Exhibit G 

Case 2:18-cr-00422-DJH Document 195-7 Filed 06/14/18 Page 1 of 38
UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

_________________

In re Grand Jury Subpoenas ) GJ No. 16-04 

16-04-108, ) February 9, 2018

_____________________________ ) 2:30 p.m.

BEFORE: THE HONORABLE DAVID G. CAMPBELL, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS

MOTION HEARING

APPEARANCES:

For the Government:

U.S. Attorney's Office 

By: Dominic William Lanza, Esq.

Kevin M. Rapp, Esq.

40 North Central Avenue, Suite 1800 

Phoenix, Arizona 85004 

U.S. Department of Justice:

By: Reginald E. Jones, Esq.

1400 New York Avenue NW Suite 600

Washington, DC 20530

For Backpage:

Davis Wright Tremaine 

By: Zana Z. Bugaighis, Esq.

1201 Third Avenue, Suite 2200

Seattle, Washington 98101 

Official Court Reporter:

Candy L. Potter, RMR, CRR

Sandra Day O'Connor U.S. Courthouse, Suite 312

401 West Washington Street, Spc 36

Phoenix, Arizona 85003-2151

(602) 322-7246

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

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(Proceedings begin at 2:30 p.m.)

THE CLERK: In the matter of the Grand Jury 16-4, on 

for a motion hearing. 

Will the parties please announce? 

MR. LANZA: Good afternoon, Your Honor, Dominic Lanza 

with Reggie Jones and Kevin Rapp on behalf of the United 

States. 

THE COURT: Good afternoon. 

MS. BUGAIGHIS: Good afternoon, Your Honor, Zana 

Bugaighis on behalf of Backpage. 

THE COURT: Good afternoon. 

All right. I have -- I've read the motion, the 

response and the reply. I've looked at some, not all of the 

attachments. I have read the Graf case and the Beiter or 

Beater case, B-E-I-T-E-R. And Graf is G-R-A-F. So I 

understand the issues that have been presented by the parties. 

This is the Government's motion. Why don't we get 

your comments, Mr. Lanza, in light of the briefing that's been 

completed. 

MR. LANZA: Thank you, Your Honor. 

I'll start first with the public relations firms. 

I think the way to think about this issue is, the 

general rule, the presumption in the Ninth Circuit everywhere 

is that generally when there's a attorney/client privilege 

between a corporation and its outside counsel, the sharing of 

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privileged information with a third party destroys the 

privilege. 

Now, there are exceptions to that. There's this 

developing body of law that suggests there are certain very 

narrow factual circumstances where, even though the disclosure 

of privileged information goes to a third-party consultant, if 

there's specific things about the nature of that consultant's 

relationship with counsel and the client, there's a way to 

thread that needle and have that not effectuate a waiver of the 

privilege. 

But I think, when canvassing all the law on this, two 

principles emerge. 

The first is that this is a very fact-intensive test. 

The evidentiary burden always falls on the party claiming an 

attorney/client privilege to submit evidence to meet their 

burden. But in this area, because this is such an exception to 

a widely-held rule, because it requires so many specific 

factual showings, that the proponent really needs to come 

forward with affidavits, with contracts, to give the Court a 

very well-developed sense of exactly what the relationship was 

between these parties. How big the firms were, what their role 

was, what exactly they were doing, who hired them, whether they 

exercised independent judgment. A host of different factors 

that come out time and again from the cases. 

The other principle that emerges is that there's 

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actually two different that are analytically pretty distinct 

tests that a party that's trying to claim privilege as to a 

third-party consultant can travel under. 

One of them is called the Kovel theory and the other 

one is the functional equivalent. Kovel, in a nutshell, is 

that the outside attorneys had to hire a specialist to educate 

the attorneys about some specific PR-related function that was 

so intertwined with the legal representation that the attorneys 

really needed to rely on these people to do their job better. 

You know, the sort of concept is the same way that if 

documents need to be translated, when you bring in a 

translator, they may not be the client or the attorney. There 

are certain specialized services that in the right 

circumstances the attorneys just need this help in order to do 

their job correctly. 

And so that's one band of cases where there hasn't 

been found to be a waiver with PR firms, is where the outside 

counsel hired the firm in order to help counsel do its job 

better. 

The Martha Stewart case, also known as In re Grand 

Jury Subpoenas is sort of one of the quintessential examples of 

that one. 

The other theory, which is just totally different 

analytically, is the functional equivalent theory. And that's 

that the third-party consultant wasn't hired by the attorneys 

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to help the attorneys, they were actually essentially the same 

thing as an employee of the company. And even though they 

might seem like an outside consultant or an independent 

contractor on paper, when you really look at what they do on 

day-to-day basis, there's no distinction between what they do 

and a full-blown employee of the company. 

So where are we here in this motion? 

Backpage has elected to go down solely on this 

functional equivalent theory and it hasn't submitted any 

evidence. And I think that we should prevail for both of those 

reasons, but I really can't get past the lack of evidence here. 

When you look at the key cases that they rely on, the 

Court's read Beiter, they submitted all sorts of affidavits in 

that case to really prove up exactly what this relationship was 

like. And you see these courts time and again, the few courts 

that have ruled for the privileged proponent, have emphasized 

how they were only able to get there because they had such a 

well-developed evidentiary record. 

