BP Oil Spill Litigation: U.S. Appeals Judge’s Decision on Motion to Compel BP to Produce Documents Based on the Crime-Fraud Exception
BP Oil Spill Litigation: U.S. Appeals Judge’s Decision on Motion to Compel BP to Produce Documents
Based on the Crime-Fraud Exception to the Attorney-Client Privilege
Tampa, FL (June 3, 2013) – BP pled guilty to the crime of obstructing justice by providing false and misleading flow rate information to Congress during the BP oil spill response. The company provided that same false information to the National Incident Command by email and to the public through filings with the SEC. BP’s false flow rate statements were developed under the direction of the company’s attorneys, as BP itself explained to the Court in multiple filings. Accordingly, the U.S. argues that under blackletter law BP’s use of attorneys to aid in its wrongdoing destroys any privilege for the communications BP used in its criminal or fraudulent activity. This bedrock principle of privilege law is known as the crime-fraud exception to the attorney-client privilege.
In its motion to compel, the U.S. sought all documents related to the preparation of seven statements BP made to government officials and the public regarding the flow rate during the response, specifically (1) fraudulent communications to Congress on May 4, 2010 and fraudulent letters to Congressman Markey dated May 24 and June 25, 2010; (2) a fraudulent statement to Federal On-Scene Coordinator Admiral Mary Landry on May 19, 2010; and (3) fraudulent securities statements on April 29 and 30 and May 4, 2010 (collectively referred to here as the “Crime-Fraud Communications”). On April 30, 2013, Magistrate Judge Sally Shushan ruled on the United States’ motion by ordering production of 22 documents sought by the United States and finding that 84 additional documents identified by BP as related to the Crime-Fraud Communications did not fall within the crime-fraud exception.
The U.S. submits that the Magistrate Judge used the incorrect legal standard and applied the standard incorrectly. A court reviewing a crime-fraud assertion conducts a two-step analysis in the Fifth Circuit. First, the reviewing court determines whether the party asserting crime-fraud has made a prima facie case that its opponent “intended to further an ongoing crime or fraud during the attorney-client relationship.” In re Grand Jury Subpoena, 419 F.3d 329, 346 (5th Cir. 2005). Once that showing is made, “the crime-fraud exception applies.” Id. The second step addresses which documents must be produced – those “reasonably related to the furtherance of the ongoing or future crime or fraud at issue.” Id. at 347. The U.S. argues that the Magistrate Judge made three errors in her opinion. At the first step of the analysis, she applied the law to the facts incorrectly in concluding that the U.S. failed to make a prima facie showing of a crime or fraud with respect to BP’s false statements to the SEC. At the second step of the analysis, she both used an incorrect legal standard not briefed by the Parties and then applied it incorrectly.
The U.S. requests, since the Magistrate Judge’s decision was contrary to law, that the Court overturn the decision and grant the United States’ motion to compel in full. Specifically, the U.S. requests that the Court order the production of all documents reasonably related to the preparation of the Crime-Fraud Communications.
As oil gushed from the Macondo 252 well during 2010, BP told Congress, the National Incident Command, and the public that the flow rate was 5,000 barrels of oil per day (“BOPD”). Meanwhile, company engineers were performing internal analyses showing that the flow rate could be up to 20 times greater.
BP’s false flow rate statements were developed under the direction of the company’s attorneys, as BP itself explained to the Magistrate Judge in multiple filings. The letters to Congress that formed the basis of BP’s guilty plea were the results of “a process organized and directed by lawyers.” See Exhibit 1, July 19, 2012 Letter from R. Gasaway to Judge Shushan at 5.
Under blackletter law, BP’s use of attorneys to aid in its wrongdoing destroys any privilege for the communications BP used in its criminal or fraudulent activity. As the Supreme Court has explained, “[a] client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law. He must let the truth be told.” Clark v. United States, 289 U.S. 1, 15 (1933) (emphasis added). The exception applies whether the attorneys had knowledge of the crime or not. See e.g., In re Grand Jury Proceedings, 680 F.2d 1026, 1028 (5th Cir. 1982) (“The crime or fraud exception applies even where the attorney is completely unaware that his advice is sought in furtherance of such an improper purpose.”).
