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Rachel Partain Comments on the Second Circuit Expanding Common Legal Interest Doctrine

November 11, 2015, Tax Notes

Tax Notes quotes Rachel L. Partain concerning a U.S. Court of Appeals, Second Circuit, ruling  that the attorney-client privilege was not waived by the sharing of a tax memo with a consortium of banks with a common legal interest, and the work product doctrine protected materials sought by an IRS summons.   Ms. Partain surmised that "this decision will likely result in the attorney-client privilege being asserted more often for communications between transactional parties." For the complete article, please visit Tax Notes website (subscription required).

Ms. Partain represents high-net-worth individuals, corporations, and TEFRA and other partnerships in complex federal and state tax controversy and litigation matters.  She is distinguished with a Martindale-Hubbell® AV® Preeminent™ rating and was recognized by Super Lawyers as a "Rising Star" in 2013-2014.  Ms. Partain is currently Co-Vice Chair of the ABA Tax Section's Standards of Tax Practice Committee, where she  educates practitioners on ethical standards and the requirements of Circular 230.

Excerpt taken from the article."Second Circuit Expands Common Legal Interest Doctrine" by Andrew Velarde for Tax Notes.

"It is a very broad reading of the common interest doctrine," Rachel L. Partain of Caplin & Drysdale Chtd. said. "The court essentially comes up with a new standard," she said, referring to the "materially affect" provision in the decision. Partain surmised that this decision will likely result in the attorney-client privilege being asserted more often for communications between transactional parties.

. . .

Attorney-client privilege is generally waived by voluntary disclosure of the communication to another party but not when the other party is engaged in a common legal enterprise. Reviewing the district court's finding of waiver of the attorney-client privilege for abuse of discretion, the Second Circuit held that the legal issues involved were not rendered commercial by the refinancing. The court held that the consortium's legal interest was underlined by its extension of credit, subordination of debt, and retention of control over Schaeffler's legal decisions to settle, pay, or sue, and it compared such interests to the common legal interest held by an insurer with the insured in litigation outcomes. Partain found this "outside the box" comparison to an insurance relationship an "interesting extension."

Partain pondered whether the IRS would appeal the Second Circuit's decision expanding the common legal interest doctrine but speculated that it would not.

"It is not a very well fleshed-out area, at least in tax," Partain said. "I think at the end of the day, the IRS will let the decision stand. It is only one circuit . . . but they might run their appeals clock out trying to decide."


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