Horwitt v. Sarroff et al

Filing 156

RULING ON DISCOVERY DISPUTE: For the reasons explained in the attached Ruling, the Court finds that the Receiver is not entitled to the additional testimony sought and discussed at the July 11, 2019 discovery conference. Signed by Judge Victor A. Bolden on 8/30/2019. (Baran, Hugh)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
JED HORWITT, Esq., as Receiver for Sentinel
Growth Fund Management, LLC, Radar
Alternative Fund LP, and Radar Alternative
Master Fund SPC,
Plaintiff,
No. 3:17-cv-1902 (VAB)
v.
ALAN L. SARROFF, A.L. SARROFF
MANAGEMENT, LLC, and A.L. SARROFF
FUND, LLC,
Defendants.
RULING ON DISCOVERY DISPUTE
On July 11, 2019, the Court held a telephonic discovery conference with Jed Horwitt,
Esq. (“Plaintiff” or “the Receiver”), and Alan L. Sarroff, A.L. Sarroff Management, LLC
(“Sarroff Mgmt.”), and A.L. Sarroff Fund, LLC (“Sarroff Fund”) (collectively, “Defendants”), to
address a pending discovery dispute related to the testimony of two witnesses, Alan L. Sarroff
and Larry Smith, in this action. Minute Entry, dated Jun. 11, 2019, ECF No. 130. The Receiver
seeks to compel these witnesses, who were deposed in April 2019, to provide additional
testimony that Defendants argue is protected from disclosure under the attorney-client privilege.
Joint Motion for Status Conference, dated Jun. 7, 2019 (“Joint Mot.”), ECF No. 115.
For the reasons explained below, the Court finds that the Receiver is not entitled to this
additional testimony.
I.

FACTUAL AND PROCEDURAL BACKGROUND
Familiarity with the facts and prior proceedings, as detailed in the Court’s May 10, 2019

Ruling denying Defendants’ motion to transfer venue or dismiss this case, is assumed. See
Ruling on Motion to Transfer Venue or Dismiss, dated May 10, 2019, ECF No. 102, at 1–14.

On June 7, 2019, the parties jointly moved for a telephonic discovery conference. Joint
Mot. The parties sought the Court’s aid in resolving “the Receiver’s prospective motion to
compel testimony (and the production of related documents) over Defendants’ objection based
on (i) the crime-fraud exception to the attorney-client privilege; and (ii) the alleged overbreadth
of certain other attorney-client privilege assertions made by Sarroff and Larry Smith (Sarroff
Management’s Managing Member) at their depositions.” Id. at 1. The parties argue that there are
two issues to resolve: “(1) The application of the crime-fraud exception to certain
communications between Sarroff, Smith and Defendant’s counsel in late 2014 and late 2015;”
and “(2) The application of the attorney-client privilege to certain matters concerning Sarroff’s
and Smith’s knowledge and state of mind.” Id. at 3.
On June 13, 2019, the Court granted the parties’ motion, ordering them to submit short
briefs by June 14, 2019, outlining their respective positions on the discovery dispute. Order,
dated Jun. 13, 2019. The Court scheduled a telephonic discovery conference for June 18, 2019.
Id.
On June 14, 2019, the Receiver filed his brief. See Plaintiff’s Statement of Position
Regarding the Application of the Crime-Fraud Exception to the Attorney-Client Privilege and
Scope of the Attorney-Client Privilege, dated Jun. 14, 2019 (“Pl.’s Br.”), ECF No. 118.
On June 15, 2019, Defendants filed their brief. Defendants’ Statement Regarding the
Application of the Crime-Fraud Exception to the Attorney-Client Privilege, dated Jun. 15, 2019
(“Defs.’ Br.”), ECF No. 129.
On June 17, 2019, the Court continued the discovery conference sua sponte to June 27,
2019. Notice of E-Filed Calendar, dated Jun. 17, 2019, ECF No. 123.

