Sedco Intern., S. A. v. Cory

• Decision Date: 02 August 1982
• Docket Number: 81-2056,Nos. 81-2007,s. 81-2007
• Citation: 683 F.2d 1201
• Parties: 11 Fed. R. Evid. Serv. 542 SEDCO INTERNATIONAL, S. A., Appellant, v. William F. CORY and Marcella McKillip, Executors of the Estate of Roy J. Carver, deceased, Appellees, v. SEDCO INTERNATIONAL, S. A., Sedco, Inc., and Sedco Energy Corporation (formerly TerraMar Consultants, Inc.), Appellants. SEDCO INTERNATIONAL, S. A., Appellee, v. William F. CORY and Marcella McKillip, Executors of the Estate of Roy J. Carver, deceased, Appellants, v. SEDCO INTERNATIONAL, S. A., Sedco, Inc., and Sedco Energy Corporation (formerly TerraMar Consultants, Inc.), Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1201

683 F.2d 1201

11 Fed. R. Evid. Serv. 542

SEDCO INTERNATIONAL, S. A., Appellant, v. William F. CORY and Marcella McKillip, Executors of the Estate of Roy J. Carver, deceased, Appellees, v. SEDCO INTERNATIONAL, S. A., Sedco, Inc., and Sedco Energy

Corporation (formerly TerraMar Consultants, Inc.),

Appellants.

SEDCO INTERNATIONAL, S. A., Appellee, v. William F. CORY and Marcella McKillip, Executors of the Estate of Roy J. Carver, deceased, Appellants, v. SEDCO INTERNATIONAL, S. A., Sedco, Inc., and Sedco Energy

Corporation (formerly TerraMar Consultants, Inc.),

Appellees.

Nos. 81-2007, 81-2056.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 11, 1982.

Decided Aug. 2, 1982.

D. G. Ribble, Lynch, Dallas, Smith & Harman, D. M. Elderkin, David A. Elderkin, Elderkin, Pirnie, Von Lackum & Elderkin, Cedar Rapids, Iowa, for Cory and McKillip.

Ralph D. Sauer, Betty, Neuman, McMahon, Hellstrom & Bittner, Davenport, Iowa, John H. McElhaney, Stanley E. Neely, Orrin L. Harrison, III, Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., for Sedco Intern., S. A., Sedco, Inc., and Sedco Energy Corp.

Before LAY, Chief Judge, and STEPHENSON ^* and McMILLIAN, Circuit Judges.

LAY, Chief Judge.

Sedco International appeals from a finding of liability and an award of money damages to the executors of the estate of Roy Carver ¹ (Carver) arising out of alleged fraudulent misrepresentations Sedco officials ² made to Carver which allegedly induced him to enter into a venture to produce oil in an area located in the Persian Gulf off the eastern shores of the state of Qatar. The representations concerned three abandoned offshore oil wells which Sedco represented could be reentered and made to produce salable oil in less than three months for a total front-end investment of.$2.5 million, with subsequent quick return of the investment and eventual enormous profits. In July 1975 Amos Carter, vice-president of Sedco for mideast drilling operations, represented to Carver that it would be possible to uncap the three wells, run pipe into them, and pump the oil directly into a tanker or barge. He explained that the previous driller, a consortium of Japanese companies, had abandoned the wells because "they (were (unnecessarily)) going to run a pipe line out to these wells," creating tremendous expense which, given the lower price of oil at that time, made the concession appear less attractive. On the basis of these representations Carver and his ostensible partner, R. Eugene Holley, a former lawyer and Georgia state senator, formed Holcar, a corporation, in order to seek the concession from the government of Qatar. Carver agreed to finance the front-end costs of the project through personal loans to Holcar. The concession was secured and Holcar hired Sedco to do much of the planning, reentry, and workover. Work began on the project in January 1976. None of the wells was successfully restored. Carver was never told the true state of the well site operations; instead Sedco representatives told him that the wells had been successfully reentered and completed. An even greater problem, however, was the "discovery" of H 2S (hydrogen sulfide) and the revelation that oil could not be pumped directly into a tanker or barge. Sedco knew that the H 2S problem had caused earlier failure and abandonment of the wells, but did not reveal this fact to Carver. After more than a year and after more than $13 million was expended, work ceased without production of any oil. In 1978 the government of Qatar terminated the concession.

In December 1977 Sedco brought suit against Carver and Holcar in the Northern District of Iowa seeking final payment for use of its equipment and services. Carver counterclaimed for his damage, alleging fraudulent misrepresentation. Holcar was dismissed from the action. After a five week trial the district court, the Honorable William C. Hanson presiding, after making detailed factual findings, denied Sedco's claim, ruled that Carver had been fraudulently induced to rely on Sedco's misrepresentations, and entered a judgment in favor of Carver for $13,206,081.25 plus interest. Sedco International, S. A. v. Cory, 522 F.Supp. 254, 332 (S.D.Iowa 1981).

