Court Opinion

ID: 9464639
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:38:50.770093+00
Date Added: 2024-06-11T17:38:44.332597
License: Public Domain

HEANEY, Circuit Judge,
concurring and dissenting.
I agree that we should consider the petition for mandamus on its merits. I am, moreover, convinced that Diversified did not waive its lawyer-client privilege by voluntarily surrendering privileged material to the SEC in obedience to a subpoena from that agency. “A waiver of the privilege must occur in the same proceeding in which it is sought to be invoked.” United States v. Goodman, 289 F.2d 256, 259 (4th Cir.), vacated and. remanded on other grounds, 368 U.S. 14, 82 S.Ct. 127, 7 L.Ed.2d 75 (1961); Bucks County Bank & Trust Company v. Storck, 297 F.Supp. 1122, 1123 (D.Haw. 1969); 8 Wigmore on Evidence § 2276 at 470-472 (McNaughton rev. 1961). But see Supreme Court Standard 511; In Re Penn Central Commercial Paper Litigation, 61 F.R.D. 453, 464 n. 25 (S.D.N.Y. 1973).
I disagree, however, with the majority’s holding that no lawyer-client privilege existed as to the June 19, 1975, memorandum of Wilmer, Cutler & Pickering, to the December, 1975, report of Wilmer, Cutler & Pickering and to the minutes of the Board of Directors of September 3, 1975, to the *605extent that they contained excerpts from the law firm’s memorandum or report.
The majority opinion is, in my view, contrary to Supreme Court Standard 503 relating to the lawyer-client privilege which reads, in relevant part, as follows:1
(a) Definitions. — As used in this rule:
(1) A “client” is a person, public officer, or corporation, association, or other organization or entity, either public or private, who is rendered professional legal services by a lawyer, or who consults a lawyer with a view to obtaining professional legal services from him.
* % * * * *
(3) A “representative of the lawyer” is one employed to assist the lawyer in the rendition of professional legal services.
(4) A communication is “confidential” if not intended to be disclosed to third persons other than those to whom disclosure is in furtherance of the rendition of professional legal services to the client or those reasonably necessary for the transmission of the communication.
(b) General rule of privilege. — A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communication made for the purpose of facilitating the rendition of professional legal services to the client, (1) between himself or his representative and his lawyer or his lawyer’s representative, or (2) between his lawyer and the lawyer’s representative, or (3) by him or his lawyer to a lawyer representing another in a matter of common interest, or (4) between representatives of the client or between the client and a representative of the client, or (5) between lawyers representing the client.
Under the standard, the privilege extends to communications between the lawyer and the client for the purposes of obtaining legal services or advice. Advisory Committee Note to Supreme Court Standard 503. The client need not be involved in litigation for the privilege to attach. See 8 Wigmore on Evidence §§ 2294-2295 (McNaughton rev. 1961).
Wilmer, Cutler & Pickering was retained by Diversified in order to obtain professional legal services. The corporation sought and indeed received something infinitely more important than a report from a lay investigator or a detective. The law firm submitted a comprehensive report detailing specific conduct considered by it to be viola-tive of the law and characterizing various employees of the corporation as being cooperative or uncooperative with its investigation. The report contained recommendations as to a course of conduct to be followed by Diversified to avoid future violations of the law.
The Association of the Bar of the City of New York stated, in 1970, that “rules of evidence should not result in discouraging communications to lawyers made in a good faith effort to promote compliance with the complex laws governing corporate activities.” Report of the Committee on Federal Courts of the Association of the Bar of the City of New York, 43-45, May, 1970, quoted in 2 Weinstein’s Evidence, ¶ 503[01] at 503-12, n. 1. I agree with this observation. Lawyers are acting in a professional capacity when they undertake a comprehensive examination of a corporation’s activities in order to determine whether the corporation is operating in accordance with the law and make recommendations on how to avoid illegal activities in the future. This is true whether or not the legal firm conducting the investigation is expected to engage in litigation.
