4th Circuit weighs exceptions to attorney-client privilege

High-powered attorneys from white-shoe law firms in New York and Washington, D.C., were not enough to convince the 4th U.S. Circuit Court of Appeals that a trial judge abused his discretion when he determined the attorney-client privilege did not protect evidence sought by a grand jury investigating two commodities traders.

A three-judge panel upheld the trial judge’s determination that the evidence, which might have otherwise been privileged, was discoverable because it fell under the crime-fraud exception.

White-collar defense attorneys said the 4th Circuit’s unpublished opinion in In Re Grand Jury Subpoena demonstrates just how low the bar is for evidence to fall under the crime-fraud exception to the attorney-client privilege rule. It also shows that the appeals court believes the grand jury process should receive the utmost deference.

Specific details about the underlying case are largely absent from the 4th Circuit’s March 23 opinion, given that the unnamed defendants are still being investigated by the grand jury.

But according to court records, the two commodities traders in question worked for a bank, executing block futures trades for large investors. In 2010, a private regulatory body began looking into various trades made by the defendants for signs of potential front-running, that is, misusing information about impending trades for personal gain.

In a written submission prepared by their attorney, the traders “flatly denied having entered proprietary orders in exchange of and with knowledge of any customer block order.”

In 2013, a federal grand jury investigating the traders’ suspicious trading activity subpoenaed their attorney, seeking documents related to his representation of the traders. While some of the defendants, including the bank, waived their attorney-client privilege, the traders did not and sought to quash the grand jury’s subpoena.

The district court ultimately denied the traders’ motion, finding that the crime-fraud exception applied to the requested communications between the traders and their legal counsel.

While protections on communications between attorneys and their clients are fairly robust, they can be breached in certain instances. For example, with the crime-fraud exception, the government must show that a client intends to break the law and has communicated with their attorney with intent to further the crime or fraud, or to cover it up.

The district court determined the communications in the traders’ case were made “precisely to further the traders’ criminal scheme” of misusing information about impending trades for personal gain.

The traders sought to have the 4th Circuit overturn the trial court’s finding and brought in top legal talent to make their case. The traders’ appellate team was led by Jeffrey Wall of Sullivan & Cromwell’s Washington office, who argued that the trial court got it wrong because “nothing in the record” supports the finding that the government met the burden needed to pierce the attorney-client privilege.

Wall did not return calls seeking comment.

Wall was joined on the traders’ brief by attorneys from Sullivan & Cromwell’s New York office and Willkie Farr & Gallagher, also in New York. Additionally, attorneys from Winston & Strawn and Parker Poe Adams & Bernstein in Charlotte signed onto the brief.

Despite the arguments put forward by the traders’ heavy-hitting attorneys, the 4th Circuit sided with the government.

Writing for the three-judge panel, Judge James Wynn said the appellate panel reviewed the court record, much of which was filed under seal to protect the grand jury process, and concluded the traders failed to show the trial court abused its discretion. Wynn noted that the power to determine whether the attorney-client privilege applies is ultimately reserved for the trial judge.

“The district court’s determination that the traders intended to avoid detection and continue their scheme in communicating with lawyer, not least by having lawyer misrepresent their activities to the regulator, is likewise supported by the record,” Wynn said. Wynn was joined by Judge Barbara Keenan and Judge Albert Diaz.

Former federal prosecutor Wes Camden, who is now a partner in the Raleigh office of Brooks, Pierce, McLendon, Humphrey & Leonard, said there are two standards at play in the 4th Circuit’s opinion.

The first is the prima facie burden the government has to meet in demonstrating a crime-fraud exception to the attorney-client privilege.

“Prima facie is a very, very low bar,” Camden says. “If a client is talking about committing a crime and says, ‘Let’s talk to the lawyer about it,’ that to me would seem to get you pretty close to the bar.”

Camden said the two-part test is really aimed at a client’s actions because it’s possible a lawyer could unknowingly provide advice a client could abuse in order to commit a crime or cover one up.

“If you’re doing your job well, you’re not giving your client advice they can use to break the law,” Camden said. “You’re giving them advice about how to comply with it.”

The second standard at issue in In Re Grand Jury Testimony is whether the trial judge “abused its discretion” by determining the attorney-client privilege did not apply to the information sought by the grand jury.

“That standard is very deferential to the trial judge. Here, the 4th Circuit is saying they’re going to let the trial judge make those types of calls nine times out of 10,” Camden said.

That said, Camden says he does not think prosecutors will seek to pierce attorney-client privilege more frequently in light of the 4th Circuit’s decision. Camden said the U.S. Department of Justice has a number of checks in place to ensure prosecutors do not damage their cases by trying to obtain protected information.

“If you’re going to go after a lawyer’s communications, it has to be signed off on at a number of levels before a subpoena goes out the door,” Camden said. “Everyone knows this is a minefield fraught with peril. You only walk into it if you feel very strongly that you know what you’re going to find if you go that route.”

The 12-page opinion is In Re Grand Jury Subpoena (Lawyers Weekly No. 006-001-16).

Follow Jeff Jeffrey on Twitter at @NCLWJeffrey.