Teachers' Manual to Green, Nesson & Murray, Problems, Cases and Materials on Evidence, 3rd Edition.
|CHAPTER VII: PRIVILEGES|
|Go to:||Teacher's Manual Introduction||Chapter 7 Contents||Next Section|
C. The Lawyer-Client Privilege in the Corporate Context (679)
The crucial question in applying the corporate attorney-client privilege is, "Who is the client?" When the "client" is a corporation, application of the attorney-client privilege requires figuring out which human representatives of the corporation can speak with the attorney under the cloak of the privilege, and under what circumstances.
Answer and Analysis:
The problem turns on how the privilege is interpreted; for example, does it extend only to communications with those who control the corporation, or to those in the company who have some responsibility with respect to the subject matter of the litigation, or some other variation.
The problem provides an occasion to introduce the corporate attorney-client privilege.Discussion
Professor Sexton, in A Post Upjohn Consideration of the Corporate Attorney-Client Privilege, 57 N.Y.U. L. REV.. 443 (1982), provides an excellent summary review of the development of the privilege through Upjohn. His article provides some historical context in which to consider the issues raised by the problem. (See also, Hazard, An Historical Perspective on the Attorney-Client Privilege, 66 CALIF. L. REV. 1061 (1978).) According to Professor Sexton:
It is not self-evident that the attomey-client privilege available to individuals also should be available to corporations. Indeed, in 1962, in Radiant Gas Burners Inc v American Gas Association, the first federal court to consider the question expressly held that the privilege was unavailable to corporations. Nonetheless, as early as 1915 in United States v. Louisville & Nashville Railroad, the Supreme Court permitted a corporation to assert the attorney-client privilege. And even before the Seventh Circuit reversed the district court's denial of the corporate privilege in Radiant Burners, another district court was constrained to conclude that, notwithstanding the "sound logic" of the district court judge's opinion in Radiant Burners. "the availability of the privilege to corporations has . . . been so generally accepted that [courts] must recognize that it does exist." The Supreme Court's unhesitating recognition of the Upjohn Company's right to invoke some form of the attorney client privilege in the Upjohn case underscores this statement.
In contrast to the broad consensus among federal courts regarding the availability of an attorney-client privilege for corporations, conflicting views have evolved over who in the corporation may communicate as the "client" for purposes of the privilege. The traditional rule is that a noncorporate client is free to communicate with his attorney through an agent and that the protection of the privilege is not lost because the client speaks through an agent. This principle is difficult to apply, however, when the "client" invoking the privilege is a corporation. Characteristically, a corporate entity can speak only through its agents or employees, and there are often hundreds or even thousands of agents or employees associated with the corporation. Therefore, if the privilege applies to communications between an attorney and her corporate client, it is necessary to determine precisely the identity of the client, that is, to designate the persons within the corporation whose communications are protected by the privilege.
The first federal court to discuss the corporate attorney-client privilege at length was the district court in United States v. United Shoe Machinery Corp. That court held that the privilege applies to "information furnished [to the attorney] by an officer or employee of the [corporation] in confidence and without the presence of third persons," but not to "facts disclosed to the attorney-by a person outside the organization of [the corporation] and its affiliates." However most courts found unacceptable a rule that so broadly protected the communication of any employee with the corporation's attorney. Consequently, the debate over the appropriate scope of the corporate attorney-client privilege soon centered on two competing theories; the so-called "control group" and "subject matter" tests.
Although the control group test was first enunciated in City of Philadelphia v Westinghouse Electronic Corp., its roots can be traced to the Supreme Court's decision in Hickman v. Taylor. [T]he Hickman Court held that the attorney's notes were protected by the qualified "work product" immunity that has subsequently been enshrined in Rule 26 of the Federal Rules of Civil Procedure.
