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From Securities Regulation Daily, February 12, 2014

Attorney must testify before grand jury in FCPA investigation

By Anne Sherry, J.D.

A district court that compelled an attorney to testify before a grand jury did not abuse its discretion in determining that an in camera examination of the attorney was appropriate, in determining procedures for the examination, or in finding that the crime-fraud exception to the attorney-client privilege applied (In re Grand Jury Subpoena, February 12, 2014, Fisher, D.).

Background. An unnamed consulting firm and its president and managing director (collectively, “intervenors”) are targets of a grand jury investigation into alleged Foreign Corrupt Practices Act violations. The intervenors sought to quash the grand jury’s subpoena of their attorney, asserting the attorney-client privilege and work-product protection. The district court for the Eastern District of Pennsylvania questioned the attorney in camera, found that the crime-fraud exception applied, and compelled the attorney to testify before the grand jury. The intervenors filed an interlocutory appeal as holders of privileged information controlled by a disinterested third party.

Standard for in camera review. The Third Circuit Court of Appeals held that district courts should use the Supreme Court’s Zolin standard to determine whether to examine a witness in camera. Under this standard, the court should not undertake an in camera examination of an attorney-witness to determine whether the crime-fraud exception applies unless the party seeking to overcome the privilege makes 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.”

The appeals court held that the district court properly applied this standard and the government’s ex parte affidavit fulfilled the standard by providing details from an FBI investigation, including a statement by the attorney to the FBI that the attorney was consulted about a financing project. This supported a good-faith belief that in camera review might reveal evidence establishing the applicability of the crime-fraud exception. The district court also did not abuse its discretion in excluding the intervenors from the interview or declining to release the transcript of the testimony. If the intervenors were privy to the in cameraexamination, the appellate court reasoned, they could not only preview the attorney’s grand jury testimony, but also glean the evidence already submitted to the grand jury and the government’s eventual trial evidence and strategy.

Crime-fraud exception. Finally, while acknowledging that it was a close case, the appeals court concluded that the district court did not abuse its discretion in finding that the crime-fraud exception to the attorney-client privilege applied. For the exception to apply, the client must be committing or intending to commit a crime or fraud at the time of attorney consultation. Given the information available to the district court, it did not abuse its discretion in concluding that the intervenors set upon an illegal course before seeking the attorney’s advice and that the attorney’s specific information about the types of conduct that violate the law constituted advice that furthered the crime.

The case is No. 13-1237.

Attorneys:  Michelle Morgan for the USA.  Ian M. Comisky, Esq. (Blank Rome LLP) for appellant.

MainStory: TopStory Enforcement DelawareNews NewJerseyNews PennsylvaniaNews VirginIslandsNews

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