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National Utility Service, Inc. v. Sunshine Biscuits

June 6, 1997


On appeal from the Superior Court of New Jersey, Law Division, Bergen County.

Approved for Publication June 6, 1997. As Corrected June 17, 1997.

Before Judges Pressler, Stern and Humphreys. The opinion of the court was delivered by Stern, J.A.D.

The opinion of the court was delivered by: Stern

The opinion of the court was delivered by


We granted leave to appeal from orders of the Law Division entered on July 26, 1996 and September 27, 1996, which implemented oral opinions regarding the discovery and use of documents claimed by defendant to be privileged under the attorney-client privilege. The July 26 order provided that "documents previously produced by [defendant Sunshine Biscuits, Inc.] bearing Sunshine's production numbers [22-24] (a) are excluded from the protection of the attorney-client privilege, and (b) may be retained and used by [plaintiff National Utility Service (NUS)] for any purpose which is permissible under the New Jersey Rules of Court and Rules of Evidence." The order also required Sunshine to "produce for in camera review by [the Law Division] the original unedited documents listed in Sunshine's 'privilege log,'" and directed Sunshine "to submit to discovery by NUS on the privilege issue ...." The September 27, 1996 order denied Sunshine's motion for reconsideration and stay and directed compliance with the July 26 order by October 4, 1996.

We reverse and hold that a pre-litigation memorandum prepared by in-house counsel to defendant's Controller is neither discoverable nor subject to use by plaintiff, under the "crime-fraud" exception to the attorney-client privilege, merely because it embodies advice inconsistent with a legal theory thereafter developed by litigation counsel.

Plaintiff alleges that in 1980 it entered into a contract with defendant and, pursuant thereto, made energy audits and recommendations as a result of which defendant saved substantial energy costs and expenses. Plaintiff brought this action to recover fifty percent of those savings pursuant to the contract. During discovery Sunshine delivered to plaintiff copies of documents including the so-called "Barbieri memorandum," a three page written communication from Sunshine's in-house counsel to its corporate Controller (numbered 22 through 24 in discovery). The memorandum discusses the basis for plaintiff's claims against defendant under the contract and makes "recommendations" for corporate action, investigation of the work actually done by plaintiff and consideration of a "buyout" of the contract. When defendant realized that the documents were included in the discovery presented, it requested the immediate return of the memorandum. Plaintiff thereupon moved for an order permitting it to retain the memo and to use it in connection with the litigation. The motion resulted in the order of July 26, 1996. Reconsideration was denied on September 27, 1996. Although no in camera review of the documents in the "privilege log" ever occurred, we are told that the "Barbieri memorandum" is the only document now in dispute.

Defendant contends that the memorandum, dated December 28, 1992, written approximately three years before the litigation commenced, *fn1 is privileged and not discoverable, whereas plaintiff insists that it cannot be subject to the attorney-client privilege because it embodies evidence of a fraud. The alleged fraud flows from the assertion in the fifth affirmative defense that there was "no contract" despite corporate counsel's apparent acknowledgment in the memorandum to defendant's Controller that defendant had undertaken a contractual obligation. *fn2 The fifth affirmative defense provides:

the relief sought in the Complaint is barred, either in whole or in part, as the defendant has no contractual obligation to and never entered into a contract with National Utility Service, Inc.

The motion Judge held that the attorney-client privilege did not apply because of the "crime fraud" exception. He concluded:

I am satisfied that the defense view of the crime fraud exception is a stunted view, is a tunnel-vision view, and is one that is crabbed in the sense of looking only at what was happening at the time of the execution of the so-called Barbieri memorandum. I think that this case, as all cases, must be looked at as part of acontinuum, as part of a matrix of process. I am satisfied that in that matrix the Barbieri memorandum plays a role in the claim of fraud or deceit.

Although it becomes fashionable to cite the cliche I'm about to cite, I think it's applicable here. The surest way to misread a rule or a statute is to read it literally, and that is the way I approach Rule 504. Read literally and in that crabbed fashion, I think Sunshine Biscuits is ...

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