The Unusual Procedural Setting - Appeal by Target Rather than Party Compelled Not Mooted by Indictment Because Grand Jury Ongoing.
The grand jury was investigating an individual, pseudonymed as John Doe, for potential fraud. (The precise nature of the potential fraud is set forth in the opinion, but not important for this summary.) Part of the fraud related to ownership of a company. In the events leading to the possible fraud, Doe claimed he did not own the company. However, Doe had previously filed tax returns indicating that he did own the company. Doe received an email from his attorney indicating steps needed "to correct his records so that they reflect that the business associate, not Doe, owned Company A since 2008." Doe forwarded this email to his accountant. The accountant retained the email in his files. Doe never amended the returns or otherwise corrected the information as suggested in the email.
Pursuant to a grand jury subpoena, Doe's accountant delivered his copy of the email to the grand jury. The accountant's attorney shortly thereafter asked that it be returned as it was within the work-product privilege (the attorney said it was not for legal advice). Based on the request, the government attorney refrained form presenting it to the grand jury and asked the District Court for permission to present it to the grand jury, on the ground that Doe had waived the privilege (presumably by showing it to the accountant). The District Court ruled that (i) the attorney-client privilege did not apply because Doe did not send the email to the accountant to obtain legal advice, (ii) the work-product privilege (called, or miscalled, the attorney work-product privilege) did apply because the accountant was not an adversary, and (iii) the crime-fraud exception applied.
Immediately after the order, Doe appealed. While the appeal was pending, the email was shown to the grand jury. And, while the appeal was pending, the grand jury indicted Doe and then issued a superseding indictment.
Through the appeal and rehearing up until the decision discussed here, the grand jury continued its investigation of Doe with the possibility of returning a superseding or even a new indictment.
The Third Circuit first issued an opinion holding that it lacked jurisdiction. Doe sought rehearing. This opinion is the opinion on rehearing.
So, the first question addressed in the new opinion was whether the Court of Appeals had jurisdiction. The panel held that the Court of Appeals did have jurisdiction. Although not a perfect fit, the Court of Appeals applied by analogy the rule in Perlman v. United States, 247 U.S. 7 (1918), that permits a party other than the party compelled (here the party compelled was the accountant) to contest an order to comply with a grand jury subpoena where the party compelled may not have sufficient interest to follow the normal procedure of refusing to comply and suffering a contempt order in order to obtain appellate review.
And, the Court of Appeals held, the case was not mooted by the indictment and superseding indictment, because grand jury consideration was proceeding. The Court reasoned:
To be sure, an intervening indictment can (and often will) moot an interlocutory appeal. For instance, through this appeal Doe asks us to prevent the grand jury from relying on an email that he argues is confidential. If after the indictment the grand jury investigation had ended, any harm from exposure to the email already would have occurred. It would make sense in those circumstances to hold off until after the criminal proceedings are over before determining whether the grand jury proceeding were tainted.
But those are not our facts. The grand jury investigation continues, even after the new grand jury saw the email and issued a superseding indictment. Although the Government contends that the "grand jury easily can continue investigating questions relating to the ownership of [Doe's company] without reexamining the email or considering any charges related to the email," it may yet return another indictment based on the issue of the company's ownership—the very subject of that email. Gov't 28(j) Letter (Dec. 29, 2016). The grand jury cannot erase from its memory an email about Company A's ownership while evaluating new charges relating to that issue. And though the Government contends it currently "has no plans" to put this email to further use during the continuing investigation, there is no guarantee that its plans will not change. Pet. Reh'g Opp'n at 4. Therefore, in our case, as in Johanson, these two indictments "did not bring the grand jury's proceedings to [their] conclusion," so there is still potential harm we can prevent. Johanson, 632 F.2d at 1040. The purpose of this appeal thus remains the same as when it was first filed: deciding whether an email that was inadvertently disclosed may be used as part of an ongoing grand jury investigation when that disclosure plausibly violates the attorney work-product privilege.
As long as we had jurisdiction at the outset, Doe's case is guided by our analysis of the Government's appeal in Johanson and by our decision in Fattah. As in those cases, the indictment and superseding indictment did not destroy jurisdiction that properly existed beforehand. n5 If the controversy is live enough that the case is not moot, we should decide it.Crime-Fraud Exception Does Not Apply Because No Act in Furtherance.
n5 The Government also contends this appeal is moot for an unrelated reason. It argues that Doe has waived attorney-client protections because his pretrial memorandum indicates that he might rely on the advice-of-counsel defense. See Travelers Cas. & Sur. Co. v. Ins. Co. of N. Am., 609 F.3d 143, 164 (3d Cir. 2010) (recognizing that attorney-client confidentiality protections may be waived if the client asserts a defense based on his reasonable reliance on the attorney's advice) (citation omitted). We disagree. That Doe's trial strategy has changed given the development of this case does not mean he has waived the issues he continues to challenge on appeal.
The panel held that the element of furtherance of the fraud was lacking here, reasoning (bold-face added by JAT):
Having concluded that our appellate jurisdiction continues, we now address the merits and hold that the crime-fraud exception to the attorney work-product doctrine does not apply to the email at issue. One of the exception's two requirements—the use of the communication in furtherance of a fraud—is lacking. The use-in-furtherance requirement provides a key safeguard against intrusion into the attorney-client relationship, and we are concerned that contrary reasoning erodes that protection.
