Hernandez et al v. Creative Concepts, Inc. et al
Filing
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ORDER OVERRULING 185 Motion for Review of Magistrate Judges Order Regarding In Camera Review of Attorney-Client Privileged Documents. OVERRULING 195 Objections and Request for Review of Magistrate Judges Orders 190 & 194 Regarding At torney-Client Privileged Documents and Work Product. Denying as moot 204 Emergency Motion for Expedited Review and Reconsideration of the Courts Order Granting a Stay of Document Production. Redacted Documents due by 4/12/2013. Signed by Judge Philip M. Pro on 4/5/2013. (Copies have been distributed pursuant to the NEF - SLR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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GABRIEL HERNANDEZ, RODOLFO
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NAVA, IVAN MADRIGAL,
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FRANCISCO CASTILLO, JOEL ROSA )
DE JESUS, JUAN CARLOS
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NAVARRETE, JUAN JOSE ACOSTA
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FLORES, ISMAEL AMPARAN-COBOS, )
EFREN RUANO, JUAN PALOMERA,
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OCTAVIO ANCHONDO, ARNOLDO
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RODRIGUEZ, and JESUS ANCHONDO, )
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Plaintiffs,
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v.
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CREATIVE CONCEPTS, INC.; SPEIDEL )
ENTERPRISES, INC.; JOHN SPEIDEL, )
PAUL SCHELLY; NORTHERN
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PIPELINE CONSTRUCTION CO.; and )
NPL CONSTRUCTION CO.,
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Defendants.
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ORDER
2:10-CV-02132-PMP-VCF
Presently before the Court is Defendant NPL Construction Co.’s (“NPL”)
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Request for Review of Magistrate Judge’s Order Regarding In Camera Review of Attorney-
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Client Privileged Documents (Doc. #185), filed on March 5, 2013. Plaintiffs filed a
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Response (Doc. #202) on March 26, 2013.
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Also before the Court is Defendant NPL’s Objections and Request for Review of
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Magistrate Judge’s Orders (Docket Nos. 190 & 194) Regarding Attorney-Client Privileged
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Documents and Work Product (Doc. #195), filed on March 21, 2013. Plaintiffs filed a
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Response (Doc. #202) on March 26, 2013.
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I. BACKGROUND
The parties are familiar with the facts of this case, and the Court will not repeat
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them here except where necessary. On February 20, 2013, the Magistrate Judge ordered
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NPL to produce certain attorney-client and attorney work product documents identified in
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NPL’s privilege log for in camera review. (Order (Doc. #179).) The Magistrate Judge
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concluded that Plaintiffs had made “a sufficient showing that the crime-fraud exception and
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the ‘at issue’ exception may, depending on the content of the log documents, apply to one or
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more of the communications revealing knowledge of the status of immigration law while
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the Program was in effect.” (Id. at 9.) Additionally, the Magistrate Judge found that “what
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NPL knew regarding immigration laws and whether the Program would result in the
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plaintiffs obtaining legal status and when NPL gained this knowledge is relevant to the
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remaining claims against NPL.” (Id. at 10.) The Magistrate Judge therefore ordered NPL
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to produce for in camera review any documents in the privilege log that contained “the
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following words or phrases, or any portion thereof: ‘Immigration and Naturalization Act,’
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‘INA,’ ‘§ 245(I)’, or ‘LIFE Act.’” (Id.)
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Following in camera review, the Magistrate Judge ruled that some of the
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privileged documents were relevant to Plaintiffs’ remaining claims against NPL because
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those documents reveal what NPL knew about the Program and when NPL obtained this
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knowledge. (Order (Doc. #190) at 8.) In terms of whether any exceptions to the attorney-
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client privilege permitted disclosure of this relevant evidence, the Magistrate Judge
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concluded the “at issue” exception applied to implicitly waive the privilege because “NPL’s
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state of mind (intent/good faith), knowledge of the legality and benefits/risks of the
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Program, representations/disclosures, and allegedly negligent acts are ‘at issue’ in this
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action and are necessary elements of plaintiffs’ remaining claims.” (Id. at 9.) The
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Magistrate Judge found “several logged documents have direct bearing on these issues and
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that the ‘at issue’ exception applies” because NPL asserted affirmative defenses such as
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good faith; that it acted in a permissible fashion; that NPL did not condone, authorize, or
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ratify the alleged conduct; that NPL exercised reasonable care; that NPL made no
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fraudulent or negligent misrepresentation; and that NPL lacked fraudulent intent. (Id.) The
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Magistrate Judge concluded “the truth of these factual assertions can only be assessed by
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examination of several logged communications demonstrating NPL’s actual knowledge of
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the legalities of [the] Program and when it gained this knowledge, and [thus] the ‘at issue’
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exception applies to these communications.” (Id. (quotation and alteration in original
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omitted).)
