United States v. California Rural Legal Assistance, Inc.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 11, 2013 Decided July 12, 2013
No. 11-5347
UNITED STATES OF AMERICA AND JEFFREY SCHANZ,
APPELLEES
JEANNIE BARRETT, ET AL.,
APPELLANTS
v.
CALIFORNIA RURAL LEGAL ASSISTANCE, INC.,
APPELLEE
Consolidated with 11-5361, 12-5025
Appeals from the United States District Court
for the District of Columbia
(No. 1:07-mc-00123)
Bernard A. Burk argued the cause for appellants/cross-
appellees. With him on the briefs were Jack W. Londen, Wendy
M. Garbers, Lisa Wongchenko, John P. Corrado, Martin R.
Glick, Robert D. Hallman, and Philip W. Horton. Brian R.
Matsui entered an appearance.
Alana H. Rotter and Lisa R. Jaskol were on the brief for
amici curiae Los Angeles County Bar Association, et al. in
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support of appellants/cross-appellees.
Melissa N. Patterson, Attorney, U.S. Department of Justice,
argued the cause for appellees/cross-appellants. With her on the
brief were Stuart F. Delery, Acting Assistant Attorney General,
Ronald C. Machen Jr., U.S. Attorney, and Michael S. Raab,
Attorney.
Before: TATEL and KAVANAUGH, Circuit Judges, and
SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: The Inspector General of
the Legal Services Corporation petitioned the district court for
summary enforcement of a subpoena duces tecum to appellant
California Rural Legal Assistance (“CRLA”). After extensive
negotiations and hearings, the court entered an order granting
enforcement of the subpoena duces tecum and entered a
protective order governing disclosure of material discovered by
the subpoena and also establishing a notice requirement. The
CRLA appeals from the enforcement order, and the OIG cross-
appeals the protective order, specifically objecting to the notice
requirement set forth therein. For the reasons set forth below,
we affirm the district court’s order enforcing the subpoena and
vacate and remand the protective order.
I. BACKGROUND
The Legal Services Corporation Act of 1974 (“LSC Act”)
created the Legal Services Corporation (“LSC”), “a private
nonmembership nonprofit corporation . . . for the purpose of
providing financial support for legal assistance in noncriminal
proceedings or matters to persons financially unable to afford
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legal assistance.” 42 U.S.C. § 2996b(a). In 1978, Congress
enacted the Inspector General Act, 5 U.S.C. app. 3 § 2, which
created Offices of Inspector General in various federal
departments and agencies “to conduct and supervise audits and
investigations relating to the programs and operations of the
establishments listed” in the Act. In 1988, Congress amended
the Act to add several additional federal establishments,
including the Legal Services Corporation, to those governed by
the Act. The Office of Inspector General of the Corporation
(hereinafter “OIG”) is therefore empowered under the Inspector
General Act to investigate fraud and abuse in the LSC. Id. app.
3 §§ 4 & 8G(a)(2). The Inspector General Act empowers the
OIG, in carrying out its investigative functions, to “require by
subpoena the production of all information, documents, reports,
answers, records, accounts, papers, and other data . . . and
documentary evidence necessary in the performance of [their]
functions.” Id. app. 3 § 6(a)(4). OIG subpoenas are enforceable
by order of a district court. Id.
The LSC provides federal funding grants to state-based,
nonprofit legal service providers. The CRLA is such a nonprofit
grantee, providing free legal assistance to lower income
communities in California. As an LSC grant recipient, the
CRLA is subject to a variety of federal requirements. Further,
as a grant recipient covered by such requirements, it is subject
to investigation by the OIG. In 2005, the OIG received a
complaint from a confidential source alleging that the CRLA
was violating statutory limitations on the use of its LSC grants.
The OIG undertook investigation of the allegations. On October
17, 2006, the OIG served the CRLA with a subpoena duces
tecum seeking various documents and data in connection with
its investigation. CRLA refused to turn over much of the
information, asserting that it was privileged under federal and
California law and subject to confidentiality obligations under
California law.
