Merco Group Of The Palm Beaches, Inc. v. John G. McGregor, David Ghysels, David Sarag , 2014 Fla. App. LEXIS 11602 ( 2014 )

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
July Term 2014
MERCO GROUP OF THE PALM BEACHES, INC.,
Petitioner,
v.
JOHN G. MCGREGOR, DAVID GHYSELS, DAVID SARAGA, HARJAS
CHATWAL, MARK BENNETT, KEVIN R. MACKEY, MICHAEL L.
MACKEY, CYNTHIA RAFTIS, ANASTASIA RAFTIS, SPIRO RAFTIS,
GREGORY PILL, RICHARD HOFFMAN, SHARON HOFFMAN, BRUCE
PINCHERON, THOMAS FASSO, JR., DANIEL KOHN, BARBARA KOHN,
DIANE MALHORTRA, VIKRANT MALHORTA, and MARUICE BASSALI,
Respondents.
No. 4D14-696
[July 30, 2014]
Petition for writ of certiorari to the Circuit Court for the Fifteenth
Judicial Circuit, Palm Beach County; Peter D. Blanc, Judge; L.T. Case No.
562006CA011826MB.
Geoffrey B. Marks of Billbrough & Marks, P.A., Coral Gables, for
petitioner.
Michael A. Weeks of Weeks & Macon, LLP, West Palm Beach, for
respondents.
WARNER, J.
Petitioner, Merco Group of the Palm Beaches, Inc., defendant below,
seeks certiorari review of the trial court’s order compelling production of
various documents to respondent, John G. McGregor, David Ghysels, et
al., p laintiffs below (“plaintiffs”). Petitioner claims that the court ordered
production of attorney-client privileged documents based upon the crime-
fraud exception without affording petitioner an evidentiary hearing to
explain the prima facie case established by plaintiffs. We agree that the
court departed from the essential requirements of law by failing to conduct
an evidentiary hearing on the issue.
Seeking discovery in aid of execution of plaintiffs’ judgment against
Merco, plaintiffs served third-party subpoenas for production of documents
on Merco’s lawyers. The subpoenas sought documents related to the
treatment and the location of certain funds, which were deposited into
Merco’s lawyers’ trust account.
Merco filed objections to the subpoenas, raising multiple grounds,
including attorney-client privilege. In addressing the objections at a
hearing, the court overruled them except for the attorney-client privilege.
It ordered the production of the documents for an in camera inspection,
directing Merco to provide a privilege log specifying the privilege claim as
to each document. The court held an additional hearing to clarify the
relevance of some documents. Thereafter, and without further hearing,
the court entered an order requiring production of the documents on the
grounds that the record showed prima facie evidence that Merco “ used
its attorney/client relationship with [its lawyers] to promote an intended
or actual fraud on the Plaintiffs and upon the Court in an effort to conceal
assets” which were otherwise discoverable. The court ordered production
of the documents.
Merco petitions for certiorari to quash this order, claiming that the court
departed from the essential requirements of law by failing to provide it with
an evidentiary hearing to offer its reasonable explanation of its conduct or
communications. We agree that due process requires an evidentiary
hearing when the crime-fraud exception is invoked. See BNP Paribas v.
Wynne, 967 So. 2d 1065, 1068 (Fla. 4th DCA 2007) (“[A]pplying the crime-
fraud exception without an evidentiary hearing is a departure from the
essential requirements of law.”).
In American Tobacco Co. v. State, 697 So. 2d 1249 (Fla. 4th DCA 1997),
we adopted a formal procedure for determining whether the crime-fraud
exception applies. Significantly, we held that evaluating the exception
requires an adversarial proceeding that would allow both parties to
present evidence and argument on the issue. Id. at 1255-56.
Following American Tobacco, in BNP Paribas we explained that:
The party invoking the crime-fraud exception has the
initial burden of presenting prima facie evidence of the
existence of the exception. [Am. Tobacco, 697 So. 2d] at
1256. The burden then shifts to the party asserting the
attorney-client privilege to show, by a preponderance of
the evidence, that there is a reasonable explanation for the
conduct or communication. Id.2
If the court accepts the explanation as sufficient
to rebut the evidence presented by the party
opposing the privilege, then the privilege
remains. However, if after considering and
weighing the explanation the court does not
accept it, then a prima facie case exists as to the
exception, and the privilege is lost. Thus, the
trial court must consider the evidence and
argument rebutting the existence of the crime-
fraud exception and must weigh its sufficiency
against the case made by the proponent of the
exception.
Id. What is apparent from American Tobacco is that an
evidentiary hearing is necessary before the court can find
the crime-fraud exception to the attorney-client privilege.
Id. at 1067-68.
This evidentiary hearing should occur after the court determines that
the prima facie showing of the crime-fraud exception has been
established. In Butler, Pappas, Weihmuller, Katz, Craig, LLP v. Coral Reef
of Key Biscayne Developers, Inc., 873 So. 2d 339, 342 (Fla. 3d DCA
2003), the Third District explained that the court can review attorney-
client communications in camera to determine the applicability of the
crime-fraud exception, and its decision to conduct such a review lies
entirely within its sound discretion. It added that “[i]f the trial court
determines that the crime-fraud exception applies, the client is entitled
to provide a reasonable explanation for the communication or its conduct
at an evidentiary hearing[.]” Id. (citing First Union Nat’l Bank v. Turney,
824 So. 2d 172, 183 (Fla. 1st DCA 2001)). Thus, Merco was entitled to
an evidentiary hearing after the court conducted its in camera review and
determined that the exception applied.
Because the trial court failed to afford Merco an opportunity through
an evidentiary hearing to explain the documents and why the fraud
exception should not apply, it departed from the essential requirements
of law. We thus quash the order and direct that the trial court conduct
a hearing pursuant to American Tobacco Co., BNP Paribas, and Butler
Pappas.
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DAMOORGIAN, C.J., and KLINGENSMITH, J., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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