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April 4, 1989


The opinion of the court was delivered by: GERRY



 This case involves a motion to quash a subpoena issued to the corporation under which a licensed psychologist operates his practice. The subpoena seeks appointment books, billing records, and notes of treatment relating to one of the psychologist's patients. The subpoena is objected to insofar as it requests the production of notes of treatment which may contain confidential communications made by the patient during psychotherapy. Such communications, the movant asserts on behalf of its patient, are shielded by the psychotherapist-patient privilege.

 This privilege, like the physician-patient privilege, was unknown at common law. However, under Rule 501 of the Federal Rules of Evidence, the federal common law analysis is not determined by the prior existence or non-existence of the privilege at common law. Hence, the court must consider two primary issues: (1) whether a psychotherapist-patient privilege protecting the confidential communications of psychotherapy patients should be recognized as a matter of federal common law and (2) if so, whether it applies to the documents sought by the grand jury's subpoena.


 The challenged subpoena was issued by a federal grand jury investigating allegations of possible criminal activity by certain health care providers, including physicians and psychologists, as well as attorneys. According to the Special Attorney of the United States Department of Justice assisting the grand jury, *fn1" the allegedly criminal activity consists in the generation and provision of "inflated and fraudulent bills to more than twenty-six casualty insurance companies in support of fraudulent insurance claims for personal injury and medical expenses." Wilson Affidavit, para. 2.

 The present grand jury investigation is closely related to a prior federal grand jury investigation of certain activities by a New Jersey law firm ("the law firm"). During that investigation, a search warrant was issued by United States Magistrate Jerome B. Simandle allowing the United States to seize and review certain of the law firm's files, subject to carefully crafted protective procedures. The legality of the warrant was subsequently upheld by the United States Court of Appeals for the Third Circuit. In re Impounded Case (Law Firm), 840 F.2d 196 (3d Cir. 1988).

 The affidavit which accompanied the warrant request established that there was probable cause to believe that the law firm, which is primarily engaged in the representation of plaintiffs in personal injury litigation, had violated the federal criminal law prohibiting mail fraud *fn2" by, inter alia, inflating the medical bills of its clients by securing false statements from physicians regarding the number of visits the clients made to these physicians. These statements were then mailed to insurance companies for use as a basis for settlement of these clients' personal injury suits. The search warrant allowed the United States to seize files specially marked to indicate that a fraudulent doctor's report was contained therein.

 Here, the grand jury has issued a subpoena for certain records of a corporation ("P-Corp"), under whose name a licensed psychologist of the State of New Jersey ("the psychologist") conducts his psychotherapeutic practice. *fn3" The subpoena calls for the production of all treatment and billing records possessed by P-Corp pertaining to a lawyer ("the lawyer"), a partner in the law firm, who was allegedly treated by the psychologist. *fn4"

 These records relate to the grand jury's investigation in the following manner. On June 1, 1983, the lawyer was involved in a rear-end automobile collision when he stopped his car suddenly and was hit from behind. After the accident there was no apparent damage to the lawyer's car, nor did the lawyer complain that he was injured, according to the driver of the other car involved in the accident.

 After the accident, the lawyer filed two insurance claims. The first was filed with the United Services Automobile Association, the lawyer's insurance carrier, and requested a payment of $ 4,836.88. The sum reflected wages the lawyer allegedly lost as a result of the accident, $ 800.00 for 10 psychotherapy sessions at P-Corp, and $ 960.00 for 27 visits to a physician. The second claim was filed with the other driver's insurance company, the General Accident Insurance Company, and asked for $ 35,000 as payment for pain and suffering caused by the accident. When this claim was rejected, the lawyer instituted a tort action in the Superior Court of New Jersey. The case was dismissed after the lawyer obtained a $ 12,500 settlement.

 The grand jury has developed information leading it to suspect that these claims for medical and psychotherapeutic services were fraudulent. Apparently, of the 70 potentially fraudulent insurance claims the grand jury has linked to this firm, approximately one-third of the cases were assigned to the lawyer. Moreover, the grand jury's information is that this psychologist routinely provided clients of the law firm with psychological reports diagnosing various psychological maladjustments resulting from automobile accidents in which these clients were involved. These diagnoses are supposedly boiler-plate reports which contain recitations of various maladies. *fn5" Virtually all relate to persons involved in low-speed "fender-benders" in which the law firm/P-Corp clients suffered soft-tissue injuries such as aches and strains.

