Opinion ID: 677013
Heading Depth: 2
Heading Rank: 1

Heading: The Application of the Crime-Fraud Exception

Text: 27 To overcome the privilege asserted by the appellants, the government had to make a prima facie showing that the communications sought fell within the crime-fraud exception. In order to make a prima facie showing that the crime fraud exception vitiated the asserted privileges, the government made an in camera submission consisting of testimony presented to the grand jury. The court reviewed the government's submission along with a submission by the appellants summarizing the contents of the requested documents. On that basis, the district court decided that the exception was applicable to vitiate the privilege pertaining to several of the documents. 28 We will not reverse the district court's determination that the government made a prima facie showing of the appellants' crime or fraud absent a clear showing of abuse of discretion. In re Grand Jury Subpoena, 884 F.2d at 127. 29 The appellants have argued that the procedure was unlawful in that the district judge denied the appellants their due process rights by examining the government's supporting evidence in camera and by refusing to allow the appellants any opportunity to refute the government's alleged showing of crime or fraud. Additionally, the appellants have claimed that the district court misapplied the in camera procedures established by United States v. Zolin, 491 U.S. 554, 565-74, 109 S.Ct. 2619, 2627-32, 105 L.Ed.2d 469(1989). 15 1. Procedural Propriety Under Zolin 30 United States v. Zolin, 491 U.S. 554, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989), addressed the question of whether a court may examine allegedly privileged documents to determine whether the crime-fraud exception vitiates an asserted privilege. The party asserting the privilege in Zolin contended that the party invoking the crime-fraud exception had to establish the existence of the crime or fraud through the use of independent evidence. The Supreme Court rejected that argument, and held that the documents themselves could be examined to make the necessary determination. 31 Zolin also held that the party invoking the crime-fraud exception must make a threshold showing that in camera review is appropriate before a court may examine, in camera, the allegedly privileged documents that could potentially demonstrate the existence of the crime or fraud. 32 Before engaging in in camera review [of allegedly privileged documents] to determine the applicability of the crime-fraud exception, 'the judge should require a showing of a factual basis adequate to support a good faith belief by a reasonable person,' ... that in camera review of the materials [at issue] may reveal evidence to establish the claim that the crime-fraud exception applies. 33 Id. at 572, 109 S.Ct. at 2631. 34 Zolin is not precisely analogous to the case before us because the district court in the instant case did not conduct an in camera review of the requested documents. 16 The government made an in camera submission to the district court in order to demonstrate a factual basis adequate to support its good-faith belief that the requested materials would reveal evidence establishing the applicability of the crime-fraud exception, i.e., to make a prima facie showing. 35 Zolin established the threshold showing required prior to a court's in camera review of allegedly privileged documents. Zolin did not provide a general rule applicable to all in camera reviews of any materials submitted by parties. The appellants have misconstrued and misapplied the rule established in Zolin by contending that the government was required to demonstrate an adequate factual basis to support its belief in the applicability of the crime-fraud exception prior to making any in camera submission to the district court. Zolin does not proscribe all in camera reviews of in camera submissions absent the requisite threshold showing. Rather, Zolin proscribes in camera review of the documents that are the subject of the subpoena and the asserted privilege in the absence of the requisite threshold showing. Zolin does not provide any guidance with respect to the in camera nature of the government's initial ex parte submission to the district court. Indeed, Fourth Circuit precedent has established the validity of such in camera procedures. See In re Grand Jury Proceedings, 674 F.2d at 310; In re Grand Jury Subpoena, 884 F.2d at 126-27. 