By Roy Simon [Originally published in NYPRR February 2011]
By now, most readers of NYPRR probably know that late last June (2010), in a hard-fought trademark infringement case captioned Gucci America, Inc. v. Guess?, Inc., 2010 WL 2720079 (S.D.N.Y. 2010), Magistrate Judge James L. Cott held that Gucci’s communications with its own chief in-house lawyer (Jonathan Moss) were not protected by the attorney-client privilege because Mr. Moss was not licensed to practice law in any jurisdiction at the time those communications were made. He passed the California bar exam in 1993 and had remained an active member of the California Bar in good standing for three years, but in 1996 he changed his bar status to “inactive.” When Gucci hired Mr. Moss in 2002, no one at Gucci checked to determine whether he was an active member of the bar. Gucci promoted Mr. Moss three times — first to Legal Counsel, then to Director of Legal Services, and finally to Vice President, Director of Legal and Real Estate. During his eight years at Gucci, Mr. Moss provided various legal services to Gucci, including appearing before courts and administrative agencies, filing trademark applications, handling employment matters, and negotiating leases. But no one at Gucci checked his bar status.
All Gucci had to do was log on to the website of the California State Bar — or just ask Mr. Moss if he was an active member of the bar in any jurisdiction — but it never did. “Gucci itself bears responsibility for allowing its counsel to represent its interests without ensuring that he was authorized to do so,” Magistrate Judge Cott concluded. No attorney, no attorney-client privilege.
Most NYPRR readers are probably also aware that on Jan. 3, 2011, the Hon. Shira Scheindlin rejected Magistrate Judge Cott’s recommendation and report, holding that Gucci’s communications with Mr. Moss (by now fired) were indeed protected by the attorney-client privilege because Gucci had a “reasonable belief” that Mr. Moss was an attorney. Furthermore, Judge Scheindlin held that (i) a corporate client, like an individual client, can claim a reasonable belief; and (ii) contrary to another opinion in the Southern District, the reasonable-belief test does not require the party asserting it to take reasonable precautions to determine whether the person to whom it is communicating is an attorney.
Many columnists and bloggers have written illuminating articles about Judge Scheindlin’s decision in Gucci, so I will not re-plow that ground. Instead, I will discuss in depth the very first case that Judge Scheindlin cited in her Gucci decision — the classic case of United States v. United Shoe Machinery Corp., 89 F. Supp. 357 (D. Mass. 1950), Judge Charles Wyzanski’s often cited but seldom studied opinion on attorney-client privilege that has been cited and quoted for more than 60 years. Judge Scheindlin added, citing numerous examples, that “United Shoe Machinery has been cited with approval in the Second Circuit and remains good law.” With respect to the elements of the attorney-client privilege, Judge Scheindlin was correct. But a close examination of Judge Wyzanski’s full opinion in United Shoe — which is less than five pages long in F. Supp — shows that some parts of his analysis are controversial, and other parts have been widely rejected.
An Enduring and Endearing Case on Attorney-Client Privilege
Judge Wyzanski was born in 1906 and was educated at Harvard College and Harvard Law School. After law school, he clerked on the Second Circuit for the Hon. Augustus Hand and (after a brief hiatus in private practice) for the legendary Hon. Learned Hand. He next joined Roosevelt’s New Deal government, then returned to private practice. President Roosevelt nominated him to the federal bench in 1941. He wrote United Shoe in 1950, when he was only 44 years old. He remained a federal district court judge for 45 years, until his death in 1986.
