Davis, J., concurring:
I wish to make it clear that, not only do I concur in the majority's disposition of
this case, “I agree entirely with Justice [Maynard's] analysis of the legal issues presented here
and with his application of them to the facts of this case.” Woodall v. International Bhd. of
Elec. Workers, 192 W. Va. 673, 678, 453 S.E.2d 656, 661 (1994) (Cleckley, J., concurring).
I have chosen to write separately on the crime-fraud exception to the attorney-client privilege
as it is an issue that I believe trial courts will be confronting now that the Court has made clear
that the attorney-client privilege and work product rule
(See footnote 1)
can be asserted in third-party
insurance bad faith cases. Justice Maynard's opinion identified the issue in footnote 11, when
he stated that “fraud is not alleged in the instant case.” Nevertheless, it is my belief that the
crime-fraud exception will, in fact, be a recurring matter in insurance bad faith claims.
Consequently, I write separately to explore its contours.
Courts have recognized that “[t]he crime-fraud exception to the attorney-client privilege is predicated on the recognition that where the attorney-client relationship advances the criminal enterprise or fraud, the reasons supporting the privilege fail.” People v. Paasche, 525 N.W.2d 914, 917 (Mich. Ct. App. 1994). “It is the purpose of the crime-fraud exception to the attorney-client privilege to assure that the 'seal of secrecy' between lawyer and client does not extend to communications 'made for the purpose of getting advice for the commission of a fraud' or crime.” United States v. Zolin, 491 U.S. 554, 563, 109 S. Ct. 2619, 2626, 105 L. Ed. 2d 469 (1989) (citations omitted). See also In re Grand Jury Proceedings, 183 F.3d 71, 76-77 (1st Cir. 1999) (“[W]e exclude from the privilege communications made in furtherance of crime or fraud because the costs to truth-seeking outweigh the justice-enhancing effects of complete and candid attorney-client conversations.”); United States v. Jacobs, 117 F.3d 82, 87 (2d Cir. 1997) (“The crime-fraud exception removes the privilege from those attorney-client communications that are 'relate[d] to client communications in furtherance of contemplated or ongoing criminal or fraudulent conduct.'”); In re Grand Jury Proceedings, 87 F.3d 377, 381 (9th Cir. 1996) (“While there is a societal interest in enabling clients to obtain complete and accurate legal advice . . . there is no such interest when the client consults the attorney to further the commission of a crime or fraud.”).
The crime-fraud “exception applies even if the attorney is unaware of the client's
criminal or fraudulent intent, and applies of course where the attorney knows of the forbidden
goal.” Ocean Spray Cranberries, Inc. v. Holt Cargo Sys., Inc., 785 A. 2d 955, 959 (N.J.
Super. Ct. Law Div. 2000). See also United States v. Hodge & Zweig, 548 F.2d 1347, 1354
(9th Cir. 1977) (“The crime or fraud exception applies even where the attorney is completely
unaware that his advice is sought in furtherance of such an improper purpose.”); Freedom Trust
v. Chubb Group of Ins. Cos., 38 F. Supp. 2d 1170, 1171 (C.D. Cal. 1999) (“[T]he lawyer does
not have to be aware of the fraud for the crime-fraud exception to apply.”); In re National
Mortg. Equity Corp. Mortg. Pool Certificates Litig., 116 F.R.D. 297, 300 (C.D.Cal. 1987)
(“[T]he party seeking disclosure need not show that the attorney knowingly participated in the
crime or fraud.”). Thus, “[t]he determining factor is not the attorney's intention or actions; for
purposes of analyzing the crime-fraud exception, the attorney's conduct and motive is
irrelevant.” In re Grand Jury Investigation, 772 N.E.2d 9, 25 (Mass. 2002). Further, “[t]he
client need not succeed in committing the intended crime or fraud in order to forfeit the
attorney-client privilege. The dispositive question is whether the attorney-client
communications are part of the client's effort to commit a crime or perpetrate a fraud.” First
Union Nat'l Bank v. Turney, 824 So. 2d 172, 187 (Fla. Dist. Ct. App. 2001)
Generally,
under the crime/fraud exception to the lawyer-client
privilege, “fraud” would include the commission and/or attempted
commission of fraud on the court or on a third person, as well as
common law fraud and criminal fraud. The crime/fraud exception
comes into play when a prospective client seeks the assistance of
an attorney in order to make a false statement or statements of
material fact or law to a third person or the court for personal
advantage.