And in contrast, a couple of the cases we've cited 

where courts have rejected privileged claims, they've gone out 

of their way -- you know, there's a case cited on page 6 of our 

reply, the Energy Capital case, that I think in sort of common 

sense language hits the nail right on the head where they say, 

you know, it's possible to have the privilege extend to 

third-party consultants, but it's really unusual. And the 

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party that wants to travel on this unusual ground really needs 

to prove it up and submit all the evidence to get there. And 

when they fail to do that, they just lose for that reason. 

So here Backpage, we've been pleading for four months 

for them to turn over the contracts that were used to hire 

Sitrick, JMS, and Culloton Strategies. 

Parenthetically, for Backpage to have put these 

documents on their privilege log in the first place years ago, 

they ought to have done this analysis and convinced themself 

there was a good-faith basis for invoking this very narrow 

exception. 

Nevertheless, we've been asking all this time. They 

haven't turned them over. They didn't turn them over during 

the meet and confer process. And then surprisingly, they 

didn't even turn them over as evidence in support of their 

motion here. 

So the Court is just left with a barren record about 

anything about the specifics of these relationships. And when 

you're the privileged claimant that have the burden, that's a 

big problem. 

But stepping aside from that, the other reason why 

with respect to the public relations firms I think we should 

prevail, when you -- I think there's a certain irony to their 

reliance on Beiter, because it shows factual circumstances that 

are just so dramatically different from what we have here. 

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Beiter was this case where you've got a two-person 

closely-held partnership that doesn't even have employees, it's 

this sort of single-purpose vehicle just set up to develop a 

parcel of land. They executed an independent contractor 

agreement with this third party, but he is the closest thing 

you could have to an employee. He works out of their office. 

He has an equity stake in the partnership. He's there every 

day. This is basically what he does with 100 percent of his 

time to the point that two or three years later they actually 

tear up the independent consultant agreement and hire him as an 

employee. 

I can see why under those circumstances, which I would 

add the parties established through affidavits and contracts 

and a rich evidentiary showing at the hearing, you might 

consider that type of person a functional employee even though 

on paper they were characterized as an independent contractor. 

Similarly, in Graf, it's the founder of the company 

that's the face of the company. And the only reason they 

pretend that he's an independent contractor is because there's 

this cease and desist order from the State of California that 

says you can't work in the insurance industry. So they say, 

okay, we won't employ him, we'll just pretend that he's an 

independent contractor. 

Again, those are very extreme and unusual facts. And 

with the appropriate evidentiary record you can see how we'll 

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treat that person as the functional equivalent of an employee. 

This case couldn't be more different. Backpage, at

the time these PR firms we believe were hired -- and, again, 

how to we know when they were hired? There's no evidence -- 

had at least 70 plus employees in the U.S., 50 contractors in 

India. They had offices in Phoenix and Dallas. They're 

earning tens of millions of dollars a year. They have, as 

we've established through our reply, in-house people issuing 

press releases, drafting editorials, going on CNN to do 

PR-related things. 

And on top of all of that, they engage these three big 

PR firms. This isn't like the consultant in Beiter who was 

just one guy, who this is what he did with 100 percent of his 

time is work for the company. 

I would note, one of the firms is Sitrick & Company. 

How to we know that Sitrick is a big PR firm with a lot of 

different clients? It's because in the O'Hara case that we 

cited, which is another case where a court found that a 

disclosure to a PR firm resulted in a waiver, Sitrick was the 

PR firm in that case too. 

These are big firms with clients all over the place. 

They happen to be providing consulting services to another huge 

company. That is just so far afield from what a functional 

equivalent could possibly be under Beiter and Graf, that for 

those two reasons we'd ask the Court to find that Backpage 

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hadn't met its burden and that they should be ordered to 

disclose all of the PR firm related documents that are on their 

log. 

I'm happy now to go into SSP Blue and Duff & Phelps. 

Or if you think it's better to go one at a time, whatever you 

want. 

THE COURT: No, go ahead. 

MR. LANZA: With respect to SSP Blue, I think this is 

the closest one of the three on the record. 

The principal of SSP Blue, Mr. Nigam, is an attorney, 

he was a former AUSA. And Backpage has asserted in their 

privilege log that the documents they've withheld contain 

privileged information. 

But this isn't a -- this case is still closer because 

SSP Blue is engaging in unusual functions that sure seem to 

blur the line between business functions and legal advice. 

It's not registered as a law firm. It doesn't hold itself out 

as a law firm. When you look at the things it advertises and 

touts on its website, it's all business advice. It's 

e-security, it's privacy, it's crisis management. It's -- you 

know, I can't remember the exact word, but it's sort of 

leveraging its relationships to set up meetings. 

We actually -- one of the things that's come out in

this case is it appears that Mr. Nigam used his contacts as a 

former DOJ employee to set up a meeting between Backpage and 

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the National Center for -- NCMEC, the Center For Abused 

Children, which that's not legal services, that's using 

relationships and leveraging business things. That's not the 

same type of behavior that would ordinarily be treated as legal 

advice. 

