MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
TO: Daniel Obi, Lead Associate, Banking & Finance Lisa Morrow, Working Associate, Banking & Finance
FROM: Conrad Ashby, Partner, White Collar & Investigations
DATE: December 14, 2022
RE: Privilege Review Guidelines — Document Review in Connection with Grand Jury Subpoena Response on Behalf of Jonathan R. Caldwell
MATTER NO.: 1034-00001
GRAND JURY NO.: 22-GJ-4481
I. PURPOSE AND SCOPE OF THIS MEMORANDUM
This memorandum sets forth binding guidelines for the privilege review of documents collected in connection with the federal grand jury subpoena issued on November 18, 2022, by the United States Attorney's Office for the Southern District of New York ("USAO-SDNY"). The subpoena was issued under the authority of Grand Jury No. 22-GJ-4481 and was prepared by Assistant United States Attorney Miriam T. Goldfarb of the Complex Frauds & Cybercrime Unit. The subpoena was served on our client, Jonathan R. Caldwell ("Caldwell" or the "Client"), on November 21, 2022, at his place of business.
The subpoena seeks production of documents and communications spanning the period from January 1, 2014 through December 31, 2021 (the "Relevant Period"), relating to Caldwell's personal and business dealings with the following individuals and entities:
• Marcus W. Stavros ("Stavros");
• Aegean Realty Partners LLC and its affiliated investment fund vehicles, including but not limited to Fund III, Fund IV, and Fund V (collectively, "Aegean" or the "Aegean Entities");
• Westlake Fidelity Bank, N.A. ("Westlake Fidelity"); and
• Harborview Trust Company ("Harborview").
Following the receipt and analysis of the subpoena, Calderwood & Harkness LLP undertook a comprehensive document collection effort on behalf of Caldwell. To date, approximately 14,200 documents, comprising approximately 8.3 gigabytes of data, have been collected from the identified custodians. These documents have been transferred to Clearpath Document Solutions Inc. ("Clearpath"), our retained document processing and hosting vendor for this engagement. The Clearpath project manager assigned to this matter is Raj K. Anand. All documents have been or are being processed, de-duplicated, and loaded into the Clearpath-hosted review platform for attorney review.
These guidelines supplement, and must be read in conjunction with, the Document Review Protocol and Search Term Memorandum of even date, copies of which have been separately distributed to each member of the review team. These privilege review guidelines specifically govern the second-pass privilege review of all documents that have been identified as potentially responsive during the first-pass responsiveness review. Reviewers must apply these guidelines consistently and without deviation during the privilege review pass.
It is imperative that these guidelines be followed carefully and that any questions, ambiguities, or close-call privilege determinations be escalated to me, Conrad Ashby, before a final privilege coding decision is made. The consequences of an erroneous privilege determination — whether a failure to withhold a genuinely privileged document or an improper withholding of a non-privileged document — can be severe and potentially irremediable. Erroneous production of a privileged document may result in a finding of waiver. Improper withholding of a non-privileged document may expose this firm and its client to sanctions, adverse inferences, or allegations of obstruction. Precision and care in the privilege review process are therefore essential.
II. GENERAL PRINCIPLES OF ATTORNEY-CLIENT PRIVILEGE
A. Elements of the Privilege
The attorney-client privilege is the oldest recognized privilege for confidential communications in the common law. Under both federal common law, which governs in grand jury proceedings, and New York state law, the privilege protects from compelled disclosure confidential communications between an attorney and a client made for the purpose of obtaining or providing legal advice. The foundational elements of the privilege, each of which must be established for the privilege to attach, are as follows:
1. A communication — The privilege protects communications, whether oral, written, or electronic. A "communication" for these purposes includes emails, letters, memoranda, text messages, voicemail messages, handwritten notes, and any other transmission of information between privileged persons.
2. Made between privileged persons — The communication must be between the client (or the client's authorized agent) and the attorney (or the attorney's authorized agent, including associates, paralegals, and other firm personnel acting under the attorney's direction). Communications between an attorney and a third-party agent of the client may also be privileged in certain limited circumstances, as discussed in Section V below concerning the Kovel doctrine.
3. In confidence — The communication must have been made with a reasonable expectation of confidentiality. Communications that are made in the presence of third parties who are not agents of the attorney or client, or that are subsequently disclosed to such third parties, generally lose their confidential character and are not privileged. The intent to maintain confidentiality at the time the communication was made is the critical inquiry.
4. For the purpose of seeking, obtaining, or providing legal assistance to the client — The communication must have a predominantly legal purpose. Business advice, personal opinions, or casual social communications between an attorney and a client are not privileged merely because the parties happen to stand in an attorney-client relationship. The privilege attaches only when the communication relates to the seeking or rendering of legal advice or legal services.
These elements must be assessed on a document-by-document basis. No categorical presumption of privilege attaches to all communications between Caldwell and any attorney. Each communication must be individually examined to determine whether it satisfies all four elements.
The attorney-client privilege belongs to the client, Jonathan R. Caldwell, and only Caldwell (or counsel authorized to act on his behalf) may waive it. Neither the attorney nor any third party has standing to waive Caldwell's privilege. In the context of this engagement, Calderwood & Harkness LLP is authorized by Caldwell to assert the privilege on his behalf in connection with the subpoena response, and no waiver should be made without Caldwell's informed, express consent, communicated through this firm.
