collingsworth 2nd bench memo on crime fraud

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

DRUMMOND COMPANY, INC.,

Plaintiff,

v.

TERRENCE P. COLLINGSWORTH, et al.,

Defendants.

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Case No 2:11-cv-3695-RDP

DEFENDANTS’ SECOND BENCH MEMORANDUM

Following the discussion with the Court yesterday during the in-chambers meeting,

defendants seek the following relief:

1. Conrad & Scherer requests that the Court immediately rule on Drummond’s

motion for sanctions as it relates to the firm. If the Court believes it must decide

the crime-fraud exception first, that analysis should be limited only to Mr.

Collingsworth.

2. Defendants have set forth their positions on important crime-fraud issues, for

which there is legal support. But, the Eleventh Circuit has not ruled on any of the

following:

Whether the crime-fraud exception should be invoked in a civil case

involving discovery misconduct and fraud on the court.

Whether the party asserting the privilege has a right to rebuttal following

an initial, prima facie showing.

What the standard is for opposing an initial, prima facie showing, and

whether a “reasonable explanation” for the conduct should surmount the

initial showing.

Whether the Court must conduct in camera review of testimony, in

addition to in camera review of documents, to determine whether the

second prong of the crime-fraud exception—the “in furtherance of”

requirement—is satisfied.

FILED 2015 Sep-03 AM 08:25U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 2:11-cv-03695-RDP-TMP Document 364 Filed 09/03/15 of 10

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Whether a crime-fraud finding in one case can be used to pierce privilege

in another case.

3. The Court should proceed on a crime-fraud analysis only as to Mr. Collingsworth,

and, if it finds a prima facie case of a crime or fraud has been made by

Drummond, either refer the matter to the U.S. Attorney or immediately stay the

case and allow the defendants to appeal that determination.

4. If the Court finds the crime-fraud exception applies, it should certify its decision

for interlocutory appeal. Defendants also request that, regardless of whether there

is an interlocutory appeal or mandamus petition, the Court stay the entire case

during the pendency of the appeal.

5. There is no basis for applying the crime-fraud exception to Conrad & Scherer.

Collingsworth admits he failed to disclose to anyone the El Tigre/Samario and

Blanco assistance payments until after the October 15, 2014 Order was

entered and the new team undertook its investigation.

Bill Scherer – as the Rule 30(b)(6) representative of Conrad & Scherer – has

testified twice that neither he nor anyone at the partner level of the

partnership, other than Collingsworth, knew about the El Tigre/Samario and

Blanco assistance payments until after October 15, 2014 Order, after the new

team came on board and discovery was supplemented.

The October 15, 2014 Order had a discovery cutoff deadline that was met, and

supplementation of interrogatories, by agreement of the Special Master, were

postponed to January 9, 2015.

ARGUMENT

1. Conrad & Scherer requests that the Court immediately rule on Drummond's

motion for sanctions as it relates to the firm. If the Court believes it must

decide the crime-fraud exception first, that analysis should be limited only to

Mr. Collingsworth.

Conrad & Scherer urges the Court to immediately rule on Drummond’s motion for

sanctions as it relates to the firm. As the Court has acknowledged, only a finding of bad faith will

sustain the default-judgment sanctions Drummond seeks. Bad faith cannot be imputed to the law

firm, which is a separate party in this case. There is no evidence of bad faith by the firm


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regarding the misrepresentations that underlie Drummond’s sanctions motion. That motion

should immediately be denied as to Conrad & Scherer.

2. Defendants have put forth their position on important crime-fraud issues, for

which there is legal support. But, the Eleventh Circuit has not ruled on any

of the following:

Whether the crime-fraud exception should be invoked in a civil case

involving discovery misconduct and fraud on the court.

The Southern District of Florida’s decision in Gutter v. E.I. Dupont De Nemours, 124 F.

