Gates Corp. v. CRP Indus., Inc.
Gates Corp. v. CRP Indus., Inc.
2018 WL 4697327 (D. Colo. 2018)
August 10, 2018
Summary
The court is considering whether deception and/or spoliation are sufficient to break the attorney-client privilege. The court has requested that CRP deliver copies of all 153 items for in camera review, which are likely to include ESI such as emails, documents, and other data. The court has also requested that CRP preserve all documentation, including electronic documentation, pertaining to information which may have been downloaded from Gates' FTP website. The court is also allowing each party to submit a single and simultaneous brief of up to 10 pages with 10 attachments.
Additional Decisions
Gates Corporation, Plaintiff,
v.
CRP INDUSTRIES, INC., Defendant
v.
CRP INDUSTRIES, INC., Defendant
Civil Action No. 1:16-cv-01145-KLM
United States District Court, D. Colorado
Signed August 10, 2018
DISCOVERY MASTER’S PRELIMINARY REPORT AND RECOMMENDATION ON PLAINTIFF GATES CORPORATION’S MOTION TO PIERCE ATTORNEY/CLIENT PRIVILEGE [#88]1
*1 This matter is before the undersigned as Discovery Master[2] on [Plaintiff Gates Corporation's] Motion to Pierce Attorney/Client Privilege [#88], [Defendant CRP Industries’] Opposition to Motion to Pierce Attorney/Client Privilege [#91], Gates’ Reply to CRP's Response to Motion to Pierce Attorney/Client Privilege [#95], as well as Defendant's Surreply Memorandum of Law [sic][3] in Further Opposition to Plaintiff's Motion to Pierce Attorney/Client Privilege [#98-1], followed ineluctably by Plaintiff Gates Corporation's Response to Defendants’ Motion for Leave to File Surreply [#115], and then the Reply Brief in Support of Defendants’ Motion for Leave to File Surreply [#125], along with an array of requests for and orders on restriction pursuant to D.C.COLO.LCIVR 7.2 [##90, 94, 109, 110, 111, 117, 123, 129, 132].[4] Having carefully reviewed the parties’ briefs and exhibits, the case docket, and applicable case law, and finding that oral argument would not materially assist at this juncture, the undersigned makes the following Preliminary Report and Recommendation (“R&R”):
I. SUMMARY
This case stems from the confessed criminal use of plaintiff Gates Corporation's confidential and proprietary databases by its terminated employee Ms. Laura Bale (formerly Chitwood). Ms. Bale was bound by a Gates trade secrets confidentiality agreement and sometime after leaving Gates was hired by defendant CRP Industries, a Gates competitor. Gates now believes that CRP likewise benefited from some part of those databases and brings this suit.
*2 The gist of Gates’ motion is to set aside, under the so-called “crime-fraud” exception to the attorney-client privilege and work product exemptions, CRP's asserted protection on some 153 items generated by CRP, its counsel, and an expert. These documents were all generated after CRP's legal counsel, McCarter & English, came on in 2012 to help CRP investigate a suspected confidentiality breach by Ms. Bale; the firm then voluntarily wrote Gates two response letters purportedly sharing the results of the CRP/firm investigation.
Because Gates, as set forth in detail below, has from non-privileged materials made the necessary “minimal showing” of attempted wrongful conduct by CRP sufficient to consider piercing the claimed protections (a so-called “Step One” showing), CRP shall deliver to the undersigned ONLY copies of all 153 items for in camera review, in the format described below, by Monday, August 20, 2018.[5] The undersigned will then (a) assess, one-by-one if each item is facially privileged or exempted at all; and if so (b) assess (in a “Step Two” review) whether one or more of the items should be stripped of its protected status using a more stringent review standard: “probable cause” (for privilege) and/or a “prima facie basis” (for work product) to believe that the item furthered, or attempted to further, an effort to deceive Gates and/or prejudicially conceal or spoliate evidence material to the civil case at bar.
Despite the myriad briefs filed to date, to add a “belt and suspenders” process to this review, CRP (and Gates) will each be allowed an additional simultaneous brief of ten (10) pages to be filed by ECF on or before August 20, 2018. The briefs should focus on facts and law relevant to the undersigned's impending in camera review and final designation decision. In addition, to avoid undue prejudice to CRP, if any of its submitted items are recommended to be stripped of their privilege in the undersigned's Final R&R, no open disclosure will be made, either to Gates or to the public, and that recommendation will impose a 21-day stay of any item disclosures to ensure that the parties have an adequate opportunity to object if they wish under Fed. R. Civ. P. 53(f). In the event an objection is filed, the stay of actual production will remain in effect pending a ruling by the district court.
II. FACTUAL BACKGROUND
The undersigned is hesitant to make any conclusive “findings of fact” in this public Report given the non-dispositive nature of Gates’ Motion to Pierce, and the lack of a complete case record or any Rule 56 determinations by the trial court, in addition to the public restrictions on certain tendered exhibits. Fortunately, the key facts needed to make the present determination are public,[6] and either undisputed or openly conceded by the affected party.
1. Laura Bale (formerly Laura Chitwood) was a Gates employee for 25 years; her employment with Gates ceased on August 25, 2009,[7] at which time she signed an “Employee Termination Statement,” Scheduling Order [#23], Undisputed Facts ¶¶ 5-6 (“Undisputed Facts”), wherein she agreed to turn over and never share Gates’ confidential and trade secret information, Order of November 28, 2017 on CRP's Motion to Dismiss [#78], at pp. 2-3.
2. Ms. Bale began working for CRP in February 2010. Undisputed Facts at ¶ 7. Ms. Bale was a CRP Catalog Database Manager. Motion to Pierce [#88-1], Exh. 1. CRP is headquartered in New Jersey, CRP Answer to Second Amended Complaint [#86 ¶10] and Ms. Bale worked remotely from her Colorado home, though she visited the New Jersey office, Dec. 6, 2017 SGilson Deposition excerpt [#88-6] at p. 10.
*3 3. David Hirschhorn was CRP's Director of Brand Management and Ms. Bale's supervisor during the time she was employed at CRP. Undisputed Facts at ¶ 8. Mr. Robert Crane was also employed at CRP during Ms. Bale's CRP employment. Undisputed Facts at ¶ 9.
4. Sometime after February 8, 2012, Gates became aware that Ms. Bale improperly accessed a Gates protected FTP site. Motion to Pierce [#88] at p. 3; see also Order NA#78] at p. 3. On March 16, 2012, Gates’ counsel George Matava overnighted a notice letter to that effect to CRP. Motion to Pierce, Exh. 1 [#88-1]. He explained that Gates had in hand “a misdirected email” from Ms. Bale and described the targeted Gates FTP database and the suspected February 8, 2012 access date by Ms. Bale (Chitwood). Id.
5. In that letter, Gates also made written demand on CRP for a litigation hold: “[W]e would like assurances from you that [Ms. Bale and CRP will] preserve all documentation, including electronic documentation, pertaining to information which may have been downloaded from Gates’ FTP website.” Id. Gates went on to “request that you preserve Ms. [Bale's] IP address equipment and information.” Id.
6. CRP's President, Dan Schlidge, was on vacation when March 16, 2012 letter arrived, so CRP's Director of Administration and its Corporate Secretary, Sabine Gilson, undertook a preliminary investigation. CRP Opposition to Motion to Pierce [#91], at p. 3. Ms. Gilson has an LLM from Temple University and is a German lawyer, but is not considered in-house counsel at CRP. Motion to Pierce [#88], at p. 4, fn. 2.
7. According to CRP, without consulting counsel, Ms. Gilson spoke with Mr. Hirschhorn, who denied wrongdoing. CRP Opposition to Motion [#91], at p. 3. These two then, again without counsel, together called Ms. Bale, who likewise denied wrongdoing. Id. at pp. 3-4.
8. There is no indication in the tendered record about these two interviews indicating that either Mr. Hirschhorn or Ms. Bale were advised by CRP to preserve their work records, or to ship in or have imaged their personal computers or other electronic devices, or that any agent of CRP was dispatched to pick up the Bale laptop or have it imaged in Colorado.
9. On March 26, 2012, Mr. Schlidge returned from vacation and wrote to Gates advising that CRP “would investigate the matter.” Id. According to CRP, only after Mr. Schlidge returned did CRP seek help from outside counsel. Id. at 4. In early April 2013, CRP's trial counsel in the matter at bar, McCarter & English, were retained to “conduct a thorough investigation into the allegations made by Gates.” Id.
10. On April 13, 2012, a McCarter & English partner from the New Jersey office, Richard Hernandez, called Ms. Bale in Colorado with Ms. Gilson on the line and, among other things, elicited Ms. Bale's admission that she “accidentally accessed” Gates’ database. Id. at p. 5. He asked that Ms. Bale ship her computer back to a forensic computer expert retained by McCarter & English. Id. (CRP then avers that counsel asked Ms. Bale “not to wipe or alter anything,” but Ms. Bale's recollection was radically different. Cf. id. at p. 5 (bullet 5) with May 15, 2012 Bale to Gilson memo [#88-8] ).
