APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (Misc. No. 78-0255, E.D. Pa.)
Before Seitz, Chief Judge, and Aldisert and Rosenn, Circuit Judges.
The United States appeals from an order of the district court quashing a grand jury subpoena issued to Sun Company, Inc. The subpoena sought various questionnaires and memoranda compiled by Sun Company and the law firm of Pepper, Hamilton & Scheetz during an internal corporate investigation of various foreign transactions. Although Sun has contested our jurisdiction to consider this appeal, we recently settled this question in In the Matter of Grand Jury Empanelled February 14, 1978 (Colucci), 597 F.2d 851 (3d Cir. 1979). Pursuant to 18 U.S.C. § 3731,*fn1 the United States Attorney has certified that this appeal "is not taken for the purpose of delay and that the evidence is a substantial proof of a fact material in the proceeding." The district court having received this certification, we are not required by section 3731 to evaluate independently the substantiality or the materiality of the contested material. Compare 18 U.S.C. § 3731 With 28 U.S.C. § 1292(b). Cf. United States v. Comiskey, 460 F.2d 1293, 1297-98 (7th Cir. 1972) (United States Attorney need not allege any specific facts in support of his affidavit). We accordingly have jurisdiction to consider this appeal under 18 U.S.C. § 3731 or, alternatively, under 28 U.S.C. § 1291. See Colucci, supra, at 854-858.
Although the facts before us are largely uncontested, the record has been impounded to preserve the confidentiality of the grand jury's inquiry. We therefore will refrain from identifying some individuals by name.
In January 1976 Sun Company, Inc., (Sun) began an investigation into possible illegal payments made by some of its employees in connection with Sun's foreign operations. The corporation's Audit Committee, a standing committee of the Board of Directors, supervised the investigation and, on July 20, 1976, reported that no significant violations had occurred.
Late in 1976, however, information submitted by a Sun employee led to a reopening of the investigation. On January 25, 1977, Samuel K. White, Sun's vice-president and general counsel, retained Pepper, Hamilton & Scheetz (Pepper) to advise Sun of its legal obligations in regard to certain payments uncovered during the internal audit. Two days later, the Audit Committee asked Pepper to assist and advise it in the conduct of the investigation itself. The full Board of Directors later ratified Pepper's retention by the Audit Committee and authorized funds for the investigation.
On February 11, 1977, H. Robert Sharbaugh, the chairman of Sun's Board of Directors, sent a covering letter, a questionnaire, and a return envelope to each of 1,877 managerial employees of Sun and its majority-owned subsidiaries. The letter explained the purpose of the investigation and asked the employees to complete the questionnaires and to mail them directly to Pepper. The questionnaire itself contained ten questions probing the employee's knowledge of any suspicious transactions. The instructions accompanying the questionnaire explained that an employee should answer "yes" if he knew of payments like those described in the question, "no" if he didn't, and "conference" if he was uncertain. Neither the questionnaire nor the instructions requested any further elaboration on the answers.
On February 16, 1977, Pepper began to follow up questionnaires containing responses of "yes" or "conference." By September, Pepper had conducted 265 telephone interviews and 90 personal interviews. No interviews were conducted in the presence of anyone except representatives of Pepper and Sun, and, when necessary, an interpreter. The interviews were not transcribed. Instead, the Pepper attorneys reduced their notes and recollections concerning the interviews to memoranda, always within ten days of the actual interview. These memoranda have remained in Pepper's files, and have been released only to members of Sun's Board of Directors.
On September 21, 1977, the Audit Committee filed its report, which discussed a number of transactions deemed "questionable." One of the selected transactions involved the renegotiation of a contract with an entity of a foreign government. Sun had paid a citizen of that country a total of $235,000 for services rendered during the renegotiation of the contract. The Audit Committee found reason to believe that some of the money paid to the foreign representative may have been passed on to governmental officials as an inducement to renegotiate the contract.
The Audit Committee made a number of recommendations in its report, including the amendment of corporate tax returns and the filing of a form 8-K with the Securities and Exchange Commission. On October 27, 1977, Sun did, in fact, file an 8-K with the SEC, disclosing all the questionable payments noted in the report, including the payment of the $235,000 to the foreign representative. This filing prompted an article in the Philadelphia Inquirer and, in turn, an investigation by the United States Attorney for the Eastern District of Pennsylvania.
