The most recent U.S. Circuit Court of Appeals for the First Circuit decision in United States v. Textron – a 3-2 en banc decision – has caused quite a stir. This decision follows one from January, in which I blogged thoughts from Stan Keller, who noted then: “The First Circuit decision may amount to an illusory victory for Textron with mischievous consequences.”
In its new en banc decision, the court significantly narrows the “work product” doctrine by ruling that it did not protect tax accrual work papers. The court found that the law “does not protect from disclosure documents that are prepared in the ordinary course of business” instead of in anticipation of litigation or in preparation for trial. Textron had argued that if it were not for the possibility of litigation with the IRS, the papers would not be prepared at all because no reserves would be needed. We have posted the opinion – and memos analyzing it – in our “Audit Documentation/Work Papers” Practice Area.
In their 26-page dissent, Judges Torruella and Lipez noted that there was a split among the circuits and that the “time is ripe for the Supreme Court to intervene and set the circuits straight on this issue.” The depth of the dissent may help those fighting for work product protection going forward as it seems more reasoned than the majority opinion.
The Textron decision is a continuing attack on the work product doctrine, which is likely to continue partly because the definition of “work product” is not all that clear. A split in the 2nd Circuit – as well as the far-reaching implications of the 1st Circuit’s decision – may well lead the US Supreme Court to grant certiorari in this case.
Foreign Corrupt Practices Act Going Strong: SEC Brings “Control Person” Charges
As we’ve been covering in this blog for a while, there has been a marked uptick in activity in the Foreign Corrupt Practices Act area over the past year or so. This is highlighted by SEC Enforcement Director Rob Khuzami’s recent speech – discussing his first 100 days in office – announcing the formation of a new FCPA unit, which will seek to develop new and proactive approaches to detecting FCPA violations and work more closely with foreign regulatory counterparts to develop a global approach to prosecution. This likely signals the end of the de-centralized SEC enforcement of the FCPA, with each regional office having the authority to bring FCPA cases.
For example, the SEC recently settled an enforcement action against Nature’s Sunshine Products and its then-COO and CFO for FCPA violations. What makes this case interesting is that the SEC did not allege any illegal activity (or knowledge of the illegal activity) on the part of the COO or CFO, but rather invoked the often-forgotten “control person” doctrine in Section 20(a) of the Exchange Act to allege that the two men had violated the FCPA based on their position as control persons. It is fair to say that this case serves notice that a broader enforcement effort against executives who fail to adequately supervise employees is underway.
Also notable is how the Department of Justice recently invoked the Travel Act to prosecute a case against Central Components for bribery of a non-government official (the company also pled guilty to FCPA violations). This case demonstrates that the government is casting a wide net to prosecute bribery. We have been posting memos analyzing all the activity in this area in our “Foreign Corrupt Practices Act” Practice Area – and Kevin LaCroix recently covered a host of FCPA developments in his “D&O Diary Blog.”
- Broc Romanek