In Re Sealed Case, 676 F.2d 793 (D.C. Cir. 1982)

This case requires us to consider how far the "work product" doctrine shields the files of a corporation's in-house lawyer from scrutiny by a federal grand jury investigating corporate abuses. Appellant ("Company")¹  is a multinational, "Fortune 500" corporation whose activities have come under investigation by a grand jury for possible conspiracy to defraud the government and obstruction of justice. The District Court has held Company's agent in contempt of court for refusing to produce before the grand jury eight items from the files of Company's former general counsel, for which the grand jury had issued a subpoena. We conclude that principles of exception and waiver, fundamental to the work product doctrine in this context, strip two of the eight items of the protection they might otherwise deserve.

* The following account is taken from the affidavit of one X______, an American citizen with business interests in a specific foreign country. We have excised proper names and other identifying information in order to preserve the confidentiality of grand jury proceedings, but the substance of the story X______ tells-and presumably told to the grand jury-sets the stage for the case before us:

Shortly after the signing of the contract in (the country where X does business) during the first part of Oct. 1974 I received a phone call from (a senior officer at Company). He said they were having difficulty in arranging the pay off to (the senior official of a company owned by the foreign government) and asked me if I could get them an invoice to cover it from a company I was associated with (in the foreign country). He said that once the * * * pay off was taken care of they would then arrange for the financing I needed for my (business).

I arranged for (the Company officer) to get the invoice he needed on the stationery of (the company I owned).

The Date for the pay off was set * * *. (The foreign official and a woman) arrived at my house about 9:30 AM. I left shortly after to pick up (Company's chairman) at the airport. I picked up (Company's chairman) at about 10:30 AM and as we were driving to my House he said that we had to stop first at the (Bank) & pick up the money. He said that he had a check made out to (my company) and that all I had to do was endorse it because the arrangements had already been made with the Bank. I reluctantly agreed, with considerable misgivings about entering the transaction.

We arrived at the Bank where everything was ready, the money was counted out, and we left. (An associate of the chairman) was waiting in his car in front of the Bank and followed us to my House where he remained in his car. (The chairman) and I entered the House where (the woman and the official) were waiting. I placed the Briefcase containing the money on the floor. After the greetings and Handshakes (the chairman) picked up the Briefcase and opened it and said, "Here's your 200 thousand. We counted it at the Bank but we can count it again if you want." (The Chairman) then proceeded to count the money. (The official) said no, it's not necessary. (The chairman) then closed the Briefcase and handed it to the official).² 

X's account of this transaction is, of course, just one of many that have emerged in three successive investigations of Company's business practices and candor. The current grand jury investigation follows separate investigations by the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC), during which Company and its officers had many opportunities to tell their version of this story. The documents at issue in this case come from the files of Company's former senior vice president and general counsel, Y, and they concern both the matters under investigation and the investigations themselves.

On April 7, 1976 the IRS announced a broad effort to uncover tax evasion by large corporations that had failed to account adequately for bribes, "slush funds," and other practices that might have led to inaccurate computation of their tax liabilities.³  The IRS instructed the examiners in its Large Case Audit Program to ask top executives in a number of large corporations a series of questions relating to such practices. All questions were to be answered in affidavits, under oath, and signed by the officers to whom they were directed.⁴ 

Shortly thereafter IRS examiners in the city where Company's headquarters are located propounded a list of 19 questions to several of Company's officers, including Company's chairman (who is also its chief executive officer) and the officers responsible for its foreign operations. The Company officers each submitted their affidavits to the IRS in June or July of 1976.

In response to one of the IRS questions concerning bribes or "kickbacks" paid to officials of foreign governments, Company's chairman stated:

The Company, directly or through its subsidiaries or affiliates, retained various persons to act as finders, consultants or sales agents with respect to possible acquisitions and to doing business * * * in and with various foreign countries. * * * To the best of my knowledge, the payments referred to above were not bribes, kickbacks or other such payments to obtain favorable treatment in securing business or otherwise to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained.⁵ 

The chairman appended a list of "finders" that Company had employed between 1971 and 1976 and the fees paid them. Most of the finders' fees had been paid in connection with the acquisition of relatively small operating companies or properties, almost exclusively in the United States. However, the chairman's list of finders' fees also included two substantial payments to companies associated with X______. According to the chairman's list, this fee was paid in connection with acquisition of certain contracts in the foreign country where one of X______'s companies was incorporated, and the fee had involved two separate transactions, a $200,000 payment by check to the foreign company and a $200,000 loan guarantee in favor of a second company owned by X______.⁶ 

One of Company's vice presidents, who had responsibility for its operations in the country where X______ did business, also responded to the IRS question concerning bribes and kickbacks. This man-the same person who according to X______ arranged the "pay off" at X______'s house-submitted an answer and a list of finders substantially identical to those submitted by Company's chairman. He also submitted a list of "consultants" and their fees, which showed that one Z had been paid $120,000 in 1974 with regard to unspecified "Business Opportunities" in a particular region.⁷ 

Several of the IRS questions concerned payments to political figures and government officials in the United States. With respect to these, Company's chairman stated:

Several Company officers were requested to make and made election campaign contributions to various candidates in the United States. In connection with contributions aggregating approximately $5,000, officers received advances from, or were reimbursed by, the Company. I have been advised that all of such advances have been repaid to the Company.⁸ 

The vice president, however, gave the IRS a substantially different statement under oath. He admitted that he had made political contributions totalling $1,400 and received an advance from Company to cover them. He confirmed that he had repaid the advance. But after he repaid the advance he was reimbursed a second time for the contributions, by means of expense account manipulation.⁹ 

Several months later, while the IRS investigation of Company was still pending, the SEC began an informal investigation of Company's activities that later escalated into a formal investigation and enforcement action. In the informal portion of its investigation the SEC used an innovative technique known as the "voluntary disclosure program" to induce Company to investigate and reform itself, thus saving the government the considerable expense of a full-scale investigation and prosecution. Because the SEC's program significantly affects our view of the work product privilege, we relate its background in some detail.

