Understanding the Crime–Fraud Exception to the Attorney–Client Privilege and Work Product Immunity
By
By
Douglas R. Richmond[1]⃰
In October 2017, a federal grand jury indicted President Donald Trump’s former campaign chairman, Paul Manafort, and Manafort’s protégé, Richard Gates, on 12 felonies.[2] The charges against them included conspiracy against the United States, conspiracy to launder money, failure to file reports of foreign bank and financial accounts, acting as unregistered agents of a foreign principal, making false and misleading statements under the Foreign Agents Registration Act (FARA), and making false statements to the Department of Justice.[3] The government further asserted in the indictment that it planned to seek the forfeiture of valuable property and assets that embodied or were derived from proceeds linked to crimes of which Manafort or Gates were ultimately convicted.[4]
As politically and publicly dramatic as Manafort’s and Gates’s indictments were, they were in part the result of behind-the-scenes drama of keen interest to lawyers. In a nutshell, the Special Counsel investigating foreign interference in the 2016 presidential election—and derivatively Manafort’s and Gates’s activities—compelled the men’s lawyer to testify before the grand jury regarding aspects of her representation of them while they were targets of the investigation.[5] The Special Counsel obtained the lawyer’s testimony despite her invocation of the attorney–client privilege and work product immunity.[6] The Special Counsel pierced the attorney–client privilege and work product immunity through the crime–fraud exception to these important protections.[7]
The idea that a lawyer can be compelled to testify about her representation of a client or to reveal confidential communications with a client is anathema to lawyers and clients alike. Indeed, the attorney–client privilege exists precisely to protect confidential communications between lawyers and clients for purposes of providing or obtaining legal advice.[8] By enabling open communications between a lawyer and her client, free from fear of compelled disclosure, the privilege enables the lawyer to immerse herself in the client’s matter.[9] In contrast, a lawyer’s ability to responsibly advise a client would be seriously compromised if the lawyer had to caution the client about sharing relevant information should the lawyer later be forced to reveal the substance of their communications.[10] Plus, by promoting full and frank communications between clients and their lawyers, the attorney–client privilege promotes “broader public interests in the observance of law and administration of justice.”[11]
Work product immunity is a separate but equally vital confidentiality doctrine. Work product immunity generally shields from discovery materials that lawyers and their agents prepare in anticipation of litigation, and it affords almost absolute protection against the discovery of lawyers’ conclusions, legal theories, mental impressions, and opinions.[12] The work product doctrine is essential to lawyers’ effective representation of clients in litigation and to the justice system.[13]
The important interests that the attorney–client privilege and work product immunity serve, however, have limits. As the Supreme Court has explained in regard to the privilege:
The attorney–client privilege must necessarily protect the confidences of wrongdoers, but the reason for that protection—the centrality of open client and attorney communication to the proper functioning of our adversary system of justice—“ceas[es] to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing.”[14]
Work product immunity also must yield where otherwise protected materials were prepared in furtherance of an ongoing or planned crime or fraud. The work product doctrine exists to promote the adversary process—not to distort or pervert it.[15]
Although the crime–fraud exception to the attorney–client privilege and work product immunity is widely-recognized, its application has long been confusing and it remains so today.[16] In fact, “crime–fraud” is something of a misnomer because courts have applied the exception to abrogate the attorney–client privilege and work product immunity in cases involving claims or causes of action that stretch traditional concepts of crimes and frauds.[17] In doing so, they have tended to focus on the nature of the wrongful conduct alleged, rather than on how the conduct is classified, pled, or titled.[18] Misconduct that equates to fraud or that is grounded in dishonesty frequently suffices to trigger the crime–fraud exception. For instance, courts have applied the crime–fraud exception in cases involving breaches of fiduciary duty,[19] civil contempt of court,[20] conversion,[21] gross negligence,[22] inequitable conduct in patent prosecution,[23] insurance bad faith,[24] intentional infliction of emotional distress,[25] “intentional torts moored in fraud,”[26] an “intentional tort that undermines the adversary system itself,”[27] improper ex parte communications with represented parties as part of a “sting” operation,[28] pretextual justifications for terminating a plaintiff’s employment in violation of federal anti-discrimination laws,[29] “sham” litigation,[30] surreptitious background investigations of a party and her lawyer,[31] tortious interference with contract or business relations based on a misrepresentation,[32] and a bank’s wrongful denial of an account holder’s access to his funds.[33] In some cases, courts appear to have simply made policy choices in equating particular causes of action with civil fraud.[34]
Confusion extends even to the use of the term “exception.” As a Virginia federal court explained, while “referred to as an ‘exception’ to the attorney–client [privilege] and work product [doctrine], the crime/fraud exception is not truly an exception.”[35] In fact, the court reasoned, “it is an exclusion of certain activity from the [protective] reach” of the privilege and work product immunity.[36] Fortunately, whether the crime–fraud exception is properly characterized as an exception to the privilege and work product immunity or as an exclusion is largely inconsequential.
This Article aims to lessen confusion over the crime–fraud exception to the extent possible by examining key aspects of the exception in both the attorney–client privilege and work product immunity contexts. The examination begins in Part II with a foundational discussion of the attorney–client privilege and the work product doctrine. Part III analyzes the crime–fraud exception to the attorney–client privilege. The discussion in Part III centers on the test for applying the exception, which requires (1) the client to be committing or intending to commit a crime or fraud at the time she consulted the lawyer; and (2) the attorney–client communications to be in furtherance of the alleged crime or fraud. Part IV addresses the crime–fraud exception to work product immunity, which both parallels and differs from the exception’s application to the privilege.
The attorney–client privilege and work product immunity are distinct doctrines and must be analyzed separately, but their protections sometimes overlap, and courts frequently consider them in connection with one another.
The attorney–client privilege is one of the oldest common law privileges protecting confidential communications,[37] and it is now widely codified.[38] The mere existence of an attorney–client relationship does not necessarily implicate the privilege;[39] rather, certain requirements must be met to trigger its protections. The best known privilege test was announced years ago in United States v. United Shoe Machinery Corp.[40] The United Shoe test famously provides that the privilege applies if:
(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.[41]
Although the United Shoe test implies that the privilege covers only communications from the client to the attorney, confidential communications from an attorney to a client are also privileged.[42] The attorney–client privilege is a two-way street.