A KeyCite search on Westlaw shows that United States v. United Shoe Machinery Corp. has been cited in 2,209 documents, including 597 court decisions, scores of administrative decisions (OSHA, FERC, NCC, FCC, IRS, etc. — the alpha to omega of our government), and over 1,500 secondary sources (books, briefs, articles, and other materials). New York federal courts love to cite it. According to KeyCite, United Shoe Machinery was “discussed” (three stars) in In re Grand Jury Proceedings, 2001 WL 1167497 (S.D.N.Y. 2001); Softview Computer Products Corp. v. Haworth, Inc., 2000 WL 351411 (S.D.N.Y. 2000); Cuno, Inc. v. Pall Corp., 121 F.R.D. 198 (E.D.N.Y.) 1988); Weissman v. Fruchtman, 1986 WL 15669 (S.D.N.Y. 1986); In re Grand Jury Subpoenas Dated December 18, 1981 and January 4, 1982, 561 F. Supp. 1247 (E.D.N.Y. 1982); U.S. v. International Business Machines Corp., 66 F.R.D. 206 (S.D.N.Y. 1974); and Georgia-Pacific Plywood Co. v. U.S. Plywood Corp., 18 F.R.D. 463, 463+ (S.D.N.Y. 1956). The case was “cited” (two stars) in Leviton Mfg. Co., Inc. v. Greenberg Traurig LLP, 2010 WL 4983183 (S.D.N.Y. 2010); Bodega Investments, LLC ex rel. Kreisberg v. U.S., 2009 WL 1456642 (S.D.N.Y. 2009); Pure Power Boot Camp v. Warrior Fitness Boot Camp, 587 F.Supp.2d 548 (S.D.N.Y. 2008); Raba v. Suozzi, 2007 WL 128817 (E.D.n.y. 2007); In re Rivastigmine Patent Litigation, 237 F.R.D. 69 (S.D.N.Y. 2006); Urban Box Office Network, Inc. v. Interfase Managers, L.P., 2006 WL 1004472 (S.D.N.Y. 2006); and dozens of other cases. According to Westlaw, only two of the 597 court decisions that cite United Shoe fall into the category of “Negative Citing References.”
What accounts for the durability and popularity of United States v. United Shoe Machinery Corp., a lowly district court case from the District of Massachusetts? What are the facts of the case, and what did Judge Wyzanski hold? In this article, I will explore these questions.
In a nutshell, the case addressed attorney-client privilege issues that had arisen during discovery in an antitrust case. Defendant United Shoe, which had a lock on the U.S. market for shoe machinery, objected to the introduction of nearly 800 exhibits on the ground that they fell within the attorney-client privilege. In the course of resolving the dispute, Judge Wyzanski set out the policy underlying the attorney-client privilege, defined the elements of the privilege, and then identified and addressed difficult issues that remain live issues today. I will highlight the major points in the case, quoting liberally from the opinion to preserve Judge Wyzanski’s direct and incisive style.
Policy Considerations Supporting the Attorney-Client Privilege
Judge Wyzanski began his opinion with a succinct summary of the policy justifications for the attorney-client privilege. He first noted that the attorney-client privilege is founded upon the belief that the privilege is necessary “in the interest and administration of justice,” and then he elaborated as follows:
“In a society as complicated in structure as ours and governed by laws as complex and detailed as those imposed upon us, expert legal advice is essential. To the furnishing of such advice the fullest freedom and honesty of communication of pertinent facts is a prerequisite. To induce clients to make such communications, the privilege to prevent their later disclosure is said by courts and commentators to be a necessity. The social good derived from the proper performance of the functions of lawyers acting for their clients is believed to outweigh the harm that may come from the suppression of the evidence in specific cases. But the privilege should be strictly construed in accordance with its object.” [Emphasis added by the court; citations omitted.]
Next, Judge Wyzanski defined the attorney-client privilege in terms that have been quoted in hundreds of judicial opinions:
… The privilege applies only if (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.
The definition was of interest to magistrate Judge Cott and to Judge Scheindlin in Gucci America, Inc. v. Guess?, Inc. because of element (2)(a), which provides that the attorney-client privilege applies only if the person to whom the communication was made “is a member of the bar of a court” — which Gucci’s in-house “lawyer” Jonathan Moss was not.
Before testing the hundreds of challenged documents against this definition, Judge Wyzanski made three observations applicable to all of the disputed documents.