Volcanic Gardens Mgmt. Co. v. Paxson, 847 S.W.2d 343, 348 (Tex. Ct. App. 1993). With
regard to the “fraud on the court” component of the crime-fraud exception, we stated in dicta
in Kessel v. Leavitt, 204 W. Va. 95, 511 S.E.2d 720 (1998), that “only a crime or a fraud upon
the court will suffice to overcome the attorney-client privilege.” Kessel, 204 W. Va. at 183,
511 S.E.2d at 808. This discussion was limited to the specific factual context under
consideration in that case, which involved fraud upon the court, and was based upon the
observation that “'[m]ost of the decisions fashioning a fraud exception have dealt with a client's
use of an unwitting attorney to carry out a scheme to fraudulently or criminally subvert the
normal progress of litigation[.]'” 1 Franklin D. Cleckley, Handbook on Evidence for West
Virginia Lawyers § 5-4(E)(6)(a) (1994) (quoting In re Doe, 662 F.2d 1073 (4th Cir. 1981)).
In light of the narrow circumstances under which the crime-fraud exception was placed in issue
in Kessel, our decision therein should not be interpreted as limiting the crime-fraud exception
to only that of fraud upon the court.
In United Services Automobile Ass'n v. Werley, 526 P.2d 28 (Alaska 1974),
the Alaska Supreme Court adopted a broad view of the fraud exception. Werley stated that the
attorney-client privilege does not apply when there is evidence that “an insurer through its
attorney engage[d] in a bad faith attempt to defeat, or at least reduce, the rightful claim of its
insured[.]” Werley, 526 P.2d at 33. Thus, under Werley mere evidence of bad-faith can defeat
the attorney-client privilege. But see Freedom Trust v. Chubb Group of Ins. Cos., 38
F.Supp.2d 1170, 1173 (C.D.Cal. 1999) (“[T]here is no persuasive reason to include bad faith
in the fraud exception to the lawyer-client privilege.”). Indeed, in the context of the exception,
there are nearly as many definitions
for the term “fraud” as there are courts tackling the issue. See,
e.g., In re Sealed Case, 754 F.2d 395, 399 (D.C. Cir. 1985)
(“Communications otherwise protected by the attorney-client privilege
are not protected if the communications are made in furtherance of a crime,
fraud, or other misconduct.”); Cooksey v. Hilton Int'l Co., 863
F. Supp. 150, 151 (S.D.N.Y. 1994) (“[T]orts moored in fraud can
trigger the crime-fraud exception.”); Central Constr. Co. v. Home
Indem. Co., 794 P.2d 595, 598 (Alaska 1990) (same); Volcanic Gardens
Mgmt. Co., 847 S.W.2d 343, 347 (“'Fraud' is sometimes defined as
'[a] generic term, embracing all multifarious means which human ingenuity
can devise, and which are resorted to by one individual to get advantage
over another by false suggestions or by suppression of truth, and includes
all surprise, trick, cunning dissembling, and any unfair way by which another
is cheated.” (quoting Johnson v. McDonald, 39 P.2d 150 (Okla.
1934))); International Tel. & Tel. Corp. v. United Tel. Co. of Florida,
60 F.R.D. 177, 180 (M.D. Fla. 1973) (“The privilege may be overcome,
not only where fraud or crime is involved, but also where there are other
substantial abuses of the attorney-client relationship.”).
While West Virginia has never expressly defined the scope
of our fraud exception, in State v. Douglas, 20 W. Va. 770 (1882),
this Court made clear that civil fraud may defeat the attorney-client privilege.
In the more recent case of Kessel v. Leavitt, the Court suggested that
a narrow meaning should be afforded the fraud exception by commenting that “when
the fraud alleged bespeaks of tortious fraudulent conduct, . . . the . . . fraud
exception does not operate to compel disclosure of the privileged communications.” Kessel, 204 W. Va. at 183, 511
S.E.2d at 808. This language, which is mere dicta, does not overrule the precedent set by this
court in Douglas, and should not be interpreted to mean that civil fraud
(See footnote 2)
is unavailable as a
basis for piercing the attorney-client privilege. Kessel did not hold and should not be contrued
as holding, that evidence of other types of tortious conduct, like bad faith, could not be used
to pierce the attorney-client privilege. Under the facts presented in Kessel, it was not
necessary for the Court to define the scope of the fraud component of the crime-fraud
exception. Consequently, the Court did not create a new syllabus point in Kessel that sought
to define what type of evidence would be appropriate to establish the fraud exception. See Syl.
pt. 2, in part, Walker v. Doe, 210 W. Va. 490, 558 S.E.2d 290 (2001) (“[N]ew points of law
are . . . articulated through syllabus points as required by our state constitution.”). Accord Syl.
pt. 13, State ex rel. Medical Assurance of West Virginia v. Recht, ___ W. Va. ___, ___
S.E.2d ___ (No. 30840 April 30, 2003).
