Opinion ID: 433796
Heading Depth: 2
Heading Rank: 2

Heading: The Exception for Prospective or Ongoing Crime or Fraud

Text: 19 Having concluded that virtually all of the documents at issue in this appeal reflect the type of advice to which the attorney-client privilege normally applies, we come to the question of whether any of those documents are within the scope of the exclusion for materials prepared in furtherance of a continuing or future crime or fraud. It is well-established that communications that otherwise would be protected by the attorney-client privilege or the attorney work product privilege are not protected if they relate to client communications in furtherance of contemplated or ongoing criminal or fraudulent conduct. See, e.g., Clark v. United States, 289 U.S. 1, 15, 53 S.Ct. 465, 469, 77 L.Ed. 993 (1933) (attorney-client); In re John Doe Corp., supra, 675 F.2d at 489-93 (attorney-client and work product); In re International Systems and Controls Corporation Securities Litigation, 693 F.2d 1235, 1242 (5th Cir.1983) (work product). The rationale for the exclusion is closely tied to the policies underlying these privileges. Whereas confidentiality of communications and work product facilitates the rendering of sound legal advice, advice in furtherance of a fraudulent or unlawful goal cannot be considered sound. Rather advice in furtherance of such goals is socially perverse, and the client's communications seeking such advice are not worthy of protection. See In re International Systems, supra, 693 F.2d at 1242; In re Sealed Cases, 676 F.2d 793, 812-13 (D.C.Cir.1982); Model Code of Professional Responsibility DR 7-102(A)(7) (1976). Such communications are properly excluded from the scope of the privilege even if the attorney is unaware that his advice is sought in furtherance of such an improper purpose. United States v. Hodge and Zweig, 548 F.2d 1347, 1354 (9th Cir.1977). 20 In the present case, the government, which has of course not been allowed to examine the documents at issue, contends that the documents should be produced because they reflect advice sought by AG in furtherance of an attempt to defraud the United States or to obstruct justice. We find some merit in the government's contentions as to certain of the documents. 21 As to two categories of document, i.e., those relating to employee compensation (0001-0076, 0091-0094, 0098, 0126-0142, and 0148-0163) and those relating to the general reorganization of the Marc Rich companies (0077-0090, 0099-0100, and 0184), we see no basis for the view that AG sought Proskauer's advice in furtherance of a fraud or crime. As to the documents relating to the sale of International, however, we conclude that there is a sufficient basis to require the production of documents not dated later than July 20, 1983--the date on which the government first learned of the Sale Agreement--as reflecting the seeking of advice by AG in furtherance of a fraud against the United States. 22 Preliminarily we note that AG's position is that the government has failed to present sufficient evidence to show that a crime has been committed and has failed to show that its power, if any, to reach the assets of International in satisfaction of the contempt penalties has in any way been affected by the sale by AG of its stock in International. There are several flaws in AG's position. First, AG focuses only on the crime portion of the crime and fraud exception. If the advice was sought in furtherance of a fraud that is not necessarily a violation of the criminal code, the communication is nonetheless unprivileged. Further, AG's assumption that the exception applies only if the seeker of the documents proves that a crime (or fraud) has actually taken place is doubly defective. The crime or fraud need not have occurred for the exception to be applicable; it need only have been the objective of the client's communication. And the fraudulent nature of the objective need not be established definitively; there need only be presented a reasonable basis for believing that the objective was fraudulent. In In re John Doe Corp., supra, we referred to the burden on the party seeking to overcome the privilege in terms of showing probable cause to believe that a crime or fraud had been committed and that the communications were in furtherance thereof. 675 F.2d at 491 & n. 7. Other circuits have referred to the burden in terms of the need to make a prima facie showing. See, e.g., In re International Systems, supra, 693 F.2d at 1242; In re Grand Jury Proceedings, 689 F.2d 1351, 1352 (11th Cir.1982); In re Sealed Cases, supra, 676 F.2d at 814-15. As a practical matter, there is little difference here between the two tests. Both require that a prudent person have a reasonable basis to suspect the perpetration or attempted perpetration of a crime or fraud, and that the communications were in furtherance thereof. See In re International Systems, supra, 693 F.2d at 1242 n. 11. Finally, the client need not have succeeded in his criminal or fraudulent scheme for the exception to apply. If a fraudulent plan were ineffective, the client's communications would not thereby be protected from disclosure. 