First, the “client” was not only United Shoe Machinery Corporation but also “all its subsidiaries and affiliates considered collectively” — the whole corporate family. He did not cite any authority for this proposition, but noted that all of the affiliated corporations used “the same outside and inside counsel.” Thus, the “legal affairs of these corporations were closely related.”
Second, ruling out any possible crime-fraud exception, Judge Wyzanski noted that none of the corporations (or their officers or employees) consulted counsel with the purpose of seeking assistance in committing a crime or a tort. “Mistaken or not,” he said, “the officers and employees believed they were acting according to law.” Distinguishing the seminal United States Supreme Court case on the crime-fraud exception, Judge Wyzanski said: “unlike the persons referred to by Mr. Justice Cardozo in Clark v. United States, 289 U.S. 1 (1933), they sought advice so that they might continue to act according to law. And counsel gave advice in the same spirit.”
Third, Judge Wyzanski noted that the defendant “seasonably claimed whatever privilege it had,” and did not waive its privilege by surrendering the exhibits in response to subpoenas, because it had agreed in advance with Government counsel that compliance with the subpoenas should not constitute a waiver.
Judge Wyzanski then divided the allegedly privileged documents at issue into four classes: (1) those to or from independent (i.e., “outside”) lawyers; (2) those to or from defendant’s legal department (i.e., the defendant’s in-house lawyers); (3) those to or from defendant’s patent department; and (4) “working papers of persons in the patent department” (i.e., work product issues). This article addresses only issues arising under the attorney-client privilege and ignores work product doctrine, which was not very well developed when Judge Wyzanski wrote the United Shoe Machinery opinion in 1950, a mere three years after the United States Supreme Court’s landmark work product decision in Hickman v. Taylor, 329 U.S. 495 (1947).
As Judge Wyzanski examined the various groups of documents, he identified three dividing lines that remain important today: (a) legal advice vs. business advice, (b) in-house vs. outside counsel, and (c) lawyers vs. nonlawyers. I will look at each of these dividing lines in turn.
Legal Advice vs. Business Advice
The first group of documents consisted chiefly of letters to or from members of outside law firms, which Judge Wyzanski referred to as “independent law partnerships.” All of these were serving as counsel for united Shoe and its subsidiaries and affiliates, and they were acting as attorneys giving legal advice. Expounding this fact in more depth, and particularly addressing the issue of mixed legal and business advice, the Judge said:
… The members of the law partnership were in each case acting as attorneys giving legal advice. They were not acting as business advisers or officers of united, even though occasionally their recommendations had in addition to legal points some economic or policy or public relations aspect and hence were not unmixed opinions of law. The modern lawyer almost invariably advises his client upon not only what is permissible but also what is desirable. And it is in the public interest that the lawyer should regard himself as more than predicter of legal consequences. His duty to society as well as to his client involves many relevant social, economic, political and philosophical considerations. And the privilege of nondisclosure is not lost merely because relevant nonlegal considerations are expressly stated in a communication which also includes legal advice. It follows that in so far as these letters to or from independent lawyers were prepared to solicit or give an opinion on law or legal services, such parts of them are privileged as contain, or have opinions based on, information furnished by an officer or employee of the defendant in confidence and without the presence of third persons. [Emphasis added.]
But then Judge Wyzanski added two qualifications. First, to the extent the communications gave legal advice based on facts disclosed to the attorney by a person outside the organization of defendant and its affiliates, the communication is not privileged. “Thus, for example, there is no privilege for so much of a lawyer’s letter, report or opinion as relates to a fact gleaned from a witness, or a person with whom defendant has business relations, or a public document such as a patent, or a judicial opinion.” (Citations omitted.) Second, “[w]here a communication neither invited nor expressed any legal opinion whatsoever, but involved the mere soliciting or giving of business advice, it is not privileged.” This simply restates the fundamental principle that the attorney-client privilege applies only to legal advice, not business advice.