36 After conducting an in camera examination of the government's ex parte submission and determining that the government had made the required threshold showing, the district court decided that the crimefraud exception had been established and that an actual in camera review of the allegedly privileged documents was unnecessary. The government's submission had proven to the court's satisfaction that the crime-fraud exception vitiated the privileges claimed by the appellants. Under Zolin, the decision to review the allegedly privileged documents in camera is one within the district court's discretion: Once that [threshold] showing is made, the decision whether to engage in in camera review rests in the sound discretion of the district court. Zolin, 491 U.S. at 572, 109 S.Ct. at 2631. In Zolin, the Supreme Court noted that a district court is free to defer an in camera review if it concludes that additional evidence in support of the crime-fraud exception may be available that is not privileged. Id. Here, the district court had access to information obtained through the grand jury proceedings as a result of the government's in camera submission that made it unnecessary for him to review the documents. In addition, the appellants submitted summaries of the contested documents in camera . The district court made a decision that the exception applied on the basis of both the government's submission and the appellants' in camera submission and exercised its discretion not to review the actual documents. 2. Due Process Argument 37 We have expressly held that a court's in camera examination of evidence supporting the applicability of the crime-fraud exception is not violative of due process. In re Grand Jury Proceedings, 674 F.2d at 310 (holding that the district court's in camera examination of evidence did not violate due process). In In re Grand Jury Subpoena, 884 F.2d at 126-27, the appellant asserted that the court's in camera procedure violated his due process rights because it did not give him an opportunity to challenge the validity of the evidence. We held that an in camera review of supporting evidence is not violative of due process, citing a Second Circuit case in support of that proposition, In re John Doe Corp., 675 F.2d 482 (2d Cir.1982) (holding in camera proceedings appropriate to protect the government's interests in secrecy when the government did not intend to reveal the grand jury materials to the witness). 38 The appellant in Grand Jury offered an earlier Second Circuit case, In re Taylor, 567 F.2d 1183 (2d Cir.1977), in support of his due process argument. In Taylor, the court set forth a balancing test, weighing the government's interests in secrecy against the private interests affected by the court's in camera proceedings. Grand Jury, 884 F.2d at 126. In Grand Jury, we observed that John Doe limited Taylor's holding. The John Doe court noted that, in Taylor, the government's interests in secrecy were minimal because the government intended to disclose the grand jury materials. The John Doe court stated that in instances where the government did not intend to reveal the grand jury materials to the witness, in camera proceedings were appropriate to protect the government's interests in secrecy. Grand Jury, 884 F.2d at 126. 39 In the instant case, the government has alleged that it continues to take every precaution to preserve the secrecy of the on-going investigation. Although the grand jury that issued the subpoenas at issue in the present appeal has expired, the government has formally requested that another grand jury continue the investigation. Based on the materials included in the government's in camera submission, a copy of which has been submitted to us, there is no reason to doubt the veracity of the government's characterization of the investigation as ongoing. Considering the necessity of secrecy, the district court's decision to review the government's submission in camera was appropriate. 40 The appellants claim that they did not have access to the allegations contained in the government's in camera submission, and that they were not given an opportunity to refute those allegations. The requirement that the party invoking the crime-fraud exception make a prima facie showing of such crime or fraud would seem to anticipate a rebuttal from the party asserting the privilege. 41 In Duplan Corp. v. Deering Milliken, Inc., 540 F.2d 1215 (4th Cir.1976), the appellants asserted that the documents they sought were discoverable under the crime-fraud exception to Rule 26(b)(3) governing opinion work product. We did not reach the question of whether a crime-fraud exception to the opinion work product privilege existed in that case because we found that the appellants invoking the exception had not made a prima facie showing that the appellees had violated the antitrust laws. We implicitly held that a prima facie showing of fraud or crime would be a prerequisite to an invocation of the crime-fraud exception if such an exception did exist. 17 We wrote: 42 We begin with the observation that while a prima facie showing need not be such as to actually prove the disputed fact, it must be such as to subject the opposing party to the risk of non-persuasion if the evidence as to the undisputed fact is left unrebutted. ... While such a showing may justify a finding in favor of the offering party, it does not necessarily compel such a finding. 43 Duplan, 540 F.2d at 1220 (citations omitted). 