694 A.2d 319 | N.J. Super. Ct. App. Div. | 1997
The opinion of the court was delivered by
We granted leave to appeal from orders of the Law Division entered on July 26, 1996 and September 27, 1996, which implemented oral opinions regarding the discovery and use of docu
We reverse and hold that a pre-litigation memorandum prepared by in-house counsel to defendant’s Controller is neither discoverable nor subject to use by plaintiff, under the “crime-fraud” exception to the attorney-client privilege, merely,because it embodies advice inconsistent with a legal theory thereafter developed by litigation counsel.
Plaintiff alleges that in 1980 it entered into a contract with defendant and, pursuant thereto, made energy audits and recommendations as a result of which defendant saved substantial energy costs and expenses. Plaintiff brought this action to recover fifty percent of those savings pursuant to the contract.
During discovery Sunshine delivered to plaintiff copies of documents including the so-called “Barbieri memorandum,” a three page written communication from Sunshine’s in-house counsel to its corporate Controller (numbered 22 through 24 in discovery). The memorandum discusses the basis for plaintiffs claims against defendant under the contract and makes “recommendations” for corporate action, investigation of the work actually done by plaintiff and consideration of a “buyout” of the contract. When defendant realized that the documents were included in the discovery presented, it requested the immediate return of the memorandum.
Defendant contends that the memorandum, dated December 28, 1992, written approximately three years before the litigation commenced,
[t]he relief sought in the Complaint is barred, either in whole or in part, as the defendant has no contractual obligation to and never entered into a contract with National Utility Service, Inc.
The motion judge held that the attorney-client privilege did not apply because of the “crime fraud” exception. He concluded:
I am satisfied that the defense view of the crime fraud exception is a stunted view, is a tunnel-vision view, and is one that is crabbed in the sense of looking only at what was happening at the time of the execution of the so-called Barbieri memorandum. I think that this case, as all cases, must be looked at as part of a*615 continuum, as part of a matrix of process. I am satisfied that in that matrix the Barbieri memorandum plays a role in the claim of fraud or deceit.
Although it becomes fashionable to cite the cliche I’m about to cite, I think it’s applicable here. The surest way to misread a rule or a statute is to read it literally, and that is the way I approach Rule 504. Read literally and in that crabbed fashion, I think Sunshine Biscuits is probably correct, but I don’t think that’s what the intent or spirit is.
Pursuant to N.J.S.A. 2A:84A-20, embodied in the Rules of Evidence as N.J.R.E. 504:
[C]ommunications between lawyer and his client in the course of that relationship and in professional confidence, are privileged, and a client has a privilege (a) to refuse to disclose any such communication, and (b) to prevent his lawyer from disclosing it.... The privilege shall be claimed by the lawyer, unless otherwise instructed by the client or his representative [3 ]
There is no dispute that because the Barbieri memorandum was written as part of the duties of in-house counsel who was retained to provide professional legal advice to the corporation, and the memorandum was prepared in furtherance thereof, it is subject to the attorney-client privilege unless an exception applies. See generally United Jersey Bank v. Wolosoff, 196 N.J.Super. 553, 560-63, 483 A.2d 821 (App.Div.1984); see also Jadlowski v. Owens-Corning Fiberglas Corp., 283 N.J.Super. 199, 215-17, 661 A.2d 814 (App.Div.1995), certif. denied, 143 N.J. 326, 670 A.2d 1066 (1996); Restatement (Third) of the Law Governing Lawyers §§ 118-122 (Proposed Final Draft No. 1, March 29, 1996). Thus, the only issue before us is whether the memorandum is subject to
The Supreme Court has instructed that
[i]n deciding whether the “crime or fraud” exception applies, the relevant factor to consider is whether the client consulted with the attorney in order (1) to aid the client “in the commission of any crime”; (2) to enable the client “to avoid any criminal investigation or proceeding pending at the time the advice was given”; or
(3) to assist the client to “avoid lawful process in any proceeding pending at the time the advice was given.” Undoubtedly, it can be often a close question whether “the legal service was sought or obtained to aid the client in the planning or perpetration of a crime or a tort.”
[In re Nackson, supra, 114 N.J. at 535, 555 A.2d 1101 (internal citations omitted).)
The Court has interpreted the exception broadly:
Confederating with clients to allow court and counsel to labor under a misapprehension as to the true state of affairs; countenancing by silence the violation of a court order and aiding and abetting the continued contempt of another, are all frauds within the meaning of Evidence Buie 26(2)(a) [now N.J.B.E. 403(2)(a)]. There is no reason to believe that the use of the word “fraud” in that rule is to be limited to conventional notions of tortious frauds. Acts constituting fraud are as broad and as varied as the human mind can invent. Deception and deceit in any form universally connote fraud. Public policy demands that the “fraud” exception to the attorney-client privilege as used in Evidence Buie 26 [now N.J.B.E. 504] be given the broadest interpretation.
[Fellerman, supra, 99 N.J. at 503, 493 A.2d 1239 (quoting In re Callan, 122 N.J.Super. 479, 496, 300 A.2d 868, (Ch.Div.), aff'd, 126 N.J.Super. 103, 312 A.2d 881 (App.Div.1973), rav’d o.g., 66 N.J. 401, 331 A.2d 612 (1975)).]
The Fellerman Court also noted “that it was plausible to class ‘any use of legal process for a purpose other than a “legitimate” one’ to be tortious” and, therefore, subject to the exception. Fellerman, supra, 99 N.J. at 503, 493 A.2d 1239 (quoting G. Harzard, “An Historical Perspective on the Attorney-Client Privilege,” 66 Calif. L.Rev. 1061, 1064 (1978)).
