The U.S. Justice Department this week won a partial victory against Deloitte LLP when a federal appeals court in Washington ordered additional proceedings in the government’s fight to acquire documents from the Big Four accounting firm.
The government wants to review several documents that Dow Chemical Co. turned over to Deloitte as part of an audit. Last year, Judge Richard Leon of the U.S. District Court for the District of Columbia ruled the documents are protected by the work-product privilege. On Tuesday, the U.S. Court of Appeals for the D.C. Circuit said maybe, maybe not as to one document.
The dispute flows from ongoing tax litigation in the U.S. District Court for the Middle District of Louisiana, where Dow filed suit in 2005 against the Internal Revenue Service regarding adjustments the agency made to the returns of two wholly owned Dow subsidiaries.
The documents the government are a 2005 tax opinion from McKee Nelson (the firm later merged into Bingham McCutchen); a 1998 memo written by a Dow in-house attorney and an in-house accountant; and a 1993 draft memorandum by Deloitte that summarizes a meeting among Dow employees, Dow’s outside counsel and Deloitte employees about the possibility of litigation.
Bingham McCutchen partner Hartman Blanchard Jr. in Washington represented Dow in the D.C. Circuit. The company intervened to claim work-product protection. Michael Warden, a Sidley Austin partner in Washington, entered an appearance for Deloitte.
Justice Department attorneys, including the Tax Division’s Judith Hagley, argued in the D.C. Circuit that the 1993 memo is not protected by the work-product privilege because it was prepared by Deloitte, not Dow. Hagley also said the document stemmed from an audit and was not created in anticipation of litigation.
Chief Judge David Sentelle and Judges Thomas Griffith and Janice Rogers Brown unanimously ruled Tuesday that the 1993 document may be protected by the work-product privilege. But the panel said Judge Leon did not have a “sufficient evidentiary foundation” for his ruling that the document was purely work product. The appeals court remanded the suit to Leon for him to examine in chambers whether the memo is entirely work product.
The D.C. Circuit said the other two documents are protected and denied the government access to them. “We conclude that Dow had a reasonable expectation of confidentiality because Deloitte, as an independent auditor, has an obligation to refrain from disclosing confidential client information,” the court said in its June 29 opinion.