Petition — Upjohn Co. v. United States

Supreme Court brief1981

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IN THE if

Supreme Court of the Miter. nc

OcroBER TERM, 1979... sana

No @9-886

THE UpsjoHN CoMPANY and GERARD THOMAS,

Vice President, Secretary and General Counsel,

Petitioners,

V .

UnItTep States oF AMERICA and Davip EK. Nowak,

Special Agent, Internal Revenue Service,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

WaLLson G. KNACK

Warner, Norcross & Judd

Grand Rapids, Michigan

Attorney for The Upjohn Company

CHARLES A. McNELIS

Welch & Morgan

Washington, D.C.

Attorney for The Upjohn Company

RicHARD M. Roserts

LAURENCE J. WHALEN

Hamel, Park, McCabe & Saunders

Washington, D.C.

Attorneys for Gerard Thomas

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

INDEX

Page

oo ree eee wee ee Per rrr rere. 1

BS PT Per Ceres eer rr ey ee 2

Perasts PONT os coke win cas edsavceeescenes 2

RAR UUNS BRVOELTED. 6 ons cic ns cee cgy sh siedenevonsteas 3

BEATERS OF TMB CAME 6k. os 605s. Sesedadentbvanes 3

REASONS FOR GRANTING THE WRIT .............00008: 6

PTE Te CECE ET PT Tere ee eT 20

PS Ceeeeey Pere re ree errr re Ty la

I TR niin 8s FRA hee FN cee ees 9a

ROUEN TS |i cis ce cceuvadnts vaseeeersasenteeaa 39a

| MTT PCE TE TCC CTT er ers Cree ee 4la

pe eee reer ert rr ee 43a

pS MRE TTTET ETRE ETT RTT 45a

PT i ROPE T Teter eT ee Te 47a

CITATIONS

CasEs:

Attorney General of the United States v. Covington &

Burling, 430 F. Supp. 1117 (D.D.C. 1977) ....... 9

Burlington Industries v. Exxon Corp., 65 F.R.D. 26 (D.

Pe: BOWE: So ucs boa Come eee oaks rinen EAE eS

Caldwell v. United States, 205 F.2d 879 (D.C. Cir.

1953), cert. denied, 349 U.S. 930 (1955) ........ 19

ii Citations Continued

Page

City of Philadelphia v. Westinghouse Electric Corp.,

210 F. Supp. 483 (E.D. Pa. 1962), mandamus de-

nied sub nom. General Electric Co. v. Kirkpatrick,

312 F.2d 742 (3d Cir. 1962), cert. denied, 372 U.S.

res reve neice scdeessvas ae

Coplon v. United States, 191 F.2d 749 (D.C. Cir. 1951),

cert. denied, 342 U.S. 926 (1952) ............... 19

Diversified Industries, Inc. v. Meredith, 572 F.2d 606

(8th Cir. 1978) (en banc), rev’g decision of orig-

inal panel 572 F.2d 596 (1977) ........... ec eeeee 7-8

Duplan Corp. v. Deering Millikin, Inc., 397 F. Supp.

I Or 8

Federal Trade Commission v. Lukens Steel Co., 444

EE, EOD nice ccescseesencees 9

Fisher v. United States, 425 U.S. 391 (1976) ........ 11

Garrison v. General Motors Corp., 213 F. Supp. 515

EE EE 8

Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487

(7th Cir. 1970) (per curiam), aff’d by an equally

divided court, 400 U.S. 348 (1971) .......... 8, 10, 14

Hasso v. Retail Credit Co., 58 F.R.D. 425 (E.D. Pa.

COG USiawc bogscescscnsceececs

Hercules Inc. v. Exxon Corp., 434 F. Supp. 136 (D.

an taCa ken esiccrseccsscecse 8

Hickman v. Taylor, 329 U.S. 495 (1947) .......... 3, 13, 15

Honeywell, Inc. v. Piper Aircraft Corp., 50 F.R.D.

Er A an 8

In re Ampicillin Antitrust Litigation, 81 F.R.D. 377

EES OI 8

In re Grand Jury Investigation (Sturgis), 412 F. Supp.

943 (K.D. Pa. 1976)

In re Grand Jury Investigation (Sun Company, Inc.),

Gow wee fame (oe Cir. 1979) .............00008, 8, 16

In re Grand Jury Proceedings (Duffy), 473 F.2d 840

EE A eT 16-17

Citations Continued lil

Page

In re Grand Jury Subpoena Dated December 19, 1978,

Issued to General Counsel, John Doe, Inc., 599

F.2d 504 (2d Cir. 1979), rev’g 81 F.R.D. 691 (S.D.

GE. EE racks been aaxts desea rnb eenes 9,16

In re Terkeltoub, 256 F. Supp. 683 (S.D. N.Y. 1966) .. i oe

18,

Leve v. General Motors Corp., 43 F.R.D. 508 (S.D.

Us: SUED .< scadacuane bis'bd as thsi aks weaanhe 8

Matter of Rosenbaum, 401 F. Supp. 807 (S.D. N.Y.

| es Oy NG Mee ry re 17

Mead Data Central, Inc. v. United States Department

of Air Force, 566 F.2d 242 (D.C. Cir. 1977) ...... 9

Natta v. Hogan, 392 F.2d 686 (10th Cir. 1968) ...... 8

Perringnon v. Bergen Brunswig Corp., 77 F.R.D. 455

Coa Gees aici ec cth sca h ck Laan sda 9

Securities and Exchange Commission v. Canadian

Javelin Ltd., 451 F. Supp. 594 (D.D.C. 1978) .... 9

Securities and Exchange Commission v. Texas Inter-

national Airlines, et al., F. Supp. (D.D.C.

No. 79-0126, August 3, 1979) ........cccecceecee 8

Sylgab Steel & Wire Corp. v. Imoco-Gateway Corp.,

62 F.R.D. 454 (N.D. Ill. 1974), aff’d mem., 534

F.2d 330 (7th Cir. 1976) ...... A eR BR Or 5. 8

United States v. Brown, 478 F.2d 1038 (7th Cir. 1973) 15, 16

United States v. Louisville & Nashville R. Co., 236

Sone CE Cale ce ch eee eee kieeean 11

United States v. McKay, 372 F.2d 174 (5th Cir. 1967) 16,17

United States v. Mitchell, 372 F. Supp. 1239 (S.D. NY.

BONE diivbe nes aca CaP en ae indi eh Const eanads 17

United States v. Nobles, 422 U.S. 225 (1975) ...15, 16, 17, 18

United States v. Thompson, 251 U.S. 407 (1920) .... 17

iv Citations Continued

Page

Velsicol Chemical Corp. v. Parsons, 561 F.2d 671 (7th

Me gt BES AEE SREY Pra ro rere ee Cree

Virginia Electric & Power Co. v. Sun Shipbuilding &

Dry Dock Co., 68 F.R.D. 397 (B.D. Va. 1975) .... 8

Xerox Corp. v. International Business Machines Corp.,

Be fe oon, te Se | Bere

STATUTES AND RULEs:

Internal Revenue Code of 1954 (26 U.S.C. (1970)

ed.)

oe Sinks Reena eS EELS NAA CPR ERR 2

ee ee ones a ies ee bande when 2, 3, 6, 15, 17

Ts, Bere Tres eer Terry Tree Tre 3

gis Sam go ere ee ere 2

ee EE oak cu smakevewedsssnnbeens 3,15

MISCELLANEOUS:

C. McCormick, Evidence

DE SORT edb ca cane. aew't 6) eniaceueks 11

Address by Stanley Sporkin, Securities and Exchange

Commission, before the Stamford, Conn. Area

Commerce and Industry Ass’n (Mar. 15, 1977). .13-14

Corporate Accountability, Address by Harold M. Wil-

liams, Chairman of the Securities and Exchange

Commission, before the Fifth Annual Securities

Regulation Institute (Jan. 18, 1978) ............ 13

Note, Attorney-Client Privilege for Corporate Clients:

The Control Group Test, 84 Harv. L. Rev. 424

CREME ORO C0 155 Ks LEV nb NW UR, CNea ad cetas 9

Note, Evidence—Privileged Communications—The At-

torney-Client Privilege in the Corporate Setting:

A Suggested Approach, 69 Mich. L. Rev. 3

ee ere Orr etree Py rTP arene 9

Citations Continued v

Page

Note, The Attorney-Client Privilege: Fixed Rules,

Balancing, and Constitutional Entitlement, 91

Bere. Su OAS GHOSE «sa phe bawec tudeiecawund 9

Lorne, The Corporate and Securities Adviser, The Pub-

lic Interest and Professional Ethics, 76 Mich. L.

See: Se SANE sive vce dcaveeaceeirecss cehiees 14

Report of the Securities and Exchange Commission on

Questionable and Illegal Corporate Payments and

ig OR eee 14

SEC Staff Report, The Accounting Profession and the

Commission’s Oversight Role (July 1, 1978) .... 14

Simon, The Attorney-Client Privilege Applied to Cor-

porations, 65 Yale L.J. 953 (1956) ............. 9

Speech of Stanley Sporkin, Securities and Exchange

Commission, before the New York County Law-

yers’ Association (April 7, 1976) ............... 14

The Role of Inside Counsel in Corporate Accountabil-

ity, Address by Harold M. Williams, Chairman of

the Securities and Iixchange Commission, before

the Seventeenth Annual Corporate Counsel In-

stitute (October 9, 1979), reprinted in 196 Daily

— for Executives (BNA), October 10, 1979,

8 Re re Ta Oe SPR Ee eee Tee ee ie ery

IN THE

Supreme Court of the United States

OcToBER TERM, 1979

No.

THE UpsJoHN COMPANY and GERARD THOMAS,

Vice President, Secretary and General Counsel,

Petitioners,

Vi.

Unitep States oF AMERICA and Davip E. Nowak,

Special Agent, Internal Revenue Service,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

The Upjohn Company and Gerard Thomas pray that

a writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Sixth

Circuit.

OPINION BELOW

The opinion of the court of appeals (App. A. here-

to) is reported at 600 F.2d 1223. The opinion of the

United States Magistrate (App. B hereto) is not offi-

cially reported but is unofficially reported at 41 AFTR

2d 78-796 and 78-1 U.S.T.C. 19277. The order of the

district court adopting the Magistrate’s opinion (App.

C hereto) and the Order of the district court enfore-

ing the summons (App. D hereto) are not officially

reported.

JURISDICTION

The opinion of the court of appeals was issued on

June 28, 1979. A timely petition for rehearing was

denied on September 10, 1979 (App. E hereto) and the

mandate of the court of appeals was issued on Septem-

ber 17, 1979 (App. F hereto). This petition is filed with-

in ninety days of the denial of the petition for rehear-

ing. This Court has jurisdiction pursuant to 28 U.S.C.

§ 1254.

QUESTIONS PRESENTED

1. Whether the attorney-client privilege protects the

confidentiality of communications between attorneys

for a corporation and corporate employees, where the

employees made the communications at the direction

of their corporate superiors, the subject of the com-

munications is a matter about which the attorneys’

advice has been sought by the corporation, and the

communications related to the performance by the

employees of the duties of their employment.

2. Whether the work product of attorneys prepared

in contemplation of possible litigation is protected

against involuntary disclosure in response to a sum-

mons issued under 26 U.S.C. § 7602 by a special agent

of the Criminal Investigation Division of the Internal

Revenue Service.

STATUTES INVOLVED

The pertinent part of §§ 7402, 7602 and 7604 of the

Internal Revenue Code of 1954 (26 U.S.C.) is econ-

tained in Appendix G.

STATEMENT OF THE CASE

This case arises from a summons issued by a special

agent of the Criminal Investigation Division of the

Internal Revenue Service under 26 U.S.C. § 7602. The

summons sought production of certain handwritten

notes made by attorneys representing The Upjohn

Company and responses received by those attorneys

to a questionnaire which they prepared and sent prin-

cipally to the managers of the Company’s subsidiaries

abroad. Production was refused by the general counsel

of the Company on grounds, among others, that the

documents demanded are protected against discovery

by (i) the attorney-client privilege and (ii) the attor-

ney work-product rule, as it has been defined by Hick-

man Vv. Taylor, 329 U.S. 495 (1947), and Fed. R.

Civ. P. 26(b) (3).

The documents sought by the Internal Revenue Ser-

vice were prepared in the course of an investigation

voluntarily instituted by Upjohn after the Company’s

independent public accountants found evidence that an

improper payment might have been made overseas by

one of the Company’s foreign subsidiaries. Outside

counsel was retained to advise the Company and each

of its subsidiaries regarding various legal issues aris-

ing from such payments, including anticipated litiga-

tion. In conjunction with Upjohn’s general counsel,

the outside attorneys undertook to gather such infor-

mation as they required to enable them to provide such

legal advice. The documents at issue in this case were

all prepared in connection with that undertaking. The

documents have remained confidential and have never

been disclosed to anyone except counsel for the Com-

pany.

Before completion of their investigation, Upjéhn’s

attorneys recommended that the Company make a pre-

liminary report to the Securities and Exchange Com-

mission regarding the questionable payments. Such a

report was promptly made both to the SEC and to the

Internal Revenue Service. Later, when additional in-

formation had been obtained, a more complete report

was made by the Company to the SEC and the IRS.

As a result of the disclosures, IRS reopened its audit

of the Company’s 1972 and 1973 consolidated federal

income tax returns, and undertook a criminal investi-

gation of the 1972, 1973 and 1974 returns. The sum-

mons from which this case arises was issued in con-

junction with that investigation by a special agent in

the Service’s Criminal Investigation Division.