The Restatement (Third) of the Law Governing Lawyers articulates the elements of the attorney–client privilege more succinctly.[43] Section 68 provides that the privilege attaches “to: (1) a communication (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client.”[44] “Privileged persons” include the client or prospective client, the lawyer, agents of the client or prospective client and the lawyer who facilitate communications between them, and agents of the lawyer who assist in the client’s representation.[45]
The attorney–client privilege belongs to the client.[46] The privilege attaches to initial consultations between attorneys and prospective clients, even if the client does not ultimately retain the attorney.[47] Once an attorney–client relationship is established, the client may assert the privilege at any time during the relationship or after the relationship ends.[48]
Because the privilege protects attorney–client communications, an otherwise privileged exchange between a client and a lawyer containing information that could be discovered by other means remains shielded from discovery.[49] As suggested earlier, however, there is no blanket privilege covering all attorney–client communications.[50] The client must assert the privilege with respect to each communication in question, and the presiding court must scrutinize each communication independently.[51] The party invoking the privilege bears the burden of establishing its application to particular communications.[52]
A party seeking to protect written or electronic communications from discovery does not have to identify them as “privileged” or “confidential” for the attorney–client privilege to attach.[53] On the other hand, a party cannot shield a communication from discovery simply by branding it “confidential” or “privileged.”[54] Similarly, a client cannot cloak a communication in the attorney–client privilege simply by routing it through a lawyer or by copying a lawyer on the communication.[55] Rather, a communication must bear all of the hallmarks of the privilege for it to be protected.[56]
The attorney–client privilege benefits organizations as well as individuals.[57] As obvious as that principle should be, it may be difficult in the organizational context to determine who among the entity’s employees may have privileged communications. Courts have traditionally applied two tests to analyze organizational privilege claims: the “control group” test and the “subject matter” test. Some courts have adopted a third test that closely tracks the subject matter test, which is often called the “modified subject matter” test.[58]
Applying the control group test, communications must be made by an employee who is positioned “to control or take a substantial part in the determination of corporate action in response to legal advice” for the privilege to attach.[59] Only these employees qualify as the “client” for attorney–client privilege purposes.[60] The control group test essentially requires that the employee for which an attorney communicates with be a member of senior management for the communication to be privileged.[61]
Alternatively, under the subject matter test, a communication with any employee may be privileged if it is intended to secure legal advice for the corporation, the employee is communicating with the lawyer at a superior’s request or direction, and the employee’s responsibilities include the subject of the communication.[62] Applying this test, the employee’s position or rank is irrelevant to the privilege analysis.[63] The Supreme Court embraced the subject matter approach in Upjohn Co. v. United States,[64] although it declined to formulate a specific test.[65] Regardless, it is clear following Upjohn that under the subject matter test, a lawyer’s confidential communications with any employee are privileged when they concern matters within the scope of the employee’s responsibilities and the employee is aware that the communications are intended to enable or facilitate the lawyer’s representation of the corporation.[66]
The third test is variously referred to as the “modified Harper & Row test,”[67] the “Diversified Industries test,”[68] or the modified subject matter test.[69] Under this test, the attorney–client privilege attaches to communications between an employee and a lawyer for the organization if:
In fact, this test is basically the subject matter test with the additional “need to know” condition, hence the modified subject matter test label.
Courts narrowly construe the attorney–client privilege because it limits full disclosure of the truth.[71] For example, while the privilege protects the content of attorney–client communications from disclosure, it does not prevent disclosure of the facts communicated.[72] Those facts remain discoverable by other means.[73] Nor does the attorney–client privilege shield from discovery communications generated or received by an attorney acting in some other capacity,[74] or communications in which an attorney is giving business advice rather than legal advice.[75]
Finally, the attorney–client privilege may be waived either voluntarily or by implication.[76] The party seeking to overcome the privilege generally bears the burden of establishing a waiver,[77] although some courts hold that the party asserting the privilege bears the burden of establishing that it has not been waived.[78]
In addition to the attorney–client privilege, information may be shielded from discovery by work product immunity. The attorney–client privilege and work product immunity are separate and distinct doctrines.[79] Although courts and lawyers often describe the work product doctrine as the “work product privilege,” it is actually a form of qualified immunity.[80] Work product immunity applies in both civil and criminal cases.[81]
Unlike the attorney–client privilege, which is the client’s to assert, it is often said that the lawyer holds work product immunity.[82] It is certainly true that a lawyer may assert work product immunity on her own behalf.[83] But in fact, both the lawyer and the client hold work product immunity, and either may assert it to avoid discovery.[84]
A party claiming work product protection bears the burden of establishing that it applies to the information at issue.[85] “As with the attorney–client privilege, an assertion that a document [or other information] is protected by the work product doctrine must be established by specific facts and not conclusory statements.”[86] A party “cannot create work product solely by the nomenclature used to entitle documents.”[87] Simply labeling or describing a document as “work product” does not make it so,[88] nor does copying a lawyer on the document.[89]
The protection afforded by work product immunity is broader than that conferred by the attorney–client privilege in terms of the array of information it shields from discovery.[90] Work product immunity is not limited—as is the attorney–client privilege—to confidential communications between a lawyer and a client.[91] The work product doctrine protects lawyers’ effective trial preparation by immunizing certain information from discovery, including materials prepared by attorneys’ agents.[92]
There are two categories of work product: “tangible” or “fact” work product and “opinion” work product.[93] To qualify as tangible work product, the material to be protected must be a document or tangible thing prepared in anticipation of litigation by or for a party, or by or for the party’s representative.[94] Opinion work product refers to an attorney’s conclusions, legal theories, mental impressions, or opinions.[95]
The work product doctrine is codified in Federal Rule of Civil Procedure 26(b)(3) and its state counterparts.[96] Rule 26(b)(3) provides in pertinent part:
(A) Documents and Tangible Things. Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent). But, subject to Rule 26(b)(4), those materials may be discovered if:
(i) they are otherwise discoverable under Rule 26(b)(1); and
(ii) the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.
(B) Protection Against Disclosure. If the court orders discovery of those materials, it must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party’s attorney or other representative concerning the litigation.[97]
Federal Rules of Criminal Procedure 16(a)(2) and (b)(2) codify work product immunity in criminal cases.[98]
Similar to the attorney–client privilege, work product protection is not absolute and may be waived,[99] although conduct that waives the privilege may not waive work product immunity.[100] Consequently, any alleged waiver of the two doctrines must be analyzed separately.[101]
As for the principle that work product immunity is not absolute, consider, for example, that it does not shield from discovery facts known by or shared with a lawyer.[102] Moreover, a party generally may discover its adversary’s tangible work product if it demonstrates substantial need of the materials to prepare its case, and it is unable without undue hardship to obtain the substantial equivalent of the materials by other means.[103]
In comparison to tangible work product, opinion work product receives almost absolute protection against discovery.[104] To discover an adversary’s opinion work product, a party must demonstrate something far greater than the substantial need and undue hardship necessary to obtain tangible work product.[105] Opinion work product is discoverable only if the target lawyer’s conclusions, mental impressions, or opinions are at issue in the case and there is a compelling need for their discovery.[106] The circumstances in which this test is met are exceptional and rare.[107]
In contrast to the attorney–client privilege, which is not restricted to communications about litigation, information must be generated or prepared “in anticipation of litigation” to qualify as work product.[108] Documents prepared in the ordinary course of business, or that would have been prepared regardless of whether litigation was anticipated, are not entitled to work product immunity.[109]