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The OIG filed a petition for summary enforcement of the
subpoena in the district court in Washington, DC. Several
CRLA attorneys intervened on behalf of the CRLA. After
extensive briefing and a status hearing, the parties jointly
requested that the district court resolve only “the general issue
of whether, and if so, which California state privileges and
protections apply.” On November 3, 2011, the district court
entered its order, with an accompanying opinion published as
United States v. California Rural Legal Assistance, Inc., 824 F.
Supp. 2d 31 (D.D.C. 2011). After reviewing the course of the
litigation and the provisions of federal law governing the
subpoenaed materials, the district court concluded that only
federal and not California state privileges and protections
governed the scope of disclosure compelled under the subpoena.
Id. at 42. CRLA appeals from the district court’s order denying
the applicability of California professional responsibility
standards.
The district court further entered specific orders establishing
protocols for discovery consistent generally with the agreement
of the parties. At the request of the CRLA, and with the partial
acquiescence of the LSC, the district court entered a protective
order in light of the “legitimate concerns about the privacy of
[CRLA’s] clients’ confidential information.” Id. at 47. The
OIG cross-appeals from the entry of the protective order,
specifically seeking vacation of a provision requiring the OIG to
provide five days’ notice before making disclosure of CRLA’s
client information obtained through the subpoena.
For the reasons set forth below, we affirm the district
court’s order granting the petition for the enforcement of the
subpoena and vacate the notice provision of the protective order.
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II. ANALYSIS
A. Subpoena Enforcement
The core of appellant’s arguments against the enforcement
of the OIG subpoena is the proposition that the confidentiality
of information sought is protected by state law. Appellees
contend that only the federal law of confidentiality and privilege
limits the scope of their power to subpoena information in
furtherance of their investigation.1 While the parties discuss at
some length the differences in degrees of protection afforded
attorney privileges and confidentiality under California law and
federal law, the details of those differences are ultimately
irrelevant to our decision, and we will not burden the opinion
with the specifics involved. Suffice it to say that the claimed
protection under California law is broader than that afforded
under federal standards as applied by the OIG and ultimately
approved by the district court. The decision of this case rests
not on those specifics, but rather on the general issue submitted
to the district court by the parties. That is, “whether, and if so,
which California state privileges and protections apply.”
Because the district court determined that the answer to the
“whether” issue is “no,” and because we affirm that holding, the
“if so, which” half of the issue is no longer germane. Federal
law exclusively governs.
The basic background law is clear. The Supreme Court
“has consistently held that federal law governs questions
involving the rights of the United States arising under
nationwide federal programs.” United States v. Kimbell Foods,
1
Although appellants raised other questions in the district
court concerning the reasonableness, burdensomeness, and relevance
of the subpoena, they do not raise those arguments before us, but
accept the district court’s adverse ruling.
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Inc., 440 U.S. 715, 726 (1979). We had occasion to apply this
fundamental principle in a factual and legal context parallel to
the matter before us in Linde Thomson Langworthy Kohn & Van
Dyke, P.C. v. Resolution Trust Corp., 5 F.3d 1508 (D.C. Cir.
1993) (“Linde Thomson”). That case also involved a petition by
a federal agency to enforce a subpoena duces tecum. The
Resolution Trust Corporation issued the subpoena in the course
of an investigation. The subpoena duces tecum was directed to
a law firm and sought information concerning transactions
germane to the investigation of a failed savings and loan. The
district court ordered enforcement of the subpoena. The
recipients of the subpoena appealed, urging that the district court
had erred by not applying state (Missouri) law of privilege. On
appeal, we concluded that a subpoena enforcement proceeding,
such as the one before the Linde Thomson court and the one
before us, “under common sense and precedents in this circuit
and elsewhere . . . rests soundly in federal law, and federal law
of privilege governs any restrictions on the subpoena’s scope.”
Id. at 1513 (citing FTC v. TRW, Inc., 628 F.2d 207, 210–11
(D.C. Cir. 1980)). We rejected the law firm’s contention that
state law applied to the privileged status of the documents at
issue before us in that case, and we reject CRLA’s similar claim
here. Both the Supreme Court and circuit law are clear on this
point. Federal law and not state law governs.
