United States District Court, E.D. Pennsylvania
IMPALA PLATINUM HOLDINGS LIMITED, et al.
A-1 SPECIALIZED SERVICES AND SUPPLIES, INC., et al.
MEMORANDUM RE: LOG OF PRIVILEGED DOCUMENTS
issue presented in this complex commercial litigation is
whether the Court should require Defendants to prepare a log
of certain attorney-client communications after litigation
was filed. Although Federal Rule of Civil Procedure 26(b)(5)
requires that a log be prepared and served of privileged
documents not being produced, that requirement generally does
not apply to communications between a client and counsel
after litigation has been filed. Otherwise, the obligation of
logging communications would require disclosing the strategy
being employed in the actual litigation and would be never
ending, through trial and appeals, etc. Thus, the usual
requirement of preparation of a log ceases as of the date
that the case has been filed, and sometimes at an earlier
case, however, Plaintiffs have asserted that Defendants'
conduct continued after the initiation of other litigation.
Specifically, Plaintiffs contend that the settlements arrived
at in the litigations Defendants were engaged in in New
Jersey state court, Bucks County Pennsylvania Court of Common
Pleas, and this Court (Alliance v. A-1, Civil Action
No. 13-2510), were part of Defendants' wrongful conduct.
Court held extensive argument on January 12, 2017 regarding
Plaintiffs' pending Motion to Require the
Shareholder/Director Defendants to Produce Privilege Logs and
to Produce Certain Communications Based on the Crime-Fraud
Exception to the Attorney-Client Privilege (ECF No. 150), and
as a result concludes that Defendants shall prepare a log for
a limited period of time and with special conditions. This
log is a necessary precursor for the Court to consider
whether the crime-fraud exception applies in this case to
negate the privilege.
principal reason for the Court's ruling relates to the
fact that very large sums of money are at stake in this case
and Defendant A-1 Specialized Services and Supplies, Inc.
(“A-1”) had gross receipts of almost $1 billion
in certain years, but that, nevertheless, there is
substantial evidence on the record from which a jury could
conclude that A-1 was insolvent at the time of certain
challenged transactions. Plaintiffs assert that a number of
distributions were made from A-1 or other sources to
defendants in this case, who were officers, directors, and/or
shareholders of A-1. Plaintiffs further contend that these
distributions occurred despite Defendants' knowledge of
A-1's insolvency and Plaintiffs' superior right of
recovery, and were made with the intent and purpose of
depriving Plaintiffs of assets upon which the judgment in
favor of Plaintiffs, which this Court entered, could be
Court emphasizes that it is because of these unique facts and
claims that the Court will require a “first step”
of Defendants preparing a log, the details of which are set
forth in the Order, and will require production of the
documents in the log to be subject to in camera
examination by the Court during the week of January 23, 2017.
opposition to Plaintiffs' request for in camera
review largely rests on King Drug Co. of Florence, Inc.
v. Cephalon, Inc., No. 06-1797, 2014 WL 80563 (E.D. Pa.
Jan. 9, 2014), an antitrust case in which the plaintiffs
alleged that Cephalon violated the Sherman Act due to the
terms of certain settlement agreements Cephalon had entered
into with various generic manufacturers of Provigil.
Id. at *1. The plaintiffs sought to pierce the
attorney-client privilege via the crime-fraud exception for
communications between Cephalon and its counsel relating to
Cephalon's patent prosecution, based on the court's
holding in a related case that Cephalon “had committed
inequitable conduct (sometimes called fraud on the Patent
Office) in the prosecution of its patent for Provigil . . .
through its ‘complete concealment of another
company's extensive involvement in the product which is
the subject of the claimed invention.'”
Id. at *1 (quoting Apotex, Inc. v. Cephalon,
Inc., No. 06-2768, 2011 WL 6090696, at *27 (E.D. Pa.
Nov. 7, 2011)).
determining whether to apply the exception, the court
discussed the level of proof the plaintiffs had to proffer,
and noted the “lesser evidentiary showing . . . needed
to permit a judge to exercise his discretion to review the
documents in camera.” Id. at *3 (quoting
U.S. v. Zolin, 491 U.S. 554, 569-70 (1989))
(internal quotations omitted). The court then stated that
“[t]o satisfy the first element of the exception, the
movant must show common law fraud.” Id. In
support of that statement, the decision cites to Unigene
Labs, Inc. v. Apotex, Inc., 655 F.3d 1352, 1358 (Fed.
Cir. 2011), which case deals with the specific situation of
what level of fraud is necessary to trigger the crime-fraud
exception in the patent prosecution context. Indeed, that
statement in Unigene is grounded in Walker
Process Equip., Inc. v. Food Machinery & Chem.
Corp., 382 U.S. 172 (1965), which establishes a test for
the fraud necessary to challenge the validity of a patent on
fraudulent procurement grounds. Id. at 177.
Importantly, in King Drug, the plaintiffs argued
that inequitable conduct, not just common law fraud, sufficed
under Federal Circuit precedent to trigger the exception, but
the court declined to decide which standard was correct and
instead resolved the motion by holding that the plaintiffs
had failed to show that the communications at issue were
“in furtherance of” any alleged fraud. King
Drug Co., 2014 WL 80563, at *4.
notwithstanding Defendants' argument to the contrary, and
especially in light of the recent case of Husky Intern.
Electronics, Inc. v. Ritz, 136 S.Ct. 1581 (2016), it is
not established in the Third Circuit, outside of the
fraudulent patent procurement context, that only allegations
of common law fraud can trigger application of the
crime-fraud exception. See, e.g., Wachtel v.
Guardian Life Ins. Co., 239 F.R.D. 376, 380 (D.N.J.
2006) (quoting Madanes v. Madanes, 199 F.R.D. 135,
149 (S.D.N.Y. 2001)) (finding that “[t]he crime-fraud
exception is not limited to evidence that supports a finding
of common-law fraud, ” and that instead, “under
federal law, the exception can encompass communications and
attorney work product ‘in furtherance of an intentional
tort that undermines the adversary system
the two cases cited in the January 12, 2017 letter of
Defendants Ashok Kumar Khosla and Alliance Industries Limited
do not persuade the Court to deny Plaintiffs' motion, as
they are both non-precedential and factually distinguishable.
In Paramount Fin. Comm. v. Broadridge Investor Comm.
Solutions, Inc., No. 15-405, 2016 WL 5404462 (E.D. Pa.
Sept. 28, 2016), the court deferred decision on the
applicability of the crime-fraud exception pending the
deposition of certain witnesses. Id. at *5. The
opinion does not engage in any analysis of the evidentiary
showing necessary to establish a right to in camera
review, nor does it discuss the type of fraud capable of
triggering the crime-fraud exception. Similarly, in
Scranton Prods., Inc. v. Bobrick Washroom Equip.,
Inc., No. 14-853, 2016 WL 3418535 (M.D. Pa. June 2,
2016) and Scranton Prods., Inc. v. Bobrick Washroom
Equip., Inc., No. 14-853, slip op. (M.D. Pa. Dec. 8,
2016), the court neither opined on whether a Pennsylvania
Uniform Fraudulent Transfer Act (“PUFTA”) claim
suffices to establish fraud under the crime-fraud exception
nor, at ...