Invoking the crime fraud exception: why courts should heighten the standard in criminal cases.

Author:Lipman, Bethany
 
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Introduction

In a 2014 opinion, the Third Circuit invoked one of the most prominent exceptions to the attorney-client privilege in the context of a Foreign Corrupt Practices Act ("FCPA") investigation: the crime-fraud exception. (1) Although the attorney-client privilege generally protects confidential communications between clients and their attorneys, the crime-fraud exception effectively prohibits a client from consulting with an attorney in order to obtain information that would help the client commit a crime or fraud. (2) The exception therefore allows an opposing party seeking disclosure of documents or testimony to defeat the attorney-client privilege by demonstrating first, that the client committed or intended to commit a crime or fraud, (3) and second, that the otherwise-privileged communication was made "in furtherance of' that illicit purpose. (4)

The case arose after a grand jury issued a subpoena to the former attorney of a company and its executive, both of whom were targets of an ongoing investigation into alleged FCPA violations. (5) Allegations that the targets made corrupt payments to a foreign government official in order to obtain business stemmed from the company's dealings with the official's employer, a bank owned by foreign countries. (6) During the time the bank employed the company and its executive, the company allegedly paid the official's sister over $3.5 million even though the sister apparently never worked on any projects connected to the company. (7) Seeking more information about the nature of these payments, the grand jury subpoenaed the company and executive's former attorney. (8)

Despite the company and executive's argument that the attorney-client privilege prevented the attorney from testifying, the district court found the government's ex parte submission met the low threshold required for the judge to question the attorney in camera to determine whether the crime-fraud exception applied to the communications and vitiated the privilege. (9) During the in camera examination, the attorney informed the judge that he had counseled the executive with regard to paying the official. (10) Although the attorney's research did not conclusively show the payments were illegal, the attorney had advised the executive against making any payments. (11) After receiving the advice, the executive nevertheless made the allegedly illegal payments. (12)

Based on both the ex parte government submission (13) and the attorney's in camera testimony, the district court held the crime-fraud exception applicable and ordered the attorney to testify before the grand jury. (14) The court noted that the showing needed to establish the exception is "relatively low" and is "particularly appropriate in the grand jury context, given 'the need for speed, simplicity, and secrecy.'" (15) Disclosing limited facts to support its conclusion, (16) the court explained that the government's ex parte submission and the court's subsequent in camera questioning of the attorney provided sufficient evidence "to establish a reasonable basis for the Court to conclude [the clients] intended to commit a crime when Attorney was consulted for legal advice regarding the Transaction and could have easily used it to shape the contours of conduct intended to escape the reaches of the law." (17)

Though characterizing the scenario as a "close case," (18) the Court of Appeals reviewed the district court's decision for abuse of discretion (19) and upheld the order applying the crime-fraud exception and compelling the attorney to testify before the grand jury. (20) The court acknowledged that the crime-fraud exception cannot apply "to a situation where a client consults an attorney about a possible course of action and later forms the intent to undertake that action." (21) However, the panel upheld the district court's conclusion that the executive intended to commit the crime before seeking the attorney's advice, thus satisfying the crime-fraud exception's first prong. (22) The court also held the second prong satisfied: despite explaining that the advice must not only "relate to the crime," but also that the client intend for it to advance the crime, (23) the panel upheld the district court's conclusion that the executive used the attorney's advice to "fashion conduct in furtherance of [his] crime." (24) The court also affirmed the district court's exclusion of those asserting the privilege from attending the in camera examination or reviewing a transcript of that examination on grand jury secrecy grounds. (25)

Use of the crime-fraud exception is widespread, and many advocates and commentators argue it has expanded over the past several decades. (26) Of immediate concern in this Article is the Supreme Court's refusal to define the measure of proof required to vitiate the attorney-client privilege through the crime-fraud exception. (27) Although the Supreme Court has indicated that those seeking to invoke the exception must establish a "prima facie case" (28) that it applies, the Court has acknowledged, "in a wonderful example of studied understatement," (29) the "confusion" caused by that articulation. (30) Lower courts have adopted at least three (31) different recitations of the prima facie standard, ranging from "probable cause" (32) to a "reasonable basis to suspect" (33) to "evidence that if believed by the trier of fact" would establish the exception. (34) The real question seems to be not whether there is an inconsistency in articulation of the exception's standard of proof--to that the answer is undoubtedly yes--but instead whether those differing formulations bring about practical disparities in application.

This Article argues that regardless of whether differences in the circuits' articulated standards actually produce disparate results, none of those standards sufficiently safeguard the attorney-client privilege for criminal defendants. The Supreme Court should instead adopt a more stringent, preponderance of the evidence standard to invoke the exception in the criminal context. (35)

Part I will provide an overview of the crime-fraud exception and define the various conceptions of the showing needed to defeat the attorney-client privilege, specifically addressing the confusion regarding whether the standard needed to invoke the exception is consistent among the circuits. It will also explain the particular concerns unique to the criminal context. Part II will argue, based partly on the risk of differing applications throughout the circuits, that many courts currently employ a standard that insufficiently protects the underlying purpose of the attorney-client privilege. It will advocate that the government should be required to meet a stricter, preponderance of the evidence burden to invoke the exception in the criminal context. This standard would both (1) comport with established Supreme Court precedent and the Federal Rules of Evidence, and (2) better protect the rights of criminal defendants when other aspects of the exception and the criminal justice system weigh against the accused. Part III will revisit the Third Circuit case described in this Introduction to illustrate how the arguments made could have led to a different outcome in this recent case. This Article will conclude by recommending that the Supreme Court adopt a preponderance standard to govern application of the crime-fraud exception in criminal cases. (36)

  1. THE CRIME-FRAUD EXCEPTION TO THE ATTORNEY CLIENT PRIVILEGE: DEVELOPMENT AND APPLICATION

    1. History and Purpose of the Attorney-Client Privilege and the Crime-Fraud Exception

      The attorney-client privilege is the oldest recognized confidential communications privilege at common law. (37) Its purpose is to protect confidential disclosures within the attorney-client relationship in order to encourage "full and frank communication between attorneys and their clients." (38) The privilege allows for these honest communications by alleviating a client's fears that his communications will be publicly revealed. (39) Honest, complete disclosures in turn better equip attorneys to provide effective legal services to their clients. (40) In a broader sense, the privilege serves the interest of the public in "the observance of law and administration of justice" (41) because effective advocacy "serves public ends" (42) by ensuring the proper functioning of the adversarial judicial process. The attorney-client privilege is absolute in nature, (43) meaning it will not yield just because an opposing party claims a need for the protected information. (44) Rather, the Supreme Court has consistently held that fact-specific balancing tests are inappropriate. (45) Moreover, the privilege applies in both criminal and civil proceedings and may be invoked at any stage of litigation, including discovery and, specifically in the criminal context, during grand jury proceedings. (46) Despite the strength of the attorney-client privilege, however, courts have recognized its limits. Because the privilege "has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose." (47) The determination of whether an applied exception furthers or undermines the privilege is made on a "case-by-case basis." (48) Still, because testimonial privileges are construed narrowly, (49) there are several clear exceptions to the privilege's protection that warrant application in many instances. (50) Among the most prominent is the crime-fraud exception.

      Crafted to prevent abuse of the attorney-client relationship, the exception allows for disclosure of otherwise-privileged material when the client seeks advice to aid him in committing a crime or fraud. (51) Protection of communications involving past crimes is necessary to ensure that clients will openly share all relevant facts to gain "the aid of persons having knowledge of the law and skilled in its practice." (52)...

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