Smithfield Foods, Inc.

National Labor Relations Board - Board Decisions

May 12, 1988

288 N.L.R.B. 968 (N.L.R.B. 1988)

968 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
Patrick Cudahy, Incorporated, a Wholly Owned Di-
vision of Smithfield Foods, Inc. and Local P-
40, United Food and Commercial Workers
International Union, AFL-CIO. Cases 30-CA-
9462, 30-CA-9535, and 30-CA-9566
May 12, 1988
ORDER GRANTING APPEALS
BY CHAIRMAN STEPHENS AND MEMBERS
JOHANSEN, BABSON, AND CRACRAFT
Upon charges filed by the Union on February 2,
March 23, and April 17, 1987, 1 the General Coun-
sel of the National Labor Relations Board issued a
consolidated complaint on May 19, later amended
on May 26, against Patrick Cudahy, Incorporated
(Cudahy) and Smithfield Foods, Inc. (Smithfield),
the Respondents, alleging that they violated Sec-
tion 8(a)(1), (3), and (5) of the National Labor Re-
lations Act. The amended consolidated complaint
alleges, inter alia, that Cudahy and Smithfield con-
stitute a single integrated business enterprise and a
single employer and/or joint employer within the
meaning of the Act. The complaint also alleges
that Cudahy failed and refused to bargain in good
faith with the Union as the exclusive collective-bar-
gaining representative of its production and mainte-
nance unit employees at its plant in Cudahy, Wis-
consin. In this regard, the complaint further alleges
that Cudahy entered contract negotiations which
commenced in November 1986 with a fixed intent
not to reach agreement with the Union, having cal-
culated that its bargaining proposals and positions
would cause a strike and that it could then hire
striker replacements and displace the Union as a
viable bargaining agent. A hearing on the com-
plaint was subsequently scheduled for June 3.
On May 14, at the request of counsel for the
General Counsel, the Board issued three subpoenas
duces tecum. The subpoenas directed the Respond-
ents to produce at the trial some company records,
including certain Cudahy documents, e.g., bargain-
ing notes, proposals, letters, memoranda, and strat-
egies, relating to Cudahy's 1986-1987 contract ne-
gotiations for a successor agreement with the
Union. The two subpoenas served on Cudahy were
directed to Roger Kapella, the Company's presi-
dent and chief operating officer, and Daniel Ha-
bighorst, the Company's director of human re-
sources. Another subpoena was served on Joseph
W. Luter III, Smithfield's board chairman and
chief executive officer. Apparently, some of these
Cudahy documents had come into Smithfield's pos-
session because one of Smithfield's current employ-
All dates are in 1987 unless otherwise indicated.
ees, Alan T. Anderson, a director and former presi-
dent of Cudahy, had received these documents
while serving in that capacity for Cudahy.
On May 20, pursuant to Section 102.31(b) of the
Board's Rules and Regulations, the Respondents
separately filed a petition to revoke the subpoenas
to the extent that they requested documents that
fell within the scope of the attorney-client privi-
lege. The Respondents' main contention was that
certain Cudahy documents sought by the Board
subpoenas were privileged communications be-
tween Cudahy and the law firm of ICrukowski &
Costello, S.C., who had been hired to assist and
give legal advice to Cudahy in connection with the
latter's 1986-1987 contract negotiations with the
Union. 2 On May 26 the General Counsel filed sep-
arate opposition statements to the Respondents' pe-
titions to revoke. On June 2 Cudahy amended its
original petition to revoke by identifying several
more Cudahy documents arguably subject to the
Board subpoenas but also covered by the attorney-
client privilege. All of these subpoena matters were
ultimately referred to Administrative Law Judge
Donald R. Holley, who was assigned to conduct
the June 3 hearing.
At the Respondents' request, Judge Holley con-
ducted a preliminary hearing to allow them to sup-
plement the Cudahy documents with witness testi-
mony to establish their claim of attorney-client
privilege. At the conclusion of this preliminary
hearing and based on an in camera inspection of
the documents themselves, the judge ruled that the
disputed Cudahy documents, except for a portion
of the document marked as PCI-1, 3 were not pro-
tected from disclosure by the attorney-client privi-
lege. The judge, therefore, denied the Respondents'
petitions to revoke and ruled that the Respondents
were to produce the Cudahy documents on the
General Counsel's request. The General Counsel
made such a request and the Respondents then re-
fused to honor it. In response, the General Counsel
asserted that the subpoenaed Cudahy documents
were important to the presentation of her case and
requested a postponement of the hearing to allow
2 In its answer to the amended consolidated complaint, Cudahy has ad-
mitted that Thomas Krukowslu and Robert Bartel, attorneys associated
with Krukowslu & Costello, S.0 , were agents of Cudahy for the limited
purpose of negotiating a successor collective-bargaining agreement with
the Union.
3 PCI-1, undated, is a strategic planning guidebook prepared by Robert
J Bartel, an attorney associated with Krukowski & Costello, S.0 , and
submitted to Cudahy in early March 1986. Included in PCI-1 is the 1985
Packinghouse Report of the United Food and Commercial Workers,
which the judge found was not privileged This report has since been fur-
nished to the General Counsel. The remainder of PCI-1, which the judge
determined was privileged, contains a wide range of information relating
to Cudahy's plans, objectives, strategies, and conduct during the upcom-
ing 1986 contract negotiations and in the event of a strike anticipated in
PCI-1 to occur on expiration of the 1983-1986 union contract.
288 NLRB No. 107
PATRICK CUDAHY, INC. 969
her to institute subpoena enforcement proceedings
in the appropriate Federal district court. The judge
granted the General Counsel's request and recessed
the hearing sine die on June 10.
