Court: Court of Appeals for the Fourth Circuit; August 29, 1994; Federal Appellate Court
The court affirmed in part and remanded in part a district court ruling involving a grand jury investigation into the billing practices of Subsidiary B. The appellants, who claimed attorney-client and work product privileges over withheld documents, were compelled to produce certain documents as the court found that the crime-fraud exception applied and negated the privileges in some instances. The court agreed with the government that the appellants must produce documents not protected by privilege but recognized merit in the opinion work product privilege, directing the district court to redact that specific material from the subpoenaed documents.
The investigation began in September 1991, with Subsidiary A receiving a subpoena in October. It produced some documents but withheld others, asserting privilege. After the government filed a motion to compel in April 1993, claiming that the privileges were inapplicable or negated by the crime-fraud exception, the court reviewed both parties' submissions, though the appellants were not allowed to rebut the government's in camera submission. The district court ultimately ruled that some documents were not protected and that the privileges could not be maintained due to evidence suggesting that attorneys were involved in fraudulent conduct.
The district court based its ruling on the applicability of privileges on an in camera review of ex parte submissions from both parties, without examining the actual documents in question. It ordered the documents to be released within fifteen days, but stayed this order pending appeal. The appellants filed an appeal, arguing that the court lacked jurisdiction due to the expiration of the grand jury and subsequent indictments against Subsidiary B and its employees for mail fraud and fraud against Montgomery County, Maryland. The government contested the appeal's mootness, and a three-judge panel allowed the appellants to address this issue at oral argument.
The government is conducting an ongoing investigation into misleading practices by the senior management of Subsidiary A and the Company concerning fraudulent billing by Subsidiary B, targeting different individuals than those indicted. Subsidiary A and a law firm have withheld documents related to audit responses and securities filings. The government claims that attorneys were involved in efforts to conceal the fraudulent activities, a point contested by the appellants, who argue that the government has not sufficiently detailed the alleged SEC violations or the defects in disclosures made to the SEC. Additionally, the appellants contend that the district court's procedures were flawed, as they were not allowed to review the government's ex parte submissions and the court did not clarify the privileges applicable to specific documents or the basis for the alleged crime or fraud undermining those privileges.
The appellants argue that the district court improperly applied a blanket vitiation rule, neglecting the specific standards for various privileges, failing to conduct an in-camera review of the privileged documents, and not articulating the basis for crime or fraud on the record. They request the Fourth Circuit to reverse and remand the case for proper procedural adherence and specific findings on the privileges.
Regarding mootness, after the grand jury’s expiration in September 1993, the appellants claimed that the court lacked jurisdiction to hear the appeal, asserting that the subpoenas issued became unenforceable and the matter moot. They referenced Baltimore Sun Co. v. Goetz to support their claim that the case became moot due to changed circumstances unless it was capable of repetition yet evading review. The government countered that the appeal falls within this exception because the issues are likely to recur, with the expectation of a new grand jury issuing similar subpoenas.
The government argued that the expiration of the subpoenas does not negate the need for judicial review since the same issues are expected to arise again in future grand jury proceedings. Both elements of the 'capable of repetition, yet evading review' doctrine are present: there is a strong likelihood that the appellants will face similar actions again and the short duration of the grand jury's authority prevents full litigation before expiration. The government cited Weinstein v. Bradford, establishing that review is warranted in such circumstances. The appellants also challenged the use of a grand jury to prepare a pending indictment for trial, referencing United States v. Dardi to support their position.
The government is investigating individuals not yet indicted and has requested a grand jury assignment to continue this inquiry. The appellants aim to withhold subpoenaed documents related to these investigations. The case remains active and is not moot.
Regarding legal privileges, the attorney-client privilege protects confidential communications between client and attorney, with the client as the privilege holder. The Supreme Court has acknowledged this privilege as a longstanding common law principle. The work product privilege safeguards an attorney's preparatory work for litigation, as established in Hickman v. Taylor. Both privileges apply to criminal trials and grand jury proceedings, with distinct categories: fact work product, which can be discovered under specific conditions, and opinion work product, which is more protected.
The crime-fraud exception states that communications made to further a crime or fraud are not privileged. The government must show a prima facie case that the communications fall under this exception. A district court's ruling on this standard is reviewable only for abuse of discretion. In a relevant case, it was determined that the fraud exception applies to both opinion and fact work product, requiring a prima facie showing of fraud and a greater need for disclosure than for fact work product. However, subsequent rulings suggest that only the prima facie showing of fraud is essential to invoke the exception.
