Buttonwood Tree Value Partners, L.P. v. R.L. Polk & Co., Inc.

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: November 1, 2017
Date Decided: January 10, 2018
R. Bruce McNew, Esquire David A. Dorey, Esquire
Cooch & Taylor, P.A. Blank Rome LLP
1000 West Street, 10th Floor 1201 North Market Street, Suite 800
Wilmington, DE 19801 Wilmington, DE 19801
Re: Buttonwood Tree Value Partners, L.P., et al. v. R.L. Polk & Co.,
Inc., et al., Civil Action No. 9250-VCG
Dear Counsel:
It bears repeating what this Court has stated before: that Delaware Rule of
Evidence 502(b)—codifying the attorney-client privilege—stands in contrast to the
bulk of the Rules of Evidence. The latter are largely designed to promote the search
for truth with respect to the matter litigated. Rule 502, by contrast, protects attorney-
client privilege in a way that is, in a narrow sense, inimical to that goal. In a broader
sense, of course, the rule promotes justice by allowing free communication between
client and counsel, a right which the Rules (and common sense) hold superior, in
most instances, to the incremental advantage in the search for truth to be gained from
invading the privilege.
Here, the Plaintiffs move for an order to compel production despite the
privilege. There are situations where the search for truth or other meritorious
interests are so compromised by maintenance of the attorney-client privilege that
justice requires that the privilege yield. Strait is the gate and narrow the road to an
order vitiating the privilege, however. The Plaintiffs rely on the so-called Garner1
and crime-fraud exceptions to the application of the privilege; for the reasons below,
I deny the Motion to Compel to the extent that it relies on those exceptions.
I. BACKGROUND
In this matter, Plaintiffs Buttonwood Tree Value Partners, L.P. and Mitchell
Partners L.P. allege that they received inadequate consideration from R.L. Polk &
Co. Inc. for stock they sold to Polk as part of a 2011 self-tender.2 According to the
Plaintiffs, about two years after these transactions, members of the Polk family,
which collectively held over ninety percent of Polk’s common stock, sold the
company at a premium representing three times the self-tender price. Between the
self-tender and the sale, moreover, Polk stockholders received dividends amounting
to over one-third of the self-tender price. And, in describing the self-tender to its
stockholders, Polk allegedly failed to disclose several material facts, including that
the Polk family had been considering a sale of the company for some time. The crux
of the Complaint is that the Polk family—aided and abetted by non-Polk family
directors and Polk’s lawyers and financial advisors—breached its fiduciary duties
1
Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970).
2
A more detailed description of the allegations in the Complaint can be found in my decision on
the Defendants’ Motions to Dismiss. Buttonwood Tree Value Partners, L.P. v. R.L. Polk & Co.,
Inc., 2017 WL 3172722, at *1–5 (Del. Ch. July 24, 2017).
2
by engaging in a scheme to enrich itself at the expense of Polk’s minority
stockholders.
On July 24, 2017, I issued a Memorandum Opinion holding that the
Complaint stated a claim against the Polk family for breach of fiduciary duties, but
that it failed to do so as to the non-Polk family directors or Polk’s law firm and
financial advisor.3 Before me now is the Plaintiffs’ Motion to Compel, which seeks
production of documents that the Defendants have withheld on the basis of attorney-
client privilege and the work-product doctrine. The Plaintiffs argue that several of
the entries on the privilege logs produced by the Defendants are deficient, and that
in any event, all of the documents withheld as privileged should be produced under
the Garner and crime-fraud exceptions. At oral argument on the Motion, I indicated
that I would issue a written ruling on the applicability of these two exceptions to the
documents in question. My decision follows.
3
Id. at *6–11. At oral argument on the Motions to Dismiss, I also dismissed Polk itself and two
Polk-related entities from this action.
