Amicus Brief — Upjohn Co. v. United States

IN THE

Supreme Court of the United States.

OcToOBER TERM, 1979.

No. 79-886.

THE UPJOHN COMPANY anp GERARD THOMAS,

VICE PRESIDENT, SECRETARY anp

GENERAL COUNSEL,

PETITIONERS,

v.

UNITED STATES OF AMERICA, anp

DAVID E. NOWAK, SPECIAL AGENT,

INTERNAL REVENUE SERVICE,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT.

2 ee.

[iinet Brief of

Amicus Curiae New England Legal Foundation

in Support of Petitioners.

WILLIAM W. BECKER,

LANDFIELD, BECKER & GREEN,

Suite 1050,

1819 H Street, N.W.,

Washington, D.C. 20006.

(202) 293-1919

HARRISON A. FITCH,

NEw ENGLAND LEGAL FOUNDATION,

110 Tremont Street,

Boston, Massachusetts 02108.

(617) 482-1410

SSS aa ET EE SE a NE TE EMER TET

ADDISON C. GETCHELL & SON, INC... THE LAWYERS’ PRINTER - BOSTON

Table of Contents.

Motion of New England Legal Foundation for Leave

to File Brief as Amicus Curiae 1

Brief of New England Legal Foundation

in Support of Petitioners

4

Introductory Statement 4

Question Presented 5

Summary of Argument 5

Argument D

I. The Attorney-Client Privilege: Rationale 5

II. The Control Group Test 11

III. This Court Should Adopt the Subject Matter Test 18

Conclusion 20

Table of Authorities Cited.

CASES.

A.B. Dick Co. v. Marr, 95 F. Supp. 83 (S.D. N.Y. 1950),

appeal dism’d., 197 F. 2d 498 (2d Cir. 1952), cert.

denied, 344 U.S. 878 (1952) 17

Burlington Industries, Inc. v. Exxon Corporation, 65

F.R.D. 26 (D. Md. 1974) 20

City of Philadelphia v. Westinghouse Electric Corp.,

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

hibition denied, sub nom., General Electric Co. v.

Kirkpatrick, 312 F. 2d 742 (3d Cir. 1962), cert.

denied, 372 U.S. 943 (1963) 11

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

596 (8th Cir. 1977) 14, 16, 19

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

1146 (D. S.C. 1974) 10

il TABLE OF AUTHORITIES CITED.

First National Bank of Boston v. Bellotti, 485 U.S. 765

(1978) 2

Fisher v. United States, 425 U.S. 391 (1976) 6

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

(S.D. Cal. 1963) 12n.

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

(7th Cir. 1970), aff’d. by an equally divided court,

400 U.S. 348 (1971) 13, 19

Hickman v. Taylor, 329 U.S. 495 (1947) 17

Hogan v. Zletz, 43 F.R.D. (N.D. Okla. 1967) aff’d. sub

nom., Natta v. Hogan, 392 F. 2d 686 (10th Cir. 1968) 11

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

(D. D.C. 1978) 19, 20

In re Grand Jury Investigation, 599 F. 2d 1224 (8d Cir.

1979) 16

In re Grand Jury Proceedings, 604 F. 2d 798 (8d Cir.

1979) 16n.

In re Grand Jury Subpoena etc., 599 F. 2d 504 (2d Cir.

1979) 16n.

Radiant Burners, Inc. v. American Gas Association,

207 F. Supp. 771 (N.D. Ill. 1962) rev’d. on appeal,

320 F. 2d 314 (7th Cir.), cert. denied, 375 U.S. 929

(1963) 8, 11

Rochester City Bank v. Suydam, Sage & Co., 5 How.

Pr. (N.Y. S.Ct. 1851) 7

United States v. Louisville and Nashville Railroad

Company, 236 U.S. 318 (1915) 7

United States v. United Shoe Machinery Corp., 89

F. Supp. 357 (D. Mass. 1950) 8, 13n.

TABLE OF AUTHORITIES CITED. ill

United States v. Upjohn Co., 600 F. 2d 1223

(6th Cir. 1979) 9,10, 12, 13, 15

Zenith Radio Corp. v. Radio Corp. of America, 121

F. Supp. 792 (D. Del. 1954) 8

RULES.

Rules of the Supreme Court, Rule 42 1

Federal Rules of Civil Procedure:

Federal Rule 26(b\3) 16n., 17

Federal Rule 30(b\6) 16n.

Federal Rule 33 16n.

OTHER AUTHORITIES.

Comment: The Lawyer-Client Privilege: Its Applica-

tion to Corporations, the Role of Ethics and Its Pos-

sible Curtailment, 56 N.W.U. L. Rev. 235 (1961) 9n.