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On June 25, 2019, the parties jointly moved to continue the discovery conference. Joint
Motion, dated Jun. 25, 2019, ECF No. 126.
On June 26, 2019, the Court granted that motion and continued the discovery conference
to July 11, 2019. Order, dated Jun. 26, 2019, ECF No. 127; Notice of E-Filed Calendar, dated
Jun. 26, 2019, ECF No. 128.
On July 11, 2019, the Court held a telephonic discovery conference with the parties.
Minute Entry, dated Jul. 11, 2019, ECF No. 130. The Court reserved its rulings as to the
discovery dispute. Id.
II.

STANDARD OF REVIEW
Under the Federal Rules of Civil Procedure, “[p]arties may obtain discovery regarding

any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the
needs of the case, considering the importance of the issues at stake in the action . . . the
importance of discovery in resolving the issues, and whether the burden or expense of the
proposed discovery outweighs its likely benefit.” FED. R. CIV. P. 26(b)(1).
But “district courts have the inherent authority to manage their dockets and courtrooms
with a view toward the efficient and expedient resolution of cases.” Dietz v. Bouldin, 136 S. Ct.
1885, 1892 (2016). Indeed, “[a] trial court enjoys wide discretion in its handling of pre-trial
discovery . . . .” Cruden v. Bank of N.Y., 957 F.2d 961, 972 (2d Cir. 1992); see In Re Agent
Orange Prod. Liab. Litig., 517 F.3d 76, 103 (2d Cir. 2008) (the district court has “wide latitude
to determine the scope of discovery.”); Gen. Houses v. Marloch Mfg. Corp., 239 F.2d 510, 514
(2d Cir. 1956) (“The order of examination is at the discretion of the trial judge . . . .”).

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III.

DISCUSSION
A. Choice of Law
The claims in this action all arise under Connecticut law. See Second Am. Compl. The

Receiver has alleged that jurisdiction in this action arises under 28 U.S.C. § 1367, because the
claims here are related to the claims in the main receivership proceeding, SEC v. Varacchi, No.
3:17-cv-155 (VAB), and to property that is controlled by the Court. See Second Am. Compl. §
23 (“This Court has original jurisdiction over the SEC Action, to which the claims in this Action
relate. Further, this Action concerns property under the Court’s exclusive jurisdiction and the
Receiver has brought this Action in furtherance of his appointment and in the performance of his
duties as directed by this Court. Therefore, this Court has subject matter jurisdiction over this
Action under 28 U.S.C. § 1367.”); see also 28 U.S.C. § 1367(a) (“[I]n any civil action of which
the district courts have original jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III of the United
States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder
or intervention of additional parties.”).
Historically, the type of jurisdiction at play here—where state-law claims are filed in a
separate action but said to be interrelated with the original, federal law claims from which
jurisdiction is alleged to flow, and/or with the enforcement of court orders in the federal law
action—has been described as an exercise of a court’s “ancillary jurisdiction.” See, e.g., Riehle v.
Margolies, 279 U.S. 218, 223 (1929) (“The appointment of a receiver of a debtor’s property by a
federal court confers upon it, regardless of citizenship and of the amount in controversy, federal
jurisdiction to decide all questions incident to the preservation, collection, and distribution of the

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assets. It may do this either in the original suit, or by ancillary proceedings.”) (citations omitted);
Pope v. Louisville, N.A. & C. Ry. Co., 173 U.S. 573, 577 (1899) (“When an action or suit is
commenced by a receiver, appointed by a circuit court, to accomplish the ends sought and
directed by the suit in which the appointment was made, such action or suit is regarded as
ancillary so far as the jurisdiction of the circuit court as a court of the United States is concerned;
and we have repeatedly held that jurisdiction of these subordinate actions or suits is to be
attributed to the jurisdiction on which the main suit rested, and hence that, where jurisdiction of
the main suit is predicated on diversity of citizenship, and the decree therein is, therefore, made
final in the circuit court of appeals, the judgments and decrees in the ancillary litigation are also
final.”) (collecting cases).
In 1990, Congress enacted 28 U.S.C. § 1367. See Exxon Mobil Corp. v. Allapattah Servs.,
Inc., 545 U.S. 546, 557 (2005); id. at 583–84 (Ginsburg, J., dissenting). “Under 28 U.S.C.
§ 1367(a), federal courts have supplemental jurisdiction to hear state law claims that are so
related to federal question claims brought in the same action as to ‘form part of the same case or
controversy under Article III of the United States Constitution.’” Briarpatch Ltd., L.P. v.
Phoenix Pictures, Inc., 373 F.3d 296, 308 (2d Cir. 2004); see Exxon, 545 U.S. at 583–84
(Ginsburg, J., dissenting) (explaining that the Supreme Court’s decision in Finley v. United
States, 490 U.S. 545 (1989), which partially abrogated United Mine Workers v. Gibbs, 383 U.S.
715 (1966), ultimately led the Federal Courts Study Committee of the Judicial Conference of the
United States, established by Congress, to recommend enactment of a law overruling Finley,
which Congress responded to by enacting § 1367).
The Second Circuit has recognized that an SEC receivership continues to provide a basis
for ancillary jurisdiction over the Receiver’s other actions. See Eberhard v. Marcu, 530 F.3d

