United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON MOTIONS FOR RECONSIDERATION AND DE NOVO REVIEW OF APPLICATION OF CRIME-FRAUD EXCEPTION TO ATTORNEY-CLIENT PRIVILEGE AND DIRECTING COMPLIANCE WITH SUBPOENAS
F. DENNIS SAYLOR, IV, District Judge.
This dispute involves the application of the crime-fraud exception to the attorney-client privilege. Defendant David Gorski has been charged with mail fraud and conspiracy to defraud the United States. The indictment alleges in substance that from approximately late 2005 until November 2010, Gorski defrauded the United States by fraudulently representing that his company, Legion Construction, Inc. was a Service-Disabled Veteran Owned Small Business Entity ("SDVOSB") in order to qualify for and obtain government contracts. According to the indictment, Gorski is not a service-disabled veteran, and he concealed his "true ownership and control of Legion from the [government] by making false statements, representations, and omissions regarding the ownership, operation, and control of Legion."
The present dispute centers on a corporate restructuring of Legion that occurred in March 2010. The indictment essentially alleges that the restructuring was undertaken so that Legion would appear to be in compliance with new regulations while allowing Gorski to maintain effective ownership and control of the company.
The government alleges that Gorski used the services of the Boston-based law firm Mintz Levin Cohn Ferris Glovsky & Popeo, P.C. in connection with the 2010 restructuring to create fraudulently backdated documents to help perpetuate the scheme. Those documents purport to show that Legion underwent the corporate restructuring on February 1, 2010, in advance of a significant regulatory change that occurred on February 8. According to the government, the restructuring did not actually occur until March 2010, and the backdated documents and affidavit were submitted in April 2010 in response to a bid protest lodged by another company.
The government has issued subpoenas under Fed. R. Crim. P. 17(c) to Legion and Mintz Levin that command the production of various documents. Mintz Levin and Legion withheld production of certain documents on the ground that they constituted privileged attorney-client communications.
On August 7, 2014, the Court granted the government's motion for an in camera examination under United States v. Zolin, 494 U.S. 554 (1989), to determine whether the crime-fraud exception to the attorney-client privilege applied. On August 11, Mintz Levin submitted 2, 721 pages of documents for review, as well as a disc containing copies of three voicemail messages. Legion also submitted a large amount of unnumbered documents for review. The Court reviewed the relevant documents in camera and held an ex parte hearing on September 4, 2014. Also on September 4, the Court issued an order finding that the crime-fraud exception to the attorney-client privilege applied, and the Court ordered Legion and Mintz Levin to produce the documents covered by this order, and responsive to the Rule 17(c) subpoenas issued by the government, on or before Monday, September 8, 2014, at 5:00 p.m.
On September 8, 2014, defendant filed a motion for the Court to reconsider its September 4 order as overbroad. Specifically, defendant contended that the Court's order was too broad with respect to seven categories of documents. Also on September 8, Legion filed a motion to intervene and stay this Court's September 4 order. Along with the motion to intervene, Legion filed a motion for a de novo hearing on the crime-fraud exception issue. During a status conference on September 8, the Court stayed the September 4 order and granted the motion for a de novo hearing. On September 10, 2014, the government submitted a memorandum regarding the application of the crime-fraud exception requesting the Court to reinstate its September 4 order and order Mintz Levin and Legion to produce the entirety of documents responsive to the Rule 17(c) subpoenas. The Court held an ex parte hearing with Legion and defendant Gorski on September 11, 2014, where attorneys for both parties argued for the Court to reverse the September 4 order or, in the alternative, to narrow its reach.
The crime-fraud exception to the attorney-client privilege "excludes communications from client to attorney made (1) when the client was engaged in (or was planning) criminal or fraudulent activity, and (2) with the intent to facilitate or conceal the criminal or fraudulent activity." United States v. Albertelli, 687 F.3d 439, 450 (1st Cir. 2012). To pierce the attorney-client privilege under the crime-fraud exception, a party must make a prima facie showing that the exception applies. In re Grand Jury Proceedings, 417 F.3d 18, 22 (1st Cir. 2005). That showing is made if "there is a reasonable basis to believe that the lawyer's services were used by the client to foster a crime or fraud." Id. at 23. The party seeking to defeat the privilege must show "on something less than a mathematical (more likely than not) probability that the client intended to use the attorney in furtherance of a crime or fraud." Id. The inquiry focuses on the intent of the client, not of the attorney, and "requires the client's use or aim to use the lawyer to foster the crime or the fraud." Id. (emphasis in original).
Here, the client at issue is defendant David Gorski and/or Legion Construction, Inc., a closely-held corporation in which Gorski was an officer and stockholder, and which (according to the indictment) he effectively controlled. (For present purposes, it does not appear that there is any need to distinguish between the individual and the corporation.) The relevant lawyers are various attorneys at the law firm of Mintz Levin, as well as Elizabeth Schwartz of the firm Milofsky Schwartz in Worcester. The communications at issue consist of approximately 3000 to 4000 pages of documents produced in camera by Mintz Levin and Legion in response to the Rule 17(c) subpoenas and the Court's subsequent order; they consist principally of printouts of e-mails and drafts of various corporate documents. The communications are both relevant and facially privileged; the only issue is whether the crime-fraud exception applies.
As noted, the basic issue to be decided is whether Gorski, either individually or as an officer, director, and stockholder of Legion, used or intended to use the services of the lawyers in order to foster or further a crime or fraud. That inquiry is made somewhat easier by the fact that a grand jury has indicted Gorski, and thus found probable cause to believe that he committed a crime or fraud against the United States. Thus, this is not like a privilege dispute arising in the course of a grand jury investigation or a civil lawsuit, where a court normally has to ascertain whether any criminal activity occurred at all, and if so to ascertain its nature and scope. Instead, the Court will accept the indictment as conclusive evidence that there is probable cause to believe that David Gorski participated in the charged crime or fraud during the relevant time period. See Kaley v. United States, 134 S.Ct. 1090, 1098 (2014) ("The grand jury gets to say-without any review, oversight, or second-guessing-whether probable cause exists to think that a person committed a crime.").
According to the indictment, Gorski actually owned and controlled Legion. However, he concealed his "true ownership and control of Legion from the [government] by making false statements, representations, and omissions regarding [its] ownership, operation, and control." (Indictment, ¶ 22). He did so because he was not a service-disabled veteran, and thus Legion did not qualify as an SDVOSB. Gorski wanted to make it appear that Legion was an SDVOSB "in order to qualify for and obtain government contracts from the VA, the GSA, the Army, and the Navy set aside SDVOSB's." ( Id. ¶ 21). The indictment alleges that the conspiracy to defraud began in late 2005, when Gorski approached a disabled veteran about setting up a business. ( Id. ¶ 24).
After setting up Legion in January 2006, it was awarded various government contracts based on false representations that it was an SDVOSB. ( Id. ¶¶ 27-29). Gorski caused the company to undergo a corporate restructuring in August 2007, in which he became a 49% owner and two veterans became owners of the remainder. ( Id. ¶ 35). Gorski, however, caused the veterans to execute demand notes and employment agreements that effectively kept ownership and control with Gorski. ( Id. ¶¶ 36-40). Gorski also placed his wife on Legion's payroll "to enable [him] to draw additional salary and conceal the fact that [he] was paying himself more than the supposed disabled ...