Despite the Kimbell Foods precedent, and even in the face
of the Linde Thomson application, CRLA insists that properly
interpreted, the OIG investigation of Legal Services Corporation
should be governed by state standards with respect to attorney
client privilege, work product, and any similar privileges or
constitutionality concerns. CRLA’s argument rests on the
principle followed in American Bar Association v. FTC, 430
F.3d 457 (D.C. Cir. 2005). That decision held that “[f]ederal
law may not be interpreted to reach into areas of State
sovereignty unless the language of the federal law compels the
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intrusion.” Id. at 471 (internal quotation marks omitted). CRLA
notes that in American Bar Association we held that we would
construe statutes in which the government sought to regulate in
areas “traditionally the province of the states,” with the guidance
that “if Congress intends to alter the usual constitutional balance
between the States and the Federal Government, it must make its
intention to do so unmistakably clear in the language of the
statute.” Id. at 471–72 (internal quotation marks and citations
omitted). CRLA argues that following that standard of
interpretation in the OIG statute, as applied to investigations of
law firms, we should reach the same result we did in American
Bar Association, that is, that the federal “intrusion” is not
permitted by the statute.
There are two difficulties with CRLA’s proposed method of
interpretation. First, the American Bar Association decision
dealt with the Federal Trade Commission’s attempt to regulate
the practice of law. CRLA draws the present investigatory line
as parallel to the regulatory reach question in the earlier
decision. In fact, it is not parallel. The Legal Services
Corporation and its OIG are not attempting to regulate the
practice of law. This case is not about any such regulation. It
is about the OIG’s performance of its duty under the OIG Act to
“conduct, supervise, and coordinate audits and investigations
relating to the programs and operations of [federal]
establishment[s].” 5 U.S.C. app. 3 § 4(a)(1). The regulation of
the practice of law, as considered in American Bar Association,
is within the traditional sovereignty of the state; investigation
and audit of federal programs are not.
Furthermore, even if the rule of American Bar Association
did apply, it would change nothing. The rule of American Bar
Association does not forbid the interpretation of federal statutes
to preclude federal intrusion into areas of traditional state
sovereignty. Rather, as we made clear above, federal law “may
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not be interpreted to reach into areas of State sovereignty unless
the language of the federal law compels the intrusion.” City of
Abilene v. FCC, 164 F.3d 49, 52 (D.C. Cir. 1999) (quoted in
American Bar Ass’n, 430 F.3d at 471)). CRLA’s difficulty is
that in the present case, the language compels the intrusion.
True, when “Congress intends to alter the ‘usual constitutional
balance between the States and the Federal Government,’ it must
make its intention to do so ‘unmistakably clear in the language
of the statute.’” American Bar Ass’n, 430 F.3d at 471–72
(quoting Will v. Michigan Dep’t of State Police, 491 U.S. 58, 65
(1989)). But Congress has made abundantly clear its intention
to regulate the federal programs funded through LSC according
to federal and not California standards.
In support of its “clear statement” argument, CRLA
forwards the language of 42 U.S.C. § 2996e(b)(3):
The Corporation shall not . . . interfere with any attorney
in carrying out his professional responsibilities to his
client as established in the Canons of Ethics and the
Code of Professional Responsibility of the American Bar
Association (referred to collectively in this subchapter as
“professional responsibilities”) or abrogate as to
attorneys in programs assisted under this subchapter the
authority of a State or other jurisdiction to enforce the
standards of professional responsibility generally
applicable to attorneys in such jurisdiction. The
Corporation shall ensure that activities under this
subchapter are carried out in a manner consistent with
attorneys’ professional responsibilities.
CRLA argues that the statute’s prohibition on “abrogat[ing] . . .
the authority of a State or other jurisdiction to enforce the
standards of professional responsibility generally applicable to
attorneys in such jurisdiction” and its command that “[t]he
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Corporation” “ensure that activities under this subchapter are
carried out in a manner consistent with attorneys’ professional
responsibilities” demonstrate that state professional
responsibility and confidentiality rules constrain OIG
subpoenas. But in fact, that statutory language does not purport
to constrain the investigatory authority of the OIG of LSC. The
state is as free to continue its role of attorney supervision as it
ever was. No authority of the state of California or any other
entity is abrogated. The “abrogation” clause forwarded by the
appellant does nothing to render the OIG’s interpretation of its
authority invalid under the plain statement rule.
