On Wednesday, just before the Thanksgiving Day holiday in the U.S., the judge handling the MDL litigation involving failures of General Motors' ignition switches issued a major discovery decision that had been pending for many months. Specifically, the judge ruled that "New GM" does not need to turn over communications between its in-house and outside attorneys in three different personal injury cases. This decision is relevant to the franchise community and its lawyers because it involves questions of regulatory fraud.
At issue was whether the crime-fraud exception to the attorney-client and work product privileges applied. According to the court, the issue was not whether there is probable cause to believe that New GM committed a crime or fraud by concealing a deadly safety defect in its ignition switches from its regulators and the general public. The court held that there was such probable cause.
Instead, the question for the court was whether the communications sought were used to further the fraud on the regulators or the public. The court held that this element of furtherance of the fraud, despite evidence of "troubling" conduct on the part of New GM, had not been demonstrated.
The court focused on the difference between cause and effect. The court did not dispute that the attorney-client communications, which evaluated the risk of significant potential losses to New GM at trial versus the certain benefits of confidential settlements, had the effect of concealing the dangers of the defective ignition switches from regulators and the public. At the same time, the court was convinced that the intent of the attorneys was to settle tough cases and not to conceal the defects from the regulators and the public.
As a highly regulated industry, the franchise community has ample reason to carefully review this opinion. Whether the regulations come from tax, labor, health and safety, or garden-variety franchise law, in-house and outside franchise counsel are often required to make decisions which lead to an effect that could later be construed by some as intent. This decision provides a guide for how to both review and document those decisions so as to preserve the attorney-client and work product privileges.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.