Supp. 2d 1291 (S.D. Fla. 2000), appears to be the only district court case in the circuit applying

crime-fraud in the civil discovery context. Even then, however, the crime-fraud exception was

applied in a different case from the ones in which the discovery violations occurred.

Whether the party asserting the privilege has a right to rebuttal following

an initial, prima facie showing.

Gutter, citing a Third Circuit case, says there should be a right of rebuttal. See Gutter,

124 F. Supp. 2d at 1306 (citing Haines v. Liggett Group Inc., 975 F.2d 81 (3d Cir. 1992)). As the

Court has observed, the Eleventh Circuit has not directly addressed this question.

What the standard is for opposing an initial, prima facie showing, and

whether a “reasonable explanation” for the conduct should surmount the

initial showing.

Gutter adopted the “reasonable explanation” standard from Haines. The Eleventh Circuit

does not appear to have addressed this issue.

Whether the Court must conduct in camera review of testimony, in

addition to in camera review of documents, to determine whether the

second prong of the crime-fraud exception—the “in furtherance of” prong

is satisfied.

There are courts outside of the Eleventh Circuit that believe ex parte in camera review of

testimony is an important safeguard in the crime-fraud analysis for determining whether the

communication or documents at issue were made in furtherance of a crime or fraud. That


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safeguard should be in place especially where the crime-fraud exception is applied based on a

prima facie showing of fraud, rather than a statutory crime. See In re Gen. Motors Corp., 153

F.3d 714, 716 (8th Cir. 1998) (directing district court to have ex parte, in camera hearing to

determine whether the crime-fraud exception applied to certain documents and testimony, and

holding that the party seeking to pierce the privilege had no legal right to insist on being present

at the in camera review); United States v. Boender, 649 F.3d 650, 656 (7th Cir. 2011) (district

court had discretion whether to hold adversarial in camera review of proffered testimony,

observing that some circumstances may warrant review solely by the court of in camera

testimony); In re Grand Jury (G.J. No. 87-03-A), 845 F.2d 896, 898 (11th Cir. 1988) (explaining

that defense and Government made in camera proffers of testimony to establish the “in

furtherance of” factor); Matter of Feldberg, 862 F.2d 622, 628 (7th Cir. 1988) (“The district

court could not properly order Feldberg to answer Question 2 without making a preliminary

determination—after an in camera hearing, if necessary—about the kind of answer that would be

forthcoming.”).

Whether crime fraud finding in one case can be applied to pierce privilege

in another case.

The Court asked a series of questions during the in-chambers conference about the scope

of the application of the crime-fraud exception, as it relates to attorney-client and work product

privileges in this case, and in other cases. Those questions have not been conclusively resolved

in the Eleventh Circuit.

What is clear, however, is that the work product and attorney-client analyses are

different. “In contrast to the attorney-client privilege, the work product privilege belongs to both

the client and the attorney, either one of whom may assert it. Thus, a waiver by the client of the


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work product privilege will not deprive the attorney of his own work product privilege, and vice

versa.” In re Grand Jury Proceedings, 43 F.3d 966, 972 (5th Cir. 1994).

In In re Grand Jury Proceedings, the Fifth Circuit considered “whether a prima facie

case of fraud or criminal activity by the client will be sufficient to invoke the crime/fraud

exception if the party asserting the work product privilege is an innocent attorney.” Id. at 972. In

holding that an innocent attorney may assert work product notwithstanding a prima facie

showing of criminal conduct by his client, the Fifth Circuit observed that “[n]umerous courts

have agreed that, in the specific context of the work product privilege, an innocent attorney may

invoke the privilege even if a prima facie case of fraud or criminal activity has been made as to

the client. See United States v. Under Seal (In re Grand Jury Proceedings, Thursday Special

Grand Jury September Term 1991), 33 F.3d 342, 349 (4th Cir.1994) (“The record in the case

does not indicate that the attorney engaged in ... misconduct ... and, therefore, the attorney may

not be said to have waived his right to assert the work product privilege”); In re Sealed Case,