McCormack, Evidence § 87 (1972) 8n.

Miller, The Corporate Attorney-Client Privilege and

the Work Product Doctrine: Protection from Com-

pelled Disclosure in Criminal Investigation of a

Corporation, 12 U.S.F. L. Rev. 569 (1978) 9n.

Note: Attorney-Client Privilege for Corporate Clients:

The Control Group Test, 84 Harv. L. Rev. 424(1970) 12n.

Note: The Attorney-Client Privilege: Fixed Rules,

Balancing, and Constitutional Entitlement, 91 Harv.

L. Rev. 464 (1977) 7n.

Note: The Attorney-Client Privilege in the Corporate

Setting: A Suggested Approach, 69 Mich. L. Rev.

360 (1970) 9n.

Simon, The Attorney-Client Privilege as Applied to

Corporations, 65 Yale L.J. 953 (1956) 9n., 12n.

iv TABLE OF AUTHORITIES CITED.

The Securities and Exchange Commission: Proposals

Concerning Disclosure of Relationships Between

Attorneys and Registered Corporations, 44 Fed.

Reg. 44,881, 44,882 (1972)

Weinschel, Corporate Employee Interviews and the

Attorney-Client Privilege, 12 B.C. Ind. & Comm. L.

Rev. 873 (1970)

J. Weinstein and M. Berger, 2 Weinstein’s Evidence

¢ 503[02], 503-15 (1979)

8 Wigmore, Evidence, § 2290 (McNaughton Rev., 1961)

§ 2291

§ 2292

19n.

14n.

20n.

6n.

10n.

6n.

IN THE

Supreme Court of the United States.

OcTOBER TERM, 1979.

No. 79-886.

THE UPJOHN COMPANY and GERARD THOMAS,

VICE PRESIDENT, SECRETARY anp

GENERAL COUNSEL,

PETITIONERS,

Vv.

UNITED STATES OF AMERICA, anp

DAVID E. NOWAK, SPECIAL AGENT,

INTERNAL REVENUE SERVICE,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT.

Motion of New England Legal Foundation for Leave

to File Brief as Amicus Curiae.

Pursuant to Rule 42 of the Rules of the Supreme Court,

New England Legal Foundation moves the Court for leave to

file its brief as amicus curiae bound with this motion in sup-

port of petitioners.

New England Legal Foundation has the consent of counsel

for petitioners and counsel for respondents to the filing of

this brief. Copies of the letters of counsel granting consent

are on file with the Clerk of the Court.

New England Legal Foundation (NELF) is a non-profit,

tax-exempt corporation, organized and existing under the

laws of the Commonwealth of Massachusetts for the purpose

of engaging in litigation on matters affecting the broad public

interest. Policy for NELF is set by a board of directors com-

posed of New England citizens, the majority of whom are

2

attorneys. The board evaluates the merits of any con-

templated legal action and authorizes such legal action only

where the Foundation’s position has broad — within the

general community.

The issues in this case are of particular concern to NELF’s

board of directors. NELF numbers among its directors, the

general counsels of five major New England corporations

and two partners in major law firms, all of whom act as

counsel for corporations and all of whom will be affected in

their professional capacities by the rule formulated in this

case. The existing conflict between the Circuits severely im-

pedes their ability to effectively discharge their professional

responsibility to the corporations they represent.

NELF’s attorneys participated as amicus curiae in First

National Bank of Boston v. Bellotti, 485 U.S. 765 (1978),

Cary v. Brown, 79-703 (1979), and Consolidated Edison Com-

pany of New York, Inc. v. Public Service Commission of the

State of New York, 79-134 (1979). The Foundation, due to its

unique public interest perspective and the interest of its

members in the scope of the attorney-client privilege as it ap-

plies to corporations, believes that it can provide the Court

with a more complete argument of the issues in this case.

The Foundation is particularly concerned that if the ruling

of the United States Court of Appeals for the Sixth Circuit is

allowed to stand, counsel and their corporate clients will re-

main without definitive guidance on an important and fun-

damental legal principle.

For the foregoing reasons New England Legal Foundation

respectfully requests permission to participate as amicus

curiae and to file the attached brief in support of petitioners.

3

By its Attorneys,

WILLIAM W. BECKER,

LANDFIELD, BECKER & GREEN,

Suite 1050,

1819 H Street, N.W..,

Washington, D.C. 20006.

(202) 293-1919

HARRISON A. FITCH,

NEW ENGLAND LEGAL FOUNDATION,

110 Tremont Street,

Boston, Massachusetts 02108.

