In re: Grand Jury Matter 3 v. , 847 F.3d 157 ( 2017 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-2475
_____________
IN RE: GRAND JURY MATTER #3
John Doe,
Appellant
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(No. 2:14-gj-631-003)
District Judge: Honorable R. Barclay Surrick
_____________
Argued: January 12, 2016
Before: McKEE, Chief Judge, AMBRO and
SCIRICA, Circuit Judges
(Opinion filed: January 27, 2017)

Judge Theodore McKee concluded his term as Chief of the
United States Court of Appeals for the Third Circuit on September
30, 2016. Judge D. Brooks Smith became Chief Judge on October
1, 2016.
Scott A. Resnik, Esquire (Argued)
Michael M. Rosensaft, Esquire
Katten Muchin Rosenman LLP
575 Madison Avenue
11th Floor
New York, New York 10022
Karl S. Myers, Esquire
Andrew K. Stutzman, Esquire
Stradley Ronon Stevens & Young
2005 Market Street
Suite 2600
Philadelphia, PA 19103
Counsel for Appellant
Zane David Memeger, Esquire
Robert A. Zauzmer, Esquire
Joel M. Sweet, Esquire
Mark B. Dubnoff, Esquire (Argued)
Office of the United States Attorney
615 Chestnut St., Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
PER CURIAM.1
1
In response to Appellant John Doe’s Petition for En Banc
Rehearing (which also requests panel rehearing, a
2
This appeal presents an unusual question of appellate
jurisdiction: May we continue to exercise jurisdiction over an
appeal of an evidentiary ruling in a grand jury proceeding
even after the grand jury has returned both an indictment and
a superseding indictment? We conclude that, so long as the
grand jury investigation continues, we retain jurisdiction and
thus can resolve the controversy.
With jurisdiction, we turn to an important question
involving the limits of the exception to the confidentiality
normally afforded to attorney work product. It loses
protection from disclosure when it is used to further a fraud
(hence the carve-out is called the crime-fraud exception).
The District Court stripped an attorney’s work product of
confidentiality based on evidence suggesting only that the
client had thought about using that product to facilitate a
fraud, not that the client had actually done so. Because an
actual act to further the fraud is required before attorney work
product loses its confidentiality and we know of none here,
we reverse.
I.
Company A, John Doe, his lawyer, and Doe’s business
associate are the subjects of an ongoing grand jury
investigation into an allegedly fraudulent business scheme.2
After the Government obtained access to an email Doe claims
presumption in any event under Third Circuit Internal
Operating Procedure 9.5.1), the panel grants panel rehearing,
vacates its earlier opinion, and issues this opinion.
2
We use pseudonyms to refer to the grand jury subjects to
protect the secrecy of the grand jury investigation and the
anonymity of the subjects.
3
was privileged, it asked the District Court for permission to
present it to the grand jury. The Court granted permission,
finding that, although the email was protected by the work-
product privilege, the crime-fraud exception to that privilege
applied. Doe then filed an interlocutory appeal, requesting
that our Court reverse the District Court’s order.
While the appeal was pending, the grand jury viewed
the email in question. It then indicted Doe, his lawyer, and
Doe’s business associate for conspiracy to violate the
Racketeer Influenced and Corrupt Organizations Act
(“RICO”), conspiracy to commit fraud, mail fraud, wire
fraud, and money laundering. Thereafter the grand jury was
discharged and a new grand jury was empaneled. It too saw
the disputed email, and in December 2016 returned a
superseding indictment that did not contain new charges but
revisions to the previous ones. The grand jury investigation,
however, continues still. What follows fleshes out this factual
and procedural backdrop.
Doe was the sole owner of Company A and its
president. Nonetheless a November 2008 document purports
to memorialize Doe’s sale of 100% of the shares of Company
A to Company B for $10,000. Doe’s business associate is the
sole owner of Company B. Following this purchase
agreement, Doe claims that the business associate engaged
Doe to be responsible for Company A’s day-to-day
operations. However, numerous filings and tax documents
suggested that Doe maintained control and ownership of
Company A even after Doe’s stock in it was purportedly
transferred.
