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REPORT ON ATTORNEY-CLIENT PRIVILEGE STUDY Source: Bulletin of the Section of Taxation, American Bar Association, Vol. 18, No.

3 (APRIL 1965), pp. 83-111 Published by: American Bar Association Stable URL: http://www.jstor.org/stable/20853916 . Accessed: 25/11/2013 08:59
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REPORT ON ATTORNEY-CLIENT PRIVILEGE STUDY *


BACKGROUND AND HISTORY In order to understand and place in its proper perspective the so called "attorney-client" in the complex society of the present day, it is necessary to go back and trace the birth and gradual evolution of the privilege from its earliest beginnings. it is commonly believed that the genesis of the attorney Although client privilege may be found in the early English common law, the or doctrine may be said to have been accorded even earlier privilege 1 countries and recognition in the civil codes of the continental European in the Roman Law.- As early as 123 B. C. an advocate was disqualified from testifying against his client.3 The rationale underlying this theory was that the advocate having an interest in the outcome of the litigation may have had a strongmotive formisstatement. As the Roman law developed during the centuries, the very nature of the concept evolved from one of incompetency to testify on the part of the advocate to one based upon a privilege of refusing testimony and the concomitant duty to refuse to testify.4 Indeed, even under this changing concept in the Roman law, in certain cases, where the advocate was called to testify, such testimony would be useless in establishing the cause of action of his client. Thus, there continued to co-exist in the later period, when the doctrine was based largely upon a duty to the client, the concept of the attorney's limited interest in the case as rendering him incompetent to testify.5

from geographical proximity and themilitary invasion of Eng Apart land by the Romans in 54 B. C. and its subsequent annexation into the Roman Empire in 43 A. D., it cannot be certain that the Roman law constituted the progenitor of the concept of the attorney-client privilege
* This

on the Attorney-Client Privi Report has been prepared by the Subcommittee as a part of the York, Chairman, lege Study, Richard Z. Steinhaus, New York, New on Civil and Criminal Tax Penalties, Section of Taxation, program of the Committee Louis Bar Association, Warren American V. Ludlam, Chairman; Jackson, Mississippi, Lee Abbott, Los Angeles, California, Vice Chairman. 1 Fish, On New York Evidence ? 516, (Lond Publications 1959). On Evidence 2McCormick, ?91, (West. 1954). 3 in Cicero's Time, p. 484, (1901). Greenridge, The Legal Procedure 4 16 Cal. L.R. 487, 489 (1928). Radin, 5 Radin, 16 Cal. L.R. 487, 489 (1928).

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common law. However, upon analysis, many as it evolved in the English similarities may be observed between the evolution of the concept of the attorney-client attorney or advocate testimony in the Roman law and common law. in the English privilege The foundation of the attorney-client privilege in English common law, the basis of American jurisprudence, may be traced back to the reign of Elizabeth I, where the privilege already appears to have established a firmfoundation in the law.6 In these formative days of English legal history, members of the bar were of the upper classes and the peerage. Since in composed largely were gentlemen almost by virtue of their position, the England lawyers a confidence constituted, as Dean duty of a gentleman to hold inviolate of the sanctity afforded the foundation the has stated, original Wigmore client's communications to his attorney.7 in social philosophy and the law of evidence between that of the Roman civilization and the more democratic con to disregard cepts of English society caused the English judicial system theRoman attitude of an attorney's disability to testifyunder any circum stances and replace itwith a concept where the privilege was related to the person of his client, although such privilege was still at that time essentially that of the barrister. or advocate was Although itwould appear that the English barrister not a member of the nobility to the extent of his counterpart in ancient Rome and early France, still there existed a powerful sense of dignity and fidelity which compelled him to be reticent in disclosing private The vast difference
communications.

The policy of the privilege at this juncture is succinctly stated by Dean Wigmore: "But the theory of its exclusion in those days was very different from that of modern times. It was an objective not a subjective?a consideration for the oath and the honor of the attorney rather than for the apprehensions of his client. . . . Clearly the attorney and the barrister are under a solemn pledge of secrecy, not less binding because 'The first duty of an attorney it it is implied and seldom expressed. has been said, is to keep the secrets of his client.' If the 'point of honor' was to be recognized at all as a ground for exemption, then no doubt this surely the attorney fell within this exemption. And was, in the beginning, and so long as any countenance was given to 8 that general doctrine, the theory of the attorney's exemption."
6Berd v. Lovelace, 88 Wigmore,

78 Wigmore, Evidence ?? 2290-2291 (2d ed 1923).


Evidence ? 2290 (McNaughton Rev.

Cary 88, 21 Eng. Rep.

33

(CH

1577). 1961).

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what Dean Wigmore refers to as "a voluntary pledge of secrecy." In an was addition, attorney certainly not subject to criticism or public censure for violating a confidence pursuant to the direction of a court of
law.

doctrine of the privilege as based upon the honor of the attorney gradually began to be eroded away and by the end of the 18th century was almost entirely repudiated by the concept that the function of litiga tion and law was to arrive at the full and complete truth, rather than to permit the concept of complete judicial disclosure to be obstructed by The

members

policy of protection

protection to the honor of the attorney.9 the early period when the privilege was During

a result of pressure from both the members of the judiciary and of the bar, the attorney-client privilege underwent a radical transformation in theory and scope. It became clear in the latter part of the 18th Century that the privilege was one existing for the benefit of the client and no longer tomerely serve the limited purpose of according As

the judicial and social attitude concerning the relationship of the attorney to his client as itwas then evolving in England during the 18th century. As a consequence this narrow view began to fall out of favor in the latter part of the 18th century. Logic dictated that the privilege extend to counsel's testimony concerning communications made in some other since completed litigation; and this approach was first given judicial recognition in themid-part of the 1700's.10 Once the dike was pierced, the doctrine was inundated with change; and the privilege rapidly was made applicable to the communications made in contemplation of litiga tion,11 communications made after inception of the dispute though not a view to directly with litigation,12 and finally to those seeking legal

a grounded upon for the honor of the attorney, the scope of the attorney's exemption, as the privilege was then called, was limited to communications received since the inception of the pending litigation and for its purposes only. A point of honor created a privilege to this the litigation at bar terminated, limited extent and no further. When the ratson a" etre for the privilege, the attorney's honor, no longer existed and the exemption was vitiated. This quite limited scope of the privilege was out of juxtaposition with

9 to Trials at Nisi Prius 279, 284 (1772) Buller, An Introduction to the Law Relative 1812). (7th Ed. Bridgman, 10 v. 17 How. St. Tr. 1129, 1240 (Ex. 1743), Wilson Annesley v. Earl of Anglesea, v. 4 Term R. 753, 759, 100 Eng. Rep. Dubarre 1283, 1286 Rastall, (K.B. 1792); P. 77, 170 Eng. Rep. 105 (K.B. Uvette, PeakeN. 1791). 11 v. Grammer, 2 Comp. N.P. 1063 (K.B. 9, 170 Eng. Rep. Gainsford 1809). 12 Clark v. Clark, 1Mood & Rob. 3, 174 Eng. Rep. 3 (K.B. 1830).

