U.S. v. Upjohn Co., No. 78-1277

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtBefore CELEBREZZE, KEITH and MERRITT; MERRITT
Citation600 F.2d 1223
Parties79-2 USTC P 9457, 5 Fed. R. Evid. Serv. 1015 UNITED STATES of America and David E. Nowak, IRS, Petitioners-Appellees, v. The UPJOHN COMPANY and Gerard Thomas in his official capacity, Respondents-Appellants.
Decision Date28 June 1979
Docket NumberNo. 78-1277

Page 1223

600 F.2d 1223
79-2 USTC P 9457, 5 Fed. R. Evid. Serv. 1015
UNITED STATES of America and David E. Nowak, IRS,
Petitioners-Appellees,
v.
The UPJOHN COMPANY and Gerard Thomas in his official
capacity, Respondents-Appellants.
No. 78-1277.
United States Court of Appeals,
Sixth Circuit.
Argued Feb. 21, 1979.
Decided June 28, 1979.

Page 1224

Wallson G. Knack (Upjohn), Warner, Norcross & Judd, Grand Rapids, Mich., Charles A. McNelis (Upjohn), Welch & Morgan, Washington, D. C., for respondents-appellants.

James S. Brady, U. S. Atty., Grand Rapids, Mich., M. Carr Ferguson, Jerome Fink, Asst. Atty. Gen., Gilbert E. Andrews, Crombie J. D. Garrett, R. Bruce Johnson, Tax Div., Dept. of Justice, Washington, D. C., for petitioners-appellees.

Before CELEBREZZE, KEITH and MERRITT, Circuit Judges.

MERRITT, Circuit Judge.

The principal question on appeal is whether this Circuit should adopt the "control group" or the broader "subject matter" test as the standard for measuring the scope of the attorney-client privilege in the corporate context. Appellants, Upjohn Company and its in-house General Counsel, appeal from the District Court's order enforcing under 26 U.S.C. §§ 7402(b), 7604(a) (1976) an IRS summons for documents. The General Counsel refused to produce the

Page 1225

documents on the grounds that they are protected by company's attorney-client privilege and by the work-product doctrine. District Judge Fox rejected these arguments and enforced the summons. We adopt the "control group" test, affirm in part, reverse in part and remand.

While auditing Upjohn's 1972-73 consolidated federal income tax returns, the IRS learned that since January 1, 1971, Upjohn and its subsidiaries had made payments of approximately $4,400,000 to officials of many of the 136 foreign countries in which Upjohn does business. The company had directed its in-house counsel, along with outside counsel, to conduct an internal investigation of these payments. At the request of Upjohn's top management, officers and employees of the company were urged to respond to counsel's questions candidly and confidentially. The responses were recorded in answers to written questionnaires and in counsel's notes and memoranda describing oral interviews. These are the documents the IRS seeks to obtain in the instant proceeding.

The internal investigation was prompted, at least in part, by Upjohn's concern that the payments had not been reported properly to the Securities and Exchange Commission. The company filed two reports with the SEC disclosing some, but not all, of the details of the payments. The disclosures were voluntary in the hope of lenient treatment by the SEC. These reports to the SEC were made available to the IRS, which then commenced the instant investigation.

The company provided the IRS with details of $700,000 worth of the payments which it conceded might affect its federal income tax liability. The company furnished the IRS considerably less detailed information regarding the other $3,700,000 of questionable payments because the company claims that these payments do not affect its tax liability. Although the company made its employees available for questioning by the IRS, the company refused to permit questions about the $3,700,000 of questionable payments. The IRS claims that the company's limited disclosure has been inadequate to permit an independent evaluation of the possible tax implications of the payments. Accordingly, the IRS summoned from company counsel the documents generated in the course of the internal investigation and now seeks enforcement.

Upjohn claims that the communications to counsel made by all of its employees, including regular and middle management employees as well as top management, are privileged as confidential communications between client and attorney. 1 To the extent that the communications were made by officers and agents not responsible for directing Upjohn's actions in response to legal advice, we disagree for the simple reason that the communications were not the "client's."

The attorney-client privilege, as it exists today, is based on two related principles. The first is that it is an intrinsic part and a necessary incident of the attorney-client relationship. The legal profession has an intimate relationship with its clients and an important role in the administration of our system of justice. Privacy is the necessary context of the relationship between the individual and his lawyer. As stated by Dean McCormick:

Our adversary system of litigation casts the lawyer in the role of fighter for the party whom he represents. A strong sentiment of loyalty attaches to the relationship, and this sentiment would be outraged by an attempt to change our customs so as to make the lawyer amenable to routine examination upon the client's confidential disclosure regarding professional business. Loyalty and sentiment

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are silken threads, but they are hard to break. 2

The second principle is that the privilege "encourage(s) clients to make full disclosure to their attorneys." 3 This policy of promoting full disclosure to counsel serves to implement the notion inherent in the first principle, that finding the truth and achieving justice in an adversary system are best served by fully-informed advocates loyal to their client's interests.

