Diversified Industries, Inc. v. The Honorable James H. Meredith, Chief Judge of the United States District Court for the Eastern District of Missouri ( 1978 )

HENLEY, Circuit Judge.

This is an original petition for a writ of mandamus directed at The Honorable James H. Meredith, Chief Judge of the United States District Court for the Eastern District of Missouri, by Diversified Industries, Inc. which is the defendant in a case pending in the district court entitled The Weatherhead Company, Plaintiff v. Diversified Industries, Inc., Defendant, Docket No. 76-623C(l). In the instant proceeding Diversified seeks to protect from discovery the contents of a certain memorandum, dated June 19, 1975, and a written report, dated December, 1975, both prepared for the benefit of Diversified by the Washington, D. C. law firm of Wilmer, Cutler & Pickering, hereinafter called Law Firm. Petitioner also seeks to protect certain corporate minutes in which reference is made to the memorandum and report of Law Firm.

Weatherhead sought to obtain the materials in question by means of pretrial interrogatories and a motion for production of documents to which Diversified objected. In November, 1976 the district court overruled the objections without opinion. Diversified moved for reconsideration and alternatively asked the district court to certify the questions presented as appropriate for interlocutory appeal under 28 U.S.C. § 1292(b). On December 30, 1976 respondent refused both reconsideration and § 1292(b) certification, and in that connection filed a memorandum opinion. Finally, on January 6,1977 the district court affirmatively ordered disclosure of the materials and Diversified applied to this court for relief.

Petitioner contends that the documents in question are not subject to disclosure because they fall within the scope of the traditional attorney-client privilege and also are protected by the “work product” privilege dealt with in the leading case of Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947), and now expressed in Fed. R.Civ.P. 26(b)(3) which became effective in 1970.

Respondent, actually Weatherhead, denies that the material in question is covered by either privilege, and also contends that any originally existing privilege was waived effectively for purposes of the litigation in the district court when petitioner turned the material over to the Securities and Exchange Commission without protest in response to an agency subpoena in the course of an investigation that the Commission was conducting.

We heard the matter preliminarily on January 14,1977 and entered an order staying operation of the district court’s order of January 6 as it affected Law Firm’s memorandum and report and portions of the corporate minutes of Diversified relating to those documents pending final disposition of the case. We also called for the filing of briefs within a comparatively short period of'time.

We have considered the petition, the response thereto, the exhibits tendered by the respective parties, and their briefs. And we have also considered in camera material that was submitted to the district court and later to us. That material includes the memorandum and report of Law Firm and copies of the minutes of certain meetings of Diversified’s Board of Directors.

The writ of mandamus is not ordinarily available to a litigant to obtain appellate review of interlocutory discovery orders entered by a district court as litigation proceeds. However, where a claim of attorney-client privilege has been raised in and rejected by a district court, we have held that mandamus is available as a means of immediate appellate review. Pfizer, Inc. v. Lord, District Judge, 456 F.2d 545, 547-48 (8th Cir. 1972). See also Harper & Row Publishers v. Decker, 423 F.2d 487 (7th Cir. 1970), aff’d without opinion by an equally divided Supreme Court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971). We concluded, therefore, that we should consider the instant petition on the merits.

Petitioner is a Delaware corporation with its principal place of business in Clayton, Missouri. Its operations include sales of scrap copper which is the principal component of brass. Some and perhaps many of petitioner’s sales are made in interstate commerce.

Weatherhead is an Ohio corporation having its principal place of business at Cleveland. It is engaged in the manufacture and sale of brass and brass products, and it maintains a mill at Angola, Indiana.

For a number of years prior to the filing of its suit against Diversified in July, 1976 Weatherhead purchased large quantities of copper from Diversified which copper was shipped from Clayton to Angola. Naturally, there were extensive dealings between employees of Weatherhead engaged in the purchasing of copper and employees of Diversified engaged in the sale of copper. Diversified sold copper not only to Weath-erhead but also to other purchasers.

In 1974 and 1975 Diversified became engaged in two lawsuits in federal court in the Eastern District of Missouri, which litigation involved what is commonly known as a “proxy fight.” In the course of that litigation it came to light that Diversified may have established and maintained a “slush fund” which was used to bribe purchasing agents of other business entities including Weatherhead, and perhaps for other improper purposes.

