STEPHEN M. McNAMEE, Senior District Judge.
Pending before the Court is Plaintiff/Counterdefendant Creative Tent International Inc.'s ("CTI") motion to strike portions of Defendant/Counterclaimant Bradley Kramer's ("Defendant") counterclaim and motion to seal answer and counterclaim. (Doc. 10.) The matter is fully briefed. (Docs. 12, 13.) After review of the pleadings,
CTI brought this lawsuit against Defendant, CTI's former Chief Executive Officer ("CEO"). (Doc. 1, 1-1.) CTI alleges that Defendant used the company credit card for personal purchases without reimbursing CTI. (Doc. 1-1 at 3.) Based on these allegations, CTI terminated Defendant's employment. (
Defendant answered and counterclaimed alleging that he was terminated for raising his concerns about the structural integrity of CTI's designs and buildings, for attempting to terminate CTI's outside engineer, and objecting to CTI gifting a large area maintenance shelter to a foreign general. (Doc. 3 at 5-8.)
CTI moves to strike certain paragraphs, ¶¶ 12, 13, 15, 16, and 17 from Defendant's counterclaim, alleging that Defendant disclosed attorney-client and/or work product privileged information belonging to CTI. (Doc. 10.) Defendant objects relying on the crime-fraud exception to the attorney-client privilege. (Doc. 12.) CTI replies that Defendant's allegations of fraud are insufficient to use the crime-fraud exception as a defense. (Doc. 13.)
Under our District's Local Rules, a motion to strike may be filed in only two situations: (1) when the motion to strike is authorized by statute or rule, or (2) when the motion to strike seeks to strike a filing or submission because it is prohibited by statute, rule, or court order. LRCiv 7.2(m)(1).
As this case is based on diversity jurisdiction, a federal court sitting in diversity must apply the substantive law of the forum state.
The purpose of the attorney-client privilege is to encourage candid communications between client and counsel and protects not only the giving of professional advice, but also the giving of information to enable sound and informed legal advice.
Arizona "has long recognized a `crime-fraud' exception to the [attorney-client] privilege."
CTI, as the party invoking the privilege, carries the burden of establishing that confidential communications were disclosed. CTI argues that Defendant's counterclaim expressly reveals attorney-client communications that are protected confidential communications under Arizona law. (Doc. 10.) In support, CTI alleges that Defendant in his counterclaim disclosed the following:
(
Defendant contends that he consulted CTI counsel regarding ongoing and threatened fraud and illegal activities being committed by CTI through its owner. (Doc. 12 at 5.) Based on the crime-fraud exception, Defendant contends that to the extent any privilege attached to those communications, it was in his favor because he also received personal advice regarding his potential personal liability if CTI went forward as planned and Defendant failed to report the illegal and fraudulent activities. (
It is undisputed that Defendant disclosed privileged attorney-client communications in his answer and counterclaim. (Doc. 3 at 6-7.) The Court finds that Defendant did not have the authority to waive the attorney-client privilege as to those communications.
Next, at issue is whether the Court will seal the judicial record due to the presence of privileged communications between Defendant and CTI counsel. Because there is a strong presumption in favor of public access to court documents, a party seeking to seal a judicial record "bears the burden of overcoming this strong presumption by meeting the `compelling reasons' standard."
Accordingly,
A. In a civil action an attorney shall not, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of professional employment. . . .
B. For purposes of subsection A, any communication is privileged between an attorney for a corporation . . . and any employee, agent or member of the entity or employer regarding acts or omissions of or information obtained from the employee, agent or member if the communication is either:
1. For the purpose of providing legal advice to the entity or employer or to the employee, agent or member.
2. For the purpose of obtaining information in order to provide legal advice to the entity or employer or to the employee, agent or member.
C. The privilege defined in this section shall not be construed to allow the employee to be relieved of a duty to disclose the facts solely because they have been communicated to an attorney.