So we've identified a good body of case law suggesting 

that when there are -- it's not just a fishing expedition, but 

when there are articulable reasons that are grounded in good 

faith and actual things that are out there in the record that 

make the party opposing the privilege claim suspect that this 

may not have been legal advice, that again you go back to the 

attorney/client privilege is a privilege that the proponent who 

wants to invoke has the burden of establishing. And it's meant 

to be construed narrowly, because it's in derogation of the 

Grand Jury's right to know what the facts are and get to a 

search for the truth. 

And so here, the record is murky on exactly what 

Mr. Nigam was doing. And we think that Backpage could have 

easily cleared this up by, for example, coming forward with 

their retainer agreement that they actually used to hire 

SSP Blue. That's the step that was noted in some of the cases 

we've cited. That should say pretty much what he was retained 

to do. 

It's -- we think it was their burden to do that. We 

asked for it for three months during the meet and confer 

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process. Had they just produced it to us and it looked like he 

was providing legal services, we very well may not have even 

moved on this ground. But the fact that they won't produce it 

when they're the privileged proponent, they just haven't met 

their burden here. 

So I do think this is a closer call than the PR firms, 

but I think the Court would be fair based on how this record's 

developed and why we're here today to say that they were the 

privileged proponent, they had the burden of showing that 

Mr. Nigam was providing legal advice, and because they declined 

to submit any affidavits to prove that up or declined to submit 

the retainer agreement, they haven't met their burden. And 

that could be the end of it and you could rule in our favor. 

But I also think it would be reasonable for the Court 

to think that that is a -- even though fair and legally 

defensible, perhaps harsh outcome, and at a minimum the Court 

could conduct its own in camera review of all or some of the 

documents to assure itself or get its own view on whether or 

not these withheld documents actually contain privileged 

material. 

And I guess one final point on that, why I think that 

it's fair to us to have some skepticism here and to ask them to 

meet their burden. You know, what led up to us getting here? 

We wrote this e-mail to Backpage in October raising questions 

about their privilege log. And when they looked at it, even 

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though they really kind of gave us the run around on some 

things, I think it's telling that when we just pointed out some 

flaws in their privilege log they acknowledged that 150 e-mails 

right off the bat were improperly put on there. And these were 

e-mails that really aren't even defensible to have been in 

there in the first place. 

The type of stuff they initially had on the privilege 

log, which they didn't give Congress and initially tried to not 

give us, are things such as e-mails that their PR firm 

forwarded to a 1400-member law enforcement list serve. I would 

suggest that that doesn't suggest that a lot of care and 

precision went into the formulation of the privilege log in the 

first instance. And that further underscores why we think it's 

not enough for them to say, Mr. Nigam is an attorney, take our 

word for it and we don't need to prove it up under these 

circumstances. 

Finally, to Duff & Phelps, you know, where do we 

start? The baseline principle is, when material that may be 

privileged between a corporate client and its attorney gets 

turned over to a third party, that's a waiver unless the 

privilege proponent can first articulate one of these two 

tests, Kovel or the functional equivalent, and then come 

forward with a bunch of evidence to show how it really fits 

here. 

They didn't put forth any evidence yet again here. 

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And instead, all they've done is assert that this should remain 

privileged because Duff & Phelps, it appears from their briefs, 

was retained by their outside counsel to provide advice 

concerning complex regulatory matters. 

We don't have any evidence of that. And I would note 

that the one piece of evidence we submitted in our reply 

suggests that Duff & Phelps was just a regular old investment 

bank. They were out there helping to -- in the process to spin 

off Backpage from Village Voice Media by findings folks who 

might be willing to make this big loan and provide money in the 

spinoff process. 

That is very different from some investment bank that 

a law firm privately hires just so that the law firm can get 

advice on how regulatory matters works. And at a minimum, it 

was their burden to show that that was the actual relationship 

between Duff & Phelps and their outside counsel, and they 

didn't meet it. 

So for those reasons, I think that the Duff & Phelps 

is more like the PR firms, they had a clear burden and they 

didn't meet it. 

THE COURT: Okay. Thank you. 

Tell me your name again, I'm sorry, I missed it the

first time. 

MS. BUGAIGHIS: Zana Bugaighis, Your Honor. 

THE COURT: And how do you spell it, the last name? 

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MS. BUGAIGHIS: B-U-G-A-I-G-H-I-S. 

THE COURT: And it's pronounced? 

MS. BUGAIGHIS: Bughaigis, Your Honor.

THE COURT: Bughaigis? 

MS. BUGAIGHIS: Bughaigis. 

THE COURT: All right. Go ahead. 

MS. BUGAIGHIS: Your Honor, I'm going to start with

the PR firm issue. 

The Government starts off attacking -- well, Backpage 

believes that its privilege log and the publically-available 

information regarding the legal and political climate towards 

Backpage in the time period in question, 2010 to 2012, 

demonstrates that Backpage hired the PR firms for a legal 

purpose. 

At the time Backpage had no in-house PR department,

which the Government does not refute. Backpage had a pressing 

need to neutralize public opinion in order to avoid certain law 

enforcement scrutiny and public prosecution. 

The consultants worked with Backpage to develop 

strategies and approaches in the face of threats from State 

attorneys, private litigants, and legislative officials. 