Enforcement of the summons was referred by the

district court to a Magistrate, who concluded that

application of the attorney-client privilege should be

narrowly restricted to communications made to counsel

only by members of a corporation’s ‘‘control group”’.

(App. B at 22a.) The Magistrate adopted the theory

of a ‘‘control group’”’ from certain earlier cases, in

which such a group was generally defined to include

only those persons who have a substantial role in

formulating and deciding a corporation’s responses to

legal advice. The Magistrate reasoned that at least

some of the employees from whom Upjohn’s attorneys

had obtained information were not members of such a

‘‘econtrol group.’’ He also held that the Company’s

reports to the SEC constituted a waiver of any attor-

ney-client, privilege. (App. B at 24a.) Finally, the

Magistrate concluded that the Service had made a

sufficient showing of necessity to overcome the work-

product rule. (App. B at 30a.) On the basis of these

conclusions, he recommended to the district court that

the summons be enforced. The district court did not

prepare a separate analysis of the issues, but simply

adopted the opinion of the Magistrate in a brief order.

(App. © and D.)

The court of appeals recognized that the scope of

the attorney-client privilege as applied to corporations

is now disputed and uncertain. (App. A at 4a-5a.) It

acknowledged that several other courts, ‘‘notably the

Seventh and Eighth Circuits’, have adopted wider

and more flexible rules for the application of the priv-

ilege than that approved in this case by the district

court. (App. A at 4a.) Under the rules adopted

by the Seventh and Eighth Circuits, communications

made to counsel by subordinate corporate employees

are generally privileged if the subject matter of the

communications is a matter about which counsel has

been requested to provide legal advice and if it in-

volves the performance by the employees of their cor-

porate duties. Nonetheless, the Sixth Circuit rejected

the rules adopted by the Seventh and Eighth Circuits,

as well as other courts, and aligned itself with the

Third Cireuit and other courts which have approved

the more restrictive ‘‘control group’’ test applied by

the Magistrate. (App. A at 5a.)

The court of appeals held that Upjohn had not

waived the protection of the attorney-client privilege

with respect to the disputed materials, and found that

the Magistrate and district court had misapplied even

the narrow ‘‘control group”’ test. With respect to the

work-product rule, the court did not hold that the rule

had been overcome by a showing of necessity, but in-

stead stated in a brief footnote that the rule is entirely

inapplicable to a summons issued by IRS under 26

U.S.C. § 7602. (App. A at 7a n.13.) The court remanded

the case for the limited purpose of a determination as

to which of the employees from whom Upjohn’s attor-

neys received communications were part of the Com-

pany’s ‘‘control group.”’

REASONS FOR GRANTING THE WRIT

This case presents for decision two important ques-

tions regarding the scope of application of the attorney-

client privilege and the attorney work-product rule.

Each of the questions has widespread significance be-

yond this case. Both issues are the subject of conflict-

ing decisions by the courts of appeals, as well as nu-

merous other federal courts. One of the issues was

fully briefed and argued before this Court in the 1970

Term, but an equally divided Court was unable to reach

a decision. Prompt and definitive resolution of both

issues is fundamental for the orderly administration of

justice and to resolve the conflict among the circuits.

Unless authoritative guidance is now provided by this

Court, important questions of law will remain disputed

and uncertain, and counsel will be seriously hampered

in their efforts to provide professional advice to cor-

porate clients regarding a broad range of legal issues.

Review By This Court Is Required to Establish the Scope of the

Attorney-Client Privilege as Applied to Corporations.

The great bulk of business activity in this country is

now conducted through corporate enterprises. In con-

nection with their efforts to provide professional assist-

ance to such enterprises, both inside and outside counsel

necessarily must rely upon communications of perti-

nent information from corporate employees, some of

whom frequently occupy subordinate corporate posi-

tions. It is imperative that counsel and their corporate

clients have definitive guidance whether and in what

circumstances such communications will remain con-

fidential under the attorney-client privilege. Despite

the obvious importance of clear and authoritative

standards, however, the scope of application to cor-

porations of the attorney-client privilege is now the

subject of diverse and conflicting rules adopted by

different courts of appeals and district courts. The

result is confusion and uncertainty.

The decisions in this area fall broadly into three

groups. The Seventh and Eighth Circuits have each

held that the pri ilege is applicable to communications

made to counsel by subordinate corporate employees.

The standards adopted by the two circuits are not iden-

tical, but in general terms each holds that such a com-

munication is privileged if it relates to a matter about

which the corporation has sought the attorney’s legal

advice, if the communication was made in confidence,

and if it relates to the performance of the employee’s

corporate duties. Diversified Industries, Inc. v. Mere-

dith, 572 F.2d 606 (8th Cir. 1978) (en bane), rev’g

decision of original panel 572 F.2d 596 (1977) ; Harper

d& Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th

Cir. 1970) (per curiam), aff’d by an equally divided

court, 400 U.S. 348 (1971). Variants of this standard,

which has been styled the ‘‘subject-matter’’ test, have

also been adopted by many other federal courts.’ These

courts have emphasized that any more narrow or less

flexible standard undermines the important policies

served by the privilege and disregards the size and

complexity of modern corporate enterprises.

Still other courts, particularly the Third Circuit,

have rejected the subject-matter test and have instead

adopted one variant or another of the rule approved by

the court of appeals in this case. E.9g., In re Grand

Jury Investigation (Sun Company, Inc.), 599 F.2d 1224

(3d Cir. 1979).* Under the ‘‘control group’’ test that

has been adopted in such cases, the privilege is gener-

* Securities and Exchange Commission v. Texas International

Airlines, et al., F’, Supp. . (D.D.C., No. 79-0126, August 3,

1979) ; In re Ampicillin Antitrust Litigation, 81 F.R.D. 377 (D.D.C.

1978) ; Hereules Inc. v. Exxon Corp., 434 F. Supp. 136 (D. Del.

1977) ; Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146

(D. S.C. 1974) ; Xerox Corp. v. International Business Machines

Corp., 64 F.R.D. 367 (S.D.N.Y. 1974) ; Sylgab Steel & Wire Corp.

v. Imoco-Gateway Corp., 62 F.R.D. 454 (N.D. Ill. 1974), aff’d

mem., 534 F.2d 330 (7th Cir. 1976); Hasso v. Retail Credit Co.,

58 F.R.D. 425 (E.D. Pa. 1973) ; Leve v. General Motors Corp., 43

F.R.D, 508 (S.D.N.Y. 1967).

? See also Virginia Electric & Power Co. v. Sun Shipbuilding &

Dry Dock Co., 68 F.R.D. 397 (E.D. Va. 1975) ; Burlington Indus-

tries v. Exxon Corp., 65 F.R.D. 26 (D. Md. 1974) ; Honeywell, Ine.

v. Piper Aireraft Corp., 50 F.R.D. 117 (M.D. Pa. 1970) ; Garrison

v. General Motors Corp., 213 F. Supp. 515 (S.D. Cal. 1963) ; City

of Philadelphia v. Westinghouse Electric Corp., 210 F. Supp. 483

(E.D. Pa. 1962), mandamus denied sub nom. General Electric Co.

v. Kirkpatrick, 312 F.2d 742 (3d Cir. 1962), cert. denied, 372 U.S.

943 (1963) ; Natta v. Hogan, 392 F.2d 686 (10th Cir. 1968) (dicta).

ally applicable to communications made to counsel only

by senior corporate officers who ‘‘play a substantial

role’’ in deciding and directing the corporation’s re-

sponse to the legal advice given. (App. A at 5a.)

A third group of courts has noted the conflicting

standards that have been adopted by the various cir-

cuits, but avoided any resolution of the issue.* In these

districts and circuits, corporate counsel have been left

without any definitive guidance as to which, if any, of

the conflicting standards will be applicable to the priv-

ilege. Finally, confusion has been intensified by the

recommendations of commentators, who have urged the

adoption of a wide range of standards, including the

subject-matter and control group tests, as well as sev-

eral variations upon and alternatives to those tests.‘

Review by this Court is essential to resolve the exist-

ing confusion and uncertainty. This is not a matter as

to which a multiplicity of standards in different dis-

SIn re Grand Jury Subpoena Dated December 19, 1978, Issued

to General Counsel, John Doe, Inc., 599 F.2d 504 (2d Cir, 1979),

rev’g 81 F.R.D. 691 (S.D.N.Y. 1979) ; Mead Data Central, Ine. v.

United States Department of Air Force, 566 F.2d 242, 253 n.24

(D.C. Cir. 1977) ; Perringnon v. Bergen Brunswig Corp., 77 F.R.D.

455, 459 (N.D. Cal. 1978); Securities and Exchange Commission

v. Canadian Javelin Ltd., 451 F. Supp. 594, 598-99 (D.D.C, 1978) ;

Federal Trade Commission v. Lukens Steel Co., 444 F. Supp. 803,

807 n.4 (D.D.C. 1977) ; Attorney General of the United States v.

Covington & Burling, 430 F. Supp. 1117, 1121 (D.D.C. 1977).

*E.g., Note, The Attorney-Client Privilege: Fixed Rules, Bal-

ancing, and Constitutional Entitlement, 91 Harv. L. Rev. 464

(1977) ; Note, Evidence-Privileged Communications-The Attorney-

Client Privilege in the Corporate Setting: A Suggested Approach,

69 Mich. L. Rev. 360 (1970); Note, Attorney-Client Privilege for

Corporate Clients: The Control Group Test, 84 Harv. L. Rev. 424

(1970) ; Simon, The Attorney-Client Privilege Applied to Corpora-

tions, 65 Yale L, J. 953 (1956).

tricts and circuits can properly be tolerated. The con-

duct of corporate business activities commonly cuts

across the geographic jurisdictions of many federal

courts. When counsel seeks to provide legal advice to

corporate clients, the district or circuit in which the

transactions may become an issue frequently cannot be

predicted. In such situations, it is not enough merely

to anticipate that one standard for the application of

the privilege may be applied by one court, and a con-

flicting standard by another court.

The existence of competing standards in some courts,

and the absence of any defined standard in other courts,

means that counsel are without any reliable basis at

all upon which to assess the confidentiality of com-

munications made to them by corporate employees.

Under the conflicting rules that now exist, the same

communications made by the same employees regarding

the same transaction may be privileged in one court

and subject to disclosure in another court. Without

authoritative guidance from this Court, the applica-

tion of an important legal principle will remain con-

fused and uncertain, and the efforts of counsel to advise

corporate clients regarding a wide variety of legal

issues will continue to be severely impeded.°

Even apart from the perplexing conflict among the

circuits with respect to this issue, review of this Court

is needed to reverse the narrow and grudging interpre-

*The importance of this issue is illustrated vividly by the fact

that nine parties filed motions for leave to file briefs as amici when

this Court considered the same issue during its 1970 Term, and

affirmed Harper & Row Publishers, Ine. v. Decker, supra, by an

equally divided Court. Among those filing briefs as amici were the

American Bar Association, the Association of the Bar of the City

of New York and New York County Lawyers’ Association, and six

other state bar associations.

tation of the attorney-client privilege adopted in this

ease. The privilege is intended to assure the availabil-

ity of meaningful professional advice by encouraging

uninhibited communications with counsel regarding

relevant factual and legal matters. C. McCormick, Evi-

dence § 96 at 195 (1954). This Court emphasized more

than sixty years ago that unless the privilege is ade-

quately protected and guaranteed, there will be a ‘‘ prac-

ical prohibition upon professional advice and assist-

ance.’’ United States v. Louisville & Nashville R. Co.,

236 U.S. 318, 336 (1915). See also Fisher v. United

States, 425 U.S. 391, 403 (1976). The effect of the nar-

row interpretation of the privilege adopted below is,

however, to create precisely such a ‘‘practical prohibi-

tion’’ upon advice given to corporate enterprises.

Cour #l can provide meaningful professional as-

sistance to clients only if he first receives a full and

candid disclosure of all of the information necessary

to assess realistically the legal issues involved. Because

of the size and complexity of many modern corpora-

tions, senior management often has only general and

incomplete information regarding transactions about

which legal advice is needed. As a result, much of the

detailed factual information required by counsel must

often be obtained from subordinate corporate employ-

ees, most or all of whom fall outside the narrow ‘‘con-

trol group’”’ defined by the court of appeals.

If the rigid standard adopted below is permitted to

prevail, corporate counsel will be confronted with a

dilemma from which there can be no satisfactory es-

cape. Counsel either must offer legal advice upon the

basis of information that is likely to be seriously in-

complete or must seek adequate factual information

from less senior corporate employees outside the scope

of the privilege. If counsel elects the latter, he may

thereby waive all protection by discussing privileged

information with employees beyond the client’s ‘‘con-

trol group’’. By so doing, counsel may adversely affect

the interests of individuals as well as the corporation.

Whatever choice counsel might make, the important

public policies served by the attorney-client privilege

would be defeated.°

The dilemma is illustrated clearly by this case. Up-

john’s attorneys were required to provide legal advice

regarding compliance with securities and tax laws,

possible violations of foreign laws, currency restric-

tions, possible shareholder litigation, and other legal

issues and possible litigation arising from questionable

payments abroad. The Company’s highest management

was unable to provide all of the facts needed by coun-

sel to formulate legal advice. As a result, Upjohn’s

attorneys were compelled to seek the information they

required from a limited group of less senior corporate

employees, including the managers of the Company’s

foreign subsidiaries. The persons from whom informa-

tion was sought are all employees for whose conduct

Upjohn may be liable, and whose knowledge may be

imputed to it. To hold, as did the court of appeals in

this case, that such communications are unprotected by

® Without extended analysis, the court of appeals assumed that

adoption of the broader subject-matter test might cause senior

corporate managers ‘‘purposely to ignore important information.’’