As the anticipation-of-litigation requirement signals, work product immunity attaches before litigation is initiated.[110] Materials prepared in anticipation of litigation retain their work product immunity even if litigation never ensues.[111]
Finally, materials said to be work product may have been prepared for multiple purposes. Courts approach this problem in one of two ways. In some jurisdictions, a court must ascertain “the primary motivating purpose” for the documents’ creation.[112] “If the primary motivating purpose is other than to assist in pending or impending litigation,” then the materials are not protected as work product.[113] Other jurisdictions favor a “because of” test.[114] Using this test, “the work product doctrine can reach documents prepared ‘because of litigation’ even if they were prepared in connection with a business transaction or also served a business purpose.”[115] Or, viewed from another angle, “material generated in anticipation of litigation may also be used for ordinary business purposes without losing its protected status.”[116] Regardless, the determination of whether multi-purpose materials qualify as work product is a case- and fact-specific inquiry.[117]
Most crime–fraud exception cases involve the attorney–client privilege.[118] To overcome an opponent’s attorney–client privilege under the exception, a party “‘must make a prima facie showing that (1) the client was committing or intending to commit a fraud or crime, and (2) the attorney–client communications were in furtherance of that alleged crime or fraud.’”[119] As the conjunction “and” reflects, a party must satisfy both prongs of the test to potentially discover otherwise privileged communications.[120] Once the moving party makes that showing, the trial court must then determine whether, in fact, the crime–fraud exception applies.[121] In contrast, if the moving party cannot make its prima facie showing, that failure ends the inquiry.[122]
Although many courts apply the two-part test described above, they do not agree on the level of proof—or at least on how to describe the level of proof—required to make the prima facie showing to trigger the exception.[123] Some courts require the party seeking to overcome the privilege to establish “a reasonable basis to believe” or “a reasonable basis to suspect” that the client used the lawyer’s services to further a crime or fraud.[124] This standard is aptly known as the “reasonable basis standard.”[125] In what is surely an identical approach using equivalent language, courts may instead require the movant to demonstrate that “a reasonable person would have a reasonable belief” that the exception should apply,[126] or that there is “‘reasonable cause to believe’” the client used the lawyer’s services to further a qualifying crime or fraud.[127] “Reasonable cause is more than suspicion but less than a preponderance of [the] evidence.”[128]
Other courts apply a probable cause standard,[129] which requires the inquiring party to “at least demonstrate that there is probable cause to believe that a crime or fraud has been attempted or committed and that the communications [between the client and lawyer] were in furtherance thereof.”[130] As a practical matter, the reasonable basis or reasonable cause and probable cause standards are identical or nearly so.[131]
Still other courts reason that a party makes a prima facie case for purposes of the crime–fraud exception by offering evidence “‘which, on its face, is good and sufficient to establish a given fact, though it can ultimately be rebutted or contradicted.’”[132] Or, in the same vein, the party invoking the crime–fraud exception bears the initial burden of offering evidence “which, if unexplained, would be prima facie proof of the existence of the exception.”[133] Assuming the moving party does so, “[t]he burden of persuasion then shifts to the party asserting the privilege to give a reasonable explanation of the conduct or communication.”[134]
In the Fifth Circuit, a party seeking to pierce the privilege makes its prima facie showing through “evidence ‘such as will suffice until contradicted and overcome by other evidence . . . a case which has proceeded upon sufficient proof to that stage where it will support [a] finding if evidence to the contrary is disregarded.’”[135] The Fifth Circuit originally adopted this definition from Black’s Law Dictionary.[136]
The Seventh Circuit has taken two positions. In United States v. BDO Seidman, LLP,[137] the court stated that the party seeking to abrogate the attorney–client privilege makes a prima facie showing “by bringing forth sufficient evidence to justify the district court in requiring the proponent of the privilege to come forward with an explanation for the evidence offered against it.”[138] Later, in United States v. Boender,[139] the court explained that a prima facie showing requires “‘a factual basis adequate to support a good faith belief by a reasonable person that in camera review of the materials may reveal evidence to establish the claim that the crime–fraud exception applies.’”[140]
The District of Columbia Circuit reasons that a party makes its prima facie case “‘if it offers evidence that if believed by the trier of fact would establish the elements of an ongoing or imminent crime or fraud.’”[141] The Fourth and Eleventh Circuits also employ the “believed by the trier of fact” standard,[142] as do Texas courts.[143]
Other courts may apply a preponderance of the evidence standard.[144] In the end, the proof required to make a prima facie showing that the crime–fraud exception applies depends on the court. Such a result is unremarkable, considering that “prima facie” is “among the most rubbery of all legal phrases; it usually means little more than a showing of whatever is required to permit some inferential leap sufficient to reach a particular outcome.”[145] Nonetheless, there are principles on which courts agree.
First, a bare allegation of an ongoing or planned crime or fraud will not satisfy a party’s prima facie burden.[146] Allegations in pleadings and briefs are not evidence and will not meet a party’s prima facie burden.[147] Second, but relatedly, speculation or suspicion that the client is using the lawyer’s services to further a crime or fraud will not trigger the exception.[148] There must be a firm factual foundation for the crime or fraud claim. Third, although a moving party must offer more than mere allegations, speculation, or suspicion of a crime or fraud to make a prima facie showing, it need not prove the existence of a crime or fraud, either.[149] “A lesser evidentiary showing is needed to trigger in camera review than is required to ultimately overcome the privilege.”[150] At this stage of a proceeding, a court does not assess the credibility of evidence in deciding if there is a factual foundation for crime or fraud allegations.[151] Fourth, a moving party cannot rely on the communications at issue to make its prima facie showing.[152] In other words, a movant cannot simply allege that the disputed communications, if disclosed, will contain evidence of criminal or fraudulent activity. To allow that tactic would put the cart before the horse. Fifth, a party that cannot initially satisfy its prima facie burden may try again after conducting additional discovery or investigation, or eliciting additional testimony.[153]
Courts’ reference to inquiring parties’ obligation to make a prima facie showing that the crime–fraud exception applies to attorney–client communications would seem to imply that the party resisting disclosure should have the opportunity to rebut or refute those claims. In UMG Recording, Inc. v. Bertelsmann AG (In re Napster, Inc. Copyright Litigation),[154] the Ninth Circuit held that “in civil cases where outright disclosure is requested,” the party asserting the privilege “has the right to introduce countervailing evidence.”[155] The In re Napster court was further “convinced . . . that in a civil case the party resisting an order to disclose materials allegedly protected by the attorney–client privilege must be given the opportunity to present evidence and argument in support of its claim of privilege.”[156] Given those somewhat inconsistent expressions of position, lawyers may wonder whether a party in a civil case is entitled to present countervailing evidence if the trial court will conduct an in camera review of ostensibly privileged materials before ordering their disclosure rather than ordering disclosure “outright.”[157] The Third Circuit has held that in camera review does not deny the party claiming the privilege of the opportunity to dispute the application of the crime–fraud exception.[158] Other courts have agreed,[159] with some noting that the court is not required to allow the party claiming the privilege to rebut or refute the inquiring party’s allegations.[160]
As a practical matter, a party in a civil case facing a motion to pierce its attorney–client privilege will oppose the motion through argument in briefs or memoranda, as well as through affidavits or other non-privileged evidence supporting its privilege claim.[161] Thus, the party asserting the privilege will generally have an opportunity to rebut or refute the moving party’s prima facie case.[162] The trial court should have no incentive to vitiate the privilege without hearing the parties’ competing positions. Accordingly, in civil cases, the issue distills to whether a trial court must conduct a hearing to determine whether a party has made a prima facie showing of a crime or fraud. In federal courts a hearing is not required; the court may decide the issue based on the parties’ written submissions.[163] State courts may take different approaches.[164]
The approach changes where grand jury proceedings are concerned.[165] In the grand jury context, the government may proffer ex parte the evidence supporting its crime–fraud exception claim, and the court may then “weigh that evidence, gauge its adequacy, and rule on the claim without affording the putative privilege-holder a right to see the evidence proffered or an opportunity to rebut it.”[166]