A prima facie showing of a serious violation is required to overcome work product privilege, necessitating a valid connection between the work product and the alleged violation. While a crime-fraud exception to the opinion work product doctrine is recognized, the current case does not involve an attorney knowingly participating in the clients' (the Company, Subsidiary A, and Subsidiary B) criminal conduct. The attorney retains the right to assert work product privilege, as the record does not indicate misconduct on their part. Consequently, any attorney opinion work product in subpoenaed materials should be redacted.
The clients’ assertion of attorney-client and work product privileges is contested by the government, which claims that many documents are not privileged and that those that are can be recovered under the crime-fraud exception. The government provided in camera evidence, including grand jury testimony, to support its claim. The district court found that the crime-fraud exception applied to several documents based on this evidence.
The appellants argue that the procedure was unlawful, claiming due process violations from the district judge's in camera examination of the government's evidence without allowing the appellants to contest it. They also assert a misapplication of in camera procedures from United States v. Zolin. The Zolin case established that courts may review allegedly privileged documents to determine if the crime-fraud exception applies, rejecting the notion that independent evidence is necessary to establish the existence of crime or fraud. It also stated that a threshold showing is required to justify in camera review of privileged documents.
A judge must require sufficient factual basis to support a reasonable belief that an in camera review of allegedly privileged documents may reveal evidence that the crime-fraud exception applies before conducting such a review. The case at hand differs from Zolin, as the district court did not perform an in camera review of the documents requested by the government. The government submitted documents in camera to demonstrate a factual basis for its belief regarding the crime-fraud exception, aiming to establish a prima facie case. Zolin sets a threshold for in camera reviews of privileged documents but does not universally require this showing before any in camera submission. The appellants misinterpret Zolin by asserting that the government needed to demonstrate this basis prior to submission; Zolin only restricts review of documents subject to a subpoena without the necessary threshold. The district court, after examining the government’s submission and concluding that the threshold showing was met, determined the crime-fraud exception applied, making further in camera review unnecessary. The court’s decision to conduct in camera review lies within its discretion, and it may defer such a review if it believes additional non-privileged evidence may be available. In this case, the district court relied on grand jury information along with the appellants' summaries submitted in camera to decide the applicability of the exception without reviewing the actual documents. The court’s in camera examination of evidence concerning the crime-fraud exception does not violate due process, as established in Fourth Circuit precedents.
An in camera review of supporting evidence does not violate due process, as established by the Second Circuit in *In re John Doe Corp.*, which permits such proceedings to protect government secrecy, especially when the government does not intend to disclose grand jury materials to the witness. The appellant's reliance on *In re Taylor* is acknowledged, but it is noted that *John Doe* limits *Taylor*’s application, highlighting that in *Taylor*, the government's secrecy interests were minimal due to an intention to disclose materials. In the context of an ongoing investigation, the government maintains its commitment to secrecy, justifying the district court's in camera review.
The appellants argue they lacked access to the government's in camera submission and an opportunity to counter its allegations. However, a prima facie showing of crime or fraud is necessary to invoke the crime-fraud exception, as indicated in *Duplan Corp. v. Deering Milliken, Inc.*, which did not recognize such an exception due to insufficient evidence of violations. The court clarified that a prima facie showing does not require proof of the disputed fact but should expose the opposing party to the risk of non-persuasion if left unrebutted. In *Glaxo, Inc. v. Novopharm Ltd.*, the court similarly applied this standard, requiring Novopharm to demonstrate a prima facie case of fraud to pierce the attorney-client privilege.
Evidence must be sufficient to compel the defendant to provide an explanation; if deemed satisfactory, the privilege remains intact. The appellants argue they lacked the opportunity to refute the government's allegations of fraud because the court's determination of the crime-fraud exception relied solely on the government's in camera submission, leaving them unaware of the evidence against them. Prior rulings indicate that a prima facie showing of fraud or crime is needed to invoke the crime-fraud exception, which implies an opportunity to rebut the claims. Initially, the party claiming privilege must establish that privilege, while the party invoking the exception must show a prima facie case of fraud or crime. The appellants contend they were unable to respond to the government's evidence of crime or fraud, and the district court's order did not specify the alleged crime or fraud due to the ex parte nature of the submission. They argue that the procedures employed prevented them from addressing the government's allegations. However, precedents, including In re Grand Jury Subpoena, affirm that in camera proceedings in grand jury contexts do not violate due process rights. The court's decision to review evidence in camera was justified and did not infringe upon the appellants' due process rights, as the government's need for secrecy in ongoing investigations was upheld.
The District Court found that several documents were discoverable due to the crime-fraud exception, while others were deemed discoverable because the asserted privileges did not apply. The appellants dispute the court's findings regarding these latter documents, which involve a mixed question of law and fact subject to de novo review. The burden lies with the party claiming privilege to prove its applicability.
