Filed: Nov. 20, 2009
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 08-4816 In Re: GRAND JURY INVESTIGATION - UNITED STATES OF AMERICA, Petitioner - Appellee, v. UNDER SEAL, Movant – Appellant, JOHN DOE A01-246, Respondent. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge. (1:08-mc-00003-1) Argued: September 23, 2009 Decided: November 20, 2009 Before TRAXLER, Chief Judge, WILKINSON, Circuit Judge, and Margaret B.
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 08-4816 In Re: GRAND JURY INVESTIGATION - UNITED STATES OF AMERICA, Petitioner - Appellee, v. UNDER SEAL, Movant – Appellant, JOHN DOE A01-246, Respondent. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge. (1:08-mc-00003-1) Argued: September 23, 2009 Decided: November 20, 2009 Before TRAXLER, Chief Judge, WILKINSON, Circuit Judge, and Margaret B. ..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-4816
In Re: GRAND JURY INVESTIGATION
--------------------------------
UNITED STATES OF AMERICA,
Petitioner - Appellee,
v.
UNDER SEAL,
Movant – Appellant,
JOHN DOE A01-246,
Respondent.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:08-mc-00003-1)
Argued: September 23, 2009 Decided: November 20, 2009
Before TRAXLER, Chief Judge, WILKINSON, Circuit Judge, and
Margaret B. SEYMOUR, United States District Judge for the
District of South Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Douglas S. Laird, POLSINELLI SHALTON FLANIGAN SUELTHAUS,
PC, Kansas City, Missouri, for Appellant. Gordon D. Kromberg,
OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for
Appellee. ON BRIEF: Dana J. Boente, Acting United States
Attorney, Steven P. Ward, Special Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria,
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
This is an appeal from the district court’s order granting
the Government’s motion to compel compliance with a subpoena
duces tecum issued by a grand jury in the Eastern District of
Virginia. The district court granted the Government’s motion to
compel ruling that the Government had established a prima facie
case that the crime-fraud exception to the attorney-client
privilege applied and that the documents in question were not
privileged. For the reasons set forth herein, we affirm. 1
I.
The Corporation, a nonprofit, was incorporated in 1983.
Counsel provided legal advice to the Corporation from 1983 to
2000.
In 1997, the president of the Corporation established
another entity in the Isle of Man (“the Isle of Man Entity”).
Two of the Corporation’s three directors, one of which is the
Corporation’s president, were directors of a corporation also
established in the Isle of Man (“the Isle of Man Corporation”),
1
The documents and briefs in this case have been filed
under seal to protect the secrecy of the ongoing grand jury
investigation. We therefore refer to the parties by generic
names to avoid the disclosure of their identities and do not
reveal more facts than are necessary to our analysis.
3
which is the trustee of the Isle of Man Entity. Between 1997 and
2000, the Corporation transferred $22,523,478 of its assets to
the Isle of Man Entity. In 2000, the Corporation dissolved after
filing Articles of Termination and Articles of Dissolution with
the proper state authorities.
Prior to the Corporation’s dissolution and continuing
thereafter, the Internal Revenue Service (IRS) conducted an
audit of the Corporation. During the audit, the Corporation’s
president told the IRS that the transfers from the Corporation
to the Isle of Man Entity were made pursuant to opinion letters
from several law firms that these transfers were legal. One such
letter, which was written by Counsel, was provided to the IRS.
Counsel’s letter stated that a qualified United States
charitable corporation can legally make a grant to a charitable
organization in another country so long as the funds are used
for charitable purposes. The IRS audit of the Corporation
concluded with a finding of “no issue raised.”
In 2006, a grand jury convened in the Eastern District of
Virginia to investigate the monetary transfers from the
Corporation to the Isle of Man Entity. The grand jury issued
subpoenas duces tecum to various entities, including the
Corporation, seeking documents related to the transfers. When
the Corporation failed to have a representative appear before
4
the grand jury, the court granted the Government’s motion to
hold the Corporation in contempt.
The grand jury then issued a subpoena duces tecum to
Counsel requesting “any and all documents relating to [the
Corporation].” Counsel produced some documents and withheld
others on the ground that they were protected by the attorney-
client privilege. The Government moved to compel the production
of the withheld documents, arguing both that the attorney-client
privilege does not protect the communications of dissolved
corporations and that, if the attorney-client privilege does
apply, the crime-fraud exception to the attorney-client
privilege allows access to the withheld documents.
The district court granted the Government’s motion to
compel finding that the attorney-client privilege does not
protect the communications of a dissolved corporation when there
is no authorized officer available to validly assert the
privilege. Counsel timely appealed this decision (No. 07-2024).
In ruling on this initial appeal by Counsel, this court vacated
the district court’s decision and remanded the case, instructing
the district court to consider the Government’s argument that
the crime-fraud exception to the attorney-client privilege
applies to the withheld documents. See In re Grand Jury Subpoena
#06-1, 274 F. App’x 306, 309 (4th Cir. 2008).
