Leathers, John R.

English

University of New Mexico

Volume 10 
Issue 4 Fall 1970 
Fall 1970 
Privilege in Federal Diversity Cases 
John R. Leathers 
Recommended Citation 
John R. Leathers, Privilege in Federal Diversity Cases, 10 Nat. Resources J. 861 (1970). 
Available at: https://digitalrepository.unm.edu/nrj/vol10/iss4/10 
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COMMENTS
PRIVILEGE IN FEDERAL DIVERSITY CASES
The Federal Rules of Civil Procedure having been enacted to
simplify the litigation process, it is surprising to note that one area of
the law-that of privilege for witnesses testifying in diversity cases-is
more confused than it was prior to the passage of the Rules in 1938.
This problem area will be examined through the use of two hypo-
thetical situations. There are three possible solutions to the problem.
A court may view the issue as procedural, as substantive leading to an
automatic application of the privilege statute of the forum state, or
as substantive looking to the conflicts rules of the forum state to
determine whether to recognize the privilege.
Assume that a certified public accountant is testifying in a case
brought in federal district court due to the diversity of citizenship of
the parties. The trial is being held in a state which has a statute
extending to the accountant a privilege not to disclose information
given to him in confidence. Does the federal court recognize this
privilege? To further complicate the hypothetical, assume that the
state in which the court sits does not recognize such a privilege but
the state in which the accountant was hired and in which the con-
fidential information passed does. Does the federal court in this case
compel disclosure or recognize the privilege?
These two hypothetical situations, while appearing to be quite
simple, are in reality among the most difficult questions a federal
judge can be called upon to answer. As noted above, there are three
possible answers, with cases and treatises to support each. Before
these three positions can be understood, it is necessary to understand
the background of the privilege issue. The treatment of privilege
prior to the enactment of the Federal Rules of Civil Procedure is the
basic reason for the confusion in this area today.
Prior to the promulgation of the Federal Rules in 1938, the two
hypotheticals could have been dealt with quite easily. Under the rule
of Connecticut Mutual Life Insurance Company v. Union Trust Com-
pany' it was
*.. the duty of the courts of the United States, in trials at common
law, to enforce-except where the laws of the United States other-
wise provide - the rules of evidence prescribed by the laws of the
Statein which they sit.
2
1. 112 U.S. 250 (1884).
2. Id. at 256.
NA TURAL RESOURCES JOURNAL
The question of privilege being an evidentiary one, the federal court
merely applied the privilege rule of the state in which it sat. This
rather easy solution to the hypotheticals posed above lasted only
until the adoption of the Federal Rules of Civil Procedure in 1938.
If the question of privilege were merely procedural, as was thought
prior to the adoption of the Rules, then the solution to the two
hypotheticals is obvious. Since the Federal Rules provided that pro-
cedural matters were to be governed by the Rules and substantive
matters by state law in diversity cases, the question of privilege
would be governed by the appropriate portion of the Rules.
All evidence shall be admitted which is admissible under the
statutes of the United States, or under the rules of evidence hereto-
fore applied in the Courts of the United States on the hearing of
suits in equity, or under the rules of evidence applied in the courts
of general jurisdiction of the state in which the United States Court
is held. In any case, the statute or rule which favors the reception of
the evidence governs....3
If the question of privilege is procedural, then clearly the rule which
most favors the reception of the evidence is the one to be followed.
In both the hypothetical situations posed above, the federal court
would compel disclosure because in the first case there is no federal
privilege for accountants and in the second the forum state does not
recognize such a privilege.
The position that the question of privilege is procedural has found
support both in treatises and cases. As Green points out:
... the state law would not be binding when a state statute granted
a privilege ... but the law of the state would control when it denied
a privilege and therefore made the particular evidence compellable. 4
His position strictly follows Rule 43(a) in that whichever rule favors
the disclosure is the one to be followed. A series of cases decided in
the Northern District of Ohio have also held that the question of
privilege is procedural and is to be governed by the rule most favor-
ing the disclosure.' These four cases are not as strong as they might
be since all involve the attorney-client privilege. All four hold the
federal attorney-client privilege should be followed rather than the
state privilege and that the federal privilege does not apply to pre-
3. Fed. R. Civ. P. 43(a).
4. Green, The Admissibility of Evidence Under the Federal Rules, 55 Har. L. Rev. 197,
208-9 (1941).