The weakness of CRLA’s argument becomes even more
evident when the “abrogation” clause is held up to the light of
the language of the rest of the subsection. The initial language
of that subsection is to the effect that “[t]he Corporation shall
not . . . interfere with any attorney in carrying out his
professional responsibilities to his client as established in the
Canons of Ethics and the Code of Professional Responsibility of
the American Bar Association . . . .” We would remind the
appellants that they do not come seeking the protection of the
“Canons of Ethics and the Code of Professional Responsibility
of the American Bar Association,” but rather of the California
state standards. Thus, § 2996e(b)(3) not only does not support
their proposition, but indeed it argues against it.
In the end, we are back to the fundamental principle
recognized by the Supreme Court in Kimbell Foods and applied
by us in the subpoena context in Linde Thomson: “federal law
governs questions involving the rights of the United States
arising under nationwide federal programs.” Kimbell Foods,
440 U.S. at 726.
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B. The Notice Requirement
Although the district court concluded that OIG’s subpoena
should be enforced, it also found “that [CRLA] and the attorney-
intervenors ha[d] nonetheless raised legitimate concerns about
the privacy of their clients’ confidential information” and issued
a protective order to address those concerns. Mem. Op. 33–34,
ECF No. 65, Nov. 14, 2011. OIG argues that the district court
abused its discretion by adding a provision to the proposed
protective order that OIG submitted, requiring OIG to give
CRLA “a minimum of five days’ notice in advance of all
disclosures,” even those “specifically authorized by Section
509(i)” to law enforcement and bar officials. Id. at 36.
Appellants argue eloquently for the reasonableness and
need for such a notice requirement. But that is not the standard
governing our review. It is well established “that it is the
agencies, not the courts, which should, in the first instance,
establish the procedures for safeguarding confidentiality.” FTC
v. Texaco, Inc., 555 F.2d 862, 884 n.62 (D.C. Cir. 1977).
Therefore, a district court may substantively alter confidentiality
requirements imposed by an agency’s protective order if it finds
that the agency abused its discretion by not requiring the
additional protections. As we stated in FTC v. Owens-Corning
Fiberglass Corp., 626 F.2d 966, 973 (D.C. Cir. 1980), when the
agency does not abuse its discretion, “we must vacate the
portions of the district court’s order imposing further conditions
on the [agency].” Otherwise put, “court[s] must focus on the
adequacy of the agency’s (and not the district court’s) discretion
regarding what is necessary to protect confidentiality.” U.S.
Int’l Trade Comm’n v. Tenneco West, 822 F.2d 73, 76 (D.C. Cir.
1987).
CRLA argues that the rule of FTC v. Texaco and its progeny
does not govern this case because the OIG had agreed to submit
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to the terms of a protective order, and in so doing abdicated its
normal authority. CRLA’s argument overstates the facts. The
OIG did not agree to give the district court carte blanche and
abide by whatever terms it chose to incorporate in a protective
order. OIG had expressed a willingness to “agree in principle to
the entry of a protective order,” but it conditioned its willingness
on the district court “not limit[ing] Petitioners’ investigation and
[the protective order being] consistent with the applicable
statutes.” Dist. Ct. Docket No. 53, at 4, Mar. 11, 2009.
The OIG submitted a proposed protective order that did not
include any such notice, and it should be evident that it did not
agree to the notice, so there is nothing to take this case out of the
ordinary rule. Again, that rule is that the district court can
enhance the confidentiality requirements imposed by the agency
only if it finds that the agency abused its discretion. Here there
is no such finding, and we therefore must vacate the portion of
the district court’s order imposing the notice requirement.
III. CONCLUSION
For the reasons set forth above, we affirm the judgment of
the district court summarily enforcing the investigative
subpoena issued by the Office of Inspector General of the Legal
Services Corporation. We vacate the order insofar as it added
a five-day notice requirement to the confidentiality terms
otherwise applicable.
So ordered.