In re Special March 1981 Grand Jury

753 F.2d 575, 1985 U.S. App. LEXIS 28677

• Court: Court of Appeals for the Seventh Circuit
• Decided: January 23, 1985
• Docket: No. 84-1187
• Status: Published

Opinions

POSNER, Circuit Judge.

This appeal questions the propriety of the action of the Chief Judge of the Northern District of Illinois in handing over to the Illinois Department of Public Aid voluminous business records of the appellants (several pharmacies) that a federal grand jury had subpoenaed in 1983. The appellants had turned over the records to the grand jury without making copies of them; and when shortly afterward the Department of Public Aid tried to audit the appellants as part of its responsibility for administering Medicaid, the appellants told the Department that the records it needed were in the hands of the grand jury. The state thereupon (in August 1983) wrote one of the assistant United States attorneys in charge of the grand jury’s investigation, listing the categories of documents it needed and requesting access to them. Satisfied (without going much behind the letter) with the state’s representation that the records it was seeking were indeed ones that federal and state law required the appellants to maintain, the assistant U.S. attorney filed in September and October ex parte motions with the chief judge of the district court, which were promptly granted, to allow the United States Attorney’s office to hand over the requested documents to the state. In January 1984 the appellants, discovering that their records were in the hands of the state (where they remain today), which was .using them in administrative proceedings that might result in terminating their eligibility to participate in the Medicaid program, petitioned the chief judge to prohibit the state from using the records in any judicial or administrative proceeding, and to prohibit access to the records by anyone else. The chief judge denied the petition and this appeal followed. The grand jury has since been dismissed, having indicted several individuals whose connection, if any, with the appellants, all of which are corporations, is obscure.

The United States Attorney, who is defending the chief judge’s order in this court, argues that these pharmacies do not have standing to contest the order, because the State of Illinois has an absolute right under federal and state law to see their business records, and the pharmacies therefore were not harmed by the order. See 42 C.F.R. §§ 455.104-455.106; Ill.Rev.Stat.1981, ch. 23, U 5-5; Ill.Dept.Pub. Aid R. 4.014. If they were not harmed, their petition is not within the power of the federal courts to grant. See, e.g., People Organized for Welfare & Employment Rights v. Thompson, 727 F.2d 167, 169 (7th Cir.1984). But the petition claims that the district court violated state and federal law in releasing the appellants’ business records to the state. The claim may be right or wrong but that is an issue on the merits and is irrelevant to standing. What is relevant is that the appellants are being hurt by the release because the state is busy using their records against them. See Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 218 n. 8, 99 S.Ct. 1667, 1672 n. 8, 60 L.Ed.2d 156 (1979).

Even so, it is not immediately obvious what they have to gain from winning this appeal. The cat has been out of the bag for a year. The state has had all that time to go through the records, copy them, and use them. What good would it do the appellants to get the records back now? They do not claim to need them for their business. They only want to keep them away from the state, and it seems too late for that. It is not enough, to give you standing, that you have been hurt by someone; you must have something tangible to gain from your suit — some alleviation of, or compensation for, the hurt. Otherwise the suit is as much an academic exercise as if it were brought to prevent a nonexistent harm. See, e.g., Valley Forge Christian College v. Americans United for Separation of Church & State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982).

But the appellants want an order preventing the state from making any use of the documents, and if such an order would be within the district court’s power, the appellants do have something concrete to gain from winning this appeal. Rule 6(e) of the Federal Rules of Criminal Procedure creates a procedure by which a federal court can order the disclosure of matters occurring before the grand jury. If the court orders such disclosure erroneously, we suppose both that an injured person can complain by filing (as was done here) a petition with the court that ordered disclosure and that the court has inherent power to issue an appropriate curative order, including an order preventing the person to whom disclosure was erroneously made from using the information gained from it. See In re Grand Jury Investigation No. 78-184, 642 F.2d 1184, 1188 (9th Cir.1981), aff’d under the name of United States v. Sells Engineering, Inc., 463 U.S. 418, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983); cf. Gumbel v. Pitkin, 124 U.S. 181, 144, 8 S.Ct. 379, 383, 31 L.Ed. 374 (1888); Handler v. SEC, 610 F.2d 656, 659 (9th Cir.1979); 1 Moore’s Federal Practice 110.60[6], at p. 634 (2d ed. 1984). We do not think Congress meant to leave the courts powerless to correct such errors. So if the appellants are right that the district court erred in turning over their records to the state, they may be able to obtain a remedial order. This is possibility enough to confer standing, and we can turn to the merits, where two issues require discussion.