The Magistrate Judge also found the crime-fraud exception to the attorney-client
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privilege applied to several of the privileged documents. (Id.) The Magistrate Judge
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reached this conclusion because “the documents evidence communications between NPL
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and counsel, where NPL is seeking advice from counsel or obtaining advice from counsel in
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furtherance of the alleged fraudulent acts surrounding the Program.” (Id.)
Finally, the Magistrate Judge rejected application of the attorney work product
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rule because “these documents were prepared in relation to NPL’s possible exposure to
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claims brought by the Federal government that NPL violated immigration laws, and not in
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anticipation of claims brought by employees who participated in the Program.” (Id. at 10.)
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The Magistrate Judge further found Plaintiffs demonstrated a substantial need for the
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privileged documents because they go to “the heart” of Plaintiffs’ remaining claims, and
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because Plaintiffs are unable to obtain this information where discovery through other
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means has been “unsuccessful.” (Id.) The Magistrate Judge therefore ordered NPL to
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disclose to Plaintiffs redacted versions of five identified documents on or before March 27,
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2013. (Id. at 10-11.) The Magistrate Judge entered an Amended Order (Doc. #194) on
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March 19, 2013 setting forth page numbers to identify the pertinent documents and
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redactions at issue.
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///
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Defendant NPL now objects to the Magistrate Judge’s Order (Doc. #179)
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directing NPL to submit attorney-client privilege documents for in camera review. NPL
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argues Plaintiffs failed to make the requisite evidentiary showing to trigger in camera
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review based on the crime-fraud exception, and the Magistrate Judge’s failure to require
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sufficient evidence before compelling in camera review was contrary to law. NPL also
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argues the Magistrate Judge’s conclusion that the “at issue” exception allows for in camera
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review is contrary to law because the privileged documents’ relevance is insufficient to
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demonstrate the “at issue” exception applies, and because the “at issue” exception applies
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only where a party invokes its good faith reliance on advice of counsel, which NPL has not
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done here. Finally, NPL contends that Plaintiffs have not shown they cannot obtain the
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information from non-privileged sources because NPL’s executives have testified what they
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knew about the Program and when they knew it.
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NPL also objects to the Magistrate Judge’s Order (Doc. #190) and Amended
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Order (Doc. #194) compelling NPL to turn over certain redacted documents following the
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Magistrate Judge’s in camera review. NPL argues the Magistrate Judge’s finding that the
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“at issue” exception applies to the five identified documents is contrary to law because
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relevance and fairness to the opposing party are not sufficient bases to support an “at issue”
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waiver, and the waiver does not apply because NPL does not seek to support a claim or
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defense by asserting its reliance on the advice of counsel. Finally, as to the “at issue”
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waiver, NPL argues the Magistrate Judge’s finding that Plaintiffs have no other means of
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obtaining the information is clearly erroneous because Plaintiffs can obtain the same
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information by deposing NPL executives.
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NPL further objects to the Magistrate Judge’s finding that the crime-fraud
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exception applies. NPL contends the Magistrate Judge’s conclusion is clearly erroneous
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and contrary to law because Plaintiffs failed to present sufficient proof to trigger in camera
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review under the crime-fraud exception and the Magistrate Judge failed to consider NPL’s
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contrary evidence. NPL contends that when all of the evidence is reviewed under the
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proper preponderance of the evidence standard, Plaintiffs failed to establish the crime-fraud
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exception applies.
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Finally, NPL argues the documents which the Magistrate Judge ordered to be
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disclose are attorney work product. NPL contends the Magistrate Judge’s conclusion is
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contrary to law because the documents do not have to be prepared in anticipation of
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litigation with these Plaintiffs to be protected by the attorney work product privilege. NPL
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also argues the Magistrate Judge’s conclusion that Plaintiffs had shown a substantial need
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for the documents was clearly erroneous because Plaintiffs could depose NPL’s executives
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to obtain the same factual information.
