In United States v. Sanmina Corp., No. 18-17036 (9th Cir. Aug. 7, 2020), the Ninth Circuit considers whether two memoranda by a taxpayer’s in-house counsel must be turned over to the IRS. The Ninth Circuit affirms the district court’s finding that any attorney-client privilege was waived, and remands for further review of attorney work-product protection of attorney “mental impressions, conclusions, opinions or legal theories” under Fed. R. Civ. P. 26(b)(3).
The opinion sets forth the context of the dispute: “Sanmina Corporation (‘Sanmin’) claimed a worthless stock deduction on its federal tax return [valued at $503 million and offsetting all of the company’s taxable income], which triggered an audit by the United States Internal Revenue Service (‘IRS’) of Sanmina’s tax returns. To support the deduction, Sanmina provided to the IRS a valuation report that had been prepared by DLA Piper, LLP, which in turn cited two memoranda authored by Sanmina in-house counsel. The IRS issued a summons for the memoranda, and Sanmina objected on the basis that they were protected both by attorney-client privilege and the attorney work-product doctrine.”
On an appeal from an enforcement action, where the IRS won below on both waiver of privilege and work-product protection, the Ninth Circuit reverses in part.
On the attorney work-product protection, which covers attorneys’ litigation documents, the panel remands to the district court. The case presents the Ninth Circuit with an occasion to decide whether, like waiver of privilege, work-production protection is waived by exposing the document to any third party. Following “overwhelming majority of our sister circuits” and the consensus of district courts in the circuit, the panel holds that waiver of work-product protection is limited to a disclosure that is either “made to an adversary in litigation or ‘has substantially increased the opportunities for potential adversaries to obtain the information'” (quoting 8 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 2024 (3d ed. 2020)).
The panel further observes that “the fact-intensive analysis” of work-product waiver “requires a consideration of the totality of the circumstances and is ultimately guided by the same principle of fundamental fairness that underlies much of our common law doctrine on waiver by implication. Thus, we may find the work-product immunity waived where the disclosing party’s conduct has reached a ‘certain point of disclosure’ towards his adversary such that ‘fairness requires that his privilege shall cease, whether he intended that result or not'” (quoting Weil v. Investment/Indicators, Research & Mgt., Inc., 647 F.2d 18, 24 (9th Cir. 1981)).
Applying this newly adopted standard, the panel holds that disclosure of the documents to DLA Piper (not an adversary) did not itself break work-product protection. It then grapples with the “more difficult question is whether Sanmina waived such protection when it provided the IRS with the DLA Piper Report,” which in turn cited the in-house counsel memos. Considering the totality of the circumstances, the panel holds that the taxpayer “implicitly waived protection over any factual or non-opinion work product in the Attorney Memos that serve as foundational material for the DLA Piper Report.” It remands for the district court to sort out and redact any “mental impressions, conclusions, opinions or legal theories” of the in-house attorneys.