United States v. Liberty

UNITED STATES OF AMERICA v. MICHAEL LIBERTY, et al., Defendants.

Docket no. 2:19-cr-00030-GZS

UNITED STATES DISTRICT COURT DISTRICT OF MAINE

February 12, 2020

ORDER ON PENDING MOTION RE: ABROGATION OF ATTORNEY-CLIENT PRIVILEGE

Before the Court is the United States' Sealed Motion for Abrogation of Attorney-Client Privilege (ECF No. 86). For reasons explained herein, the Court GRANTS the Motion.

I. BACKGROUND & PROCEDURAL HISTORY

On February 27, 2019, Defendant Michael Liberty ("Defendant" or "Liberty") was indicted on ten counts including wire fraud, securities fraud, and money laundering as well as two separate conspiracy counts related to wire fraud and money laundering. In addition to Liberty, the Indictment charges one co-defendant, Paul Hess, and also implicates, "Individual-1," who the Indictment describes as "an attorney at a law firm in Portland, Maine . . . [who] represented Liberty and various entities controlled by Liberty." (Indictment (ECF No. 1), PageID # 1.) The Government and Defendant agree that that "Individual-1" is Attorney George Marcus of the Marcus Clegg law firm.

In relevant part, the Indictment alleges that investors in various Liberty Pass-Through Companies¹ wired money to Marcus Clegg's Interest on Lawyers Trust Account ("IOLTA") and that Marcus "caused a substantial portion of these investor funds to be paid to Liberty's friends and family or deposited into accounts controlled by Liberty." (Id., PageID # 4.) More specifically, the Indictment lists "Individual-1," i.e., Marcus, as one of the co-conspirators in the Count One wire fraud conspiracy, which is alleged to have occurred from July 2010 until about 2017. (See id., PageID #s 6-7.) Marcus is also named as a co-conspirator in the money laundering conspiracy charged in Count Seven, which allegedly took place during the same time period. (See id., PageID #s 11-12.) Additionally, in three separate counts alleging specific money laundering transactions by Liberty on November 12, 2013, February 10, 2014, and February 11, 2014, the Government charges that the electronic transfers originated from "Individual-1's IOLTA Account."² (Id., PageID # 12.)

As part of its investigation, on August 30, 2018, the Government obtained a search warrant for a yahoo.com email address registered to and used by Liberty. The materials obtained as a result of that search warrant were specifically reviewed by a government filter team that was tasked with screening communications between Liberty and Marcus that were subject to attorney-client privilege. All told, the filter team reviewed more than 161,000 documents. (See Gov't Motion (ECF No. 86), PageID # 1210.) Now, the filter team seeks a ruling that will allow them to produce documents initially classified as privileged to the prosecution team in this case.

II. LEGAL STANDARD

"The attorney-client privilege is well-established and its rationale straightforward. By safeguarding communications between client and lawyer, the privilege encourages full and free discussion, better enabling the client to conform his conduct to the dictates of the law and to present legitimate claims and defenses if litigation ensues." In re Keeper of Records (Grand Jury Subpoena Addressed to XYZ Corp.), 348 F.3d 16, 22 (1st Cir. 2003). However, the privilege "protects only those communications that are confidential and are made for the purpose of seeking or receiving legal advice." Id. More specifically, the First Circuit has held that "the attorney-client privilege attaches only: (1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived." In re Grand Jury Subpoena (Mr. S.), 662 F.3d 65, 71 (1st Cir. 2011) (internal citations and quotations omitted). It follows from this multi-part standard for application of the privilege that "[n]ot every piece of an attorney's work product falls within the attorney-client privilege." Id. at 72 ("Where, for example, an attorney acts merely as a scrivener—facilitating the consummation of a real estate transaction, passing title, and disbursing funds—the documents generated by those actions are typically not privileged." (emphasis added)). Generally, a client claiming the protection of the attorney-client privilege has the burden of showing the privilege applies. See In re Grand Jury Proceedings, 802 F.3d 57, 65 (1st Cir. 2015).