Under the Ninth Circuit Backpage's work with these 

public relations consultants remains privileged because it was 

done so in conjunction with attorneys. 

The Government points to Backpage's evidentiary 

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burden. But it fails to note that this is a criminal 

prosecution. This is not a civil case, Your Honor. The 

Government points almost exclusively to civil cases. This is a 

case that involves Fifth Amendment rights against prosecution. 

The Government is not only seeking to prosecute Backpage, but 

also multiple of its employees. This is not a case where the 

burden is on the criminal defendant to come forward in 

violation of its own Fifth Amendment rights and present the 

evidence that the Government is seeking. The defendant, 

Backpage, has no obligation to provide evidence that will be 

used against it in a criminal prosecution. 

Instead, Your Honor, we believe that our privilege log 

and the public information available, some of which the 

Government has pointed to, provides the basis on which you can 

find the public -- the PR consultants worked as functional 

equivalents in this context. 

I also want to note that -- two things. 

One, the Government's motion to compel made improper 

generalized unsupported challenges. On reply the Government 

attempts to dial this back by shifting completely its legal 

theory and providing some documents. But it didn't provide 

those in its motion to compel, and it only provided them on 

reply, in which case Backpage did not have the opportunity to 

respond. 

So if Your Honor requests or feels that it needs more 

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evidence, we would request that Your Honor ask Backpage to make 

that showing. 

Additionally, we feel that the Government is narrowly 

construing or even misrepresenting the case law regarding what 

may be a functional equivalent and how these tests are laid out 

in the case law. 

Your Honor, the Government states there are two tests, 

the Kovel analysis and the Graf analysis, of functional 

equivalent. But it's really, Your Honor, it's kind of a 

sliding scale or continuum. There's also -- the Government 

says that In re Grand Jury is the quintessential Kovel

representation. But In re Grand Jury, which we think is most 

analogous to the facts here regarding Backpage's PR consultants 

is not analyzed under Kovel or under the Graf functional 

equivalent test. Instead it states its own test for when 

courts may find PR firms to be included within the privilege. 

And, Your Honor, we believe that Backpage meets its

burden under Graf and under the Grand Jury Subpoenas' test for 

finding that these PR consultants come within the privilege, 

and privileged communications, including these consultants, 

remain privileged. 

In In re Grand Jury Subpoenas the Court held that 

confidential communications between lawyers and public 

relations consultants hired by the lawyers to assist them in 

dealing with the media in cases such as this, that are made for 

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the purpose of giving or receiving advice directed at handling 

the client's legal problems, are protected by the 

attorney/client privilege. 

That test is even broader than Kovel or Graf. It 

states, if these attorneys are necessary to the legal 

strategy -- or these PR consultants are necessary to the legal 

strategy and work closely with the attorneys in effectuating 

that strategy, the communications remain privileged. 

Your Honor, I don't believe that there can be any 

dispute regarding the climate that Backpage faced in 2010 

through 2012. This climate had just forced Craigslist to shut 

its doors, and immediately the scrutiny turned to Backpage. 

And Backpage was forced to suddenly address this challenge, and 

it lacked the internal resources to do it. 

The Government states that Backpage is this huge 

corporation with 120 employees, but the fact is -- and the 

Government knows that the majority of those employees were 

moderators who were hired to review ads and try to make sure 

that the information being posted publically was legal and was 

compliant with Backpage rules and regulations. 

In fact, the Backpage governance, the management, 

numbered in less than a dozen. And within that dozen people 

there were no PR consultants, there were no PR department. The 

fact is the Government's pointed to a couple documents that 

show that Backpage used its in-house counsel as its

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spokesperson on some occasions, and that just goes to show how 

necessarily intwined the legal issues were with the PR issues 

that Backpage faced. And goes to show the need to hire expert 

public relation consultants. 

This was not -- this was a situation, such as that 

faced in Grand Jury Subpoenas where the need for public 

relations consultants was great, and the need for experts was 

great. 

I think In re Grand Jury Subpoenas said it best, and 

we quoted it in our brief. But questions as to whether the 

client should speak to the media at all, whether to do so 

directly or through representatives, whether and to what extent 

comment on specific allegations, and a host of others can be 

decided without careful legal input only at the client's 

extreme peril. Dealing with the media in a high profile case 

probably is not a matter for amateurs. Target and her lawyers 

can not be faulted for concluding that professional public 

relations advice was needed. 

And that was necessary here to develop and pursue a

coordinated approach for Backpage to respond to legal threats 

and public accusations by Government officials. Backpage knew 

that every statement it made would be scrutinized by officials 

and law enforcement that were seeking to pursue the website. 

And indeed they were. And we've seen these statements, news 

articles come against Backpage time and time again in civil 

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lawsuits, in Grand Jury investigations, in the Senate report. 

These public statements by Backpage were scrutinized and used 

against it. 

Not only that, Backpage had to use its PR consultants 

to attempt to neutralize the environment surrounding the media 

portrayal that it was implicated in sex trafficking. Without 

some kind of other side to that story that Backpage needed to 

portray, that it needed to put forth First Amendment 

considerations and Section 230 grounds, without that Backpage 

would have faced even greater scrutiny from public officials 

which lead to law enforcement prosecution. 

