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National Utility Service, Inc. v. Sunshine Biscuits, Inc.

301 N.J. Super. 610, 694 A.2d 319 (App. Div. 1997)

ATTORNEYS; LITIGATION; DISCOVERY—In an analysis of the crime-fraud exception to the attorney-client privilege, the Court ruled that an accidentally obtained memorandum cannot be used by the opposing party simply because it showed an inconsistency with an affirmative defense pled by the party to whom the memorandum was directed.

A consultant alleges it entered into a contract with customer whereby it made energy audits and recommendations that saved the customer substantial amounts of money and that the contract entitled the consultant to 50% of those savings. The documents delivered by the customer during discovery accidentally included a memorandum from the customer’s in-house counsel to an employee of the customer. The customer requested return of the memorandum, claiming attorney-client privilege. The consultant moved for an order permitting it to retain and use the memo, claiming that the memo proved the customer committed fraud in its pleading. Specifically, the memo acknowledges that the customer had undertaken a contractual obligation, while one of the customer’s affirmative defenses claims there was no contract. The Law Division held that the memo may be retained by the consultant and used for any permissible purpose under the crime-fraud exception to attorney-client privilege.

The Appellate Division held that the pre-litigation memorandum was neither discoverable nor subject to use merely because it contained advice inconsistent with a legal theory later developed for litigation. It was uncontested that: (a) a memo such as the one in question is subject to the attorney-client privilege unless there is an exception, and (b) inadvertent disclosure during discovery does not waive that privilege. Accordingly, the only issue for the Appellate Division was whether the memo was subject to the crime-fraud exception. Factors to consider in determining whether the exception applies include whether the client consulted with the attorney to aid in the commission of a crime or to assist the client in avoiding lawful process in any pending proceeding. The New Jersey Supreme Court has interpreted the exception broadly, including within its scope attorney conferences with clients that result in the court and opposing counsel laboring under a misapprehension as to the true state of affairs. Even though the lower court held that the customer had “lied” to the Court, as proven by the memo, it failed to address certain relevant issues, one of which was that the customer which defended this action was a successor entity to the customer that had entered into the contract. The Court concluded that the defenses were raised in good faith and that the consultant failed to meet its burden of establishing a prima facie case for the crime-fraud exception. The Court concluded that the memorandum may not be used by the opposing party simply because it was inconsistent with an affirmative defense.


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