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Parties Involved:
Sealed Case

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 25, 2000 Decided July 14, 2000

No. 99-3125

In re: Sealed Case

Appeal from the United States District Court

for the District of Columbia

(No. 98ms00003)

---------

Before: Williams, Ginsburg and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: A lawyer resisted compliance

with a federal grand jury subpoena on grounds of privilege,

and the government filed a motion to compel compliance.

Finding the documents privileged, the district court reviewed

them in camera and found them subject to the crime-fraud

exception. Accordingly it ordered them produced. We reverse: the understanding of the federal elections laws supporting application of the crime-fraud exception is erroneous.

* * *

Because this case is under seal we endeavor to provide no

more information than is necessary to our disposition. Principles governing the relationships of courts and agencies,

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however, compel us to address--and, indeed, ultimately defer

to--a civil enforcement recommendation issued by the Federal Elections Commission ("FEC") when the matter was before it. See In re RNC, Alec Pointevint, and Haley Barbour,

Matter Under Review ("MUR") 4250. We thus divulge facts

of the case to the extent they appear in the Statement of

Reasons associated with the MUR, Statement of Reasons of

Commissioners Wold, Elliott and Mason, MUR 4250 (Feb. 11,

2000), a document that 11 CFR s 4.4(a)(3) requires be made

public. Of course, the subject of this case might theoretically

be different from that of the Commission proceeding, but the

factual similarity is so obvious that it would be pointless to

suppress the actual names.

In May 1993 three officials of the Republican National

Committee ("RNC"), including the Chairman Haley Barbour,

founded the National Policy Forum ("NPF"), a separately

incorporated, not-for-profit think tank. Through September

1994 NPF received loans totaling $2,345,000 from the Republican National State Elections Committee ("RNSEC").

RNSEC is a "nonfederal" account of RNC and thus is not a

"political committee" for purposes of certain disclosure requirements and contribution rules of the Federal Election

Campaign Act of 1971 ("FECA"), 2 U.S.C. s 431 et seq. See,

e.g., id. s 433 (registration requirements of political committees), s 434(a)-(b) (reporting requirements of political committees), s 441a(1)-(2) (limitations on contributions to and by

political committees).

In September 1994, when NPF still owed RNSEC

$2,145,000, Barbour and other NPF and RNC officials arrived

at an agreement with Ambrous Young, a foreign national.

Young's corporation, Young Brothers Development, Ltd.-

Hong Kong ("YBD-Hong Kong"), would provide $2,100,000 in

collateral through its U.S. subsidiary to secure a loan of that

amount from Signet Bank to NPF. On October 17, 1994

Signet disbursed the loan to NPF, and on October 20 NPF

used $1,600,000 of the proceeds to repay a portion of the

original loan from RNSEC.

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The FEC's General Counsel recommended that the Commission find probable cause to believe that RNC and its

officials had violated 2 U.S.C. s 441e(a)--a prohibition on

receipt of contributions from foreign nationals. The Commission split 3-3, and because a majority of commissioners is

required to find probable cause, 2 U.S.C. s 437g(a)(4)(A)(i),

the vote precluded Commission enforcement action. In re

RNC, Alec Pointevint, and Haley Barbour, MUR 4250. The

three commissioners who voted for no-action provided a

Statement of Reasons, details of which will follow.

NPF's loan repayment also drew the attention of the

Department of Justice, which here rests its crime-fraud exception claim on the theory that the repayment transaction

amounted to solicitation and receipt of foreign contributions

by the RNC in violation of s 441e(a), and conspiracy by

various RNC officials to defraud the United States for failing

to disclose the transaction, 18 U.S.C. ss 371, 1001.