5
On remand, the Government argued that it had established
the applicability of the crime-fraud exception to the withheld
documents based on violations of both 26 U.S.C. § 7206(1) (1982)
and 18 U.S.C. § 371 (1994). In addition, the Government argued
that the Corporation had waived the attorney-client privilege
with respect to the withheld documents.
The district court conducted an in camera hearing to
examine the Government’s ex parte submission of the grand jury’s
evidence against the Corporation and Counsel’s privilege log.
The privilege log details for each withheld communication, the
type of document withheld and the date on which it was written.
Thereafter, the district court conducted a hearing on the
applicability of the crime-fraud exception and held that the
Government had made out a prima facie case for a violation of 26
U.S.C. § 7206(1). 2 The district court specifically found that the
2
Section 7206(1) makes it a violation of the Internal
Revenue Code for any person to “willfully make or subscribe any
return, statement or other document which contains or is
verified by written declaration that is made under penalties of
perjury and which he does not believe to be true and correct as
to every material matter.” The elements of a prima facie case
for a violation of § 7206(1) are: 1) a tax return was filed
containing a written declaration, 2) the tax return was made
under penalties of perjury, 3) the defendant did not believe the
return to be true and correct as to every material matter; and
4) the defendant acted willfully. United States v. Aramony, 88
F.3d 1369, 1382 (4th Cir. 1996).
6
Corporation impermissibly represented that it had no
relationship with the Isle of Man Entity “when in fact this was
false.” The court based this finding on the Corporation’s
response of “none” on line 22 of Form 990 of its tax returns,
which required the Corporation to disclose a relationship with a
donee if the donee was an individual. In addition, the district
court found that the withheld documents bore a close
relationship to the alleged violation of § 7206(1) because
Counsel’s advice was used to “cloak the Corporation’s transfers
to the Isle of Man Entity in legitimacy.” The district court
thus found that the crime-fraud exception vitiated the attorney-
client privilege and again granted the Government’s motion to
compel. The district court incorporated its initial holding that
the attorney-client privilege does not protect the
communications of dissolved corporations into its decision for
the purposes of appeal. The district court declined to address
the Government’s waiver arguments because they were outside of
the scope of the court’s mandate on remand. Counsel timely
appealed.
II.
This court has previously acknowledged that the invocation
of a recognized privilege is grounds for refusing to comply with
7
a grand jury subpoena. See In re Grand Jury Proceedings # 5, 401
F.3d 247, 250 (4th Cir. 2005). The attorney-client privilege is
one such recognized privilege that protects confidential
communications between attorney and client.
Id.
However, under the crime-fraud exception to the attorney-
client privilege, “when a client gives information to an
attorney for the purpose of committing or furthering a crime or
fraud,” the privilege is lost. United States v. Under Seal,
102
F.3d 748, 750-51 (4th Cir. 1996) (citing In re Grand Jury
Subpoena,
884 F.2d 124, 127 (4th Cir. 1989)). For the crime-
fraud exception to apply, “it is enough that the communication
furthered, or was intended by the client to further . . .
illegality.” In re Grand Jury Proceedings #
5, 401 F.3d at 251.
The burden is on the party asserting the crime-fraud exception,
here the Government, to make a prima facie showing that the
exception applies. Id.; see also In re Grand Jury Proceedings,
33 F.3d 342, 348 (4th Cir. 1994).
The invocation of the crime-fraud exception requires a
prima facie showing that “(1) the client was engaged in or
planning a criminal or fraudulent scheme when he sought the
advice of counsel to further the scheme, and (2) the documents
containing the privileged materials bear a close relationship to
the client's existing or future scheme to commit a crime or
8
fraud.” In re Grand Jury Proceedings # 5, 401 F.3d at 251
(citations omitted). A party invoking the crime-fraud exception
can satisfy the first prong of this test by making a prima facie
showing of evidence, which, if accepted by the trier of fact,
establishes the elements of an ongoing or prospective violation
of the law.
Id. The second prong of this test is satisfied with
a showing of a close relationship between the withheld
communications and the alleged violation.
Id. Once a sufficient
showing has been made, the attorney-client privilege ceases to
protect any of the communications related to the alleged
violation. In re Grand Jury Subpoena,
419 F.3d 329, 345 (5th
Cir. 2005) (citing In re Sealed Case,
676 F.2d 793, 812 n.74
(D.C. Cir. 1982)).
As this court described in its initial remand order, the
district court could decide whether the crime-fraud exception
applies in either of two ways. See In re Grand Jury Subpoena #
06-1, 274 F. App’x at 309. One approach permits the district
court to examine the withheld documents in an in camera hearing
after the Government makes a factual showing that would support
a good faith belief by a reasonable person that an examination
of the withheld documents would reveal evidence of a violation
of the law. Id. at 310 (citations omitted). In the alternative,
the district court could make a determination that the crime-
9
fraud exception applied without examining the withheld documents
by conducting an ex parte and in camera examination of evidence
from the Government. Id. This second alternative does not
require that the Government make a threshold factual showing of
the basis for the application of the crime-fraud exception.