5. Scourtes v. Fred W. Albrecht Grocery Co., 15 F.R.D. 55 (N.D. Ohio 1953); Brook-
shire v. Pennsylvania Railroad, 14 F.R.D. 154 (N.D. Ohio 1953); Humphries v. Pennsylvania
Railroad, 14 F.R.D. 177 (N.D. Ohio 1953); and Panella v. Baltimore and Ohio Railroad, 14
F.R.D. 196 (N.D. Ohio 1951).
[Vol. 10
PRIVILEGE IN FEDERAL DIVERSITY CASES
trial discovery proceedings. These cases have been criticized by
Weinstein as incorrect6 and seem doubtful since they hold that the
information was privileged under either federal or state law, but is
simply not privileged from discovery prior to trial. Privilege is indeed
a hollow protection if it only applies at trial, since just as much
damage can be done in discovery as at trial.
Perhaps the oddest case to hold that the question of privilege is
procedural is Ex parte Sparrow. 7 This case involved the taking of a
deposition in a state which recognized a privilege for use in a state
which did not recognize that privilege. The court in this case refused
to classify the question of privilege as substantive (thus leaving the
assumption that the question is procedural), but it did apply the
privilege law of the state in which it sat. The reasoning is indeed
questionable. If the privilege area is procedural, as the court implied,
then Federal Rule 43(a) should compel the disclosure. This was not
the result. If, on the other hand, the court follows the law of the
state, then the question must be substantive. This was not the result
either. What this court found then was an impossibility-a procedural
question which is governed by state law. Such a result violates the
rule of Erie Railroad Co. v. Tompkins' and makes the case of very
doubtful value.
Although there is some authority for the position that the ques-
tion of privilege is procedural, the weight of authority holds that it is
substantive. Before considering the substantive aspects of the ques-
tion, it should be noted that the question is one which has not been
ruled upon by the Supreme Court and that no sure answer is possible
at this time.
If the question of privilege is not held to be procedural, then it
must be substantive. This has been the result in most federal courts.
As Weinstein points out:
Under the acid test of Erie, privileges - whether statutory or com-
mon law - are clearly etched as policy matters, as matters of
substance.... 9
This result was reached judicially in the case of Massachusetts Mutual
Life Insuraance Company v. Breit I where it was held:
We find that reason, as well as authority, supports the view that
the state rule as to the patient-physician privilege should govern. The
6. Weinstein, Recognition in the United States of the Privileges of Another Jurisdiction,
56 Colum. L. Rev. 535, 546 (1956).
7. 14 F.R.D. 351 (N.D. Ala. 1953).
8. 304 U.S. 64 (1938).
9. Weinstein, supra note 6 at 546.
10. 311 F.2d 463,466 (2d Cir. 1962).
October 19701
NATURAL RESOURCES JOURNAL
privilege reflects a legislatively determined state policy .... The rule
of privilege is unlike the ordinary rules of practice which refer to the
process of litigation, in that it affects private conduct before litiga-
tion arises.' 1
The same reasoning led to a similar result in Republic Gear Company
v. Borg-Warner Corporation.' 2 In both cases the fact that the ques-
tion of privilege in some respects governs the conduct of the parties
prior to litigation was found to differentiate it from ordinary rules of
procedure and make it substantive. This position can be seen clearly
in R. & J. Dick Co. v. Bass,' " where it was held that:
Second, that matters of privilege and competency are ordinarily
considered as being substantive within the meaning of Erie Ry. v.
Tompkins ... , so that, at least where a state statute is involved, a
federal court will in a diversity case, follow the law of the state in
which it sits. 1 4
These cases are illustrative of the weight of authority which holds
that the question of privilege is substantive. In the first hypothetical
situation outlined above, the result is clearly that the federal court
will follow the privilege statute of the forum state and not compel
disclosure. The second situation is not so easily solved.
If it is assumed that privilege is a substantive matter, then it is
certain that the federal court will apply state law, since under the
doctrine of Erie Railroad Co. v. Tompkins' I there is "no federal
general common law."' 6 A difficult question is raised by the second
hypothetical. Which state law should the federal court apply? Should
it apply the law of the state in which it sits or the law of the state
where the transaction took place?