Without the crime-fraud exception allowing the Government to show it to the grand jury, the email from Doe's lawyer is protected by the attorney work-product doctrine. That doctrine (often referred to as a privilege from or exception to disclosure), which is a complement to the attorney-client privilege, preserves the confidentiality of legal communications prepared in anticipation of litigation. Shielding work product from disclosure "promotes the adversary system by enabling attorneys to prepare cases without fear that their work product will be used against their clients." Westinghouse Elec. Corp. v. Republic of Phil., 951 F.2d 1414, 1428 (3d Cir. 1991). Though Doe waived the attorney-client privilege by forwarding the email to his accountant, the document still retained its work-product status because it was used to prepare for Doe's case against those suing him. See Id.
Yet work-product protection, though fundamental to the proper functioning of the legal system, is not absolute. As relevant here, the crime-fraud exception operates to prevent the perversion of the attorney-client relationship. It does so by allowing disclosure of certain communications that would otherwise be confidential. "[A] party seeking to apply the crime-fraud exception must demonstrate that there is a reasonable basis to suspect (1) that the [lawyer or client] was committing or intending to commit a crime or fraud, and (2) that the . . . attorney work product was used in furtherance of that alleged crime or fraud." ABC Corp., 705 F.3d at 155.
The Government can readily satisfy the first requirement. Though ultimately it will be up to a jury to determine whether Doe committed fraud, there is at least a reasonable basis to believe he did. Even setting aside the email, the Government has a recording where Doe allegedly brags about defrauding the class action plaintiffs in the Indiana suit. He purportedly admits in that recording to telling his associate—the same one who was supposed to have already purchased Company A—"I'll pay you ten grand a month if you will step up to the plate and say that you [own the company] and upon the successful completion of the lawsuit [I'll] give you fifty grand."
This evidence is strong, but it is not sufficient by itself to pierce the work-product protection. We have been clear that "evidence of a crime or fraud, no matter how compelling, does not by itself satisfy both elements of the crime-fraud exception." In re Chevron Corp., 633 F.3d 153, 166 (3d Cir. 2011). Rather, the second requirement—use in furtherance—exists for the same reason that certain conspiracy statutes require proof that a defendant engaged in an overt act to further the crime. In both settings we want to make sure that we are not punishing someone for merely thinking about committing a bad act. Instead, as Justice Holmes noted in the conspiracy context, we ask for evidence that the plan "has passed beyond words and is [actually] on foot." Hyde v. United States, 225 U.S. 347, 388, 32 S. Ct. 793, 56 L. Ed. 1114 (1912) (Holmes, J., dissenting).
To illustrate, if a client approaches a lawyer with a fraudulent plan that the latter convinces the former to abandon, the relationship has worked precisely as intended. We reward this forbearance by keeping the work-product protection intact. If, by contrast, the client uses work product to further a fraud, the relationship has broken down, and the lawyer's services have been "misused." In re Grand Jury Investigation, 445 F.3d 266, 279 (3d Cir. 2006). Only in that limited circumstance—misuse of work product in furtherance of a fraud—does the scale tip in favor of breaking confidentiality.
Here the only purported act in furtherance identified by the District Court was Doe forwarding the email to his accountant. If he had followed through and retroactively amended his tax returns, we would have no trouble finding an act in furtherance. Even if Doe had told the accountant to amend the returns and later gotten cold feet and called off the plan before it could be effected, there might still be a case to be made. That is because the Government "does not have to show that the intended crime or fraud was accomplished, only that the lawyer's advice or other services were misused." Id. (quoting In re Public Defender Serv., 831 A.2d 890, 910 (D.C. 2003)).
But none of that happened. Doe merely forwarded the email to the accountant and said he wanted to "discuss" it. There is no indication he had ever decided to amend the returns, and before the plan could proceed further the lawyer told the accountant to hold off. Thus Doe at most thought about using his lawyer's work product in furtherance of a fraud, but he never actually did so. What happened is not so different than if Doe merely wrote a private note, not sent to anyone, reminding himself to think about his lawyer's suggestion. The absence of a meaningful distinction between these scenarios shows why finding an act in furtherance here lacks a limiting principle and risks overcoming confidentiality based on mere thought.
The District Court gave two reasons for its conclusion that Doe used his lawyer's work product in furtherance of a fraud. First, it suggested that Doe, in forwarding the email to his accountant, "took [his lawyer's] advice" about amending the tax returns. J.A. 16. It is not clear what the Court meant by this because, as it acknowledged, Doe "never followed through with amending" the returns. Id. Second, the Court said that the failure to follow through "is of no consequence" as long as Doe intended, as of the time he forwarded the email, to amend the returns. Id. This is no doubt an accurate statement of the law. See ABC Corp., 705 F.3d at 155. The problem is that there is simply no record evidence suggesting that Doe had ever made up his mind.
None of this should suggest that, in the event Doe is convicted (based on the superseding indictment) and appeals, he should automatically get a new trial because the Government used the protected work product. That is because the Government could avoid a retrial by showing the error was harmless. Bank of Nova Scotia v. United States, 487 U.S. 250, 255-56, 108 S. Ct. 2369, 101 L. Ed. 2d 228 (1988). We express no opinion on that question.JAT comments:
1. I blogged on the ABC Corp. case cited so prominently in the opinion. See Third Circuit on Crime-Fraud Exception to Attorney-Client and Work-Product Privileges (Federal Tax Crimes Blog 12/12/12), here. The ABC Corp. case, In Re: Grand Jury John Doe 1; John Doe 2; ABC Corporation, 705 F.3d 133 (3d Cir. 12/11/12), is here.
2. Note the Third Circuit's comments (which I bold-faced) about a different result if the Doe and/or the return preparer had acted.