Court Opinion

ID: 9626163
Source: CourtListenerOpinion
Date Created: 2023-08-22 08:04:15.898199+00
Date Added: 2024-06-11T18:06:22.284164
License: Public Domain

Mr. Justice Frantz
dissenting:
Plaintiffs were shareholders in The Synkoloid Company, which was merged in The Clute Corporation. Lowell, Murphy, and Kistler were and are stockholders and directors of The Clute Corporation. Plaintiffs brought a class action for damages on behalf of “all former shareholders of Synkoloid,” naming as defendants Lowell, Murphy, and Kistler and a partnership of accountants, Peat, Marwick, Mitchell & Co., and one of its partners, John C. Eigeman.
Basically the complaint charges fraud and misrepresentation on the part of the named directors, in bringing about the merger, and that the partnership of accountants prepared false and misleading financial statements in aid of the perpetration of the fraud.
The plaintiffs filed a motion for the production of *531documents under Rule 34, R.C.P. Colo. Omitting the caption, affidavit, and signatures, it reads as follows:
“COME NOW the above named plaintiffs by their attorneys and move the Court for an order requiring the defendants, Peat, Marwick, Mitchell & Co. and John C. Eigeman, to produce and to permit plaintiffs to inspect, copy and photograph any and all of the following items:
“1. All correspondence, telegrams, memoranda and other communications, including written memoranda or other evidence of telephone conversations between Peat, Marwick, Mitchell and Co., its partners and employees and others concerning the Clute Corporation and Mineral Industrial Commodities of America, Inc. (MICA);
“2. All intra-office correspondence, memoranda and other communications between Peat, Marwick, Mitchell & Co. partners, employees and other personnel, including written memoranda or other evidence of telephone conversations concerning The Clute Corporation and Mineral Industrial Commodities of America, Inc. (MICA);
“3. All records, including calendars, appointment books and time sheets maintained by Peat, Marwick, Mitchell & Co. and John C. Eigeman of the nature and extent of their services to Clute, the date such services were performed and the person performing them;
“4. All work papers used in performing audits, preparing financial statements and registration statements and rendering other services for The Clute Corporation and Mineral Industrial Commodities of America, Inc. (MICA); and
“5. All financial statements and opinions rendered thereon, if any, of The Clute Corporation and Mineral Industrial Commodities of America, Inc. (MICA) which are in the possession, custody, or control of the defendants, Peat, Marwick, Mitchell & Co. and John C. Eigeman, or either of them, and as grounds for such motion state that each of the foregoing constitutes or *532contains evidence relevant and material to a matter involved in this action, as is more fully shown in Exhibit A hereto attached.”
By affidavit the partnership of accountants stated that the material sought by the motion was privileged because of C.R.S. 1963, 154-1-7(7), and that they “cannot produce or otherwise disclose the said documents unless and until its client, The Clute Corporation, has waived the privilege or consented to the production or disclosure.” Through its board of directors, The Clute Corporation refuses to consent to disclosure or production. The trial court has sustained the asserted privilege, and the plaintiffs are here by original proceedings. They ask this Court to issue a rule to show cause to the trial court.
C.R.S. 1963, 154-1-7(7) provides:
“There are particular relations in which it is the policy of the law to encourage confidence and to preserve it inviolate; therefore, a person shall not be examined as a witness in the following cases:
* $ ❖
“(7) A certified public accountant shall 'not be examined without the consent of his client as to any communication made by the client, to him in person or through the media of books of account and financial records, or his advice, reports or working papers given or made thereon in the course of professional employment, nor shall a secretary, stenographer, clerk or assistant of a certified public accountant be examined without the consent of the client concerned concerning any fact, the knowledge of which he has acquired in such capacity.”
The statutory rule of privilege is to be kept within its literal bounds. There is no liberal construction in favor of privilege. Horn v. Hurwitz, 76 Colo. 389, 231 Pac. 1116. In the cited case Wigmore was thus quoted with approval:
“But no court ought today to lend its sanction to any *533expansion of the limits of this undesirable rule of privilege; and there is at least ample authority for the most rigid restriction.”
Certain propositions are fundamental and pertain to the problem presented to this Court by the facts of this case. These propositions will be now noted and discussed.
1. Confidence is the seal which sustains the privilege in enumerated relationships. A communication to be conveyed to someone outside the relationship breaks the seal, and privilege then never had existence. There is no confidence where there is a desire to disclose to third persons.
“Communications made to an attorney for the purpose of being conveyed by him to others are stripped of the idea of a confidential disclosure, and, therefore, are not privileged.” Hill v. Hill, 106 Colo. 492, 107 P.2d 597.
“Only communications which are confidential are protected as privileged as between attorney and client. Those which the attorney in the discharge of his duty to his client is of necessity obliged to make public, or those which are made to him for that purpose, cannot be said to be confidential, and are therefore not privileged.” Green v. Fuller, 159 Wash. 691, 294 Pac. 1037.
