In United States v. Sanmina Corp., ___ F.3d ___ (9th Cir. 2020), here, the taxpayer’s in-house counsel prepared two memoranda supporting a very large deduction the taxpayer claimed. The taxpayer provided the memoranda to an outside law firm which prepared a valuation report supporting the claim. The valuation report referenced the memoranda. The taxpayer gave the valuation report to the IRS in support of the claim. The IRS summonsed the memoranda. The taxpayer resisted, asserting the attorney-client privilege and work product protection. The IRS petitioned to enforce the summons. When the smoke cleared in the opinion, the Court held that the taxpayer’s disclosure to the firm preparing the valuation report waived the attorney-client privilege and was not consistent with work-product protection, so that the factual matter in the memoranda (as opposed to the opinion work product) must be disclosed to the IRS pursuant to the summons.
The holding is important but not that exceptional, so I provide readers here the summary offered by the Court of Appeals (a feature for Ninth Circuit precedential opinions similar to the Tax Court’s summary for T.C. opinions; the Ninth Circuit summary is not precedential and is prepared by staff for the convenience of readers):
The panel affirmed in part and reversed in part the district court’s determination, that taxpayer Sanmina Corporation had waived attorney-client privilege and workproduct protection for certain memoranda prepared in support of a worthless stock deduction on Sanmina’s federal tax return, in a petition by the Internal Revenue Service to enforce a summons for those memoranda.
The memoranda in question (Attorney Memos) were authored by Sanmina’s in-house counsel and referenced in a valuation report prepared by DLA Piper (DLA Piper Report) in support of the worthless stock deduction. The district court initially denied enforcement of the summons. This court remanded for in camera review of the Attorney Memos. On remand, the district court determined that the Attorney Memos were covered by both attorney-client privilege and work-product protection, but that those privileges had been waived. On appeal, the parties did not dispute that the Attorney Memos were privileged.
The panel first held that Sanmina expressly waived the attorney-client privilege when it disclosed the Attorney Memos to DLA Piper. The panel next held that Sanmina did not expressly waive work-product immunity merely by providing the Attorney Memos to DLA Piper, but it impliedly waived the privilege when it subsequently used the DLA Piper Report to support its tax deduction in an IRS audit, because such use was inconsistent with the maintenance of secrecy against its adversary. The panel ordered disclosure of only the factual content of the Attorney Memos on which the DLA Piper Report relies, and remanded for the district court to determine the specific portions of the Attorney Memos that should be disclosed to the IRS.
1. As I cover in the Federal Tax Procedure book (Practitioner Edition p. 845 and Student Edition 583) work product falls into two categories – factual work product and opinion work product. “The D.C. Circuit has said that opinion work product ‘is virtually undiscoverable.’” The footnote for that proposition, #3795, is:
n3795 Dir., Office of Thrift Supervision v. Vinson & Elkins, LLP, 124 F.3d 1304, 1307 (D.C. Cir. 1997). In similar vein, it is sometimes said that opinion work product is not within the scope of Rule 26(b)(3). In re EchoStar Communications Corp., 448 F. 3d 1294, 1302 (Fed. Cir. 2006) (“This rule, however, only allows discovery of ‘factual’ or ‘non-opinion’ work product and requires a court to ‘protect against the disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative.’”) .
2. I think Sanmina is consistent with that holding and for that reason, although precedential in the Ninth Circuit really does not extend the discussion of work product protection. The Court does, however, offer good analysis of the difference between factual and opinion work product and why waiver of factual work product does not waive opinion work product. See Slip Op. pp. 31-32.
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