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Court Orders Production of Work Product Documents under Crime-Fraud Exception to Attorney-Client Privilege Where Defendants Had Falsely Identified Source Code

In an earlier filed decision, the district court had previously found that Escort and its defense counsel had knowingly misled the plaintiff, Fleming, which warranted a sanction of attorney fees. As explained by the district court, “they falsely claimed that the source code identified as ESC17363 was the current operating source code for Escort’s commercially sold products and that it provided a complete defense to Fleming’s patent infringement charges.”

After awarding attorney’s fees, the district court turned to Fleming’s motion to compel the production of certain documents. “Fleming seeks discovery of a wide variety of documents and communications in an effort to determine if Escort fabricated ESC17363 and falsely represented that it was created in the normal course of product development.”
In response, Escort argued that all of the material sought by Fleming was protected by the work product doctrine and the attorney client privilege.

The district court then proceeded to analyze whether the documents should be produced under the crime-fraud exception. “Under the crime-fraud exception, communications are not privileged if the client seeks the advice of counsel to further a criminal or fraudulent scheme and the communications are sufficiently related to and made in furtherance of that scheme. In re Icenhower, 755 F.3d 1130, 1141 (9th Cir. 2014).”

Escort argued that the crime-fraud exception did not apply to communications protected by the work product doctrine, but the district court found that “the Ninth Circuit has rejected that argument. See In re Grand Jury Proceedings, 867 F.2d 539 (9th Cir.1989).” Escort also argued that the exception did not apply because the district court limited its holding to Escort’s counsel and not to Escort itself. The district court found “that conclusion can nowhere be found in the Court’s decision that cites extensively from the sworn submissions of Escort employees. Escort is correct, however, that the ‘preponderance of the evidence’ standard is required for outright disclosure of communications pursuant to this exception, while the lesser ‘prima facie’ standard only applies when in camera review is sought. In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1094-95 (9th Cir.2007), abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100 (2009).”

In this case, Fleming was seeking outright disclosure rather than in camera review and, therefore, the preponderance standard governed. The district court had “already found by a preponderance of the evidence that Escort falsely claimed that (1) the source code found in ESC17363 was the current operating source code for Escort’s commercially sold products; (2) ESC17363 provided a complete defense to Fleming’s infringement challenges; and (3) Escort had produced all the source code.”

The district court found that this type of fraud opened up all of the communications. “Those communications are discoverable because Escort’s false claims raise a substantial question – not yet answered – whether ESC17363 was a complete fabrication. While Escort eventually conceded that ESC17363 was never a current operating code for any product, Escort claimed that it created that source code in the normal course of product development. But that claim is naturally called into question by the fraudulent way that Escort portrayed ESC17363 as a complete defense. Fleming intends to test Escort’s representations – made in sworn statements submitted to the Court – by examining all of Escort’s communications regarding ESC17363. If ESC17363 was a complete fabrication, that would raise a substantial question as to whether other source codes submitted by Escort as a defense to the infringement charges were similarly fabricated. Under these circumstances, Fleming has the right to outright disclosure of all communications related to ESC17363.”

Nonetheless, the district court found that Fleming’s requests were too broad. As set forth by the district court, Fleming sought all communications related to the following subjects concerning the four Escort products at issue: (1) “infringement”; (2) “willfulness”; (3) “damages”; (4) “source code design”; (5) “design-around efforts”; (6) “product testing”; (7) “compilation and installation of code”; (8) “production/disclosure of code to Mr. Fleming”; (9) “briefing and supporting documents”; and (1) “all communications concerning [these] . . .subject matters.”

The district court found that these categories were too broad. “The crime-fraud exception applies only to documents and communications that were themselves in furtherance of illegal or fraudulent conduct. Napster, 479 F.3d at 1090. The Court must be careful not to sweep within the exception entirely legitimate attorney-client communications. See U.S. v. Zolin, 491 U.S. 554, 562 (1989).”

As a result, the district struck a balance: “the Court will not order production under the broad categories advocated by Fleming. Instead, the Court will compel Escort to produce all communications and documents that mention or relate to ESC17363. This includes not only communications between Escort and its counsel, but also material that counsel prepared, as the case law cited above makes clear that even work product is discoverable under this exception. Accordingly, the Court will, to this extent, grant Fleming’s motion to compel in part and deny the remainder.”

Hoyt Fleming v. Escort, Inc., Case No. 1:12-CV-066-BLW (D. Id. Jan. 9, 2015)

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