Pye, A. Kenneth

English

Duke Law Scholarship Repository

'e P cticaJlai yrNOVEMBER 1969The Attorney- CorporateClient PrivilegeA SymposiumFundamentals of the Attorney-Client Privilegeby A. KENNETH PYE, Dean, Duke University School of LawT will be the function of the introductory portion of this symposiumto survey briefly the history and purpose of the attorney-client privi-lege, with special reference to its availability to corporations. It will sum-marize some of the existing authorities on this subject to provide a back-drop for the more practical insights into -the current problems providedEDITOR'S NOTE: This article is based on a symposium that appeared in the April 1969 issueof THE RECORD OF THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK.15 1516 THE PRACTICAL LAWYER (Vol. 15-No. 7)by the two sections that follow.Dean Wigmore has tersely sum-marized the essential requirementsfor the attorney-client privilege:"(1) Where legal advice of anykind is sought (2) from a profes-sional legal adviser in his capacityas such, (3) the communicationsrelating to that purpose, (4) madein confidence (5) by the client, (6)are at his instance permanently pro-tected (7) from disclosure by him-self or by the legal adviser, (8) ex-cept the protection be waived."8 J. WGMORE, EVIDENCE §2292 (Lit-tle, Brown & Co., Boston, Mass.,McNaughton rev. 1961).A more elaborate and somewhatdifferent formulation is found inUnited States v. United Shoe Ma-chinery Corp., 89 F. Supp. 357 (D.Mass. 1950).HISTORYThe attorney-client privilegeseems first to have been recognizedin the 16th century.Originally, the privilege seemedto be based upon the honor ofthe attorney and belonged to theattorney, who could waive it. Dur-ing the 18th century, the courtsfound a new rationale in protect-ing the client from apprehensionthat his confidences might be be-trayed. By the middle of the 19thcentury it was recognized that theprivilege belonged to the client.At first it existed only when aconfidence had been communicatedto a lawyer during litigation. Ulti-mately it extended to any consulta-tion for legal advice.The purpose of the privilege isexpressed well in a comment to theModel Code of Evidence:"In a society as complicated instructure as ours and governed bylaws as complex and detailed asthose imposed upon us, expert legaladvice is essential. To the furnish-ing of such advice the fullest free-dom and honesty of communica-tion of pertinent facts is a prereq-uisite. To induce clients to makesuch communication, the privilegeto prevent their later disclosure issaid by courts and commentators tobe a necessity. The social good de-rived from the proper performanceof the functions of lawyers actingfor their clients is believed to out-weigh the harm that may comefrom the suppression of the evi-dence in specific cases." ALI, MODELCODE OF EVIDENCE, Rule 210, Com-ment a (1942).The privilege has undergone peri-odic attack by academicians of re-pute-Bentham, Morgan, McCor-mick, and Radin, to name a few.But the bar and the bench havebeen consistently alert to any at-tempt to narrow its scope.APPLICABILITY TO CORPORATIONSPrior to 1962 there was no casethat denied the availability of theprivilege to a corporation if the16NovemberTHE ATTORNEY-CORPORATE CLIENT PRIVILEGE 17requirements of the privilege weremet. An impressive line of casesassumed that a corporation couldassert the privilege.The American Law Institute'sMODEL CODE OF EVIDENCE [Rule 209]and the Uniform Rules of Evidence[Rule 26(3)] included corporationsin the definition of clients whocould assert the privilege.Radiant Burners CasesHence, two decisions by ChiefJudge Campbell of the NorthernDistrict of Illinois, which deniedthe availability of the privilege toa corporation in the Radiant Burn-ers cases, came as a considerableshock to most lawyers who thoughtthe matter was free from doubt.Radiant Burners, Inc. v. AmericanGas Ass'n, 207 F. Supp. 771 (N.D.Ill. 1962), 209 F. Supp. 321 (N.D.Ill. 1962).Chief Judge Campbell reasonedthat:* Historically the attorney-clientprivilege, like the privilege againstself-incrimination, was intended tobe available only to natural persons;* The essential requirement of con-fidentiality could not exist withina corporation, which necessarilymust operate through agents; ande The visitatorial powers of the stateweaken the bases for the assertionof the privilege by a corporation.ReversalThere followed a brief period ofconsiderable consternation, high-lighted by a number of highly crit-ical comments in the law reviews.The furor subsided, however, whenthe Seventh Circuit reversed Radi-ant Burners [320 F. 2d 314 (1963)].The opinion made clear whatmost observers has assumed previ-ously-that, unlike the privilegeagainst self-incrimination, the at-torney-client privilege does not existout of deference to a personal right,but as a rule to facilitate the work-ing of justice. Specifically, theCourt held:"A corporation is entitled to thesame treatment as any other 'client'-no more and no less. If it seekslegal advice from an attorney, andin