Let me use a hypothetical to put these opening points in greater focus. Suppose united Shoe’s outside counsel writes a letter to the Chairman of United Shoe that says as follows (with sentences numbered for convenience):
(1) Employees of several of our main competitors have advised me that united Shoe’s 10-year leases make it difficult for our customers to switch to competing machines. (2) This suggests that 10-year leases may be violating the Sherman Act prohibition against monopolization. (3) Even if we can delay or defeat a finding of an antitrust violation, United Shoe may want to consider the harmful effects of monopolistic practices on our customers, who grow more slowly due to higher prices in a non-competitive market, and United Shoe’s reduced incentive to innovate to stay ahead of the competition. (4) We also wonder whether the company should terminate the executive currently in charge of leasing policy, who seems ineffective as a manager and has an abrasive personality that fosters resentment among his subordinates.
Under Judge Wyzanski’s analysis, part of this letter would be privileged and part might not. Sentence (1) reflects a communication between United Shoe’s lawyer and a third party (a competitor) rather than the client, so it would not be privileged and would have to be disclosed in discovery. Sentence (2) contains pure legal analysis — the application of the law to the facts — so it would be privileged. Sentence (3) explores social, economic, political and philosophical considerations relevant to the legal analysis, so the privilege would not be lost. Sentence (4), however, appears to transmit strictly business advice, a personnel recommendation unrelated to the legal advice, so it would not be privileged. The letter will therefore have to be produced in discovery, but United Shoe may redact the letter to protect the privileged portions.
Yet ordering production of a redacted version of an attorney-client communication is controversial. Some New York federal courts accept Judge Wyzanski’s view, see, e.g., Walsh v. Northrop Grumman Corp., 165 F.R.D. 16 (E.D.N.Y. 1996) (Pohoresky, magistrate Judge) (“Although there is substantial divergence among the federal circuit courts of appeal about the application of the privilege to communications of legal advice by attorneys … this circuit remains committed to the narrowest application of the privilege such that it protects only legal advice that discloses confidential information given to the lawyer by the client”).
But New York State courts reject Judge Wyzanski’s approach, instead holding that if the predominant purpose of an attorney’s communication was to convey legal advice to the client, then the entire document is exempt from discovery. See, e.g., Spectrum Systems Intern. Corp. v. Chemical Bank, 78 N.Y.2d 371, 581 N.E.2d 1055, 575 N.Y.S.2d 809 (1991) (Judith Kaye, J.). (Outside counsel’s entire investigative report to client was privileged even though it contained non-privileged information because, “while information received from third persons may not itself be privileged, a lawyer’s communication to a client that includes such information in its legal analysis and advice may stand on different footing.
The critical inquiry is whether, viewing the lawyer’s communication in its full content and context, it was made in order to render legal advice or services to the client.”); Rossi v. Blue Cross & Blue Shield, 73 N.Y.2d 588, 593 (1989) (Judith Kaye, J.) (Although internal memorandum from insurance company’s in-house lawyer reported conversations with opposing counsel and other third parties as well as lawyer’s opinion and advice, court determined by reviewing content and context that purpose of communication was to convey legal advice to the client, and therefore held that entire document was exempt from discovery). See also Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725, 219 P.3d 736 (Cal. 2009) (reversing lower court’s order compelling party to produce attorney-client communication with legal advice redacted but factual information unredacted). Thus, Judge Wyzanski’s view in United Shoe remains influential but not universal.
Inside vs. Outside Counsel
The second group of documents at issue in United Shoe consisted of communications to or from the resident general counsel of United Shoe and his juniors. The government apparently argued that communications with in-house lawyers are not privileged. That position denying privilege to in-house lawyers has prevailed in European countries — see Akzo Nobel Chemicals Ltd v. European Commission, Case C-550/07 P (Court of Justice of European Union, Sept. 14, 2010). (“An in-house lawyer cannot … be treated in the same way as an external lawyer, because he occupies the position of an employee”) — but Judge Wyzanski extended the privilege to in-house lawyers. As Judge Wyzanski saw it:
[T]he apparent factual differences between these house counsel and outside counsel are that the former are paid annual salaries, occupy offices in the corporation’s buildings, and are employees rather than independent contractors. These are not sufficient differences to distinguish the two types of counsel for purposes of the attorney-client privilege. And this is apparent when attention is paid to the realities of modern corporate law practice. The type of service performed by house counsel is substantially like that performed by many members of the large urban law firms. The distinction is chiefly that the house counsel gives advice to one regular client, the outside counsel to several regular clients.
