On August 13, 2009, the First Circuit Court of Appeals issued its eagerly awaited decision in United States v. Textron, Inc. & Subsidiaries, No. 07-2631 (Aug. 13, 2009). A majority of the en banc panel held that the work product privilege did not apply to Textron’s tax accrual workpapers because they were not “prepared for use in litigation.” Many fear that, if not reversed by the U.S. Supreme Court, the majority opinion could ultimately extend beyond the First Circuit and be interpreted to apply to more than tax documentation. At a minimum, the Textron decision emphasizes the fact that the documentation of both tax and general litigation risk assessments is a more difficult balancing act than ever before, and that the need to fully analyze litigation risks must be weighed against the risk of potential discovery, not only by the IRS, but perhaps by other litigants as well.  

Textron Standard: Prepared for Use in Litigation

In determining whether a document is prepared “in anticipation of litigation” for purposes of Fed. R. Civ. Proc. 26(b)(3), the First Circuit follows the majority rule. More specifically, a document is protected work product if it is “prepared or obtained because of the prospect of litigation.” In Textron, the majority claims to reaffirm its application of the “because of”’ standard but, as the dissent points out, proceeds to adopt a new standard of “prepared for use in litigation.” The majority did not elaborate on what was required to meet this new standard. Instead, it simply concludes that “the Textron workpapers were independently required by statutory and audit requirements and [therefore] that the work product privilege does not apply.”  

The potentially broad, widespread impact of Textron is apparent if only documents prepared for “use” in litigation will be protected. This new standard is even more narrow than the minority rule, which provides that a document is protected only if the “primary motivating purpose” in creating the document is to aid in possible future litigation, a rule that to date has been applied only in the Fifth Circuit.  

The Textron opinion hinges on a finding that the workpapers at issue were independently required by statutory and audit requirements and, therefore, in the First Circuit’s view, could not have been prepared for use in litigation. There is an ongoing dispute as to whether a corporation’s tax accrual workpapers (in contrast to a public accounting firm’s workpapers) are “required” as alleged by the court. But, even if the court’s statement were true, the majority appears to have ignored a large body of law holding that a dual purpose document can be protected work product under the “because of”’ standard. But for the prospect of litigation, the litigation reserves and supporting workpapers would not be prepared in essentially the same form, and may not have been prepared at all. Unless the majority in Textron actually intended to change the First Circuit standard, the fact that those workpapers also support the financial statements should not preclude a finding that they are privileged work product.

Litigation Reserves

Historically, opinion work product has been afforded greater protection than factual work product. Fed. R. Civ. Proc. 26(b)(3) specifically states that “the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party’s attorney or other representative of a party concerning the litigation.” In analyzing the impact of the Textron decision, it is important to keep in mind that the tax accrual workpapers at issue were limited to an attorney’s litigation risk assessments on an issue-by-issue basis and the supporting analyses. Outside of the tax law, other courts have held that individual litigation reserves are privileged work product. There does not seem to be any basis for ignoring this authority simply because it relates to general litigation reserves as opposed to tax litigation reserves. In both situations, the corporation is completing a litigation risk assessment because of the prospect of litigation, and it will use this assessment to record reserves on its financial statements. In both situations, moreover, the individual reserves and supporting analyses reveal the mental impressions, thoughts, and conclusions of legal counsel in evaluating a legal claim. Such opinion work product is at the very core of what always has been protected by the work product privilege. If not corrected by the Supreme Court, there are concerns about the full impact of Textron, including, for example, the ability of general litigants to gain access to the mental impressions, thoughts, and conclusions of a corporation’s legal counsel in evaluating legal claims against the company for the purpose of assessing its general litigation reserves, despite the fact that such documents have historically and uniformly been held to be privileged.  


The time may be ripe for the Supreme Court to provide a controlling standard for the meaning of the phrase “in anticipation of litigation” for purposes of the work product privilege. Until that happens, however, the First Circuit’s decision in Textron creates uncertainty for corporations regarding what documents will be protected work product and what documents might be subject to discovery. Corporations will continue to analyze their litigation risks and record tax and non-tax reserves, but they should consider the need to consult with legal counsel regarding the implementation of practices and procedures to minimize the risk of being forced to disclose legal opinions and other sensitive information that have historically fallen within the zone of privacy protected by the work product privilege.