Grand Jury Subpoena

• Court: Court of Appeals for the Fifth Circuit
• Decided: July 25, 2000
• Docket: 99-41308
• Status: Published

Opinion

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

1 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,

1 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).

2 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

3 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

4 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

5 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

6 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

7 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

8 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

9 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.