An important doctrinal point bears emphasis: the privilege protects communications, not underlying facts. A document that merely contains factual information — such as bank account statements, wire transfer records, property deeds, appraisal reports, settlement statements, or financial statements — is not rendered privileged merely because it was transmitted to or from an attorney, or because it was gathered in the course of an attorney's representation. The facts contained in such documents are not themselves privileged and remain discoverable. Only when a document was created specifically for the purpose of obtaining or providing legal advice, or when it constitutes or reflects a confidential attorney-client communication, does the privilege attach. Reviewers must be careful not to over-designate documents as privileged simply because they appear in a communication stream involving an attorney.
B. Scope of Privileged Persons
For purposes of this privilege review, the following individuals and firms are recognized as attorneys or agents of the Client whose communications with the Client may qualify for attorney-client privilege protection, subject to the satisfaction of all elements described in Section II.A above:
1. Calderwood & Harkness LLP (Current Counsel)
Calderwood & Harkness LLP is Caldwell's current counsel in connection with this grand jury subpoena response. The attorneys and staff assigned to this engagement include Conrad Ashby (Partner, White Collar & Investigations), Bernard Crawford (Responsible Partner), Daniel Obi (Lead Associate, Banking & Finance), Lisa Morrow (Working Associate, Banking & Finance), and assigned firm paralegals. All communications between Caldwell and Calderwood & Harkness personnel from December 5, 2022 (the date of formal engagement) forward, relating to the subpoena response, the grand jury investigation, or related legal matters, are privileged. Because these communications postdate the Relevant Period of the subpoena (January 1, 2014 through December 31, 2021), they should generally not appear within the collected document population. However, should any such communications inadvertently appear in the collection, they must be immediately withheld as privileged and not reviewed for substance by the review team.
2. Whitmore & Kessler LLP (Prior Commercial Counsel)
Whitmore & Kessler LLP ("W&K"), specifically Patricia Sheldon, Partner, Commercial Real Estate, represented Caldwell in connection with the 2019 business dispute and separation negotiation with Marcus Stavros. Ms. Sheldon's office address is 277 Park Avenue, 40th Floor, New York, NY 10172. Communications between Caldwell and Ms. Sheldon (or other W&K attorneys and staff acting under Ms. Sheldon's direction) that were made for the purpose of obtaining or providing legal advice in connection with the Stavros dispute, the negotiation of the separation agreement, or any related legal matters are privileged. Detailed guidance regarding W&K communications is provided in Section IV below.
3. Thornberg & Whitfield CPAs (Accounting Firm — Kovel Analysis Required)
Thornberg & Whitfield CPAs ("T&W"), specifically Helen R. Thornberg, Senior Partner, is Caldwell's longstanding personal and business accounting firm, located at 521 Fifth Avenue, 17th Floor, New York, NY 10175. T&W communications present a more nuanced and complex privilege analysis because accountant-client communications are not independently privileged under federal law. The privilege may attach only in limited circumstances where the accountant was functioning as an agent of the attorney for the purpose of facilitating legal advice, under the Kovel doctrine. Detailed guidance regarding T&W communications is provided in Section V below.
C. Corporate vs. Individual Privilege
Caldwell is an individual client of this firm. However, Caldwell is also the sole member and managing principal of Caldwell Capital Advisors LLC (EIN 83-2174056) and the sole owner of JRC Realty Holdings LLC (EIN 81-4493217). Both entities maintain their principal offices at 590 Madison Avenue, 22nd Floor, New York, NY 10022, which is also the address of Caldwell's business operations.
Communications made by Caldwell in his capacity as the sole decision-maker and authorized representative of these entities, for the purpose of obtaining legal advice on behalf of the entity, may also be privileged. In the case of a single-member LLC where the individual is the sole decision-maker, the distinction between the individual's privilege and the entity's privilege is largely academic, but it is important to note for privilege log purposes whether a given communication was made on behalf of Caldwell individually or in his capacity as the representative of Caldwell Capital Advisors LLC or JRC Realty Holdings LLC. Reviewers should examine the context and content of each communication to make this determination and code accordingly.
Where a communication involves Caldwell acting in his entity capacity and the communication satisfies all other elements of the privilege, it should be withheld and logged. The privilege log description should identify the capacity in which Caldwell was acting (e.g., "J. Caldwell, as Managing Member of Caldwell Capital Advisors LLC, seeking legal advice from P. Sheldon regarding...").
III. WORK PRODUCT DOCTRINE
A. Elements of Work Product Protection
The work product doctrine, first recognized in Hickman v. Taylor, 329 U.S. 495 (1947), and codified in Federal Rule of Civil Procedure 26(b)(3), protects from disclosure materials prepared in anticipation of litigation or for trial by or for a party or its representative. Although Rule 26(b)(3) applies by its terms in civil litigation, the Second Circuit and other federal courts have recognized that the work product doctrine also applies in the grand jury context to protect materials prepared by or for a party in anticipation of litigation, including criminal proceedings. See In re Grand Jury Subpoena Dated Oct. 22, 2001, 282 F.3d 156, 160 (2d Cir. 2002).
