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United States v. Lacey

United States District Court, D. Arizona

October 18, 2018

United States of America, Plaintiff,
Michael Lacey, et al., Defendants.


          Honorable Steven P. Logan United States District Judge

         On June 14, 2018, the Government filed a motion (the “Motion”) to resolve certain attorney-client privilege issues. (Doc. 195) In response, Defendants Michael Lacey (“Lacey”) and James Larkin (“Larkin”) filed a cross-motion (the “Cross-Motion”) to prohibit the relief sought in the Motion and seek discovery. (Doc. 235) The Motion was fully briefed on August 17, 2018, and the Cross-Motion was fully briefed on September 27, 2018. The Court heard oral argument on the Motion and Cross-Motion at a hearing on October 5, 2018. For the reasons set forth below, the Motion is denied, and the Cross-Motion is granted in part and denied in part.

         I. Background

         On March 28, 2018, a federal grand jury returned a ninety-three count indictment against several Defendants, including Lacey and Larkin, alleging that the Defendants engaged in various crimes related to the operation of the website, including conspiracy, facilitating prostitution, and money laundering. (Doc. 3) The indictment also includes forfeiture allegations.[1] Id. On April 5, 2018, Carl Ferrer (“Ferrer”), the CEO of (“Backpage”), pleaded guilty to conspiracy to facilitate prostitution and money laundering. (Doc. 235 at 14; CR 18-464-SPL, Doc. 7) The charges against Ferrer were based on his work at Backpage. Id.

         During the Government's investigation, it obtained search warrants for the email accounts of several Defendants and Backpage personnel. (Doc. 195 at 1) A filter team was put in place to identify any email communication that appeared to be privileged. (Doc. 195 at 2) The filter team conducted an initial review of the material seized by the search warrants, and it removed any items that it deemed privileged attorney-client communication from the discovery that was eventually turned over to the investigation team. Id.

         The Government filed the Motion seeking an order stating that (i) Backpage's attorney-client privilege has been waived with respect to certain email communication obtained under the aforementioned search warrants, and (ii) the Government may have access to the communication that was classified as privileged by the filter team. (Doc. 195 at 13) In response to the Motion, the Defendants filed the Cross-Motion for an order (i) preventing the Government's review of any privileged communication, and (ii) requesting discovery of the Government's communication with Ferrer regarding the joint defense agreement and the attorney-client relationships of the Defendants. (Doc. 235 at 25, 28) In addition, several Defendants filed joinders to the Cross-Motion.[2] On October 5, 2018, the Court heard argument on the pleadings, and the arguments made by each party were taken under advisement.

         II. Motion to Resolve Attorney-Client Privilege Issues

          The Government moves for an order from the Court allowing access to the privileged communication because (i) Ferrer, as CEO and 100% owner of Backpage, executed a written waiver of the company's attorney-client privilege; (ii) Judge David Campbell of the District of Arizona recently decided that Backpage had waived attorney-client privilege for several documents that were the subject of the warrants because the documents had been previously shared with third-party public relations firms and investment banks; and (iii) a Washington state court previously found that Backpage waived attorney client privilege on several similar communications when it proffered its in-house counsel, Elizabeth McDougall, as a Rule 30(b) witness for a deposition. (Doc. 195 4-9) Each of these arguments will be addressed in turn.

         A. Standard of Review

          The Court recognizes that there is little to no precedent that is directly applicable to the facts presented in this case, and many of the issues presented by the Motion and Cross-Motion require an exercise of the Court's discretion. As a general matter, a party is not entitled to discovery of information protected by the attorney-client privilege. Wharton v. Calderon, 127 F.3d 1201, 1205 (9th Cir. 1997). It is also well settled that the intentional public disclosure of privileged communication results in waiver of the attorney-client privilege and the work product immunity “as to all other communications on the same subject.” United States v. Kerr, 2012 WL 2919450, at 1 (D. Ariz. July 17, 2012) (citing Hernandez v. Tanninen, 604 F.3d 1095, 1100 (9th Cir.2010)). However, this waiver extends only “to communications about the matter actually disclosed.” Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir.1992). And, the Ninth Circuit has cautioned against finding a complete waiver of the attorney-client privilege by noting that “[t]he breadth of the waiver finding, untethered to the subject-matter disclosed, constitutes a particularly injurious privilege ruling.” Hernandez, 604 F.3d at 1101.

         B. Ferrer Waiver

         The Government argues that it should have access to the privileged information at issue because Ferrer executed a written waiver of Backpage's attorney-client privilege as part of his cooperation with the Government. (Doc. 195 at 5) In response, the Defendants argue that the terms of the joint defense agreement (the “JDA”) between Lacey, Larkin and Ferrer prevent Ferrer from waiving Backpage's attorney-client privilege. (Doc. 235 at 23) The Defendants also argue that the terms of the JDA prevent Ferrer from disclosing privileged information because the terms of the agreement state that privileged information cannot be disclosed by a party withdrawing from the JDA unless all parties to the agreement consent to the disclosure of the privileged information.[3] (Doc. 235 at 13)

         The Court has already recognized the validity of the JDA in its earlier Order. (Doc. 338) Ferrer is bound by the terms of the JDA, which he executed during his tenure with Backpage. Based on the Court's in camera review of the JDA, the Court finds that the plain text of the JDA states that the materials shared between the parties to the JDA are to be protected from disclosure unless the disclosing party first obtains the written consent of all parties who may be entitled to a claim of privilege over the materials. It is undisputed that Ferrer did not obtain the written consent of the listed parties to the JDA before executing his written waiver of attorney-client privilege. On this basis, the Government's argument for access to the privileged communication fails. The Government argues that there is a distinction between joint-defense privileges and attorney-client privileges, and that the communication at issue is not covered under the JDA. (Doc. 269 at 9) However, the terms of the JDA demonstrate that the emails themselves are protected from disclosure. Ferrer's participation in the JDA not only established joint-defense privileges, but also set forth other protections for information and communication exchanged between parties to the agreement. Therefore, for the limited purpose of addressing the Government's access to the privileged emails at issue, the Court finds that the Government cannot use Ferrer's written waiver of attorney-client privilege to circumvent the terms of the JDA.[4]

         C. Judge ...

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