On June 12 and 16, pursuant to Section 102.26 of
the Board's Rules, the Respondents filed with the
Board separate requests for special permission to
appeal the judge's ruling of June 10 denying their
petitions to revoke the subpoenas. 4 Cudahy also
filed a brief and requested oral argument should
the Board allow the Respondents to file their inter-
im appeal. On June 15„ 17, and 19 the General
Counsel and the Union filed opposition statements
to the Respondents' requests for special permission
to appeal the judge's subpoena ruling. On July 1
the Board, Member Cracraft dissenting, 5 granted
the Respondents' requests for special permission to
appeal the judge's subpoena ruling. In addition, the
Board ordered that the Cudahy documents in ques-
tion be forwarded to it so that it could inspect
them in camera prior to ruling on the Respondents'
petitions to revoke. Sixty Cudahy documents were
subsequently forwarded to the Board.6
On July 8, in connection with its July 1 Order,
the Board also requested that the Respondents fur-
nish an index of documents to facilitate the Board's
in camera inspection. On July 22 and 30 the Re-
spondents submitted an index identifying 54
Cudahy documents, 5 of which are in Smithfield's
possession, namely PCI-2, PCI-4, PCI-6, PCI-13,
and PCI-21, and all of which they assert are cov-
ered by the attorney-client privilege. 7 On July 30
and August 11 the General Counsel filed an oppo-
sition to the Respondents' index because, in her
view, the index contained argumentative and mis-
leading statements, thereby exceeding the scope of
the Board's July 8 request.
Earlier, on June 18, Cudahy filed a motion under
Section 102.37 of the Board's Rules requesting
Judge Holley to disqualify himself from further
participation in this case on the grounds that he
4 After it filed its request for special permission to appeal the judge's
subpoena ruling, Cudahy withdrew its claim of attorney-client privilege
for PCI-25, PCI-34, FCI-36, PCI-46, and PCI-54 and submitted these five
documents to the General Counsel by letter dated June 16.
5 Member Cracraft would have denied the Respondents' requests for
special permission to appeal on the ground that the district court subpoe-
na enforcement proceeding the General Counsel intended to institute was
the appropriate and customary procedure for resolving the evidentiary
issues raised. Now that the case is before her, however, she joins her col-
leagues in reversing the judge's rulings for the reasons stated in this deci-
sion
6 pci-I was also forwarded even though no objection was raised to
the judge's ruling that the attorney-client privilege did apply to that doc-
ument PCI-22, PCI-25, PCI-36, PCI-46, and PCI-54, which the
Respondents agreed to provide to the General Counsel and which are
now in the General Counsel's possession, were also forwarded to the
Board.
I The attached Appendix provides a brief description of the 54 Cudahy
documents in dispute.
had demonstrated personal bias and prejudgment of
the issues. In support of its motion, Cudahy relied
on comments made by the judge on the record at
the hearing on June 10 and other statements attrib-
uted to him in certain newspaper articles published
on June 11 and 14 in The Milwaukee Journal and
The Milwaukee Sentinel. In his Order dated July 2,
the judge determined that his record comments
complied with Section 102.37 of the Board's Rules
in that they reflected the grounds for his ruling and
that the newspaper articles (1) assigned some re-
marks to him which he had not made, (2) con-
tained hearsay evidence, or (3) simply reflected
those comments previously made by him on the
record at the trial. The judge, moreover, asserted
that his remarks to the newspaper reporters in-
volved did not show that he possessed a partisan
attitude or harbored a bias against Cudahy. The
judge, therefore, found Cudahy's motion for dis-
qualification was without merit.
On July 9, pursuant to Section 102.26 of the
Board's Rules, Cudahy filed with the Board a re-
quest for special permission to appeal the judge's
ruling denying its motion for disqualification of the
administrative law judge. Cudahy also submitted a
brief with attached affidavits and exhibits and re-
newed its prior request for oral argument before
the Board. On July 14 and 27 the Union and the
General Counsel opposed Cudahy's request for spe-
cial permission to appeal the judge's refusal to dis-
qualify himself In its opposition statement, the
Union also asked that the Board reconsider its July
1 Order because the Respondents waived the attor-
ney-client privilege when the Cudahy documents
were submitted for an in camera inspection by the
judge.
Given the difficulty and potentially broad impact
of the resolution of the issues presented by this sub-
poena duces tecum case, we have reviewed in
depth the issues specifically raised to us by the par-
ties and express our views below in order to give
guidance to litigants and judges in this and future
cases. The Board having duly considered the
matter, the Respondents' appeals seeking reversal
of the judge's rulings of June 10 and July 2 are
granted for the reasons set forth below.9
The attorney-client privilege essentially prevents
compelled disclosure of a document if it constitutes
a communication made in confidence to an attor-
ney by a client for the purpose of seeking or ob-
taining legal advice. 9 If the communication is,
8 The Respondents' request for oral argument is denied as the record,
statements of position, and briefs adequately present the views and posi-
tions of the parties.
9 For a fuller description of the definition of attorney-client privilege,
see 8 Wigmore, Evidence § 2292 and U.S. v. United Shoe Machinery Corp.,
89 F Supp. 357, 358 (D.Mass 1950).
970 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
however, for the purpose of committing a crime or
perpetrating a fraud in the future (as opposed to re-
ferring to prior wrongdoing), then the recognized
crime or fraud exception comes into play to permit
the disclosure of the otherwise privileged docu-
ment. '°
In rejecting the Respondents' arguments that the
Cudahy documents were protected by the attor-
ney-client privilege, the judge based his ruling on
two separate grounds. First, the judge concluded
that the Cudahy documents marked as PCI-2, PCI-
9, PCI-10, PCI-11, and perhaps PCI-24, but par-
ticularly PCI-2, showed that Cudahy "intended to
participate in bargaining with an intention to take
action which would bring about what they would
claim to be an impasse of December 31, 1986," the
expiration date for the union contract. Without spe-
cifically using the term "crime-fraud exception" or
"crime-fraud-tort exception," the judge in effect
applied that exception to PCI-2 and all documents
generated after PCI-2 was prepared, apparently on
the theory that after the preparation of PCI-2, the
law firm was assisting the client in the commission
of an act comparable to a crime, fraud, or tort.