23 The government, in arguing that the documents are within the crime or fraud exception, has hypothesized that they may show that the sale of International was an obstruction of justice in violation of 18 U.S.C. Sec. 1503, or part of a conspiracy to defraud the United States, in violation of 18 U.S.C. Sec. 371. Although we have some doubt that the sale of International is within the purview of either Sec. 1503 or Sec. 371, we think the government has shown adequate reason to believe that the sale was a fraudulent conveyance, in the sense that it was intended to delay or hinder the government's ability to collect the contempt fines that had accrued and that would, in light of AG's intention not to comply with the 1982 subpoena, continue to accrue. 24 Without purporting to decide the matter, we note that we are skeptical of the government's invocation of Sec. 1503 in light of the apparent thrust and judicial interpretation of that section. Section 1503 provides as follows: 25 Whoever corruptly, or by threats or force, or by any threatening letter or communication, endeavors to influence, intimidate, or impede any grand or petit juror, or officer in or of any court of the United States, or officer who may be serving at any examination or other proceeding before any United States commissioner or other committing magistrate, in the discharge of his duty, or injures any such grand or petit juror in his person or property on account of any verdict or indictment assented to by him, or on account of his being or having been such juror, or injures any such officer, commissioner, or other committing magistrate in his person or property on account of the performance of his official duties, or corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be fined not more than $5,000 or imprisoned not more than five years, or both. 26 The section appears to be directed toward attempts to deflect jurors, witnesses, or judicial officials from the proper performance of their duties, rather than generally to reach efforts to frustrate the intended effect of an already rendered judgment. See United States v. Howard, 569 F.2d 1331 (5th Cir.) (Section 1503 does not forbid interferences with doing 'justice,' in the sense of 'fairness' and 'rightness,' although undoubtedly it has an effect to do so. Instead, it forbids interference with the 'administration of justice,' which means judicial procedure.), cert. denied, 439 U.S. 834, 99 S.Ct. 116, 58 L.Ed.2d 130 (1978); Haili v. United States, 260 F.2d 744, 746 (9th Cir.1958) (interference with terms of another's probation held not within Sec. 1503, the court noting that [w]e would be surprised ... if it were held that conduct designed to encourage a prisoner to escape from a penitentiary could be punished under Sec. 1503). Our research has disclosed no case upholding a conviction for violation of Sec. 1503 based on conduct intended to remove an unattached asset from the jurisdiction of the court but not to sway a judicial officer, juror, or witness by threat, promise, or deception. 27 Although the government emphasizes the generality of the phrase due administration of justice and points to dicta equating corruptly with any evil motive or unlawful purpose, the factual matrices of the cases it relies on, support the more limited interpretation. See United States v. Rasheed, 663 F.2d 843, 852 (9th Cir.) (destruction or concealment of documents), cert. denied, 454 U.S. 1157, 102 S.Ct. 1031, 71 L.Ed.2d 315 (1982); United States v. Ogle, 613 F.2d 233, 238 (10th Cir.) (attempted delivery of pamphlet to juror advocating jury nullification), cert. denied, 449 U.S. 825, 101 S.Ct. 87, 66 L.Ed.2d 28 (1980); United States v. Fasolino, 586 F.2d 939 (2d Cir.1978) (per curiam) (defendant asked attorney to exploit his friendship with a federal judge to secure a favorable sentence for defendant's associates); United States v. Haas, 583 F.2d 216, 220 (5th Cir.1978) (influencing grand juror), cert. denied, 440 U.S. 981, 99 S.Ct. 1788, 60 L.Ed.2d 240 (1979); United States v. Fayer, 523 F.2d 661 (2d Cir.1975) (attorney representing targets of a grand jury investigation urged a witness not to talk to the authorities); United States v. Cioffi, 493 F.2d 1111, 1118-19 (2d Cir.1974) (accused urged a witness to invoke the privilege against self-incrimination and punctuated his suggestions with menacing references to the witness's wife), cert. denied, 419 U.S. 917, 95 S.Ct. 195, 42 L.Ed.2d 155 (1975); United States v. Abrams, 427 F.2d 86, 90 (2d Cir.) (attempt to persuade a witness to perjure herself before the Immigration and Naturalization Service), cert. denied, 400 U.S. 832, 91 S.Ct. 64, 27 L.Ed.2d 63 (1970). 