In Re: Grand Jury Subpoena v.

• Court: Court of Appeals for the Fourth Circuit
• Decided: March 23, 2016
• Docket: 15-4080
• Status: Unpublished

Opinion

UNPUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 15-4080

In Re: GRAND JURY SUBPOENA

---------------------------

UNDER SEAL 1; UNDER SEAL 2,

Intervenors - Appellants,

v.

UNITED STATES OF AMERICA,

Respondent - Appellee.

Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Max O. Cogburn, Jr., District Judge. (3:13-mc-00107-MOC-DCK-1)

Argued: October 27, 2015 Decided: March 23, 2016

Before KEENAN, WYNN, and DIAZ, Circuit Judges.

Affirmed by unpublished opinion. Judge Wynn wrote the opinion, in which Judge Keenan and Judge Diaz joined.

ARGUED: Jeffrey Bryan Wall, SULLIVAN & CROMWELL LLP, Washington, D.C., for Intervenors-Appellants. Amy Elizabeth Ray, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for Respondent-Appellee. ON BRIEF: Steven R. Peikin, Beth D. Newton, SULLIVAN & CROMWELL LLP, New York, New York; Jack M. Knight, Jr., Phoebe N. Coddington, WINSTON & STRAWN LLP, Charlotte, North Carolina; Michael S. Schachter, Alexander L. Cheney, Nicholas W. Chiuchiolo, WILLKIE FARR & GALLAGHER LLP, New York, New York; Brian S. Cromwell, Sarah F. Hutchins, PARKER POE ADAMS & BERSTEIN LLP, Charlotte, North Carolina, for Intervenors-Appellants. Jill Westmoreland Rose, Acting United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for Respondent-Appellee.

Unpublished opinions are not binding precedent in this circuit.

2 WYNN, Circuit Judge:

In this white-collar criminal matter, a federal grand jury

has been investigating whether commodities traders engaged in

misconduct. At the heart of this appeal is whether evidence

that the grand jury sought and that otherwise might be

privileged is nonetheless discoverable because the crime-fraud

exception to the attorney-client privilege applies.

Grand jury investigations are confidential, and we are thus

barred from including here much detail. But just because we may

not write about particulars does not mean that we either lack

them or have failed to consider them. On the contrary, we have

reviewed this matter thoroughly and conclude that the district

court did not clearly abuse its discretion in holding that the

government successfully made a prima facie showing that evidence

that might otherwise have been shielded from discovery enjoys no

such protection due to the crime-fraud exception. Accordingly,

we affirm.

I.

Two traders who are the subject of a grand jury

investigation (“Traders”) worked for a bank executing block

futures trades for large investors. In 2010, a private

regulatory body inquired into various trades, investigating

potential front-running, i.e., misusing material information

3 about impending trades for personal gain. See United States v.

Mahaffy, 693 F.3d 113, 120 (2d Cir. 2012).

In November 2010, the regulator sought to interview the

Traders and others in connection with the suspicious activity.

The bank that employed the Traders engaged an attorney

(“Lawyer”) to represent the Traders and the bank vis-à-vis the

regulator. Lawyer met the Traders individually and collectively

and then participated in the interviews.

In December 2010, Lawyer followed up with the regulator by

written submission. The written submission, for which the

Traders’ feedback was sought, asserted legal and factual

defenses of the suspect trades. The submission asserted, for

example, that the Traders “flatly denied having entered

proprietary orders in advance of and with knowledge of any

customer block order” and noted that “each trader gave clear,

consistent and undeniable explanations of why such trading was

not even feasible.”

At a later point in time, the government began

investigating the Traders’ suspicious trading activity. And in

July 2013, a federal grand jury looking into whether any crimes

had been committed issued a subpoena to Lawyer, seeking

documents relating to Lawyer’s representation of the Traders,

especially regarding the November 2010 interviews and the

December 2010 written submission to the regulator. While

4 others, including the bank, waived any applicable attorney-

client privilege, the two Traders did not. They therefore

intervened and sought, along with Lawyer, to quash the grand

jury’s subpoena.

A magistrate judge denied the motions to quash. But the

district court remanded the matter to the magistrate for an in

camera review. Upon review, the magistrate judge yet again

denied the motions. And the second time around, the district

court agreed. The district court held, among other things, that

the crime-fraud exception applied here, where the Traders’

communications with Lawyer were made “precisely to further the

Traders’ criminal scheme” of misusing information about

impending trades for personal gain. The Traders appealed to

this Court.