The first is whether the appellants’ records are (or were) “matters occurring before the grand jury.” Rule 6(e)(2) forbids “an attorney for the government” (among others) to disclose such matters, with limited exceptions (set forth in Rule 6(e)(3)) that the State of Illinois, in requesting the assistance of the United States Attorney, made no effort to fit itself within. Thus, if the appellants’ records were “matters occurring before the grand jury,” the district court erred in letting the state have them. In a literal sense they were matters occurring before the grand jury. But because the exceptions in Rule 6(e) to maintaining grand jury secrecy are so limited, a literal reading would have most unfortunate practical consequences, and is also unnecessary for the protection of that secrecy. The principle has therefore emerged that “matters occurring before the grand jury” do not include every document of which the grand jury happens to have custody. If a document is sought for its own sake rather than to learn what took place before the grand jury, and if its release will not seriously compromise the secrecy of the grand jury’s deliberations, Rule 6(e) does not forbid its release. See, e.g., In re Grand Jury Proceedings, Miller Brewing Co., 687 F.2d 1079, 1089-90 (7th Cir.1982); In re Special February 1975 Grand Jury, 662 F.2d 1232, 1244 (7th Cir.1981) (supplemental opinion), aff’d under the name of United States v. Baggot, 463 U.S. 476,103 S.Ct. 3164, 77 L.Ed.2d 785 (1983); United States v. Stanford, 589 F.2d 285, 291 (7th Cir.1978); United States v. Interstate Dress Carriers, Inc., 280 F.2d 52, 54 (2d Cir.1960).

Illinois needs the appellants’ business records to determine the appellants’ eligibility to participate in the Medicaid program. But if the appellants are right in their reading of Rule 6(e)(2), then by the simple expedient of not making copies of the records that they turned over to the grand jury in response to its subpoena they have succeeded in putting the records into perpetual cold storage. We are exaggerating, but only a little. The state might be able to make a “strong showing” of a “particularized need” for the records in connection with anticipated judicial proceedings against the appellants, and so come within the exception to grand jury secrecy in Rule 6(e)(3)(C)(i), as judicially glossed, for example in Lucas v. Turner, 725 F.2d 1095, 1101 (7th Cir.1984). Or it could forget about the records and terminate the appellants’ participation in the Medicaid program because of their failure to maintain required records. See Ill.Rev.Stat.1981, ch. 23, ¶ 12-4.25(A)(b). (Of course the appellants would fight this tooth and claw — are fighting tooth and claw, we infer, in the termination proceedings that the state has brought against them.) But these measures seem unduly cumbersome (as well as possibly ineffectual), given that — as we are about to see — releasing the records could not have compromised the secrecy of the grand jury to any appreciable extent.

Judge Friendly’s compact summary of the interests that grand jury secrecy protects — “the interest of the government against disclosure of its investigation of crime which may forewarn the intended objects of its inquiry or inhibit future witnesses from speaking freely; the interest of a witness against the disclosure of testimony of‘others which he has had no opportunity to cross-examine or rebut, or of his own testimony on matters which may be irrelevant or where he may have been subjected to prosecutorial brow-beating without the protection of counsel; the similar interests of other persons who may have been unfavorably mentioned by grand jury witnesses or in questions of the prosecutor; protection of witnesses against reprisal; and the interests and protection of the grand jurors themselves,” In re Biaggi, 478 F.2d 489, 491-92 (2d Cir.1973) (footnote omitted) — includes two distinct types of interest: the institutional and the personal. The institutional interests, which range from not forewarning the targets of the grand jury’s investigation to protecting witnesses and grand jurors from reprisals, are those that are important to the grand jury’s investigatory effectiveness. The personal are private interests, mainly in reputation, that the ex parte nature of the grand jury puts at risk: for example, the reputation of a person accused of wrongdoing by a witness before the grand jury.

