*443 A POST-UPJOHN CONSIDERATION OF THE CORPORATE ATTORNEY-CLIENT PRIVILEGE

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1 Page 1 of 91 New York University Law Review June, 1982 *443 A POST-UPJOHN CONSIDERATION OF THE CORPORATE ATTORNEY-CLIENT PRIVILEGE John E. Sexton [FNa] ABSTRACT This Article examines the contours of the corporate attorney-client privilege after the Supreme Court's decision in Upjohn Company v. United States. After tracing the development of the corporate privilege, Professor Sexton analyzes the Upjohn opinion itself, isolating the unspoken assumptions that form the bases of that opinion. Then he derives a functional conception of the corporate attorney-client privilege from those assumptions. Finally, he considers the compatibility of this conception with select bodies of doctrine collateral to the corporate privilege. He concludes that significant tension exists between the Upjohn privilege and those collateral rules. INTRODUCTION When the United States Supreme Court agreed to hear Upjohn Company v. United States, [FN1] scholars and practitioners alike took note. For decades, the Court had accepted tacitly the proposition that the attorney- client privilege available to individuals also was available to corporations, [FN2] but it never had delineated the scope and meaning of the corporate attorney-client privilege. Meanwhile, lower federal courts had become sharply split over the appropriate contours of the corporate privilege. [FN3] Upjohn provided an opportunity for the Supreme Court both to explain its willingness to extend to corporations a *444 privilege originally designed for individuals and to define precisely the scope and meaning of the corporate privilege.

2 Page 2 of 91 The Upjohn Court allowed the opportunity to pass, however. Justice Rehnquist's opinion for eight Justices does manifest a firm commitment to the notion that the attorney-client privilege is available to corporations, but it does not attempt to justify that commitment. Moreover, the Court expressly refused to promulgate standards to govern application of the privilege. Instead, in an opinion largely characterized by unexplicated conclusory language, the Court purported to decide little more than the communications in the case before it were protected by the privilege. Notwithstanding the failure of the Upjohn Court to articulate a justification for the corporate attorney-client privilege, the issue of the availability of the privilege to corporations is, for all practical purposes, now settled. Even granted that fact, however, the important task of delineating the appropriate contours of that privilege still remains. In that regard, the goal of this piece is a modest one: it seeks only to frame for discussion important issues regarding the scope of the corporate privilege. Part I sketches the development of doctrines relating to the attorney-client privilege, particularly to the corporate attorney-client privilege. Part II analyzes the majority opinion in Upjohn, suggesting the limits of the Court's approach. The Court determined that the privilege applied to the facts before it by using an ad hoc, functional mode of analysis. In essence, the Court asked whether application of the privilege under the circumstances of the case would foster the perceived purpose of the privilege. In large part, the Court based its analysis on two critical, yet unsupported, assumptions about the behavior of corporate actors: first, that application of the privilege in the corporate setting does, in fact, induce corporate clients to provide their attorneys with information that, absent the privilege, they would not provide and second, that once attorneys inform corporate decision makers of the demands of the law, the decision makers will conform their behavior to those demands voluntarily. But, even when judged on those assumptions, the Court's functional approach suffers from serious deficiencies that can be remedied only by the development of carefully delineated rules to guide lawyers and their clients. Therefore, without questioning the assumptions made by the Upjohn Court, Part III of the Article sketches the portrait of the corporate attorney- client privilege that flows from a principled application of them. [FN4] Using an analytical approach that looks beyond the purposes *445 of the privilege identified by the Upjohn Court and that focuses on the principles that emerge from that opinion, the Article seeks to develop rules consistent with the Upjohn opinion that address some of the major practical questions regarding the corporate privilege. Finally, Part IV considers the compatibility of those rules with select bodies of doctrine collateral to the corporate attorney-client privilege. It concludes that the content of some of the rules that flow from a principled application of the assumptions made by the Upjohn Court is such that the Court may ultimately choose to limit Upjohn rather than to embrace all that it implies.

