The opinion of the court was delivered by: WEINSTEIN
WEINSTEIN, District Judge.
The defendants, Jerome Mackey and William Nelson, were charged with mail fraud arising from their management of Mackey Distributors, Inc. 18 U.S.C. § 1341. Distributors was organized in 1972 for the purpose of selling stereo tape distributorships. Mackey was president and Nelson secretary-treasurer.
During the course of the grand jury investigation the government called as a witness an attorney, Thomas Mazza. Mr. Mazza testified that he had been retained by Jerome Mackey to draw the incorporation papers for Distributors. The testimony was relevant since it showed that Jerome Mackey took an active interest in the new corporation; this made it more likely that he would know of the fraudulent promises made by its salesmen.
The defendants contend that Mazza's testimony violated the attorney-client privilege. Having been found guilty by a jury, they renew their motion to dismiss the indictment. As indicated below, this motion must be denied because the existence of a privilege is doubtful, but even if the privilege had been violated, a dismissal would be unwarranted.
Defendants' claim of privilege requires consideration of the effect of the new Federal Rules of Evidence. The grand jury proceedings in question took place on June 5, 1975. The Rules of Evidence were enacted effective July 1, 1975. Pub.L. No. 93-595, 88 Stat. 1926-1949. The trial was commenced on September 29, 1975. In the preamble to the Act, the usual escape clause is found allowing the prior rules of evidence to operate in pending litigations where the Rules "would not be feasible, or would work injustice." The preamble reads in part as follows:
"These rules apply to actions, cases, and proceedings brought after the rules take effect. These rules also apply to further procedure in actions, cases, and proceedings then pending, except to the extent that application of the rules would not be feasible, or would work injustice, in which event former evidentiary principles apply."
Since the grand jury proceedings were completed prior to the Rules having taken effect, and the motion is directed at those grand jury proceedings rather than at the proceedings during the trial, it would be reasonable to apply "former evidentiary principles." The United States Attorney who was conducting the grand jury proceedings should obviously not be charged with any failure with respect to a rule subsequently adopted. No Rule of Evidence in effect at the time of trial was violated because the testimony of the attorney was not offered at the trial. Nevertheless, as we shall show below, there is no difference of substance between the principles governing the instant case under the Federal Rules of Evidence and prior practice.
In understanding what those prior practices are it is useful to consider the present Rules of Evidence. Drafted as they were by an Advisory Committee whose members were actively engaged in litigation and approved by the Supreme Court, which is itself engaged in reviewing litigation, as well as by Judiciary Committees of Congress made up of attorneys who were aware of prior practice, the Rules in general are consonant with prior procedure. In turn, earlier practices are useful in interpreting the meaning of the Rules themselves. We know, too, that on the floor of the Congress the debate on the Rules was limited to a relatively small group of Congresspersons and Senators who were, in fact, particularly concerned with, and learned in, the arts of litigation. Thus, all those involved in the creation and enactment of the Federal Rules of Evidence were learned in the law. We may, in general, assume, therefore, unless otherwise indicated by legislative history or Advisory Committee commentary, that the enacted Rules reflect the learning and experience of the drafters under prior practice. Accordingly, in the discussion which follows we have relied heavily on the present Federal Rules of Evidence as explicating practice at the time the grand jury met.
There is no question that under the Federal Rules of Evidence the attorney-client privilege applies to grand jury proceedings. Rule 1101(c) expressly states that "[the] rule with respect to privileges applies at all stages of all actions, cases, and proceedings." In addition, Rule 1101(d), which provides that the Rules of Evidence shall not apply to proceedings before grand juries, specifically excepts the Rules governing privileges.
While the Supreme Court promulgated a comprehensive article covering privileges, including that for attorneys and clients, Congress eliminated specific references to any privileges. Compare 56 F.R.D. 184, 230 ff. (1973) with Article V of the Federal Rules of Evidence. The only provision of the enacted Rules covering testimonial privileges in criminal cases embodies "principles of the common law" as "interpreted by the courts of the United States in the light of reason and experience." It reads:
Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law."