Plaintiffs respond that NPL’s initial objection is moot because the in camera
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review already has taken place. On the merits, Plaintiffs argue they presented sufficient
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evidence that the crime-fraud exception applies because NPL sought legal advice in relation
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to the Program during the Program’s existence, and that advice was used to assist in
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continuing the alleged fraud for several years after the NPL first sought the advice. As to
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the “at issue” exception, Plaintiffs argue that exception is not limited to instances where the
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party relies on the advice of counsel in support of the party’s claim or defense. Rather, the
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exception applies when the party puts its own state of mind at issue. As to whether
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Plaintiffs demonstrated they were unable to obtain the information through other means,
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Plaintiffs argue NPL now asserts its employees can testify as to the requested information,
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but NPL has asserted the privilege during prior depositions when Plaintiffs attempted to
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obtain discovery on these topics. As to attorney work product, Plaintiffs contend NPL did
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not challenge the Magistrate Judge’s ruling on attorney work product.
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II. LEGAL STANDARD
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Magistrate judges statutorily are authorized to resolve “pretrial matter[s],” such
as discovery disputes, subject to review by district judges under a clearly erroneous or
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contrary to law standard. 28 U.S.C. § 636(b)(1)(A); Grimes v. City & Cnty. of S.F., 951
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F.2d 236, 240 (9th Cir. 1991). A finding is clearly erroneous when the reviewing Court is
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left with the “definite and firm conviction that a mistake has been committed.” Lewis v.
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Ayers, 681 F.3d 992, 998 (9th Cir. 2012) (quotation omitted). This Court may not
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substitute its judgment for that of the Magistrate Judge. Grimes, 951 F.2d at 241. The
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Court reviews questions of law de novo. Osband v. Woodford, 290 F.3d 1036, 1041 (9th
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Cir. 2002).
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III. DISCUSSION
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The attorney-client privilege protects confidential communications between a
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client and his or her attorney to obtain and dispense legal advice. United States v. Ruehle,
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583 F.3d 600, 607 (9th Cir. 2009). Because the privilege “impedes full and free discovery
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of the truth,” the Court strictly construes the privilege. Id. (quotation omitted). The
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attorney-client privilege protects only the disclosure of the confidential communications
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between the client and his or her attorney; “it does not protect disclosure of the underlying
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facts by those who communicated with the attorney.” Admiral Ins. Co. v. U.S. Dist. Ct. for
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Dist. of Ariz., 881 F.2d 1486, 1493 (9th Cir. 1989) (quotation omitted).
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The attorney-client privilege is subject to various exceptions, including the
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“crime-fraud” exception. In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1090 (9th Cir.
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2007), abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100
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(2009). Where the client abuses the attorney-client relationship by consulting an attorney
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“for advice that will serve him in the commission of a fraud” or a crime, the privilege will
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not protect the communications. Id. However, the attorney-client privilege “must
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necessarily protect the confidences of wrongdoers,” and thus the crime-fraud exception
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does not apply where the client seeks advice based on prior wrongdoing. United States v.
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Zolin, 491 U.S. 554, 562 (1989). But where the client seeks the advice for “future
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wrongdoing,” the crime-fraud exception will not protect communications “made for the
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purpose of getting advice for the commission of a fraud or crime.” Id. at 562-63 (internal
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quotation marks, citation, and emphasis omitted). The crime-fraud exception applies “even
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where the attorney is unaware that his advice may further an illegal [or fraudulent]
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purpose.” United States v. Bauer, 132 F.3d 504, 509 (9th Cir. 1997) (quotation omitted).
These principles are more easily applied when a party retains a lawyer to
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represent him in relation to a completed course of conduct, but less so when the party
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retains a lawyer to assist with business planning, counseling, or “bringing the client into
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compliance for past wrongs, as opposed to simply defending the client against a charge
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relating to past wrongs.” United States v. Chen, 99 F.3d 1495, 1500 (9th Cir. 1996).
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Consequently, to pierce the attorney-client privilege, the party seeking disclosure based on
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the crime-fraud exception bears the burden of showing “the client was engaged in or
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planning a criminal or fraudulent scheme when it sought the advice of counsel to further the
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scheme.” In re Napster, Inc. Copyright Litig., 479 F.3d at 1090 (quotation omitted).
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Additionally, the party seeking disclosure must demonstrate that the attorney-client
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communications at issue “are sufficiently related to and were made in furtherance of the
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intended, or present, continuing illegality.” Id. (quotation marks, citation, and emphasis
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omitted).
