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United States v. Adams

United States District Court, D. Minnesota

March 12, 2018

United States of America, Plaintiff,
v.
Edward S. Adams, Defendant.

          David M. Genrich, David J. MacLaughlin, David M. Maria, John E. Kokkinen, Assistant United States Attorneys, counsel for the government

          Deborah A. Ellingboe, James L. Volling, Faegre Baker Daniels LLP; Gloria K. Maier, Joseph G. Petrosinelli, Lance A. Wade, Sarah L. O'Connor, Williams & Connolly LLP, counsel for defendant

          REPORT AND RECOMMENDATION AND ORDER

          Katherine Menendez United States Magistrate Judge

         Now before the Court is Edward S. Adams's Motion Asserting Certain Privileges Implicated by Yahoo! Email Seizure. ECF No. 89. Mr. Adams asserts that “two categories of documents seized by the United States pursuant to the January 2016 Yahoo! Warrant are protected by a privilege from disclosure.” Mem. in Supp. at 1, ECF No. 90. The government's position is that neither category of documents is protected by attorney-client or work-product privilege. For the reasons set forth below, the Court recommends that the Motion be granted in part and denied in part.

         THE DOCUMENTS AT ISSUE

         On January 7, 2016, the government obtained a search warrant to search the contents of three email accounts held by Yahoo![1] The government and Mr. Adams generally agree that Mr. Adams's emails include communications protected by the attorney-client or work-product privileges, but they disagree about whether two specific categories of emails are covered by those protections or not.

         The Apollo Emails

         The first category of emails in dispute comprises communications between Mr. Adams and others made “in the course of providing legal advice to Apollo Diamond, Inc. and Apollo Diamond Gemstone Corporation.” Id. Apollo Diamond, Inc. is a Delaware corporation founded by Robert Linares. Id. at 5. Apollo Diamond, Inc. “is engaged in the business of owning and developing proprietary technology relating to the production of laboratory-created diamond and diamond materials.” Def. Ex. 1 at 1 (“ADI APA”), ECF No. 91-1. Apollo Diamond Gemstone Corporation is also a Delaware corporation founded by Robert Linares. Mem. in Supp. at 5. Apollo Diamond Gemstone Corporation was previously “engaged in the business of manufacturing and marketing laboratory-created gemstone diamonds . . . using the proprietary technology of its parent company, Apollo Diamond, Inc. . . . and technology, trade secrets, patents and inventory developed by” Apollo Diamond Gemstone Corporation. Def. Ex. 2 at 1 (“ADGC APA”), ECF No. 91-2. Mr. Adams and his law firm provided legal services to Apollo Diamond, Inc. and Apollo Diamond Gemstone Corporation (collectively “Apollo”)[2] “since at least 2006.” Mem. in Supp. at 5.

         In 2011 and 2012, Apollo entered into asset purchase agreements (“APAs”) with a Nevada corporation, Scio Diamond Technology Corporation (“Scio”). See generally ADI APA; ADGC APA. The agreements contemplated transfer of “certain of the property, assets, rights, and privileges of [ADI] related to, used in, or otherwise associated with the assets on the terms and subject to the conditions set forth in this [APA]” and “certain of the property, inventory, and assets, rights, and privileges of [ADGC] related to, used in, or otherwise associated with the previous operation of [ADGC] on the terms and subject to the conditions set forth in this [APA].” ADI APA at 1; ADGC APA at 1. Each agreement purported to exclude certain tangible and intangible items and each provided for a Scio entity's purchase of Apollo's intellectual property, diamond growing equipment, and inventory. Mem. in Supp. at 6-7. In explaining the arrangement to the Securities and Exchange Commission (“SEC”), Mr. Adams's law partner testified that the Apollo shareholders were most excited about owning a part of a company that would exploit the existing diamond technology “in a company that was capitalized and had a myopic focus on manufacturing versus [the] kind of research and development that Apollo had done a lot of over the years.” Gov't Ex. 3 at 4, ECF No. 109-3.