11. On April 19, 2012, attorney Hernandez wrote to attorney Matava alerting Gates that counsel was now on board “to investigate the matter.” CRP Opposition to Motion to Pierce [#91], at p. 5.
*4 12. Somewhere in this timeframe (CRP's brief is unclear), CRP's Director of Human Resources, Richard Sobon, also not an attorney or even a paralegal, evidently conducted a “keyword search” for “Laura” and “Chitwood” and possibly “Gates” on Mr. Hirschhorn's email inbox. See Id. at p. 4 (citing Sobon deposition [#88-7] at 30:19-32). No other email files appear to have been searched by CRP or McCarter & English, neither any CRP servers or devices.
13. Sometime after McCarter & English retained the computer forensic expert and the Bale computer was searched, that expert prepared a preliminary report indicating that Ms. Bale “had wiped the hard drive on [her] laptop computer.” Id. For this Ms. Bale was suspended on May 14, 2012; she was fired May 18, 2012 after the forensics expert found a “ccleaner” utility and a link to Gates’ FTP site. Id.
14. Beyond the brief interviews with Hirschhorn and Bale, the Sobon keyword search of Mr. Hirschhorn's inbox, and the forensic computer assessment of the by-then-wiped Bale laptop, there is no showing in the tendered record that either CRP or McCarter & English took steps to interview any other persons, or to search or archive or preserve any other CRP documents or servers or electronic data related to the Gates notice letters. See id., at p. 14.
15. In this light, attorney Hernandez wrote to attorney Matava on June 6, 2012:
CRP has completed its investigation and confirmed that no one affiliated with CRP downloaded and/or made use of the Gates confidential information referenced in your March 16 letter. CRP has also confirmed that the confidential information referenced in your March 16 letter does not reside on its servers and/or computer systems, and that CRP does not have any record of this information in either electronic or hard copy form.
In addition, Ms. [Bale] has represented to CRP that she did not use or disclose any of the Gates confidential information referenced in your March 16 letter. Ms. [Bale] is no longer employed by CRP.
Motion to Pierce, Exh. 2 [#88-2] (emphasis added).
16. This letter makes no mention of Ms. Bales’ admitted “accidental access,” or of her wiped laptop, or the timing of or grounds for Ms. Bale's disclosed separation, or of the forensic expert's view that Ms. Bale erased content and had access to Gates FTP materials, or that no server-wide keyword search had been conducted by CRP and that no steps for evidence preservation were underway. And CRP does not argue differently in its Opposition to Motion.
17. CRP knew as early as June 2012 that the FBI was investigating Ms. Bale, as Mr. Hirschhorn was interviewed by agents at his home and shared his interview recollections with CRP's Sabine Gilson near that time. Gates’ Reply [#95], at p. 7, Exh. 29, DHirschhorn notes [#95-29]. Mr. Hirschhorn recalled being presented five emails, most of which dealt with VIO and Conti; and he had discussed Ms. Bales’ access to Gates and CRP systems, as well as the scrubbing of Ms. Bales’ computer and her subsequent termination. Id.
18. CRP thereafter received a Department of Justice grand jury subpoena on July 10, 2012, referencing both Ms. Bale and Mr. Hirschhorn, as well as Gates. Motion to Pierce, Exh. 16 [#88-16]. This subpoena listed a September 23, 2011 email about the Gates VIO database (referencing “VTWVIO.xls”), as well as a general reference to APA.mdb and APA.zip files. Id.[8]
19. CRP responded to the subpoena by letter to the DOJ from McCarter & English on August 2, 2012, enclosing material “responsive” to the request for the Baleto-Hirschhorn memo dated September 23, 2011, and related materials. Motion to Pierce, Exh. 17 [#88-17]. The full scope of CRP's records search to answer this subpoena is not in the record submitted to the undersigned.
*5 20. There is only one indication in this motion record that CRP took any steps to search on its systems any of these additional unique identifiers: on July 25, 2012, the computer forensic expert forwarded to Ms. Gilson an Excel spreadsheet with VTwVIO.xls in its re: line. [#88-18]. (More recently in discovery, CRP has produced a nearly identical copy of this spreadsheet, see Motion to Pierce, Exhs. 20, 21 [#88-20 redacted (#90-4), #88-21 redacted (#90-5) ][9] and the record where it came from. CRP does not respond or explain in its follow-on briefing.)[10]
21. A few months later, on January 10, 2013, Gates attorney Matava reached out again to CRP attorney Hernandez, this time detailing Gates’ concern that Ms. Bales’ access to Gates’ main catalog database might in fact have been communicated and used by CRP to create a new “Rein” line of hoses. CRP was asked to “conduct a further investigation” to rebut the concern. Id., Exh. 3 [#88-3]. (Unknown to Gates, CRP had earlier learned of Mr. Hirschhorn's FBI interview and had received/responded to the DOJ subpoena – see above).
22. Soon after, on January 24, 2013, attorney Hernandez responded: “As you requested, CRP has completed its investigation of the circumstances and employees involved in the design and rollout of its Rein-branded hose program” and denied any use of Gates’ information. Id., Exh. 4 [#88-4]. No correction or elaboration of his earlier letter to attorney Matava was made.
23. CRP readily concedes that no company-wide or server-wide searches were conducted before sending this second letter, since “CRP did not discover any documents during its investigation that appeared to have been downloaded from Gates’ FTP website, and thus, logically, there was nothing to preserve,” and “CRP had no inkling or reason to believe that any other employee was tied to Gates’ allegations.” Opposition to Motion [#91], at p. 16 (emphasis added). See also id. (“Even if CRP had retained all documents and communications at the time it received Gates’ first demand letter” its duty of preservation would have “long expired.”) (emphasis added).
24. The FBI and the Colorado U.S. Attorney's Office completed their non-public investigation three years later, in the spring of 2016, and shared with Gates a draft statement of facts. Order [#78] at 4.
25. On May 11, 2016, in the case of United States of America v. Laura Bale, No. 1:16-cr-00112-WJM, Ms. Bale pled guilty to one count of unauthorized access to a protected computer (a Gates database). Undisputed Facts ¶ 10.
26. In her plea agreement, Ms. Bale stipulated that on March 30, 2011 she was asked in an email by Robert Crane, CRP's Director Sales and Marketing, Traditional After-Market (copy to Mr. Hirschhorn), for Gates-related information. Ms. Bale admitted that she accessed a Gates database and forwarded to Mr. Crane at his CRP email address a spreadsheet that included the word “Gates.” Motion to Pierce, Exh. 15 [#88-15], at pp. 16-17.
27. Ms. Bale also pled that on September 23, 2011 she sent information she had obtained from Gates’ database to Mr. Hirschhorn at his CRP email address, though Mr. Hirschhorn denies any actual use of Gates information. Id. Exh. 15 at pp. 17-19. A small portion of their related Yahoo IM communications was found in an unerased snippet of the Bales wiped hard drive. Id.
28. There is no definitive indication in the tendered record that CRP or its counsel spoke to or searched Mr. Crane's records, or performed a word search for “Gates” on any CRP system drive or spreadsheet database, or any other device, other than possibly Mr. Hirschhorn's inbox.
*6 29. Plaintiff Gates filed the Complaint [#1] initiating this action on May 17, 2016.
II. PROCEDURAL BACKGROUND
Gates has now moved under the so-called “crime-fraud exception” to pierce CRP's attorney-client privilege and work-product exemptions, seeking to set aside the protections that on their face apply to CRP's privilege log items [#88-12]. Gates seeks at least in camera review of those items created by CRP and/or its counsel on or after April 12, 2012, the date that Gates argues CRP uncovered knowledge to conceal. CRP strenuously objects.
Notably, that Complaint [#1], originally and as twice amended [#84], asserts, in diversity, a state law trade secret count and state-law misappropriation and tortious interference counts, as well as a federal law count under the Computer Fraud and Abuse Act. Thus, the undersigned is faced with the challenge of determining how both state and federal law and rules apply here, and which prevails in the event of any conflict. Cf. Sprague v. Thorn Americas, Inc., 129 F.3d 1355, 1369 (10th Cir. 1997) (footnote omitted) (holding that when federal and state claims are raised, and the privilege is upheld by one body of law and not by the other, “an analytical solution must be worked out”).
*7 The matter is further nuanced in that when Gates first wrote to CRP in 2012, CRP was a New Jersey entity with New Jersey counsel – with existing local practices of privilege and record preservation – although CRP did hire a Colorado resident employee starting in 2010, its counsel did send two letters into Colorado in 2012-13, and it is accused of several wrongful acts and omissions having their effect in Colorado. Cf. Gognat v. Ellsworth, 224 P.3d 1039 (Colo. App. 2009), aff'd, 259 P.3d 497 (Colo. 2011) (discussing general and specific jurisdiction in a trade secret statute of limitations case).
