U.S. v. Massachusetts Institute of Technology

• Decision Date: 30 July 1997
• Docket Number: Nos. 97-1287,97-1382,s. 97-1287
• Citation: 129 F.3d 681
• Parties: -7981, 97-2 USTC P 50,955, 39 Fed.R.Serv.3d 4, 48 Fed. R. Evid. Serv. 66 UNITED STATES of America, Petitioner-Appellee, Cross-Appellant, v. MASSACHUSETTS INSTITUTE OF TECHNOLOGY, Respondent-Appellant, Cross-Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 681

129 F.3d 681

80 A.F.T.R.2d 97-7981, 97-2 USTC P

50,955, 39 Fed.R.Serv.3d 4,

48 Fed. R. Evid. Serv. 66

UNITED STATES of America, Petitioner-Appellee, Cross-Appellant, v. MASSACHUSETTS INSTITUTE OF TECHNOLOGY, Respondent-Appellant,

Cross-Appellee.

Nos. 97-1287, 97-1382.

United States Court of Appeals, First Circuit.

Heard July 30, 1997

Decided Nov. 25, 1997.

Jeffrey Swope, Boston, MA, with whom Matthew P. Schaeffer and Palmer & Dodge LLP were on brief, for respondent.

Sara S. Holderness, Tax Division, Department of Justice, Washington, DC, with whom Loretta C. Argrett, Assistant Attorney General, Donald K. Stern, United States Attorney, and Charles E. Brookhart, Tax Division, Department of Justice, were on brief, for petitioner.

Before BOUDIN, Circuit Judge, HILL, ^* Senior Circuit Judge, and POLLAK, ^** Senior District Judge.

BOUDIN, Circuit Judge.

This case concerns an attempt by the Massachusetts Institute of Technology to assert the attorney-client privilege and work-product doctrine in response to a document request by the Internal Revenue Service. The most important issue presented is whether MIT's disclosure of certain of the documents to another government agency caused it to lose the privilege. The background facts are essentially undisputed.

MIT is a famous university with tax-exempt status under 26 U.S.C. § 501(c)(3). In 1993, the IRS conducted an examination of MIT's records to determine whether MIT still qualified for exempt status and to determine whether it was complying with provisions relating to employment taxes and the reporting of unrelated business income. In aid of this examination, the IRS requested from MIT copies of the billing statements of law firms that had represented MIT and minutes of the MIT Corporation and its executive and auditing committees.

In response, MIT supplied the documents requested but redacted information claimed to be covered by the attorney-client privilege or the work-product doctrine or both. In mid-1994 the IRS requested that the redacted information be supplied, and MIT declined. At this point the IRS sought to obtain the same documents in unredacted form from the Defense Contract Audit Agency ("the audit agency"), the auditing arm of the Department of Defense.

It appears that the same billing statements and possibly some or all of the minutes sought by the IRS had earlier been provided to the audit agency pursuant to contracts between MIT and components of the Department of Defense. The audit agency helps entities in the Department of Defense review contract performance to be sure that the government is not overcharged for services. Not surprisingly, the audit agency often reviews the private contractor's books and records.

In November 1994, the audit agency advised the IRS that it would not turn over the documents provided to it by MIT without the latter's consent, which MIT declines to give. The audit agency had made no unconditional promise to keep the documents secret, but its regulations and practices offered MIT some reason to think that indiscriminate disclosure was unlikely. The IRS then served an administrative summons on MIT in December 1994 seeking specific unredacted minutes of nine meetings of the MIT Corporation and auditing and executive committees in 1990 and 1991, and attorneys' billing statements for almost all legal expenses paid or incurred by MIT from July 1, 1990, through June 30, 1991. 26 U.S.C. §§ 7402(b), 7604(a).

When MIT declined to comply, the IRS in early 1996 petitioned the district court to enforce the summons. The district court obtained briefs, heard arguments and considered the matter without an evidentiary hearing on the basis of the declaration filed by the IRS and an affidavit submitted by MIT. In January 1997, the district court issued a memorandum and order enforcing the IRS administrative summons as to the unredacted legal bills and the unredacted versions of most of the minutes sought by the IRS.

