Tag: Document Management

IQPC’s 11th eDiscovery Summit – April 27-29, 2011 San Francisco, CA – Save Big if Registered Before April 1st!

The National Law Review is a proud media partner for IQPC’s 11th eDiscovery Summit – April 27-29, 2011 San Francisco, CA

IQPC’s 11th eDiscovery Summit features hands on sessions and practical instruction to bring back to your eDiscovery teams. You will engage with IT and legal focus groups to candidly discuss anticipated push back issues, observe how different roles within your company approach imminent litigation and put bridging the gap strategies into practice.

It is no secret that you want to reduce the cost of eDiscovery, yet how do you know if you are paying a reasonable price for ESI processing and review? Do not miss this unique opportunity to learn about outside the box pricing structures and benchmark with your peers to gain a realistic picture of fair pricing for electronic information management.

Why attend the 11th eDiscovery Summit?

  • United States District Court Judges share their experiences with companies committing costly electronic discovery mistakes
  • Bridge the gap between IT and legal through a practical exercise with IT and legal focus groups
  • Learn practical steps to create a solid cross-functional eDiscovery team fostering communication and effective workflow between departments
  • Gain valuable metrics to assess the repeatability and defensibility of your eDiscovery procedures
  • Maximize the benefits of social networking and cloud computing without compromising security and increasing risk
  • Earn CLE Credits! Find out more

Registration, Location & Details…..

  • April 27 – 29, 2011 The Hyatt Regency San Francisco, CA

  • Save Big on Registration – if you sign up prior to April 1st
  • For More Information and to Register – Please Click Here:

New Guidelines for Preservation of Electronically Stored Information "ESI" Released; Federal Court Rules that Metadata Subject to FOIA

Recently posted at the National Law Review by Bracewell & Giuliani – some news about Delaware’s Chancery court’s recent publication of  Guidelines for Preservation of Electronically Stored Information and  Judge Shira A. Scheindlin’s  ruling  that metadata is “an integral or intrinsic part of an electronic record, and, consequently, part of the public record that must be produced by the Government in response to Freedom of Information Act (FOIA) requests:  

In an effort to advise parties to a litigation, the Delaware Court of Chancery released last month its Guidelines for Preservation of Electronically Stored Information. The publication of the Guidelines is timely in light of a decision released late last month in Victor Stanley, Inc. v. Creative Pipe, Inc., Civil No. MJG-06-2662 (D. Md. Jan. 24, 2011), where defendants were ordered to pay over $1 million in sanctions for the willful loss and destruction of electronically stored information (ESI).

As a preliminary matter, the Guidelines advise litigants to take all reasonable steps to preserve ESI that is potentially relevant to a litigation and within their possession, custody or control.  This requires the parties and counsel to “develop and oversee a preservation process.” Key to the preservation process is identifying potentially relevant sources of ESI, i.e. custodians and devices, and enacting a litigation hold. Although there is no single definition among the State and Federal Courts for a litigation hold, the Guidelines advise that, at the least, it entails developing well-written instructions for the preservation of ESI that are then distributed to all custodians of potentially relevant ESI.

Just as important is the timing of the litigation hold.  Various courts have found that the duty to preserve potentially relevant documents occurs once litigation is “reasonably anticipated,” not once litigation has commenced. As a result, theGuidelines recommend that, to the extent a litigation hold has not been disseminated before litigation has commenced, counsel should instruct their clients to do so quickly and “to take reasonable steps to act in good faith and with a sense of urgency to avoid the loss, corruption or deletion of potentially relevant ESI.” While the Guidelines note that this may not be sufficient to avoid the imposition of sanctions if potentially relevant ESI is lost or destroyed, the Chancery Court “will consider the good-faith preservation efforts of a party and its counsel.”

Counsel is well-advised to reference the Guidelines in light of the significant increase in the number of motions and awards for e-discovery sanctions. See Dan H. Willoughby, Jr. et al., Sanctions for E-Discovery Violations: By the Numbers, 60 Duke L.J. 789 (2010). In fact, in the past six years, there have been over five cases where sanctions exceeded $5 million, with one leading the pack at $8.8 million. See id. at 814-15.