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Because of the confidential nature of the communications at issue, it may be
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difficult for a party to make this showing absent in camera review of the privileged
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communications. Zolin, 491 U.S. at 569. However, this does not mean that a party seeking
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disclosure based on the crime-fraud exception always is entitled to in camera review to
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determine whether the exception applies. Id. at 570. Rather, where a party seeks in camera
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review, as opposed to seeking outright disclosure, that party must make “a showing of a
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factual basis adequate to support a good faith belief by a reasonable person that in camera
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review of the materials may reveal evidence to establish the claim that the crime-fraud
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exception applies.” Id. at 572 (quotation and internal citation omitted); Chen, 99 F.3d at
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1502-03; see also In re Napster, Inc. Copyright Litig., 479 F.3d at 1092 (stating “the
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threshold for in camera review is considerably lower than that for fully disclosing
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documents” (internal quotation marks and citation omitted)).
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If the party makes this showing, the decision whether to conduct in camera
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review lies within the Court’s discretion. Zolin, 491 U.S. at 572. This decision is informed
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by “the facts and circumstances of the particular case, including, among other things, the
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volume of materials the district court has been asked to review, the relative importance to
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the case of the alleged privileged information, and the likelihood that the evidence produced
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through in camera review, together with other available evidence then before the court, will
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establish that the crime-fraud exception does apply.” Id.
If a party seeks outright disclosure in a civil case, that party bears the burden of
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showing the crime-fraud exception applies by a preponderance of the evidence. In re
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Napster, Inc. Copyright Litig., 479 F.3d at 1094-95. The party opposing disclosure has the
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right to present evidence in support of keeping the communications confidential. Id. at
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1093. The Court may consider the privileged materials in addition to the evidence
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submitted by the parties in deciding whether the party seeking disclosure has met the burden
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of showing by a preponderance of the evidence that the crime-fraud exception applies. Id.
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at 1096; see also Zolin, 491 U.S. at 568.
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The Magistrate Judge’s Order (Doc. #179) directing NPL to submit a subset of
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documents from its privilege log for in camera review was not clearly erroneous or contrary
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to law. Plaintiffs made an initial showing of a factual basis adequate to support a good faith
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belief by a reasonable person that in camera review of the materials may reveal evidence to
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establish the crime-fraud exception applies. It is unlawful for an employer to employ
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undocumented workers knowing of their undocumented status. 8 U.S.C. § 1324a(a)(1).
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NPL knew in 2002 that some of its employees were not legally able to work in the United
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States. (Pls.’ Mot. to Compel (Doc. #111), Ex. 4 at 18-19, 24.) Following the receipt of
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letters from the Social Security Administration identifying employees whose listed social
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security numbers did not match the agency’s information, NPL facilitated its employees’
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participation in the Program through Creative Concepts. Plaintiffs were told if they
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participated in the Program they would legally be entitled to reside and work in the United
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States. (Pls.’ Mot. to Compel, Ex. 2 at 132-33.) However, in 2004, NPL’s newly-hired in-
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house counsel and Director, Employee Relations, Ric Pringle (“Pringle”), had concerns
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about the Program and Pringle presented the Program to an outside immigration attorney.
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(Id. at 144-49.) NPL’s privilege log shows Pringle communicated with outside immigration
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counsel, Chris Brelje (“Brelje”), from April 2004 to December 2007 regarding immigration
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issues. (Pls.’ Mot. to Compel, Ex. 1.) It is undisputed that Plaintiffs’ participation in the
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Program would not lead to them being able to reside and work legally in the United States
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absent some change in the law. Nevertheless, NPL continued to employ Plaintiffs and
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continued to deduct money from Plaintiffs’ paychecks to pay Creative Concepts for their
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participation in the Program until NPL fired Plaintiffs in December 2007.
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Plaintiffs presented evidence that NPL obtained a substantial benefit from the
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Program because it did not have to hire and retrain workers to replace any workers fired due
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to ineligibility to work in the United States. (Pls.’ Mot. to Compel, Ex. 2 at 154-55.) A
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former NPL manager opined that losing all of the undocumented workers at once would
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have had a significant impact on NPL’s operations: “It would have downsized our
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organization at that time, we would have had to downsize the organization and start
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retraining again. We wouldn’t have been able to meet our obligations with our customers.”
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(Pls.’ Mot. to Compel, Ex. 3 at 36.) The fact that NPL’s chief executive officer, Mike
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Kemper (“Kemper”), opined that this loss of staff would not “result in any substantial, long
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term impact on NPL or that it would cause NPL to default on its customer contracts,” does
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not negate the fact that NPL enjoyed an ongoing benefit by continuing to employ Plaintiffs
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even though it knew the employees were undocumented and it knew the Program would not
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result in adjustment of their status absent some change in the law. (Def.’s Opp’n to Pls.’