Second, and alternatively, the judge determined
that because the task for which the law firm was
employed and the work performed by the law firm
was, in his opinion, more in the nature of affording
business assistance than rendering legal advice to
Cudahy, the attorney-client privilege did not apply.
The judge did not relate that assessment of the
nature of the attorney-client relationship in this
case to particular documents, and thus did not con-
sider whether the reasons for which he found cer-
tain portions of PCI-1 to be traditional legal advice
within the attorney-client privilege (see fn. 3,
supra) might also apply to other contested docu-
ments in whole or in part.
All the parties have treated the judge's first
ground for denying the Respondents' motion to
quash the subpoenas as equivalent to a finding that
the Cudahy documents fall within the crime or
fraud exception to the attorney-client privilege. In
their appeal, the Respondents (1) contest the
judge's conclusion that the documents at issue here
reflect the provisions of business advice as opposed
to legal advice, and (2) contend that the judge
erred in applying the crime-fraud exception be-
cause he based his ruling on the documents alone,
rather than on evidence independent of the docu-
ments for which the privilege is claimed. On the
' 0 8 WIgmore, Evidence § 2298. The privilege may also be lost by
waiver, but the only argument as to waiver before us is the Charging
Party's contention—for which there is no authority in precedent—that
the privilege is waived through a tribunal's in camera inspection of docu-
ments
other hand, the General Counsel argues that these
documents are exempted from the attorney-client
privilege because they show that Cudahy violated
Section 8(a)(5) of the Act by contriving a bargain-
ing impasse and engaging in bad-faith bargaining
and that this unlawful activity is sufficient to acti-
vate the crime or fraud exception. In support, the
General Counsel primarily relies on the position
advanced by the Board in NLRB v. Harvey, 349
F.2d 900 (4th Cir. 1965), that an unfair labor prac-
tice constituted a crime or fraud for purposes of
the crime-fraud exception and dicta by Judge
Learned Hand in NLRB v. Remington Rand, Inc.,
94 F.2d 862, 872 (2d Cir. 1938), to the effect that
the respondent employer and the cause of a strike
were a "tortfeasor" and "tort," respectively. For
the reasons set forth below, we reverse the judge's
ruling on the privilege claim.
We first consider the threshold question whether
the attorney-client privilege applies at all to the
documents at issue here, given that collective bar-
gaining and labor-management relations in general
have business and economic aspects as well as legal
aspects. We start from the principle that "a matter
committed to a professional legal adviser is \prima
facie so committed for the sake of the legal advice
. . . for some aspect of the matter, and is therefore
within the privilege unless it clearly appears to be
lacking in aspects requiring legal advice." 11 We
further note that the presence of business consider-
ations intertwined with legal advice does not neces-
sarily destroy the privileged nature of communica-
tions between attorney and client. Thus, as Judge
Wyzanski explained with respect to the outside
counsel involved in U.S. v. United Shoe Machinery
Corp., 89 F.Supp at 359:
They were not acting as business advisers or
officers of United, even though occasionally
their recommendations had in addition to legal
points some economic or policy or public rela-
tions aspect and hence were not unmixed opin-
ions of law. The modern lawyer almost invari-
ably advises his client upon not only what is
permissible but also what is desirable. And it is
in the public interest that the lawyer should
" 8 Wigmore, Evidence § 2296 (McNaughton rev 1961) (emphasis in
original), cited in Diversified Industries v. Meredith, 572 F 2d 596, 610 (8th
Cir 1978) (en bane)
Our consideration of the privilege throughout is guided by Federal
precedents, which, pursuant to Rule 501 of the Federal Rules of Evi-
dence, call for the application of "the principle of the common law as
they may be interpreted by the courts of the United States in the light of
reason and experience." Under Sec 10(b) of our own Act, however, we
are bound by those rules of evidence only "so far as practicable," and, as
is apparent in our discussion below of the application of the privilege to
legal advice touching on collective-bargaining negotiations, we bring to
bear our own "reason and experience" in determining how to apply the
privilege in the context of unfair labor practice proceedings
PATRICK CUDAHY, INC. 971
—
regard himself as more than predicter of legal
consequences. His duty to society involves
many relevant social, economic, political and
philosophical considerations. And the privilege
of nondisclosure is not lost merely because rel-
evant nonlegal considerations are expressly
stated in a communication which also includes
legal advice.
See also In re Grand Jury Subpoena Duces Tecum
(Marc Rich & Co. A.G.), 731 F.2d 1032, 1036-1038
(2d Cir. 1984) (advice from an attorney on tax mat-
ters constitutes legal advice); Diversified Industries
v. Meredith, 572 F.2d at 610 (privilege covers legal
advice mixed with audit functions); Jack Winter,
Inc. v. Koratron Co., 54 F.R.D. 44, 47 (N.D.Cal.
1971) (privilege covers Mixture of legal advice and
aid in patent registration); US. v. International
Business Machines Corp., 66 F.R.D. 206, 212
(S.D.N.Y. 1974), quoting Zenith Radio Corp. v.
RCA, 121 F.Supp. 792, 794 (D.Del. 1954) (commu-
nications retain privilege even if attorney's advice
is only "predominantly legal").
