United States District Court, D. Arizona
STEPHEN M. McNAMEE, Senior District Judge.
Pending before the Court is Plaintiff/Counterdefendant Creative Tent International Inc.'s ("CTI") motion to strike portions of Defendant/Counterclaimant Bradley Kramer's ("Defendant") counterclaim and motion to seal answer and counterclaim. (Doc. 10.) The matter is fully briefed. (Docs. 12, 13.) After review of the pleadings,  the Court will grant CTI's motion.
CTI brought this lawsuit against Defendant, CTI's former Chief Executive Officer ("CEO"). (Doc. 1, 1-1.) CTI alleges that Defendant used the company credit card for personal purchases without reimbursing CTI. (Doc. 1-1 at 3.) Based on these allegations, CTI terminated Defendant's employment. (Id.) Subsequently, the parties entered into a settlement agreement. (Id. at 3-4.) As part of the settlement agreement, Defendant executed a promissory note to CTI promising to pay the settlement amount through installment payments. (Id. at 4-5.) CTI's complaint alleges that Defendant breached the payment terms of the settlement agreement; CTI seeks to enforce the settlement agreement and promissory note. (Id. at 4-7.)
Defendant answered and counterclaimed alleging that he was terminated for raising his concerns about the structural integrity of CTI's designs and buildings, for attempting to terminate CTI's outside engineer, and objecting to CTI gifting a large area maintenance shelter to a foreign general. (Doc. 3 at 5-8.)
CTI moves to strike certain paragraphs, ¶¶ 12, 13, 15, 16, and 17 from Defendant's counterclaim, alleging that Defendant disclosed attorney-client and/or work product privileged information belonging to CTI. (Doc. 10.) Defendant objects relying on the crime-fraud exception to the attorney-client privilege. (Doc. 12.) CTI replies that Defendant's allegations of fraud are insufficient to use the crime-fraud exception as a defense. (Doc. 13.)
Standard of Review
Motion to Strike
Under our District's Local Rules, a motion to strike may be filed in only two situations: (1) when the motion to strike is authorized by statute or rule, or (2) when the motion to strike seeks to strike a filing or submission because it is prohibited by statute, rule, or court order. LRCiv 7.2(m)(1).
As this case is based on diversity jurisdiction, a federal court sitting in diversity must apply the substantive law of the forum state. See KL Group v. Case, Kay & Lynch, 829 F.2d 909, 918 (9th Cir. 1987) (stating that "[t]he availability of the attorney-client privilege in a diversity case is governed by state law.") The Arizona attorney-client privilege for corporations in civil actions is found in A.R.S. § 12-2234(B). See Bickler v. Senior Lifestyle Corp., 266 F.R.D. 379, 381 (D. Ariz. 2010). The statute protects communications "between an attorney for a corporation" and "any employee, agent, or member" of the corporation. See A.R.S. § 12-2234(B). Id.
The purpose of the attorney-client privilege is to encourage candid communications between client and counsel and protects not only the giving of professional advice, but also the giving of information to enable sound and informed legal advice. See Upjohn Co. v. United States, 449 U.S. 383, 390-91 (1981); Roman Catholic Diocese of Phx. v. Superior Ct., 204 Ariz. 225, 228, 62 P.3d 970, 973 (App. 2003) (stating that under A.R.S. § 12-2234, "any communications between an attorney and an employee or agent of the [organizational client], made for the purpose of providing legal advice or obtaining information to provide legal advice, are protected.")
Arizona "has long recognized a crime-fraud' exception to the [attorney-client] privilege." Kline v. Kilne, 221 Ariz. 564, 573, 212 P.3d 902, 911 (App. 2009). The attorney-client privilege "takes flight if the relation is abused. A client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law. He must let the truth be told." ...