INTRODUCTION
 

Recently, Jack Friedman examined⁽²⁾the Fifth Circuit's landmark decision of Garner v. Wolfinbarger⁽³⁾ and the subsequent expansion of the Garner exception to the attorney-client privilege. This exception recognized a shareholder's right to examine privileged communications between corporate officers or directors and corporate legal counsel in the context of shareholder derivative actions.
 

This right was premised on the fiduciary duty that corporate management owes to shareholders.⁽⁴⁾ The Court held that when shareholders are pursuing the interests of the corporation in a derivative action, they are entitled to access to privileged communications if these communications are important to establishing the validity of their claims.⁽⁵⁾ To obtain this right the shareholders must demonstrate ""good cause."⁽⁶⁾ Mr. Friedman correctly characterized this "good cause" determination as nothing more than a balancing test--balancing the bone fides of the shareholders' claims and their need for the information against the corporate managers' need for confidentiality in their own legal consultations.⁽⁷⁾
 

This "fiduciary duty exception"⁽⁸⁾ to the attorney-client privilege has gained wide acceptance in both federal and state courts.⁽⁹⁾ The exception also has been radically expanded.⁽¹⁰⁾ From shareholder derivative actions (which are brought by one or more shareholders for the benefit of the corporate entity and of all shareholders) it has been expanded to non-derivative actions (in which the shareholder's action is primarily for her own individual financial benefit).⁽¹¹⁾
 

Outside the corporate context, the exception has been recognized in many instances where a fiduciary duty has been owed to non-shareholders.⁽¹²⁾ For example, the exception has been employed in a suit by the Secretary of Labor against former officials of a pension fund for their violation of their fiduciary duties to contributors to the fund;⁽¹³⁾ a suit between a limited partner and a general partner in the same general partnership;⁽¹⁴⁾ actions by union members against union officials;⁽¹⁵⁾ an action by trust beneficiaries against the trust and its trustee;⁽¹⁶⁾ an action by an excess insurer against the primary insurer;⁽¹⁷⁾ an action by creditors against a bankruptcy creditor's committee;⁽¹⁸⁾ actions by minority shareholders against majority shareholders;⁽¹⁹⁾ an action by a corporation against a former executive who, while employed by the plaintiff, formed a competing corporation;⁽²⁰⁾ and an action on behalf of a corporation against the law firm that represented the corporation.⁽²¹⁾
 

As a few courts have done,⁽²²⁾ Mr. Friedman does not simply want to limit Garner to the facts of that case--namely shareholder derivative actions. He proposes that Garner be abolished and corporate shareholders in derivative actions be given an absolute right to access the privileged communications of corporate management. He would equate shareholders bringing deri-vative actions with the management of the corporation protecting and preserving the interests of the corporate entity.⁽²³⁾
 

The linchpin of Mr. Friedman's proposal is that predictability in the application of the privilege protection is critical to its effectiveness and success: Openness and candor by the client can only be encouraged if the client knows that his communications with legal counsel are, and will remain, confidential and protected.⁽²⁴⁾ Thus, Mr. Friedman concludes that since uncertainty is created by the "fiduciary duty" exception, because its application depends on subsequent developments that are unpredictable, the exception itself should be eliminated.
 

In support of his thesis, Friedman discusses two cases in which the Supreme Court has voiced the need for predictability-- Jaffee v. Redmond⁽²⁵⁾ and In re Sealed Case.⁽²⁶⁾ In each of these cases the balancing away of an individual's privilege protection was rejected because it would make the privilege unpredictable, and therefore, ineffective. In Jaffee the Supreme Court recognized a psychotherapist-patient privilege and insisted that it cannot be subject to an after-the-fact balancing test because that would destroy the effectiveness of the privilege. "Making the promise of confidentiality contingent upon a trial judge's later evaluation of the relative importance of the patient's interest in privacy and the evidentiary need for disclosure would eviscerate the effectiveness of the privilege."⁽²⁷⁾
 

In In re Sealed Case the decision of the D.C. Circuit that was discussed by Mr. Friedman was reversed by the Supreme Court in Swidler & Berlin v. United States.⁽²⁸⁾ The reversal, however, also supports Mr. Friedman's thesis that predictability is fundamental to privileges designed to encourage open and candid communications. Swidler & Berlin involved the survival of an individual's attorney-client privilege after the client's death. In Swidler a lawyer who had been consulted by White House Counsel Vincent Foster had been subpoenaed by the Kenneth Starr grand jury investigating President Clinton and directed to produce the notes of his interview with Mr. Foster, who had committed suicide. The Court held that if the privilege were posthumously balanced away based on a subsequently developing need, it could adversely affect the client's willingness to be candid with his attorney about his testamentary interests and desires. "Posthumous disclosure of such communications may be as feared as disclosure during the client's lifetime."⁽²⁹⁾
 

Crucial to these and the other decisions cited by Mr. Friedman was the fact that the privileges were being discussed in the context of an individual being encouraged to communicate with another by being given the protection of a privilege. The logic of those decisions has too little relevance in the context of an entity client, like a corporation, to justify the action Mr. Friedman proposes.
 