As explained in In re Assessment of Kanawha Valley
Bank, 144 W. Va. 346, 109 S.E.2d 649 (1959), “[o]biter dicta or strong expressions in an
opinion, where such language was not necessary to a decision of the case, will not establish a
precedent.” Kanawha Valley, 144 W. Va. at 382-83, 109 S.E.2d at 669.
In the final analysis, Kessel does not limit the fraud exception to civil fraud, nor
does the decision preclude using evidence of tortious misconduct, such as bad faith, to help
establish the civil fraud exception. This is an issue that the Court will have to resolve when
properly presented for a resolution.
In Zolin, the Supreme Court was asked to decide (1) whether a district court, at
the request of the party opposing the attorney-client privilege, may review the allegedly
privileged communications in camera to determine whether the crime-fraud exception applies;
(2) whether some threshold evidentiary showing is needed before the district court may
undertake the requested review; and (3) the type of evidence the opposing party may use to
meet the threshold showing.
(See footnote 4)
As to the first issue, Zolin held that “the party opposing the privilege on crime-
fraud grounds [may] rely[] on the results of an in camera review of the communications.”
Zolin, 491 U.S. at 568, 109 S. Ct. at 2629. As to the second issue, Zolin held that a party must
establish through nonprivileged evidence, “'a factual basis adequate to support a good faith
belief by a reasonable person,' that in camera review of the [privileged] materials may reveal
evidence to establish the claim that the crime-fraud exception applies.” Zolin, 491 U.S. at 572,
109 S.Ct. at 2631 (quoting Caldwell v. District Court, 644 P.2d 26, 33 (Colo. 1982)). In
addressing the third issue, Zolin concluded “that the party opposing the privilege may use any
nonprivileged evidence in support of its request for in camera review[.]” Zolin, 491 U.S. at
574, 109 S. Ct. at 2632.
There are three points I want to highlight regarding Zolin. First, under the
decision in Zolin, a party may actually use a privileged communication to establish the crime-
fraud exception. This point is critical because often-times a party will not be able to establish
the crime-fraud exception without reliance upon the privileged communication. Second, Zolin
permits the use of any nonprivileged evidence to establish a prima facie case of crime-fraud.
(See footnote 5)
Under this standard, any type evidence showing misconduct (e.g., bad faith), so long as it is not
privileged, may be used to help support a prima facie case. Third, Zolin's threshold prima facie
case, the proof necessary to trigger an in camera hearing, is not a high burden. The decision
itself emphasized that “[t]he threshold we set . . . need not be a stringent one.” Zolin, 491 U.S.
at 572, 109 S. Ct. at 2631.
(See footnote 6)
Thus, Zolin's threshold prima facie case “requires only a factual
showing sufficient to support a reasonable good-faith belief that review of the privileged
documents 'may reveal evidence to establish that the crime fraud exception applies.'” In re
Grand Jury Investigation, 974 F.2d 1068, 1071 (9th Cir. 1992) (quoting Zolin, 491 U.S. at
572, 109 S. Ct. at 2631 (emphasis in original)).
(See footnote 7)
The Zolin prima facie showing to trigger an
in camera review of the crime-fraud exception was adopted by this Court in State v. Beard, 194
W. Va. 740, 461 S.E.2d 486 (1995). In Beard we interpreted Zolin as requiring a party to
“establish[] a sufficient showing to invoke the crime-fraud exception.” Beard, 194 W. Va. at
754, 461 S.E.2d at 500 (emphasis added).
Once a prima facie case of
the crime-fraud exception has been sufficiently established, the trial court
may then conduct an in camera proceeding. (See
footnote 8) During the in camera review,
the party opposing the privilege may prevail only where the evidence establishes “that
the client intended to perpetrate a [crime or] fraud,” Olson v. Accessory Controls & Equip.