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assistance for any purpose.13 Although the earlier narrow view continued to co-exist in various pockets of judicial opinion, it had ceased to be of any real practical importance by the fourth decade of the 19th century.14 a Clearly the privilege had undergone significant expansion in the 18th and 19th centuries, but for some inexplicable reason the expansion was to the person of the attorney, leaving the oppos apparently limited as to otherwise ing party with the right to obtain testimony privileged communications from the client himself. Thus, for practical purposes little, if any, progress had in fact been made. Apparently this vestigial was that was grounded upon the philosophy that the privilege approach even this relic of the attorney and not of the client. However, by 1827 was abandoned and the the rapidly evolving policy underlying privilege constrained the courts to hold that communications incident to a pending case, or in contemplation thereof, were protected from disclosure by the client as well as the attorney.15 The scope of the privilege was in short order extended to communications made for purposes other than litiga tion,16 and indeed for legal counsel in any situation.17 Dean Wigmore states that this controversial and lengthy evolution, with a few excep tions, did not occur in theUnited States, but that the broad scope of the as the more logical was here early privilege accepted application of the rule.18 Lacking the English historical relationship of the attorney to the client and the unique nature of client consultation with the attorney, the dictates of logic prevailed, with the result that in America there a tradition and a broad policy favoring developed application of the attorney-client privilege.19 The vast difference of a mature English society of the 19th century from that of a democratic and frontier America of the 1800's would appear to provide the rationale for the approach to the attorney-client on this side of the Atlantic. Firstly, legal tradition privilege followed was in America at this time, and the manacles non-existent practically of precedent were not the usual impediments to change and adoption of a logical and more realistic approach to the already ancient doctrine of the attorney-client privilege. The very nature of the legal profession in America, scarcely on the plane of nobility which had existed in Eng land, rendered untenable the early basis of the privilege in England, to
13 Cromack v. 2 Brod. & B. 4, 6, 129 Eng. Rep. 857, 858 Heathcote, 14 See v. Gaskell, 1 Myl. & K. 98, 101, 39 Eng. Rep. Greenough 1833). 15 8 Rev. 1961). Evidence ? 2294, fn. 9 (McNaughton Wigmore, 16 2 Younge & Coll. Ex. 22, 31, 41, 160 Eng. Knight v. Waterford, 17 Herring v. Clobery, 18 Evidence Wigmore, 19 Evidence Wigmore, (CP. 618, 1820). 620 (CH

303 (1830), Herring v. Clobery, 1 Phillips 91, 96, 41 Eng. Rep. 565 (ch. 1842).
L.R. 8 ch. 361 366 (1873). ibid.; Minet v. Morgan, Rev. 1961). ? 2294, p. 563 (McNaughton Rev. 1961). ? 2294, pp. 564, 565 (McNaughton

Rep.

296,

299,

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wit, one based solely upon the honor of the attorney and without any real concern for thewelfare or protection of the client. Secondly, in England, the attorney-solicitor customarily made available to the barrister-counsel a statement to obtain an prepared by the client complete written factual as to the wisdom of commencing litigation. It was such state opinion ments as these which opposing counsel sought to examine; and as to which disclosures were prohibited only by the broad approach to the in the 18th century. In America, the barrister privilege taking hold and the solicitor were united, and hence no written factual statement was had even necessary. Opposing attorneys seeking pretrial discovery, therefore, little to lose in assenting to a broader scope for the attorney-client

heretofore demonstrated, the earliest policy basis justifying the a doctrine uncover the tending to obscure rather than interposition of full truth,was one of merely affording homage to the noble honor of the However, as we have observed, by the end of the 18th century, attorney.21 the basis for the privilege had undergone an extreme transformation, the emphasis upon the code of honor had lessened and the need "... of the ascertainment of truth for the ends of justice loomed larger than 22 the pledge of secrecy." Accordingly, if the privilege was to survive the criticisms and attacks of those envisioning the scales of justice as an entirely being weighted to the end of full and complete disclosure, new rationale for the to be found. Indeed the renowned privilege had was and strongly opposed to legal philosopher Jeremy Bentham political it the ends of that defeated the privilege on two grounds: Firstly, out the complete truth, since only the guilty would to ferret justice need to rely upon a concealment of the truth, and, secondly, that it degraded the legal profession to be the vehicle for the suppression of the there developed another view, which although not truth.23 However, in basic conflict with the primary tenets of Bentham's philosophy, a to the role recognized the existence of practical and realistic approach and status of an attorney in the tangle of legal disputes and the frame work of the judicial solutions therefor. In essence, this philosophy was As
20 See Evidence ? 2294 (McNaughton generally, 8 Wigmore, 21 See footnote 8, supra. 22 Evidence ? 91 (West. McCormick, 1954). of Judicial 7 The Works 23Bentham, Rationale (1827); Rev. 1961).

privilege.20 If the meandering history and evolution of the attorney-client privi to be given any real meaning for purposes of a present under lege is some to modern attorney-client relationships, standing and application consideration must be devoted to the policy grounds which formed the justification therefor at the various stages of its development.

474, 475, 477, 479 (Bowringed. 1842).

of Jeremy Bentham

473,

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based upon the assumption that claims and disputes fostering litigation are most proficiently disposed of by individuals trained in the oblique of the law, and such persons can act with expedition and expertise ways a full and to them by if only complete disclosure of facts is rendered the client; and such full disclosure would be forthcoming only if the client is assured that his communications to his legal adviser cannot be extorted from his lawyer's lips.24 This view found ample support both 25 in England and in the early American decisions.26 Dean Wigmore, although mitigating somewhat the effects of Bentham's critical and often an obstruction logical arguments, maintains that the privilege is in fact

to the ascertainment of the truth and should be preserved for the sake of narrow limits sufficient tomaintain the a general policy, but only within logic of itsprinciple.27 What we must now concern ourselves with is whether the attorney client privilege has been placed in a modern day setting, consistent with the historical bases of the privilege, which is best suited to an expeditious and equitable disposition of legal disputes and the rendering of legal
advice.

RECENT DEVELOPMENTS In recent years, the extent of and the reasons for the attorney-client courts. Two areas of law privilege have been under close scrutiny by the have been the subject of most of this litigation: Federal taxation, and corporate law.

Corporations States District Court for theNorthern District of Illinois, many lawyers by his opinion in Radiant Burners v. American surprised Gas Association,2* where he concluded that the claim of attorney-client was unavailable to a a privilege corporation (in private antitrust action) to bar discovery of documents. The rationale of Judge Campbell's deci was sion appeared to be that the attorney-client historically privilege ?91 (West. 1954).
24 Wigmore, Evidence ? 2291 (McNaughton Rev. 1961) ; McCormick, 1241 620 (Ex. (Ch. Evidence 1743); 1833); 87

of theUnited

As to theprivilegepertaining to thecorporate client, Judge Campbell

25 v. Earl of Anglesea, 17 How. St. Tr. 1129, 1225, Annesley v. Gaskell, 1 Myl. & K. 98, 103, 39 Eng. Rep. 618, Greenough Anderson v. Bank, 2 Ch.D. 644, 649 (1876).

Me. 368, 373, 32 Atl. 975, 976 (1895).

2?Halton

v. Robinson,

31 Mass

(14 Pick.)

416,

422

(1833);

Wade

v. Ridley,

27 Evidence ? 2291, p. 554 (McNaughton Rev. Wigmore, 28 207 F. III. 1962), afT'd on rehearing, Supp. 771 (N.D. 1962), rev'd 320 F. 2d 314 (7th Cir. 1963).

1961). 209 F. Supp.

321

(N.D.

111.

88

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to be claimed by natural persons, ergo making it personal in nature, only a mere to unavailable corporation (a legal entity). The decision held that itwould not be possible tomaintain such privileged relationships in a vast likelihood of disclosure to persons who corporation because of the constitute or are necessarily related to the corporate entity. Radiant Burners on appeal to the Seventh Circuit Court of Appeals was reversed.29 The only issue before the Court of Appeals was whether in a private antitrust action a corporation may claim the attorney-client to bar the discovery of documents. The Court held that, "... privilege it is our considered judgment that based on history, principle, precedent, and public policy the attorney-client privilege in its broad sense is avail 30 able to corporations." The Seventh Circuit refused to set lines to guide corporations to enable them to protect their confidential communications client privilege. Instead the Court held that, "... within

the attorney the limitation sur

of justice. The Supreme

In reversing, the Court of Appeals found the conclusion of the Dis trictCourt that the attorney-client privilege was personal in nature, was erroneous. Rather, it held that the attorney-client privilege derived from the attorney's regard for his client, personal or impersonal in character, the idea being to foster a social policy aimed at facilitating the workings

must be determined for each document rounding any information sought on a case to case basis." 31 considered separately,

decisions of other courts in this regard. The United States District Court for the Eastern District

Court denied certiorari in Radiant Burners,'62 thus the legal profession may have had that the attorney doubts relieving any client privilege does not apply to corporate clients. In view of the reluctance of the Seventh Circuit to set guide lines to assist attorneys and their corporate clients, it is necessary to consider of Pennsyl in Radiant Burners when

vania rejected the decision of Judge Campbell v. it decided City of Philadelphia Electric Corporation. Westinghouse In that case, the Court found it was compelled to recognize that the existed for the benefit of corporations. The Court attorney-client privilege to examine the attorney-client proceeded privilege and evolved the following test in reference to the difficulties in determining the authority
Supra, note 28. 30 320 F.2d 314 (7th Cir. 31 Id. at p. 324. 32 375 U.S. 929. 33 210 F. Supp. 483 (E.D. 29 1963) at page 323.

