January 27, 2009

The Textron Work Product Decision: Real Implications for Lawyers

Last week, the U.S. Circuit Court of Appeals for the First Circuit issued its highly-anticipated decision regarding work papers and privilege in US v. Textron. We have posted the decision and related memos in our “Attorney-Client Privilege” Practice Area.

Here are some thoughts from Stan Keller of Edwards Angell Palmer & Dodge:

The decision involves whether Textron’s tax accrual workpapers were
protected from discovery from the IRS as work product. From a lawyer’s perspective, the importance of the decision is whether work product protection was waived as a result of disclosure of the workpapers to the auditors.

The First Circuit decision may amount to an illusory victory for Textron with mischievous consequences. The Court holds that the tax accrual workpapers are entitled to work product protection, giving a broad reading to the requirement that they be prepared in connection with litigation, and that sharing them with the auditor does not automatically constitute a waive. So far so good.

However, the court then reasons that the auditor could be a conduit for the workpapers or their substance being turned over to an adversary, there being no auditor’s privilege and thus the auditor’s workpapers are subject to discovery, with the result that the work product protection could be waived. The case was remanded to the District Court to consider this further.

Couple this limitation with the audit documentation requirements of AS #3 and you have illusory work product protection.

Corp Fin Issues Updated Interpretations for Going Private Transactions and ’33 Act Rules

Close enough to getting them out by the end of the year as promised, Corp Fin issued two sets of new Compliance & Disclosure Interpretations yesterday – a ’33 Act set and a “going private” transaction set.

The ’33 Act set includes new interps as well as revised interps that were published just a few months ago. The going private set is the first update in that area since ’01. The bracketed date following each interp in both sets is the latest date of publication or revision.

More Regulatory Reform Ideas

Last week, as noted in this press release, the President’s Working Group on Finanical Markets issued two reports on the hedge fund industry: this report from the Asset Manager’s Committee and this report from the Investors’ Committee. The reports lay out best practices and recommendations for the hedge fund industry. We have been posting recommendations for reform of the financial regulatory structure in our “Regulatory Reform” Practice Area. By the way, here is Obama’s “American Reinvestment & Recovery Plan.”

The Latest Developments: Your Upcoming Proxy Disclosures—What You Need to Do Now!

Don’t forget to tune in tomorrow for the Part II webcast – “The Latest Developments: Your Upcoming Proxy Disclosures—What You Need to Do Now!,” featuring Mark Borges, Alan Dye, Dave Lynn and Ron Mueller. This is the second of a two-webcast series, with the first one taking place last Wednesday (audio archive now available).

Given the heightened importance of executive pay right now – and the high likelihood that Congress will pass “say-on-pay” legislation, this year’s compensation disclosures will receive unprecedented scruntiny by investors, employees, customers and the media.

Act Now: As all memberships are on a calendar-year basis, you will not be able to access these webcasts if you haven’t renewed for ’09 – so please renew today. If you aren’t a member, try a no-risk trial for ’09.

– Broc Romanek