Corp., 757 A.2d 14, 31 (Conn. 2000).
(See footnote 9)
In addition, “the court must find a valid relationship
between the confidential communication that was made and the crime or fraud.” 1 Franklin D.
Cleckley, Handbook on Evidence § 5-4(E)(6)(a) (1994).
(See footnote 10)
Although the United States Supreme Court found in Zolin that “the party opposing
the privilege on crime-fraud grounds [may] rely[] on the results of an in camera review of the
communications,” Zolin, 491 U.S. at 568, 109 S. Ct. at 2629, the Supreme Court did “not
decide the quantum of proof necessary ultimately to establish the applicability of the crime
fraud exception.” Zolin, 491 U.S. at 563, 109 S. Ct. at 2626.
(See footnote 11)
The West Virginia Supreme
Court has never directly addressed the issue of the standard of proof for establishing the crime-
fraud exception.
(See footnote 12)
Courts that have addressed the issue are split. A majority of state courts have
held that the crime-fraud exception may be proven by “prima facie” evidence.
(See footnote 13)
See Matter of
Mendel, 897 P.2d 68, 74 (Alaska 1995) (prima facie evidence standard); State v. Fodor, 880
P.2d 662, 670 (Ariz. Ct. App. 1994) (same); State Comp. Ins. Fund v. Superior Court, 111
Cal. Rptr. 2d 284, 291 (2001) (same); People v. Board, 656 P.2d 712, 714 (Colo. Ct. App.
1982) (same); In re Marriage of Decker, 606 N.E.2d 1094, 1105 (Ill. 1993) (same); Lahr v.
State, 731 N.E.2d 479, 483 (Ind. Ct. App. 2000) (same); Wallace, Saunders, Austin, Brown
& Enochs, Chartered v. Louisburg Grain Co., Inc., 824 P.2d 933, 939 (Kan. 1992) (same);
State ex rel. Humphrey v. Philip Morris Inc., 606 N.W.2d 676, 691 (Minn. Ct. App. 2000)
(same); State ex rel. Peabody Coal Co. v. Clark, 863 S.W.2d 604, 608 (Mo. 1993) (same);
Ocean Spray Cranberries, Inc. v. Holt Cargo Sys., Inc., 785 A.2d 955, 959 (N.J. Super. Ct.
Law Div. 2000) (same); Matter of Grand Jury Subpoena of Stewart, 545 N.Y.S.2d 974, 980
(1989) (same); In re Investigating Grand Jury of Philadelphia County, 593 A.2d 402, 407
(Pa. 1991) (same); Kugle v. DaimlerChrysler Corp., 88 S.W.3d 355, 362 (Tex. Ct. App. 2002)
(same); Lane v. Sharp Packaging Sys., Inc., 640 N.W.2d 788, 807 (Wis. 2002) (same). One
state court uses a probable cause standard. See Olson v. Accessory Controls & Equip. Corp.,
757 A.2d 14, 31 (Conn. 2000). At least three state courts use a preponderance of the evidence
standard. See American Tobacco Co. v. State, 697 So. 2d 1249, 1256 (Fla. Dist. Ct. App.
1997) (preponderance of the evidence standard); Stidham v. Clark, 74 S.W.3d 719, 727 (Ky.
2002); (same) Purcell v. District Attorney, 676 N.E.2d 436, 439 (Mass. 1997) (same).
Federal courts employ the prima facie evidence standard, but utilize a variety of different
terminology to describe that standard of proof. See, e.g., In re Sealed Case, 107 F.3d 46, 50
(D.C. Cir.1997) (evidence that, if believed by the trier of fact, would establish the elements of
an ongoing or imminent crime or fraud); In re Grand Jury Proceedings, 87 F.3d 377, 381 (9th
Cir.1996) (reasonable cause to believe attorney was used in furtherance of ongoing scheme);
United States v. Davis, 1 F.3d 606, 609 (7th Cir.1993) (evidence presented by the party seeking
application of the exception sufficient to require the party asserting the privilege to come
forward with its own evidence to support the privilege); Haines v. Liggett Group Inc., 975 F.2d
81, 95-96 (3d Cir. 1992) (evidence that, if believed by the fact finder, would be sufficient to
support a finding that the elements of the crime-fraud exception were met); In re Grand Jury
Investigation, 842 F.2d 1223, 1226 (11th Cir. 1987) (evidence that, if believed by a trier of
fact, would establish the elements of some violation that was ongoing or about to be
committed); In re International Sys. & Controls Corp. Sec. Litig., 693 F.2d 1235, 1242 (5th
Cir.1982) (evidence such as will suffice until contradicted and overcome by other evidence).