The work product doctrine is distinct from the attorney-client privilege. While the privilege protects confidential communications, the work product doctrine protects the attorney's (or agent's) mental processes and litigation-related work. An important distinction exists between two categories of work product:
• Ordinary (or "fact") work product — This includes factual compilations, chronologies, witness summaries, document indices, and similar materials prepared in anticipation of litigation. Ordinary work product is subject to a qualified privilege and may be overcome upon a showing of substantial need and inability to obtain the substantial equivalent without undue hardship.
• Opinion work product — This includes the mental impressions, conclusions, opinions, and legal theories of an attorney or the attorney's representative. Opinion work product receives near-absolute protection and is discoverable only in the rarest of circumstances, if ever. In re Grand Jury Proceedings, 219 F.3d 175, 190 (2d Cir. 2000).
Reviewers should be attentive to both categories during the privilege review and should code documents accordingly. Documents that contain attorney mental impressions or legal theories should receive the heightened "WP-Opinion" notation in the privilege log in addition to the standard WP code.
B. Application to This Matter
The work product doctrine has potential application to two categories of documents in this review:
1. Calderwood & Harkness Work Product (Post-Engagement)
All work product created by Calderwood & Harkness LLP in connection with this grand jury subpoena response, from the date of engagement (December 5, 2022) forward, is clearly protected by the work product doctrine. This includes internal memoranda, research, chronologies, strategy documents, interview notes, and all other materials prepared in anticipation of the ongoing grand jury proceedings. However, because this work product postdates the Relevant Period of the subpoena (January 1, 2014 through December 31, 2021), it will generally not appear within the collected document population. Should any such materials inadvertently appear, they must be immediately withheld without review and brought to my attention.
2. Whitmore & Kessler LLP Work Product (2019 Separation Negotiation)
Work product created by Whitmore & Kessler LLP, specifically Patricia Sheldon, in connection with the 2019 separation negotiation with Stavros is also protected by the work product doctrine to the extent it was prepared in anticipation of potential litigation with Stavros over the disputed management fees of approximately $340,000 and the broader dissolution of the Caldwell-Stavros business relationship. The record reflects that the dispute with Stavros was adversarial in nature and that there was a genuine possibility of litigation at the time W&K was retained — Caldwell was considering filing suit against Stavros and/or 710 Flatbush Holdings LLC to recover the disputed management fees, and Stavros had threatened counter-claims. The negotiation of the separation agreement was conducted against this backdrop of anticipated litigation.
Accordingly, the following categories of W&K materials should be coded as work product (WP) in addition to attorney-client privilege (AC) where applicable:
• Internal analyses and memoranda prepared by Patricia Sheldon or other W&K attorneys assessing the strengths and weaknesses of Caldwell's legal position in the management fee dispute;
• Draft separation agreements, term sheets, and negotiation proposals that reflect attorney strategy, legal analysis, or the attorney's mental impressions regarding the dispute;
• Attorney notes from meetings, telephone calls, or negotiations relating to the separation;
• Negotiation strategy memoranda or correspondence in which Sheldon advised Caldwell on litigation alternatives, settlement positioning, or the legal implications of various buyout structures; and
• Any legal research, case analysis, or statutory summaries prepared by W&K in connection with the dispute.
IV. SPECIFIC GUIDANCE: COMMUNICATIONS WITH WHITMORE & KESSLER LLP (PATRICIA SHELDON)
A. Background. Jonathan R. Caldwell retained Whitmore & Kessler LLP, specifically Patricia Sheldon, Partner, Commercial Real Estate, in approximately October 2019. The retention arose in connection with a business dispute between Caldwell and Marcus W. Stavros. The dispute centered on approximately $340,000 in management fees that Stavros had unilaterally charged to the operating account of 710 Flatbush Holdings LLC, a joint venture entity in which Caldwell held a 50% ownership interest. Caldwell contended that the fees were unauthorized and excessive; Stavros contended that the fees were authorized under the operating agreement and consistent with market rates for property management services. The dispute escalated to the point where both parties recognized that the business relationship was no longer viable.
W&K, through Patricia Sheldon, negotiated a comprehensive separation agreement between Caldwell and Stavros that was executed on December 15, 2019 (the "Separation Agreement"). Under the terms of the Separation Agreement, the following principal transactions occurred:
• Stavros purchased Caldwell's 50% membership interest in 710 Flatbush Holdings LLC (the "Flatbush JV") for a buyout price of $3,400,000.
• Stavros purchased Caldwell's 40% membership interest in Stavros-Caldwell Industrial LLC (the "Newark JV") for a buyout price of $1,850,000.
• Caldwell redeemed his limited partnership interests in Aegean Realty Partners Fund III and Fund IV at the time of the separation, with the redemption values calculated pursuant to the respective fund partnership agreements.
• Caldwell's limited partnership interest in Aegean Realty Partners Fund V was subject to a six-month redemption notice period. Caldwell submitted his redemption notice in connection with the Separation Agreement, and the Fund V redemption was completed in approximately March 2020 at a redemption value of $3,150,000.
The Separation Agreement and the related transactions are central to the document population being reviewed in connection with the grand jury subpoena. It is therefore critical that reviewers understand the distinction between privileged communications relating to the legal advice provided by W&K in connection with the separation, on the one hand, and non-privileged business and transactional documents generated in the ordinary course of the business relationship, on the other.
