i ' I i 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

MALBCO HOLDINGS, LLC, 

a Washington limited liability company, 

Plaintiff, 

v. 

BHUPENDRA PATEL and NILA PATEL; 

HEETAN PATEL and HEETAL PATEL-MANANI; 

and MUKESH PATEL, 

Defendants. 

PAPAK, Magistrate Judge: 

6:14-cv-00947-PK 

OPINION AND ORDER 

Plaintiff Malbco Holdings, LLC ("Malbco") brings this diversity action against 

defendants alleging fraudulent transfer in violation of Oregon law. Now before the court is 

Malbco's Motion to Compel (#67) pursuant to Federal Rule of Civil Procedure ("Rule") 37. 

I have conducted an in camera review of the evidence submitted pursuant to my May 13, 2015, 

Opinion & Order (#76), and I have reviewed all evidence and arguments submitted by the parties 

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Case 3:14-cv-00947-PK Document 87 Filed 07/21/15 Page 1 of 12
regarding Malbco's Motion. For the reasons that follow, Malbco's motion is granted in part and 

denied in pmi. 

BACKGROUND 

·I adopt the facts set fo1ih in my previous Opinion and Order ( #41) in this case. 

On May 13, 2015, this court issued an Opinion and Order (#76) on Malbco's Motion to 

Compel ( #67) ordering the production of an anay of documents for in camera review to 

determine whether the attorney-client privilege applies to those documents. Opinion and Order, 

#76, 5, 7 (ordering that documents listed under items ( c )(i) and ( c )(ii) on page 19, and under item 

(a) on page 33 ofMalbco's Motion (#67) be produced to the comi). Following notification by 

the pmiies, this court issued an Amendment to that Order (#77) to include documents listed 

under item ( c )(iii) on page 19 of Malbco' s Motion. 

Following that Order, the pmiies submitted the relevant documents and the court 

conducted an in camera review of those items. This matter is now ready for decision. 

LEGAL STANDARD 

I. Motions to Compel and the Attorney-Client Privilege 

A motion to compel discove1y may be appropriate if a pmiy "fails to answer an 

interrogatmy submitted under Rule 33" or, alternatively, "fails to permit inspection" of records 

requested pursuant to Federal Rule of Civil Procedure ("Rule") 34. Fed. R. Civ. P. 37(a)(3). 

Federal courts sitting in diversity are charged with applying the law of the fornm state 

when determining whether a holder has waived the right to claim the attorney-client privilege. 

Fed. R. Evid. 501; 1\IcAdam v. State Nat. Ins. Co., Inc., 15 F. Supp. 3d 1009, 1014 (S.D. Cal. 

2014); Tennenbaum v. Deloitee & Touche, 77 F.3d 337, 340 (9th Cir. 1996). 

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.. 

The Oregon Supreme Court has explained that the purpose of the attorney-client privilege 

"is to encourage full and frank communication between attorneys and their clients and thereby 

promote broader public interests in the observance oflaw and administration of justice." State ex 

rel OHSU v. Haas, 325 Or. 492, 500, 942 P.2d 261 (1997) (quoting Upjohn Co. v. United States, 

449 U.S. 383, 389, 101 S.Ct. 677, 66 L. Ed. 2d 584 (1981)). However, the privilege is not 

absolute, as a client may waive it voluntarily. Further, the Oregon Evidence Code ("OEC") and 

Oregon common law provide relevant exceptions to the attorney-client privilege. See OEC 503, 

511; see also Haas, 325 Or. at 498. 

DISCUSSION 

Malbco moves to compel three broad categories of communications for which Defendants 

have claimed the attorney-client privilege. Those categories are: (1) communications between 

Defendants and their attorneys; (2) communications between Defendants Bhupendra and/or Nila 

Patel and their attorneys in which Defendants Heetan and/or Heetal Patel were included; and (3) 

communications between Sundhara Linton, accountant for Defendants Bhupendra and Nila Patel, 

and Defendants Bhupendra and Nila Patel's attorney, as well as communications solely between 

Defendants and Linton, in which no attorney is included. Malbco argues that category (1) is 

exempted from the attorney-client privilege based on the crime-fraud exception and that category 

(3) is not protected by the attorney-client privilege because no client was included in the 

communications. 1 I now address the applicability of the attorney-client privilege to the 

remaining categories of communications, as informed by my in camera review. 

