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Business Court Analyzes Crime-Fraud Exception to Attorney-Client Privilege In Breach of Fiduciary Duty Cases

Written by: Michael A. Delaney

Published in NH Bar News (1/20/2021)

On October 15, 2020, in the matter of Atlantic Anesthesia, P.A. v. Ira Lehrer et. al., Docket No. 218-2019-CV-00933, -01683 (Hillsborough, SS., Northern District), the Business Court issued an Order analyzing the crime-fraud exception to the attorney-client privilege in the context of an alleged breach of fiduciary duty.  Commercial litigators should carefully review this decision. 

Under Rule of Evidence 502(d)(1), if an attorney-client relationship has been misused by a client in furtherance of a crime or fraud, there is no attorney-client privilege.  The purpose of the crime-fraud exception is 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 (1989)(citations omitted).  Courts have required the privilege challenger to present evidence that (1) the client was engaged in or was planning criminal or fraudulent activity when the attorney-client communications took place; and (2) the communications were intended by the client to facilitate or conceal the criminal or fraudulent activity.  In Re Grand Jury Proceedings,  417 F.3d 18, 21 (1st Cir. 2005) (citations omitted).

Atlantic Anesthesia does not present uncommon facts.  Wentworth-Douglas Hospital (WDH) had contracted exclusively with the plaintiff, Atlantic, to provide anesthesia and pain management services to patients.  Some of the defendant physicians were owners of Atlantic until 2014 when Atlantic became a wholly-owned subsidiary of a national anesthesia management company, North American Partners in Anesthesia (NAPA).  NAPA services over 500 healthcare facilities nationally.  Atlantic then began operating as NAPA-NH.  The defendant doctors, who were former owners of Atlantic, became employees of Atlantic and served in various medical roles, including as Chairman for the Department of Anesthesiology at WDH and as a Medical Director for an affiliated pain management institute. 

In late 2018, WDH notified one of the defendant physicians that WDH was contemplating not renewing its contractual relationship with Atlantic.  The defendant physicians then began discussions about whether they would stay with Atlantic or become employees of WDH.  They jointly hired legal counsel to explore their employment options.  WDH invited the defendant physicians to attend a meeting in May 2019.  Before the meeting, WDH and the defendant physicians entered into a written Common Interest Agreement.  Shortly after the meeting, WDH notified Atlantic that it would not renew its agreement for anesthesiology services at the end of the year.  Atlantic then fired the defendant physicians and sued them alleging breach of contract, breach of fiduciary duty, tortious interference with contractual relations and misappropriation of trade secrets.  

During discovery, one of the defendant doctors objected to disclosing certain conversations with WDH under the common interest doctrine.  The common interest doctrine is an exception to the general rule that the attorney-client privilege is waived when privileged information is disclosed to a third party.  Micronics Filtration Holdings, Inc. v. Miller, 2019 WL 9104172 (D.N.H November 5, 2019) (LaPlante, J.).  It applies to protect the attorney-client privilege when two or more clients retain an attorney on particular matters of common interest, and it also applies to communications made by the client or the client’s lawyer to a lawyer representing another in a matter of common interest.  Id.  Here, the conversations at issue took place after the doctor had executed the Common Interest Agreement with WDH in early May 2019.  The plaintiff argued that the common interest doctrine was inapplicable to those conversations because there was no pending court action at the time when the contested communications were made.  The defendants countered that the common interest doctrine extends more broadly to communications made in anticipation of litigation.  The Business Court ruled that it need not reach a determination about the applicability of the common interest doctrine because there was a sufficient showing that the crime-fraud exception applied to the case.  See Order, p. 4.

Noting that the New Hampshire Supreme Court has not yet weighed in on this issue, the Business Court held that a breach of fiduciary duty is sufficient to trigger the crime-fraud exception to the privilege.  See id.  It stated that “many courts have taken a broad view of this exception and applied it to types of conduct other than strict crimes or fraud.”  Id.  The Business Court reasoned that fraud must be understood broadly as a generic term that includes “all surprise, trick, cunning dissembling, and any unfair way by which another is cheated.”  Id.  The Business Court also cited several decisions from other state courts finding parallels between fraud and the intentional breach of fiduciary duties.  The Business Court further reasoned that “[t]herefore, to the extent Plaintiff makes a sufficient showing that the communications at issue were made in furtherance of a breach of fiduciary duty, Defendants are not entitled to the attorney-client privilege.”  Id.  The Business Court then ordered an in camera inspection of the contested communications.

There is no blanket rule allowing in camera review as a tool for determining applicability of the crime-fraud exception.  See Zolin, 491 U.S. at 571.  Rather, before granting an in camera inspection, the judge should require a showing of a factual basis adequate to support a good faith belief by a reasonable person that in camera review of the materials may reveal evidence to establish the claim that the crime-fraud exception applies.  Id. at 572.  The decision to inspect materials in camera rests in the sound discretion of the court, taking into consideration the relative importance to the case of the alleged evidence, the volume of the materials asked to be reviewed, and the likelihood the evidence produced through in camera review, when considered together with other available evidence then before the court, will establish that the crime-fraud exception does apply.  Id.

Applying this standard in the Atlantic Anesthesia case, the Business Court determined that the following facts established an adequate showing for in camera review.  See Order, p. 6.  First, the communications between WDH and the doctors arose from a discussion about the possibility of WDH terminating its contract with Atlantic.  Second, the doctors never told Atlantic about WDH’s plans.  Third, the doctors must have appreciated the ramifications of their fiduciary duties because they hired counsel and drafted a Common Interest Agreement with WDH.  Fourth, the “timing and circumstances surrounding the communications strongly suggest they may establish operative facts supporting Plaintiff’s breach of fiduciary claims.”  Finally, the communications to be reviewed were relatively small in number.  Id.

Because the required showing to trigger an in camera  review under the crime-fraud exception is a relaxed one, the application of the exception more broadly to standard breach of fiduciary claims is noteworthy and potentially consequential.  Following the Atlantic Anesthesia case, the crime-fraud exception may be litigated more extensively in breach of fiduciary duty cases that do not involve strict crimes or frauds.     

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