As early as 1974 the SEC was engaged in investigating the political "slush fund" practices of some corporations. Initially the SEC staff carried out its own investigations, but as the scope of the payments problem became apparent, extending to foreign as well as domestic payments, the SEC realized that it did not have the resources to investigate each case carefully.¹⁰  In several 1974 enforcement actions, the SEC thus sought and obtained consent decrees in which corporate defendants agreed to appoint special committees of their boards of directors-composed entirely of directors unaffiliated with management-to carry out independent investigations of the defendants' payments practices. These investigations were to be performed by outside counsel hired for that purpose and responsible only to the special committee. The results of the investigation would be embodied in a report to the special committee, which would also be shared with the SEC staff.¹¹ 

As the benefits of this method of investigation became apparent, the SEC began to encourage corporations to come forward voluntarily and perform the same type of independent investigation that the consent decrees had required.¹²  This effort to induce corporate self-investigation became known as the voluntary disclosure program.

The SEC publicized its program in a number of forums,¹³  and SEC Chairman Roderick Hills gave an extended description of the program to the Joint Economic Committee of Congress in March 1976.¹⁴  As described by Hills, participation in the program entailed four major steps. First, a corporation's board of directors should declare an end to all payments of doubtful legality and practices involving maintenance of inaccurate books and records. Second, the board should authorize a special committee composed primarily of independent directors to perform a thorough investigation of the corporation's practices, using independent counsel and auditors to prepare a report for the full board. Third, information on the commencement and progress of the investigation should be lodged with the SEC on its Form 8-K, and a copy of the final report should be filed with the SEC. Fourth, "(i)t must be understood that the staff of the Commission will have access to any information that is discovered or developed during the investigation."¹⁵  In return for such corporate cooperation, the SEC offered leniency for past abuses and a chance to avoid extended formal investigation and litigation. A report filed with the Senate Banking Committee in May 1976 provided details of roughly 60 corporations' compliance with the voluntary disclosure program.¹⁶ 

The voluntary disclosure program was well developed by early 1977, when the staff of the SEC contacted Company and suggested that it make use of the voluntary method to clear the air about any payments of questionable legality in the United States or abroad. Accordingly, Company's board of directors retained a large law firm to act as special investigative counsel and set up a special committee of independent directors to oversee the investigation. During the summer of 1977 lawyers from the firm examined hundreds of documents in Company's files and interviewed 52 persons, all officers, directors, employees, or consultants hired by Company.

In May 1978 the investigative counsel submitted its final report to the special committee.¹⁷  Although the identities of persons outside Company and the names of foreign nations were disguised by a code, the report disclosed in detail questionable business practices in six countries.

Of particular relevance here is the report's discussion of Company's dealings with X. The full discussion is quite lengthy, but we summarize its high points: According to the report, the finder's fee arrangement with X was never reduced to writing. In October 1974 Company issued a check for $200,000 to X's company. Company's chairman then flew halfway across the continent to hand-deliver the check to X, on a day when he knew the foreign official-whose jurisdiction included valuable property owned by Company-would be visiting X. The chairman met X at a bank office where the check was cashed by X "with the assistance" of Company's chairman. The two men then drove to X's home, where they met with the official and a woman friendly with both X and the official.¹⁸ 

Approximately one month later Company's board of directors authorized a $200,000 loan guarantee to another company owned by X. The report also disclosed that there had been little or no investigation of the company in favor of which the guarantee was executed. In fact, it had been suspended as a corporation in good standing by its state of incorporation. The guaranteed loan was never repaid.¹⁹  Company also paid small consulting fees to the woman involved from time to time over the next few years.²⁰ 

The investigative counsel's report concludes its discussion of the X episode with a disclaimer:

No directors, officers or employees of the Company interviewed by us expressed any knowledge that either the $200,000 payment to (X) or the proceeds of the loan guaranteed by (Company) were used in any way to benefit personally any public officials of the foreign country * * *. Nevertheless, we believe that the manner and circumstances of payment and the participation therein of the Chairman of the Board * * * raise questions of irregularity which we have not been able to resolve satisfactorily, particularly in light of our inability to interview (X).²¹ 

Nevertheless, the report does not explain why the lawyers performing the investigation were not able to interview X. Neither does it explain what X might have done to earn $400,000, except to note that some Company officers were introduced to a number of officials of the foreign government involved (including its President) through a person whom the woman "claimed as a distant relative."

The investigative counsel's report also contains a section on domestic political contributions. It states:

In 1972, the Chairman of the Board * * * asked the President * * * to communicate to a few other officers a request that such other officers make campaign contributions to various candidates for federal offices, and to inform them that they could recover the total amount of their contributions by means of requests for reimbursement on their monthly Company expense accounts. As a result of such request, seven officers * * * made contributions. However, only two officers * * * have stated that they were reimbursed for such contributions * * *. * * * (T)hese disbursements would appear to have violated the provisions of applicable federal election laws.²² 

When the report was complete, a copy was given to the SEC. Company also provided the SEC staff access to a number of black three-ring binders containing all of the extensive, uncoded notes taken by the lawyers during their interviews as well as corporate records and documents selected by the lawyers as particularly relevant to the report.²³  Eventually the SEC subpoenaed these notebooks, and Company furnished copies to the SEC without objection. SEC staff also examined Company's files not included in the notebooks at Company's headquarters. In this process the staff uncovered evidence of possible bribery in a seventh country, not discussed in the report, carried out through Company's "consultant" Z.²⁴ 

On the basis of the report, notes, and other material gathered in its investigation, the SEC filed a civil complaint against Company. The complaint alleged violations of the securities laws in connection with Company's dealings in three foreign countries, including the dealings with X and Z. Without admitting guilt, Company entered into a consent decree with the SEC on the day the complaint was filed. The SEC also reported the case to the Department of Justice for investigation of possible criminal violations.