In our view, the judge in the present proceeding
construed the category of legal advice too narrow-
ly and mischaracterized the nature of the work per-
formed by Krukowski & Costello, S.C. for
Cudahy. He failed to recognize that the process of
collective bargaining invites the contribution of
legal advice at all of its stages and that a primary
purpose for the law firm's employment by Cudahy
was to render legal advice throughout contract ne-
gotiations with the Union. Labor attorneys often
advise an employer or a union in contract negotia-
tions and may even serve as the party's chief nego-
tiators because of their expertise and knowledge in
this highly specialized area of the law. Their
advice is relevant not only to the question of the
° lawfulness of particular bargaining strategies and
dealings with the opposing party or employees but
also to how particular contract language is likely to
be construed in arbitration if disputes about con-
tractual provisions arise. Indeed, the complexities
of the law in this area are not unlike those to
which the Supreme Court referred in Upjohn Co. v.
U.S., 449 U.S. 383, 392 (1981), when criticizing an
unduly "narrow" test for applying the privilege:
In light of the vast and complicated array of
regulatory legislation confronting the modern
corporation, corporations, unlike most individ-
uals, "constantly go to lawyers to find out
how to obey the law," Burnham, The Attor-
ney-Client Privilege in the Corporate Arena,
24 Bus. Law 901, 913 (1969), particularly since
compliance with the law in this area is hardly
an instinctive matter.
For specifically labor law policy reasons as well,
when the legal advice relates to collective bargain-
ing, we will not readily and broadly exclude attor-
ney-client communications from the privilege on
the ground that business and economic consider-
ations are also present. As noted in Berbiglia, Inc.,
233 NLRB 1476, 1495 (1977), which concerned an
employer's subpoena for union records of employee
meetings during a strike while negotiations for a
new agreement were going forward: "If collective
bargaining is to work, the parties must be able to
formulate their positions and devise their strategies
without fear of exposure." 1 2
For all of the foregoing reasons, we find, con-
trary to the judge, that the attorney-client privilege
encompasses the advice rendered by Krukowsld &
Costello to Cudahy in the course of helping it pre-
pare for and conduct negotiations with the Union
and in advising Cudahy as to legal constraints on
the operation of the plant should a strike ensue.
The privilege covers both the communications
which provided that advice and the communica-
tions that flowed from client to attorney as a basis
for generating the advice. Upjohn Co. v. U.S., 449
U.S. at 390 ("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 in-
formed advice"). Documents PCI-3, PCI-5,
PCI-10, PCI-11, PCI-12, PCI-13, PCI-14,
PCI-15, PCI-26, PCI-27, PCI-28, PCI-29,
PCI-30, PCI-32, and PCI-40 reveal that the law
firm explored the legal ramifications connected
with the full range of topics and events that may
arise in the setting of contract negotiations. Other
documents were generated in this framework,
giving the attorneys needed information about the
client's circumstances and aims that facilitated the
giving of the advice.'"
Having concluded that the documents in issue
here are initially within the attorney-client privi-
lege, we next consider the judge's finding that,
12 In cases involving other types of unfair labor practices, when policy
considerations such as those noted here are not involved, the analysts of
the relationship of legal advice to business decisions and actions may be
different and it may not necessarily result in as broad an application of
the pnvilege as here. See also fn. 13, Infra As the Supreme Court ob-
served in Upjohn, supra, questions concerning the scope of the privilege
are necessarily resolved on "a 'case-by-case' basis" 449 U S at 396-397.
13 We note, however, several important limitations to our holding It is
communication between attorney and client related to the giving of legal
advice that is pnvileged—not simply documents that pass between them
Thus, nonpnvileged documents—e g, ordinary corporate records such as
payroll or personnel records—cannot be swept within the privilege
simply by being transmitted from client to attorney or vice versa See Di-
versified Industries v. Meredith, 572 F.2d at 611 Similarly, we are not con-
sidering notes recording the exchanges in a bargaining session with other
parties except in one instance where such notes are intermingled with
privileged communications. See Document PC1-16
972 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
even assuming the application of the privilege, the
documents must be produced because they come
within the crime-fraud exception to the privilege.
Thus, we must determine whether the crime-fraud
exception may extend to unfair labor practices.
Judicial consideration of the application of the
crime or fraud exception to the NLRA has been
slight. In an earlier case involving litigation over
enforcement of a Board subpoena, NLRB v.
Harvey, 349 F.2d 900 (4th Cir. 1965), the Board
took the position that, on a prima facie showing of
the commission of an unfair labor practice, the
crime or fraud exception would apply to communi-
cations in furtherance of such a violation. In
Harvey the Board sought the enforcement of a sub-
poena which had been served on an attorney who,
at the request of his client, had secured the services
of a private detective to conduct surveillance of a
union representative during an organizing cam-
paign. Shortly after the detective reported to the
attorney that the union representative had visited
the homes of two employees, the latter were dis-
charged by their employer. The attorney claimed
that the attorney-client privilege justified his refusal
to name his client. The Board, however, argued to
the circuit court that the revelation of the client's
identity might reveal whether the employer had ar-
ranged for the surveillance, thereby violating Sec-
tion 8(a)(1) of the Act.
We observe that the Fourth Circuit in Harvey
did not squarely reach the issue of whether a viola-
tion of the I NLRA constitutes a crime or fraud for
purposes of the crime or fraud exception. The
court instead remanded the matter for a further in-
quiry into the nature of the attorney's employment
by his client. 14 In so doing, the court made the fol-
lowing pertinent observations (id. at 904):
The Board has cited no cases construing an
unfair labor practice as defined in § 8(a)(1) of
the National Labor Relations Act, 29 U.S.C.
