Crime-Fraud Exception: Former General Counsel Ordered to Submit to In Camera Interview in FCPA Grand Jury Investigation 1

A Philadelphia federal Judge, law book and gavelcourt, asked to enforce a grand jury subpoena of a target company’s former General Counsel, ordered the GC to submit to an in camera interview.  The court ordered the interview to determine whether the crime-fraud exception to the attorney-client privilege applied so that the attorney could testify without violating the attorney-client privilege.  In re Grand Jury Subpoena, 2012 WL 5587438 (E.D. Pa. Nov. 13, 2012).  And in doing so, the court became one of the few to order an in camera attorney interview before deciding whether to enforce a grand jury subpoena.

The Investigation and Subpoena

The Philadelphia U.S. Attorney’s Office subpoenaed the former General Counsel of a company to testify before a grand jury investigating whether the company violated the Foreign Corrupt Practices Act.  The Government conceded that much of the General Counsel’s testimony would include matters protected by the attorney-client privilege, but argued that the crime-fraud exception applied to overcome the privilege.  The Court deferred ruling on the Government’s motion to compel until it could conduct an in camera interview with the General Counsel.

Elements of Crime-Fraud Exception

This case reiterates the elements a party must prove to invoke the crime-fraud exception to the attorney-client privilege. The crime-fraud exception applies (1) when 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.  The exception applies regardless whether the attorney was actually aware that her advice was being used for “nefarious purposes.”  And while courts have not clarified the evidentiary standard for invoking the exception, it is clear that the burden is “not a particularly heavy one.”

Requirements for In Camera Interview

But a different, and even easier, burden exists to obtain an in camera review of putatively privileged documents or, in this case, putatively privileged testimony.  Relying on United States v. Zolin, 491 U.S. 554 (1989), the court held that, to obtain an in camera interview of an attorney to aid in a crime-fraud exception determination, the Government must show “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 a claim that the crime-fraud exception applies.” This burden, which is “not a stringent one,” is all that is required because the decision thereafter lies entirely within the court’s discretion.

The Zolin standard applies to an in camera review of documents.  The district court, while acknowledging the lack of Supreme Court or significant appellate court authority, saw no difference between conducting an in camera document review and an in camera examination.

Interview with Parameters

Although the court held that the Government hurdled the low threshold to obtain an in camera interview of the General Counsel, it implemented protective measures due to concerns of (1) attorney-client confidentiality and (2) grand jury secrecy.  The court allowed counsel for the Government and the target company (the GC’s former employer) to submit questions for the court to ask the General Counsel, but precluded their attendance at the examination.

Corporate Attorney-Client Privilege “Cautiously and Narrowly” Applied to In-House Counsel 1

Another judicial decision reminds us that courts impose a heightened evidentiary burden on in-house counsel seeking to protect communications (particularly emails) under the corporate attorney-client privilege.  In Adair v. EQT Production Co., 285 F.R.D. 376 (W.D. Va. 2012), the court, reviewing a privilege log and an in-house lawyer’s affidavit, ruled that none of the lawyer’s emails at issue were privileged.  And in issuing the ruling, the court provided helpful lessons and reminders for in-house lawyers.

In-House Counsel’s Emails at Issue

The Adair case involves claims for royalties from gas fields operated by EQT Production in Southwest Virginia. The plaintiffs moved to compelBusiness meeting with work on contract the production of several emails either sent or received by an EQT in-house lawyer.  During the time the emails were created, this in-house lawyer served in various legal capacities, including Vice-President and General Counsel, Vice-President of Legislative and Regulatory Affairs, Managing Director of External Affairs, and Deputy General Counsel.  And in each of these roles, the lawyer reported directly to EQT’s General Counsel.

The in-house counsel asserted that all these emails were privileged and produced a privilege log and supporting affidavit.  But the privilege log did not describe the emails as “seeking legal advice” and his affidavit did not specifically describe the emails were for providing legal advice.  The in-house lawyer merely stated that he communicated, in his legal capacity, with company employess when responding to a media inquiry, commenting on pending state legislation, and dealing with royalty issues before the state Oil and Gas Board.