Penn.

1962).

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of an employee of a corporation making on behalf of the corporation:

a communication

to the attorney

. . in mind that the question is, Is it the corporation Keeping which is seeking the lawyer's advice when the asserted privileged communication ismade?, themost satisfactory solution, I think, is that if the employee making the communication, of whatever rank he may be, 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, then, in effect, he is (or personifies) the corporation when he makes his disclosure to the lawyer and the In all other cases the employee would be privilege would apply. to the lawyer to enable the latter to advise information merely giving those in the corporation having the authority to act or refrain from on the advice." 34 acting The key to the foregoing test is that the employee of the corporation should have a substantial part in the decision to be made. Thus, depend on the to be made, the employee could ing importance of the decision or work in the claims department, be the president of the corporation.

Other cases involving the corporation and the attorney-client privilege decided after the District Court decision in Radiant Burners are Ameri v. v. Hercules Powder can Cyanamid Company,35 United States Company Machine & Co. and Becton Dickinson Paper Converting Company

v. PMC Corporation}1 The American Cyanamid Company case involved a patent infringement Powder action by American Cyanamid Company against Hercules

for the production of specific documents in the other's possession, pursuant to Rule 34 of the Federal Rules of Civil Pro cedure. The request for documents was resisted pursuant to the attorney client privilege. The Court (D. took cognizance of the District Del.) Court's decision in Radiant Burners, and in a footnote, indicated that it the Radiant Burners decision constituted an unjustifiable restric tion of the attorney-client privilege.38 The issue before the court in volved the status of house counsel and members of the corporation's patent department and their relation to the attorney-client privilege. The court briefly discussed the inUnited States v. opinion of JudgeWyzanski believed
'A*Id. at p. 485. 35 211 F. Supp. 85 (D. Del. 1962). 36 212 F. Supp. 92 (D. N.J. 1962). 37 215 F. 1963). Supp. 249 (E.D. Wise. liH Supra, note 35, at page 88.

Company. Both parties moved

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of New suggestion that the decision Jersey rejected the Government's in Radiant Burners was binding on the Court. The district judge deter mined "the pending motion should be denied, because the assertion of the attorney-client privilege must be sustained in this case." In reaching this conclusion, the court relied on a New Jersey statute, which estab

to the patent department could be privileged, while in munications Zenith the privilege would depend on the work being done by a patent at a particular time. department attorney 41was a v. ton Bee United States Dickinson & Company civil antitrust action. The Government filed a motion for an order requiring the de fendant, Becton, to produce certain documents "between an attorney and or other attorney of the an officer, director, employee, representative, defendant corporation." The Government relied on the recently decided district court opinion in Radiant Burners in asking for documents trans mitted to an attorney. The United States District Court for the District

Shoe Machinery Corp.,30 which was one of the first cases which held that the attorney-client privilege applied to corporations, and con cluded that the test used by JudgeWyzanski was too broad for its pur poses. Rather it determined that the opinion of Judge Leahy in Zenith Radio Corporation v. Radio Corporation of America,40 was more appro In comparison to United Shoe, which evolved a test of whether priate. the attorney to whom the communication was made spent his time pri on business or on legal affairs, theZenith case concluded that each marily document in issuemust be examined separately in regard to the attorney's status, whether he be a member of the patent department or house held that none of the com counsel, in United Shoe, Judge Wyzanski United

lishes and prescribes the attorney-client privilege. The statute set forth or a definition for "client" which included, corporations." The "persons court quoted Rule 43(a) of the Federal Rules of Civil Procedure in law of New Jersey as evidenced by the statute would be finding that the no on the district court sitting in New Jersey as there was binding "statute or rule" authorizing the Court to disregard the attorney-client privilege. Co. v. PMC Corporation,*'1 involved an Paper Converting Machine action for patent infringement. The plaintiff made a motion to produce certain documents of the defendant, mostly letters to and from the patent counsel of the defendant, who was not a member of the bar in the State The Court made no mention of
39 89 F. Supp. 357 (D. Mass. 40 121 F. Supp. 792 (D. Del. 41 Supra, note 36. 42 Supra, note 37.

of California where he was employed.


1950). 1954).

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the Radiant Burners decision, but relied on JudgeWyzanski's opinion in United Shoe Machinery.4'4 It found that the patent counsel was an attor ney within the attorney-client privilege, even though he was not admitted in the statewhere he was employed. In addition, the Court said themere fact that a person is patent counsel does not exclude him from being an attorney within the attorney-client privilege. The Court then proceeded to examine the documents on an individual basis in seeking to determine was actually sought in connection with said whether legal advice
documents.

of the first square holdings that the attorney-client privilege ap to corporate clients was in United States v. United Shoe Machinery plies an That opinion written by District Judge Wyzanski. Corporation,44 case involved objections to introduction of certain evidence by the de fendants on the basis of the attorney-client privilege in a civil antitrust In finding that certain documents action brought by the Government. were Court the the stated following general rule applied: privileged, One a client; or (2) the person to whom the sought to become privilege is 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 was informed attorney (a) by his client (b) without the presence of an for the purpose of securing primarily either (i) strangers (c) on law or some or in assistance services (ii) legal (iii) opinion legal a or tort; proceeding, and not (d) for the purpose of committing crime the client."

"The privilege applies only if (1) the assertedholder of the

and (4) theprivilegehas been (a) claimedand (b) notwaived by 45

included corporations as clients within the attorney-client privi tests it established, particularly in reference to the attorney The lege. as a "acting lawyer" in 2(b) applies to corporate communications. Judge a Wyzanski helped to clarify the role of house counsel for large corpora tionwhen he stated that; nature ". . . The distinction is chiefly that house counsel gives advice to one regular client, the outside counsel to several regular clients. It follows that United's general counsel and his clerks constitute 46 for purposes of the privilege attorneys. . . ." The opinion in United Shoe did make clear that even though there were communications to the house counsel, such communications must
43 Supra, 44 Ibid. note 39.

This widely acceptedtestestablished by Judge Wyzanski, by itsvery

45 Id. at p. 358. 46 Id. at p. 360.

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have been in connection with legal advice and must have been made in confidence, not coming from persons not employed by the corporation or from documents from, or summaries of conferences with persons not employed by the corporation. In addition, itwas emphasized that communications to house patent must counsel be especially scrutinized as "all themen in the department as as a branch of an function less legal advisors than enterprise founded
patents." 47

on

In United Shoe, the Court determined that none of the communica tions tomembers of the patent department could be within the attorney client privilege as it concluded, "... quite apart from the nature of a person in the the communication, any specific patent relationships of to the not that of attorney and client." The is department corporation Court based its decision on the fact that at the forefront of the patent were business judgment, corporate policy department's considerations and technical knowledge. The Court in United Shoe formulated the following test to determine whether documents transmitted between a corporation and either its house or outside counsel are privileged: or (2) defendant's general counsel or one of his im pendent counsel mediate subordinates; and as appears upon the face of the exhibit, the (b) principal purpose for which the exhibit was prepared was to solicit or give an opinion on law or or assistance in a legal services legal proceeding; and to the of the exhibit be part sought (c) protected consists of either (1) information which was secured from an officer or employee of defendant and which was not disclosed in a public document or before a third person, or an such information and (2) opinion based upon 48 not intended for disclosure to third persons." This

was preparedby or for either (1) inde "(a) The exhibit itself

as were clearly pre test limits the privilege to such documents in with connection of the giving legal advice, thus eliminating pared are a documents that transferred many during the course of day in the house counsel or patent department of a large corporation. The test does or docum?nt has not limit the employee from whom the information as in the did Court come, City of Philadelphia,49 subsequently. Evidently, concluded that a restriction as to the position of the Judge Wyzanski was not necessary as a request for legal advice is to presumed employee have come from an employee with authority within the corporation.
Ibid. **Id. at p. 361. * Supra, note 33.