that relationship confidentially'communicates information relatingthe advice sought, it may protectitself from disclosure, absent itswaiver hereof." Id. at 324.There seems little chance thatChief Judge Campbell's views willexperience a renaissance. However,Radiant Burners has had a pro-found influence on the attitude ofcourts towards the assertion of theprivilege. The reasons suggested byJudge Campbell as a basis for hisconclusion that the privilege isnever available to a corporationhave been utilized by other courtsto test the assertion of the privilegein particular cases.18 THE PRACTICAL LAWYER (Vol. 15-No. 7)There seems to be a clear recog-nition that the difference betweena corporation and a natural personaffects whether in a given case acommunication can be appropriate-ly characterized as that of a cor-poration rather than its agent.There seems to be little doubt thatthe privilege will not be availableto allow a corporation to immunizeits records from disclosure by plac-ing its papers and documents in thehands of its lawyers for custodialpurposes. Nor is there any tendencyby the courts to extend the privilegeto business advice simply becauseit is given by a lawyer.TESTS OF APPLICABILITYThe cases provide some illumi-nating examples of the difficulty indetermining when the privilegeexists.Communications to CorporateAgentsAn initial question sometimesinvolves the issue of whether thecorporation is the client when in-formation is communicated to alawyer by an agent of the corpora-tion. In some cases, the agent maybe only a witness; in others he maybe speaking as the representative ofthe corporation. What test shouldbe applied to determine whetherthe communication is privileged asto the corporation?There have been suggestions thatthe client is the corporation when-ever any agent originates a com-munication for the advice of com-pany counsel on a matter concern-ing the interests of the corporation.See Comment, The Lawyer-ClientPrivilege: Its Application to Cor-porations, the Role of Ethics, andIts Possible Curtailment, 56 Nw.U.L. REv. 235, 242 (1961).Other decisions would stop shortof all agents, but would clearly per-mit a fairly broad group to speakfor the corporation. See UnitedStates v. United Shoe MachineryCorp., above; Zenith Radio Corp.v. Radio Corporation of America,121 F. Supp. 792, 795 (D. Del.1954). Others have suggested thatthe test should be whether theagent's communication related tohis corporate responsibilities. Burn-ham, Confidentiality and the Cor-porate Lawyer, 56 ILL. BAR J. 542(1968).On occasion it has been suggestedthat the rank in the corporation ofthe employee making the communi-cation should be the determinant.This contention was made in Cityof Philadelphia v. WestinghouseElectric Corp., 210 F. Supp. 483,485 (E.D. Pa. 1962).Several courts have formulated astandard in terms of power to con-trol. Garrison v. General MotorsCorp., 213 F. Supp. 515 (S.D. Cal.1963); Day v. Illinois Power Co.,50 Ill. App. 2d 52 199 N.E. 2d 802(1964).In City of Philadelphia v. West-inghouse Electric Corp., above,NovemberTHE ATTORNEY-CORPORATE CLIENT PRIVILEGE 19Judge Kirkpatrick stated the test inthese terms:"Keeping in mind that the ques-tion is, Is it the corporation whichis seeking the lawyer's advice whenthe asserted privileged communica-tion is made?, the most satisfactorysolution, I think, is that if the em-ployee making the communication,of whatever rank he may be, is ina position to control or even to takea substantial part in a decisionabout any action which the cor-poration may take upon the adviceof the attorney, or if he is an au-thorized member of a body orgroup which has the authority,then, in effect, he is (or personifies)the corporation when he makes hisdisclosure to the lawyer and theprivilege would apply. In all othercases the employee would be merelygiving information to the lawyerto enable the latter to advise thosein the corporation having the au-thority to act or refrain from actingon the advice." 210 F. Supp. 483,485 (E.D. Pa. 1962).Thus, in a matter of overwhelm-ing importance to a corporation,a department or division headmight not be able to speak for thecorporation, while in cases wherean employee is actually authorizedto make a decision after consulta-tion with counsel-as, for example,the head of a claims departmentdealing with a minor personal in-jury claim-a communication to anattorney concerning the matterwould be privileged as to the cor-poration. Id. at 486.The statement of an agency out-side the "control group" wouldsimply be that of a witness. Thecorporation might still resist dis-covery on the "work product" con-cept of Hickman v. Taylor [329U.S. 495 (1947)], but the statementwould not be privileged.CONTROL GRouP TESTThe "control group test" has beenvigorously criticized. See Burnham,above, at 545-48; Heininger, TheAttorney-Client Privilege as It Re-lates to Corporations, 53 ILL. BAR.J. 376, 384 (1965).It has been pointed out that theadoption of such a test may meanthat outside counsel who engagesin internal