B. Categories of Privileged Communications
The following categories of W&K communications should be coded as privileged during the second-pass privilege review:
1. Direct Communications Between Caldwell and Patricia Sheldon / W&K Attorneys
All direct communications between Caldwell and Patricia Sheldon, or other attorneys and staff at Whitmore & Kessler LLP acting under Sheldon's direction, in which Caldwell sought or received legal advice regarding the Stavros dispute, the management fee controversy, the negotiation and terms of the Separation Agreement, the buyout pricing, the fund redemptions, or any other legal matter, are privileged as attorney-client communications. This category includes emails, letters, facsimile transmissions, telephone call memoranda, and any other form of communication. These documents should be coded as AC (attorney-client privilege).
2. Communications Discussing Negotiation Strategy, Stavros's Conduct, the Management Fee Dispute, and Buyout Pricing
Communications between Caldwell and Sheldon in which the parties discussed negotiation strategy, the legal merits of Caldwell's claims regarding the unauthorized management fees, Stavros's conduct and potential liability, the appropriate valuation methodology for the buyout of Caldwell's interests, and the terms and structure of the separation are privileged. Where such communications contain attorney mental impressions, legal analysis, case assessments, or litigation strategy relating to the potential for litigation with Stavros (including the possibility of filing suit to recover the disputed management fees, or defending against counter-claims by Stavros), the documents should additionally be coded as WP (work product). The combined code for such documents should be AC/WP.
3. Draft Separation Agreements, Term Sheets, and Redlines
Draft versions of the Separation Agreement, preliminary term sheets, and redlined revisions exchanged between Caldwell and Sheldon during the negotiation process are privileged to the extent they reflect attorney advice, legal judgment, or work product. This includes drafts containing Sheldon's commentary, marginal annotations, proposed revisions reflecting legal strategy, or cover communications in which Sheldon explained the legal significance of particular provisions or recommended changes.
Important caveat: The final, executed Separation Agreement itself is not privileged. The executed agreement was shared with Stavros and his counsel, Victor A. Reddick of Reddick, Sorrento & Hale LLP, and any other relevant parties to the transaction. Disclosure of the final agreement to adverse parties and counterparties destroyed any claim of confidentiality. The executed Separation Agreement should therefore be reviewed for responsiveness and produced if responsive. Only internal drafts — those exchanged solely between Caldwell and his counsel and not shared with opposing parties — that contain attorney commentary, redlined revisions reflecting legal judgment, or accompanying cover communications conveying legal advice are to be withheld on privilege grounds.
4. Communications Between Sheldon and Stavros's Counsel — NOT Privileged
Communications between Patricia Sheldon (or other W&K attorneys) and Victor A. Reddick of Reddick, Sorrento & Hale LLP, or any other counsel representing Stavros or the Aegean Entities during the separation negotiation, are not privileged. These communications were, by definition, disclosed to an adverse party and therefore do not satisfy the confidentiality element of the privilege. Such communications should be reviewed for responsiveness during the first-pass review and produced to the government if they fall within the scope of the subpoena. Do not code these communications as privileged.
C. Date Range for Heightened Scrutiny
The privilege review of W&K communications should focus with particular care on the period from approximately October 2019 through March 2020. This window encompasses the inception of the attorney-client relationship with Sheldon, the entirety of the management fee dispute, the negotiation and execution of the Separation Agreement on December 15, 2019, and the completion of the Fund V redemption in approximately March 2020. The vast majority of privileged communications involving W&K are expected to fall within this timeframe.
Any W&K communications that fall outside this window should still be reviewed during the privilege pass, as it is possible that Caldwell consulted Sheldon on other legal matters before or after the separation. However, communications outside the October 2019 through March 2020 window are less likely to involve legal advice specific to the Stavros dispute and should be evaluated on their individual merits.
V. SPECIFIC GUIDANCE: COMMUNICATIONS WITH THORNBERG & WHITFIELD CPAs (HELEN R. THORNBERG)
A. Background. Thornberg & Whitfield CPAs ("T&W"), specifically Helen R. Thornberg, Senior Partner, is Caldwell's longstanding personal and business accounting firm. T&W's offices are located at 521 Fifth Avenue, 17th Floor, New York, NY 10175. T&W has provided the following accounting and tax services to Caldwell and his entities over the Relevant Period:
• Preparation of Caldwell's personal federal and state income tax returns;
• Preparation of certain financial statements and tax filings for Caldwell Capital Advisors LLC;
• General bookkeeping consultation and financial advisory services; and
• Ad hoc financial analyses and valuations in connection with specific transactions, including the 2019 separation from Stavros.
Communications with T&W present a significantly more complex privilege analysis than communications with Whitmore & Kessler LLP. This is because, as a threshold matter, accountant-client communications are not independently privileged under federal law. Unlike the attorney-client privilege, there is no freestanding accountant-client privilege recognized in federal courts. See Couch v. United States, 409 U.S. 322, 335 (1973) ("no confidential accountant-client privilege exists under federal law"). The mere fact that Caldwell communicated with his accountant does not, standing alone, render those communications privileged.
The privilege may attach to accountant-client communications only in the limited circumstances described by the Kovel doctrine, as set forth below.
