Supreme Court of Texas.

NATIONAL TANK COMPANY

v.

The Honorable Robert P. BROTHERTON, Judge.

No. D-1576.

April 7, 1993.

OPINION

PHILLIPS, Chief Justice.

In this original proceeding we must determine whether accident reports and witness statements prepared by Relator and its insurer following a plant explosion are privileged from discovery.

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An explosion occurred on August 23, 1990, at a Wichita Falls manufacturing facility operated by the National Tank Company (NATCO), Relator in this proceeding. The explosion critically injured Rex Willson, a NATCO employee, and two other persons employed by independent contractors. Willson later died from his injuries. Allen Pease, NATCO's General Counsel and Secretary, learned of the explosion the day it occurred and dispatched Henry Townsend, NATCO's safety and risk control coordinator, to investigate. Although not a lawyer, Townsend was employed in NATCO's legal department under Pease's supervision. Pease also immediately notified David Sneed, a brokerage supervisor with American International Adjustment Company (AIAC), a representative of NATCO's liability insurers. Pease explained to Sneed the serious nature of the accident, and recommended that AIAC initiate its own investigation, which it did.

*196 Willson's wife, individually and on behalf of her children and the estate, sued NATCO and several other defendants on January 15, 1991. Shortly thereafter, she requested that NATCO produce any reports prepared in connection with the accident investigation. NATCO objected, asserting the attorney- client, work-product, witness-statement, and party-communication privileges. In an order signed July 25, 1991, the trial court overruled NATCO's objections as to documents prepared prior to October 25, 1990, the date NATCO learned that it had been sued by Frank Kroupa, one of the other persons injured in the explosion. The trial court thus ordered NATCO to produce the documents prepared prior to that date. These documents are 1) the transcripts of four interviews of NATCO employees conducted by Henry Townsend shortly after the accident, 2) the transcripts of nine interviews of NATCO employees conducted by Phil Precht, an AIAC employee, shortly after the accident, and 3) three accident reports prepared by Precht and sent to Pease. The trial court, however, stayed the effect of this order to allow NATCO to seek mandamus relief.

***

To determine whether the trial court abused its discretion, it is necessary to examine the scope of the privileges asserted by NATCO.

NATCO first argues that each of the documents is protected by the attorney- client privilege. This privilege protects:

confidential communications made for the purpose of facilitating the rendition of professional legal services to the client (1) between himself or his representative and his lawyer or his lawyer's representative, (2) between his lawyer and the lawyer's representative, (3) by him or his representative or his lawyer or a representative of the lawyer to a lawyer, or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest therein, (4) between representatives of the client or between the client and a representative of the client, or (5) among *197 lawyers and their representatives representing the same client.

Tex.R.Civ.Evid. 503(b).

[2] We first address the witness statements which Townsend took from NATCO employees and then gave to Pease. NATCO argues that these statements are privileged under category (2) above, as communications between the lawyer (Pease) and a representative of the lawyer (Townsend).

[3] A "representative of the lawyer" for purposes of the attorney-client privilege includes "one employed by the lawyer to assist the lawyer in the rendition of professional legal services." Tex.R.Civ.Evid. 503(a)(4)(i). Assuming without deciding that Townsend was Pease's representative for purposes of this rule, [FN1] the witness statements are not protected by the attorney-client privilege. These communications were in the first instance made by employees at the Wichita Falls plant to Townsend; the threshold issue is whether they were privileged at that stage. The fact that the statements were first made to Townsend as Pease's representative, and then relayed to Pease, cannot provide greater protection than if the employees had made the statements directly to Pease.

FN1. The record reflects that Townsend was assigned to NATCO's legal department, which was headed by Pease, and that Townsend conducted his investigation under Pease's supervision and control.

[4] NATCO argues that the initial communications from the employees to Townsend are protected under subdivision (1) of Rule 503(b), as communications between representatives of the client and a representative of the lawyer. We conclude based on the record before us, however, that the employees who were interviewed are not "representatives" of NATCO for purposes of the attorney-client privilege. Texas Rule of Civil Evidence 503(a)(2) provides as follows:

A representative of the client is one having authority to obtain professional legal services, or to act on advice rendered pursuant thereto, on behalf of the client.