III. ANALYSIS
Gates essentially argues that at some point on or after McCarter & English's retention, CRP (and possibly its law firm) had or hatched an intention to elide or cover-up the extent of connection with or knowledge of Ms. Bale's improper actions, resulting in a constricted investigation and failed preservation effort, as well as two arguably misleading or deceptive letters from attorney Hernandez about the state of CRP's knowledge and records. CRP opposes any finding of waiver or, more accurately, of a failed claim of privilege.[11] However, the vast majority of CRP's briefing focuses on how Gates’ own limited notice letter content dictated CRP's admittedly narrow investigation, and that regardless, Gates’ personnel never actually believed the two lawyer letters from Mr. Hernandez so there was no reliance by Gates and thus no need for CRP to account for any inaccuracy or incompleteness in its counsel's communications to Gates. This position is at odds with applicable law.
A. Vitiation of Attorney-Client Privilege or Work Product Exemption
Gates seeks production of the items on CRP's October 6, 2017 privilege log [#88-12] designated as PRIV 00012 to PRIV 00164.[12] This group includes six documents also designated as or containing attorney work product under Rule 26(b)(3), and another five documents withheld under the modern expert-communication privilege found in Rule 26(b)(5). To break through CRP's privileges and protections, Gates argues that the so-called “crime-fraud” exception should apply.
1. Applicable Law(s) of this Case
In diversity jurisdiction cases, state law generally governs attorney-client privilege reviews. Frontier Ref., Inc. v. Gorman-Rupp Co., Inc., 136 F.3d 695, 699 (10th Cir. 1998); see FED. R. CIV. P. 501 (“in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision”); see also Larson v. One Beacon Ins. Co., No. 12-cv-03150-MSK-KLM (D. Colo. June 10, 2013).[13] On the other hand, federal rules apply to any federal claims. See FED. R. CIV. P. 501 Conference Committee Notes (“There may be diversity cases, however, where a claim or defense is based upon federal law. In such instances, Federal privilege law will apply to evidence relevant to the federal claim or defense.”) (citation omitted).
In contrast, the work product exemption arises under the federal rules and is governed by federal law. Frontier Refining, Inc., 136 F.3d at 702 n.10 (“Unlike the attorney client privilege, the work product privilege is governed, even in diversity cases, by a uniform federal standard embodied in Fed. R. Civ. P. 26(b)(3).”) (citation omitted); see also In re Qwest Commc'ns Int'l Inc., 450 F.3d 1179, 1184 n.1 (10th Cir. 2006) (citing the Supreme Court rules exception in Fed. R. Evid. 501). By that logic, the expert-communication privilege, a variation on the work product exemption, see FED. R. CIV. P. 26(b)(4)-(5), should also be driven by federal law.
*8 Neither party focused on this federal-state distinction, or how it might affect a mixed federal-state case with potentially conflicting substantive-procedural paths for assessment and resolution. Neither did the parties raise the issue of what choice-of-law might apply to CRP and/or McCarter & English prior to appearing in this matter. In addition, neither party cited or discussed the Colorado Supreme Court's recent two-step guidance on the crime-fraud exception in Colorado: In re 2015-2016 Jefferson Cty. Grand Jury, 410 P.3d 53 (Colo. 2018). These matters are unpacked below.
2. The Privilege and the Exemption are Not Absolute
The attorney-client privilege and the work product exemption are esteemed, but not absolute. See Law Offices of Morley v. MacFarlane, 647 P.2d 1215, 1220 (Colo. 1982). Indeed, both sides in this civil action believe that they should be allowed to break through the other side's facially privileged documents, albeit for different reasons. Compare [Gates’] Motion to Pierce [#88] with [CRP's] Motion to Compel Production of Certain Communications [#99].
The undersigned presumes that each of the items logged by CRP in Dkt. No. 88-12 is facially eligible for its asserted protection, though the party asserting the attorney-client privilege and/or work product protection “bears the burden of persuasion, and cannot sustain that burden simply by asserting that withheld materials contain privileged or protected information.” Plaza Ins. Co. v. Lester, No. 14-cv-01162-LTB-CBS (D. Colo. June 4, 2015), Order Dkt. #61 at p. 9, 2015 WL 3528336 at *5 (citing FDIC v. United Pac. Ins. Co., 152 F.3d 1266, 1276 n.6 (10th Cir. 1998)). Further, the party must make a “clear showing” and provide “precise reasons” for withholding each otherwise responsive item. Id. (citations omitted).
Put another way, Gates does not argue that an attorney-client relationship was absent, or that any unrelated third parties were voluntarily given access to CRP's privileged items, or that CRP has placed a waived matter at issue, or that CRP's logged designations are facially insufficient. See, e.g., Plaza Ins., June 4, 2015 Order at pp. 9-12, 2015 WL 3528336 at *4-5 (detailing the features essential to fully claiming protection under Rule 26).
Rather, Gates seeks to vitiate CRP's protections ab initio under the colorfully named “crime-fraud exception,” which can apply both to the attorney-client privilege and to the work product exemption. See, e.g., In re Vargas, 723 F.2d 1461, 1467 (10th Cir. 1983), cited in Martensen v. Koch, 301 F.R.D. 562, 573 (D. Colo. 2014); A. v. Dist. Court of Second Judicial Dist., 550 P.2d 315, 324 (Colo. 1976), cited in Ryskamp v. Looney, No. 10-cv-00842-WJM-KLM, 2011 WL 3861437 at *9 (D. Colo. Sept. 1, 2011); see also Plaza Ins. Co., June 4, 2015 Order at pp. 14-18, 2015 WL 3528336 at *7-9 (summarizing cases).
3. The Wrongful Conduct Threshold in “Crime-Fraud” Cases
At the outset, no one appears to be accusing CRP and/or its counsel of committing an actual crime alongside Ms. Bale, and Gates has not brought a fraud count against CRP. But that is not the whole test. So before addressing proof rules and review protocols, it is important to delineate the applicable types of wrongful conduct that may trigger the crime-fraud exception.
While some piercing cases do, in fact, hinge on actual crimes or the intentional tort of fraud, the courts have much expanded the doctrine into less dramatic “wrongful conduct” arenas. See THOMAS E. SPAHN, THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK PRODUCT DOCTRINE: A PRACTITIONER'S GUIDE (Va. L. Found. 3rd ed. 2013) (“THE ATTORNEY-CLIENT PRIVILEGE”) § 18.3 (authorities omitted) (detailing case support for deception and deceit and for spoliation, as well as for patent inequitable conduct, unethical procurement of client secrets, interfering with witness questioning, intentional breach of fiduciary duty, insurance bad faith, false discovery responses, and gross negligence); see also United States v. Zolin, 491 U.S. 554, 570 (1989) (commenting favorably on a uniform state laws report that listed “a crime or a tort” as triggering exclusion).
*9 Paraphrasing, Gates urges that both attempted concealment/nondisclosure as well as collaborative spoliation that conceals or loses relevant evidence each qualify as the requisite “wrongful conduct” trigger. See Motion to Pierce, at pp. 15-20. There is precedent to support each ground proposed by Gates.
Several district cases on deception have found the requisite wrongful conduct to support stripping the privilege. In Lee v. State Farm, this court approved reference to Colorado state law on nondisclosure/concealment within an insured/insurer relationship, finding a breached duty of disclosure. Lee v. State Farm Mut. Automobile Ins. Co., 249 F.R.D. 662, 681 (D. Colo. 2008); see also id. at 681-82 (“a person has a duty to disclose to another with whom he deals facts that ‘in equity or good conscience’ should be disclosed.”). That case relied on Eckley v. Colorado Real Estate Commission, which held: “to prevail on a claim of fraudulent concealment, a plaintiff must show that the defendant actually knew of a material fact that was not disclosed and that the defendant's intent was to cause the plaintiff to act differently than he might have done had the information been disclosed.” 752 P.2d 68, 78 (Colo. 1988) (citation omitted).
And in Plaza Ins. Co., the Court found all five elements of fraudulent concealment/nondisclosure under Colorado law and stripped the privilege. Plaza Ins. Co., June 4, 2015 Order at pp. 17-18, 2015 WL 3528336 at *9. See also Ryskamp, 2011 WL 3861437 at *9-10 (finding grounds to vitiate the privilege where a defendant worked with his counsel to manipulate the date of a rights offering).
Of course, an attorney must not make false statements to third parties.[14] CRP's counsel twice chose voluntarily to communicate to third-party Gates, and thus appears to have triggered this obligation of accuracy and completeness, as well.
These cases comport with other well-reasoned case law holding that attempted fraud or concealment does not hinge on consummation or success. See, e.g., In re Pub. Def. Serv., 831 A.2d 890, 902 (D.C. 2003) (“Broadly speaking, it is enough if the client uses the attorney's advice or services to pursue a crime or fraud, or if the attorney-client communication itself materially advances a crime or fraud, even if the client's efforts are frustrated or halted short of consummation of the evil deed.”); In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1090 (9th Cir. 2007) (“[T]he planned crime or fraud need not have succeeded for the exception to apply. The client's abuse of the attorney-client privilege, not his or her successful criminal or fraudulent act, vitiates the privilege.”), abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100 (2009) (holding that appellate review of district court order vitiating privilege was improvident collateral order). Cf. In re 2015-2016 Jefferson County Grand Jury, 410 P.3d at 61 (requiring “probable cause to believe that a crime or fraud was being attempted”) (emphasis added).
