430 F.2d 1093 (5th Cir. 1970)
Stockholders of First American Life Insurance Company of Alabama brought, in the Northern District of Alabama, a class action against the company and its directors, officers, and controlling persons.1
They alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, SEC Rule 10(b)(5), the Investment Company Act of 1940, the Alabama Securities Act and common law fraud, seeking to recover the purchase price which they and others similarly situated paid for their stock in FAL.2 They also asserted a derivative action claiming that FAL was itself damaged by alleged fraud in the purchase and sale of securities.3
FAL filed a cross-claim against all other defendants, asserting in its own behalf the rights the plaintiff shareholders had claimed in the derivative aspect of their complaint.4 R. Richard Schweitzer served as attorney for the corporation in connection with the issuance of the FAL stock here involved.5 After the transactions sued upon were complete he became its president.67 On deposition Schweitzer was asked numerous questions concerning advice given by him to the corporation about various aspects of the issuance and sale of the stock and related matters.8 Other questions went into the content of discussions at meetings attended by him and company officials and information furnished to him by the corporation.9 All questions related to times at which Schweitzer acted solely as attorney, before he became an officer of the company and before the filing of suit.10
The plaintiffs had served a subpoena duces tecum on Schweitzer to bring various documents to the taking of his deposition.11 Both he and the corporation claimed the privilege with respect to some of the documents.12 The District Court treated the subpoena as though it were a motion to produce under Rule 34.13 The District Judge held that the privilege is not available to the corporation as against these plaintiff stockholders.14 Contemporaneously the District Judge ordered the case transferred to the Southern District of Alabama under 28 U.S.C. § 1404(a).15 With respect to both orders he entered appropriate findings pursuant to 28 U.S.C. § 1292(b), the interlocutory appeal statute.16
This court granted applications to allow both interlocutory appeals — the plaintiffs from the transfer order, docketed as No. 26168, and the defendants from the order denying the claim of privilege, docketed as No. 26266 — but provided that ultimate disposition of the appropriateness of interlocutory appeal would be taken with the case on the merits.17 Also the plaintiffs filed with this court a petition for a writ of mandamus directing the District Judge to retain jurisdiction of the case in the Northern District.18 The court has concluded that the consolidation of the two interlocutory appeals should be vacated.19 In this opinion we decide No. 26266, the interlocutory appeal of FAL on the privilege issue.20
Whether an order denying a corporation's claim of attorney-client privilege in a stockholders' suit is appealable under 28 U.S.C. § 1292(b)?21
An order is appealable under 28 U.S.C. § 1292(b) if it involves a controlling question of law as opposed to a question of fact or matter for the discretion of the trial court.22 There must be substantial ground for difference of opinion.23 An immediate appeal from the order may materially advance the ultimate termination of the litigation.24
Yes. The availability vel non of the privilege of the corporation as against its stockholders is a controlling question of law as opposed to a question of fact or matter for the discretion of the trial court.25 There is substantial ground for difference of opinion as shown by the District Court's ruling that the privilege is not available and by subsequent decisions following that ruling.26 The appeal may materially advance the ultimate termination of the litigation because the availability or unavailability of the testimony and documents sought may affect the disposition of the pending motions to dismiss in this complex case even short of requiring complete dismissal.27
The order denying the corporation's claim of attorney-client privilege is appealable under 28 U.S.C. § 1292(b).28
Whether the attorney-client privilege is available to a corporation against its own stockholders who seek access to communications with corporate counsel in litigation charging the corporation and its officers with acts injurious to stockholder interests?29
The attorney-client privilege still has viability for the corporate client.30 The corporation is not barred from asserting it merely because those demanding information enjoy the status of stockholders.31 But where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.32
Yes. Stockholders of First American Life Insurance Company of Alabama brought, in the Northern District of Alabama, a class action alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, SEC Rule 10(b)(5), the Investment Company Act of 1940, the Alabama Securities Act and common law fraud, seeking to recover the purchase price which they and others similarly situated paid for their stock in FAL.33 The defendants are FAL and various of its directors, officers and controlling persons.34 The plaintiffs also claim that FAL was itself damaged by alleged fraud in the purchase and sale of securities, and they assert against various individual defendants a derivative action on behalf of the corporation.35
FAL filed a cross-claim against all other defendants, asserting in its own behalf the rights the plaintiff shareholders had claimed in the derivative aspect of their complaint. R. Richard Schweitzer served as attorney for the corporation in connection with the issuance of the FAL stock here involved. After the transactions sued upon were complete he became its president. On deposition Schweitzer was asked numerous questions concerning advice given by him to the corporation about various aspects of the issuance and sale of the stock and related matters. Other questions went into the content of discussions at meetings attended by him and company officials and information furnished to him by the corporation. All questions related to times at which Schweitzer acted solely as attorney, before he became an officer of the company and before the filing of suit.
Objections were made by counsel for the corporation and by Schweitzer himself that the attorney-client privilege barred his revealing both communications to him by the corporation and the advice which he gave to the corporation.36 The plaintiffs had served a subpoena duces tecum on Schweitzer to bring various documents to the taking of his deposition. Both he and the corporation claimed the privilege with respect to some of the documents. The District Court treated the subpoena as though it were a motion to produce under Rule 34. The District Judge held that the privilege is not available to the corporation as against these plaintiff stockholders.
The privilege must be placed in perspective under Wigmore's fourth condition balancing injury resulting from disclosure against the benefit gained in the correct disposal of litigation.37 Conceptualistic phrases describing the corporation as an entity separate from its stockholders are not useful tools of analysis because management has duties which run to the benefit ultimately of the stockholders.38 The representative and the represented have a mutuality of interest in the representative's freely seeking advice when needed and putting it to use when received.39 Two traditional exceptions are also persuasive in negativing any absolute privilege: the exceptions for communications in contemplation of a crime or fraud and for communications to a joint attorney.40 The stockholders may show good cause by reference to indicia including the number of shareholders and the percentage of stock they represent, the bona fides of the shareholders, the nature of the shareholders' claim and whether it is obviously colorable, the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources, whether the claim is of action criminal or of doubtful legality, whether the communication related to past or to prospective actions, and the risk of revelation of trade secrets.41
The attorney-client privilege is available to the corporation against its stockholders but is subject to the stockholders' right to show good cause why it should not be invoked in the particular instance.42