The Crime-Fraud Exception Can Apply to Innocent Lawyers’ Communications

October 26, 2016

The crime-fraud exception can strip away privilege protection from communications in which lawyers further their clients’ future wrongful conduct. Under the majority approach, the adversary must (1) first meet a fairly low threshold justifying courts’ in camera review of the pertinent documents, and (2) then meet a higher standard to overcome the otherwise applicable privilege. What role does lawyers’ knowledge play in this analysis?

In Fragin v. First Funds Holdings LLC, No. 652673/2014, 2016 N.Y. Slip Op. 31537(U) (N.Y. Sup. Ct. Aug. 11, 2016), plaintiff sued defendant investment advisor and its law firm (Moses & Singer) for fraud and breach of contract. Moses & Singer asserted privilege and work product protection in withholding documents and refusing to allow two of its attorneys to answer certain deposition questions. Plaintiff invoked “the crime-fraud exception.” Id. at *1. The court found that plaintiff established probable cause that he had been defrauded, and then reviewed seventeen withheld documents in camera. The court concluded that the documents “contain communications made in furtherance of the alleged fraudulent conveyance and fraud.” Id. at *10. The court ordered Moses & Singer to produce the withheld documents and its two lawyers to answer the deposition questions. Significantly, “the Court does not find . . . that Moses & Singer attorneys knowingly participated in [defendant’s] allegedly fraudulent conduct” — emphasizing that “[s]uch a showing is not required.” Id.

Although nonlawyers might think less of a law firm if its communications were found to have furthered clients’ criminal or fraudulent conduct, innocent lawyers may find their communications stripped of privilege or work product protection. This highlights yet another reason for lawyers to watch what they write.