Fifteen years after Hickman, in City of Philadelphia v. Westinghouse Electric Corp., the United States District Court for the Eastern District of Pennsylvania squarely faced the question of the scope of the attorney-client privilege as applied to corporations. That court reasoned that the language in Hickman. . . "clearly show[ed] the distinction between statements by employees of the client [company] and statements by the client [company] itself." The court rejected United Shoe's expansive approach to the corporate attorney-client privilege as overly broad. To say, as the United Shoe court had said, that all corporate employees are, by virtue of nothing more than their employee status, the corporate "client" for purposes of the attorney-client privilege was to ignore the teaching of Hickman. Thus, the judge in City of Philadelphia announced a more restrictive test, one he believed defined the corporate "client" in a manner consistent with Hickman:
"If the employee making the communication, of whatever rank he may be, is in a position to control or even to take a substantial part in a decision about any action which the corporation may take upon the advice of the attorney, or if he is an authorized member of a body or group which has that authority, then, in effect, he is (or personifies) the corporation when he makes his disclosure to the lawyer and the privilege would apply. "
A majority of the federal courts that considered the scope of the corporate attorney-client privilege over the next two decades adhered to the control group test.
The counterpoint to the control group test is the subject matter test first enunciated by the Seventh Circuit in Harper & Row Publishers Inc v. Decker. Harper & Row reached the court of appeals by writ of mandamus after the trial judge, applying the control group test, had held the privilege inapplicable to communications between lower level employees of the defendant corporation and the corporation's attorneys regarding the employees' testimony before a federal grand jury.The Seventh Circuit concluded that the control group test was inadequate because the lower echelon employees involved in the case clearly were more than fortuitous witnesses. Rather, they were corporate actors who, by virtue of their on-the-job activity, possessed information vital to the company' legal position. The Harper & Row court asserted that such lower echelon employee-actors are frequently the very persons in the corporation who possess the information most vital to the corporation's legal position; yet the control group test would not protect communications from such employees. To redress this inadequacy, the court promulgated what became known as the subject matter test:
"We conclude that an employee of a corporation, though not a member of its control group, is sufficiently identified with the corporation so that his communication to the corporation's attorney is privileged where the employee makes the communication at the direction of his superiors in the corporation and where the subject matter upon which the attorney's advice is sought by the corporation and dealt with in the communication is the performance by the employee of the duties of his employment.
A significant minority of the federal courts that subsequently considered the scope of the corporate attorney-client privilege adopted the subject matter test.
Once the counterpoints represented by the control group and the subject matter tests had been established, some federal courts attempted variations or syntheses of them ...
On the eve of the Supreme Court's decision in the Upjohn case, therefore, federal courts agreed that corporations could invoke the protection of the attomey-client privilege. They disagreed sharply, however, over the contours of the privilege as applied to corporations. The control group test and the subject matter test provided the two contrapuntal strains, but several variations on those basic themes had developed.
In the problem, under the control group approach, the privilege would be limited to communications with those who make high-level policy and action decisions for the corporation: the chairman of the board, the executive vice president. Under the subject matter approach, the privilege could extend to all of the conversations, with the possible exception of conversations with employees who were witnesses to negligent manufacturing practices.
The lawyer's work product privilege protects all materials which contain and would reveal the lawyer's mental impressions, conclusions, opinions or legal theories. The class action lawyer is seeking to discover "what was said" to the company lawyer, and this may be dependent on the lawyer's memory, or notes of, oral communications -- a form of communication in which the lawyers own contribution may be inextricably interwoven.
The most exhaustive and useful treatment of the attorney-client privilege in the corporate litigation context is Professors' Hazard and Rice "Special Masters' Guidelines for the Resolution of Privilege Claims" found as Appendix 12 to Brazil, Hazard & Rice, Managing Complex Litigation: A Practical Guide to the Use of Special Masters 190 (1983)
Answer and Analysis:
The lawyer cannot insulate facts which are otherwise discoverable either by incorporating them into his work product or by having the fact communicated to him by the client as part of a privileged communication. The communication may be privileged, but the underlying fact is not.
Taking each written record in order:
(1) The Bus Driver: Fleegal could claim that notes of his interview with the driver are protected (a) by the attorney-client privilege and (b) by the work product doctrine. He has little chance on the privilege argument because, although the driver is an employee of the corporation, he is also a witness to the event in question. The survivors of the tugboat accident in Hickman were employees in much the same position, and the Supreme Court stated flatly in Hickman that no attorney-client privilege extended to them.