Since, unlike the majority, I am persuaded that the law firm was retained by *606Diversified to provide legal services or advice, it is necessary to determine whether the Diversified employees interviewed by the law firm, or its representatives, should be considered to be “clients” of the law firm. There are two principal approaches to this question. Under one approach, the lawyer-client privilege is limited to only those communications by and to the control group of the corporation.2 City of Philadelphia v. Westinghouse Electric Corp., 210 F.Supp. 483 (E.D.Pa.), mandamus and prohibition denied sub nom. General Electric Co. v. Kirkpatrick, 312 F.2d 742 (3rd Cir. 1962), cert. denied, 372 U.S. 943, 83 S.Ct. 937, 9 L.Ed.2d 969 (1963). This approach is not a realistic one and was expressly rejected by the Seventh Circuit in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970), affirmed by an equally divided Court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971). I would adopt the Seventh Circuit approach together with modifications suggested in 2 Weinstein’s Evidence ¶ 503(b)[04] (1975). I would first require the corporation to show that the lawyer was acting as a legal adviser when the communication was made. The mere receipt by a lawyer of a routine report would not make the communication privileged. Second, I would require that the subject matter of the communication be the performance by the employee of the duties of his employment. This would remove from the scope of the privilege any communication which is within the employee’s knowledge solely because he happened to witness or observe an event. Third, the corporation must establish that the communication was not disseminated beyond those with the need to know. I think it is clear that all of the requirements are met here.
In my judgment, justice will be furthered if we extend the lawyer-client privilege to situations of this type. It will encourage corporations to seek out wrongdoing in their own house and to do so with lawyers who are not only professionally trained but who are obligated by their code of ethics to make a thorough and complete report.
ON HEARING EN BANC
Before GIBSON, Chief Judge, and LAY, HEANEY, BRIGHT, ROSS, STEPHENSON and HENLEY, Circuit Judges, en banc.*
HEANEY, Circuit Judge.
This matter is before the Court en banc on a petition for a writ of mandamus. When the matter was first considered, a panel of this Court held that it had jurisdiction to entertain the petition but denied the petition on its merits. Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977) (Heaney, J., concurring and dissenting). It held that Diversified Industries, Inc., was not entitled to protect from discovery a memorandum dated June 19, 1975, and a report dated December, 1975, as well as certain corporate minutes and a letter dated January 30, 1976, from the President of Diversified that refer to the documents. These documents were prepared for Diversified by the Washington, D. C., law firm of Wilmer, Cutler & Pickering. It reasoned that the June 19 memorandum was not entitled to protection under the attorney-client privilege because the memorandum contained no confidential information and that the December report was not entitled to protection under the privilege because the law firm was not hired by Diversified to provide legal services or advice. It further reasoned that Diversified could not claim protection under the work product rule since the law firm did not prepare the report for trial or in anticipation of litigation as that term is used in Fed.R.Civ.P. 26(b)(3). It held the corporate minutes and the January 30 letter to be unprotected for the same reasons.
*607On petition from Diversified, we agreed to hear the matter en banc because of the important issues raised with respect to the proper application of the attorney-client privilege. After careful consideration, we leave untouched our earlier opinion insofar as it holds that mandamus is available as a means of immediate appellate review and that the June 19, 1975, memorandum is unprotected.
A brief restatement of the facts will bring into focus the issues concerning the December, 1975, report, the corporate minutes and the January 30 letter.
Diversified is a Delaware corporation with its principal place of business in Clayton, Missouri. It is engaged primarily in manufacturing and processing nonferrous metals. Weatherhead is an Ohio corporation with its principal place of business in Cleveland, Ohio. It manufactures and sells brass and brass products. For many years, Diversified sold Weatherhead large quantities of copper, the principal component of brass.
In 1974 and 1975, during proxy fight litigation involving Diversified, facts surfaced indicating that Diversified may have established and maintained a “slush” fund to bribe purchasing agents of companies with whom Diversified dealt, presumably including Weatherhead.
On July 9, 1976, Weatherhead filed a complaint in the District Court alleging that Diversified conspired with Weather-head employees to sell Weatherhead an inferior grade of copper and that in return for accepting the inferior copper, Weather-head. employees were paid bribes out of a “slush” fund. Weatherhead also alleged tortious interference with its employment contracts and violations of § 4 of the Clayton Act, 15 U.S.C. § 15.
As a result of the disclosures made during the 1974-1975 litigation, the Board of Directors of Diversified passed the following resolution:
