Harbor Healthcare System v. United States

Case: 19-20624 Document: 00515939908 Page: 1 Date Filed: 07/15/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 15, 2021
No. 19-20624
Lyle W. Cayce
Clerk
Harbor Healthcare System, L.P.,
Plaintiff—Appellant,
versus
United States of America,
Defendant—Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:18-CV-3195
Before Higginbotham, Elrod, and Haynes, Circuit Judges.
Per Curiam:*
Harbor Healthcare System, L.P., filed a pre-indictment motion under
Rule 41(g) of the Federal Rules of Criminal Procedure, seeking return of
documents seized by the United States in five searches of Harbor locations
and offices. After exercising its discretionary equitable jurisdiction for a time
to oversee the implementation of protective processes to screen Harbor’s
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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privileged information, the district court declined to exercise that equitable
jurisdiction further and dismissed the case. Harbor appealed, seeking
reversal of the district court’s decision to not reach the merits of Harbor’s
motion. Because we have jurisdiction to consider this appeal and because the
district court erred in its assessment of the pre-indictment harm resulting
from an allegedly unlawful seizure of privileged material, we REVERSE and
REMAND.
I.
Harbor became the subject of two qui tam lawsuits—filed in 2014 and
2016—alleging violations of the False Claims Act, 31 U.S.C. §§ 3729–3733.
As part of its investigation into the allegations of those qui tam lawsuits, the
United States Department of Health and Human Services, Office of
Inspector General issued a “Request for Information” regarding certain
patients from Harbor.
The Civil Division of the Department of Justice then issued a Civil
Investigative Demand to Harbor in March of 2017, seeking documents and
answers to interrogatories. Harbor responded to the demand in April of 2017,
producing those documents and answers to the interrogatories.
Eric Sprott, Harbor’s Director of Compliance, coordinated Harbor’s
response to the Request for Information and the Civil Investigative Demand.
Sprott hired Justo Mendez—a solo practitioner and former general counsel
of Harbor—as outside counsel to assist in the response to the Civil
Investigative Demand. Both Sprott and Mendez communicated with
attorneys in the United States Attorney’s Office for the Eastern District of
Texas and the Department of Justice regarding the Civil Investigative
Demand.
The Department of Justice shared the allegations in the qui tam
actions with its prosecutors to investigate possible criminal activity.
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Prosecutors from the United States Attorney’s Office for the Eastern District
of Texas sought warrants to search Harbor locations and offices. The
warrants were signed by magistrate judges from the Western District of
Louisiana and the Eastern and Southern Districts of Texas. The warrants
authorized seizure of twenty-two broad categories of documents dating from
January 1, 2010 to May 2017 as well as “[c]ellular telephones, [s]mart
phones, iPads, tablets or other mobile electronic devices used in the course
of business” and stored e-mail exchanges between Harbor employees,
agents, and representatives.
The government executed those search warrants on May 18, 2017.
The government seized twenty-nine smartphones, twenty computers and
computer hard drives, and the e-mail accounts of seventeen employees. In
total, the government seized 3.59 terabytes of data and hundreds of boxes of
paper records. As part of the search, the government seized Sprott’s
computer, e-mail account, iPhone, and all of the paper documents in his
office. Harbor asserts that these materials contained a wealth of information
protected by the attorney–client privilege, including recent communications
with Mendez regarding the government’s Civil Investigative Demand.
The government assembled a “filter team” from “another division of
the Eastern District” to review the seized documents for privileged
materials. At the government’s request, Harbor provided a list of the names
of lawyers and law-firms “who might have emailed with Harbor employees.”
According to Harbor, the government did not inform the magistrate judges
who authorized the search warrants that the government had seized
privileged material from Harbor.
Harbor repeatedly attempted, but ultimately failed, to meet with the
head of the government’s taint team to discuss the return of privileged
documents. On September 7, 2018, Harbor filed a motion under Federal
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Rule of Criminal Procedure 41(g) in the United States District Court for the
Southern District of Texas. Because there was not yet any criminal
proceeding against Harbor, the motion was filed as its own civil case. See
Fed. R. Crim. P. 41(g); Bailey v. United States, 508 F.3d 736, 738 (5th Cir.
2007).