676 F.2d 793, 812 (D.C. Cir.1982) (noting that the crime/fraud exception applies “[u]nless the

blameless attorney is before the court with an independent claim of privilege.”); cf. In re Special

September 1978 Grand Jury, 640 F.2d 49, 63 (7th Cir. 1980) (exposing all information—but not

mental impressions, conclusions, opinions, or legal theories—that an innocent attorney has

collected if the government shows it has “extraordinary” need for the information); In re Grand

Jury Proceedings, 604 F.2d 798, 802 n. 5 (3d Cir. 1979) (“[T]here may be circumstances in

which the attorney, without knowledge of his client’s illegal activity, might nevertheless properly

claim and prevail in asserting a work product privilege.”) (emphasis added).” Id.

The same rational applies to an innocent client whose lawyer is alleged to have engaged

in a crime or fraud sufficient to support the crime-fraud exception. As explained by the Fifth


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Circuit in a subsequent decision, work product may be asserted by either an innocent client or

innocent lawyer in the face of alleged wrongdoing by the other: “The party intending crime or

fraud cannot invoke the work product doctrine, but if the other party did not intend crime or

fraud, that party can invoke it.” In re Grand Jury Subpoenas, 561 F.3d 408 (5th Cir. 2009).

3. The Court should proceed on a crime-fraud analysis only as to Mr.

Collingsworth, and, if it finds a prima facie case of a crime or fraud has been

made by Drummond, either refer the matter to the U.S. Attorney or

immediately stay the case and allow the defendants to appeal that

determination.

As explained further below, there is no basis for making a crime-fraud finding as to

Conrad & Scherer. The Court should consider the crime-fraud question only as to Mr.

Collingsworth. If the Court finds, after defendants’ rebuttal, that a prima facie case of a crime or

fraud has been made by Drummond, either refer the matter to the U.S. Attorney or immediately

stay the case and allow the defendants to appeal that determination.

4. If the Court finds the crime-fraud exception applies, it should certify its

decision for interlocutory appeal and stay the entire case.

In light of the whole series of undecided issues in the Eleventh Circuit addressed above,

certification for interlocutory appeal would be appropriate following a crime-fraud finding by the

Court. Under 28 U.S.C. § 1292(b), appellate review of an interlocutory order is available if the

district court certifies “that such order involves a controlling question of law as to which there is

substantial ground for difference of opinion and that an immediate appeal from the order may

materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b).

Certification of an order finding the crime-fraud exception applies would be appropriate.

This is clearly an exceptional case in which the appeal may avoid protracted and expensive

litigation, and which there could be “serious doubt” about how the crime-fraud issue should be


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resolved. See Amason v. Kangaroo Exp., No. 7:09-CV-2117-RDP, 2013 WL 985536, at *2 (N.D.

Ala. Mar. 11, 2013).

In any event, whether the appeal proceeds on an interlocutory basis or as a mandamus

petition, it would be proper for the Court to stay proceedings pending the appeal. See Blinco v.

Green Tree Servicing, LLC, 366 F.3d 1249, 1252 (11th Cir. 2004). As the Supreme Court has

explained:

a federal district court and a federal court of appeals should not attempt to assert

jurisdiction over a case simultaneously. The filing of a notice of appeal is an event

of jurisdictional significance—it confers jurisdiction on the court of appeals and

divests the district court of its control over those aspects of the case involved in

the appeal.

Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)). Indeed, “[i]t would be

inappropriate for this Court to address such motions at this time, during the pendency of the

appeal, because a district court does not have the power to alter the status of the case as it rests

before the Court of Appeals.” See Madura v. BAC Home Loans Servicing L.P., 8:11-cv-2511-T-

33-TBM, 2013 WL 140614, at *1 (M.D. Fla. Jan.11, 2013) (internal quotations omitted). During

an appeal, “[t]he district court retains only the authority to act in aid of the appeal, to correct

clerical mistakes, or to aid in the execution of a judgment that has not been superseded.”