Even when attorney-client privilege does apply, "[t]he crime-fraud exception 'withdraws protection where the client sought or employed legal representation in order to commit or facilitate a crime or fraud.'" United States v. Gorski, 807 F.3d 451, 460 (1st Cir. 2015) (quoting In re GrandJury Proceedings, 417 F.3d 18, 22 (1st Cir. 2005)). The crime-fraud exception may be used to abrogate the attorney-client privilege upon a prima facie showing: "(1) that the client was engaged in (or was planning) criminal or fraudulent activity when the attorney-client communications took place; and (2) that the communications were intended by the client to facilitate or conceal the criminal or fraudulent activity." Id. (internal quotations and citations omitted). The First Circuit has indicated that this two-part showing may be satisfied by "something less than a mathematical (more likely than not) probability that the client intended to use the attorney in furtherance of a crime or fraud." In re Grand Jury Proceedings, 417 F.3d at 23. Here, the Government bears the burden of establishing the applicability of the crime-fraud exception. In re Grand Jury Proceedings, 802 F.3d at 65.

Where, as here, the Government invites the Court to conduct an in camera review of documents to determine the applicability of the crime-fraud exception, the Supreme Court has instructed that this Court "'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." United States v. Zolin, 491 U.S. 554, 572 (1989) (quoting Caldwell v. District Court, 644 P.2d 26, 33 (Colo.1982)).

III. DISCUSSION

A. The Record Provides a Reasonable Basis for In Camera Review

The Court's analysis begins first with whether the record provides the requisite factual basis to justify the Government's requested in camera review. Having reviewed the Indictment and the full factual record submitted in connection with the pending Motion, the Court readily concludes that a further review of the Government's in camera submission may reasonablyestablish the crime-fraud exception. First, the Government has provided evidence that, as early as 2010, Attorney Marcus was involved in securing and documenting investments in Mozido Invesco, LLC. (See Gov't Exs. B (ECF No. 86-2) & C (ECF No. 86-3).) Similarly, Marcus continued in the role of facilitating investments in 2013 regarding another Liberty-Pass Through Company, Brentwood Investments, LLC. (See Gov't Ex. D (ECF No. 86-4).) Finally, the Government has produced non-privileged evidence showing that a number of the victims of the alleged fraud in this case deposited their investments in the various Liberty Pass-Through Companies into the Marcus Clegg IOLTA account. (Compare Gov't Ex. F (ECF No. 86-6) (list of investors in the various Liberty Pass-Through Companies with dates and amount of investment), with Gov't Ex. G (ECF No. 86-7) (a sample of the monthly bank records for the Marcus Clegg IOLTA account showing amounts wired in and out of the account).) In the Court's assessment, the apparent role of the IOLTA account as detailed in the Government's exhibits and as further alleged in Counts Eight through Ten provides a reasonable justification for in camera review. To the extent that Defendant has argued that the record does not support in camera review under the Zolin, the Court concludes this argument is without merit. See, e.g., In re Grand Jury Subpoena (Mr. S.), 662 F.3d at 70 (describing Zolin's holding as establishing "a modest evidentiary threshold" to justify in camera review).

B. The Filtered Exhibits are not Covered by Attorney-Client Privilege

The Filter Team has provided the Court with a total of fourteen exhibits spanning 347 pages that it has withheld from the prosecution team based on potential attorney-client privilege (hereinafter, the "Filtered Exhibits").³ Based on the Court's in camera review of all of the FilteredExhibits, the Court initially notes that a number of these documents do not appear to be privileged at all.⁴

In the context of the pending motion regarding an evidentiary privilege, it is Liberty's initial burden to establish that the privilege applies to the Government's Filtered Exhibits. The Government aptly describes Liberty's objection to the pending Motion as offering a "fulsome defense" to the underlying charges. (Gov't Reply (ECF No. 92), PageID # 2170.) However, in opposing the Government's Motion, Liberty has made no specific objections to the Government's Filtered Exhibits or attempted to make the requisite "document by document" showing that particular communications between Liberty and Marcus are covered by attorney-client privilege. In re Grand Jury Subpoena (Mr. S.), 662 F.3d at 71. Thus, at the outset, Defendant has failed to meet his affirmative burden to establish that the privilege applies as to any Filtered Exhibits attached to the Government's Motion.

Assuming that at least some of the Filtered Exhibits could be protected by attorney-client privilege, the Government asserts that the Court should apply Gorski's two-part test and find that the privilege is abrogated by the crime-fraud exception. In Gorski, the First Circuit found that the first prong of the exception can be satisfied by the...