The government did not timely respond to Harbor’s motion, so
Harbor moved first for an entry of default and then for default judgment
against the government. The district court scheduled a hearing on the
motions. The government responded by filing a motion to transfer to the
Beaumont Division of the Eastern District of Texas, where the government’s
criminal investigation originated and where Harbor’s corporate offices are
located. At the December 4, 2017 hearing, the district court denied the
motions for entry of default and default judgment and declined to rule on the
motion to transfer.
The district court also declined to enter a scheduling order or set
deadlines for the government to screen and return privileged information.
Instead, the district court encouraged the parties to test a proposed privilege-
screening plan: first, the government would give Harbor information about
documents seized from Sprott; second, Harbor would produce a privilege
log; and third, the government would file any objections to assertions of
privilege. Once this screening process was complete, the district court would
review the privilege log and objections and determine how to proceed. As a
test run, this screening process would be conducted only on Sprott’s e-mail
account but not yet on the sixteen other e-mail accounts, nor on the
information from the twenty-nine smartphones and twenty computers, nor
on the physical documents seized.
On February 8, 2019, the government moved to dismiss Harbor’s civil
case for lack of equitable jurisdiction. The government argued that Harbor
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had not “demonstrate[d] any irreparable harm to its legitimate property
interests” and that the Rule 41(g) motion was mooted by the privilege-
screening plan. The government characterized the Rule 41(g) motion as an
“improper suppression motion.”
Meanwhile, Harbor identified 3,843 e-mails from Sprott’s account as
privileged. Harbor also received from the government a list of documents
that had already been transferred from the government’s filter team to its
civil and criminal investigators. Based on this list, Harbor asserted in an April
2, 2019 letter to the district court that “a significant number of privileged
documents” had already made their way into the hands of investigators.
Harbor thus requested that the district court rule in its favor on its Rule 41(g)
motion and order the government to return all seized documents to Harbor.
The district court granted the government’s motion to dismiss on
August 19, 2019. The district court explained that it would no longer exercise
its equitable jurisdiction over Harbor’s Rule 41(g) motion because it was
assured that processes were in place to protect Harbor’s privileged
information. In its order, the district court emphasized two aspects of the
government’s investigation that it considered adequate to protect Harbor.
First, the parties “reached a working agreement to reasonably address
Harbor’s assertions of privilege” through the joint privilege-screening plan.
Second, “Harbor may make its arguments in a post-indictment motion to
suppress, if an indictment is ultimately returned” against Harbor.
Harbor filed an emergency motion for reconsideration on August 29,
2019. The district court held a telephone conference on the motion on
September 3, 2019. In that conference, Harbor expressed three main
concerns about how the screening process was playing out. First, the
government had not responded to Harbor’s privilege designations or
confirmed that it had deleted or returned privileged material. Second,
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Harbor objected to the government’s filter team viewing e-mails that had
been flagged as privileged. Third, Harbor was concerned that the
government’s litigation team had already gotten access to privileged
materials.
In response, the district court stated its intent to allow the
government’s filter team to continue reviewing material designated as
privileged. The district court then denied Harbor’s emergency motion for
reconsideration in a written order on September 10, 2019. Harbor timely
appealed.
II.
As an initial matter, we have jurisdiction over this appeal under 28
U.S.C. § 1291. A motions panel of this court previously denied the
government’s motion to dismiss for lack of appellate jurisdiction. While we
are not bound by the motions panel’s ruling, we agree with its necessary
conclusions that Harbor’s motion is solely for the return of property and that
a grand jury proceeding—which the government cannot even say exists 1—is
not a “prosecution in esse.” See DiBella v. United States, 369 U.S. 121, 131–
1
The government asserts several times in its brief that “Harbor is a subject of a
grand jury proceeding.” Under Rule 6 of the Federal Rules of Criminal Procedure, the
government’s attorneys “must not disclose a matter occurring before the grand jury.”
