This order concerns whether the government may offer evidence of certain communications between former counsel for Cigarettes Cheaper! and the company.1 The court has reconsidered its order of January 6, 2011 on the question. The court finds that the attorney-client privilege waswaived by voluntary disclosure of the subject on which the testimony is sought.
On November 21, 2003, officers of Cigarettes Cheaper!, President John Roscoe, Vice-President Ned Roscoe2, CFO Robert Mazur and apparently Mark Baldwin3 met with attorneys Thomas Willoughby and Steven Cramer4 regarding a restatement of inventory to Comerica Bank. The government seeks to elicit the testimony of Mr. Mazur, Mr. Willoughby, and Mr. Cramer regarding what was said during the November 21, 2003 meeting and before the meeting with Comerica Bank on November 24, 2003 and to introduce as evidence Ned Roscoe's diary entries and notes reflecting statements made by the attorneys during the November 21 meeting. The government also apparently will offer additional documents produced pursuant to trial subpoenas issued to one or more of these witnesses.
On July 27, 2010 the government gave notice of its intent to offer the evidence relating to the communications. Defendants5 objected to any use of the communications by the government contending that the communications were privileged both by their personal attorney-client privileges and by the corporate attorney-client privilege. John Roscoe's objection specifically stated that "CC remains a corporation registered with the California Secretary of State. Two of its officers are the defendants in this case. They are entitled to assert the attorney-client privilege and do so now." Doc. 192 at 3:21-23. The objections were argued on September 9, 2010, along with several other pretrial motions. The parties then quarreled over whether supplemental briefing filed by the government after the argument should be considered by the court. On September 16, 2010 the court issued an order denying defendant Ned Roscoe's motion to strike the supplemental briefing and gavedefendants until September 29, 2010 to file additional briefing. On September 29, 2010 defendant Ned Roscoe filed further briefing and attached a letter from William Bernheim who represented that he was Cigarettes Cheaper!'s corporate counsel, that Cigarettes Cheaper! was in good standing, and that he was asserting the attorney-client privilege on behalf of the corporation.
A second superseding indictment was filed on September 29, 2010, and trial that had been set to start November 1, 2010 was continued to January 18, 2011.
After the supplemental briefing was submitted and prior to the filing of the court's order on January 6, 2011, neither a motion to intervene nor any other pleading was filed by Attorney Bernheim seeking to assert and protect any corporate attorney-client privilege. The only assertion by the corporation was that made in the defendants' briefs. The court issued an order filed on January 6, 2011 finding that Cigarettes Cheaper! was essentially defunct and no longer had an attorney-client privilege to assert, but even if it still had the right to assert the privilege, it had been waived. The court did not reach the crime-fraud exception to the privilege which the government contended applied.
After the court issued its order, it was advised by counsel for the parties that the attorney witnesses the government intended to call were concerned about testifying because of demands made on them by Attorney Bernheim. The court then scheduled a hearing but was advised that only Attorney Bernheim would appear, because the attorney witnesses intended to abide by whatever the court ordered. Although Attorney Bernheim had neither sought to intervene nor filed anything with the court to assert the attorney-privilege on behalf of Cigarettes Cheaper!, the court nevertheless heard from him at a hearing held on January 20, 2011.
Attorney Bernheim testified that he became corporate counsel for Cigarettes Cheaper! in 2004 or 2005. He does not do its taxes and has not attended any board of directors meetings. He stated that Cigarettes Cheaper! is registered in California "as far as I know" and that he has "seen paperwork to the effect that they're a corporation in good standing." 9/20/11 Hearing Transcript at 14:25-15:2 ("HT at________"). He indicated that he represents a lot of corporations and "do[es] a lot of minute books and incorporations and that sort of thing, but I'm not involved in that part of their business." Id. at 38:15-18. He does not know whether Ned Roscoe has been an officer or directorfor Cigarettes Cheaper during the period he has represented Cigarettes Cheaper! but understood "he could speak for Cigarettes Cheaper!" Id. at 39:10-11.