Your Honor, we think the In re Grand Jury Subpoenas

provides the most perilous circumstances in which Backpage 

finds itself. In that case the target, Martha Stewart, found 

herself facing a criminal prosecution, and she hire -- her 

attorneys hired a PR firm on her behalf to try to color public 

opinion and to avoid an Indictment. 

And that's precisely what happened here. And these PR 

professionals were hired for their expertise to work in 

conjunction with Backpage's attorneys to avoid further legal 

detriment to the client. 

There was no allegation here that Backpage used these 

PR firms for any purpose other than for a legal need. Backpage 

didn't use PR professionals to advertise its services in any 

other capacity. These professionals were used specifically to 

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address media scrutiny regarding the Backpage legal

considerations. 

The DOJ does not deny that the communications were 

made in confidence. Every single communication on that 

privilege log was with an attorney and a PR professional. 

Although the Government claims that Backpage has not 

been circumspect in making its privileged determinations, I 

think that the fact that Backpage counsel produced those 153 

communications shows the opposite. 

Prior Backpage counsel made the initial determinations 

regarding privilege. I think that reasonable minds can differ 

on those. But Backpage -- when the Government brought this 

information to Backpage's attention, Backpage undertook a 

careful review of every single document line by line and made 

careful privileged determinations and released 153 documents. 

But every single document that remains on the 

privilege log includes an attorney -- with respect to the PR 

professionals includes an attorney, and demonstrates a close 

and continuous working relationship between Backpage and -- the 

PR consultants with Backpage's legal counsel. 

The DOJ points to press releases and statements made 

by Backpage public relations consultants on its behalf showing 

these PR professionals were in the public making statements on 

behalf of Backpage necessitating the need for consultation with 

Backpage's legal counsel because they were making independent 

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statements and decisions regarding PR strategy. And they were 

finally doing a crucial job necessary to avoid any further law 

enforcement scrutiny. 

The Government states -- says that these PR 

professionals were not integrated into Backpage such that they 

were employees, but they were in the essence that Backpage was 

relying on them as its own employees. Backpage lacked an 

internal PR department, and so it relied on these professionals 

as if they were Backpage employees, it incorporated into 

discussions with its principals and its legal counsel to make 

decisions on behalf of the company. They acted as the 

spokespeople for the company in order to do that. They 

performed an internal function and were relied on as if they 

were employees. 

Additionally, some aspects of the test to which the

Government points to, especially in its reply, it states that 

this test is reserved -- the functional equivalent test is 

reserved for a small company. That's just not true. Hadijh v. 

Evenflo -- Evenflo, a large corporation, makes car seats and 

bouncy seats for babies, a large corporation, engaged a PR firm 

when it didn't have the internal resources to have its own 

public relations when it needed experts. And the Court there 

found that the PR firm was functionally equivalent and upheld 

the privilege, because it performed an internal function for 

which Evenflo had a need. 

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The Government also makes a 180 between its motion and 

its reply stating -- it stated in its motion that it believed 

that Backpage did not -- that Backpage directly hired these PR 

consultants and said that was a basis on which to deny 

privilege. When Backpage said in its opposition that its legal 

counsel hired these PR consultants, the Government made a 180 

in its reply and said, now that Backpage legal counsel hired 

these consultants, these consultants cannot be functionally 

equivalent. 

One, that shows that the Government is acting on pure 

speculation here. It doesn't know. And it's speculating and 

attempting to get this Court to move to have an in camera 

review based on pure speculation. 

Two, it's misunderstanding the tests and the 

functional equivalent test. Neither one of those tests rose or 

fell or who hired the PR consultants. That the PR consultants 

were hired by attorneys goes to show that the PR consultants 

were hired for a specific legal need and served a legal 

purpose. But that fact doesn't -- had the PR consultants been 

hired by the actual client, the target, such as in the Martha 

Stewart case, that fact was underscored by the Court in In re 

Grand Jury because it was stated that the PR consultants were

not hired for a general PR relations purpose. They weren't 

hired to be just public relations consultants for the company. 

Here we don't have that distinction. The PR 

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consultants were hired by the law firms. And the Government 

tries to use that fact to say that they then cannot be 

functionally equivalent to employees. 

However, the law firms themselves are agents of 

the -- of Backpage. The fact that they hired legal

professionals to be agents of Backpage does not make them any 

less functionally equivalent. We're not saying that the PR 

consultants were employees of Backpage, we're saying that they 

were functionally equivalent to employees. They were agents, 

and they can be functionally equivalent, especially if they 

were hired for specific legal need. 

Finally, that Backpage had in-house counsel that it

used as spokespeople from time to time only serves to 

underscore that in-house counsel was the one coordinating the 

legal strategy with the PR strategy, and underscores the point 

that we're making, that Backpage needed to hire experts in the 

PR field because of the onslaught of legal scrutiny. 

So as to SSP Blue, Your Honor, it's almost 

inconceivable that the Government can admit that Backpage had 

an attorney and claims privilege, admit that Government 

investigators interviewed the attorney and the attorney 

confirmed that he was working as an attorney for Backpage, that 

this is a former federal prosecutor, and persists nonetheless 

in demanding these communications by saying that maybe he 

wasn't based on a present day search of his website. 