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Two important cases involving the attorney-client privilege in corpora tions decided subsequent to United Shoe were Zenith Radio Corporation v. Radio Corporation of America,50 and Georgia-Pacific Plywood Com In the Zenith case, involv pany v. United States Plywood Corporation.^ an the made ing patent litigation, plaintiff application for an order the of certain of the defendant's documents. Judge requiring production in his followed Leahy, opinion, closely Judge Wyzanski's opinion in United Shoe. He firstheld the were the defendants involved corporate clients within the test established respective attorney-client privilege by The opinion then dealt in detail with Judge Wyzanski. patent depart ment attorneys, which was the focal point at issue in the case. At the outset patent department attorneys were distinguished from house counsel. At this point Judge Leahy's opinion began to differ from that of JudgeWyzanski. Judge Leahy used the test "acting as a lawyer" established by Judge Wyzanski, but then held that attorney-employees of the patent department of the defendant, "may or may not qualify in specific instances." This was in contrast to United Shoe where Judge found that patent Wyzanski department attorneys were not "acting as a lawyer," thus preventing any communications to the patent department from being within the attorney-client privilege. Judge Leahy found in specific matters, patent department attorneys may be performing the functions of an attorney and that communications to them may be within the attorney-client privilege. He elaborated by giving an example where a patent department attorney would be "acting as a lawyer," as follows: "When, in specific matters they are engaged in applying rules of law to facts known only to themselves and other employees of their in and client-companies, preparing cases for and prosecuting appeals in the Court of Customs and Patent Appeals and other like courts of
record." 52

Judge Leahy then listed a number of matters when a patent depart ment attorney would not be acting as a lawyer, such as when he is con cerned primarily with technical aspects of the business, competitive considerations, the scope of public patents, the general application of patent Taws to the development of his company and competitors' com panies, and in connection with the preparation and the application for patents. Under Judge Leahy's opinion, once the Court finds that a patent department attorney was acting as a lawyer, then, of course, the Court must examine the particular communication to determine whether the
50 121 F. Supp. 792 (D. Del. 51 18 F.R.D. 463 (S.D. N.Y. 52 Supra, note 50 at p. 794. 1954). 1956).

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communication to the patent department attorney who was acting as a a was within the lawyer in specific instance, privilege. The distinction between Judge Leahy's opinion and JudgeWyzanski's was out in the decision in the American Cyanamid pointed opinion case. Company "This Court will follow Judge Leahy's opinion. It believes that the a to separate the wheat from the presiding Judge that should be privileged because theywere made to as lawyers from statements that should not be employees acting as because they were made to employees who were acting privileged men em at the time. It is in such admitted United Shoe that business as house counsel and members of the patent department both ployees serve duel functions. Since degrees is the only difference between the two classes, it does not seem justifiable to extend the privilege in blanket form to house counsel and totally deny it to members of the case should turn on its own facts." 53 patent department. Each opinion allows chaff?statements Because of the number of documents involved in Zenith Radio, 1600, Judge Leahy referred thematter to a master, who would rule upon each of the individual documents. In his decision, Judge Leahy held thatmem a state where one is a sine qua non bership of the bar of employed is not for the attorney-client privilege to apply to communications with such an attorney. This is especially important in the case of house counsel who may be transferred from state to state and may be giving legal advice to the corporation in the states where local authorities do not insist on his admission to the local bar. v. United States Georgia-Pacific Plywood Company Plywood Corpo as to involved the ration,54" validity of certain patents. The litigation matter before the Court was an application by the plaintiff under Rule 34 of the Federal Rules of Civil Procedure for an order authorizing the discovery of certain documents of the defendant, which the defendant refused to produce on the basis of the attorney-client privilege. The only matter before the Court was the validity of the privilege in regard to the status of one James M. Heilman, whose title was "Director, Legal and Patent Department." Although Mr. Heilman worked inNew York, he was not licensed to was a practice law inNew York State, although he member of theDistrict of Columbia and Pennsylvania Bars. case Judge Kaufman, who wrote the opinion in the Georgia-Pacific test inUnited Shoe. He first cited JudgeWyzanski's held thatMr. Heil man took an active part in litigation forUnited States Plywood and was thus to be considered house counsel, rather than a member of the patent
53 54 Supra, note 35 at p. 89. Supra, note 51.

95

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department. The Court then reached themajor issue in the case, whether the fact thatMr. Heilman was not admitted to practice in the State of New York should prevent his corporate employer from claiming privi as to certain communications made toMr. Heilman. The Court dis lege cussed the reasons for and against making in the bar of the membership state of employment a prerequisite for invoking the attorney-client privi lege, but because of themovements of house counsel of a corporation and the fact that the corporation had a "bona fide" belief in the status ofMr. Heilman as an attorney when itmade these confidential communications

to him, the Court held that under the facts,membership in the bar of the state of employment was not a sine qua non to invoke the privilege. The decision of Judge Kaufman in Georgia-Pacific and the decision of Judge Leahy in Zenith Radio, however, did not go as far as theModel Code of Evidence provides in Section 209(b), which states, it is sufficient "to practice law in any state or nation, the law of which recognizes the privilege against disclosure of confidential communications between client and lawyer."

Federal

Taxation

Recent cases in the field of Federal taxation are certain to have a strong on the future actions of tax attorneys in the bearing following four areas: (1) The attorney's relationship with the accountant, (2) the books and records of the client, (3) limitation of the attorney-client to the substance of matters discussed, and (4) privilege procedural steps to assert the attorney-client privilege. properly Accountants and the Privilege

Today it is almost essential that in every investigation of a taxpayer client, an accountant be retained by the attorney or by the taxpayer at the direction of an attorney to prepare work papers and statements that will better enable the attorney to represent the taxpayer-client. In two recent cases, the Government important attempted to obtain either testi an or the work of accountant, employed by attorneys, and mony papers in both, before differentCircuit Courts, theGovernment failed.55 In United States v. Kovel Kovel an accountant, working for a New York law firm,was subpoenaed before a Grand Jury. For refusing to on the basis of the answer attorney-client questions before theGrand Jury was sentenced for criminal Kovel privilege, contempt by the District 322 F. 2d 460 (9thCir. 1963).
56 Supra, note 55. 55 United States v. Kovel, 296 F. 2d 918 (2nd Cir. 1961); United States v. Judson,

96

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Court,

are In its argument, the Government admitted that certain employees covered the that but contended by attorney-client privilege, generally the privilege only covered communications to employees with "a menial or ministerial responsibility that involves relating communications to an 57 The Second Circuit, however, held otherwise and in hold attorney." that the work of an accountant, employed by an attorney, can be ing within the attorney-client privilege, drew an analogy to the need of an attorney for an interpreterwhen a client speaks a foreign language. The Court said, "accounting concepts are a foreign language to some lawyers in almost all cases, and to almost all lawyers in some cases." 58 It found that the presence of the accountant at a consultation between the attorney and client was desirable for an effective consultation, which is the object In discussing this of the attorney-client privilege. point, the Second Circuit stated that itwould be perfectly proper, and within the attorney client privilege for the attorney to direct a client to first relate his story to the accountant. important question is the type of advice that is sought. If is sought, there is no privilege; advice if legal advice is accounting is. there the Second Circuit said, "What is vital to sought, Accordingly, the privilege is that the communication be made in confidence for the 59 In Kovel, the purpose of obtaining legal advice from the lawyer." accountant was on the payroll of the law firm. In most situations, this would probably not be so as the attorney would most likely hire the accountant after he has consulted with his client. A case discussing the point of whether the accountant was hired prior to or after the attorney-client relationship isUnited States v. Judson,60 in the Ninth Circuit Court of Appeals. There, Judson, the attorney, was served with a subpoena duces tecum to appear before a Federal Grand Jury, and to produce, among other things, all work papers, memoranda, an accountant, which pertained to the computations, and worksheets of financial transactions of the client. The most

from which he appealed. At the direction of his attorney em on a client's books and was ployers, he working preparing work papers and statements for use by the attorneys.

