Investigative Report Not Entirely Privileged
John Caher
New York Law Journal
10-28-2003
Large portions of an internal investigatory report prepared by a criminal defense law firm are not shielded by either the attorney-client privilege or the work-product doctrine because the founder of a mall development at the center of a RICO action granted a lengthy newspaper interview generally discussing issues contained in the report, a federal jurist has found.
But Northern District U.S. Magistrate Judge Randolph F. Treece said the plaintiffs are entitled only to a redacted version and may not obtain key information -- the identity of an alleged perpetrator -- that was not already disclosed to the press.
Magistrate Judge Treece's ruling in Lugosch v. Congel, 00-CV-0784, arises in the context of a protracted lawsuit where minority partners of Pyramid Cos. allege that they were defrauded by insiders. The case, which has been ongoing for a number of years and proceeded through what Treece termed a "larger than life discovery process," was brought under the Racketeer Influenced and Corrupt Organization Act (RICO).
Although the matter involves myriad issues, the one most recently addressed by Treece stems from a March 2003 investigative report prepared by the criminal defense firm Stein, Mitchell and Mezines of Washington, D.C. The firm was hired in August 2002 by a defendant to investigate irregularities with regard to tax bills in Syracuse, one of several cities where Pyramid developed shopping malls.
According to court papers, the Carousel Center, a Syracuse mall, pays what is calls a "pilot bill" in lieu of normal taxes. That expense is passed along to tenants.
Concern arose when one major tenant, The Limited, a clothing store, challenged the mall's calculation of its allocable share of the pilot bills. An audit revealed that The Limited had been provided with phony pilot bills. Plaintiffs allege that Pyramid was providing tenants with false tax documents, thereby collecting more from the tenant than was owed to and turned over to the taxing authority. Once confronted by The Limited, Pyramid Cos. promptly refunded $817,763.
One of the defendants, Moselle Associates, a majority partner, then retained Robert F. Muse of Stein, Mitchell and Mezines to investigate why a fake pilot bill was created, and by whom. The plaintiffs -- minority partners who claim they were cheated or shortchanged by Pyramid Cos. -- learned of the so-called "Muse Report" and moved for discovery.
In July, Muse agreed to provide a redacted report, with the understanding that he was not waiving the privilege. The matter then arrived on Treece's desk for a determination of whether the Muse Report is indeed privileged.
In a 21-page decision, the magistrate judge explored the underpinnings and status of both attorney-client privilege and the work-product doctrine. He noted, as found by the 2nd U.S. Circuit Court of Appeals (see In re Grand Jury Proceedings, 219 F.3d 175 [2000]), that the work-product shield is broader than the attorney-client privilege, and that it protects "attorneys' mental impressions, opinions, or legal theories concerning litigation."
However, he also said that privilege is not absolute and can be waived, either intentionally or inadvertently. For instance Treece noted, the "courts have recognized an exception to the attorney-client privilege and work-product doctrine for communications between lawyers and clients that are designed to facilitate or even conceal the commission of a crime or fraud."
Here, the plaintiffs sought the Muse Report under the crime or fraud exception, but Treece, after reviewing the report in camera, said he was "unable to detect even the hint" that the report was being used to facilitate or perpetuate a fraud or crime. He said the plaintiffs already have the entire report, except for the name and gender of the person who allegedly prepared the fake pilot bill.
"All that is missing from plaintiffs' redacted version is a name, which may help fill in the dots as to what occurred and possibly by who, but under no stretch of the imagination does the report" meet the requirements for a crime fraud exception, Treece said.
INTERVIEWS GRANTED
More troubling, though, were interviews granted by the defendants, especially Pyramid Cos. founder Robert J. Congel. Congel, in a newspaper interview with The Syracuse Post-Standard, acknowledged the problem with the pilot bill, admitted that there was a settlement and disclosed that there had been an investigation.
"Based upon these revelations, is the court required to deem them waived and thus provide the last bit of information from this report, a name, to plaintiffs?" Treece asked. "The court thinks not."
The magistrate judge said revealing the name would "cause a significant firestorm and all efforts to avoid it are readily justifiable." He did make clear, however, that the targeted individual is not one of the defendants, but if it had been his "conclusion would be remarkably different."
Treece said the defendants waived attorney-client and work-product privileges only to the extent of Congel's statements to The Post-Standard.
Among the lead attorneys are David Boies of Boies, Schiller & Flexner for the plaintiffs, and Paul Ware of Goodwin Proctor in Boston for the defendants.