In a letter dated December 20, 1977, the United States Attorney asked Sun to turn over, Inter alia, "all documents referring in any way to questionable foreign payments made by Sun, its officers or employees." Sun responded by releasing a number of documents including the Audit Committee report itself. After examining the report, the United States Attorney narrowed the inquiry, requesting all documentation of the renegotiation of the foreign contract and the payment of the $235,000. This request specifically included "all interview memoranda, questionnaires, statements, or other recorded recollections of these events . . . ." Although Sun released a number of documents pertaining to the affair, it refused to release the interview memoranda or the questionnaires, claiming protection under the attorney-client privilege and the work-product doctrine. On March 21, 1978, Sun received a grand jury subpoena requesting these documents. That request later was amended to allow redaction of those portions of the documents that "would disclose the mental impressions, conclusions, opinions, or legal theories of an attorney." Sun moved to quash the subpoena and the district court granted that motion on June 1, 1978. Although the district judge did not file a written opinion, he indicated at oral argument some of the bases for his conclusions.
Sun has asserted, and the government has not contested, that only thirteen persons provided the Audit Committee with any information regarding the targeted transaction. Eleven of the thirteen were employees of Sun at the time they were interviewed. One of the employees interviewed is now deceased. Except for the deceased employee and the foreign representative himself, who is neither a Sun employee nor a resident of this country, all of the interviewees could be reached by grand jury subpoenas. Although Sun has offered to ensure the appearance of its employees before the grand jury, the government has made no attempt to summon any of the interviewees.
Sun claims that the documents sought in the subpoena are protected by the attorney-client privilege or the work-product doctrine or both. As Sun concedes, the attorney-client privilege cannot protect any communications made by either of the two interviewees who were not employed by Sun. Sun asserts, however, that the work-product doctrine protects all the summoned documents and that this protection is absolute. We therefore consider first the more inclusive of the two alleged shields: the work-product doctrine.
The work-product doctrine, recognized initially in Hickman v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 91 L. Ed. 451 (1947), protects from discovery materials prepared or collected by an attorney "in the course of preparation for possible litigation." Id. at 505, 67 S. Ct. at 391. See also Fed.R.Civ.P. 26(b)(3). This doctrine applies in criminal, as well as in civil, litigation. See United States v. Nobles, 422 U.S. 225, 236, 95 S. Ct. 2160, 45 L. Ed. 2d 141 (1975). Moreover, the government has conceded in this appeal that the doctrine applies to documents sought by a grand jury. See In re Grand Jury Proceedings (Duffy), 473 F.2d 840 (8th Cir. 1973); In re Grand Jury Investigation (Sturgis), 412 F. Supp. 943 (E.D.Pa.1976).
We must decide three questions in regard to the work-product doctrine. First, were these materials collected or prepared in preparation for possible litigation so as to qualify as "work product"? Second, if they are entitled to protection as work product, is the protection afforded them absolute or qualified? Third, if the documents are entitled to only qualified protection, has the government made an adequate showing to overcome that protection?
The government asserts that the subpoenaed materials are not entitled to protection as work product because they were not collected or prepared "in the course of preparation for possible litigation." Hickman v. Taylor, supra, 329 U.S. at 505, 67 S. Ct. at 391. At the close of oral argument, the district court stated that it would be "difficult" to hold that the investigation was not conducted "in contemplation of litigation." Although this statement, by itself, may be ambiguous, the district court subsequently quashed the subpoena as to all the requested documents. Because Sun based its motion on the attorney-client privilege and the work-product doctrine, and because Sun conceded that the attorney-client privilege did not apply to some of the documents, the conclusion is inescapable that the district court made a factual finding that the work-product doctrine applied. Cf. Milliner v. Government of the Virgin Islands, 593 F.2d 532 (3d Cir. 1979) (oral findings and conclusions held sufficient to "indicate the basis of the trial judge's decision and provide an adequate basis for appellate review"), at 534.