There is a great deal of authority to the effect that the federal
court should apply the law of the state in which it sits on privilege
questions. As has been pointed out by a treatise writer: "In so-called
'diversity' cases, the federal courts have followed in a majority of
cases the privilege rule of the state in which they sit .... "1 The line
of authority for this statement began with Munzer v. Swedish Amer-
ican Line' 8 which held that "On the question of privileged com-
munications, the Federal Courts follow the law of the state of the
forum."' 9 A similar result was reached in a number of other cases.2 0
11. Id. at 466.
12. 381 F.2d 551 (2d Cir. 1967).
13. 295 F. Supp. 758 (N.D. Ga. 1968).
14. Id.
15. 304 U.S. 64 (1938).
16. Id. at 78.
17. Annot., 95 A.L.R. 2d 320, 327 (1964).
18. 35 F. Supp. 493 (S.D.N.Y. 1940).
19. Id. at 496.
[Vol. 10
PRIVILEGE IN FEDERAL DIVERSITY CASES
The reasoning behind these decisions is perhaps best illustrated in
Krizak v. W.C. Brooks & Sons, Incorporated2' which, in reaching a
similar result to these cases, held:
There is, however, respectable authority for the position that federal
equity courts followed state statutes on privilege of wit-
nesses .... During the era before the Federal Rules of Civil Pro-
cedure were promulgated, when federal courts followed state
procedural and statutory substantive law, this might have been the
required result .... Also, a serious problem of interference with state
policy might arise if the federal government were to completely
ignore state created confidential relationships .... Relying more on
the latter reasoning than on the former, probably the majority of
federal courts have a~plied state statutorily created privileges, at
least in diversity cases. 2
The above cases would seem to solve the second hypothetical of
the court sitting in a state without a privilege and the transaction
having taken place in a state with a privilege quite easily. The federal
court should simply apply the law of the state in which it sits. This
would compel disclosure in the second hypothetical since the state of
the forum does not recognize the privilege. The cases outlined above
seem to lead to that result, but need not compel it. None of the cases
cited above dealt with a situation like the second hypothetical. They
all involved the rather easy case of the forum state and place of the
transaction being the same. They did not involve the intricate con-
flict of laws problem found in the second hypothetical. The only
case to automatically apply the privilege law of the state in which it
sat was Palmer v. Fisher,2" in which it was held that an Illinois
federal court sitting in a diversity case could suppress a deposition
for use in Florida when Illinois recognized a privilege and Florida did
not. An automatic application of the law of the forum such as that in
Palmer v. Fisher24 may be incorrect in that it violates the outcome-
determination test.
The outcome-determination test, which is an outgrowth of Erie
20. Van Wie v. United States, 77 F. Supp. 22 (N.D. Iowa 1948); In re Albert Lindley Lee
Memorial Hospital, 115 F. Supp. 643 (N.D.N.Y. 1953), affd 209 F.2d 122 (2d Cir. 1953),
cert. denied, sub nom. Cincotta v. U.S., 347 U.S. 960 (1954); Padovani v. Liggett and Myers
Tobacco Company, 23 F.R.D. 255 (E.D.N.Y. 1959); Spray Products Corporation v.
Sprouse, Inc., 31 F.R.D. 244 (E.D. Pa. 1962); Hill v. Huddleston, 263 F. Supp. 108 (D.Md.
1967); and New York Underwriters Insurance Company v. Union Construction Company,
285 F. Supp. 868 (D.Kan. 1968).
21. 320 F.2d 37 (4th Cir. 1963).
22. Id. at 42-3.
23. 228 F.2d 603 (7th Cir. 1955), cert. denied, sub nom. Fisher v. Pierce, 351 U.S. 965
(1956).
24. Id.
October 19701
NA TURA L RESOURCES JOURNAL
Railroad Co. v. Tompkins,2 s was first formulated in Guaranty Trust
Co. v. York, 2 6 in which the Supreme Court held:
In essence, the intent of that decision (Erie) was to insure that, in all
cases where a federal court is exercising jurisdiction solely because of
the diversity of citizenship of the parties, the outcome of the litiga-
tion in the federal court should be substantially the same, so far as
legal rules determine the outcome of a litigation, as it would be if
tried in a State court. 2 7
The strictness of the outcome-determination test was relaxed some-
what in Byrd v. Blue Ridge Electric Cooperative, Inc.,2 8 in which the
Supreme Court recognized that the test might have to be violated in
the face of a compelling, federal interest (in that case the right to a
jury trial). The rationalei behind the outcome-determination test is
best illustrated in Hanna i: Plumer, Executor2 9 in which it was said
that:
The outcome-determirnion test therefore cannot be read without
reference to the twin aims of'the Erie rule: discouragement of
forum-shopping and avoidance of inequitable administration of the
laws.30
The relationship of this test to the second hypothetical is that an
automatic application of the privilege rule of the state in which it sits
by the federal court could give a different outcome than if the case
were tried in a state court.