3
II. ANALYSIS
A. The Attorney-Client Privilege and the Garner Exception
The attorney-client privilege promotes justice by encouraging candor between
clients and their attorneys. 4 The privilege is codified in Delaware Rule of Evidence
502(b), which provides that
[a] client has a privilege to refuse to disclose and to prevent any other
person from disclosing confidential communications made for the
purpose of facilitating the rendition of professional legal services to the
client (1) between the client or the client’s representative and the
client’s lawyer or the lawyer’s representative, (2) between the lawyer
and the lawyer’s representative, (3) by the client or the client’s
representative or the client’s lawyer or a representative of the lawyer to
a lawyer or a representative of a lawyer representing another in a matter
of common interest, (4) between representatives of the client or
between the client and a representative of the client, or (5) among
lawyers and their representatives representing the same client.5
The attorney-client privilege is critical to “the proper administration of justice,” but
it is not absolute. 6 There are several exceptions to the privilege, some of which are
codified in Delaware Rule of Evidence 502(d). 7
The Garner exception is a judicially created doctrine founded on the
recognition that “where the corporation is in suit against its stockholders on charges
of acting inimically to stockholder interests, protection of those interests as well as
4
Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1278 (Del.
2014); accord Zirn v. VLI Corp., 621 A.2d 773, 781 (Del. 1993) (“The attorney-client privilege is
intended to encourage full and frank communication between clients and their attorneys.”).
5
D.R.E. 502(b).
6
Salberg v. Genworth Fin., Inc., 2017 WL 3499807, at *3 (Del. Ch. July 27, 2017).
7
See D.R.E. 502(d) (enumerating exceptions to the attorney-client privilege).
4
those of the corporation and of the public require that the availability of the privilege
be subject to the right of the stockholders to show ‘good cause’ why the privilege
should not apply.”8 A corporation invokes the attorney-client privilege through its
officers and directors; those individuals owe a duty to the stockholders to exercise
the privilege in the best interests of the corporation. 9 On the other hand,
“management has a legitimate concern that its confidential communications should
be allowed to remain confidential.”10 Thus, the Garner exception balances “the
privilege’s purpose of encouraging open communication between counsel and client
[against] . . . the right of a stockholder to understand what advice was given to
fiduciaries who are charged with breaching their duties.”11
Garner provides the following non-exhaustive list of factors a court may
consider in deciding whether the exception should apply:
[1] the number of shareholders and the percentage of stock they
represent; [2] the bona fides of the shareholders; [3] the nature of the
shareholders’ claim and whether it is obviously colorable; [4] the
apparent necessity or desirability of the shareholders having the
information and the availability of it from other sources; [5] whether, if
the shareholders’ claim is of wrongful action by the corporation, it is of
action criminal, or illegal but not criminal, or of doubtful legality; [6]
whether the communication related to past or to prospective actions; [7]
whether the communication is of advice concerning the litigation itself;
8
Grimes v. DSC Commc’ns Corp., 724 A.2d 561, 568 (Del. Ch. 1998) (quoting Garner, 430 F.2d
at 1103–04).
9
Zirn, 621 A.2d at 781.
10
Metro. Bank & Trust Co. v. Dovenmuehle Mortg., Inc., 2001 WL 1671445, at *2 (Del. Ch. Dec.
20, 2001).
11
de Vries v. Diamante Del Mar, L.L.C., 2015 WL 3534073, at *4 (Del. Ch. June 3, 2015), adopted
by 2015 WL 3902623 (Del. Ch. June 18, 2015).
5
[8] the extent to which the communication is identified versus the extent
to which the shareholders are blindly fishing; [9] the risk of revelation
of trade secrets or other information in whose confidentiality the
corporation has an interest for independent reasons.12
Garner itself does not say that certain factors are more important than others, but
Delaware courts have typically accorded “particular significance” to three.13 “They
are: (1) the colorability of the claim; (2) the extent to which the communication is
identified versus the extent to which the shareholders are blindly fishing; and (3) the
apparent necessity or desirability of shareholders having the information and
availability of it from other sources.”14 I view the application of these factors thusly:
The first two are gatekeepers; they function as sieves to strain out frivolous attempts
to vitiate the privilege. Those matters clearing that gate are subject to a balancing
test to see whether the interest in discovery, or that of maintaining the privilege, is
paramount.
Our Supreme Court has described the Garner exception as “narrow, exacting,
and intended to be very difficult to satisfy.”15 A stockholder-plaintiff seeking to
defeat the privilege under Garner bears the burden of establishing good cause to do
12
Garner, 430 F.2d at 1104.
13
Salberg, 2017 WL 3499807, at *5 (quoting In re Fuqua Indus. Inc., 2002 WL 991666, at *4
(Del. Ch. May 2, 2002)).