Indisputably, the work-product doctrine extends to material prepared or collected before litigation actually commences. On the other hand, some possibility of litigation must exist. Courts and commentators have offered a variety of formulas for the necessary nexus between the creation of the material and the prospect of litigation. See, e.g., Home Insurance Co. v. Ballenger Corp., 74 F.R.D. 93, 101 (N.D.Ga.1977) (must be a "substantial probability that litigation will occur and that commencement of such litigation is imminent"); In re Grand Jury Investigation (Sturgis), supra, at 948 (threat of litigation must be "real and imminent"); Stix Products, Inc. v. United Merchants & Manufacturers, Inc., 47 F.R.D. 334, 337 (S.D.N.Y.1969) (prospect of litigation must be "identifiable"); 4 Moore's Federal Practice P 26.63(2.-1), at 26-349 (1970) (litigation must "reasonably have been anticipated or apprehended"). Professors Miller and Wright offer an attractive formulation based on the purpose of the work-product doctrine itself:
Prudent parties anticipate litigation, and begin preparation prior to the time suit is formally commenced. Thus the test should be whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained Because of the prospect of litigation.
8 Wright & Miller, Federal Practice and Procedure: Civil § 2024, at 198 (1970) (emphasis added; footnote omitted).
Several circumstances in this case convince us that, under any of these tests, the district court reasonably could have found that the prospect of litigation was real enough to mandate work-product protection for the questionnaires and the interview memoranda. First, the investigation concerned suspected criminal violations. When Pepper entered the case, the Audit Committee already had uncovered enough evidence to support "a suspicion of illicit payments having been made." See Excerpts of Minutes of Audit Committee, January 27, 1977. If further investigation confirmed that suspicion, litigation of some sort was almost inevitable. The most obvious possibilities included criminal prosecutions, derivative suits, securities litigation, or even litigation by Sun to recover the illegal payments. Moreover, the potential for litigation was immeasurably intensified by Sun's legal obligations to report any wrongdoing to its stockholders and to various governmental agencies. Between 1973 and 1977, the SEC alone commenced 31 actions for injunctions against companies that had allegedly engaged in transactions similar to those suspected by the Audit Committee. See Addendum to Brief of Sun Company, Inc.
The prospect of litigation in this case was sufficiently strong to distinguish it from Abel Investment Co. v. United States, 53 F.R.D. 485 (D.Neb.1971), and Peterson v. United States, 52 F.R.D. 317 (S.D.Ill.1971). Those cases dealt with the discoverability of internal IRS memoranda prepared during the investigatory and settlement phases of a tax audit. In Peterson the district court rejected the government's naked assertion that the memoranda were trial preparation materials: "(litigation) cannot be anticipated in every such case when relatively few result in litigation." 52 F.R.D. at 321. See also Abel Investment Co. v. United States, supra, at 489-90 (quoting Peterson ).
The government's other arguments against work-product protection are without merit. The questionnaires and memoranda at issue in this case clearly differ from the statutorily required accident reports held discoverable in Goosman v. A. Duie Pyle, Inc., 320 F.2d 45 (4th Cir. 1963). Furthermore, we perceive no reason to distinguish between Pepper's role as a legal advisor and its role as an investigator. The attorney in Hickman acted in a similar dual capacity when he interviewed witnesses. Under these circumstances we conclude that the district court did not err in holding that Pepper was acting in contemplation of litigation and that the work-product doctrine applies to the questionnaires and the interview memoranda at issue. But see Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 611 n.4 (8th Cir. 1977) (affirming district court's refusal to grant work-product protection on similar facts).
Sun concedes that the work-product protection afforded the questionnaires is qualified and can be overcome by a showing of good cause by the government. As to the interview memoranda, however, Sun asserts that the work-product protection is absolute and that no showing of need by the government can justify enforcement of the subpoena. Sun attempts to draw this rule directly from Hickman v. Taylor.
In Hickman, the Supreme Court dealt with two types of work product. The defendant's attorney had taken written statements from a number of witnesses at the scene of a tug-boat accident. The Court held that plaintiff's "naked, general demand" for these written statements was insufficient to overcome work-product protection. The burden was on plaintiff "to establish adequate reasons to justify production" of those statements. 329 U.S. at 512, 67 S. Ct. at 394.