In Judson, it was the client who retained the accountant at the request of the attorney who required a net the accountant completed the net worth state worth statement. When ment itwas turned over to the attorney. The Ninth Circuit cited Kovel in holding that the accountant's work papers and net worth statement
57 Id. at p. 921. 58 Id. at p. 922. 59 Ibid. Supra, note 55.

60

97

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no distinction between were within the attorney-client privilege. It found an accountant hired an one and hired attorney, by by a taxpayer. As long as the papers were at the attorney's request, and not before the prepared client had consulted with the attorney, the accountant's papers were within the privilege as theywere needed for the purpose of advising and as inKovel, was defending the attorney's client. The accountant's role, to enable the attorney to have a more accurate and complete picture of the client's position. Pursuant to the holdings of Kovel and Judson, work papers prepared an accountant an attorney would not appear to by prior to the entry of be within the attorney-client privilege, when handed over to the attorney. The rationale is that (1) the work papers were not owned by the client, but by the accountant, and (2) theywere not prepared in furtherance of a client an attorney.61 obtaining legal advice from In Bouscher v. United States,*2 after a special agent of the Internal Revenue Service appeared in a tax investigation, the taxpayer consulted an attorney. The attorney then wrote to the accountants for the tax payer asking them to forward all the papers and records pertaining to the taxpayer to the attorney. The attorney was then summoned to produce, before the special agent, all thework papers, which he received from the as the work accountants. The Court held that no privilege existed were to the accountants, papers prepared by the accountants and belonged and were in existence prior to the attorney's appearance in the case, and additionally, some of the papers had already been examined by a revenue cases dealing with attorney-client frequently cited formulation in is Dean that: rule Wigmore's privilege A "(1) Where legal advice of any kind is sought (2) from a pro fessional legal advisor in his capacity as such (3) the communications
agent.

waived."

(6) are at his instance permanently protected (7) himself or by the legal advisor (8) except 63

relatingto thatpurpose (4) made in confidence(5) by the client


from disclosure by the protection be

In determining whether communications to a non-lawyer by a client of the lawyer, is within the attorney-client privilege, the courts have an weighed the object of the privilege to promote fullest disclosure to so that he may better handle the affairs of his client against the attorney public policy of full disclosure. As can be seen from Kovel and Judson, the courts have reasoned that the complexities of modern society require
61 See Bouscher 62 Ibid. 63 8 Wigmore, v. United Evidence States, 316, F. 2d 451 ? 2292 (McNaughton (8th Cir. Rev. 1961). 1963).

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lawyers to retain others who consultation. Books and Records

can assist them in having

an effective

papers prepared by the attorney to record the confidential communica tions of the client would be within the attorney-client privilege. To the same effect is United States v. Summe 66where the attorney refused to produce, at a hearing before a special agent of the Internal Revenue Service, the books and papers of a client which he used in tax returns and to preparation of the client's identify certain books and on the attorney-client privilege. The Court there held, papers relying "There is no privilege with respect to the books or associated papers."67 In United States v. Judson,69, the attorney was to produce checks and bank statements of the client before a Federal Grand Jury. The Court there held the basic tenet, that the transfer from an attorney to a client
64 Cohort v. United 227 U.S. 74, 33 S.Ct. Cir. 1953). 65 Supra, note 64. 66 208 F. Supp. 925 67 Id. at p. 926; see 68 Supra, note 55. Grant v. United States, States, 306 F. 2d 633 (2nd Or. 1962); v. United States, 205 F. 2d 734 (5th 190, 57 L.Ed. 423; Falsone

It is clear now that the books and records of a taxpayer-client do not become privileged by the act of turning them over to an attorney.64 The fourth proposition ofWigmore's formulation, the requirement that the communication be made in confidence to the attorney, would bar books and records of the taxpayer-client from being within the privilege. The books and records of a taxpayer, when written, are not intended to be never confidential and were not intended privileged; that is, they were so. to be In the case of Colton v. United States,65 the Second Circuit ruled as to the privileged quality of various books, records and checks after an attorney's blanket refusal to testify and produce documents before a a criminal investigation of his client. Colton, special agent conducting the attorney, and members of his firmprepared tax returns for the client. The Court firstruled that the giving of tax advice and preparation of tax returns was unquestionably within the competence of an attorney and thus prima facie subject to the attorney-client privilege. The Court also stated that the books and records given to the attorney in order to prepare the tax returns were not privileged as they were not prepared for the purpose of the confidential communication. The Court did, however, hold that papers prepared by the client for the purpose of confidential communication to the attorney, that is worksheets or other papers, or

(E.D. Ky. 1962). also In Re Blumenberg,

191 F. Supp.

904

(S.D.

N.Y.

I960).

99

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does not alone constitute confidential communications. There the can celled checks and bank statements were not confidential from the time of their creation, as the checks themselves were negotiable instruments, and therefore, written for public use, and the bank statements were pre not by the client. pared by the bank for the client, The Substance of the Matter Between Attorney and Client Discussed

The question of what an attorney is required to testify to in connection with his relations with his client in order to ascertain whether an attorney-client relationship actually existed was at issue in Colton v. In Colton, the Second Circuit ruled that the attorney United States. had to answer certain questions as to the nature of the legal services rendered, which would enable the Court to determine if the attorney client privilege actually existed. Certiorari was applied for to the was denied.70 Supreme Court but The questions the Second Circuit found necessary to have answered in addition to the nature of the legal services rendered were questions as to the duration of the professional relationship and the remuneration paid to the attorneys for such services. Answers to the above were questions found to be important in ascertaining whether the attorney-client rela tionship actually existed, for if the services were, in fact, non-legal, or if no services were rendered, no privilege would lie. The Second Circuit said that these items are separate and apart from the substance of any thing the client may have revealed to the attorney, and hence are not within the attorney-client privilege. As to thematter of remuneration the Court said that the fact of the retainer may be used as evidence against the client as itwas never intended to be confidential. Exceptions would, of course, arise which might hurl answers to these questions within the are not but within the they attorney-client privilege, general rule.71 The recent decision in United States v. Goldfarb 72 illustrates the con fines of the privilege to confidential discussions with the client. In Gold was seeking an indictment farb, the United States against one Charles an and Sherman, attorney, who represented a subpoenaed Goldfarb, one client in a real estate transaction with Sherman, represented by Lawrence Burns. Goldfarb refused to answer certain questions involving the transaction when he appeared before the grand jury on the basis of the attorney-client privilege. The questions involved (1) discussion as
69 Supra, note 64. 70 371 U.S. 951. 71 See Baird v. 279 F. 2d 623 Koerner, 72 328 F. 2d 280 (6th Cir. 1964).

(9th Cir.

I960),

infra.