II.

As an initial matter, we briefly address our subject matter

jurisdiction over this appeal. Generally, “a district court’s

order enforcing a discovery request is not a ‘final order’

subject to appellate review.” Church of Scientology v. United

States, 506 U.S. 9, 18 n.11 (1992). In Perlman v. United

States, however, the Supreme Court made clear that courts may

review immediately a discovery order directing a third party to

produce exhibits that were the property of an appellant who

claims immunity or privilege. 247 U.S. 7, 12-13 (1918). And in

5 United States v. Jones, this Court, relying on Perlman, held

that an order denying the motion of clients, who were targets of

a grand jury investigation, to quash grand jury subpoenas issued

to their attorneys, was immediately appealable. 696 F.2d 1069,

1071 (4th Cir. 1982). Based on Perlman and Jones, we have

jurisdiction to review the ruling regarding the grand jury

subpoena at issue here.

III.

On appeal, the Traders challenge the district court’s

determination that the crime-fraud exception to the attorney-

client privilege applied and that the privilege thus provided no

basis for shielding the subpoenaed documents and testimony from

the grand jury. 1 Our review is a deferential one: A district

court’s determination that the government made a prima facie

showing that the crime-fraud exception applies “should be upheld

‘absent a clear showing of abuse of discretion.’” In re Grand

Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d 247, 254

(4th Cir. 2005) (quoting In re Grand Jury Subpoena, 884 F.2d

124, 127 (4th Cir. 1989)).

1 The work-product privilege is not an issue on appeal. We therefore do not address it.

6 A.

The attorney-client privilege protects confidential

communications between clients and their counsel. “Its purpose

is to encourage full and frank communication . . . and thereby

promote broader public interests in the observance of law and

administration of justice. The privilege recognizes that sound

legal advice or advocacy serves public ends and that such advice

or advocacy depends upon the lawyer’s being fully informed by

the client.” Upjohn Co. v. United States, 449 U.S. 383, 389

(1981).

However, the privilege’s justifications “cease as the line

is crossed from legal advice given on how one may conform one’s

actions to the requirements of the law . . . into the domain of

contemplated or actual illegal prospective or on-going action.”

Edna Selan Epstein, The Attorney-Client Privilege and the Work-

Product Doctrine Vol. 1, at 675 (5th ed. 2007). Accordingly,

the attorney-client privilege is “lost . . . when a client gives

information to the attorneys for the purpose of committing or

furthering a crime or fraud.” In re Grand Jury Proceedings, 102

F.3d 748, 750-51 (4th Cir. 1996).

To overcome the attorney-client privilege and “secure

[sought] evidence,” Union Camp Corp. v. Lewis, 385 F.2d 143, 145

(4th Cir. 1967), the government must convince the court: (1)

that “the client was engaged in or planning a criminal or

7 fraudulent scheme when he sought the advice of counsel,” and (2)

that the attorney’s assistance was obtained in furtherance of

the crime or fraud or was closely related to it. In re Grand

Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d at 251.

The government need not “prove the crime or fraud” at the grand

jury stage, nor is the government required to make its showing

even by a preponderance of the evidence. Id. (quotation marks

and citation omitted). Instead, only a prima facie showing must

be made—i.e., “the proof ‘must be such as to subject the

opposing party to the risk of non-persuasion if the evidence as

to the disputed fact is left unrebutted.’” Id. (quoting Duplan

Corp. v. Deering Milliken, Inc., 540 F.2d 1215, 1220 (4th Cir.

1976)).

Our recitation of the burden, especially our use of the

word “rebut,” (incorrectly) suggests “that the party asserting

the privilege may respond with evidence to explain why the

vitiating party’s evidence is not persuasive.” In re Grand Jury

Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33

F.3d 342, 352 (4th Cir. 1994). But grand jury proceedings are

closed and secret. Fed. R. Crim. P. 6. And we have long held

that not only facts supporting the crime-fraud exception, but

even the nature of the alleged crime or fraud itself, may be

presented ex parte and held in confidence. In re Grand Jury

Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33

8 F.3d at 352-53 (citing In re Grand Jury Subpoena, 884 F.2d 124).

The party asserting privilege may thus be forced to make a best

guess as to the crime and evidence it must counter. Id.