investigations as a partof a vigorous program of antitrustcompliance may be developing evi-dence against a client when he ex-changes communications with cor-porate agents who are not withinthe control group.Furthermore, the test seems todeny the privilege to the corpora-tion when the communication ismade by middle-management ex-ecutives who may not qualify forinclusion in the control group, butwho have responsibilities for mak-ing recommendations that are fre-quently ratified perfunctorily byhigher management: See Maurer,Privileged Communications and the19196920 THE PRACTICAL LAWYER (Vol. 15-No. 7)Corporate Counsel, 28 ALA. LAW.352, 367-69 (1967).ConfidentialityA second problem deals with therequirements of confidentiality. Acommunication that is not made inconfidence, as when an oral com-munication is made in the presenceof strangers or a written commu-nication is distributed generallythroughout a corporation, will notbe privileged.A corporation must operatethrough agents and, therefore, someagents of the corporations are nec-essarily privy to any communica-tion with the attorney for the cor-poration. However, it does not fol-low that a communication may bedisclosed indiscriminately withinthe corporation and still be pro-tected.The best standard seems to recog-nige that disclosure may be madewithin the corporation on a "needto know" basis without destroyingthe privilege. See Comment, 56Nw. U.L. REv. 235, 248 (1961).It should, of course, be recog-nized that a communication thatwas originally confidential, and thusprivileged, may lose is status bysubsequently being broadcast to alarger constituency. Indeed, it hasbeen held that the privilege may belost by filing a document in thegeneral files of the corporation. SeeUnited States v. Kelsey-HayesWheel Co., 15 F.R.D. 461 (E.D.Mich. 1954); Cote v. KnickerbockerIce Co., 160 Misc. 658, 290 N.Y.Supp. 483 (N.Y. Munic. Ct. 1936);cf. Fey v. Staufler Chem. Co., 19F.R.D. 526 (D. Neb. 1956).Nature of AdviceA third problem area involves thekind of advice that is sought orgiven. The privilege applies onlywhen legal advice is sought from aprofessional legal adviser who isacting in that capacity.Normally, there is no problemwhen the ordinary citizen consultsa lawyer. Frequently, however, law-yers render commercial and eventechnical advice to corporations inaddition to advice concerning thelaw.Thus, it is sometimes necessaryfor the courts to characterize a com-munication as one seeking or pro-viding business advice, and thus notprivileged, or one seeking legal ad-vice and, therefore, within the pro-tection of the privilege. See UnitedStates v. Vehicular Parking, Ltd.,52 F. Supp. 751 (D. Del. 1943).Frequently, however, the adviceof a lawyer may involve mixedlegal-business advice. As JudgeWysanski has pointed out:"The modern lawyer almost in-variably advises his client upon notonly what is permissible but alsowhat is desirable. And it is in thepublic interest that the lawyeishould regard himself as more thanpredicter of legal consequences. Hisduty to society as well as to his20NovemberTHE ATTORNEY-CORPORATE CLIENT PRIVILEGE 21client involves many relevant social,economic, political, and philosophi-cal considerations. And the privi-lege of nondisclosure is not lostmerely because relevant nonlegalconsiderations are expressly statedin a communication which also in-cludes legal advice." United Statesv. United Shoe Machinery Corp., 89F. Supp. 357, 359 (D. Mass. 1950).If predominantly legal advice issought or given, the fact that busi-ness advice is also contained in thecommunication should not affectthe privilege. But where a com-munication neither invited nor ex-pressed any legal opinion, or wherethe advice sought or given islargely of a business nature, thecommunication will not be pro-tected. Zenith Radio Corp. v. Ra-dio Corporation of America, 121 F.Supp. 792, 794 (D. Del. 1954).House CounselIt has been suggested that theprivilege should not apply whenhouse counsel are involved. Wisev. Western Union Telegraph Co.,36 Del. (6 Harr.) 456, 178 A. 640(1935).An argument can be made forthe proposition that no incentive todisclosure is needed when the at-torney is himself an officer of thecorporation. However, it seemsprobable that there would be muchgreater reluctance in confiding inhouse counsel if there were noprivilege. The need for frequentadvice of counsel who is readilyaccessible provides a cogent reasonfor encouraging the use of housecounsel.The fact that house counsel arepaid annual salaries, occupy the cor-poration's buildings, are employeesrather than independent contrac-tors, and give advice to one regularclient rather than a number ofclients are not significant distin-guishing characteristics insofar asthe availability of the privilege isconcerned. Consequently, the courtshave refused to deny categoricallythe availability of the privilege tothe corporation-house counsel com-munication. See, e.g., United Statesv. United Shoe Machinery Corp.,above; Zenith Radio Corp. v. RadioCorporation of America, above;American Cyanamid