C. The Grand Jury Investigation and Subpoena

In October 1978 a grand jury was convened in the District of Columbia to consider indictment of Company and those connected with it. The record in this case discloses the type of criminal violation under investigation by the grand jury:²⁵  conspiracy to defraud the government,²⁶  providing false information to a government agency,²⁷  and various types of obstruction of justice.²⁸ 

Within a few weeks the grand jury subpoenaed and received, without objection by Company, copies of the material that had previously been received by the SEC. The grand jury also heard testimony from a number of present and former Company employees, as well as from X and the foreign government official to whom the October 1974 payment may have been made.²⁹ 

In December 1979 the grand jury directed a subpoena duces tecum to Y, who had been Company's in-house general counsel from 1971 to August 1978 (approximately three months after the investigative counsel's final report was issued).³⁰  Y appeared before the grand jury on January 15, 1980. He answered a number of questions concerning matters which he had discussed in a formal interview with the investigating lawyers during Company's voluntary investigation, the contents of which were summarized in great detail in the notes that had been provided to the grand jury.³¹  With respect to the grand jury's request for documents, he stated that he had discovered 38 documents in his possession responsive to the subpoena. He explained that these files really belonged to Company and that, after consultation with the attorneys then representing Company, he had turned over the 38 documents to one of the lawyers then representing Company in connection with the grand jury investigation.³²  Shortly thereafter the grand jury issued a subpoena to that lawyer for the material he had received from Y.

The lawyer and Company both moved to quash the subpoena on the ground that the 38 documents were protected by attorney-client and work product privilege. After inspecting the documents in camera the District Court granted the motion to quash for all but eight specific portions of the documents, as to which it held that Company had waived both attorney-client and work product privileges.³³  Company sought review of the District Court's order in this court, but we dismissed the appeal because mere denial of a motion to quash was not appealable until the person in possession of the documents had refused to produce them before the grand jury and received a citation and sentence for contempt of court.³⁴ 

By this point the original grand jury's term had expired, and Company had retained a new law firm to represent it in connection with the grand jury investigation. The 38 documents had passed into the hands of a partner in the new law firm, and, in due course, a new grand jury issued a subpoena for the documents addressed to their current possessor. The District Court denied Company's motion to quash in a brief order that referred to its prior opinion; when the lawyer holding the documents indicated his unwillingness to produce them before the grand jury, the District Court held him in contempt and sentenced him to confinement until he produced the eight unprivileged items.³⁵ 

All of the 38 documents that come within the terms of the subpoenas in this case come from Y's files for the years 1976 through 1978. All but two of the documents were dictated or handwritten by Y, the exceptions being a very brief telex message sent to Y from an officer in one of Company's foreign subsidiaries and a handwritten list prepared for Y by an auditor employed by Company.

Six of the 38 documents date from June 1976, while Y was involved in accumulating information relevant to the IRS questions and in counseling Company's officers on how they should respond to the questions. Of these six documents, the District Court ordered that substantial portions of two, numbered 2 and 3, be produced before the grand jury. Document No. 2 is a transcript of a casette tape dictated by Y to preserve his recollection of a series of meetings in late May and early June, at which Company's chairman, president, and several officers discussed both its dealings with X and the campaign contribution reimbursement issue, as well as how the affidavits to be submitted to the IRS should deal with these subjects. Document No. 3 is a typed memorandum recording the substance of a telephone conversation between Y and two of Company's outside counsel. In this conversation, which took place two days after Y recorded the tape described above, the three lawyers discussed X and the campaign contribution issue.

The remaining 32 documents were generated by Y during the voluntary investigation and preparation of the investigative counsel's final report, in 1977 and early 1978. Twelve of these are in fact pages from Y's personal desk calendar, upon which Y scribbled brief notes; the remainder (with the exception of the telex) are all handwritten notes on legal-size paper. Y had been designated as liaison between the special committee of Company's board of directors and the law firm performing the investigation, and most of the notes reflect conversations between Y and various lawyers involved in the investigation. The District Court held that portions of six of these documents-on some, a single line of notes or less-must be produced before the grand jury.³⁶ 

The merits of the District Court's holding with respect to the eight items it ordered Company to produce before the grand jury are now before us.³⁷ 

II

Nowhere is the public's claim to each person's evidence stronger than in the context of a valid grand jury subpoena.³⁸  Witnesses may not refuse to testify or produce documents before a grand jury simply because they think the grand jury's demands unreasonable. Only a very limited number of recognized privileges provide legitimate grounds for refusing to comply with a grand jury subpoena, and each of these is firmly anchored in a specific source-the Constitution, a statute, or the common law.³⁹  A court's power to control a grand jury's investigation is strictly circumscribed; it may not quash a valid subpoena for documents or refuse to enforce the subpoena with its contempt power unless the documents under subpoena come within a recognized privilege.⁴⁰ 

Each of the recognized privileges protects a substantial individual interest or a relationship in which society has an interest, at the expense of the public interest in the search for truth.⁴¹  Therefore, not all socially worthy interests or relationships receive the benefits of privilege.⁴²  Competent authority must determine that a privilege is necessary in a particular context to protect that which society seeks to protect, and that the benefits of protecting the privileged interest outweigh the benefits of getting at the truth. Because recognition of a privilege generally precludes striking that balance on a case-by-case basis,⁴³  courts are careful to construe recognized privileges narrowly⁴⁴  and to adopt new privileges with extreme caution.⁴⁵ 

Nevertheless, even though privileges usually provide categorical protection, two common law doctrines give courts a limited ability to make sure that privileges do not serve ends for which they were not intended. These doctrines are exception and implied waiver. Exception comes into play when a privileged relationship is used to further a crime, fraud, or other fundamental misconduct. The leading case on exception, Clark v. United States,⁴⁶  expresses the doctrine's basic principle: "A privilege surviv(es) until the relation is abused and vanish(es) when abuse is shown to the satisfaction of the judge * * *."⁴⁷  Implied waiver deals with an abuse of a privilege itself rather than of a privileged relationship. Where society has subordinated its interest in the search for truth in favor of allowing certain information to remain confidential, it need not allow that confidentiality to be used as a tool for manipulation of the truth-seeking process. Dean Wigmore has stated the basic doctrine with respect to implied waiver:

(R)egard must be had to the double elements that are predicated in every waiver, i.e., not only the element of implied intention, but also the element of fairness and consistency. A privileged person would seldom be found to waive, if his intention not to abandon could alone control the situation. There is always also the objective consideration that when his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder. * * *⁴⁸ 

Thus, as an initial proposition: when a grand jury issues a valid subpoena for documents, they must be produced unless protected by a recognized privilege. If privileged, they need not be produced unless the privileged relation from which they derive was entered into or used for corrupt purposes or unless an "objective consideration" of fairness requires disclosure to prevent undue manipulation of the privilege.