On appeal Sedco does not dispute the sufficiency of the evidence supporting the finding of fraud but urges the district court erred (1) in sustaining Carver's claim of attorney-client privilege and thereby precluding examination concerning advice Carver's personal attorneys may have given him, (2) in its analysis of the proximate cause element of Carver's claim, (3) in computing damages, and (4) in refusing to dismiss Carver's claim because he made an illegal payment at the start of the enterprise. Carver cross-appeals contending the district court erred in excluding an allegedly illegal $1.5 million payment from the damage award. The estate also argues that it is entitled to "precommencement" interest.

We affirm the judgment of the district court.

Attorney-Client Privilege.

Sedco claims the district court erred when it refused to allow Sedco to examine Carver concerning advice he may have received from his attorneys. Sedco alleges the attorneys' statements are not privileged. Sedco alternatively argues that application of the attorney-client privilege was inappropriate in this case because it served to prevent Sedco from discovering whether Carver actually relied on Sedco employees' statements and, if he did, whether Carver's reliance was justifiable. Sedco claims that by claiming fraud, Carver waived any right to object to examination which might elicit facts relevant to his state of mind. In a pretrial affidavit, Carver disclosed all factual information and business advice which his lawyers acquired from other sources and conveyed to him during the time he claims to have relied on Sedco employees' statements. Sedco claims, however, that all conversations between Carver and his attorneys should have been disclosed.

The record reveals a belated attempt by Sedco to make an issue of the attorney-client conversations. Carver's counterclaim was filed in July 1978. After exchange of voluminous interrogatories and the taking of many depositions, the issue first arose during the taking of Carver's deposition on March 25, 1980. He was asked about attorney David Elderkin's negative feelings about the project. Carver objected based on the attorney-client privilege. Thereafter the matter was dropped and Sedco did not make a motion to compel. Sedco pursued further discovery and on July 9, 1980, took a second deposition from Carver consisting of 165 pages. No question was proffered concerning Carver's receipt of advice from his attorneys.

On July 28 Sedco filed a motion and on August 15 a "supplemental brief" requesting an order compelling "Carver to produce all documents and to answer deposition questions concerning communications to and from his attorneys pertaining to (a) business advice, (b) facts and (c) opinions concerning business and legal risks." The brief contained the waiver argument. However, the central argument in the motion, based on Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947), was that the attorney-client privilege does not protect information which an attorney gathers from independent sources and communicates to his or her client. The motion and brief did not request any specific ruling or refer to any specific questions. In response to this motion, the trial court ordered Carver to disclose any factual information and any business advice which his attorneys received from independent sources and communicated to him. Carver thereafter filed an affidavit stating that his attorneys received and conveyed no information from independent sources until July 1976 when Elderkin acquired a report from Miller & Lents, an oil and gas consulting firm. ³ The report was made available to Sedco (and was later introduced as evidence).

At trial, Carver was extensively cross-examined about the entire transaction. There were only two references to Carver's attorneys. One question concerned a January 12, 1976, letter from attorney Elderkin which discussed legal aspects of the Sedco-Holcar contract. Carver was also asked whether he had received any information from attorneys other than that disclosed in his affidavits. Carver answered in the negative.

Finally, during the last hour of the five week trial, Carver was placed on the stand as Sedco's witness and was asked approximately 50 questions, investigating, for the first time in the trial itself, what legal and nonlegal advice Carver received from his attorneys on virtually every aspect of the series of events. Sedco's attorney repeatedly asked Carver whether his attorneys had given him any legal advice on a particular subject, any business advice, or any factual information. Carver answered many of these questions. However, Carver's attorney objected to many of the questions on grounds of attorney-client privilege, the composite and overbroad form of the questions, and irrelevance. The court sustained many of the objections on all three grounds. ⁴

No contention can be made that the attorney-client privilege precludes disclosure of factual information. The privilege does not protect facts communicated to an attorney. Upjohn Co. v. United States, 449 U.S. 383, 395-96, 101 S.Ct. 677, 685-86, 66 L.Ed.2d 584 (1981). Clients cannot refuse to disclose facts which their attorneys conveyed to them and which the attorneys obtained from independent sources. Hickman v. Taylor, 329 U.S. 495, 508, 67 S.Ct. 385, 392, 91 L.Ed. 451 (1947); 8 J. Wigmore, Wigmore on Evidence § 2317 (McNaughton rev. 1961). However, Carver, in his affidavit, stated that the only facts which his attorneys received from other sources and conveyed to him were those contained in the Miller & Lents report. These facts were disclosed. Thus, Sedco's belated examination of Carver concerning factual information was redundant; in other words "a...