B. Kovel Doctrine Analysis
Under United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), communications between a client and an accountant (or between an attorney and an accountant) may be cloaked with the attorney-client privilege when the accountant has been retained to assist the attorney in rendering legal advice to the client, and the communication is made for that purpose. The Second Circuit analogized the accountant's role in such circumstances to that of a foreign-language interpreter: just as an interpreter facilitates communication between attorney and client, an accountant may facilitate the attorney's understanding of complex financial information necessary to render informed legal advice.
The Kovel privilege is narrow and fact-specific. It does not extend to all communications between a client and an accountant merely because the client also has an attorney. The key analytical question for each communication is:
Was the communication with T&W made at the direction of, or for the benefit of, legal counsel in connection with the provision of legal (not purely business, financial, or tax-preparation) advice?
If the answer is yes — that is, if Thornberg was functioning as an agent of Sheldon (or other legal counsel) for the purpose of enabling counsel to render legal advice — then the communication may be privileged under Kovel. If the answer is no — that is, if the communication was a routine business or tax-preparation communication between Caldwell and his accountant — then the communication is not privileged and must be produced if responsive.
Reviewers should look for specific indicia of Kovel protection, including but not limited to:
• Explicit references in the communication to direction from legal counsel (e.g., "Per Patricia Sheldon's request..." or "As discussed with my attorney...");
• Three-way communication chains involving Caldwell, Sheldon, and Thornberg (or any permutation thereof);
• Communications from Sheldon to Thornberg directly requesting financial analyses, valuations, or tax-consequence assessments for the purpose of advising Caldwell on the legal aspects of the separation;
• Communications in which Thornberg transmitted financial analyses or data to Sheldon, rather than to Caldwell, for use in rendering legal advice; and
• Communications in which the context makes clear that the financial work was being performed to support the legal representation, rather than for routine business or tax-preparation purposes.
C. Categories of Communications — Privileged vs. Non-Privileged
To assist reviewers in applying the Kovel analysis, the following categories of T&W communications are identified with guidance as to their likely privilege status:
1. Routine Tax Preparation Communications — NOT PRIVILEGED
Communications between Caldwell and T&W relating to routine tax preparation, including the exchange of K-1 schedules, draft tax returns, W-2 forms, 1099 forms, bookkeeping queries, requests for financial records, and the preparation of financial statements for business purposes, are not privileged. These are ordinary business communications between a taxpayer and his accountant. They do not involve the provision of legal advice and do not fall within the Kovel framework. Such communications must be reviewed for responsiveness and produced to the government if they fall within the scope of the subpoena. Do not code these documents as privileged.
2. Communications Where Thornberg Acted at the Direction of Legal Counsel — POTENTIALLY PRIVILEGED UNDER KOVEL
Communications where Helen Thornberg was acting at the direction of Whitmore & Kessler LLP (Patricia Sheldon) in connection with the 2019 separation negotiation may be privileged under Kovel. Specifically, the following types of communications and work product may qualify:
• Valuations of the Flatbush JV ($3,400,000 buyout price), the Newark JV ($1,850,000 buyout price), or the Fund V limited partnership interest ($3,150,000 redemption) prepared by T&W at the request of Sheldon, for the purpose of enabling Sheldon to advise Caldwell on whether the proposed buyout pricing was fair and legally defensible;
• Tax consequence analyses prepared by T&W at Sheldon's direction, assessing the income tax, capital gains, and other tax implications of the separation transaction for purposes of Sheldon's legal advice to Caldwell on the structure and terms of the deal;
• Financial analyses or compilations of Caldwell's economic interests in the various Aegean and Stavros-affiliated entities, prepared at counsel's request to support the legal negotiation; and
• Any other financial work product prepared by T&W at the specific direction of Sheldon (or other W&K attorneys) for the purpose of facilitating legal advice.
For each such communication, reviewers must identify an affirmative basis for concluding that the work was directed by or prepared for counsel. The mere fact that the communication occurred during the same period as the separation negotiation is not sufficient, standing alone, to invoke Kovel protection.
3. Personal Tax Planning Communications — NOT PRIVILEGED (Absent Counsel Direction)
Communications in which Caldwell asked Thornberg to analyze the tax consequences of his Aegean investments or the distributions received from the Aegean fund vehicles (totaling approximately $2,505,000 in aggregate distributions over the Relevant Period) for purely personal tax planning purposes are not privileged unless there is affirmative evidence that the analysis was specifically directed by legal counsel or was performed for the purpose of facilitating legal advice. Personal tax planning is a business function performed by an accountant for a client; it is not a legal function and does not fall within the Kovel framework absent a nexus to a legal representation.
D. Coding Instructions for T&W Documents
The following coding instructions apply to all T&W communications reviewed during the privilege pass:
• If a T&W communication clearly falls within the *Kovel* framework — i.e., it was directed by counsel and made for the purpose of facilitating legal advice — code as AC (attorney-client privilege) with the notation "Kovel — accountant as agent of counsel" in the privilege log description field.
• If the *Kovel* basis is uncertain or ambiguous — i.e., the communication occurred during the relevant timeframe and may have been related to the legal representation, but the communication does not contain explicit indicia of counsel direction — flag the document for escalation to Ashby before making a final coding decision. Do not unilaterally code such documents as either privileged or non-privileged. These close-call determinations require senior review.
