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In Morley, supra, this burden was held to have been met based upon a showing of "a foundation in fact" or a "potential relationship."
Summary of this case from People v. BoardOpinion
No. 81SA112
Decided July 6, 1982.
Appeal from the District Court for the City and County of Denver, Honorable Clifton A. Flowers, Judge.
Robert C. Ozer, P.C., Robert C. Ozer, for plaintiffs-appellants.
Robert H. Gallagher, Jr., District Attorney, Catherine P. Richardson, Deputy District Attorney, for defendants-appellees.
En Banc.
This appeal was taken from an order denying injunctive relief to the Law Offices of Bernard D. Morley, P.C.; Palace, Inc.; MJL Corporation; Colfax, Inc.; 1661, Inc.; and Evans Venture (Appellants), against the Attorney General of the State of Colorado, the District Attorney of Arapahoe County, Colorado, and the Arapahoe County Sheriff's Department (Appellees). The complaint sought to enjoin the use of materials seized from the law offices of Morley pursuant to a valid search warrant. The warrant was issued as a result of an undercover investigation of Bernard Morley and his client, Harold Lowrie. Neither Morley nor Lowrie is a party to this case. The sole parties seeking injunctive relief pursuant to C.R.C.P. 65 are a professional corporation and a number of corporations which hold liquor licenses and which operate taverns in Colorado. The trial court held that, under the facts of this case, an adversary hearing was not required to determine the applicability of the attorney-client privilege or the work product doctrine to the seized items because the prosecution established a prima facie showing of the applicability of the crime-fraud exception. We affirm.
I.
The facts of this case are undisputed. On January 26, 1981, Detective Ollila of the Arapahoe County Special Crime Attack Team (SCAT) prepared an affidavit for the issuance of a search warrant for the law offices of appellant, Bernard D. Morley, P.C., in Arapahoe County, Colorado. The affidavit set forth the following facts which formed the basis for Detective Ollila's belief that certain property was located at Morley's law offices which was material evidence relating to alleged violations of the Colorado Criminal Code.
In July 1980, the chief of the Cherry Hills Police Department contacted Detective Ollila and requested an investigation into the possible criminal activity of Morley, who is a registered Colorado attorney. In response to the request, the Arapahoe County SCAT and the Federal Bureau of Investigation conducted a joint undercover investigation of Morley's activities. As part of their investigation, the undercover agents learned that Morley was assisting Lowrie in his alleged illegal control of the ownership of several taverns in Colorado by the use of "sham" corporations for each tavern. The sham corporations had "front" people named as officers or directors of the corporations which obtained Colorado liquor licenses. Morley told the undercover agents that he held the endorsed stock certificates for the various sham corporations and letters of resignation signed by the front men in order to quickly change the management and ownership of the corporations if necessary. Lowrie subsequently confirmed the arrangements he had made with Morley in a conversation with an undercover agent. Thereafter, in a taped conversation with an undercover agent, Morley stated "You don't ever give [the front men] stock certificates. You don't ever give `em the seal, stock book, minute book, anything. We keep it here." By having a management contract with the record owner of each tavern, and with Morley empowered to change the management at any time, Lowrie was able to completely control the financial operation of not less than five taverns in Colorado.
Section 12-47-129, C.R.S. 1973, is "intended to prohibit and prevent the control of the outlets for the sale of alcoholic beverages by any person or parties other than the persons licensed pursuant to the provisions in this article."
After obtaining copies of the public corporate records and the applications for liquor licenses for the various taverns, Detective Ollila requested the issuance of a search warrant for Morley's law offices based upon the particular facts set forth in the affidavit relating to Morley's role in the formation of the sham corporations to defraud the liquor licensing authority. On January 26, 1981, a search warrant was issued authorizing the seizure of various records described as follows:
The affidavit alleged second degree forgery, in violation of section 18-5-103, C.R.S. 1973 (1978 Repl. Vol. 8); fraud, in violation of section 39-21-118, C.R.S. 1973; and conspiracy, in violation of section 18-2-201, C.R.S. 1973 (1978 Repl. Vol. 8).
"Records pertinent to the management and operation of the following businesses; including, . . . financial records, bank deposit slips, bank books, sales records, purchase records, credit invoices, cancelled checks, stockholders and corporate records, stock certificates, employment records, letters of resignation, business ledger books, accounting records, corporate seals, stock books and minute books, and all monies and proceeds from the businesses:
1. INTERNATIONAL ENTERTAINMENT CONSULTANTS, INC.
1601 West Evans Avenue
Denver, Colorado
2. EAGLE MANAGEMENT SERVICES, INC.
1601 West Evans Avenue
Denver, Colorado
3. PALACE, INC. — Doing Business as "PT's"
1601 West Evans Avenue
Denver, Colorado
4. MJL CORPORATION — Doing Business as "PT's
OF COLORADO SPRINGS, INC."