3 Page 3 of 91 DOCTRINAL DEVELOPMENT AND THE CORPORATE ATTORNEY- CLIENT PRIVILEGE A. The Development of an Attorney-Client Privilege Wigmore reports that the attorney-client privilege is "the oldest of the privileges for confidential communications" known to the common law. [FN5] Indeed, " t he history of this privilege goes back to the reign of Elizabeth I, where the privilege already appears as unquestioned." [FN6] The privilege, based initially upon "the oath and the honor of the attorney," embodied the notion that a gentleman never revealed confidences: [FN7] "A barrister was considered not merely an 'officer' of the court but a member of it, who could no more properly be asked to reveal a client's confidences than a modern judge could be *446 asked to disclose matters heard in camera." [FN8] By the last quarter of the eighteenth century, however, the doctrine fell out of favor and was rejected as antithetical to the judicial search for truth. [FN9] The privilege reemerged in the early nineteenth century. Utilitarian considerations sparked its resurrection; Wigmore suggests that it was perceived that the privilege would "promote freedom of consultation of legal advisers by clients." [FN10] Such unfettered communication, it was thought, would provide important information to advocates and to the court, would assure client compliance with the law, and would vindicate other substantive rights. [FN11] Ostensibly, a privilege was needed to foster consultation; the apprehension of subsequent disclosure would otherwise inhibit open communication to attorneys. [FN12] Although Professor Hazard has argued that the historical roots of the privilege are different from those described by Wigmore, [FN13] most commentators would agree that, today, the privilege is based on Wigmore's utilitarian model and is designed to promote freedom of consultation between lawyer and client. [FN14] Notwithstanding the interests that the attorney-client privilege purports to serve, even its staunchest proponents concede that, whenever the privilege is invoked, otherwise relevant and admissible evidence may be suppressed. Inherently, the attorney-client privilege, like all privileges, potentially hinders the administration of justice. Indeed, although the benefits of the privilege are indirect, in the words of Wigmore, "its obstruction is plain and concrete." [FN15] In other words, a tension exists between the secrecy required to effectuate the privilege and the openness demanded by the factfinding process. Because of this tension, it has been concluded broadly that the contours of the privilege should "be strictly confined within the narrowest possible limits consistent with the logic of its principle." [FN16]

4 Page 4 of 91 *447 This maxim is more easily stated than practiced, however, particularly in cases that apply the privilege to corporations. As the following subsection illustrates, the rules for applying the privilege to corporations and the justifications underlying the existence of the corporate privilege have remained unclear. These ambiguities tend to stymie attempts to confine the corporate privilege within "the narrowest possible limits consistent with the logic of its principle." B. The Corporate Attorney-Client Privilege It is not self-evident that the attorney-client privilege available to individuals also should be available to corporations. Indeed, in 1962, in Radiant Burners, Inc. v. American Gas Association, [FN17] the first federal court to consider the question expressly held that the privilege was unavailable to corporations. [FN18] Nonetheless, as early as 1915 in United States v. Louisville & Nashville Railroad, [FN19] the Supreme Court permitted a corporation to assert the attorney-client privilege. [FN20] And *448 even before the Seventh Circuit reversed the district court's denial of the corporate privilege in Radiant Burners, another district court was constrained to conclude that, notwithstanding the "sound logic" of the district court judge's opinion in Radiant Burners, "the availability of the privilege to corporations has... been so generally accepted that courts must recognize that it does exist." [FN21] The Supreme Court's unhesitating recognition of the Upjohn Company's right to invoke some form of the attorney-client privilege in the Upjohn case underscores this statement. [FN22] *449 In contrast to the broad consensus among federal courts regarding the availability of an attorney-client privilege for corporations, conflicting views have evolved over who in the corporation may communicate as the "client" for purposes of the privilege. The traditional rule is that a non-corporate client is free to communicate with his attorney through an agent and that the protection of the privilege is not lost because the client speaks through an agent. [FN23] This principle is difficult to apply, however, when the "client" invoking the privilege is a corporation. [FN24] Characteristically, a corporate entity can speak only through its agents or employees, and there are often hundreds or even thousands of agents or employees associated with the corporation. Therefore, if the privilege applies to communications between an attorney and her corporate client, it is necessary to determine precisely the identity of the client, that is, to designate the persons within the corporation whose communications are protected by the privilege. The first federal court to discuss the corporate attorney-client privilege at length was the district court in United States v. United Shoe Machinery Corp. [FN25] That court held that the privilege applies to "information furnished to the attorney by an officer or employee of the corporation in confidence