*10 And in keeping with the New Jersey citizenship of CRP and its counsel, and that potential choice of law, case law from New Jersey state courts provides even firmer admonitions:[15]
“Fraud” includes civil as well as criminal fraud. There need not be a tortious fraud in the conventional sense. Rather, public policy requires that the term fraud “be given the broadest interpretation.” It includes virtually all kinds of deception and deceit, even though they might not otherwise warrant criminal or civil sanctions.
Ocean Spray Cranberries, Inc. v. Holt Cargo Sys., Inc., 785 A.2d 955, 959 (N.J. Super. L. 2000) (citations omitted, emphasis revised). In addition, the “fraud” exception is “interpreted broadly” to include, for example, “confederating with clients to allow the court and [opposing] counsel to labor under a misapprehension as to the true state of affairs.” Fellerman v. Bradley, 493 A.2d 1239, 1245 (N.J. 1985); see also Nat'l Utility Serv., Inc. v. Sunshine Biscuits, Inc., 694 A.2d 319, 322 (N.J. Super. A.D. 1997). The Fellerman court elaborated:
There is no reason to believe that the use of the word “fraud” in [N.J.R.E. 504(2)(A)] is to be limited to conventional notions of tortious frauds. Acts constituting fraud are as broad and as varied as the human mind can invent. Deception and deceit in any form universally connote fraud. Public policy demands that the “fraud” exception to the attorney-client privilege as used in [Rule 504] be given the broadest interpretation.
493 A.2d at 1245 (citation omitted).[16]
Spoliation presents a somewhat different framework (though purposeful or “willfully blind” loss of key evidence may well also qualify as “concealment”). Certainly, the case law is less developed, at least in the crime-fraud vein. And there are already some alternative remedies/sanctions in the arena. Though none focused solely on an alleged collaboration with counsel to affirmatively crimp an investigation to avoid bad facts.
The leading case in federal court was addressed by both parties: Rambus v. Infineon Techs. AG, 222 F.R.D. 280 (E.D. Va. 2004). In Rambus, the defendants were accused of formulating with counsel a document purging system that masqueraded as a document retention policy, which coincidentally shredded numerous documents troublesome to Rambus’ patent case, hiding all of it within claimed privileged documents. Id. at 284. The Court recognized that spoliation was not technically a tort but held nonetheless that the crime/fraud exception “extends to materials or communication created for planning, or in furtherance of, spoliation.” Id. at 289. It held that both the attorney-client privilege and the work product exemption would give way if it found that documents were intentionally destroyed during a duty-to-preserve timeframe. Id. at 287. Cf. Kovacs v. Hershey Co., No. 04-cv-01881-WYD-BNB (D. Colo. Sept. 26, 2006), Order Dkt. #464 at pp. 16-18, 2006 WL 2781591 at *7 (considering document destruction in the course of the Court's crime-fraud review).
*11 In this Circuit, spoliation is found where (1) a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent, and (2) the adverse party was prejudiced by the destruction of the evidence. See, e.g., Jones v. Norton, 809 F.3d 564, 580 (10th Cir. 2015); Turner v. Pub. Serv. Co. of Colorado, 563 F.3d 1136, 1149 (10th Cir. 2009). See generally Zbylski v. Douglas Cty. School Dist., 154 F.Supp.3d 1146, 1162-63 (D. Colo. 2015) (duty to preserve attaches when party “knew or should have known that evidence may be relevant to future litigation” or when notification is “received from a potential adversary,” or when “triggered based on an internal investigation,” or when evidence is gathered “in the course of a prior criminal investigation”) (citations omitted).
The case CRP relies upon for limiting its duty to preserve, Cache la Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 623 (D. Colo. 2007), actually stands for the opposite proposition. Instead of forgiving a party's failure to widely investigate or to preserve whatever was on its accessible servers and employee's devices, the case erects a duty of preservation (albeit in a passage two pages above the portion CRP cites): “In most cases, the duty to preserve evidence is triggered by the filing of a lawsuit. However, the obligation to preserve evidence may arise even earlier if a party has notice that future litigation is likely.” Id. at 621 (citations omitted) (emphasis added). The Gates preservation demand and the DOJ document subpoena, in combination with CRP's own determination that Ms. Bale had committed wrongdoing, is notice enough on three potential litigation fronts (Gates, DOJ, Bales) for a broad preservation effort.
Indeed, while “the duty to preserve relevant documents should require more than a mere possibility of litigation,” “a party should not be permitted to destroy potential evidence after receiving unequivocal notice of impending litigation.” Id. More to the point perhaps is Magistrate Judge Schaffer's deeper dive into defendant Land O'Lakes’ failure (with counsel) to preserve backup tapes or even search archived drives: “Once a ‘litigation hold’ has been established, a party cannot continue a routine procedure that effectively ensures that potentially relevant and readily available information is no longer ‘reasonably accessible’ under Rule 26(b)(2)(B).” Id. at 629-30.
In considering sanctions for spoliation, the Cache la Poudre Feeds court emphasized the bad-faith or “consciousness of a case weakness” grounds needed to justify the stiffest sanctions, in contrast to mere negligence. Id. at 635-36, citing Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir. 1997); and Richins v. Deere & Co., 231 F.R.D. 623, 626 (D. N.M. 2004). The Zbylski court noted how other circuits focus not just on the imminent possibility of litigation, but rather more on assessing the alleged spoliator's earliest motivation to suppress the truth. 154 F.Supp.3d at 1164 n.8 (citing Kronisch v. United States, 150 F.3d 112, 127 (2d Cir. 1998), overruled on other grounds by Rotella v. Wood, 528 U.S. 549 (2000); and Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007)).
Together, these spoliation cases appear to support a second “wrongful conduct” trigger in this district, especially where as here the suspected spoliation may also constitute attempted concealment/deceit.
4. Future Wrongdoing Component of the Exception
Of course, neither the concealment/deceit analysis nor the spoliation assessment will matter if CRP's privileged documents relate solely to past crimes or wrongful conduct by CRP and its agents – the crime-fraud exception vitiates only consultations for or collaborations on future wrongdoing by a client and/or counsel. See Zolin, 491 U.S. at 562-63; see also In re 2015-16 Jefferson County Grand Jury, 410 P.3d at 59. Thus, if the CRP items at issue relate solely to past misconduct, the Gates challenge will fail and the presumptive CRP privilege will be preserved.
*12 Of course, a past-crime consult can evolve into a future wrongful collaboration sprouting well after the lawyer is retained:
[L]awyers representing corporations should also remember that nearly every past corporate wrongdoing generally will require some future wrongdoing – sometimes sufficient to trigger the crime-fraud exception. For instance, a lawyer ... may be called upon [to] draft a transaction document containing a representation assuring the other side there are no material problems facing the company.
T. SPAHN, THE ATTORNEY-CLIENT PRIVILEGE, at § 18.2. See also Plaza Ins. Co., June 4, 2015 Order at p. 16, 2015 WL 3528336 at *8 (even if the attorney-client relationship “is immaculate at its conception,” it can later devolve into attorney assistance of illegal activity) (citing cases). Consequently, CRP is incorrect to suggest, Opposition to Motion [#91], at pp. 7-9, that the only relevant moment to assess the client's planned or attempted wrongdoing is the lawyer's first-hire day.
Moreover, there is precedent to the effect that a client need not even have specific evil intent:
The client need not specifically understand that the contemplated act is a crime or fraud. The client's purpose in consulting the lawyer or using the lawyer's services may be inferred from the circumstances. It is irrelevant that the legal service sought by the client (such as drafting an instrument) was itself lawful.
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 82 cmt. c (2000). In addition, a lawyer can be oblivious or innocent-minded and the exception will still apply. Martensen, 301 F.R.D. at 574 (“The necessary showing does not require that the attorney from whom the client received advice was a knowing participant in the crime or otherwise culpable.”).
These matters will be kept in mind by the undersigned during any in camera review phase.
B. The Proper Protocol in the Event of Stripping the Privilege
1. Federal Protocol in the Crime-Fraud Setting
Stripping privilege is a serious event in a case and suggests the need for significant protective procedures. Oddly, the Tenth Circuit's most recent guidance (albeit 20 years old and focused on grand juries) does not set out any formal hearing or review protocol, see In re Grand Jury Subpoenas, 144 F.3d 653, 661-62 (10th Cir. 1998), explicitly providing district courts wide discretion to act on ex parte filings from the party attacking the privilege, without any hearing, on as little as “documentary evidence” or “good-faith statements by the prosecutor” about grand jury testimony, Id. at 662, citing In re Vargas, 723 F.2d 1461, and In re Sept. 1975 Grand Jury Term, 532 F.2d 734 (10th Cir. 1976).