The second crime-fraud prong, whether the attorney’s

assistance was obtained in furtherance of the crime or fraud,

“may be satisfied with a showing of a close relationship between

the attorney-client communications and the possible criminal or

fraudulent activity.” In re Grand Jury Proceedings #5

Empanelled Jan. 28, 2004, 401 F.3d at 251. Further, “it is the

client’s knowledge and intentions that are of paramount concern”

in our analysis; the attorney need not be aware of any

illegality. Id.

Notably, communications “made with the intention of

covering up the crime/fraud” can qualify under the second crime-

fraud prong and “will not be privileged.” Epstein, The

Attorney-Client Privilege and the Work-Product Doctrine Vol. 1,

at 684. In such cases, “the concealment or cover-up of its

criminal or fraudulent activities by the client, the holder of

the privilege . . . controls the court’s analysis of whether the

attorney-client privilege may be successfully invoked.” In re

Grand Jury Proceedings, 102 F.3d at 751.

In In re Grand Jury Proceedings, for example, “a question

arose as to whether two lawyers, . . . at the request of the

Bank, and acting innocently, gave somewhat false information

9 which might serve to cover up the Bank’s crime or fraud

activity.” Id. at 750. The grand jury thus sought the

attorneys’ documents and testimony. Id. This Court noted that

“the concealment or cover-up of its criminal or fraudulent

activities by the client, the holder of the privilege” controls

the crime-fraud analysis. Id. at 751. And the Court was

“satisfied” that the district court’s finding of a prima facie

case was adequately supported where “the attorneys, unknowingly,

furthered the Bank’s alleged fraud by referencing in various

documents,” including in submissions to government regulators,

fraudulent information. Id. at 751-52. 2

Ultimately, “the determination of whether a privilege

applies [is] reserved for the trial judge.” In re Grand Jury

Subpoena, 884 F.2d at 127. The trial judge engages in the two-

pronged crime-fraud analysis in the first instance. And in

reviewing its determination, we are mindful of the Supreme

Court’s warning that “[a]ny holding that would saddle a grand

jury [proceeding] with minitrials and preliminary showings would

assuredly impede its investigation and frustrate the public’s

2 This Circuit is not alone in holding that communications aimed at concealing a criminal or fraudulent scheme obliterate the privilege. See, e.g., In re John Doe Corp., 675 F.2d 482 (2d Cir. 1982) (holding that internal investigation intended to persuade third parties that no irregularity had occurred was part of cover-up and thus upended any privilege).

10 interest in fair and expeditious administration of the criminal

laws.” United States v. Dionisio, 410 U.S. 1, 17 (1973). Not

least for this reason, we uphold such determinations “absent a

clear showing of abuse of discretion.” In re Grand Jury

Subpoena, 884 F.2d at 127.

B.

With this framework in mind, we have reviewed the

particulars of this case and determined that the district court

did not clearly err in determining that the government

successfully made a prima facie showing that the Traders engaged

in a criminal or fraudulent scheme of misusing information about

impending trades for personal gain. The district court’s

determination that the Traders intended to avoid detection and

continue their scheme in communicating with Lawyer, not least by

having Lawyer misrepresent their activities to the regulator, is

likewise supported by the record.

The Traders repeatedly argue that nothing “in the record”

supports the district court’s determination here. Appellants’

Br. at 43. The Traders claim, for example, that “the Government

lacks evidence” to support the crime-fraud exception and thus

attempts to “fall[] back on the communications themselves” to

make the necessary showing. Id. at 47. But the Traders, who

were, by definition, excluded from the grand jury proceedings

and thus not privy to what evidence or theories the complete

11 record contains, see Fed. R. Crim. P. 6, are tilting at

windmills.

We, by contrast, have the full record, and we have reviewed

it thoroughly. And on that basis, we conclude that the Traders

have failed to make “a clear showing of abuse of discretion.”

In re Grand Jury Subpoena, 884 F.2d at 127. The district

court’s determination that the government made a showing

sufficient to support the crime-fraud exception must therefore

be upheld. See id. And because the exception annihilated any

privilege inhering in the Traders’ communications with Lawyer,

we need not address the Traders’ challenge to the district

court’s ruling that some of the documents responsive to the

grand jury’s subpoena were not privileged because they were

intended to be disclosed to third parties.

IV.

For the reasons discussed above, the district court’s

ruling is

AFFIRMED.