Excepts of Transcript of
Oral Argument in United States v. Deloitte, 623 F. Supp. 2d 39
(D.D.C. 2009), aff'd in part, vacated in part, and remanded, 610
F.3d 129 (D.C. Cir. 2010).
[Setting the stage: Deloitte prepared certain
documents during its financial audit of Dow Chemical Co. Dow
claimed that the documents were protected under the attorney
work-product doctrine. The government filed a motion to
compel Deloitte to produce documents in response to a subpoena;
that motion was denied. The government then filed a motion to
state the basis for the ruling. That motion was granted and
Judge Leon (in the D.C. district court) stated that the basis for
the ruling was that the documents were privileged and so Deloitte
was not compelled to disclose the documents. Judge Leon's
decision was appealed to the D.C. Circuit. Oral argument
occurred on February 26, 2010, before Chief Judge David Sentelle,
Judge Janice Rogers Brown, and Judge Thomas
[The following excerpt also illustrates the
importance of (i) appropriately defining the issues, (ii) having
comprehensive knowledge of the record, and (iii) maintaining your
position in the face of aggressive questioning by the
Ms. Judith HAGLEY: May it please the
Court…..The issue in this case is whether documents that an
independent auditor prepares or relies on during its audit of a
company's financial statements are work product.
Judge SENTELLE: That's a much broader issue
than I think is necessary to decide this case. The issue is
whether one particular document, well actually, two---two kinds of
documents involved, one of which I think you can see is work
product…. The ones that are called the Dow documents that …. were
shared with Deloitte. Right?
HAGLEY: That's correct.
Judge SENTELLE: You concede that that's work
HAGLEY: The two, the two---
Judge SENTELLE: The other document has to do
with a document prepared by the outside auditor but containing
information from legal counsel, right?
HAGLEY: That's correct.
Judge SENTELLE: So the issue is not nearly as broad
as what you first stated…This is not going to be a sweeping
precedent---you use the term sweeping in your brief---that all
outside auditor documents can be protected by work product.
It's a very fact specific question, is it not?
HAGLEY: Though in this case, the district
court's ruling is in a sense sweeping…
Judge SENTELLE: Can you quote the part of that
opinion that you are relying upon in this moment?
HAGLEY: The Court's
Judge SENTELLE: I've got the opinion in front of me,
and I'm not sure I find anything as sweeping as what you are
arguing in your brief.
HAGLEY: What the Court says, and this is on
page 156 of the record in footnote 1-that the third document was
prepared because of the prospect of litigation…
Judge SENTELLE: So all we're really dealing with is
those documents, which although prepared by the auditor, contain
the thoughts of the legal counsel, right?
Judge GRIFFITH: And what do you understand
that to mean---thoughts of Dow's counsel regarding the prospect of
litigation? That doesn't seem to follow any of the formulas
that have been used since Hickman and Rule 26. What does that
HAGLEY: What it means is in the context of the
audit of the financial statements. And what every public company
has to do when it's auditing its financial
Judge GRIFFITH: I understand
Judge GRIFFITH: It doesn't say litigation
strategy, does it?
HAGLEY: It does not say litigation
Judge GRIFFITH: I don't know what this
means---thoughts about the prospect of
HAGLEY: Well, it is vague.
Judge GRIFFITH: Is it your view that the
district court order is sufficiently clear, that we know what we
are reviewing here?
HAGLEY: We have not argued that there should
have been more analysis, but that what the Court said is
insufficient under this Court's case law. The work product
test does not extend work product protection to documents created
by lawyers in the ordinary course of business or for non-litigation
Judge GRIFFITH: The purpose of the meeting
that the document was created for was not litigation, but, during
the course of the meeting there were discussions about litigation
strategy that were memorialized in the document-that's a different
matter, right? Memorializing that discussion would be
intangible work product under Hickman, right?
HAGLEY: Well it certainly would be different
than the facts in this case, which as you point
Judge GRIFFITH: Well do we know? Do we know?
What do we know about them? What do we know about the facts
in this case?
HAGLEY: We don't because we haven't seen the
documents, so I can't tell you what it says. But I can tell
you that it is your position that if in that meeting, the sole
purpose of which is to determine whether the financial statements
are accurate, it doesn't matter what it said. If they're
planning litigation strategy or if they're saying we have no
uncertain tax positions
Judge SENTELLE: That's the part where you may have
trouble with your audience here, is when you say it doesn't matter
what it said. If it says our litigation strategy in defense
of litigation will be x, y, and z why would that not be protected
as work product?
