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2016 is well underway and some of us have already abandoned our well-intentioned New Year’s resolutions. But for those who might be thinking about weight loss, here’s a cautionary tale with a pretty happy ending from our good friends on the Ninth Circuit.
In re Grand Jury Investigation, No. 15-50450, 2016 U.S. App. LEXIS 580 (9th Cir. Jan. 14, 2016), is the Ninth Circuit’s latest pronouncement on the discoverability of privileged communications in the context of the crime-fraud exception. The decision vacated a scary district court order – one that granted the government’s ex parte motion to compel production of attorney-client privileged documents. The Ninth Circuit remanded and required the district court to inspect the subpoenaed documents in camera to determine if any specific attorney-client communications for which production was sought were sufficiently related to and were made in furtherance of the intended, or present, continued illegal activity.
The facts here are pretty straightforward. The advertiser being investigated was a call center that marketed a surgically inserted device designed to treat obesity. Local public health officials in Los Angeles contacted FDA due to concerns that the advertisements – including large billboards, bus placards, and direct mail – did not provide adequate risk information about the surgery required to implant the device. The advertiser also responded, sending FDA a letter, through its attorney, disputing many of the assertions and attempting to dissuade an agency investigation.
No such luck.
FDA investigated and sent warning letters to both the advertiser and to some California surgery centers that had implanted the device. FDA took the position that the advertising at issue violated the FDCA by omitting (1) “relevant risk information regarding [device] use,” (2) patient selection criteria (“age and other qualifying requirements”), and (3) “the need for ongoing modification of eating habits.” 2016 U.S. App. LEXIS 580, at *4. Through their lawyers, both the advertiser and the surgery centers responded separately to FDA.
The government alleged that the responses to FDA contained false statements designed to obstruct the agency’s investigation. Grand jury subpoenas issued to three attorneys asserted the crime-fraud exception to demand production of all manner of privileged communications: “(1) all communications relating to their correspondence to the FDA, including documents and notes showing the information received and identifying the sources of information for the statements and representations made and (2) retainer agreements and billing records identifying the client(s) who retained and paid for their services in communicating with the FDA on the subject matter of the correspondence.” Id. Suffice it to say that no attorney wants to be on the receiving end of this kind of thing.
Although the attorneys provided some of the requested information, they naturally disputed many aspects of the subpoenas, so the government filed a motion to compel. Rather than review the contested documents in camera, the district court held that, from independent, non-privileged evidence, it could determine that the government made out a prima facie case that the lawyers’ services were obtained in furtherance of and sufficiently related to ongoing crimes. In a ruling sufficient to send shivers down the spines of the ethically dubious Annalise Keatings of the world, the district court bypassed any in camerareview requirement for the crime-fraud exception and ordered production of the whole kit and caboodle of subpoenaed information.
Cue the cavalry.
On interlocutory appeal, the Ninth Circuit required more considered treatment of any application of the crime-fraud exception to the attorney-client privilege. A two-part test must be satisfied:
First, the party must show that “the client was engaged in or planning a criminal or fraudulent scheme when it sought the advice of counsel to further the scheme.” Second, it must demonstrate that the attorney-client communications for which production is sought are “sufficiently related to” and were made “in furtherance of [the] intended, or present, continuing illegality.”
Id. at *5-6 (quoting In re Grand Jury Proceedings, 87 F.3d 377, 381-83 (9th Cir. 1996)).
The Ninth Circuit identified a circuit split (are you listening, Supremes?), and aligned itself with the majority of circuits, including the First, Second, Third, and Sixth, that follow a pro-privilege “reasonable basis” test requiring: (1) the targeted attorney having probable cause or a reasonable basis to suspect or believe that the client was committing or intending to commit a crime or fraud and (2) that attorney-client communications were used in furtherance of that fraud. However, the Court refused to adopt the attorneys’ position that in camera review was mandatory before a prima facie case for the exception could exist. Instead, the Ninth Circuit held that a prima facie case of crime-fraud may be established either by examining privileged material in cameraor by examining independent, non-privileged evidence, as was done here. Id. at *6. That, however, was only the first step of the inquiry.
What the first step taketh, the second step giveth back. Furtherance of the crime-fraud was lacking because no evidence established whether the privileged communications were “sufficiently related to” or were made in “furtherance of” continuing illegality. Thus, the district court’s broad production order was invalid in the absence of in camera review of the documents to assure they contained communications in furtherance of the asserted crime-fraud.
Here, we note – with gratitude – the by-designation presence of Judge George Caram Steeh III, a loyal Michigander and fellow Wolverine, who may have urged the panel to follow the approach of his native Sixth Circuit:
Although we do not have a published opinion on this point, other circuits have concluded that district courts must review documents in camera before deciding whether they should be produced under the crime-fraud exception. The Sixth Circuit explained the difference between in camera review during step one and step two of the analysis: While in camera review “could . . . assist the court in determining whether a prima facie violation had been made” (step one), in camera review “is mandated to determine the scope of the order,” i.e. “to determine whether [the documents] reflect communications or work product made in furtherance of a contemplated or ongoing” crime-fraud (step two).
We agree with the Sixth Circuit. While in camera review is not necessary during step one to establish a prima facie case that the client was engaged in or planning a criminal or fraudulent scheme when it sought the advice of counsel to further the scheme, a district court must examine the individual documents themselves to determine that the specific attorney-client communications for which production is sought are sufficiently related to and were made “in furtherance of the intended, or present, continuing illegality.”
Id. at *7 (lots of citations and quotation marks omitted, particularly to Sixth Circuit cases).
We are aware that the law in some states, including California, does not permit a court to order in camera review of privileged documents. We are speaking here about federal procedure. That being said, although we feel that it would be better for in camerainspection of the privileged communications to be required in step one to make the crime-fraud prima facie case, we can abide the Court’s approach if its “reasonable basis” test is satisfied, as it necessitates in camera review to complete step two. This position respects the sanctity of the attorney-client relationship and should not discourage a client from seeking advice on the legality of any particular conduct. We hope that when this issue eventually reaches The Nine, a majority will (at least in this instance) look to the Ninth and sees things in a way that maintains some rigor in the proof requirements for the crime-fraud exception.