RESOLVED, that, as this Board of Directors deems it to be in the best interests of this Corporation and its stockholders, the General Counsel of the Corporation be and he hereby is authorized, in behalf of this Board of Directors, to engage the services of Wilmer, Cutler & Pickering, Washington, D. C. to conduct an investigation and inquiry into the matters disclosed and discussed in this regard at this meeting for the purposes of eliciting facts, making certain findings, and providing to the Board of Directors of this Corporation a report possibly containing recommendations as to course of action, so that the Board of Directors of this Corporation may properly discharge its duties, and, further
RESOLVED, that Wilmer, Cutler & Pickering be and they hereby are authorized to procure assistance as may be reasonably required, in the above-designated inquiry, from accounting firms and others to conclude in a prompt and diligent manner the above commissioned inquiry and investigation, and, further
RESOLVED, that this Board of Directors hereby delegates to the Audit Committee of this Board the power and authority to review this matter in detail with Wilmer, Cutler & Pickering and, where necessary and appropriate, to provide to that firm any necessary interim authorizations or advice as may be necessary or desirable for the efficient handling and conclusion of the above mentioned inquiry and investigation, and, further
RESOLVED, that the officers and directors of this Corporation be and they hereby are directed to cooperate fully, and to ensure that all employees of this Corporation cooperate fully with Wilmer, Cutler & Pickering and such other persons as Wilmer, Cutler & Pickering may retain in the foregoing matters.
The law firm was subsequently directed to report to the Board of Directors rather than to the Audit Committee. The company President subsequently advised employees that he would take any steps necessary or appropriate to insure employee cooperation. During the course of the investigation, the law firm interviewed several employees of Diversified, including some who were not in a position to control or take a *608substantial part in a decision the corporation might make based on the law firm’s advice. The December report summarized these interviews, analyzed the accounting data, evaluated the conduct of certain employees, drew conclusions as to the propriety of their conduct and made recommendations as to steps Diversified should take. Certain corporate minutes and parts of the January 30 letter restate critical portions of the report.1
The attorney-client privilege applies to corporations. Radiant Burners, Inc. v. American Gas Association, 320 F.2d 314, 323 (7th Cir.), cert. denied, 375 U.S. 929, 84 S.Ct. 330, 11 L.Ed.2d 262 (1963). However, because a corporation can speak or hear only through its human agents, we must determine the circumstances in which employee communications can be classified as the corporate client’s communications.
Two tests have developed in the federal courts. The first is the “control group” test formulated in City of Philadelphia v. Westinghouse Electric Corp., 210 F.Supp. 483 (E.D.Pa.), mandamus and prohibition denied sub nom., General Electric Co. v. Kirkpatrick, 312 F.2d 742 (3rd Cir. 1962), cert. denied, 372 U.S. 943, 83 S.Ct. 937, 9 L.Ed.2d 969 (1963). In this test, an employee’s statement is not considered a corporate communication 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, or if he is an authorized member of a body or group which has that authority[.]” Id. at 485. It is the most widely used test. Virginia Electric & Pow. Co. v. Sun Shipbuilding & D.D. Co., 68 F.R.D. 397, 400 (E.D.Va.1975).
The second test is that formulated 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). In this test, “an employee of a corporation, though not a member of its control group, is sufficiently identified with the corporation * * * where the employee makes the communication at the direction of his superiors in the corporation and where the subject matter upon which the attorney’s advice is sought by the corporation and dealt with in the communication is the performance by the employee of the duties of his employment.” Id. at 491-492.
Although it predominates, the control group test has come under increasing criticism. See, e. g., Kobak, The Uneven Application of the Attorney-Client Privilege to Corporations in the Federal Courts, 6 Ga.L. Rev. 339 (1972); Note, Privileged Communications — Inroads on the “Control Group” Test in the Corporate Area, 22 Syracuse L.Rev. 759 (1971); Note, The Application in the Federal Courts of the Attorney-Client Privilege to the Corporation, 39 Fordham L.Rev. 281 (1970); Weinschel, Corporate Employee Interviews and the Attorney-Client Privilege, 12 B.C.Ind. & Comm.L. Rev. 873 (1970). But see, e. g., Note, Attorney-Client Privilege for Corporate Clients: The Control Group Test, 84 Harv.L.Rev. 424 (1970). The principal criticism is that the control group test attempts to equate corporate clients with individual clients. An individual client both communicates to a lawyer and, based on the lawyer’s advice, decides on an appropriate course of action. Similarly, before an employee’s communication will be deemed the corporate client’s communication, the control group test demands that the employee communicate to the attorney and be in a position to control or play a substantial role in any decision based on the attorney’s advice. In practice, this results in protecting only communications of top level executives which fails to take into account the realities of corporate life.