 To determine whether P-Corp's bill for services provided to the lawyer was inflated, and whether the lawyer was actually treated by the psychologist, and if so, whether the treatment was impelled by the June 1, 1983 accident or some other reason, the grand jury seeks to examine P-Corp's records relating to its treatment of the lawyer. P-Corp did not originally challenge the sufficiency of the affidavit supporting the subpoena; however, it did raise such an objection shortly before the court's hearing on this matter. The court is unpersuaded by this argument. *fn6" P-Corp's central argument is that the notes of treatment sought by the grand jury are privileged, and that the patient has not waived the privilege and is relying on the psychologist and P-Corp to assert it on his behalf. The United States does not challenge P-Corp's standing to do so, in light of its possession and ownership of certain of the records, the status of the movant as a subject of the investigation, and the traditionally accepted practice of physicians and/or psychologists asserting the privileges held by their patients. *fn7" Therefore, we turn our attention to this issue.


 The starting point for our consideration of whether a psychotherapist-patient privilege shields the evidence sought by the subpoena is Federal Rule of Evidence 501, see Fed. R. Evid. 1101(d)(2), which provides:

Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State or political subdivision thereof shall be determined in accordance with State law.

 Fed. R. Evid 501 (emphasis added).

 The pertinent language comports with the practice under prior Rule 26 of the Federal Rules of Criminal Procedure. 2 J. Weinstein & M. Berger, Weinstein's Evidence para. 501[02]-[03], at 501-19 to 34 (1988) [hereinafter Weinstein's Evidence ]; United States v. Panetta, 436 F. Supp. 114, 125 (E.D. Pa. 1977), aff'd without opinion, 568 F.2d 771 (3d Cir. 1978). While the issue before us concerns a grand jury subpoena and not a request for evidence or testimony in a criminal trial, no reason suggests itself why different rules of privilege should apply to proceedings which are both necessary to the effective enforcement of federal criminal law.

 When Congress adopted the Federal Rules of Evidence, it rejected several specific privileges proposed by the Supreme Court, including Proposed Rule of Evidence 504, which embodied a narrowly crafted psychotherapist-patient privilege, in favor of the present Rule 501. By so doing "Congress manifested an affirmative intention not to freeze the law of privilege. Its purpose rather was to provide the courts with the flexibility to develop rules of privilege on a case-by-case basis, and to leave the door open to change." Trammel v. United States, 445 U.S. 40, 47, 63 L. Ed. 2d 186, 100 S. Ct. 906 (1980); see also United States v. Gillock, 445 U.S. 360, 367, 63 L. Ed. 2d 454, 100 S. Ct. 1185 (1980) (Rule 501 was substituted by Congress to give the courts "greater flexibility in developing rules of privilege on a case-by-case basis."). As such, the common law's failure to recognize the privilege is not determinative.

 Nevertheless, while this court has the authority to recognize a psychotherapist-patient privilege in the grand jury context, Trammel, 445 U.S. at 47, this authority must be exercised with prudence because evidentiary privileges are not favored since "they are in derogation of the search for the truth." United States v. Nixon, 418 U.S. 683, 711, 41 L. Ed. 2d 1039, 94 S. Ct. 3090 (1974) (quoted in In re Zuniga, 714 F.2d 632, 638 (6th Cir.) cert. denied, 464 U.S. 983, 78 L. Ed. 2d 361, 104 S. Ct. 426 (1983)). Most importantly, evidentiary privileges must be "strictly construed and accepted only to the very limited extent that permitting a refusal to testify or excluding relevant evidence has a public good transcending the normally prudent principle of utilizing all rational means for ascertaining truth." Trammel, 445 U.S. at 50 (citations and quotations omitted). Thus, the evaluation of whether a new privilege is justified "by the principles of the common law . . . interpreted . . . in the light of reason and experience" will depend on the balance the court strikes between the interests supported by the asserted privilege and those served by the production of relevant evidence. Weinstein's Evidence para. 501[03], at 501-33 to 34.

 In a recent decision, the Court of Appeals for the Third Circuit indicated that district courts grappling with an assertion of privilege under Federal Rule of Evidence 501 should undertake a two-step analysis. In re Grand Jury (Granite Purchases), 821 F.2d 946, 955 (3d Cir. 1987), cert. denied, 484 U.S. 1025, 98 L. Ed. 2d 762, 108 S. Ct. 749 (1988). The analysis requires the court to "first decide whether a qualified privilege exists or should exist before deciding how to apply it to a particular case." Id. at 955. The justification for this process was well-stated in Judge Becker's opinion for the Court:

By insisting on a two-step process, courts guide their discretion with rules developed from accumulated wisdom about the situations that justify a privilege. The requirement of general privilege rules also enables private actors to rely on those rules and thereby to engage more freely in the conduct privileges aim to encourage. Thus, although the concept of the qualified privilege permits courts to uphold or reject privilege claims in light of the particulars of an individual case, the decision to recognize a qualified privilege must still follow from a more broad-based view of how the privilege will work in general.