A party that makes a prima facie showing that its opponent (1) was committing or planned to commit a fraud or crime, and that (2) the attorney–client communications at issue were in furtherance of that alleged crime or fraud is not necessarily entitled to discover those communications.[167] Rather, in most cases, the trial court will then review the subject communications in camera to determine whether the crime–fraud exception applies. The decision of whether to conduct an in camera review is typically committed to the trial court’s discretion.[168] That certainly is the rule in federal courts.[169] As the Supreme Court has further explained:
The court should make that decision in light of the facts and circumstances of the particular case, including, among other things, the volume of materials the district court has been asked to review, the relative importance to the case of the alleged privileged information, and the likelihood that the evidence produced through in camera review, together with other available evidence then before the court, will establish that the crime–fraud exception does apply.[170]
Although courts often review materials in camera to decide whether the crime–fraud exception applies, they may, in their discretion, decline to do so.[171] The better-reasoned approach, however, holds that while a court perhaps need not review materials in camera to determine whether a party was committing or planning to commit a crime or fraud (prong one), it must conduct an in camera review to determine whether the disputed attorney–client communications were in furtherance of the alleged crime or fraud (prong two).[172] For instance, while an indictment should satisfy the first prong of the test and obviate any need for related in camera review,[173] there remains the question of whether particular communications furthered the alleged crime or fraud.[174] After all, the crime–fraud exception abrogates the privilege only with respect to attorney–client communications in furtherance of the alleged wrongdoing; it does not denude all attorney–client communications.[175] The movant “must still demonstrate that specific communications were made in furtherance of [a crime] or fraud.”[176] It is difficult to see how in most cases a court could properly decide which purported second prong communications are within the crime–fraud exception and which are not absent in camera review. In addition, in camera review of disputed materials helps ensure that parties seeking legal advice regarding conduct with criminal or regulatory implications are not deterred from doing so by the risk of compelled disclosure under the crime–fraud exception.[177] For these reasons, courts should be reluctant to order the disclosure of communications under the crime–fraud exception without reviewing them in camera even if it is within their discretion to do so.[178]
A party that wants in camera review of documents to segregate those that must be disclosed under the crime–fraud exception from those that remain privileged should be careful to submit a privilege log in support of its request.[179] In some courts, the failure to submit a privilege log or otherwise satisfactorily identify privileged documents may waive any right to in camera review for this purpose.[180]
Ideally, any in camera review should be conducted by a judge other than the one presiding over the case involving the communications.[181] Alternatively, a court could appoint a special master to conduct the review.[182] Either option avoids the possibility that the trial judge could somehow be prejudiced by reviewing privileged materials.[183] The potential for prejudice would seem to be especially great where the alleged fraud is fraud on the court.[184] With that being said, a court is not required to delegate in camera review to another court or a special master.
In camera review is a very different exercise when a lawyer has been subpoenaed to testify before a grand jury rather than having been served with a subpoena for documents. Among other considerations, examining a lawyer as a witness in camera is more burdensome for a court than reviewing documents in camera.[185] The court “must fashion procedures for the examination, bring the witness into court, and conduct the hearing.”[186] Given such complications, it may suffice for the court to “define the scope of the crime–fraud exception narrowly enough so that information outside of the exception will not be elicited before the grand jury.”[187] Or, the court might require the government to submit questions for in camera review to prospectively ensure that the inquiry will not be overbroad.[188] If a court decides that in camera examination of the lawyer is necessary, it should do so only after the government makes a prima facie showing in the same manner as if documents or other materials were being sought.[189]
Finally, there is the issue of the standard to be applied following in camera review to decide whether the crime–fraud exception abrogates the attorney–client privilege. Unfortunately, courts do not agree on a standard, and many courts blend or confuse the prima facie showing standard with the ultimate standard for piercing the privilege.[190] If a court adheres to the view that overcoming the privilege presents a higher evidentiary hurdle than that which is necessary to trigger in camera review,[191] then in most cases the standard for abrogating the privilege should be at least a preponderance of the evidence. In jurisdictions in which a prima facie showing requires a preponderance of the evidence or something close,[192] there is a good argument that clear and convincing evidence should be necessary to overcome the privilege. For that matter, given that fraud generally must be proven by clear and convincing evidence,[193] and further considering the social importance of the attorney–client privilege, it is reasonable to argue that piercing the privilege via the crime–fraud exception generally should require clear and convincing evidence. At least in reported decisions, however, courts have not been willing to set so high a bar;[194] even a preponderance of the evidence standard has been too stringent for some.[195] And, on the other side of the coin, it is also fair to argue that courts should not set the standard of proof too high because society has no interest in clients’ use of lawyers’ advice or services to facilitate crimes or frauds.[196] Rather, society is interested in discouraging criminal and fraudulent conduct.[197]
When deciding whether the crime–fraud exception applies to communications, it is important to remember that it applies only to ongoing or planned misconduct.[198] The crime–fraud exception does not apply to a person’s communications with a lawyer about past wrongdoing.[199] As the Restatement (Third) of the Law Governing Lawyers explains:
Communications about past acts are necessary in defending against charges concerning such conduct and, for example, providing background for legal advice concerning a present transaction that is neither criminal nor fraudulent. The possible social costs of denying access to relevant evidence of past acts is accepted in order to realize the enhanced legality and fairness that confidentiality fosters.[200]
Although the crime–fraud exception does not apply to attorney–client communications concerning the client’s past wrongdoing, it does apply to communications regarding the concealment or cover-up of the client’s past misconduct.[201] Factual distinctions between attorney–client communications in the defense of past crimes or frauds versus the concealment of such misconduct may sometimes be difficult to distinguish,[202] but the legal analysis is straightforward. The concealment or cover-up is the ongoing or planned crime or fraud necessary to trigger the exception;[203] for privilege purposes, the client’s past misconduct is simply a motive.
To use an elementary example, communications about destroying evidence of a client’s past crime or fraud would be discoverable under the crime–fraud exception.[204] The concealment or cover-up, however, need not be as obvious as the spoliation of evidence. In In re Grand Jury Subpoena,[205] two stock traders engaged in a criminal or fraudulent scheme by misusing material information about impending trades to enrich themselves.[206] When a private industry regulator began investigating their activities, they attempted to avoid detection and perpetuate their scheme by misleading their lawyer so that he would, in turn, misrepresent their activities to the regulator.[207] The district court found that the traders’ communications with their lawyer to conceal and continue their dishonest scheme fell within the crime–fraud exception to the attorney–client privilege.[208] The traders appealed to the Fourth Circuit, which affirmed the district court.[209] As the In re Grand Jury Subpoena court colorfully observed, the crime–fraud exception “annihilated any privilege” that attached to the traders’ communications with their lawyer.[210]
Interestingly, the Fourth Circuit held that the crime–fraud exception applied even though the lawyer was apparently unaware of his clients’ illegality.[211] That was, in fact, the correct application of the exception.[212] When weighing the application of the crime–fraud exception, “it is the client’s knowledge and intentions that are of paramount concern” to the court because the client holds the privilege.[213] The lawyer’s awareness of the client’s illicit conduct or plan does not factor into the analysis.[214] The crime–fraud exception may operate where the lawyer is innocent of any wrongdoing.[215]
As the crime–fraud exception’s limitation to ongoing or contemplated crimes and frauds implies, a crime or fraud need not be complete to trigger the exception.[216] Harris Management, Inc. v. Coulombe[217] is a representative case.