(App. A at 5a). There is no basis for any such assumption. Tc the

contrary, corporate managers with responsibility for deciding major

issues of corporate policy can be expected to continue to seek and

receive such information as they believe appropriate to formulate

such policies. Under any formulation of the privilege, corporate

employees of all levels of seniority may be examined regarding their

personal knowledge of disputed transactions.

the attorney-client privilege denies corporate enter-

prises any eff-etive protection of the privilege and

severely impedes the right of those enterprises to ob-

tain informed legal advice.’

The narrow and rigid standard adopted in this case

for application of the privilege also undermines other

important public policies. Officials of the SEC, as well

as other senior government spokesmen, have in recent

years repeatedly emphasized that corporate counsel are

expected to perform substantial roles in assuring cor-

porate compliance with federal securities and other

laws.® Special emphasis has been placed upon counsel’s

7 Contrary to the assumption of the court of appeals in this case,

a narrow interpretation of the scope of the attorney-client privilege

is not required to assure full and adequate discovery. Using the

generous discovery provisions of federal regulatory statutes and

the Federal Rules of Civil Procedure, government investigators and

private litigants may thoroughly interrogate corporate employees

of every level of seniority regarding their knowledge of corporate

conduct. Reasonable application of the privilege would mean only

that such investigators and litigants could not seize for themselves

the efforts of a corporation’s own counsel to ascertain and evaluate

the facts relevant to a disputed transaction. The inconvenience to

an investigator or litigant of performing his own factual inquiries

is clearly outweighed by the important policies served by the

privilege. As Justice Jackson emphasized in Hickman v. Taylor,

329 U.S. 495, 516 (1947) (concurring opinion), ‘‘[d]isecovery was

hardly intended to enable a learned profession to perform its

functions . . . on wits borrowed from the adversary.’’

8 E.g., The Role of Inside Counsel in Corporate Accountability,

Address by Harold M. Williams, Chairman of the Securities and

Exchange Commission, before the Seventeenth Annual Corporate

Counsel Institute (Oct. 9, 1979), reprinted in 196 Daily Report

for Executives (BNA), October 10, 1979, at B-1; Corporate Ac-

countability, Address by Harold M. Williams; Chairman of the

Securities and Exchange Commission, before the Fifth Annual

Securities Regulation Institute (Jan. 18, 1978) ; Address by Stanley

role in preventing and detecting questionable business

practices both in the United States and abroad.’ Grudg-

ing application of the privilege inhibits corporate coun-

sel from performing such activities, erodes the public

policies which counsel have been instructed to serve,

and undermines compliance with federal regulatory

statutes.

All of the reasons that caused this Court to grant

certiorari in the 1970 Term in Harper & Row Pub-

lishers, Inc. v. Decker, supra, now justify review in

this case. The conflict among the circuits has not dis-

appeared but instead has deepened and broadened. The

confusion and uncertainty have become more serious

and widespread. The continuing absence of authorita-

tive standards for the application of the privilege to

corporate clients has resulted in increasingly substan-

tial impediments to the provision of professional advice

to those clients. Guidance from this Court is needed

to eliminate those impediments, dispel confusion and

uncertainty, and resolve the conflict among the circuits.

Sporkin, Securities and Exchange Commission, before the Stamford,

Conn. Area Commerce and Industry Ass’n (Mar. 15, 1977). See

also Lorne, The Corporate and Securities Adviser, The Public

Interest and Professional Ethies, 76 Mich. L. Rev. 423 (1978).

® Id. See also Speech of Stanley Sporkin, Securities and Exchange

Commission, before the New York County Lawyers Ass’n.

(April 7, 1976); Report of the Securities and Exchange Commis-

sion on Questionable and Illegal Corporate Payments and Practices,

67-68 (May 12, 1976). Compare SEC Staff Report, The Accounting

Profession and the Commission’s Oversight Role (July 1, 1978).

Il.

Review by This Court Is Needed to Resolve Conflicting Decisions

Regarding the Application of the Work-Product Rule to an

Administrative Summons.

This case also presents a second and independent

legal issue as to which review by this Court is clearly

appropriate. As described above, Upjohn has consist-

ently urged that the documents sought by IRS include

notes and other materials that are the work product of

the Company’s counsel, within the meaning of Hick-

man V. Taylor, 329 U.S. 495 (1947), and Fed. R. Civ.

P. 26 (b)(3). The court of appeals did not hold or

even suggest that the materials are not properly char-

acterized as the attorneys’ work-product. Nor did it

suggest that the rule is overridden in this case by any

showing of necessity. Instead, it held in a brief foot-

note that the work-product rule is entirely inapplica-

ble to an IRS summons issued under 26 U.S.C. § 7602.

(App. A at 7a n.13).

The conclusion reached below is in conflict with the

decision of the Court of Appeals for the Seventh Cir-

cuit in United States v. Brown, 478 F.2d 1038, 1041

(7th Cir. 1973), which held that the work-product rule

is applicable in proceedings to enforce an IRS sum-

mons. It is also inconsistent with the previous instruc-

tions of this Court regarding the significance and scope

of application of the work-product rule in United

States v. Nobles, 422 U.S. 225 (1975), and raises sub-

stantial constitutional issues under the Fifth and Sixth

Amendments. Review by this Court is needed to resolve

the conflict among the circuits,"” resolve the constitu-

tional issues and restore the proper interpretation of an

important legal principle.

The court below did not explain the reasons for its |

conflicting decision or even refer to the decision of the.

Seventh Circuit in Brown. Of the cases referred to by

the court below, only United States v. McKay, 372 F.2d

174 (5th Cir. 1967), even discussed the issue. In McKay,

however, the Fifth Circuit merely expressed doubt as

to the applicability of the rule in summons enforce-

ment actions and went on to conclude that the ap-

praiser’s report at issue there was ‘‘.. . in no sense the

work product of the lawyer... .’’ Id. at 177.

Moreover, the doubts expressed in the Fifth Circuit’s

dictum in McKay were premised upon an assump-

tion that no longer has validity. The court assumed

that an analogy exists between summons enforcement

actions and grand jury investigations, and further that

the work-product rule might be inapplicable before a

grand jury. It is now settled that the work-product rule

is fully applicable to grand jury investigations. In re

Grand Jury Investigation (Sun Company, Inc.), su-

pra; In re Grand Jury Subpoena Dated December 19,

1978, Issued to General Counsel, John Doe, Inc., supra;

Velsicol Chemical Corp. v. Parsons, 561 F.2d 671 (7th

Cir. 1977) ; In re Grand Jury Proceedings (Duffy), 473

notice of the conflicting authorities regarding the application of

the work-product rule to a summons issued by IRS. United States

v. Nobles, supra at 225, 247 n. 6 (1975) (concurring opinion). The

decision in this case deepens rather than resolves the conflict among

the circuits.

F.2d 840 (8th Cir. 1973) ; In re Grand Jury Investiga-

tion (Sturgis), 412 F.Supp. 943, 946 (E.D. Pa. 1976) ;

Matter of Rosenbaum, 401 F. Supp. 807, 808 (S.D.

N.Y. 1975); United States v. Mitchell, 372 F. Supp.

1239, 1245 (S.D.N.Y. 1973); In re Terkeltoub, 256 F.

Supp. 683, 685 (S.D.N.Y. 1966). This Court expressly

noted une numerous cases that have held the work-

product rule applicable to grand jury proceedings in

United States v. Nobles, supra at 238 n.12.

Accordingly, the premise of the only relevant au-

thority relied upon by the court below, the dictum of

the Fifth Circuit in McKay, has now been destroyed.

In fact, the analogy perceived by the Fifth Circuit

between summons enforcement actions and grand jury

proceedings now requires that the result reached below

be reversed, and that the work-product rule be held ap-

plicable to such enforcement actions. To hold other-

wise, as the court below has done, attributes to the

Commissioner of Internal Revenue investigative pow-

ers under Section 7602 far broader than those now

afforded grand juries. In light of the virtually ‘‘un-

fettered’’ investigative powers otherwise permitted to

grand juries,’ no policy or other reasons can justify

such an anomalous result.

Moreover, the decision reached below is contrary to

the principles for application of the work-product rule

announced by this Court in United States v. Nobles,

supra. The Court made clear in Nobles that the public

policies served by the work-product doctrine have

E.g., United States v. Thompson, 251 U.S, 407, 413-15 (1920) ;

In re Terkeltoub, supra at 684.

fundamental importance in criminal as well as civil

litigation. The Court emphasized that:

Although the werk product doctrine most fre-

quently is asserted as a bar to discovery in civil

litigation, its role in assuring the proper function-

ing of the criminal justice system is even more

vital. The interests of society and the accused in

obtaining a fair and accurate resolution of the

question of guilt or innocence demand that ade-

quate safeguards assure the thorough preparation

and presentation of each side of the case. 422 U.S.

at 238 (footnote omitted).

This case shows vividly the necessity of the Court’s

instructions. The summons here was issued by a special

agent in the Service’s Criminal Investigation Divi-

sion, as one of the preliminary steps that may lead to

criminal prosecution. In such a situation, there are

compelling reasons of policy to permit the taxpayer to

consult freely with counsel and to encourage counsel to

explore thoroughly all of the client’s possible defenses.

An unnecessary and unrestricted intrusion into coun-

sel’s work product by IRS’ investigators chills the

attorney’s performance of his professional responsibili-

ties and inhibits the preparation of defenses to a pos-

sible criminal prosecution. The decision below repudi-

ates the ‘‘even more vital’’ role of the work-product

rule in connection with criminal prosecutions. Id.

Denial of the protection of the work-product rule in

connection with criminal investigations by IRS also

raises serious constitutional issues under the Fifth and

Sixth Amendments. Counsel’s work in investigating

and preparing defenses to possible criminal charges

is ‘‘a vital center in the administration of criminal

justice.’’ In re Terkeltoub, supra at 684. To protect and

assure the privacy essential for those preparations, gov-

ernment investigators are, for example, forbidden to

eavesdrop or to plant agents to hear the defense’s con-

sultations. H.g., Coplon v. United States, 191 F.2d 749

(D.C. Cir. 1951), cert. denied, 342 U.S. 926 (1952).

Even without a showing of actual prejudice, any such

intrusion denies effective assistance of counsel, con-

trary to the requirements of the Fifth and Sixth

Amendments. Caldwell v. United States, 205 F.2d 879,

881 (D.C. Cir. 1953), cert. dented, 349 U.S. 930 (1955).

In these and other cases, it has repeatedly been empha-

sized that an accused ‘‘does not enjoy the effective aid

of counsel if he is denied the right of private consulta-

tion with him.’’ Coplon v. United States, supra at 757.

The intrusion permitted in this case into the confi-

dentiality of the efforts of Upjohn’s counsel is not less

serious because it was not surreptitious. Constitutional

protection would be a ‘‘thin illusion’’ if the Govern-

ment could ‘‘have for the asking’”’ what it has in other

instances sought ‘‘by less genteel means.’’ In re Terkel-

toub, supra at 685. Whatever the method employed, any

invasion of the privacy of counsel’s work in investigat-

ing and preparing defenses to criminal charges threat-

ens fundamental constitutional policies. This case af-

fords the Court an important opportunity to define the

scope of application of the Fifth and Sixth Amend-

ments in connection with criminal investigations.

The work-product rule is designed to serve long-

standing public policies with their roots in constitu-

tional requirements. The narrow scope of application

given to the rule by the Court of Appeals in this case

erodes and threatens those important policies. Review

by this Court is needed to resolve the conflict among

the circuits, to resolve substantial constitutional issues,

and to vindicate those policies.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

Wat.ison G. KNACK

Warner, Norcross & Judd

Grand Rapids, Michigan

Attorney for The Upjohn Company

CHARLES A. McNELIS

Welch & Morgan

_ Washington, D.C.

Attorney for The Upjohn Company

RicHarD M. Roserts

LAURENCE J. WHALEN

Hamel, Park, McCabe & Saunders

Washington, D.C.

Attorneys for Gerard Thomas

APPENDIX

APPENDIX A

No. 78-1277

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA

and Davin E. Nowak, IRS,

Petitioners-Appellees,| ON Arpreat from the

United States District

7 Court for the West-

THe Upyoun Company and ern District of Michi-

Gerarp THomas in his gan.

official capacity,

Respondents-Appellants.

Decided and Filed June 28, 1979.

Before: CELEBREZZE, Keitn and Merritt, Circuit Judges.

Merritt, Circuit Judge. The principal question on appeal

is whether this Circuit should adopt the “control group” or

the broader “subject matter” test us the standard for measuring

the scope of the attorney-client privilege in the corporate

context. Appellants, Upjohn Company and its in-house Gen-

eral Counsel, appeal from the District Court’s order enforcing

under 26 U.S.C. §§ 7402(b), 7604(a) (1976) an IRS sum-

mons for documents. The General Counsel refused to produce

the documents on the grounds that they are protected by

company’s attorney-client privilege and by the work-product

doctrine. District Judge Fox rejected these arguments and

enforced the summons. We adopt the “control group” test,

affirm in part, reverse in part and remand.

