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United States Court of Appeals for the Second Circuit
October 3, 1996, Argued ; February 13, 1998, Decided
Docket No. 96-6095
[*1194] LEVAL, Circuit Judge:
This appeal concerns the proper interpretation of Federal Rule of Civil Procedure 26(b)(3) ("the Rule"), which grants limited protection against [**2] discovery to documents [*1195] and materials prepared "in anticipation of litigation." 1 Specifically, we must address whether a study prepared for an attorney assessing the likely result of an expected litigation is ineligible for protection under the Rule if the primary or ultimate purpose of making the study was to assess the desirability of a business transaction, which, if undertaken, would give rise to the litigation. We hold 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).
[**3] The district court ruled that the document sought by the IRS in this case did not fall within the scope of Rule 26(b)(3) and ordered its production. Because we cannot determine whether the district court used the correct standard in reaching its decision, we vacate the judgment and remand for reconsideration.
Sequa Corporation is an aerospace manufacturer with annual revenues of nearly $ 2 billion. Prior to 1989, Atlantic Research Corporation ("ARC") and Chromalloy Gas Turbine Corporation ("Chromalloy") were wholly-owned Sequa subsidiaries. Appellant Monroe Adlman is an attorney and Vice President for Taxes at Sequa.
In the spring of 1989, Sequa contemplated merging Chromalloy and ARC. The contemplated merger was expected to produce an enormous loss and tax refund, which Adlman expected would be challenged by the IRS and would result in litigation. Adlman asked Paul Sheahen, an accountant and lawyer at Arthur Andersen & Co. ("Arthur Andersen"), to evaluate the tax implications of the proposed restructuring. Sheahen did so and set forth his study in a memorandum (the "Memorandum"). He submitted the Memorandum in draft form to Adlman in August 1989. After further [**4] consultation, on September 5, 1989, Sheahen sent Adlman the final version. The Memorandum was a 58-page detailed legal analysis of likely IRS challenges to the reorganization and the resulting tax refund claim; it contained discussion of statutory provisions, IRS regulations, legislative history, and prior judicial and IRS rulings relevant to the claim. It proposed possible legal theories or strategies for Sequa to adopt in response, recommended preferred methods of structuring the transaction, and made predictions about the likely outcome of litigation.
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134 F.3d 1194 *; 1998 U.S. App. LEXIS 2633 **; 98-1 U.S. Tax Cas. (CCH) P50,230; 81 A.F.T.R.2d (RIA) 98-820; 39 Fed. R. Serv. 3d (Callaghan) 1189
United States of America, Petitioner-Appellee, v. Monroe Adlman, as Officer and Representative of Sequa Corporation, Respondent-Appellant.
Prior History: [**1] Appeal from an order of the United States District Court for the Southern District of New York (Knapp, J.) rejecting taxpayer's claim of work-product privilege, and enforcing an Internal Revenue Service summons for a memorandum prepared by taxpayer's outside accounting firm at the request of taxpayer's tax attorney to evaluate the tax consequences of a proposed corporate reorganization upon expected litigation with the IRS.
Disposition: Vacated and remanded.
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Civil Procedure, Privileged Communications, Work Product Doctrine, General Overview, Discovery & Disclosure, Discovery, Methods of Discovery, Inspection & Production Requests, Relevance of Discoverable Information, Evidence, Privileges, Attorney-Client Privilege, Attorneys, Opinion Work Product