Despite their deletion by Congress, the privilege rules promulgated by the Supreme Court remain of considerable utility as standards. Congress expressed no disagreement with their substance; it eliminated them primarily because they were considered substantive in nature and not a fit subject for rule making.
The specific Rules on privilege promulgated by the Supreme Court are reflective of "reason and experience." They are the culmination of three drafts prepared by an Advisory Committee consisting of judges, practicing lawyers and academicians. In its many years of work, the Committee considered hundreds of suggestions received in response to the circulation of the drafts throughout the legal community. Finally, they were adopted by the Supreme Court by an eight to one vote. The rule against advisory opinions is only slightly more violated by giving weight to this vote than it would have been had Congress not vetoed these provisions, and had they become "Rules," rather than "standards."
As its commentary indicates, the Advisory Committee in drafting the privilege rules was for the most part restating the law applied in the federal courts. These rules or standards, therefore, are a convenient comprehensive guide to the federal law of privileges as it now stands, subject of course to a considerable flexibility of construction.
The attorney-client privilege was covered by the Supreme Court's Rule 503. The Rule, significantly, tracks the common law in the sense that it applies only to "confidential communications." A litigant is entitled to object to adverse testimony by a former attorney only when such testimony would tend to reveal matters disclosed by the litigant in confidence. Subdivision (b) of this Rule stated:
"(b) General rule of privilege. A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, (1) between himself or his representative and his lawyer or his lawyer's representative, or (2) between his lawyer and the lawyer's representative, or (3) by him or his lawyer to a lawyer representing another in a matter of common interest, or (4) between representatives of the client or between the client and a representative of the client, or (5) between lawyers representing the client."
The minutes of Mazza's testimony before the grand jury reveal very little, if anything, that would qualify as a confidential communication from the defendant Mackey. In substance, Mazza's testimony brought five relevant facts to the attention of the grand jury: 1) in 1972 Mazza represented Jerome Mackey in the formation of Distributors; 2) Mazza filed the certificate of incorporation and was the sole incorporator; 3) he prepared a corporate kit consisting of various documents which he retained until June 7, 1973, at which time he turned the kit over to an employee of Jerome Mackey; 4) he first became aware that Distributors was owned by Jerome Mackey Judo, Inc., another corporation in which Jerome Mackey had an interest, in the fall of 1972; and 5) at that time he prepared an agreement whereby Judo would sell 100% of its stock to Nelson and another person. According to Mazza his sole source for the information contained in this contract was either Jerome Mackey or an employee of Jerome Mackey.
The employee was a necessary intermediary to transmit the information. See Supreme Court Rule 503(b) (1). Apparently Nelson was never a client and would have no standing to rely on the privilege. In the discussion which follows we shall treat the claim as one by Jerome Mackey only.
Since the minutes indicate that Mazza believed he was acting for Jerome Mackey personally rather than for Jerome Mackey Judo, Inc., we also make that assumption in the analysis which follows. Under other circumstances this issue might present a critical question of fact, requiring a hearing.
The courts have held that ordinarily the concept of a confidential communication does not include the identity of a client or the fact that someone has become a client. Colton v. United States, 306 F.2d 633 (2d Cir. 1962), cert. denied, 371 U.S. 951, 83 S. Ct. 505, 9 L. Ed. 2d 499 (1963); United States v. Pape, 144 F.2d 778, 782-83 (2d Cir.), cert. denied, 323 U.S. 752, 65 S. Ct. 86, 89 L. Ed. 602 (1944); Behrens v. Hironimus, 170 F.2d 627 (4th Cir. 1958); Goddard v. United States, 131 F.2d 220 (5th Cir. 1942); 8 Wigmore, Evidence § 2313 (McNaughton rev. 1961); McCormick, Evidence § 90 (Cleary ed. 1972). See also, In re Grand Jury Proceedings, United States v. Jones, 517 F.2d 666 (5th Cir. 1975). This Circuit has held that the privilege does not prohibit testimony concerning the general nature of the services performed by the attorney. Colton v. United States, supra. There is no reason in this case to depart from the general rule. Facts 1, 2, and 3 above, simply relating that certain corporate documents were drawn at the behest of Jerome Mackey, were not privileged from disclosure before the grand jury.