Fed. R. Crim. P. 6(e)(2)(B)(vi); see also In re Grand Jury Investigation, 610 F.2d 202, 213,
219 (5th Cir. 1980) (“Punishment for contempt of court is the sanction specifically
authorized by Rule 6(e)(1) for violations of its provisions, and a contempt citation will
generally provide an adequate remedy for such violation.”); Wayne R. LaFave et al., Secrecy
Requirements, 4 Crim. Proc. § 15.2(i) (4th ed. 2020) (discussing the need to “keep secret
the subject of the grand jury’s inquiry while it is considering the possible issuance of an
indictment” (citing United States v. Proctor & Gamble Co., 356 U.S. 677, 681 n.6 (1958))).
An exception exists for “[t]he court [to] authorize disclosure—at a time, in a manner, and
subject to any other conditions that it directs—of a grand-jury matter preliminarily to or in
connection with a judicial proceeding.” Fed. R. Crim. P. 6(e)(3)(E)(i). The government
has not pointed to such authorization by this or another court.
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32 (1962). The district court’s dismissal of Harbor’s pre-indictment Rule
41(g) motion constitutes a final appealable decision of the district court. See
DiBella, 360 U.S. at 131–32; see also Richey v. Smith, 515 F.2d 1239, 1242–43
(5th Cir. 1975) (“Notwithstanding that the DiBella test would seem to be
satisfied in the instant case . . . , we note that the order appealed from rested
solely on jurisdictional grounds and was not a ruling on the merits of the
motion as was the case in DiBella.”). 2
III.
The district court erred in dismissing Harbor’s Rule 41(g) motion.
We review the district court’s decision to no longer exercise equitable
jurisdiction for abuse of discretion. See Richey, 515 F.d at 1243. “A district
court would necessarily abuse its discretion if it based its ruling on an
erroneous view of the law or on a clearly erroneous assessment of the
evidence.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); accord
United States v. Gomez-Herrera, 523 F.3d 554, 563 n.4 (5th Cir. 2008) (“A
district court abuses its discretion if its ruling rests on an erroneous view of
the law.” (citing Cooter, 496 U.S. at 405)).
In its dismissal order, the district court said that it initially exercised
its equitable jurisdiction “to ensure that there were processes in place to
protect Harbor’s privileged information.” Sealed Order at 2–3, Harbor
2
The government relies on an inapplicable case, Mohawk Indus. v. Carpenter, to
argue that the district court’s order was not immediately appealable. 558 U.S. 100 (2009).
Mohawk addressed interlocutory appeal of a district court’s discovery order in a pending
civil case, and the Court noted that “several potential avenues of review apart from
collateral order appeal” were available to the appellant. Id. at 104–05, 110–11. Here,
however, Harbor is not involved in any pending case—civil or criminal—other than its Rule
41(g) civil case, in which return of Harbor’s property is the single dispositive issue. The
“avenues of review” available in Mohawk are thus not available to Harbor. The only
available review of an adverse ruling on Harbor’s preindictment Rule 41(g) motion is direct
appeal of the district court’s final judgment in this independent civil case.
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Healthcare Sys. v. United States, No. 4:18-CV-3195 (S.D. Tex. Aug. 19, 2019),
ECF No. 35. The district court declined to further exercise its equitable
jurisdiction because it was satisfied that sufficient protective measures were
in place and because of its assessment of the factors articulated in Richey v.
Smith. Id. at 3.
Under Richey v. Smith, a district court must consider four factors when
deciding whether to grant a pre-indictment motion for return of property:
(1) “[W]hether the motion for return of property accurately
alleges that the government agents . . . displayed ‘a callous
disregard for the rights of [the plaintiff]’”;
(2) “[W]hether the plaintiff has an individual interest in and
need for the material whose return he seeks;”
(3) “[W]hether the plaintiff would be irreparably injured by the
denial of the return of the property; and”
(4) “[W]hether the plaintiff has an adequate remedy at law for
the redress of his grievance.”
515 F.2d at 1243–44 (internal footnotes omitted) (quoting Hunsucker v.
Phinney, 497 F.2d 29, 34 (5th Cir. 1974)). The district court erred in its
understanding of these factors and thus abused its discretion by declining to
further exercise its equitable jurisdiction.
