22 F. Supp. 3d 319
S.D.N.Y.2014Background
- IRS served an administrative summons on Ernst & Young seeking documents relating to Schaeffler's Conti acquisition and debt refinancing.
- Schaeffler sought to quash the summons on grounds of attorney-client and tax practitioner privileges; government opposed.
- Schaeffler acquired Continental AG and funded the deal through a Bank Consortium; ACP Agreement was executed to share privileged materials while preserving confidentiality.
- Schaeffler and Bank Consortium shared tax analyses and risk assessments; EY memo described U.S. tax implications and possible IRS challenges.
- IRS audited Schaeffler's 2009 and 2010 returns; numerous IDRs were issued; vast production of documents followed.
- Court denies petition to quash, analyzing whether common interest waived privilege and whether work product protection applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether common interest doctrine applies to Bank Consortium disclosures. | Schaeffler contends Bank Consortium shared a common legal interest in tax outcomes. | The Government argues there was no common legal interest sufficient to preserve privilege. | Common interest does not apply; privilege waived. |
| Whether EY documents are protected by the work product doctrine. | EY memo and related documents were prepared in anticipation of litigation and thus protected. | Work product applies to documents prepared for litigation purposes. | EY memo not protected; work product protection rejected on merits. |
| Whether disclosure to Bank Consortium waived work product protection. | Disclosures were part of a common legal enterprise with a contract preserving confidentiality. | Disclosure to a nonadversarial party can waive work product protection. | No waiver; disclosures did not materially increase adversary likelihood. |
Key Cases Cited
- Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437 (S.D.N.Y. 1995) (common interest extends attorney-client privilege; must show legal, not merely commercial, shared interest)
- Terra Nova Ins. Co. Ltd. v. Bank of Am., N.A., 211 F. Supp. 2d 493 (S.D.N.Y. 2002) (common interest not created by mere commercial collaboration)
- Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466 (S.D.N.Y. 2003) (commercial cooperation alone insufficient for common legal interest)
- United States v. BDO Seidman, LLP, 492 F.3d 806 (7th Cir. 2007) (joint venture privilege contexts; identity of legal interests matters)
- United Technologies Corp. v. United States, 979 F. Supp. 108 (D. Conn. 1997) (common interest requires a common legal stake, not mere shared benefit)
- Denney v. Jenkens & Gilchrist, 362 F. Supp. 2d 407 (S.D.N.Y. 2004) (waiver and scope of privilege in corporate contexts)
- Ghavami v. United States, 882 F. Supp. 2d 532 (S.D.N.Y. 2012) (burdens of proving privilege and non-waiver standards)
- Mejia v. United States, 655 F.3d 126 (2d Cir. 2011) (attorney-client privilege scope for tax advice by tax practitioners)