On September 8, 1997 a grand jury subpoenaed the lawyer

who had served as general counsel of RNC in the period

surrounding the loan repayment. He declined to produce a

number of documents that he claimed were subject to the

attorney-client and work-product privileges. The government

filed a motion to compel compliance, and the RNC intervened

to oppose the motion. Finding that the privileges did not

attach, the district court ordered the general counsel to

produce some of the withheld documents; on appeal by the

RNC, this court reversed. In re Sealed Case, 146 F.3d 881,

888 (D.C. Cir. 1998). On remand the district court ordered

the documents produced, holding that those privileges,

though applicable in the first instance, were subject on the

facts here to the crime-fraud exception. Not discussing the

alleged "crimes" in detail, the district court said simply that

"the evidence shows that the RNC sought the advice of [the

general counsel] in an effort to construct the loan guarantee

transaction in a manner designed to conceal from the FEC

the source of the funds used to acquire the loan," and "to

evade federal election campaign laws." Concluding that the

government has failed to allege any conduct that is criminal

under FECA, we reverse.

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* * *

Appellant RNC first argues that the case is moot. The

theory is that this court lacks, and the district court before it

lacked, authority to enforce the subpoena because the grand

jury that issued the subpoena had expired before the district

court issued its order on September 24, 1999 granting the

motion to compel compliance. The RNC relies primarily on

the First Circuit's opinion in In re Grand Jury Proceedings

(Caucus Distributors, Inc.), 871 F.2d 156, 161 (1st Cir. 1989),

in which the court held that the running of civil contempt

fines must stop at the expiration of the grand jury under

whose aegis the contempt citation was issued, even though a

second grand jury pursuing the same matter had been convened.

But whereas in Caucus Distributors the shift in grand

juries occurred during the contempt enforcement process,

here it occurred before that even started. The analogic force

that the Caucus Distributors court drew from the statutory

rule that recalcitrant witnesses may not be confined beyond

"the term of the grand jury, including extensions, before

which such refusal to comply with the court order occurred,"

28 U.S.C. s 1826(a)(2); 871 F.2d at 160-61, is plainly absent.

Indeed, the First Circuit was explicit that a "subpoena issued

by one grand jury may be used to obtain evidence for a

second grand jury." Id. at 160. While the court saw the

continuous running of fines after expiration of the contempt

grand jury as posing difficult questions as to when "an

investigation has ceased," id. at 161, such questions, if pertinent at all in this context, impose no comparable risk of everaccumulating penalties for an offense that may have become

moot. Finally, the court relied heavily on language in Shillitani v. United States, 384 U.S. 364 (1966); although there the

initial grand jury investigation had evidently ceased altogether, with no successor grand jury, the Court had written

broadly, seeming to require termination of contempt remedies

after any such expiration, regardless of successorship. See

id. at 372, cited at 871 F.2d at 161-62.

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Appellant has identified no prejudice arising from enforcement of a subpoena where the originally issuing grand jury

has expired and another has indisputably carried the investigation forward. A parallel situation was presented in United

States v. Kleen Laundry & Cleaners, Inc., 381 F. Supp. 519,

521 (E.D.N.Y. 1974), where the district court upheld enforcement of a subpoena issued by a federal prosecutor in the

name of a grand jury that was not sitting at the time but

would be sitting on the return date. The court saw no

prejudice to the witness and noted that it is "the prosecutor

who has the initiative and power by subpoena to bring proof

to the courthouse." See id. at 522; see also In re Immunity

Order Dated April 21, 1982, 543 F. Supp. 1075, 1078

(S.D.N.Y. 1982). Thus we reject the claims of a lack of power

in the district court to enforce the subpoena.

* * *

On the merits, there are slightly different--and here immaterial--differences in the formulation of the test for the

crime-fraud exception as applied to the two privileges in

question, attorney-client and work-product. To establish the

exception to the attorney-client privilege, the court must

consider whether the client "made or received the otherwise

privileged communication with the intent to further an unlawful or fraudulent act," and establish that the client actually

"carried out the crime or fraud." In re Sealed Case, 107 F.3d

46, 49 (D.C. Cir. 1997). To establish the exception to the

work-product privilege, courts ask a slightly different question, focusing on the client's general purpose in consulting the

lawyer rather than on his intent regarding the particular

communication: "Did the client consult the lawyer or use the

material for the purpose of committing a crime or fraud?"

Id. at 51. Here the application of the crime-fraud exception

turns on a pure question of law, which we resolve de novo.

