By Samson Habte
An e-mail that suggested a businessman “thought about” using his lawyer’s work product to cover up a money-laundering scheme wasn’t stripped of its privileged status under the crime-fraud exception to the attorney work product doctrine and thus shouldn’t have been shown to a grand jury, the U.S. Court of Appeals for the Third Circuit held Jan. 27 ( In re Doe , 2017 BL 24658, 3d Cir., No. 15-2475, 1/27/17 ).
The panel said the appeal presented “an important question” regarding the scope of the crime-fraud exception—which, although recognized in the privilege jurisprudence of every state, has been the subject of just a single U.S. Supreme Court case.
The exception allows litigation opponents—including adverse parties in civil actions, and prosecutors in criminal cases—to obtain an opponent or defendant’s otherwise confidential communications with counsel if there’s reason to believe that person used a lawyer’s advice to further a crime or fraud.
In a unanimous unsigned opinion, the three-judge panel announced a limit on the crime-fraud exception—holding that “an actual act to further [a] fraud is required before attorney work product loses its confidentiality.”
In doing so, the panel reversed a district court judge who “stripped an attorney’s work product of confidentiality based on evidence suggesting only that the client had thought about using that product to facilitate a fraud, not that the client had actually done so.”
The appellate ruling was a victory for “John Doe,” an anonymous businessman who was indicted—along with his lawyer and a business associate—on racketeering, money-laundering and fraud charges.
The defendants stand accused of conspiring to defraud class action plaintiffs in Indiana who filed one of several lawsuits against Doe’s business (“Company A”). Prosecutors say Doe transferred ownership of Company A to his less-wealthy associate in a sham transaction. The government claims the transfer was designed to pressure the class plaintiffs to settle for less than they would have, had they known that Doe still owned Company A.
Doe’s tax returns suggested he maintained ownership of Company A after the purported sale. Prosecutors wanted to show a grand jury an incriminating e-mail in which Doe’s lawyer advised him of steps he needed to take to ensure his tax records reflected his purported sale of the company.
A district court judge allowed the grand jury to see that e-mail, which Doe had forwarded to his accountant along with a message that simply stated: “Please see the seventh paragraph down re: my tax returns. Then we can discuss this.”
The appeals court said the district judge properly found that the e-mail wasn’t protected by the attorney-client privilege. “Doe waived [the] privilege by forwarding the e-mail to his accountant,” the panel said.
However, the appeals court held that the work-product privilege did attach to the e-mail—rejecting the district judge’s finding that the crime-fraud exception vitiated that protection.
The panel noted that there are two elements to the crime-fraud exception. Quoting case law, it said a party invoking the exception “must demonstrate that there is a reasonable basis to suspect (1) that the [lawyer or client] was committing or intending to commit a crime or fraud, and (2) that the . . . attorney work product was used in furtherance of that alleged crime or fraud.”
The court said the government “readily” satisfied the first requirement.
In addition to the e-mail, prosecutors obtained a recording in which Doe allegedly bragged about defrauding the class action plaintiffs that sued Company A. According to the opinion, Doe “purportedly admits in that recording to telling his associate—the same one who was supposed to have already purchased Company A—‘I’ll pay you ten grand a month if you will step up to the plate and say that you [own the company] and upon the successful completion of the lawsuit [I’ll] give you fifty grand.’”
But that “strong” evidence wasn’t sufficient by itself to pierce the work product protection, the panel said.
“We have been clear that ‘evidence of a crime or fraud, no matter how compelling, does not by itself satisfy both elements of the crime-fraud exception,’” the court said, citing In re Chevron Corp., 633 F.3d 153, 27 Law. Man. Prof. Conduct 92 (3d Cir. 2011).
“Rather, the second requirement—use in furtherance—exists for the same reason that certain conspiracy statutes require proof that a defendant engaged in an overt act to further the crime,” the court said. “In both settings we want to make sure that we are not punishing someone for merely thinking about committing a bad act.”
The appellate panel said the “only purported act in furtherance” that the district court identified was Doe forwarding the e-mail to his accountant.
“If he had followed through and retroactively amended his tax returns, we would have no trouble finding an act in furtherance,” the panel said. “Even if Doe had told the accountant to amend the returns and later gotten cold feet and called off the plan before it could be effected, there might still be a case to be made.”
But none of that happened, the court said.
“Doe merely forwarded the email to the accountant and said he wanted to ‘discuss’ it,” the court said. “Thus Doe at most thought about using his lawyer’s work product in furtherance of a fraud, but he never actually did so.”
Todd Presnell, a business litigator who often advises corporations and their lawyers on how to protect evidentiary privileges, told Bloomberg BNA that the Doe decision didn’t represent an earth-shattering doctrinal development.
“I don’t know that it creates a new exception or narrows the crime-fraud exception,” said Presnell, a partner at Bradley Arant Boult Cummings LLP in Nashville and author of the blog Presnell on Privileges.
But Presnell said it was a bit surprising to see a federal appeals court undertake such a granular review of a district judge’s factual determination as to whether the crime-fraud exception did or did not apply in a particular case.
“It can be a fact-intensive inquiry in terms of what somebody did with a lawyer’s advice, and that’s better suited for the trial court to make a determination,” said Presnell.
“It’s rare to find a federal appellate court decision on this,” said Presnell. “Rarely are you going to see an appellate court overturn a factual finding like that.”
The appeal was heard by former Chief Judge Theodore A. McKee and Judges Thomas L. Ambro and Anthony J. Scirica.
Scott A. Resnik of Katten Muchin Rosenman LLP, New York, argued for Doe. Assistant United States Attorney Mark B. Dubnoff argued for the government.
To contact the reporter on this story: Samson Habte in Washington, D.C. at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ethan Bowers at email@example.com
Copyright © 2017 American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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