Company has argued that two privileges excuse its agent from producing any part of Y's files before the grand jury: the attorney-client privilege, and the work product privilege. Both are common law privileges in the context of a federal grand jury, although versions of the work product privilege are found in the Federal Rules of Civil and Criminal Procedure, which may be consulted for guidance as to its scope.⁴⁹  The two privileges are closely related. In England courts do not completely distinguish between them,⁵⁰  and both have the same basic purpose: to "promote broad() public interests in the observance of law and the administration of justice."⁵¹ 

To the extent that they overlap, the work product privilege is the broader of the two.⁵²  The attorney-client privilege covers only confidential communications between attorney and client, and it focuses on the attorney-client relationship. Thus, information other than "communications," or communications that do not involve both attorney and client, are unprotected.⁵³  Furthermore, any voluntary disclosure by the client to a third party breaches the confidentiality of the attorney-client relationship and therefore waives the privilege, not only as to the specific communication disclosed but often as to all other communications relating to the same subject matter.⁵⁴ 

The work product privilege, on the other hand, is not limited to communications. At the very least, it applies to material "obtained or prepared by an adversary's counsel" in the course of his legal duties, provided that the work was done "with an eye toward litigation."⁵⁵  The work product privilege protects both the attorney-client relationship and a complex of individual interests particular to attorneys that their clients may not share.⁵⁶  And because it looks to the vitality of the adversary system rather than simply seeking to preserve confidentiality, the work product privilege is not automatically waived by any disclosure to a third party.⁵⁷ 

The seminal case for the modern work product privilege is Hickman v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 91 L. Ed. 451 (1947). In Hickman the Supreme Court read into the Federal Rules of Civil Procedure then in effect a two-tiered protection from discovery for attorney work product, in order to accommodate the liberal deposition-discovery policies of the Rules and the need to provide confidentiality for attorneys' files.⁵⁸  To the extent that work product contains relevant, nonprivileged facts, the Hickman doctrine merely shifts the standard presumption in favor of discovery and requires the party seeking discovery to show "adequate reasons" why the work product should be subject to discovery.⁵⁹  However, to the extent that work product reveals the opinions, judgments, and thought processes of counsel, it receives some higher level of protection, and a party seeking discovery must show extraordinary justification.⁶⁰ 

The Hickman Court, however, scrupulously avoided recognizing a general privilege for work product.⁶¹  The specific balance struck by Hickman depends largely on the function of discovery in civil litigation and the role of the trial judge in supervising discovery.⁶²  Thus, while Hickman 's balancing approach and statement of fundamental judicial policy clearly apply beyond the context of civil discovery, Hickman left elaboration of its work product doctrine in other contexts to later cases.⁶³ 

In recent years the Supreme Court has recognized a privilege for work product in criminal discovery and in the context of IRS tax-investigation subpoenas.⁶⁴  And, in In re Grand Jury Proceedings (Duffy), 473 F.2d 840 (8th Cir. 1973),⁶⁵  the Eighth Circuit recognized a privilege to protect attorney work product from subpoena by a grand jury. The cases extending the Hickman doctrine into the realm of privilege have each adopted its two-tiered structure-qualified protection for "fact" work product and more absolute protection for "opinion" work product.⁶⁶  They have also applied the basic concepts of exception and waiver to the new privilege.⁶⁷  This adaptation of the Hickman doctrine to the law of privileges is required, not by the inner logic of the work product doctrine alone, but primarily by a structural logic-courts should not frustrate the efforts of a grand jury unless the purpose as well as the letter of the privilege requires it.

Applying the foregoing principles to the case before us, we find that a grand jury has issued a valid subpoena for 38 documents, and the District Court has held that eight portions of the documents must be disclosed.⁶⁸  We have carefully examined the entire record in this case, and we have no doubt that all 38 documents are precisely the sort of "memoranda, * * * mental impressions," and "thoughts, heretofore inviolate" for which the Hickman doctrine was fashioned.⁶⁹  Although Y was Company's in-house counsel, his affidavit and the documents themselves establish that he was acting primarily in the role of an attorney advising clients in connection with the SEC and IRS investigations, and that he was acting at all times "with an eye toward litigation." Furthermore, we note that the documents were not meant for any eyes but their author's. Despite Y's willingness to admit Company's ownership and surrender the documents, no one listening to the casette tape-Document No. 2-could imagine that Y ever intended that it fall into the hands of his corporate superiors.

In short, the eight items on appeal are all opinion work product. Since the government has not yet attempted to make the extraordinary showing of necessity that would be required to remove the work product privilege under Hickman and Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981),⁷⁰  the eight documents need not be produced unless the exception or implied waiver doctrines apply.

The status of the eight items under the attorney-client privilege is slightly more problematic. Most but not all reflect attorney-client communication. But Company has already disclosed the fact that these communications took place, as well as their substance, to both the SEC and the grand jury by releasing the extensive notes of a formal interview between Y and the lawyers performing the voluntary investigation. The District Court therefore held that, even if the attorney-client privilege applied to these items, that privilege had been waived.⁷¹ 

In the case before us we do not confront the applicability of the work product privilege to the files of nonlawyers or qualifications to the work product privilege. Without such difficulties we may assume that the attorney-client privilege applies. An exception or waiver of the work product privilege will also serve as an exception or waiver of the attorney-client privilege, since the coverage and purposes of the attorney-client privilege are completely subsumed into the work product privilege.⁷² 

Accordingly, we turn to the questions whether the doctrines of exception or implied waiver apply to the eight items of attorney work product before us.