Over the last decade and a half multiple individuals
have sued Doe and his businesses in state courts around the
country based on Doe’s business practices. One such lawsuit
was a class action filed against Company A in Indiana state
4
court. In it the plaintiffs alleged that Company A’s business
practices violated various Indiana state laws. They sought to
hold Doe accountable for these violations. However, during
this litigation Doe stated in a deposition in 2014 that he had
transferred ownership of Company A to Company B. Doe’s
business associate then represented that Company A was no
longer in business and had limited assets. Shortly after Doe’s
deposition, the Indiana plaintiffs settled their claims for
approximately $260,000, about 10% of the value attorneys for
the plaintiffs had put on them.
Thereafter the Government empaneled a grand jury to
investigate Doe and his business associate. Its theory is that
Doe owned Company A but tricked the plaintiffs into
thinking that he had sold it to his business associate to
encourage the plaintiffs to settle for a lower value. This relies
on the premise that Doe has deep pockets but his business
associate does not.
In the course of its investigation, the grand jury
subpoenaed Doe’s accountant requesting that he provide the
Government with Doe’s personal and corporate tax returns.
Among other things, these tax documents revealed that Doe
had claimed 100% ownership of Company A every tax year
from 2008 through 2012. The accountant also told an IRS
agent that, at some time in 2013, Doe’s lawyer informed him
that Doe had sold Company A in 2008. He also informed
investigators that he might have taken notes on this
conversation. The Government requested them, and the
accountant’s attorney sent the Government three documents.
One of the documents was an email Doe had sent to
the accountant on July 16, 2013, forwarding an email that
Doe’s lawyer had sent to Doe four days earlier that referenced
an ongoing litigation. The attorney email advises Doe of the
steps he needed to take to correct his records so that they
5
reflect that the business associate, not Doe, owned Company
A since 2008. When Doe forwarded this email to his
accountant, he simply wrote: “Please see the seventh
paragraph down re; my tax returns. Then we can discuss
this.” There is no evidence that Doe ever amended his returns
or did anything else, apart from forwarding the email, to
follow up on his attorney’s advice. Indeed, the accountant’s
recollection is that Doe’s attorney later said not to go through
with the amendments by telling the accountant to “stand by”
for further guidance. It never came.
The day after the accountant provided this email to the
Government, the accountant’s attorney sought to recall it on
the ground that it was privileged and had been inadvertently
included in his client’s production. The accountant’s counsel,
however, also told the Government that his client believed the
email was asking the accountant to perform an accounting
service, not a legal service. The Government argued that
under these circumstances Doe waived any privilege that
might have otherwise attached to his lawyer’s email. It did,
however, temporarily refrain from presenting it to the grand
jury and asked the District Court in January 2015 for
permission to do so, which Doe opposed.
The Court ruled in the Government’s favor. Its
rationale was that Doe did not forward the email to his
accountant to seek legal advice. Lacking that precondition,
no attorney-client privilege attached to the document.
However, the Court did find that the attorney work-product
privilege attached to the email because the accountant could
not be considered an adversary. It then concluded that the
crime-fraud exception to the work-product privilege applied.
On this basis, the Government could present the email to the
grand jury.
6
Immediately after the District Court made its decision,
Doe filed an interlocutory appeal requesting that we reverse
its order. As noted above, while the appeal to our Court was
pending the grand jury saw the email and later returned a 17-
count indictment charging Doe, his lawyer, and Doe’s
business associate with RICO conspiracy, conspiracy to
commit fraud, mail fraud, wire fraud, and money laundering.
We requested supplemental briefing from the parties
on whether Doe’s appeal was moot in light of the indictment.
