Textron Inc. Dec. 24 petitioned the U.S. Supreme Court for review of the controversial First Circuit decision, which found that tax accrual work papers sought by the Internal Revenue Service in an administrative summons were not entitled to work product protection (Textron Inc. v. United States, U.S., No. 09A361, petition filed 12/24/09).
IRS sought the papers as part of an investigation into the company's alleged use of an abusive tax shelter. In its 3-2 ruling, the First Circuit said that the work product privilege is aimed at protecting work done for use in litigation, not in preparing financial statements.
The First Circuit's August en banc ruling came nearly five months after the court vacated a three-judge panel's initial 2-1 decision in the case. The initial ruling held that Textron and its auditor, Ernst &Young, were not potential adversaries, therefore the firm's disclosureof the documents to E&Y was not a waiver of work product immunity.
According to Judge Michael Boudin, who wrote the majority opinion for the en banc panel, the issue before the court was whether the attorney work product doctrine shields tax accrual work papers from an IRS summons. He noted that the work papers were prepared by lawyers and others in Textron's tax department to support of calculation of tax reserves for the aerospace and defense conglomerate's audited corporate financial statements.
In its petition to the Supreme Court for a writ of certiorari, Textron argued that the First Circuit's ruling adopted an unprecedentedly narrow interpretation of the work product privilege of in Federal Rule of Civil Procedure 26(b)(3).
``This case presents an issue of exceptional practical importance concerning the scope of the work-product privilege--an issue the Supreme Court has not addressed for many decades," wrote Kannon K. Shanmugam, Textron's counsel of record in the case, in a Dec. 28 e-mail to BNA. "We believe that the First Circuit incorrectly narrowed the privilege and that this case warrants Supreme Court review." Shanmugam is a partner with Williams & Connolly LLP in Washington, D.C.
"Public reaction to the First Circuit's en banc Textron ruling from business, accounting and legal circles has been almost universally unfavorable," wrote Jeremy D. Frey in a Dec. 28 e-mail to BNA. ``While the likelihood that certiorari will be granted is notoriously difficult to predict, Textron's certiorari petition presents a compelling argument that protection of the work-product doctrine from erosion warrants Supreme Court review. Hopefully, Textron will be reviewed and reversed by the Supreme Court." Frey is a partner in Pepper Hamilton LLP's Commercial Litigation and White Collar and Corporate Investigations Practice Groups.