100

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to the purchase of real estate with Burns, (2) the fact that Burns repre sented Sherman in the transaction, (3) discussions with Sherman, or his agents in connection with sale of real estate. no disclosure of any From the questions, the Court in Goldjarb found confidential information was called for. The Court denied Goldfarb's contention that the privilege "should be draped around all occurrences and conversations which have any bearing, direct or indirect, upon the relationship of the attorney with his client." It stated that the privilege is an exception, the general rule requiring full disclosure, and as such should be strictly construed. Dean Wigmore stated the restriction of the as follows: privilege "It isworth preserving for the sake of general policy but it is none theless an obstacle to the investigation of the truth. It ought to be confined within the narrowest possible limits consistent with the logic 73 of itsprinciple." An example of damaging testimony by an attorney against a former client, held not to be within the attorney-client privilege occurred in United States v. Bos tic,14 where an attorney testified that at the time he defended his client for first degree murder, he was able to confer with him and prepare a defense for him. This testimony was given at a subse on the quent hearing to vacate the sentence of first degree murder the that trial defendant had been to stand grounds mentally incompetent formurder. As the testimony did not involve the substance of confiden tial matters discussed between the attorney and client, it could not be

within the privilege. Another case involving a motion to vacate a sentence on the grounds v. the petitioner was incompetent to stand trial was United States In that action, the former attorney for the Kendrick.75 petitioner testi fied that at the time he represented the petitioner at a criminal trial, the was responsive, readily supplied facts, and was logical in his petitioner conversation and reasoning. The Court found that the testimony of the attorney related only to the petitioner's demeanor and attitude, which at the time of the trialwas not intended to be confidential. In holding that therewas no privilege the Court stated: "The privilege protects only the client's confidences, not things which, at the time, are not intended to be held in the breast of the relation provided the occasion lawyer, even though the attorney-client 76 for the lawyer's observation of them."
73 8 Evidence Wigmore, ? 2291, page 74 206 F. Supp. 855 (D. D.C. 1962). 76 Id. at p. 114. 554 (McNaughton Rev. 1961).

75331 F. 2d 110 (4thCir. 1964).

101

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Situations may arise where an attorney may be performing non-legal services or non-confidential services for a client. An example of the former is Pollock v. United States,11 where a client deposited approxi in cash with his attorney in the process of buying mately $19,000.00 The attorney testified as to such during the prosecution of his property. ex-client. The client sought a reversal insisting that the evidence was was not privileged, that privileged. The Court found that the testimony as was no the for consultation advice there attorney was acting legal as to of transferred. The testimony of the holder be money later merely acts of depositing money, no confiden the attorney included merely the In tial communication being involved. summarizing the type of situation an a where communication to attorney is not privileged, the Fifth Circuit inPollock said, "There is no magic in a law license that would prevent a lawyer from being required to testify to acts of this kind, just as the same or of a real estate type of testimony might be required of a banker a for a crime in tried where is broker. More being party important, furtherance of which the communication to the attorney was made and evidence has been introduced giving color to the charge, it is well 78 settled that the communication is no longer privileged." a case where were not confidential in legal services example of nature is United States v. MacDonald,19 where an attorney was sum moned to appear before a special agent and produce closing statements and other supporting papers relating to a client's properties. The Second Circuit hearing the case on appeal from a District Court order rejecting the claim that the documents were privileged, held, there was no basis for a claim of privilege. It found because of the type of matter at issue, was a necessarily closing statements, there divulging of the information to other parties. The Court reiterated that only matters transmitted by a client to an attorney that are intended to be confidential communications An to the attorney are protected by the attorney-client privilege. The Courts have also limited the attorney-client privilege where the attorney is acting as a mere agent. In Banks v. United States}0 an attorney was required to identify a piece of paper on which he submitted the answers of a taxpayer-client to questions of the Internal Revenue Service agent. The Eighth Circuit found the attorney's testimony not

as the attorney, at the time he was representing the client be privileged fore the Internal Revenue Service, was acting merely as the client's agent
77 202 F. 2d 281 78 Id. at p. 286. (5th Cir. 1953).

79313 F. 2d 832 (2ndCir. 1963). 80204 F. 2d 666 (8thCir. 1953). 102

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in transmitting the answers to the questions to the Internal Revenue Service. The Court there equated the power of attorney held by the attorney to a document making the attorney an agent of the taxpayer. The result of the Eighth Circuit's decision may have caused some apprehen sion among tax attorneys who feel that they are representing their clients before the Internal Revenue Service as attorneys and not as agents. As the answers given to the revenue agent in Banks were not intended to be confidential as theywere given to a third party, the decision could have been strictly along the line that the communication was not confidential
in nature.

The major exception to the general rule requiring testimony as to the nature of the legal services performed, including, of course, the name of the client, occurred in Baird v. Koerner.81 In that case, the was not to disclose the the Circuit that held Ninth attorney required name of other attorneys and accountants who were acting on behalf of the unknown taxpayer consulting with him. This unusual result oc curred as the substance of the disclosure was already revealed, the tax are as follows: deficiency. The facts giving rise to this result In early August 1956, the attorney, Baird, (a member of this Sub accountants whom he gave advice to committee) consulted with certain tax the income of undisclosed taxpayers. They also certain concerning discussed the best steps to take in the event criminal charges were eventu no investigation was being made. In mid ally brought. At the time a at the unknown between conference taxpayers' attorneys August 1956, and Baird, itwas agreed to pay the tax without disclosing the identity of the taxpayers. Baird then transmitted a cashier's check, on behalf of the unknown taxpayers, to the Internal Revenue Service office in Baltimore, a letter were not Maryland, with stating that the names of the taxpayers disclosed to him. The record in the case showed that Baird was paid a fee on behalf of the unknown taxpayers by their attorneys. Over a year later a special agent summoned Baird to appear before him and to identify the attorneys, accountants, and unknown taxpayers. Baird de clined to name the accountants on the grounds that the information came to him as a privileged communication from the unknown clients to him,
as an attorney.

urged that the attorney-client privilege did not apply to the identity of a client as distinguished from the subject matter of the communication. The Court stated in the normal case this would be true as the substance of the communication would not be the identity of The Government
81 v. Bonghner, U.S. District Court, No. Dist. 111., Supra, note 71; but see Tillotson East. Div. found in contempt 63 C 1522, February 23, 1965 where an attorney was of court for refusing to identify a client in a situation similar to Baird v. Koerner.

103

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the client, but in this case the opposite was true. The substance of the communication was the identity of the clients or their agents as the fact of unpaid tax deficiencies was admitted by the payment of the tax. The was here pitted against the policy for public policy rule of full disclosure the attorney-client privilege. Of prime importance was the fact that no litigation existed, for if it did, the Court said, clearly public policy would to reveal for whom the attorney was acting, require taxpayer's attorney as once litigation commences, theGovernment should not be to required law forces. the The Court summarized Federal unknown struggle against as follows: "If the identification of the client conveys information which ordi narily would be conceded to be part of the usual privileged communi cation between attorney and client, then the privilege should extend 82 to such identification in the absence of other factors." The Court discussed both Federal law and California law and under it found that privilege would exist in the case at hand though it did hold thatCalifornia law would be controlling. both In

passing, the Court discussed another issue raised by the Govern ment, that of whether there actually existed an attorney-client relation the ship. The Court summarily disposed of this issue by saying that case it when the facts of the Government incorrectly interpreted alleged that the attorney was merely a transmitter, a banker, and did not act as a lawyer in sending themoney to the Internal Revenue Service. The determination, in different situations, as towhether the identity of on the a client would be a privileged communication, will depend no circuit weighing of the different factors involved.83 There have been court decisions challenging the decision in Baird, so attorneys will prob ably be safe in assuming that in similar situations their clients will have the protection of the attorney-client privilege. In Asserting Privilege The burden is on the attorney to assert the attorney-client privilege, where there is an attempt to require him to testify or produce documents within the privilege. The duty of the attorney is not merely for the benefit of the client, it is a matter of professional responsibility in pre venting the policy of the law from being violated.84 Tax attorneys will most often be called upon to assert the privilege in Procedure investigations by Special Agents of the Internal Revenue proceedings by Federal grand juries.
82 Id. at 632. 83Baird v. Koernery supra, note 71 84 See Schwimmer v. United States, 232 F. 2d 855

Service and in

(8th Cir.

1956).