1 The court's May 13, 2015, Opinion and Order (#76), denied Malbco's Motion as it 

applies to category (2), above, and stayed the Motion as it applies to categories (1) and (3) 

pending in camera review of the relevant documents. 

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I. Crime-Fraud Exception 

A party seeking to invoke the crime-fraud exception to the attorney-client privilege must 

affinnatively show "that the client, when consulting the attorney, knew or should have known 

that the intended conduct was unlawful." State ex rel. N Pacific Lumber Co. v. Unis, 282 Or. 

457, 464, 579 P.2d 1291 (1978). The crime-fraud exception is described in the Oregon Evidence 

Code as follows: 

There is no privilege under this section ... [i]f the services of the 

lawyer were sought or obtained to enable or aid anyone to commit or 

plan to commit what the client knew or reasonably should have 

known to be a crime or fraud[.] 

OEC 503(4)(a). 

I previously found (#76) that Malbco met its burden of producing sufficient evidence to 

"suppo1t a reasonable belief that in camera review may yield evidence that establishes the 

exception's applicability." United States v. Zolin, 491 U.S. 554, 572 (2000). That evidence 

included the following: (1) Defendants Bhupendra and Nila Patel transfened 90% of their assets 

to Defendants Heelan and Reeta! Patel in or around June 2012, approximately one month after 

being sued by Mountain West Bank for approximately $500,000; (2) Defendants did not inform 

their companies' "primmy lenders" of the transfers at issue; (3) Defendants Bhupendra and Nila 

Patel gifted their children over one quarter of a million dollars around that time; ( 4) Defendants 

Bhupendra and Nila Patel were rendered unable to pay their personal bills as a result of the 

transfers; (5) Defendants Bhupendra and Nila Patel granted Defendant Mukesh Patel, 

Bhupendra's brother, a lien on all remaining assets and provided him equity in their home; and 

( 6) Defendants Bhupendra and Nila Patel were rendered assetless and judgment proof as a result 

of these transfers. Malbco additionally alleges that Defendants communicated with their 

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accountants and attorneys in an attempt to minimize tax refunds to avoid debt collection. See 

Pl.'s Motion to Compel, #67, 22. Malbco points to the various communications between 

Defendants and their attorneys, pmiicularly Wayne Kinkade, in the relevant time period, the 

subjects of discussion in those communications, and the alleged outcome of those 

communications: the transfer of nearly all of Defendants' assets. Id Specifically, Malbco 

alleges that Defendants 

were using their attorneys (whether or not the attorneys knew it) to 

further their scheme to defraud creditors. Additionally ... it is likely 

that one or both of the attorneys advised defendants on fraudulent 

transfers. Malbco believes that defendants used that advice as a 

roadmap on how to fabricate evidence, and in particular the 

handwritten transfer documents, so they could claim that the transfers 

occurred before they incun-ed most of their debt. 

Pl. 's Motion to Compel, #67, 22-23. 

I now must evaluate that evidence together with the info1mation gleaned from my in 

camera review of the documents subject to Malbco' s motion to compel, and the briefing 

submitted by the parties, to determine whether the crime-fraud exception applies to the otherwise 

privileged documents in this case. 

