The attorney-client privilege is a privilege that protects communications between a client and attorney from discovery or disclosure. The privilege is not absolute, however. It does not, for instance, protect statements made by a client to an attorney meant to further or conceal an intentional breach of fiduciary duty or crime. This recognized exception to the attorney-client privilege is known as the crime-fraud exception.
One court described the crime-fraud exception and the rationale behind it by explaining that “the crime-fraud exception encompasses a fraudulent scheme, an alleged breach of fiduciary duty or an accusation of some other wrongful conduct. Advice in furtherance of a fraudulent or unlawful goal cannot be considered ‘sound.’ Rather advice in furtherance of such goals is socially perverse, and the client's communications seeking such advice are not worthy of protection.”
Courts in general however are reluctant to break attorney-client privilege. A party seeking disclosure of otherwise privileged communications must do more than merely allege that a communication falls within the crime-fraud exception. Courts typically require the party opposing the attorney-client privilege to put forth evidence sufficient to establish a factual basis for finding that the exception applies. This means showing that it is likely that a fraud or crime has been committed and that the otherwise privileged communications in question were in furtherance of the fraud or crime.
Although the name crime-fraud exception does not refer to breaches of fiduciary duties on its face, numerous jurisdictions including Illinois have applied the exception to intentional breaches of fiduciary duties. They have done so by reasoning that such breaches are analogous to the tort of fraud. One of the best explanations for finding the exception applicable to intentional breaches of fiduciary duties under Illinois law comes from the Second District’s opinion in Mueller Industries v. Berkman.
If a court is convinced that a litigant has made the requisite showing that the communication may fall within the crime-fraud exception, the court may conduct an in camera inspection of the communications in question. This means the court will review the communications itself before determining if disclosure to the other party is appropriate. If following such an inspection the court is satisfied that the exception applies, it may order the communication be turned over to the party seeking its disclosure.
The precise rules concerning application and scope of the crime fraud exception may vary from jurisdiction to jurisdiction, but the purpose behind the exception is the same. It is meant to balance concerns of justice and general safety against the need to encourage open and honest communication between the attorney and the client to enable effective and competent legal representation.
The seminal case concerning the crime-fraud exception and the delicate balance courts must strike is the Supreme Court’s 1989 decision in U.S. v. Zolin in which the court explained that:
The attorney-client privilege is not without its costs. Since the privilege has the effect of withholding relevant information from the factfinder, it applies only where necessary to achieve its purpose. The attorney-client privilege must necessarily protect the confidences of wrongdoers, but the reason for that protection–the centrality of open client and attorney communication to the proper functioning of our adversary system of justice–ceases to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing. 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.
It is not only litigation attorneys that must be aware of the crime-fraud exception and the circumstances justifying its application. Transactional attorneys may be faced with circumstances in which a client communicates about or solicits an attorney’s assistance in pursuing a course of action that could violate the law or constitute a breach of fiduciary duties. For instance, the attorney whose client requests help setting up a new company to steal corporate opportunities or engage in self-dealing should be aware that such communications would likely be discoverable under the crime-fraud exception.
Lubin Austermuehle’s Chicago breach of fiduciary duty and shareholder dispute attorneys represent business owners and partners in a variety of complex commercial litigation matters. Our experienced attorneys work with clients throughout the State of Illinois, including Chicago and Cook and DuPage counties, as well as in Wisconsin and Indiana. To set up a consultation and put our more than three decades of experience to work for you, contact us by email, at 630-333-0333.