Co. v. Her-cules Powder Co., 211 F. Supp. 85(D. Del. 1962).FUNCTION TESTWhether the privilege applies toa communication to or from housecounsel should depend primarilyupon the function performed by theattorney in gathering or preparingthe material in question. The sug-gestion has been made that whethera lawyer could receive a privilegedcommunication depends on the rel-ative amount of time spent in therole of attorney as compared to theamount of time spent in businessaffairs. American Cyanamid Co. v.Hercules Powder Co., above.A preferable approach would ex-22 THE PRACTICAL LAWYER (Vol. 15-No. 7)amine the function he performedwith reference to each individualcommunication, appreciating that alawyer who spends most of his timegiving business advice may be con-sulted on some matters solely forlegal assistance.ADMINISTRATIVE SAFEGUARDSSeveral distinguished commenta-tors have made some cogent sugges-tions of administrative techniquesto minimize the danger that theprivilege would not protect com-munication to and from housecounsel. Haight, Keeping the Privi-lege Inside the Corporation, 18 Bus.LAW. 551 (1963); Maurer, Privi-leged Communications and the Cor-porate Counsel, 28 ALA. LAW. 352,385 (1967); Burnham, Confidential-ity and the Corporate Lawyer, 56ILL. BAR J. 542, 543-44 (1968); Hein-inger, The Attorney-Client Privilegeas It Relates to Corporations, 53 ILL.BAR J. 376, 383-84 (1965).Their suggestions are consolidat-ed into the following list:* Place legal responsibility of thecorporation under one person. Pat-ent counsel, tax counsel, claimscounsel, and others in organiza-tional responsibility should be un-der the supervision of the chieflegal attorney." Use legal titles for legal personnel.* Adopt special law departmentstationery, separate from company'sbusiness stationery.* Distinguish legal from businessadvice and label legal advice by anappropriate legend.e Be careful of sequence. Channelreports directly between the legaldepartment and the appropriate cor-porate executive-not indirectly.* Segregate law department filesand office files. Confidential com-munications should not be main-tained in general files.* Communicate to as few personsas possible. Corporate conferencesat which confidential communica-tion or legal advice is sought shouldbe limited to necessary personnelwho have a high degree of respon-sibility for the subject matter.o Where possible, each legal com-munication should be set up to dealwith a single legal problem, pref-erably with facts and businessproblems set up and predicated forlegal conclusions.o Beware of the copying machine.Thomas Austern goes so far as torecommend that the original bemarked "Legal Opinion-Not ToBe Copied-Return to Legal Divi-sion." Austern, Corporate CounselCommunication: Is Anybody Lis-tening? 17 Bus. LAW. 868, 871(1962).NovemberTHE ATTORNEY-CORPORATE CLIENT PRIVILEGE 23* Adopt and enforce record reten-tion schedules. Mr. Austern sug-gests the adoption of "an acceler-ated program of document disposi-tions." He suggests that the ruleshould be that "in a documentarygarden, an annual is not a peren-nial." Ibid.9 Where possible, have attorneysadmitted to local bar. Nonmember-ship has been held "highly proba-tive" of the absence of the privi-lege. American Cyanamid Co. v.Hercules Powder Co., 211 F. Supp.85 (D. Del. 1962).CHANGING ATTITUDESThese matters have not been thesubject of as extensive litigationduring the last few years as duringthe 1962-1964 period. The problemarea has shifted to the issue dis-cussed in the following section byMr. Brereton.The problems alluded to abovecannot be answered by a formula.There is the constant conflict be-tween the policy that seeks to ascer-tain the truth and that which en-courages the use of legal advicethrough the device of the privilege.The more deeply one is convincedof the social necessity of permittingcorporations to consult frankly andprivately with legal advisers, themore willing one should be to ac-cord them a flexible and generousprivilege. Simon, The Attorney-Client Privilege as Applied to Cor-porations, 65 YALE L. J. 953, 990(1956). The more convinced oneis that the privilege is being usedas a shield by the corporation to pre-clude access to the truth by immu-nizing vast quantities of relevantevidence, the more restrictive willbe the interpretation given to theprivilege.In the long run, a different atti-tude may be demonstrated in the"private" cases involving routinediscovery than in the "public" casesinvolving government regulation.Only time will tell.In these days of business ascendency, many large corporationshave their own staffs of "house counsel"; and the professional statusof the lawyer acquires fuzzy edges as he takes his place on thecompany's payroll with other employees.BERYL HAROLD LEvY, CORPORATION LAWYER: SAINT ORSINNER? 9 (Chilton Co., Philadelphia, Pa. 1961).1969

Fundamentals of the Attorney-Client Privilege

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Fundamentals of the Attorney-Client Privilege

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