(617) 482-1410

4

IN THE

Supreme Court of the United States.

OcTOBER TERM, 1979.

No. 79-886.

THE UPJOHN COMPANY anp GERARD THOMAS,

VICE PRESIDENT, SECRETARY anp

GENERAL COUNSEL,

PETITIONERS,

Vv.

UNITED STATES OF AMERICA, anpb

DAVID E. NOWAK, SPECIAL AGENT,

INTERNAL REVENUE SERVICE,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT.

Brief of New England Legal Foundation

in Support of Petitioners.

Introductory Statement.

Part I of this brief will discuss the history and rationale of

the attorney-client privilege. Part II will survey the applica-

tion of the privilege to corporations and the conflicting rules

applied by the United States Circuit Courts of Appeal. Final-

ly, Part III recommends that the Court adopt the subject

matter test as the test which is most consistent with the role

of attorneys in an adversary system.

The decision of the Sixth Circuit Court of Appeals here at

issue illustrates the conflict among the Circuits which has left

counsel without a definitive standard to apply when advising

corporations on legal matters. Corporations have a central

5)

role in the economy of the United States. The issue before the

Court will have a far-reaching impact on the manner in which

corporations are governed and on the economic health of the

nation.

New England Legal Foundation adopts petitioners’ state-

ment of the opinion below and petitioners’ statement of facts.

Question Presented.

Whether the attorney-client privilege protects the con-

fidentiality of communications between attorneys for cor-

porations and corporate employees.

Summary of Argument.

_ New England Legal Foundation argues as follows:

1. The attorney-client privilege is a fundamental part of

the system of judicial administration. Any restriction

upon the privilege in the corporate context impairs

the ability of corporations to obtain legal advice and

the ability of counsel to function in our adversary

system.

2. The control group test adopted by the Sixth, and

other Circuits, inhibits corporate government and is

at odds with the public policies upon which the

attorney-client privilege is based.

3. The subject matter test is consistent with the respon-

sibilities of lawyers to their clients, both public and

private, and with the objectives of the attorney-client

privilege.

Argument.

I. THe ATTORNEY-CLIENT PRIVILEGE: RATIONALE.

The attorney-client privilege is the oldest of the privileges

6

for confidential communications.! Originally derived from

the status of the attorney as a professional, the privilege was

based on the ‘‘oath and the honor” of the attorney? and

belonged to the attorney, not the client. In general, Professor

Wigmore’s classic statement of the privilege is the one

followed by the law today:

Where legal advice of any kind is sought . .. from a pro-

fessional legal advisor in his capacity as such ... the

communications relating to that purpose ... made in

confidence by the client ... are at his instance per-

manently protected from disclosure ... by himself or by

the legal advisor ... except the protection be waived.[*]

Since the late 1700’s the privilege has rested upon two

related assumptions, both based on public policy considera-

tions. The first is that there is a need to remove the client’s

apprehension of compelled disclosure by the attorney he has

consulted or retained. The purpose of the privilege is to

enable the client to obtain the best possible legal advice based

on counsel’s fullest understanding of the facts, and the scope

of the privilege must be such that it will encourage clients to

make full disclosure to their attorneys. Under this theory, the

privilege belongs to the client, not the attorney. Fisher v.

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

The second assumption is that unfettered communication

between client and attorney enables the latter to act effec-

tively and responsibly on behalf of his client. This assumption

is based on the belief that the societal goal of achieving justice

in an adversary system is best served by fully informed,

responsible advocates.‘

18 Wigmore Evidence, § 2290 (McNaughton Rev., 1961).

2 Td.

3 Id., § 2292.

4See generally, J. Weinstein and M. Berger, 2 Weinstein’s

Evidence 4 503[02], 503-15 (1979).

a

7

Early case law reflects a judicial concern for the privilege

as a means of increasing the lawyer’s ability to give complete,

competent advice in complex civil litigation. In Rochester City

Bank v. Suydam, Sage & Co., 5 How. Pr. 254 (N.Y. S.Ct.

1851), the court asserted that the privilege is required solely

for the purpose of managing litigation:

If the facts thus communicated were liable to be extorted

from the attorney or counsel, suitors would hesitate to

employ them, to the great inconvenience of the court,

and obstruction of judicial business. The rule we are con-

sidering, therefore, was adopted to remove this diffi-

culty. 5 How. Pr. 254, at 258-59.