14
Id. (internal quotation marks omitted).
15
Wal-Mart Stores, Inc., 95 A.3d at 1278.
6
so.16 And Garner applies in “plenary stockholder/corporation proceedings” as well
as Section 220 actions. 17
The Defendants note that, unlike the typical Garner plenary-action
proceeding, this matter does not involve a derivative action on behalf of the
corporation. They point out that the justification for Garner applies with the most
force where defendant corporate actors assert the privilege on behalf of the very
entity that the plaintiffs purport to represent derivatively, in which case the assertion
of privilege on behalf of the corporation and its principals may be inimical to the
corporate interest. Here, the Plaintiffs are former stockholders, asserting a direct
claim that a class of stockholders was injured by corporate fiduciaries. The
Defendants argue that, in such a case, Garner is inapplicable. Logically, it appears
to me that the doctrine is applicable, but that the nature of the action must be
accounted for in the balance of interests that Garner requires.18 I need not so hold,
16
Salberg, 2017 WL 3499807, at *4.
17
Wal-Mart Stores, Inc., 95 A.3d at 1278.
18
See Fausek v. White, 965 F.2d 126, 131 (6th Cir. 1992) (“The fact that shareholder-plaintiffs
seek recovery for themselves only may render their motives more suspect than if they bring a
derivative action. Nevertheless, this is just one factor to be considered in determining whether
good cause exists to deny the application of the privilege in a particular case.”). On at least one
occasion, this Court has applied Garner in the context of a direct claim for breach of fiduciary
duties. In re Freeport-McMoRan Sulphur, Inc. S’holder Litig., 2005 WL 5756737, at *4 (Del. Ch.
Jan. 26, 2005); see also Krasner v. Moffett, 826 A.2d 277, 279 (Del. 2003) (describing the
underlying case in In re Freeport-McMoran Sulphur, Inc. Shareholder Litigation as “a stockholder
class action [that] . . . alleges that a majority of the directors recommending a merger to the
stockholders had disabling conflicts of interest”). And in Garner itself, where the plaintiffs
brought direct and derivative claims, the court noted that its decision did not depend on whether
the derivative claim was “in the case or out.” 430 F.2d at 1097 n.11.
7
however, because, assuming the doctrine applies, the Plaintiffs have nonetheless
failed to demonstrate that their Motion to Compel should be granted.
The parties focus on the three Garner factors traditionally emphasized by
Delaware courts. The Plaintiffs argue that their fiduciary duty claim is colorable,
that they are not engaged in a fishing expedition in seeking production of the
privileged documents, and that the information contained in those documents is both
necessary to prosecute the action and unavailable from other sources. The
Defendants disagree. I address each of these factors in turn.
The Plaintiffs’ claim for breach of fiduciary duty against the Polk family is
colorable. That claim survived a motion to dismiss brought by the Defendants. I
found it reasonably conceivable that the Polk family, acting as a control group, stood
on both sides of the 2011 self-tender, and that therefore entire fairness applied. I
then held that the Complaint adequately alleged that the self-tender was not entirely
fair to the Plaintiffs. In making that determination, I relied on the allegation that
stockholders “who tendered forwent, as a result, extraordinary dividends amounting
to over one-third of the sale price they received, together with merger consideration
in an amount three times the Self-Tender price, within a period of around two
years.”19 Contrary to the Defendants, this Court has held that a claim is colorable
19
Buttonwood Tree Value Partners, L.P., 2017 WL 3172722, at *7.
8
under Garner if it has survived a motion to dismiss.20 Thus, this factor favors
disclosure of the privileged documents.
The next factor—“the extent to which the communication is identified versus
the extent to which the shareholders are blindly fishing”21—also supports disclosure.
The Plaintiffs seek production of about 1200 documents. That is a relatively large
number of documents, but they relate to advice Polk sought in connection with the
sale of the company, the 2011 self-tender, and various restructuring options that were
considered around this time. The Plaintiffs’ surviving claim boils down to the
assertion that the Polk family breached its fiduciary duties by initiating a self-tender
20
See In re Freeport-McMoRan Sulphur, Inc. S’holder Litig., 2005 WL 5756737, at *4 (holding
that Garner applies because, among other things, the plaintiffs’ “claim for breaches of fiduciary
duty is colorable, especially given the earlier litigation reversing the motion to dismiss”); Oliver
v. Boston Univ., 2004 WL 944319, at *3 & n.13 (Del. Ch. Apr. 26, 2004) (finding that the plaintiffs
had a colorable claim under Garner in light of the denial of a motion to dismiss); In re Fuqua
Indus. Inc., 2002 WL 991666, at *4 (“[T]he survival of one of the plaintiffs’ derivative claims after
the 1997 motion to dismiss decision established that at least one colorable claim had been stated.
