Plaintiffs (“Diamond”) operate timeshare properties, and sued multiple Defendants for: (1) unfair competition, false advertising, and trademark dilution under the Lanham Act; and (2) unfair competition and tortious interference under Florida law. One of the Defendants is DC Capital. All Defendants assist consumers who are trying to get out of timeshare contracts. “Diamond Owners” refers to all owners of Diamond timeshares who were clients of DC Capital.
In response to Diamond’s requests for production, DC Capital asserted the attorney-client and work product privileges over documents it identified in a privileged log. Diamond sought an order compelling production of all the allegedly privileged documents. An evidentiary hearing was held, and DC Capital’s assertion of the attorney-client and work product privileges was GRANTED in part, and DENIED in part.
This blog post focuses solely on the crime-fraud exception asserted by Diamond. Specifically, Diamond asserted that the attorney-client and work product privileges lodged by DC Capital should not be sustained because of the crime-fraud exception.
Under the crime-fraud exception, the attorney-client privilege does not protect communications made in furtherance of a crime or fraud. The crime-fraud exception applies to work product in the same way.
Notably, the existence of a crime or fraud does not create a blanket evisceration of the privilege. Rather, it only extinguishes the privilege for those communications and documents connected to the crime or fraud.
The Eleventh Circuit applies a two-pronged test for the crime-fraud exception: (1) there must be a prima facie showing that the client was engaged in criminal or fraudulent conduct when he/she sought the advice of counsel, that he/she was planning such conduct when he/she sought the advice of counsel, or that he/she committed a crime or fraud subsequent to receiving the benefit of counsel’s advice; and (2) there must be a showing that the attorney’s assistance was obtained in furtherance of the criminal or fraudulent activity or was closely related to it.
The prima facie standard is satisfied by a showing of evidence that, if believed by a trier of fact, would establish the elements of some violation that was ongoing or about to be committed. Such a showing must have a foundation in fact and cannot rest upon mere allegation. The attorney need not be aware he/she is assisting in a fraud for the crime-fraud exception to apply.
Diamond did not present any evidence of crime or fraud being perpetrated, to the contrary, it has been Diamond’s position throughout the litigation that the Diamond Owners were being victimized by Defendants.
Neither Party cites (nor did the district court find) an Eleventh Circuit decision holding that an attorney’s fraud without the client’s involvement implicates the crime-fraud exception to the attorney-client privilege. Other courts have held that wrongdoing by the attorney, alone, is enough to trigger the crime-fraud exception to the attorney-client privilege. However, the district court did not need to resolve this issue because it found Diamond had not made the requisite prima facie showing of a nexus between a crime or fraud and the specific communications and documents at issue, here.
In order to support a prima facie showing for the crime-fraud exception, it is critical to show a nexus between a crime or fraud and the specific communications and documents at issue. In other words, the evidence must be sufficient to support a prima facie showing that the specific documents the court has found to be otherwise privileged were created by DC Capital attorneys in furtherance of the criminal or fraudulent activity or were closely related to it.
Diamond contended that the alleged fraudulent scheme perpetrated by non-lawyer executives that were partners of DC Capital, could be imputed to DC Capital attorneys so as to eviscerate the privileges asserted. This was deemed creative, but insufficient to make the initial prima facie showing. The district court found Diamond’s proposed analysis would lead to a troubling result. It would cause the innocent Diamond Owners, who are alleged to be fraud victims to lose the confidentiality of communications that they reasonably subjectively believed were for legitimate legal services.
The district court found that Diamond failed to provide sufficient evidence to make a prima facie showing that either the Diamond Owners or the DC Capital attorneys were engaged in criminal or fraudulent conduct when they sought or gave legal advice, or committed a crime or fraud subsequent to giving or receiving the benefit of legal advice. In short, the district court found the crime-fraud exception did not apply to the privileged items, and they remained immune from disclosure either based on the attorney-client privilege or the work product privilege.
See Order Regarding Attorney-Client and Work Product Privilege:
See Fla. Stat. 90.502(4)(a) – Lawyer-Client Privilege – Crime or Fraud:
See Rule 4-1.2(d) Rules Regulating the Florida Bar – Criminal or Fraudulent Conduct:
See Rule 1.2 Model Rules of Professional Conduct – Criminal or Fraudulent Conduct