Similarly, in United States v. Louisville and Nashville

Railroad Company, 236 U.S. 318 (1915), this court stated:

The desirability of protecting confidential communica-

tions between attorney and client as a matter of public

policy is too well known and has been too often recog-

nized by text-books and courts to need extended com-

ment now. If such communications were required to be

made the subject of examination and publication, such

enactment would be a practical prohibition upon profes-

sional advice and assistance. 236 U.S. at 336.

The objectives of the privilege, both as a means of fostering

legal communication and as a method of case management

central to the administration of justice have remained virtu-

ally unchanged since the middle of the nineteenth century.®

The privilege is a fundamental part of this nation’s judicial

system:

Our adversary system of litigation casts the lawyer in a

role of fighter for the party he represents. A strong sen-

timent of loyalty attaches to the relationship, and this

sentiment would be outraged by an attempt to change

5 See Note: The Attorney-Client Privilege: Fixed Rules, Balanc-

ing, and Constitutional Entitlement, 91 Harv. L. Rev. 464 (1977).

8

our customs so as to make the lawyer amiable to routine

examination upon the client’s confidential disclosures

regarding professional business.[®]

It is well established that the privilege applies to corpora-

tions, as well as to individuals.Z enith Radio Corp. v. Radio

Corp. of America, 121 F. Supp. 792 (D. Del. 1954); United

States v. United Shoe Machinery Corp., 99 F. Supp. 357 (D.

Mass. 1950). In 1962, a district court held, in Radiant

Burners, Inc. v. American Gas Association, 207 F. Supp. 771

(N.D. Ill. 1962), that the privilege did not apply to corpora-

tions. Radiant Burners was reversed on appeal. 320 F. 2d

314 (7th Cir.), cert. denied, 375 U.S. 929 (1963). The court

stated that ‘“‘based on history, principle, precedent and public

policy the attorney-client privilege . . . is available to corpora-

tions.’’ 320 F. 2d at 323. The Seventh Circuit held that the

attorney-client privilege does not exist out of a personal

right, but rather as a rule based on public policy, to facilitate

the administration of justice:

A corporation is entitled to the same treatment as any

other ‘‘client’’—no more and no less. If it seeks legal ad-

vice from an attorney, and in that relationship confiden-

tially communicates information relating to the advice

sought, it may protect itself from disclosure, absent its

waiver thereof. 320 F. 2d at 324.

Although courts have embraced different approaches in

defining the scope of privilege when the client is a corpora-

tion, the rationale of the privilege in the corporate context re-

mains basically unchanged. The privilege applies to corpora-

tions, as well as to individuals, on the utilitarian assumption

_ that the administration of justice, and the ability of counsel

6 McCormack, Evidence § 87 at 176 (1972).

9

to proviue competent legal representation cannot be met

without it.’

The difficulties encountered by courts in the application of

the privilege to corporations stem not so much from a need to

redesign the privilege as from a failure to recognize that the

primary purpose of the privilege is to facilitate the giving of

reasoned, effective legai advice, necessary to insure com-

pliance with the myriad laws affecting corporations. The con-

flicting views among federal courts on the scope of the cor-

porate privilege is the result of a legal fiction, i.e., that the

corporate ‘‘client’”’ is by definition different than the in-

dividual client. The Sixth Circuit’s opinion in United States v.

Upjohn Co., 600 F. 2d 1223 (1979) is, in fact, based on this

misconception.

The application of the privilege to corporate “‘clients”’

poses a somewhat different problem. Since corporations

are inanimate, artificial entities, the attorney-client rela-

tionship is conceptually more difficult, and its underlying

principles are less obvious. 600 F. 2d at 1226.

This view of the scope of corporate attorney-client privilege

is based on the unwarranted assumption that the lawyer’s

function when his client is a corporation, is qualitatively dif-

ferent from his function when his client is an individual.

As clients, corporations can communicate to attorneys

only through agents. ... [MJarketing officials have

knowledge and duties related only to selling, while plant

supervisors have knowledge and duties related only to

production. It is only the senior management, guiding

7 There seems little doubt that the privilege applies to corpora-

tions. Note: The Attorney-Client Privilege in the Corporate Set-

ting: A Suggested Approach, 69 Mich. L. Rev. 360 (1970); Com-

ment: The Lawyer-Client Privilege: Its Application to Corpora-

tions, the Role of Ethics and Its Possible Curtailment, 56 N.W.U.

L. Rev. 235 (1961); Simon, The Attorney-Client Privilege as Ap-

plied to Corporations, 65 Yale L.J. 953 (1956).

10

and integrating the several operations, which can be said

to possess an identity analogous to the corporation as a

whole. 600 F. 2d at 1226.