5 Page 5 of 91 and without the presence of third persons," but not to "facts disclosed to the attorney by a person outside the organization of the corporation and its affiliates." [FN26] However, *450 most courts found unacceptable a rule that so broadly protected the communication of any employee with the corporation's attorney. Consequently, the debate over the appropriate scope of the corporate attorneyclient privilege soon centered on two competing theories: the so-called "control group" and "subject matter" tests. Although the control group test was first enunciated in City of Philadelphia v. Westinghouse Electric Corp., [FN27] its roots can be traced to the Supreme Court's decision in Hickman v. Taylor. [FN28] The Hickman litigation stemmed from a tugboat accident in which five crewmembers were drowned. The tugboat company's attorney interviewed the surviving crewmembers in preparation for trial and made notes on the interviews. One year later, the administrator of one of the deceased crew members' estates brought a claim against the company and sought to obtain through discovery the attorney's notes on the interviews. When the company's attorney refused to produce his memoranda, the plaintiff asked the district court to compel disclosure. The trial court ordered production of the documents, but the attorney persisted in refusal. The district court held him in contempt, the Third Circuit reversed, and the Supreme Court granted certiorari. In dicta, the Court asserted that the surviving crew members were mere witnesses and that the attorney-client privilege did not apply to the attorney's communications with them: " T he protective cloak of the privilege does not extend to information which an attorney secures from a witness while acting for his client in anticipation of litigation." [FN29] Nonetheless, the Hickman Court held that the attorney's notes were protected by the qualified "work product" immunity that has subsequently been enshrined in Rule 26 of the Federal Rules of Civil Procedure. [FN30] *451 Fifteen years after Hickman, in City of Philadelphia v. Westinghouse Electric Corp., the United States District Court for the Eastern District of Pennsylvania squarely faced the question of the scope of the attorney-client privilege as applied to corporations. That court reasoned that the language in Hickman quoted above "clearly show[ed] the distinction between statements by employees of the client [company] and statements by the client [company] itself." [FN31] The court rejected United Shoe's expansive approach to the corporate attorney-client privilege as overly broad. To say, as the United Shoe court had said, that all corporate employees are, by virtue of nothing more than their employee status, the corporate "client" for purposes of the attorney-client privilege was to ignore the teaching of Hickman. [FN32] Thus, the judge in City of Philadelphia announced a more restrictive test; one he believed defined the corporate "client" in a manner consistent with Hickman: 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

6 Page 6 of 91 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 privilege would apply. [FN33] A majority of the federal courts that considered the scope of the corporate attorney-client privilege over the next two decades adhered to the control group test. [FN34] *452 The counterpoint to the control group test is the subject matter test first enunciated by the Seventh Circuit in Harper & Row Publishers, Inc. v. Decker. [FN35] Harper & Row reached the court of appeals by writ of mandamus after the trial judge, applying the control group test, had held the privilege inapplicable to communications between lower level employees of the defendant corporation and the corporation's attorneys regarding the employees' testimony before a federal grand jury. [FN36] The Seventh Circuit concluded that the control group test was inadequate because the lower echelon employees involved in the case clearly were more than fortuitous witnesses. Rather, they were corporate actors who, by virtue of their on-the-job activity, possessed information vital to the company's legal position. The Harper & Row court asserted that such lower echelon employeeactors are frequently the very persons in the corporation who possess the information most vital to the corporation's legal position; yet the control group test would not protect communications from such employees. [FN37] To redress this inadequacy, *453 the court promulgated what became known as the subject matter test: We conclude 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 attorney is privileged where the employee makes the communication at the direction of his superiors in the corporation and where the subject matter upon which the attorney's advice is sought by the corporation and dealt with in the communication is the performance by the employee of the duties of his employment. [FN38] A significant minority of the federal courts that subsequently considered the scope of the corporate attorney-client privilege adopted the subject matter test. [FN39] *454 Once the counterpoints represented by the control group and the subject matter tests had been established, some federal courts attempted variations or syntheses of them. These courts concluded that neither test, standing alone, adequately accounted for the manner in which the modern

7 Page 7 of 91 corporation functions, [FN40] and they formulated a variety of approaches to redress this inadequacy. For example, in Duplan Corp. v. Deering Milliken, Inc., [FN41] the district court combined the two tests [FN42] by holding that the attorney-client privilege applies in the corporate setting only if (1) the person communicating on behalf of the corporation is a member of the control group or an employee authorized to communicate by a member of that group, (2) the subject matter of the communication is related to the employee's duties in the corporation, and (3) the communication is necessary to the rendering of legal advice. [FN43] The district court in IN re Ampicillin Antitrust Litigation took a different approach. [FN44] It completely rejected the control group requirement [FN45] and instead modified the subject matter *455 test [FN46] by focusing on the relationship between the subject matter of the particular communication and the decision making process regarding the corporation's legal problem. [FN47] Still another example was the Eighth Circuit's opinion in Diversified Industries, Inc. v. Meredith, [FN48] which varied the subject matter test to provide protection only if the communicating employee and his superiors intended that the communication result in legal advice. [FN49] *456 On the eve of the Supreme Court's decision in the Upjohn case, therefore, federal courts agreed that corporations could invoke the protection of the attorney-client privilege. They disagreed sharply, however, over the contours of the privilege as applied to corporations. The control group test and the subject matter test provided the two contrapuntal strains, but several variations on those basic themes had developed. [FN50] THE SUPREME COURT'S DECISION IN UPJOHN A. The Court's Opinion The Upjohn Company is a pharmaceutical manufacturer doing business in the United States and approximately 150 other countries. [FN51] *457 In 1976, independent accountants conducting an audit of one of Upjohn's foreign subsidiaries discovered evidence that the subsidiary had made improper payments to foreign government officials. The accountants reported their discovery to Upjohn's General Counsel, who then discussed the discovery with the Chairman of Upjohn's Board and with outside counsel. As a result of these discussions, Upjohn commenced an internal investigation of "questionable payments," and its attorney sent a questionnaire to all of the company's overseas managers soliciting information regarding such payments. The letter accompanying the questionnaire indicated that Upjohn's officers needed all available information concerning payments by Upjohn to foreign officials. It requested that responses be sent directly to Upjohn's General Counsel. Finally, it