3250 East Platte Avenue
Colorado Springs, Colorado
5. COLFAX, INC. — Doing Business as
"SATURDAYS, INC."
8315 East Colfax Avenue
Denver, Colorado
6. SIXTEEN SIXTY ONE, INC. — Doing Business as
"BOOGIE DOWN"
1661 West 64th Avenue
Denver, Colorado"
The search warrant was executed by the Arapahoe County Sheriff's Department on January 27, 1981, and the client files and corporate books of the appellant corporations were seized from Morley's offices. In this appeal, the appellants do not contest the validity of the affidavit or the search warrant, or the manner in which the warrant was executed.
On January 30, 1981, the appellants filed this action in the District Court in and for the City and County of Denver seeking to enjoin the dissemination of the seized items to state investigators and to a grand jury until the court reviewed the items and determined the applicability of the attorney-client privilege and the work product doctrine as to each document. Pursuant to a stipulation between the parties, the documents and files were deposited with the clerk of the court and were available for viewing only by authorized representatives of the law offices of Morley. The stipulation also required each party to submit written briefs on the scope of the court's review of the seized documents and set forth the procedure to be followed in determining whether a prima facie showing of the crime-fraud exception to the attorney-client privilege and the work product doctrine had been established. At a hearing on February 5, 1981, the district court approved the stipulation.
Thereafter, the court received memoranda of law, held a second hearing on February 13, 1981, and conducted an in camera review of the seized documents. On February 17, 1981, the court ruled that the prosecution had established a prima facie showing of the applicability of the crime-fraud exception to permit the release of the documents seized pursuant to the search warrant. The court also found that all of the seized documents but one file and one pad of blank stock certificates were within the scope of the search warrant. In addition, it determined that none of the documents within the scope of the warrant were protected by the attorney-client privilege because they had been disseminated to third parties. The court also concluded that the documents did not fall within the work product rule since they were not prepared in anticipation of litigation or trial. Accordingly, the court denied injunctive relief and ordered that the documents, with the above-noted exceptions, be released to the State Attorney General's offices and to the Arapahoe County Sheriff's Department.
The appellants thereafter petitioned the Supreme Court to stay the district court's order pending appeal or, in the alternative, for a writ of prohibition to the district court requiring it to maintain the corporate files under seal. (S.Ct. No. 81SA62). In an order entered February 19, 1981, the Supreme Court denied the petition.
II.
The appellants contend that the trial court erred in not allowing an adversarial hearing in conjunction with the in camera inspection of the seized items prior to the dissemination of the documents. In their view, evidence regarding the attorney-client privilege and the work product doctrine should have been heard by the trial court before a ruling was made on the application for injunctive relief against the use of the seized documents. It is also asserted that the prosecution's prima facie showing of the crime-fraud exception was insufficient to satisfy the requirements of judicial screening of the documents.
Of particular significance in this case is the stipulation between parties regarding the manner in which the injunction issues would be resolved by the trial judge. The parties agreed that the court would maintain custody of the sealed documents until the issues were resolved. In addition, the stipulation provided that, following submission of the briefs, the court would examine the seized documents to determine if they were within the scope of the search warrant. Thereafter, the court was to determine whether the documents were subject to either the attorney-client privilege or the work product doctrine. Those documents which were not subject to either the attorney-client privilege or the work product doctrine were to be released to the prosecution. The documents which the court determined might fall within either the attorney-client privilege or the work product doctrine were to be suppressed unless the prosecution made a prima facie showing that the crime-fraud exception applied. The parties also agreed that the court had the option of making the determination at either an ex parte hearing or at an adversary hearing. From the record and the facts which are before us, we conclude that the trial judge did not err in releasing the seized documents without an adversary hearing.