. . .” (footnote omitted)); In re Dairy Mart Convenience Stores, Inc., 1997 WL 732467, at *2 (Del.
Ch. Nov. 13, 1997) (“First, under Wolfinbarger, it is clear that Plaintiffs have asserted a colorable
claim of entrenchment, a claim that was carefully scrutinized by Chancellor Allen and survived
Defendants’ motion to dismiss.”). Courts in other jurisdictions have held that a claim is colorable
for purposes of Garner if it has survived a motion to dismiss. See, e.g., Fox v. Riverview Realty
Partners, 2013 WL 12306483, at *3 (N.D. Ill. Dec. 10, 2013) (applying Garner on the grounds
that, among other things, the plaintiffs “have asserted colorable claims, which have survived a
motion to dismiss”); In re Gen. Instrument Corp. Sec. Litig., 190 F.R.D. 527, 529 (N.D. Ill. 2000)
(“Here, it must be said that plaintiffs’ derivative action is at least a colorable claim; it has withstood
a motion to dismiss.”); In re Pfizer Inc. Sec. Litig., 1993 WL 561125, at *13 (S.D.N.Y. Dec. 23,
1993) (“In terms of the second category, that plaintiffs’ underlying suit presents at least a colorable
claim is established by Judge Keenan’s December 21, 1990 denial of a motion to dismiss for failure
to state a claim . . . .”); In re Bairnco Corp. Sec. Litig., 148 F.R.D. 91, 99 (S.D.N.Y. 1993)
(“Plaintiffs’ securities fraud allegations are of colorable merit, with the surviving claim . . . having
withstood a motion to dismiss.”).
21
Garner, 430 F.2d at 1104.
9
without informing Polk’s minority stockholders that it intended to put the company
up for sale, among other things. And part of the Plaintiffs’ theory is that at least one
of the restructuring options—converting the company to Subchapter S status—was
simply “a ruse to eliminate minority shareholders.”22 The documents sought, then,
are tailored to the Plaintiffs’ allegations, and there is no indication that “production
will . . . be overly burdensome or require additional searches by the company.”23
While these two factors support disclosure, they mean simply that the
Plaintiffs have cleared the initial hurdle; my decision then turns on the question
whether the information contained in the privileged documents is both necessary and
unavailable from other sources.24 This Court has held that information found in
privileged communications is available from other sources when depositions may
allow a stockholder-plaintiff to obtain the information without intruding on the
attorney-client privilege. 25 That is the case here. The Plaintiffs have yet to depose
22
Pls.’ Opening Br. 7.
23
de Vries, 2015 WL 3534073, at *8.
24
See Bray v. Okla. Publ’g Co., 1990 WL 108313, at *2 (Del. Ch. July 26, 1990) (noting that,
while the plaintiffs had asserted a colorable claim and were not engaged in a fishing expedition,
“these factors [are not] sufficient to establish good cause. One of the more significant factors in
the balancing test, as I see it, is the necessity of the information and its availability from other
sources. Based upon my in camera review of the documents, I am satisfied that the Intervenor can
obtain the information in the privileged documents from other sources”); see also RMED Int’l, Inc.
v. Sloan’s Supermarkets, Inc., 2003 WL 41996, at *5 (S.D.N.Y. Jan. 6, 2003) (“The apparent
necessity of the information and its availability from other sources is considered the most
important factor and is stressed by courts when undertaking the Garner analysis.” (collecting
cases)).