8 Page 8 of 91 indicated that the matter should be treated as highly confidential and should be discussed only with Upjohn employees who might possess the needed information. After receiving the responses, Upjohn's in- house and outside counsel interviewed personally approximately eighty-six officers and employees of the company (drawn from senior management). The attorneys made handwritten notes during these interviews that reflected the content of the conversations and their impressions of them. Later in 1976, Upjohn voluntarily submitted a report to the Securities and Exchange Commission and to the Internal Revenue Service (IRS) disclosing the questionable payments. Shortly thereafter, when the IRS instituted an investigation of the tax consequences of the payments, agents requested and received lists of those employees and former employees who had submitted questionnaires or who had been interviewed by Upjohn's attorneys. Upjohn offered to make all of these individuals available for interrogation. When the IRS issued an administrative summons for the production of all documents gathered during Upjohn's investigation, [FN52] however, the company *458 refused on the ground that the documents were protected from disclosure by either the attorney-client privilege or the work product immunity. [FN53] The IRS sought and was granted enforcement of the summons in the United States District Court for the Western District of Michigan. [FN54] On appeal, the Sixth Circuit, adopting the control group test, held that the privilege did not apply " t o the extent that the communications were made by officers and agents not responsible for directing Upjohn's actions in response to legal advice... for the simple reason that the communications were not the 'client's."' [FN55] Consequently, it remanded to the District Court for a determination of which Upjohn employees fell within the control group. [FN56] Upjohn filed a petition for certiorari, and the Supreme Court granted the writ. When the Supreme Court agreed to hear the Upjohn case, it was widely assumed that the Court would resolve the conflict that had developed in the circuits by choosing either the control group test, the subject matter test, or one of the possible variations. [FN57] The expectation proved only partially correct. Although the Court unanimously rejected the control group test, [FN58] the majority refused "to draft a set of rules to govern challenges to investigatory subpoenas" [FN59] because " any such approach would violate the spirit of Federal Rule of Evidence 501." [FN60] Consequently, the Justices rejected the control group *459 test without embracing the subject matter test. [FN61] Indeed, the Court's opinion did not even mention the subject matter test by name. [FN62] A close reading of the Court's opinion, however, reveals something more than a mere rejection of the control group test. By tracing the Court's treatment of Upjohn's claim of privilege, one can discern a style of analysis that is, in effect, the heart of the Court's treatment of the scope of the corporate

9 Page 9 of 91 attorney-client privilege. The Court's approach is a functional one: it focuses primarily on the perceived purposes of the privilege. In large part, the Court's inquiry resolves into a single question: Would application of the privilege under the circumstances of this particular case foster the flow of information to corporate counsel regarding issues about which corporations seek legal advice? [FN63] The Court's treatment of the circumstances before it in Upjohn illustrates the primacy of this functional style of analysis. After presenting the underlying facts of the case, the Court immediately notes that the function of the attorney-client privilege is "to encourage full and frank communications between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." [FN64] In the Court's view, "sound legal advice or advocacy serves public ends and... such advice or advocacy depends upon the lawyer being fully informed by the client." [FN65] Later, the Court concedes that complications arise when the privilege is extended to corporations, [FN66] but it hastens to add that a special public interest is served when corporations are able to consult freely with attorneys regarding compliance with the "vast and complicated array of regulatory legislation." [FN67] *460 Having delineated the function that the privilege serves, the Court continues its functional analysis by asking whether the control group test enunciated in City of Philadelphia is consistent with the function of the privilege. [FN68] It finds the control group test inadequate in three respects. First, that test overlooks the need for the privilege to protect not only the professional advice given by the attorney to corporate employees who can act on it (the control group) but also the information given to the attorney to enable her to form a judgment and provide advice. [FN69] If the attorney is to receive the information she needs to make her judgment, the privilege must cover all persons who possess that information. [FN70] Because many middle or low echelon corporate employees possess information that the corporate attorney should receive, the control group test is unduly restrictive. Second, the control group test frustrates the purpose of the privilege by discouraging an attorney from conducting a full investigation of the facts before rendering advice. [FN71] Under the control group test, the privilege does not extend to communications from all employees who possess the information she needs. Because this increases the likelihood of a subsequent finding of liability, the attorney might opt to forgo communication with employees outside of the control group and to render advice on an incomplete picture of the facts. Such an outcome is contrary to public interest. Finally, the Court criticizes the control group test for being unpredictable and difficult to apply in practice. [FN72] Citing apparently inconsistent results in lower courts, [FN73] the Court reasons that if the purpose of the attorney-client privilege is to be served, the attorney and client must be able to predict