§ 158 (a)(1) to be a crime or a tort. Congress
did not provide any penal provisions in the
Act. To deny the privilege on the ground that
an unfair labor practice is a crime or a tort
would have wide ramifications in the field of
labor management relations. We therefore do
not reach the question of whether there has
been a prima facie showing of an unfair labor
practice.
Apparently, the only other court to consider the
issue to date decided it under a state statute that
denied the privilege to "communications regarding
legal services 'sought or obtained in order to
'4 On remand, the district court found the communication was privi-
leged and quashed the Board's subpoena. 264 F Supp 770 (1966).
enable or aid the commission or planning of a
crime or tort." In Aguinaga v. John Morrell & Co.,
124 LRRM 2898, 2907 (D.Kan. 1986), the records
and documents subpoenaed included written com-
munications between the defendants and their law-
yers concerning a plant closing and reopening,
which were the subject of an outstanding unfair
labor practice complaint. The magistrate ruled that
these documents were stripped of the attorney-
client privilege because they were generated in the
course of the commission of unfair labor practices.
The district court reversed the magistrate's ruling
and remanded the case to the magistrate to exam-
ine evidence independent of the subpoenaed docu-
ments to ascertain whether the crime-fraud excep-
tion should apply. Thus, it appears that the district
court left open the possibility that an unfair labor
practice may come within the crime-fraud excep-
tion.
Given the dearth of precedent on the issue, ap-
plication of the crime or fraud exception to the
NLRA appears to be an open question. In this
regard, we note that it has long been established
that the Act is strictly remedial not penal. Thus the
Supreme Court held in Republic Steel Corp. v.
NLRB, 311 U.S. 7, 10 (1940):
The Act is essentially remedial. It does not
carry a penal program declaring the described
unfair labor practices to be crimes. The Act
does not prescribe penalties or fines in vindica-
tion of public rights or provide indemnity
against community losses as distinguished from
' the protection and compensation of employees.
Had Congress been intent upon such a pro-
gram, we cannot doubt that Congress would
have expressed its intent and would itself have
defined its retributive scheme.
Although the Act has been amended sine Republic
Steel was decided, the Congress has not seen fit to
reject the Court's holding.
Of interest to our discussion here is the Third
Circuit's decision in U.S. v. Bea, 688 F.2d 919
(1982), which relied, in part, on Republic Steel. The
court in Boffa was concerned, inter alia, with the
application of the mail fraud statute, 18 U.S.C.
§ 1341, to conduct allegedly intended to deprive
employees of rights guaranteed by Section 7 of the
NLRA. 15 The court declined to extend the mail
fraud statute to that allegation for two reasons: the
remedial nature of the Act and the primacy of the
15 In McNally v. US., 107 S.Ct. 2875 (1987), the Supreme Court effec-
tively overruled that part of the Boffa decision, not relevant to our dis-
cussion here, which determined that the mail fraud statute was not limit-
ed to the protection of tangible property nghts
PATRICK CUDAHY, INC. 973
Board in resolving unfair lalbor practice disputes.
With regard to the former, the court noted that
Congress did not intend to create new criminal
sanctions when it endowed employees with
Section 7 rights. . . . Similarly, the absence of
any criminal sanctions in section 8 of the
NLRA suggests that Congress did not contem-
plate that employers would be subject to
criminal liability, even by operation of another
statute, as a result of committing an unfair
labor practice.
U.S. v. Bea, supra at 928. Accordingly, the court
concluded that violation of the NLRA could not
be included within the sweep of criminal liability
under the mail fraud statute. Additionally, as noted
above, the court found that the preemption policy
of ensuring a uniform interpretation of the NLRA
"casts serious doubt on the proposition" that Con-
gress intended conduct depriving employees of
Section 7 rights to fall within the ambit of the mail
fraud statute. Id. at 929.
In light of the above, it is clear, at least, that vio-
lations of the NLRA cannot come within the crime
part of the crime or fraud exception to the privi-
lege. What is less clear from the precedent, howev-
er, is to what extent the crime and fraud parts of
the exception are severable, and, if the fraud part is
severable, to what extent, if any, do unfair labor
practices fall within its bounds. Most frequently,
those cases cited as illustrative of the fraud excep-
tion arise in a criminal context or in one where
there is an express statutory prohibition of the de-
ceptive conduct. For example, in Marc Rich & Co.
A. G., supra, the court specifically criticized the
company's asserting the privilege for focusing ex-
clusively on the crime aspect of the exception and
noted that while "advice was sought in furtherance
of a fraud that is not necessarily a violation of the
criminal code, the communication is nonetheless
unprivileged." 731 F.2d at 1039. The import of
these statements is unclear, however, because the
court went on to find that the crime or fraud ex-
ception to the privilege was applicable because
"the government has shown adequate reason to be-
lieve the sale was a fraudulent conveyance, in the
sense that it was intended to delay or hinder the
government's ability to collect the contempt fines
that had accrued," ibid., and the record was ade-
quate to support a conclusion that the company's
actions may have been a fraudulent conveyance
within the meaning of a New York statutory ban.
Application of the fraud exception of the privi-
lege to the NLRA is particularly problematic be-
cause, unlike many other statutes such as those ad-
ministered by the Federal Trade Commission, the
Securities and Exchange Commission, and the
Food and Drug Administration, the issues of de-
ception and disclosure are not expressly included
within the statutory scheme. Nevertheless, in many
unfair labor practices intent has been found to be
relevant and such intent may and often does have
an element of deception. While not strictly speak-
ing fraud under common law, these might conceiv-
ably come within the penumbra of the multitude of
definitions of fraud which may be put forth. See,
e.g., 37 Am.Jur. 2d Fraud and Deceit §§ 1 and 2.
