## Facts

- The Schaeffler Group financed an acquisition effort involving Continental AG through an €11‑billion loan from a consortium of banks.
- Market events during the 2008 financial crisis caused substantially greater tender acceptance than expected, leaving the Schaeffler Group with nearly 90% ownership and a potential solvency problem.
- The Schaeffler Group and the bank consortium negotiated a refinancing and restructuring to avert default, creating significant U.S. tax consequences for Georg F.W. Schaeffler.
- Expecting IRS scrutiny and possible dispute, Schaeffler retained Dentons U.S. LLP and Ernst & Young (EY) for legal advice and tax analyses concerning the restructuring and potential IRS controversy.
- Because the banks’ willingness to refinance depended on the transaction’s U.S. tax treatment, Schaeffler and the consortium executed a confidentiality/common‑interest agreement and shared certain legal and tax analyses with the consortium and its counsel.
- During a subsequent IRS audit, the IRS issued a summons to EY seeking documents analyzing the U.S. tax treatment of the refinancing and restructuring, including materials shared with the consortium.
- Schaeffler petitioned to quash the summons, asserting attorney–client privilege (preserved by the common‑interest doctrine) and work‑product protection; the district court denied the petition.

## Issues

1. Whether disclosure of legal and tax analyses to the lending consortium waived attorney–client privilege, or instead fell within the common‑interest doctrine because the parties shared a common legal interest in the U.S. tax treatment of the transaction.
2. Whether the documents analyzing the tax consequences of the refinancing and restructuring were protected by the work‑product doctrine as materials prepared in anticipation of litigation with the IRS.

## Decision

- The Second Circuit vacated the order denying the petition to quash and remanded.
- The court held that attorney–client privilege was not waived because Schaeffler and the consortium shared a common legal interest in the tax treatment of the refinancing and restructuring and exchanged the communications under confidentiality to further that interest.
- The court held that the work‑product doctrine protected the tax analyses because, given the size and unusual nature of the transaction and the stakes involved, anticipated IRS litigation was sufficiently likely that the documents were prepared because of that prospect.

## Legal Principles

- Attorney–client privilege is not waived by sharing privileged communications with a third party when the communications are made under confidentiality and further a common legal interest shared by the parties.
- A common legal interest may exist outside the setting of existing litigation or formal co‑defendants; aligned legal exposure regarding regulatory or tax treatment can qualify when communications are exchanged to coordinate legal strategy.
- Work‑product protection applies to materials prepared because of anticipated litigation, even if litigation has not commenced, when an articulable claim is likely to lead to litigation and the materials would not have been prepared in substantially similar form absent that prospect.
- The characterization of materials as “tax advice” does not defeat work‑product protection where the content and context show the analyses were prepared with expected IRS dispute in mind.

## Conclusion

The Second Circuit held that Schaeffler’s sharing of tax and legal analyses with its lenders under a confidentiality/common‑interest agreement did not waive attorney–client privilege and that the analyses were protected work product because they were prepared in anticipation of likely IRS litigation, requiring vacatur of the denial of the petition to quash and remand for further proceedings.


Schaeffler v. United States, 806 F.3d 34 (2d Cir. 2015)