Twenty-five years ago, the Supreme Court in United States v. Zolin, 491 U.S. 554 (1989) endorsed the use by district judges of in camera and ex parte review of privileged documents in order to determine whether the privilege was vitiated by the crime-fraud exception. The Court held that a factual predicate to any document review by the district court was a demonstrable good faith belief by the party seeking the materials that the judge's review could establish the privilege had been abused by the client in furtherance of a crime or fraud.
The Third Circuit recently confronted an effort by the government in the grand jury context to compel an attorney to testify about privileged communications with his client on the basis of an alleged crime-fraud exception to the privilege. In re Grand Jury Subpoena, 2014 WL 541216 (3rd Cir., Feb. 12, 2014). The grand jury was investigating alleged violations of the Foreign Corrupt Practices Act, or FCPA, by a loan consultant entity which had aided other companies in obtaining financing from a British bank for overseas ventures. The company's president had sought legal guidance in payments to be made for the benefit of a representative of the bank, in order to facilitate the granting of financing from that bank. The attorney was subpoenaed for testimony about the communications, and the company and its president intervened, moving to quash the subpoena on privilege grounds. The government made a showing of crime-fraud by ex parte affidavit and sought a Zolin review by having the district judge conduct a private interview of the attorney.
Extending the Zolin protocol to go beyond documents to live witness testimony would not seem to be much of a stretch, but the intervenors argued that the was a substantial difference between a court reviewing and assessing cold documents and interviewing and evaluating the more fluid answers of a live witness, and they argued for a more rigorous preliminary showing by the government to trigger the protocol. The Court of Appeals refused to implement a different and higher standard for examining oral communications and rejected the intervenors' concern that the dynamic of a witness interview, given the different ways in which questions could be framed and in which verbalized answers could be understood, differentiated this case from the document review of Zolin. The intervenors' request that they be present during the examination of their attorney was also rejected, on the ground that the questions to be posed by the judge — a number of which were suggested by the government — would unfairly reveal information about the nature of the grand jury investigation and of the government's strategy.
Nothing thus far in the court's analysis and application of Zolin could be characterized as terribly surprising. The more interesting, and substantive, question raised on the facts of this case was whether the District Court correctly determined that the crime-fraud applied to this attorney-client communication. There are two elements to the exception which must be established: first, that there is a reasonable basis to believe that the holder of the privilege was committing or intended to commit a crime or fraud and, second, that the attorney-client communication was used to further the crime or fraud.
The first element was readily shown, but the second was inadequately treated in the Court of Appeals' opinion. Typically, a communication from a lawyer which is argued to be in furtherance of the crime is one in which the lawyer provides affirmative and direct guidance as to a course of action which might be followed in order to avoid legal compliance in order to aid a wrongdoer; usually, the attorney is somewhat complicit in the wrongful activity and, usually, the government's interest is less in what the lawyer had to say that in what the client admitted to the lawyer having done.
According to the opinion, in this case the company president explained to the attorney in their first meeting in 2008 that he intended to pay the banker in order to ensure progress on the foreign transaction, thus admitting to a commercial bribery and Travel Act conspiracy violation, if not to an FCPA violation. The attorney the explained the bare outlines of the FCPA and asked some questions about the relationships of the banker and his bank to foreign governmental entities. The attorney, according to the opinion, could not determine whether the payments to the banker were legal or illegal, and so advised the client not to make the payment. The client ended up making the payments and arranging for the monies to go to the sister of the banker.
Clearly, the government wanted the admissions made by the client about his intended course of illegal payments. It is difficult to understand how the lawyer's brief dissertation on the proscriptions of the FCPA or his conclusion that the payments should not be made in any way "furthered" the client's announced and intended course of conduct. The court rearranged the facts thusly, in order to affirm the "in furtherance" finding: "Specifically, Attorneys questions about whether or not the Bank was a governmental entity and whether Banker was a government official would have informed Client that the governmental connection was key to violating the FCPA. This would lead logically to the idea of routing the payment through Banker's sister, who was not connected to the Bank, in order to avoid the reaches of the FCPA or detection of the violation." Id. at *9.
Now, that's a stretch.
(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)
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