10 Page 10 of 91 with some degree of certainty whether particular discussions will be protected. An uncertain*461 privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all. [FN74] Thus, the three reasons that led the Court to reject the control group test are each grounded in a functional analysis of the privilege. A similar functional analysis led the Court to conclude that, on the facts before it, the communications between Upjohn's attorneys and its employees were privileged. [FN75] Notwithstanding the absence of any mention of the subject matter test in the opinion, some commentators have argued [FN76] that the Upjohn Court embraced the modified subject matter test first enunciated by Judge Weinstein in his treatise on evidence [FN77] and later adopted by the Eighth Circuit in Diversified Industries, Inc. v. Meredith. [FN78] The facts in Upjohn do closely parallel those in Diversified Industries, [FN79] and the key elements of the Weinstein test certainly are satisfied. The communications were made by Upjohn employees, [FN80] to counsel for Upjohn acting as such, at the direction of corporate superiors, and to secure legal advice; they concerned matters within the scope of the employees' duties, and the employees were aware that they were being questioned so that the corporation could obtain legal advice; and finally, the communications were considered and were kept "highly confidential." [FN81] However, although the Upjohn Court *462 listed each of these elements seriatim as it applied its analysis to the facts before it, the Court nowhere explicitly ratified the Diversified Industries test. [FN82] The majority opinion gave no indication that its summary of the evidence was meant to be anything more than a reiteration of its finding that the privilege applied in the circumstances before it. In fact, Justice Rehnquist, the author of the majority opinion, quite expressly refused to promulgate or embrace any particular test. [FN83] Moreover, Chief Justice Burger wrote a concurring opinion decrying the majority's refusal to promulgate a test to guide lower courts. [FN84] There is, however, a different point that is noteworthy about the factual coda that Justice Rehnquist inserted in his opinion for the Court. In that coda, after listing the elements of the case before the Court, he returned to the overriding functional theme of the opinion: Given the listed elements, the purposes underlying the attorney-client privilege could be satisfied only if the communications at issue were protected against disclosure. On that functional basis, Upjohn's claim of privilege was honored. In sum, the Upjohn Court clearly and unequivocally rejected the control group test as a basis for delineating the scope of the corporate attorney- client privilege. Nonetheless, the Court did not

11 Page 11 of 91 embrace the subject matter test or any of its modifications. Instead, it utilized a functional mode of analysis to determine whether the privilege should apply in the situation before it, that is, it asked whether application of the privilege in circumstances of the kind at issue would enhance the flow of information to corporate counsel regarding issues about which corporations seek legal advice. [FN85] *463 B. The Limits of the Upjohn Opinion The Upjohn opinion rests on several critical assumptions. The first, a theoretical one, is that the attorney-client privilege available to individuals should also be available to corporations. This proposition is not self- evident. [FN86] Yet with little more than a reference to a case that sixty- six years earlier had assumed the applicability of the privilege to corporations, the Court itself assumed the point. [FN87] To the extent the Court offers an explanation for its willingness to extend the protection of the privilege to corporations, its analysis is based upon two problematic assumptions with regard to the behavior of corporate actors: first, application of the privilege in the corporate setting does, in fact, induce corporate clients to provide their attorneys with information that, absent the privilege, they would not provide and second, that once attorneys inform corporate decision makers of the demands of the law, the decision makers will conform their behavior to those demands. That a corporate privilege yields an increase in communication between corporate clients and their attorneys is open to challenge. One may question whether the attorney-client privilege actually induces any client, individual or corporate, to provide information that would not otherwise be forthcoming. More narrowly, even assuming that the availability of the privilege may induce individuals to communicate more freely with their attorneys, such may not be the case *464 with corporate clients. In this regard, several commentators have argued that because of the exigencies of the regulatory state and because of their general business needs, corporations would communicate with attorneys even if the privilege were not available. [FN88] A corporation's activities undeniably tend to involve many more legal questions, larger sums of money, and greater potential liability than do the activities of most individuals. Citing these facts, critics of the corporate privilege argue that corporate clients are candid with their attorneys not because of the privilege but because they realize that the costs of withholding information are likely to be far greater than the disadvantages flowing from the risk that the communication will later be divulged. According to this theory, modern corporations are "ineluctable bedfellows" [FN89] of lawyers because they have "no choice but to communicate with attorneys." [FN90] The result, the critics say, is that the extension of the privilege to corporations induces little additional information