We also asked the Government to inform us whether the
grand jury had been discharged. In response, it explained
that the grand jury had been discharged shortly after it
returned the indictment. The Government also informed us
that a new grand jury had been empaneled, was investigating
new charges against Doe and others, and it was considering a
superseding indictment. Accordingly, both Doe and the
Government asserted that the appeal was not moot due to the
continuing investigation (though the Government still
challenged our jurisdiction3). We issued an opinion holding
that we lacked jurisdiction, and Doe sought rehearing.
3
It argued that the collateral order doctrine does not supply a
basis for appellate jurisdiction. We agree. The doctrine
allows us to hear an appeal of an interlocutory order that “(1)
conclusively determine[s] the disputed question; (2)
resolve[s] an important issue completely separable from the
merits of the action; and (3) [is] effectively unreviewable on
appeal from a final judgment.” Bines v. Kulaylat, 215 F.3d
381, 384 (3d Cir. 2000) (internal quotation marks omitted).
The third requirement cannot be met here because “flawed
grand jury proceedings can be effectively reviewed by [our]
court and remedied after a conviction has been entered and all
criminal proceedings have been terminated in the district
court.” See In re Grand Jury Proceedings (Johanson), 632
7
Following the rehearing petition, the Government
changed its mind and contends that Doe’s appeal is now
moot. It has informed us that it showed the disputed email to
the new grand jury in September 2016 (before the initial
opinion of our panel issued), and the grand jury returned a
superseding indictment in December 2016 (after our initial
opinion). However, that grand jury is still investigating other
charges relating to ownership of Company A, though the
Government represents that it currently has no plans to seek
additional charges based on the email.
II.
This appeal thus presents a novel procedural fact
pattern that complicates the issue of our appellate jurisdiction.
Generally, courts of appeals have jurisdiction over “final
decisions” of the district courts. 28 U.S.C. § 1291. But
“[w]hen a district court orders a witness—whether a party to
an underlying litigation, a subject or target of a grand jury
investigation, or a complete stranger to the proceedings—to
testify or produce documents, its order generally is not
considered an immediately appealable final decision under
§ 1291.” See In re Grand Jury (ABC Corp.), 705 F.3d 133,
142 (3d Cir. 2012) (internal alterations, citations, and
quotation marks omitted). Thus disclosure orders are not
final and cannot typically be challenged by an immediate—
that is, interlocutory—appeal.
To obtain immediate appellate review of a disclosure
order, the order’s target must ordinarily comply with what is
known as the “contempt rule”: he “must refuse compliance,
be held in contempt, and then appeal the contempt order.” Id.
F.2d 1033, 1039 (3d Cir. 1980). As we discuss below,
however, a different doctrine confers appellate jurisdiction.
8
at 142-43 (citations and quotation marks omitted). The party
may immediately appeal a district court’s contempt order
because it is a final judgment imposing penalties on the
willfully disobedient party in what is effectively a separate
proceeding. Id. at 143.
However, in Perlman v. United States, 247 U.S. 7
(1918), the Supreme Court carved out an exception to the
contempt rule. It applies when a “disinterested” third party
controls a privilege holder’s documents and is ordered to
produce them. See ABC Corp., 705 F.3d at 138. Because the
third party is unlikely to risk contempt to obtain an immediate
appeal, and because the privilege holder may not refuse to
obey a court order to which he is not subject, Perlman allows
the privilege holder to take an immediate appeal. Id.
In this context, Perlman provided appellate jurisdiction
at the beginning of our case. The email before us was
produced in response to a subpoena addressed exclusively to
Doe’s accountant, who “lack[s] a sufficient stake in the
proceeding to risk contempt.” Id. at 145. Indeed, the
accountant gave the email to the Government without telling
Doe, so Doe was “powerless to avert the mischief.”4 Id. at
4
The Government, in opposing rehearing, now argues that
Perlman does not apply because it already had possession of
the document from the accountant and the District Court
merely permitted the grand jury to read it. Thus “[n]obody
ever faced a threat of contempt.” Pet. Reh’r. Opp. at 6. True
enough, there was no threat of contempt because Doe never
had the opportunity to challenge or prevent the accountant’s
production to the Government in the first place. But if
Perlman permits a privilege holder to sue immediately
without the threat of contempt in play because that holder
cannot himself disobey a disclosure order not directed at him,
9
144 (quoting Perlman, 247 U.S. at 13). The Government
contends, however, that we should no longer exercise
jurisdiction because the first grand jury returned an
indictment and the succeeding grand jury returned a
superseding indictment.