Consequently, at least one Article III judge in this district has dispensed with both in camera review and any separate hearing before setting aside the privilege and ordering production. See Ryskamp, 2011 WL 3861437 at *10 (documents ordered produced without in camera review). Cf. Plaza Ins. Co., June 4, 2015 Order at p. 15, 2015 WL 3528336 at *7-8 (Magistrate Judge Shaffer applying a two-step protocol derived from state and federal cases, ruling on privilege after in camera review with no follow-on evidentiary hearing). See generally T. SPAHN, THE ATTORNEY-CLIENT PRIVILEGE, §§ 18.9 to 18.10 (“First Step: In Camera Review; Second Step: Evidence and Hearing”).
2. In Camera Review Authority from the U.S. Supreme Court
*13 As recently as 1989, it was unsettled whether federal courts even had the power to undertake in camera review in a crime-fraud case; and if so, whether such a review would be deemed mandatory in all cases, or discretionary; and what evidence could be used to assess the exception. Zolin, 491 U.S. at 556-57. The Zolin court recognized the risk of “groundless fishing expeditions” and the potential of saddling trial courts with potentially voluminous records. Id. at 571. However, the Court ultimately held that in camera review was permissible (but not mandatory) to establish the exception whenever there was a “showing of a factual basis adequate to support a good-faith belief by a reasonable person” that the exception applied. Id. at 572 (quoting Caldwell v. Dist. Court In & For City & Cty. of Denver, 644 P.2d 26, 33 (Colo. 1982)).[17]
Zolin also affirmed broad discretion for the trial courts to decide whether or not to conduct a review “in light of the fact and circumstances of the particular case.” 491 U.S. at 572. This discretionary analysis includes assessing the volume of materials to be reviewed, the importance of the alleged privileged information, and the likelihood that the exception will ultimately apply. Id.
3. Federal versus State Protocols in the Case at Bar
It is axiomatic that in matters of diversity procedure, federal rules apply unless they undermine substantive state-law based doctrines: “The ‘Erie doctrine,’ as it has come to be known, has been interpreted to mean that federal courts are to apply state substantive law, but federal procedural law.” Thane v. Geico Casualty Co., No. 16-cv-02940-CMA-MEH (D. Colo. July 25, 2017), Order Dkt. #72 at p. 9 n.2, 2017 WL 3157966 at *5 n.2 (citing Hanna v. Plumer, 380 U.S. 460, 465 (1965); Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)). Though this procedure-substance line is subtle.
The Hanna case held that the Federal Rules of Civil Procedure would apply above any state civil procedure rules, in that case, the service-of-process protocols. 380 U.S. at 463. In addition, the Federal Rules of Evidence, though not subject to Erie (at least as originally promulgated by Congress), are also to be used in diversity matters, unless there is a substantive state rule “directed to influencing conduct through legal incentives.” See Sims v. Great Am. Life Ins. Co., 469 F.3d 870, 883 (10th Cir. 2006). The Zolin decision was quite literally based on assessing the federal common law of privilege in light of an underlying federal statutory scheme (an I.R.S. investigation). 491 U.S. at 556-57.
Which leaves the challenging conundrum of the second sentence of Fed. R. Evid. 501 (emphasis added):
The common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise:
• the United States Constitution;
• a federal statute; or
• rules prescribed by the Supreme Court.
As noted at the outset, attorney-client privilege issues are a creature of state statute (whether in Colorado or New Jersey), and work-product (and expert communication) exemptions are federal. Frontier Refining, Inc., 136 F.3d at 699-702. The question arises whether the privilege rule (and its vitiation) is then a substantive reflection of state policy, or merely an efficient means to discover and try a federal lawsuit. Sims, 469 F.3d at 883.[18] An argument can be made that vitiating the attorney-client privilege is a state law evidence matter of some policy import, as substantive as, for example, the parol evidence rule or the statute of frauds, which the Tenth Circuit has counted as “substantive state policies.” See id. at 880 (citing Mascenti v. Becker, 237 F.3d 1123, 1241 (10th Cir. 2001)). Unfortunately, no case found by the undersigned appears to resolve this narrow issue.
*14 Thus, in light of the Amended Complaint's federal count being litigated in a federal court, even if Colorado privilege law applies to the three diversity counts at bar, the undersigned could arguably dispense with any further briefing or submissions from the parties, or even the upcoming in camera review, having already allowed well more than an ex parte submission from the proponent of the crime-fraud exception. See generally In re Grand Jury Subpoenas, 144 F.3d at 661-62.
But there is good reason to provide more stringent procedural safeguards here, for both the privilege and the work-product assessment: in part because the key Tenth Circuit law stems mainly from the procedurally unique (and necessarily speedy) grand jury process; in part because there is some substance implicated when striking down privilege protections; in part because the CRP privilege log is not much detailed, and thus difficult to decide from; and in part because the Colorado Supreme Court has recently sharpened a protective two-step process, which was presaged and used artfully in Plaza Ins. Co. See generally Sprague, 129 F.3d at 1369 (in the event of conflicting state-federal outcomes, “an analytical solution must be worked out”).
3. The Colorado State Court Process in Crime-Fraud Exception Cases
The Colorado Supreme Court recently reviewed its precedent on the crime-fraud exception, formalizing a two-step process and clarifying its Step Two criteria. In the case of In re 2015-2016 Jefferson County Grand Jury (Brimah) an attorney's work files were subpoenaed during a criminal investigation, and the trial court – without in camera review or any separate assessment hearing – ordered the files produced. The Supreme Court reversed, and held as follows:
[A] party seeking to invoke the crime-fraud exception and defeat the attorney-client privilege in Colorado must do so as follows. First, the party must make a threshold showing of facts adequate to support a good faith belief by a reasonable person that wrongful conduct sufficient to invoke the exception has occurred. If this initial, minimal showing is made, the trial court may, at its discretion, order the production of documents for in camera review. Second, to ultimately decide that a document in question should be stripped of privilege, a higher burden must be met: The party seeking to defeat the privilege must demonstrate probable cause to believe that a crime or fraud was being attempted or committed and that the communication was made in furtherance of the crime or fraud.
410 P.3d at 61 (emphasis added). No particular hearing or briefing protocol was suggested to follow-on this discretionary in camera review.
In the special case of law office file seizure, the state high court has in the past been of two minds about minimum protocols. In a crime-fraud decision not cited or distinguished by 2015-16 Jefferson County Grand Jury, Justice Erickson ventured the view that an “adversary hearing is desirable” for a full law office search, but allowed the trial court, after in camera review, to dispense with a hearing under the circumstances of that criminal search warrant. Law Offices of Morley, 647 P.2d at 1222; see also id. at 1223-24 (Quinn, J. specially concurring) (the party stipulation for a hearing was “nothing more than an agreement to submit briefs to the court on the proper procedure to be followed,” then providing an exegesis on proper law office search protocols).
*15 On the other hand, in People v. Madera, 112 P.3d 688 (Colo. 2005) (referenced In re 2015-2016 Jefferson County Grand Jury, 410 P.3d at 59), Justice Mullarkey, likewise concerned about prosecutorial overreach in searching an attorney's office, proposed the following detailed framework:
Before granting a request for in camera inspection of an attorney's case file, the trial court must determine (1) as precisely as possible, the information sought to be discovered, (2) whether the information is relevant to a matter at issue, (3) whether the information could be obtained by any other means, (4) whether the information is privileged, (5) if it is privileged, whether the privilege has been waived, (6) if it is privileged, but has been waived, either explicitly or impliedly, the scope of the waiver.
Some courts have gone so far as to call for an adversary hearing at the equivalent of Step Two. See, e.g., Haines v. Liggett Grp. Inc., 975 F.2d 81, 97 (3d Cir. 1992), as amended (Sept. 17, 1992) (“[W]here a factfinder undertakes to weigh evidence in a proceeding seeking an exception to the rule, the party invoking the privilege has the absolute right to be heard by testimony and argument.”). No details about such a proceeding were provided by that court. See generally T. SPAHN, THE ATTORNEY-CLIENT PRIVILEGE, at ¶ 18.1002 (describing the array of positions taken by various courts, mostly in dicta).
4. Protocol for the Case at Bar
Controlling case law from the Tenth Circuit appears to allow the undersigned to skip over in camera review and move right to final designation even without further briefing. In fact, a fine argument could be made that both sides have had more than enough briefing, with three filings a side and dozens of exhibits tendered.
Nonetheless, in providing maximum but efficient protections, the protocols adopted recently by the Colorado Supreme Court are persuasive for the attorney-client privilege review. Thus, there will first be an assessment under Step One of whether to trigger in camera review (see below); next, if triggered, there will be a Step Two period of time to review those documents during which the undersigned will review additional briefing and support materials from the parties.
As for the smaller cache of work-product and expert-communication withholds, federal protocols are mandatory there. The court in Martin v. Monfort, Inc., 150 F.R.D. 172 (D. Colo. 1993), set forth a process to be considered in determining a claim for work-product protection:
Rule 26(b)(3) ... contemplates a sequential step approach to resolving work product issues.
• First, the party seeking discovery must show that the subject documents or tangible things are relevant to the subject matter involved in the pending litigation and are not privileged.