United States v. Kim, 23 F.3d 513, 517 (D.C. Cir. 1994).

This case does not fall within the crime-fraud exception

because what RNC and its officials are accused of is not

criminal. The government alleges that RNC "conspire[d]

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either to commit an[ ] offense against the United States or to

defraud the United States" in violation of 18 U.S.C. s 371.

Contrary to the government's assertion that impossibility as a

matter of law is not a defense to conspiracy, it clearly is in

this context. Because the transaction described by the government does not violate FECA, there can be no finding of

conspiracy. "Pure legal impossibility is always a defense.

For example, a hunter cannot be convicted of attempting to

shoot a deer if the law does not prohibit shooting deer in the

first place." United States v. Hsu, 155 F.3d 189, 199 n.16

(3rd Cir. 1998). Obviously a charge of conspiracy to shoot a

deer would be equally untenable.

As we understand the government's position, the RNC's

guilt turns on two alternative theories, both of which assume

that the prohibition of 2 U.S.C. s 441e(a) on contributions by

foreign nationals applies not only to contributions to a "federal account" such as RNC's but also to contributions to a nonfederal account, here RNSEC. Besides that each theory has

what may be viewed as a substantive element (characterizing

a specific element of the transaction as the illicit "contribution") and an element collapsing legally distinct entities. In

the first theory, (1) NPF's repayment of the loan to RNSEC

is classified as a "contribution"; and (2) YBD-Hong Kong is

seen as the contributor, by an elision of the entities. In the

second, (1) YBD-Hong Kong's provision of the loan guarantee

to NPF is the relevant "contribution"; and (2) RNSEC is

viewed as the recipient. In light of the Commission's statutory interpretation, both theories flunk; the collapsing of entities is unjustified, and the substantive element of the first

theory (treating a loan repayment as a "contribution") is

false.

Because the Commission has in effect spoken to both

theories, we start by considering whether we should defer to

Commission interpretations in the context presented here--

where the Department of Justice in a criminal case relies on

an interpretation of the relevant statutes that has been

rejected by the Commission in a 3-3 decision that, under the

statutory voting mechanism, 2 U.S.C. s 437g(a)(4)(A)(i) (requiring affirmative vote of four commissioners), controls

Commission enforcement.

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We have already held that we owe deference to a legal

interpretation supporting a negative probable cause determination that prevails on a 3-3 deadlock. See FEC v. National

Republican Senatorial Committee, 966 F.2d 1471, 1476 (D.C.

Cir. 1992). There the issue involved interpretation of an

FEC regulation rather than of FECA (a distinction we return

to later), and we relied on an earlier decision of this court

insisting that, to enable judicial review, a no-action decision

by three commissioners must be backed by their statement of

reasons. Id. (citing Democratic Congressional Campaign

Committee v. FEC, 831 F.2d 1131, 1134-35 (D.C. Cir. 1987)).

It is irrelevant that the prevailing interpretation was established in the context of agency enforcement, whereas this is a

criminal prosecution. Deference is due as much in a criminal

context as in any other for interpretations made outside that

context, such as those found in published regulations. See

United States v. Kanchanalak, 192 F.3d 1037, 1047 n.17 (D.C.

Cir. 1999) ("That criminal liability is at issue does not alter

the fact that reasonable interpretations of the act are entitled

to deference."); see also Babbitt v. Sweet Home Chapter of

Communities for a Great Oregon, 515 U.S. 687, 703-05

(1995).

Here, unlike in National Republican Senatorial Committee, agency interpretation of a statute rather than a regulation is at issue. The Supreme Court has recently elaborated

its view of the conditions for deference, both as to regulations,

see Auer v. Robbins, 519 U.S. 452 (1997), and statutes, see

Christensen v. Harris County, 120 S. Ct. 1655 (2000). As to

statutes, the focus of our interest here, the Court drew the

line between interpretations that are controlling on us if

"reasonable," under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984), or

merely "entitled to respect" to the extent that they have

"power to persuade," under Skidmore v. Swift & Co., 323 U.S.

