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Media Alerts - In Re: Grand Jury Subpoena - Third Circuit
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February 21, 2014
  In Re: Grand Jury Subpoena - Third Circuit
Headline: Third Circuit Affirms Crime-Fraud Exception to Attorney-Client Privilege in Ongoing Grand Jury Investigation

Area of Law: Attorney-Client Privilege

Issue(s) Presented: Whether the district court properly conducted an in camera examination of client's attorney?

Brief Summary: A corporation and client are the targets of an ongoing grand jury investigation in the Eastern District of Pennsylvania for violations of the Foreign Corrupt Practices Act (FCPA). The grand jury served the client's attorney with a subpoena to testify under the crime-fraud exception to the attorney-client privilege. The district court conducted an in camera examination of the attorney and found that the crime-fraud exception applied. The corporation and client appealed to the Third Circuit, which held that the district court did not abuse its discretion in allowing the in camera examination, holding that the crime-fraud exception applied, and refusing to release the testimony or a summary of the attorney's examination.

Extended Summary: A corporation and client (together, "intervenors") are the targets of an ongoing grand jury investigation in the Eastern District of Pennsylvania into alleged violations of the FCPA. The corporation is a Pennsylvania consulting firm, and the client is the corporation's president and managing director. The grand jury investigation involves the intervenors' business transaction with a bank headquartered in the United Kingdom and owned by a number of foreign countries. Between 2007 and 2009, the corporation was retained as a financial advisor by five countries to provide assistance in obtaining financing from the bank for oil and gas projects. The corporation received nearly $8 million in success fees for the work. For all five projects, one banker at the bank was the operation leader responsible for overseeing the financing process. In 2008 and 2009, the corporation made more than $3.5 million in payments to the banker's sister, and the payments occurred within months of the success-fee payments to the corporation. There was no evidence that the banker's sister worked on any of the projects.

The attorney for the corporation worked out of the corporation's office but practiced law independently, and in exchange for rent-free office space, periodically consulted the corporation on legal matters. In April 2008, the client approached the attorney to discuss issues with the project during which the client explained that he was planning to pay the banker in order to ensure that the project progressed swiftly, as the banker was threatening to slow down the approval process. The attorney completed preliminary research but could not determine whether the planned action was legal or would violate the FCPA, and he advised the client not to make the payment. The client insisted that the payment would not violate the FCPA, and that he would go ahead with the payment. The attorney gave the client a copy of the FCPA, and after this communication, the attorney and client ended the relationship.

In February 2010, the bank began an internal investigation into the transactions between the intervenors and the banker's sister. The Overseas Anti-Corruption Unit in the U.K. was informed, and the Unit also informed the FBI. The Unit arrested the banker and the banker's sister in the U.K.

The grand jury served the attorney with a subpoena, and on June 18, 2012, the government moved to enforce the subpoena. On September 4, 2012, the corporation and client moved to intervene, and the district court granted the request. The district court held an in camera examination of the attorney in order to determine the applicability of the crime-fraud exception to the communications between the attorney and client. On January 18, 2012, the district court issued a memorandum and order granting the Government's motion to enforce the subpoena and directing the attorney to testify before the grand jury. The district court reviewed both the Government's ex parte affidavit and the attorney's in camera testimony in finding that the intervenors intended to commit a crime when the client consulted the attorney, and that he could have used the information gleaned from the consultation in furtherance of the crime. The district court also declined to release a transcript of the testimony.

On appeal, the Third Circuit upheld the order of the district court enforcing the grand jury subpoena. First, the court explained that the attorney-client privilege may be circumvented under the crime-fraud exception by making a prima facie showing that (1) the client committed or intended to commit a fraud or crime, and (2) the attorney-client communications were in furtherance of that alleged crime or fraud. The Third Circuit held that that the district court applied the proper standard and did not abuse its discretion. The Third Circuit reasoned that the standard for in camera review of tapes and documents in United States v. Zolin, which requires a "showing of 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," also apply to in camera examination of a witness. The Court explained that because the witness is under oath and in front of a judge, the in camera review will mitigate against the risk of inaccuracies in recounting the communications with the client. The Third Circuit also held that the district court properly applied the Zolin standard in its reliance on the Government's ex parte affidavit because the affidavit contained details from the FBI investigation as well as the attorney's statement to the FBI that the attorney was consulted about a financing project.
The Third Circuit then held that the district court did not abuse its discretion by declining to release a transcript or summary of the testimony. Although the intervenors were aware of some information due to the ongoing investigation of the bank in the U.K., there was a significant amount of information before the grand jury that was not known to the intervenors.

Finally, the intervenors argued that the crime-fraud exception did not apply to their communications with the attorney. For the crime-fraud exception to apply, the client must be committing a crime or fraud or intending to commit a crime or fraud at the time she consults with the attorney. In this case, the Court held that the client intended to commit a crime at the time he consulted with the attorney, as even after the attorney advised him not to make the payment, he still determined it was in his best interest to do so.

The full opinion can be found at http://www2.ca3.uscourts.gov/opinarch/131237p.pdf

Panel: Circuit Judges Ambro, Fisher, and Hardiman

Argument Date: September 25, 2013

Argument Location: Philadelphia

Date of Issued Opinion: February 12, 2014

Docket Number: No. 13-1237

Decided: Affirmed

Case Alert Author: Larissa Staszkiw

Counsel: Ian M. Comisky & Matthew D. Lee, Blank Rome, and Stephen R. LaCheen, LaCheen Wittels & Greenberg, counsel for appellant John Doe; Michelle Morgan & Peter F. Schenck,┬┐Office of United States Attorney, Counsel for Appellee United States.

Author of Opinion: Judge Fisher

Circuit: 3rd Circuit

Case Alert Circuit Supervisor: Professor Mary E. Levy

    Posted By: Susan DeJarnatt @ 02/21/2014 11:49 AM     3rd Circuit  

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