104

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proceedings. The District Court decided otherwise, after discussing other Federal cases involving Section 7602 and after discussing cases involving the investigative powers of the Securities and Exchange Commission.87 The Court concluded that in the cases involving investigative powers of were founded upon the agencies of the Federal Government, decisions that the attorney-client privilege applies in such investigated assumption so held. and the Court proceedings, The matter of the availability of the attorney-client privilege has also been litigated inmatters involving the investigative powers of another agency of the Federal Government, the Civil Aeronautics Board.88 Civil Aeronautics Board v. Air Transport Association of America,** involved a to enforce an administrative subpoena duces tecum issued proceeding course of an investigation of by the Civil Aeronautics Board during the on to the defendant. The defendant declined produce the documents the basis of the attorney-client privilege. The plaintiff thereaftermoved for summary judgment, claiming that the privilege may not be asserted in the course of an investigation by the plaintiff authorized by the Federal Aviation Act. the United States District Court, District of Co Judge Holtzoff of lumbia, held that the attorney-client privilege may be asserted in an before investigative proceeding defended itsuse as follows: the Civil Aeronautics Board and

It has generally been taken for granted that the attorney-client privi a lege is available to attorneys subpoenaed to testify at a hearing before a summons to 7602 the Section of issued under Special Agent pursuant Internal Revenue Code of 1954. In at least one instance, however, the Government has argued that the attorney-client privilege has no applica tion in an examination under Section 7602.85 In United States v. Summed a district court was asked to so hold, on the basis of the character of the

"The attorney-client privilege is deeply imbedded and is part of the warp and woof of the common law. In order to abrogate it in whole or in part as to any proceeding whatsoever affirmative legislative action would be required that is free from ambiguity. The very existence of the right of counsel necessitates the attorney-client privilege in order that a client and his attorney may communicate between themselves 90 briefly and confidentially."
States v. Summe, 208 F. Supp. 925 (E.D. Ky. 1962). 86 Ibid. 87 Securities and v. Harrison, 80 F. Supp. 226 (D. Col. Exchange Commission v. Securities and Exchange McMann 87 F. 2d 377 (2d Cir. 1937). Commission, 88 See Civil Aeronautics Board v. Air Transport Association of America, 1961). Supp. 319 (D. D.C. 89 Ibid. 90 Id. at p. 318. 85 United

1948) 201 F.

105

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In the event an attorney is subpoenaed to testify, and produce docu ments before a grand jury and the attorney believes the documents he is are to the protected by the attorney-client privilege, required produce attorney may do one of two things. He may move in the district court or he may wait until he appears before the to quash the grand subpoena assert the then and attorney-client privilege.91 In the former case, if jury the district court denies the attorney's motion to quash the subpoena duces tecum it has heretofore been considered that such an order is not as it is not a final order in a judicial proceeding.92 A recent appealable Ninth Circuit case, Continental Oil Company v. United States** cast some doubt on this when it reversed a district court order denying motions to quash subpoena duces tecums served on several attorneys. In reversing the district court, the Ninth Circuit, despite the argument of theGovernment that the district court order was not appealable, held that the appellants were entitled to relief either by way of appeal or by the alternative relief requested ofmandamus or prohibition. If a motion to or it is not sought, the quash the subpoena is denied, second alternative for the attorney arises at the grand jury hearing, when the attorney must assert the attorney-client privilege. This may result in a preliminary hearing before the district court.94 In United States v. Kovel?* the Second Circuit held that in the event of a preliminary inquiry before a district court judge, the grand jury should not be present.

If the preliminary inquiry determines that the matter at issue is not privileged and the attorney persists in not disclosing it, the attorney will probably be cited for contempt in the district court. In a criminal con case an attorney, who has refused to against tempt testify or produce the ultimate burden of that documents, is, the burden of persuasion, rests with the The of persuasion on ultimate burden proof, prosecution. the issue of privilege also is on the prosecution.96 During a trial for criminal contempt, the burden of going forward with evidence on the issue of the attorney-client privilege may shift time and time again during the trial. In view of this, the Second Circuit said that the defendant should present all his evidence at the district court level to avoid remand

91 See Continental v. United States, 330 F. 2d 347 (9th Cir. 1964) ; Oil Company United States v. Kovel, supra, United States v. Colton, supra. 92 See Cobbledick v. United States, 309 U.S. 323; Capital Company v. Fox, 85 F. 2d 97 (2d Cir. 1936); Falsone v. United States 205 F. 2d 734 (5th Cir. 1953). States v. Kovel, supra, note 55. 95 Ibid. 96 in the case of a claim of privilege being asserted at a trial and Ibid.; however, and attorney having answered, the burden would be on the objector being overruled to show there was a valid assertion of the United States v. Kovel, privilege. supra. 94 United

93330 F. 2d 347 (9thCir. 1964).

106

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client privilege.98 The attorneymust meet his burden by explaining the circumstances and, if necessary, showing the documents to the court so that a decision may be reached on the privilege. The Supreme Court in Reisman v. settled a long controversy Caplin, between the Seventh Circuit and the other circuits when it held an order a person to of a district court appear before a representative enforcing of the Commissioner of Internal Revenue pursuant to a summons issued under Section 7602 of the Internal Revenue Code of 1954, is appealable. The Seventh Circuit Court of Appeals had an order was long held such an interlocutory order, and hence not appealable.100 The Supreme Court did not discuss the reasons why such an order v. is final and appealable, but Judge Leonard Hand in Capital Company Fox,101 set forth the distinction between final and non final orders as follows in referring to an order denying a motion to vacate witness subpoenas: "These were mesne process in the action or proceeding; had they been ancillary to an administrative proceeding theywould have been final, because theywould have completed the court's action. As itwas, 102 they were merely interlocutory steps in a judicial proceeding." order of a district court enforcing a summons issued pursuant to Section 7602 is ancillary to an administrative proceeding, and as such final because it completes the court's action. The Supreme Court in Reisman set forth a procedure for asserting the a an at before attorney-client privilege agent of the Internal hearing Revenue Service held pursuant to Section 7602 of the Internal Revenue Code of 1954. In the situation where the attorney himself is summoned before the hearing officer,he should refuse to testify and state his reason as the attorney-client privilege. The hearing officer can then go before the district court, under Section 7402 of the Internal Revenue Code of 1954 to obtain an order to compel the attorney to testify or to appear at An
States v. Kovel, supra, note 55. 98 Schwimmer v. United States, supra, note 84. " 440 375 U.S. (1964). 100 See 303 F. 2d 601 (7th Cir. Application of Davis, 192 F. 2d 121 (7th Cir. 1951). 101 Supra, note 92. 102 Id. at p. 99. 97 United

to the district court for finding additional facts.97The Court also said that if the district court refuses to receive evidence offered by the defense, the defense should make an offer of proof along the lines prescribed in civil cases by Federal Rule of Civil Procedure 43 (c). In a civil case, involving the attorney-client privilege, the burden of on the attorney to show there is a valid assertion of the proof is attorney

1962)

; Jarecki v. Whetstone,

107

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the hearing if the attorney has not so appeared. At such time, the attorney may assert his reason for not testifying. The Supreme Court stated that enforcement of the summons under Section 7210 of the Internal Revenue Code of 1954 would not be appropriate as that section, which carries a maximum fine of $1,000.00 and one year's imprisonment is not intended to be used when the summons is attacked in good faith.103 The Court also stated that itwould not be appropriate for the hearing of the Internal Revenue officer to proceed pursuant to Section 7604(b) Code of 1954. That section provides for an attachment against the wit ness for a contempt. On this section the court said itwas only intended to cover persons who were summoned and wholly made default or con tumaciously refused to comply. It said it is inappropriate to use itwhere an attorney who is summoned refuses to testify on the basis of the an attachment it said, "would raise con Such attorney-client privilege. In Sale v. United States 104a stitutional considerations." Special Agent of the Internal Revenue Service proceeded pursuant to Section 7604(b) in filing a petition for attachment in the district court against an attorney who asserted the attorney-client privilege. This case, however, would come under the as the attorney wholly re Supreme Court's exception If the attorney did appear fused to appear before the Special Agent. before the Special Agent in Sale, and asserted the privilege, then, accord ing to the Supreme Court, such action could have been unconstitutional. In Reisman, a summons was served on an accounting firm, pursuant to Section 7602 of the Internal Revenue Code of 1954. The accounting firmwas hired by the attorneys for the taxpayer to work on the financial records of the client. The accountants indicated that they were going to so the attorneys an action comply with the summons, proceeded to bring in the district court for injunctive and declaratory relief to prevent the disclosure of the records of the accounting firm on the basis of the on constitutional attorney-client privilege, and grounds. The Supreme Court held that the petitioners, the attorneys for the client, had an adequate remedy at law, thusmaking the complaint subject to dismissal for want of equity. The Court stated that the proper procedure for the attorneys would have been to intervene at the hearing before the Special Agent and state their objections for so intervening. In addition, any interested party or or the taxpayer may intervene at a hearing subsequently in court, whether a or action of nature. be civil criminal the attorney or Where contempt a a at to intervenes third from taxpayer prevent hearing party testifying, the hearing officer, just as in the case where the witness refuses to testify,will have to go to the district court to order compliance with the *?*228 F. 2d 682 (8thCir. 1956).
103 Reisman v. Caplin, supra, note 99.