At the hearing on February 5, 1981, the trial judge set forth the following stipulation which was approved by counsel in open court: THE COURT: "The record should reflect that the Court has conferred informally with counsel for — at length, really, — and the parties now stipulate and agree as follows: "The status quo of the documents seized from Bernard Morley's law office will be maintained as per the stipulation and order signed by the parties through their attorneys and approved by the Court this date, February 5, 1981. By 5:00 P.M. on Wednesday, February 11th, 1981, both parties will submit written briefs to the Court in duplicate on the scope of the Court's review of the seized documents and the nature and extent of the show cause hearing . . . at which the prosecution must establish a prima facie showing that any attorney/client privilege or work product exemption is dissolved by virtue of the application of the criminal purpose exemption to those privileges. "Following receipt of briefs of both sides as indicated, the Court will then review the seized documents and determine, in the first instance, if the documents are within the scope of the search warrant. "The Court will then determine if the attorney/client privilege or the attorney work product exemption applies to any of the seized documents. Those documents which the Court determines are not subject to either the attorney/client privilege or the work product exemption will be ordered released forthwith for use by the prosecution. "As to those documents which the Court . . . determines are subject to the attorney/client privilege or the work product exemption, the Court will then require a prima facie showing by the prosecution that the privilege or exemption is dissolved by virtue of the criminal purpose exemption to the privileges. "This showing will, itself, be made at an ex parte hearing by the prosecution or at an adversary type hearing at which Plaintiffs' counsel will be present, as the Court so determines. "And the Court will have a hearing to make that determination, so that [all counsel] will have an opportunity to present their arguments to the Court in that regard. "The microfilms that are now in custody of the Court . . . will be retained under the Court's jurisdiction and will be subject to such further orders as the Court deems appropriate. "After the Court has reviewed the seized documents, the Court will then set the matter for hearing on the matters covered by the briefs at a date agreeable to all counsel. "The preliminary injunction scheduled for 1:30 this afternoon is deemed moot by virtue of this stipulation. [H]ave I correctly dictated the stipulation into the record?" COUNSEL FOR APPELLANTS: "That sounds fine, Your Honor." THE COURT: "Okay. And you approve it.?" COUNSEL FOR APPELLANTS: "Oh, Yes." THE COURT: "Mr. Beckman?" COUNSEL FOR APPELLEES: "We approve it." THE COURT: "Mr. Hilton?" CO-COUNSEL FOR APPELLEES: "Yes, Your Honor." THE COURT: "All right. The stipulation then is approved and made an order of the Court."
A.
The common law attorney-client privilege has been codified in Colorado in section 13-90-107(1)(b), C.R.S. 1973 (1981 Supp.), as follows:
"There are particular relations in which it is the policy of the law to encourage confidence and to preserve it inviolate; therefore, a person shall not be examined as a witness in the following cases:"
. . .
"(b) An attorney shall not be examined without the consent of his client as to any communication made by the client to him or his advice given thereon in the course of professional employment; nor shall an attorney's secretary, paralegal, legal assistant, stenographer, or clerk be examined without the consent of his employer concerning any fact, the knowledge of which he has acquired in such capacity."
It is well-established that the attorney-client privilege exists for the personal benefit and protection of the client who holds the privilege, and that it must be asserted by the client. It extends only to confidential matters communicated by or to the client in the course of gaining counsel, advice, or direction with respect to the client's rights or obligations. See, e.g., A. v. District Court, 191 Colo. 10, 550 P.2d 315 (1976), cert. denied, 429 U.S. 1040, 97 S.Ct. 737, 50 L.Ed.2d 751 (1977); Losavio v. District Court, 188 Colo. 127, 533 P.2d 32 (1975). The work product doctrine is a related but distinct theory which arises out of similar policy interests:
"Generally, the attorney-client privilege protects communications between the attorney and the client, and the promotion of such confidences is said to exist for the benefit of the client. Losavio v. District Court, supra; Denver Tramway Co. v. Owens, 20 Colo. 107, 36 P. 848 (1894). On the other hand, the work-product exemption generally applies to `documents and tangible things . . . prepared in anticipation of litigation or for trial,' C.R.C.P. 26(b)(3), and its goal is to insure the privacy of the attorney from opposing parties and counsel." A. v. District Court, 191 Colo. at 25, 550 P.2d at 327.
We have recognized, however, that neither the attorney-client privilege nor the work product exemption is absolute. The social policies underlying each doctrine may sometimes conflict with other prevailing public policies and, in such circumstances, the attorney-client privilege and the work product doctrine must give way. See Losavio v. District Court, supra. See also Clark v. United States, 289 U.S. 1, 53 S.Ct. 465, 77 L.Ed. 993 (1933). In this regard, the "crime-fraud" or "criminal purposes" exception has developed as a limitation on the applicability of the attorney-client privilege and the work product exemption. The attorney-client privilege has always been subject to the qualification that communications made to an attorney to obtain his advice for the commission of criminal acts are not protected by the privilege. Simply stated, the crime-fraud exception provides that communications between a client and his attorney are not privileged if they are made for the purpose of aiding the commission of a future crime or of a present continuing crime. Caldwell v. District Court, 644 P.2d 26 (Colo. 1982); A. v. District Court, supra; Losavio v. District Court, supra. See also In re September 1975 Grand Jury Term, 532 F.2d 734 (10th Cir. 1976); Webb v. State, 580 P.2d 295 (Alaska 1978).