HAGLEY: Because the purpose for which it was
revealed in that meeting was for a non-litigation
Judge SENTELLE: What purpose would the
government want-what are you looking for?
HAGLEY: What we are looking for---we explain this in
our opening brief…
Judge SENTELLE: You didn't explain it well
enough for me. What is it you're looking for
HAGLEY: Well let me try again. We are
looking for the business purpose of the
Judge SENTELLE: You're looking for the attorney's
opinion, are you not?
HAGLEY: No, we are looking for analysis of this
Judge SENTELLE: You're looking for the attorney's
analysis of this business transaction, right?
HAGLEY: We're looking for any analysis in Deloitte's
files about the transaction.
Judge SENTELLE: The reason you want these documents
is to get the attorney's opinion of that, right?
HAGLEY: What we've explained that we're asking for
is, listen, if you let me just explain for one minute. This case
involves a complicated, in our view, abusive tax shelter
Judge SENTELLE: Don't tell me what this case
involves. Are you looking for anything other than the attorney's
opinion as you're trying to get this document?
HAGLEY: Yes we are. We're hoping that Dow and
its attorney would need to analyze the substance of the transaction
to give the background of whether the partnership was a legitimate
Judge SENTELLE: … What you want here is the
attorney's opinion on that subject, right?
[The following excerpt illustrates (i) the fluidity
of oral argument and anticipating additional time to address
matters of concern to the court, (ii) knowing the details of the
cases cited in briefs submitted to the court, and (iii) having a
clear understanding of the authorities that support (or undermine)
HAGLEY: Unless the Court has any further questions
on work product, I was going to move on to
Judge SENTELLE: Move on to, to
Judge BROWN: To the waiver.
Judge SENTELLE: Okay-your time is running. Let's add
five minutes, because waiver may be the most important part of the
case. Go ahead counsel.
HAGLEY: In this case, we think that the waiver
ruling is also flawed because the district court failed to
recognize that the independent auditor can be a potential
adversary…because like the agency auditor in the MIT case, the
independent auditor's function…
Judge GRIFFITH: In that case, wasn't the
auditor representing an agency with whom they had done business,
and if the audit didn't come out right they were going to owe them
money? That isn't quite what happens in a lawyer - auditor
situation. Is that your best case? That's your
HAGLEY: That's one of our strong
Judge GRIFFITH: What's your best case? What, what's
your best case?
HAGLEY: The Medinol and Diasonics decisions-and why
we think those two courts reach the correct conclusion is because
they followed and cited to the majority opinion in the Supreme
Court Arthur Young decision……
Judge SENTELLE: The Supreme Court in Arthur
Young was not addressing this issue. I mean,
HAGLEY: We've been candid about that in our
Judge SENTELLE: Right.
HAGLEY: But it did set the rule that an independent
auditor's work papers do not need to be
Judge SENTELLE: Nobody has argued that in and
of itself, the auditor's work product is protected. Arthur
Young is, everybody can say Arthur Young is fine. It's
wonderful. (Indiscernible) decided at the Supreme Court. They
control. But that still leaves us with the question of whether the
independent auditor's notation or memorialization of counsel's
opinions are privileged.
HAGLEY: That's correct. But that
Judge SENTELLE: So Arthur Young really doesn't
ask, it really doesn't bear on this case very much at all, does
HAGLEY: Well I think it
[The following exchange illustrates how appellate
judges, even in tax cases, are particularly concerned about the
impact of the court's decision on other cases outside the tax
Judge GRIFFITH: But your waiver analysis is
contingent upon the idea that the auditor is going to be
potentially adverse to the law firm. And the only case that
you cite is one that doesn't have any…..
Judge SENTELLE: MIT
Judge GRIFFITH……anything to do with this
case. You're asking us to take a step that would have
pretty significant consequences, and you don't have a case to cite,
so you're asking us to break new ground here,
[Postscript: The appellate court (in an
opinion by Judge SENTELLE) held that merely because the auditor,
rather than counsel, drafted the memorandum did not exclude the
possibility that the memorandum contained attorney work
product. Moreover, the court held that the fact that the memo
was generated as part of the audit process did not exclude the
possibility that it contained work product. The court also
held that the evidence was insufficient to support the district
court's finding that the memo was purely work product. And,
as a matter of apparent first impression, the appellate court held
that the corporation did not waive work-product protection by
disclosing it to the auditor. Accordingly, the D.C. Circuit
affirmed in part, vacated in part, and remanded to the district