Disclosures made in the course of the 1974-75 litigation, which litigation had no direct relationship to the suit that is now pending in the district court, attracted the interest of the Securities and Exchnage Commission. In due course the Commission conducted an official investigation of the affairs of Diversified and other corporations and individuals, and it later filed a suit for an injunction against Diversified and others in the United States District Court for the District of Columbia; a consent decree was entered in that case in late 1976.

In July, 1975 Weatherhead commenced its suit against Diversified in the district court alleging an unlawful conspiracy between Diversified and Weatherhead employees whereby the latter were paid large sums of money out of Diversified’s alleged “slush fund” to procure the purchase from Diversified by Weatherhead of large amounts of inferior copper. Weatherhead alleged conspiracy, tortious interference with the contractual relationships between itself and its employees, and violation of § 4 of the Clayton Antitrust Act, 15 U.S.C. § 15. On the common law counts of the complaint actual and punitive damages and an accounting of profits were sought. Treble damages were sought under the antitrust count. We assume that Diversified denies liability.

Weatherhead has employed extensive discovery in the case in the district court and doubtless has been able to acquire much information of value to it. However, Weatherhead has not yet been able to obtain access to Law Firm’s memorandum and report.

The history of those documents may be summarized as follows.

The 1974-75 litigation involving Diversified was settled amicably and before any official action had been taken by the SEC. However, the Board of Directors of Diversified concluded that it should cause an investigation to be made of the business practices of the company in the context of the disclosures that had been made in the course of the litigation. In the spring of 1975 Law Firm was employed to make that investigation and to report the results thereof to Diversified’s Board. Law Firm was not employed to give legal advice to Diversified and was not employed to represent diversified in any pending or potential litigation. The reason for the employment of Law Firm was its supposed expertise in the relevant field.

The memorandum of June 19, 1975 was of a purely preliminary nature and was written at a time when the employment of Law Firm was still somewhat tentative. Basically, the memorandum is a statement of historical matters, and an outline of how Law Firm proposed to conduct the investigation. The memorandum also discussed the extent to which information developed by the investigation would be immune from disclosure should disclosure be sought officially. As to the method of investigation, Law Firm stated that it proposed to interview individuals, including employees of Diversified, and Law Firm requested the Board to instruct corporate employees to cooperate in the investigation and to participate in interviews with Law Firm’s representatives. Law Firm also indicated that it intended to examine relevant records, and that it might find it necessary or convenient to employ an independent firm of accountants to assist in the investigation.

This memorandum was satisfactory to the Board, and Diversified employees were instructed to cooperate with Law Firm and to furnish information to Law Firm’s representatives.

The December, 1975 report was quite different from the June memorandum. The December document was a full and detailed report of the investigation; it identified persons who had been interviewed and set out the substance of what they had said; it also identified individuals who had refused to give any information. The report also dealt with the accounting aspect of the investigation which had been handled by the firm of Arthur Andersen & Co. The report further contained a number of recommendations both on the part of Law Firm and on the part of the accountants.

It may be doubted that the report itself would be admissible in evidence at a trial of the Weatherhead-Diversified case, but it obviously contains a great deal of material which is relevant to the controversy between the parties, and might well be extremely useful to counsel for Weatherhead in discovering and developing relevant and admissible evidence.

Included in the in camera material that we have examined are copies of corporate minutes covering meetings of the Board held from time to time between early May, 1975 and July, 1976. Those minutes would be privileged, if at all, only to the extent that they may reveal privileged matter communicated by Law Firm.

The minutes of many of the meetings refer to the fact that Law Firm had been employed, that a report had been received including recommendations, and that the recommendations were to be followed. For the most part, however, the minutes say nothing about what was in the report or what the recommendations were.

One exception is the minutes of a meeting of the Board that was held on September 3, 1975, while the investigation was in progress. Two representatives of Law Firm attended the meeting and advised the Board as to the status of the investigation and as to some of the Law Firm’s tentative findings.

The in camera material also includes a memorandum, dated January 30,1976, from Mr. Woodlief, the President of Diversified, to all corporate officers and heads of subsidiaries and divisions of the company. And that memorandum reveals to some extent the results of the investigation.