This definition adopts the "control group" test previously recognized by many federal courts. See Steven Goode & M. Michael Sharlot, Article V: Privileges, in Texas Rules of Evidence Handbook, 20 Hous.L.Rev. 273, 290 (1983). This test was first recognized in City of Philadelphia v. Westinghouse Electric Corp., 210 F.Supp. 483 (E.D.Pa.), petition for mandamus and prohibition denied sub. nom., General Electric Co. v. Kirkpatrick, 312 F.2d 742 (3d Cir.1962), cert.denied, 372 U.S. 943, 83 S.Ct. 937, 9 L.Ed.2d 969 (1963), in which the court held that a corporation could claim the attorney-client privilege only as to statements made by employees "in a position to control or even to take a substantial part in a decision about any action which the corporation may take upon the advice of the attorney." Id. at 485. Courts applying this test generally protect only statements made by the upper echelon of corporate management. William K.C. Dippel, Comment, The Attorney-Client Privilege in the Corporate Context--Upjohn Co. v. United States, 35 Sw.L.J. 935, 939 (1981). See, e.g., Congoleum Indus., Inc. v. GAF Corp., 49 F.R.D. 82, 85 (E.D.Pa.1969) (protection limited to corporate and division vice presidents), aff'd, 478 F.2d 1398 (3d Cir.1973); Garrison v. General Motors Corp., 213 F.Supp. 515, 518 (S.D.Cal.1963) (only communications of directors, officers, department heads, division managers, and division chief engineers protected). The control group test reflects the distinction between the corporate entity and the individual employee and is based on the premise that only an employee who controls the actions of the corporation can personify the corporation. Westinghouse, 210 F.Supp. at 485; see also Goode & Sharlot, supra, at 290; R. David White, Radiant Burners Still Radiating: Attorney-Client Privilege for the Corporation, 23 S.Tex.L.J. 293, 299 (1982)

NATCO correctly argues that the United States Supreme Court rejected the control group test in *198 Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). [FN2] Prior to Upjohn, the federal courts had split between two different tests for applying the attorney-client privilege to corporations: 1) the control group test, and 2) the "subject matter" test, first recognized in Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir.1970), aff'd per curiam by an equally divided court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971). Under the subject matter test, an employee's statement is deemed to be that of the corporation if:

the employee makes the communication at the direction of his superiors in the corporation and where the subject matter upon which the attorney's advice is sought by the corporation and dealt with in the communication is the performance by the employee of the duties of his employment.

FN2. Unlike the Texas attorney-client privilege, which is codified in the Rules of Civil Evidence, the federal privilege is a common-law doctrine. See Fed.R.Evid. 501.

Id. at 491-92.

The Supreme Court in Upjohn concluded that the control-group test "overlooks the fact that the privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice." Upjohn, 449 U.S. at 390, 101 S.Ct. at 683. The Court held that statements given by lower-level employees to the corporation's attorney at the behest of corporate management were protected. Id. at 395, 101 S.Ct. at 685. Although rejecting the control group test, the Court refused to expressly adopt the subject matter test. [FN3]

FN3. The Court stated as follows:

[T]he parties and various amici have described our task as one of choosing between two "tests" which have gained adherents in the courts of appeals. We are acutely aware, however, that we sit to decide concrete cases and not abstract propositions of law. We decline to lay down a broad rule or series of rules to govern all conceivable future questions in this area, even were we able to do so.

Id. at 386, 101 S.Ct. at 681.

The control group and subject matter tests represent alternative approaches to applying the corporate attorney-client privilege. Both are supported by legitimate policy rationales, and neither is without its critics. See Goode & Sharlot, supra, at 290-291; Glen Weissenberger, Toward Precision in the Application of the Attorney-Client Privilege for Corporations, 65 Iowa L.Rev. 899, 908-13 (1980); Dippel, supra at 940; The Supreme Court, 1980 Term, 95 Harv.L.Rev. 17, 273-80 (1981). In deciding this cause, however, we are not free to choose one over the other. Texas Rule of Civil Evidence 503, which was promulgated in November 1982, almost two years after the Upjohn decision, clearly adopts the control group test. [FN4] Goode & Sharlot, supra, at 290; Note, Attorney-Client Privilege for Corporate Clients: The Control Group Test, 84 Harv.L.Rev. 424, 435 & n. 31 (1970) (discussing Proposed Federal Rule of Evidence 5-03, 46 F.R.D. 161, 249 (1969), which contained the identical test).