The grand jury proceedings have yet to conclude,
however. On at least two occasions we have continued to
exercise jurisdiction even after grand juries returned
indictments. In the first case, the Government appealed an
adverse ruling on a grand jury subpoena. At the outset of the
appeal, our jurisdiction was clear because Congress had
specifically given the Government the right to seek
immediate review. See In re Grand Jury Proceedings
(Johanson), 632 F.2d 1033, 1040 (3d Cir. 1980) (citing 18
U.S.C. § 3731). As the appeal was pending, however, the
grand jury returned an indictment. We nonetheless concluded
that, as long as the indictment did not render the appeal moot,
we had jurisdiction to reach the merits. Because in that case
the indictment “did not bring the grand jury’s proceedings to
[their] conclusion,” a live controversy remained and our
jurisdiction was intact. Id.
The second decision, which involved Congressman
Chaka Fattah and was issued less than two years ago, is even
more compelling because it, like our case, arose because of
Perlman. At the time Fattah filed his Perlman appeal, he
was, like Doe, being investigated by a grand jury. Just as in
our case, his status changed when the grand jury, after oral
arguments in our Court but before we reached a decision,
returned an indictment. See In re Search of Elec. Commc’ns
in the Account of chakafattah@gmail.com at Internet Serv.
the lack of a contempt threat here does not take this principle
out of play.
10
Provider Google, Inc., 802 F.3d 516, 521 n.2 (3d Cir. 2015)
(“Fattah”). However, because his appeal related to the still-
ongoing review of his emails (thus giving us a live
controversy), we continued to exercise jurisdiction per
Perlman even after the indictment. Id. at 529–30.
Sound judicial efficiency concerns underlie our
Johanson and Fattah decisions and weigh in favor of
continuing to exercise jurisdiction even post-indictment.
When we are able to dismiss an appeal for lack of jurisdiction
as soon as it is filed, the process continues uninterrupted in
the trial court, and we are able to wait until all the appellate
issues are wrapped up after a final judgment. But because in
limited circumstances we take pre-indictment appeals and
begin to decide them, we should not reflexively dismiss those
appeals—wasting the parties’ effort as well as ours—simply
because an indictment is filed. Instead, if grand jury
proceedings continue, we may still exercise jurisdiction in
order to remedy future harm.
Consider our case, which has been on our docket since
June 2015. By the time Doe was indicted nearly ten months
had passed, and the parties had fully briefed the case and
presented oral arguments to us. If we then send the case back
to the District Court on the rationale that our jurisdiction was
pulled by the indictment, we would do so with it likely that
the issue would return if there is a conviction. And if Doe is
convicted and files an appeal, the parties will need to re-brief
and re-argue the same issue that we could have resolved
already. Thus in cases where we accept an appeal when it is
filed, efficiency favors finishing what we started.
To be sure, an intervening indictment can (and often
will) moot an interlocutory appeal. For instance, through this
appeal Doe asks us to prevent the grand jury from relying on
an email that he argues is confidential. If after the indictment
11
the grand jury investigation had ended, any harm from
exposure to the email already would have occurred. It would
make sense in those circumstances to hold off until after the
criminal proceedings are over before determining whether the
grand jury proceeding were tainted.
