United States v. Tucker
2017 U.S. Dist. LEXIS 87343, 254 F. Supp. 3d 620, 2017 WL 2470836 (2017)
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Rule of Law:
The attorney-client privilege is subject to the crime-fraud exception, which applies when there is probable cause to believe that communications with an attorney were made in furtherance of an ongoing or future crime or fraud, including the act of filing a sham lawsuit designed to conceal or facilitate illegal activity.
Facts:
- Scott Tucker operated several 'payday lending' businesses that issued loans with interest rates far exceeding state usury limits.
- Starting in 2003, Tucker formed sham business relationships with Native American tribes, including the Miami Tribe of Oklahoma, to use their sovereign immunity to evade state laws.
- In June 2008, a tribal corporation, AMG Services, Inc. (AMG), which Tucker also controlled, purportedly acquired Tucker's company, CLK Management (CLK), but a certificate of merger was not filed with the state as legally required.
- Two years later, on July 8, 2010, Tucker, represented by the McDowell Rice law firm, filed a lawsuit in Kansas against his own company, AMG.
- The lawsuit sought a court order directing that a certificate of merger be filed and made retroactively effective to June 2008.
- AMG, whose legal counsel was Tucker's associate Timothy Muir, did not appear in the lawsuit, allowing Tucker to obtain a default judgment.
- After the judgment, Muir celebrated in emails to Tucker, describing the lawsuit as a 'brilliant piece of legal work' that would prove 'invaluable' in protecting their 'business model' from other litigation.
Procedural Posture:
- A grand jury returned an indictment in the U.S. District Court for the Southern District of New York, charging Scott Tucker and Timothy Muir with conspiracy, collecting unlawful debts, and other crimes related to a payday lending scheme.
- During pre-trial proceedings, the U.S. government filed a motion seeking an order to compel the law firm McDowell, Rice, Smith & Buchanan, P.C. to produce documents.
- The government argued that communications between Tucker and the law firm regarding the state-court case 'Tucker v. AMG' were not protected by attorney-client privilege due to the crime-fraud exception.
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Issue:
Does the crime-fraud exception overcome the attorney-client privilege for communications related to a lawsuit when there is probable cause to believe the litigation itself was a sham, lacking a valid legal or factual basis and initiated substantially to further a criminal enterprise?
Opinions:
Majority - Castel, U.S.D.J.
Yes, the crime-fraud exception applies. To invoke the exception, a party must show probable cause that a crime or fraud was committed and that the communications with counsel were in furtherance of it. When the act of litigation itself is alleged to be the fraud, a more stringent standard applies, requiring a showing that the lawsuit had little or no legal or factual basis and was carried on substantially to further the crime. The court found that the government met this standard. The grand jury's indictment established probable cause that a crime was committed. The circumstances surrounding the 'Tucker v. AMG' lawsuit—including Tucker suing a company he controlled, the defendant's intentional default, the retroactive relief sought, and the subsequent celebratory emails between the purported adversaries—provided a reasonable basis for a prudent person to suspect the lawsuit was a sham orchestrated to fraudulently obtain a backdated merger certificate to bolster false claims of tribal immunity for an illegal lending scheme. Therefore, the communications with the McDowell Rice law firm regarding this litigation were in furtherance of a fraud and are not privileged.
Analysis:
This decision illustrates a robust application of the crime-fraud exception, particularly its heightened standard for cases where litigation itself is the instrument of fraud. It clarifies that courts will look beyond the formal structure of a lawsuit to its substance and the parties' intent. The ruling establishes that collusive or non-adversarial litigation designed to create a misleading legal record can strip attorney-client communications of their privilege. This serves as a warning that the legal system and the attorney-client privilege cannot be weaponized to legitimize or conceal an underlying criminal enterprise.