As noted above, defendants in Victor Stanley were recently ordered to pay over $1 million in sanctions for the willful loss and destruction of ESI. See also Sanctionable Conduct Involving E-Discovery, Bracewell & Giuliani Legal Advisory, dated Sept. 28, 2010. Magistrate Judge Paul W. Grimm found defendants’ acts of spoliation to be so “extraordinary” as to treat them as contempt, pursuant to Federal Rules of Civil Procedure 37(b)(2)(A)(vii). As such, failure to pay the ordered amount within 30 days will subject the owner of the defendant corporation to up to two years of jail time. Not surprisingly, one of the many actions cited by the court that defendants failed to take: enforcing a litigation hold.

In other e-discovery developments, Judge Shira A. Scheindlin of the Southern District of New York, and author of the instructive Zubalake series of opinions, ruled this week that metadata is “an integral or intrinsic part of an electronic record,” and, consequently, part of the public record that must be produced by the Government in response to Freedom of Information Act (FOIA) requests. Nat’l Day Laborer Org. Network v. U.S. Immigration and Customs Enforcement Agency, 10 Civ. 3488 (S.D.N.Y. Feb. 7, 2011). Although the issue had been addressed by several state courts, this was a matter of first impression for a Federal Court. 

Noting that different types of metadata are inherent to different types of electronic records, Judge Scheindlin determined that “metadata maintained by the agency as a part of an electronic record is presumptively producible under FOIA, unless the agency demonstrates that such metadata is not ‘readily producible.'” (Emphasis in original). She further determined that the onus is on the requesting part to specifically request the metadata. However, Judge Scheindlin found that it was “no longer acceptable” for a party to produce “a significant collection of static images of ESI without accompanying load files.” Citing to Federal Rule of Civil Procedure 34 as a source that should inform FOIA productions, Judge Scheindlin’s ruling will likely carry equal weight in the context of civil discovery. 

© 2011 Bracewell & Giuliani LLP

Why We Decided to Become Certified Legal Project Managers

From this week’s Business of Law Guest Bloggers at the National Law Review – Stacy D. Ballin and Mitchell S. Thompson of Squire, Sanders & Demsey LLP insight on the need and the process of becoming a Certified Legal Project Manager: 

On January 7, 2011, in a simple conference call, the two of us struck out upon a new venture that we believe will help us serve our clients better, and might just mark the start of a new and significant trend for law firm partners.

In a kick-off telephone conversation with consultant Jim Hassett of LegalBizDev, we plunged into an innovative program of study in the rapidly growing field of legal project management.

That conversation was the beginning of a six-month distance learning course put together by LegalBizDev that we can complete at our own pace and that leads to the title of Certified Legal Project Manager. We are among the pioneers in this, the first formal program to certify lawyers as legal project managers.

Squire, Sanders & Dempsey LLP is one of the first major legal practices to take project management to a new level. As the co-chairs of Squire Sanders’ Project Management Committee, we are taking the lead in obtaining the certification ourselves and in helping to plan how to spread best practices within the firm.

What does project management have to do with lawyers? Well, pretty much everything.  The world has changed, and clients need more than ever from their law firms. They want their lawyers to partner with them to achieve their business goals and deliver value, not to merely send them a monthly bill showing how many hours have been spent.

Like every other kind of business worldwide, law firms are becoming more cost-effective and efficient in providing their services. It’s no secret that many users of legal services – including the corporations, governments, and nonprofits, big and small, that big law firms serve — have perceived some disconnect between their costs for legal services and the value of those services. This trend has been building since the DuPont Legal Model was launched in the 1990s, and it was accelerated by the recent economic downturn.  Even as the economy improves, however, we expect clients to continue to require greater value than ever from their law firms.

The Association of Corporate Counsel’s Value Challenge is perhaps the best known of several concerted efforts by corporate counsel to improve the methods and tools that law firms use in delivering legal services. Squire Sanders has formally endorsed the Value Challenge, and adopted our own principles in the form of the Squire Sanders Partnering for Worldwide Value Covenant. Our combination with Hammonds LLP, which took effect on January 1, 2011, makes us one of a very small number of global firms that clearly articulates the importance of providing cost-effective services to our clients.

