Tennessee Federal Court Applies Zolin’s Discretionary Standard in Denying In Camera Privilege Review 1

In an interesting case in the USDC for the Middle District of Tennessee, a magistrate judge denied a corporate plaintiff’s request for an in camera review of putatively privileged documents, finding that an automatic review “would open the floodgates and allow any party to demand an in camera review” if it “expressed an unfounded suspicion” that counsel for the opposing party “misrepresented the basis of the privilege claim.” Armouth Int’l, Inc. v. Dollar Gen. Corp., judge2015 WL 6696367 (M.D. Tenn. Nov. 2, 2015).  You may read the opinion here.

Developing Issue

The Armouth case highlights a growing question—what criteria should courts use in deciding whether to conduct an in camera review of putatively privileged documents when the opposing party challenges a privilege claim?  The Armouth court distinguished a prior USDC MD TN decision, John B. v. Goetz, 879 F. Supp. 2d 787 (M.D. Tenn. 2010), which held that a “district court should require an in camera review of the disputed documents.”  Instead, it adopted the less mandatory review standard for applying the crime–fraud exception enunciated in U.S. v. Zolin, 491 U.S. 554 (1989).

Legal Hat or Business Hat?

The privilege issue in Armouth arose in a familiar setting for in-house privilege challenges—whether the in-house lawyer’s communications made for legal or business advice.  A Dollar General in-house lawyer, who also was the “head of the Compliance Department,” released a hold on the plaintiff’s merchandise.  Dollar General claimed that the lawyer’s decision was purely legal and involved only “minor business considerations.”

The corporate plaintiff challenged this assertion, claiming that the lawyer at a minimum supplied business and legal advice in his communications.  The plaintiff therefore asked the court to review the communications in camera and determine the veracity of Dollar General’s privilege claims.

Court Applies Zolin Standard

The court distinguished the Goetz decision, which included language “requiring” an in camera review, on grounds that Goetz was a complex action involving protracted discovery where the party claiming the privilege had failed to comply with multiple court orders.

Instead, the court adopted the Zolin standard, where the Supreme Court provided an in camera review standard for assessing whether the crime-fraud exception applies to a privilege claim.  Under Zolin, the judge should require a showing of a factual basis adequate to support a good-faith belief by a reasonable person that an in camera review may reveal evidence to establish that the privilege does not apply.

Once a party makes this showing, the decision to conduct an in camera review lies within the court’s discretion, and the court should consider several factors in exercising that discretion, such as the facts and circumstances of the particular case, the volume of materials subject to review, the relative importance of the putatively privileged documents to the case, and the likelihood that evidence produced in the in camera review—along with other evidence—will eviscerate the privilege’s applicability.

Applying the Zolin standard, the court found that the corporate plaintiff failed to raise its evidence above the “unsupported speculation” “that an in camera review of the emails contained in Dollar General’s privilege log would reveal communications involving business advice unprotected by the attorney–client privilege.”

The corporate plaintiff has asked the district judge–the same judge that authored Goetz–to review the magistrate judge’s decision, and lawyers and other courts will find that upcoming ruling instructive on how to challenge privilege assertions.  For now, the court’s bottom line is that “in camera review is not appropriate simply because a party objects to the assertions of privilege.”

Court’s In Camera Examination of Attorney Leads to Crime-Fraud Exception Finding

In a grand jury investigation into FCPA violations, the Third Circuit upheld a district court’s in camera examination of a corporation’s attorney and application of the crime–fraud exception to overcome Business man pledgingthe attorney–client privilege. In doing so, the appellate court held that the Supreme Court’s standard in United States v. Zolin, 491 U.S. 554 (1989), governs whether a court may conduct an in camera witness examination to determine the crime–fraud exception’s application. In re Grand Jury Subpoena, 2014 WL 541216 (CTA3 Feb. 12, 2014). You may access the opinion here.

FCPA Grand Jury Investigation

During its investigation of a consulting company and its president for alleged FCPA violations, a grand jury in the Eastern District of Pennsylvania issued a subpoena to the company’s former attorney. The U.S. Attorney’s office sought enforcement of the subpoena, arguing that the crime–fraud exception overcame the company’s attorney–client privilege assertion.

Using the government’s questions, the district court examined the company’s attorney in camera, outside the presence of government or defense counsel, and, based on this in camera testimony, ruled that the crime–fraud exception applied. The court then compelled the attorney to provide the grand jury testimony concerning attorney–client conversations.  PoP profiled the district court’s decision in this post.

Standard for In Camera Examination

The Supreme Court ruled in Zolin that a district court may review in camera otherwise privileged documents to determine whether the crime–fraud exception applies. Before conducting an in camera document review, however, the district court “should require a showing of a factual basis adequate to support a good faith belief by a reasonable person that in camera review . . . may reveal evidence to establish the claim that the crime–fraud exception applies.”

The company and its president argued that the court should apply a higher standard before conducting an in camera oral examination because, unlike documents that memorialize statements, a witness’s memory is subject to inaccuracies. The court noted that “the pliability of a witness’s memory is a substantial one” because of “dangers of inaccuracy and untrustworthiness in probing into the memory of an attorney regarding past communications that do not occur with documented communications.”

But with little explanation, the Court expressed its confidence that district courts “will be able to question an attorney witness in a way that ensures that the attorney accurately recounts the communications with the client.” So, the Court held that the Zolin document standard applies equally to determine whether to examine a witness in camera.

Application of Crime–Fraud Exception

The crime–fraud exception applies only where the client was committing or intending to commit a crime or fraud at the time he consults an attorney. The exception does not apply where the client consults the attorney and later forms the criminal or fraudulent intent.  And the attorney’s advice must further the crime, not simply relate to the crime. To be “in furtherance” of a crime, the attorney’s advice must advance, or the client must intend for the advice to advance, the client’s criminal or fraudulent purpose.  Merely informing a client of the criminality of the proposed action does not invoke the exception; rather, the client must misuse or intend to misuse the attorney’s advice.

The grand jury was investigating whether the company and its president violated the FCPA by paying significant sums to the sister of an official with a United Kingdom bank from which the company was seeking a financial investment. The president informed the attorney that he planned to pay the bank official to ensure that the financial outlay moved swiftly, but the attorney advised the president not to make the payment.

The Third Circuit upheld the district court’s finding that this communication fell within the crime–fraud exception. Although noting that this was a “close case,” the district court found that the president used the attorney’s advice regarding direct payment to the bank official to circumvent the FCPA by making the payment to the official’s sister. The court applied the crime–fraud exception and required the attorney to testify before the grand jury about his confidential, privileged conversations with his client.