12 Page 12 of 91 for the attorney. [FN91] Arguments that the corporate attorney-client privilege will not produce additional communications with corporations' attorneys must be tempered, however. First, they generally ignore the pluralism of corporations and the fact that a great deal of information within corporations is possessed by lower echelon employees. Corporations are not monolithic. [FN92] Consequently, even in a situation where the corporation as an entity has a need for legal advice, it does not necessarily follow that the individual possessing the information *465 shares that need-and with it the need to communicate with an attorney. Lower echelon employees frequently lack an overarching corporate perspective and the concomitant motivation to provide the information in their possession. Moreover, both lower echelon employees and those senior actors who possess the necessary perspective might find a conflict between corporate and personal needs. [FN93] A reluctance to communicate would be a natural reaction for an employee who, rightly or wrongly, fears that widespread dissemination of his information by the attorney could render him liable to civil or criminal penalties, prejudice a claim he may have against either the corporation or a third-party, prevent his promotion, lead to his dismissal, or simply embarrass him. [FN94] In this circumstance, the result may be either that such employee will withhold information or supply information that is incomplete, distorted, or otherwise lacking in candor. Therefore, even if it is granted that the modern corporation has "no choice but to communicate with attorneys," [FN95] a corporate privilege still might serve to make those communications that do occur more candid and truthful, as well as to prevent corporate employees from simply refraining from supplying information. Whether this is the case depends upon the capacity of a corporate attorney- client privilege to render individuals within corporations *466 more willing to speak to the corporation's attorney. In this regard, it is noteworthy that many individuals-most particularly those whose interests do not conflict with the corporation-will gladly speak even without the protection of its privilege. [FN96] Others, ordinarily reluctant, will speak if ordered to do so-perhaps out of a fear, justifiable or otherwise, that they will be dismissed or that their career development will be impaired if they fail to do so. [FN97] A third group will not speak even if they are assured that their communications will not be disseminated beyond those involved in the litigation both because they fear recrimination within the corporation and because they understand that at least some corporate officials [FN98] will be privy even to privileged communications. [FN99] Finally, there is a fourth group who, by hypothesis, will speak only if their communications are protected from disclosure. [FN100] The existence of a corporate attorney-client privilege might be significant to this group. However, the fact that the corporation may be able to waive the privilege [FN101] or that otherwise privileged communications *467 may be available to plaintiffs in shareholder litigation [FN102] means that such information-holders have no

13 Page 13 of 91 guarantee that their communications, even if initially protected by the privilege, will be permanently protected against dissemination. Since the threat of waiver or of shareholder litigation is present whenever there is an issue of corporate liability, this fourth group of information-holders might be generally unwilling to speak to the corporation's attorneys notwithstanding the initial availability of the privilege. Even assuming the validity of the points just made with regard to the willingness of individual information-holders to speak absent the protection of the privilege, the Court's assumption that a corporate attorney-client privilege will generate additional communication with attorneys may still be correct. An important component of the argument just made is that most information-holders either will speak voluntarily with the corporation's attorney or can be ordered to do so. But this assumes that the corporation wants them to speak to the attorney. Nevertheless, the existence vel non of the protection provided by the privilege even if not determinative of the information-holder's attitude, may be determinative of the corporation's attitude. It is significant that if, because of the absence of protection, the corporation desires that its employees refrain from speaking, even those information-holders who would otherwise gladly provide information would not do so-either because no lawyer would have been retained or, if a lawyer is on the scene, because of fear of corporate recrimination. Notwithstanding this view, there are reasons to doubt the Upjohn Court's assumption that application of the privilege in the corporation setting does, in fact, induce corporate clients to provide their attorneys with information that, absent the privilege, they would not provide. It may be that the Court is correct in assuming that a significant number of information-holders would be less inclined to speak to the corporation's attorney if there were no corporate attorney-client privilege and that these information-holders will not be *468 affected by the fact that there is a chance that the privilege will be abrogated. Certainly the Court and many lawyers [FN103] believe that this is the case. And, of course, nobody would argue that the corporate attorney- client privilege produces no additional communication at all. The point here is that, notwithstanding serious arguments to the contrary, the Court assumed that application of the privilege induces significant additional communications. Arguably, uninhibited communication between attorney and client is good in itself. Such communication enables the attorney to serve her client with "industry and efficiency," and it may be a necessary part of the adversarial process. [FN104] But the Upjohn Court goes beyond this relatively modest rationale for the privilege to assert that increased communication between corporations and their attorneys will produce another socially beneficial outcome, to wit, increased corporate compliance with the law. In this regard, a second assumption about the behavior of corporate actors, equal in importance to the one just discussed and equally unsupported, informs the Court's analysis.

