The District Court for the Southern District of New York (Hon. Lawrence W. Pierce, Judge), after denying a motion to quash, held in civil contempt for failure to furnish documents to the grand jury pursuant to subpoena, the general counsel of a corporation and the corporation. The general counsel and the corporation contended on appeal that the documents are protected from grand jury subpoena by the attorney-client privilege or alternatively by the work-product rule. The Government contended that the attorney-client privilege for corporations is limited to the communications of employees who participate in policy decision-making and that the protection of the attorney's work product must yield to the prosecutor's need to determine upon whom to confer immunity. The Court of Appeals held that the first of two corporate investigations was by management and not within the protection of either the privilege or the work-product rule, but that the second investigation conducted by outside counsel with the aid of the general counsel was in preparation for litigation and brought certain documents within the work-product rule regardless of the echelon of the employee interviewed. Contempt citation is reversed.
Before Gurfein and Meskill, Circuit Judges, and Miller, Judge.*fn*
The general counsel and John Doe, Inc. appeal from a judgment of civil contempt by the District Court for the Southern District of New York (Hon. Lawrence W. Pierce, Judge).*fn1 Preliminary to the contempt, a motion was made to quash the grand jury subpoena demanding the production of certain documents under Rule 17 of the Federal Rules of Criminal Procedure. After the motion was denied, counsel respectfully refused to comply with the order enforcing the subpoena and Judge Pierce held the company and the counsel in civil contempt. The general counsel and John Doe, Inc. appeal from the order adjudging them in civil contempt.*fn2
The District Court wrote an unreported opinion on its earlier denial of the motion to quash the subpoena. We adopt its statement of facts as follows (A 172-175):
"For the purposes of this motion, the following allegations of the petitioner are taken as true. John Doe, Inc. ("John Doe") is a publicly owned corporation engaged in the manufacture and sale of various pharmaceuticals, household products, cosmetics, toiletries, chemicals and environmental control systems. Besides its numerous domestic divisions and subsidiaries, petitioner has one hundred seventeen foreign subsidiaries in one hundred twenty-five countries.
"In November, 1975, it was notified by its independent auditors, Price Waterhouse & Co., of possible illegal payments to foreign officials by employees of John Doe's foreign subsidiaries during the period 1970 through 1974. A preliminary investigation was conducted by John Doe's management, the results of which induced its board of directors to authorize a broader investigation by its Audit Committee. The firm of Covington & Burling was retained as legal counsel to assist petitioner's vice-president and general counsel in this second investigation in January, 1976. Price Waterhouse & Co. was also retained as outside accountants to aid in the investigation. As part of this investigation, numerous employees of John Doe were required to complete a questionnaire which had been drafted by Covington & Burling and to submit to interviews conducted by members of that firm.
"The objective of this investigation was not merely to ascertain the amount, if any, of illicit foreign payments made during this period, but also for the purpose of preparing an 8-K report which was to be submitted to the Securities and Exchange Commission. By submitting such a report John Doe hoped to participate in the SEC's Voluntary Disclosure Program and thereby avoid federal securities litigation. A third purpose of the investigation was to prepare for possible government criminal and tax actions as well as shareholder derivative suits. Covington & Burling provided legal advice concerning what should be included in the report and also advice concerning other possible future litigation.
"The results of this investigation were generally disclosed in an 8-K report filed with the SEC in February, 1976. The SEC subsequently met with John Doe's representatives who revealed some of the detailed results of the investigation. Petitioner contends that its representatives had expressly refused to reveal those details of the investigation which it now claims to be protected by the attorney-client privilege. However, an SEC representative who was present at that meeting contends that John Doe had agreed to make all of the underlying documentation of the investigations available for the SEC's inspection, but hesitated to permit photocopying of the documents.
"The Grand Jury has undertaken an investigation of possible violations of federal law arising out of foreign payments. It has subpoenaed various documents from petitioner, some of which have been provided. The items subpoenaed are documents relating to both of petitioner's investigations including: (1) questionnaires completed by petitioner's employees and others; (2) notes taken at all interviews; (3) memoranda relating to all interviews; (4) all summaries and reports; and (5) all accountant's workpapers. John Doe has moved to quash the Grand Jury subpoena of these items on the grounds that the attorney-client and work-product privileges protect these items." (Footnote omitted.)*fn3
The problem stemmed initially from a disclosure that the Mexican Government had disallowed certain tax deductions of a John Doe subsidiary because the money had been used to bribe Mexican officials. This resulted in a voluntary preliminary inquiry which sought information concerning all foreign payments of a questionable nature that may have been made to foreign government officials. Three senior officials conducted this first investigation. It is now claimed they were deputized by the general counsel to gather information about such payments. Employees of the company were instructed to cooperate fully and to disclose whatever knowledge each had of questionable payments while in the company's employ. The investigators, purportedly acting under the instructions of the general counsel, prepared memoranda and notes which were submitted to him. The results were reported to the Board of Directors at meetings on December 5, 1975 and January 9, 1976.
After the report on the first investigation was filed, the Audit Committee of the Board decided, in late January 1976, to hire Covington & Burling ("Covington") of Washington, D.C., as special counsel to assist the general counsel regarding all the legal aspects concerning questionable payments. The special counsel began a second investigation and also advised about the desirability of the company's participation in the "voluntary disclosure" program of the SEC.
On March 9, 1976, after receiving this legal advice, the company filed an 8-K report with the SEC disclosing generally that questionable payments had been made by the company from 1970 through 1975. Shortly thereafter, a stockholder derivative suit was started. Covington represented the company in that action. At the same time the Internal Revenue Service Intelligence Division began an investigation to determine whether any crimes had been committed in connection with the treatment of questionable payments on the company's tax reports for the years 1970 through 1974. Covington gave legal advice to the company concerning this potential litigation. In December 1976, after receiving legal advice, the company filed a second 8-K form with the SEC, revealing that questionable payments had been made in twenty-one foreign countries in aggregate amounting to $1,806,000.
While they were engaged in this investigation, Covington and the general counsel developed the questionnaire which was sent to various employees throughout the world to inquire concerning the existence of "questionable payments". Covington, with general counsel, also interviewed twenty-five employees and conducted additional interviews in two foreign countries with other employees, totalling thirty-nine employees in all. Representatives from Covington, as well as general counsel, made notes during the interviews and incorporated the notes in memoranda. It is claimed that interspersed in these notes are the mental impressions and opinions of the attorneys. The Board also authorized counsel to retain Price Waterhouse "to aid in the investigation." (Opinion A 173). All the employees are alleged to have been instructed directly to answer the questions. The information received was treated confidentially although it is not clear from the record that the employees were in each case told that the matter would be confidential from the Government.
In September 1977, after the filing of the 8-K in December 1976, a grand jury was convened in the Southern District to determine the existence of possible violations of the customs laws, mail fraud and conspiracy. In August 1978, the IRS referred its own investigation to the Department of Justice, and the grand jury began considering possible criminal violations of the Internal Revenue Code. Although certain senior employees retained their own counsel in the investigation, Kostelanetz and Ritholz ("Kostelanetz"), ...