It followed that United Shoe’s general counsel and his law clerks constituted “attorneys” for purposes of the privilege. But that did not end the analysis. “[N]o doubt a high percentage of the communications passing to or from them fall outside the privilege,” Judge Wyzanski said, “because they report or comment on information coming from persons outside the corporation or from public documents, or are summaries of conferences held with or in the presence of outsiders.” In other words, if a memo from the General Counsel quoted heavily from public filings in the patent office or other public sources, or if it merely summarized interviews with third parties, then — just as with communications from outside counsel — that part of the communication would not be protected by the attorney-client privilege.
This branch of Judge Wyzanski’s analysis is at least partially invalid today. As stated by the United States Court of Appeals for the Federal Circuit in American Standard Inc. v. Pfizer Inc., 828 F.2d 734 (Fed. Cir. 1987):
The view that in-house and outside patent counsels’ patent-validity opinions are never protected by the attorney-client privilege, expressed in United States v. United Shoe Mach. Corp., 89 F.Supp. 357 (D. Mass.1950) …, was dealt a fatal blow by the Supreme Court in Sperry v. Florida, 373 U.S. 379 (1963), and was administered the coup de grace … in Ledex, Inc. v. United States, 172 U.S.P.Q. 538, 539 (Ct. Cl. 1972). The current weight of authority … recognizes that counsel’s opinions on patent validity are not denied the client’s privilege protection merely because validity must be evaluated against publicly available information.
Lawyers vs. Nonlawyers
The third group of documents was composed of communications, memoranda and the like to or from the persons in United Shoe’s patent department. The two dozen or so employees in the patent department included three categories of people.
First, the patent department included persons who were not members of the bar of any court, but were “mere solicitors of patents …” Judge Wyzanski found this to be an easy call. These nonlawyers fell “outside the privilege,” he said. Yet courts today are divided on this point. In Woods on Behalf of T.W. v. New Jersey Dept. of Educ., 858 F.Supp. 51 (D.N.J., 1993) (Robert B. Kugler, Magistrate Judge) (now a federal district court judge), the court observed that courts are “split on whether the attorney-client privilege extends to patent agents in proceedings before the Patent Office.” The Woods court then rejected Judge Wyzanski’s view that the privilege did not extend to these communications, instead finding that “policies support recognition of a lay advocate privilege.”
Second, the patent department included lawyers from other jurisdictions (“members of other judicial bars”) who were not members of the bar of the federal District of Massachusetts or of the state courts of the Commonwealth of Massachusetts. This was a more complicated situation. Judge Wyzanski explained:
The fact that they, though resident in Massachusetts and regularly working here, have never received a license to practice law here shows that these regular employees are not acting as attorneys for united. (The situation would be different with regard to a visiting attorney from another state, for whom the privilege might well be invoked.) Nor can it properly be said that they are acting merely as clerks for the head of the patent department, who is a Massachusetts attorney. These patent department employees communicate usually directly (and only rarely through the head of the patent department) with many officers and employees of united. Thus, these patent department employees are not protected by a privilege, if there were one, available to the head of the patent department.
Third, the patent department included lawyers — but these also were not protected by the privilege, for reasons that Judge Wyzanski explained in a surprising analysis:
All the men in the department function less as detailed legal advisers than as a branch of an enterprise founded on patents. They are comparable to the employees with legal training who serve in the mortgage or trust departments of a bank or in the claims department of an insurance company. Grist which comes to their mill has a higher percentage of business content than legal content. Unlike the independent lawyer they are expected to have at the forefront of their considerations business judgment, corporate policy and technical manufacturing aspects of the shoe machinery industry. So far as the proffered evidence in this case shows, the principal topics on which they spend time are questions of business policy, of competition as disclosed by facts derived from third persons, of the scope of public patents and of the application of patent law to developments by United and United’s competitors. They have not been shown to spend most of their time on the application of rules of law to facts which are known only to United’s employees.