The district court incorrectly concluded that the government did not
show a “callous disregard” for Harbor’s rights simply because it obtained
search warrants prior to seizing Harbor’s privileged materials. But it is a
stipulated fact in this case that “the government did not seek express prior
authorization from the issuing Magistrate Judge for the seizure of attorney-
client privileged materials.” Stipulations of Fact at 4, Harbor Healthcare Syst.
v. United States, No. 4:18-CV-3195 (S.D. Tex. Dec. 4, 2018), ECF No. 17. It
is further stipulated that the government knew that Sprott’s “office and
computer contained attorney-client privileged documents and attorney work
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product” when it executed one of the search warrants. Id. at 3–4. The
stipulated facts show that the government made no attempt to respect
Harbor’s right to attorney–client privilege in the initial search. Cf. United
States v. Zolin, 491 U.S. 554, 571 (1989) (“There is no reason to permit
opponents of the privilege to engage in groundless fishing expeditions, with
the district courts as their unwitting (and perhaps unwilling) agents.”);
Taylor Lohmeyer Law Firm P.L.L.C. v. United States, 982 F.3d 409, 411 (5th
Cir. 2020) (Elrod, J., dissenting from denial of rehearing en banc) (“Although
the privilege may at times prevent the government from obtaining useful
information, ‘this is the price we pay for a system that encourages individuals
to seek legal advice and to make full disclosure to the attorney so that the
attorney can render informed advice.’” (quoting In re Grand Jury Subpoena
for Att’y Representing Crim. Defendant Reyes-Requena, 926 F.2d 1423, 1432
(5th Cir. 1991))).
Moreover, the government, by its treatment of Harbor’s privileged
materials after the search, further disregarded Harbor’s rights. When asked
at oral argument why the government had not already destroyed or returned
copies of documents that it agreed were privileged, the government said:
“The only reason they haven’t been destroyed is for the potential for a future
filter team, if the criminal team looks at the privilege logs and disagrees for
some reason.” A taint team serves no practical effect if the government
refuses to destroy or return the copies of documents that the taint team has
identified as privileged. The government has thus conceded that it has no
intent to respect Harbor’s interest in the privacy of its privileged materials as
the investigation unfolds.
The district court was wrong to overlook the government’s continued
retention of privileged documents as an aspect of its “callous disregard,” and
it was simply mistaken in its belief that there were “processes in place to
protect Harbor’s privileged information.”
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The district court likewise erred in its assessment of Harbor’s need
for the documents and information the government seized. In the view of the
district court, Harbor’s lack of a practical need for access to the copies of the
documents retained by the government “weigh[ed] against granting Rule
41(g) relief.” Sealed Order at 5, Harbor Healthcare Sys. v. United States, No.
4:18-CV-3195 (S.D. Tex. Aug. 19, 2019), ECF No. 35. But Harbor’s need
does not lie in accessing the government’s copies. Rather, it lies in protecting
the privacy of the privileged material in the documents. Cf. Richey, 515 F.2d
at 1242 n.5 (“We have indicated previously that a plaintiff in a civil action for
the return of property has a sufficient proprietary interest in copies of
documents which have been seized to demand their return as well as the
return of the originals.”). The whole point of privilege is privacy. Cf. Fisher
v. United States, 425 U.S. 391, 399 (1976) (“[T]he Court has often stated that
one of the several purposes served by the constitutional privilege against
compelled testimonial self-incrimination is that of protecting personal
privacy. . . . Within the limits imposed by the language of the Fifth
Amendment, which we necessarily observe, the privilege truly serves privacy
interests . . . .”); Nixon v. Adm’r of Gen. Servs., 433 U.S. 425, 545 n.1 (1977)
(Rehnquist, J., dissenting) (“The invocation of such privileges has the effect
of protecting the privacy of a communication made confidentially . . . by a
client to an attorney; the purpose of the privilege, in each case, is to assure
free communication on the part of the confidant and of the client,
respectively.”). Despite Harbor’s great privacy interest, the government has
held its attorney–client privileged documents since May 18, 2017—the
government has deliberately held on to Harbor’s privileged material for over
four years. The district court erred by failing to account for Harbor’s privacy
need, which weighs heavily in favor of granting Rule 41(g) relief.
The government’s reliance on United States v. Search of Law Office,
Residence, and Storage Unit Alan Brown, 341 F.3d 404 (5th Cir. 2003) is
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unavailing. In that case, the Rule 41 movant argued that he would suffer
irreparable reputational harm from a grand-jury indictment. Id. at 414–15.
