The opinion of the court was delivered by: SWEET
Certain parties to these actions, which have been consolidated for the purposes of discovery, have sought rulings from this court on controversies that have arisen during the course of discovery. Defendant/third-party plaintiff in No. 80 Civ. 4936, Citibank, N.A. ("Citibank"), seeks a protective order pursuant to Fed.R.Civ.P. 26(c) directing counsel for plaintiff Quintel Corporation, N.V. ("Quintel") and third-party defendant H. R. Gajria ("Gajria") not to inquire into certain areas allegedly protected by the attorney-client privilege. Quintel and Gajria seek an order directing Citibank's deposition witnesses not to invoke the attorney-client privilege. In addition, Citibank has objected to certain deposition questions propounded to its witnesses on the grounds that it has already testified to these matters through other witnesses and that the witness testifying did not participate in the activities that are the subject of the deposition questions in issue. As set forth below, Quintel and Gajria will be permitted to inquire into certain areas where Citibank asserts the attorney-client privilege. Citibank's objections to deposition questions will be sustained in part as described below.
These actions arise from the parties' involvement in a real estate transaction that took place in 1979. Quintel is a Netherland Antilles corporaion. Gajsria is a foreign citizen and, at the time of the transaction, was the sole beneficial shareholder of Quintel.
On August 8, 1979, Gajria entered into an Acquisition Agreement with Citibank for the purposes of acquiring certain developed real property in Florida. The property was to be acquired by defendant Flag Associates L.P., a limited partnership, of which Quintel was the limited partner. The acquisition was closed on August 14, 1979.
The complaint in the action against Citibank alleges that Citibank and the other defendants violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, breached alleged fiduciary duties owed to Quintel, converted certain of Quintel's funds, committed fraud, and acted negligently in connection with the acquisition. Specifically, the complaint alleges, inter alia, that Citibank and the other defendants failed to disclose that the general partners of the limited partnership were acquiring on their own behalf certain undeveloped property adjacent to the developed real estate acquired by the limited partnership and that Quintel's funds were used by the general partners to purchase the undeveloped land. The complaint seeks damages of $2.7 million, an accounting, and imposition of a constructive trust on the undeveloped land. The complaint also seeks a declaratory judgment releasing Quintel from certain agreements it entered into with Citibank and a permanent injunction preventing the development or disposing of the land. Citibank has asserted a counterclaim for fees allegedly owed it and has impleaded Gajria on the basis of an indemnity agreement.
Gajria commenced the deposition of Paul L. Kalos ("Kalos"), a Citibank vice-president and counsel to its Real Estate Investment and Management Department, on April 11, 1983. Kalos was personally involved in the structuring and negotiation of the acquisition.In the course of the deposition, counsel for Citibank made numerous objections on the ground of the attorney-client privilege and directed Mr. Kalos not to answer. Counsel for Citibank also objected to certain questions on the ground that they called for information pertaining to the activities of another Citibank employee, Frederick Russo ("Russo"). Russo is also an attorney in Citibank's Real Estate Investment and Management Department. Citibank claims that the questions put to Kalos concerning Russo are improper because Russo has already been deposed and because Kalos was not present when Russo conducted the activities in question.The Kalos deposition was suspended and this motion resulted.
This Circuit has adopted Wigmore's for mulation of the elements of the attorney-client privilege:
(1) where legal advice of any kind is sought, (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.