134, 139 (1944). The Court appeared to make the interpretation's legal effect the touchstone: "Interpretations such as

those in opinion letters--like interpretations contained in

policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law--do not warrant

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Chevron-style deference." Christensen, 120 S. Ct. at 1657

(emphasis added). (As examples of agency documents that

merit Chevron deference the Court listed formal adjudications and notice-and-comment rulemakings. See id.) In

support, the Court cited Martin v. OSHRC, 499 U.S. 144

(1991), where it had made Chevron-style deference turn on

whether the interpretation "derive[d] from the exercise of the

[agency's] delegated lawmaking powers." Id. at 157. Although Martin involved a regulatory interpretation, its use

by the Christensen Court supports its application to statutory

interpretation as well. Regardless of possible differences of

nuance between these views, we find the Commission's probable cause determination here entitled to deference under

both.

Under ss 437g(a)(4)(A)(i), (5)(C), and (6)(A) the probable

cause determination is part of a detailed statutory framework

for civil enforcement and is analogous to a formal adjudication, which itself falls on the Chevron side of the line. Like

the citation to which the Court deferred in Martin, the

probable cause determination "assumes a form expressly

provided for by Congress." Martin, 499 U.S. at 157. The

General Counsel advocates and the respondent opposes a

finding of probable cause; through this statutorily mandated

adversarial process, see 2 U.S.C. s 437g(a)(1), (3), the agency

"gives ambiguous statutory terms concrete meaning through

a process of case-by-case adjudication." INS v. AguirreAguirre, 526 U.S. 415, 425 (1999) (citation and internal quotation marks omitted). Unlike a judicially unreviewable SEC

no-action letter, which this court has said would not merit

Chevron deference, Roosevelt v. E.I. Du Pont de Nemours &

Co., 958 F.2d 416, 427 n.19 (D.C. Cir. 1992) ("[T]he principle

of deference described in [Chevron] is not applicable here, for

neither the staff's no-action letter nor the Commission's brief

ranks as an agency adjudication or rulemaking."), the noaction decision here was made by the Commission itself, not

the staff, and precludes further enforcement. Compare

Board of Trade of Chicago v. SEC, 883 F.2d 525, 529 (7th Cir.

1989) ("[The SEC staff] could change [its] mind tomorrow, or

the Commissioners might elect to proceed no matter what the

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[staff] recommends. The SEC has not, in other words, issued

a 'final' decision...."). Congress vested enforcement power

in the FEC, carefully establishing rules that tend to preclude

coercive Commission action in a partisan situation, where the

Commission, itself statutorily balanced between the major

parties, 2 U.S.C. s 437c(a)(1) ("No more than 3 members of

the Commission appointed under this paragraph may be

affiliated with the same political party."), is evenly split. If

courts do not accord Chevron deference to a prevailing decision that specific conduct is not a violation, parties may be

subject to criminal penalties where Congress could not have

intended that result.

This reasoning is consistent with FEC v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 37 (1981), where the

Court, in deciding whether the Commission's decision to

dismiss a complaint was "contrary to law," 2 U.S.C.

s 437g(a)(8)(C), deferred to the Commission's interpretation.

Although the Court cited Skidmore (Chevron after all had not

yet been decided), it spoke in terms more consonant with

Chevron. The interpretation need only be "sufficiently reasonable," FEC v. Democratic Senatorial Campaign Comm.,

454 U.S. at 39 (citation omitted), and "[t]o satisfy this standard it is not necessary for a court to find that the agency's

construction was the only reasonable one or even the reading

the court would have reached if the question initially had

arisen in a judicial proceeding." Id. Similarly, as this court

has said (again not explicitly in Chevron terms), a 3-3 deadlock would be subject to great deference: "In the absence of

prior Commission precedent ..., judicial deference to the

agency's initial decision or indecision would be at its zenith."

Democratic Congressional Campaign Committee v. FEC, 831

F.2d 1131, 1135 n.5 (D.C. Cir. 1987).

We now turn to the Commission's (i.e., the prevailing)

interpretation of the applicable statutes in the Statement of

Reasons for MUR 4250. The Department's first theory here

strikes out on the failure of its basic claim that a loan

repayment is a contribution. On its face this is improbable.