The application of the privilege to corporate "clients" poses a somewhat different problem. Since corporations are inanimate, artificial entities, the attorney-client relationship is conceptually more difficult, and its underlying principles are less obvious. As clients, corporations can communicate to attorneys only through agents. Moreover, corporations, unlike individuals, are organized in such a way that responsibilities, and the information needed to fulfill the responsibilities, are delegated and compartmentalized. Thus, marketing officials have knowledge and duties related only to selling, while plant supervisors have knowledge and duties related only to production. It is only the senior management, guiding and integrating the several operations, which can be said to possess an identity analogous to the corporation as a whole.

Courts have generally recognized...

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24 practice notes
  • United States v. Bonnell, Civ. No. 4-78-190
    • United States
    • United States District Courts. 8th Circuit. United States District Court of Minnesota
    • December 27, 1979
    ...doctrine "is not applicable to administrative summonses issued under 26 U.S.C. § 7602." United States v. Upjohn Co., 600 F.2d 1223, 1228 n. 13 (6th Cir. 1979). On the other hand, United States v. Brown, 478 F.2d 1038, 1041 (7th Cir. 1973), determined that work product would be pro......
  • U.S. v. Davis, Nos. 79-2630
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • February 12, 1981
    ...States v. Bonnell, D.Minn.1979, 483 F.Supp. 1070, 1078-79. One clearly holds that it does not. United States v. Upjohn Co., 6 Cir. 1979, 600 F.2d 1223, 1228 n.13, cert. granted, 1980, 445 U.S. 925, 100 S.Ct. 1310, 63 L.Ed.2d 758. Precedent in the Fifth Circuit is less than definitive. A str......
  • Consolidation Coal Co. v. Bucyrus-Erie Co., BUCYRUS-ERIE
    • United States
    • Supreme Court of Illinois
    • February 2, 1982
    ...Sixth and Tenth Circuits (In re Grand Jury Investigation (3d Cir. 1979), 599 F.2d 1224; United States v. Upjohn Co. (6th Cir. 1979), 600 F.2d 1223, rev'd (1981), 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584; Natta v. Hogan (10th Cir. 1968), 392 F.2d 686), as well as several district courts o......
  • In re Commercial Financial Services, Inc., No. 98-05162-R
    • United States
    • U.S. Bankruptcy Court — Northern District of Oklahoma
    • February 18, 2000
    ...See Swidler & Berlin v. United States, 524 U.S. 399, 403, 118 S.Ct. 2081, 2084, 141 L.Ed.2d 379 (1998); United States v. Upjohn Co., 600 F.2d 1223, 1225-26 (6th Cir.1979), rev'd on other grounds, Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). Because di......
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23 cases
  • United States v. Bonnell, Civ. No. 4-78-190
    • United States
    • United States District Courts. 8th Circuit. United States District Court of Minnesota
    • December 27, 1979
    ...the work-product doctrine "is not applicable to administrative summonses issued under 26 U.S.C. § 7602." United States v. Upjohn Co., 600 F.2d 1223, 1228 n. 13 (6th Cir. 1979). On the other hand, United States v. Brown, 478 F.2d 1038, 1041 (7th Cir. 1973), determined that work product would......
  • U.S. v. Davis, Nos. 79-2630
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • February 12, 1981
    ...States v. Bonnell, D.Minn.1979, 483 F.Supp. 1070, 1078-79. One clearly holds that it does not. United States v. Upjohn Co., 6 Cir. 1979, 600 F.2d 1223, 1228 n.13, cert. granted, 1980, 445 U.S. 925, 100 S.Ct. 1310, 63 L.Ed.2d 758. Precedent in the Fifth Circuit is less than definitive. A str......
  • Consolidation Coal Co. v. Bucyrus-Erie Co., BUCYRUS-ERIE
    • United States
    • Supreme Court of Illinois
    • February 2, 1982
    ...Sixth and Tenth Circuits (In re Grand Jury Investigation (3d Cir. 1979), 599 F.2d 1224; United States v. Upjohn Co. (6th Cir. 1979), 600 F.2d 1223, rev'd (1981), 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584; Natta v. Hogan (10th Cir. 1968), 392 F.2d 686), as well as several district courts o......
  • In re Commercial Financial Services, Inc., No. 98-05162-R
    • United States
    • U.S. Bankruptcy Court — Northern District of Oklahoma
    • February 18, 2000
    ...See Swidler & Berlin v. United States, 524 U.S. 399, 403, 118 S.Ct. 2081, 2084, 141 L.Ed.2d 379 (1998); United States v. Upjohn Co., 600 F.2d 1223, 1225-26 (6th Cir.1979), rev'd on other grounds, Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). Because disclo......
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