25
See In re Fuqua Indus., Inc. S’holders Litig., 1999 WL 959182, at *3 (Del. Ch. Sept. 17, 1999)
(“I am not satisfied that Plaintiffs have exhausted every available method of obtaining the
information they seek; further depositions may provide the answers they seek without infringing
10
a single party witness, though they have deposed non-party Jeff Risius, one of Polk’s
financial advisors. And there is no reason to believe that depositions of the
Defendants (and other fact witnesses) would fail to reveal non-privileged
information about the Polk family’s plans regarding the self-tender, the sale of the
company, and various restructuring possibilities. That is the information the
Plaintiffs need to prove their allegation that the Polk family hatched a scheme to
benefit itself to the detriment of the minority stockholders. This factor therefore tips
against disclosure of the privileged documents.
The Plaintiffs suggest that the documents they seek will help them prepare for
the depositions they plan to take, and that in any case, the Defendants may simply
lie about the events in question when they are deposed. But that is not enough to
show good cause under Garner. Privileged documents will often be useful to
attorneys preparing to depose witnesses, and there is always the concern that some
witnesses will be less than truthful during questioning. The question is not whether
it is easier to obtain the information at issue from privileged documents than from
upon the attorney-client privilege.”). True, in Lee v. Engle, 1995 WL 761222, at *3 (Del. Ch. Dec.
15, 1995), this Court held that Garner was satisfied where “[t]he only possible alternative to th[e]
information [in the privileged documents] may be an avoidable, unnecessarily cumbersome and
expensive route of deposing in detail the individual directors.” But at least some of the documents
in question there were not privileged in the first place, because the attorney who received and
reviewed them was not acting as legal counsel when doing so. Id. And non-Delaware authority
supports the proposition that a stockholder-plaintiff cannot satisfy Garner simply by asserting that
the information sought is unavailable elsewhere, especially when the plaintiff has “made no effort
to obtain [the] information . . . from other non-privileged sources.” Ward v. Succession of
Freeman, 854 F.2d 780, 786 (5th Cir. 1988).
11
depositions of fact witnesses, or whether access to privileged communications will
make it easier to take depositions. If the Court were to adopt that test, Garner’s
scope would expand significantly, an outcome contrary to our Supreme Court’s
admonition that the exception is “narrow, exacting, and intended to be very difficult
to satisfy,”26 and inimical to the salutary protection the privilege provides. Instead,
the question is whether the Plaintiffs “have exhausted every available method of
obtaining the information they seek.”27 This the Plaintiffs have not done.
Accordingly, I hold that the Garner exception does not apply to the documents
withheld as privileged by the Defendants.28
B. The Crime-Fraud Exception
The crime-fraud exception rests on the premise that “when a client seeks out
an attorney for the purpose of obtaining advice that will aid the client in carrying out
a crime or a fraudulent scheme, the client has abused the attorney-client relationship
and stripped that relationship of its confidential status.”29 In other words, the
privilege ceases to promote justice, and thus cannot be maintained, where it would
become a tool to promote crime or fraud. The exception is codified in Delaware
26
Wal-Mart Stores, Inc., 95 A.3d at 1278.
27
In re Fuqua Indus., Inc. S’holders Litig., 1999 WL 959182, at *3.
28
For the same reasons that Garner does not apply to the privileged documents, I will not order
production of documents withheld on the basis of the work-product doctrine. See Wal-Mart Stores,
Inc., 95 A.3d at 1280–81 (“A careful reading of the Garner factors demonstrates that they overlap
with the required showing under the Rule 26(b)(3) work-product doctrine.”).
29
Princeton Ins. Co. v. Vergano, 883 A.2d 44, 55 (Del. Ch. 2005) (emphasis added).
12
Rule of Evidence 502(d)(1), which provides that the privilege does not apply “[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.”30
To invoke the crime-fraud exception, “a mere allegation of fraud is not
sufficient.”31 Instead, the proponent of the exception must “make[] a prima facie
showing that the confidential communications were made in furtherance of a crime
or fraud.”32 The client must intend the communications “to be used as a basis for
criminal or fraudulent activity, whether or not that criminal or fraudulent intent ever
comes to fruition.”33 Put differently, “the advice must advance, or the client must
intend the advice to advance, the client’s criminal or fraudulent purpose.”34 And it
is not enough that the privileged communications “would provide an adversary with
evidence of a crime or fraud.”35 Nor can the exception be invoked simply because
the advice relates to the crime or fraud.36 Finally, the exception does not apply
30
D.R.E. 502(d)(1).
31
Princeton Ins. Co., 883 A.2d at 54.
32
In re Sutton, 1996 WL 659002, at *11 (Del. Super. Aug. 30, 1996).