Harris Management, Inc. (Harris) and JJR Associates (JJR), which had common ownership, sued Paul Coulombe on various theories, including fraudulent inducement and fraudulent misrepresentation.[218] Harris alleged that Coulombe misrepresented his commitment to hire Harris to manage the golf course at the Boothbay Country Club (BCC), which Coulombe planned to buy at auction.[219] Harris alleged that Coulombe lied in an effort to acquire nearby property from JJR at a discount, to prevent Harris from purchasing BCC, and to induce Harris to help set up the BCC golf course.[220] More to the immediate point, Harris alleged that Coulombe, aided by his lawyers, Hawley Strait and John Carpenter, was secretly seeking a different golf course manager even as he was assuring Harris that his company would manage the golf course.[221] Only after halting its efforts to purchase BCC, selling the JJR property to Coulombe at a discount, and beginning to manage the golf course after Coulombe purchased BCC, did Harris learn that Coulombe planned to hire a different golf course manager.[222]
Harris sought to discover communications between Coulombe, Carpenter, and Strait under the crime–fraud exception to the attorney–client privilege.[223] Coulombe argued that the crime–fraud exception did not apply because Harris could not establish that his company relied on his alleged misrepresentations—justifiable reliance being an essential element of fraud.[224] After reviewing the disputed documents in camera, the trial court held that the exception applied.[225] According to the court, the documents showed that (1) Coulombe had deliberately concealed his golf course management plan from Harris until after he had purchased BCC and the JJR property; and (2) Coulombe intended the disputed attorney–client communications to facilitate or conceal his dishonest plot.[226] Coulombe took an interlocutory appeal to the Maine Supreme Court.[227]
After reviewing some general attorney–client privilege principles and sketching the basic tenets of the crime–fraud exception, the Harris Management court had to decide whether a party invoking the crime–fraud exception was “legally required to establish actual, justifiable reliance on the client’s representations.”[228] In settling on the proper approach, the court weighed clients’ need to shield communications with their lawyers to obtain effective representation regarding current legal issues or past misconduct with the need to prevent clients from using their lawyers to perpetrate wrongdoing.[229] To strike that balance and to maintain the integrity of the legal profession:
[T]he focus in determining whether the fraud portion of the crime–fraud exception applies must be on the elements within the control of the client that involve either the engagement in or the planning of a fraud. Because proof of planned fraudulent activity can result in the exception being applied, fraudulent activity may, for purposes of the crime–fraud exception to attorney–client privilege, be activity that, although deceptive and fraudulent, falls short of the fully realized civil tort of fraud.
Although proof of the complete tort is not necessary for the exception to apply, a party seeking to establish that a client was engaged in or planning fraudulent activity must offer evidence of the client’s intention and expectation that the party alleging injury would rely on the client’s misrepresentations, omissions, or other deceptive actions. . . .Without proof of the intention and expectation of reliance, the client’s engagement in or planning for “fraudulent activity,” . . . which requires intentional deception, cannot be established. . . . To require proof, however, of actual, justifiable reliance both places the cart before the horse and misses the point of the crime–fraud exception—to allow discovery of a client’s use of an attorney’s services in the planning or concealment of fraudulent activity.[230]
It was clear that the trial court had applied the proper legal test for invoking the crime–fraud exception.[231] Harris had shown by a preponderance of the evidence that (1) Coulombe was engaged in or planning fraudulent activity when the disputed attorney–client communications took place; and (b) he intended his communications with Strait and Carpenter to further or conceal his frauds.[232] Specifically, the trial court found that the documents it reviewed in camera buttressed or corroborated Harris’s claims that Coulombe had deceived it and that it was harmed as a result.[233]
The Harris Management court concluded that the trial court did not abuse its discretion in ordering the disclosure of the communications at issue, except with respect to one document that the trial court apparently incorporated in its order by mistake.[234] With the exception of that document, which the court identified for reconsideration on remand, it affirmed the trial court’s judgment.[235]
Of course, for the crime–fraud exception to apply, the client must be engaged in an ongoing crime or fraud or be planning one, and the disputed communications must be made in furtherance of the crime or fraud.[236] The “in furtherance” requirement is significant.[237] The crime–fraud exception does not apply where a client merely tells her lawyer of her intent to commit a crime or fraud.[238] Similarly, the crime–fraud exception does not apply where a lawyer simply advises a client about the illegality of a current or planned course of action.[239] For example:
[C]onsider the situation where a client, intending to undertake an illegal course of action, consults a first attorney, tells the attorney the proposed course of action, and the attorney advises that the course of action is illegal. The client, dissatisfied with the first attorney’s answer, then consults a second attorney. The client tells the attorney the same proposed course of action, but this attorney says yes, that course of action is legal. Both of these consultations would remain privileged, because the attorneys merely opined on the lawfulness of a particular course of conduct, and this advice cannot be used “in furtherance” of the crime.[240]
Along the same lines, a lawyer does not further a client’s ongoing or planned wrongdoing by advising the client that the conduct will pose risks, or may be hard to defend or indefensible.[241] The crime–fraud exception plainly does not apply where a lawyer refuses to assist a client in executing a planned criminal or fraudulent scheme, or counsels the client against it, and the client abandons the scheme.[242] In that situation, the communication did not further the client’s improper purpose.[243] Quite the opposite: when a lawyer “dissuades or prevents his client from engaging in illegal conduct, the attorney–client relationship has not been abused; rather, the relationship has served the administration of justice by promoting legal conduct.”[244]
The in furtherance element first requires that the client be committing or intending to commit the crime or fraud when she consults the lawyer.[245] If the client consults the lawyer about past crimes or frauds, their communications cannot be in furtherance of the client’s wrongdoing unless they are part of a cover-up.[246] At the opposite end of the spectrum, the crime–fraud exception is not implicated if the client forms the criminal or fraudulent intent after communicating with the lawyer.[247] To use another example:
A client consults with an attorney, intending at the time to go as close to the line of illegality as possible but to remain within the realm of legal conduct. The client tells the attorney of a possible course of conduct and asks for advice on the applicable law. The attorney gives advice, explaining which actions would be legal and which actions would be illegal. A year later, the client decides that he or she will cross the line from legal to illegal. Here, the crime–fraud exception would not apply, because the client was not committing a crime or fraud or intending to commit a crime or fraud at the time he or she consulted the attorney. Even if the client clearly used the advice obtained a year earlier in furtherance of the crime or fraud, the exception would not apply because the client did not have the requisite intent at the time of the consultation.[248]
Yet, the temporal aspect of this element is not dispositive; the simple fact that the client is committing or planning the crime or fraud when she consults the lawyer does not necessarily implicate the crime–fraud exception.[249] Attorney–client communication that is unrelated to an ongoing or contemplated criminal or fraudulent scheme remains confidential even if it occurs in the midst of the scheme or its planning.[250]
For a communication to further a crime or fraud there must be a nexus between the communication and the misconduct.[251] Or, as a New Jersey federal court put it, there must be “‘a logical link’” between the communication and the wrongdoing.[252] This effectively requires the lawyer’s advice to “advance, or the client must intend the advice to advance, the client’s criminal or fraudulent purpose.”[253] A communication’s mere relation to the crime or fraud will not trigger the crime–fraud exception,[254] nor is relevance enough.[255] The communication itself must further the crime or fraud.[256] A tight connection between the crime or fraud and the attorney–client communication is essential because the crime–fraud exception might otherwise sweep in legitimate attorney–client communications, including privileged communications concerning the client’s past misconduct.[257]
The requirement that a communication itself must further the crime or fraud to implicate the crime–fraud exception, while critical, does not unduly burden a movant attempting to make its prima facie showing.[258] A communication’s furtherance of a crime or fraud typically can be demonstrated “by evidence of some activity following the improper consultation, on the part of either the client or the lawyer, to advance the intended crime or fraud.”[259] Nevertheless, where the required nexus is missing, the exception does not apply.[260] In re Grand Jury Matter #3[261] nicely illustrates this point, albeit in regard to work product immunity rather than the attorney–client privilege.