Coming now to the issues, it should be kept in mind that we are dealing with a claim of privilege based on two separate and distinct rules. The first is the long established rule that confidential communications between an attorney and his client are absolutely privileged from disclosure against the will of the client. That rule expresses the “attorney-client” privilege proper. The second rule is that information or materials assembled by or for a person in anticipation of litigation or in preparation for trial may be qualifiedly privileged from disclosure to an opposing party. That rule is known as the “work product” rule, and, as indicated, is now covered by Fed.R.Civ.P. 26(b)(3). Both rules are discussed thoroughly in 8 Wright & Miller, Federal Practice & Procedure, Civil, §§ 2017 and 2021-28.

In the frequently cited case of United States v. United Shoe Machinery Corp., 89 F.Supp. 357, 358-59 (D.Mass.1950), Judge Wyzanski stated the conditions under which the attorney-client privilege is applicable. He said:

. The privilege applies only if (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.

A shorter definition of the privilege, cited with approval in 8 Wright & Miller, op. cit., p. 133, is contained in Wonneman v. Stratford Securities Co., 23 F.R.D. 281, 285 (S.D.N.Y.1959): “. . . where legal advice of any kind is sought from a professional legal advisor in his capacity as such, the communications relevant to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal advisor except the protection be waived.”

While the privilege, where it exists, is absolute, the adverse effect of its application on the disclosure of truth may be such that the privilege is strictly construed. Radiant Burners, Inc. v. American Gas Ass’n, 320 F.2d 314, 323 (7th Cir. 1963); Underwater Storage, Inc. v. United States Rubber Co., 314 F.Supp. 546, 547-48 (D.D.C.1970); United States v. United Shoe Machinery Corp., supra, 89 F.Supp. at 358.

In order for the privilege to be applicable, the parties to the communication in question must bear the relationship of attorney and client. Moreover, the attorney must have been engaged or consulted by the client for the purpose of obtaining legal services or advice — services or advice that a lawyer may perform or give in his capacity as a lawyer, not in some other capacity. A communication is not privileged simply because it is made by or to a person who happens to be a lawyer. 8 Wright & Miller, op. cit., p. 136. See Underwater Storage, Inc. v. United States Rubber Co., supra; In re Natta, 264 F.Supp. 734, 741 (D.Del.1967), aff’d on other issues, 388 F.2d 215 (3d Cir. 1968); Georgia-Pacific Plywood Co. v. United States Plywood Corp., 18 F.R.D. 463, 464 (S.D.N.Y.1956); Zenith Radio Corp. v. Radio Corp. of America, 121 F.Supp. 792, 794 (D.Del.1954).

Whether the parties to a given communication are, respectively, attorney and client is a question which ordinarily presents no difficulty. A problem arises, however, where the client is a corporation that can communicate or receive communications only by or through its human agents. In such a case the question arises as to whether the privilege extends to communications by or to all classes of corporate agents or employees or whether the privilege is limited to communications by or to only limited classes of such agents or employees.

On that question the authorities are clearly divided. The existing state of the law was stated succinctly by District Judge Warriner in Virginia Electric & Power Co. v. Sun Shipbuilding & Dry Dock Co., 68 F.R.D. 397, 400 (E.D.Va.1975):

Two tests exist with respect to whether an employee of a corporation is a “client” for purposes of the lawyer-client privilege when dealing with communications from such employee to the lawyer for the corporation. The test most widely employed, apparently is the “control group” test formulated by the decision in Philadelphia v. Westinghouse Electric Corporation, 210 F.Supp. 483 (E.D.Pa.1962). This test requires that the communicant be in a position to control or take a substantial part in a decision about any action to be taken upon the advice of the lawyer, or that the communicant be a member of a group having such authority.

The control group test was rejected in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970), aff’d per curiam by equally divided Court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971). The Decker test holds that an employee of a corporation, though not a member of its control group, is sufficiently identified with the corporation so that his communication to the corporation’s lawyer is privileged where the employee made the communication at the direction of his superiors and where the subject matter upon which the lawyer’s advice was sought by the corporation and dealt with in the communication was within the performance by the employee of the duties of his employment.

Reference may also be made to the opinion of District Judge Hamphill in Duplan Corp. v. Deering Milliken, Inc., 397 F.Supp. 1146, 1163-67 (D.S.C.1974).

As to the work product rule, Fed.R.Civ.P. 26(b)(3) in pertinent part provides:

(3) Trial Preparation: Materials.

