GS CLEANTECH CORPORATION v. CARDINAL ETHANOL, LLC

Filing 455

ORDER DENYING Iroquois's motion to compel (Master Dkt. 1394 ) based on the crime-fraud exception to the attorney-client privilege (see Order for details). Signed by Magistrate Judge Debra McVicker Lynch on 5/15/2015. Associated Cases: 1:10-ml- 02181-LJM-DML, 1:10-cv-00180-LJM-DML, 1:10-cv-08000-LJM-DML, 1:10-cv-08001-LJM-DML, 1:10-cv-08002-LJM-DML, 1:10-cv-08003-LJM-DML, 1:10-cv-08004-LJM-DML, 1:10-cv-08005-LJM-DML, 1:10-cv-08006-LJM-DML, 1:10-cv-08007-LJM-DML, 1:10-cv-08008-LJM-DML, 1:10- cv-08009-LJM-DML, 1:10-cv-08010-LJM-DML, 1:10-cv-08011-LJM-DML, 1:13-cv-08012-LJM-DML, 1:13-cv-08013-LJM-DML, 1:13-cv-08014-LJM-DML, 1:13-cv-08015-LJM-DML, 1:13-cv-08016-LJM-DML, 1:13-cv-08017-LJM-DML, 1:13-cv-08018-LJM-DML, 1:14-cv-08019-LJM-DML, 1:14-cv-08020-LJM-DML(PG)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
IN RE: METHOD FOR PROCESSING
)
ETHANOL BYPRODUCTS AND RELATED )
SUBSYSTEMS PATENT LITIGATION
) Master Dkt. 1:10-ml-2181-LJM-DML
)
THIS ORDER RELATES TO:
)
ALL CASES
)

Order on Motion to Compel Discovery of
Attorney-Client Communications
Defendant Iroquois Bio-Energy Company, LLC has moved to compel the
production of documents withheld by CleanTech or the inventors as attorney-client
privileged communications. (Master Dkt. 1394).1 The communications include
those between inventors Cantrell or Winsness with their original patent prosecution
counsel (Mr. Dorisio) and communications between the inventors or principals of
CleanTech with lawyers at the Cantor Colburn law firm. Iroquois’s motion
contends that the crime-fraud exception applies and vitiates the privilege.
The court has addressed the parties’ arguments regarding the crime-fraud
exception previously, primarily in connection with its order on CleanTech’s motion
to quash a deposition subpoena served on Cantor Colburn lawyer Charles O’Brien.
(See Order of June 30, 2014, Master Dkt. 1241.) In that order, the court discussed
the contours of the crime-fraud exception as well as the waiver and work product
principles implicated by that motion. The court concluded in that order that the

The court GRANTS CleanTech’s motion (Master Dkt. 1430) to submit a
surreply. The court reviewed and considered the surreply filed at Master Dkt. 1431.
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defendants had provided at that time an insufficient evidentiary foundation to
apply the crime-fraud exception.
Analysis
At the outset of its analysis of the current motion, the court will address the
overarching theme of CleanTech’s opposition to the motion: that there have been no
new developments since last year’s order and the court should therefore,
necessarily, rule again that there is an insufficient evidentiary foundation to pierce
the attorney-client privilege based on the crime-fraud exception. CleanTech’s
characterization of the state of the record and of the factual mosaic underlying
Iroquois’s current motion is simply wrong. First, there have been new
developments since that order (and there may be new developments to come). Since
that order, certain computer forensics work has been done. Mr. Cantrell and Mr.
Winsness have been deposed again. Expert forensic analysis of key documents has
been performed, and expert reports have been served. The court has issued its
summary judgment order, which includes findings and conclusions that may
ultimately be germane to the inequitable conduct (and hence, crime-fraud) issue.
Information regarding Mr. Cantrell’s, Mr. Winsness’s, and other witnesses’ financial
stake in the patents has become known. Second, Mr. Dorisio and Mr. Hagerty will
be deposed a second time regarding PTO prosecution matters. Third, the court
observed in its 2014 order that defendants’ prior briefing in support of the crimefraud exception was too generalized to support a ruling that the attorney-client
privilege should be pierced. The current motion, on the other hand, is supported by