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There is a standard in the Ninth Circuit for when even 

these documents are subject to an in camera review. And under 

In re Grand Jury investigation a privilege log satisfies 

Backpage's prima facie burden if it identifies the attorney and 

the client, the nature of the document, the persons who sent or 

received the documents, all persons who knew about the document 

and the date it was generated. Backpage has more than met that 

burden. In fact, it also includes information on the subject 

matter of each document, the occupation of the authors of the 

document, and all recipients of the document. 

The Government says that affidavits are necessary in 

order to meet that burden, and that's just not what the case 

law holds. 

The case In re Grand Jury investigations mentions that 

an affidavit had been provided, but only with respect to the 

fact that that affidavit cleared up any remaining questions 

regarding to whom the documents were shown or intended to be 

shown. That was the only purpose in which the Court relied on 

that affidavit. And here there are no questions regarding who 

the documents were shown or intended to be shown. It's not the 

DOJ's basis for attacking the privilege here. 

And we believe at this point the burden shifts to the 

DOJ, and they just haven't met it. They cite this test about a 

factual basis sufficient to support a reasonable good faith 

belief that an in camera inspection may reveal information that 

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the material is not privileged on reply. 

This test comes from United States v. Zolin, which 

sets forth the standard for a court to determine the 

applicability of the crime fraud exception before making an in 

camera review. 

But even under the standard, they have not shown a 

factual basis sufficient to support a reasonable good faith 

belief. They've shown rampant speculation at best. They've 

searched on the website and pulled down a few documents stating 

that much of that information seems like it could be business 

rather than legal advice. 

They state that Mr. Nigam made an introduction to 

NCMEC, and they claim that this shows that Mr. Nigam is not 

working in a legal function. But In re Grand Jury Subpoenas

cited to the Supreme Court, to a plurality opinion by 

Mr. Justice Kennedy in Gentile v. State Bar of Nevada that 

explained that the role of an attorney is not so narrow as to 

argue in front of a court or to advise a client. 

Justice Kennedy said an attorney's duties do not begin 

inside the courtroom door. He or she cannot ignore the 

practical implications of a legal proceeding for the client. 

Just as an attorney may recommend a plea bargain or civil 

settlement to avoid the adverse consequences of a possible loss 

after trial, so too an attorney may take reasonable steps to 

defend a client's reputation and reduce the adverse

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consequences of Indictment, especially in the face of a 

prosecution deemed unjust or commenced with improper motives. 

A defense attorney my pursue lawful strategies to obtain 

dismissal of Indictment or reduction of charges, including an 

attempt to demonstrate in the court of public opinion that the 

client does not deserve to be tried. 

We think that the Government proffer for why to invade 

the attorney/client privilege of Backpage and Mr. Nigam and his 

firm is improper, that they've not met their burden, and that 

it is rampant speculation. 

As to Duff & Phelps, Your Honor, Duff & Phelps, we're 

talking about one e-mail and one attachment. And Duff & Phelps 

were financial advisors to Backpage that assisted counsel in a 

corporate restructuring. 

The Government attaches to its reply only a 

member -- a confidential information memorandum that was 

delivered to a number of limited parties who might be 

interested in providing funding for Backpage. This document 

was not withheld. It was produced. And -- however, the facts 

that went into creating this document, the consultations 

between Backpage attorneys and Duff & Phelps and company 

principals that went into creating that document, that 

information is privileged. That information falls under the 

Kovel test. It falls into the course of an agent assisting 

counsel in advising regarding legal risks to the company. 

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And we assert that the information that went into the 

preparation of the confidential legal -- the confidential 

information memorandum remains privileged with Duff & Phelps. 

Thank you, Your Honor. 

THE COURT: All right. Thanks. 

Mr. Lanza, I've got a pretty good sense of what you'd 

say in response to all of those points. Let me give you both 

my thoughts and allow you to react. 

With respect to the public relation firm issue, 

Miss Bugaighis, you started with a Fifth Amendment argument. 

There was no mention of the Fifth Amendment in your response to 

the Government's motion, that I can recall. Is that an 

argument somehow different from the functional equivalent or 

the In re Grand Jury arguments that you've made? 

MS. BUGAIGHIS: Your Honor, we didn't make that 

argument in opposition because in the Government's initial 

motion they had put forth this Kovel test claiming that 

Backpage cannot rely on its translator. We didn't feel it 

necessary to move in our opposition because they had not 

highlighted the burden that they believed that Backpage faced. 

They did that only in reply. 

THE COURT: Are you arguing that production of 

nonprivileged documents, if I find them nonprivileged, would be 

a violation of your protection against self-incrimination? 

What's the argument that you're making? 

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MS. BUGAIGHIS: No, Your Honor, I'm arguing that the 

evidentiary burden for bringing fourth evidence in this context 

in opposition to a motion to compel privileged information, 

unlike the civil context where we could have Backpage or any 

number of its employees provide a declaration stating the 

purpose of the PR professionals or how they were used or 

integrated into Backpage, is not possible or necessary in the 

criminal context where providing that kind of declaration from 

Backpage or its principals would be -- would require them to 

invoke their Fifth Amendment rights. 

