## Facts

- Tei Fu Chen and Sunrider Corporation imported products and were investigated for a scheme exploiting differences between Customs tariff valuation and income-tax reporting.
- The government alleged Sunrider paid Customs duties based on true lower invoice prices while creating fictitious higher-priced invoices for accounting and tax reporting to inflate cost of goods sold and reduce income taxes.
- Sunrider’s comptroller allegedly generated false invoices on an affiliated entity’s letterhead and routed funds to support the appearance of higher purchase prices.
- Concerned about detection, Chen consulted attorneys about making a disclosure to Customs; the government alleged the disclosure process was used to support or conceal wrongdoing rather than to correct tariff underpayments.
- A former insider provided incriminating documents and information to investigators, leading to an indictment for conspiracy, tax evasion, and related offenses.
- The government subpoenaed Chen’s attorneys to testify before a grand jury about communications and work connected to the Customs disclosure.
- The attorneys moved to quash the subpoenas on attorney-client privilege grounds; the district court denied the motion, finding the crime-fraud exception applied despite no showing that counsel had guilty knowledge.

## Issues

1. Whether the crime-fraud exception applies to attorney-client communications when the attorney is innocent and lacks guilty knowledge, if the client used legal services to further a crime or fraud.
2. What quantum of proof the government must show to invoke the crime-fraud exception, and whether the government met that standard on this record.
3. Whether the government’s submission of potentially privileged communications in an ex parte application required reversal, or whether any error was harmless.

## Decision

- The Ninth Circuit affirmed the order denying the motion to quash the grand-jury subpoenas to defense counsel.
- The court held the crime-fraud exception can apply even when the attorney is innocent; the focus is on the client’s purpose and misuse of legal services.
- The court concluded the government made a sufficient preliminary showing—described as reasonable cause or a prima facie showing—that the client used counsel’s services in furtherance of criminal or fraudulent conduct.
- The court held any error from including potentially privileged communications in an ex parte submission was harmless because the district court did not rely on those communications and other evidence supported application of the exception.

## Legal Principles

- Attorney-client privilege does not protect communications made for the purpose of obtaining advice or assistance to commit or continue a crime or fraud.
- Application of the crime-fraud exception turns on the client’s intent and use of legal services in furtherance of wrongdoing, not on attorney complicity or guilty knowledge.
- To pierce privilege under the crime-fraud exception in this context, the government must present evidence sufficient to establish reasonable cause (prima facie) to believe (1) the client was engaged in or planning criminal or fraudulent conduct and (2) the communications or attorney work product furthered that conduct.
- Improper inclusion of arguably privileged communications in an ex parte proffer does not require reversal where the court’s determination rests on independent, non-privileged evidence and the challenged material did not affect the ruling.

## Conclusion

The Ninth Circuit allowed grand-jury subpoenas compelling defense counsel testimony because the government made a sufficient showing that the client used legal services to further alleged fraud, and the crime-fraud exception defeats privilege even when counsel is unaware of the client’s illicit purpose.


United States v. Chen, 99 F.3d 1495 (9th Cir. 1996)