• If the communication is purely business or tax-preparation in nature — i.e., it involves routine K-1 exchange, tax return drafts, bookkeeping, or financial statement preparation unrelated to any legal representation — code as non-privileged and review for responsiveness in the ordinary course.
Given the complexity and potential vulnerability of Kovel privilege claims to challenge by the government, it is critical that all Kovel designations be well-supported and defensible. The government is likely to scrutinize any privilege claims involving accountant communications, and we must be prepared to justify each designation with specific factual support.
VI. COMMUNICATIONS WITH THIRD PARTIES — NO PRIVILEGE
A. General Rule
The attorney-client privilege exists to protect the confidentiality of communications between the client and the client's legal counsel. By definition, communications that have been shared with or disclosed to third parties who are outside the attorney-client relationship (and outside the Kovel framework) are not confidential and therefore are not privileged. The disclosure of a communication to a non-privileged third party generally destroys the privilege as to that communication.
The following categories of communications should NOT be coded as privileged under any circumstances, regardless of their subject matter:
• Communications between Caldwell and Marcus W. Stavros, whether relating to business operations, the management fee dispute, the separation negotiation, or any other topic. Stavros is a third party and an adverse party; communications with Stavros are not privileged.
• Communications between Caldwell and any Aegean Realty Partners entity, or any of its fund vehicles, including Fund III, Fund IV, and Fund V. These are business communications with entities in which Caldwell was an investor, and they are not privileged.
• Communications between Caldwell and Westlake Fidelity Bank, N.A. These are communications with a banking institution and are not privileged.
• Communications between Caldwell and Harborview Trust Company. These are communications with a trust company and are not privileged.
• Communications between Caldwell and Pinnacle Appraisal Group LLC. These are communications with an appraisal firm engaged in the ordinary course of business and are not privileged.
• Communications between Caldwell and any co-investors, brokers, property managers, contractors, tenants, or other business counterparties. These are business communications and are not privileged.
• Copies of otherwise privileged communications that were forwarded to non-privileged third parties. If Caldwell forwarded a privileged email from his attorney to a third party (e.g., Stavros, a co-investor, or a business associate), the forwarding of the privileged communication to the third party generally constitutes a waiver of the privilege as to that communication.
B. Mixed Communications
A particular challenge arises when an email chain or document contains both privileged and non-privileged segments. This is a common occurrence in modern email communication, where an attorney's legal advice may be embedded within a longer email chain that is subsequently forwarded to a non-privileged third party. The following approach should be applied to mixed communications:
1. If the forwarded version contains the full text of the privileged communication — The privilege has been waived as to that communication. The entire email chain, including the originally privileged segment, is no longer privileged and should be reviewed for responsiveness and produced if responsive.
2. If the privileged content was redacted, summarized, or not included in the forward — The underlying privileged communication retains its privilege. In such cases, the non-privileged forward should be produced if responsive, and the original privileged communication should be withheld. The two documents should be treated as separate items for privilege log and production purposes.
3. If the email chain contains interleaved privileged and non-privileged segments — The analysis must be conducted on a segment-by-segment basis. Portions of the chain that were not disclosed to third parties may retain their privilege, while portions that were disclosed are no longer privileged.
4. In all cases involving mixed communications, the document should be flagged for Ashby's review before a final coding decision is made. Mixed communications require careful, fact-specific analysis, and an erroneous determination could result in either an improper waiver or an improper withholding. These determinations should not be made unilaterally by the review team.
VII. THE CRIME-FRAUD EXCEPTION
A. Statement of the Doctrine
The crime-fraud exception is a well-established limitation on the attorney-client privilege. Under this exception, the privilege does not protect communications that were made in furtherance of an ongoing or future crime or fraud. In re Grand Jury Subpoena, 731 F.2d 1032, 1038 (2d Cir. 1984); Clark v. United States, 289 U.S. 1, 15 (1933). The rationale for the exception is that the attorney-client privilege is intended to encourage lawful conduct and the seeking of legitimate legal advice; it was never intended to serve as a shield for criminal or fraudulent activity.
If a client seeks legal advice to further an ongoing or contemplated crime or fraud — as opposed to seeking advice about past conduct or seeking to understand the legal implications of a transaction — the privilege is vitiated, and the communications may be compelled. The exception applies regardless of whether the attorney was aware of or participated in the criminal or fraudulent purpose.
The burden of invoking the crime-fraud exception rests with the party seeking to overcome the privilege — in this context, the government. To invoke the exception, the government must make a prima facie showing that: (1) the client was engaged in or planning criminal or fraudulent activity at the time the communication was made, and (2) the communication was made in furtherance of that criminal or fraudulent activity. In re Grand Jury Investigation, 399 F.3d 527, 532 (2d Cir. 2005). A mere allegation of wrongdoing is insufficient; the government must present evidence supporting both elements.
B. Application to Caldwell's Communications — Exception Does Not Apply
Based on the current factual record available to this firm, and based on the government's informal confirmation during a telephone proffer conducted on December 12, 2022, with AUSA Miriam T. Goldfarb, Caldwell is considered a witness in the grand jury investigation, not a target or subject. The government's investigation focuses on Marcus W. Stavros and his alleged participation in a scheme involving wire fraud (18 U.S.C. § 1343), bank fraud (18 U.S.C. § 1344), money laundering (18 U.S.C. § 1956), and conspiracy (18 U.S.C. § 371) in connection with the syndication transactions conducted through Aegean Realty Partners and its affiliated fund vehicles.