The analysis of the Court below is simply inaccurate. The

Court attempts to define the corporate “‘client’’ in terms

analogous to individuals, and ignores the fact that the policies

underlying the privilege have changed. Today, the privilege is

not only designed to promote disclosure by clients to their at-

torneys, but also to take account of the day-to-day workings

of a lawyer. Duplan Corp. v. Deering Milliken, Inc., 397 F.

Supp. 1146, 1164 (D. S.C. 1974). Because it is difficult to

ascertain whether the privilege does, in fact, promote

disclosure, there is a third policy that the privilege ought to

be “‘strictly confined within the narrowest limits consistent

with the logic of its principle.’’®

The conflict inherent in these policies is not present when

the client is an individual, but when the client is a corpora-

tion, operating through agents and employees, the policies

collide and lead to judicial confusion. This confusion stems

from the failure of courts to recognize the privilege as an in-

strument of judicial administration. Counsel play a crucial ad-

ministrative role in the judicial system, and the single most

compelling reason for the attorney-client privilege is to per-

mit counsel to discharge his professional responsibilities in

that system.

The decision of the court of appeals here in issue illustrates

this confusion. In United States v. Upjohn Co., supra, the

court stated:

This policy of promoting full disclosure to counsel serves

to implement the notion ... that finding the truth and

achieving justice in an adversary system are best served

by fully-informed advocates loyal to their client’s in-

terests. 600 F. 2d at 1226.

8 Wigmore, § 2291 at 554.

11

Thus, the court first acknowledges the instrumental purpose

of the privilege and then applies the privilege in a manner

which destroys counsel’s ability to meet his responsibilities to

either his client or to the judicial system. The decision of the

court below represents a substantial departure from the

policies underlying the privilege and seriously impairs the

ability of counsel to function in an adversary system.

II. THe ContTrRoL Group TEST.

While it is settled that the attorney-client privilege applies

to corporations, there are now conflicting views among the

circuit courts as to the scope of the privilege. In City of

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

483 (E.D. Pa. 1962), mandamus and prohibition denied sub

nom., General Electric Co. v. Kirkpatrick, 312 F. 2d 742 (3d

Cir. 1962), cert. denied, 372 U.S. 943 (1963), the court first

set forth the “control group” test adopted by the Sixth Cir-

cuit in the case at bar. Subsequently, the test was adopted by

the Tenth Circuit in Hogan v. Zletz, 43 F.R.D. 308 (N.D. Okla.

1967), aff'd. sub nom., Natta v. Hogan, 392 F. 2d 686 (10th

Cir. 1968). Under City of Philadelphia v. Westinghouse Elec-

tric Corp., supra, an employee’s statement to corporate

counsel is not considered a confidential attorney-client com-

munication unless the employee:

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

part in a decision about any action which the corporation

may take upon the advice of the attorney, of if he is an

authorized member of a body or group which has that

authority. 210 F. Supp. at 485.

The control group test is based on a view of the attorney-

client privilege as a personal privilege. Radiant Burners Inc.

v. American Gas Association, supra. The “‘control group”’ of

a corporation, normally consisting of its board of directors

12

and chief officers, is regarded as that group of people in a

company that is most analogous to an individual client,

because it is the responsibility of the officers and directors

“to fear for the well-being of the corporation just as an in-

dividual fears for his own well-being.’’®

The protection of the attorney-client privilege is limited

under the test to communications between senior manage-

ment and counsel.!° The test assumes that, in its absence,

corporations would create a ‘‘zone of silence’’ around cor-

porate affairs.

Where corporations are involved, with their ... masses

of documents, and frequent dealings with lawyers, the

zone of silence grows large. Few judges ... would long

tolerate any ... privilege that allowed corporations to

insulate all their activities by discussing them with legal

advisors.|[11]

Arguing inconsistently that the scope of the privilege

should be limited to its purpose because the privilege acts as

‘a bar to the truth” the Sixth Circuit held in the instant case

that the test actually promotes consultation with counsel and

thereby achieves the objective of the privilege. United States

v. Upjohn Co., supra, 600 F. 2d at 1227.

Yet the test has been criticized as reflecting a restricted

view of corporate management unrelated to the purposes of

® Miller, The Corporate Attorney-Client Privilege and the Work

Product Doctrine: Protection from Compelled Disclosure in

Criminal Investigation of a Corporation, 12 U.S.F. L. Rev. 569,

572 (1978).

10 See, e.g., Garrison v. General Motors Corp., 213 F. Supp. 515,

518 (S.D. Cal. 1963), in which the control group was held to include

directors, officers, department heads, division managers and their

assistants and division chief engineers.

