## Facts

- Sequa Corporation planned a 1989 restructuring involving two subsidiaries that was expected to generate large tax losses and a substantial refund.
- Sequa anticipated the IRS would challenge the transaction and that litigation was likely.
- Monroe Adlman, Sequa’s in-house attorney and Vice President for Taxes, retained outside accountants and counsel to prepare a detailed memorandum.
- The memorandum analyzed tax consequences, assessed likely outcomes of expected IRS litigation, evaluated potential IRS claims, and discussed litigation strategies and recommendations for structuring the transaction.
- Sequa completed the restructuring, received a multimillion-dollar refund, and was later audited.
- The IRS issued an administrative summons seeking the memorandum; Adlman refused, asserting work-product protection under Federal Rule of Civil Procedure 26(b)(3).

## Issues

1. Whether a document prepared because of anticipated litigation loses work-product protection merely because it also was intended to assist a business decision about whether and how to proceed with a transaction.
2. What standard governs dual-purpose documents under Rule 26(b)(3): a “primary purpose” test or a “because of” test.
3. If the memorandum qualifies as work product, whether the government can overcome protection by showing substantial need and undue hardship.

## Decision

- The Second Circuit vacated the district court’s order enforcing the IRS summons and remanded.
- The court rejected denial of work-product protection based solely on the memorandum’s business-decision function.
- The court held that documents prepared because of anticipated litigation remain protected even if they also serve significant business purposes.
- The case was remanded for the district court to apply the correct “because of” standard and then address any claim of substantial need and undue hardship.

## Legal Principles

- Under Rule 26(b)(3), materials prepared “in anticipation of litigation or for trial” by or for a party or its representative are protected, subject to possible disclosure upon a showing of substantial need and undue hardship.
- A dual-purpose document is prepared “in anticipation of litigation” if, considering the document’s nature and the factual context, it was created because of the prospect of litigation.
- Work-product protection applies where the document would not have been prepared in substantially similar form but for anticipated litigation.
- Documents created in the ordinary course of business, or that would have been created in essentially the same form regardless of litigation, are not protected.
- Opinion work product—attorney mental impressions, conclusions, opinions, and legal theories—receives especially strong protection and is discoverable, if at all, only in rare circumstances.

## Conclusion

The Second Circuit held that work-product protection under Rule 26(b)(3) applies to documents prepared because of anticipated litigation even when they also inform business decisions, vacated enforcement of the IRS summons, and remanded for application of the “because of” standard and any further need-based analysis.


United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998)