The Ruling–Lessons and Reminders

The court decided to review five emails in camera because the privilege log sufficiently described the emails as pertaining to legal advice; however, the court held that all other emails were not privileged and must be produced.  The court’s ruling contains several lessons and reminders for in-house lawyers seeking to establish and maintain the corporate attorney-client privilege.

  • Burden of Proof for In-House Lawyers

The court provided a succinct yet alarming reminder of the heavy evidentiary burden for proving the attorney-client privilege applies to in-house counsel’s communications.  The court bluntly stated that “the determination of whether the attorney-client privilege applies . . . becomes more difficult when the sender or recipient . . . is in-house counsel for a corporate entity.” The court echoed other courts’ concern that in-house lawyers use the privilege to create a “large zone of secrecy” for corporate communications that are otherwise relevant to a particular dispute.  Because of this concern, the court “cautiously and narrowly” applied the corporate attorney-client privilege to communications involving in-house counsel.

  • Privilege Log

The Adair ruling emphasizes the growing importance of adequate descriptions of privileged documents in the party’s privilege log.  The court noted that the party seeking privileged information has little information to challenge a privilege claim and must rely on the opposing party’s privilege log descriptions.  The court held that the party withholding documents under a privilege claim “must specifically and factually support its claim of privilege by way of evidence, not just argument.”

And this burden begins with the privilege log.  The log’s privilege descriptions must meet the party’s burden of showing the communications are actually privileged.  This requirement means, at the very least, that the privilege log identify each communication as created for the purpose of the in-house counsel rendering legal advice or as otherwise of a predominantly legal character.  In Adair, the court found that the majority of entries on the privilege log failed to indicate that the emails were for legal advice.  This failure in large part sunk the privilege claims without the need for an in camera review.

  • Conflict of Privilege Laws

Many lawyers and some courts neglect consideration of the conflict of privilege laws issue when considering whether an evidentiary privilege applies.  In Adair, the case at the time of the ruling involved only state-law claims. And although the case was pending in federal court, the court applied the law of the forum state–Virginia–rather than federal law.

PoP Analysis

The Adair ruling represents yet another example of courts imposing a heightened scrutiny to in-house lawyers’ privilege claims.  Other recent decisions from a Wisconsin court and an Idaho court further illustrate the continued scrutiny of the corporate attorney-client privilege.  But the Adair court’s emphasis on how in-house counsel must satisfy their heightened burden is instructive.  Few courts highlight the importance of a company providing a specific description of the privileged communication in the privilege log, but Adair makes clear that the company must initially meet its burden in the privilege log by stating that the communication was created for the purpose of the in-house lawyer rendering legal advice or is otherwise for legal-advice purposes.

The Adair court also criticized the in-house attorney’s affidavit filed in opposition to the motion to compel.  Courts clearly require in-house lawyers to “specifically show,” via affidavit, that the communication was for legal-advice purposes, and Adair emphasizes this point. The court held that the affidavit was too general and contained mere conclusory statements that the in-house lawyer “considered the communications privileged” or that, “in his view, he was acting in a legal capacity.”  Adair shows that in-house lawyers’ supporting affidavits must be specific and tailored for each communication.

Finally, while the court correctly applied Virginia state privilege law (as opposed to federal privilege law) in this diversity case, it did not indicate whether that included Virginia’s conflict of laws rules.  Courts and lawyers should remember that application of state law in diversity actions includes that state’s conflict of laws rules; so, it could be that, based on the location and substance of the privileged communications, Virginia’s conflict of privilege laws rules would direct the federal court to apply a different state’s privilege law.  The Adair decision is silent on whether another state’s privilege law was implicated, but a conflict of privilege law analysis should be considered in diversity cases where state privilege law applies.

