Grand Jury Subpoena ( 2000 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-41150
Cons/w 99-41179 and
99-41308
In Re: Grand Jury Subpoena
Appeals from the United States District Court
For the Southern District of Texas, Corpus Christi
July 25, 2000
Before GARWOOD, DeMOSS and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Three consolidated appeals attack orders from the district
court regarding subpoenas issued by a federal grand jury charged
with investigating possible criminal violations of the Clean Air
Act. We dismiss in part and affirm in part.
I. FACTS AND PROCEDURAL HISTORY
On June 10, 1996, a federal grand jury issued, under seal, a
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subpoena to the Corporation.1 In responding to the subpoena, the
Corporation inadvertently disclosed a legal memorandum prepared by
its in-house counsel. The Corporation and its in-house counsel
sought the return of the memorandum but the Government refused. On
July 2, 1998, the district court denied a motion for return of the
memorandum. Based on the content of the memorandum, the Government
moved for production of documents prepared during the course of a
corporate environmental compliance investigation. On February 28,
1999, after reviewing the documents in camera, the district court
issued an order finding that the documents were protected by the
attorney-client privilege and assuming they were protected attorney
work product, but holding that the crime-fraud exception applied.
The order stated that the district court would turn over the 214
documents in its possession directly to the Government. The
Corporation and in-house counsel appealed these orders. See In re
Grand Jury Subpoena, 190 F.3d 375 (5th Cir. 1999), cert. denied 120
S. Ct. 1573 (2000). On September 20, 1999, a panel of this court
dismissed the consolidated appeals for lack of jurisdiction and
issued a writ of mandamus directing the district court to order the
Corporation to turn over to the Government the 214 documents,
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The sealed grand jury proceedings target, inter alia, related
corporations which are parties only to cause number 99-41308. We
refer to them collectively throughout this opinion as “the
Corporation.” These are the same parties referred to as “Corporate
Appellants” in our previous opinion related to the same grand jury
proceedings, In re Grand Jury Subpoena, 190 F.3d 375 (5th Cir.
1999).
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allowing the Corporation to refuse and obtain an appealable order
of contempt. See id. at 389.
On September 24, 1999, the district court directed the
Corporation to produce the 214 documents, it refused and the
district court held it in contempt on October 13, 1999. The
contempt order imposed a fine of $200,000 per day, beginning the
next day. Both the district court and this court declined to issue
a stay of the fine pending appeal. On October 14, 1999, the
Corporation purged itself of contempt by producing the documents.
The in-house counsel moved for an order returning the documents to
him, so that he could individually refuse the turn-over order and
obtain an appealable contempt order. In-house counsel appeals the
denial of his motion for return of the documents in cause number
99-41179. In-house counsel also appeals the district court’s
September 24, 1999 and October 13, 1999 orders in consolidated
cause number 99-41150.
After the Corporation produced the documents, the grand jury
issued subpoenas ad testificandum to two employees of a consulting
firm that the Corporation had retained to assist in the
environmental compliance investigation. The subpoenas require them
to testify concerning their communications with in-house counsel
during the investigation. The Corporation and in-house counsel
moved to quash the subpoenas. On November 18, 1999, the district
court denied the motion to quash, reiterating the crime-fraud
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analysis of its February 18 and September 24 orders. Cause number
99-41308, consolidated with the in-house counsel’s appeals
described above, attacks the district court’s November 18, 1999
order declining to quash the subpoenas directed at the consultants.
II. ANALYSIS
A. In-house Counsel’s Standing to Appeal
As a threshold matter, we must determine whether we have
jurisdiction over in-house counsel’s appeals, that is, whether in-
house counsel has a legally protectable interest in the
confidentiality of the documents that is independent of the
Corporation’s interest. See Texans United for a Safe Economy Educ.
Fund v. Crown Central Petroleum Corp., 207 F.3d 789, 792 (5th Cir.