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a summons. Subsequently, in any procedure for contempt before either the attorney or taxpayer district judge or United States Commissioner, may intervene to protect their interest and assert any grounds for so intervening. A recent district court case inNew York set aside an Internal Revenue Service summons as itwas not issued pursuant to the rules set forth by the Supreme Court in Reisman v. Caplin.105 In the case a summons was served upon a bank directing it to appear and produce certain documents before an Internal Revenue Service agent. The Government neglected to provide the taxpayer with notice of the examination. The court said that without notice to the taxpayer, the rights specified in Reisman v. to challenge the summons before the hearing officerwould be Caplin, and until such right is granted the Government may not meaningless resort to the courts to enforce compliance with the summons. If the district court refuses to find that the attorney-client privilege to the refusal to testifyor produce documents, then only a refusal applies to comply with an order of the district judge directing compliance with the summons subjects the witness to a contempt proceeding. As such it follows that a witness, subject to the order, orders are appealable no In would suffer injury when a stay order accompanies the appeal. the case of a criminal contempt action, where an attorney has refused to testify before the grand jury, the attorney will likewise sufferno injury on the a court order finding him in contempt, while he appeal of district has a stay of the district court order pending the appeal. issue subject to conflicting decisions of different circuit courts of a v. hearing Caplin did not answer, is whether appeals that Reisman under Section 7602 of the Internal Revenue Code and subsequent court action to enforce a summons issued pursuant to Section 7602, is a "civil of the Federal Rules of action" covered by state law under Rule 43(a) Civil Procedure or covered by Federal law. Baird v. Koerner,106 dis cussed in great detail, this question. The Ninth Circuit Court of Appeals in Baird came to the conclusion that state law applies in such a situation. In Baird, itwas necessary to resolve this issue before the court reached An

the merits of the case, the issue of the attorney-client privilege.107 The issue of what law applies may become important in a case, where the forum state has a statute setting forth the attorney-client privilege. a Federal law would There is no Federal statute on this subject. Where courts pursuant to the Federal Rules of Civil Pro apply, the Federal cedure would look at the Federal common law. If a state has no such

105 Marvin December R. Cole, et al., S.D. N.Y., 2, 1964, reversed on appeal, 2nd Circuit Court of Appeals Docket No. 29374, February 26, 1965. The basis for reversal was that the taxpayer had no basis to object to the examination of the third party. loe Supra, note 71. 107 See discussion on merits of case, supra, p. 103.

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statute, there would be no practical difference between using either Federal or State law as both would have to look at the common law, and unless the courts of the forum state and Federal courts interpreted the common law differently, there would be no difference in the end result. The court in Baird v. Koerner, relied on Federal Rule of Civil Pro cedure 43(a) in reaching its conclusion. Rule 43(a) states in part, "all evidence shall be admitted which is admissible under the statutes of theUnited States, or under the rules of evidence heretofore applied in the courts of theUnited States on the hearing of suits in equity, or under the Rules of Evidence applied in the courts of general jurisdic tion of the state inwhich theUnited States court is held." The Ninth Circuit found no Federal statute or rule purporting to set forth a Federal Rule governing the attorney-client privilege in civil cases. It cited on Evidence and Moore's Federal Practice Wigmore manual in support of its position. In referring to privilege communica stated "they are controlled principally by state statutes, tions, Moore's will clearly govern, if no Federal statutes or which under Rule 43(a) rules of court contrary to the state statutes are enacted or promulgated. >>108 The court examined the Federal law and found that therewas no rule that required the non-applicability of the attorney-client privilege under the factual situation at hand. Thus, itheld that the California law to Section 43(a) of the Federal Rules of Civil Pro applied, pursuant cedure and examining the California statute, found that the same conclu sion on the merits resulted as would have resulted under Federal common law on the subject. The

Second Circuit Court of Appeals reached a contrary result in Colton v. United States,109 which also considered the question of what a to tax investiga law questions of privilege in Federal income applies tion arising from refusal to testify at a hearing held pursuant to a summons served under Section 7602 of the Internal Revenue Code. The Court met theNinth Circuit squarely when it stated, "we do not agree with the Court of Appeals for theNinth Circuit, that a hearing held by the Internal Revenue Service under Section 7602 of the Internal Revenue Code is a 'civil action' governed by state evidence under Rule of 43(a) or that state law the Federal Rules of Civil Procedure, 28 U.S.C.A. 110 should govern for any other reason." The foregoing decision of the Second Circuit Court of Appeals fol lowed its decision in In Re Albert Lindley Lee Memorial Hospital.111 a In that case a Special Agent of the Internal Revenue Service served summons on the Albert Lindley Lee Memorial for the purpose Hospital
108 5Moore's Federal 109 Supra, note 64. no Id. at p. 636. Practice, ? 43.07.

111209 F. 2d 122 (2d Cir. 1953). 110

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of inquiring into the tax liability of a certain doctor. The hospital refused an order was obtained in the United to summons with the and comply States District Court for theNorthern District of New York directing the hospital to allow the Internal Revenue agent to inspect its books. The The doctor appealed the order to the Second Circuit Court of Appeals. District Court decided the case on New York law, but the Court of Appeals on its own, first considered the acting question of what law In finding that Federal law applied, it reasoned that the income applied. tax investigation was-authorized under Section 3614(a) of the Internal Revenue Code of 1939. This, it stated, was not a judicial proceeding, thus, precluding the application of Section 43 (a) of the Federal Rules of Civil Procedure and as the investigation was under the inquisitorial powers of the Internal Revenue Service the court said Federal law should

apply. Since the issue is the assertion of the privilege at a hearing before a an Internal Revenue Service summons, it hearing officer pursuant to would appear that the reasoning of the Second Circuit is correct in that such a hearing is not a judicial proceeding. The Supreme Court in Reis man v. was not a judicial proceeding Caplin,112 necessarily found that it when it held that an order of a district court ordering someone to appear at an administrative hearing is a final order which is appealable. The rationale of the holding of Reisman is that the proceedings brought before a district court for the purpose of enforcing or vacating a sum mons issued pursuant to the Internal Revenue Code, and not the adminis trative hearing pursuant to the Internal Revenue Service summons, is a a judicial proceeding; if the administrative hearing is judicial proceeding, the order of a district court enforcing a summons would not be a final order as the judicial proceeding would trative hearing is resumed. be continued when the adminis

to attorney-client privilege, the Supreme Court should decide this issue as soon as it is able to do so. Generally in a situation involving the no difference in result between will there be attorney-client privilege Federal or State law, but in situations involving the attorney-accountant as occurred in Falsone v. United States, or other privileges privilege such which may be enacted under State statutes, but which are not the rule under the common
112 Supra, note 99.

in Falsone v. United States,113 The Fifth Circuit Court of Appeals of the Federal Rules of Civil Procedure is also found that Section 43(a) not applicable to inquiries made by a revenue agent pursuant to his power under the Internal Revenue Code. Because of the distinct dis on the issue of what law agreement between the circuit courts applies

law, there will be different results.

113205 F. 2d 734 (5thCir. 1953). Ill

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