THE COURT: Have you got any case for that 

proposition? Namely that the person asserting a privilege in a 

criminal context has a different or less burden than a person 

asserting it in a civil context? 

MS. BUGAIGHIS: Not in this context, Your Honor. I

looked and did not find any criminal cases that addressed the 

burden for a functional equivalent test in the criminal 

context. 

There were two cases that were criminal cases that -- 

THE COURT: The one you've relied on, the Martha 

Stewart case, was a criminal case; right?

MS. BUGAIGHIS: You are correct, that was a criminal 

case. And in re Graf was also a criminal case. And in both 

those cases there had been prior evidentiary -- there had been 

an evidentiary hearing in Graf. And In re Grand Jury Subpoenas

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the Grand Jury had previously called a witness, the PR 

professional. 

THE COURT: Well, are you suggesting that if I 

conclude that Backpage needs to provide evidentiary support for 

the various factual assertions it's made about the role of 

these PR firms, Backpage is going to invoke the Fifth 

Amendment? 

MS. BUGAIGHIS: Your Honor, if you rule that Backpage 

needs to provide further evidentiary support, Backpage would 

proffer the declarations from the PR professionals. 

THE COURT: All right. Thank you for your responses. 

My conclusion with respect to the PR firm issue is 

that I cannot conclude that Backpage has met its burden of 

showing either that the PR firms were the functional equivalent 

of Backpage employees, as required by Graf, or that they were 

filling the role described for the PR firms in the In re Grand 

Jury case without some evidentiary support. There's nothing in 

the response that establishes that other than plain assertions. 

The Ninth Circuit law is clear in Graf, which is a 

criminal case, that the burden is on the person asserting the 

privilege to establish the privilege. And there just isn't any 

evidence at all that's submitted with the response. 

So I think there needs to be that evidence before I

can sustain the privilege. And we'll talk in a minute about 

when and how we get that produced. 

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I think it's clear that it's the functional 

equivalent's argument that Backpage relied on its response and 

then also in the In re Grand Jury case, so that will be the 

focus. But there's no evidence. And Backpage clearly has the 

burden, in my view. 

With respect to SSP Blue, Backpage is correct that the 

Ninth Circuit In re Grand Jury case, which is at 974 F.2d 1068, 

says that a privilege log establishes a prima facie case of a 

right to a privilege. But as we all know, a prima facie case 

can be called into question by evidence from the other side. 

The Government has come forward with evidence that 

Mr. Nigam, N-I-G-A-M, engages in a lot of nonlegal functions in 

the operation of SSP Blue. I think that is enough to shift the 

burden back to Backpage to come forward with some evidence that 

he was functioning as a lawyer in the work that he did with 

respect to these 350 e-mails. So it's essentially the same 

conclusion that I reach with respect to the PR firms. 

With regard to Duff & Phelps, it boils down to the 

same issue. There are assertions about their role,

characterizations about their role, but no evidence. And 

although there's an assertion that -- in the privileged log 

that it's privileged, that to me isn't the same as making an 

assertion when there's a lawyer involved. 

I understood In re Grand Jury, the Ninth Circuit case, 

to be saying if you have a lawyer in the communication, the log 

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creates a prima facia case of privilege. But when it's a 

nonlawyer, I don't think merely putting it on a log establishes 

that. I think the burden is on Backpage to come forward with 

some evidence that Duff & Phelps was acting in a way that was 

necessary to the rendering of legal advice, which is the way 

that the Yasmin court characterized it that was cited by the 

parties. 

So my view is that there needs to be evidence on all 

three categories provided by Backpage to support its 

characterization of what was happening when these 

communications occurred. 

I think that was evident with the motion being filed, 

but Backpage chose not to submit it. There were requests made 

before the motion was filed for it, and Backpage chose not to 

provide that to the Government. 

So I understand why the Government is asking me to 

simply rule that Backpage has not met its burden and enter an 

order compelling. But I don't think I should do that without 

giving Backpage one other opportunity to come forward with the 

evidence that will establish the privilege. 

Part of the problem I have is that starting on the 

12th of March I am basically fully booked until the end of May. 

And so if we're going to get this matter decided, we need to do 

it in the next couple of weeks, or otherwise it gets bumped to 

the Summer, and I don't want to do that. 

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So my intention would be -- and this is what I'm 

interested in the responses to -- to require that Backpage 

submit whatever evidence it chooses to, and I understand if you 

want to get it from the PR firms, in the form of declarations 

or affidavits or such other evidence as you think you ought to 

submit to substantiate the factual arguments that have been 

made with respect to the role of the PR firms, the role of SSP 

Blue, the role of Duff & Phelps, and then give the Government 

an opportunity to respond to whatever the submission is. 

If that's going to happen and us get a decision 

by -- well, before March 12th, there's not a lot of time. And 

that's what I wanted to raise with you all. 

I suppose another alternative would be me to ask 

another judge to do it if you think it will take longer. I've 

never done that, I've never given an issue to another judge, 

and I'm not of a mind to because they're all plenty busy. 

So I guess I'm interested in your thoughts. And, 

Miss Bugaighis, particularly whether you have thoughts about 

that schedule and the kind of material you can pull together to 

submit to me. 