8 Wigmore, Evidence § 2292 at 554 (McNaughton rev. 1961). See United States v. Demauro, 581 F.2d 50, 55 n.4 (2d Cir. 1978); In re Horowitz, 482 F.2d 72, 80 n.7 (2d Cir.), cert. denied, 414 U.S. 867, 38 L. Ed. 2d 86, 94 S. Ct. 64 (1973). Quintel does not dispute that the privilege attaches to the communications sought to be shielded here. See Upjohn Co. v. United States, 449 U.S. 383, 389-97, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981) (privilege protects communications where client is corporation). See also In re John Doe Corp., 675 F.2d 482, 487-88 (2d Cir. 1982). The purpose of the attorney-client privilege is to encourage clients to make full disclosure to their attorneys. See Upjohn v. United States, supra, 449 U.S. at 389; Fisher v. United States, 425 U.S. 391, 403, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976). As our Court of Appeals has remarked, the privilege is viewed as "essential" to the protection of the client's legal rights. In re Horowitz, supra, 482 F.2d at 81. "However, since the privilege has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose." Fisher v. United States, supra, 425 U.S. at 403. See In re Horowitz, supra, 482 F.2d at 81 (privilege ought to be strictly confined within narrowest possible limits consistent with logic of its principle) (quoting 8 Wigmore, supra, § 2291 at 554).
Gajria's efforts to pierce Citibank's assertion of the attorney-client privilege are spearcheaded by his contention that Citibank acted as his fiduciary in connection with the acquisition and as such is prohibited from invoking the privilege against him. The primary support for this position is the line of cases that has developed from the doctrine enunciated in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert. denied, 401 U.S. 974, 28 L. Ed. 2d 323, 91 S. Ct. 1191 (1971). In Garner, the Fifth Circuit held that a corporation's right to assert the attorney-client privilege against its shareholders "where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests" is "subject to the right of the stockholders to show cause why it should not be invoked in the particular instance." Id. at 1103-04. The court reasoned that management and shareholders have a "mutuality of interest" in management's "freely seeking advice when needed and putting it to use when received," id. at 1103, and that management does not manage for itself -- "the beneficiaries of its actions are the stockholders," id. Thus, "management judgment must stand on its merits, not behind an ironclad veil of secrecy which under all circumstances preserves it from being questioned by those for whom it is, at least in part, exercised." Id. The court remanded the case to the district court for a finding as to whether there was good cause to prevent the invocation of the privilege. See Garner v. Wolfinbarger, 56 F.R.D. 499 (S.D.Ala. 1972) (on remand, finding good cause for disclosure).
The rationale of Garner has been followed by several courts where corporate management has attempted to shield communications from shareholders on the basis of the attorney-client privilege. See, e.g., Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90 F.R.D. 21 (N.D.Ill. 1980); Cohen v. Uniroyal, Inc., 80 F.R.D. 480 (E.D.Pa. 1978); Panter v. Marshall Field & Co., 80 F.R.D. 718 (N.D.Ill. 1978); In re Transocean Tender Offer Securities Litigation, 78 F.R.D. 692 (N.D.Ill. 1978); Bailey v. Meister Brau, Inc., 55 F.R.D. 211 (N.D.Ill. 1972); Broad v. Rockwell Int'l Corp., [1976-77 Transfer Binder], Fed.Sec.L.Rep. (CCH) P 95,894 (N.D.Tex. 1977). See also George v. LeBlanc, 78 F.R.D. 281 (N.D.Tex.), aff'd, 565 F.2d 1213 (5th Cir. 1977).
Other courts have extended the Garner doctrine to other factual situations. For example, in Valente v. Pepsico, 68 F.R.D. 361 (D.Del. 1975), minority shareholders and warrant holders of Wilson Sporting Goods Co. ("Wilson") sued Pepsico, Inc. ("Pepsico") for alleged violations of the federal securities laws in connection with a short form merger whereby Wilson was merged into Pepsico. Pepsico had earlier acquired a majority interest in Wilson. In the course of the lawsuit by the Wilson holders, Pepsico objected to the production of certain documents because they allegedly contained communications from counsel for Pepsico. The court noted that Garner had some relevance, but was not controlling because the plaintiffs sought information not from their own corporation but from a separate corporation that was a controlling shareholder in theirs. 68 F.R.D. at 367. Nevertheless, because Pepsico, as the majority shareholder in Wilson, had fiduciary obligations that ran to the Wilson minority, it could not shield communications that touched upon the interests of the minority and the duties owed to the minority.Id. at 369. "A fiduciary owes the obligation to his beneficiaries to go about his duties without obscuring his reasons from the legitimate inquiries of the ...