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United States v. Western Titanium

September 27, 2010

UNITED STATES OF AMERICA, PLAINTIFF,
v.
WESTERN TITANIUM, INC. (1), DANIEL SCHROEDER (2), DEFENDANTS.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

FINAL ORDER RE: RESOLUTION OF DEFENDANTS WESTERN TITANIUM INC. AND SCHROEDERS' CLAIMS OF ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT

The Court has previously determined that certain documents seized from Defendant Western Titanium, Inc.'s business premises are protected by the attorney-client privilege or the work product doctrine (Doc. No. 518). Presently at issue is whether Defendants Western Titanium, Inc. and Daniel Schroeder ("Defendants") waived any privilege and/or whether the crime-fraud doctrine applies. Having considered the evidence and testimony presented at hearings held on July 27, 2010 and August 9, 2010, together with the submissions of the parties, the Court concludes that Defendants have not waived any privilege or protection. The Court further concludes that there is insufficient evidence to find that any document is subject to the crime-fraud exception.

Background

On October 20, 2004, the Defense Criminal Investigative Service issued an administrative subpoena to Western Titanium, Inc. ("Western"). The subpoena required Western to produce all records regarding their sale of titanium to Merco Manufacturing. On July 25, 2007, the grand jury issued a subpoena to Western seeking the production of all documents relating to the testing of the material sold to Merco Manufacturing for the engine mounts at issue in this case. On August 8, 2007, the grand jury issued a second subpoena, which was subsequently withdrawn and re-issued on September 19, 2007. In August of 2007, the government agreed to a rolling production of the subpoenaed documents. By December 2007, Western had not produced any further documents and, on December 5, 2007, the Government withdrew its agreement for a rolling production and demanded production of all responsive documents by December 31, 2007. On December 21, 2007, Western provided its first batch of documents in its rolling production.

On April 15, 2008, law enforcement agents executed a search warrant at the Western business premises. During the execution of the warrant, a taint agent was assigned to review and segregate any potentially privileged documents discovered during the search. An attorney from the law firm representing Western, Jennifer Feldman, was present at the scene of the search and was given access to the building as the search was being conducted. Ms. Feldman advised the taint agent that certain sheets of paper contained within "a large mound of boxes" located in a particular room were privileged, as they were being used by the firm to identify documents to be produced pursuant to a subpoena. The documents identified by Ms. Feldman were not seized by the agents.

The potentially privileged documents gathered by the taint agent during the search were placed in a box and delivered to AUSA Fred Sheppard, the government taint attorney. Shortly thereafter, AUSA Sheppard conducted a review of these documents. Those documents determined to be privileged by AUSA Sheppard were returned to Defendants; those he determined not to be privileged were released to the prosecution team.

On April 23, 2008, AUSA Sheppard sent Western a letter enclosing documents he determined to privileged as a result of his review. The letter did not indicate whether AUSA Sheppard's review had been completed, or that documents he determined not to be privileged would be provided to the prosecution team. On April 30, 2008, defense counsel wrote to AUSA Sullivan, the lead prosecutor, and objected to the use of a taint team and requested the return of the remainder of the potentially privileged documents.

The same day, Western also filed a motion under Federal Rule of Criminal Procedure 41(g) seeking the return of all property seized pursuant to the search warrant. Magistrate Judge Major denied the motion on June 18, 2008, declining to accept equitable jurisdiction. Western appealed Magistrate Judge Major's order and, in addition, filed a second Rule 41 motion specifically requesting the return of privileged documents. On September 2, 2008, Judge Whelan issued an order declining to accept equitable jurisdiction as to both motions. With respect to the privilege issue, Judge Whelan found no irreparable harm stemming from an alleged violation of the attorney-client privilege because the in camera supporting declaration provided by Western "merely offers one-sided descriptions of documents supposedly relating to communications between counsel and client." Gov't Supp. Brief (Doc. No. 544), Ex. 5, p. 8:11-12. However, Judge Whelan made no finding as to privilege and held that Western retained an adequate remedy at law by moving post-indictment to suppress any evidence wrongfully seized. Id. at 21. Judge Whelan noted "as for future claims of waiver, this Rule 41 motion appears on the docket and is evidence that Western moved to preserve its privilege objections 104 days after the seizure took place." Id. at 21-22. Defendants sought a writ of mandamus with respect to Judge Whelan's rulings which was denied by the Ninth Circuit Court of Appeals on January 23, 2009.