MS. BUGAIGHIS: Your Honor, just looking at the 

calendar, I don't know how much time that provides. 

THE COURT: I mean, what we could do is something 

like, give you until -- well, we could give you two weeks until 

the 23rd. I don't know if that's enough time to pull it 

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together. And then get the response from the Government the 

next week. I could look at it. If I think we need a hearing, 

we could try to set it the week of March 5th. Or otherwise I 

might be able to just rule. 

Is that enough time or do you think you'll need more 

time, Miss Bughaigis, to pull this together? 

MS. BUGAIGHIS: Your Honor, I think we can do it. 

THE COURT: Okay. Thank you. 

Mr. Lanza, do you have thoughts on all of this? 

MR. LANZA: Thank you, Judge. 

I'm just trying to -- so what do you anticipate then 

submitting on February 23rd? Is it just affidavits or is it 

another -- I think that it should just be limited to whatever 

evidence they want, they submit. I don't think we need another 

round of briefing or case citations. 

THE COURT: I really don't want another round of 

briefing. I think we've framed the issues. I understand the 

arguments. I think -- I need to find out if there's facts to 

support the position that Backpage is taking. And the idea 

would be to come forward with those facts. 

I don't want to foreclose Backpage from submitting a 

short memo, a three- or four-page memo, sort of explaining 

things if they think they need to. But we don't need to go 

through the briefing and citing of cases again. 

MS. BUGAIGHIS: Your Honor, I would ask that Backpage 

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be allowed to submit a memorandum, if the Government is going 

to submit a memorandum in opposition. 

THE COURT: That would be right after you've heard 

from them; right? You're not suggesting with your affidavit, 

you mean after you've received their memorandum? 

MS. BUGAIGHIS: That would be preferred, Your Honor. 

THE COURT: Right. 

All right. So assuming they submit whatever evidence 

they want to submit with a short explanation, three or four 

pages, but not rebriefing, that would be the idea by the 23rd. 

MR. LANZA: Okay. And then by -- 

THE COURT: Well, then I'm thinking by probably 

Thursday, March 1st, to get the Government's comments on that 

evidence. 

MR. LANZA: Okay. 

THE COURT: Because I will try -- the week of the 5th 

is not great either. But I would try to look at it quickly, in 

part to decide whether we need to have a hearing, in which 

event we'd do it the next week, the week of the 5th. 

I suppose I could even, Miss Bugaighis, look at it and 

tell you whether you need to file a response. I wouldn't do it 

if I'm going to -- I wouldn't deny you that opportunity if I'm 

going to rule against you. But I'm just trying to think of how 

we get this work done. 

MS. BUGAIGHIS: Thank you, Your Honor. 

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UNITED STATES DISTRICT COURT

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THE COURT: So this is what I suggest: The additional 

evidence by the 23rd, the Government response by March 1st. 

(Discussion off the record between the Court and courtroom 

deputy.) 

THE COURT: Well, I think what we need to do is this: 

I have no time on the 2nd. I'm in a hearing all day. I think 

what we ought to do is get your response in, Mr. Lanza, on the 

1st. I'll look at it on Saturday the 3rd, and I'll do a text 

only order, which I can do, which will come out to you all -- 

THE CLERK: It's a Grand Jury matter. 

THE COURT: Oh, I can't do it in a Grand Jury matter, 

can I? 

Well, I will then have an order ready to come out 

Monday morning saying whether or not I think we need a hearing 

the week of the 5th. And saying whether I think Backpage needs 

to respond to the Government's memorandum. 

And if so, what I'll do is we'll probably call you and 

try to find the best time, figure out timing. Because as I 

say, the following week, starting on Monday, there's nothing 

available for weeks after that. 

Does that make sense? 

MR. LANZA: Yes, Your Honor. 

MS. BUGAIGHIS: Yes, Your Honor. 

THE COURT: Okay. 

MR. LANZA: I just want to be clear. It may be 

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possible that -- I'm just trying to anticipate -- that when we 

see the evidence they've submitted, the submission we have on 

March 1st isn't just limited to discussion, but it also -- we 

might need to submit some countervailing evidence that we're 

aware of at that point. 

THE COURT: Yeah. I understand that. And I'll 

certainly give Backpage a chance to respond if you're going to 

do that. 

MR. LANZA: Okay. 

THE COURT: Okay. That's our plan. Thank you. 

MR. LANZA: Thank you, Your Honor. 

MS. BUGAIGHIS: Thank you, Your Honor. 

(Proceedings concluded at 3:26 p.m.)

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UNITED STATES DISTRICT COURT

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C E R T I F I C A T E

I, CANDY L. POTTER, do hereby certify that I am duly 

appointed and qualified to act as Official Court Reporter for 

the United States District Court for the District of Arizona.

I FURTHER CERTIFY that the foregoing pages constitute 

a full, true, and accurate transcript of all of that portion of 

the proceedings contained herein, had in the above-entitled 

cause on the date specified therein, and that said transcript 

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 27th day of February, 

2018.

s/Candy L. Potter________

Candy L. Potter, RMR, CRR

Case 2:18-cr-00422-DJH Document 195-7 Filed 06/14/18 Page 38 of 38