Id.
In determining whether the crime-fraud exception applies, courts
may rely on evidence not ordinarily admissible at trial. In re
Grand Jury
Subpoena, 884 F.2d at 127.
III.
“A district court's determination that the government made
a prima facie showing of crime or fraud should be upheld absent
a clear showing of abuse of discretion.” In re Grand Jury
Proceedings #5, 401 F.3d at 254. In addition, we may affirm on
any ground appearing in the record whether or not the district
court relied on it. Scott v. United States,
328 F.3d 132, 137
(4th Cir. 2003). While this court expresses no opinion as to
whether the district court’s application of the crime-fraud
exception based on a violation of § 7206(1) was an abuse of
discretion, we find that the totality of the evidence supports
the application of the crime-fraud exception based on a
violation of 18 U.S.C. § 371 as was argued by the Government
below.
10
IV.
A. PRIMA FACIE SHOWING OF VIOLATION OF 18 U.S.C. § 371
Counsel argues that the district court erred in holding
that the Government established a prima facie case for a
violation of § 7206(1) because line 22 did not require the
Corporation to disclose a relationship with a donee when the
donee was a company and not an individual. Title 18, United
States Code, Section 371, however, makes it a crime to engage in
a conspiracy to commit any offense against the United States or
to defraud the United States. The elements of a prima facie case
for a conspiracy to defraud the United States under 18 U.S.C. §
371 are: (1) an agreement to accomplish an illegal objective
against the United States, (2) one or more overt acts in
furtherance of the illegal purpose, and (3) intent to commit the
substantive offense, i.e., to defraud the United States. United
States v. Douglas, 398 F.3d 407, 413 (6th Cir. 2005).
In its ex parte submission, the Government has provided the
court with prima facie evidence that the Corporation, its
principals and the Isle of Man Entity had an agreement to
defraud the United States Government in contravention of § 371.
The Government’s submission provides prima facie evidence that
the Corporation and the Isle of Man Entity entered an agreement
to defraud the United States both by concealing the ultimate
11
disposition of the Corporation’s funds through the transfer of
assets overseas and by using the Corporation’s tax-exempt status
to circumvent the collection of taxes on the profits of
individuals. Such a purpose falls directly within the confines
of § 371. The transfer of $22,523,478 to the Isle of Man Entity
would be an overt act in furtherance of this purpose.
B. CLOSE RELATIONSHIP BETWEEN THE COMMUNICATIONS AND ALLEGED
§ 371 VIOLATION
Counsel also argues that the district court erred in
finding that the withheld documents bore the requisite close
relationship to the allegedly false statements on the
Corporation’s tax returns. The crime-fraud exception is
limited to those communications and documents in furtherance of
future or ongoing criminal or fraudulent conduct. In re Grand
Jury Subpoena, 419 F.3d at 343. Therefore, a party seeking
access to materials via the crime-fraud exception must
demonstrate a close relationship between the desired materials
and an alleged criminal or fraudulent conduct. In re Grand Jury
Proceedings #
5, 401 F.3d at 251. However, in making the close
relationship determination, courts must take into account that
the party invoking the crime-fraud exception, here the
Government, does not know exactly what the material will show.
12
See In re Grand Jury Investigation, 842 F.2d 1223, 1227 (11th
Cir. 1987). Courts can base a finding of the requisite close
relationship on an examination of an in camera submission of
evidence by the party invoking the exception so long as the
court has some evidence of the contents of the withheld
material. See In re Grand Jury
Proceedings, 33 F.3d at 351; cf.
In re Grand Jury Proceedings #
5, 401 F.3d at 255.
In making this finding we review both the Government’s ex
parte submission of evidence and Counsel’s privilege log, which
references documents from as early as 1986. The Government’s
evidence indicates that the Corporation’s scheme to defraud the
United States dates back as far as 1984 and that the Corporation
sought Counsel’s legal advice for the sole purpose of
facilitating its scheme to defraud the United States. Therefore,
all of the withheld documents bear the requisite close
relationship to the alleged violation of § 371 because they were
in furtherance of the alleged scheme. We conclude that the
Government has made a prima facie showing that there is a close
relationship between the withheld documents and the alleged
violation of § 371.
13
C. CONCLUSION
Based on the forgoing analysis, we find that all of the
documents in Counsel’s privilege log fall within the crime-fraud
exception to the attorney-client privilege. It follows that
Counsel must produce these documents to the Government pursuant
to the grand jury subpoena.
Because we find that the crime-fraud exception vitiates the
privileged status of these documents, we do not reach the issues
of whether the attorney-client privilege applies to dissolved
corporations or whether the attorney-client privilege was waived
by the Corporation in this case.
V.
For the foregoing reasons, we affirm, on alternate grounds,
the district court’s order granting the Government’s motion to
compel.
AFFIRMED
14