It appears from the pleadings that The Clute Corporation made disclosures to The Synkoloid Company, based upon reports and statements prepared by the accountants, with the purpose of inducing agreement on a merger. To this extent certainly there is no privilege.
2. But there is no privilege once the seal of privilege has been broken. Any disclosure to third persons permits in a proper way that a complete disclosure be made.
“As I stated at one of the hearings in this matter, if a person employs an attorney with the understanding that certain information be transmitted to a third party for the purpose of securing a benefit to the client, and the attorney communicates such information, then not *534only the specific information, but the more detailed circumstances relating to it may be gone into. The cases already cited are illustrative of the point.
* * *
“Here, the client communicated certain facts to the defendant with the intent that they be conveyed to higher authorities, either as grievances, or as grounds for revision of sentence. The defendant became the ‘conduit’ for such purposes. And the circumstances under which they were communicated became open to inquiry. After making these charges, in order to serve his client’s purposes, the defendant could not attempt to shield him under the plea of privilege by refusing to disclose the circumstances of their communication to him. The secrecy of communications between attorney and client should be held inviolate. But when the client and attorney themselves, for purposes beneficial to the client, lift the veil, they cannot lower it again.” United States v. Shibley, 112 F.Supp. 734. See Keohane v. Keohane, 38 Cal. App. 405, 176 Pac. 386; Wise v. Haynes, (Tex. Civ. App.), 103 S.W.2d 477.
Considering the record before us, The Clute Corporation submitted financial statements and other papers for the purpose of inducing The Synkoloid Company to merge into it. Such disclosures lifted the veil of secrecy as to the detail upon which these disclosures were based. One may not set out to inform a party, and then when the party would seek to be wholly informed, invoke the rule of privilege as to that which would verify or disprove the information given.
3. The officers and directors, as agents and trustees for the stockholders, may not assert that a communication is privileged against the stockholders (their principals and beneficiaries) in order that the officers and directors may be protected from a suit against them brought by the stockholders, whether they be a majority or minority thereof.
“The stockholders, not the officers or directors, are *535the real owners” of a corporation. The books of a corporation “are not the private property of the directors and managers, but are the records of their transactions as trustees for the stockholders.” Dines v. Harris, 88 Colo. 22, 291 Pac. 1024. In a lawsuit by stockholders to show the accountability of directors and managers for allegedly betraying their trust, the directors and managers cannot assert a privilege regarding the records which will reveal how they carried out their trust.
This case involves a lawsuit. It has gone beyond the stage of the statutory right to inspect the books and accounts of the corporation. Litigation means the right to discover the truth: whether certain directors and officers, aided and abetted by accountants, betrayed their trust as alleged in the complaint. These records, the property of stockholders, will reveal how the directors and officers, as trustees, transacted the business of the corporation for the stockholders.
In the next proposition we carry on an extension of this proposition. If there is doubt (which I do not personally entertain) as to the application of propositions 1 and 2 controlling this case, then it is submitted that propositions 3 and 4 should govern.
4. Papers and documents, originally not exempt from production in the hands of the corporation, do not become privileged by reason of being placed in the possession of an accountant or an attorney. Corporate records, submitted to accountants, from which they are to prepare statements to be submitted to third parties, are such records.
“Insofar as the papers include pre-existing documents and financial records not prepared by the Matters for the purpose of communicating with their lawyers in confidence, their contents have acquired no special protection from the simple fact of being turned over to an attorney. It is only if the client could have refused to produce such papers that the attorney may do so when they have passed into his possession. 8 Wigmore, Evi*536dence, § 2307 (McNaughton rev. 1961); McCormick, Evidence § 93 (1954). Any other rule would permit a person to prevent disclosure of any of his papers by the simple expedient of keeping them in the possession of his attorney.” Colton v. United States, 306 F.2d 633.
“[I]f an unprivileged document exists before there exists an attorney-client relationship the mere delivery of the document to an attorney does not create a privilege.” Brown v. St. Paul City R. Co., 241 Minn. 15, 62 N.W.2d 688, 44 A.L.R.2d 535; Kane v. News Syndicate Co., Inc., 1 F.R.D. 738.
If this rule is applied, there may be some material in the motion for production of documents which is privileged, but it would take a hearing by the trial court to ascertain whether this material is, as a matter of fact, protected by the privilege.
5. A merger of two corporations continues the existence of one corporation. By a merger one becomes the absorbing corporation and the other the absorbed corporation. The former continues to exist, the latter is extinguished. The stockholders of the absorbed corporation are the stockholders of the absorbing corporation.
For support of this proposition, see C.R.S. 1963, 31-7-1; Chapter 61, Sec. 7041, Fletcher’s Cyc. Corp., p. 9, and cases there cited.
I would make the rule absolute.
Mr. Justice McWilliams authorizes me to say that he joins in this dissent.