I. The Criminal And Fraudulent Communications At Issue
A. False and Misleading Statements to the Public through SEC Filings
One week after the Deepwater Horizon blowout, BP submitted a form 6-K to the SEC. In that filing, BP stated that the oil flow was “currently estimated at up to 5,000 barrels a day.” Ex. 7, April 29, 2010 Form 6-K at 6. The following day, BP issued a press release as a SEC Form 6-K and included the flow estimate as “up to 5,000 barrels a day.” Ex. 8, April 30, 2010 Form 6-K. On May 4, 2010, BP issued another press release as a Form 6-K and stated that “current estimates by [NOAA] suggest some 5,000 barrels . . . of oil per day are escaping from the well.” Ex. 9, May 4, 2010 Form 6-K.
The SEC filed a civil complaint against BP that alleged “material misrepresentations and omissions” in the three Form 6-K statements. Securities and Exchange Commission v. BP p.l.c., Civil Action No. 2:12-cv-02774 (E.D. La.). BP later agreed to pay $525 million to settle the SEC civil action.
B. False and Misleading Statements to Congress
1. May 4, 2010 presentation to Congressional Subcommittee claiming flow rate was 5,000 BOPD
On May 4, 2010, BP Vice President David Rainey made a presentation to a House Subcommittee (“Subcommittee”) in which he stated that 5,000 BOPD was the best estimate of the flow rate, and that the worst case discharge was 60,000 BOPD. See Ex. 10, May 14, 2010 Letter E. Markey to L. Mackay. Subcommittee Chairman Markey responded by letter on May 14, 2010. Chairman Markey noted that other, public estimates of the spill were greater than BP’s alleged worst case discharge figure, and stated, “I am concerned that an underestimation of the flow may be impeding the ability to solve the leak and handle management of the disaster. We have already had one estimate that grossly underestimated the amount of oil being released and we cannot afford to have another.” Id. (emphasis added). The import of Chairman Markey’s letter was that BP misled the Subcommittee in the May 4, 2010 briefing.
2. May 24, 2010 letter to Congressional Subcommittee claiming flow rate was 5,000 BOPD
BP responded with a letter signed by BP attorney Kevin Bailey to Chairman Markey on May 24, 2010. In that letter, BP represented that the 5,000 BOPD flow rate was the “most scientifically informed judgment” and that subsequent flow rate estimates had “yielded consistent results.” Ex. 11, May 24, 2010 Letter, K. Bailey to E. Markey. In fact, BP later admitted that its own internal estimates at the time showed the flow rate was as high as 96,000 BOPD.
In pleading guilty to obstruction of Congress based in part upon the May 24 letter, BP stated that it “agree[d] that if the case were to proceed to trial, the Government could establish beyond a reasonable doubt” the following facts related to the May 24 letter:
On or about May 24, 2010, in the Eastern District of Louisiana and elsewhere, BP did corruptly, that is, with an improper purpose, endeavor to influence, obstruct, and impede the due and proper exercise of the power of inquiry under which an inquiry and investigation was being had by a Committee of the United States House of Representatives into the amount of oil flowing from the Macondo Well (“flow rate”) through the following omissions and false and misleading statements in its May 24, 2010 response (“Markey Response”) to the Committee on Energy and Commerce:
(a) BP, through a former vice president, withheld information and documents relating to multiple flow-rate estimates prepared by BP engineers that showed flow rates far higher than 5,000 BOPD, including as high as 96,000 BOPD.
(b) BP, through a former vice president, withheld information and documents relating to internal flow-rate estimates he prepared using the Bonn Agreement analysis, that showed flow rates far higher than 5,000 BOPD, and that went as high as 92,000 BOPD.
(c) BP, through a former vice president, falsely represented that the flow-rate estimates included in the Response were the product of the generally-accepted ASTM methodology. At the time that this false representation was made, BP’s former vice president knew that those estimates were the product of a methodology he devised after, among other things, a review of a Wikipedia entry about oil spill estimation.
(d) BP, through a former vice president, falsely represented that the flow-rate estimates included in the Markey Response had played “an important part” in Unified Command’s decision on April 28, 2010, to raise its own flow-rate estimate to 5,000 BOPD. At the time this false representation was made, BP’s former vice president knew that those flow-rate estimates had not played “an important part” in Unified Command’s decision to raise its flow-rate estimate and had not even been distributed outside of BP prior to that decision.