Two federal appellate courts utilize a probable cause standard. See In re Richard Roe, Inc., 68
F.3d 38, 40 (2d Cir. 1995) (probable cause standard); In re Antitrust Grand Jury, 805 F.2d
155, 166 (6th Cir. 1986) (same).
INSURANCE BAD FAITH CASES
The question of whether a plaintiff may invoke the crime-fraud exception, to
obtain privileged communications in an insurance bad faith case, has never been squarely
addressed by this Court. The majority of courts that have been confronted with the question
have held that the crime-fraud exception may be invoked in insurance bad faith litigation. See
Freedom Trust v. Chubb Group of Ins. Cos., 38 F. Supp. 2d 1170 (C.D. Ca. 1999) (first-party
bad faith); Ekeh v. Hartford Fire Ins. Co., 39 F. Supp. 2d 1216 (N.D. Ca. 1999) (third-party bad
faith); Ferrara & DiMercurio v. St. Paul Mercury Ins. Co., 173 F.R.D. 7 (D. Mass. 1997)
(first-party bad faith); Ring v. Commercial Union Ins. Co., 159 F.R.D. 653 (M.D. N.C. 1995)
(first-party bad faith); United Servs. Auto. Ass'n v. Werley, 526 P.2d 28 (Alaska 1974) (first-
party bad faith); State Farm Fire & Cas. Co. v. Superior Court, 62 Cal. Rptr. 2d 834 (1997)
(first-party bad faith); Escalante v. Sentry Ins., 743 P.2d 832 (Wash. Ct. App. 1987) (third-
party bad faith), disapproved on other grounds by Ellwein v. Hartford Acc. and Indem. Co.,
15 P.3d 640 (Wash. 2001). At least one court has expressly declined to allow the crime-fraud
exception to be used to obtain attorney-client communication in an insurance bad faith case.
See State v. Second Judicial Dist. Court, 783 P.2d 911, 916 (Mont. 1989) (“We reject the
reasoning of those cases, which would extend the civil fraud exception to bad faith
allegations.”).
Application of the crime-fraud exception in bad faith litigation has been justified
on the grounds “that attorney-client communications should not be protected when they pertain
to ongoing or future fraudulent conduct by the insurer.” Escalante, 743 P.2d at 842. In other
words, Escalante has determined that the traditional justification for invoking the crime-fraud
exception extends to bad faith litigation. I agree with Escalante insofar as I conceive of no
legitimate reason for refusing to extend the crime-fraud exception to bad faith litigation.
The decision in United Services Automobile Association v. Werley, 526 P.2d
28 (Alaska 1974), provides a good illustration of the type of proof found to be acceptable for
establishing the fraud component of the crime-fraud exception to the attorney-client privilege
in an insurance bad faith action. Werley involved a first-party bad faith action brought against
an insurer. The plaintiff, who was injured in an auto accident, filed a bad faith claim when his
insurer refused to provide uninsured motorist coverage.
(See footnote 14)
During discovery, the plaintiff
requested documents that the insurer claimed were protected from disclosure by the attorney-
client privilege. The trial court ordered the documents be turned over to the plaintiff. The
insurer filed a petition with the Alaska Supreme Court seeking review of the trial court's order
requiring disclosure of privileged information.
The Alaska Supreme Court found that, while the documents were protected by the
attorney-client privilege, the plaintiff had produced sufficient evidence to satisfy the fraud
exception. In affirming the trial court's decision, Werley held that the plaintiff's “prima facie
evidence of fraudulent conduct consists of a demonstration that the [two] defenses urged by [the
insurer] in opposition to his claim for $30,000 were, on their face, devoid of any merit.”
Werley, 526 P.2d at 33. In other words, under Werley an “insurer's allegedly tortious conduct
in asserting bad faith defenses against a claim for coverage constitute[s] 'civil fraud,' and
. . . the attorney-client privilege [will] not protect communications between an attorney and her
client relating to that fraud.” Munn v. Bristol Bay Hous. Auth., 777 P.2d 188, 195 (Alaska
1989).
In view of the foregoing, I concur.