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a lengthy, detailed citation of facts and inferences Iroquois asserts are reasonably
drawn from those facts. Although, as explained below, the court will not now adopt
those facts and inferences as findings, no reasonable reading of them could lead to
the conclusion that they are too general.
But the fact that Iroquois can articulate a plausible predicate for application
of the crime-fraud exception does not end the inquiries this court must make. Most
important, the court must consider the appropriate level of proof necessary to
vitiate the privilege, the proper manner in which the court should determine the
factual disputes that underlie the assertion of the exception, and the best juncture
in the case for deciding whether the crime-fraud exception applies. To these issues
the parties have given scant attention in the briefing. And to decide them, the court
must balance the important policies served by both the attorney-client privilege and
its crime-fraud exception. Significantly, the Seventh Circuit has made clear that
the questions about how to determine whether the crime-fraud exception applies,
such as whether to do so in the context of an adversarial hearing, are left to the
district court’s discretion. United States v. Boender, 649 F.3d 650, 657-58 (7th Cir.
2011).
Iroquois cites cases for the proposition that it need make only a “prima facie”
showing of a crime or fraud, described as “evidence that gives color to the charge by
showing some foundations in fact” and which is “enough to require explanation” by
the adverse party why the privilege should remain intact. E.g., United States v.
Pons, 2013 WL 1093107 at *4 and 6 (N.D. Ill. March 15, 2013) (quoting United

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States v. Boender, 649 F.3d at 655, United States v. BDO Seidman, LLP, 492 F.3d
806, 815 (7th Cir. 2007), and Matter of Feldberg, 862 F.2d 622, 625 (7th Cir. 1988)).
See also Clark v. United States, 289 U.S. 1, 16 (1933) (analogizing loss of juror
deliberation privilege to crime-fraud exception to attorney-client privilege, stating:
“A privilege surviving until the relation is abused and vanishing when abuse is
shown to the satisfaction of the judge has been found to be a workable technique for
the protection of the confidences of client and attorney.”)
As courts have recognized, however, the “prima facie” standard is elusive,
confusing, and misleading in the crime-fraud context. See, e.g., In re Napster, Inc.
Copyright Litigation, 479 F.3d 1078, 1091-96 (9th Cir. 2007), abrogated on other
grounds, 558 U.S. 100 (2009) (in the non-grand jury context, “prima facie” for
purposes of the crime-fraud exception means demonstrated by a preponderance of
the evidence).
The questions of the nature and quality of the proof and of how to address
underlying factual disputes and the inferences that ought to be drawn from those
facts are particularly acute here. None of the cases cited by Iroquois (or CleanTech,
for that matter) involves the unique circumstances presented by this case. Here,
the very same conduct, evidence, and inferences on which Iroquois relies to make its
case for application of the crime-fraud exception are the foundation of the
defendants’ inequitable conduct defense for which they seek to compel discovery
based on the crime-fraud exception. That distinction between the cited authorities
and this case is critical. Iroquois’s motion attempts to demonstrate in discovery

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briefing the very abuse that must be “shown to the satisfaction of the judge” at the
inequitable conduct trial. Clark v. United States, 289 U.S. 1, 16 (1933).
The magistrate judge will not conduct what would amount to an inequitable
conduct trial on the papers in the context of this discovery motion. The inequitable
conduct trial itself will permit the airing of the evidence cited by Iroquois, along
with the court’s evaluation of the credibility of witnesses, which may be an
important component in the court’s evaluation of the evidence. The persuasive
value or strength (or lack thereof) of certain of the evidence identified by the
defendants as indicative of fraud, including the intent element, may depend in large
part on a fact-finder’s evaluation of the credibility of witnesses. For example, one of
the defendants’ inequitable conduct theories is that inventor Cantrell executed an
affidavit he knew to be false and would be (and was) filed with the PTO.2 Some
evidence underlying that theory includes analysis of letters signed in ink by Mr.
Cantrell and apparent changes in letterhead logos, for which there is dueling expert
testimony to be evaluated. The theory also depends, in part, on the believability of
testimony to be offered by or elicited from Mr. Cantrell and Mr. Winsness

As the court understands it, the defendants’ inequitable conduct theories are
two-fold. One rests on the alleged false affidavit itself, as well as the steps that
were and were not taken in an attempt to correct the affidavit. The second theory
does not necessarily depend on a finding that the first Cantrell affidavit was
knowingly false but more broadly relates to a mosaic of circumstances the
defendants contend will prove that CleanTech and/or the inventors engaged in a
course of action to conceal material information and its import, including by failing
to disclose the Barlage testing and its results, by failing to provide a fair roadmap of
material information to the PTO, and by making disclosures in a manner and at a
time with a design to obfuscate and prevent fair disclosure of material information.
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surrounding their contacts with Agri-Energy, their failures (and the failure of
others such as Mr. Lauderbaugh) to produce the August 1 email, Mr. Cantrell’s
initial refusal to answer questions regarding the email and his “flight” response to
the defendants’ possession of the email, the inventors’ 2003/2004 statements
recorded on documents or in communications with investors that the invention had
been discovered in June 2003, and the inventors’ later position that the June 2003
testing was a “failure.”
The Seventh Circuit approved, in one case, the district court’s conduct of an
adversarial hearing to determine whether it was satisfied with the quantum and
quality of evidence that an attorney-client relationship had been abused in
furtherance of a fraud before piercing the privilege. That was an appropriate means
to protect against the risk of compromising legitimate privileged attorney-client
communications. See Boender, 649 F.3d 650.3
The obvious other side of the court’s balancing of a proper remedy or
procedure is the desire of the defendants to obtain in advance of trial evidence they
believe will be relevant to their inequitable conduct defense, particularly under the
heightened Therasense standard. The court makes several observations in that
regard.