33
Id.
34
In re Grand Jury Subpoena, 745 F.3d 681, 693 (3d Cir. 2014).
35
Princeton Ins. Co., 883 A.2d at 59 n.26 (quoting In re Richard Roe, Inc., 68 F.3d 38, 40 (2d Cir.
1995)).
36
In re Grand Jury Subpoena, 745 F.3d at 693.
13
“merely upon a showing that the client communicated with counsel while the client
was engaged in criminal [or fraudulent] activity.”37
The Defendants argue that the crime-fraud exception is inapplicable here
because the Plaintiffs have disclaimed any intention of bringing a fraud claim. 38 As
the Defendants point out, at the motion-to-dismiss stage, the Plaintiffs styled their
claim as one for breach of fiduciary duties stemming from, among other things, the
failure to disclose several material facts in connection with the 2011 self-tender, and
specifically disclaimed accusations of fraud. 39 I note that the rationale underlying
the crime-fraud exception—that the administration of justice is undermined when
individuals seek legal advice to assist them in breaking the law40—appears to apply
37
In re Grand Jury Subpoenas Duces Tecum, 798 F.2d 32, 34 (2d Cir. 1986); see also In re Sutton,
1996 WL 659002, at *12 (“In the instant case, this Court finds that the State has not made a prima
facie showing that any confidential communications between Parretti and Respondents were in
furtherance of a crime or fraud. The State has asserted merely that Parretti has engaged in
fraudulent conduct in the Court of Chancery during the time he was represented by Respondents.
The State has made no allegations or showing that any communications between Parretti and
Respondents was intended by Parretti to be used to facilitate that alleged fraudulent activity.”
(footnote omitted)); Paul R. Rice, Attorney-Client Privilege in the United States § 8:17 (2017)
(“[T]he mere fact that the client consulted the attorney before committing the illegal or fraudulent
act may not, by itself, establish that the client consulted the attorney with the purpose of using his
advice to assist in the perpetration of the act.”).
38
See Nov. 1, 2017 Oral Arg. Tr. 31:11–16 (“MS. NUSSBAUM: And even if there was a showing
here by prima facie evidence . . . of a reasonable basis to conclude a communication was made in
furtherance of a breach of fiduciary duty, that would not be sufficient for the crime fraud
exception.”).
39
See Pls.’ Answering Br. 57 n.38 (“Both the Polk Defendants and SRR argue that Plaintiffs’
disclosure claims ‘sound in fraud’ and therefore the heightened pleading standards of Chancery
Court Rule 9 apply. That is wrong. The pleading standards for claims asserting breaches of the
duty of disclosure are governed by Chancery Court Rule 8.”).
40
See In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1038 (2d
Cir. 1984) (“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
14
with equal force to a client who hires an attorney to help him commit an intentional
breach of fiduciary duty premised on deceiving stockholders about a significant
transaction.41 Nonetheless, I need not decide whether the crime-fraud exception
covers communications designed to further fraud-like intentional breaches of
fiduciary duty, because assuming that it does, the Plaintiffs have failed to show that
it applies here.
The Plaintiffs’ invocation of the crime-fraud exception suffers from a fatal
flaw: the absence of any evidence that the Defendants sought the advice of their
attorneys for the purpose of accomplishing their allegedly fraudulent scheme. The
Plaintiffs aver that the 2011 self-tender was fraudulently induced via a failure to
disclose several material facts, including that the Polk family was considering selling
the company. And, as the privilege logs reveal, the Defendants consulted with
attorneys about various restructuring options, including the self-tender. But there is
no indication that the Defendants intended to use these consultations to further the
purportedly fraudulent scheme, or that the advice received during these consultations
‘sound.’ Rather advice in furtherance of such goals is socially perverse, and the client’s
communications seeking such advice are not worthy of protection.”).
41
See, e.g., Mueller Indus., Inc. v. Berkman, 927 N.E.2d 794, 809 (Ill. App. Ct. 2010) (“Here, it is
undisputed that Berkman owed Mueller a fiduciary duty, and Mueller has made out a prima facie
case that Berkman nonetheless profited from a separate relationship with one of Mueller’s
suppliers, without Mueller’s knowledge. Under these circumstances, we find that the intentional
breaches of fiduciary duty alleged here were on a par with the level of fraud necessary to establish
the crime-fraud exception.”), abrogated on other grounds by People v. Radojcic, 998 N.E.2d 1212
(Ill. 2013).
