When a Privileged Conversation Isn’t: The Crime-Fraud Exception to Attorney-Client Privilege

When the government investigates or prosecutes alleged corporate crime, a key question commonly emerges: Will the accused client waive attorney-client privilege and disclose relevant communications to the government?

This issue often arises because lawyers are routinely involved in corporate actions and decisions later subject to government scrutiny.  “The extensiveness and complexity of the laws governing” corporate affairs “have made legal advice a crucial element of [not only] major business decisions,” but also of “more mundane kinds of corporate activity.”  Douglas W. Hawes & Thomas J. Sherrard, Reliance on Advice of Counsel as a Defense in Corporate and Securities Cases, 62 Va. L. Rev. 1, 5 (1976).  As the Supreme Court emphasized in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981), relying on attorneys is especially important “[i]n light of the vast and complicated array of regulatory legislation confronting the modern corporation.”

Ordinarily, the client—and only the client—has the authority to decide whether to waive attorney-client privilege on communications with counsel.  Where an accused-client is cooperating with a government investigation or asserting an advice of counsel defense in response to formal charges, the waiver analysis is generally straightforward: the accused-client waives privilege and discloses relevant communications to the government.  The resulting disclosure often reveals critical information to the government because of the substantial involvement of lawyers in much corporate conduct and decision-making.

But what if an accused-client is contesting culpability and does not agree to waive attorney-client privilege?  Under the crime-fraud exception to privilege—which provides that communications with counsel “made in furtherance of a crime or fraud” are not privileged, In re Grand Jury Investigation (Schroeder), 842 F.2d 1223, 1226 (11th Cir. 1987)—the government may access attorney-client communications over an accused-client’s objection.  In practice, if an accused asserts the privilege over communications relevant to the prosecution, the government frequently argues the crime-fraud exception applies and the accused should be required to disclose her pertinent communications with counsel.

On June 25, 2021, the Eleventh Circuit Court of Appeals shed some light on the crime-fraud exception in a published opinion in In Re: Grand Jury Subpoena (Case: 21-11596).  The investigation concerns a political candidate’s alleged improper use of campaign donations on personal expenses and inaccurate statements on federal filings about how donations were used (e.g., characterizing furniture purchased for the candidate’s mother’s house as “office supplies”).  After the district court denied the campaign’s motion to quash a grand jury subpoena for testimony from the campaign’s outside attorney, the campaign appealed to the Eleventh Circuit.  The issue was “whether the district court erred in compelling the attorney’s testimony before the grand jury.”

The Eleventh Circuit affirmed the district court based on its application of a two-part test:

First, there must be a prima facie showing that the client was engaged in criminal or fraudulent conduct when he sought the advice of counsel, that he was planning such conduct when he sought the advice of counsel, or that he committed a crime or fraud subsequent to receiving the benefit of counsel’s advice. Second, there must be a showing that the attorney’s assistance was obtained in furtherance of the criminal or fraudulent activity or was closely related to it.

The Court characterized the first prong as a “low hurdle” and found the government had met it by proffering “evidence that, if believed by a trier of fact, would establish the elements of” wire fraud.  According to the Court, a prima facie showing does not mean proof beyond a reasonable doubt, but “some foundation in fact.”  Stressing the distinction, the Court noted it was not “opin[ing] on whether the evidence proffered by the government would be sufficient to convict,” only that the government’s prima facie showing was sufficient.

In dicta, the Court justified the ease of the first prong on the basis that the Court does not want to convert “motions in opposition to grand jury subpoenas . . . into mini-trials.”  If “courts always had to hear testimony and conflicting evidence on such matters, the rationale behind the prima facie standard—the promotion of speed and simplicity at the grand jury stage—would be lost.”  That reasoning leaves a few issues unexplored in the context of grand jury subpoenas for privileged communications.  To start, the opinion does not mention the foundational importance of attorney-client privilege.  The privilege will only remain sacrosanct if invasions of privileged communications are broadly and consistently prohibited.  Such intrusions must only happen in limited, specified, and unique circumstances.  Further, the specter of “always ha[ving] to hear testimony and conflicting evidence” is at least conjectural and at worst exaggerated.  Such fears, which may or may not be borne out by actual practice, become problematic if they fuel an over-correction and serve as a basis for chipping away at the “prima facie” standard.  Unfortunately, American criminal jurisprudence relies in many instances on expedience-based justifications to abbreviate procedures.

As to the second prong, the Court observed that “the parties quarrel over the correct formulation.”  The government contended: “all that need be shown is that the communication is related to the criminal or fraudulent activity established under the first prong.”  The campaign countered: because “the purpose of the second prong is ‘identifying communications that should not be privileged because they were used to further a crime or fraud,’ only communications made in furtherance of a crime or fraud fit within the exception.”  While “[c]ourts have enunciated slightly different formulations for the degree of relatedness necessary to meet th[e] standard,” the Court said that it has “[h]istorically” taken a “less restrictive view of the degree of relatedness required, explaining that ‘the requirement that legal advice must be related to the client’s criminal or fraudulent conduct should not be interpreted restrictively.’”

Ultimately, the Court avoided resolving the “the precise contours” of the second prong because “regardless of which formulation is utilized, the government prevails.”  Assuming “the second prong of the exception covers only communications which ‘advance, or [which] the client [] intend[s] . . . to advance, the client’s criminal or fraudulent purpose,’ the attorney’s advice here would fit that description.”  In so holding, the Court pointed to several key proffered facts: the campaign’s attorney advised the candidate “after the personal purchases were made, before the financial disclosure forms were filed,” and with “knowledge of the personal purchases—i.e., the ongoing criminal or fraudulent activity.”  “Because the attorney’s role in the campaign was to ensure compliance with Georgia law as it related to the filing of the financial disclosure forms, and because the legal advice at issue was obtained after the personal expenditures were made and before the filing of the forms, the advice ‘advance[d], or [at the very least] the client [] intend[ed] the advice to advance, the client’s criminal or fraudulent conduct.’”

Notably, the Court emphasized that “the attorney’s own interview with the government” supports the government’s proffered facts, and the campaign “does not dispute” the proffered evidence.  If it were otherwise, the Court may have analyzed further whether the government’s “showing” had satisfied the second prong.

As this blog has previously discussed, attorney-client privilege issues frequently arise in government investigations and prosecutions of white-collar crime.  Our white-collar and government investigations team is deeply experienced in helping business clients navigate the many issues that arise in government investigations and prosecutions.  Contact us to discuss your matter today.

 

 

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