Based on the information currently available to this firm:
• Caldwell has no criminal history. He has never been charged with, indicted for, or convicted of any criminal offense at the federal or state level.
• Caldwell appears to have been a passive co-investor and limited partner in the Aegean fund vehicles. There is no evidence that he participated in the management, administration, or investment decisions of the funds beyond his capital contributions and his receipt of distributions.
• The government's investigation centers on Stavros's alleged conduct, including the alleged inflation of property appraisals (through Pinnacle Appraisal Group LLC or otherwise), the alleged diversion of fund assets, and the alleged submission of fraudulent loan applications to Westlake Fidelity Bank, N.A.
• Caldwell appears to be a potential victim of Stavros's alleged fraud, not a participant or co-conspirator.
• The separation negotiation handled by Whitmore & Kessler LLP was an arm's-length commercial transaction to unwind a legitimate business relationship following a management fee dispute. There is no indication in the current record that the separation was designed to conceal, further, or benefit from Stavros's alleged fraudulent scheme. The separation was adversarial, contested, and resulted from a genuine business dispute between the parties.
Accordingly, based on the present state of the record, the crime-fraud exception should not be applied to withhold or disclose any of Caldwell's privileged communications. No privileged communication identified during the review should be produced on the basis of the crime-fraud exception without my express authorization. This determination should, however, be kept under continuing review. If the government's posture toward Caldwell changes — for example, if the government reclassifies Caldwell as a subject or target, or if the government serves additional subpoenas or search warrants directed at Caldwell — this analysis may need to be revisited.
C. Instruction to Reviewers
During the privilege review, reviewers may encounter documents that contain content that could arguably suggest Caldwell had knowledge of, or involvement in, potentially fraudulent conduct by Stavros or others. Examples of such content might include:
• References to inflated property appraisals from Pinnacle Appraisal Group LLC or other appraisal firms;
• Discussions of property valuations that appear significantly above or below market;
• References to fund diversions, unusual capital movements, unexplained transfers, or commingling of fund assets;
• Communications suggesting that Caldwell was aware of or participated in the submission of inaccurate information to Westlake Fidelity Bank, N.A. or Harborview Trust Company;
• Communications in which Caldwell appears to be seeking legal advice about how to structure transactions in a manner designed to avoid detection or regulatory scrutiny; or
• Any other content that raises a reasonable question about Caldwell's knowledge of or participation in potentially fraudulent activity.
If any document of this nature is identified during the privilege review, the reviewer must NOT make a unilateral determination that the crime-fraud exception applies or does not apply. Such a determination is a significant legal judgment that must be made by the supervising partner. The reviewer should immediately flag the document for escalation and bring it to my attention. I will personally review each such document and make the appropriate determination in consultation with Bernard Crawford as necessary.
VIII. PRIVILEGE LOG REQUIREMENTS
A. Format. For every document withheld from production on privilege grounds, a corresponding entry must be recorded in the privilege log. The privilege log will be prepared in Microsoft Excel format and maintained within the Clearpath-hosted review platform. Each privilege log entry must contain the following fields:
B. Description Standards
The descriptions in the privilege log serve a dual purpose: they must be sufficiently specific to allow the government (and, if necessary, a reviewing court) to assess the validity of the privilege claim, but they must not be so detailed as to disclose the substance of the privileged communication. This is a delicate balance. Descriptions that are too vague (e.g., "Legal communication") will be challenged by the government as insufficient and may be overridden by the court. Descriptions that are too specific may inadvertently waive the very privilege they are intended to protect.
The following examples illustrate the level of specificity that is appropriate for this privilege log:
• "Email from J. Caldwell to P. Sheldon (Whitmore & Kessler LLP) seeking legal advice regarding terms of proposed separation agreement with M. Stavros."
• "Memorandum from P. Sheldon (Whitmore & Kessler LLP) to J. Caldwell providing legal analysis of buyout valuation methodology — attorney work product."
• "Email from P. Sheldon (Whitmore & Kessler LLP) to J. Caldwell transmitting draft separation agreement with attorney commentary and redline revisions reflecting legal advice."
• "Email from J. Caldwell to H. Thornberg (Thornberg & Whitfield CPAs) transmitting financial data at the direction of counsel (P. Sheldon, Whitmore & Kessler LLP) for use in rendering legal advice regarding tax implications of separation transaction — Kovel privilege."
• "Internal memorandum prepared by P. Sheldon (Whitmore & Kessler LLP) analyzing legal claims and potential litigation strategy relating to disputed management fees — attorney opinion work product."
• "Email from J. Caldwell, as Managing Member of Caldwell Capital Advisors LLC, to P. Sheldon (Whitmore & Kessler LLP) seeking legal advice regarding Fund V redemption procedures and contractual notice requirements."
Reviewers should follow these models when drafting privilege log descriptions. If you are uncertain whether a description is appropriately calibrated, err on the side of less detail and flag the entry for my review.
