Third Circuit Adopts Reasonable Basis Of Suspicion As The Standard To Invoke The Crime-Fraud Exception to the Attorney-Client Privilege

On December 11, the U.S. Court of Appeals for the Third Circuit issued a precedential ruling that reasonable suspicion of an intended crime is sufficient proof to overcome the attorney-client privilege. In re: Grand Jury: John Doe 1, John Doe 2, ABC Corp., Case Nos. 12-1697 & 12-2878, 2012 U.S. App. LEXIS 25318 (3rd Cir. Dec. 11, 2012). Relevant Facts The case involved a grand jury investigation of an unidentified corporation (the "Corporation") that engaged in an alleged criminal tax scheme. Id. at *7. The Corporation purchased several companies with large cash accounts and substantial tax liabilities. Id. After the purchase, the stock of the acquired companies was transferred to limited liability companies that engaged in various transactions to eliminate the acquired companies' tax liabilities. Id. The Corporation's principal and sole shareholder then purportedly siphoned the acquired companies' funds to themselves and their family. Id. Subpoenas The government issued subpoenas to the Corporation's former outside counsel and in-house counsel for documents and testimony relating to those transactions. Id. at *8-9, 13. The attorneys all objected to the discovery requests on the ground that they were protected by the attorney-client privilege and work product doctrine. Id. at *8, 13. The government argued, and the district court agreed in substantial part, that the government was entitled "to obtain access to otherwise privileged communications and work product when they are used in furtherance of an ongoing or future crime." Id. at *2-3. Appellate Jurisdiction The Third Circuit dismissed the appeal of the district court's disclosure order to outside counsel for lack of appellate jurisdiction. Id. at *4. The court explained that the disclosure orders themselves were not "immediately appealable final decisions," and for the Corporation and its outside counsel to seek review, they first would have to disobey the disclosure order, be held in contempt, and then appeal the contempt order. Id. at *3. Relying on the exception to the contempt rule first established in Perlman v. United States, 247 U.S. 7 (1918), however, the court granted immediate appellate review of the otherwise nonfinal decision of the district court's disclosure order to the Corporation's three former in-house counsel. Id. at *3-5. The Perlman exception applied to that order because the court found that the former in-house counsel, unlike outside counsel, "are...disinterested...