Appellate Law

COA Reverses Order Compelling Accounting Firm To Produce Records To DOR

By Sean E. Andrussier

Today the Court of Appeals (COA) ruled against the Department of Revenue (DOR), reversing a trial court order that compelled Ernst & Young (E&Y) to produce records relating to services it provided to Wal-Mart over a number of years. The COA remanded for in camera review, even though Wal-Mart hadn't requested it in the trial court. The case is In re Matter of the Summons Issued to Ernst & Young, LLP.

E&Y provided services to Wal-Mart for tax shelters and REITs designed to reduce state income taxes. E&Y also analyzed litigation risks when Wal-Mart restructured its operations.

DOR issued a summons (under G.S. § 105-258) directing E&Y to produce information regarding Wal-Mart and its subsidiaries, including all documents "regarding the creation or existence of" affiliated entities; all documents created from 1990-2000 discussing REITs, regulated investment companies, trusts, and/or holding companies owning trusts; and all documents created from 1990-2005 "proposing or analyzing transactions that require the creation, elimination, and/or restructuring of entities within the Wal Mart corporate structure and that would produce ... tax savings."

E&Y produced a plethora of documents but withheld 760 documents. Invoking the work product doctrine, Wal-Mart produced a privilege log describing the documents as "legal analysis" or "tax opinion." The trial court rejected Wal-Mart's claim of work product immunity and ordered E&Y to produce the documents. Wal-Mart appealed.

DOR argued that Wal-Mart failed to show that the withheld documents were protected by the work product doctrine. DOR also argued that the privilege log wasn't sufficient, because it didn't describe on a document-by-document basis how each document related to litigation. The COA, however, remanded for in camera review, because it was unable determine from the record whether the withheld materials were created in anticipation of litigation. The COA remanded even though Wal-Mart hadn't submitted the documents for in camera review or requested a review of them by the trial court. The COA observed that Wal-Mart "offered specific reasons why the documents are protected, submitted a privilege log, and submitted an affidavit supporting its reasons for asserting privilege," and the COA said that many of the documents described on the log "appear to be correspondence and legal analysis from a large law firm, Davis Polk & Wardwell."

Full post as published by North Carolina Appellate Blog on August 05, 2008 (boomark / email).