III

According to Clark, no privilege applies "where the relation giving birth to it has been fraudulently begun or fraudulently continued."⁷³  Therefore, an attorney's opinion work product cannot be privileged if the work was performed in furtherance of a crime, fraud, or other type of misconduct fundamentally inconsistent with the basic premises of the adversary system.⁷⁴  In some circumstances the attorney may be innocently involved in the client's crime or fraud. But a guilty client may not use the innocence or ignorance of its attorney to claim the court's protection against a grand jury subpoena. Unless the blameless attorney is before the court with an independent claim of privilege, the client's use of an attorney's efforts in furtherance of crime or fraud negates the privilege.⁷⁵ 

In the case at hand the record establishes a substantial possibility that Company's chairman and other senior officers conspired to bribe an official of one foreign government and possibly more, and that they conspired to make illegal corporate contributions to political campaigns in 1972.⁷⁶  More importantly, a comparison of X's affidavit and those of Company officers indicates that Company officers may have conspired to defraud the government by submitting false information to the IRS in 1976 and to the SEC in 1978.⁷⁷  The chairman stated that the payment to X was a "finder's fee" and that the officers who made political contributions at his behest had repaid Company's portion. The report given to the SEC casts doubt on those statements, but does not firmly state what the truth is.⁷⁸  It is possible, and even likely, that the chairman and other high Company officers have provided incomplete and misleading accounts of their involvement in these incidents to the government.

Despite this state of the record, the District Court rejected the government's argument that the exception for crime or fraud applied to this case. It gave no reasons for the rejection, however, beyond a one-sentence conclusion:

In this case the government does not allege, and by all the evidence could not show, that the lawyers involved in the documents at issue were ever consulted for the purpose of furthering a crime or fraud.⁷⁹ 

While the determination whether the government has made a sufficient showing to invoke the exception is committed to the sound discretion of the District Court in the first instance,⁸⁰  appellate courts do not hesitate to correct any error that clearly appears on the face of the record.⁸¹  The record in this case and the phrasing of the District Court's holding establish that the District Court was wrong in rejecting the exception theory.

First, the government did allege that the lawyers were consulted for the purpose of furthering a crime or fraud; indeed, it was one of the government's principal arguments below.⁸²  Therefore, the District Court must have found that the government's showing on this point was factually or legally insufficient.

When a grand jury's subpoena is at stake, the standard for evaluating an exception argument must be simple enough for courts to administer swiftly and efficiently, without obstructing the grand jury's mission or squandering judicial resources. The point is not to convict anyone of a crime or to anticipate the grand jury, but only to determine whether the possibility that a privileged relationship has been abused is sufficient to alter the balance of costs and benefits that supports the privilege. In making this determination courts will not be able to receive a complete adversary presentation of the issues, since one of the parties will not be privy to the information at issue. Any system that requires courts to make highly refined judgments-perhaps concerning volumes of documents-will most likely collapse under its own weight.⁸³  And it would run afoul of the basic prescription in United States v. Dionisio, 410 U.S. 1, 17, 93 S. Ct. 764, 773, 35 L. Ed. 2d 67 (1973): "Any holding that would saddle a grand jury with minitrials and preliminary showings would assuredly impede its investigation and frustrate the public's interest in fair and expeditious administration of the criminal laws."

Accordingly, courts do not require proof beyond a reasonable doubt that someone has committed a crime or fraud. Rather, they undertake a simplified two-step inquiry. First, there must be a prima facie showing of a violation sufficiently serious to defeat the work product privilege.⁸⁴  Second, the court must find some valid relationship between the work product under subpoena and the prima facie violation.⁸⁵ 

The first condition may be met by a showing that the client was engaged in planning a criminal or fraudulent scheme when it sought the advice of counsel, or that the client actually committed or attempted a crime or fraud subsequent to receiving the benefit of counsel's work product.⁸⁶  The prima facie violation may also be the attorney's, since attorney misconduct negates the premise that the adversary system furthers the cause of justice.⁸⁷  The government's showing is sufficient if it proffers evidence that, if believed by a trier of fact, would establish the elements of some violation that was ongoing or about to be committed when the work product was prepared.⁸⁸  A specific showing of the client's intent in consulting the attorney or the attorney's intent in performing his or her duties is not required⁸⁹ -to require it would almost certainly lead to either the kind of "minitrial" forbidden by Dionisio or a near evisceration of the exception. In appropriate cases the subpoenaed material itself may provide prima facie evidence of a violation.⁹⁰ 

Courts have disagreed on the degree of relatedness required to meet the second stage of the inquiry.⁹¹  Once again, the special difficulties of extensive in camera inspection dictate that the standard not be too precise or rigorous. A finding that the work product reasonably relates to the subject matter of the possible violation should suffice.

The record in this case has been described above, and it more than satisfies the prima facie violation requirement, especially as to the work Y did in connection with the IRS investigation. The possibility that Company's chairman lied to or attempted to mislead the IRS with his affidavit is enough to pass the first stage of the inquiry.⁹²  The portions of Documents 2 and 3 that the District Court ordered Company to produce relate directly to the subject matter of this possible violation and others. In fact, these documents are primarily concerned with the state of knowledge of various Company officers about the X payments and the illegal contributions. Given the substantial possibility that some of those officers, whose knowledge these documents reflect, may have lied to the IRS (and the grand jury) after receiving the benefit of Y's advice, these two items must be produced before the grand jury.

Only one of the six items that come from the period of the SEC investigation clearly relates to a possible violation.⁹³  The District Court ordered Company to produce a single line of the notes on Document 29. While cryptic and difficult to read, this line apparently refers to a conversation involving Y, Company's president, and one of its treasurers, at which the three discussed what to do about X. The line is ambiguous. It might be innocent, but it might just as well reveal planning for still more payments to X, either to be passed through to foreign officials or to reward him for his silence. Or it might at least disclose an ongoing relationship between Company and X, thus casting doubt on the assertion of Company's investigators that they were unable to interview X in order to learn the truth about the 1974 payments. In any event, the grand jury should be able to see this line and question witnesses about it.

None of the other five items come within the exception for crime, fraud, or serious misconduct. They were all created after the IRS affidavits, which provide the clearest prima facie evidence of a violation. Only one of the items, part of Document 35, mentions X, illegal contributions undisclosed in the IRS affidavits or SEC report, or anything else suspicious. That item is merely a list of subjects under investigation; it contains no information not already before the grand jury in many forms.

