What Crime-Fraud Exception Law do Federal Courts Apply?

April 6, 2011

Federal courts exercising diversity jurisdiction apply state attorney‑client privilege law. In contrast, every court applies its own procedural and rules‑based law (such as the work product doctrine). Where do federal courts look for applicable crime‑fraud exception principles?

In State Farm Mutual Automobile Insurance Co. v. Hawkins, Case No. 08-1-367, 2011 U.S. Dist. LEXIS 13511, at *5 (E.D. Mich. Feb. 10, 2011), the court explained that a federal court handling a diversity action “applies federal procedural law and state substantive law.” However, the court had to decide “whether the showing necessary for the court to find the crime‑fraud exception applies to a set of facts is a part of privilege law, requiring this court to apply the state standard, or whether instead it is a matter of federal procedural law, requiring the federal standard to be applied.” Id. at *20 n.5. The proper selection made quite a difference. The federal standard for justifying an in camera review in a crime‑fraud context is a “‘prima facie case'” of a crime or fraud furthered by the attorney‑client communications. Id. (citation omitted). Michigan law indicates that “there must only be a ‘reasonable basis to . . . suspect the perpetration or attempted perpetration of a crime or fraud.'” Id. (citation omitted). The court ultimately selected the “more stringent” federal standard. Id.

Lawyers addressing attorney‑client privilege issues must always remember that the court selects the applicable law.