Therefore, the relationship of a lawyer in the patent department to the corporation was “not that of attorney and client,” and the communication of a person in the patent department was “as unprivileged as that of a lawyer who shares offices with his so-called client and gives him principally business but incidentally legal advice, or an attorney who acts principally as accountant and also renders legal advice on the basis of accounting data, or an attorney who negotiates the business aspects of a real estate transaction, or an attorney who acts as an investigator for the FBI.”
I pause here to note that if the case were to be decided today in Massachusetts, this point would probably come out differently, because Massachusetts has adopted ABA Model Rule 5.5(d), which provides as follows:
(d) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that:
(1) are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission; or
(2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction.
Under Rule 5.5(d), lawyers who are licensed and in good standing elsewhere in the United States but not in Massachusetts are authorized to practice there, either as in-house lawyers or as lawyers working in the realm of patent law. Either way, I believe they would be treated on a par with Massachusetts lawyers for purposes of the attorney-client privilege. New York, however, has not yet adopted Rule 5.5(d). In fact, the Appellate Divisions have twice rejected State Bar proposals to adopt it. But perhaps the proposed in-house registration rule now under consideration by the Court of appeals would have the same effect for purposes of the privilege.
Conclusion: Classics Bear Re-reading — But They’re Not Always Totally Right
Judge Wyzanski summed up his opinion by sustaining united Shoe’s claims of privilege as to the parts of the documents in question that meet all of the three following tests:
(a) the exhibit itself was prepared by or for either (1) independent counsel or (2) defendant’s general counsel or one of his immediate subordinates; and
(b) as appears upon the face of the exhibit, the principal purpose for which the exhibit was prepared was to solicit or give an opinion on law or legal services or assistance in a legal proceeding; and
(c) the part of the exhibit sought to be protected consists of either (1) information which was secured from an officer or employee of defendant and which was not disclosed in a public document or before a third person, or (2) an opinion based upon such information and not intended for disclosure to third persons.
Judge Wyzanski’s delineation of the elements and sub-elements of the attorney-client privilege remains the classic definition, still quoted with regularity six decades later. Judge Wyzanski’s clear and concise expression of the elements today makes it a classic, well worth re-reading and well worth citing. But other parts of Judge Wyzanski’s analysis have not stood the test of time. The lesson is that classic cases may be solid authority on some points, but that doesn’t make them right on every point. Even when citing a classic, lawyers should be careful to separate what is honored from what is outdated.
Professor Roy Simon is the author of Simon’s New York Rules of Professional Conduct Annotated. The brand new 2015 edition analyzes more than 100 new cases, ethics opinions, and other developments critical to New York practice. It’s the legal ethics bible for all New York-area lawyers. To purchase, click here.
In addition, Professor Simon advises lawyers and law firms on questions of professional conduct and serves as an expert witness in cases raising issues of lawyer conduct. You may reach Professor Simon at 516-463-5289 or Roy.Simon@hofstra.edu.
DISCLAIMER: This article provides general coverage of its subject area and is presented to the reader for informational purposes only with the understanding that the laws governing legal ethics and professional responsibility are always changing. The information in this article is not a substitute for legal advice and may not be suitable in a particular situation. Consult your attorney for legal advice. New York Legal Ethics Reporter provides this article with the understanding that neither New York Legal Ethics Reporter LLC, nor Frankfurt Kurnit Klein & Selz, nor Hofstra University, nor their representatives, nor any of the authors are engaged herein in rendering legal advice. New York Legal Ethics Reporter LLC, Frankfurt Kurnit Klein & Selz, Hofstra University, their representatives, and the authors shall not be liable for any damages resulting from any error, inaccuracy, or omission.