FN4. Texas is not the only state that has rejected the Supreme Court's guidance on this matter. Illinois likewise adopted the control group test subsequent to Upjohn. Consolidation Coal Co. v. Bucyrus- Erie Co., 89 Ill.2d 103, 59 Ill.Dec. 666, 673-74, 432 N.E.2d 250, 257-58 (1982). See Goode & Sharlot, supra, at 290 n. 73.

Despite the language of Rule 503(a)(2), NATCO argues that a lower-echelon employee may be a representative of the corporation if the employee speaks with the "blessing" of corporate management. This of course is the subject matter test, an approach clearly available, but not selected, when the Texas rules were drafted. NATCO relies on Hulen D. Wendorf et al., Texas Rules of Evidence Manual V-33 (3d ed. 1991), where the authors contend that the privilege should apply "in the case of a corporate employee who is not a part of the 'control group' but who has been authorized to seek legal counsel on behalf of the corporation, just as it did in Upjohn." In Upjohn, however, the employees were merely responding to a questionnaire from corporate counsel, not seeking legal counsel on behalf of the corporation. Upjohn, 449 U.S. at 394, 101 S.Ct. at 685. Likewise *199 in this case, the witnesses at the Wichita Falls plant, although they may have been speaking with management's blessing, had not been authorized to seek legal counsel on behalf of the corporation.

There is no evidence in the record that the employees interviewed by Townsend were representatives of NATCO within the meaning of Texas Rule of Civil Evidence 503(a)(2). We therefore hold these witness statements are not protected by the attorney-client privilege.

[5] For the same reason, the witness statements taken by Precht, the AIAC employee that investigated the explosion, are not protected by the attorney- client privilege. NATCO contends that Precht is NATCO's representative under Rule 503(a)(2), and thus communications between Precht and Pease are privileged. As discussed below, there is no evidence to support the conclusion that Precht was NATCO's representative. Even if he were, however, the witness statements taken by Precht and given to Pease would not be privileged since the witnesses who made the statements in the first place were not NATCO's representatives. See Upjohn, 449 U.S. at 395-96, 101 S.Ct. at 685-86 (a client cannot cloak relevant information with a privilege merely by communicating it to the attorney).

[6] We still must consider the reports prepared by Precht and sent to Pease. Unlike the witness statements, these reports are not transcripts of communications made by a third party, but rather constitute original communications from Precht to Pease. NATCO contends that the attorney-client privilege applies because Precht is a representative of NATCO under Rule 503(a)(2). NATCO notes that this rule contains no express requirement that the representative actually be employed by the client.

NATCO relies on Boring & Tunneling Co. of America v. Salazar, 782 S.W.2d 284, 289-90 (Tex.App.--Houston [1st Dist.] 1989, orig. proceeding), and Wiley v. Williams, 769 S.W.2d 715, 717 (Tex.App.--Austin 1989, orig. proceeding [leave denied] ). We do not find these opinions persuasive, however. The Wiley court held that correspondence between an attorney and the client's insurer was protected by the attorney-client privilege simply because the correspondence constituted confidential communications made to facilitate the rendition of legal services, without considering whether the correspondence fell into one of the specific categories required under Rule 503(b). The Salazar court protected the correspondence under Rule 503(b)(1), without considering whether the adjuster was in fact a "representative" of the client for purposes of the attorney-client privilege.

We do not decide whether an employee of a liability insurer may ever be a "representative" of the insured under Rule 503(a)(2). Although the argument is not raised by NATCO, we note that liability policies typically vest the insurer with authority to hire counsel and conduct the defense of the insured. In such a case, certain employees of the insurer may qualify as representatives of the insured. However, under Rule 503(a)(2), the qualifying employees must be those actually having authority to hire counsel and to act on counsel's advice on behalf of the insured. There is no indication in the record that Precht was such an employee. NATCO argues that "through David Sneed, [Precht] received and acted upon, the legal directions and advice of Allen Pease." The thrust of NATCO's argument is that because Precht was investigating the accident under the indirect supervision of Pease, he had the authority to act on Pease's legal advice on behalf of NATCO. To the extent that Precht carried out Pease's instructions, however, it was because he was required to do so pursuant to his employment duties. NATCO concedes that Precht was acting under David Sneed's supervision. There is no indication that Precht acted on Pease's instructions in the capacity of a legal client, with discretion to either accept or reject the legal advice. We therefore hold that the reports from Precht to Pease are not protected by the attorney-client privilege.