14 Page 14 of 91 The Court employs what might be called a "voluntary compliance" model to describe the typical corporate response to governmental regulation. [FN105] Its assumption is that, as a general rule, once attorneys inform corporate decision makers of the demands of the law, those decision makers will conform their behavior to those demands. [FN106] *469 On this view of corporate behavior, the corporation's attorney is strategically placed to facilitate the process of voluntary compliance: if she is given all of the relevant information, she can inform corporate officials of their legal duties, and they, as law-abiding citizens, will execute them. It is this perception of attorney-client interplay that, in large part, leads the Upjohn Court to bestow preeminent value upon fostering the flow of information between corporate clients and attorneys. The voluntary compliance model of corporate behavior flows naturally from the facts of the Upjohn case. However, it is far from clear that the activity of the corporate officials at Upjohn during 1976 is typical of corporate behavior in the United States. A case can be made that at least a significant number of corporate officials seek to push the law to its limits-to avoid, as far as possible, complying with its mandates-and that corporate compliance with the law is better achieved by relying primarily on a strategy of vigorous enforcement by government and by private attorneys-general. [FN107] In this "regulatory" *470 model of corporate behavior, the corporation's attorney is strategically placed to help stymie enforcement; any diminution in the amount of information available to the public or private adversaries of corporations by virtue of a corporate attorney-client privilege is potentially harmful to the enforcement effort. The Court's implicit decision to emphasize voluntary compliance has immediate implications for a discussion of the corporate attorney-client privilege. On the voluntary compliance model, an expansive privilege is desirable to get as much information as possible to the corporation's attorney, thereby enabling her to guide the compliance effort. On the regulatory model, a narrow privilege is desirable to minimize the amount of relevant information protected, for protected information is generally undiscoverable by public and private adversaries of corporations. One's willingness to rely primarily on voluntary compliance (with a concomitantly broader privilege) rather than regulation (with a concomitantly narrower privilege) turns upon one's degree of confidence in a regime of corporate self-policing. The emphasis on voluntary compliance adopted by the Upjohn Court and politically in vogue today stands in counterpoint to the assumption of the New Deal, for example, that corporate behavior is most effectively governed by a vigorous regulatory effort. This Article will not choose between these two approaches; nor will it suggest a particular blend of the two. The point here is that the Upjohn Court emphasized voluntary compliance and based important parts of its analysis upon the effectiveness of that approach. Indeed, one of the

15 Page 15 of 91 ironies of the Upjohn case is that the Court endorsed this strategy over the vigorous objection of the agency charged with ensuring corporate law-abidance in the area at issue. In *471 essence, the Court told the IRS that a voluntary compliance strategy was better for the IRS than the IRS thought it was. Of course, the reality of corporate behavior falls somewhere between the two models just described; they are starkly contrasting paradigms, and the reality is neither black nor white, but gray. The models do not capture the diversity and complexity of corporate activity, nor government's response to it. They simply describe a tactical cleavage between two broad approaches to the policing of corporate activity. Moreover, just as nobody would deny that a corporate attorney-client privilege induces some (though perhaps minimal) increased communication with attorneys for corporations, so also would nobody deny that voluntary compliance occurs at least some of the time. The choice of models just described, therefore, is not an absolute one, but one of degree. It is a choice of primary emphasis-of a strategy to achieve corporate compliance with the law. In this vein, it is clear that the voluntary compliance emphasis adopted by the Upjohn Court does not abandon regulation or rely exclusively on corporate self-policing. And if a corporate attorney-client privilege generated sufficient voluntary compliance to produce a net increase in corporate law-abidance, it might well be justified. It must be emphasized, however, that the Court had before it a case of voluntary compliance by a corporation. The Court neglected to require evidence of voluntary compliance as a condition precedent to invoking the privilege. Thus, to the extent that there is a significant number of cases characterized by less vigorously law-abiding corporate conduct, an underlying assumption of the Upjohn Court is extremely fragile. Unless it is limited by subsequent cases, Upjohn recognizes a corporate attorney-client privilege applicable to all cases involving corporations, not only to those cases (like Upjohn itself) where corporate behavior comports with the voluntary compliance approach. Thus far, examination of the Upjohn opinion has revealed that the Court made several fundamental but unsupported assumptions. Even considered on its own terms, however, the Upjohn majority's approach to the corporate attorney-client privilege is problematic. By declining to promulgate a broad rule to govern application of the attorney-client privilege to corporations, the Justices adopted a course that arguably will occasion unpredictability and confusion for corporate attorneys, their clients, and the courts. In his concurring opinion, Chief Justice Burger asserted the necessity of setting a clear standard in this area to guide practitioners and clients. [FN108] The Court, however, *472 ignored his plea. This failure to provide such guidance may be unfortunate for two reasons. First, as Justice Rehnquist recognized in the Court's opinion, unless the privilege is reasonably predictable at the time that a communication is made, it cannot completely fulfill its function. [FN109] More specifically, Justice Rehnquist conceded that the case-by-case approach adopted by the Upjohn Court