No case has held that the NLRA creates a cause of
action for fraud.
Even assuming, however, that some unfair labor
practices may arguably be defined as fraudulent,
we are reluctant to place them within the crime or
fraud exception. As one court cautioned, "there is
great danger in losing sight of the foundations of
this narrow exception to the attorney-client privi-
lege." 1 6 Indeed, broad application of the exception
to the NLRA would result, essentially, in swallow-
ing up the privilege altogether. Moreover, even the
narrower application of the exception to the allega-
tions before us which concern bargaining without
intent to reach an agreement is not without serious
implications. Certainly there are unquestionably
strong policy reasons favoring disclosure insofar as
it would facilitate the discovery and deterrence of
"sham" bargaining. These reasons must be
weighed, however, against the countervailing
policy reasons underpinning the privilege itself and
the policy consideration of fostering collective bar-
gaining by protecting the seeking of advice and the
uninhibited exchange of ideas in that context." In
this regard, we note that "sham" bargaining cases
have been litigated for many years without the
benefit of the sort of disclosure sought here. Parties
have successfully relied not only on direct evi-
dence of intent but also on intent that might be in-
ferred from objective evidence of bad-faith bar-
gaining." In this light and in view of the lack of
precedent which would support extending the ex-
ception under the definition of fraud to the conduct
at issue here, we find that the policy considerations
disfavoring its extension must prevail.
16 Research Corp. v. Gourmet's Delight Mushroom Co., 560 F Supp. 811,
820 (1983)
17 See, e g, Berbigha, Inc , supra We also note again the cautionary
words of the Fourth Circuit in NLRB v. Harvey, supra, that "Rio deny
the pnvilege on the ground that an unfair labor practice is a crime or tort
would have wide ramifications in the field of labor management rela-
tions"
58 See, e g., Atlanta Hilton & Tower, 271 NLRB 1600 (1984); A-1 King
Size Sandwiches, 265 NLRB 850 (1982), enfd 732 F.2d 872 (11th Cir.
1984), cert denied 469 U S 1035 (1984), NLRB v Mar-Len Cabinets, 659
Fid 995, 999 (9th Cir. 1981); and NLRB v. Herman Sausage Co., 275
F.2d 229 (5th Cu. 1960).
974 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
Finally in this regard we note that it appears that
few courts have been willing to extend the excep-
tion to the privilege to legal advice in furtherance
of torts as well as to advice in furtherance of
crimes or fraud." The cases are rare in which the
privilege has been lifted on the ground that legal
advice was in furtherance of tortious conduct that
was neither criminal nor reasonably categorized as
fraudulent, 2 ° and advisory bodies concerned with
the development of uniform evidentiary standards
do not appear to be rushing to expand the excep-
tion in this respect. 21 Accordingly, even were we
to fmd the allegation here to be fairly characterized
as tortious conduct, we would not extend the ex-
ception to the privilege to it.
We are hesitant, therefore, in view of the lack of
clear precedent, and in view of the significant
policy considerations set forth above, to find that
the crime-fraud exception to the privilege extends
to unfair labor practices generally or, for that
matter, to the specific 8(a)(5) allegation pending
against the Respondents. Accordingly, we now
reject the position taken by the Board in Harvey
that a violation of the National Labor Relations
Act constitutes a crime or fraud for purposes of the
crime or fraud exception. We therefore revoke the
General Counsel's subpoenas to the extent that
they seek privileged communications as described
above. In light of our revocation of the General
Counsel's subpoenas, 22 we have decided to remand
this proceeding to the Chief Adminstrative Law
Judge for a hearing de novo before a different ad-
ministrative law judge duly designated by him "to
avoid even the appearance of a partisan tribunal."
12 See, e g, Irving Trust Co. v. Gomez, 100 F.R.D. 273, 277 (S.D NY.
1983); Diamond v. Stratton, 95 F.R.D. 503, 505 (S D.N.Y 1982), and cases
there cited. Wigmore argued that the exception should extend beyond
crimes and frauds. Wigmore, Evidence § 2298 at 577 (McNaughton rev
1961). See also Coleman v American Broadcasting Co., 106 F R D. 201
(D.D.C. 1985), for discussion of the crime or fraud exception as it applies
to the Federal civil rights laws (The magistrate did not ultimately decide
the issue inasmuch as he found the plaintiff had not made a sufficient
showing to invoke the exception. He noted that research had revealed no
case extending the cnme-fraud exception to the privilege to violations of
the civil rights laws.)
20 Nowell v. Superior Court, 223 Cal App. 2d 652, 36 Cal. Rptr. 21, 25
(1963).
21 Thus, as Judge Weinstein noted in discussing the treatment of the
privilege as originally proposed by the Advisory Committee on the Rules
of Evidence, the Advisory Committee retained the traditional crime-
fraud limitation, finding "the tort phraseology too broad considering the
technical nature of some torts, particularly under federal law." 2 Wein-
stein, Evidence 503(d)(1), 01. at 503-70 (1986). It is also noteworthy that
the 1953 version of the Uniform Rules of Evidence, to which the court in
Diamond v. Stratton, 95 F RD. at 505, referred, included torts in its for-
mulation, whereas the counterpart in the 1974 version did not. Unif. R.
Evid. 502(2X1) (1974) See also Hyde Construction Co v. Koehrmg Ca,
455 F 2d 337, 342 (5th Cir. 1972) (declining, in diversity case, to extend
exception to communications in furtherance of a tort because Mississippi
law did not warrant such an extension)
22 Because we are remanding to a new judge for this reason, we find it
unnecessary to pass on Cudahy's arguments in its June 18 motion for dis-
qualification of the Judge on grounds of bias.