In a corporation, it may be necessary to glean information relevant to a legal problem from middle management *609and nonmanagement personnel as well as from top executives. The attorney dealing with a complex legal problem “is thus faced with a ‘Hobson’s choice’. If he interviews employees not having ‘the very highest authority’, their communications to him will not be privileged. If, on the other hand, he interviews only those with ‘the very highest authority’, he may find it extremely difficult, if not impossible, to determine what happened.” Weinschel, Corporate Employee Interviews and the Attorney-Client Privilege, supra at 876. Thus, the control group test inhibits the free flow of information to a legal advisor and defeats the purpose of the attorney-client privilege. See 8 Wigmore, Evidence § 2291 (McNaughton rev. 1961). Moreover, the test may result in discouraging communications to lawyers made in a good faith effort to promote compliance with the complex laws governing corporate activity. See Report of the Committee on Federal Courts of the Association of the Bar of the City of New York, 43-45, May, 1970, quoted in 2 Weinstein’s Evidence, ¶ 503[01] (1975) at 503-512 n.1. We conclude that the control group test is inadequate for determining the extent of a corporation’s attorney-client privilege.
The Harper & Row test provides a more reasoned approach to the problem by focusing upon why an attorney was consulted, rather than with whom the attorney communicated. The test extends the privilege to communications made by any employee if a communication is made at the direction of the employee’s superior and concerns the performance of his duties. In contrast to the control group test, it encourages the free flow of information to the corporation’s counsel in those situations where it is most needed.
This test also has its critics. They argue, not unjustifiably, that the Harper & Row test can shield data from the discovery process. See, e. g., Note, Privileged Communications — Inroads on the “Control Group” Test in the Corporate Area, supra at 766. The critics fear that many corporations will attempt to funnel most corporate communications through their attorneys in order to prevent subsequent disclosure. Judge Jack B. Weinstein, in his text on evidence, suggests several modifications that substantially limit whatever potential for abuse the Harper & Row test presents. 2 Weinstein’s Evidence ¶ 503(b)[04] (1975).
We feel that the limitations suggested by Judge Weinstein have merit and that the 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 direction 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. We note, moreover, that the corporation has the burden of showing that the communication in issue meets all of the above requirements.
This modified Harper & Row test will better protect the purpose underlying the attorney-client privilege. Under this test, the mere receipt of routine reports by the corporation’s counsel will not make the communication privileged, either because the communication will have been made available to those who do not need to know or because the communication was not made for the purpose of securing legal advice. Moreover, application of the attorney-client privilege will do little to further encourage this type of communication since they will continue to be made for independent business reasons. By confining the subject matter of the communication to an employee’s corporate duties, we remove from the scope of the privilege any communication in which the employee functions merely as a fortuitous witness.2 These are also communications that ordinarily would be made in any event.
*610We now apply these standards to the employee interviews to determine whether they are within the scope of the attorney-client privilege. We begin by deciding whether the communications were made for the purpose of securing legal advice for the corporation. We think it clear that they were.
Dean Wigmore has perceptively set forth the following generalized test:
It is not easy to frame a definite test for distinguishing legal from nonlegal advice. * * * [T]he most that can be said by way of generalization is that a matter committed to a professional legal adviser is prima facie so committed for the sake of the legal advice which may be more or less desirable for some aspect of the matter, and is therefore within the privilege unless it clearly appears to be lacking in aspects requiring legal advice.