But those are not our facts. The grand jury
investigation continues, even after the new grand jury saw the
email and issued a superseding indictment. Although the
Government contends that the “grand jury easily can continue
investigating questions relating to the ownership of [Doe’s
company] without reexamining the email or considering any
charges related to the email,” it may yet return another
indictment based on the issue of the company’s ownership—
the very subject of that email. Gov’t 28(j) Letter (Dec. 29,
2016). The grand jury cannot erase from its memory an email
about Company A’s ownership while evaluating new charges
relating to that issue. And though the Government contends it
currently “has no plans” to put this email to further use during
the continuing investigation, there is no guarantee that its
plans will not change. Pet. Reh’g Opp’n at 4. Therefore, in
our case, as in Johanson, these two indictments “did not bring
the grand jury’s proceedings to [their] conclusion,” so there is
still potential harm we can prevent. Johanson, 632 F.2d at
1040. The purpose of this appeal thus remains the same as
when it was first filed: deciding whether an email that was
inadvertently disclosed may be used as part of an ongoing
grand jury investigation when that disclosure plausibly
violates the attorney work-product privilege.
As long as we had jurisdiction at the outset, Doe’s case
is guided by our analysis of the Government’s appeal in
Johanson and by our decision in Fattah. As in those cases,
the indictment and superseding indictment did not destroy
12
jurisdiction that properly existed beforehand.5 If the
controversy is live enough that the case is not moot, we
should decide it.
III.
Having concluded that our appellate jurisdiction
continues, we now address the merits and hold that the crime-
fraud exception to the attorney work-product doctrine does
not apply to the email at issue. One of the exception’s two
requirements—the use of the communication in furtherance
of a fraud—is lacking. The use-in-furtherance requirement
provides a key safeguard against intrusion into the attorney-
client relationship, and we are concerned that contrary
reasoning erodes that protection.
Without the crime-fraud exception allowing the
Government to show it to the grand jury, the email from
Doe’s lawyer is protected by the attorney work-product
doctrine. That doctrine (often referred to as a privilege from
or exception to disclosure), which is a complement to the
attorney-client privilege, preserves the confidentiality of legal
5
The Government also contends this appeal is moot for an
unrelated reason. It argues that Doe has waived attorney-
client protections because his pretrial memorandum indicates
that he might rely on the advice-of-counsel defense. See
Travelers Cas. & Sur. Co. v. Ins. Co. of N. Am., 609 F.3d 143,
164 (3d Cir. 2010) (recognizing that attorney-client
confidentiality protections may be waived if the client asserts
a defense based on his reasonable reliance on the attorney’s
advice) (citation omitted). We disagree. That Doe’s trial
strategy has changed given the development of this case does
not mean he has waived the issues he continues to challenge
on appeal.
13
communications prepared in anticipation of litigation.
Shielding work product from disclosure “promotes the
adversary system by enabling attorneys to prepare cases
without fear that their work product will be used against their
clients.” Westinghouse Elec. Corp. v. Republic of Phil., 951
F.2d 1414, 1428 (3d Cir. 1991). Though Doe waived the
attorney-client privilege by forwarding the email to his
accountant, the document still retained its work-product status
because it was used to prepare for Doe’s case against those
suing him. See id.
Yet work-product protection, though fundamental to
the proper functioning of the legal system, is not absolute. As
relevant here, the crime-fraud exception operates to prevent
the perversion of the attorney-client relationship. It does so
by allowing disclosure of certain communications that would
otherwise be confidential. “[A] party seeking to apply the
crime-fraud exception must demonstrate that there is a
reasonable basis to suspect (1) that the [lawyer or client] was
committing or intending to commit a crime or fraud, and (2)
that the . . . attorney work product was used in furtherance of
that alleged crime or fraud.” ABC Corp., 705 F.3d at 155.
The Government can readily satisfy the first
requirement. Though ultimately it will be up to a jury to
determine whether Doe committed fraud, there is at least a
reasonable basis to believe he did. Even setting aside the
email, the Government has a recording where Doe allegedly
brags about defrauding the class action plaintiffs in the
Indiana suit. He purportedly admits in that recording to
telling his associate—the same one who was supposed to
have already purchased Company A—“I’ll pay you ten grand
a month if you will step up to the plate and say that you [own
the company] and upon the successful completion of the
lawsuit [I’ll] give you fifty grand.”