Subject to the provisions of subdivision (b)(4) of this rule, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

From a reading of Rule 26(b)(3) and of the discussion of the work product rule appearing in 8 Wright & Miller, op. cit., §§ 2021-28, it is at once apparent that the qualified immunity or privilege accorded to “work product” by the rule is to some extent broader than the absolute attorney-client privilege that has been discussed. While the “work product” may be, and often is, that of an attorney, the concept of “work product” is not confined to information or materials gathered or assembled by a lawyer. Further, a communication may be immune from discovery as work product even though it was not made to or by a “client” of an attorney.

However, the text of the rule makes it clear that the information or materials sought to be protected as “work product” must have been obtained “in anticipation of litigation or for trial.” Otherwise, the privilege, often referred to as “qualified immunity” is not available.

With the foregoing in mind, we pass to a consideration of Diversified's claim of privilege with respect to the several documents that are in controversy here.

We have no difficulty in upholding the action of the district court in refusing to accord protection to Law Firm’s memorandum of June 19, 1975. That memorandum contained no confidential information. It did little more than reveal the relationship between the parties, the purpose for which Law Firm had been engaged, and the steps which the Firm intended to take in discharging its obligation to Diversified. Such a document is not privileged. See Colton v. United States, 306 F.2d 633, 636 (2d Cir. 1962), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499 (1963); Bailey v. Meister Brau, Inc., 55 F.R.D. 211, 214-15 (N.D.Ill.1972); 8 Wright & Miller, op. cit., p. 138.

The questions presented with respect to the December, 1975 report of Law Firm are more difficult. We have concluded, however, that the report is not entitled to protection on the basis of either attorney-client privilege or work product immunity.

We find it unnecessary to decide whether the persons interviewed by the Firm’s representatives should be considered as “clients” because we are persuaded that Law Firm was not hired by Diversified to provide legal services or advice. It was employed solely for the purpose of making an investigation of facts and to make business recommendations with respect to the future conduct of Diversified in such areas as the results of the investigation might suggest. The work that Law Firm was employed to perform could have been performed just as readily by non-lawyers aided to the extent necessary by a firm of public accountants. Thus Diversified has failed to satisfy one of the requisites of a successful claim of attorney-client privilege.

That the contents of the report constituted “work product” cannot be denied; nor is there any question that the report contained the mental impressions, conclusions and opinions of those who wrote it, including their interpretations of what the interviews with individuals revealed.

However, it is obvious that Law Firm’s work was not done in preparation for any trial, and we do not think that the work was done in “anticipation of litigation,” as that term is used in Rule 26(b)(3), although, of course, all parties concerned must have been aware that the conduct of employees of Diversified in years past might ultimately result in litigation of some sort in the future.

It may be conceded to Diversified that material may be assembled in “anticipation of litigation” even though no suit has actually been filed. However, the work product rule does not not come into play merely because there is a remote prospect of future litigation. Zenith Radio Corp. v. Radio Corp. of America, supra, 121 F.Supp. at 795.

In 8 Wright & Miller, op. cit, pp. 198-99, it is said:

. Prudent parties anticipate litigation, and begin preparation prior to the the time suit is formally commenced. Thus the test should be whether, in light of the nature of the document and the factual situation in the particular ease, the document can fairly be said to have been prepared or obtained because of the prospect of litigation. But the converse of this is that even though litigation is already in prospect, there is no work product immunity for documents prepared in the regular course of business rather than for purposes of the litigation.

Law Firm’s investigation was not made and its report was not prepared because of any prospect of litigation involving Diversified. 'Law Firm was employed simply because the Board of Directors of Diversified wanted to know what actually had been going on and wanted to frame policies and procedures that in the future would protect it against repetitions of the prior misdeeds, if any, of its employees committed in the past.

As to the corporate minutes involved in the case, little need be said. Those minutes were not privileged in themselves, and since the report of Law Firm is not privileged, the minutes are not privileged to the limited extent to which they may disclose contents of the memorandum and report.

Since we conclude that the materials are not privileged, we do not reach the question of waiver raised by Weatherhead, which is a serious one.¹

The petition for the writ of mandamus is denied.

1 . We would be reluctant to hold that voluntary surrender of privileged material to a governmental agency in obedience to an agency subpoena constitutes a waiver of the privilege for all purposes, including its use in subsequent private litigation in which the material is sought to be used against the party which yielded it to the agency.