Here, however, Harbor has not alleged any harm arising from a possible
grand jury—it alleges a harm from the ongoing intrusion into its privacy and
the continued possession of attorney–client privileged documents.
Importantly, in Alan Brown, the movant failed “to identify specific privileged
documents in the hands of the government or provide a legal basis for
asserting a particular privilege.” Id. at 414. Here, Harbor has identified
thousands of privileged documents, and the government has conceded the
basis for the privilege for many of those. Harbor has done far more than assert
“vague allegations,” id., but has alleged a privacy harm arising from the
seizure and retention of specific attorney–client privileged documents.
The government’s ongoing intrusion on Harbor’s privacy constitutes
an irreparable injury that can be cured only by Rule 41(g) relief. Harbor
remains injured as long as the government retains its privileged documents.
That injury can only be made whole by the government returning and
destroying its copies of the privileged material. See Richey, 515 F.2d at 1242
n.5Finally, Harbor does not have an adequate remedy at law. A motion
to suppress in a possible criminal proceeding does not redress Harbor’s
injury for two primary reasons. First, it is not certain that there ever will be
criminal charges brought against Harbor. If no charges are brought but a
suppression motion is Harbor’s only means of redress, Harbor would never
have an opportunity to challenge the government’s seizure of its privileged
materials. Second, suppression motions vindicate an interest entirely
different from Rule 41(g) motions. Suppression merely prevents the
government from using certain materials as evidence in a judicial
proceeding—suppression does not force the government to return those
materials to the criminal defendant. Cf. Hunt v. U.S. Dep’t of Just., 2 F.3d
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96, 97 (5th Cir. 1993) (determining that a Louisiana forfeiture proceeding was
not an adequate remedy because it would not help the movant recover
wrongfully seized funds). Rule 41(g), by contrast, says nothing about the
admissibility of evidence. Instead, it is concerned solely with the return of
property to the Rule 41(g) movant. Suppression and Rule 41(g) occupy two
entirely distinct spheres within the universe of unlawful searches and
seizures. 3
The government unconvincingly argues that suppression is an
adequate remedy because Rule 41(g), like suppression, is concerned with
unlawful searches and seizures. That argument overlooks the distinction
explained above. Suppression protects criminal defendants from the
procedural harm arising from the introduction of unlawfully seized evidence.
Rule 41(g) protects persons from the “deprivation of property” by an
unlawful search and seizure. It makes little sense to say that the Fourth
Amendment can be litigated only in a suppression motion when there are
other types of harm arising from unlawful searches and seizures. This is
particularly true since Rule 41(g) expressly contemplates such a harm and
offers a remedy.
In short, the district court erred by misunderstanding the harm alleged
by Harbor and by equating return of property with suppression of evidence.
3
The government relies on In re Sealed Case, 716 F.3d 603 (D.C. Cir. 2013) to argue
that Harbor’s Rule 41(g) motion is really about suppression, not return of property. In
Sealed Case, however, “the movant ha[d] already recovered the property from the
government,” so the Rule 41(g) motion could not be “‘solely’ for its return.” 716 F.3d
603, 607–08 (D.C. Cir. 2013). Indeed, the court determined that “the attorney–client
privilege [dispute was] moot.” Id. at 609; accord id. at 612 (Kavanaugh, J., concurring).
Here, by contrast, the government has not yet returned Harbor’s property and is instead
refusing to do so.
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It therefore abused its discretion by refusing jurisdiction over Harbor’s Rule
41(g) motion. 4
* * *
For the reasons set forth above, the judgment of the district court is
REVERSED, and the case is REMANDED for further proceedings
consistent with this opinion.
4
The district court expressed concern about the practicality of it parsing through
reems of Harbor documents to rule of claims of privilege. The district court’s concern can
be assuaged by the array of document-review options. For starters, the government could
simply be ordered to return the documents for which it does not dispute the asserted basis
for the privilege. For the balance, the court could engage a magistrate judge or special
master to review the potentially privileged documents. Even this will not entail reviewing
each and every document; Harbor’s privilege logs should allow for recommendations or
rulings based on categories of documents. See In re Terra Int’l., Inc., 134 F.3d 302, 304–05,
307 (5th Cir. 1998).
13