In re Grand Jury
In re Grand Jury, No. 12-1697; Third Circuit; opinion by Ambro, U.S.C.J.; partial dissent by Vanaskie, U.S.C.J.; filed December 11, 2012. Before Judges Ambro, Hardiman and Vanaskie. On appeal from the Eastern District of Pennsylvania. [Sat below: Judge Bartle.] [67 pp.]
ABC Corp., John Doe 1 and John Doe 2 are subjects of an ongoing grand jury investigation into an alleged criminal tax scheme pursuant to which ABC Corp., under the direction of John Doe 1 and John Doe 2, purchased and sold numerous companies. These consolidated appeals concern whether documents and testimony relating to legal advice obtained by ABC Corp. in connection with these transactions are shielded by the attorney-client and work-product privileges.
When ABC Corp. objected that the government had improperly served a subpoena for documents on ABC Corp., the government issued grand jury subpoenas for those documents to ABC Corp.'s current outside counsel LaCheen, Wittels & Greenberg and Blank Rome. Later, it also served subpoenas for documents and testimony on three attorneys formerly employed by ABC Corp. as in-house counsel. The firms and counsel asserted attorney-client and work-product privileges on ABC Corp.'s behalf, the government moved to enforce the subpoenas, and ABC Corp. opposed the motion as the purported privilege holder.
The district court granted the government's motions to enforce based in part on the crime-fraud exception. Finding that the requested communications and work product either did not qualify as privileged or that any protection afforded was vitiated by this exception, the court rejected ABC Corp.'s privilege claims and issued corresponding disclosure orders the first directed to ABC Corp., LaCheen Wittels, and Blank Rome in March 2012 (the March order) and the second directed to the three in-house counsel in June 2012 (the June order).
ABC Corp. seeks to appeal these orders. Disclosure orders are not normally immediately appealable final decisions. ABC Corp. argues nonetheless that it can appeal under an exception to the contempt rule established in Perlman v. United States. Under Perlman, a privilege holder may immediately appeal an adverse disclosure order when the traditional contempt route is unavailable to it because the privileged information is controlled by a disinterested third party who is likely to disclose that information rather than be held in contempt for the sake of an immediate appeal.
Held: The Third Circuit lacks jurisdiction to hear ABC Corp.'s appeal from the March disclosure order because ABC Corp. may use the contempt path to jurisdiction. The Third Circuit has jurisdiction to hear the appeal by ABC Corp. from the June disclosure order because that order is not directed to it and its former employees are unlikely to risk contempt sanctions on its behalf. In reaching the merits of ABC Corp.'s appeal from the June order, the circuit panel holds that the court correctly applied the crime-fraud exception to deny ABC Corp. a privilege protection over testimony and two documents sought from its former in-house counsel and determined that three documents sought from those counsel do not qualify as privileged.
The circuit panel first concludes that the Perlman exception applies, rejecting the government's argument that Mohawk Industries Inc. v. Carpenter precludes a privilege holder who is a grand jury subject from appealing under Perlman. The panel declines to hold that Mohawk so narrows Perlman.
The circuit panel finds it lacks jurisdiction to hear ABC Corp.'s appeal from the March order because the contempt route remains open to ABC Corp. The panel directs both ABC Corp. and the law firms to produce the withheld documents. If ABC Corp. wants immediate appellate review, it can take possession of the documents, defy the disclosure order, and appeal any resulting contempt sanctions. Because it has not yet done so, the circuit panel dismisses its appeal from the March order for lack of appellate jurisdiction.
The circuit panel agrees, however, that it has jurisdiction to hear ABC Corp.'s appeal from the June order, which is directed solely to its former in-house counsel. ABC Corp. cannot be held in contempt of this order because it does not direct ABC Corp. to take or refrain from any action. And there is no indication that ABC Corp.'s former employees are anything but disinterested third parties unwilling to be held in contempt to vindicate its purported privilege. The panel therefore reaches the merits of ABC Corp.'s appeal from the June order.
Though the panel limits its discussion to background facts already disclosed to both parties in order to maintain the secrecy of the grand jury's investigation, it has received and closely reviewed unredacted versions of the orders, as well as secret grand jury information submitted ex parte by the government.
As to the question of what proof is required to overcome evidentiary privileges, the circuit panel clarifies that the reasonable-basis standard applies. Where there is a reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the attorney-client communications or attorney work product were used in furtherance of the alleged crime or fraud, this is enough to break the privilege.
Here, the district court found that the evidence submitted ex parte by the government provided a reasonable basis to suspect that ABC Corp. willfully evaded paying federal income taxes and engaged in a conspiracy to defraud the United States of federal income taxes. The district court granted ABC Corp. access to redacted versions of the government's briefing, provided ABC Corp. with the opportunity to make its own submissions, and conducted a careful and probing in camera review of the parties' evidentiary submissions. The circuit panel does not find that the court abused its discretion, or denied ABC Corp. due process, in determining the applicability of the crime-fraud exception. The circuit panel does not find that the district court's factual findings were clear error or that it abused its discretion in determining that there is a reasonable basis to suspect that ABC Corp. used the legal advice it obtained in connection with these transactions to further its criminal scheme.
The circuit panel dismisses the appeals by John Doe 1 and John Doe 2 for lack of standing, dismisses the appeal by ABC Corp. from the March order for lack of jurisdiction, and affirms the June order.
Vanaskie, U.S.C.J., concurring in part and dissenting in part, writes separately to express the belief that the Third Circuit has jurisdiction over ABC's appeal from the March order to the extent that it requires production by ABC's outside lawyers. Judge Vanaskie would reach the merits of both orders, and would affirm the district court to the extent it ordered production of the documents by both outside and former in-house counsel.
For ABC Corp. Stephen R. LaCheen (LaCheen Wittels & Greenberg) and Ian M. Cominsky and Matthew D. Lee (Blank Rome). For appellee Frank P. Cihlar, Gregory V. Davis, S. Robert Lyons, Alexander P. Robbins (U.S. Department of Justice, Tax Division) and Karen L. Grigsby and Patrick J. Murray (Office of the U.S. Attorney) and David I. Sharfstein (U.S. Department of Justice, Civil Division, Appellate Staff).
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