It would be unusual to characterize a loan repayment--which

could include, for example, simple payment on a purchase

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money mortgage on a property sold by a political committee--as a "contribution." The Commission here rejected the

idea that the final loan repayment from NPF to RNSEC fell

within the definition of "contribution." The statute defines

"contribution" as "any gift, subscription, loan, advance, or

deposit of money or anything of value made by any person for

the purpose of influencing any election for Federal office." 2

U.S.C. s 431(8)(A)(i). No reason appears why repayment of

a lawful debt could qualify. It is true that strictly speaking

the definition applies only to hard money contributions ("any

election for Federal office"), and thus not directly to a contribution to RNSEC, which because of its non-federal character

is not a "political committee." But in the absence of a

separate definition for soft money contributions, we have no

reason to think that Congress would intend a broader definition of "contribution" in the soft money context than in the

hard money context. Cf. Kanchanalak, 192 F.3d at 1046-47

& n.19.

In rejecting the inclusion of a loan repayment in the idea of

"contributions," the Commission observed that its regulation

did not purport to expand the statutory definition. MUR

4250 at 3 & n.3. Indeed, the regulation's formal definition

contains no reference to "loan repayments," and goes on to

say that "[r]epayment of the principal amount of [a loan by a

political committee] to such political committee shall not be a

contribution by the debtor to the lender committee." 11 CFR

s 100.7(a)(1)(i)(E).

The FEC's General Counsel before the Commission sought,

and the government here seeks, to turn this regulation into a

sword. It points to the clause of 11 CFR s 100.7(a)(1)(i)(E)

saying that repayment to a political committee of the principal of a loan "shall be made with funds which are subject to

the prohibitions of" various regulations, including a regulatory equivalent of the ban on foreign contributions. But as the

Commission responded, the regulation is specifically limited

to repayments to political committees, and thus is not applicable here. MUR 4250 at 5. The government says the Commission and appellant cannot rely on s 100.7(a)(1)(i)(E) selectively, that they must take the bitter with the sweet. But

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citation of a regulation purporting only to govern loans by

political committees as support for the obvious reading of the

statutory term does not seem to us logically to require

accepting its caveat on source of funds, where the caveat has

no visible statutory support and the regulation does not even

purport to cover non-political committees.

We thus turn to the government's theory that RNC officials violated 2 U.S.C. s 441e(a)'s ban on foreign contributions by bringing about, or helping to bring about, YBDHong Kong's guarantee of the loan to NPF. That a loan

guarantee is a contribution is an easy step. It is clearly a

valuable economic contribution, and the Commission's regulations (again for political committees), having defined contribution to include a loan, go on to define loan to include a

"guarantee." 11 CFR s 100.7(a)(1)(i). And the government's

contention that 2 U.S.C. s 441e(a) covers contributions for

non-federal elections (e.g., to RNSEC) is here supported by

the Commission, MUR 4250 at 6, and meets the test of

reasonableness. The ban speaks to contributions in connection with an election "for any political office," 2 U.S.C.

s 441e(a); although as we have seen, the statutory definition

of contribution addresses only elections "for Federal office," 2

U.S.C. s 431(8)(A)(i), we have already upheld the FEC's

resolution of that contradiction in favor of a broad reading of

the ban. Kanchanalak, 192 F.3d at 1046-50.

But unless NPF can somehow be telescoped together with

either RNSEC or RNC, YBD-Hong Kong's contribution to

NPF is no violation. One possible device would be a notion

that NPF was really part of RNC, but the government has

not seriously voiced such a claim. Although its brief contains

occasional language such as the assertion that "NPF was

operated as a de facto division or subsidiary of the RNC,"

nowhere does it coherently argue that NPF is not, legally

distinct from RNC, that the rules applicable to political

committees apply to NPF, or that the relevant "contribution"

was the loan guarantee directly from YBD-Hong Kong to

NPF. Instead it considers NPF an intermediary: "[YBDHong Kong's domestic subsidiary's] apparently innocuous

guarantee of a $2.1 million bank loan to the NPF suspiciously

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begins to resemble a prohibited foreign campaign contribution that was simply passed through the NPF."