         The government characterizes the Apollo-Scio transactions very differently. The superseding indictment alleges that Mr. Adams had “embezzled millions of dollars for his personal use and benefit” from Apollo. Superseding Indictment at 1, ECF No. 70. It further asserts that Mr. Adams then orchestrated the sale of Apollo to Scio “in order to prevent his theft from being discovered” and as a means of “extending and continuing the scheme.” Id. at 1, 11. As part of the investigation underlying the indictment, the government obtained thousands of emails, including the communications now at issue between Mr. Adams and Apollo corporate managers. Mem. in Supp. at 5-6. The government also obtained a purported waiver of Apollo's attorney-client privilege from counsel for Scio. See Young Decl., Gov't Ex. 7, ECF No. 109-7. Specifically, counsel for Scio emailed Assistant United States Attorney David Maria on June 28, 2016, indicating that he had spoken with Scio's CEO and that:

Scio will not assert any attorney-client privilege or seek compliance with any duty of confidentiality with regard to work or services performed by Ed Adams, Michael Monahan, the Adams Monahan law firm or the attorneys associated with the Adams Monahan law firm in connection with (1) the Apollo Diamond entities (e.g. Apollo Diamond, Inc. and Apollo Diamond Gemstone Corporation) and (2) the transactions by which the assets of the Apollo Diamonds entities were transitioned to or acquired by either of the Scio Diamond Technology Corporation entities (the original or the current).

Def. Ex. 19, ECF No. 91-19. This email memorialized a conversation from February or March 2016 communicating the same waiver. See Young Decl. The critical issue related to the status of the Apollo documents is whether the attorney-client privilege was Scio's to waive or whether only Apollo, though now defunct, retained the authority to waive the privilege.

         The Murry Emails

         The second category of documents the privilege of which is in dispute includes communications between Mr. Adams and an accountant engaged by his tax attorneys. Mem. in Supp. at 2. Mr. Adams hired Thomas Brever, a tax attorney, in September 2014 to assist with tax liabilities and related issues. Brever Decl. at ¶ 2, ECF No. 93. Shortly thereafter, Mr. Brever hired Murry & Associates, LLC, an accounting firm, to assist him in providing legal advice regarding Mr. Adams's taxes. Id. at 2. When the government obtained the emails from Yahoo!, it also obtained communications between Mr. Adams, his tax attorney, and the Murry & Associates accountants. See Mem. in Supp. at 2. Therefore, the second issue for the Court's consideration is whether those communications are protected by the attorney-client privilege.

         ANALYSIS

         As described, the categories of documents at issue implicate two different aspects of attorney-client privilege. The Court recommends that Mr. Adams's motion be denied as to the first issue because Mr. Adams is unable to establish that a privilege remains as to the communications between himself and the Apollo entities. However, the Court concludes that Mr. Adams has established that the communications between himself, his tax attorney, and Murry & Associates are protected by privilege.[3]

         I. Basic Principles of the Attorney-Client Privilege

         “The attorney-client privilege is the oldest of privileges for confidential communications known to the common law.” Upjohn Co. v. U.S., 499 U.S. 383, 389, 101 S.Ct. 677, 682 (1981). It promotes “full and frank communication between attorneys and their clients” and “broader public interests in the observance of law and administration of justice.” Id. When reviewing a claim of privilege, this Court follows federal common law and is not “bound by a mechanistic approach for applying the privilege in criminal cases.” United States v. Espino, 317 F.3d 788, 795 (8th Cir 2003); see also Fed. R. Evid. 501 (stating that common law generally governs a claim of privilege). The party who asserts the protection of privilege “has the burden of establishing the right to invoke its protection.” Hollins v. Powell, 773 F.2d 191, 196 (8th Cir. 1985). Attorney-client privilege arises where the parties to a given confidential communication are an attorney and her client, the attorney was engaged for the purpose of obtaining legal advice, and the privilege has been claimed and not waived. Diversified Indus. Inc. v. Meredith, 572 F.2d 596, 601-602 (8th Cir. 1977).

         II. The ...


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