Ocean Spray Cranberries, Inc. v. Holt Cargo Systems, Inc.

• Decision Date: 13 October 2000
• Citation: 785 A.2d 955,345 N.J. Super. 515
• Parties: OCEAN SPRAY CRANBERRIES, INC., Plaintiff, v. HOLT CARGO SYSTEMS, INC., Defendant.
• Court: New Jersey Superior Court

785 A.2d 955

345 N.J. Super. 515

OCEAN SPRAY CRANBERRIES, INC., Plaintiff, v.HOLT CARGO SYSTEMS, INC., Defendant.

Superior Court of New Jersey, Law Division, Camden County.

Decided October 13, 2000.

Steven D. Johnson, Frederick E. Blakelock, Hecker, Brown, Sherry & Johnson, Philadelphia, PA, for Ocean Spray Cranberries, Inc.

Richard J. Reisert, Clark, Atcheson & Reisert, Eugene Mattioni, Mattioni, LTD, New York City, for Holt Cargo Systems, Inc.

COOK, J.S.C.

At issue is the applicability of the "crime-fraud" exception to attorney-client and work-product privileges asserted by defendantHolt Cargo Systems, Inc.("Holt"), in response to document discovery requests of plaintiffOcean Spray Cranberries, Inc.("Ocean Spray").¹

By way of background, Ocean Spray sues Holt for damages for the spoilage of 6,500,000 pounds of Ocean Spray cranberries while they were stored in Holt's warehouse facilities in Gloucester City, New Jersey in 1995.Holt was to store these cranberries in a frozen condition.Ocean Spray did not discover that the cranberries had been damaged and spoiled, until they were shipped back to Ocean Spray from Holt's warehouse several months later.Holt did not inform Ocean Spray of the spoilage, and in response to Ocean Spray's inquiry, Holt steadfastly denied that any spoilage occurred in its facility.Holt's counsel further certified in a March 13, 2000 interrogatory answer that:

During the period of time that the product was stored at Holt Cargo's facility, Holt Cargo never independently determined or observed that the product was damaged, spoiled, deteriorated or otherwise unfit, and no one from Holt ever saw any signs or indications of mold, shrinkage, off or bad colors, or any other indications that the product may have been spoiled or deteriorated.Holt Cargo's first understanding that there may have been a problem with the product was when it was contacted by Ocean Spray.(Answer to interrogatory no. 28).

The matter came before the Court on October 6, 2000, on Ocean Spray's motion to compel Holt to produce certain documents, including a document dated May 1, 1997 and referred to as the "Dice" memo.That document, a memorandum to Holt's in-house general counsel, John Evans, Esq., from Paul Dice, its risk management department head, along with several other documents, each of which Holt now claims are privileged, were not identified by Holt until it submitted a privilege log following the filing of Ocean Spray's motion to produce.Holt's belated revelation of the existence of these documents comes several years after the cranberry losses in 1995-96 giving rise to Ocean Spray's claim against Holt occurred, and more than three years since Holt had possession of the "Dice" memo and the other documents, and knowledge of their relevance to Ocean Spray's claim.Holt's revelation also comes well after the filing of this action and the commencement of pretrial discovery.Holt's failure to respond to Ocean Spray's documents discovery request with a description of the nature of the documents claimed to be privileged, constitutes a violation of R.4:10-2(e), which prescribes the manner in which a party is required to claim privilege as the basis for withholding information demanded by way of discovery.

Holt resists disclosure of the May 1, 1997"Dice" memo,² along with several other documents, asserting they are attorneyclient or work product privileged.Holt contends that it has been completely truthful about its lack of any knowledge of spoilage of the cranberries, including its denial in its March 13, 2000 interrogatory answer, supra, that it ever determined or observed any damaged, spoiled, deteriorated or otherwise unfit cranberries, or any signs or indications of shrinkage, off or bad colors, or any other indications that the cranberries may have been spoiled or deteriorated.Holt further contends that besides these documents being privileged, Ocean Spray already has all the facts and other information contained in the "Dice" memo and the other documents anyhow.

As discussed below, Ocean Spray has made a prima facie showing that the "Dice" memo and other Holt documents fall within the "fraud" exception to the attorney-client and work product privileges.Further, Holt's trial counsel, Mr. Reisert, who read the "Dice" memo, albeit just recently, candidly advised the Court and parties at the October 6, 2000 motion hearing that the "Dice" memo does contain evidence of fabrication by Holt.