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

tions, 65 Yale L.J. 953, 955-56 (1956). See generaily, Note:

Attorney-Client Privilege for Corporate Clients: The Control

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

13

the attorney-client privilege. In 1970 the Seventh Circuit in

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

Cir. 1970), affirmed by an equally divided court, 400 U.S. 348

(1971), rejected the control group test. The court adopted a

broader and more balanced test for application of the

attorney-client privilege to corporations. Under Harper &

Row, supra, the privilege applies to corporations (1) if the

employee, though not a member of the corporation’s control

group, makes a communication at the direction of his

superiors in the corporation and (2) the subject matter of the

communication is the performance by the employee of the

duties of his employment. 423 F. 2d at 491-492.

This approach has been criticized as susceptible to abuse in

litigation. The court below expressed the fear that Harper &

Row would allow corporations to direct employees to channel

all business reports to corporate attorneys, thereby render-

ing all such information privileged. United States v. Upjohn

Co., supra, 600 F. 2d at 1227.12

12 This fear is ill-founded given the fact that business records are

not immune to discovery. In United States v. United Shoe

Machinery Corp., 89 F. Supp. 357 (D. Mass. 1950), Judge Wyzanski

set forth the requisites of a justified claim of the attorney-client

privilege:

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 com-

munication 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 purpose of secur-

ing primarily either (i) an opinion on law or (ii) legal services or

(iii) assistance in some legal proceeding, and not (d) for the pur-

pose of committing a crime or tort; and (4) the privilege has

been (a) claimed and (b) not waived by the client. 89 F. Supp. at

358-359.

Business records routinely mailed to counsel to protect them from

discovery would not meet this test.

14

In Diversified Industries, Inc. v. Meredith, 572 F. 2d 596

(8th Cir. 1977), the Eighth Circuit also rejected the control

group test and adopted the subject matter test:

[T]he attorney-client privilege is applicable to an

employee’s communication if (1) the communication was

made for the purpose of securing legal advice; (2) the

employee making the communication did so at the direc-

tion of his corporate superior; (3) the superior made the

request so that the corporation could secure legal advice;

(4) the subject matter of the communication is within the

scope of the employee’s corporate duties; and (5) the

communication is not disseminated beyond those persons

who, because of the corporate structure, need to know

its contents. 572 F. 2d at 609.

Diversified Industries represents the better approach to

application of the privilege to corporations. The court in

Diversified Industries recognized the need of counsel to ob-

tain information from middle management and non-

management personnel.!* The court reasoned that:

[T]he control group test inhibits the free flow of informa-

tion to a legal advisor and defeats the purpose of the

attorney-client privilege [citation omitted]. Moreover,

the test may result in discouraging communications to

lawyers made in a good faith effort to promote com-

pliance with the complex laws governing corporate ac-

tivity. 572 F. 2d at 609.

The distinction between the control group test and the sub-

ject matter test is the extent to which confidential employee

communications to counsel are protected by the corporate

attorney-client privilege. In the instant case, the court chose

the control group test because:

18 Weinschel, Corporate Employee Interviews and the Attorney-

Client Privilege, 12 B.C. Ind. & Comm. L. Rev. 873 (1970).

15

The ‘‘subject matter’’ test encourages senior managers

purposely to ignore important information they have

good business reasons to know and use. United States v.

Upjohn Co., supra, 600 F. 2d at 1227.

The court further stated:

The “‘control group” test recognizes that a corporation’s

decision-makers, like individual clients, must com-

municate freely and confidentially to counsel. By protec-

ting these communications, the ‘‘control group”’ test pro-

motes consultation with counsel and thereby achieves its

objective. 600 F. 2d at 1227.

The court also noted that application of subject matter test to

corporations could result in counsel being the exclusive

repository of unpleasant facts. 600 F. 2d at 1227. In the Sixth

Circuit’s view a party seeking discovery, in a subject matter

test jurisdiction, would be forced to depose or otherwise in-

terrogate less senior employees rather than management.

The court opted for the control group test on the theory that

the subject matter test would impose too heavy a discovery

burden on opposing counsel.