Therefore, the District Court was correct in its holding, if not its reasoning, with respect to the portions of Documents 2, 3, and 29 that it ordered Company to produce. There is a substantial likelihood that the work reflected in these items was performed in furtherance of a crime or fraud by Company or its officers, and therefore a court need not withhold them from a grand jury on the ground that they are protected by the work product or attorney-client privilege.IV

We next consider an alternative basis for upholding the grand jury's subpoena: implied waiver. The doctrine of implied waiver allows courts to retain some discretion to ensure that specific assertions of privilege are reasonably consistent with the purposes for which a privilege was created. The District Court found that Company had waived its work product privilege with respect to the eight items on appeal, essentially because it had already disclosed much of the information they contained, and the undisclosed information exposed "the enchanted nature of (the) tale" in the report provided to the SEC and the grand jury.⁹⁴ 

While we differ with some of the District Court's reasoning and its application to several of the documents,⁹⁵  we believe the District Court was correct in its basic determination. Company entered into an arrangement with the SEC under which, as a matter of both common sense and common knowledge, Company relinquished its right to prevent the government from examining whatever documents were necessary for a fair evaluation of the final report offered to its shareholders and the SEC. Just because Company was successful in hiding crucial documents from the SEC, we need not allow Company to withhold them from a grand jury investigating possible crimes uncovered during the SEC's investigation. We do not consider whether we would imply a waiver in other types of litigation for all of Company's privileged files relating to the report. But the combination of factors in this case, including the fact that some of the documents impeach the veracity of Company's purported full disclosure, makes it inconsistent with the purposes of the work product privilege to deny the grand jury access to these documents.

The question with respect to implied waiver is whether Wigmore's "objective consideration" of fairness negates Company's assertion of privilege.⁹⁶  Existing case law offers little guidance as to what "objective considerations" make application of the work product privilege unfair. We have held that a party waives its work product protection in civil litigation if it discloses the privileged material to anyone without "common interests in developing legal theories and analyses of documents * * *."⁹⁷  On the other hand, if the party's prior disclosure, even to an adversary, resulted from judicial compulsion, courts will not imply a waiver.⁹⁸  And in United States v. Nobles the Supreme Court held that the work product privilege was waived when its holder made "testimonial use" of privileged material by adducing testimony as to some of the contents of a privileged document.⁹⁹ 

The implied waiver doctrine has been more fully developed, however, in the context of the attorney-client privilege. Any disclosure inconsistent with maintaining the confidential nature of the attorney-client relationship waives the privilege.¹⁰⁰  When a party reveals part of a privileged communication in order to gain an advantage in litigation, it waives the privilege as to all other communications relating to the same subject matter because "the privilege of secret consultation is intended only as an incidental means of defense and not as an independent means of attack, and to use it in the latter character is to abandon it in the former."¹⁰¹ 

A simple principle unites the various applications of the implied waiver doctrine. Courts need not allow a claim of privilege when the party claiming the privilege seeks to use it in a way that is not consistent with the purpose of the privilege.¹⁰²  Thus, since the purpose of the attorney-client privilege is to protect the confidentiality of attorney-client communications in order to foster candor within the attorney-client relationship, voluntary breach of confidence or selective disclosure for tactical purposes waives the privilege. Disclosure is inconsistent with confidentiality, and courts need not permit hide-and-seek manipulation of confidences in order to foster candor.

The purposes of the work product privilege are more complex, and they are not inconsistent with selective disclosure-even in some circumstances to an adversary. Yet at some point acceptable tactics may degenerate into "sharp practices" inimical to a healthy adversary system. When that occurs-when a party seeks greater advantage from its control over work product than the law must provide to maintain a healthy adversary system-then the balance of interests recognized in Hickman and Duffy shifts, and the courts need not impede a grand jury's legitimate efforts in the name of protecting the adversary system.

The circumstances of this case convince us that respecting Company's claim to work product privilege is not required to maintain a healthy adversary system. We evaluate in turn three general factors that justify an implied waiver as to some of the documents in this case: the basic conditions of the SEC's voluntary disclosure program, the express assurances Company offered regarding the completeness of the final report given to the SEC and the grand jury, and the importance of specific documents for a fair evaluation of Company's voluntary disclosure.

1. Ground rules of the SEC's voluntary disclosure program.

Realistic appraisal of the circumstances surrounding Company's claim of privilege requires some understanding of the basic features of the SEC's voluntary disclosure program. As the many cases concerning companies that participated in the program attest,¹⁰³  the program involved a unique use of private lawyers and the adversary system to accommodate the joint needs of government and the private sector. Participating corporations used their own lawyers and resources to perform independent investigations of their business practices, and they turned over the full results of the investigations to the SEC.¹⁰⁴  The program was valuable to corporations because their boards of directors often had inadequate knowledge of the corporations' actual business practices,¹⁰⁵  and because the SEC offered leniency, with a chance to avoid an intrusive and embarrassing formal investigation, to corporations that made full disclosure and ended any objectionable practices uncovered during the investigation.¹⁰⁶  The program was valuable to the SEC because it brought hundreds of corporations into compliance with the law without a massive commitment of government resources to investigations and litigation.¹⁰⁷ 

It would have been completely unreasonable, however, for the SEC to accept corporations' voluntary disclosures at face value. The gravity of the problem and the likelihood that-left to their own devices-corporations would prefer not to investigate their own misdeeds with vigor demanded that the SEC establish a mechanism to ensure that corporations' voluntary disclosures were truly full disclosures. The best check on corporate good faith would be to retrace the steps of the independent investigations, but that would have strained the SEC's available staff. Nevertheless, by making certain that its staff could have access to the background material in corporations' files, the SEC could ensure a high level of accuracy in the reports it received.¹⁰⁸  Even if the staff did not examine every document, it could make spot checks to catch corporations that attempted to shade the truth.