14
This evidence is strong, but it is not sufficient by itself
to pierce the work-product protection. We have been clear
that “evidence of a crime or fraud, no matter how compelling,
does not by itself satisfy both elements of the crime-fraud
exception.” In re Chevron Corp., 633 F.3d 153, 166 (3d Cir.
2011). Rather, the second requirement—use in furtherance—
exists for the same reason that certain conspiracy statutes
require proof that a defendant engaged in an overt act to
further the crime. In both settings we want to make sure that
we are not punishing someone for merely thinking about
committing a bad act. Instead, as Justice Holmes noted in the
conspiracy context, we ask for evidence that the plan “has
passed beyond words and is [actually] on foot.” Hyde v.
United States, 225 U.S. 347, 388 (1912) (Holmes, J.,
dissenting).
To illustrate, if a client approaches a lawyer with a
fraudulent plan that the latter convinces the former to
abandon, the relationship has worked precisely as intended.
We reward this forbearance by keeping the work-product
protection intact. If, by contrast, the client uses work product
to further a fraud, the relationship has broken down, and the
lawyer’s services have been “misused.” In re Grand Jury
Investigation, 445 F.3d 266, 279 (3d Cir. 2006). Only in that
limited circumstance—misuse of work product in furtherance
of a fraud—does the scale tip in favor of breaking
confidentiality.
Here the only purported act in furtherance identified
by the District Court was Doe forwarding the email to his
accountant. If he had followed through and retroactively
amended his tax returns, we would have no trouble finding an
act in furtherance. Even if Doe had told the accountant to
amend the returns and later gotten cold feet and called off the
plan before it could be effected, there might still be a case to
be made. That is because the Government “does not have to
15
show that the intended crime or fraud was accomplished, only
that the lawyer’s advice or other services were misused.” Id.
(quoting In re Public Defender Serv., 831 A.2d 890, 910
(D.C. 2003)).
But none of that happened. Doe merely forwarded the
email to the accountant and said he wanted to “discuss” it.
There is no indication he had ever decided to amend the
returns, and before the plan could proceed further the lawyer
told the accountant to hold off. Thus Doe at most thought
about using his lawyer’s work product in furtherance of a
fraud, but he never actually did so. What happened is not so
different than if Doe merely wrote a private note, not sent to
anyone, reminding himself to think about his lawyer’s
suggestion. The absence of a meaningful distinction between
these scenarios shows why finding an act in furtherance here
lacks a limiting principle and risks overcoming confidentiality
based on mere thought.
The District Court gave two reasons for its conclusion
that Doe used his lawyer’s work product in furtherance of a
fraud. First, it suggested that Doe, in forwarding the email to
his accountant, “took [his lawyer’s] advice” about amending
the tax returns. J.A. 16. It is not clear what the Court meant
by this because, as it acknowledged, Doe “never followed
through with amending” the returns. Id. Second, the Court
said that the failure to follow through “is of no consequence”
as long as Doe intended, as of the time he forwarded the
email, to amend the returns. Id. This is no doubt an accurate
statement of the law. See ABC Corp., 705 F.3d at 155. The
problem is that there is simply no record evidence suggesting
that Doe had ever made up his mind.
None of this should suggest that, in the event Doe is
convicted (based on the superseding indictment) and appeals,
he should automatically get a new trial because the
16
Government used the protected work product. That is
because the Government could avoid a retrial by showing the
error was harmless. Bank of Nova Scotia v. United States,
487 U.S. 250, 255–56 (1988). We express no opinion on that
question.
* * * * *
Many appeals involving grand jury proceedings will
become moot after the return of an indictment. But the
presence of a new grand jury that is continuing to investigate
even after issuing a superseding indictment makes this case
out-of-lane. As a live controversy remains, an indictment
does not automatically preclude us from deciding it. When
we do so, we conclude that the crime-fraud exception to the
attorney work-product privilege does not apply to the email at
issue. We therefore reverse the decision allowing the breach
of that privilege.
17