The district court held that the disclosure of the legal bills to the audit agency forfeited the attorney-client privilege. As to the minutes, the district court said that the privilege remained available because the government had not proved that the minutes had been disclosed to the audit agency. After reviewing the minutes in camera, the court found that three contained privileged material and ordered MIT to turn over the others as unprivileged or because MIT had lost the privilege by disclosing the substance of the minutes in its now unprivileged legal bills.

The district court followed a different path in resolving MIT's work product objection. The court held that neither the legal bills nor the minutes were "prepared in anticipation of litigation or for trial." Fed.R.Civ.P. 26(b)(3). It ruled that they were therefore discoverable as ordinary business records. Accordingly, the court did not discuss whether work product protection was waived by disclosure to the audit agency.

MIT now appeals, arguing that disclosure of the billing statements to the audit agency should not forfeit the privilege; MIT no longer claims work product protection for the billing statements. The government has cross-appealed from the district court's refusal to order production of the three remaining minutes; it says that the burden was on MIT to prove that the minutes had not been disclosed to the audit agency. MIT responds that the privilege was not waived even if the minutes were disclosed to the audit agency, and that the minutes remain protected by the work product doctrine.

On an appeal respecting a privilege claim, the standard of review depends on the issue. Rulings by the district court on issues of law are reviewed de novo; fact findings are tested under a clear error standard; and discretionary judgments such as evidentiary rulings are reviewed for abuse of discretion. See United States v. Wilson, 798 F.2d 509, 512 (1st Cir.1986). On the principal issue before us--forfeiture by disclosure--this case goes about as far as possible in posing an abstract issue of law and review is plenary.

The question whether MIT forfeited protection in disclosing documents to the audit agency is not governed by any federal constitutional provision, federal statute, or rule prescribed by the Supreme Court. Nor is the enforcement of an IRS summons a matter with respect to which state law supplies a rule of decision. Accordingly, the scope of the privilege is "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." Fed.R.Evid. 501. See also United States v. Zolin, 491 U.S. 554, 562, 109 S.Ct. 2619, 2625-26, 105 L.Ed.2d 469 (1989).

MIT's Appeal. We begin with the attorney-client privilege. That privilege has been familiarly summed up by Wigmore in a formula that federal courts have often repeated:

(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 J. Wigmore, Evidence § 2292, at 554 (McNaughton rev.1961). The government argues, and the district court agreed, that by its disclosure to the audit agency, MIT waived the privilege to whatever extent that it might otherwise have protected the billing statements and various of the minutes.

The attorney-client privilege is well-established and its present rationale straightforward: by safeguarding communications between lawyer and client, it encourages disclosures by client to lawyer that better enable the client to conform his conduct to the requirements of the law and to present legitimate claims or defenses when litigation arises. See Upjohn Co. v. United States, 449 U.S. 383, 389-90, 101 S.Ct. 677, 682-83, 66 L.Ed.2d 584 (1981). Waiver issues aside, the contours of the privilege are reasonably stable.

Quite a different scene presents itself when one turns to the problem of "waiver," a loose and misleading label for what is in fact a collection of different rules addressed to different problems. Cases under this "waiver" heading include situations as divergent as an express and voluntary surrender of the privilege, partial disclosure of a privileged document, selective disclosure to some outsiders but not all, and inadvertent overhearings or disclosures. See McCormick on Evidence § 93, at 341-48 (J.W. Strong ed., 4th ed.1992).

Even where the cases are limited to those involving a deliberate and voluntary disclosure of a privileged communication to someone other than the attorney or client, the case law is far from settled. But decisions do tend to mark out, although not with perfect consistency, a small circle of "others" with whom information may be shared without loss of the privilege (e.g., secretaries, interpreters, counsel for a cooperating co-defendant, a parent present when a child consults a lawyer). ¹

Although the decisions often describe such situations as ones in which the client "intended" the disclosure to remain confidential, see, e.g., Kevlik v. Goldstein, 724 F.2d 844, 849 (1st Cir.1984), the underlying concern is functional: that the lawyer be able to consult with others needed in the representation and that the client be allowed to bring closely related persons who are appropriate, even if not vital, to a consultation. Cf. Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1424 (3d Cir.1991). An intent to maintain confidentiality is ordinarily necessary to continued protection, but it is not sufficient.

On the contrary, where the client chooses to share communications outside this magic circle, the courts have usually refused to extend the privilege. ² The familiar platitude is that the privilege is narrowly confined because it hinders the courts in the search for...