2 United States v. The Upjohn Co., et al. — No. 78-1277

While auditing Upjohn’s 1972-73 consolidated federal in-

come tax returns, the IRS learned that since January 1, 1971,

Upjohn and its subsidiaries had made payments of approxi-

mately $4,400,000 to officials of many of the 136 foreign

countries in which Upjohn does business. The company had

directed its in-house counsel, along with outside counsel, to

conduct an internal investigation of these payments. At the

request of Upjohn’s top management, officers and employees

of the company were urged to respond to counsel’s questions

candidly and confidentially. The responses were recorded

in answers to written questionnaires and in counsel's notes

and memoranda describing oral interviews. These are the

documents the IRS seeks to obtain in the instant proceeding.

The internal investigation was prompted, at least in part,

by Upjohn’s concern that the payments had not been reported

properly to the Securities and Exchange Commission. The

sompany filed two reports with the SEC disclosing some, but

not all, of the details of the payments. The disclosures were

voluntary in the hope of lenien! treatment by the SEC. These

reports to the SEC were made available to the IRS, which then

commenced the instant investigation.

The company provided the IRS with details of $700,000

worth of the payments which it conceded might affect its

federal income tax liability. ‘The company furnished the IRS

considerably less detailed information regarding the other

$3,700,000 of questionable payments because the company

claims that these payments do not affect its tax liability.

Although the company made its employees available for

questioning by the IRS, the company refused to permit ques-

tions about the $3,700,000 of questionable payments. The

IRS claims that the company’s limited disclosure has been

inadequate to permit an independent evaluation of the pos-

sible tax implications of the payments. Accordingly, the IRS

summoned from company counsel the documents generated

in the course of the internal investigation and now seeks en-

forcement.

No. 78-1277 United States v. The Upjohn Co., et al. 3

Upjohn claims that the communications to counsel made

by all of its employees, including regular and middle manage-

ment employees as well as top management, are privileged

as confidential communications between client and attorney."

To the extent that the communications were made by officers

and agents not responsible for directing Upjohn’s actions in

response to legal advice, we disagree for the simple reason

that the communications were not the “client’s.”

The attorney-client privilege, as it exists today, is based on

two related principles. The first is that it is an intrinsic part

and a necessary incident of the attorney-client relationship.

The legal profession has an intimate relationship with its

clients and an important role in the administration of our

system of justice. Privacy is the necessary context of the

relationship between the individual and his lawyer. As stated

by Dean McCormick:

Our adversary system of litigation casts the lawyer in

the role of fighter for the party whom he represents. A

strong sentiment of loyalty attaches to the relationship,

and this sentiment would be outraged by an attempt to

change our customs so as to make the lawyer amenable

to routine examination upon the client’s confidential dis-

closure regarding professional business. Loyalty and

sentiment are silken threads, but they are hard to break.?

The second principle is that the privilege “encourage[s] clients

to make full disclosure to their attorneys.”? This policy of

1 See VIII J. Wigmore, Evivence, § 2292 at 558 (McNaughton Rev.

1940):

(1) Where legal advice of any kind is sought (2) from a

professional legal adviser in his capacity as such, (3) the com-

munications relating to that purpose, (4) made in confidence

(5) by the client, (6) are at his instance permanently pro-

tected (7) from disclosure by himself or by the legal adviser,

(8) except the protection be waived.

2 McCormick, EviIpENCE § 87 at 176 (2d ed. 1972).

3 Fisher v. United States, 425 U.S. 391, 403 (1976).

4 United States y. The Upjohn Co.. et al. —— No. 78-1277

promoting full disclosure to counsel serves to implement the

notion inherent in the first principle, that finding the truth

and achieving justice in an adversary system are best served

by fully-informed advocates loyal to their client's interests.

The application of the privilege to corporate “clients” poses

a somewhat different problem. Since corporations are in-

animate, artificial entities, the attorney-client relationship is

conceptually more difficult, and its underlying principles are

less obvious. As clients, corporations can communicate to

attorneys only through agents. Moreover, corporations, unlike

individuals, are organized in such a way that responsibilities,

and the information needed to fulfill the responsibilities, are

delegated and compartmentalized. Thus, marketing officials

have knowledge and duties related only to selling, while plant

supervisors have knowledge and duties related only to pro-

duction. It is only the senior management, guiding and inte-

grating the several operations, which can be said to possess

an identity analogous to the corporation as a whole.

Courts have generally recognized that the attorney-client

privilege applies to corporations so long as the attorney-client

relationship was initiated and pursued by the company’s

management. Any communication made by top manage-

ment to the corporation’s attorney, which otherwise meets the

requirements of the attorney-client privilege, is protected from

disclosure.

The difficulty arises when, after the attorney-client relation-

ship has been established by the top management, communi-

cations are made to counsel by subordinate corporate agents

and employees. Some courts, notably the Seventh and Eighth

Circuits, have adopted the position that such communications

are privileged if certain conditions are met. The specification

of the conditions varies, but the sum and substance are simi-

lar: If the agent is in possession of information acquired in

the ordinary course of business relating to the subject matter

« £.g., Natta v. Hogan, 392 F.2d 686 (10th Cir. 1968).

No. 78-1277 United States v. The Upjohn Co., et al. 5

of his employment, and the information is communicated con-

fidentially to corporate counsel to assist him in giving legal

advice to the corporation, then the communication is privi-

leged.5 Under this “subject-matter” approach, the privilege

does not cover communication of pre-existing documents pre-

pared for independent business reasons* or communications

unrelated to the subject matter of the agent’s employment.”

Other courts have adopted a narrower approach which covers

only those communications made by the so-called “control

group’ of the corporation, namely, those officers, usually top

management, who play a substantial role in deciding and

directing the corporation’s response to the legal advice given.®

It is our opinion that the “subject matter” approach goes too

far, and we align ourselves with the courts that have adopted

the “control group” analysis. The “subject matter” test en-

courages senior managers purposely to ignore important

information they have good business reasons to know and use.

Corporate counsel should not be the exclusive repository of

unpleasant facts. The law should not encourage corporate

5 Diversified Industries, Inc. v. Meredith, 574 F.2d 596 (8th Cir.

1977) (en banc); Harper & Row Publishers, Inc. v. Decker, 423 F.2d

487 (7th Cir. 1970) (per curiam), aff’d without opinion by an equally

divided Court, 400 US. 348 (1971).

6 See, e.g., Diversified Industries, supra note 5 at 809.

7Id. Cf. Hickman v. Taylor, 329 U.S. 495, 508 (1947 (“. . . the

protective cloak of [the attorney-client] privilege does not extend

to information which an attorney secures from a witness while acting

for his client in anticipation of litigation.)

8 In re Grand Jury Investigation, —— F.2d —— (No. 78, 2040, 3d Cir.

June 1, 1979); Natta v. Hogan, supra note 4; In Grand Jury Subpoena

Dated December 19, 1978, —— F. Supp. —— (No. 'M 11-1978, S.D. N.Y.

Feb. 21, 1979), rev’d on other grounds —— F.2d —— (No. 79-1136, 2d

Cir. May 21, 1979). Virginia Electric & Power Co. v. Sun Shipping

and Dry Dock Co., 68 F.R.D. 397 (E.D. Va. 1975); Burlington Indus-

tries v. Exxon Corp., 65 F.R.D. 26 (D. Md. 1974); Honeywell, Inc.

v. Piper Aircraft Corp., 50 F.R.D. 117 (M.D. Pa. 1970); Garrison v.

General Motors Corp., 213 F. Supp. 515 (S.D. Cal. 1963); City of

Philadelphia v. Westinghouse Electric Corp., 210 F. Supp. 483 (E.D.

Pa.)., mandamus denied sub nom. General Electric Co. v. Kirkpatrick,

312 F.2d 742 (3d Cir. 1962), cert. denied 372 U.S. 943 (1963). See

also Mead Data Central, Inc. v. U.S. Dep’t of the Air Force, 566 F.2d

242, 253 n.24 (D.C. Cir. 1977).

6 United States v. The Upjohn Co., et al. | No. 78-1277

managers to shield themselves from information about possibly

illegal transactions. Such purposeful ignorance does not serve

the interests of moral corporate conduct or the protection of

stockholder equity.

In addition, the scope of the attorney-client privilege should

be limited to its purpose because the privilege acts as a bar

to the discovery of the truth.’ The “control group” test

recognizes that a corporation’s decision-makers, like individual

clients, must communicate freely and confidentially to counsel.

By protecting these communications, the “control group” test

promotes consultation with counsel and thereby achieves its

objective.'° At the same time, the “control group” test guards

against undue limitation of evidence. The “subject matter”

approach enables the corporation’s management — via agents

— to “communicate” to counsel the details of transactions

about which management is only dimly aware and to have

these communications protected by the attorney-client privi-

lege. Thus, once management is informed in a general way

of transactions posing legal problems, it can order subordinate

agents to communicate the full details directly to counsel.

Because the “subject matter” test brings these communications

within the attorney-client privilege, it tends to encourage

this type of indirect communication to counsel. This, in turn,

fosters situations in which the only record of the full details

of a particular transaction is in the hands of corporate counsel

and, under the “subject matter” test, undiscoverable. Dis-

covery, then, would have to be directed at the corporate agents

who know the details of the transaction rather than at the

corporation’s management. When the knowledgeable agents

are located in several foreign countries, as here, the burden

on discovery is severe. We, therefore, decline to accept Up-

9 United States v. Goldfarb, 328 F.2d 280, 282 (6th Cir. 1964).

10 See generally Kubak, The Uneven Application of the Attorney

Client Privilege to Corporations in the Federal Courts, 6 Ga. L. Rev.

339 (1972); Note, Attorney-Client Privilege for Corporate Clients:

The Control Group Test, 84 Harv. L. Rev. 424 (1970).

No. 78-1277 United States v. The Upjohn Co., et al. 7

john’s argument because of the broad “zone of silence” it would

tend to create."'

Upjohn argues, however, that some of the communications

in this case were made by members of the “control group.”

This point is well taken. The record indicates that, in the

course of their investigation, Upjohn’s counsel interviewed

a number of senior corporate officers, including the Chairman

of the Board, the Vice Chairman, and the President. These

senior officers, and possibly others, are in all likelihood mem-

bers of the “control group” and their communications to

counsel should be privileged.'2 Therefore, we remand the

case to the District Court to determine which communications

sought by the IRS were made by members of the “control

group” and to deny enforcement of the summons with respect

to these “control group” communications."*

Affirmed in part, reversed in part and remanded.

11 Simon, The Attorney-Client Privilege as Applied to Corpora-

tions, 65 YaLe L. J. 953, 955 (1956). We recognize that, historically,

individual clients’ communications with counsel via agents have

been deemed privileged. E.g., In re Aspinwall, 2 F. Cas. No. 591

(S.D. N.Y. 1874). We believe, however, that this principle should

be limited to agents who, at the client’s request, communicate facts

known to the client. See e.g., Reid v. Langlois, 41 Eng. Rep. 1408

(1849); see generally Morcan, Basic ProsLems OF EvipEeNce 100-01

(1954); Simon, The Attorney-Client Privilege, supra, at 963-64.

12 The corporation’s voluntary disclosures to the SEC amount to

a waiver of the privilege only with respect to the facts actually

disclosed. United States v. Cote, 456 F.2d 142 (8th Cir. 1972); United

States v. Judson, 322 F.2d 460, 461 (9th Cir. 1963): Colton v. United

States, 306 F.2d 633, 639 (2d Cir. 1962), cert. denied 371 U.S. 951

(1963); IBM v. Sperry Rand Corp., 44 F.R.D. 10 (D. Del. 1968). See

generally McCormick, EvIpENCE § 93 (2d ed. 1972).

13 Upjohn’s other arguments that the work-product doctrine and

principles of relevancy shield it from disclosure are not well founded.

The work-product doctrine of Hickman v. Tuylor, supra note 7, and

Fep. R. Civ. P. 26(b)(3) is not applicable to administrative sum-

monses issued under 26 U.S.C. § 7602. The IRS simply must show

that the inquiry is relevant to a good faith investigation conducted

pursuant to a legitimate purpose, that the information sought is not

in the IRS’ possession and that proper administrative procedures

have been followed. United States v. Powell, 379 U.S. 48, 57-58

(1964). See also United States v. Coopers & Lybrand, 550 F.2d

“

8 United States v. The Upjohn Co., et al. — No. 78-1277

615 (10th Cir. 1977); United States v. Davey, 543 F.2d 996 (2d Cir.

1976); United States v. Matras, 487 F.2d 1271 (8th Cir. 1973); United

States v. Theodore, 479 F.2d 749 (4th Cir. 1973); United States v.

McKay, 372 F.2d 174 (5th Cir. 1967).

There is no reason why the IRS should be required to take on faith

Upjohn’s assurances that $3,700,000 in questionable payments had

no tax consequences, especially in view of the company’s admission

that $700,000 in Guestionable payments did affect its tax returns. The

fact that the IRS investigation is focused on the years 1972-74 does

not mean that records after 1974 might not shed light on the earlier

years’ returns. Moreover, the IRS is not precluded from expanding

its investigation into 1975 and later years should the facts warrant.

The inquiry, therefore, is relevant to a legitimate investigation of

Upjohn’s tax liability. Upjohn has not argued that the IRS has

acted in bad faith, that the proper administrative procedures have

not been followed, or that the information sought is already in the

hands of the IRS. Accordingly, the IRS is entitled to have its sum-

mons enforced as to all non-privileged material.