In view of the prima facie showing by Ocean Spray, the Court conducted an in camera inspection of the "Dice" memo and other documents that Holt listed in its 11th hour "privilege log".Payton v. New Jersey Turnpike Authority,148 N.J. 524, 554-55, 691 A.2d 321(1997).There is abundant authority for the proposition that in camera review of claimed confidential material is an approved and essential step when a privilege is invoked.Corsie v. Campanalonga,317 N.J.Super. 177, 184, 721 A.2d 733(App.Div.1998)(citations omitted).The motion judge should conduct an in camera inspection; otherwise the existence or application of the claimed privilege is unsettled.Id.Having done so, the Court has determined that the "Dice" memo falls within the fraud exception, as do several other Holt documents, and thus neither the "Dice" memo nor the several other Holt documents are attorney-client or work product privileged.Moreover, Ocean Spray has satisfactorily demonstrated a substantial need for these documents and that it cannot obtain their substantial equivalents through other sources.

Each of the documents listed in Holt's privilege log is discussed below, including the "Dice" memo.A review demonstrates that the "Dice" memo (and others) is a "smoking gun" that shows intentional coverup, concealment, deceit, deception and stonewalling of the truth by Holt.The "Dice" memo, for example, uses the term, "fabricated", no less than a dozen times.

THE CRIME-FRAUD EXCEPTION

The attorney-client privilege does not extend to "communications""in the course of legal service sought or obtained in aid of the commission of a crime or a fraud".N.J.R.E. 504(2)(a).The workproduct privilege is also subject to the "crime-fraud" exception.United States v. Zolin,491 U.S. 554, 109 S.Ct. 2619, 105 L.Ed.2d 469(1989);In re Grand Jury Proceedings (FMC),604 F.2d 798, 802-03(3d Cir.1979);Haines v. Liggett Group, Inc.,140 F.R.D. 681, 689-90(D.N.J.1992), rev'd on other grounds, 975 F.2d 81(3d Cir.1992).

"Fraud" includes civil as well as criminal fraud.There need not be a tortious fraud in the conventional sense.Rather, public policy requires that the term fraud "be given the broadest interpretation".It includes virtually all kinds of deception and deceit, even though they might not otherwise warrant criminal or civil sanctions.In re Callan,122 N.J.Super. 479, 300 A.2d 868(Ch.Div.), aff'd126 N.J.Super. 103, 312 A.2d 881(App.Div.1973), rev'd on other grounds66 N.J. 401, 331 A.2d 612(1975);Matter of Yaccarino,101 N.J. 342, 383-84, 502 A.2d 3(1985).The crime/fraud exception "encompasses a type of communication that is alien to the fundamental reasons that underlie the privilege", Fellerman v. Bradley,99 N.J. 493, 505, 493 A.2d 1239(1985), because "[t]he privilege is limited to those situations in which lawful legal advice is the object of the relationship."In re Gonnella,238 N.J.Super. 509, 512, 570 A.2d 53(Law Div.1989).The exception applies even if the attorney is unaware of the client's criminal or fraudulent intent, and applies of course where the attorney knows of the forbidden goal.In re Selser,15 N.J. 393, 105 A.2d 395(1954);In the Matter of Stein,1 N.J. 228, 62 A.2d 801(1949).Where an "attorney-client privileged" memo contains evidence or suggestions of false information, the crime/fraud exception applies.Nat. Utility Service, Inc. v. Sunshine Biscuits, Inc.,301 N.J.Super. 610, 618, 694 A.2d 319(App. Div.1997).

The "fraud" exception is interpreted broadly to include, e.g., "[c]onfederating with clients to allow court and [opposing]counsel to labor under a misapprehension as to the true state of affairs ..."Sunshine Biscuits, supra,301 N.J.Super. at 616, 694 A.2d 319(quotingFellerman, supra,99 N.J. at 503, 493 A.2d 1239, andIn re Callan,122 N.J.Super. at 496, 300 A.2d 868)(emphasis added).³"There is no reason to believe that the use of the word "fraud" in [N.J.R.E. 504(2)(a)] is to be limited to conventional notions of tortious frauds.Acts constituting fraud are as broad and as varied as the human mind can invent.Deception and deceit in any form universally connote fraud ...."In summary, the "fraud" exception is to be given the broadest interpretation.Id.

The party seeking to overcome the privilege and obtain access to the communication must make a prima facie showing of fraud or crime, and the prima facie showing must be made by evidence other than the contested communication itself.Sunshine Biscuits, supra.Other courts have referred to the burden as being a showing of probable cause to believe that a crime or fraud had been committed.As noted in In re Grand Jury Subpoena Duces,731 F.2d 1032, 1039(2d Cir.1984), there is little difference between the two tests, since both require that a prudent person have a reasonable basis to suspect perpetration or attempted perpetration of a fraud or crime.

THE PRIMA FACIE SHOWING OF FRAUD

Ocean Spray has made a strong prima facie showing of fraud, without of course resort to the contested documents themselves, since Holt has refused to allow Ocean Spray any access to the "Dice" memorandum or other documents.For example, Ocean Spray points out that despite the categorical denial of Holt in its interrogatory answer signed by its trial counsel, Mr. Reisert, that Holt ever saw or knew about any problem with the cranberries while they were stored at Holt's facility,⁴ there is substantial evidence showing that this and other...