 While this analysis may involve a necessary balancing of interests, weight may be placed on the side of an asserted privilege only after the court determines that the privilege is supported by a specific justification "for courts should apply privileges 'only to the extent necessary to achieve their purpose.'" Id. at 955 (quoting In the Matter of Grand Jury Impaneled January 21, 1975 (Freedman & Cortese), 541 F.2d 373, 382 (3d Cir. 1976)).

 That is, we are required, as an initial matter, to analyze whether a psychotherapist-patient privilege of some form furthers sufficiently important and overriding interests so that recognition of the privilege is appropriate under Rule 501. If a privilege is recognized, we must then decide whether factors specific to the case before us dictate that the privilege must give way. We are aware that privileges do not confer "absolute" or "unqualified" immunity upon their holders. *fn8" Lora v. Board of Educ., 74 F.R.D. 565, 577 (E.D.N.Y. 1977) (Weinstein, J.); later proceeding, 456 F. Supp. 1211 (E.D.N.Y. 1978), vacated on other grounds, 623 F.2d 248 (2d Cir. 1980), on rem., 587 F. Supp. 1572 (E.D.N.Y. 1984).

 And though this balancing of interests seems incongruously legislative in nature, we take some solace in the congressional intent which underlies Rule 501 and in the fact that our task is by no means alien to us. For "as in most other areas of the law, we must engage in the delicate task of weighing competing interests." United States v. Westinghouse Elec. Corp., 638 F.2d 570, 578 (3d Cir. 1980).

 A. How the Privilege Generally Operates

 The decision to recognize a psychotherapist-patient privilege must flow from a "broad-based view of how the privilege will work in general." Granite Purchases, 821 F.2d at 955. To inform this aspect of our analysis, both the movant and the government point to the original draft of the Federal Rules of Evidence.

 The Federal Rules of Evidence as promulgated by the United States Supreme Court on November 20, 1972, and as sent to the Congress on February 5, 1973, contained a psychotherapist - patient privilege in Proposed Rule 504. Though Congress did not adopt this rule, its contours are still useful in considering whether a psychotherapist-patient privilege should be adopted as a matter of federal common law, Lora, 74 F.R.D. at 584, and suggestive of what form such a privilege might take.

 Proposed Rule 504 provided:

(a) Definitions.
(1) A "patient" is a person who consults or is examined or interviewed by a psychotherapist.
(2) A "psychotherapist" is (A) a person authorized to practice medicine in any state or nation, or reasonably believed by the patient so to be, while engaged in the diagnosis or treatment of a mental or emotional condition, including drug addiction, or (B) a person licensed or certified as a psychologist under the laws of any state or nation, while similarly engaged.
(3) A communication is "confidential" if not intended to be disclosed to third persons other than those present to further the interest of the patient in the consultation, examination, or interview, or persons reasonably necessary for the transmission of the communication, or persons who are participating in the diagnosis and treatment under the direction of the psychotherapist, including members of the patient's family.
(b) General rule of privilege. A patient has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications, made for the purposes of diagnosis or treatment of his mental or emotional condition, including drug addiction, among himself, his psychotherapist, or persons who are participating in the diagnosis or treatment under the direction of the psychotherapist, including members of the patient's family.
(c) Who may claim the privilege. The privilege may be claimed by the patient, by his guardian or conservator, or by the personal representative of a deceased patient. The person who was the psychotherapist may claim the privilege but only on behalf of the patient. His authority so to do is presumed in the absence of evidence to the contrary.
(d) Exceptions.
(1) Proceedings for hospitalization. There is no privilege under this rule for communications relevant to an issue in proceedings to hospitalize the patient for mental illness, if the psychotherapist in the course of diagnosis or treatment has determined that the patient is in need of hospitalization.
(2) Examination by order of judge. If the judge orders an examination of the mental or emotional condition of the patient, communications made in the course thereof are not privileged under this rule with respect to the particular purpose for which the examination is ordered unless the judge orders otherwise.
(3) Condition an element of claim or defense. There is no privilege under this rule as to communications relevant to an issue of the mental or emotional condition of the patient in any proceeding in which he relies upon the condition as an element of his claim or defense, or after the patient's death, in any proceeding in which any party relies upon the condition as an element of his claim or defense.

 Though we need not do so, we accept the general outline of Proposed Rule 504 as indicative of how a psychotherapist-patient privilege would operate in federal law. The Proposed Rule evinces a belief that the benefits reaped by privileging confidential communications made during psychotherapy exceed any cost the privilege imposes as a result of the loss of relevant evidence, except in three circumstances. It is this assumption which this court, to the extent it is able, must test. The movant has not contested the desirability of these exceptions, and, therefore, we assume that they have vitality for purposes of this motion. While recognizing Proposed Rule 504 as a general guide, however, this court believes that further exceptions to the general operation of the privilege ...

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