Portions of the Petition which

also appear in the Appendix have

been rent ts avoid duplication

Portions of the Petition which also

appear in the separately printed

Appendix which follows have been

removed to avoid duplication

APPENDIX B

UNITED STATES OF AMERICA

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF MICHIGAN, SOUTHERN DIVISION

No. K77-7 Mise. CA 4

Unitep States or America and Davin KE. Nowak, Special

Agent, Internal Revenue Service, Petitioners

VS.

Upsoun Company and Gerarp Tuomas, Vice President

and Secretary, Respondents

Report and Recommendation of Magistrate

[Filed: February 23, 1978]

This is a proceeding to enforce an Internal Revenue Serv-

ice summo:: issued on November 23, 1976 by a special

agent of the Internal Revenue Service to the Upjohn Com-

pany (herein called the Company) and Gerard Thomas,

its Vice President and Secretary.

The summons was issued pursuant to section 7602 of the

Internal Revenue Code of 1954, 26 U.S.C. § 7602, which

provides:

“For the purpose of ascertaining the correctness of

any return, making a return where none has been made,

determining the liability of any person for any internal

revenue tax or the liability at law or in equity of any

transferee or fiduciary of any person in respect of any

internal revenue tax, or collecting any such liability,

the Secretary or his delegate is authorized—

“(1) To examine any books, papers, records, or

other data whicl may be relevant or material to

such inquiry ;

10a

“(2) To summon the person liable for tax or re-

quired to perform the act, or any officer or em-

ployee of such person, or any person having pos-

session, custody, or care of books of account con-

taining entries relating to the business of the

person liable for tax or required to perform the

act, or any other person the Secretary or his

delegate may deem proper, to appear before the

Secretary or his delegate at a time and place

named in the summons and to produce such books,

papers, records, or other data, and to give such

testimony, under oath, as may be relevant or

material to such inquiry; and

“(3) To take such testimony of the person con-

cerned, under oath, as may be relevant or material

to such inquiry.”

Following the respondents’ refusal to comply with the

terms of the summons, a petition to enforce the summons

was filed in this court pursuant to sections 7402(b) and

7604(a) of the Internal Revenue Code of 1954, 26 U.S.C.

§$§ 7402(b) and 7604(a).'

1 Section 7402(b) provides:

‘*(b) To enforee summons.—If any person is summoned under

the internal revenue laws to appear, to testify, or to produce

books, papers, or other data, the district court of the United

States for the district in which such person resides or may be

found shall have jurisdiction by appropriate process to compel

such attendance, testimony, or production of books, papers, or

other data.’’

Section 7604(a) provides:

‘*(a) Jurisdiction of district court—If any person is sum-

moned under the internal revenue laws to appear, to testify,

or to produee books, papers, records, or other data, the United

States district court for the district in which such person re-

sides or is found shall have jurisdiction by appropriate process

to compel such attendance, testimony, or production of books,

papers, records, or other data.’’

lla

On August 31, 1977, an order to show cause was entered

directing the Company and Gerard Thomas to show cause

why they should not be compelled to obey the summons. A

hearing was scheduled for September 26, 1977, which was

adjourned to October 12, 1977 by agreement of counsel. A

hearing was held before the undersigned on the adjourned

date.

The summons directed the Company and Mr. Thomas to

appear before James M. Rogowski, an officer of the Internal

Revenue Service, to give testimony relating to the tax

liability of the Company for the years 1972, 1973, and

1974, and also to produce for examination the following

records of the Company:

“All files relative to the investigation conducted under

the supervision of Gerard Thomas to identify pay-

ments to employees of foreign governments and any

political contributions made by the Upjohn Company

or any of its affiliates since January 1, 1971 and to

determine whether any funds of the Upjohn Company

had been improperly accounted for on the corporate

books during the same period.

“The records should include but not be limited to writ-

ten questionnaires sent to managers of the Upjohn

Company’s foreign affiliates, and memorandums or

notes of the interviews conducted in the United States

and abroad with officers and employees of the Upjohn

Company and its subsidiaries.”

The Company and Mr. Thomas refused to produce the

records referred to in the summons on the ground that the

records were shielded from disclosure by the attorney-client

privilege or the work product doctrine, and that the stand-

ards required for judicial enforcement of the summons had

not been met.

12a

Findings of Fact

The Company is a multinational corporation engaged in

the manufacture and marketing of pharmaceuticals. It does

business in approximately 150 foreign countries both

through foreign subsidiaries and foreign branches of United

States subsidiaries. Its worldwide sales in 1975 were over

890 million dollars (Petitioner Exhibit 3, Tr. 63). The

Company files a consolidated federal income tax return

with some of its subsidiaries, but some of its foreign sub-

sidiaries or affiliates are not included in that return. (Tr.

11)

Mr. Thomas is a Vice President, Secretary, and General

Counsel of the Company. He is also a member of its Board

of Directors and serves as an officer of some of the sub-

sidiaries, (Tr. 62, 77)

In January 1976, the Company’s outside auditors, in the

course of auditing one of the Company’s foreign subsidi-

aries (Upjohn International Inc.), discovered that pay-

ments were being made by the foreign subsidiary to gov-

ernment employees, or to third parties believed to be acting

as intermediaries for government employees, for the pur-

pose of securing government business. (Petitioner Exhibit

3, Tr. 78-79). The petitioner has referred to these payments

as bribes or kickbacks paid directly or indirectly to foreign

government employees to influence their action. Mr. Thom-

as in his testimony described them as “payments made by

or on behalf of the Company or its subsidiaries, which

were made to third parties or to Government employees

under circumstances indicating that they might be for im-

proper purposes.” (Tr. 59-60). They will be referred to

hereafter as the “questionable payments.” From 1971

through 1975 these payments were in excess of four million

dollars. (Petitioner Exhibit 4). The fact of such payments

was apparently known by certain inside directors and offi-

cers associated with the international operations of the

Company. (Petitioner Exhibit 3).

13a

The discovery of the questionable payments was reported

by the auditors to Mr. Thomas and other individuals in the

Company in January 1976. (Tr. 79) Mr. Thomas consulted

with the Chairman of the Board and outside counsel and

thereafter conducted a factual investigation to determine

the nature and extent of the questionable payments and to

be in a position to give legal advice to the Company with

respect to the payments. (Tr. 60-61, 79). As a part of the

investigation, Mr. Thomas and outside counsel prepared

a written questionnaire to be mailed by the Chairman of

the Board to 53 foreign general and area managers of the

Company. The questionnaire elicited information regarding

questionable payments and directed the addressee to return

the form to Mr. Thomas. (Tr. 66, Respondents’ Exhibits

2 and 3.)

In addition, Mr. Thomas interviewed by telephone or in

person all persons to whom a questionnaire had been sent.

He and two outside counsel also interviewed other persons

who had not been mailed questionnaires. A total of 86

persons were interviewed, some of whom were no longer

employees of the Company. (Tr. 64-66, 95-97, Respondents’

Exhibit 1). The interviewer made written notes of the in-

terviews. Mr. Thomas described his notes of the interviews

as follows:

“My notes would contain what I considered to be the

important questions, the substance of the responses to

them, my beliefs as to the importance of these, my

beliefs as to how they related to the inquiry, my

thoughts as to how they related to other questions. In

some instances they might even suggest other questions

that I would have to ask or things that I needed to find

elsewhere. They were more than just a verbatim report

of my conversation with the—a report of my conver-

sation in the interviews.” (Tr. 65)

l4a

The responses to the questionnaires and the notes of the

interviews have been treated as confidential material and

have not been disclosed to anyone except Mr. Thomas and

outside counsel. (Tr. 65-66, 69-70)

Following Mr. Thomas’ initial investigation of the ques-

tionable payments, the Company, on March 26, 1976, made

a preliminary report of such payments to the Securities

and Exchange Commission (SEC) on its Form 8-K. This

report disclosed, based on Mr. Thomas’ questionnaires and

interviews, that the Company since January 1, 1971 had

made questionable payments totalling $2,710,000 in 22 of

the 136 countries served by the Company. The report to

the SKC stated that the Company’s investigation was still

in progress and that further investigation would be fur-

nished when the investigation was concluded. At the time

the report was filed Mr. Thomas was aware that other

companies were making similar disclosures and that the

SEC had indicated a policy of more lenient treatment of

corporations which voluntarily disclosed the type of pay-

ments here involved. (Petitioner Exhibit 3, Tr. 81-84). At

the time of the disclosure to the SEC, the Company agreed

to furnish the SEC with any additional data it might

request with respect to the questionable payments. (Tr.

103-104)

On July 26, 1976, the Company filed with the SEC an

amendment to its Form 8-K, in which it reported that re-

sponses, oral or written, had been received to all question-

naires, that additional interviews had been conducted, and

that the total of questionable payments was in excess of

four million dollars. (Petitioner Exhibit 4, Tr. 84)

Contemporaneously with the filing of the SEC Form 8-K

in Mareh 1976 and the amendment of Form 8-K in July

1976, the Company sent copies of those forms to the In-

ternal Revenue Service. (Tr. 69, 84).

Prior to the filing of the 8-K report with the SEC in

March 1976, the IRS had been conducting an audit of the

15a

Company’s 1972 and 1973 consolidated federal income tax

returns. That audit had almost been concluded when the

IRS received a copy of the SEC 8-K report (Petitioner Ex-

hibit 1). As a result the audit was not closed. The matter

was referred to the Revenue Service’s Intelligence Division,

which, in a joint investigation with Revenue Agents, under-

took an investigation for the years 1972, 1973, and 1974.

(Tr. 29, 36-38)

The Company has furnished two schedules to IRS regard-

ing the questionable payments. One schedule is entitled

‘‘Summary of Company Payments By Year (Companies

Listed Are Those Companies with U. S. Tax Implications

Only).’’ The schedule purports to list the date, the amount,

the company making the payment, and the country in which

the payment was made from 1971 to early 1976. The Com-

pany listed on this schedule only those payments which it

believed had an effect on its consolidated federal income

tax returns. The payments shown total approximately

$700,000. (Tr. 29-33)

The second schedule is less detailed and purports to be a

country-by-country summary of payments made in connec-

tion with the Company’s foreign operations which the

Company claims do not affect its consolidated federal in-

come tax returns. These payments total approximately

$3,700,000. (Tr. 33-34). The Company also furnished IRS

with source documentation underlying the schedules, such

as cancelled checks, vouchers, invoices, advices, etc., but the

IRS cliams it has not been furnished with sufficient data to

enable it to determine whether there are more questionable

payments than those shown in the schedules and whether

the persons shown as ultimate recipients are in fact such.

(Tr. 19-21, 33-35)

* The schedules were not introduced as exhibits but copies were

furnished to me for my in camera inspection. It is not clear from

the record whether these are the same schedules which the Company

furnished to IRS, but for present purposes I am assuming that

they are the same.

l6a

The Company has no objection to inteviews and has per-

mitted interviews by the IRS of Company employees in-

volved in making questionable payments, but will not permit

questions as to transactions which the Company has deter-

mined do not affect its consolidated federal income tax re-

turns. (Tr. 46-48, 66-67). The Company has not agreed to

bring any of its employees in foreign countries to the

United States for interviews. (Tr. 104-105)

The Attorney-Client Privilege

The respondents claim that disclosure of the summoned

material is shielded from disclosure by the attorney-client

privilege. An oft-quoted definition is the one set forth in

United States v. United Shoe Machinery Corp., 89 F. Supp.

357 (D. Mass. 1950):

‘‘The privilege applies only if (1) the asserted holder

of the privilege is or sought to become a client; (2)

the person to whom the communication was made (a)

is a member of the bar of a court, or his subordinate

and (b) in connection with this communication is acting

as a lawyer; (3) the communication relates to a fact

of which the attorney was informed (a) by his client

(b) without the presence of strangers (c) for the pur-

pose of securing primarily either (i) an opinion on law

or (ii) legal services or (ili) assistance in some legal

proceedings, and not (d) for the purpose of committing

a erime or tort; and (4) the privilege has been (a)

claimed and (b) not waived by the client.’’ Jd. at 358.

Professor Wigmore defines it as follows:

‘*(1) Where legal advice of any kind is sought (2) from

a professional legal advisor in his capacity as such,

(3) the communications relating to that purpose, (4)

made in confidence (5) by the client, (6) are at his

instance permanently protected (7) from disclosure

by himself or by the legal advisor, (8) except the pro-

17a

tection be waived.’’ 8 Wigmore, Evidence § 2292 (Mc-

Naughton rev. 1961).

There is no question that the attorney-client privilege

extends to corporations, Radiant Burners, Inc. v. American

Gas Association, 320 F.2d 314 (7th Cir. 1963), and thus

may be invoked by the Company here. Nor is there any

question that ‘‘house counsel,’’ such as Mr. Thomas when

acting as a legal advisor to the Company, is within the pur-

view of the attorney-client privilege under the same cir-

cumstances as ‘‘outside counsel.’’ Natta v. Hogan, 392 F. 2d

686 (10th Cir. 1968).