Plaintiff also had sought to discover the content of oral interviews with witnesses, some of which interviews had been summarized in memoranda prepared by the attorney. The Court called for greater protection of this information than it had afforded the written statements:
329 U.S. at 512-13, 67 S. Ct. at 394 (emphasis added). Citing this excerpt, Sun asserts that the Supreme Court intended to afford the attorney's interview memoranda absolute protection from discovery.
Initially, we note that a few sentences after the quoted passage the Hickman Court implied that the protection was less than absolute: "(if) there should be a rare situation justifying production of these matters, petitioner's case is not of that type." Id. Nevertheless, at least one court has read Hickman as calling for absolute protection of such interview memoranda. In In re Grand Jury Investigation (Sturgis), 412 F. Supp. 943, 949 (E.D.Pa.1976), the court stated that such memoranda "are so much a product of the lawyer's thinking and so little probative of the witness's actual words that they are absolutely protected from disclosure." The Court of Appeals for the Eighth Circuit also has indicated that such memoranda are "absolutely, rather than conditionally, protected." In re Grand Jury Proceedings (Duffy), supra, at 848. In the same opinion, however, the Court of Appeals implied that the protection was less than absolute: "(w)e do not believe that the attorney of a prospective criminal defendant, absent unusual circumstances, should be required to produce a summary of a witness's statement . . . ." Id. at 848-49.
Apparently, our court already has decided this issue adversely to Sun's position. In In re Natta, 410 F.2d 187 (3d Cir.), Cert. denied, 369 U.S. 836, 90 S. Ct. 95, 24 L. Ed. 2d 87 (1969), this court considered the level of protection to be afforded an attorney's memoranda containing "analyses or assessments of (the client's) position with respect to the various parties" in the litigation. The documents contained pure legal opinion. See id. at 193. Such material, often called "opinion work product," is the most sacrosanct of all forms of work product. See, e.g., Fed.R.Civ.P. 26(b)(3) (a court must "protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney"); Note, Protection of Opinion Work Product Under the Federal Rules of Civil Procedure, 64 Va.L.Rev. 333, 334 (1978). Despite the sensitive nature of the materials sought in Natta, we did not believe that they were absolutely protected:
Hickman grants to attorney's work product a qualified immunity from discovery . . . . The work product immunity in Hickman is definitely limited since a showing of good cause may justify production of documents which otherwise might be protected as work product.
410 F.2d at 192-93. If pure opinion work product is only entitled to qualified protection, we believe that the memoranda at issue here are perforce entitled to no greater protection.
Other courts and commentators also have declined to interpret Hickman as clothing interview memoranda with absolute immunity from discovery. See, e.g., Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970), Aff'd by an equally divided court, 400 U.S. 348, 91 S. Ct. 479, 27 L. Ed. 2d 433 (1971); Xerox Corp. v. International Business Machines Corp., 64 F.R.D. 367, 377-81 (S.D.N.Y.1974); 4 Moore's Federal Practice P 26.63(8), at 26-394, and P 26.64(4), at 26-442 (1970); Note, 64 Va.L.Rev., Supra, at 339.
In declining to afford the interview memoranda absolute protection, we do not hold that they are to be treated identically to the questionnaires. As we noted earlier, quoting Professors Wright and Miller, a demand for discovery of work product must be considered "in light of the nature of the document." 8 Wright & Miller, Supra, at 198. Memoranda summarizing oral interviews present several unique and well-documented problems to the court which considers their discoverability. First, they may indirectly reveal the attorney's mental processes, his opinion work product. See, e.g., Hickman v. Taylor, supra, 329 U.S. at 513, 67 S. Ct. 385; In re Grand Jury Investigation (Sturgis), supra, at 949. Second, their reliability as accurate reflections of the witness's statements is a function of many factors, including the conditions of the interview, the contemporaneousness of the writing, and the editorial discretion of the attorney. See, e.g., Hickman v. Taylor, supra, 329 U.S. at 512-13, 67 S. Ct. 385. Third, discovery and use of such material creates a danger of converting the attorney from advocate to witness. See, e.g., United States v. Nobles, supra, 422 U.S. at 252-53, 95 S. Ct. 2160 (White, J., concurring); Hickman v. Taylor, supra, 329 U.S. at 513, 67 S. Ct. 385. Finally, the information contained in such memoranda generally is of limited utility, especially where the witness himself is readily available to the opposing party. See, e.g., Hickman ...