In recognition of the public policy considerations warranting a crime-fraud exception to the attorney-client privilege, we held in A. v. District Court, supra:
"The attorney-client privilege is rooted in the principle that candid and open discussion by the client to the attorney without fear of disclosure will promote the orderly administration of justice. The criminal purpose exception to the privilege grows out of a competing value of our society which is manifested in the rule that `the public has the right to every man's evidence, particularly in grand jury proceedings.' Consequently, the attorney-client privilege is not absolute." (Citation and footnote omitted.) 191 Colo. at 22, 550 P.2d at 324-25.
See also Caldwell v. District Court, supra; In re Grand Jury Proceedings (FMC Corp.), 604 F.2d 798 (3rd Cir. 1979); Clark v. United States, supra. In addition, just as the attorney-client privilege may not be abused as a shield for ongoing or future illegal activity, the attorney work product doctrine cannot be allowed to protect the perpetration of wrongful conduct. See Caldwell v. District Court, supra. Thus, the principles underlying the crime-fraud exception have also been applied to the work product doctrine:
"[W]hen the lawyer is consulted, not with respect to past wrongdoing, but to future illegal activities, the privilege is no longer defensible and the crime-fraud exception comes into play. . . . [T]here is no actual inconsistency in applying the crime-fraud exception to the work product as well as to the attorney-client privilege. The rationale supporting the exception in both areas is virtually identical. The work product privilege is perverted if it is used to further illegal activities as is the attorney-client privilege, and there are no over-powering considerations in either situation that would justify the shielding of evidence that aids continuing or future criminal activity." (Citation and footnote omitted.) In re Grand Jury Proceedings (FMC Corp.), 604 F.2d at 802.
See also Caldwell v. District Court, supra; Natta v. Zletz, 418 F.2d 633 (7th Cir. 1969); Hercules, Inc. v. Exxon Corp., 434 F. Supp. 136 (D. Del. 1977). In either case, the rationale for excluding such communications from the scope of the attorney-client privilege and the work product exemption is that the policies supporting their existence are inapplicable where the advice and aid sought refer to future wrongdoing rather than to prior misconduct. Caldwell v. District Court, supra. See also In re Walsh, 623 F.2d 489 (7th Cir. 1980), cert. denied, 449 U.S. 994, 101 S.Ct. 531, 66 L.Ed.2d 291 (1980); In re September 1975 Grand Jury Term, supra; 8 J. Wigmore, Evidence, § 1198 at 573 (McNaughton Rev. 1961); C. McCormick, Evidence, § 95 (2 ed. 1972).
The Code of Professional Responsibility recognizes the crime-fraud exception to the attorney-client privilege and work product doctrine. DR 4-101 states: "(C) A Lawyer may reveal: . . . "(2) Confidences or secrets when permitted under Disciplinary Rules or required by law or court order. "(3) The intention of his client to commit a crime and the information necessary to prevent the crime." Of course, the lawyer shall not "engage in illegal conduct involving moral turpitude," DR 1-102(A)(3); or "counsel or assist his client in conduct that the lawyer knows to be illegal or fraudulent," DR 7-102(A)(7), or "knowingly engage in other illegal conduct or conduct contrary to a Disciplinary Rule," DR 7-102(A)(8). See also A. v. District Court, 191 Colo. 10, 550 P.2d 315 (1976).
In A. v. District Court, supra, and again in Caldwell v. District Court, supra, we addressed the procedure to be followed in determining whether the crime-fraud exception is applicable to a particular case:
"[A] judge may order disclosure of the allegedly privileged documents upon a prima facie showing that the future crimes exception is applicable. . . . [T]his prima facie showing is `not tantamount to proof of a prima facie case,' but requires that there be a showing of `some foundation in fact' for the alleged illegal conduct. . . . [T]he trial court may conduct an in camera review of the allegedly privileged documents without first requiring a prima facie showing if it determines that this would aid its assessment of the privilege's applicability. The ultimate burden is upon the party asserting the exception to the privilege, and it must be demonstrated that the exception applies to each document before that document is stripped of its privilege." Caldwell v. District Court, 644 P.2d at 32.
