## Facts

- Cities Service Oil & Gas Corp. disputed the application of federal oil-pricing regulations and filed a declaratory-judgment action against the Department of Energy (DOE) concerning certain pricing transactions.
- During confidential merger negotiations, Cities provided Gulf Oil Corp. with due-diligence materials, including:
  - litigation-related documents prepared by or for Cities’ lawyers in anticipation of the DOE dispute; and
  - documents prepared at the request of Cities’ outside auditors (Arthur Young & Co.) analyzing the dispute and its financial consequences for financial-reporting purposes.
- The merger did not close, but Gulf retained copies of Cities’ materials.
- DOE later opened a formal investigation into the same transactions and issued an administrative subpoena to Gulf seeking the Cities documents in Gulf’s possession.
- Cities (through Gulf) resisted production based primarily on work-product protection and also invoked attorney-client privilege in part.

## Issues

1. Whether Cities waived work-product protection by disclosing litigation-related work product to Gulf during confidential, non-adversarial merger negotiations.
2. Whether documents prepared for an independent auditor to satisfy financial-reporting and related regulatory obligations qualify as work product prepared “in anticipation of litigation.”
3. To what extent the different waiver standards for attorney-client privilege versus work-product protection affect subpoena enforcement.

## Decision

- The Temporary Emergency Court of Appeals affirmed the district court’s refusal to compel production of Cities’ litigation-related work product held by Gulf.
- The court held that disclosure to a prospective merger partner under confidentiality and in a non-adversarial setting did not waive work-product protection.
- The court reversed the district court’s ruling to the extent it shielded auditor-related materials, holding those documents were not protected work product.
- The court remanded for further proceedings consistent with its rulings, requiring enforcement of the subpoena as to the auditor-related documents.

## Legal Principles

- Work-product protection is not automatically waived by voluntary disclosure to a third party; waiver turns on whether the disclosure is inconsistent with keeping the material from adversaries.
- Disclosure of work product to a party sharing a common interest in a transaction (such as a potential merger partner), under confidentiality, may preserve work-product protection.
- Materials created primarily for business or regulatory purposes, including auditor-driven financial-reporting needs, are not work product even if they discuss pending or threatened litigation.
- Attorney-client privilege and work-product protection serve different functions and have different waiver rules; work product can be more resistant to waiver than attorney-client privilege.

## Conclusion

The court held that Cities’ litigation work product remained protected despite being shared with Gulf during confidential merger due diligence, but it required production of auditor-requested analyses because they were prepared for financial-reporting purposes rather than for litigation.


United States v. Gulf Oil Corp., 760 F.2d 292 (Temp. Emergency Ct. App. 1985)