Appeal from a judgment of the United States District Court for the Eastern District of New York (Charles P. Sifton, Judge holding John Doe Corporation in contempt for refusing to divulge certain documents and to produce a certain witness to testify before a grand jury. Judgment affirmed.
Before Timbers, Newman and Winter, Circuit Judges.
The "John Doe Corporation"*fn1 appeals from a civil contempt judgment entered against it by Judge Sifton in the Eastern District of New York because of its failure to produce certain documents and to make available an employee for testimony before a grand jury. Doe Corp. has refused to comply in order to test on appeal its claims that the documents and testimony are protected by the attorney-client privilege and work-product immunity. We affirm.
THE GRAND JURY AND DISTRICT COURT PROCEEDINGS
The sequence of factual development is of importance to our ruling and a description of the grand jury and District Court proceedings will substitute for the customary statement of facts.
In or around 1980, a grand jury in the Eastern District focused its investigation on Doe Corp.'s retaining of a politically active lawyer holding elective office ("Lawyer") in connection with a controversy over Doe Corp.'s liability to a governmental body. The investigation largely concerned $96,500 paid in 1977 to Lawyer ostensibly as a legal fee but which may have been a means of bribing or attempting to bribe one or more administrative officials in a position to settle the controversy favorably to Doe Corp.
Doe Corp. had, during relevant periods, conducted an investigation of its business practices, culminating in a report entitled the Business Ethics Review ("BER"). That study entailed preparation by Doe Corp.'s legal department of a detailed questionnaire which was filled out by 338 employees. Follow-up interviews of selected employees were conducted by members of the legal department who kept notes of the interviews.
In the course of its investigation, the grand jury issued a subpoena to Doe Corp. for
all business ethics reviews for activities during the years 1977 and 1978, including all memoranda, notes and correspondence relating thereto.
It also issued subpoenas to the accounting firm which conducted the annual audit of Doe Corp. for all records relating to such audits during the relevant period.
Doe Corp. responded with a motion to quash based on claims of attorney-client privilege and work-product immunity, supported by affidavits tracking the language of the Supreme Court's decision in Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981).*fn2 The accounting firm made similar claims in its motion to quash.
The government requested an opportunity to present grand jury evidence in camera to support its claim that Doe Corp.'s BER dated January 23, 1978, was in furtherance of a course of ongoing criminality. It also argued that a compelling need had been shown for the subpoenaed materials under the work-product doctrine.
In the course of the hearing before Judge Sifton, evidence that Lawyer had been retained in connection with the governmental controversy was introduced. Other counsel previously retained by Doe Corp. gave testimony that indicated some ambiguity, or at least an initial misunderstanding, as to Lawyer's role but assertions of privilege foreclosed development of this point.
It was also disclosed that the BER had been shown to the accounting firm in January, 1978. Appellant argued that this disclosure was part of the firm's participation in the preparation of the BER under the supervision of the legal department and made in confidence for the purpose of obtaining legal advice. See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). There was also testimony, however, that disclosure was in connection with the 1977 audit and was necessary to verify representations by Doe Corp.'s management that no specific disclosures pertaining to matters in the BER were required in the 1977 financial statements. Had the accounting firm not been shown the BER, it would have issued only a qualified opinion on the 1977 statements. That would have been "disastrous" for Doe Corp. since the Securities and Exchange Commission ("SEC") would not accept a qualified opinion were Doe Corp. to attempt to raise capital by a public offering of registered securities.
The BER was also disclosed to a lawyer representing an underwriter ("Underwriter Counsel") in connection with a public offering of Doe Corp.'s securities in 1978. Underwriter Counsel had learned from minutes of Doe Corp.' § director meetings that an ethics review had been performed. He thereafter "insisted upon having access to the BER in order to complete the exercise of due diligence in connection with the proposed public offering and in order to determine that the Registration Statement and underlying prospectus (filed with the SEC) did not contain an untrue statement of a material fact or omit to state a material fact...." He told Doe Corp.'s General Counsel ("General Counsel") that if the BER was not provided, he would so advise the underwriter which would then consider whether or not to proceed with the public offering.
On February 9, 1978, a member of the accounting firm ("Accountant") approached General Counsel with specific questions about the $96,500 paid to Lawyer. Employees of the accounting firm conducting the continuous audit of Doe Corp. had been unable to substantiate the performance of any services by Lawyer. Accountant brought this to General Counsel's attention, and inquired whether any portion of the fee had been used as a bribe. Accountant made these inquiries as part of the audit and as part of his evaluation of the integrity of the BER in the course of approving the 1977 financial statements. A positive evaluation was a prerequisite to certifying those statements. Without certification, Doe Corp. could not make a public offering of registered securities. No testimony was elicited at this time as to General Counsel's reply because of assertions of attorney-client privilege.
In an opinion dated April 30, 1981, Judge Sifton ordered the production of some documents and granted the motion to quash as to others. He found that Doe Corp. had not met its burden of showing that the attorney-client privilege attached to the documents in issue, principally on the grounds that its submission had been by way of affidavit rather than live witnesses, and it had not produced key documents relating to the privilege claim. April 30, 1981, Op. at, e.g., 18-20. Nevertheless, he upheld the work-product claim and found that the government's showing of need was insufficient, although specifically inviting a renewal of the motion if interviews of Doe Corp. employees proved an inadequate vehicle for further investigation.
Judge Sifton suggested that disclosure of the BER to Underwriter Counsel might be a waiver but declined to so hold given the lack of a showing by the government as to the consequences of disclosure. Id. at 17. He also declined the government's offer of an in camera submission, leaving open the possibility of a renewed offer at a later time. Id. at 13-14, 83. Finding that Accountant's conversations with General Counsel concerning the payment to Lawyer was part of the annual audit and, therefore, unprotected by either the attorney-client privilege or work-product immunity, Judge Sifton ordered production of a memorandum prepared by Accountant which described General Counsel's response to his inquiry. Id. at 83-84. This memorandum was produced.
On September 28, 1981, the government renewed its motions to compel production of the final BER and all prior drafts, all documents underlying the BER pertaining to five high level Doe Corp. employees (including General Counsel), and all documents pertaining to changes in BER drafts. Four of the five employees designated had declined to testify before the grand jury on Fifth Amendment grounds. The government also produced Accountant's memorandum of the conversation with General Counsel (one of the four declining to give grand jury testimony). According to the memo, General Counsel told Accountant that the payment to Lawyer had been mentioned in an early draft of the BER but that mention had been deleted after he had made a thorough investigation, including ...