16 Page 16 of 91 might "to some slight extent undermine desirable certainty in the boundaries of the attorney- client privilege." [FN110] If the boundaries of protection are uncertain, some information-givers may be unwilling to speak to the attorney. And the greater the uncertainty, the greater the threat that the privilege will not fulfill its function. [FN111] Second, although by the Court's reasoning the privilege must be broad enough to ensure that the attorney receives the information she needs to provide requested legal advice, the Court would deem it undesirable to insulate otherwise discoverable information from discovery unnecessarily. The Federal Rules of Civil Procedure embody a commitment to liberal discovery, which is deemed "essential to proper litigation." [FN112] To honor that commitment, application of the privilege must be crafted to extend protection only as far as is necessary to serve its purpose. In this regard, it is noteworthy that, absent carefully defined principles governing the application of the privilege, the approach taken by the Upjohn Court may produce unnecessary expansion of the privilege. As noted earlier, the Court's central inquiry was whether application of the privilege under circumstances like those in the case before it would foster the perceived purposes of the privilege. The emphasis was on the goals, that is, on the benefits, of the privilege, *473 not on its costs. Such a focus, with its relative inattentiveness to the costs of each extension, tends to foster expansion of the scope of the privilege. By relegating determination of the scope of the privilege to lower courts acting under the impetus of this potentially expansive approach, the Upjohn Court increased the probability that those courts will protect material unnecessarily. [FN113] It is important to note, however, that the Court's failure to articulate a precise standard, not its functional mode of analysis, causes the problems of under-inclusiveness and over-inclusiveness just mentioned. Precise standards are fully compatible with a functional mode of analysis. Indeed, because a clearly defined privilege provides the certainty of protection assumed necessary to stimulate communication, a functional mode of analysis arguably requires precise standards. The next Part is the beginning of an effort to provide such standards. The Contours of the Post-Upjohn Corporate Attorney-Client Privilege The previous Part highlighted three fundamental assumptions made by the Upjohn Court. To a certain extent, any meaningful discussion of the post- Upjohn privilege must proceed on these assumptions. The first that the attorney-client privilege is available to corporations-must now be considered settled law. Although commentators legitimately may bemoan the Court's failure to offer a reasoned justification for extending the privilege to corporations, [FN114] any effort to chart the

17 Page 17 of 91 development of the law in this area must take as a given the existence of a corporate privilege. The Court's assumption that a corporate attorney-client privilege induces communication that would not otherwise occur is still open to challenge. At present, there is no authoritative empirical evidence to support or refute the assumption. [FN115] The Court's attitude appears to be *474 based more on instinct and tradition than anything else. [FN116] Hence, if solid empirical evidence is someday developed to demonstrate that the corporate privilege in fact does not foster the flow of information to attorneys, it should persuade the Court to abandon its present position. Unless such evidence is available, however, the development of doctrine regarding the corporate privilege will be heavily influenced by the Court's belief that the privilege produces an increment in the information available to attorneys. The Court's final assumption-that a strategy emphasizing voluntary compliance is the one best calculated to achieve corporate adherence to the law-is, as we have seen, extremely controversial. A choice between an emphasis on voluntary compliance and an emphasis on regulation cannot be made empirically because authoritative empirical evidence is unavailable. Reasonable persons can make theoretical arguments on behalf of either. Nonetheless, the Upjohn Court has clearly opted for the voluntary compliance model. Therefore, in attempting to craft principles consistent with the Upjohn decision to guide consideration of problems in this area, this Article will incorporate-without ratifying-the Court's assumption with regard to corporate behavior. The attempt here is to develop the implications that this voluntary compliance strategy carries for development of specific rules regarding the corporate privilege. To this end, Section A of this Part describes, within the framework of the assumptions made by the Upjohn Court, [FN117] the benefits and costs potentially associated with the corporate privilege. Based upon that discussion, Section B develops principles consistent with the Upjohn opinion that should help to delineate the contours of the *475 corporate privilege. Finally, Section C applies those principles in an illustrative way to develop some of the major rules that should govern application of the post-upjohn corporate privilege. A. The Benefits and Costs Associated with a Corporate Attorney-Client Privilege 1. The Benefits The Upjohn Court made a general assumption that the attorney-client privilege fosters the free flow of the information necessary for legal advice, thereby promoting corporate law-abidance and effective judicial administration. If analysis of the corporate privilege is to move forward, it is useful