2000)(“As a threshold matter of jurisdiction, however, we must
determine . . . standing.”)
The attorney-client privilege is held by the client and not
the attorney, and provides no solace to the in-house attorney in
this case. See In re Grand Jury Proceedings, 43 F.3d 966, 972 (5th
Cir. 1994). However, this circuit has held that an innocent
attorney may invoke the work product privilege even if a prima
facie case of fraud or criminal activity has been made as to the
client. See id. The attorneys in our 1994 In re Grand Jury
Proceedings case were in private practice and had been retained by
the target-client to obtain the release of property which had been
seized by the Government in connection with a civil forfeiture
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action. See id. at 967. Neither that case nor any other Fifth
Circuit jurisprudence informs the question whether the rule extends
to an in-house attorney who seeks to invoke the work product
privilege in order to oppose a grand jury subpoena that his
employer saw fit to waive.
In the context of a federal grand jury, the work product
privilege is a common law privilege, although a version of the work
product privilege is found in the Federal Rules of Civil Procedure,
which may be consulted for guidance as to the scope of the common
law privilege. See Fed. R. Civ. P. 26(b)(3); see also In re Sealed
Case, 676 F.2d 793, 808 (D.C. Cir. 1982). The purpose of the work
product privilege is to further “the interests of clients and the
cause of justice” by shielding the lawyer’s mental processes from
his adversary. See Hickman v. Taylor, 329 U.S. 495, 511
(1947)(examining the function of discovery and the role of the
trial judge in supervising discovery in civil litigation).
No one argues that the Corporation’s interests in this case
are served by the in-house counsel’s assertion of work product
privilege. Nevertheless, because the work product privilege looks
to the vitality of the adversary system rather than simply seeking
to preserve confidentiality, it is not automatically waived by the
disclosure to a third party. See United States v. AT&T Co., 642
F.2d 1285, 1299 (D.C. Cir. 1980). For example, in In re Sealed
Case, 676 F.2d 793 (D.C. Cir. 1982), the District of Columbia
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Circuit found that documents prepared by an in-house counsel were
protected by the work product privilege, noting that the evidence
established that the documents were not meant for any eyes but
their author’s and that the attorney never intended the documents
to fall into the hands of his corporate superiors. See id. at 811.
No such evidence appears in the record before us and we are aware
of no alternative basis for holding that the cause of justice would
be furthered if in-house counsel could prevent the grand jury from
examining the Corporation’s documents that it saw fit to turn over
in the present case. We therefore conclude that in-house counsel
has no work product privilege in the disputed documents and decline
to extend our 1984 In re Grand Jury holding to in-house counsel in
this case. See id.(“[C]ourts should not frustrate the efforts of
a grand jury unless the purpose as well as the letter of the
privilege requires it.”) Because in-house counsel has no standing
to assert a work product privilege, we lack jurisdiction over his
appeal of the order to produce documents and the order holding the
Corporation in contempt (Cause number 99-41150) as well as the
appeal of the denial of his motion to return the documents so he
could refuse to produce them (Cause number 99-41179).
B. Order denying motion to quash subpoenas
1. Jurisdiction
The substance of the remaining appeal (Cause number 99-41308)
is a challenge to the district court’s November 18, 1999 order
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denying the motion to quash the subpoenas directed at two employees
of an outside consulting firm and applying the crime-fraud
exception to the Corporation’s and in-house counsel’s asserted
privileges. This court ruled, in the previous appeal of this case,
that we had no jurisdiction to hear an interlocutory challenge to
the crime-fraud determination. See In Re Grand Jury, 190 F.3d at
385. We must now examine whether the proceedings after remand
changed that answer.
