,
however, because it does not necessarily undercut the adversary
process. Id. Nevertheless, disclosing work product to a third
party can waive protection if “such disclosure, under the
circumstances, is inconsistent with the maintenance of secrecy
from the disclosing party’s adversary.” Rockwell Int’l Corp. v.
U.S. Dep’t of Justice, 235 F.3d 598, 605 (D.C. Cir. 2001)
(quoting AT&T, 642 F.2d at 1299). Under this standard, the
16
voluntary disclosure of attorney work product to an adversary or
a conduit to an adversary waives work-product protection for
that material.
Applying this standard, the government contends that Dow
has waived work-product protection for the Dow Documents
because Deloitte is (1) a potential adversary and (2) a conduit to
other adversaries. We reject both contentions and conclude that
Dow has not waived the protection.
1
The government contends that Deloitte is a potential
adversary of Dow because disputes sometimes arise between
independent auditors and their clients and because independent
auditors have the power to issue opinions that adversely affect
their clients. Neither argument demonstrates that Deloitte is a
potential adversary for purposes of waiver analysis. First, as an
independent auditor, Deloitte cannot be Dow’s adversary. Even
the threat of litigation between an independent auditor and its
client can compromise the auditor’s independence and
necessitate withdrawal. See AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS (AICPA), AICPA PROFESSIONAL
STANDARDS, CODE OF PROFESSIONAL CONDUCT § 101.08 (2005)
(hereinafter AICPA CODE OF PROFESSIONAL CONDUCT)
(discussing the effect of actual and threatened litigation on
auditor independence). Further, Deloitte’s power to issue an
adverse opinion, while significant, does not make it the sort of
litigation adversary contemplated by the waiver standard.
Similarly, “any tension between an auditor and a corporation
that arises from an auditor’s need to scrutinize and investigate
a corporation’s records and book-keeping practices simply is not
the equivalent of an adversarial relationship contemplated by the
work product doctrine.” Merrill Lynch, 229 F.R.D. at 448.
Second, the possibility of a future dispute between Deloitte and
17
Dow does not render Deloitte a potential adversary for the
present purpose. If it did, any voluntary disclosure would
constitute waiver. Yet the work-product doctrine allows
disclosures as long as they do not undercut the adversary
process. See AT&T, 642 F.2d at 1299.
Here, the question is not whether Deloitte could be Dow’s
adversary in any conceivable future litigation, but whether
Deloitte could be Dow’s adversary in the sort of litigation the
Dow Documents address. We conclude that the answer must be
no. In preparing the Dow Documents, Dow anticipated a
dispute with the IRS, not a dispute with Deloitte. The
documents, which concern the tax implications of the Chemtech
partnerships, would not likely be relevant in any dispute Dow
might have with Deloitte. Thus Deloitte cannot be considered
a potential adversary with respect to the Dow Documents.
The government argues that United States v. Massachusetts
Institute of Technology, 129 F.3d 681 (1st Cir. 1997), supports
its argument that an independent auditor is a potential adversary.
In that case, a defense contractor (MIT) under IRS investigation
claimed work-product protection for expense reports it had
disclosed to the Defense Contract Audit Agency, a branch of the
Department of Defense. The First Circuit held that MIT had
waived the protection by disclosing its expense reports to a
potential adversary. Id. at 687. The court’s reasoning is clear:
MIT disclosed the expense reports to the auditing arm of the
Defense Department, the most likely adversary in any dispute
over expense reports. In doing so, it disclosed its work product
not to an independent auditor, but to an auditor affiliated with a
potential adversary. Dow’s disclosure to its independent
auditor, which is not a potential adversary in tax litigation over
the Chemtech partnerships, is wholly different.
18
2
The government also asserts that Deloitte is a conduit to
Dow’s adversaries. It claims the district court failed to address
this question, but this ignores the district court’s explicit
statement that “no evidence suggests that it was unreasonable
for Dow to expect Deloitte USA to maintain confidentiality.”
Deloitte, 623 F. Supp. 2d at 41. Like the district court, we
conclude that Deloitte is not a conduit to Dow’s adversaries.
Our prior decisions applying the “maintenance of secrecy”
standard, while fact-intensive, have generally made two discrete
inquiries in assessing whether disclosure constitutes waiver.
First, we have considered whether the disclosing party has
engaged in self-interested selective disclosure by revealing its
work product to some adversaries but not to others. Williams,
562 F.3d at 394; In re Subpoenas Duces Tecum, 738 F.2d 1367,
1372 (D.C. Cir. 1984). Such conduct militates in favor of
waiver, for it is “inconsistent and unfair to allow [parties] to
select according to their own self-interest to which adversaries
they will allow access to the materials.” In re Subpoenas, 738
F.2d at 1372.
Second, we have examined whether the disclosing party had
a reasonable basis for believing that the recipient would keep the
disclosed material confidential. Williams, 562 F.3d at 394; In re
Subpoenas, 738 F.2d at 1372-74. A reasonable expectation of
confidentiality may derive from common litigation interests
between the disclosing party and the recipient. In re Subpoenas,
738 F.2d at 1372. As we explained in AT&T, “[t]he existence of
common interests between transferor and transferee is relevant
to deciding whether the disclosure is consistent with the nature
of the work product privilege.” 642 F.2d at 1299. This is true
because when common litigation interests are present, “the
transferee is not at all likely to disclose the work product
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material to the adversary.” Id. Alternately, a reasonable
expectation of confidentiality may be rooted in a confidentiality
agreement or similar arrangement between the disclosing party
and the recipient. Nevertheless, a confidentiality agreement
must be relatively strong and sufficiently unqualified to avoid
waiver. In Williams, for example, we concluded that the
government’s assurance that it would maintain confidentiality
“to the extent possible” was not sufficiently strong or
sufficiently unqualified to prevent the government from
disclosing the information to a criminal defendant under Brady
v. Maryland, 373 U.S. 83 (1963). 562 F.3d at 395-96.