In light of the substantial identity of the crime-fraud and inequitable conduct
issues, it likely is most reasonable here that the “adversarial hearing” be part of
the trial itself.
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First, the defendants have developed a significant body of evidence already
on which they rely to advance the crime-fraud exception and the inequitable
conduct defense.4
Second, the court must consider the consequences of an incorrect decision to
apply the crime-fraud exception before full airing of the existing evidence. The
compelled disclosure of otherwise privileged communications cannot be undone, but
the defendants’ problem of not having every piece of evidence they would like to
have before trial or some other evidentiary hearing can be ameliorated.
Third, Iroquois has overstated its disadvantage; it has not been left without
access to critical evidence. A number of the matters it maintains it has been
unfairly prevented from discovering are not matters to which the privilege applies
anyway. These include: (1) the fee agreement and arrangement between
CleanTech and its counsel (see Order on Motion to Reconsider Ruling on Financial
Discovery, Master Dkt. 1465); (2) the reason(s) why the inventors discontinued their
retention of attorney Dorisio5; and (3) attorney Hagerty’s thought-processes,
evaluation of information, and decision-making in connection with his patent
prosecution work (including, for example, why he emphasized at all the lack of a

The parties should not interpret this order as a commentary on the strength
of the defendants’ proof under Therasense. There is no such intent.
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The attorney-client privilege, as a bar to evidence, applies only to confidential
communications for the purpose of securing or providing legal advice. E.g., In re
Spalding Sports Worldwide, Inc., 203 F.3d 800, 805 (Fed. Cir. 2000). The court
cannot conceive how a communication merely terminating the attorney-client
relationship can be characterized as one by the client to obtain legal advice.
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signature on the August 1 email document and other decision-making involved with
the second Cantrell affidavit, and why his emphasis on the May 2004 testing
“strengthened the patent”). This list is not necessarily exhaustive. The point is
that the court has permitted inquiry into patent prosecution matters that
CleanTech previously objected to on work product grounds, and the attorney-client
privilege is limited to confidential communications made for the purpose of securing
or providing legal advice. Not all communications with one’s lawyer fit that
description, and the court has previously made that clear.
Finally, as addressed by the court in its June 30, 2014 Supplemental Order,
waiver principles may also be implicated before or during the inequitable conduct
trial. See Master Dkt. 1241 at pp. 4-5, including, e.g., In re Seagate Technology,
LLC, 497 F.3d 1360, 1372 (Fed. Cir. 2007) (litigant may not use his privilege as both
a sword (by disclosing only those communications he believes provides an
advantage) and a shield (by refusing to disclose communications that may be
unfavorable or that should be disclosed for a fair analysis of that which was
disclosed)); In re Rhone-Poulenc Rorer, Inc., 1998 WL 968489 at *2 (Fed. Cir. 1998)
(unpublished) (implied waiver occurs where litigant asserts a claim “that in fairness
requires examination of protected communications”). In its earlier order, the court
found that the sort of testimony defendants elicited from CleanTech did not
impliedly waive the privilege, but that is different from evidence or argument that
CleanTech itself advances in order to obtain an advantage. Asserting advice of
counsel, or emphasizing the defendants’ lack of evidence on a particular issue—

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when that evidence by definition would reside solely in attorney-client
communications—may implicate waiver principles.6
In summary, the court requires that the factual predicate for the crime-fraud
exception be determined in an adversarial proceeding—most likely during the
inequitable conduct trial itself given the near identity of the issues. The court will
thus require appropriate pretrial measures to ensure as best as possible that
documents withheld on attorney-client privilege grounds are in admissible form at
trial should the privilege give way because of either the crime-fraud exception or
express or implied waiver. Except for relevance or a privilege objection, CleanTech
must be prepared to stipulate to the foundational elements of documents that have
been withheld as attorney-client privileged communications, including documents
appearing on attorney Dorisio’s privilege log.
Conclusion
For the foregoing reasons, Iroquois’s motion to compel (Master Dkt. 1394)
based on the crime-fraud exception to the attorney-client privilege is DENIED
WITHOUT PREJUDICE.
So ORDERED.
Dated: May 15, 2015

____________________________________
Debra McVicker Lynch
United States Magistrate Judge
Southern District of Indiana

This order also does not purport to evaluate waiver, an issue addressed in
one of Iroquois’s cases, but which is not a basis for the relief sought by Iroquois. In
In re Sealed Case, 676 F.2d 793, 825 (D.C. Cir. 1982) (with two judges of the threejudge panel agreeing that as to two documents, there was an implied waiver of
privilege).
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Distribution:
All ECF-registered counsel of record by email through the court’s ECF system

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