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United States Court of Appeals for the Second Circuit
April 16, 2015, Argued; November 10, 2015, Decided
Docket No. 14-1965-cv
[*37] WINTER, Circuit Judge:
Georg F.W. Schaeffler ("Mr. Schaeffler" or "Schaeffler") and associated entities ("Schaeffler Group") (collectively "appellants") appeal from Magistrate Judge Gorenstein's order denying a petition to quash an IRS summons.1 We conclude that: (i) the attorney-client privilege was not waived by appellants' provision of documents to a consortium of banks ("Consortium") sharing a common legal interest in the tax treatment of a refinancing and corporate restructuring resulting from an ill-fated acquisition originally financed by the Consortium; and (ii) the work-product doctrine protects documents analyzing the tax treatment of the refinancing and restructuring prepared in anticipation of litigation with the IRS. We therefore vacate and remand.
The pertinent facts are not in dispute.
a) The Acquisition
The Schaeffler Group is an automotive and industrial parts supplier incorporated in Germany. Mr. Schaeffler, a resident of Dallas, Texas, is an 80% owner of the ultimate parent [**3] of the Schaeffler Group. This appeal arises from an attempt by the Schaeffler Group to acquire a minority interest in a German company, Continental AG, through a tender offer for its stock. German law prohibits tender offers that seek less than all of a company's shares. As a result, a partial offer can be accomplished only by setting an offering price estimated to result in the acquisition of the desired number of shares. This course was followed by the Schaeffler Group with regard to Continental AG.
To finance the offer, the Schaeffler Group executed an eleven-billion Euro loan agreement with a consortium of banks. On July 30, 2008, the offer was made with an acceptance period ending on September 16, 2008. Because of German law, the timing of the offer was unlucky, to say the least. On September 14, 2008, two days before the end of the acceptance period, Lehman Brothers Holding Inc. announced its bankruptcy, the stock market collapsed, and the economic crisis worsened. The market price of Continental AG shares, already declining, fell accordingly. Because German law prohibited the Schaeffler Group from withdrawing its tender offer, far more shareholders than expected or desired accepted [**4] the offer, leaving the Schaeffler Group the owner of nearly 89.9% of outstanding Continental AG shares.
These circumstances combined to threaten the Schaeffler Group's solvency and ability to meet its payment obligations to the Consortium. As a result, appellants and the Consortium perceived an urgent need to refinance the acquisition debt and to restructure the Schaeffler Group. Under United States law, because Mr. Schaeffler is an 80% owner of the ultimate parent of the Schaeffler Group, the tax consequences of his companies' debt refinancing and restructuring substantially affected his personal tax liability to the IRS. Given the complex and novel refinancing and restructuring that ensued, appellants anticipated scrutiny by the IRS. Therefore, they retained Ernst & Young ("EY") and Dentons US LLP ("Dentons") to advise on the federal tax implications of the transactions and possible future litigation with the IRS.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
806 F.3d 34 *; 2015 U.S. App. LEXIS 19617 **; 2015-2 U.S. Tax Cas. (CCH) P50,555; 116 A.F.T.R.2d (RIA) 2015-6708
GEORG F.W. SCHAEFFLER, SCHAEFFLER HOLDING GMBH & CO. KG, INA-HOLDING SCHAEFFLER GMBH & CO. KG, SCHAEFFLER HOLDING, LP, Petitioners-Appellants, v. UNITED STATES OF AMERICA, Respondent-Appellee.
Subsequent History: As Corrected December 21, 2015.
On remand at, Petition dismissed by, Motion denied by Schaeffler v. United States, 2016 U.S. Dist. LEXIS 79176 (S.D.N.Y., June 16, 2016)
Prior History: [**1] Appeal from a denial of a petition to quash an IRS summons by the United States District Court for the Southern District of New York (Gabriel W. Gorenstein, Magistrate Judge). We hold that the attorney-client privilege was not waived by the sharing of documents with a consortium of banks having a common legal interest with appellants and that the summons sought materials protected by the work-product doctrine. We vacate and remand.
Schaeffler v. United States, 22 F. Supp. 3d 319, 2014 U.S. Dist. LEXIS 72710 (S.D.N.Y., 2014)
Consortium, documents, restructuring, work-product, refinancing, legal interest, anticipated, district court, communications, advice, shares, waived, attorney-client, appellants', disclosure, parties, audit, common interest, tax treatment, tender offer, confidential, transactions, acquisition, enterprise, tax issue, tax law, reinsurance, quotation, ongoing, summons
Civil Procedure, Appeals, Reviewability of Lower Court Decisions, General Overview, Tax Law, Audits & Investigations, Administrative Summons, Evidence, Privileges, Attorney-Client Privilege, Accountant-Client Privilege, Standards of Review, Abuse of Discretion, Waiver, Scope, Privileged Communications, Work Product Doctrine, Scope of Protection