A. Showing Necessary to Invoke the Crime-Fraud Exception 

First, I must address what kind of showing is otherwise necessmy to invoke the crimefraud exception to the attorney-client privilege. The parties dispute the relevant burden of proof 

for the application of the exception. Malbco variously seeks to apply both a "sufficient 

evidence" and a "reasonable cause" burden of proof. Compare Pl.'s Motion to Compel, #67, 21 

with Pl. 's Repsonse to Def.'s Supp. Briefing, #85, 3. Defendants argue that a 

preponderance of the evidence standard applies, and cite to federal case law in support of that 

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premise. Def.'s Supp. Briefing, #83, 2 (citing In re Napster, Inc. Copyright Litigation, 479 F.3d 

1078 (9th Cir. 2007), abrogated on other grounds by lvfohawk Industries, Inc. v. Caipenter, 558 

U.S. 100 (2009)). The "sufficient evidence" standard is the applicable burden under Oregon law. 

State ex rel. N Pacific Lbr. v. Unis, 282 Or. at 463; see also Tennenbaum v. Deloitee & Touche, 

77 F.3d 337, 340 (9th Cir. 1996).2 The comments to OEC's rule on attorney-client privilege 

state: "in diversity cases where the litigation in question turns on a substantive question of State 

law, and is brought in the Federal comis because the parties reside in different States, the 

committee believes it is clear that State rules of privilege should apply .... " Fed. R. Evid. 501. 

Because this is a diversity case and the cause of action arises under state law, the "sufficient 

evidence" burden applies to this case. State ex rel. N Pacific Lbr. v. Unis, 282 Or. at 463; see 

also Gardner, The Crime or Fraud Exception to the Attorney-Client Privilege, 47 Jul-AB.A. J. 

708, 710-11 (1961) ("there must be at least some evidence from which a permissible inference 

might reasonably be drawn as to the client's harboring a wrongful purpose in seeking the 

consultation."). 

B. Evaluation of the Evidence 

Next, I must evaluate the evidence presented to determine whether Malbco has made a 

showing sufficient to invoke the exception to the privilege. 

As the Oregon Supreme Court has declared, the exception is applicable if the "client, 

when consulting the attorney, knew or should have known that the intended conduct was 

unlawful." State ex rel. N Pacific Lbr., 282 Or. at 464. The crime-fraud exception is limited to 

2 The "reasonable cause" burden applies to grand jury proceedings in the Ninth Circuit. 

US. v. Chen, 99 F.3d 1495, 1503 (9th Cir. 1996); see also In re grand Jury Proceedings, 87 F.3d 

at 382. 

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communications "in furtherance of intended, or present, continuing illegality." In re Grand Jury 

Proceedings (The Corporation), 87 F.3d 377, 382 (9th Cir. 1996), citing US. v. Hodge & Zwieg, 

548 F.2d 1347 (9th Cir. 1977). Mere allegations or suspicion that the communications at issue 

fall within the exception is insufficient. In re grand Jwy Proceedings, 87 F.3d at 380. 

Conversely, requiring proof beyond a reasonable doubt exceeds the relevant standard for 

application of the crime-fraud exception. Id Finally, the crime-fraud exception may apply even 

ifthe attorney is unaware of the alleged wrongdoings and takes no affinnative step to further 

them. Id. at 3 79. 

Under Oregon law, "[a] transfer made or obligation incun·ed by a debtor is fraudulent as 

to a creditor, whether the creditor's claim arose before or after the transfer was made or the 

obligation was incutTed, ifthe debtor made the transfer or incuned the obligation ... [w]ith 

actual intent to hinder, delay, or defraud any creditor of the debtor." ORS 95.230(1)(a). Courts 

determine actual intent in a variety of ways, but the statute provides factors suggesting that comis 

consider whether: (a) the transfer or obligation was to an insider; (b) the debtor had retained 

possession or control of the prope1ty transferred after the transfer; (c) the transfer or obligation 

was disclosed or concealed; ( d) before the transfer was made or the obligation was incurred, the 

debtor was sued or threatened with suit; ( e) the transfer was of substantially all the debtor's 

assets; (f) the debtor had absconded; (g) the debtor had removed or concealed assets; (h) the 

value of the consideration received by the debtor was reasonably equivalent to the value of the 

asset transferred or the amount of the obligation incurred; (i) the debtor was insolvent or became 

insolvent shmtly after the transfer was made or the obligation was incurred; (j) the transfer had 

occurred shortly before or sho1ily after a substantial debt was incurred; and (k) the debtor had 

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transferred the essential assets of the business to a lienor who had transfe1wd the assets to an 

insider of the debtor. ORS 95.230(2)(a)-(k). 