Indianapolis Glove Co., 88 NLRB 986, 987 (1950).
Accordingly,
IT IS ORDERED that the Respondents' requests for
special permission to appeal the judge's subpoena
rulings are granted and the administrative law
judge's rulings are reversed.
IT IS FURTHER ORDERED that a hearing de novo
be held before a different administrative law judge
for the purpose of receiving evidence on the issues
raised by the allegations of the complaint. Upon
the conclusion of the hearing, the judge shall pre-
pare and serve on the parties a decision containing
findings of fact, conclusions of law, and recommen-
dations based on the evidence received and, fol-
lowing service of such decision on the parties, the
provisions of Section 102.46 of the Board's Rules
and Regulations shall be applicable.
APPENDIX
PCI-2, dated October 17, 1986, is a typed booklet enti-
tled "Planning—Contract Expiration" which was pre-
pared by Lee Finn, Cudahy's company treasurer, for
Robert J. Bartel, an attorney with Krukowski & Cos-
tello, S.C. (herein "law firm"). This document was incor-
porated into PCI-3.
PCI-3, undated, is a strike manual prepared by the law
firm for Cudahy and distributed on October 24, 1986.
PCI-4 is a letter dated December 31, 1986, from
Thomas P. Krukowski, an attorney with the law firm, to
Cudahy's president, Roger Kapella. It discusses whether
Cudahy and the Union reached a bargaining impasse and
related topics.
PCI-5 is another copy of PCI-4.
PCI-6 is a letter dated November 25, 1986, from Kru-
kowski to Kapella and outlines bargaining strategy for
Cudahy. Attached to this letter are memoranda from the
law firm which analyze several topics including bargain-
ing impasse, unilateral implementation of employment
terms, survival of employee benefits after contract expi-
ration, and an employer's ability to directly communicate
with its employees.
PCI-7 is an outline of final bargaining objectives devel-
oped by the law firm for Cudahy in early December
1986.
PCI-8 is a document prepared by Finn for the law
firm in May 1986 as a bargaining and planning timetable
for the 1986 union contract negotiations.
PCI-9 constitutes the handwritten notes of Finn taken
during contract negotiation strategy and planning meet-
ings held with the law firm and Cudahy on October 15
and 24, 1986.
PC1-10 is the handwritten draft version of PCI-2.
PCI-11 is a legal memorandum dated October 17,
1986, from the law firm to Cudahy. It discusses unem-
ployment compensation eligibility and reviews the Wis-
consin state lockout statute.
PCI-12 is a legal memorandum dated November 17,
1986, from the law firm to Cudahy. It discusses the legal
PATRICK CUDAHY, INC. 975
status of Smithfield in relation to Cudahy and possible
implication of a strike at Cudahy on Smithfield.
PCI-13 is a legal memorandum dated December 12,
1986, from the law firm to Cudahy. It deals with the ap-
plicability of certain contractual and statutory provisions
to a possible curtailment in Cudahy's operations after
contract expiration.
PCI-14 is an internal law firm memorandum dated
March 30, 1987, which was orally communicated by Tim
Costello, an attorney with the law firm, to Cudahy. It
discusses whether unilaterally implemented employment
terms can be modified without bargaining with the
Union.
PCI-15, undated, is a document entitled "Planning for
Contract Negotiations and Strike" which was drafted by
Bartel and later transmitted to Kapella in November
1986.
PCI-16 constitutes the handwritten notes of Kru-
kowski taken during contract negotiation sessions with
the Union, bargaining caucus meetings with Cudahy, and
preparatory meetings with Cudahy prior to the negotia-
tion sessions of various dates.
PCI-17 constitutes the handwritten notes of Bartel
taken from February 1986 through May 1987. It summa-
rizes bargaining strategy, caucus, and preparatory meet-
ings with Cudahy.
PCI-18 constitutes the handwritten notes of Nancy L.
Pirkey, a legal assistant with the law firm, taken from
October 1986 through May 1987. It summarizes bargain-
ing strategy, caucus, and preparatory meetings with
Cudahy and with the law firm alone.
PCI-19, undated, is a document entitled "Movement in
Company Proposals" which was prepared by Pirkey
during a meeting with Cudahy. It summarizes areas of
possible movement in Cudahy's bargaining proposals as
of December 15, 1986.
PCI-21, which was not shared with the Union, repre-
sents the working drafts of Cudahy's initial contract pro-
posals reviewed by the law firm and Cudahy. It also
contains an outline of Cudahy's tentative final offer
issues as of December 2, 1986.
PCI-23 is a letter dated November 29, 1986, from Kru-
kowski to Kapella. It discusses Cudahy's need to identify
its final bargaining objectives and encloses an outline of
potential final offer issues.
PCI-24 constitutes the handwritten notes of Karol J.
Hite, a legal assistant with the law firm, taken during in-
ternal law firm meetings discussing task assignments for
Cudahy and during strategy sessions with Cudahy for
various dates.
PCI-26, dated October 24, 1986, is a document entitled
"Patrick Cudahy Strike Manual: Strike Related Issues"
prepared by the law firm but never transmitted to
Cudahy.
PCI-27, dated November 11, 1986, is a memorandum
entitled "Patrick Cudahy Negotiations-Checklist of Re-
sponsibilities" prepared by the law firm outlining task as-
signments for Cudahy.
PCI-28, undated, is,a draft of a letter dated December
31, 1986, addressed as "Dear employee" which was pre-
pared by the law firm for Cudahy. It discusses the sub-
ject of permanent striker replacements.