Obviously, much depends upon the circumstances of individual transactions.
8 Wigmore, Evidence § 2296 (McNaughton rev. 1961) (emphasis included). See also Supreme Court Standard 503; McLaughlin, The Treatment of Attorney-Client Privileges in the Proposed Rules of Evidence for the United States District Courts, 26 The Record 31 (1971).
Here, the matter was committed to Wilmer, Cutler & Pickering, a professional legal adviser. Thus, it was prima facie committed for the sake of legal advice and was, therefore, within the privilege absent a clear showing to the contrary. No such showing was made. Rather, the December report contained communications which were uniquely legal.
The charge to the professional legal adviser was a broad one. The law firm was given complete autonomy to conduct a professional investigation and inquiry.' It was authorized to procure such assistance including accounting services as reasonably required. It was authorized to interview any employee of the corporation who might have knowledge of the facts — from the President to the nonmanagerial employees. Perhaps most importantly, it was given the authority to analyze the accounting data, to evaluate and draw conclusions as to the propriety of past actions and to make recommendations for possible future courses of action. Accountants could have been hired by Diversified to audit the books and records and lay investigators could have been employed to interview employees; but neither would have had the training, skills and background necessary to make the independent analysis and recommendations which the Board felt essential to the future welfare of the corporation.3 To be sure, there are possibilities of abuse, but the application of the attorney-client privilege to this matter and others like it will encourage corporations to seek out and correct wrongdoing in their own house and to do so with attorneys who are obligated by the Code of Professional Responsibility to conduct the inquiry in an independent and ethical manner. See Report of the Committee on Federal Courts of the Association of the Bar of the City of New York, supra.
It is clear that the remaining requirements of the test set forth by Judge Wein-stein and adopted by us have been met. The resolution authorizing the law firm to conduct 'the investigation specifically instructed all corporate employees to cooperate fully with the law firm for purposes of. the investigation. An examination of the report reveals that the interviews explored only areas within the bounds of the employees’ corporate duties. Finally, the corpora*611tion scrupulously avoided disseminating this information to other than those immediately concerned with the results of the investigation.
We conclude that these employee interviews are confidential communications of the corporate client and entitled to the attorney-client privilege. Thus, the report and the relevant portions of the corporate minutes and January 30 letter are also privileged because disclosure would reveal directly or inferentially the contents of the interviews.4 See Mead Data Central, Inc. v. United States Department of the Air Force, 566 F.2d 242 at 254 (D.C.Cir.1977); Schwimmer v. United States, 232 F.2d 855, 863 (8th Cir.), cert. denied, 352 U.S. 833, 77 S.Ct. 48, 1 L.Ed.2d 52 (1956); United States v. International Business Machines Corp., 66 F.R.D. 206, 212 (S.D.N.Y.1974); 8 Wigmore, Evidence § 2320 (McNaughton rev. 1961).
We finally address the issue of whether Diversified waived its attorney-client privilege with respect to the privileged material by voluntarily surrendering it to the SEC pursuant to an agency subpoena. As Diversified disclosed these documents in a separate and nonpublic SEC investigation, we conclude that only a limited waiver of the privilege occurred. See Bucks County Bank and Trust Company v. Storck, 297 F.Supp. 1122 (D.Haw.1969). Cf. United States v. Goodman, 289 F.2d 256, 259 (4th Cir.), vacated on other grounds, 368 U.S. 14, 82 S.Ct. 127, 7 L.Ed.2d 75 (1961). To hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders, potential stockholders and customers.
In concluding, we note that the litigants are not foreclosed from obtaining the same information from non-privileged sources. Litigants may still examine business documents, depose corporate employees and interview nonemployees, obtain preexisting documents and financial records not prepared by Diversified for the purpose of communications with the law firm in confidence.5 See Colton v. United States, 306 F.2d 633, 639 (2d Cir. 1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963).
Accordingly, a writ of mandamus will issue compelling the respondent district judge to stay his order of January 6, 1977, with respect to those documents protected by the attorney-client privilege.6
The petition for the writ is granted in part and denied in part. Each party shall bear its own costs.