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122, 129 (2d Cir. 2008) (“Even where we have not approved of a receiver’s actions, we have
upheld the court’s jurisdiction if ‘the receiver’s suit is to aid in the accomplishment of the ends
sought and directed in the SEC action.’”) (quoting Esbitt v. Dutch-Am. Mercantile Corp., 335
F.2d 141, 142–43 (2d Cir. 1964)). But the Second Circuit did not address whether this ancillary
jurisdiction is a sub-type of the supplemental jurisdiction created by 28 U.S.C. § 1367.1 Indeed,
the Second Circuit has more generally acknowledged that the “boundaries of ancillary
jurisdiction are not easily defined and the cases addressing it are hardly a model of clarity.” Stein
v. KPMG, LLP, 486 F.3d 753, 760 (2d Cir. 2007).
In recent years, the Supreme Court has also observed that “the terms of § 1367 do not
acknowledge any distinction between pendent jurisdiction and the doctrine of so-called ancillary
jurisdiction.” Exxon, 545 U.S. at 559. The Supreme Court has also noted that 28 U.S.C. § 1367
“codified the court-developed pendent and ancillary jurisdiction doctrines under the label
‘supplemental jurisdiction.’” Artis v. Dist. of Columbia, 138 S. Ct. 594, 598 (2018). And the
Receiver, as noted above, asserts that jurisdiction in this action flows from 28 U.S.C. § 1367.
If the Receiver is correct, and the privileged material is relevant only to the state claims,
the state’s privilege law applies; but if it is relevant to both the federal and state claims, federal
privilege law, as defined by federal common law, applies. See von Bulow by Auersperg v. von
Bulow, 811 F.2d 136, 141 (2d Cir. 1987) (“The complaint in the instant action alleges a federal

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There is very little other case law on this issue. The United States Court of Appeals for the Fourth Circuit has held
that this branch of ancillary jurisdiction remains independent of § 1367 and is governed by case law, and has
specifically invoked this in context of a receivership. See Robb Evans & Assocs. v. Holibaugh, 609 F.3d 359, 363
(4th Cir. 2010) (“Although § 1367 governs ancillary jurisdiction over claims asserted in a case over which the
district court has federal subject matter jurisdiction, it does not affect common law ancillary jurisdiction ‘over
related proceedings that are technically separate from the initial case that invoked federal subject matter
jurisdiction,’ which remains governed by case law.”) (quoting WRIGHT & MILLER, FED. PRAC. & PROC. § 3523.2
(“This section focuses not on supplemental jurisdiction over claims asserted in federal court but on jurisdiction over
related proceedings that are technically separate from the initial case that invoked federal subject matter jurisdiction.
This form of jurisdiction developed in case law as ‘ancillary’ or ‘ancillary enforcement’ jurisdiction. It seems clear
that § 1367 does not apply to this form of jurisdiction.”) (collecting cases)).