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Mot. to Compel (Doc. #119), Ex. 11 at 4.) NPL continued in this course of conduct for
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three years, during which time it consulted Brelje as shown by the privilege log.
The evidence and undisputed facts therefore are adequate to support a good faith
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belief by a reasonable person that in camera review of the materials may reveal evidence
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that NPL was engaged in or planning a criminal or fraudulent scheme when it sought the
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advice of counsel to further the scheme. NPL’s consultation with Brelje was not limited to
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prior, completed acts. Rather, NPL continued to employ individuals it knew were not
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legally employable and NPL continued to deduct funds from Plaintiffs’ paychecks for their
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participation in the Program. A reasonable person in good faith could presume Brelje
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would have correctly advised NPL that a change in the law was necessary for Plaintiffs to
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adjust their status and that at least some of the attorney-client communications at issue
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throughout the three-year period are sufficiently related to and were made in furtherance of
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NPL’s continued employment of undocumented workers and continued deductions from
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their paychecks for a Program NPL knew would not result in adjustment of status.
Given the nature of the confidential communications, the Magistrate Judge’s
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decision that in camera review was appropriate to determine whether, in light of this
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evidence and upon review of the privileged communications, the crime-fraud exception
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applies was neither clearly erroneous nor contrary to law. Nor did the Magistrate Judge
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abuse his discretion in determining that in camera review was appropriate in light of the
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facts and circumstances of the case, the limited number of documents subject to review, and
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the documents’ potential importance to the case. The Court therefore will overrule
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Defendants’ objections to the Magistrate Judge’s Order (Doc. #179) compelling in camera
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review.
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The Court also overrules Defendants’ objections to the Magistrate Judge’s Orders
(Doc. #190, #194) compelling disclosure based on the crime-fraud exception. The
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Magistrate Judge’s decision that the cited documents are subject to disclosure under the
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crime-fraud exception was not clearly erroneous or contrary to law. In addition to the above
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evidence, an in camera review of the identified five documents could lead a reasonable fact
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finder to determine NPL used Brelje’s advice to determine when the risks of its course of
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conduct outweighed the benefits. The evidence does not compel that conclusion, and it is
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not the only reasonable view of the evidence. But the Court cannot say the Magistrate
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Judge’s conclusion was clearly erroneous or contrary to law.
For the same reasons, the Court will overrule Defendants’ objection based on the
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attorney work product privilege. A client waives his right to assert the attorney work
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product privilege for both ordinary and opinion work product when the client consults the
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attorney in furtherance of a crime or fraud. See, e.g., In re Green Grand Jury Proceedings,
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492 F.3d 976, 980-81 (8th Cir. 2007); In re Grand Jury Proceedings #5 Empanelled Jan. 28,
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2004, 401 F.3d 247, 251 (4th Cir. 2005); In re Grand Jury Proceedings, 867 F.2d 539, 541
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(9th Cir. 1989); In re Antitrust Grand Jury, 805 F.2d 155, 164 (6th Cir. 1986); In re Special
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Sept. 1978 Grand Jury (II), 640 F.2d 49, 63 (7th Cir. 1980).
The Court therefore overrules Defendants’ objections to the Magistrate Judge’s
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Orders directing an in camera review and compelling disclosure of the five identified
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documents. Defendants must disclose the documents with the identified redactions to
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Plaintiffs on or before April 12, 2013. This Court will not stay the order of disclosure
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beyond April 12, 2013.
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IV. CONCLUSION
IT IS THEREFORE ORDERED that Defendant NPL Construction Co.’s Request
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for Review of Magistrate Judge’s Order Regarding In Camera Review of Attorney-Client
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Privileged Documents (Doc. #185) is hereby OVERRULED.
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IT IS FURTHER ORDERED that Defendant NPL Construction Co.’s Objections
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and Request for Review of Magistrate Judge’s Orders (Docket Nos. 190 & 194) Regarding
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Attorney-Client Privileged Documents and Work Product (Doc. #195) is hereby
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OVERRULED.
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IT IS FURTHER ORDERED that Defendants must disclose the five documents
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with the redactions as identified in the Magistrate Judge’s Order (Doc. #194) on or before
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April 12, 2013. This Court will grant no further stays or extensions in relation to this
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disclosure.
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IT IS FURTHER ORDERED that Plaintiffs’ Emergency Motion for Expedited
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Review and Reconsideration of the Court’s Order Granting a Stay of Document Production
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(Doc. #204) is hereby DENIED as moot.
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DATED: April 5, 2013
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_______________________________
PHILIP M. PRO
United States District Judge
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