Among the principles that are integral to our covenant are that we will proactively offer our clients alternative fee structures; that we will provide budgets and estimates for each engagement and advise the client immediately if there may be material changes in cost; and that we will continuously work to become more cost-effective in the delivery of our services.

Our enrollment in legal project management certification was directly related to our value covenant. If Squire Sanders is going to live by these ambitious principles, our lawyers must understand project management and put it into practice. Unless law firms understand project management principles and put them into action, there is no way that they can thrive and deliver excellence while pursuing alternative fee structures and providing firmer budgets and estimates on hourly matters.

Project management is a well accepted technique in business and industry. It can be defined as the discipline of planning, organizing, securing, and managing resources to achieve a project’s goals within the constraints of scope, time, and budget. We are convinced that the time has come for its careful application to major legal matters, including large transactions and significant pieces of litigation.

Lawyers will benefit from project management tools because they can improve communication with their clients and focus on clients’ true needs, thereby reducing client risk and delivering greater value. Client will benefit because they can work with lawyers who put client business goals first, use creative ways to provide solutions to client challenges and ensure clients receive the best value for their investment in legal services.

There are many challenges involved in bringing the well-tested tools of project management into the legal world. For example, legal project managers must take into account client-imposed deal deadlines, due diligence requirements, opposing litigation counsel and their tactics, and deadlines and court calendars that are out of a lawyer’s or law firm’s control — but we believe that these obstacles can be overcome.

In our certification program, we will do assigned readings from six leading textbooks in the field of project management and answer a series of probing essay questions. We will focus on eight key issues that lawyers must understand in order to be effective project managers: setting objectives and defining the scope of a project; identifying and scheduling activities; assigning tasks and managing a team; planning and managing a budget; assessing risks; managing quality; managing client communication and expectations; and negotiating changes of scope. All along the way we’ll interact with Jim Hassett and his staff.

At a later stage of the course, we will apply project management concepts to an actual matter on our plates at Squire Sanders. For example, we might be asked to assume that the same situation would arise again but that this time the client insists on a fixed price at a lower total cost with better communication throughout. We will have to solve the problem with our new project management tools.

In that first conversation with Jim Hassett in January, we discussed Squire Sanders’ position in the vanguard of this emerging area and how to maximize the benefits to our clients. In future conversations, we will discuss the most efficient ways to make project management information accessible to other members of our firm so that each lawyer can determine the best way to apply these principles in his or her own practice.  We hope that the program and the certification will help our firm and our clients succeed in this rapidly changing world.

©Squire, Sanders & Dempsey All Rights Reserved 2011

 

 

Yes, It’s Data Privacy Day

Here’s some news – it’s Privacy Day !  The National Law Review was alerted to this news by Emily Holbrook of the Risk Management Monitor – read on: 

It may surprise you, as it did me, to learn that today is Data Privacy Day, an “international celebration of the dignity of the individual expressed through personal information.” But Data Privacy Day also highlights the need for individuals to protect their data and how they can go about doing so.

There are many organizations out there that aim to help individuals protect their personal information and help businesses comply with data protection laws and regulations. The Online Trust Alliance is one such organization, whose mission is to create an online trust community, promoting business practices and technologies to enhance consumer trust globally. They recently released their “2011 Data Breach Incident Readiness Guide” to help businesses in breach prevention and incident management.

According to their newest guide, the true test for organizations and businesses should be the ability to answer key questions such as:

  1. Do you know what sensitive information is maintained by your company, where it is stored and how it is kept secure?
  2. Do you have an incident response team in place ready to respond 24/7?
  3. Are management teams aware of security, privacy and regulatory requirements related specifically to your business?
  4. Have you completed a privacy and security audit of all data collection activities, including cloud services, mobile devices and outsourced services?
  5. Are you prepared to communicate to customers, partners and stockholders in the event of a breach or data loss incident?

With the White House, members of Congress, Commerce Department and the FTC calling for greater privacy controls and breach notifications, self-regulation by businesses is becoming more and more important.

Google, one of the supporters of Data Privacy Day and the initiatives of The Privacy Projects is hosting a public discussion on privacy later this afternoon with representatives from the Electronic Frontier Foundation, the FTC and the National Institute of Standards and Technology scheduled to attend. If you can’t stop by Google’s DC office for this event, don’t worry — it will be captured on video and posted to YouTube soon after.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Is Your Email Service Provider the Best?

