United States v. Under Seal 4 , 274 F. App'x 306 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1889
In Re: GRAND JURY SUBPOENA #06-1
--------------------------------------
UNITED STATES OF AMERICA,
Petitioner - Appellee,
v.
UNDER SEAL #4,
Movant - Appellant,
and
UNDER SEAL,
Party in Interest.
No. 07-2024
In Re: Grand Jury Investigation 07-01 Witness: John Doe No.
A01-246(T-112)(GBL)
------------------------------------
UNITED STATES OF AMERICA,
Petitioner - Appellee,
v.
UNDER SEAL,
Respondent - Appellant.
Appeals from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:06-mc-00001; 1:07-mc-1)
Argued: March 21, 2008 Decided: April 21, 2008
Before MOTZ, TRAXLER, and DUNCAN, Circuit Judges.
No. 07-1889 affirmed; No. 07-2024 vacated and remanded by
unpublished per curiam opinion.
ARGUED: Mitka Tamara Lynn Baker, DLA PIPER US LLP, Washington,
D.C., for Appellant in No. 07-1889; Douglas S. Laird, POLSINELLI
SHALTON FLANIGAN SUELTHAUS PC, Kansas City, Missouri, for Appellant
in No. 07-2024. Gordon Dean Kromberg, OFFICE OF THE UNITED STATES
ATTORNEY, Alexandria, Virginia, for Appellee. ON BRIEF: Nancy
Luque, DLA PIPER US LLP, Washington, D.C., for Appellant in No. 07-
1889. Chuck Rosenberg, United States Attorney, Steven P. Ward,
Special Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Alexandria, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
These consolidated appeals arise from a series of district
court orders involving production of documents sought by a grand
jury in the Eastern District of Virginia. An attorney (“Counsel”)
refused to turn over some of the materials requested by the grand
jury on the ground that they reflected confidential communications
between Counsel and a former client. The court rejected Counsel’s
assertion of privilege, however, holding that because the former
client (“Parent”) was a defunct corporation, neither it nor an
attorney acting on its behalf was capable of asserting attorney-
client privilege. The court also rejected a motion to intervene
filed by a former subsidiary of Parent (“Subsidiary”), holding that
Parent and Subsidiary did not share a joint privilege in the
communications at issue, and, accordingly, Subsidiary lacked
standing to intervene to quash the subpoena served on Counsel.
Both Counsel and Subsidiary appeal; we consolidated the appeals,
and consider both in this opinion. For the reasons set forth
within, we vacate and remand in the Counsel’s appeal (No. 07-2024),
and we affirm in the Subsidiary’s appeal (No. 07-1889).1
1
All documents and briefs in this case have been filed under
seal to protect the secrecy of the grand jury proceedings. We
therefore refer to the parties by generic names to avoid disclosing
their identities.
3
I.
From 1983 to 2000, Counsel provided legal advice to Parent, a
Virginia corporation, regarding the application of federal laws to
various types of monetary transfers. In 2000, the officers and
directors of Parent decided to dissolve the company and filed
Articles of Termination with state authorities to extinguish the
company’s corporate existence. At this time, Parent also
transferred its stock in Subsidiary to another organization; thus,
Subsidiary’s corporate existence did not cease with Parent’s
termination.
In 2006, a grand jury in the Eastern District of Virginia
convened to investigate monetary transfers made on Parent’s behalf.
The grand jury issued subpoenas duces tecum to various entities,
including Parent, seeking documents related to the transfers. When
no individuals appeared before the court on Parent’s behalf, the
court granted the Government’s motion to hold the company in
contempt.
The grand jury then issued a subpoena duces tecum to Counsel
seeking “any and all documents relating to [Parent].” Counsel
produced some documents but withheld others, citing work-product
and attorney-client privileges. The Government moved to compel
production of the withheld documents, claiming that the attorney-
client privilege does not survive the termination of a corporation
and that, in this case, the crime-fraud exception vitiates any
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attorney-client privilege. The district court granted the
Government’s motion to compel, holding that Parent “may not assert
the attorney client privilege because the business entity is no
longer in existence and there are no longer any corporate officers
to assert the privilege on the entity’s behalf.”2 The court stayed
its order, however, granting Subsidiary leave to file an ex parte
and in camera memorandum as well as submissions demonstrating that
it had standing to intervene and quash the subpoena served on
Counsel.
After reviewing Subsidiary’s submissions, the district court
denied Subsidiary’s motion to intervene. The court found the
submissions insufficient to show that Parent and Subsidiary were
sufficiently closely related to treat them as a single corporate
entity and noted that, in any event, the companies lacked a common
legal interest in the communications at issue. The court then
ordered Counsel to turn over the withheld materials and granted the
Government’s motion to hold Counsel in contempt, though it stayed
both orders pending appeal. Both Subsidiary and Counsel timely
appealed.