Thus SEC access to corporate records concerning the matters under investigation was a logical, even necessary, feature of the voluntary disclosure program. No corporation could have reasonably expected to submit a report to the SEC and receive lenient treatment in return unless the SEC could check the accuracy of the report. It taxes credulity to suggest otherwise. And the SEC did not leave corporations to speculate as to whether it would demand to see corporate files. Responsible SEC officials stressed this aspect of the program at every opportunity, and it was widely discussed by the bar.¹⁰⁹ 

The SEC's demand for access to underlying documentation had obvious implications for the attorney-client and work product privileges. Every document relating to a voluntary investigation was potentially privileged. It had generally passed from a corporation to the investigating attorneys, or it had been collected and arranged by the attorneys, or it had been drafted by the attorneys or their agents in the course of the investigation. Accordingly, as soon as the program began questions arose as to the status of privileged documents. In the early consent decrees that shaped the program the SEC made certain to preserve its access to privileged material,¹¹⁰  and lawyers soon learned that in every case the SEC would demand access to privileged material.¹¹¹ 

Many companies were able to reach agreements with the SEC, either informally or through formal consent decrees, to prevent the SEC from disclosing privileged documents to third parties.¹¹²  But the SEC did not compromise on its own access to privileged documents.

There is no information in the record as to whether Company ever reached an explicit agreement with the SEC, but it is clear that the SEC availed itself of access to documents, such as the investigators' notes of their interviews, that would have been within the work product privilege under other circumstances. Furthermore, the SEC searched through Company's files, at least thoroughly enough to uncover evidence of abuses that had been omitted from the report.¹¹³  By that time or soon after, however, Y had removed the 38 documents in this case from Company's files, and it is undisputed that the SEC never examined them.¹¹⁴  Nevertheless, we presume that in this case the SEC did not take the unprecedented and unwarranted step of relinquishing its right of access to materials necessary for a fair evaluation of the report.

2. Express representations concerning Y's files.

When the lawyers retained by Company to perform its voluntary investigation interviewed Company's officers and employees, they followed a standard interview format. That format had been developed in advance, and it was reprinted as Exhibit 1 to the investigative counsel's final report. Question 10 on the standard format asked:

Have all your files relating to matters which have been discussed or which are the subject matter of this investigation been made available to us through the Company's General Counsel?¹¹⁵ 

The investigators' notes confirm that they asked this question of all but one or two of the 52 persons interviewed during the investigation. Y himself was among those who had formal interviews with the investigators. At his interview on July 6, 1977 Y was asked and responded to Question 10. Two of the lawyers present took notes, and both recorded Y's response: "Yes-made work files available at this time"¹¹⁶ ; "Yes (including personal files)."¹¹⁷  Thus Y assured the lawyers that he had given them all his files relating to the subject matter of the investigation, or at least those files in existence on July 6, 1977.

The investigative counsel's final report made much of the cooperation of the interviewees with respect to their files. "(W)e were advised by all persons interviewed that all their files relating to matters which were discussed or which might be relevant to the subject matter of this investigation had been made available to us."¹¹⁸  Furthermore, the report stated that its findings were based on a thorough review of those files, made without budget or time constraints.¹¹⁹ 

Company provided both the report and the investigators' notes containing Y's assurances to the SEC and the grand jury. Under the basic conditions of the voluntary disclosure program, anyone reading the report could thus expect it to reflect any relevant material in files that Y should have provided to the investigators. And they could also expect that the report could be checked against the files themselves.

3. Importance of Y's files for a fair evaluation.

It appears, then, that there was a category of documents that the final report of Company's investigative counsel should have reflected, and that clearly came within the scope of Y's express assurances, that could not be withheld from the SEC on a claim of privilege. Technically, all of Y's files relating to the subject matter of the investigation come within that category. But for purposes of the fairness element of the implied waiver doctrine there are relevant differences among the eight items on appeal in this case.

Some of the items on appeal are notes of Y's conversations with the investigators regarding their interviews with third parties. The information in these notes is fully reflected in the investigators' extensive notes of the interviews themselves.¹²⁰  Other items merely list or summarize subjects under investigation, without any particular system or extraordinary completeness. The limited information in these items adds nothing to the report or notes, and no one would consider them necessary to a fair evaluation of the report.¹²¹  Furthermore, only two of the items-Documents 2 and 3-were in existence on July 6, 1977 when Y expressly stated that he was turning over his files to the investigators.

But those two documents bear directly on the core subject matter of the investigation, and they contain information in such quantity and detail that the investigative record could not be complete without them. Moreover, the report and notes do not fully reflect what the documents reveal about the attitude of Company's highest officers toward investigating the truth about Company's business practices. Nothing could be more relevant to the main purpose of the voluntary investigation-providing Company's board and stockholders with information about management's policies and practices regarding bribery and corruption.¹²²  These documents, especially the tape, impeach the "official version" provided in the final report by placing in doubt not only the stories told by Company's officers, but also their willingness to tell the truth. Therefore Documents 2 and 3 were necessary for any fair evaluation of the report.¹²³ 

Company has promulgated a carefully worded story in the form of a full disclosure, and its apparent consent to letting the SEC staff evaluate its disclosure, by examining the relevant underlying material, has lent credence to its representation of full candor. Yet at the same time it has withheld crucial documents that reveal a different, highly embarrassing, version of events. If we were to allow corporations to use the work product privilege to accomplish such a sleight-of-hand, it would severely limit the effectiveness of voluntary disclosure programs.

The purposes of the work product privilege do not require us to acquiesce in Company's manipulation. When a corporation elects to participate in a voluntary disclosure program like the SEC's, it necessarily decides that the benefits of participation outweigh the benefits of confidentiality for all files necessary to a full evaluation of its disclosures.¹²⁴  It forgoes some of the traditional protections of the adversary system in order to avoid some of the traditional burdens that accompany adversary resolution of disputes, especially disputes with such formidable adversaries as the SEC.¹²⁵  That is not to say that the work product privilege is irrelevant in the voluntary disclosure context. Corporations may protect their privileges without manipulation simply by being forthright with their regulators and identifying material as to which they claim privilege at the time they submit their voluntary disclosure reports. They will, of course, bear the risk that their reports will not be accepted as full disclosures. But if they choose to make a pretense of unconditional disclosure, they bear another risk-that we will imply a waiver of privilege with respect to any material necessary for a fair evaluation of their disclosures.