In Caldwell, we determined that in order to reconcile "the need for protection of the attorney-client relationship and the competing need to avoid use of that relationship as a shield for the perpetration of wrongful conduct," the quantum of proof required to invoke the crime-fraud exception was "not tantamount to proof of a prima facie case." Rather, we held that a prima facie showing — one which gives a foundation in fact for the assertion of ongoing or future criminal conduct — was sufficient to invoke the applicability of the crime-fraud exception. Id. Accord In re September 1975 Grand Jury Term, supra (on a claim of privilege, it is necessary only to demonstrate a potential relationship between the seized documents and the charges under investigation). We approved this lesser burden of proof in recognition of the significant proof problems facing a proponent of the crime-fraud exception. Id. See also Note, The Future Crime or Tort Exception to Communications Privileges, 77 Harv. L. Rev. 730 (1964); Gardner, The Crime or Fraud Exception to the Attorney-Client Privilege, 47 A.B.A.J. 708 (1961).
B.
Any search of a law office for client files and materials must be precisely limited and restricted to prevent an exploratory search. It is axiomatic that the confidentiality of the attorney-client relationship must be preserved by protecting the communications, documents, and materials which a client has made available to his lawyer in order to obtain legal advice. Consequently, there is an enhanced privacy interest underlying the attorney-client relationship which warrants a heightened degree of judicial protection and supervision when law offices are the subject of a search for client files or documents. See generally, Bloom, The Law Office Search: An Emerging Problem and Some Suggested Solutions, 69 Geo. L. J. 1 (1980). However, judicial decisions regarding the propriety of law office searches and the protections afforded by the attorney-client privilege must be made on an ad hoc basis. See Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). It is therefore within the sound discretion of the trial court to determine whether the prosecution has established a proper foundation in fact for the applicability of the crime-fraud exception and whether the overall search and seizure was conducted in a reasonable manner in view of the enhanced privacy interest. See In re September 1975 Grand Jury Term, 532 F.2d 734 (1976). In order to assure that intrusions into client files and materials do not unreasonably interfere with the attorney-client relationship, an adversary hearing is desirable when the attorney-client privilege or the work product doctrine is invoked to bar the dissemination of documents seized as a result of a law office search. In conducting such a hearing, the trial judge is able to rule on the applicability of the attorney-client privilege and the work product doctrine to each document seized, thereby preserving a detailed record for appeal.
Under the circumstances of this case, however, the trial court did not abuse its discretion by releasing the documents seized from Morley's offices without an adversary hearing. The documents in question were seized pursuant to a search warrant issued by the district court in conjunction with an ongoing investigation of continuing criminal activity which allegedly involved Morley as well as his client. Morley was therefore a target of the investigation, and the search of his offices was specifically designed to obtain evidence of his criminal activities relating to the formation of sham corporations for fraudulent purposes. Cf. O'Connor v. Johnson, 287 N.W.2d 400 (Minn. 1979); Deukmejian v. Superior Court, 103 Cal.App.3d 253, 162 Cal.Rptr. 857 (1980). See generally, Bloom, The Law Office Search: An Emerging Problem and Some Suggested Solutions, 69 Geo. L. J. 1 (1980); Gurfein, The Assault on the Citadel of Privilege Proceeds Apace: The Unreasonableness of Law Office Searches, 49 Fordham L. Rev. 708 (1981).
Moreover, we are not confronted in this appeal with any claim regarding the reasonableness of the search of Morley's offices in light of the enhanced privacy interest underlying the attorney-client privilege. The appellants do not assert a claim, constitutional or otherwise, directed to the procedures used by the law enforcement authorities to seize the files and documents in issue. The sufficiency or accuracy of the affidavit, the validity of the search warrant, and the manner in which the search warrant was executed are therefore not in issue in this case. Cf. People v. Hearty, 644 P.2d 302 (Colo. 1982). The sole issues now before us is whether the attorney-client privilege prevents the dissemination of the seized documents.
We do not have the documents before us for review, and we are faced with minimal references in a sparse record regarding the precise nature and content of the documents seized. However, it is clear that before the trial court entered its written order concluding that the prosecution had made a prima facie showing that the crime-fraud exception applied to all the seized documents which were within the scope of the warrant, it reviewed the affidavit for the search warrant and the briefs submitted by the parties, and conducted an in camera review of all the seized documents. The documents which the court determined not to be within the scope of the warrant were then returned to the appellants. The trial court also found that the disclosures by Morley and his client to third parties of the existence of the documents prepared as part of their ongoing scheme to defraud the liquor licensing authority defeated their claim of privilege. In reviewing the totality of the circumstances as shown by the record in this case, including the stipulation and the manner in which the attorney-client privilege and the work product rule has been asserted, we are satisfied that the nexus between the documents seized and the type of ongoing criminal conduct described in the affidavit supports a finding that the crime-fraud exception was applicable to permit the disclosure of the seized documents.
Accordingly, the judgment of the district court is affirmed.
JUSTICE QUINN specially concurs.