Kansas City Case Testing the Limits of Attorney-Client Privilege
Posted on April 5, 2017
A payday loan company being investigated for fraud tried to protect itself from state-level regulation by merging into a Native American holding company. (States can’t regulate such companies because of tribal sovereign immunity.) However it needed to backdate the protection–which it did by having the payday loan sue the holding company in Kansas courts to backdate the merger. The holding company then declined to answer the suit on time, which led to automatic victory for the payday loan company. This was a beautiful scam effectively controlled on both sides by the Kansas City law firm of McDowell, Rice, Smith & Buchanan.
Looks likely to me that the law firm participated in a fraud or crime, which voids the attorney-client privilege. U.S. attorneys are suing for access to the law firm’s files on that basis.
(It turns out that the attorney’s knowledge of the fraud is irrelevant–what matters is the client’s intent to seek counsel on how to commit fraud.)
I was wondering what the burden of proof is–and what it ought to be. Does the state have to prove fraud beyond a reasonable doubt in order to get files? That would be extremely hard to do without first having access to the files. But if the standard is preponderance of evidence, it might be too easy for the state to put up a smokescreen to get access to files–e.g. as in a lot of political cases where attorneys advise clients on the limits of civil disobedience and how to navigate it.
As it turns out, the standard is preponderance of evidence. The state needs to show independent evidence that the client sought advice for fraudulent purposes. Also, if the court is uncertain, it can order in camera examination of the files by a neutral third party. That actually adds a degree of protection–the state knows it can’t get away with weak evidence, because the court has a potential independent check. Unfortunately, however, the defendant cannot demand an in camera examination.