Since under the rule of Klaxon Company v. Stentor Electric
Manufacturing Co., Inc.,3 ' it is quite clear that the federal court is
obliged to follow the conflict of laws rules of the state in which it
sits, the court should loqk to the conflicts rules of the forum before
deciding the question of privilege. It is quite conceivable that in some
instances a state court would not apply its own privilege rule. This
could be the case if the state's conflicts rules said that the state of
the transaction should govern as to privilege. This was indeed the
case in Application of Cepeda.3 2 In that case, plaintiff was suing in
California which had a privilege and sought a deposition in New York
which did not recognize the privilege. The New York Southern Dis-
25. 304 U.S. 64 (1938).
26. 326 U.S. 99 (1945).
27. Id. at 109.
28. 356 U.S. 525 (1958).
29. 380 U.S. 460 (1965).
30. Id. at 468.
31. 313 U.S. 487 (1941).
32. 233 F. Supp. 465 (S.D.N.Y. 1964) rev. on other grounds 328 F.2d 869 (9th Cir.
1964), cert. denied, 379 U.S. 844 (1964).
[Vol. 10
PRIVILEGE IN FEDERAL DIVERSITY CASES
trict Court looked to the conflicts rules of New York and then found
that the privilege granted by California should be enforced in New
York. In view of the outcome-determination test this would seem to
be a correct result and the most reasonable position on the question
of privilege in diversity cases.
This position of looking first to the conflicts rules of the forum
has found some support in treatises and cases outside Application of
Cepeda.3  As Louisell points out:
To me it seems clear that under the constitutional rationale of the
Erie case, as pronounced by Mr. Justice Brandeis and never receded
from by the Supreme Court .... the federal courts in diversity cases
now have the constitutional duty to follow the proper state law of
privilege, whether statutorily or judicially declared.34 (emphasis
added)
This position is similarly supported by dicta in Reid v. Moore-
McCormack Lines, Inc. :3 5
Federally, privilege is perhaps best thought of as a procedural rule
which looks outward to the substantive law of the appropriate local
jurisdiction to receive its -concrete form in a given case.36 (emphasis
added)
It can be implied from the emphasized language of these two sources
that the choice of which state law to apply is not automatic. A
choice must be made. If such a choice is to be made, under the rule
of Klaxon Company v. Stentor Electric Manufacturing Co., Inc. 37 it
can only be made by looking to the conflicts rule of the forum state
to decide the privilege question.
There are three possible ways to answer the two hypotheticals
posed at the first of this Note. It is possible to regard privilege as
procedural. If this is the case, the federal court will compel the
disclosure in both hypotheticals under Rule 43(a). This is not a
theory much favored today. It is hard to characterize as procedural
something which is as widespread in its effects on parties prior to
litigation as is the privilege question. If the privilege is classified as
substantive, state law must apply. An automatic application of the
privilege rule of the forum will result in non-disclosure in the first
hypothetical and disclosure in the second. The case for automatic
33. Id.
34. Louisell, Confidentiality, Conformity and Confusion: Privileges in Federal Court
Today, 31 Tul. L. Rev. 101, 117 (1956).
35. 49 F.R.D. 91 (S.D.N.Y. 1970).
36. Id. at 93.
37. 313 U.S. 487 (1941).
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868 NATURAL RESOURCES JOURNAL [Vol. 10
application is weakened by the fact that it would in some cases
violate the outcome-determination test. The better position would be
for the court to look to the conflicts rules of the forum in deciding
whether to recognize the privilege. To do so will result in a correct
decision under the outcome-determination test in all cases. None of
these alternatives has been ruled upon by the Supreme Court, and
until that happens, each theory has support for its position. The
better theory may not turn out to be the correct one.
JOHN R. LEATHERS


Privilege in Federal Diversity Cases

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