On January 27, the U.S. Court of Appeals for the Third Circuit reversed a decision of the District Court for the Eastern District of Pennsylvania in In Re: Grand Jury Matter #3,[1] holding that the district court should not have allowed a grand jury investigating the appellant to view an e-mail that had been sent by the appellant to his accountant forwarding an e-mail from his attorney, because the e-mail in question was protected by the attorney work product doctrine. The circuit court also ruled that it had jurisdiction over the appeal, even though the grand jury had already viewed the e-mail and returned an indictment.

Facts and Procedural Background

The disputed e-mail related to the alleged efforts of the appellant, identified only as John Doe, to conceal his ownership of a company, referred to as Company A, from the plaintiffs in a class action lawsuit against Company A. During this lawsuit, Doe had stated in a deposition that he had transferred ownership of Company A to Company B, which was owned by Doe’s business associate. Doe’s business associate stated during the litigation that Company A was no longer in business and had limited assets. The plaintiffs ultimately settled for about ten percent of the estimated value of their claims. In the grand jury investigation, the government argued that Doe deliberately misled the class action plaintiffs into believing that Doe, who had deep pockets, had transferred Company A to his business associate, who had limited assets, in order to get the plaintiffs to settle for a lower amount than they would have if they had believed they could reach Doe’s assets.

During the grand jury investigation, Doe’s accountant provided to the government Doe’s personal and corporate tax returns, which revealed that Doe reported himself as the owner of Company A during the relevant period. The accountant also provided an e-mail from Doe to the accountant forwarding an e-mail that Doe had received from his attorney four days earlier. The attorney’s e-mail set forth the steps that Doe would need to take to change his records to reflect that Doe’s business associate owned Company A. Doe forwarded the e-mail to his accountant with the following message: “Please see the seventh paragraph down re my tax returns. Then we can discuss this.”[2] The accountant’s recollection was that Doe’s attorney later told the accountant to “stand by” for further guidance, but never followed up.[3] There was no evidence that Doe ever amended his returns or took any action regarding his attorney’s advice other than forwarding the e-mail.

The government sought a ruling from the district court that the e-mail could be presented to the grand jury. The district court granted this ruling and Doe appealed. While the appeal was pending, the grand jury viewed the e-mail in question, returned an indictment, and was discharged. A new grand jury was empaneled, which also viewed the e-mail in question and was considering a superseding indictment when the circuit court issued an opinion holding that it lacked jurisdiction to review the district court’s ruling.[4] The circuit court then granted a request by Doe for a rehearing, and ultimately vacated its earlier opinion and issued a new opinion reversing the district court’s ruling. While the rehearing was pending, the second grand jury returned a superseding indictment, although its investigation into other charges was still ongoing at the time of the circuit court’s decision.[5]

Third Circuit’s Analysis

The principal issue before the circuit court was whether the e-mail fell within the crime-fraud exception to the attorney work product doctrine.[6] The attorney work product doctrine generally protects from disclosure legal communications prepared in anticipation of litigation. However, under the crime-fraud exception, attorney work product will not be protected from disclosure if there is a reasonable basis to suspect that (i) the lawyer or client was committing or intending to commit a crime or fraud, and (ii) the attorney work product was used in furtherance of that alleged crime or fraud.

The circuit court had no trouble concluding there was a reasonable basis to suspect that Doe committed or intended to commit a crime or fraud.[7] In this regard, the government had a recording where Doe allegedly bragged about defrauding the class action plaintiffs and admitted to bribing his business associate to participate in the fraud. Based on this recording, the circuit court found that the first prong of the crime-fraud exception was satisfied.

In regard to the second prong, however, the circuit court held there was no reasonable basis to suspect that Doe used his attorney’s e-mail in furtherance of the alleged fraud merely by forwarding it to his accountant with a message that he would like to “discuss” it.[8] While the attorney’s e-mail included advice on amending Doe’s tax returns to reflect that he was not the owner of Company A, there was no evidence that Doe followed this advice and amended his returns or instructed his accountant to do so. That Doe forwarded the e-mail indicated to the circuit court only that “Doe at most thought about using his lawyer’s work product in furtherance of a fraud, but he never actually did so.”[9]

In reaching this conclusion, the circuit court rejected two reasons given by the district court for applying the crime-fraud exception and allowing the e-mail to be presented to the grand jury. First, the district court suggested that Doe followed his attorney’s advice simply by forwarding the e-mail to his accountant. The circuit court dismissed this reason because, as the district court acknowledged, Doe never followed through with amending the returns. Second, the district court stated that Doe’s failure to follow through was of no consequence as long as Doe intended, as of the time he forwarded the e-mail, to amend the returns. While the circuit court agreed that evidence of an intent to amend the returns at the time Doe sent the e-mail would have been sufficient, the court found no evidence that Doe had ever formed such an intent.

Since the circuit court found no reasonable basis to suspect that Doe used his attorney’s e-mail in furtherance of the alleged fraud, it held that the crime-fraud exception did not apply and the e-mail thus was protected by the attorney work product doctrine.

The circuit court also held that it had jurisdiction over the appeal even though an indictment and a superseding indictment had been served on the appellant while the appeal was pending. Although in many circumstances an appeal becomes moot after an indictment is issued, the circuit court determined that the appeal was not moot in this case because the grand jury investigation was still ongoing even after the superseding indictment.

The court’s decision was based in part on judicial efficiency concerns. As the court noted, by the time Doe was indicted, the issue had been fully briefed and argued. If the court declined to decide the issue at this time, the issue would need to be re-briefed and re-argued in the event that Doe were to be convicted and file an appeal.

The court also noted, however, that in the event that Doe were to be convicted based on the superseding indictment, the circuit court’s ruling that the grand jury should not have been permitted to view the e-mail would not automatically entitle Doe to a new trial. In this regard, the government could avoid a retrial by showing the error was harmless.