This week’s Business of Law Guest Bloggers at the National Law Review are from Duo Consulting.  Sonny Cohen of Duo provides some good specifics on what to look for in an emailing service.

We recently received this question from a law firm marketer. I’ve edited it slightly for brevity and anonymity:

“Our email service is earning a big #fail at this point. We’ve used (Name Brand provider) with great success for small jobs and I’m talking with them about an enterprise solution. Do you have a provider you love (or a crappy one I should be warned away from)? What are the pros and cons of the systems you’ve used?”

The question, submitted to a listserv, engendered responses of affiliation with one ESP or another because they liked them, had no problems, or other good indications of service. But email delivery is more complex than you might first imagine and one size does not fit all. It is not (yet) a commodity. Personal recommendations of quality service or indications of being satisfied are a good start of an evaluation but an insufficient qualifier for engaging an email service provider. Like the acquisition of almost any service (legal or technical) it is important to understand requirements.

This is not intended to be comprehensive but merely to illustrate my point. Get this part and you might get there is more to the story. So let’s take a look at these simple factors:

  • What does your email subscriber base look like? gmail.com? or bigcompanyname.com?
  • How big a mailing would you execute at one time?
  • What is your mailing frequency?

If you send a lot of email frequently to corporate email addresses, the email reputation is critical to getting into the inbox of your subscriber. The better email service providers (ESPs) do 2 things. First, they manage the reputation of the email addresses from which they send the email (their IP addresses). The best ESPs offer you the opportunity to set up your own email address on their system. This will look something like email.lawfirm.com and email will come from something like sonny@email.lawfirm.com So while it still looks like your business, it is isolated from your domain (lawfirm.com) and from the email sending behavior or misbehavior of other clients of this ESP. Are you with me?

What happens if you send an email to a lot of people at the same domain such asxxxx@client.com where xxxx is lots of different people? When all these emails show up @client.com at one time, they look like spam. It may even look like an attack on the email server. The corporate email server receives these emails so you probably see these emails as being delivered. But they never make it into the inbox of the individual email recipients.

The better ESPs offer the capability to throttle the sending of emails so that they don’t look like a spam attack on an email server. It more closely resembles natural email commerce. Good commercial ESPs can afford to throttle the send of their emails. Spammers cannot because they’ve got way too much email to send. Are we getting esoteric yet?

ESPs are commercial companies and not a part of any website development company’s core competency. We have our favorites but we are not linked at the hip. Email services built into CRM systems such as Interaction, Salesforce, etc. are bulk mailers and do not have these deliverability features and a deliverability desk (personnel) focused on managing IP reputation. This doesn’t make them bad by any stretch. But it does affect deliverability performance.

Finally, the best ESPs are becoming messaging companies capable of delivering text messages and voice messages. If your communication strategy is to be first to market with targeted information, you may find that a text message alert system is a client service you haven’t yet considered. It is unlikely that your “economy” bulk email guy who is “friendly to deal with”  offers these extended and diversified contact capabilities. And maybe you don’t need it and never will.

Being able to track email performance is a common feature but it is not the test of a quality system. And these tools may not even provide accurate or complete information regarding the effectiveness of your email marketing campaigns. Even the best (i.e. more costly) ESPs come only close to precise. Third party firms like Return Path and Pivotal Veracity might provide this higher level of email evaluation and deliverability improvement.

Price is not always a guarantee that you will get better delivery services like what I’ve identified above. But a low price pretty much guarantees that you will not. For my part, I think reaching targeted contacts for a few pennies is a pretty good deal. If you are driven to cut that penny in half, you should at least know what you are getting and what you aren’t.

Whew! Hope this is helpful. Oh yeah, who do we use? ExactTarget. But remember. One size does not fit all. Think about your requirements.

Email open rate is only one indicator of email success

© 1999-2010 Duo Consulting

About the Author:

Sonny works closely with Duo’s clients to develop their online business and marketing strategy. His tactical responsiblities include: Implementing and managing paid search engine campaigns;  Consulting on and implementing permission-based email; Providing strategic online marketing consultation to law firms and others using web analytics to help drive website and business performance and Conceputalizing and implementing social media marketing.

