Crime-Fraud Exception to Attorney-Client Privilege Invoked to Allow Testimony and Production of Notes by Attorney, Where Executive’s Deletion of Email Sought by Grand Jury Could Constitute Obstruction of Justice

In re Grand Jury Investigation, 445 F.3d 266 (3rd Cir. 2006)

This opinion relates to an ongoing grand jury investigation of suspected federal criminal activity; because of the secrecy of the proceeding, the court’s opinion lacks specific details.

The grand jury began investigating the financial arrangements and business dealings of an individual (the “Primary Target”), whose business dealings were carried out by a particular organization (the “Organization”). The grand jury investigation led to inquiry of Jane Doe, the Executive Director of the Organization, who had, and has, intimate knowledge of and access to the papers and other material of both the Primary Target and the Organization. “It appears that Jane Doe is also a target of the grand jury investigation. If she was not at the outset, she certainly has become a target in light of the events with which we are concerned. The Organization, through its counsel (“Attorney”), has entered into a joint-defense agreement with Jane Doe and her counsel in response to the investigation.”

In April 2004, the Government issued a grand jury subpoena to the Organization. It requested all documents, including email, from January 1, 1996 to the present, concerning, inter alia: the Organization’s document retention and destruction policy; the payment of certain expenses, contributions, or donations to the Primary Target; and all grants, contributions, or donations to the Primary Target. Attorney produced a large number of documents on behalf of the Organization in response to the subpoena. However, the Government was unsatisfied with the document production, particularly with respect to what it perceived as the Organization’s failure to search for and produce email stored on the Organization’s computer hard drives.

In January 2005, the Government issued a second subpoena to the Organization, requesting essentially the same documents as in its previous subpoena. In a subsequent letter, the Government notified Attorney that it wished to have FBI and IRS experts perform a scan of the Organization’s computer to recover stored information, including deleted email files.

In February 2005, pursuant to an agreement among the parties, an FBI computer technician went to the Organization’s place of business and “imaged” the hard drive on Jane Doe’s computer. The Government thus made an exact copy of the contents of the hard drive, including deleted email files. It uncovered numerous stored messages which the court found could be construed to show a conscious effort by the Organization’s staff to destroy emails.

Concerned about the potential obstruction of justice by Jane Doe and others at the Organization, the Government issued a subpoena duces tecum to Attorney in March 2005. It sought to compel grand jury testimony regarding his discussions with Jane Doe as to her compliance (or apparent non-compliance) with the prior subpoenas for production of the Organization’s email. The Government also sought production of Attorney’s notes concerning his conversation with Jane Doe regarding the Organization’s compliance with the two grand jury subpoenas and the January 2005 letter. The Government issued a separate subpoena for production of documents to the custodian of records at Attorney’s law firm.

When the parties could not reach agreement on the scope of the subpoenas, the Government filed a motion to enforce the subpoena and to compel Attorney’s testimony. Attorney and Jane Doe were permitted to intervene with regard to the motion, and they filed a motion to quash or to modify the subpoena to the extent that it required disclosure of privileged information.

In February 2006, the District Court granted the Government’s motion to enforce its subpoena. The Court concluded that although Attorney’s advice regarding the subpoena was protected by the attorney-client privilege, and his notes were covered by the work-product doctrine, disclosure was appropriate in light of the crime-fraud exception. The District Court found sufficient evidence that Jane Doe was in the process of committing obstruction of justice at the time of her conversation with Attorney, and used the information provided by Attorney in furtherance of the crime.

The Third Circuit agreed that there was sufficient evidence to support the District Court’s finding that Jane Doe could be found to have engaged in the ongoing crime of obstruction of justice. In so holding, the appellate court discussed the Frank Quattrone case:

In this era, when communications between leaders of business organizations are transmitted to their employees by email rather than by phone or mail, examination of those emails is the method most commonly used by government investigators. That is evident to those engaged in the criminal or fraudulent activity that is the subject of the investigation. It should therefore come as no surprise that efforts to forestall such investigations frequently take the form of deletion of past emails. See, e.g., Arthur Andersen LLP v. United States, 544 U.S. 696, 125 S.Ct. 2129, 161 L.Ed.2d 1008 (2005).

In United States v. Quattrone, No. 04-5007-CR, 2006 WL 700978 (2d Cir. Mar.20, 2006), the Government’s charge of obstruction of justice was based in part on an email from the defendant, Quattrone, who chaired the Company’s Tech Group, to the bankers in that group. Quattrone was aware of the existence of the grand jury and regulatory investigations. His email (the “Endorsement Email”) attached an email from a banker in the Tech Group which urged recipients not to preserve documents under the company’s document retention policy and stated, “Note that if a lawsuit is instituted, our normal document retention policy is suspended and any cleaning of files is prohibited under the [company’s] guidelines (since it constitutes the destruction of evidence). We strongly suggest that before you leave for the holidays, you should catch up on file cleanup.” Quattrone’s Endorsement Email, the basis for the indictment, stated, “having been a key witness in a securities litigation case in south Texas … I strongly advise you to follow these procedures.” The court noted that the Tech Group had not been asked to preserve documents. The court stated that as a “result of the Endorsement Email, at least some Tech Group bankers began or continued ‘cleaning’ their files.”

In considering whether the evidence was sufficient to convict Quattrone of corruptly endeavoring to obstruct a grand jury proceeding, 18 U.S.C. §§ 1503 & 1505, the Court of Appeals stated that “[t]here was sufficient evidence from which a trier of fact could conclude that the government established the nexus element of the [count at issue]. A rational trier of fact could conclude beyond a reasonable doubt that Quattrone knew that his conduct would obstruct the grand jury’s investigation because there was a logical relationship between his knowing conduct – sending the Endorsement Email while aware of the grand jury subpoena’s call for documents relating to the IPO allocation process that were in the possession of Tech Group bankers – and the effect it was likely to have – destruction of documents that otherwise would have been produced.” The court’s subsequent vacation of the conviction for a jury instruction error and remand for trial does not detract from the significance of its holding that, based on the evidence referred to above, “the jury could infer that Quattrone was aware that his conduct was likely to affect the grand jury investigation.”

(Some citations omitted.)

The court observed: “If, with knowledge of the Government’s interest in retrieving any remaining emails, Jane Doe continued to receive emails that were arguably responsive to the subpoena and failed to use her position as an executive of the Organization to direct that all email deletions stop immediately, she may be viewed as furthering the obstruction of the grand jury’s investigation or the obstruction of justice.”