This theory is at best illogical. It is based on factors relating

to discovery and not upon the policies underlying the

attorney-client privilege. The privilege protects communica-

tion regardless of the ease with which an adversary can ob-

tain discovery. Moreover, the control group test does not ac-

complish its objective as a discovery tool. Since the test does

not protect communications from lower-level employees to

corporate counsel, it is difficult to fathom why such com-

munications should be made. Even assuming that the com-

munications are made, opposing counsel, faced with a choice

of interrogating knowledgeable lower-level employees or

management which is only dimly aware of the facts, would

invariably opt for the former. The attorney-client privilege

protects confidential comraunications whether or not the in-

16

formation can be obtained from an unprivileged source. The

relative burden of discovery in an adversary system is not

therefore a basis for destroying the privilege.!4

The Third Circuit has also adopted the control group test

which it recognized as affording the corporation the bare

minimum of protection. In In re Grand Jury Investigation,

599 F. 2d 1224 (3d Cir. 1979), the court rejected the practical

problem acknowledged in Diversified Industries, supra, that

counsel may have to obtain “information relevant to a legal

problem from middle management and nonmanagement per-

sonnel as well as from top executives,’”’ and therefore that a

restrictive test for the attorney-client privilege might inhibit

the free flow of information to counsel. 572 F. 2d at 608-09.

In the view of the Third Circuit, the privilege belongs to the

corporation, and employees who communicate with counsel

do so at their own risk because such communications would

not be privileged. The court assumed that innocent

employees would communicate with counsel even absent the

privilege. Finally, the Third Circuit also rejected the subject

matter test because the public policies advanced by that test

were adequately protected by the work product doctrine. Jn

re Grand Jury Investigation, supra, 599 F. 2d at 1237.

‘4The decision of the court below ignores the discovery

mechanisms available to litigants under the Federal Rules of Civil

Procedure. Rule 26(b\(3) requires the production of all documents

relevant to the litigation. Rule 33 requires a corporation to assem-

ble and provide all information in the possession of its employees.

Under Rule 30(b)6), a corporation may be required to designate a

witness or witnesses to testify to matters “known or reasonably

available to the organization.”

Attempts to circumvent the rules of discovery by forcing cor-

porate counsel to testify or surrender notes and memoranda arise

with increasing frequency. See, e.g., In re Grand Jury Pro-

ceedings, 604 F. 2d 798 (3d Cir. 1979); In re Grand Jury Subpoena

etc., 599 F. 2d 504 (2d Cir. 1979).

17

The holdings of the Third and Sixth Circuits confuse the

corporate attorney-client privilege with the work-product

doctrine. The work-product doctrine protects from discovery

materials prepared or collected by an attorney ‘‘in the course

of preparation for possible litigation.’”’ Hickman v. Taylor,

329 U.S. 495, 505 (1947). As currently embodied in Rule

26(bX3), Federal Rules of Civil Procedure, the doctrine also

protects against discovery of ‘‘the mental impressions, con-

clusions, opinions, or legal theories of an attorney.’ The

work-product doctrine may be overcome upon a showing that

a party “‘has substantial need of the materials in the prepara-

tion of his case and that he is unable without undue hardship

to obtain ... the materials by other means.”’ Rule 26(bX3),

Federal Rules of Civil Procedure. The work-product doctrine

is qualified; the attorney-client privilege is not. Materials

otherwise protected may be discoverable under the work-

product doctrine whereas communications within the

attorney-client privilege may not be. In brief, the attorney-

client privilege is not a discovery mechanism.

To the extent that the scope of the attorney-client privilege

in a corporate setting turns upon well-established public

policy considerations, there is little doubt that the control

group test should be rejected by this Court. The application of

this fundamental rule of law should not be subject to

disparate results based on choice of forum. The test is incon-

sistent with the policies on which the privilege is based and

fails to recognize the organizational and operating structure

of the modern corporation. More important, corporate

lawyers play an important role in policing corporate conduct,

and to the extent that counsel may be unable to properly

represent his client in a control group jurisdiction, the in-

terests of justice will not be sérved. A.B. Dick Co. v. Marr, 95

F. Supp. 88, 102 (S.D. N.Y. 1950), appeal dism’d., 197 F. 2d

498 (2d Cir. 1952), cert. denied, 344 U.S. 878 (1952).

18

III. Tuis Court SHOULD ADOPT THE SUBJECT MATTER TEST.

The public policy underpinnings of the attorney-client

privilege are strongest in the corporate area. Unlike in-

dividuals, corporations have a continual need for legal advice

and a need for predictability in their relations with lawyers.

In the modern corporation, executives are not involved in

the day-to-day operations, but rather the ultimate respon-

sibility for decisions, including legal analysis, is often

delegated to subordinate employees. Senior management

receives information from division heads, salesmen and

counsel. Most of the legal advice obtained by management is

not in anticipation of litigation but rather reflects good

management.