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claim based on RICO and state law claims based on pendent and diversity jurisdiction. The
evidence sought from Reynolds is relevant to both the federal and state claims. In such situations
courts consistently have held that the asserted privileges are governed by the principles of federal
law.”); see also, e.g., Marsteller v. Butterfield 8 Stamford LLC, No. 3:14-cv-1371 (AWT), 2017
WL 5769903, at *2 (D. Conn. Nov. 27, 2017) (“[I]n this case, in which subject matter
jurisdiction is premised on a federal question, and the state law claims in issue (such as
intentional infliction of emotional distress) are addressed under the Court’s supplemental
jurisdiction, the asserted privileges are governed by the principles of federal law.”) (citation and
internal quotation marks omitted).
Because there appears to be no significant substantive difference between Connecticut
and federal law with respect to their treatment of the crime-fraud exception to attorney-client
privilege, however, the Court need not decide which law is controlling here—nor opine on the
broader question of whether this aspect of ancillary jurisdiction flows from § 1367. See, e.g.,
Olson v. Accessory Controls & Equip. Corp., 254 Conn. 145, 177 (2000) (“[W]e reject a strict
burden shifting approach and instead employ the test adopted by the Court of Appeals for the
Second Circuit, which requires a showing of probable cause to believe that the privileged
communications were made with the intent to perpetrate a civil fraud and that the
communications were made in furtherance of that fraud.”) (citations omitted).
B. The Crime-Fraud Exception under Federal and Connecticut Law
“Otherwise privileged communications are not protected from disclosure if they relate to
client communications in furtherance of contemplated or ongoing criminal, fraudulent, or
wrongful conduct.” United States v. Jacobs, 117 F.3d 82, 87 (2d Cir. 1997); see Olson, 254
Conn. at 155 (“[U]nder the crime-fraud exception, otherwise privileged communications may be

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stripped of their privileged status if the communications have been procured with the intent to
further a civil fraud.”).
Under both federal and Connecticut law, the party seeking to defeat the attorney-client
privilege through the crime-fraud exception bears the burden of showing there is probable cause
to believe that: “(1) a fraud or crime has been committed; and (2) the communication in question
was intended to further the fraud or crime.” Jacobs, 117 F.3d at 87–88; see also In re Richard
Roe, Inc., 68 F.3d 38, 40 (2d Cir. 1995) (“[T]he crime-fraud exception applies only where there
is probable cause to believe that the particular communication with counsel or attorney work
product was intended in some way to facilitate or to conceal the criminal activity.”); Blumenthal
v. Kimber Mfg., 265 Conn. 1, 18 (2003) (“The crime-fraud exception to the attorney-client
privilege, therefore, is a limited one, and the burden of proof is on the party seeking to pierce the
privilege . . . . The exception applies only after a determination by the trial court ‘that there is
probable cause to believe that a crime or fraud has been attempted or committed and that the
[communication was] in furtherance thereof.’”) (citing and quoting Olson, 254 Conn. at 172,
173).
“The crime-fraud exception to the attorney-client privilege cannot be successfully
invoked merely upon a showing that the client communicated with counsel while the client was
engaged in criminal activity.” In re Grand Jury Subpoenas Duces Tecum, 798 F.2d 32, 34 (2d
Cir. 1986). Nor does it apply “simply because privileged communications would provide an
adversary with evidence of a crime or fraud. If it did, the privilege would be virtually worthless
because a client could not freely give, or an attorney request, evidence that might support a
finding of culpability. Instead, the exception applies only when the court determines that the
client communication or attorney work product in question was itself in furtherance of the crime