The completed privilege log will be delivered to AUSA Goldfarb together with the final document production, or on a rolling basis if productions are made in multiple batches.
C. Volume Estimate
Based on the preliminary review of the document collection and the initial first-pass responsiveness coding, we estimate that approximately 200 to 250 documents may be withheld from production on privilege grounds. As of the date of this memorandum, our best estimate, informed by early-stage sampling, is that the final count of privileged documents will be approximately 214 documents. The bulk of these are expected to be communications with Whitmore & Kessler LLP (Patricia Sheldon) from the October 2019 through March 2020 period. A smaller but significant subset is expected to consist of Kovel-protected communications involving Thornberg & Whitfield CPAs. A small number of additional documents may involve other privileged communications, including any Calderwood & Harkness communications that inadvertently fall within the collection.
The final count will be confirmed upon completion of the second-pass privilege review and the quality control procedures described in Section X below.
IX. INADVERTENT DISCLOSURE / CLAWBACK
A. Federal Rule of Evidence 502
Federal Rule of Evidence 502, enacted in 2008, provides important protections against the inadvertent waiver of attorney-client privilege and work product protection during document productions. Rule 502(b) provides that, in a federal proceeding, the disclosure of a privileged communication or work product does not constitute a waiver if:
(1) the disclosure was inadvertent;
(2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and
(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following the procedures set forth in Federal Rule of Civil Procedure 26(b)(5)(B).
While no formal clawback agreement or court order has been entered in connection with this grand jury proceeding, Rule 502(b) provides a default safeguard. Moreover, the procedures established in this memorandum — including multi-pass review, second-level review by Daniel Obi, quality control sampling by Lisa Morrow, and final review by me — constitute "reasonable steps to prevent disclosure" within the meaning of Rule 502(b)(2). The existence of these written guidelines, the use of a trained review team, and the implementation of quality control checks will support a strong argument that any inadvertent disclosure was not the result of carelessness or a failure to take reasonable precautions.
That said, the protections of Rule 502(b) should not be relied upon as a substitute for careful review. The goal remains to prevent any inadvertent disclosure from occurring in the first instance.
B. Procedure for Inadvertent Production
In the event that, after a production has been delivered to the government, a document is identified as having been inadvertently produced despite being privileged, the following procedure must be followed:
1. The individual who identifies the inadvertent production must immediately notify Conrad Ashby, regardless of the time of day or day of the week.
2. Ashby will review the document and confirm that it is privileged and that the production was inadvertent.
3. Ashby will promptly contact AUSA Goldfarb by telephone and in writing (letter or email) to: (a) identify the inadvertently produced document by Bates number; (b) assert the attorney-client privilege and/or work product protection over the document; (c) request the immediate return, sequestration, or destruction of all copies of the document in the government's possession; and (d) request confirmation that the document has not been reviewed, copied, or disseminated by the government or any agent of the government.
4. A formal follow-up letter will be sent to AUSA Goldfarb confirming the clawback request in writing, invoking the protections of Fed. R. Evid. 502(b), and reserving all rights.
5. The inadvertently produced document will be added to the privilege log with the appropriate privilege coding.
Time is of the essence in any clawback situation. The longer the delay between production and the assertion of privilege, the weaker the argument that the holder took "prompt" steps to rectify the error. Any potential inadvertent disclosure must therefore be escalated immediately.
X. QUALITY CONTROL
The accuracy and defensibility of the privilege review depend on rigorous quality control procedures. The following quality control measures will be implemented:
1. Random Sampling QC Check. Lisa Morrow will conduct a 10% random sampling quality control check of all privilege-coded documents. This sampling will verify that the privilege coding is consistent with the guidelines set forth in this memorandum. Documents found to be incorrectly coded during the QC check will be re-reviewed and re-coded, and any systemic errors will be brought to the attention of Ashby so that additional training or corrective measures can be implemented.
2. Second-Level Review. All documents coded as privileged (AC, WP, or AC/WP) during the second-pass privilege review will receive a second-level review by Daniel Obi before finalization. Obi's second-level review will verify: (a) the correctness of the privilege designation; (b) the accuracy of the privilege log entry, including all metadata fields and the description; and (c) consistency with the guidelines in this memorandum.
3. Escalation Review. Any documents flagged for escalation pursuant to the escalation protocol set forth in Section XI below will be reviewed by Conrad Ashby personally. Ashby will make the final privilege determination for all escalated documents and will direct the appropriate coding.
4. Final Privilege Log Review. Before the privilege log is delivered to the government, Ashby will conduct a final quality-control pass of the completed log. This review will check for completeness, accuracy, internal consistency, and compliance with the description standards set forth in Section VIII.B above. Any deficiencies identified during this final review will be corrected before delivery.
XI. ESCALATION PROTOCOL
The following categories of documents must be escalated to Conrad Ashby for review and determination before a final privilege coding decision is made. Escalation should be made by tagging the document in the Clearpath review platform with the "ESCALATE — ASHBY" tag and simultaneously notifying Ashby by email with the document's Bates number and a brief description of the issue:
1. Unclear or Borderline Privilege Determinations. Any document where the privilege determination is unclear, borderline, or could reasonably be decided either way. When in doubt, escalate. It is far better to err on the side of escalation than to make an incorrect determination.