[7] The trial court also held that post-accident conversations between NATCO *200 employees and Don Hatfield were not protected by the attorney-client privilege. Hatfield's conversations with the NATCO plant personnel are not protected for the same reasons that the witness statements taken by Townsend are not protected: the plant personnel are not representatives of NATCO. Furthermore, the record does not establish that Hatfield is a representative of NATCO under Rule 503(a)(2). The record discloses only that Hatfield was "operations manager" at the Wichita Falls plant. NATCO offers no evidence as to whether this position vested Hatfield with authority to obtain professional legal services, or to act on advice rendered pursuant thereto, on behalf of NATCO. NATCO does argue that both Hatfield and Townsend had "authority to act on Mr. Pease's legal advice (because it is undisputed) that the investigations they undertook were pursuant to the legal advice and instructions of Mr. Pease." This is the same unconvincing argument that NATCO makes regarding Precht. The record reflects that Townsend and Hatfield were required by their job duties to follow the instructions of Pease, a corporate superior. They were not acting on Pease's instructions in the capacity of a legal client.

Accordingly, we find no abuse of discretion by the trial court concerning its application of the attorney-client privilege.

DOGGETT, Justice, concurring  [FN1] and dissenting.

FN1. While I concur in the judgment that mandamus not issue here, I vigorously dissent from the reasoning of the plurality opinion.

While a widow plans a funeral, the corporation in whose facility her husband was killed conducts an investigation. While family and friends mourn, the corporation obtains witness statements and prepares reports concerning the circumstances surrounding the death. If this occurrence is ever considered by a judge and jury, they should be able to hear the plain, unvarnished truth--to learn what really happened when memories were fresh and unpolished by counsel.

But now the majority  [FN2] puts a stop to all of that; it approves concealment of this *208 investigation. As the family buries the victim, the corporation can bury any inconvenient facts it has learned. There is certainly nothing improper about the corporation investigating, but justice may well be defeated if the fruits of that investigation are hidden from the victim as well as other parties who may be forced to defend themselves against charges of wrongdoing. Such unwarranted secrecy defeats the search for truth and violates the previous law of Texas, as the trial judge in Wichita properly recognized. Unfortunately, once again neither an explicit procedural rule nor the prior decisions of this court prevent the continued erection of what is essentially a double standard of justice in Texas. Amply displayed here is the added cost and delay resulting from the majority's eagerness to intrude rather than willingness to accept our existing law.

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So that the real facts may ultimately be made known, we permit parties discovery before a trial begins. That process is designed to draw no distinction between the weak and the strong. The contrary approach approved today--secrecy--will sometimes benefit one side and sometimes another, [FN4] but it will invariably make truth its first casualty. This court's commitment to openness has previously been firm. [FN5] Most recently in State v. Lowry, 802 S.W.2d 669 (Tex.1991, orig. proceeding), an opinion I authored for a unanimous court, discovery worked to the immediate benefit of the most powerful insurance companies in this country. And, under the circumstances of that case, rightly so. There, as in so many of our prior decisions, this court set forth the principle that should govern the present dispute:

Affording parties full discovery promotes the fair resolution of disputes by the judiciary. This court has vigorously sought to ensure that lawsuits are "decided by what the facts reveal, not by what facts are concealed." Discovery is thus the linchpin of the search for truth, as it makes "a trial less of a game of blind man's bluff and more a fair contest with the issues and facts disclosed to the fullest practicable extent." In recent years, we have sought to secure this objective through both revision of the Texas Rules of Civil Procedure and our opinions discouraging gamesmanship and secrecy.

Only in certain narrow circumstances is it appropriate to obstruct the search for truth by denying discovery. Very limited exceptions to the strongly preferred policy of openness are recognized in our state procedural rules and statutes. See Tex.R.Civ.Evid. 501; Tex.R.Civ.P. 166(b)(3).

802 S.W.2d at 671 (case citations omitted). Today, however, this is all just history, as privileges to hide the truth are unreasonably expanded.

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II.

Limiting discovery by expanding privileges for party communications and witness statements, we are told, will "promote the truthful resolution of disputes through the adversarial process by encouraging complete and thorough investigation of the facts by both sides." 851 S.W.2d at 203. This is basically a "finders keepers" theory of information gathering: its objective is not that of revealing the whole truth but only selective bits and pieces in the course of a good fight. It wrongly assumes that the widow, who has no permanent accident investigation team, who has no insurance adjuster to summon, and whose access to the explosion site is barred, has an equal opportunity to conduct a "complete and thorough investigation." Id.

