White Collar Criminal Defense Group

Third Circuit Refuses To Apply Attorney-Client Privilege To Documents In Law Firm’s Possession

In an appeal arising out of the Eastern District of Pennsylvania, the Third Circuit affirmed the district court’s enforcement of grand jury subpoenas served upon outside counsel, rejecting claims that the subpoenas sought privileged material.  In Re: Grand Jury, Nos. 12-1697, 12-2878 (3d Cir. Dec. 11, 2012).  The subpoenas focused on a corporation and two individuals, described only as John Doe 1 and John Doe 2, all of whom were targets of the grand jury investigation.  The subpoenas at issue were directed to two separate law firms and three attorneys, who were formerly employed by the corporation as in-house counsel.

The decision to require production of otherwise privileged communications and work product was based the “crime-fraud” exception to the attorney-client and work product privilege.  This exception, established by the U.S. Supreme Court opinion in United States v. Zolin, 491 U.S. 594, 562-563 (1989), limits the attorney-client privilege “where the desired advice refers not to prior wrong doing, but to future wrong doing.”  The Third Circuit has extended the crime-fraud exception to the work product doctrine in In Re: Grand Jury Subpoenas, 604 F.2d 798, 802 (3d Cir. 1979).  To overcome the attorney-client privilege and employ the crime-fraud exception, the government must make a prima facie showing that (1) the client was committing or intending to commit a fraud or crime, and (2) the attorney-client communications were in furtherance of that alleged crime or fraud.  See In re: Grand Jury Subpoena, 223 F.3d 213, 217 (3d Cir. 2000).

The record of the proceedings below indicated that the district court reviewed the evidence submitted by the government ex parte and found a reasonable basis to suspect that ABC Corp.[1] willfully evaded paying federal income taxes and engaged in an alleged conspiracy to defraud the government of federal income taxes.  According to the government, the corporation allegedly acquired stock of closely held companies with large cash accounts, little tangible assets, and significant tax liabilities.  It would then strip away significant amounts of the target company’s cash assets, transfer the stock of the target companies to two limited liability companies, and engage in transactions that fraudulently eliminated the target company’s tax liability.  The government further alleged that, with the tax liability eliminated, John Doe 1 and John Doe 2 would then divert the target company’s cash assets to themselves and family members. 

While ABC Corp. had evidence demonstrating otherwise, as well as favorable precedent from the U.S. Tax Court, the Third Circuit stated that it was bound to employ the facts of the alleged criminal scheme under investigation by the grand jury.  In reviewing the record, the Third Circuit held that the district court correctly found that the government had satisfied its burden to overcome the attorney-client and work product privileges. 

A complete copy of the opinion can be found here.

[1] The Third Circuit referred to the corporation as ABC Corp., a pseudonym, to protect the secrecy of the grand jury process as well as to preserve the corporation’s anonymity.

Amgen Settles Aranesp Misbranding Cases With Guilty Plea And Payment Of $762 Million

A federal judge has approved a $762 million settlement agreement with Biotechnology giant Amgen to resolve a number of criminal and civil cases stemming from the sale of its anemia drug Aranesp and two other drugs. It is the largest criminal and civil False Claims Act settlement involving a biotechnology company in U.S. history. 

On Tuesday, December 18, 2012, Amgen entered a guilty plea before U.S. District Court Judge Sterling Johnson of the Eastern District of New York to a criminal information charging the company with illegally introducing a misbranded drug, Aranesp, into interstate commerce.  Aranesp was approved by the U.S. Food and Drug Administration (“FDA”) for particular patients suffering from anemia.  According to federal prosecutors, in order to increase sales, Amagen illegally sold the drug with the intention that it be used at off-label doses that the FDA had explicitly considered and rejected and for an off-label treatment that the FDA had never approved. 

Under the terms of the criminal plea agreement, the company will pay $136 million in criminal fines and a $14 million criminal forfeiture payment.

As part of the civil settlement, which involved ten whistleblower lawsuits, Amgen agreed to pay $612 million – $587.2 million to the federal government and $24.8 million to individual states – to resolve claims of Medicare, Medicaid and other government insurance fraud. The civil settlement agreement encompasses allegations that Amgen promoted Aranesp and two other drugs, Enbrel and Neulasta, for uses and doses that had not been approved; offered illegal kickbacks in an effort to persuade health care providers to select its product for use; and engaged in false price reporting practices.