The evidence revealed from my in camera review of the relevant documents shows that 

the attorney-client communications at issue served the purpose of documenting and ostensibly 

legitimizing the alleged fraudulent transfers at issue in this case. Defendants sought the services 

of an attorney to provide formalized versions of handwritten asset and interest transfers dated 

well before the legal services in question were sought. Defendants' attorney was asked to update 

many admissions agreements to reflect extensive transfers, often amounting to at least a 90% 

share of an asset or stake in Defendants' various companies. These handwritten documents were 

dated, without exception, January I, 2011, but were not presented to the attorney to be recorded 

and foimalized until Spring 2012, as reflected both by communications and time stamps on the 

documents. Fmther, it is apparent from the communications that Defendants' accountant was 

unaware of these transfers and was only made aware of them more than one year after their 

recorded date, even after Defendants' attorney was made aware of the transfers. The 

communications reflect that the timing of the transfers alarmed both the accountant and the 

attorney for varying reasons. While the communications reflect some basis for the transfers other 

than evasion of creditors, including attempts to take advantage of gift tax credits, I note that these 

transfers were documented and brought to the accountant's attention only after the tax deadline 

for the tax year during which the transfers were allegedly made, thus undermining that argument. 

These facts, viewed alongside the chronology of the suit by Mountain West Bank and in 

light ofMalbco's primajacie case discussed above, provide the evidence necessary to meet 

Malbco's "sufficient evidence" burden of proof, and indeed would suffice to meet any of the 

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above described burdens of proof. For all of these reasons, the crime-fraud exception to the 

attorney-client privilege applies in this case. 

C. Application of Ruling 

I note that the attorney-client communications for which production is sought must be 

"sufficiently related to" and, as mentioned above, must have been made in fu1iherance of the 

intended, or present, continuing illegality. In re Grand Jury Proceedings, 87 F.3d at 381. Thus, 

Malbco's Motion is granted in part only as it applies to the subset of documents listed in the 

Conclusion section of this Order, which include communications between Defendants and their 

attorney regarding the transfers at issue, the timing of the transfers, strategy for updating various 

admissions agreements to reflect handwritten transfers, and strategy for complying with gift tax 

requirements related to the transfers. The paiiies must accordingly produce those documents. 

However, this order excludes from production all other items submitted for in camera review 

that are not listed below due to their unrelatedness to the relevant communications and the 

limited reach of the crime-fraud exception. See In re Grand Jury Proceedings, 87 F.3d 377 at 

382. 

II. Communications Involving Defendants' Accountant 

Malbco next moves to compel allegedly privileged communications between Defendants' 

counsel and their accountant, Sundhara Linton, who was charged with preparing personal gift tax 

returns in late 2012. Malbco also moves to compel allegedly privileged communications made 

between Defendants and Linton that did not involve an attorney. Malbco argues that such 

communications are not privileged because they are not attorney-client communications. Pl. 's 

Motion to Compel, #67, 33. 

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A. Communications Between Attorney and Accountant 

"Communications that include an accountant [and an attorney] are privileged only ifthe 

accountant's presence is reasonably necessary to facilitate communication between the lawyer 

and client or to assist the lawyer in the rendition oflegal services." Klamath Cty. School Dist. v. 

Teamey, 207 Or. App. 250, 140 P.3d 1152, 1158 (2006); State v. Kave/, 282 F.2d 918, 922 (2nd 

Cir. 1961). 