As with all privileges, the person claiming the privilege

has the burden of establishing all its essential elements. In

re Horowitz, 482 F.2d 72 (2nd Cir. 1973), cert. den. 414

U.S. 867 (1973). The Sixth Circuit has observed that the

privilege is designed to enable a client to confide in his

attorney, secure in the assurance that there will be no

disclosure, but that the privilege does not envelope every-

thing arising from the existence of an attorney-client rela-

tionship. United States v. Goldfarb, 328 F.2d 280, 282 (6th

Cir. 1964) :

‘*It is to be remembered that the attorney-client priv-

ilege is an exception carved from the rule requiring

full disclosure, and as an exception should not be ex-

tended to accomplish more than its purpose. As Dean

Wigmore said in his oft-quoted statement: ‘It is worth

preserving for the sake of a general policy, but it is

nonetheless an obstacle to the investigation of the

truth. It ought to be strictly confined within the nar-

rowest possible limits consistent with the logic of its

principle.’ 8 Wigmore, Evidence § 2291, at 554 (Mc-

Naughton rev. 1961). The judicial decisions have echoed

this need for a restrictive interpretation and applica-

tion of the privilege. Prichard v. United States, 181

18a

F.2d 326 (C.A. 6); United States v. United Shoe Ma-

chinery Corp., 89 F. Supp. 357 (D. Mass.) Jd. at 282.

The privilege is at best a difficult one to apply. It becomes

even more difficult when, as here, the client is a corporation.

This stems from the fact that a corporation, being an arti-

ficial legal entity, can only act through its agents or em-

ployees. Since the attorney-client privilege applies only to

communications by or to a ‘‘client,’’ and since a corporation

can communicate only through its employees or agents, the

question arises as to the circumstances under which a com-

munication of an employee or agent of the corporation may

be deemed to be the communication of the corporate client

enabling the corporation to claim the attorney-client priv-

ilege.

The landmark case of Hickman v. Taylor, 329 U.S. 495

(1947) dealt inferentially with this problem in the context

of a partnership. The Court concluded that no attorney-

client privilege could be claimed in that case by the de-

fendant partnership for statements taken by the defen-

dant’s attorney from the crew members of the defendant’s

vessel, which was involved in an accident. The Court treated

the employee crew members simply as witnesses and out-

side the scope of the privilege.

The problem was probably first met squarely and dis-

cussed in depth in Philadelphia v. Westinghouse Electric

Corp., 210 F. Supp. 483 (E.D. Pa. 1962), which involved the

defendant’s claim of privilege with respect to information

acquired by its general counsel from an employee in the

course of the counsel’s investigation of facts relating to a

pending indictment of the defendant. The court adopted

the so-called ‘‘control group’’ test for determining whether

the communication of a corporate employee or agent could

qualify as being the communication of the corporate client

for the purpose of a corporation’s invoking the attorney-

client privilege. The court stated:

19a

‘*Now, in cases where an employee of a corporation in

an executive or managerial position communicates a

fact relative to pending litigation to a lawyer retained

or employed by the corporation, the question frequently

arises: When he does so, is the corporation seeking

the advice of the attorney? In other words, was he at

the time, in contemplation of law, the corporation seek-

ing advice? If not, then he was giving the lawyer infor-

mation in order that the latter could advise a client

other than himself. In such case the employee is merely

a witness and I think that Hickman v. Taylor, 329

U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451, settles the question

that a statement given by a witness to a lawyer who is

collecting information in order to prepare for litiga-

tion pending against the lawyer’s client is not priv-

ileged although it may be within the ambit of the ‘work

product’ principle; and it is very important to keep

in mind the fact that the work product principle is not

and cannot properly be described as a privilege. Some

Courts have confused the situation by calling it a quali-

fied privilege, but it is not a privilege at all; it is

merely a requirement that very good cause be shown

if the disclosure is made in the course of a lawyer’s

preparation of a case.’’ Id. at 485.

The court also stated that the rank in the corporation

of the employee making the communication is not a satis-

factory guide in determining whether the privilege is ap-

plicable because such terms as manager, executive, or offi-

cer are not clearly defined terms. Jd. at 485. The court

stated the proper approach as follows:

‘‘Keeping in mind that the question is, Is it the cor-

poration which is seeking the lawyer’s advice when the

asserted privileged communication is made?, the most

satisfactory solution, I think, is that if the employee

making the communication, of whatever rank he may

be, is in a position to control or even to take a substan-

20a

tial 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 per-

sonifies) the corporation when he makes his disclosure

to the lawyer and the privilege would apply. In all other

cases the employee would be merely giving information

to the lawyer to enable the latter to advise those in the

corporation having the authority to act or refrain from

acting on the advice.’’ Jd. at 485.

The court went on to conclude that the communications

made by tlie employee were not within the attorney-client

privilege, stating:

‘*Tt is obvious that the matter as to which the wit-

nesses in this case made the disclosures was a matter of

overwhelming importance to the corporation, and that

even a department or division head or an employee on

a similar managerial level would hardly be given any

substantial role in making that decision. It was a mat-

ter which, of course, the corporation knew made it

probable that very heavy claims for damages would

be asserted against it and a decision of that kind could

have been made only by the very highest authority.’’

Id. at 485-6.

In essence the court held that if the employee making

the communication, of whatever rank he might be, was in

a position to control or even to take a substantial part in

a decision about any action which the corporation might

take upon the resulting advice of the attorney, or if he was

an authorized member of a body or group which had that

authority, then in effect he was or personified the corpora-

tion when making the disclosure, and the privilege would

apply, while in all other cases the employee would be merely

giving information to the lawyer to enable the latter to

advise those in the corporation having the authority to

act or refrain from acting on the advice.

2la

The control group test has been followed in many deci-

sions. See, for example, Natta v. Hogan, 392 F.2d 686

(10th Cir. 1968) ; Virginia Electric & Power Co. v. Sun Ship-

building & Dry Dock Co., 68 F.R.D. 397 (E.D. Va. 1975) ;

United States v. International Business Machines Corp.,

66 F.R.D. 154, 178 (S.D.N.Y. 1974); Burlington Industries

v. Exxon Corporation, 65 F.R.D. 26 (D. Md. 1974) ; Honey-

well Inc. v. Piper Aircraft Corp., 50 F.R.D. 117 (M.D. Pa.

1970) ; Congoleum Industries Inc. v. G.A.F. Corp, 49 F.R.D.

82 (E.D. Pa. 1969); Garrison v. General Motors Corp., 213

F. Supp. 515 (S.D. Cal. 1963).

I am aware of Harper & Row Publishers, Inc. v. Decker,

423 F.2d 487 (7th Cir. 1970), affirmed per curiam by an

equally divided court, 400 U.S. 348 (1971), reh. den., 401

950 (1971), cited in respondents’ brief, which held that the

control group test is not wholly adequate. The court held

that an employee of a corporation, though not a member

of its control group, is sufficiently identified with the cor-

poration so that his communication to the corporation’s

attorney is privileged where the employee makes the com-

munication at the direction of his superiors in the corpo-

ration and where the subject matter upon which the at-

torney’s advice is sought by the corporation and dealt

with in the communication is the performance by the em-

ployee of the duties of his employment. It would appear

that the Harper & Row formula would exclude virtually

nothing from its sweep and flies in the face of the well-

established principle that the privilege ‘‘should be strictly

confined with the narrowest possible limits consistent with

the logic of its principle.’’ United States v. Goldfarb, supra.

It would also appear to open the door to the danger en-

visioned by the Supreme Court in Hickman v. Taylor,

supra:

‘‘Thus in a suit by an injured employee against a rail-

road or in a suit by an insured person against an insur-

ance company the corporate defendant could pull a dark

veil of secrecy over all the pertinent facts it can collect

22a

after the claim arises merely on the assertion that such

facts were gathered by its large staff of attorneys and

claim agents.’’ 329 U.S. at 506.

In view of the overwhelming acceptance of the control

group test, I have concluded that it should be followed in

this case.* Thus the fact that the persons interviewed by

Mr. Thomas were branch managers or area managers is

not determinative of whether the privilege is applicable.

The important question is whether they were in a position

to control or to take a substantial part in a decision about

any action the Company might take upon the advice of

Mr. Thomas, or whether they were merely giving informa-

tion to Mr. Thomas to enable him to advise those in the

corporation having the authority to act or refrain from act-

ing on his advice. It is apparent from the record that the

matter as to which the interviewees made the disclosures

to Mr. Thomas was a matter of overwhelming importance

to the Company but not one as to which any of the inter-

viewees would be given any substantial role. When Mr.

Thomas first heard of the questionable payments, he went

first to the Chairman of the Board to discuss the matter.

The questionnaire that was sent to the employees went out

over the signature of the Chairman of the Board, Mr.

Thomas’ concern was with the SEC ramifications, the tax

consequences, currency regulations, and the like. (Tr. 79-

80). These are matters on the highest corporate level and

hardly within the domain or authority of the persons inter-

viewed. Clearly, these persons in completing the question-

naires and submitting to interviews were simply giving

information to Mr. Thomas to enable him to advise the

3 It is speculative as to how much, if any, of the information Mr.

Thomas obtained from the Company employees would be protected

even under the Harper & Row formula, since it requires that the

employees’ communications deal with subject matter within the

duties of their employment, Mr. Thomas testified that the person

interviewed may himself have been a participant in the payments

or he may have been reporting on what he had learned, through

investigation, about the activities of others. (Tr. 93-94)

23a

Board of Directors and its Chairman as to how to handle

the securities, tax, and related problems which the ques-

tionable payments created. Only the latter had the authority

to act in these areas. Thus the disclosures made by the

interviewees to Mr. Thomas or the Company’s outside

counsel do not fall within the attorney-client privilege.

It may also be noted that the attorney-client privilege

may be lost or waived by disclosing to others what has

earlier been confided to an attorney. See United States v.

Cote, 456 F. 2d 142 (8th Cir. 1972) (filing of amended tax

returns which reflected accountant’s workpapers to which

privilege had attached effectively waived the privilege not

only as to the transmitted data but also as to the details

underlying that information) ; United States v. Schoeber-

lem, 335 F. Supp. 1048 (D. Md. 1971). (Work papers of

accountant-attorney were no longer privileged after being

used as a basis for a Federal Communication Commission

license application as well as for a tax return); B & C

Trucking Co. v. Holmes & Narver, Inc., 39 F.R.D. 317 (D.

Haw. 1966). (Disclosure of internal communications be-

tween contractor and its attorney to Atomic Energy Com-

mission destroyed or waived any attorney-client privilege.)

The doctrine of waiver was referred to in Duplan Corpora-

tion v. Deering Milliken, Inc., 397 F. Supp. 1146 (D. S.C.

1975) as follows:

‘‘A waiver of the privilege as to all communications

ordinarily follows from the voluntary waiver even if

made with limitations of one or more similar com-

munications. Thus, if a client, through his attorney,

voluntarily waives certain communications, but guarded

with a specific written or oral assertion at the time

of the waiver that it is not its intention to waive the

privilege as to the remainder of all similar communi-

cations, the privilege, as to the remaining undisclosed

communications, is nevertheless waived.

‘‘Plaintiff’s argument that waiver requires an inten-

tional relinquishment or abandonment of a known right

24a

has a familiar ring with regard to general contract

law, but waiver, as applied to the particular subject of

attorney-client privilege, may be made by implication:

‘*A privileged person would seldom be found to

waive, if his intention not to abandon could alone

control the situation. There is always also the

objective consideration that when his conduct

touches a certain point of disclosure, fairness re-

quires that his privilege shall cease whether he in-

tended that result or not. 8 Wigmore, Evidence

§ 2327 (McNaughton rev. 1961.’’ Jd. at 1162. (Km-

phasis in original)

In the present case, the Company made disclosures to the

SEC with respect to the questionable payments in its 8-K

report of March 26, 1976, and its amended 8-K report of

July 26, 1976. Furthermore, the Company agreed to furnish

the SEC with any additional data it might request with

respect to such payments. (Tr. 103-104) Copies of the SEC

reports and related data was also furnished to the IRS.

Having disclosed some data with respect to questionable

payments, it now seeks to hold back other data relating to

the same matter. Under the circumstances, the Company

should be deemed to have waived the attorney-client priv-

ilege with respect to the same matter, if indeed it ever

existed. As stated by the court in Burlington Industries v.

Exxon Corporation, supra:

‘*Nevertheless, the court is not unmindful of the fact

that privileges cannot be used as both a sword and a

shield. A party cannot choose to disclose only so much

of allegedly privileged matter as is helpful to his case.

8 Wigmore, Evidence § 2327 (McNaughton Rev. 1961).

Once the party begins to disclose any confidential com-

munication for a purpose outside the scope of the priv-

ilege, the privilege is lost for all communications re-

lating to the same matter.’’ 65 F.R.D. at 46.

25a

Mindful of the admonition requiring “a restrictive inter-

pretation and application of the privilege,’’ United States

v. Goldfarb, supra, I find that the respondents have not

sustained their burden of proving that the summoned ma-

terial is shielded from disclosure by the attorney-client

privilege, and that the privilege is not applicable here.

The Work Product Doctrine

The respondents claim that disclosure of the summoned

material is also shielded from disclosure by the work

product doctrine. This doctrine had its genesis in Hickman

v. Taylor, 329 U.S. 495 (1947). The Court there held that

while private memoranda, written statements of witnesses,

and mental impressions or personal recollections prepared

or formed by an attorney in the course of his legal duties

for his own use in prosecuting his client’s case and con-

tained in his files or mind fall outside the scope of the

attorney-client privilege, and hence are neither protected

from discovery on that basis nor protected from disclosure

because the subject matter is ‘‘ privileged”’ or ‘‘irrelevant’’

as those concepts are used in the federal rules, neverthe-

less they are protected from discovery as the ‘‘work prod-

uct’’ of the attorney, in the absence of any showing, of

necessity or‘any indication or claim that denial of discovery

would unduly prejudice the preparation of the inquiring

party’s case or cause him any hardship or injustice.