312-529-3003 / www.duoconsulting.com

Protecting Tax Documents after United States v. Deloitte

This week’s National Law Review featured blogger is Matthew D. Lerner of Steptoe & Johnson LLP who provides some great tips on how to manage tax documents to best prepare for legal action. 

A recent appeals court decision provides the latest development in the ongoing battle between taxpayers and the IRS regarding the disclosure of tax workpapers.  It also provides hope that work product protections may still be available for litigation analyses that a company’s attest auditors review in preparing financial statements.[i] Typically, taxpayers claim that certain workpapers are protected by the work product doctrine because they contain analysis of potential tax issues raised by transactions in anticipation of future litigation with the IRS over those issues.  The IRS asserts that these workpapers are used to prepare financial statements and should not be subject to protection either because they are not prepared in anticipation of litigation or because they are disclosed to third party auditors, thus waiving any protection.

On June 29, 2010, the D.C. Circuit became the latest court to address this controversy in a matter that involved documents prepared by, or in the possession of, the accounting firm Deloitte LLP (then known as Deloitte & Touche LLP) (“Deloitte”).  In this case, the United States sought to compel Deloitte to produce two categories of documents related to a civil tax refund case brought by partnerships formed by subsidiaries of the Dow Chemical Company (“Dow”) (the partnerships are referred to as the Chemtech partnerships or “Chemtech”).   The first category included three documents Deloitte withheld on the basis of privileges asserted by Dow, including (i) a June 2005 tax opinion related to Chemtech; (ii) a September 1998 legal and tax analysis provided to Deloitte by an in-house attorney at Dow; and (iii) a July 1993 internal Deloitte memorandum recording thoughts and impressions of Dow’s attorneys concerning tax issues related to Chemtech.  The second category of documents included all responsive documents maintained at Deloitte’s affiliate in Zurich, Switzerland ( “Deloitte Switzerland”).

At the trial court level, the District Court for the District of Columbia held that the three documents in the first category were protected from disclosure by the work product doctrine because they were prepared in anticipation of future litigation over the tax treatment of Chemtech.[2]  The court held that the protection was not waived by disclosure to Deloitte because Deloitte, as Dow’s independent auditor, was not a potential adversary, and no evidence suggested that it was unreasonable for Dow to expect Deloitte to maintain confidentiality.

The trial court also denied the motion to compel with respect to the second category of documents.  The court held that Deloitte did not have sufficient control over the documents maintained at Deloitte Switzerland to enable their production.  The court stated that the government failed to establish that Deloitte had the “legal right, authority or ability to obtain documents upon demand” from Deloitte Switzerland.  The court determined, “Close cooperation on a specific project does not per se, establish an ability, let alone a legal right or authority, on [Deloitte’s] part to acquire documents maintained solely by a legally distinct entity.”

The United States appealed the District Court’s decision with respect to the three documents in the first category withheld by Deloitte: (i) the June 2005 tax opinion related to Chemtech; (ii) the September 1998 legal and tax analysis provided by an in-house attorney at Dow; and (iii) the July 1993 internal Deloitte memorandum recording thoughts and impressions of Dow’s attorneys concerning tax issues related to Chemtech.[3]

The government argued that the 1993 internal Deloitte memorandum was not work product because (i) it was prepared by Deloitte, not Dow or Dow’s counsel; and (ii) it was generated as part of the audit process, not in anticipation of litigation.  The D.C. Circuit rejected the government’s categorical arguments with respect to the first document prepared by Deloitte.  The court stated that Deloitte’s preparation of the document does not exclude the possibility that it contains Dow’s work product.  The court also stated that a document can contain protected work product material even though it serves multiple purposes, so long as the protected material was prepared because of the prospect of litigation.  However, the court determined that the District Court did not have a sufficient evidentiary foundation for its holding that the Deloitte memorandum was purely work product.  The court therefore remanded so that the District Court could conduct an in camera review of the document and determine whether it was entirely work product, or whether a partial or redacted version of the document could be disclosed.