Thus the heart of the government's case is the argument

that the transactions should be considered end-to-end, beginning with the loan guarantee made by YBD-Hong Kong and

ending with the repayment from NPF to RNSEC. Here the

Commission is flatly to the contrary, and its view that there is

no basis for treating the several legally distinct transactions

as one is reasonable. The Commission considered each of the

various elements--the "loan from the RNSEC to NPF, the

collateral from [YBD-Hong Kong] to Signet, the loan from

Signet to NPF, and the repayment from NPF to the

RNSEC," MUR 4250 at 10--and found none of them to be

without valid business purpose. Id. at 10-11. The government has weakly claimed that the initial loan was sham, the

creation of a debt for which the RNC never expected full

repayment. The Commission found the charge rebutted "by

the documentation of the loans with a promissory note and

RNC's reporting of the loans; by the fact that NPF did repay

$200,000 of the loans prior to receiving the loan from Signet

Bank; and by the efforts of the RNC's officers to find sources

of funds for NPF that would enable NPF to repay the loans."

MUR 4250, at 9. The government points to nothing contradictory.

Second, the government relies heavily on the idea that

RNC's purpose in bringing about the YBD-Hong Kong guarantee, and perhaps Young's in giving it, was to enable NPF to

repay its loan to RNSEC. But the Commission rejected the

principle that the parties' purposes can tie together a set of

lawful transactions, each with a legitimate business purpose,

to create an unlawful one. MUR 4250 at 9-14.

In so doing, the Commission relied on precedent. In In re

Fisher, MUR 4000 (1994), a candidate for Senate invited

potential contributors to donate $1000 to the current campaign, and an additional $1000 to each of three previous

campaigns (assuming they had not already contributed to

them), to help those committees retire their debts. The

candidate promised that he would match, with contributions

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to the current campaign, any funds contributed for retirement

of the old debts. Because the only debts of the prior campaigns were to the candidate himself, the overall effect was to

generate funds--in excess of the $1000 per-individual limit--

for the current campaign. The Commission nonetheless

found unanimously that these contributions would not be

deemed to have exceeded the $1000 maximum. Here the

FEC General Counsel sought to distinguish Fisher on the

theory that the donors did not know that their donations

would eventually reach Fisher's current campaign. The claim

is highly improbable, as the campaign solicitations set a

target for each "couple" of "$5000 for Richard's campaign."

MUR 4000 at 3. In any event, the Commission then did not

consider the contributors' knowledge to be relevant. This

seems reasonable: where the recipient is fully informed,

there appears no reason why varying degrees of knowledge

on the part of donors should be pivotal in determining the

recipient's guilt.

The government's theory of a reporting violation is even

weaker. 11 CFR s 104.8(e) requires that "National party

committees [e.g., RNC] shall disclose ... information about

each ... entity that donates an aggregate amount in excess

of $200 in a calendar year to the committee's non-federal

account(s) [e.g., RNSEC]. This information shall include the

donating individual's or entity's name...." We need not

consider whether a loan guarantee such as that made by

YBD-Hong Kong falls within the donations covered by

s 104.8, or whether a guarantor such as YBD-Hong Kong is

properly considered a "donating individual." Our rejection of

the government's effort to treat the two transactions as one

moots both issues. To the extent that YBD-Hong Kong

"donated" a loan guarantee it did so to NPF and not to the

RNSEC, and thus the RNC was not required to report the

identity of the guarantor.

The government has noted that in making its case to the

district court for the crime-fraud exception it has included

evidence not before the Commission in MUR 4250. (The

appellant notes, in parallel, that it has never seen the evidence before the district court.) But this does not alter or

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even bear on the gaps in the legal theories marshaled by the

government to support the exception. There may somewhere

be evidence such that, under valid legal theories, the government can justify applying the exception. But until the government tries to assemble its evidence around valid theories,

the character of the evidence is largely irrelevant.

* * *

Because we find that the legal theories invoked to support

application of the crime-fraud exception are without exception

faulty, we reverse.

So ordered.

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