In a control group jurisdiction, counsel is presented with an

inherent contradiction in his role as legal advisor. Counsel

either advises the corporation without all of the relevant facts

or obtains the information from corporate employees at the

risk of having to divulge it to his adversary. At the very least,

counsel should be confident that his efforts to assemble infor-

mation will not prove detrimental to his client. The test

adopted by the court below places counsel in an uncertain

position with management which adversely affects corporate

government. As applied in the instant case, the test not only

inhibits the flow of information between the company and

counsel, it also establishes the directors, officers, division

heads and counsel as enclaves of adverse interest. The test

imposes an artificial mode of management, incapable of

precise definition and impossible of practical application.

Because there is no definable control group in every corpora-

tion, courts will have to redefine the scope of the privilege in

each case in which it is questioned.

Corporations are increasingly subject to regulation and

counsel plays an important role in assuring compliance with

19

regulatory schemes. The public, as well as regulators, expect

counsel to detect and prevent illegal business activities across

a broad spectrum of the law.'® Diversified Industries, Inc. v.

Meredith, supra, 572 F. 2d at 609. Without information,

counsel will be inhibited in his efforts to obtain compliance

with the laws regulating corporate conduct.

The subject matter test is consistent with both the rationale

of the attorney-client privilege and the role of counsel in an

adversary system. The subject matter test protects com-

munications between the corporate attorney and corporate

employees when the communication is made at the direction

of the employee’s superiors and where the subject matter

upon which the attorney’s advice is sought by the corporation

and dealt with in the communication is the performance by

the employee of the duties of his employment. Harper & Row

Publishers, Inc. v. Decker, supra.

As expanded in Diversified Industries, Inc. v. Meredith,

supra, the test also includes a requirement that the com-

munication directed by corporate superiors and made by the

lower-level employee be for the purpose of securing legal ad-

vice. 572 F. 2d 596, 609. The court in In re Ampicillin An-

titrust Litigation, 81 F.R.D. 377 (D. D.C. 1978) added an ad-

ditional requirement. Only those communications which are

believed to be relevant to a particular legal problem are

within the privilege. 81 F.R.D. at 387.

It is imperative that the corporate lawyer obtain informa-

tion from those employees immediately involved in the prob-

lem area. Since the employees who have knowledge of the

facts will rarely be officers or directors, the subject matter

test logically focuses on the subject matter of the communica-

tion and the context in which the communication was made

15 See, e.g., The Securities and Exchange Commission: Proposals

Concerning Disclosure of Relationships Between Attorneys and

Registered Corporations, 44 Fed. Reg. 44,881, 44,882 (1972).

20

rather than defining the privilege in terms of the corporate

status of the employee. And as the court noted in Jn re Am-

picillin Antitrust Litigation, supra, by limiting the privilege

to those communications believed to be relevant to a legal

issue, the subject matter test takes into account the corporate

business form while

strik[ing] a balance between the privilege’s goal of pro-

moting freedom of consultation and full disclosure be-

tween an attorney and a seeker of legal services, and the

law’s need for relevant evidence. 81 F.R.D. at 387.[1°]

The importance of predictability in the application of the

corporate attorney-client privilege cannot be overempha-

sized. Attorneys will have to communicate with a number of

corporate employees, particularly when complex litigation is

involved. If such communications are never privileged then

the purpose of the privilege, to promote full and frank discus-

sion is defeated. In re Ampicillin Antitrust Litigation, 81

F.R.D. 377 (1978); Burlington Industries v. Exxon Corpora-

tion, 65 F.R.D. 26 (D. Md. 1974).

At a minimum, counsel should have a reasonable certainty

at the time the communication is made that it will be within

the privilege. The subject matter test provides such predict-

ability and is, therefore, in accord with the policies which this

court has recognized as the basis of the privilege.

Conclusion.

Corporations have demonstrated unprecedented success as

economic vehicles. That success is not a sufficient ground for

destroying the attorney-client privilege or the public policies

upon which it is based. The control group test threatens the

ability of corporations to comply with all regulation. It is not

16 2 Weinstein’s Evidence, 4 503(b)[04] at 503-44 (1979).

21

simply a judicially created rule, designed to ease the relative

burden of discovery, but rather, in its practical implications,

threatens the very existence of the modern corporation.

The public interest will be served best by the pronounce-

ment by this Court of a clear standard for the corporate

attorney-client privilege in a manner consistent with the role

of counsel in an adversary system.

Respectfully submitted,

By its Attorneys,

WILLIAM W. BECKER,

LANDFIELD, BECKER & GREEN,

Suite 1050,

1819 H Street, N.W..,

Washington, D.C. 20006.

(202) 293-1919

HARRISON A. FITCH,

NEW ENGLAND LEGAL FOUNDATION,

110 Tremont Street,

Boston, Massachusetts 02108.

(617) 482-1410