The government also argued that the other two documents were not protected from disclosure because Dow waived work product protection by disclosing the documents to Deloitte. The D.C. Circuit rejected this argument and concluded that (i) Deloitte was not a potential adversary with respect to the litigation that the documents address and (ii) Deloitte was not a conduit to potential adversaries because Dow had a reasonable expectation of privacy as a result of Deloitte’s obligation to refrain from disclosing confidential information.

The Appeals court decision makes clear that some documents that become part of the tax audit workpapers do retain work product protection, even if disclosed to financial auditors to assist in the preparation of financial statements.  However, it is also evident from this decision that such work product claims will likely continue to be challenged by the IRS and heavily scrutinized by the courts.  Accordingly, it is imperative that taxpayers take as many precautions as possible to preserve work product protection, as well as attorney-client privilege, with respect to sensitive analysis contained in tax workpapers. 

Taxpayers must understand that proving work product generally involves common sense.  One trying to prove that a document was prepared in anticipation of litigation should ask herself what steps would indicate to a court that litigation truly was expected and this document was prepared for that purpose.  What follows is a series of suggestions to help preserve such protection to the extent possible. 

1.  Get Counsel Involved.

To preserve privilege, be certain to include counsel meaningfully in communications regarding legal issues, and document counsel’s substantive role in these communications.  While an attorney’s involvement is not legally required to make something work product in most jurisdictions, as an evidentiary matter, it helps to establish an anticipation of litigation and indicates that an issue is being treated as more than just an item for audit.  Coordinate with the company’s General Counsel with respect to sensitive tax documents to avoid waiver of work product with respect to those documents through disclosure in other litigation.   At the same time, be careful to avoid asserting inappropriate claims of protection on documents.  An inappropriate claim of privilege risks waiver of privilege with respect to documents that otherwise would be privileged with respect to the same issue.  Inappropriate privilege claims can also damage your credibility and result in higher tensions and increased controversy over what should be “routine” privilege claims.

2.  Formalize a Tax Litigation Group.

Creating a formal tax litigation group within the company can help to identify tax controversy matters more clearly and separate issues that are anticipated to result in litigation.  Such a group should advise the company on the conduct of tax controversies and litigation.  In this primary role, the group should give advice to the company regarding whether and how to proceed in litigation, whether to settle, and what settlement terms to propose or accept.   Secondarily, the company may use the group’s hazards-of-litigation advice in establishing financial statement tax reserves.

It is preferable that the group’s leader be an attorney responsible for managing tax litigation and have at least a dotted line reporting relationship to the law department (to enjoy a presumption that the attorney-client privilege applies as well).  The group should exclude the persons whose responsibilities are solely the preparation of financial statements.

This does not require hiring new personnel or re-assigning people to a new tax controversy position.  The group may be composed of people with other job responsibilities.  It is really a “part-time” committee of people with related roles.  The key is that decisions about which matters litigation may be expected for come in the setting of this separate group’s meetings or consideration, that the group members separately perform this function, and that they document their conclusions and clearly identify issues for which more than a mere audit is expected.  In the group’s analyses, it must be careful not to suggest that the company believes its position is wrong and that is why litigation is expected.  Document only that the IRS, given its policies and positions, is expected to challenge the company on the issue and the company intends to fight.[4]

 3.  Control Who Creates Documents.

If the company has a tax litigation group, sensitive analysis of tax issues should be confined to documents created at the direction of, and under the control and supervision of, the group’s leader.  If not, they should be prepared by someone with a key role and responsibilities regarding tax controversy decisions.  Such documents should indicate that they are prepared by attorneys or tax practitioners and that they are prepared at the request of the group leader for litigation purposes.  Take care not to attach these labels to other documents or that label will cease to have meaning and potentially be used to argue that a waiver of privilege or work product protection has occurred with respect to other documents.  Do not combine these work product analyses with non-work product discussions.