Showtime/The Movie Channel, Inc. v. Covered Bridge Condo. Ass'n, 895 F.2d 711, 713 (11th

Cir.1990).

5. There is no basis for making a crime-fraud determination as to Conrad & Scherer.

After two days of testimony, it is clear that Drummond has not made a prima facie

showing of a crime or fraud against Conrad & Scherer. Collingsworth admits he failed to

disclose to anyone the El Tigre/Samario and Blanco assistance payments until after the October

15, 2014 Order was entered and the new team undertook its investigation. Bill Scherer – as the

Rule 30(b)(6) representative of Conrad & Scherer – has testified twice that neither he nor anyone


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at the partner level of his firm (and it is a partnership) knew about the El Tigre/Samario and

Blanco assistance payments until after October 15, 2014 Order, after the new team came on

board and discovery was supplemented. The October 15, 2014 Order had a discovery cutoff

deadline that was met, and supplementation of interrogatories, by agreement of the Special

Master, were postponed to January 9, 2015.

If the crime-fraud exception is applied, the analysis should be focused on Mr.

Collingsworth only, and Mr. Collingsworth agrees with that point.

CONCLUSION

For the reasons stated above, Conrad & Scherer requests that the Court immediately rule

on Drummond’s sanctions motion as applied to the firm, and then proceed with a crime-fraud

analysis only as to Mr. Collingsworth. In the event the Court rules the crime-fraud exception

applies, defendants request that the Court either refer the matter to the U.S. Attorney’s office, or

stay the case so defendants can seek immediate appellate review.

DATE: September 3, 2015 Respectfully submitted,

/s/ William T. Paulk

Robert K. Spotswood

Michael T. Sansbury

William T. Paulk

SPOTSWOOD SANSOM & SANSBURY LLC

1819 5th Ave. N.

Suite 1050

Birmingham, AL 35203

Phone (205) 986-3620

Fax (205) 986-3639

[email protected]

[email protected]

[email protected]

Attorneys for Terrence P. Collingsworth and

Conrad & Scherer, LLP


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OF COUNSEL FOR DEFENDANTS:

Kenneth E. McNeil, Pro Hac Vice

Texas State Bar No.: 13830900

Stuart V. Kusin, Pro Hac Vice

Texas State Bar No.: 11770100

1000 Louisiana Street, Suite 5100

Houston, Texas 77002-5096

Telephone: 713/651-9366

Facsimile: 713/654-6666

Lindsey Godfrey Eccles, Pro Hac Vice

WASB No. 33566

SUSMAN GODFREY LLP

1201 Third Avenue

Suite 3800

Seattle, Washington 98101

Telephone: 206/516-3880

Facsimile: 206/516-3883

[email protected]

Christopher S. Niewoehner

Admitted pro hac vice

Steptoe & Johnson LLP

115 South LaSalle Street, Suite 3100

Chicago, IL 60604

Tel: 312-577-1240

Fax: 312-577-1370

[email protected]

Kendall R. Enyard

Savannah E. Marion

Admitted pro hac vice

Steptoe & Johnson LLP

1330 Connecticut Avenue NW

Washington, DC 20036

Tel: 202-429-6405

Fax: 202-429-3902


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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that, on September 3, 2015, I electronically filed the foregoing

with the Clerk of Court using the CM/ECF system, which will send notification of such filing to

the following:

William Anthony Davis, III

H. Thomas Wells, III

Benjamin T. Presley

STARNES DAVIS FLORIE LLP

P.O. Box 59812

Birmingham, AL 35259

(205) 868-6000

fax: (205) 868-6099

Sara E. Kropf

LAW OFFICE OF SARA KROPF PLLC

1001 G St. NW, Suite 800

Washington, DC 20001

(202) 627-6900

/s/ William T. Paulk

William T. Paulk


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