• Once such a showing has been made, the burden shifts to the party seeking protection to show that the requested materials were prepared in anticipation of litigation or for trial by or for the party or the party's attorney, consultant, surety, indemnitor, insurer or agent. Such a showing may be made by affidavit, deposition testimony, answers to interrogatories, and the like.
*16 • If the Court concludes that the items were prepared in anticipation of litigation, the burden shifts back to the requesting party to show:
o (a) a substantial need for the materials in the preparation of the party's case; and
o (b) the inability without undue hardship of obtaining the substantial equivalent of the materials by other means.
• Finally, even if substantial need and unavailability are demonstrated, the Court must distinguish between factual work product, and mental impressions, opinions, and conclusions, for the latter are rarely, if ever, subject to discovery.
Id. at 172-73 (internal citations omitted, bullets added) (cited in Thane v. Geico Casualty Co., July 25, 2017 Order at p. 6, 2017 WL 3157966 at *3-4).
Finally, it is appropriate to explain why the undersigned chooses not to elicit any live testimony or oral argument. Looking at the cases discussed above, none of these reviewing courts saw fit to provide insight about how a two-party, adversarial evidentiary hearing might be conducted fairly over documents (or testimony) presumptively shielded from one participant by privilege. And to elicit ex parte witness testimony from privilege-holder CRP – presumably also then privileged material – would only create a record that would only embroider the words on the page in the documents to be reviewed in camera, yet then be almost impossible for Gates to review or appeal. See, e.g., United States v. Boender, 649 F.3d 650, 658 (7th Cir. 2011):
Where the disputed communications are contained in documents, for example, the best course may often be review by the judge alone in camera. Where the source of the disputed evidence is live testimony, however, it would be most unusual for the judge simply to invite the witness into chambers for a private interrogation session.
See also In re Napster, Inc. Copyright Litigation, 479 F.3d at 1092-93:
We are not convinced that in all cases it is necessary for the district court to conduct a live hearing with oral argument; in appropriate cases, the court may decide the matter on the papers. But we are convinced, as was the court in Haines, that in a civil case the party resisting an order to disclose materials allegedly protected by the attorney-client privilege must be given the opportunity to present evidence and argument in support of its claim of privilege.
As Justice Quinn suggested in MacFarlane, the necessary protection of an “adversary hearing” can be provided through focused briefing from both sides. 647 P.2d at 1223.
C. Application of Step One to These Facts and Preview of Step Two
1. Step One Application
The fact statement in this case maps well onto Lee and Plaza Insurance, the recent district cases finding deception and concealment sufficient to break the privilege. Although this is not an insurance case and there is no quasi-fiduciary relationship, the underlying state law in both cases focused on disclosure “in equity or good conscience” in service provider settings. See, e.g., Eckley, 752 P.2d at 78. This deception analysis might be entirely different if CRP's counsel had simply declined to respond to attorney Matava, or had advised Gates to take whatever steps it deemed necessary (perhaps even venturing a puffing opinion that Gates would never prevail if it sued). But the Hernandez letters voluntarily said (and implied) much more, giving an innocent impression while concealing a much more troubled picture.
*17 Taking on in camera review is also supported by the various cases on “attempted” deception, e.g., In re Napster, Inc. Copyright Litigation, 479 F.3d 1078, and the Colorado Supreme Court's reminder in 2015-16 Jefferson County Grand Jury that “attempted” wrongful conduct qualifies under the exception. Not to mention the extraordinarily broad definition of fraud used at every level of the New Jersey court system. See, e.g., Fellerman, 493 A.2d at 1245 (“confederating with clients to allow the court and opposing counsel to labor under a misapprehension as to the true state of affairs”).
Moreover, the Gates request is narrow: just those items prepared on the heels of learning of Ms. Bale's activities while having in hand the DOJ subpoena. And ultimately, it is reasonable to be concerned that the scores of putatively privileged communications surrounding the interview and termination of Ms. Bale and the later response to the DOJ would likely have been focused on future actions and posturing, not in assessing or counseling about past CRP foibles. Therefore, Step One is met.
The idea that CRP may have hired and then collaborated with counsel to help “overlook” troublesome materials would be antithetical to the privilege. Said differently, an inadequate records search leading to essentially no preservation in an effort to keep Gates from suing or later failing at suit – all with knowledge of an active DOJ criminal investigation – reasonably supports an inference of “self-serving conduct in the face of a weak case,” which in this federal district is “wrongful conduct” and may well, upon a close reading, qualify as prima facie crime or fraud.
As noted above, the Gates request is focused, and the amount of material to review appears reasonable, and not intermixed with unrelated law office materials.
Although CRP urges that its conduct does not resemble the Rambus case, CRP has not come forward with a persuasive response. CRP's several briefs [#91, #98-1, #125-1] make a tactical and potentially costly choice – they are devoted almost entirely to arguing that Gates concealed information from CRP and that Gates actually believed all the while that the Hernandez letters “were misleading and incorrect” – somehow assuming that would moot any inquiry into whether attorney Hernandez's letters were actually misleading or incorrect, or how CRP and its counsel failed to collect and preserve records and key electronic devices.
Setting aside the potential ethical issues (if the Hernandez letters were inaccurate when written, they have never been voluntarily withdrawn or corrected by CRP or its counsel), this is a hotly disputed fact pattern that is likely to survive to trial;[20] it certainly should not be resolved on a motion to pierce privilege. CRP's job in the briefs (and attachments) responding to the Motion to Pierce was to defend and clear up the “reasonably suspicious” nature of its overlooked or lost or scrubbed records and the wiped Bale laptop, and its (at least in hindsight) insufficient if not inaccurate and misleading disclosures to Gates in 2012-13.
*18 Attorney Matava's first letter to CRP was explicit in its request to preserve not just CRP documents and databases, but also Ms. Bales’ then-unscrubbed laptop hard drive. And CRP's hiring of investigation counsel suggests CRP management's belief that litigation was on the horizon (a horizon CRP and its counsel may have attempted to influence with the attorney letters). Finally, CRP has claimed work-product protection in a number of 2012-13 era documents regarding Gates (e.g., PRIV 00071, 00074, 00091, 00158-159 [#88-12] ), which by definition must have been created “in anticipation of litigation” with Gates. See FED. R. CIV. P. 26(b)(3); FED. R. EVID. 502(g)(2). (Not to mention over 140 separate privileged communications generated in that time, on a matter CRP views as so slight that it merited no preservation effort at all). The duty to preserve was clear and in place.
CRP's search-using-laypeople-and-fail-to-preserve-evidence story is troublingly reminiscent of a case in New Jersey cited for support in Cache la Poudre Feeds:
Wachtel v. Health Net, Inc., 239 F.R.D. 81, 91–93 (D.N.J. 2006) (finding that defendants’ process for responding to discovery requests was utterly inadequate, in part, because defendant relied on specified business people within the company to search and produce whatever documents they thought were responsive, without verifying that the searches were sufficient).
244 F.R.D. at 621. Notably, New Jersey co-counsel for the sanctioned defendant in Wachtel was trial counsel presently at bar, McCarter & English. Id., 239 F.R.D. at 81.
Thus, CRP's attorneys were well-versed in the rigorous New Jersey standard of care for professional investigation and candor to third parties, as well as the expectation of broad document preservation. This alternative standard reasonably appears to the undersigned to have been breached as well.
c. In camera review is appropriate
Based upon the foregoing, there appears to be more than a “minimal showing” to support the undersigned's good faith and reasonable belief that at least two categories of wrongful conduct, or attempted wrongful conduct, have been shown by Gates: (1) the nondisclosure/concealment of material information when CRP's counsel voluntarily communicated twice with Gates about their investigation, and (2) the ineffective and arguably collaboratively spoliating nature of the CRP and McCarter & English internal “investigation.”
Moreover, there is reason to believe that both types of misconduct were supported through the use of all or some of the privileged documents at issue. Finally, as cautioned in Madera, the undersigned finds Gates’ request to be (1) precisely limited to documents generated in the CRP investigation, (2) relevant to a hotly disputed case issue, (3) not obtainable by any other means, (4) bearing on information that is facially privileged but where (5) the privilege may not inhere, depending upon closer review, and (6) the scope of stripping will be done document-by-document, and even line-byline if appropriate.
It is very possible that CRP's personnel might, at the outset, have had an “immaculate conception,” but that may well have evolved wrongfully once problematic information was developed about Ms. Bale, Mr. Hirschhorn, and Mr. Crane, and in light of the Hirschhorn FBI interview and the federal grand jury subpoena. In this context, Gates’ knowledge or even rank disbelief of the Hernandez letters would not matter – those constitute issues for the trier of fact, not for this privilege review. In all events, there is certainly more than the “minimal showing” needed under In re 2015-2016 Jefferson County Grand Jury and federal precedent to check in camera.
d. In camera proceedings
Therefore, CRP shall submit to the undersigned on a virus-free, single USB thumb drive a readable and word searchable version (with the same metadata the parties have jointly agreed attaches to produced discovery in this case) of all of the items numbered PRIV 00012 to PRIV 00164, carefully separating each item from any other (i.e., no continuous scroll across document breaks), the thumb drive to be hand-delivered to the undersigned's office by 5 PM on August 20, 2018. An Excel spreadsheet of the underlying log should also be submitted in native format (shorn of metadata unnecessary to reading the log or adding columns). CRP may, in addition, choose to submit a single hard-copy set of the materials, separately stapled, if that would help ensure clear review. CRP may also wish to submit without prejudice (i.e. no waiver solely from production to the undersigned) PRIV 00001 to PRIV 00012 to provide fuller context for the in camera review.