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or fraud.” Richard Roe, 68 F.3d at 40 (citing Grand Jury Subpoenas, 798 F.2d at 34); accord
Olson, 254 Conn. at 175–76 (citing Richard Roe, 68 F.3d at 40).
C. November 2014 Letter
The Receiver argues that a “fraud” was committed when, in November 2014, Bennett
Last (Mr. Sarroff’s “estate planning attorney of over 40 years”) drafted a letter to Mr. Varacchi
that, on its face, was merely an attempt to induce him to provide more transparency about the
status of the Sarroff funds, and a threat to take legal action to obtain “administrative accounting
reports immediately” from Sentinel and Mr. Varacchi. Pl.’s Br. at 1–2. After this letter was a
written, Mr. Sarroff allegedly “made handwritten notes on this letter, which refer to a fictitious
person named ‘Bill at the Ramsey Fund’ being ‘on thin ice.’” Id. at 2. The Receiver therefore
argues that this “fraud” gives him probable cause to compel both testimony and documents,
regarding “all communications concerning [his] November 2014 letter to Sarroff, the nonexistent ‘Ramsey Fund’, its fictious agent ‘Bill’ and the decision to communicate the letter to
[Mr.] Varacchi.” Id.
The Court disagrees.
Under the Receiver’s theory, “[t]he involvement of an attorney to misrepresent facts for
the purpose of inducing another person to provide information they were not otherwise willing to
provide triggers the crime-fraud exception to the attorney-client privilege irrespective of whether
the misrepresentations are criminal or cause damages.” Id. (citing Meyer v. Kalanick, 212 F.
Supp. 3d 437, 443–45 (S.D.N.Y. 2016)). This is so, the Receiver argues, because these
misrepresentations violate an attorney’s ethical duty not to engage in conduct involving
dishonesty, fraud, deceit, or misrepresentation. Id. (citing Meyer, 212 F. Supp. 3d at 446; NXIVM
Corp. v. O’Hara, 241 F.R.D. 109, 135 (N.D.N.Y. 2007)).

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While the Receiver is correct that, under both federal and Connecticut law, the “fraud”
prong provides that the exception is not limited to instances of actual criminal conduct, neither
the Second Circuit nor the Connecticut Supreme Court has ever recognized that prong to be as
sweeping as the Receiver contends. To label as “frauds” all attorney “misrepresentations”
allegedly undertaken to “induce another person to provide information they were not otherwise
willing to provide” would allow the crime-fraud exception to subsume the attorney-client
privilege in its entirety.2

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The cases cited by the Receiver are also readily distinguishable from the facts at issue here. In Meyer, the
defendant’s counsel was alleged to have made numerous misrepresentations in the course of interviewing “28
acquaintances or professional colleagues of plaintiff Meyer and plaintiff’s counsel Schmidt,” with the goal of
uncovering disparaging or damaging personal and/or professional information about him. Meyer, 212 F. Supp. 3d at
440; see also id. (“[I]t is more likely, the Court finds (based on the facts detailed above), that the purpose of the
investigation was to try to unearth derogatory personal information about Mr. Meyer and his counsel that could then
be used to try to intimidate them or to prejudice the Court against them.”). In addition, the court in Meyer explicitly
found evidence of “arguably criminal” conduct. See id. at 447–48 (“Moreover, if Ergo’s misrepresentations to
sources were not sufficient evidence of the applicability of the crime-fraud exception, two additional features of
Ergo’s conduct highlight their conduct’s impropriety. First, although Ergo was located in New York, Ergo, as
previously noted, did not possess a private investigator’s license to engage in its investigative activities, as required
by New York law. Violation of this licensing provision may itself be prosecuted as a criminal misdemeanor . . . .
Second, it is undisputed that Ergo’s investigator Mr. Santos-Neves recorded his phone calls with sources without
their knowledge or consent . . . . The Ergo investigator’s recording of phone calls without the consent of his
interlocutors was at worst illegal and, at best, evidence of reckless disregard of the risk of failing to comply with the
law.”).
All of this, however, was invoked by that court as a rationale for overcoming a claim of work-product
protection for documents produced during that investigation—and not for gaining access to attorney-client
communications. See id. at 448 (“For all of the reasons stated above, the Court denied Ergo and/or Uber’s claim of
work-product protection for Ergo communications that were responsive to plaintiff’s subpoena (as narrowed by the
Court).”). The court otherwise declined to require disclosure of attorney-client communications that the court found
legitimately covered by privilege. See id. (“For example, the Court did not find that Mr. Kalanick’s counsel, in
making inaccurate representations to plaintiff’s counsel about whether Uber had commissioned the Ergo
investigation, acted with fraudulent intent. Rather, he was the victim of inaccurate representations made to him by
Uber’s in-house counsel that, while negligent (maybe even grossly negligent), did not evidence intentional falsity.”).
In NXIVM, the attorney’s conduct involved ex parte contact with an adversary represented by counsel, in a
“sting operation” designed to “ensnare [the adversary] into divulging intimate litigation or business strategies by
deceit.” But the attorney was explicitly retained for this purpose, after the “sting” had already begun. In other words,
his retention in the case as a whole was for the purpose of furthering the fraud. See NXIVM, 241 F.R.D. at 134
(“Succinctly, just to reiterate, in the later part of November 2004, NXIVM and Interfor concocted a plan to get Ross
to talk about his defense in NXIVM v. Ross et al. and his intervention investigations which may have included
NXIVM . . . . They continued this connivance by retaining Ross to intervene on behalf of this phony Zuckerman
family and extended a $2,500.00 retainer to him . . . . After O’Hara had retained Interfor and a day prior to the
release of the Ross Status Report, on November 22, 2004, Interfor and NXIVM representatives, including O’Hara,
met. O’Hara made notes to himself about the various topics discussed and these notes are informative enough to
illuminate the cabal’s strategy to gather and collect information from Ross. On the first page of the notes are
notations about the ‘distraught mother’ scheme. But beginning on the second page, emblazoned across the top of