4.  Create Only Defined Types of Documents.

Categorizing your documents and establishing guidelines for what types of analysis should be included in each category can help confine sensitive legal analysis to litigation-oriented documents that are most entitled to privilege and work product protection.  When creating documents, separate legal analysis from non-privileged information, including: (i) business advice; (ii) tax reserve numbers and calculations; and (iii) other advice not intended to remain confidential.   Create specific documents for disclosure outside the group that are limited to only hazards-of-litigation percentages and only aggregate reserve information.[5] 

5.  Control How Documents Are Labeled

Documents should be labeled, as appropriate, to state that they contain confidential legal advice, subject to privilege and protected by the work product doctrine.  While not legally required, attaching a work product label to a document intended as such provides evidence of the company’s intent with respect to that document.  Likewise, be careful not to label business advice, tax return advice, or other advice not intended to be confidential, as privileged or protected.  If one overuses labels, the labels lose credibility even when properly attached, and may be ignored by a court in its analysis.  At the same time, also take care not to label documents containing legal analysis and advice as documents that relate to tax reserve analysis or tax contingency analysis.

6.  Control Access to Documents Inside the Company

The wider the distribution of a document, the more likely it is that a court will find there has been a waiver with respect to attorney-client privilege or work product protection.  Because one of the indicia of privilege or work product is the care with which a document is handled, common sense dictates that a court will look askance at claims for protection of documents that were made widely available within the company to people whose jobs did not require their access to those materials.  Accordingly, only disclose legal documents with respect to an issue to other employees/officers on a need-to-know basis.  Also, to the extent possible, try to avoid “broadcast” emails and limit email “chains” related to documents.  Each e-mail and response to an e-mail generates a copy of the document and increases the risk of waiver.  When storing documents, separate and clearly mark legal documents.  This not only protects against waiver, but can demonstrate intent to keep the information confidential.  Keep in mind that no protections attach to business advice documents, so store business documents in a separate location from the legal documents.

 7.  Enact and Follow Policies to Identify Anticipated Litigation

It is critical to prove that litigation was anticipated with respect to an issue in order to establish work product protection for documents that contain analysis of that issue.  General litigation policies can be used effectively as “designation” tools to identify issues for which litigation is anticipated clearly.  For example, make use of document hold requests to communicate that litigation is anticipated.  Consider formal guidelines that certain counsel must be involved in issues expected to result in litigation, and then include such counsel only when litigation is expected.  When enacting such general policies, be cognizant of the fact that the presence of a general policy and the absence of its application in a specific case can create a negative inference.  Thus, if a company has a general policy that documents related to issues for which litigation is anticipated are made subject to a litigation hold, then the absence of a litigation hold with respect to documents related to another issue may be used to demonstrate that litigation was not anticipated with respect to that issue.[6]  As a result, the tax department must apply a litigation hold to those documents relating to any issue for which the company is claiming to anticipate litigation Likewise, if company policy dictates that the General Counsel must approve litigation-related decisions (e.g. budget, choice of counsel), be sure those policies are followed for potential tax litigation.

8.  Work With Your Auditors and Other Third Parties to Protect Work Product

Interactions with auditors and other third parties create significant risks that material that would otherwise be subject to privilege or work product protection will lose that protection as a result of waiver.  Accordingly, take steps to work with your auditors and other third parties to develop a good relationship and preserve protection where possible. 

For example, many times accountants are hired not as auditors but to provide specific support in connection with a tax issue.  In those instances, enter into written agreements through counsel with third-party consultants to whom you wish to disclose privileged information (e.g., so-called Kovel arrangements), so that their work is performed under the direction and control of counsel.  Such a step makes the assertion of attorney-client privilege possible for communications with the consultant, and provides strong evidence of the anticipation of litigation.  Be aware of the potential limitations of the accountant-client privilege, particularly when considering whether to disclose sensitive documents in the context of the preparation of an opinion letter.  Request that your attest auditors’ engagement letter include a specific confirmation that those accountants must and will maintain confidentiality of your documents to the fullest extent allowed by law.  It may also be helpful to have the engagement letter acknowledge that the relationship between company and auditor is non-adversarial and the two expect to work together cooperatively. Where possible, have auditors review key documents but not take copies.  While that has no direct, legal effect on whether a protection is actually waived, it can bolster a claim that you took all possible steps to avoid wider dissemination by keeping control of the actual document, which is a key element of proving work product protection should apply.  Ask that your auditors specifically note when a conclusion in their workpapers was derived from documents prepared by the company as litigation analyses.  Finally, do not prepare separate documents directly for the auditors that discuss litigation analysis.  While a decision regarding work product should be based on the purpose for which the underlying analysis was prepared, not the specific documents, the recent decisions suggest that it is easier to preserve work product protection when the document itself was prepared for the purpose of litigation.

