Opinion ID: 1122491
Heading Depth: 3
Heading Rank: 2

Heading: The Problem of the Corporate Client

Text: When a client is a person, things are relatively simple. That person's communications are client communications. But when the client is a corporation, things become complex. [2] The corporation is a fictional entity which has independent status under the law. But it can only act through its agents. Thus, the client, the corporate entity, and its agents, who are the only ones who can communicate, are separated. Client communications cannot be identified simply as those of particular agents, as in the control group test, because although an agent can make statements on behalf of the corporate client, he or she can also make statements as an individual. But how do we determine which communications made by the corporation's agents are those of the corporate client and not merely those of the individual speaker? We are not the first to acknowledge the complexity of the issue and to seek some unifying answer. Two competing theories have emerged. Illinois adopted the control group test in Consolidation Coal Co. v. Bucyrus  Erie Co., 89 Ill.2d 103, 59 Ill. Dec. 666, 432 N.E.2d 250 (1982). If otherwise privileged, it protects communications by decisionmakers or those who substantially influence corporate decisions. Our court of appeals relied on Consolidation Coal in adopting the control group test. But it, too, acknowledged that the control group test is underinclusive and adopted a new theory: a qualified attorney-client privilege for non-control group employees. In effect, it relegated non-control group employees to the kind of limited protection afforded by the work product doctrine. But this affords to some client communications only the lesser protection afforded witnesses. See Hickman v. Taylor, 329 U.S. 495, 508, 67 S.Ct. 385, 392, 91 L.Ed. 451 (1947). Hence, it is still underinclusive. A second major test, the subject matter test, takes a broader approach to deal with the underinclusiveness of the control group test. As articulated in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir.1970), aff'd by an equally divided court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971), it focuses on the nature of the communication  not the status of the communicator. Under it, an employee, within or without the control group, can make a privileged communication to corporate counsel if it is made at the direction of his superiors and if the subject matter upon which advice is sought is the employee's performance of his duties. [3] The vice of the subject matter test as it has evolved is its overinclusiveness. It will capture statements by employees who, because of their duties, are witnesses to the conduct of others. How do we avoid the underinclusiveness of the control group test, and at the same time avoid the overinclusiveness of a broad interpretation of the subject matter test? Recall that a similar problem exists in other areas of the law involving corporations. For example, under the doctrine of respondeat superior, the conduct of an agent is imputed to the corporation when that conduct is committed within the scope of the agent's employment. See Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 502, 647 P.2d 629, 633 (1982). Likewise, the knowledge of a corporate agent is imputed to the corporation if it is acquired by the agent within the scope of his or her employment and relates to a matter within his or her authority. Fridena v. Evans, 127 Ariz. 516, 519, 622 P.2d 463, 466 (1980). So, too, statements made by an employee or agent concerning a matter within the scope of the agency or employment, made during the existence of the relationship, are directly admissible against the corporation as the admission of a party-opponent under Rule 801(d)(2), Ariz.R.Evid. Thus, we see in other areas that what an employee does, knows, or says is sometimes imputed to the corporation without reference to where in the chain of command the employee belongs. Instead, behavior, knowledge, and statements are imputed to the corporation as a function of the nature of the behavior, knowledge, and statements, and the context surrounding them, and not upon the identity of the actor or speaker. This suggests that a functional approach ought similarly to apply to the problem posed by the corporate entity within the context of the attorney-client privilege. The defining characteristic of this functional approach is the nature, purpose, and context within which the communication occurs. We agree with the Supreme Court of California that the corporation not be given greater privileges than are enjoyed by a natural person and that we should apply to corporations the same reasoning as has been applied in regard to natural persons in reference to [the attorney-client] privilege. D.I. Chadbourne, Inc. v. Superior Court, 60 Cal.2d 723, 36 Cal. Rptr. 468, 477, 388 P.2d 700, 709 (1964).