Company A, which was solely owned by John Doe, his lawyer, and Doe’s business associate were all subjects of a grand jury investigation into an allegedly fraudulent scheme.[262] In short, the government alleged that to minimize his potential liability in a class action arising out of Company A’s business practices, Doe testified in a 2014 deposition that he had sold Company A to Company B in 2008.[263] Then, his business associate, who owned Company B, represented that Company A was out of business and had few remaining assets.[264] As a result, the class action settled for a tiny fraction of what the plaintiffs’ lawyers had believed the case was worth.[265]
The grand jury subpoenaed Doe’s accountant to obtain Doe’s tax returns.[266] The returns revealed that Doe had claimed sole ownership of Company A every year from 2008 through 2012.[267] The accountant also voluntarily provided the government with three documents concerning a 2013 conversation he had with Doe’s lawyer, during which the lawyer told him that Doe had sold Company A in 2008.[268]
Among the documents was an email message Doe had sent to the accountant on July 16, 2013, forwarding an email message that Doe’s lawyer had sent to Doe four days earlier that referred to ongoing litigation.[269] The lawyer’s email “advise[d] Doe of the steps he needed to take to correct his records so that they reflect[ed] that the business associate, not Doe, [had] owned Company A since 2008.”[270] Doe’s forwarding e-mail message to his accountant stated: “Please see the seventh paragraph down re; my tax returns. Then we can discuss this.”[271] Doe never amended his tax returns or took other steps—other than forwarding the email—to implement his lawyer’s advice.[272] In fact, Doe’s lawyer later directed the accountant to postpone amending the returns until the lawyer provided further instructions.[273] Those instructions never came.[274]
A dispute arose over whether the government could show Doe’s lawyer’s email message to the grand jury.[275] The district court concluded that Doe had waived the attorney–client privilege by forwarding the message to his accountant but further held that Doe had not waived work product protection for the email because the accountant was not an adversary.[276] That holding did little for Doe, however, because the court also found that the crime–fraud exception to the work product doctrine robbed the e-mail of any protection.[277] Doe appealed the district court’s order to the Third Circuit.[278]
The In re Grand Jury Matter #3 court held that the crime–fraud exception did not apply to the email message because it was not used in furtherance of a fraud.[279] The government’s ample evidence of Doe’s fraudulent scheme only satisfied the first prong of the crime–fraud exception—not the second.[280] The court explained the independent importance of the use in furtherance requirement:
[T]he 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. In both settings we want to make sure that we are not punishing someone for merely thinking about committing a bad act. Instead, . . . we ask for evidence that the plan “has passed beyond words and is [actually] on foot.”
To illustrate, if a client approaches a lawyer with a fraudulent plan that the latter convinces the former to abandon, the relationship has worked precisely as intended. We reward this forbearance by keeping the work-product protection intact. If, by contrast, the client uses work product to further a fraud, the relationship has broken down, and the lawyer’s services have been “misused.” Only in that limited circumstance—misuse of work product in furtherance of a fraud—does the scale tip in favor of breaking confidentiality.[281]
Here, the only supposed act in furtherance of Doe’s fraud was his conduct in forwarding his lawyer’s email message to his accountant.[282] Had Doe followed through and retroactively amended his tax returns, the court would have easily found an act in furtherance.[283] It might have done so if Doe had told the accountant to amend the returns and later retracted that instruction because that might have shown Doe’s misuse of his lawyer’s advice or services.[284] But, as the court noted, “none of that happened.”[285] Instead, Doe merely forwarded the email to his accountant for later discussion.[286] He never revisited the issue and his lawyer told the accountant to stand down before the plan could be implemented.[287] As a result, the worst that could be said was that Doe considered using his lawyer’s work product to further his fraud, but never did so.[288] “What happened [was] not so different than if Doe merely wrote a private note, not sent to anyone, reminding himself to think about his lawyer’s suggestion.”[289] To find an act in furtherance on these facts would risk overriding Doe’s expectation of confidentiality “based on mere thought.”[290] Accordingly, the Third Circuit reversed the district court’s order piercing Doe’s work product immunity.[291]
In re Grand Jury Matter #3 illustrates the crime–fraud exception’s application to work product immunity.[292] Although the exception was held not to apply in that case, generally it applies to both tangible and opinion work product.[293] As we will see, it is how the crime–fraud exception applies to tangible and opinion work product that distinguishes these forms of immunity.
As with the attorney–client privilege, a party invoking the crime–fraud exception to work product immunity must make a prima facie showing that will satisfy a two-part test.[294] The standard that a movant must meet to establish a prima facie showing varies between jurisdictions in the work product context just as it does where the attorney–client privilege is concerned.[295] With respect to work product, however, the test is a bit different. To implicate the crime–fraud exception where work product immunity is at issue, the movant must make a prima facie showing that (1) the client was committing or planned to commit a crime or fraud at the time the lawyer created the work product; and (2) the client used the work product in furtherance of the crime or fraud.[296] In sum, where work product immunity is involved, the focus “is not on the client’s intent regarding a particular communication, but on the client’s intent in consulting the lawyer or in using the materials the lawyer prepared.”[297] Or, rephrasing the second prong of the test as a question for the court: “Did the client consult the lawyer or use the [lawyer’s work product] for the purpose of committing a crime or fraud?”[298]
In addition to the parallel two-pronged test, courts’ application of the crime–fraud exception to work product generally traces their application of the exception where the attorney–client privilege is in question. For example, the crime or fraud must be underway or contemplated to trump work product immunity.[299] The crime–fraud exception does not apply where the lawyer prepared the material claimed to be work product after the client’s misconduct ended.[300] A party attempting to pierce an adversary’s work product immunity cannot make a prima facie showing through bare allegations in pleadings or briefs.[301] Speculation that a party is engaged in or planning criminal or fraudulent conduct will not trigger the exception; a movant’s crime or fraud allegations must have a firm factual foundation.[302] The exception does not extend to the entirety of a lawyer’s work product, but only to materials that furthered the client’s ongoing or intended crime or fraud.[303] Work product materials with no connection to the alleged crime or fraud are not discoverable.[304] The list of similarities goes on.[305]
Although in most cases the crime–fraud exception applies identically or nearly so regardless of whether the attorney–client privilege or work product immunity is contested, that is not always true. The question of who owns or controls the privilege as compared to who owns or controls work product immunity is at the core of the few doctrinal differences.
