Abraham Reich's recent post "Pondering the Privilege: Think Twice Before Firing Off Written Advice" cautioned attorneys that there is always a risk that their client communications may be revealed. This is exactly what happened in Amusement Industry, Inc., et al. v. Stern, et al. when the United States District Court for the Southern District of New York ordered the disclosure of the defendants' communications with five law firms and one individual attorney under the crime-fraud exception to the attorney-client privilege and work product protection.
The holding is rare as the crime-fraud exception is applied most often in criminal cases. A party trying to invoke the exception must show that there is probable cause to believe that a fraud has been committed and that the communications in question were in furtherance of the fraud.
Plaintiffs in the case claimed that the defendants had misappropriated $13 million in a real estate deal involving 11 shopping centers. Plaintiffs moved to compel disclosure of the defendants' communications with the attorneys who represented them in the transaction.
After finding that the plaintiffs demonstrated probable cause that defendants had engaged in four fraudulent schemes, the court held that defendants could not have effectuated the schemes without the assistance of their attorneys. Although the court was careful to note that it makes no finding that the attorneys representing the defendants in the underlying transaction knew that they were being used for fraudulent or illegal purposes, the court ordered the production of the defendants' attorney-client communications with respect to the four schemes.
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