PCI-29, an internal memorandum dated November 4,
1986, and prepared by the law firm, discusses recom-
mended contractual changes discussed with Cudahy.
PCI-30 is an internal law firm memorandum dated No-
vember 26, 1986, prepared by Sheila Gavin, a legal as-
sistant with the law firm. It relates to the subject of cus-
tomer contracts in relation to a strike at Cudahy.
PCI-31 is an outline entitled "Open Items 01/20/87"
which was prepared by the law firm to assist Cudahy in
its contract negotiations.
PCI-32 is a letter dated November 12, 1986, from
Bartel to Kapella and provides a suggested agenda for a
meeting with Cudahy management and supervisory per-
sonnel to discuss the 1986 contract negotiations.
PCI-33 is a letter dated October 29, 1986, from Kru-
kowski to Cudahy's director of human resources, Dan
Habighorst. It forwards revised drafts of Cudahy's initial
bargaining proposals. These drafts were not shared with
the Union.
PCI-35 was given to the law firm by Cudahy. It is a
letter dated March 26, 1985, from the law firm of Rein-
hart, Boerner, Van Dueren, Norris & Rieselbach to an
attorney representing Cudahy but not associated with the
law firm. It discusses the operation of the Union's pen-
sion fund.
PCI-38 constitutes the handwritten notes of Habigh-
orst taken during a strategy meeting with the law firm
on April 11, 1986, when the topic of a communication
program with employees by Cudahy was discussed.
PCI-39, dated April 25, 1986, is a draft of a speech
prepared by the law firm for Cudahy to deliver to its su-
pervisory staff. It was further revised and presented in a
different format at supervisory training sessions.
PCI-40, undated, constitutes the handwritten notes of
Habighorst taken during a telephone conversation with
the law firm. It reflects that the topic of Cudahy's com-
munication with its employees and supervisors was dis-
cussed.
PCI-41 constitutes the handwritten notes of Habigh-
orst taken from February through October 1986. It sum-
marizes bargaining strategy meetings with Cudahy and
the law firm.
PCI-42, dated October 3, 1986, and prepared by Ha-
bighorst, is a document which summarizes a meeting at-
tended by Cudahy, the law firm, and attorneys and
agents for Geo A. Hormel & Co. held on September 26,
1986. It reflects that the topic of the strike at Hormel's
Austin, Minnesota plant was discussed.
PCI-43, dated October 5, 1986, is a document for the
law firm which contains the handwritten notes of Ha-
bighorst identifying proposed contractual changes to be
incorporated into Cudahy's initial proposals.
PCI-44, dated October 21, 1986, is a document entitled
"Proposed Key Bargaining Changes-Company" prepared
by Habighorst, incorporated into PCI-2, and distributed
at the October 24, 1986 strategy meeting with the law
firm.
PC1-45, undated, constitutes the handwritten notes of
Habighorst in preparation for a telephone conference
with the law firm on October 13, 1986.The topics cov-
ered by this document include unemployment compensa-
976 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
tion eligibility and vacation benefits post-contract expira-
tion.
PCI-47, undated, constitutes the handwritten notes of
Finn relating to subjects to be covered in PCI-3.
PCI-48 constitutes the handwritten notes of Finn taken
during a contract negotiation strategy and planning
meeting held with the law firm and Cudahy on Septem-
ber 9, 1986.
PCI-49 constitutes the handwritten notes of Finn taken
during a contract negotiation strategy and planning
meeting with Cudahy only on September 19, 1986. The
topics reviewed and discussed at this meeting were in-
corporated into PC1-2.
PCI-50 constitutes the handwritten notes of Finn taken
during a contract negotiation strategy and planning
meeting with Cudahy only in September 1986. The
topics reviewed and discussed at this meeting were in-
corporated into PCI-2.
PCI-51 constitutes the handwritten notes of Finn relat-
ing to an analysis of the current union contract and sug-
gested contract proposals for the 1986 contract negotia-
tions in preparation for a meeting with the law firm held
on October 24, 1986. This information ultimately was in-
corporated into PC1-44 and PCI-2.
PCI-52 is a document prepared by Finn relating to an
analysis of the current union contract and suggested
areas that needed to be addressed by Cudahy's initial
contract proposals. This document was prepared for the
contract negotiation strategy meeting held with the law
firm and Cudahy on September 18, 1986.
PCI-53 is another copy of PCI-19.
PCI-55, dated July 11, 1986, is a document entitled
"Key Bargaining Changes" prepared by Habighorst and
ultimately incorporated in PCI-43 and PCI-44.
PCI-56 is a handwritten document entitled "Open
Items 12/30/86" prepared by the law firm in preparation
for a contract negotiation session with the federal media-
tor and used during caucus meetings with Cudahy's ne-
gotiation team.
PCI-57 is a typed copy of PCI-56.
PCI-58 is a document entitled "Open Items 1/20/87"
prepared by the law firm used during preparatory meet-
ings and in caucuses with the federal mediator.
PCI-59, undated, is a document entitled "Outline of
Final Offer/Katz Letter," which includes the handwrit-
ten notes of Pirkey taken during an internal law firm
meeting discussing the subjects of impasse and unilateral
implementation of Cudahy's final offer.
PCI-60 constitutes the handwritten notes of Pirkey
taken during bargaining caucuses and preparatory meet-
ings with the law firm and Cudahy of various dates.
PCI-61 constitutes typed and handwritten notes of
Pirkey related to Cudahy's proposed profit-sharing plan
contract proposal and was ultimately incorporated into a
tentative contract proposal reviewed by Cudahy and the
law firm.
PCI-62 constitutes the handwritten notes of Shelia
Gavin, a legal assistant with the law firm relating to the
subject of a strike and was used to prepare PCI-3.