*19 As a suggestion before submission, CRP is encouraged to review the Plaza Insurance Company case around footnotes 5 & 8 and Magistrate Judge Shaffer's reminder that non-substantive emails are not privileged. A revised log in that light will be appreciated and will not be considered by the undersigned to be any type of admission by CRP regarding the proper contents of its original log. In addition, the parties are invited again to narrow their redactions and suppressions in this record to allow for an appropriately open and unredacted Final Report and Recommendation.
2. Step Two – Designation Criteria
One reason this is a “preliminary” Report and Recommendation is that, despite the undersigned's broad discretion to act, no final recommended designation will be made to strip the privilege on any given document without first conducting a document-by-document in camera review. And while the parties are free to file objections to the foregoing Step One determination, see FED. R. CIV. P 53(f), they are invited to hold off to see whether in camera review and a final Step Two decision may render one or the other sides’ objections moot. (As noted, to ensure a full opportunity to object, the undersigned will automatically stay any Step Two designations for 21 days and thereafter until resolved by a higher court).
A second reason to deem this a preliminary R&R is the undersigned's desire to provide to the parties a provisional roadmap of the upcoming Step Two process. Because briefing will be allowed alongside the in camera review and before final determination on whether to strip the privilege, a preview should help inform the parties about the upcoming Step Two review.
More than 80 years ago, the U.S. Supreme Court ventured the phrase “prima facie” case to describe the proper standard for vitiating the attorney-client privilege. See Clark v. United States, 289 U.S. 1 (1933). In the interim, the Zolin court reiterated the “prima facie” language and – like the Tenth Circuit a decade later – explained that “we need not decide the quantum of proof necessary ultimately to establish the applicability of the crime-fraud exception.” 491 U. S. at 563. See In re Grand Jury Subpoenas, 144 F.3d at 660 (noting this Zolin quote, reviewing the standard used in several other circuits, and declining to pick one: “under any of these announced standards, the government has made a prima facie showing.”).
This “prima facie” phrasing still fosters uncertainty. See Zolin, 491 U.S. at 563 n.7 (“[T]his Court's use ... of the phrase ‘prima facie case’ to describe the showing needed to defeat the privilege has caused some confusion....”); Id. (“The quantum of proof needed to establish admissibility was then, and remains, subject to question.”); but see id. (“[T]his case is not the proper occasion to visit these questions....”).
This District Court has likewise wrestled with the necessary minimum showing for the final stripping decision. In Lee, Judge Kane adopted in full Special Master Don's opinion that a “prima facie showing exists where the plaintiff raises a reasonable inference” that the exception applies. Id., 249 F.R.D. at 680. This standard was to be applied separately to “each document” before it could be stripped of its privilege. Id.
In Ryskamp, Judge Martinez used the standard of “probable cause to believe that a crime has been attempted or committed,” 2011 WL 3861437 at *9, relying on the People v. Tucker Colorado Court of Appeals case from 2009 approved recently by the Colorado Supreme Court in In re 2015-2016 Jefferson County Grand Jury.
*20 Then, in Martensen, Magistrate Judge Shaffer reopened a deposition in a diversity matter and held: “for purposes of the crime-fraud exception, reasonable cause is more than suspicion and less than a preponderance of evidence. Accordingly, I find that Plaintiff has presented a prima facie showing of facts to support a reasonable belief that wrongful conduct [potential civil false imprisonment] occurred.” 301 F.R.D. at 577 (citations and punctuation omitted). See also id. at 573 (“the allegation of attorney participation in the crime has some foundation in fact”). He went on to explain that this determination was not whether in fact false imprisonment was proven by a preponderance, Id., but rather that, in a close case, “the balance must be struck in favor of allowing discovery to effectuate the full extent of the truth seeking process,” Id. (citing Nat'l Farmers Union Prop. & Cas. Co. v. Dist. Court For City & Cty. of Denver, 718 P.2d 1044, 1046 (Colo. 1986)).
Soon after, Magistrate Judge Schaffer again tackled the prima facie standard. In Plaza Insurance Company, supra, an insurance company claim file was at issue. The court was concerned about “a groundless fishing expedition,” June 4, 2015 Order at p. 15, 2015 WL 3528336 at *7 (citing Zolin, 491 U.S. at 571), cautioning that the exception cannot be met with “beliefs and conclusory statements,” Id. (citation omitted). Nevertheless, the court ordered in camera review, mapped the elements of a fraudulent concealment-nondisclosure case under Colorado law, Id. at p. 17 (*9), and found evidence sufficient to strip the privilege, Id. at p. 34 (*16).
The Colorado Supreme Court standard of “probable cause” arguably provides more clarity in application. According to the In re 2015-2016 Jefferson County Grand Jury case by Justice Hood, the state high court likewise wrestled early on with a prima facie test, starting with A. v. District Court, requiring “some foundation in fact” for the charge. 550 P.2d at 326. Sorting through other case law, Justice Hood spoke well of the lower court opinion in People v. Tucker, 232 P.2d 194 (Colo. App. 2009), and its “probable cause” language. 410 P.3d at 60 (also citing similar language in the Second and Sixth Circuits).
Interestingly, Justice Hood ventured the view that the “reasonable cause” or “reasonable basis” standard used in the First, Third, and Ninth Circuits was “similarly demanding.” Id. However, he eschewed the Fourth Circuit's lower standard and the Seventh Circuit's “shifting burden,” as well as overriding the D.C. and Eighth Circuit critiques that “there is little difference” between the probable cause test and the prima facie test. Id.
Justice Hood then clarified how this probable cause standard would differ from a typical indictment standard: first, the exception could be established by showing “merely that a fraud was being attempted” (citing In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1039 (2d Cir. 1984)); second, an additional element of “communication in furtherance of the wrongdoing” was required (same citation); and third, there was a requisite “continuing or in the future” focus. 410 P.3d at 60 (emphasis added).
The issue of which standard to use in privilege assessment, state or federal, arises here as much as it does in the threshold decision to provide in camera review. Without necessarily deciding the issue, and given how close the standards are according to many courts, the state standard will be applied to the privileged documents, the federal standard to the work product items. Therefore, after full in camera review on a document-by-document (even line-by-line if appropriate) basis, it is the undersigned's intention in the Step Two determination to apply the “probable cause” standard expatiated in In re 2015-2016 Jefferson County Grand Jury, while bearing in mind the federal prima facie case standard of less than a preponderance when reviewing the work product and expert communication documents.
*21 As noted, case law supports making the Step Two determination without any further party proceedings after in camera review. Indeed, if in camera review results in a determination by the undersigned that none of the CRP documents should be stripped of privilege, any convened hearing would be a nullity. On the other hand, if one or more CRP items flows through to recommended piercing and vitiation, fairness suggests that CRP be allowed to speak once more on the matter before final stripping and recommended disclosure.
The undersigned is mindful of the Tenth Circuit's broad ex parte procedural latitude, both in assessing the threshold in camera question and in making the final – and fateful – determination of “no privilege.” See In re Grand Jury Subpoenas, 144 F.3d at 661-62 (expressing concern for a series of mini-trials that would waste resources and delay grand jury proceedings). And the Colorado state guidance does not provide an explicit roadmap beyond suggesting discretionary in camera review, followed by a discretionary application of the new probable cause standard, on a “communication-by-communication” basis to assess whether and to what extent any given item was made “in furtherance” of the crime or fraud. In re 2015-2016 Jefferson County Grand Jury, 410 P.3d at 62. No hearing protocol was developed by either higher court; neither does the federal case law developed in this district provide for an evidentiary hearing. See, e.g., Plaza Ins. Co., supra.
But there are challenging questions here. Does voluntary attorney communication arguably concealing material facts from an unrelated party constitute “probable cause” under the crime-fraud exception, either state or federal? Does a collaboratively failed preservation effort equal prejudicial spoliation equal a level of probable cause of wrongful conduct? Is the undersigned correct that mere attempted concealment or nondisclosure by CRP, regardless of any reliance by Gates, can meet the probable cause standard? Additional briefing would provide each side a full hearing on these issues, remembering that it is not the ultimate truth or proof of the “crime-fraudtort,” but rather whether there is probable cause or a prima facie case made. See Martensen, 301 F.R.D. at 573 (the determination is not whether in fact the tort was proven by a preponderance, but rather that, in a close case, “the balance must be struck in favor of allowing discovery to effectuate the full extent of the truth seeking process”).