In my May 13, 2015, Opinion & Order (#76) on Malbco's Motion to Compel, I found that 

the resolution of the parties' dispute concerning the communications between Defendants' 

attorney and Linton turned on the determination of whether Linton was assisting the attorney in 

the rendition of his legal services or whether the attorney was enlisted to advise Linton in her 

work preparing Defendants' gift tax returns. Given the evidence and arguments provided by 

Malbco in support of its request for this court to conduct an in camera review, and given the 

evidence presented to me as part of that review, I find that the attorney was asked by Linton on 

behalf of Defendants to assist in his legal capacity with the preparation of gift tax documents. 

The attorney, therefore, was necessarily rendering legal services by and through those 

communications. If not for the applicability of the crime-fraud exception in this case, those 

communications would otherwise fall within the scope of the attorney-client privilege. The 

exception applies, however, to the subset of these communications that were clearly made in 

furtherance of the preparation of formal gift tax documents for the alleged fraudulent transfers. 

All such communications are pat1 of the same sequence of communications regarding the 

ongoing transfer activity. 

Therefore, Malbco' s Motion is granted in part as it applies to the subset of documents 

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listed in the Conclusion section of this Order, which includes the relevant communications 

between the attomey and the Linton regarding the formalized transfers and gift tax strategy 

behind them, and the parties must accordingly produce those documents. 

B. Communications Between Defendants and Accountant 

As to the communications on which Defendants' counsel is not included and is not 

carbon copied, I find that the attorney-client privilege does not apply. The attomey-client 

privilege protects "communication not intended to be disclosed to third persons other than those 

to whom disclosure is in furtherance of the rendition of professional legal services to the client or 

those reasonably necessary to the transmission of the communication." OEC 503(1)(b). There is 

no evidence to suggest that Linton was employed by Defendants' attorney to assist him in the 

rendition oflegal services. See OEC 503(1)(e) (defining "representative ofthe'lawyer" to 

include individuals employed to assist the lawyer in the rendition of professional legal services). 

I therefore find no basis for extending the privilege to communications that obviously do not 

include an attorney or a representative of an attorney, were not prompted by an attomey in the 

rendition of his legal services, and are not made for the purpose of facilitating the rendition of 

professional legal services to the client. See OEC 503(1 )-(2). 

Therefore, Malbco's Motion is granted in part as it applies to the subset of documents 

listed in the Conclusion section of this Order under this category, particularly HeetanlP _000262, 

and the Defendants must accordingly produce those documents. 

Ill 

II I 

Ill 

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CONCLUSION 

For the foregoing reasons, and as a result of my in camera review, Malbco' s Motion to 

Compel (#67) is denied in pati as it applies to the documents not listed below. Malbco's request 

that this comi perfonn an in camera interview of named counsel is denied as moot in light of my 

findings regarding the application of the crime-fraud exception to select communications. 

Malbco's Motion is granted in pati as it applies to the documents listed below, and the patiies are 

Ordered to produce the following documents for discovery: 

( 1) Defendants are Ordered to produce: 

HeetalP _ 000256-63; HeetanP _ 000344-51; BHB0007 4 70-71; BHBOO 15077-88; 

BHBOOl 5977-78; BHBOOl 6004-14; BHBOOl 6494-96; BHBOOl 8501; 

BHBOOl 8504; BHB 18657-703; BP ATELOOOOl 8-19; BP ATEL002425-69. 

(2) Saalfield Griggs PC is Ordered to produce: 

SG01204-12; SG01213-14; SG01261-71; SG01272-76; 8001277-1301; 

SG01302-07; 8001310; SG01399-1404; SG02211-33; SG02421-26; SG02427; 

SG02455-56; SG03010-11; SG03015; SG03086-88; SG03089-93; 

SG03101-05; SG03111-12; SG03129-31. 

Finally, pursuant to Fed. R. Civ. P. 72(a)-(b)(2), this Order is stayed for fourteen (14) 

days from service upon the patiies or, if objections to this Order are filed, until such time as those 

objections are resolved, whichever period is longer. 

IT IS SO ORDERED. 

Dated this 21st day of July, 2015. 

onorable Paul apa 

United States Magistrate Judge 

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