Georgia on My Mind. Court Applies Georgia’s Accountant-Client Privilege to Texas Accountant and his North Carolina Client 2

A Georgia federal court, sitting in diversity, applied Georgia’s accountant-client privilege to documents exchanged between a Texas accountant and his North Carolina client.  Slide1The documents would not have been privileged under Texas or North Carolina law because neither state has an accountant-client privilege.  But the federal court applied the forum (Georgia) state’s privilege law with little meaningful conflict of law analysis, resulting in a potential windfall for the North Carolina plaintiff and hardship on the Georgia defendant.  Christenbury v. Locke Lord Bissell & Liddell, LLP, 285 F.R.D. 675 (N.D. Ga. 2012).

Georgia by way of North Carolina and Texas

The Christenbury case involves a professional negligence claim against an Atlanta attorney regarding tax advice provided to a North Carolina client.  The attorney moved for production of documents exchanged between the client and his Texas accountant, whom the client retained post transaction to assist in tax-return preparation.  The North Carolina client argued that Georgia’s accountant-client privilege statute protected the documents from discovery, while the defendant attorney argued that Georgia’s privilege law did not apply because the client’s communications with his accountant occurred entirely outside of Georgia.

Georgia on the Court’s Mind

The all-time great hit, Georgia on My Mind, popularized by Ray Charles, contains these lyrics:

Other arms reach out to me
Other eyes smile tenderly
Still in peaceful
dreams I see
The road leads back to you

Perhaps the Court had this tune in mind when it ruled that Georgia’s accountant-client privilege applied to the North Carolina client’s communications with his Texas accountant.  The court reviewed Georgia’s privilege, contained in a state statute, and noted that it contained no geographic boundaries.  And the court found that Georgia’s public policy of protecting communications between an accountant and her client conflicts with Texas and North Carolina’s failure to recognize the privilege. And finally, the court relied upon a Maryland federal court’s decision to apply Maryland’s accountant-client privilege to a New York accountant and his New York client. Hare v. Family Publications Serv., Inc., 334 F. Supp. 953 (D. Md. 1971).

PoP Analysis

This case highlights the important conflict of privilege law analysis that many lawyers and courts choose to ignore.  This conflict issue appears to be a matter of first impression in Georgia; and while the court may have correctly predicted Georgia law, one may question the court’s analysis in reaching this decision.  Did this client, residing in a state (North Carolina) that does not recogize the accountant-client privilege, expect that his communications with an accountant residing in another state (Texas) does that also not recognize the privilege were privileged? Hard to believe that was a legitimate expectation.

The court, sitting in diversity, properly applied Georgia law to this question, but this application of law must include Georgia’s conflict of laws rules.  The court failed to discuss whether Georgia’s conflict of laws rules warranted application of the forum law from the old territorial approach of the First Restatement of Conflicts of Laws, or whether Georgia’s conflict of privilege laws embraced the most significant relationship test outlined in the Second Restatement.  Georgia recently rejected the Second Restatement‘s choice of law analysis in the torts arena, see Dowis v. Mud Slingers, 621 S.E.2d 413 (Ga. 2005), and perhaps this decision would have persuaded the court to predict that Georgia courts would do the same in the privilege arena.  But the analysis was never performed.

One may also question the court’s reliance upon the Maryland federal-court decision’s in Hare.  The court stated that Georgia courts find persuasive federal courts’ decisions interpreting federal civil rules.  But evidentiary privileges are substantive, not procedural, law and are controlled at the federal level by federal common law under Fed. R. Evid. 501 rather than the federal rules of civil procedure.  Moreover, the Hare court, sitting in diversity, applied state law rather than federal.

In sum, perhaps a Georgia court would take the territorial approach and apply its own accountant-client privilege to communications between out-of-state accountants and their clients, but the Christenbury court’s analysis in reaching this decision may be questioned.  For a detailed analysis of how conflict of laws rules apply to evidentiary privileges, check out my chapter in Evidentiary Privileges for Corporate Counsel.  And in the meantime, enjoy classic Ray Charles’s rendition of Georgia on my Mind.