The argument for work product protection for Fleegal's notes of his interview with the driver is strong. Language in Hickman suggests presumptive work product protection for an attorney's notes of his oral conversations with a witness:
Under ordinary conditions, forcing an attorney to repeat or write out all that witnesses have told him and to deliver the account to his adversary gives rise to grave dangers of inaccuracy and untrustworthiness. No legitimate purpose is served by such production. The practice forces the attorney to testify as to what he remembers or what he saw fit to write down regarding witnesses' remarks.
FRCP 26(b)(3), however, deals only with documents and things, not oral statements. This created a somewhat ambiguous situation with respect to the status of oral witness' statements to lawyers. Professor David Shapiro lays out the positions and arguments in Shapiro, Some Problems of Discovery in an Adversary System, 63 MINN. L. REV. 1055, 1064-1072 (1979). Shapiro's position is that the work product rule should protect notes of oral communications with witnesses, but not the content of what was told to the lawyer: the factual content should be discoverable through interrogatory. Logic would seem to be on Professor Shapiro's side, but Justice Rehnquist, in Upjohn gives very strong support to the concept of work product as a blanket protection of lawyers' work in interviewing witnesses.
(2) The Bystanding Eye Witness: Assuming that the witness is still available and that P's attorney can show no substantial need or undue hardship, Fleegal's interview record with W is not discoverable. This conclusion is based not on the attorney-client privilege but on FRCP 26(b)(3). This work product protection might be overcome if the plaintiff could make a sufficient showing of need for disclosure. If need could be shown, then the protection for oral communications discussed above should not apply because the witness statements were transcribed verbatim, and were not filtered through the attorney's mind. There might still be a work product argument, however, if the recorded statements of the witness could be described as the product of an interactive communication between attorney and witness which, because of the attorney's selection of questions, could be said to reveal the mental process of the attorney. In that case a showing even greater than "substantial need" and "undue hardship" would be required. See Hickman v. Taylor.
(3) Records: All the maintenance and driver records that are relevant are discoverable. Cratchet's memo analyzing them and his index of them are not discoverable under FRCP 26(b)(3).
(4) Cratchet's Memo: Cratchet's earlier memo on the bus company's maintenance and driver-training programs is the closest call. It is not protected by the attorney-client privilege if it does not constitute legal advice or legal service but instead is a form of company record-keeping performed in this instance by an employee who happens to be an attorney. It is also arguably not protected by FRCP 26(b)(3) because not prepared in anticipation of litigation or for trial. More facts about the content of this memo would be necessary to decide the issue of privilege.
Prior to 1938 courts simply assumed that a lawyer's work was nobody's business. Introduction of the discovery rules of the Federal Rules of Civil Procedure in 1938 created a need for law on the subject. The rhetoric of the rules was "full disclosure. "
Hickman presented a situation in which the corporation gathered fresh information from witnesses immediately after an accident for which it was arguably responsible. The Hickman plaintiffs were slow to bring suit (not at all unusual, especially where the plaintiffs are next of kin). They were, therefore, tracking a very cold factual trail. Given the philosophy of disclosure on which the discovery rules were predicated, there would have been nothing absurd about allowing the plaintiffs access to the fresh witness accounts that the lawyer for the company had gathered. The case instead reflects an extreme solicitousness for protecting how lawyers work.
Students ought to be familiar with this case from civil procedure. The importance of the case in the context of learning about privilege is that it extends the effective scope of confidentiality beyond the boundaries of the lawyer-client privilege. Not just information communicated to the lawyer by the client is protected; much of the information generated by the lawyer on his own initiative in working for the client is also protected. Students should note the difference between the almost absolute privilege rooted in lawyerclient communications and the relative protection allowed the work product of the attorney. Connected to this difference is a different policy foundation: the lawyer-client privilege (supposedly) protects the client; the work product privilege protects the lawyer and the profession. Special treatment is afforded oral statements made to an attorney and then later sought in discovery either through the attorney's present memory or through memoranda. Because of the attorney's own intellectual contribution to communications between himself and wi impenetrable barrier to their discovery.
Radiant Burners stands virtually alone in questioning the application of the attorney-client privilege to corporate clients, and thereby presents a basis for discussing the policies underlying the privilege in the corporate context.