Unlike the individual client, who is encouraged to be more open and candid by his knowledge that the privilege will prevent him from being injured by his own words, predictability is not the driving force behind the corporate attorney-client privilege because of (1) the manner in which the privilege is applied--to a fictitious legal entity that cannot speak--and (2) the legal environment that requires corporate managers to seek legal assistance, regardless of its confidential nature, in order to avoid personal liability for their negligent mismanagement of corporate assets.
 

THE ATTORNEY-CLIENT PRIVILEGE IN THE CORPORATE CONTEXT
 

The logic of the privilege protection
 

The logic of the attorney-client privilege is that a client knowing that he cannot be injured by his own words will reveal incriminating facts that he otherwise might have suppressed. With this enhanced disclosure the lawyer will have more facts at his disposal that may be important to the legal assistance he has been asked to render. This, in turn, will result in more informed legal advice, which, it is believed, translates into greater compliance with the requirements of the law.⁽³⁰⁾ This same type of logic justifies the psychotherapist-patient privilege addressed in Jaffee. The client or patient must be encouraged to talk to facilitate the professional services that further a societal goal.
 

The same logic is not applicable in the corporate context
 

There is a problem with this logic in the corporate context, however, because the attorney-client privilege protects only the corporate entity,⁽³¹⁾ not the individual officers, directors and employees who speak for the entity on matters within the scope of their corporate responsibilities.⁽³²⁾ The privilege provides no direct protection to employees who create a risk of self-incrimination by speaking candidly with corporate counsel.⁽³³⁾ This was a reality that the Supreme Court never addressed in the Upjohn decision, in which it attempted to define whose communications with corporate counsel are protected by the corporation's privilege,⁽³⁴⁾ or previously when the Court extended the privilege protection to corporations.⁽³⁵⁾ Therefore, a privilege designed to encourage more open communications when legal assistance is sought by a business entity serves little, if any, purpose.
 

Every corporate employee who speaks with corporate counsel about matters that could give rise to personal liability, jeopardizes his personal wealth and freedom when he communicates with corporate counsel and acknowledges actionable conduct. Unlike the attorney-client privilege that was created for individuals, when extended to corporate entities, the individuals who are supposed to be encouraged to speak by the existence of the privilege have no control over it. Consequently, whether the privilege will later be asserted (for example, when communications are sought by a grand jury or in a shareholders' derivative action), which would indirectly protect, and thereby benefit, the individual employees, or will be waived for the greater good of the corporation and its shareholders (which could occur when a government agency like the SEC demands disclosures before stock options are approved), is within the exclusive control of the corporate management--generally referred to as the "control group."⁽³⁶⁾
 

Unpredictability is inherent with the corporate privilege
 

While corporate management might be disposed to use the entity's privilege to protect its employees, this protection is indirect and quite fortuitous. Corporate management is precluded from doing this when waiver would be in the best interests of the corporation. This was true, for example, in U.S. v. Upjohn and Diversified Industries, Inc. v. Meredith,⁽³⁷⁾ where privileged communications were revealed to the Securities and Exchange Commission in order to resolve bribery claims and gain agency approval of a stock option. Under management's fiduciary duty to the shareholders, they are obligated to put the interests of the entity first. If they fail to do so, they can expose themselves to personal liability.
 

Therefore, when employees communicate with corporate counsel, they can never know what circumstances will subsequently develop that will make it beneficial for the corporation to waive its privilege protection (and through that waiver, destroy any protection from which the employee might benefit). That is, unpredictability is already inherent in the fabric of the corporate privilege, regardless of whether the fiduciary duty exception is restricted to shareholder derivative claims, and thus does not create a sufficient basis for eliminating the exception.
 
 
 

Lack of predictability is of little consequence
 

Advocates of greater predictability for the corporate privilege may argue that as the level of unpredictability increases (for example, by the extension of the Garner exception to nonderivative shareholder actions) corporate officers and directors will stop seeking legal assistance. This argument, of course, has been proven wrong in the current judicial environment in which Garner has been vastly expanded. Despite this increased unpredictability, the sky has not fallen: legal advice must always be sought by corporate management in order to avoid personal liability for the consequences that might flow from that failure. Corporate officers are not going to disregard the corporation's welfare and their personal financial security simply because the privilege (which gives them no direct protection) can no longer be maintained.
 