2
The court did not address the Government’s contention that
the crime-fraud exception vitiated any asserted privilege in the
withheld communications.
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II.
We have consistently held that “[t]he burden is on the
proponent of the attorney-client privilege to demonstrate its
applicability.” United States v. Jones, 696 F.2d 1069, 1072 (4th
Cir. 1982); see also In re Grand Jury Subpoena, 341 F.3d 331, 335
(4th Cir. 2003). In this case, the district court held that
Counsel had not met that burden, because Counsel’s argument failed
as a legal matter. The court reasoned that Parent, a defunct
corporation with no corporate officers or directors, was incapable
of asserting the privilege, and thus Counsel could not assert
privilege on Parent’s behalf.3
On appeal, Counsel contends that the district court erred in
this legal determination. Counsel argues that applicable Supreme
Court precedent requires that the attorney-client privilege survive
corporate dissolution, and therefore the district court should have
permitted Counsel to assert the privilege on Parent’s behalf. See
Swidler & Berlin v. United States, 524 U.S. 399 (1998) (holding
that the attorney-client privilege survives the death of the client
when the client is a natural person).
The Government responds, in part, by contending that even if
this court were to adopt the legal rule proposed by Counsel, the
3
It is well established that if the client may invoke
attorney-client privilege to protect confidential communications,
then the client’s attorney also may also do so on the client’s
behalf. See Fisher v. United States, 425 U.S. 391, 402 n.8 (1976).
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communications at issue nevertheless bore a close relationship to
Parent’s violation of federal law, and therefore the crime-fraud
exception applies to vitiate any asserted privilege in the
communications. See Clark v. United States, 289 U.S. 1, 15 (1933);
In re Grand Jury Proceedings #5, 401 F.3d 247, 251 (4th Cir. 2005);
In re Grand Jury Subpoena, 884 F.2d 124, 127 (4th Cir. 1989). The
district court did not make any findings with respect to that
contention, choosing to address only the legal question of whether
the privilege survives corporate termination.
The district court was not obligated to proceed in this
manner. In United States v. Zolin, 491 U.S. 554, 567 (1989), the
Supreme Court specifically explained that “in crime-fraud cases,”
courts are not required to adhere to “a strict progression of
proof.” There, the Court found “no basis for holding that the
[communications at issue] . . . must [first] be deemed privileged
. . . while the question of crime or fraud remains open.” Id. at
568; see also In re Grand Jury Proceedings, 183 F.3d 71, 74 (1st
Cir. 1999) (applying Zolin to conclude that it was “unimportant”
whether the district court had held communications not privileged
because “the communications . . . do not satisfy the requirements
of the privilege” or because “an exception thereto” applied). We
take this language to mean that a district court may, when
considering whether a party must produce communications pursuant to
a subpoena, first assess either whether a privilege applies or
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whether the crime-fraud exception would nevertheless vitiate any
asserted privilege.
In this case, the Government has made a colorable argument
that the crime-fraud exception would apply to the withheld
communications. We find it appropriate, therefore, to vacate the
district court’s order and remand the case to allow the court to
consider the Government’s contention that “the client was engaged
in or planning a criminal or fraudulent scheme when he sought the
advise of counsel to further the scheme” and that those
communications “bear a close relationship to the client’s existing
or future scheme to commit a crime or fraud.” In re Grand Jury
Proceedings #5, 401 F.3d at 251. Should the district court so
hold, that holding would obviate the need to address the unsettled
legal question of whether the corporate attorney-client privilege
survives dissolution of the corporate entity.
The district court may determine whether the crime-fraud
exception applies in one of two ways. As the Supreme Court
explained in Zolin, the court may examine the assertedly privileged
documents themselves in an in camera hearing, provided that the
party invoking the exception, here the Government, first makes a
threshold “showing of a factual basis adequate to support a good
faith belief by a reasonable person” that the hearing would reveal
evidence of crime or fraud. 491 U.S. at 572 (internal quotation
marks omitted); see also In re Grand Jury Proceedings #5, 401 F.3d
8at 253 (“Once this [threshold] showing is made, a judge can review
the allegedly privileged documents in camera to assist the court in
determining if the government has presented a prima facie case that
the crime-fraud exception should apply.”). Alternatively, the
district court may “examine[] evidence from the opponent of the
privilege,” here the Government, “ex parte and in camera without
examining the allegedly privileged documents themselves.” In re
Grand Jury Proceedings #5, 401 F.3d at 253. Under this approach,
the Government would not be required to make a threshold showing
regarding the factual basis for application of the exception prior
to making the in camera submission. See id.; see also In re Grand
Jury Proceedings, 33 F.3d 342, 350-51 (4th Cir. 1994). In either
case, however, on remand the Government bears the burden of
establishing a prima facie case demonstrating that the crime-fraud
exception applies. See In re Grand Jury Proceedings #5, 401 F.3d
at 251.