Upjohn Co. v. United States, 449 U.S. 383 (1981) (689)
Professor Gergacz, in Attorney-Corporate Client Privilege, 37 Business Lawyer 461 (1982) makes the following analysis of the state of the corporate privilege after Upiohn:
Although no clear rule or standard for determining the scope of attorney-corporate client privilege was set forth by the Supreme Court, a number of guidelines may be discerned. The Court once again implicitly accepted the notion of attorney-corporate client privilege. Although unusual language was used -- "This Court has assumed that the privilege applies when the client is a corporation and the Government does not contest the general proposition", any justice who had reservations about the applicability of the privilege to corporations should have issued a separate opinion. Only the Radiant Burners litigation dealt with the issue. Other courts, including the Supreme Court in Upjohn assumed and accepted the concept of corporate privilege. Simon's comment of twenty-five years ago retained its force: "[t]he idea [attorney-corporate client privilege] seems to go unchallenged -- perhaps because in law, as in life, many of the most deeply believed assumptions are unspoken."
It is also significant that the Upjohn decision was unanimous .... The unanimity emphasized the Court's recognition of the corporate privilege and their desire not to restrict the scope of the privilege by an artificial, uniform test. What effect does the Upiohn opinion have on the law of attorney-corporate client privilege? At a minimum it is a clear rejection of the control group test as a means of determining the scope of a corporation's privilege .... Although the Court was clear in its discussion and rejection of the control group test, it is interesting to note that not once did it mention or discuss the subject matter test [of Harper & Rowl . . . . The narrowness of the Court's opinion may have precluded a rejection of the subject matter approach. But the lack of allusion to a subject matter test suggested that it too is viewed unfavorably by the Court. This suggestion is strengthened by the Court's rejection of any test and its adherence to a case-by-case approach .... Although the Court clearly rejected the control group test and indirectly rejected the subject matter test, it did give guidance in its opinion. The Court clearly stated that its decision applied only to the Upjohn facts. Its use of those facts, however, suggested various factors which may be important in future "case-by-case approaches. " . The factors which can be observed in Upjohn include:
(1) The communications were made by corporate employees to corporate counsel upon order of superiors in order for the corporation to secure legal advice from counsel . ...
(2) The information needed by corporate counsel in order to formulate legal advice was not available to upper-level management . ...
(3) The information communicated concerned matters within the scope of the employee's corporate duties . ...
(4) The employees were aware that the reason for communication with counsel was so the corporation could obtain legal advice . ...(5) The communications were ordered to be kept confidential and they remained confidential . ...
(6) The identity and resources of the opposing party . ...The Government could obtain the underlying facts by other means than by examining the communications with the attorney.
The Upjohn case suggests a problem of uncertainty for practitioners. The Upjohn approach is new. Gone are the familiar and much discussed control group and subject matter tests. Replacing them are certain factors which the Court weighed in upholding Upjohn's privilege claim.
Several additional, broader points are made about Upjohn by Professor Jeff Hazard (oral conversations).
The corporate privilege, initially thought of as relating strictly to communications, is evolving toward a broader conception as a privilege of "consultation" or "representation" encompassing both communications and work product notions.
Upjohn addresses the question: who personifies the corporation? Although Upjohn clearly rejects the control-group test, the 'ohn Court did not recognize that it was dealing with a case different from those that gave rise to the control-group test. That test was created in a context in which someone who had been injured by the corporation wanted access to interviews with employees of the corporation who had witnessed the accident; the test expressed a judicial attitude consistent with Hickman v. Taylor, that reports of witnesses should not be absolutely privileged, but should instead receive only the qualified privilege of the work product rule. Upjohn is a different type of case, in which the decision-makers in the corporation gathered information from lower-echelon employees relating to a strategic decision of corporate legal planning. No litigation was immediately in prospect, nor were the lower-echelon employees "witnesses" in the same sense that the survivors were witnesses in Hickman v. Taylor. The situation is more analogous to a military context in which the generals in the planning room need information about what is happening at the front. It may be, then, that the control-group test would still have some life in the context which gave rise to it.