The court’s jurisdiction is generally limited to “final
decisions” of the district court. 28 U.S.C. § 1291. One exception
to the finality requirement is the Cobbledick doctrine. In
Cobbledick v. United States, 309 U.S. 323 (1940), the appellant was
subpoenaed to appear and produce documents before a grand jury. He
moved to quash the subpoena, but the motion was denied. The
Supreme Court held that the order lacked the finality requisite for
an appeal and the appellant could secure a right of immediate
appeal only by defying the order, being held in contempt and
appealing the contempt order. Notwithstanding the “only” language,
courts have allowed limited end runs on the Cobbledick contempt
requirement. A party opposing a discovery order need not stand in
contempt where the documents at issue are in the hands of a third
party who has no independent interest in preserving their
confidentiality. See Perlman v. United States, 247 U.S. 7
(1918)(referred to as the “Perlman doctrine”). In the Fifth
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Circuit, the Perlman doctrine was refined by In re Grand Jury
Proceedings in Matter of Fine, 641 F.2d 199 (5th Cir. 1981). In
Fine, we allowed a client to intervene in a proceeding and appeal
an order compelling his attorney to testify before a grand jury.
See id. at 203. We noted that the Perlman doctrine turned on
whether the subpoenaed party could be expected to risk a contempt
citation in order to protect the interests of a third party. See
id. at 202. Nonetheless, “[w]e are reluctant to pin the
appealability of a district court order upon such precarious
considerations” as the willingness (or lack thereof) of a
particular attorney to risk contempt to protect his client. See
id. Rather, we based a finding of Perlman doctrine jurisdiction on
the fact that some significant number of client-intervenors might
find themselves denied all meaningful appeal by attorneys unwilling
to make such a sacrifice. See id. at 203. We acknowledged in Fine
that “the price of protecting the right of appeal of client-
intervenors is an occasional frivolous appeal for the sake of
delay,” but indicated that such a price was not so burdensome that
we would forego protecting third parties’ access to meaningful
appeal. See id.
We must now decide whether Fine and Perlman apply to vest this
court with jurisdiction over the dispute concerning the subpoenas
ad testificandum. Focusing on Fine’s teaching that the willingness
of the party under subpoena to risk contempt in order to vindicate
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the rights of the third party must be considered, we conclude that
we have jurisdiction over this appeal. Certainly, the employees of
an outside consulting firm do not have the same interest in the
confidentiality of the subject communications that the Corporation
has.
2. Crime-fraud exception
Appellants contend that the district court erred in applying
the crime-fraud exception to the attorney-client and work product
privileges asserted in their motion to quash the subpoenas.
Appellants’ asserted privileges can be overcome by the crime-fraud
exception where communication or work product is intended “to
further continuing or future criminal or fraudulent activity.” See
United States v. Dyer, 722 F.2d 174, 177 (5th Cir. 1983). The
proponent has the burden of establishing a prima facie case that
the attorney-client relationship was intended to further criminal
or fraudulent activity. See id. at 177. The Government contends
that the documents in question reveal that the Corporation used its
counsel to help it conceal from state and federal regulators the
extent of its noncompliance with the environmental regulations.
While the targets of this investigation may have valid defenses
that preclude indictment or conviction for fraud or criminal
environmental violations, the existence of a potential defense does
not mean that the district court reversibly erred. It appears from
the record that the district court did not abuse its discretion in
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finding that the evidence established a prima facie case of crime
or fraud. Specifically, appellants’ argument that they complied
with one potentially valid interpretation of the regulations does
not speak to whether the Government made out a prima facie case of
fraud. We conclude that the Government, under the special,
particular facts reflected by its evidence here, has made out a
prima facie case of crime or fraud based on one non-frivolous,
although potentially incorrect, reading of some untested
regulations. Therefore, we find no error in the district court’s
denial of Appellants’ motion to quash subpoenas.
III. CONCLUSION
We dismiss Cause numbers 99-41150 and 99-41179 for lack of
jurisdiction. We affirm the district court’s order denying
Appellants’ motion to quash subpoenas in Cause number 99-41308.
DISMISSED in part, AFFIRMED in part.
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