28 We also have doubts, on the basis of the present record, as to the validity of the government's resort to Sec. 371. That section reaches conspiracies to defraud the United States, and a common denominator in the cases in which a Sec. 371 conviction has been upheld is the defendant's agreement to make a false representation. See, e.g., Dennis v. United States, 384 U.S. 855, 86 S.Ct. 1840, 16 L.Ed.2d 973 (1966) (false affidavits disavowing Communist affiliation); Hammerschmidt v. United States, 265 U.S. 182, 44 S.Ct. 511, 68 L.Ed. 968 (1924) (false representations to draft-eligible men intended to induce them not to register under the Selective Service Act); United States v. Turkish, 623 F.2d 769 (2d Cir.1980) (false income tax deductions), cert. denied, 449 U.S. 1077, 101 S.Ct. 856, 66 L.Ed.2d 800 (1981); United States v. Porter, 591 F.2d 1048, 1055-57 & nn. 6-7 (5th Cir.1979) (indictment dismissed in absence of showing of agreement to make a false representation). The present record is inadequate to establish a reasonable basis for believing that AG sought Proskauer's advice in furtherance of such a criminal fraud. 29 The record is adequate, however, to support a conclusion that AG's sale of its stock in International may be a fraudulent conveyance within the purview of New York's statutory ban. Section 276 of the New York Debtor and Creditor Law provides that 30 [e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors. 31 N.Y.Debt. & Cred.Law Sec. 276 (McKinney 1945). The fraudulent nature of a conveyance may be inferred from the relationship among the parties to the transaction and the secrecy of the sale, see United Parcel Service v. Jay Norris Corp., 102 Misc.2d 231, 233, 423 N.Y.S.2d 125, 127 (S.Ct.1979), or from inadequacy of consideration and hasty, unusual transactions, see Gafco, Inc. v. H.D.S. Mercantile Corp., 47 Misc.2d 661, 664, 263 N.Y.S.2d 109, 114 (S.Ct.1965) (Inadequacy of consideration, secret or hurried transactions not in the usual mode of doing business, and the use of dummies or fictitious parties are common examples of 'badges of fraud.' ). 32 It appears to us that the government has made a prima facie showing that the sale by AG was fraudulent within the meaning of Sec. 276. Without having resort to the documents themselves, the government has demonstrated that the sale of International was accomplished by a two-page document having few of the trappings normally accompanying a transaction of such magnitude. The transaction was hardly between strangers; the purchaser was AG's chief executive officer. And the adequacy of the compensation cannot be evaluated: the purchase price remains undetermined. All of these factors suggest a haste from which one might infer that the timing of the sale was of the essence to AG, an inference supported by the fact that the Sale Agreement, itself dated July 7, 1983, stated that the effective date of the sale was June 30. Thus from all appearances, a hasty transaction was put together to be effective on the day after the stay was lifted from the collection of the contempt fines from AG. AG informed the government that it had no intention of paying the fines voluntarily, and we are persuaded that these factors suffice for a prima facie showing that AG intended the sale of its stock in International to hinder or delay the government's collection of moneys owing or about to be due from it. Hence there is a sufficient basis for inferring that the advice sought from Proskauer in connection with the proposed sale of International was sought in connection with a fraud. 33 Advice sought in furtherance of a future or ongoing fraud is unprivileged; communications with respect to advice as to past or completed frauds are within the privilege. Plainly any documents reflecting communications made prior to the July 7, 1983 date of the Sale Agreement are thus unprotected. In addition, given the nature of the prima facie fraudulent conduct here, i.e., the intent to hinder or delay the government's collection of moneys owing to it, we believe it a reasonable inference that nondisclosure of the fraudulent conveyance was an integral part of AG's ostensible plan to prevent collection. Accordingly, we think it appropriate to construe, for these purposes, communications prior to the government's discovery (inadvertently on July 20) to have been in furtherance of an ongoing fraud. See In re John Doe Corp., supra, 675 F.2d at 491 (subsequent communications in cover-up of criminal scheme excluded from the privilege). 34 On this basis, we conclude that documents that do not bear a date later than July 20, 1983, are excluded from privileged status to the extent that they refer or relate to the sale of International. These are the documents numbered 0095-0097, 0101-0125, 0143-0147, 0164-0166, 0179-0183, and 0193-0196. Documents relating to the sale and dated after July 20, 1983 (0167-0178 and 0189-0192) are within the scope of the privilege.