Schaeffler v. United States

806 F.3d 34 (2015)

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Schaeffler v. United States

United States Court of Appeals for the Second Circuit
806 F.3d 34 (2015)

  • Written by Rose VanHofwegen, JD


Shortly before the stock market collapsed in 2008, Georg Schaeffler and his three holding companies (the Schaeffler Group) (plaintiffs) made a tender offer to purchase an interest in a German company, Continental AG, and borrowed €11 billion from a consortium of banks to finance the purchase. Two days before the offer expired, Lehman Brothers announced bankruptcy, the stock market crashed, and the value of Continental AG shares plummeted. Because the Schaeffler Group could not withdraw its tender offer under German law, many more shareholders than expected or desired accepted the offer, leaving the Schaeffler Group holding nearly 90 percent of the outstanding stock. The transaction threatened to make the Schaeffler Group insolvent and unable to make its loan payments. The Schaeffler Group needed to restructure and refinance the debt, which substantially altered Mr. Schaeffler’s personal tax liability to the Internal Revenue Service (IRS) (defendant). Anticipating an audit, the Schaeffler Group retained accounting firm Ernst & Young (EY) and law firm Dentons U.S. LLP (Dentons) to provide advice on the tax implications and potential IRS litigation. Attorneys for the consortium who advised the Schaeffler Group how to restructure and refinance the acquisition needed to review confidential tax information and analysis to assess the consortium’s exposure for Mr. Schaeffler’s tax liabilities. The parties agreed that the Schaeffler Group should request a private letter ruling from the IRS and shared some core tax advice under a confidentiality agreement on issues the letter ruling did not address. The IRS began an audit and issued a summons for documents that EY had prepared and shared with anyone outside the Schaeffler Group and Dentons, including legal opinions related to the restructuring shared with the consortium attorneys. The Schaeffler Group petitioned to quash the request for legal opinions. The district court denied the petition to quash on the ground that the Schaeffler Group had waived attorney-client privilege by sharing the opinions with the consortium, reasoning that the common legal interest or joint-defense privilege exception did not apply as the consortium had only a commercial and not a common legal stake in Schaeffler’s potential litigation with the IRS. The Schaeffler Group appealed.

Rule of Law


Holding and Reasoning (Winter, J.)

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