44 In Glaxo, Inc. v. Novopharm Ltd., 148 F.R.D. 535 (E.D.N.C.1993), the district court applied the Duplan standard to a case in which the defendant, Novopharm, moved to compel discovery of documents withheld pursuant to an assertion of attorney-client privilege, and to vitiate the attorney-client privilege for certain documents that were allegedly prepared by Glaxo employees in furtherance of a fraud on the patent office. In order to pierce the protection of the attorney-client privilege, Novopharm must make a prima facie showing of fraud, and must show that the communications for which discovery is sought were made in furtherance of the fraud. Id. at 541. To make a prima facie showing of misrepresentation, Novopharm did not have to actually prove the disputed fact but had to submit evidence that would subject the opposing party to the risk of nonpersuasion if the evidence as to the disputed fact [wa]s left unrebutted. Id. at 544 (citing Duplan). The evidence had to be sufficient to require the defendant to  'come forward with [an] explanation.... If the court finds the explanation satisfactory, the privilege remains.'  Id. (citing In the Matter of Feldberg, 862 F.2d 622, 625 (7th Cir.1988)). In that case, the court held that, although Novopharm presented enough evidence to require Glaxo to present an explanation, Glaxo's explanation was sufficient to permit the privilege to stand. Id. 45 The obligation to come forward with an explanation and the right to an opportunity to refute the government's allegations of fraud is the strongest argument that the appellants have asserted. The appellants in the instant case claim that they, unlike the appellants in Glaxo, did not have an opportunity to refute or explain the charges contained in the government's in camera submission. The appellants have argued that, because the court made the crime-fraud exception determination solely on the basis of the government's in camera submission, the appellants were unable to come forward with an explanation because they were kept ignorant of the evidence that purportedly established the fraud. 46 All of our prior decisions indicate that the crime-fraud exception can be invoked on the basis of a prima facie showing of fraud or crime. We do not require absolute proof of fraud or crime. A prima facie showing, however, does seem to contemplate an opportunity to rebut, or a shifting of the burden. 18 Initially, the party asserting a privilege bears the burden of establishing that privilege. Likewise, the party invoking the crime-fraud exception to the privilege bears the initial burden of making a prima facie showing of fraud or crime. The crime-fraud standard does seem to contemplate the possibility that the party asserting the privilege may respond with evidence to explain why the vitiating party's evidence is not persuasive. In the instant case, the appellants have argued that they did not have the opportunity to respond to the government's crime-fraud evidence. The district court's order does not state the nature of the crime or fraud that provided the basis for the vitiation of the privileges because that information was presented ex parte. 19 Appellants assert that the procedures used by the district court have left them completely unable to answer or to refute the government's allegations. 47 However appealing it may sound, we have rejected such an argument in In re Grand Jury Subpoena, 884 F.2d at 126-28. In Grand Jury, the government moved the court to compel an attorney, Doe, to testify, asserting that the information at issue was not privileged because it fell within the crime-fraud exception to the attorney-client privilege. The client intervened and asserted the attorney-client privilege to prevent the attorney from testifying. The court convened the parties for a hearing and excused Doe and his counsel as well as the client's counsel from the hearing in order to receive the government's proffer of evidence on the crime-fraud exception in camera. 48 As in the instant case, the government's proffer was made in camera because it concerned matters subject to an on-going investigation before the grand jury. On the basis of that proffer, the court found that the government had established a prima facie case that Doe was used by the client to further a criminal scheme and that the testimony sought was highly relevant to the on-going investigation before the grand jury. The client or intervenor specifically argued that such a procedure denied him due process because it did not give him an opportunity to challenge the validity of the evidence. Grand Jury, 884 F.2d at 126. As noted above, we held that in camera proceedings in the context of grand jury proceedings and on-going investigations requiring secrecy are not violative of due process. Grand Jury, 884 F.2d at 126-27. 20 In the instant case, as in Grand Jury, the government has the right to preserve the secrecy of its submission because it pertains to an on-going investigation. 49 The district court's decision to review the government's and the appellants' submissions in camera was an appropriate exercise of discretion, United States v. Zolin, 491 U.S. 554, 572, 109 S.Ct. 2619, 2631, 105 L.Ed.2d 469 (1989), and did not violate the appellants' due process rights. Under our precedents, the district court's procedures and ultimate decision in the instant case should be upheld on the basis of the government's need for secrecy. 50