The escalating burdens in this Step One/Step Two review are subtle. Regardless, it remains important for the privilege proponent (here, CRP) to provide substantive responses to the movant (Gates), either factual or legal or both:
When a movant has presented competent evidence, the party seeking to rely on the privilege or work product protection must come forward with rebuttal evidence. See United States v. Davis, 1 F.3d 606, 609 (7th Cir. 1993) (holding that a party has established a prima facie case under the fraud exception “whenever it presents evidence sufficient “to require the adverse party, the one with superior access to the evidence and in the best position to explain things, to come forward with that explanation’ ”). A determination of whether the movant has satisfied their burden lies in the discretion of the court. In re September 1975 Grand Jury Term, 532 F.2d at 737.
Plaza Ins. Co., June 4, 2015 Order at p. 17, 2015 WL 3528336 at *8 (emphasis added).
CRP has voluntarily submitted only limited “rebuttal evidence” to this point but will nonetheless be permitted a second (fourth brief) effort. In that regard, CRP is encouraged to focus entirely on its own conduct and grounds for seeking legal guidance in 2012, and not on the knowledge or suspected knowledge or reliance of Gates’ personnel, as such information will have little impact on the undersigned's analysis because the statute of limitations to and fro remains disputed and unresolved. CRP may also voluntarily submit the entire set of logged items (i.e., adding PRIV 00001-PRIV 00011), without prejudice, if those additional early items are believed to buttress CRP's position.
*22 WHEREFORE,
Gate's Motion to Pierce [#88] is GRANTED IN PART and DEFERRED IN PART. In camera review is triggered for PRIV 00012 through PRIV 00164. CRP is directed, at or before 5:00 PM on August 20, 2018, to submit to the undersigned at the address below (no copies to any other person or party) a virus-free, single USB thumb drive containing a readable and word searchable version (with the same metadata the parties have jointly agreed attaches to produced discovery in this case) of all of the items numbered PRIV 00012 to PRIV 00164, as well as an Excel spreadsheet of the underlying log, in native format and capable of being edited;
AND
Each party is permitted a single and simultaneous brief of up to 10 pages with 10 attachments (aggregating no more than 100 pages per party among all attachments) to be filed by ECF on or before August 20, 2018;
AND
The party surreply filings (plus attachments) known as Dkt. #98, #115, and #125 are herewith accepted for filing with the Clerk.
Footnotes
The undersigned will follow the trial court's convention referencing case docket numbers in square brackets [#1].
The Hon. Kristen L. Mix, Magistrate Judge, presiding by unanimous party consent [#18], preliminarily appointed the undersigned on July 5, 2017 [#63]; conflicts cleared and neither party objected to the appointment, resulting in a final order of appointment [#67]. The appointment provides inter alia for “managing and supervising discovery and resolving discovery disputes.” The subject Motion to Pierce [#88] was referred to the undersigned by Minute Order of March 9, 2018 [#89], as was CRP's Motion for Surreply [#98] by Minute Order of May 1, 2018 [#112].
This CRP Memorandum is not so much a “surreply” – a filing not found in the Federal or Local Rules, but sometimes used in special circumstances to allow a party to respond when surprised by a new argument first proffered in a reply brief – as it is a factual “supplement” – also not a term found in the Rules related to motions – to CRP's original Opposition to Motion [#91]. Indeed, CRP says as much in its requesting Motion [#98], at 1. Because the legal and factual issues relevant to this Preliminary Report and Recommendation focus on the acts and omissions of CRP and its agents, and not on the statute of limitations, or on what Gates knew internally or when (as Gates attempted to explain to CRP in its meet and confer), the undersigned reviewed it and found CRP's Surreply not particularly responsive but for the record will allow it to be filed; likewise, both follow-on briefs [Gates #115, CRP #125] were reviewed and are accepted for filing.
An order is expected early next week granting Gates’ Unopposed Motion for Leave to Restrict [#132], as no objections have been filed and the waiting period expired today. In addition, the parties confirmed with the undersigned that no other protections are sought for the materials tendered in this record.
The undersigned recognizes that this deadline is short, and less than the 21 days allowed for objection under Rule 53. That said, the discovery cutoff is fast looming and if there are no objections to this Preliminary R&R, a final R&R might be reached yet this month.
Tracking what items the parties believe deserve restricted protection has been an adventure, as some restrictions have been declared in the court docket but not moved upon, and the protocol for which docket entry will contain the public-versus-unredacted items has been inconsistent. That said, the undersigned believes that this Preliminary R&R does not disclose any materials of the parties that were ordered RESTRICTED, but will act quickly to redact and seal, or amend out as appropriate, if either party can show to the contrary.
In her 2016 plea deal, Ms. Bales described her departure as “laid off” from Gates. [#88-15] at p. 16.
In addition to the explicit litigation hold requested by attorney Matava in his notice letter of March 16, 2012, Mr. Hirschhorn's notes and this additional specific material from the DOJ belie the notion that CRP and its counsel could simply crimp their internal investigation or evidence preservation effort based on CRP's (overly narrow) reading of Mr. Matava's March 2012 letter.
An unrelated column within these two Excel documents has been redacted in the public docket at Gates’ request [#88-20, -21]. See Joint Motion to Restrict Access [#90], granted April 27, 2018 [Order #110].
With its Reply brief, Gates submitted new arguments and seven new sealed CRP exhibits [#95] (the seal has since lapsed with CRP's consent). CRP did not traverse that submission in its tendered Surreply Memorandum [#98-1], thus conceding the arguments. Instead, CRP focused on the conduct and mental state of a newly deposed Gates witness to show that nothing CRP did or did not do with its investigation counsel, or the content of what CRP communicated to Gates, could or should make any difference in this case. As discussed below, that is not how the crime-fraud exception is assessed, particularly in the case of attempted deceit, where reliance by the target is not essential.
The crime-fraud exception is most logically considered a privilege exclusion, failing to attach at the outset, rather than a privilege waiver. See Wesp v. Everson, 33 P.3d 191, 200 n.16 (Colo. 2001).
The undersigned notes apparent typos in the dates for PRIV 00158-PRIV 00163 (2013 not 2012?).
The attorney-client privilege in Colorado is governed by Colo. Rev. Stat. § 13-90-107(1)(b): “An attorney shall not be examined without the consent of his client as to any communication made by the client to him or his advice given thereon in the course of professional employment.”
As cited in prior filings (Gates Resp. to CRP Mot. Dismiss, Dkt. #55, at p. 16), N.J. R. PROF. CONDUCT 4.1 reads:
(a) In representing a client a lawyer shall not knowingly: (1) make a false statement of material fact or law to a third person; or (2) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client. (b) The duties stated in this Rule apply even if compliance requires information otherwise protected by RPC 1.6.
Colorado's rules appear slightly more forgiving of concealment, see COLO. R. PROF. CONDUCT 4.1:
In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.,
In New Jersey, the attorney-client privilege and the crime-fraud exception are codified at N.J. Stat. Ann. § 2A:84A-20 (West) (N.J. R. EVID. 504). In pertinent part, “communications between lawyer and his client in the course of that relationship and in professional confidence, are privileged?” The first exception, at Rule 504(2), reads: “Such privilege shall not extend (a) to a communication in the course of legal service sought or obtained in aid of the commission of a crime or a fraud, ...”
As the choice of law between Colorado and New Jersey does not materially affect Step One in this Preliminary R&R, no forum law choice is presently required. Regarding Step Two, CRP's hiring of Ms. Bale operating out of Colorado and the sending of two letters by CRP's lawyers into Colorado appear to support Colorado as the preferred forum law. That said, if either party disagrees and believes that Step Two would be affected, they may choose to address the matter in their briefs during upcoming in camera review and the undersigned will make a choice-of-law recommendation to the Court in the final R&R.
“If these inquiries point to achieving fair, accurate, and efficient resolutions of disputes, the rule is procedural” and thus federally determined; “[i]f, however, the primary objective is directed to influencing conduct through legal incentives, the rule is substantive” and federal courts should defer to state law.
This language was not, however, cited or quoted in 2015-16 Jefferson County Grand Jury. On close inspection, these cases may have been particularly alert to seizing non-client materials found in an active law office, which is not an issue in the present case at bar.
See Gognat, 224 P.3d at 1045-46 (citing Tenth Circuit precedent that “the statute of limitations on trade secret misappropriation claims [in Colorado] begins to run not when a plaintiff can positively and directly prove misappropriation rather than independent development, but simply when the plaintiff has knowledge of sufficient facts from which a reasonable jury could infer misappropriation”) (citation omitted). It appears to the undersigned that CRP has consistently refused to adopt the acts of Ms. Bale as respondeat superior or to concede or even suggest in the record any pre-2016-discovered or discoverable wrongful act or omission by anyone at CRP other than Ms. Bale to provide Gates with the requisite “sufficient facts.” (But see CRP's recent filing, Defendant's Reply Brief in Further Support of Motion to Compel Production of Certain Communications [#126], at p. 1 (“The events relevant to this lawsuit took place between 2010 and early 2012, and Gates discovered that Laura Bale accessed its systems in February 2012, so logically Gates’ claims accrued then.”). The issue of accrual remains unresolved.