In a most significant opinion, the Massachusetts Supreme Judicial Court held on March 3, 2009, that memoranda between in-house counsel and outside tax accountants were protected from disclosure by the work-product doctrine (Massachusetts Commissioner of Revenue v. Comcast Corp., Mass., No. SJC-10209, 3/3/09).
The case originated with the state audit examination of Comcast Corporation's corporate tax returns for the period of Nov. 1, 1996, through Dec. 31, 1997. There, the Massachusetts Commissioner of Revenue investigated whether Comcast was obligated to pay Massachusetts a substantial state tax liability in connection with the disposition of a cable affiliate. The stock sale was mandated by a U.S. Department of Justice civil antitrust action that required Comcast's predecessor, U.S. West, Inc., to sell the stock to reduce an ownership interest prior to a series of transactions. The substantial gain stemming from the disposition was reported by the Comcast affiliate on its federal tax return but was not reported on any Massachusetts corporate excise tax return. When the Commissioner sought the production of documents through an administrative summons, Comcast responded that certain documents, including memoranda issued by its accounting firm, were protected by both the attorney-client privilege and the work-product doctrine.
The memoranda in question in this ruling were requested by a U.S. West attorney who sought advice regarding options for structuring the stock sale from two Massachusetts-based partners of Arthur Andersen LIP. After receiving the memoranda, the sale took place. In issuing his legal advice to the company, the U.S. West attorney considered all of his communications with the Andersen partners to be attorney-client communications and attorney work product and "took all necessary precautions" to ensure that documents received from Andersen remained "confidential and privileged." The documents were drafted pursuant to a separate engagement letter, and sent to U.S. West's law department and maintained in segregated, locked files.
The court examined Comcast's argument that the Andersen memoranda were protected by the attorney-client privilege and also the work-product doctrine. With respect to the attorney-client privilege, the court articulated its difficulty of drawing a line between "legal" advice and "tax or accounting" advice, but added that the advice was provided by third parties in circumstances that the court determined were not covered by the privilege. The court said that the U.S. West attorney was free to seek advice from a Massachusetts attorney, in which case the privilege would apply, but he instead sought advice from Massachusetts accountants, where no privilege applied.
However, in reviewing the application of the work-product doctrine, the court indicated that the Massachusetts work-product doctrine also protects a client's non-lawyer representatives, protecting from discovery documents prepared by that party's representative "in anticipation of litigation." The court expressed no doubt that U.S. West had anticipated litigation on this issue when it directed the preparation of the memorandum. The court agreed with the trial court's finding that the memoranda contained a detailed analysis of Massachusetts tax law, and outlined the feasibility and issues related to the restructuring in light of state law and the potential for litigation. Thus, the Supreme Judicial Court held that the memoranda constituted work product and were protected from disclosure by the work-product doctrine.