In this case, the motion judge found that it was fraudulent for defendant to affirmatively defend the contract action by asserting that there was no contract with NUS after in-house counsel had previously indicated in a memorandum that defendant did enter
In his memo, Mr. Barbieri, Sunshine’s General Counsel, considered correspondence with plaintiff as well as the terms and scope of the contract. He further recommended that
[biased upon the results of the above, consider making an offer to buy out the remainder of the contract, employing the sum currently due from Kansas City Bakery as proceeds. The answers to the above questions may provide legal bases for avoiding parts of the contractual obligations (e.g. if Oakland and Columbus never communicated with NUS, the contract may not apply to either).
Defendant insists that the memo was written in good faith and embodied sound legal advice. Defendant also asserts that the fifth affirmative defense was developed as a result of a further review of the merits and study of the law of Delaware which it contends controls under choice of law principles.
According to defendant:
[the] defense has two components. First, the defendant asserts that it has no contractual obligation to NUS____ In its Response to Plaintiffs First Set of Interrogatories, Sunshine explained that Paul Marino, a NUS employee, admitted in a letter to Edward Goldman of American Brands, Inc., the former owner of Sunshine Biscuits, Inc. that Sunshine Biscuits “no longer wished to receive any NUS recommendations and thereby terminated the agreement.” ... Thus, Sunshine had no contractual obligation to plaintiff as recognized by plaintiffs own employee, Paul Marino.
Defendant thus asserts that if, in fact, there was no contract there could be no fraud.
Defendant explains the second basis for the fifth affirmative defense, as follows:
NUS never entered into an agreement with this Sunshine Biscuits, Inc---Sunshine appropriately interposed the defense that it “never entered into” a contract with NUS because this Sunshine did not do so____ [W]hile NUS may or may not ultimately carry its burden and demonstrate that “New Sunshine” can potentially be held liable for Old Sunshine’s contract from a successor liability perspective it will not be able to demonstrate that it “entered into a contract” with New Sunshine. A review of Delaware corporate law as applied to the facts of this case supports this conclusion.
*618 The determination of New Sunshine’s successor liability for any contract between Old Sunshine and NUS should be left for a timely and proper summary judgment on another day after discovery has been conducted. Bespectfully, it has nothing to do with the application of the crime fraud exception.
According to Sunshine, “[b]y means of a Stock Sale Agreement dated February 8,1988, as amended by an Agreement dated April 15, 1988, defendant American Brands agreed to sell and GF Industries, Inc. (‘GFI’) agreed to purchase all of the issued and outstanding shares of common stock of Sunshine Biscuits, Inc." Sunshine relies on the Delaware Code, 8 DelCode Ann. § 259, as interpreted by its state courts, to argue that the new corporate entity as a matter of law entered into no agreement with plaintiff and cannot be responsible for its predecessor’s contractual liability-
The trial court has not addressed these legal and factual issues. It may be that they will ultimately turn out to be meritless and that sanctions may even be imposed. See R. 1:4-8. But the initial reaction of in-house counsel cannot be deemed to bind the legal and factual contentions raised by the attorneys retained to defend the litigation. The defenses asserted by litigation counsel appear to be made in good faith, see R. 1:4-8; R. 4:5-3; R. 4:5-4, and plaintiff has not made a sufficient showing to the contrary. “The burden of establishing the elements of the [‘crime fraud’] exception is upon the person seeking to overcome the privilege.” Restatement, supra, § 132, cmt. a; see also id. at cmt. e. “The person seeking access to the communication ... must present a prima facie case for the exception” to apply. Id. at cmt. f. “The showing must be made by evidence other than the contested communication itself.” Ibid. Plaintiff has not sustained that burden.
We thus conclude that the Barbieri memorandum, prepared over three years before the litigation, by in-house counsel laying out an approach to be taken with respect to resolving a contract dispute, and not suggesting the development of false information
The orders under review are reversed, and the matter is remanded for further proceedings consistent with this opinion.
The plaintiff refers to the filing of its First Amended Complaint on February 8, 1996. It does not note when the original complaint was filed. Defendant suggests that the complaint was filed in the fall of 1995. In any event, plaintiff acknowledges that "[ijssue was joined on February 20, 1996, when Sunshine filed its Answer,” affirmative defenses and counterclaim.
The parties agree that the inadvertent disclosure during discovery does not constitute a waiver by the client of its privilege. State v. Sugar, 84 N.J. 1, 13, 417 A.2d 474 (1980); Trilogy Communications, Inc. v. Excom Realty, Inc., 279 N.J.Super. 442, 447-48, 652 A.2d 1273 (Law Div.1994); N.I.S.A. 2A:84A-30; N.J.R.E. 531.
The terms “lawyer” and “client” are defined in N.J.S.A. 2A:84A-20(3) and NJ.R.E. 504(3):
As used in this rule (a) “client" means a person or corporation or other association that, directly or through an authorized representative, consults a lawyer or the lawyer's representative for the purpose of retaining the lawyer or securing legal service or advice from him in his professional capacity; ... (b) “lawyer” means a person authorized, or reasonably believed by the client to be authorized to practice law in any State or nation the law of which recognizes a privilege against disclosure of confidential communications between client and lawyer. A communication made in the course of relationship between lawyer and client shall be presumed to have been made in professional confidence unless knowingly made within the hearing of some person whose presence nullified the privilege.
[NJ.R.E. 504(3).]