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Such a result would undermine the deep public interests underlying the attorney-client
privilege. See United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011) (“The privilege’s
underlying purpose has long been ‘to encourage full and frank communication between attorneys
and their clients and thereby promote broader public interests in the observance of law and
administration of justice.’”) (quoting Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)).
D. 2015 Conversation
The Receiver also argues that Mr. Sarroff’s colleague, Larry Smith, sought the counsel of
Mr. Last and Steven Goldstein on “how to extort Mr. Varacchi in a manner that would help him
plausibly deny that was his intention[.]” Pl.’s Br. at 5, 4. Specifically, on December 3, 2015, after
Mr. Varacchi allegedly admitted falsifying a brokerage statement in order to overstate the value
of Radar LP’s brokerage account, a draft e-mail sent by Alan Sarroff to his colleague Larry
Smith included language that indicated he had spent “over 4 hours on the phone with attorneys
teaching me how not to write extortion letters like that.” Id. at 4. Mr. Smith also allegedly
(1) threatened to seek the assistance of a “childhood friend who is an agent of the United States
Secret Service,” (2) told Mr. Varacchi on December 22, 2015 that he “want[ed] $2 million
dollars back or your world is over,” and (3) told Mr. Varacchi and Mr. Rhodes on December 28,
2015 that “You can’t say we didn’t give you both the chance of a lifetime.” Id. at 4–5. On
December 29, 2015, Mr. Varacchi allegedly paid Mr. Sarroff $1.4 million. Id. at 5.
Based on all this, the Receiver argues there is “probable cause for the conclusion that
[Mr. Smith] sought counsel’s advice intending to extort Varacchi in the most discreet/deniable

these notes is the phrase ‘Rick Ross Sting’ followed by the observation that ‘N & H [Nolan and Heller] can’t
participate because they represent NXIVM/ESP against Rick Ross et al-and he’s represented by counsel.’ Everyone
should have known the parameters, and if not, at least attorney O’Hara should have known that an attorney cannot
have any ex parte contact with an adversary who is represented by counsel. Any improper contact of this nature or
naked disregard of a Discipline Rule may fall within the crime/fraud exception. A plan to ensnare Ross into
divulging intimate litigation or business strategies by deceit may constitute a fraud.”) (citations omitted).