III.
We turn next to Subsidiary’s appeal and address whether
Subsidiary may intervene to assert privilege in the withheld
documents and quash the subpoena served on Counsel. A third party
has standing to intervene in grand jury proceedings and challenge
the validity of a subpoena directed to another person or entity
when the third party has a legally cognizable interest in the
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materials sought. See, e.g., Gravel v. United States, 408 U.S.
606, 608-609 & n.1 (1972); see also In re Grand Jury Subpoenas, 144
F.3d 653, 658 (10th Cir. 1998) (“If the attorney-client privilege
does exist between Intervenor . . . and [the attorneys subject to
the subpoena], then Intervenor has standing [to assert the
attorney-client privilege].”).
Here, Subsidiary sets forth two arguments in support of its
claim that it is entitled to intervene. First, Subsidiary contends
that the withheld documents reflect confidential communications
concerning Counsel’s provision of legal advice to Subsidiary. That
is, Subsidiary asserts its own -- rather than a joint -- attorney-
client privilege in the communications. The district court did not
explicitly address this argument, though we take its failure to do
so as an implicit determination that Subsidiary did not meet its
burden of establishing that the communications concerned
confidential communications between Counsel and Subsidiary. After
independently reviewing the record, we conclude that that
determination was not in error. Subsidiary has failed to put forth
sufficient evidence to support its claim that the communications at
issue in any way pertained to Counsel’s representation of
Subsidiary. Therefore, Subsidiary may not assert its own attorney-
client privilege -- independent of any joint privilege it may share
with Parent -- in the communications.
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Second, Subsidiary argues that it may assert a joint attorney-
client privilege in the communications between Parent and Counsel
because of its status as a former subsidiary of Parent. See, e.g.,
In re Teleglobe Commc’ns Corp., 493 F.3d 345, 362-63 (3d Cir. 2007)
(describing the “joint client” or “co-client” privilege);
Restatement (Third) of the Law Governing Lawyers § 75(1) (2000)
(“If two or more persons are jointly represented by the same lawyer
in a matter, a communication of either co-client that . . . relates
to matters of common interest is privileged as against third
persons . . . .”). Indeed, a number of courts have held that close
corporate affiliation, including that shared by a parent and a
subsidiary, suffices to render those entities “joint clients” or
“co-clients,” such that they may assert joint privilege in
communications with an attorney pertaining to matters of common
interest. See, e.g., Glidden Co. v. Jandernoa, 173 F.R.D. 459,
472-73 (W.D. Mich. 1997); United States v. Am. Tel. & Tel. Co., 86
F.R.D. 603, 616-18 (D.D.C. 1979); Duplan Corp. v. Deering Milliken
Research Corp., 397 F. Supp. 1146, 1184-85 (D.S.C. 1974). As the
Third Circuit has explained in some detail, however, the scope of
the joint client or co-client privilege is circumscribed by the
“limited congruence of the clients’ interests.” In re Teleglobe
Commc’ns Corp., 493 F.3d at 362-63 (“As the Restatement notes, a
co-client relationship is limited by ‘the extent of the legal
matter of common interest.’” (quoting the Restatement (Third) of
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the Law Governing Lawyers § 75 cmt. c)); see also id. at 366
(“[B]ecause co-clients agree to share all information related to
the matter of common interest with each other and to employ the
same attorney, their legal interests must be identical (or nearly
so) in order that an attorney can represent them all with the
candor, vigor, and loyalty that our ethics require.” (emphasis
added)).
In the present case, the district court held that Subsidiary
failed to demonstrate that the withheld communications pertained to
a matter in which both Parent and Subsidiary shared a common legal
interest, and thus Subsidiary lacked standing to intervene to quash
the subpoena. After reviewing Subsidiary’s ex parte submissions in
support of its claim to the contrary, we conclude that the district
court did not err in its determination. Subsidiary has failed to
demonstrate that the communications reflected any “legal matter of
common interest.” See Restatement (Third) of the Law Governing
Lawyers § 75 cmt. c. Therefore, it has not satisfied its burden of
establishing that the joint client or co-client privilege applies,
and the district court properly denied its motion to intervene.
See Jones, 696 F.2d at 1072.
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IV.
For the foregoing reasons, the judgment of the district court
is
AFFIRMED IN NO. 07-1889 AND VACATED
AND REMANDED IN NO. 07-2024.
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