Attorney Bernheim explained that he sent a letter dated September 24, 2010 to the U.S. Attorney handling the prosecution "on my own ticket other than I was told that [the attorney-client privilege] was an issue and my recall is that it was discussed with (sic) and it should be asserted." Id. at 35:18-21. He further related that he did not
know anything about what happened in November.... I don't know what was said, I don't want to know what was said.
But my concern... it seems like if you breach the attorney-client privilege in one little bit, you breach it everywhere.
I'm dealing with a separate piece of litigation where, where I don't know what was ever said about the price fixing scheme and what should be done or whatever.
So I would just as soon keep the whole thing closed.
Id. at 36:10-25.
On October 5, 2010 the prosecuting U.S. Attorney informed Attorney Bernheim of the government's filings with the court dated July 26 and August 17, 2010 advising of the government's intent to offer the attorney-client communications. Thereafter, on October 8, 2011 Attorney Bernheim advised the U.S. Attorney that he continued to assert the attorney-client privilege on behalf of the corporation. Defense counsel for Ned Roscoe presented an unsigned letter of the Board of Directors to Attorney Bernheim dated January 14, 2011 to "engage your services in order to protect the attorney-client privileges of this corporation as of the date of this letter...."
I. ANALYSIS
The government contends that: (1) the communications at issue are not covered by a personal attorney-client privilege of either defendant; (2) defendant cannot assert a corporate attorney-client privilege; (3) Ned Roscoe has waived any privilege; and (4) the crime-fraud exception applies. Issues concerning application of the attorney-client privilege in the adjudication of federal law are governed by federal common law. United States v. Ruehle, 583 F.3d 600, 608 (9th Cir. 2009). Under federal law, as the party seeking to assert attorney-client privilege, defendants have the burden of establishing the privilege. See . Because the privilege impedes full discovery of the truth, it is strictlyconstrued. Ruehle, 583 F.3d at 607.
Ned Roscoe cannot assert a personal attorney-client privilege because Mr. Mazur, a third party, was present at the November 21, 2003 meeting. He also cannot assert a personal attorney-client privilege because he is unable to meet the requirements of the Bevill test. See In re Bevill, 805 F.2d 120, 123 (3d Cir. 1986); United States v. Graf, 610 F.3d 1148, 1160 (9th Cir. 2010) (adopting Bevill test). Under the Bevill test, individual corporate officers or employees seeking to assert a personal claim of attorney-client privilege must affirmatively show that: (1) they approached counsel for the purpose of seeking legal advice; (2) when they approached counsel they made it clear that they were seeking legal advice in their individual rather than in their representative capacities; (3) counsel saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise; (4) their conversations with counsel were confidential; and (5) the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company. Id. Defendant has failed to establish elements (2), (3), or (5).
The government argues that defendant cannot assert a corporate attorney-client privilege because: (1) he seeks only to protect his personal interests and was not acting in the corporation's best interests; and (2) the corporation (Cigarettes Cheaper!) for all practical purposes is defunct.
Managers of a corporation must exercise the corporate attorney-client privilege in a manner consistent with their fiduciary duty to act in the best interests of the corporation and not of themselves as individuals. Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 349 (1985). Defendant has not identified a specific reason why at this time Cigarettes Cheaper! would have any corporate interest in the assertion of the attorney-client privilege except perhaps to protect information that could be used in some way in one of the lawsuits in which it is apparently engaged. It may be that the only reason the corporation is asserting a privilege at this time is in an attempt to benefit Ned Roscoe as an individual. However, since litigation is pending, the court finds that Cigarettes Cheaper! has a corporate reason to assert the privilege and is not merely trying to protect Ned Roscoe.
A corporation that is defunct cannot assert the attorney-client privilege. See City of Rialto v. United...