The Supreme Court assumes in Upjohn that extension of the attorney client privilege to cover a lawyer's work in conducting an internal company investigation will benefit society. The supposed benefit is increased compliance with law. A contrary assumption is possible, and some might think more plausible, namely that lawyers will use the cloak of the privilege not only to explore and evaluate a client-company's legal exposure, but also to minimize the company's exposure by helping company employees to line up their stories and by educating them as to what is and is not damaging to the company; the company will then comply minimally and only as the carefully evaluated risk of exposure dictates, and will rely on their employees' perceived self-interest as company people to act so as not to hurt the company, or to hurt it in the least possible way. The very process of internal investigation, in other words, may diminish a company's risk of legal exposure, and allow the company to calculate with precision just how minimally it is necessary for the company to comply with the law.
Deference to facilitating the work of lawyers is striking in Upjohn. Prior to Upjohn the work product rule applied ostensibly to pre-trial discovery in civil actions being conducted under the Federal Rules of Civil Procedure. Upjohn generalizes the work product rule to apply to a civil nonfederal-rules proceeding. The generalization apparently extends to administrative, legislative and criminal proceedings. Justice Renhquist ignores the requirement that the protected work product must be "prepared in anticipation of litigation or for trial" (see FRCP 26). The UPL investigation was done prior to any signal from the government of litigation interest. The "preparation" requirement could be stretched to cover the Upjohn situation because the Upjohn lawyer could see possible litigation problems in the future relating to improper tax deductions based on bribe payments, but such an extension goes beyond prior cases, and the logic of the extension would seem to be unlimited, covering, for example, routine accident reports. The big question about work product after Upjohn is: What now cannot be covered?Question relating to Upjohn on pages 697-698:
It seems clear from Upjohn that the privilege is the corporation's, not the individual employee's from whom the attorney obtains information. It follows that the employee could not claim the privilege if the corporation wanted to waive it. Moreover it follows from the emphasis on the personal nature of the Fifth Amendment privilege in Couch and Fisher that the employee could not prevent disclosure by the corporation of his statements made to corporate counsel on grounds that the disclosure would violate his Fifth Amendment privilege. An employee therefore faces the risk that the corporation will turn on him in a house-cleaning operation, making him the scape-goat of the investigation. ("We have cleaned out the bad apples. Now we are honorable again.") This risk is compounded by the risk to the employee of appearing not to cooperate with a management sponsored internal investigation. The result is that an employee facing an internal corporate investigation may find himself in an extremely difficult position.
Professor Sexton argues for an extension to the privilege to the employees as a necessary implication of Upjohn. Because employees will not communicate freely with corporate counsel unless they are guaranteed the confidentiality of the communications, and because Upjohn shows such a powerful thrust toward open communications between corporate employees and corporate counsel, Professor Sexton contends that the privilege must extend to the employee as well as to the corporation.
Professor Coquilette (oral conversation) suggests that the problem may lie in the opposite direction: companies are anxious to have their lawyer represent not only the company but also the individual employees who may get caught up in the litigation involving the company. This dual representation has several effects; it ensures coordination and communication among all parties on the company side of the lawsuit; it is cheaper than having the company pay for separate counsel for its employees (which many companies are reluctantly willing to do when the matter in question concerns actions taken by the employee on behalf of the company); and it removes all question about the availability of privilege to prevent the government from discovering the content of communications because the employee and the attorney have an attorney client relationship independent of and in addition to the attorney client relationship the company has with the attorney. Company employees are reluctant to have their own counsel (the company-person mentality again), even if the company will pay, and regardless of what the company lawyer may say to the employee about the possibility that the employee's interest and the company's interest might diverge. The result is that counsel is often faced with serious conflict of interest problems. Professor Coquillette suggests that stricter attention may be needed to rules against representing clients who have conflicts of interest.
Answer and Analysis:
What difference does it make that a witness is an employee of defendant? Note the status of the witnesses in Hickman.
Answer and Analysis:
While Upjohn stands for a generous scope of the lawyer client privilege within the corporate entity, the status of information shared with non-lawyers outside the corporate entity is less clear. Under the formulation of the lawyer-client privilege adopted by the Supreme Court, but rejected by Congress when it originally enacted the Federal Rules of Evidence, the lawyer client privilege would extend to communications made by a lawyer to another lawyer representing another client in matter of common interest. (Proposed FRE 503(b)(3)). The utilitarian approach of the Supreme Court in Upjohn suggests that the Court would reach a similar result at common law.
|Go to:||Teacher's Manual Introduction||Chapter 7 Contents||Next Section|