. Even though Congress failed to adopt Supreme Court Standard 503 as part of the Federal Rules of Evidence, it still serves as a useful guide to the law of privileges to be applied in the federal courts. The standard, with a few minor exceptions, is a restatement of the lawyer-client privilege at common law. McLaughlin, The Treatment of Attorney-Client and Re-Iated Privileges in the Proposed Rules of Evidence for the United States District Courts, 26 The Record 31 (1971). “Consequently, despite the failure of Congress to enact a detailed article on privileges, Standard 503 should be referred to by the courts.” 2 Weinstein’s Evidence ¶ 503 [02] at 503-17 (1975).

. The control group approach was followed in the first draft of Rule 503, but was deleted in the second draft because of the 4-4 split in the Supreme Court on the issue in Decker v. Harper & Row Publishers, Inc., 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971).

 WEBSTER, Circuit Judge, took no part in the consideration or decision of this case.

. In particular, the September 3, 1975, minutes discuss the contents of the report and the results of the investigation. The February 3, 1976, and March 3, 1976, minutes also discuss the investigation as applied to Mr. Harry Simmons. The remaining minutes only mention the existence of the investigation and do not reveal the contents of the report.

. However, the work product rule may apply in such situations. See Fed.R.Civ.P. 26(b)(3). See also Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947).

. We have considered the deposition of Joseph B. Woodlief, the President of Diversified. He stated that he did not believe that Wilmer, Cutler & Pickering represented Diversified “in the context of advice of attorney to client.” Woodlief’s employment began two months after the law firm was retained. We cannot tell from his deposition whether he thought of attorney-client advice solely in the context of litigation. In any event, his characterization is only one fact to consider in determining whether the communications were privileged. The totality of the circumstances indicates that the communications were privileged.
The fact that the report contains some nonlegal matter does not destroy the privilege since it is insubstantial. See United States v. United Shoe Machinery Corporation, 89 F.Supp. 357, 359 (D.Mass.1950).

. Protection may not be claimed for the remaining portions of the in camera material on the basis of the work product rule. These materials were not prepared in anticipation of litigation or for trial. See Fed.R.Civ.P. 26(b)(3); Zenith Radio Corp. v. Radio Corp. of America, 121 F.Supp. 792, 795 (D.Del.1954); 8 Wright & Miller, Federal Practice and Procedure: Civil § 2024. We note, however, that the client need not be involved in litigation for the attorney-client privilege to attach. See Supreme Court Standard 503; 8 Wigmore, Evidence §§ 2294-2295 (McNaughton rev. 1961).

. We need not address at this time the situation where an employee’s confidential communications to the corporation’s counsel may reveal potential liability of the employee. Ordinarily, the privilege belongs to the corporation and an employee cannot himself claim the attorney-client privilege and prevent disclosure of communications between himself and the corporation’s counsel if the corporation has waived the privilege. In re Grand Jury Proceedings, Detroit, Mich. Aug., 434 F.Supp. 648 (E.D.Mich. 1977). However, circumstances may reveal that the employee sought legal advice from the corporation’s counsel for himself or that counsel acted as a joint attorney. Under such circumstances, he may have a privilege. See generally 8 Wigmore, Evidence § 2312 (McNaughton rev. 1961).

. Subsequent to oral argument, the respondent obtained a copy of the December, 1975, report. They now ask that the petition be dismissed on grounds of mootness. We decline to do so. On remand, the District Court may determine what further action, if any, is appropriate in the light of this Court’s holding that the report is privileged.