(e) BP falsely suggested, in its May 24, 2010 letter, that the Unified Command’s flow rate estimate of 5,000 barrels of oil per day (“BOPD”) was the “most scientifically informed judgment” and that subsequent flow rate estimates had “yielded consistent results.” In fact, as set forth above, BP had multiple internal documents with flow rate estimates that were significantly greater than 5,000 BOPD that it did not share with the Unified Command.
3. June 25, 2010 letter to Congressional Subcommittee misstating basis for BP’s worst case discharge estimate
On June 25, 2010, BP sent another letter to the Subcommittee, this time from David Nagle, who at the time led BP’s government relations group. In the June 25 letter, BP attempted to explain why the company had told the Subcommittee on May 4 that the worst case discharge was 60,000 BOPD, while later saying it was 100,000 BOPD. The June 25 letter stated that the 100,000 BOPD worst case discharge estimate was developed after subsequent “pressure data was obtained from the BOP stack.” Ex. 13, June 25, 2010 Letter, D. Nagle to E. Markey at 1. This statement too was false, as BP admitted in its plea agreement:
On or about June 25, 2010, in a BP letter to Congressman Markey, BP’s former vice president inserted language that falsely stated that BP’s worst case discharge estimate was raised from 60,000 BOPD to 100,000 BOPD after subsequent “pressure data was obtained from the BOP stack.” At the time this false representation was made, BP’s former vice president knew that the 100,000 BOPD figure was not first derived after subsequent pressure data had been obtained, but instead, he had been aware of a 100,000 BOPD worst case discharge since as early as on or about April 21, 2010.
C. False and Misleading Statements to the National Incident Command
In the midst of BP’s false statements to Congress, it provided the same false information to the National Incident Command. On May 17, 2010, then-Rear Admiral Mary Landry, the Federal On-Scene Coordinator (“FOSC”) for the Macondo oil spill appealed to Doug Suttles, BP America Inc.’s Chief Operating Officer and BP’s representative to the Unified Command, to provide the Unified Command with “full access to all information related to the oil discharge rate as soon as possible,” in order to “help us continue to hone our efforts to respond most effectively to the spill and to mitigate the ongoing threat to our environment and coastal communities.” See Ex. 14, May 17, 2010 Letter, Admiral Landry to D. Suttles.
Mr. Suttles took the Rainey Memo and sent it to Admiral Landry by email on May 19, 2010. Ex. 18, May 19, 2010 Email, D. Suttles to Admiral Landry. The Rainey Memo was also submitted as part of BP’s May 24 letter to the Subcommittee. As described above, BP admitted that it obstructed justice by omitting relevant internal information and making false representations in the May 24 letter, including the Rainey Memo.
II. BP Used Attorneys to Direct Its Crime-Fraud Communications
There can be no doubt that BP’s attorneys played a leading role in the Crime-Fraud Communications – BP repeatedly told the Magistrate Judge precisely that. In defending against earlier privilege challenges before the Magistrate Judge, BP made clear that the company’s responses to Congressional inquiries were led and directed by attorneys:
Congressional requests received by the company in this time period were handled through a process organized and directed by lawyers in which information was gathered from personnel within the company. Congressional responses were then drafted in a collaborative process led by WilmerHale and involving both in-house and external lawyers along with appropriate BP personnel. Although not every communication regarding the effort to collect information and to respond to requests involved the direct participation of an attorney, the overall process was a lawyer-directed effort.
III. BP’s Internal Flow Rate Estimates Were Far Higher Than Those Shared With The Government And The Public
At the same time BP was telling Congress, the National Incident Command, and the public that the flow rate was 5,000 BOPD, BP was performing internal modeling showing the flow rate could be as high as 100,000 BOPD. BP employees recognized the difference between the company’s public statements and its private modeling. On May 15, 2010, then company Vice President Mike Mason, who led various well performance and modeling efforts during the blowout response, wrote an email to BP Chief Executive Andy Inglis warning against “standing behind” the 5,000 BPD estimate. Ex. 19, May 15, 2010 Email, M. Mason to A. Inglis. Mason added that “our modelling shows that this well could be making anything up to ~ 100,000 bopd depending on a number of unknown variables . . . We can make the case for 5,000 bopd only based on certain assumptions.” Id. Mr. Mason’s email was forwarded to BP General Counsel John Lynch Jr. Id.