Why then has the corporate privilege been successful? Why do corporate employees who implicate themselves in financial misdealings continue to speak openly with corporate counsel? The question, of course, is loaded. It assumes an unproven fact--that corporate employees are candid about their own misdeeds. In a study of Fortune One Hundred Corporations by the Evidence Project at the American University Washington College of Law it was discovered that 50% of the time, corporate employees are not candid when their own misdeeds are implicated.⁽³⁸⁾
 

To whatever degree the corporate attorney-client privilege has been successful in encouraging candid communications from corporate employees, the most significant reason appears to be the mistaken belief by officers, directors and employees that they are personally represented (and therefore personally protected) by corporate counsel.⁽³⁹⁾ But even when they know they are not represented, many employees speak with corporate legal counsel because of the economic power that the corporation holds over them--they either candidly speak with counsel or are fired, the "talk or walk" ultimatum.
 

CONCLUSION
 

The attorney-client privilege is an exception to the principle that the law is entitled to every man's evidence. It is an exception that courts profess to strictly limit in its application to communications that are necessary to achieve its goal of candor. When courts begin to appreciate that economic pressure is the dynamic that compels what the privilege is mistakenly believed to accomplish in the corporate context, they may begin to realize that the corporate privilege has survived by smoke and mirrors. As a consequence, the corporate privilege itself, rather than the "fiduciary duty" exception that Mr. Friedman is concerned about, may be the victim of the reevaluation he proposes.

1. It is with great appreciation that I acknowledge the editorial assistance of my colleague and good friend, Walter Effross. He was the genius behind "Crying Wolfinbarger."

2. Is the Garner Qualification of the Corporate Attorney-Client Privilege Viable After Jaffee v. Redmond?, 55 The Business Lawyer, No. 1, p. 243, November, 1999, (hereafter Friedman).

3. 430 F.2d 1093 (5^th Cir. 1970).

4. "[I]n assessing management assertions of injury to the corporation it must be borne in mind that management does not manage for itself and that the beneficiaries of its action are the stockholders. Conceptualistic phrases describing the corporation as an entity separate from its stockholders are not useful tools of analysis. They serve only to obscure the fact that management has duties which run to the benefit ultimately of the stockholders." Garner, 430 F.2d at 1101.

5. "[W]e reject the idea that the prospective decision of the client on whether to abide by advice or disregard it, or the guarantee of a veil of secrecy, either establishes or narrows the attorney's obligation in the giving of advice. Any to grant to corporate management plenary assurance of secrecy for opinions received is to encourage it to disregard with impunity the advice sought." Garner, 430 at 1102.

6. The Court listed a number of factors that should be considered in deciding whether cause has been shown: "[T]he 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, if the shareholders' claim is of wrongful action by the corporation it is of action criminal, or illegal but no criminal, or of doubtful legality; whether the communications related to past or to prospective action; whether the communications is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons. Garner 430 F.2d at 1104.

7. "The Garner rule is a balancing test that determines whether the shareholders' need to discover the communications outweighs the importance of protecting its confidentiality." Friedman at 243.

8. See P.R. Rice, Attorney-Client Privilege in the United States § 8:17-8:25 Actions by Individuals to Whom Fiduciary Duty Owed (West Group 2^nd ed. 1999)

9. Id.

10. P.R. Rice, Attorney-Client Privilege in the United States § 8:23 (West Group 2^nd ed. 1999).

11. See, e.g., Ward v. Succession of Freeman, 854 F.2d 780, 786 (5^th Cir. 1988); Fausek v. White, 965 F.2d 126 (6^th Cir. 1992); Gerrits v. Brannen Banks of Florida, Inc., 138 F.R.D. 574, 579 (D. Colo. 1991); Burghart v. Landau, 1985 WL 209 (S.D. N.Y. 1985); Cohen v. Uniroyal, Inc., 80 F.R.D. 480, 484 n.4 (E.D. Pa. 1978); Bailey v. Meister Brau, Inc., 55 F.R.D. 211, 213 (N.D. Ill. 1972). But see Weil v. Investment/Indicator, Research and Management, Inc., 647 F.2d 18, 23 (9^th Cir. 1981).