1. **Billing, Expense, and Travel Reports**: The court determined that billing records, expense reports, and travel documents of counsel are not protected by attorney-client privilege. Such privilege typically does not extend to attorney fee payments, and information regarding payment dates, amounts, and identities does not convey any confidential communication. The court found no evidence that the documents in question would reveal any confidential communications, and no work product claim was applicable.
2. **Public Disclosure Documents**: The law firm and a subsidiary resisted producing drafts and notes related to audit responses and SEC filings, arguing that these documents are protected by attorney-client privilege. However, the government contended that the privilege does not apply to documents intended for public disclosure. Citing case law, the court emphasized that communications made with the expectation of public release do not enjoy privilege protection, including any details underlying such communications. The loss of privilege extends beyond the specific language used and encompasses the substance of the communication, requiring disclosure of details once any significant part of the communication is revealed.
The attorney-client privilege protects communications between an attorney and a client concerning potential publication of disclosure documents when legal advice is sought. The relevant services provided by the attorney must be evaluated to determine if they reasonably include the publication of client communications. In this case, the district court found that the documents in question were communicated to attorneys for use in public disclosures, thereby rendering them non-privileged. The appellants proposed adopting an approach from *Schenet v. Anderson*, which held that the privilege applies to client communications intended for drafting publicly disclosed documents, but this approach conflicts with precedent established in *Under Seal*. To prevail, the appellants needed to prove that they did not engage the attorneys for advice on publication, which was infeasible since SEC filings were completed. Consequently, the district court's ruling that the materials associated with publicly disclosed documents are not protected by attorney-client privilege was upheld. The court affirmed in part and remanded in part, requiring the appellants to produce the subpoenaed documents while allowing for an in camera review and redaction of the attorney's opinion work product. Confidentiality of the involved parties was maintained in the documentation. The government's acknowledgment of mootness regarding the appeal related to the Attorney was also noted, as his personal calendar, which was subpoenaed, contained information also found in his business calendar.
The government submitted an appeal with an in camera review of relevant documents pertaining to a billing fraud investigation and alleged securities fraud. The appellants received a letter detailing the documents' relevance and submitted summaries and affidavits in an ex parte appendix for the Court's review. After the appellants filed a notice of appeal, the case was dismissed and later reinstated for reasons that are now irrelevant. The government's submission addresses criminal conduct beyond the current indictments, with the "unless" clause being crucial. Citing Goetz, the Court noted that the case fits an exception to the mootness rule, as the grand jury expired after the order for subpoenaed material but was delayed to allow the appeal. If the appeal fails, the timeline resets to when the district court order was issued, coinciding with the grand jury's existence.
The ICC order from Southern Pacific mandated that appellants cease granting undue preferences to a specific cotton seed shipper for at least two years. In Doe, the Court stated that the fraud exception to the work product privilege applies equally against suspected lawyers. In In re Murphy, the court stipulated that the discovery party must demonstrate that the client was engaged in or planning criminal activity when seeking counsel and that the documents relate closely to the fraudulent scheme.
The discussion specifies that only outside counsel for Subsidiaries A and B can claim work product privilege, while in-house counsel for Subsidiary A cannot due to established fraud. The government argues that the appellants' procedural claim is meritless and was not raised earlier, thus waiving it, though the Court may consider unraised issues in rare cases of plain error, which it found not applicable here. The appellants misinterpreted Zolin, negating the need to address the waiver. Notably, the appellants did not request an in camera review of the actual documents but instead submitted memoranda and affidavits for the Court's consideration.
If the Court determines that reviewing the affidavit necessitates inspecting specific documents, those documents will be provided under seal. The Court assessed the appellants' in camera submission regarding the documents and deemed an actual review unnecessary. A previous ruling established a fraud exception to the opinion work product doctrine in Doe, 662 F.2d at 1079. The Zolin Court did not clarify the proof required to invoke the crime-fraud exception. A note from the Supreme Court indicated that the term "prima facie case" used in Clark v. United States has created confusion, as it suggests a burden-shifting standard in civil cases, but in the context of fraud, it can eliminate privilege without allowing the client to counter the prima facie showing. The appellants pointed out that indictments related to mail fraud have been issued, claiming that reliance on mail fraud in the government's in camera submission would exempt the documents from grand jury production, allowing access only via trial subpoenas due to ongoing mail fraud indictments. Citing United States v. Dardi, it is noted that using a grand jury solely to prepare a pending indictment for trial is improper. However, based on the ex parte submission, mail fraud does not seem to be the rationale for the district court's invocation of the crime-fraud exception, and it was held that in camera procedures did not infringe on the appellants' due process rights.