The respondents argue that counsel’s notes of the inter-

views constitute material squarely covered by the attorney

work product doctrine, and that so do the responses to the

questionnaires because the information thus obtained is the

product of the work of the Company’s counsel.‘

*To the extent that the responses to the questionnaires simply

reflect the answers of the employee, they would appear to be no

different than the written statement of a witness which records the

mental impressions and observations of the witness, rather than

26a

There is, at the outset, a serious question as to whether

the work product doctrine is even applicable in a summons

enforcement proceeding. In United States v. McKay, 372

F.2d 174 (5th Cir. 1967), which also involved the enforce-

ment of an Internal Revenue Service summons under 26

USC §7604(a), the court held that the relevancy of the

work product rule to such a proceeding ‘‘may well be

doubted.’’ The court stated:

‘*We think the power of the Commissioner of Internal

Revenue to investigate the records and affairs of tax-

payers is greater than that of a party in civil litigation.

His power has been characterized by this court as an

inquisitorial power, analogous to that of the grand

jury and one which should be liberally construed. Fal-

sone v. United States, 5 Cir. 1953, 205 F.2d 734, 742

cert. den. 346 U.S. 864, 74 S. Ct. 103, 98 L. Ed. 375. In

such context, the criteria of relevancy and materiality

have broader connotations than in the context of trial

evidence. Schwimner v. United States, 8 Cir. 1956, 232

F.2d 855, 862, cert. den. 352 U.S. 833, 77 S. Ct. 48, 1

L. Ed. 2d 52. As was said in Bolich v. Rubel, 2 Cir.

1933, 67 F.2d 894, 895, these inquisitorial powers are

justified ‘because all the facts are in the taxpayer’s

hands.’ Accordingly, the relevancy of the work product

privilege enunciated in the Hickman case to a proceed-

ing for the enforcement of the Commissioner’s sum-

mons may well be doubted.’’ Jd. at 176.

However, even if the work product doctrine is deemed ap-

plicable to this type of proceeding, the doctrine is not a priv-

ilege, and discovery may still be had upon a showing of

‘*substantial need” and an inability ‘‘without undue hard-

ship’’ to obtain the information by other means. Rule 26(b)

those of the attorney. In such case, the response wouid not properly

be considered the work product of the attorney. See Scourtes v.

Fred W. Albrecht Grocery Co., 15 F.R.D. 55, 58 (N.D. Ohio 1953).

27a

(3), Federal Rules of Civil Procedure. Hickman v. Taylor,

supra, 329 U.S. at 511; Burlington Industries v. Exxon

Corporation, supra, 65 F.R.D. at 43. Thus in United States

v. Brown, 478 F.2d 1038 (7th Cir. 1973), the court, although

holding that the work product doctrine does have applica-

bility to a proceeding for the enforcement of an Internal

Revenue Service summons, nevertheless concluded that a

three-page memorandum prepared by an attorney summa-

rizing notes and legal judgments made by the attorney at a

meeting involving a discussion of the tax consequences of a

client’s potential business transaction was not protected

from discovery by the attorney’s work product doctrine.

The court stated:

‘‘The Supreme Court has also noted the strong Con-

gressional evidence of intent that the Commissioner of

Internal Revenue not be impeded in his investigation of

taxpayers:

‘Section 7601 of the 1954 Code, 26 U.S.C. § 7601,

directs the Secretary or his delegate ‘‘to the ex-

tent he deems it practicable’’ to cause Treasury

Department officers or employees ‘‘to proceed ....

and inquire after and concerning’’ all persons

‘‘who may be liable to pay any internal revenue

tax.’’ The section thus flatly imposes upon the

Secretary the duty to canvass and to inquire.’

Donaldson v. United States, 400 U.S. 517, 523,

91 S.Ct. 534, 539, 27 L.Ed.2d 580 (1971).

‘*We think the work product doctrine does have appli-

cability to a proceeding for the enforcement of an In-

ternal Revenue summons. The strong public interest as

expressed by Congress in enforcement of the Internal

Revenue Act may, however, be relevant in considering

the degree of necessity which need be shown prior to

the enforcement of an order to produce.’’ Id. at 1040-41

(Emphasis supplied.)

28a

In the present case, respondents claim that no necessity

exists for allowing disclosure of the responses to the ques-

tionnaires or to counsel’s notes of the interviews because

the respondents have already disclosed ample information

both to the IRS and SEC, and because the IRS has already

interviewed many of the Company employees. However, the

fact is that the Company has refused to allow any of its

employees to be interviewed as to any transactions which

it has determined for itself have no impact on the Com-

pany’s federal tax return. Nor has it been willing to dis-

close details of any transactions for which it has reached the

same conclusion. (Tr. 46-48, 66-67). Thus, the Company has

relegated to itself the determination of what is or is not

relevant to the investigation of the Revenue Service. The

record demonstrates that the Company has made question-

able payments in excess of four million dollars. It concedes

that approximately $700,000 of those payments affect its

consolidated federal tax return. As to the balance of pay-

ments, the Company insists that the Revenue Service must

accept the Company’s conclusion that those payments have

no effect on its tax return. (Tr. 33-35) Special Agent Novak

testified that instead of accepting the summary of the

Company’s investigation at face value, he wishes to obtain

additional information, such as verification of the recipients

of the payments, and to check whether there may have

been payments which were not recorded on the Company’s

books. (Tr. 14, 51-52) Moreover, its is not inconceivable

that a payment which the Company claims has no impact

on its domestic tax return may upon investigation disclose

the contrary.

The necessity for compelling disclosure in this case is

also indicated by the fact that the persons interviewed are

beyond the jurisdiction of the court and thus not subject

to compulsory process. Even if they were made available

29a

for interviews,’ it is not unreasonable to expect some

hesitancy, if not actual hostility, in answering questions

with respect to payments which might have been made in

violation of local laws. Moreover, where interviews have in

fact been permitted, the scope of the inquiry has been

limited to what the Company’s counsel deemed appropriate.

(Tr. 46-48) In Hickman v. Taylor, supra, the Court stated

that ‘‘production [of work product] might be justified

where the witnesses are no longer available or can be

reached only with difficulty.’’ 329 U.S. at 511. Similarly, in

Burlington Industries v. Exxon Corporation, supra, the

court stated that the factors to be considered in deciding

whether to compel disclosure are ‘‘(1) the importance of

the information sought and (2) the difficulty the party seek-

ing discovery will face in obtaining substantially equivalent

information from other sources if discovery is denied.’’ 65

F.R.D. at 43.

Cf. Southern Railway Company v. Lanham, 403 F.2d

119, 128 (5th Cir. 1969), reh. den. 408 F.2d 348 (1969)

(employees who may be expected to be somewhat reluctant

to answer fully questions which might have an adverse

effect on their employer) ; McDonald v. Prowdley, 38 F.R.D.

1 (W.D. Mich. 1965) (unavailability of witness or difficulty

of access to a witness); Wilson v. David, 21 F.R.D. 217,

221-2 (W.D. Mich. 1957) (witness residing outside the

jurisdiction of the court).°

5 Although the Company has said it will make its employees

available for interviews, it has not agreed to bring them to the

United States for this purpose. (Tr. 104-105)

* These cases involved the disclosure of statements of employees

under Rule 34 of the Federal Rules of Civil Procedure upon a

showing of ‘‘ good cause.’’

30a

I find that the record establishes ample necessity for

compelling disclosure of the summoned material in this

ease, and tlat the work product doctrine does not shield

the material from such disclosure.

The Standards of Enforcement of the Summons

The respondents claim than the standards necessary for

judicial enforcement of an Internal Revenue summons as

set forth in United States v. Powell, 379 U.S. 48 (1964)

were not complied with. In Powell, the court stated:

‘‘He [the Commissioner] must show that the investiga-

tion will be conducted pursuant to a legitimate purpose,

that the inquiry may be relevant to the purpose, that

the information sought is not already within the Com-

missioner’s possession, and that the administrative

steps required by the Code have been followed... .’’

Id. at 57.

The Court also held that the burden of showing an abuse

of the court’s process is on the taxpayer. Id. at 58.

The respondents do not claim that the administrative

steps required by the Code have not been followed. They

do claim, however, that the first three requirements enum-

erated in the quotation from Powell have not been satisfied.

The claim that the summons was not issued for a legiti-

mate purpose is clearly without merit. Respondents assert

that the summons was issued solely for the purpose of a

criminal prosecution, but this assertion is not substantiated

by the record. On the contrary, the record establishes that

no recommendation for prosecution had been made to the

Department of Justice. It also established that the investi-

gation was primarily a civil one and that no determination

had been made as to whether the Company or anyone else

should be prosecuted, although the possibility of criminal

violation is always inherent in any such investigation. (Tr.

sla

14-16, 37-38) In this connection, the Supreme Court in

Donaldson v. United States, 400 U.S. 517 (1971) stated:

‘*Congress clearly has authorized the use of the sum-

mons in investigating what may prove to be criminal

conduct. The regulations are positive. Treas. Regs.

§ 301.7602-1(c) (4), 26 CFR § 301.7602-1(c) (4). The un-

derlying statutes are just as authoritative. Section

6659(a)(2) of the Code defines the term ‘tax’ as used

in the Code and, hence, in the authorizing § 7602, to in-

clude any addition or penalty. Section 7602 contains no

restriction ; further, it has its ascertainable roots in the

1939 Code’s § 3614 and, also, § 3615(a)-(¢), which, by

its vey language and by its proximity to § 3616 and

§ 3654, appears to authorize the use of the summons

for investigation into criminal conduct. There is no

statutory suggestion for any meaningful line of dis-

tinction, for civil as compared with criminal pur-

poses, at the point of a special agent’s appearance.

See Mathis v. United States, 391 U.S. 1, 4 (1968). To

draw a line where a special agent appears would re-

quire the Service, in a situation of suspected but un-

determined fraud, to forgo either the use of the sum-

mons or the potentiality of an ultimate recommenda-

tion for prosecution. We refuse to draw that line and

thus to stultify enforcement of federal law. See United

States v. Kordel, 397 U.S. 1, 11 (1970).

‘“We hold that under § 7602 an internal revenue sum-

mons may be issued in aid of an investigation if it is

issued in good faith and prior to a recommendation

for criminal prosecution. Id. at 535-6.

Nor do I find anything in the record to justify the asser-

tion that the summons was not issued in good faith. At

most, the summons might be classified as having a dual pur-

pose, which clearly would not render it improper. In

32a

United States v. Held, 435 F.2d 1361 (6th Cir. 1970), the

court stated:

‘‘Hiven if the primary purpose of the summons was

to further the criminal tax investigation, we believe the

secondary purpose of determining appellant’s civil tax

liability would support the validity of the summons

‘‘Tt is well settled that a § 7602 summons issued for

an authorized purpose is entitled to enforcement even

though it may produce evidence of criminal conduct

on the part of the taxpayer. (Citations omitted)

‘*Hinforcement of the summons is not precluded by the

possibility that it eventually might lead to a criminal

prosecution.’’ Id. at 1364-5.

See also United States v. Haddad, 527 F.2d 537 (6th Cir.

1975) ; United States v. Wetngarden, 473 F.2d 454 (6th Cir.

1973).

Nor is there merit in the respondents’ claim that the in-

quiry is not relevant to its purpose. In this connection,

Special Agent Nowak testified:

‘*Q. Why do you feel that you should have these docu-

ments, if I may add, rather than take the Upjohn Com-

pany’s assurance as to what the relevance of those

documents?

‘*A. Well, I feel that those files may contain evidence

that would indicate that there is in fact a tax implica-

tion involved in payments which the Company has al-

leged have no U.S. tax implication. ‘hese files may

provide leads or other evidence that would have a

relationship to those payments that the Company does

admit have a U.S. tax implication.

‘*T believe that it would—if it seved no other purpose,

it would help me corroborate the Company’s position

33a

that there is no tax impact, if that is what the facts

would show upon my investigation of the files.

‘*Q. So while it may be a conclusion that the Court

has to draw, in your view the summoned documents

were, at the time summoned and are today, necessary

to your continuing investigation, is that correct.

‘A. Yes, sir.’’ (Tr. 14)

Respondents in their brief point to the fact that Agent

Nowak used the word ‘‘may’’ in explaining what he was

seeking, that is, evidence that ‘‘may’’ indicate tax impli-

cations or ‘‘may’’ provide leads to such evidence. It is noted

that this is no less than the applicable statute, 26 USC

§ 7602, requires. The statute authorizes the Secretary to

‘‘examine any books, papers, records, or other data which

may be relevant or material to such inquiry.”’

The Supreme Court has recognized the strong Congres-

sional intent that the Revenue Service not be hindered in

its investigation of taxpayers, and that the applicable stat-

ute ‘‘flatly imposes upon the Secretary the duty to canvass

and to inquire.’’ Donaldson v. United States, supra, 400

U.S. at 523. The test of relevancy was stated in Foster v.

United States, 265 F.2d 183 (2nd Cir. 1959), cert. den. 360

U.S. 912 (1959), as follows:

‘‘The test, we think, is essentially the same as that for

materiality with respect to grand jury investigations.

(Citations omitted) It is whether the inspection sought

‘might have thrown light upon’ the correctness of the

taxpayer’s returns.’’