9.  Negotiate Disclosures with the IRS

After taking some or all of the above steps above to preserve protection of documents, take steps to prevent inadvertent disclosure to the IRS of protected documents.  Require approval of the group’s leader before documents are disclosed to the Service or establish some other formal screening process to prevent disclosures that could result in a waiver of privilege.  When withholding documents subject to protection, prepare a detailed privilege log, stating the specific grounds that support the claim for privilege and protection of each document withheld.

It is inevitable that there will be disagreements about the scope of protection afforded specific documents.  Try to manage the disclosure process to minimize the scope and intensity of these disagreements.  Be candid with the IRS about your concerns, try to get overbroad demands for protected materials scaled back, work quickly to provide responsive, non-protected materials, and be reasonable about the scope of your privilege claims.  Doing this can help establish a cooperative relationship with the IRS and focus the controversy, if any, on the most protected documents. Likewise, consider disclosing the least confidential documents to the Service.  For example, disclose to the Service those documents that contain no legal analysis or advice.  Where there is protected material the IRS really wants that the company is willing to disclose, attempt to negotiate a written agreement that the disclosure of that document will not waive privilege or work product protection more broadly.  If, after all this, controversy about a protection still arises, the fact of your cooperation and efforts to comply as much as possible may influence either the IRS’s decision to seek the documents through judicial proceedings, or the judge’s view of the matter.  Force the IRS to determine whether it wishes to press the issue against a taxpayer that has cooperated, but that has taken careful steps to create and maintain confidential documents.

The confines of the work product doctrine in the tax context are still being defined.  These suggested steps will help you best position your company to obtain the maximum protection.  As you consider the creation of materials, ask yourself “does this step help show that we really did anticipate litigation and that this document was created for that purpose.”   That is what a court may be called on to determine, and you want the record to demonstrate that the answer is yes.

[1] This is important because the review of such documents by third party auditors waives attorney-client privilege, the other common protection for sensitive materials.

[2] United States v. Deloitte, Case No. 08-411 (D. D.C. June 8, 2009).

[3] United States v. Deloitte, No. 09-5171, (D.C. Cir. June 29, 2010)

[4] Although not free from doubt, it is generally believed that the expectation of having an issue be unagreed and go to IRS Appeals is sufficient to show “an expectation of litigation.”

[5] Understand that there is a tension between protecting the attorney-client privilege and the work product protection.  Providing your accountant with a privileged document prepared in anticipation of litigation may result in a broad attorney-client privilege waiver, but it is more likely the document will be viewed as work product than a document drafted especially for the auditor.  Given the broad scope of auditors’ need for information and the fact that the document prepared for an auditor likely reveals privileged communications anyway and thus waives attorney-client privilege, many companies are placing more of their eggs in the work product basket.   

[6] A litigation hold consists of formal notification of the likelihood of litigation to personnel whose files may contain relevant information, and the implementation of document preservation steps to make certain those materials are not discarded.

© 2010 STEPTOE & JOHNSON LLP, ALL RIGHTS RESERVED

About the Author:

Matthew D. Lerner is a partner in the Washington-based law firm of Steptoe & Johnson LLP, where he is a member of the Litigation and Business Solutions Departments. He represents both corporations and high net worth individuals involved in tax controversies, from pre-audit advice about transaction documentation, file organization and privilege protection, to representation during IRS audits and appeals, through litigation in the Federal Courts. His experience is broad and includes cases involving repair and rehabilitation expenses, asset classification for depreciation purposes, losses from trading in securities and derivatives, corporate restructuring, domestic production activities, international intercorporate transactions, foreign tax credits, tax accounting method questions, and valuation issues. Matt also advises clients facing legal and public relations crises, coordinating responses to congressional inquiries, criminal investigations, civil litigation, public relations scrutiny, and agency review. 

Matt received his J.D. from Harvard Law School, magna cum laude, and was editor of Harvard Law Review. He received his A.B. from Amherst College, Phi Beta Kappa. 202-429-8024 /  www.Steptoe.com