In its frequent reliance on federal precedent, the majority is oblivious to an original objective of formal discovery rules. The drafter of the discovery components of the 1938 Federal Rules of Civil Procedure concluded that they

mark the highest point so far reached in the English speaking world in the elimination of secrecy in the preparation for trial. Each party may in effect be called upon by his adversary or by the judge to lay all his cards upon the table, the important consideration being who has the stronger hand, not who can play the cleverer game.

Edson Sunderland, Discovery Before Trial Under the New Federal Rules, 15 Tenn.L.Rev. 737, 739 (1939). Similarly, a Special Assistant to the Attorney General in charge of monitoring federal decisions interpreting *211 the new rules, said that they were written with a view to departing as far as possible from "the sporting theory" of justice and to fulfilling that concept of litigation which conceives a lawsuit as a means for ascertaining the truth, irrespective of who may be temporarily in possession of the pertinent facts.

Alexander Holtzhoff, New Federal Procedure and the Courts 7 (1940). Unfortunately, due to the excessive gamesmanship by advocates entrenched in the very antagonistic roles today celebrated by the majority, discovery rules have not achieved their intended goals. As this court has previously observed:

[The goals] of the discovery process [are] often frustrated by the adversarial approach to discovery. The "rules of the game" encourage parties to hinder opponents by forcing them to utilize repetitive and expensive methods to find out the facts.

Garcia v. Peeples, 734 S.W.2d at 347 (citing Wayne Brazil, The Adversary Character of Civil Discovery: A Critique and Proposals for Change, 31 Vand.L.Rev. 1295, 1303-15 (1978) [hereinafter Adversary Discovery ] ). While the adversarial system is "an excellent system" for evaluating information, because it "forces factfinders to think hard before making up their minds," it is often "a lousy method of information development." Kathleen Waits, Work Product Protection for Witness Statements: Time for Abolition, 1985 Wis.L.Rev. 305, 338-39 (1985) (emphasis added). Brazil summarizes the reasons:  In short, adversarial investigation ... enables counsel to play the games of deception, concealment, and manipulation that defeat the purposes discovery was intended to serve.

Adversary Discovery, supra, at 1319.

***

As several scholars have pointed out, in practice the increased protection from discovery of post-accident investigations, while superficially neutral, decidedly favors repeat institutional litigants over those who find themselves in court once as a result of being injured; the rule adopted here is clearly designed to favor defendants over plaintiffs. Waits, supra, at 313; Thornburg, supra, at 1561. This is because

institutional defendants have a superior ability to structure their dealings so as to create more work product, and they benefit more from delay. In addition, because plaintiffs have the burden of proof, they are more likely to be harmed by a denial of access to information.

Id. at 1562. One empirical study demonstrates the skewed effects of the party communication and witness statement privileges; it found that corporate defense counsel are more likely both to resist discovery and to use it for purposes of delay than attorneys for individuals.  See Wayne Brazil, Civil Discovery: Lawyers' Views of Its Effectiveness, Its Principal Problems and Abuses, 1980 Am.B.Found.Res.J. 787, 853 (1980); Wayne Brazil, Views from the Front Lines: Observations by Chicago Lawyers About the System of Civil Discovery, 1980 Am.B.Found.Res.J. 219, 243 n. 45 (1980). Today the majority provides further incentive for resistance and delay. Creation of such inherently unfair procedures takes an enormous toll on our system of justice:

Academics and even lawyers tend to forget that every opinion is more than words on a page or a citation in a treatise. It represents expense and probably misery for everyone involved, and for society at large.... In the case of work product, the need for the doctrine will have to be awfully strong to warrant all the fuss.

Waits, supra, at 324. Here the "fuss" raised was in no way warranted. The decisions of both the trial court and the court of appeals were entirely proper under the prior law of Texas, as conceded by the majority in its hesitation now to issue a writ of mandamus.

Much is revealed in the majority's declaration that National Tank Company has no adequate remedy by appeal because the information in the contested statements "could have a significant impact on the assignment of liability." 851 S.W.2d at 207. Thus, while expressly acknowledging the potentially critical relevance of the facts in these documents, the majority contends that such relevance provides greater reason tokeep them hidden from other litigants and the factfinder. Because this approach only provides more privileges for the privileged, I dissent. [FN11]

FN11. I do agree with the result reached in today's opinion regarding the clear limitation placed on the scope of the attorney client privilege by Texas Rule of Civil Evidence 503.