See also United States v. Egenberg, 443 F.2d 512, 515

(3rd Cir. 1971) ; United States v. Harrington, 388 F.2d 520,

523 (2nd Cir. 1968) ; United States v. Auker, 325 F. Supp.

857 (S.D. N.Y. 1971).

34a

In United States v. Auker, supra, the summons sought the

production of the taxpayer’s corporate minutes for several

taxable years. The taxpayer (Standard Oil Company of

New Jersey) argued that since not everything in the cor-

porate minutes was relevant, it was not required to dis-

close all of its minutes. Therefore, it decided it ‘‘would

make available for inspection all minutes which might have

a bearing on the determination of Jersey’s income tax lia-

bility.”’ Thus, the taxpayer, like the Company here, under-

took to decide for itself what was relevant, or more partic-

ularly what would affect or have a bearing on its tax liabil-

ity. In rejecting this position, the court stated:

‘*The accountants, to be sure they see what is germane

to their task, look at minutes that turn out not to

be germane. They do not accept the views of others

as to what they ought to examine, and the company

dées not expect them to do so. This makes sense for

them. It makes equally good sense, mutatis mutandis,

for the agents of the IRS.

‘‘When we turn to the governing precedents, we dis-

cover what is not altogether extraordinary—that the

dictates of good sense are in line with the law’s com-

mands. The cases show that the statutory provision

for the examination of papers that ‘may be relevant or

material’—properly viewed as a prediction about

things yet unseen, not as judgment about materials

presented or offered for ‘rulings’—has to mean what it

quite simply says: that the demand may extend to

documents that ‘might’ throw light upon subjects

under legitimate inquiry. ... The agents of the IRS

cannot and they need not guarantee that everything

they wish to see will be relevant or material to their

inquiries any more than Jersey’s accountants can do

for theirs.’’ 325 F.Supp. at 861-2.

Respondents also complain of the fact that the summons

shows on its face that it relates to the tax liability of the

35a

Company for the years 1972, 1973, and 1974; yet the sum-

mons seeks information regarding questionable payments

‘‘since January 1, 1971.’’ Special Agent Nowak explained

the reason for the time span as follows:

“*Q. Mr. Nowak, you have been sworn, of course. Some

comment has been made about the years ’71 and ’75

with respect to this Summons. Would you briefly ex-

plain the relevance and necessity for those documents

and the other information sought with respect to your

investigation, which is currently for ’72 through ’74?

‘A. Well, in relation to 1975, the fact that there has

been a Schedule M adjustment indicates that there is

an item that the Internal Revenue Service ought to

check to make sure the adjustment has been treated

properly. And, in addition, the Government’s position,

the Internal Revenue Service’s position has always

been clearly stated that while the investigation cov-

ered the years 1972 through 1974 we were not precluded

in opening up going into the 1975 were we to find

indications of possible criminal or civil ramifications in

these payments. And in regard—we could also have the

option of going back to 1971, if we wanted to. Another

possible relevancy for that material, especially 1971,

is the possibility of transactions occurring in one year

and not being recorded on the books and records of the

Company in that year, but for various reasons, through

error or otherwise being recorded in another year, so

we would have to make sure that transactions were

properly reflected in the year that they occurred.’’ (Tr.

51-52)

The limited disclosures which the Company voluntarily

made to the SEC and the IRS covered the period ‘‘since

January 1, 1971.’’ Under the circumstances, it was reason-

able for the Revenue Service to request information for a

period at least as long as that covered by the Company’s

disclosures.

36a

Respondents also point to the fact that on November 28,

1977, the Internal Revenue Service issued a Revenue Ruling

which, they claim, holds that illegal bribes and kickbacks

made by a foreign subsidiary properly reduce the earnings

and profits of that subsidiary, and, in effect, do not have

an impact on the United States tax return of the parent.

Rev. Rul. 77-442, 1977-48 I.R.B. 10. This, of course, does not

answer the basic question, whether the respondents can

unilaterally decide for themselves whether the questionable

payments fall within the ambit of the ruling. Moreover, the

Company’s own tax expert, David S. Creamer, who is the

Manager of the Company’s Corporate Tax Planning Unit,

candidly conceded that there are various situations in which

the arrangements between a domestic parent and a con-

trolled foreign corporation could have an impact on the

parent’s federal income tax return. (Tr. 141-143)’ The

Revenue Service should be able to determine for itself

whether any of the questionable payments were made under

circumstances or arrangements which would trigger do-

mestic tax consequences.

The respondents also claim that the summons should not

be enforced because the ‘‘information sought is ... already

within the Commissioner’s possession.’’ United States v.

Powell, supra, 379 U.S. at 57. Respondents misconstrue the

quoted words, which obviously refer to the data sought by

the summons itself. Clearly, respondents’ failure to provide

the data specified in the summons is the reason this en-

forcement proceeding was instituted. The information which

is ‘‘already within the Commissioner’s possession”’ is sim-

ply that which the respondents have unilaterally chosen

to reveal to him. As set forth above, the Commissioner

*One example cited was where a controlled foreign company

creates an off-book account, not shown on its records, from which

it disburses funds in the foreign country for the benefit of the

American parent. This, the witness testified, would have an impact

rc the domestic tax return of the parent as a constructive dividend.

r, 141)

37a

desires additional information, and he is not bound to ac-

cept the respondents’ determination of relevancy at face

value.

Finally, respondents claim in their brief that the sum-

mons here constitutes nothing more than a ‘‘ fishing expedi-

tion.’’ If this be so, this claim was fully answered in United

States v. Giardano, 419 F.2d 564, 568 (8th Cir. 1970):

‘«Taxpayer in his brief characterized the Government’s

efforts as a ‘fishing expedition.’ If so, the Secretary

or his delegate has been specifically licensed to fish by

§ 7602.”’

For the reasons herein stated, I find that the summoned

material is not shielded from disclosure by the attorney-

client privilege, nor by the work product doctrine, and that

the standards required for judicial enforcement of the

summons have been met. Therefore, I respectfully recom-

mend that an order be entered compelling the respondents

to comply with its terms.

/s/ StepHEN W. Karr

Stephen W. Karr, United States Magistrate

Dated: February 23, 1978

39a

APPENDIX C

UNITED STATES OF AMERICA

IN THE DISTRICT COURT OF "THE UNITED STATES

FOR THE WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

K77-7 Mise.

Unitep Srates or America and Davin EK. Nowak,

Special Agent, Internal Revenue Service,

Petitioners,

Vv.

Upsoun Company and Gerarp Triomas, Vice President

and Secretary,

Respondents.

Order

Filed April 23, 1978

Magistrate Karr submitted to me his Report and Recom-

mendation in the above matter on February 23, 1978. I

promptly read the report and the briefs submitted by the

parties and agreed with the Report and Recommendation.

The February 28, 1978 issue of U.S. Law Week, which

arrived on March 3, 1978, reports on a recent decision of

the Kighth Cireuit Court of Appeals dealing with the at-

torney/client privilege in a factual situation somewhat simi-

lar to the Upjohn case. That case is Diversified Industries

Inc. v. Meredith, 46 L.W. 2435, apparently decided on Feb-

ruary 15, 1978. A copy of the decision was attached to a

letter-amendment to the Magistrate’s Report and Recom-

mendation submitted on March 7, 1978.

I have carefully read and considered Diversified Indus-

tries, Inc. v. Meredith, supra, cited by Magistrate Karr

in his letter-amendment of March 7, 1978, and his further

ee pene ne

| PREVIOUS PAGE WAS BLANK |

40a

letter-amendment of March 13, 1978. I find the Magistrate’s

Report and Recommendation is an excellent opinion and is

the prevailing law. Therefore, I hereby accept as the opin-

ion of this court the Magistrate’s Report and Recommenda-

tion.

It Is So OrpeERep.

Dated: April 28, 1978.

/s/ Nort P. Fox

Chief Judge, U.S. District Court

Western District of Michigan

Certiriep As A True Copy

Gerald H. Liefer, Clerk

By /s/ Mary Hamtak

Deputy Clerk

April 28, 1978.

4la

APPENDIX D

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

Civit Action No. K77-7 Mise.

Unitep States or America and Davin EK. Nowak,

Special Agent, Internal Revenue Service,

Petitioners,

Tue Ursoun Company and Gerarp Tuomas, Vice President,

Secretary and General Counsel,

Respondents.

Order aud Final Judgment

This Court having considered the record in this case as

developed before the Magistrate, and having issued an

order on April 28, 1978, accepting the Magistrate’s Report

and Recommendation that the summons be enforced, it is

now therefore

OrpDERED that the respondents, The Upjohn Corporation

and Gerard Thomas, on May 30th, 1978, at 9:00 a.m. at the

office of the Intelligence Division, Internal Revenue Service,

Room B-47, Federal Building, 410 W. Michigan Avenue,

Kalamazoo, Michigan, obey the summons served upon them

on November 23, 1976, and each and every requirement

thereof, by testifying and producing all of the books,

records, papers and other data set forth in the summons

42a

and referred to in the Petition to Enforce Internal Revenue

Service Summons.

Datep: 5/15/78

/s/ Noru P. Fox

Chief United States District Judge

CertirieD As A True Copy

Gerald H. Liefer, Clerk.

By /s/ G. EK. Larinx, Deputy Clerk.

May 16, 1978.

43a

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE SIXTIi CIRCUIT

No. 78-1277

Unirep States or America and Davin E. Nowak, IRS,

Petitioners-A ppellees

THe Upsoun Company and Gerarp THomas

in his official capacity,

Respondents-A ppellants

Order Denying Petition for Rehearing

Filed September 10, 1979

Before: Creveprezze, Kurre and Merrirt, Circuit Judges

No judge of the court having moved for rehearing en

banc, the petition for rehearing has been referred to the

hearing panel for disposition.

Upon consideration, it is Oxoerep that the petition for

rehearing be and hereby is denied.

E\ntTEeRED By Orver oF THE CouRT

/s/ Joun P. Henman

Clerk

45a

APPENDIX F

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 78-1277

Unitrep States or America and Davin KE. Nowak, IRS,

Petitioners-A ppellants,

THe Upsoun Company and Gerrarp THOMAS

in his official capacity,

Respondents-A ppellants.

Before: CeLesprezze, Krrrh and Merrirt, Circuit Judges

Judgment

Filed June 28, 1979

AppgeaL from the United States District Court for the

Western District of Michigan.

Tuts Cause came on to be heard on the record from the

United States District Court for the Western District of

Michigan and was argued by counsel.

On ConswerratTion WueEreor, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be and the same is hereby affirmed

| PREVIOUS PAGE WAS BLANK §

46a

in part, reversed in part and the cause remanded for fur-

ther proceedings.

Kach party to pay own costs on appeal.

E\nterED By OrpeER oF THE CouRT

/s/ Joun P. Henman

Clerk

Issued as Mandate: September 17, 1979

A True Copy.

Attest:

/s/ Jo ANN McHate

Deputy Clerk

47a

APPENDIX G

Internal Revenue Code of 1954 (26 U.S.C.):

Sec. 7402. Jurispiction or District Courts.

* * +

(b) To Enrorce Summons.—If any person is summoned

under the internal revenue laws to appear, to testify, or to

produce books, papers, or other data, the district court of

the United States for the district in which such person re-

sides or may be found shall have jurisdiction by appropri-

ate process to compel such attendance, testimony, or pro-

duction of books, papers, or other data.

Sec. 7602. ExaMinaTION oF Books AND WITNESSES.

For the purpose of ascertaining the correctness of any

return, making a return where none has been made, deter-

mining the liability of any person for any internal revenue

tax or tlie liability at law or in equity of any transferee or

fiduciary of any person in respect of any internal revenue

tax, or collecting any such liability, the Secretary is author-

ized—

(1) To examine any books, papers, records, or other

data which may be relevant or material to such inquiry ;

(2) To summon the person liable for tax or required

to perform the act, or any officer or employee of such

person, or any person having possession, custody, or

care of books of account containing entries relating to

the business of the person liable for tax or required to

perform the act, or any other person the Secretary may

deem proper, to appear before the Secretary at a time

and place named in the summons and to produce such

books, papers, records, or other data, and to give such

testimony, under oath, as may be relevant or material

to such inquiry; and

48a

(3) To take such testimony of the person concerned,

under oath, as may be relevant or material to such

inquiry.

Sec. 7604. EnrorceEMENT OF SUMMONS.

(a) Jurispiction or District Court.—If any person is

summoned under the internal revenue laws to appear, to tes-

tify, or to produce books, papers, records, or other data, the

United States district court for the district in which such

person resides or is found shall have jurisdiction by appro-

priate process to compel sucli attendance, testimony, or pro-

duction of books, papers, records, or other data.

(b) ENrorcEMENT.— Whenever any person summoned un-

der section 6420(e)(2), 6421(f)(2), 6424(d)(2), 6427 (g)

(2), or 7602 neglects or refuses to obey such summons, or to

produce books, papers, records, or other data, or to give

testimony, as required, the Secretary may apply to the

judge of the district court or to a United States commis-

sioner for the district within which the person so summoned

resides or is found for an attacliment against him as for a

contempt. It shall be the duty of the judge or commissioner

to hear the application, and, if satisfactory proof is made,

to issue an attachment, directed to some proper officer, for

the arrest of such person, and upon his being brought be-

fore him to proceed to a hearing of the case; and upon such

hearing the judge or the United States commissioner shall

have power to make such order as he shall deem proper, not

inconsistent with the law for the punishment of contempts,

to enforce obedience to the requirements of the summons

and to punish such person for his default or disobedience.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.