To lay some foundation, recall that where the attorney–client privilege is in play, the lawyer need not be aware of the client’s ongoing or planned crime or fraud for the crime–fraud exception to attach.[306] Rather, it is the client’s intent that is relevant because the client holds the privilege.[307] The lawyer’s knowledge of the client’s illicit conduct or plan is irrelevant.[308]
In contrast to the attorney–client privilege, both the client and the lawyer hold work product immunity.[309] Either one may assert it to avoid discovery.[310] This shared ownership raises the issue of whether the lawyer’s knowledge of the client’s crime or fraud is relevant where the crime–fraud exception is invoked in an effort to penetrate work product protection. The lawyer’s knowledge certainly is not relevant where the client claims work product immunity.[311] A client cannot defeat discovery based on either form of work product immunity where the materials were created in furtherance of the client’s crime or fraud.[312] In that case, the client simply does not deserve work product protection; the lawyer’s knowledge of the client’s malfeasance is immaterial.[313]
Where the lawyer invokes work product immunity to resist discovery, however, her knowledge may well be relevant, depending on whether tangible or opinion work product is at issue.[314] Opinion work product is discoverable only where the lawyer knows of, or participates in, the client’s wrongdoing, while tangible work product may be discovered even though the lawyer is unaware of the client’s crime or fraud.[315] The difference in approach between opinion and tangible work product where a lawyer asserts these protections is attributable to the purposes underlying the crime–fraud exception and work product immunity:
The work-product doctrine exists not only to assist the client in obtaining legal advice, but also to protect the lawyer’s interest in privacy during preparation for litigation. . . . Thus, . . . an innocent attorney may assert work-product protection when the client could not because of his intent to use the work product to further his crime or fraud. . . . Yet this policy of protecting an attorney’s privacy is in conflict with the policy against shielding client fraud from discovery. The dishonest client benefits from the innocent attorney’s assertion of the work-product doctrine. This conflict, however, can be partially eased by taking different approaches to discovery of work product, depending on the kind of work product at issue.
. . . “Fact” work product, the written or oral information collected by the attorney and recorded verbatim or in summary form, receives far less protection than “opinion” work product, an attorney’s mental impressions, conclusions, opinions and legal theories. . . . When a client could not assert . . . work-product protection because of his fraudulent or criminal intent, he should not be able to benefit from an innocent attorney’s assertion of work-product protection for essentially the same communication. . . . These considerations, coupled with the rule that fact work product is generally more prone to discovery, mandates that fact work product must be produced if it is found within the crime–fraud exception, even if the attorney asserting the work-product protection was unaware of the client’s wrongdoing.
However, when an attorney asserts protection for his opinion work product, . . . not even “the misfortune of representing a fraudulent client” can warrant an “invasion of the attorney’s necessary privacy in his work.” . . . Nevertheless, when there is a prima facie showing that the attorney had knowledge of or participated in the crime or fraud, there is no reason to protect even opinion work product.[316]
The Fourth Circuit succinctly explained the different approaches to the discovery of tangible versus opinion work product in United States v. Under Seal (In re Grand Jury Proceedings #5):[317]
Because fact work product enjoys less protection than opinion work product, it may be discovered upon prima facie evidence of a crime or fraud as to the client only and thus even when the attorney is unaware of the crime or fraud. While the attorney, along with the client, holds the fact work product privilege, the discovery of facts furnished to an attorney does not implicate the same concerns as does invading the necessary privacy of an attorney’s opinion work product, an invasion only justified if the attorney himself knows of the fraud.[318]
A court examining materials in camera must carefully distinguish between tangible and opinion work product in determining which materials, if any, should be disclosed.[319] If the lawyer was not aware of the client’s crime or fraud, and it is the lawyer who is resisting discovery, any materials that qualify as opinion work product must be redacted or withheld.[320] And, at the risk of sounding like a broken record, where the lawyer knows of the client’s crime or fraud, or orchestrated the wrongdoing or actively participated in it, the lawyer loses both forms of work product immunity.[321]
In re Grand Jury Proceedings (G.S. and F.S.)[322] is an interesting case involving a lawyer’s assertion of work product immunity in a vain effort to avoid disclosing information to the government. The case arose out of a grand jury investigation into possible bankruptcy fraud by two Iowa businessmen, G.S. and F.S.[323] When their businesses faltered in 2001, they began planning for bankruptcy.[324] In late 2001, they hired J.P., a bankruptcy lawyer.[325] G.S. and F.S. subsequently relocated from Iowa to Florida, which allows debtors a more generous homestead exemption in bankruptcy.[326]
When G.S. and F.S. first conferred with J.P., they owned substantial non-exempt assets that a bankruptcy trustee would have liquidated to pay their creditors, including expensive household furniture, jewelry, stock, and an installment contract from the sale of a business.[327] They sought J.P.’s advice in converting these assets into proceeds that would be exempt from their bankruptcy estate.[328] J.P. cautioned them against possible bankruptcy fraud, in particular the danger lurking in transactions with relatives geared toward regaining assets following their discharge in bankruptcy.[329] For example, J.P. advised them not to sell their furniture to G.S.’s father yet keep it in their home because the trustee would likely attack the sale as a fraudulent conveyance.[330] J.P. also warned them against involving G.S.’s father in a transaction in which G.S. would pledge stock as collateral for a loan, and he further urged G.S.’s father to shun the proposed deal.[331]
J.P.’s advice fell on deaf ears. “G.S. and F.S. divested themselves of nearly all of their non-exempt assets by selling or loaning them to close family members.”[332] They sold most everything to G.S.’s parents.[333] They pledged some stock to another relative, H.B., in exchange for a $52,000 loan, but because H.B. was broke, G.S.’s father gave her $52,000 to give to G.S.[334] J.P. assisted with the “loan.”[335] G.S. and F.S. invested the proceeds from these transactions into life insurance policies that were exempt from the bankruptcy estate.[336] A little over a year later, they filed for bankruptcy protection in Florida.[337]
After their bankruptcy discharge was final, G.S. and F.S. moved back to Iowa and repurchased their assets from their relatives at the original sale prices.[338] In a subsequent and entirely foreseeable bankruptcy fraud investigation, the government moved to compel the production of documents and testimony related to J.P.’s pre-bankruptcy representation of G.S. and F.S.[339] J.P. invoked the attorney–client privilege and work product immunity, and refused to testify or produce documents.[340] G.S. and F.S. intervened.[341] After conducting an in camera review of the information sought, the district court held that the crime–fraud exception applied and ordered J.P. to appear before the grand jury.[342] J.P., G.S., and F.S. swiftly appealed to the Eighth Circuit.[343]
The Eighth Circuit easily concluded that the government had made the prima facie showing required to trigger the crime–fraud exception.[344] Rather than engaging in legitimate pre-bankruptcy financial planning as they contended, G.S. and F.S. had transparently implemented a criminal or fraudulent scheme, and they used J.P’s advice to accomplish their illicit transactions.[345] The district court’s determination that G.S. and F.S. had lost the attorney–client privilege and work product immunity with respect to J.P.’s bankruptcy-related representation of them was therefore proper.[346]