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manner,” entitling the Receiver to “all communications concerning the four hours of discussion
that Smith referred to and any other discussions concerning Smith’s extortion and blackmail of
Varacchi.” Id.
The Court disagrees.
Even if the Receiver’s recitation of the facts is true, and even if Mr. Smith’s conduct did
constitute “extortion and blackmail”—which is not obvious—he has not demonstrated probable
cause to establish that, during the “four hours of discussion that Smith referred to,” Mr. Last and
Mr. Goldstein were advising Mr. Smith in furtherance of that conduct. Mr. Smith’s ultimate use
of that advice is not determinative. See Grand Jury Subpoenas, 798 F.2d at 34 (“The crime-fraud
exception to the attorney-client privilege cannot be successfully invoked merely upon a showing
that the client communicated with counsel while the client was engaged in criminal activity.”).
“To subject the attorney-client communications to disclosure, they must actually have
been made with an intent to further an unlawful act.” Jacobs, 117 F.3d at 88 (quoting United
States v. White, 887 F.2d 267, 271 (D.C. Cir. 1989) (emphasis added in Jacobs), abrogated on
other grounds, Loughrin v. United States, 573 U.S. 351, 355 & n.2 (2014). In other words, the
fact that Mr. Smith sought the advice of counsel and then failed to heed that advice does not
subject that advice to disclosure. See Jacobs, 117 F.3d at 88 (“A wrongdoer’s failure to heed the
advice of his or her lawyer does not remove the privilege. The attorney-client privilege is
strongest where a client seeks counsel’s advice to determine the legality of conduct before taking
action.”).
As a result, the Receiver has not demonstrated that Mr. Smith had already determined to
blackmail or extort Mr. Varacchi, when he sought the advice of counsel. See Jacobs, 117 F.3d at
88 (“With strong emphasis on intent, the crime-fraud exception applies ‘only when there is

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probable cause to believe that the communications with counsel were intended in some way to
facilitate or to conceal the criminal activity.’ It is therefore relevant to show that the wrong-doer
had set upon a criminal course before consulting counsel.”) (quoting Grand Jury Subpoenas, 798
F.2d at 34).
Because the Receiver has not shown probable cause that, when Mr. Smith sought out the
“four hours of discussion,” he had already “set upon a criminal course,” his communications
with counsel are not subject to disclosure under the crime-fraud exception.
E. Sarroff and Smith Depositions
Finally, the Receiver argues that “Sarroff and Smith are required to disclose facts known
to them and their state of mind at any given time regardless of whether they learned those facts
from, or their state of mind is a product of, communications with counsel.” Pl.’s Br. at 6 (citing
Johnson Matthey, Inc. v. Research Corp., No. 01 CIV. 8115 (MBM)(FM), 2002 WL 1728566
(S.D.N.Y. Jul. 24, 2002)). Counsel for Mr. Sarroff and Mr. Smith “instructed them not to answer
questions that implicate these issues” during their depositions. Id. The Receiver therefore
“requests that the Court overrule all privilege objections in these instances and compel Sarroff
and Smith to answer these questions and any follow up questions.” Id. (citing deposition
transcript excerpts).
The Court agrees, as a general rule, that “[t]he privilege only protects disclosure of
communications; it does not protect disclosure of the underlying facts by those who
communicated with the attorney[.]” Upjohn, 449 U.S. at 395.
But having reviewed the specific deposition excerpts cited by the Receiver, it does not
appear that all of the questions asked were limited to uncovering such facts. Accordingly, where
the Receiver’s counsel directly inquired whether Mr. Sarroff and Mr. Smith asked Mr. Last

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particular things, the privilege would apply because that is an inquiry into what Mr. Sarroff and
Mr. Smith communicated to their attorney. See Upjohn, 449 U.S. at 396 (“The client cannot be
compelled to answer the question, ‘What did you say or write to the attorney?’ but may not
refuse to disclose any relevant fact within his knowledge merely because he incorporated a
statement of such fact into his communication to his attorney.”) (quoting Philadelphia v.
Westinghouse Elec. Corp., 205 F. Supp. 830, 831 (E.D. Pa. 1962)).
The Receiver has also not cited any clear authority for his assertion that Mr. Sarroff and
Mr. Smith’s “state of mind” when asking their counsel to do something would not be privileged.
Indeed, “[t]he privilege’s underlying purpose has long been ‘to encourage full and frank
communication between attorneys and their clients and thereby promote broader public interests
in the observance of law and administration of justice.’” Mejia, 655 F.3d at 132 (quoting Upjohn,
449 U.S. at 389).
Accordingly, the Court will not overrule Defendants’ objections.
IV.

CONCLUSION
For the reasons explained above, the Court finds that the Receiver is not entitled to the

additional testimony sought and discussed at the July 11, 2019 discovery conference.
SO ORDERED at Bridgeport, Connecticut, this 30th day of August, 2019.
/s/ Victor A. Bolden
Victor A. Bolden
United States District Judge

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