12. See generally P.R. Rice, Attorney-Client Privilege in the United States § 8:23 (West Group 2^nd ed. 1999).

13. Donovan v. Fitzsimmons, 90 F.R.D. 583 (N.D. Ill. 1981).

14. Fortson v. Winstead, McGuire, Sechrest & Minick, 961 F.2d 469 (4^th Cir. 1992).

15. Mallick v. International Broth. of Elec. Workers, 749 F.2d 771 (D.C. Cir. 1984).

16. Wilbur v. ARCO Chemical Co., 974 F.2d 631 (5^th Cir. 1992).

17. Central Nat. Ins. Co of Omaha v. Medical Protective Co. of Fort Wayne, Indiana, 107 F.R.D. 393 (E.D. Mo. 1985).

18. Matter of Baldwin-United Corp., 38 B.R. 802 (Bankr. S.D. Ohio 1984)

19. In re Transocean Tender Offer Securities Litigation, 78 F.R.D. 692 (N.D. Ill. 1978).

20. J.H. Chapman Group, Ltd. v. Chapman, 1996 W.L. 238863 (N.D. Ill. 1996).

21. In re Sunrise Securities Litigation, 130 F.R.D. 560 (E.D. Pa. 1989)

22. See, e.g., Weil v. Investment/Indicators, Research and Management, Inc., 647 F.2d 18, 23 (9^th Cir. 1981).

23. "[P]laintiff shareholders who are litigating a derivative suit on its merits should have an unconditional right to discover corporate attorney-client communications, because such shareholders are acting in the role of management during the course of the derivative litigation on its merits." Friedman at 281.

24. In United States v. Upjohn, 449 U.S. 383, 393 (1981) the Supreme Court noted that "[a]n uncertain privilege . . . is little better than no privilege at all." in

25. 518 U.S. 1, 17-18 (1996).

26. 124 F.3d 230 (D.C. Cir. 1997).

27. Jaffee 518 U.S. at 17.

28. 524 U.S. 399 (1998).

29. 534 U.S. at ___.

30. See generally P.R. Rice, Attorney-Client Privilege in the United States § 2:3 (West Group 2^nd ed. 1999).

31. Upjohn Co. v. United States, 449 U.S. 383, 389-90 (1981).

32. All courts that have considered the suggestion that individual corporate agents be permitted to assert the attorney-client privilege in their own behalf despite a waiver by the corporation have rejected it. United States v. Walls, 949 F.2d 400 (9^th Cir. 1991) (unpublished); Matter of Bevill, Bresler & Schulman Asset Management Corp. 805 F.2d 120, 123 (3^rd Cir. 1986); United States v. Piccini, 412 F.2d 591, 593 (2^nd Cir. 1969); Citibank, N.A. v. Andros, 666 F.2d 1192, 1195 (8^th Cir. 1981); In re Braniff, Inc. 153 B.R. 941, 944 (Bankr. M.D. Fla. 1993); In re Cumberland Inv. Corp., 120 B.R. 627 (Bankr. D. R.I. 1990); In re Blier Cedar Co., Inc., 10 B.R. 993 (Bankr. D. Me. 1981); In re Grand Jury Proceedings, Detroit, Mich. Aug. 1977, 434 F. Supp. 648, 650 (E.D. Mich. 1977); In re Grand Jury Subpoena Duces Tecum 391 F. Supp. 10029, 1034 (S.D. N.Y. 1975)

33. The corporation's attorney-client privilege protection for the communications between its agents and attorney does not personally protect the agents, even though they may have incurred personal liability from the actions on behalf of the corporation, and their communications with counsel served only to incriminate themselves. United States v. Aramony, 88 F.3d 1369, 1388-92 (4th Cir. 1996), cert. denied, 520 U.S. 1239 (1997). Similarly, officers and directors may not prevent a corporation from waiving its privilege by exercising it individually. Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 349 (1985); In re Lancaster Factoring Co., Ltd. v. Mangone, 1996 WL 706925 (S.D. N.Y. 1996); Polycast Technology Corp. V. Uniroyal, Inc. 125 F.R.D. 47, 49 (S.D. N.Y. 1989); In re Grand Jury Subpoena Duces Tecum, 391 F. Supp. 1029, 1034 (S.D. N.Y. 1975). See Paul R. Rice, Attorney-Client Privilege in the United States § 4:21 (West Group 2^nd ed 1999).

34. While denying that it had adopted a specific test for who personifies the corporate client, the Court employed all of the factors important to the "subject matter" test. Under this test, when any employee can communicate with corporate counsel on matters within the scope of his corporate responsibilities and the communications are in confidence and for the purpose of obtaining legal advice or assistance, they will be protected by the corporation's privilege.

35. United States v. Louisville & Nashville R. Co., 236 U.S. 318 (1915).

36. See generally P.R. Rice, Attorney-Client Privilege in the United States § 4:20 (West Group 2^nd ed. 1999).

37. 572 F.2d 596 (8^th Cir. 1977). Limited waiver was approved in Diversified Industries, which permitted the corporation to make disclosures to a government agency, thereby waiving the privilege protection, but the waiver was limited to that disclosure. This result gave additional indirect protection to individuals whose communications were disclosed