On December 4, 2008, the first indictment in this case was filed. On February 6, 2009, Defendants Western and Schroeder filed a Motion to Return Privileged Documents Seized, to Suspend Review of Documents Seized, to Obtain Evidentiary Hearing, and to Suppress Use of Same in this case. This motion was supported by a sealed ex parte privilege log and supporting declaration, which the Court subsequently determined was insufficient to identify the wrongfully seized property with sufficient particularity to allow the Court to engage in any meaningful analysis of Defendants' claims. At a hearing held on March 13, 2009, the Court required Defendants to submit a comprehensive privilege log, with notice to the Government, with respect to each document claimed to be wrongfully seized. In response, Defendants filed a revised privilege log under seal, with notice to the Government. On April 15, 2009, the Court issued an order denying without prejudice Defendants' motion for the return of the privileged documents because the privilege log failed to meet the requirements set forth at the hearing. Defendants were granted leave to resubmit their motion along with another revised privilege log. The Court indicated, however, that the ex parte filing of documents necessary to establish or contest a claim of privilege would be disfavored by the Court and would not be permitted absent a compelling showing of need. Defendants appealed the order and, on September 15, 2009, the Court of Appeals dismissed the appeal (and denied a related mandamus petition) holding that the supplementation of the privilege log required by this Court comported with the legal requirements of a valid privilege log.

A hearing was held before this Court on September 17, 2009, at which time a new briefing schedule was set with respect to Defendants' privilege claims. The next hearing took place on October 21, 2009. By this time, the post-appeal briefing on the privilege issue was complete, but Defendants still had not provided a revised privilege log. Western indicated a willingness to provide the Court with any testimony or other evidence required to make privilege determinations, but maintained that it should be permitted to present such evidence ex parte as the Government would otherwise stand to gain evidentiary advantages with respect to the documents. The Court proposed conducting an evidentiary hearing at which the Government would be represented by the taint attorney who conducted the initial post-seizure document review. The parties ultimately agreed to this proposal and hearings were held on January 20, February 1 and 2, February 26, and March 12, 2010, culminating in the Court's final conclusion that Defendants had established that all of the documents were privileged and/or protected.

Discussion

The Government contends that Defendants have waived any privilege held over the documents by failing to timely assert privilege despite having several opportunities to do so. For example, Defendants never filed a privilege log in response to the administrative or grand jury subpoenas; they did not assert any privilege during the execution of the search warrant; and, after the search, did not identify any specific document still in the possession of the Government as being privileged. The Government also points to Defendants' failure to assert privilege in their Rule 41 motions. The first Rule 41 motion attacked the search warrant and its execution. The second Rule 41 motion specifically sought the return of privileged documents, but, in the Government's view, was supported by inadequate ex parte claims of privilege. The third Rule 41 motion, that filed in the instant case, was denied by this Court for Defendants' failure to file an adequate privilege log.

Defendants counter that they took reasonable steps to guard their privilege and that the Government's attempt to expand the waiver doctrine to circumstances such as these, where the holder has involuntarily lost possession, is unprecedented. Defendants maintain that they never refused to provide a privilege log; rather, they objected to providing a privilege log to the prosecutor and repeatedly asked to be permitted to handle the privilege issues with the taint attorney.

The doctrine of waiver of the attorney-client privilege is rooted in notions of fundamental fairness. Tennenbaum v. Deloitte & Touche, 77 F.3d 337, 340 (9th Cir. 1996). "Its principal purpose is to protect against the unfairness that would result from a privilege holder selectively disclosing privileged communications to an adversary, revealing those that support the cause while claiming the shelter of the privilege to avoid disclosing those that are less favorable." Id. at 340-41. For this reason, the focal point of the Court's privilege analysis must be the holder's disclosure ...


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