Company argues that, even if it impliedly waived its work product privilege vis-Ea-vis the SEC, the doctrine of "limited waiver" advanced in Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1977) (en banc), prevents us from extending that waiver to the grand jury. In Diversified a civil litigant attempted to obtain discovery of a voluntary disclosure program final report and an underlying memorandum. Id. at 599. Diversified Industries had waived its attorney-client privilege by giving the documents to the SEC, but the Eighth Circuit held that disclosure to the SEC did not constitute a waiver as to anyone but the SEC. It reasoned:

To hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders, potential stockholders and customers.

Id. at 611.

We do not apply the Diversified limited waiver doctrine to this case. As an initial matter, we note that this circuit rejected the limited waiver theory as an unnecessary expansion of the attorney-client privilege in Permian Corp. v. United States, 665 F.2d 1215, 1220-1222 (D.C. Cir. 1981). Furthermore, a grand jury's claim to disclosure is stronger than that of a civil litigant.¹²⁶ 

We nevertheless share the Diversified court's basic concerns-promoting effective voluntary disclosure programs and respecting legitimate claims of privilege. But we differ in our assessment of which rule will best advance those goals. The grand jury has the same interests as the SEC in this case. The SEC has no jurisdiction to prosecute criminal violations, so it turns its cases over to the Justice Department whenever its investigations reveal possible criminal offenses. At that point further investigation is the province of Justice Department prosecutors and grand juries. If, applying the limited waiver doctrine, we held that a grand jury could not avail itself of the SEC's right to examine underlying documents, the SEC would be forced to seek out and take possession of all documents relating to criminal violations before turning cases over to grand juries.¹²⁷  Furthermore, such a holding would encourage corporations to do what Company has done in this case-either hide documents from the SEC or hope that the SEC staff does not stumble upon them, and then claim privilege against other arms of government as soon as the SEC inquiry has ended.

In the final analysis, Diversified goes much farther than necessary to accomplish its objective. The SEC or any other government agency could expressly agree to any limits on disclosure to other agencies consistent with their responsibilities under law. But courts should not imply such agreements on a categorical basis.¹²⁸  We prefer to leave to the SEC the question of what guarantees of confidentiality it will offer to corporations undertaking voluntary disclosures. And we are certain that its judgment about what will "thwart" and what will advance the goals of its voluntary disclosure program will be better than ours. Our duty in this context is to protect the vitality of the adversary system, and that purpose does not require limiting Company's waiver to the SEC.

In conclusion, we imply a waiver of work product and attorney-client privileges with respect to Documents 2 and 3. When Company submitted its investigative counsel's report and notes to the SEC and otherwise complied with the ground rules of the voluntary disclosure program, it bound itself to provide the SEC access to any documentation necessary to evaluate the report. Any claim of privilege should have been made with particularity at that time. Documents 2 and 3 come within a category of documents clearly identified in the report and notes as material to the investigation, and our own review reveals that they are necessary for a fair evaluation of the representations in the report. If we allowed Company to withhold them under a claim of privilege, we would encourage further games of cat-and-mouse between corporations and their regulators. Protecting the adversary system does not require that result. It would strain equity and sound policy to allow corporations to withhold records that are properly characterized as underlying documents of their reports to the SEC. Corporations and their lawyers surely enter voluntary disclosure programs with the understanding that privilege will not force the government to take them at their word.

The lawyer's work product privilege was conceived by lawyers who succeeded in having lawyers-become-judges accept the idea. The basis for that acceptance was that, while honesty, full disclosure, and fair dealing are indispensable to justice, our judicial system-an adversary system, in most instances-should function more effectively where the work product of the lawyer is protected from unnecessary disclosure. But here the agreement to cooperate with the SEC in determining the facts was intended to alter the adversary relationship. Together the parties were to seek the truth. Certainly, in such circumstances where lawyer and client attempt to manipulate the work product privilege as Company and its counsel have done in this case, the cause of justice compels disclosure, and a waiver is implied.

V

Some 55 years ago Judge Learned Hand aptly stated what we regard as the fundamental issue in this case:

The question is no less than whether courts must put up with shifts and subterfuges in the place of truth and are powerless to put an end to trifling. They would prove themselves incapable of dealing with actualities if it were so, for there is no surer sign of a feeble and fumbling law than timidity in penetrating the form to the substance. * * *¹²⁹ 

The vitality of the adversary system is of great concern to us, as it is to all courts, and we have due regard for the importance of privilege in maintaining that vitality. It would ill serve the adversary system, however, if we were to exalt the form of privilege over its substance. Through the doctrines of implied waiver and exception, the law entrusts the courts with a duty to guard that the offices of lawyers, and the respect which we have for the bar, are not used for unfair or corrupt purposes.

In the exercise of that duty, we have determined that there is a substantial likelihood that the multinational corporation before us has attempted to manipulate its privilege, by withholding vital documents while making a great pretense of full disclosure of their contents. It does not deserve the protections enjoyed by those who use the adversary system for its legitimate ends. Therefore, we have held that the District Court did not err in ordering Company's attorney to disclose two portions of its former general counsel's files, because Company has waived its privilege as to those portions of Documents 2 and 3 that the District Court directed Company's attorney to produce before the grand jury. Because the District Court held Company's attorney in contempt for refusing to produce documents that remain privileged as well as documents as to which there is no privilege, we vacate the District Court's order of June 20, 1981, and remand for expeditious proceedings not inconsistent with this opinion.

So ordered.

WALD, Circuit Judge, concurring:

I concur in Parts I, II, IV and V of Judge Wright's opinion as they relate to documents 2 and 3. Within the context of the SEC's voluntary disclosure program, it would be inequitable to allow a corporation to foster the appearance of full disclosure, and later withhold records that are properly characterized as underlying documents of its report to the SEC. Documents 2 and 3 clearly fall within this category of underlying documents. Under the ground rules set up by appellant ("Company"), outside counsel was authorized to interview in-house counsel. In this interview, in-house counsel recounted discussions with top Company officials that are described in documents 2 and 3, and expressly agreed (in accordance with standard procedures) to hand over files relating to these discussions. Having relied on the appearance that all relevant documents were available to both outside counsel and SEC investigators, Company cannot now hide behind a cloak of privilege.