The fact that Jerome Mackey Judo, Inc. at one point owned all of Distributors' outstanding stock was nationally publicized and utilized by defendants' salesmen as a selling point when attempting to sell distributorships to potential customers. All the non-privileged evidence showed that this was accomplished with Jerome Mackey's consent. Hence, there can be no claim that that information was given to Mazza in confidence.
This leaves only that portion of Mazza's testimony which indicates that Nelson and another, one Taylor, were to purchase Jerome Mackey Judo, Inc.'s stock in Distributors. We assume for this discussion that Jerome Mackey, the client, told this to Mazza; had the information come from the non-clients, Nelson or Taylor, there would be no privilege.
One of the central allegations of fraud involved in this case is that the defendants permitted potential customers to think that Distributors was a wholly owned subsidiary of Jerome Mackey Judo, Inc. at a time when Nelson and Taylor owned its stock. Thus, this testimony may have helped persuade the grand jury to indict. The first issue, then, is whether this communication from Mackey may be deemed confidential for purposes of the privilege.
A corporation is subject to the visitorial powers of the government. A corporate officer or agent holds its books and records subject to examination by authorized representatives of the government. Morgan, Basic Problems of Evidence, 162 (4th ed.1963). An officer, for example, is generally not entitled by reason of his privilege against self-incrimination to refuse to produce books and records owned by the corporation. Essgee Co. of China v. United States, 262 U.S. 151, 43 S. Ct. 514, 67 L. Ed. 917 (1923); cf. Bellis v. United States, 417 U.S. 85, 94 S. Ct. 2179, 40 L. Ed. 2d 678 (1974). Thus the names of shareholders, which are clearly a matter of corporate record, are not normally the kind of confidential information which is subject to the attorney-client privilege. This is true even of a closely held corporation such as Distributors. This case, then, would seem analogous to situations in which the courts have denied a claim of privilege on the ground that information had been given to an attorney with the understanding that it could be transmitted to others. See e.g., Colton v. United States, 306 F.2d 633, 638 (2d Cir. 1963), cert. denied, 371 U.S. 951, 83 S. Ct. 505, 9 L. Ed. 2d 499 (1963); United States v. Tellier, 255 F.2d 441, 447 (2d Cir.), cert. denied, 358 U.S. 821, 79 S. Ct. 33, 3 L. Ed. 2d 62 (1958); 8 Wigmore, Evidence § 2311 (McNaughton rev. 1961); McCormick, Evidence § 91 (Cleary ed. 1972).
It is perhaps arguable that Jerome Mackey and Mazza understood that the purchase of Distributor stock by Nelson and Taylor would not be bruited about indiscriminately, though they must have realized that stock ownership would have to be revealed for tax and regulatory purposes. If so, Mazza may have been under an ethical obligation to maintain the confidentiality of that information against non-governmental inquiry. A.B.A. Code of Professional Responsibility, Canon 4. Certainly, he would have been wrong to circulate this intelligence for commercial purposes without his client's consent. But a lawyer's ethical obligation to protect clients' confidences against the world are broader than his obligation -- or right as defined by the privilege -- to withhold information from a court.
If complete secrecy with respect to the transfer of shares was the intention from the outset it could be argued that there was no privilege. By the fall of 1972 Jerome Mackey would have known that the salesmen's strong selling point was that Distributors was "credible" and reliable because it was a subsidiary of the publicly held Jerome Mackey Judo, Inc. To have ...