Likewise, we have determined that a mere promise to give the
disclosing party notice before releasing documents does not
support a reasonable expectation of confidentiality. In re
Subpoenas, 738 F.2d at 1373.
The selective disclosure inquiry is straightforward.
Selective disclosure involves disclosing work product to at least
one adversary. As we have explained, Deloitte is not an
adversary, so Dow’s disclosure to Deloitte was not selective
disclosure. The “reasonable expectation of confidentiality”
inquiry is more complicated. As to common interests, Dow and
Deloitte do not have common litigation interests in the Dow
Documents—Dow has a litigation interest in the documents
because of its interest in the Chemtech partnerships, but Deloitte
has no similar interest in the documents. Absent common
interests, the question is whether a confidentiality agreement or
similar assurance gave Dow a reasonable expectation that
Deloitte would keep its work product confidential.
We conclude that Dow had a reasonable expectation of
confidentiality because Deloitte, as an independent auditor, has
an obligation to refrain from disclosing confidential client
information. Rule 301 of the American Institute of Certified
Public Accountants (AICPA) Code of Professional Conduct
20
provides: “A member in public practice shall not disclose any
confidential client information without the specific consent of
the client.” AICPA CODE OF PROFESSIONAL CONDUCT § 301.01.
William Curry’s declaration explains that “Dow furnished these
documents to D&T [Deloitte] with the expectation that D&T
would retain the confidentiality of the two documents.” Given
the obligation imposed by Rule 301, we think this expectation
was reasonable.
The government responds that this is a “qualified
assurance” that does not suffice to prevent waiver because Rule
301 also explains that it “shall not be construed . . . to affect in
any way the member’s obligation to comply with a validly
issued and enforceable subpoena or summons.” Id. But an
assertion of work-product protection challenges the
enforceability of a subpoena with respect to those materials.
Thus Deloitte could refuse to produce the documents, thereby
allowing Dow to intervene and assert work-product protection,
without violating its obligation to comply with enforceable
subpoenas. Indeed, this is exactly what Deloitte did.
Accordingly, this caveat does not significantly diminish the
reasonableness of Dow’s expectation of confidentiality.
The government also attempts to bolster its waiver
argument by identifying instances in which an independent
auditor might disclose information obtained from a company
whose finances it audits. For example, it asserts that Deloitte
could make Dow disclose its confidential tax analysis in
footnotes to its public financial statements. Likewise, Deloitte
could testify about confidential information obtained from Dow
in proceedings brought by the SEC or private parties. Or
Deloitte might report illegal acts it detects during its audit in
accordance with § 10A of the Securities and Exchange Act, 15
U.S.C. § 78j-1. Finally, the government returns to Arthur
Young, arguing that as an independent auditor, Deloitte is a
21
“public watchdog” whose ultimate allegiance is to Dow’s
creditors, stockholders, and the investing public—all potential
adversaries of Dow. In sum, the government contends that Dow
could not reasonably expect confidentiality from Deloitte after
giving it the Dow Documents, given the myriad ways Deloitte
could reveal that information.
Of course Deloitte might disclose some information
relevant to Dow’s finances. But the government has neither
pointed to any regulatory provision nor posited any specific
circumstance under which Deloitte would be required to disclose
attorney work product like that contained in the Dow
Documents. An independent auditor can fulfill its duties and
render an opinion concerning a company’s public financial
statements without revealing every piece of information it
reviews during the audit process. In short, Deloitte’s
independent auditor obligations do not make it a conduit to
Dow’s adversaries.
Likewise, the government’s reliance on Arthur Young is
misplaced. In Arthur Young, the Court considered whether
accountant work-product should be granted the same protection
attorney work product receives. The government quotes the
Court’s statement that “[t]o insulate from disclosure a certified
public accountant’s interpretations of the client’s financial
statements would be to ignore the significance of the
accountant’s role as a disinterested analyst charged with public
obligations.” Arthur Young, 465 U.S. at 818. All well and
good. In this case, however, the government attempts to
discover not an independent auditor’s “interpretations of the
client’s financial statements,” which Arthur Young would
permit, but an attorney’s thoughts and opinions developed in
anticipation of litigation, which the work-product doctrine
forbids.
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Furthermore, we are mindful that independent auditors have
significant leverage over the companies whose finances they
audit. An auditor can essentially compel disclosure by refusing
to provide an unqualified opinion otherwise. Finding waiver
based on such disclosures could well encourage the sort of
“[i]nefficiency, unfairness and sharp practices” that Hickman
sought to avoid. For example, it might discourage companies
from seeking legal advice and candidly disclosing that
information to independent auditors. Moreover, the government
has not proffered any good reason for wanting the Dow
Documents other than its desire to know what Dow’s counsel
thought about the Chemtech partnerships. Granting discovery
under these circumstances would undercut the adversary process
and let the government litigate “on wits borrowed from the
adversary,” Hickman, 329 U.S. at 516 (Jackson, J., concurring).
We conclude that the district court applied the correct legal
standard and acted within its discretion in determining that Dow
had not waived work-product protection. Consequently, we
affirm the district court’s decision denying the government’s
motion to compel with respect to the Dow Documents.
***
For the reasons set forth above, we vacate in part, affirm in
part, and remand for further proceedings consistent with this
opinion.
So ordered.