J.P. independently resisted the government’s discovery of his work product.[347] The In re Grand Jury Proceedings (G.S. and F.S.) court did not need to invoke the crime–fraud exception to hold that the government could discover his tangible work product.[348] Rather, the court concluded that the government had shown a substantial need for it.[349] The court reasoned that those materials might contain information critical to the government’s case should G.S. and F.S. be indicted, inasmuch as the government would likely have to prove both the precise nature of the suspect transactions and G.S.’s and F.S.’s intent regarding them.[350] Because neither J.P. nor his clients contended that the government could obtain the substantial equivalent of the materials by other means, J.P.’s tangible work product was discoverable.[351]
With respect to J.P.’s opinion work product, the district court found that it was discoverable under the crime–fraud exception because there was probable cause to believe that J.P. “was complicit in his clients’ unlawful activity.”[352] The Eighth Circuit agreed.[353] As an experienced bankruptcy lawyer, J.P. surely knew the difference between legitimate pre-bankruptcy planning and bankruptcy fraud.[354] After all, he warned G.S. and F.S. about the possible illegality of the transactions they arranged.[355] Despite warning his clients against involving G.S.’s father in a deal in which G.S. would pledge stock as collateral for a loan, J.P. later facilitated exactly such a shady transaction using H.B. as a straw party.[356]
The court further observed that there was “a reasonable likelihood that J.P. either knew or was willfully blind to the fact that his clients were entering sham transactions with relatives so that they could later retrieve their original assets after discharging their debts.”[357] J.P. argued that he had no idea what his clients planned to do once the bankruptcy case was over, but documents available to the court indicated that he knew that G.S. and F.S. were plotting to reacquire at least some of their assets once their debts were discharged.[358] Despite knowing that this scheme could be illegal, J.P. helped G.S. and F.S. “park[ ] their assets with close family.”[359]
The Eighth Circuit concluded that the district court did not abuse its discretion in finding that there was probable cause to believe that J.P. “was complicit in his clients’ crime or fraud.”[360] As a result, J.P. could not assert opinion work product immunity in connection with his representation of G.S. and F.S.[361]
A dissenting judge thought J.P.’s conduct was far more benign than the district court and the majority appreciated and was “more aligned with legitimate exemption planning than fraudulent activity.”[362] Considering “the near absolute immunity afforded opinion work product,” this simply was not a case that justified enforcement of the crime–fraud exception.[363]
So, was J.P. complicit in his clients’ bankruptcy fraud, such that he should have been stripped of opinion work product protection, or was he an innocent lawyer who had the misfortune of representing dishonest clients? Most of J.P.’s pre-bankruptcy counseling suggests that he was the latter; he specifically advised his clients against the very transactions that later attracted the government’s attention. This conclusion is bolstered by the fact that he did not represent G.S. and F.S. in their bankruptcy.[364] Giving him the benefit of the doubt, J.P. was at worst an incautious lawyer who should have withdrawn from his clients’ representation when they showed a willingness to cross the line from ambitious pre-bankruptcy planning into probable fraud.
But that view fades in light of J.P.’s unfortunate decision to help G.S.’s father, H.B., and G.S. structure the $52,000 “loan” in which H.B. served as a straw party. His participation in that transaction after warning G.S. and G.S.’s father against it on fraud grounds signals complicity—not innocence. Furthermore, J.P. reportedly helped his clients park assets with family members despite knowing that they planned to buy back the assets once their debts were discharged,[365] although the unavailability of the documents the courts relied on to reach this conclusion makes it impossible to independently evaluate J.P.’s conduct. In any event, J.P.’s role in the loan transaction standing alone probably doomed his opinion work product claim.
If J.P. was worried that his clients could be charged with bankruptcy fraud, his motivation for resisting discovery becomes crystal clear: his opinion work product was likely to reveal his knowledge of their wrongdoing. Such a finding would expose him to criminal prosecution on various theories. G.S. and F.S. were vested in his successful invocation of the opinion work product doctrine because that evidence almost certainly illuminated their suspected illegal intent. Of course, the government was vitally interested in obtaining J.P.’s opinion work product for the same reasons.
Although nearly all crime–fraud exception cases center on clients’ misconduct, it is possible that a lawyer might engage in criminal or fraudulent conduct related to a client matter without the client’s knowledge. If so, is the innocent client still entitled to work product protection? That was the question in Drummond Co. v. Conrad & Scherer, LLP,[366] a defamation case born of alien tort litigation in which lawyer Terrence Collingsworth and his law firm, Conrad & Scherer (C&S), sued Drummond on behalf of several Colombian citizens.[367]
In the alien tort litigation, Collingsworth and C&S allegedly committed fraud on the court, bribed witnesses, and suborned perjury—all unbeknownst to their clients.[368] While the alien tort litigation was pending, Drummond sued Collingsworth and C&S for defamation based on letters that Collingsworth wrote to third parties concerning Drummond’s Colombian activities.[369] In discovery in the defamation case, Drummond exposed the aforementioned misconduct in the alien tort litigation and it then sought to discover C&S’s alien tort work product under the crime–fraud exception to support a motion for sanctions in the defamation case.[370] C&S argued that because its alien tort clients “were innocent of any wrongdoing, work product protection [was] maintained despite [C&S’s] participation in the wrongdoing.”[371] The district court held that the crime–fraud exception applied, and Collingsworth and C&S appealed to the Eleventh Circuit.[372] The Eleventh Circuit was thus called upon to decide whether the crime–fraud exception can “overcome attorney work product protection when the attorney or law firm was engaged in the crime or fraud but the client was not.”[373]
The Drummond court held that the crime–fraud exception vitiated C&S’s work product immunity in the alien tort litigation even though the firm’s clients were not involved in the misconduct,[374] stating that “illegal or fraudulent conduct by an attorney alone” may defeat work product protection.[375] This result was consistent with the court’s recognition in prior cases that a lawyer who commits misconduct is not entitled to related work product immunity.[376]
Drummond is an unusual crime–fraud case because the clients engaged in no misconduct. The decision is, however, consistent with the rule that the crime–fraud exception will overcome even a lawyer’s opinion work product immunity where the lawyer knowingly furthers a client’s wrongdoing. Lawyers’ conscious participation in crimes or frauds simply eliminates any justification for protecting their associated work product. If innocent clients are harmed by their lawyers’ misdeeds, their recourse is to sue the lawyers or to complain to disciplinary authorities, or both.
The 2017 indictments of Paul Manafort and Rick Gates based at least in part on their lawyer’s compelled testimony demonstrate the potentially severe consequences that may flow from courts’ application of the crime–fraud exception to the attorney–client privilege and work product immunity. Although society has an interest in forestalling criminal and fraudulent activity, courts’ reliance on the exception to pierce the privilege and work product immunity in a range of cases involving claims or causes of action that strain traditional concepts of crimes and frauds is particularly threatening. Fortunately, the disclosure of otherwise confidential communications or information under the crime–fraud exception is an extreme remedy. Courts should recognize this point and exercise great caution when deciding whether to order disclosure under the exception. For lawyers, the challenge is to understand the often confusing aspects of the crime–fraud exception so that they know when to reasonably assert the exception and how to effectively defend against its assertion. With luck, this Article represents at least a small step toward developing that understanding.