Notably, when BP’s source control efforts required a “best estimate” of flow rate for internal modeling work, the company used not 5,000 but 70,000 BOPD. Early in the response, BP hired Stress Engineering to perform computation fluid dynamics modeling (known as “CFD”) in order to consider the potential for the “BOP on BOP” source control option. Ex. 25, Charles Holt Deposition at 261:1-18. Stress Engineering needed a flow rate estimate to do the work, and Stress Engineering Principal Christopher Matice stated that the computer runs would take 10-12 hours each. He added: “We should start with our best [flow rate] estimate.” At that point, BP employee Richard Simpson replied: “For the first run, use 70,000 bpd[.] For the second run, 35,000 bpd[.] Third run, 17,500 bpd.” Id. In that April 30, 2010 exchange, BP demonstrates that, when BP needed a flow rate estimate for important work, the company used a much higher flow rate than it was reporting to the public. As Mr. Lockett said in a May 17 email about Top Kill modeling, the 5,000 BOPD number had “little if no origin. . . . From all the different ways we have looked at flow rate, [5,000 BOPD] would appear to err on the low side.” Ex. 27, May 17, 2010 Email, T. Lockett to T. Hill.
When a party seeks to involve its attorney in an ongoing or future crime or fraud, any privilege is destroyed. For the crime-fraud exception to apply, the party challenging privilege must show two things: evidence of a crime or fraud and that the underlying communications relate to the illicit activity. The United States has made that showing here for all documents reasonably related to preparation of the Crime-Fraud Communications, and all such documents should be ordered produced.
The Magistrate Judge found that the United States had demonstrated a crime or fraud for all Crime-Fraud Communications except those made to the SEC. However, she found that many of the documents identified by BP as related to preparation of the Crime-Fraud Communications did not qualify for the exception. In doing so, the Magistrate Judge made three errors that merit reversal. First, all of the Crime-Fraud Communications involved BP publically providing a flow rate estimate that bore little relation to the company’s best, internal estimates. All of the Crime-Fraud Communications, including the SEC 6-K statements, should qualify for application of the crime-fraud doctrine. Second, and even more important, the Magistrate Judge used the wrong standard for determining whether a given document was sufficiently related to the crime or fraud to qualify for the crime-fraud exception. Finally, she applied the legal standard incorrectly at step two by focusing on Mr. Rainey’s involvement with the documents, rather than how they were related to the Crime-Fraud Communications at issue. Evaluated correctly, all documents related to the preparation of the Crime-Fraud Communications should be produced, including all the documents identified by BP and others yet to be identified.
Legal Standard Applicable To The Crime-Fraud Exception
The crime-fraud exception is a “generally recognized exception” to the attorney-client privilege. United States v. Zolin, 491 U.S. 554, 556 (1989). Once established, the crime-fraud exception renders communications that otherwise were privileged subject to disclosure – “the privilege takes flight if the relation is abused.” Clark v. United States, 289 U.S. 1, 15 (1933). As the Court noted in Zolin, “courts long have viewed [the attorney-client privilege’s] central concern as one to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” 491 U.S. at 562. This rationale applies to clients making “full disclosure to their attorneys of past wrongdoings.” Id. However, the reason for the protection of attorney-client communications “ceas[es] to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing.” Id. at 562-63. Where the attorney-client privilege communication relates to “future wrongdoing,” the privilege is destroyed. See, e.g., United States v. Ballard, 779 F.2d 287, 292-293 (5th Cir. 1987) (“Once the party seeking disclosure makes a prima facie case that the attorney-client relationship was used to promote an intended criminal activity, the confidences within the relationship are no longer shielded.”).
Demonstrating that the crime-fraud doctrine applies to a particular communication requires a two-step analysis. First, the party challenging privilege must make a prima facie case “that the client intended to further an ongoing crime or fraud during the attorney-client relationship.” In re Grand Jury Subpoena, 419 F.3d 329, 346 (5th Cir. 2005). Once that showing is made, “the crime-fraud doctrine applies.” Id. The second element establishes which communications must be produced as a result of the crime or fraud shown in the first step.
The communications captured by the crime-fraud exception are those that “hold some valid relationship to the prima facie violation such that they reasonably relate to the fraudulent activity.” Id. To summarize the analysis, the first question is whether the crime-fraud doctrine applies at all. If it does, the second question addresses what set of communications must be produced.