15
helped them perpetrate the scheme. The Plaintiffs have shown only that, during the
alleged fraud, the Defendants spoke with counsel about matters related to the
transaction in connection with which they allegedly provided inadequate
disclosures; the 2011 self-tender. That is not enough, to my mind, to invoke the
crime-fraud exception. 42
The Plaintiffs argue that the crime-fraud exception must apply because the
privileged documents may be “indicative of matters and transactions which would
show knowledge [on the Defendants’ part] that the disclosures in the self-tender
were inaccurate.”43 The Plaintiffs are wrong. It is of course true that invasion of the
privilege here might disclose relevant information helpful to the Plaintiffs’ case. As
this Court has noted, however, the crime-fraud exception does not vitiate the
privilege upon a showing that the privileged communications would provide the
42
See, e.g., In re BankAmerica Corp. Sec. Litig., 270 F.3d 639, 643–44 (8th Cir. 2001) (“To be
sure, a client may seek legal advice in furtherance of intentional securities law fraud, and the crime-
fraud exception will then apply. But it is not enough to show that an attorney’s advice was sought
before a decision was made not to disclose information that is alleged, as a matter of hindsight, to
have been material.”); In re Sealed Case, 107 F.3d 46, 50 (D.C. Cir. 1997) (“Companies operating
in today’s complex legal and regulatory environments routinely seek legal advice about how to
handle all sorts of matters, ranging from their political activities to their employment practices to
transactions that may have antitrust consequences. There is nothing necessarily suspicious about
the officers of this corporation getting such advice. True enough, within weeks of the meeting
about campaign finance law, the vice president violated that law. But the government had to
demonstrate that the Company sought the legal advice with the intent to further its illegal conduct.
Showing temporal proximity between the communication and a crime is not enough”); Duttle v.
Bandler & Kass, 127 F.R.D. 46, 56 (S.D.N.Y. 1989) (“It is not enough that there was merely a
temporal coincidence between the fraudulent or criminal activity and the client’s consultation with
counsel.”).
43
Nov. 1, 2017 Oral Arg. Tr. 15:14–16.
16
movant with evidence useful to demonstrating a crime or fraud. 44 “If it did, the
privilege would be virtually worthless because a client could not freely give, or an
attorney request, evidence that might support a finding of culpability.”45 A
privileged communication may reveal that a fraudster knew the information he gave
his victim was false. But the crime-fraud exception would not apply to that
communication absent a showing that the fraudster consulted his attorney in order
to further his fraudulent scheme. 46 The Plaintiffs point to nothing indicating such is
the case here. Because the Plaintiffs have failed to make a prima facie showing that
the privileged communications at issue were made in furtherance of a fraudulent
scheme, the crime-fraud exception does not apply. 47
III. CONCLUSION
For the foregoing reasons, the Motion to Compel is denied to the extent that
it seeks production of privileged documents and attorney work product based on the
Garner and crime-fraud exceptions. The parties shall confer as to whether a special
44
See Princeton Ins. Co., 883 A.2d at 59 n.26 (noting that the “exception does not apply simply
because privileged communications would provide an adversary with evidence of a crime or fraud”
(quoting In re Richard Roe, Inc., 68 F.3d at 40)).
45
Id. (quoting In re Richard Roe, Inc., 68 F.3d at 40).
46
See id. at 55 (noting that the crime-fraud exception is “bottomed on the assumption that the
client has actively sought out legal advice from the lawyer, in order for the client to plan how he
will carry out a crime or fraud”).
47
The Plaintiffs have not requested that I conduct an in camera review of the privileged materials
to determine whether the crime-fraud exception is applicable here. See In re Sutton, 1996 WL
659002, at *13 (noting that, to justify in camera review of privileged materials, the proponent of
the crime-fraud exception must offer “a factual basis adequate to support a good faith belief by a
reasonable person . . . that in camera review of the materials may reveal evidence to establish the
claim that the crime-fraud exception applies”).
17
discovery master should be appointed to address the purported deficiencies in the
privilege logs. To the extent the foregoing requires an Order to take effect, IT IS SO
ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
18