The Justice Department should be an adequate guardian of the institutional interests of (federal) grand juries — after all, the grand jury is an investigatory tool of the Department. And far from opposing the state’s request, the Justice Department through the local U.S. Attorney made the request on the state’s behalf and defends the request in this court. In fact the request posed no threat to the grand jury’s institutional interests. Although a list of the documents subpoenaed by a grand jury could be used to infer the nature and maybe the direction of its investigation, with the possible consequences of forewarning targets of the investigation and exposing witnesses and grand jurors to reprisals, the state was not asking for a list of the records that the appellants had given the grand jury. It knew already — the appellants had told it — that the records it wanted were among those the grand jury had subpoenaed. The only information that the documents themselves could reveal to the state about the grand jury’s deliberations was what could be learned about those deliberations by actually reading the documents, as distinct from the information the state already possessed by virtue just of knowing that the grand jury had subpoenaed the documents. Especially as most of the documents were either medical or financial records — prescription receipts or ledger sheets — the additional information must have been slight.

Nor did the state’s request pose a threat to the personal interests that the policy of grand jury secrecy protects. Although the interest in protecting the reputations of persons whose names may be mentioned in the grand jury’s deliberations yet who may never be criminally prosecuted could be affected by releasing documents that had been submitted to the grand jury and contained accusatory matter, the appellants’ records are not of such character. They are not narratives, but records of transactions; they contain no defamatory or embarrassing material.

To summarize, the harm to the interests in keeping grand jury proceedings secret is too slight, compared to the harm to the state of not being able to see the appellants’ records, to warrant classifying these records as “matters occurring before the grand jury”; so their release violated no substantive restriction in Rule 6(c).

But we must still consider the appellants’ argument that release should not have been ordered in a proceeding of which they had no knowledge. There is great force to this argument in a case such as this where the request is not by (or on behalf of) the owner of the items requested. It is true that Rule 6(e)(3)(D) allows the court to proceed ex parte when the federal government petitions for disclosure of matters occurring before the grand jury for use in connection with a judicial proceeding. But the fact that they are matters occurring before the grand jury means, as made clear by the Advisory Committee’s Note to the 1983 amendment to Rule 6 (the amendment that added Rule 6(e)(3)(D)), that ex parte procedure may be necessary to preserve the secrecy of the grand jury proceeding. The Note also makes clear that whether ex parte procedure is proper, even in such a case, depends on the circumstances — and that it is “much less likely to be appropriate if the government acts as petitioner as an accommodation to, e.g., a state agency.”

Although Rule 6 establishes no procedure for determining whether and to whom documents or other materials in the grand jury’s custody that as in this case are not matters occurring before the grand jury should be released, we think it implicit in the rule, in the inherent character of a judicial system, and most clearly in the due process clause of the Fifth Amendment that a federal court in disposing of property in its control must follow reasonable procedures for the protection of the owner’s interests. With power comes responsibility. Suppose a diamond ring was stolen and later recovered from the thief and deposited in court as an exhibit in his trial. And suppose that after the trial was over someone wrote the clerk of court asking for the ring and the clerk turned it over to him without so much as consulting the owner. The owner would have been deprived of his property without due process of law.

The same principle applies, if less dramatically than in our hypothetical example, to this case. The appellants’ business records, though submitted to the grand jury in response to its subpoenas, remained their property, see United States v. Pen-rod, 609 F.2d 1092, 1097 (4th Cir.1979); United States v. Interstate Dress Carriers, Inc., supra, 280 F.2d at 54; In re Doe, 537 F.Supp. 1038, 1041 (D.R.I.1982), just as if they had hired a storage company to warehouse them. It makes no difference that the appellants have no absolute right to the return of the property and do not even want the property back for its own sake but only so they can keep it out of the hands of an antagonist. Conceivably (if improbably) the government could keep their records forever without paying compensation, by analogy to cases like Hurta-do v. United States, 410 U.S. 578, 588-89, 93 S.Ct. 1157, 1163-64, 35 L.Ed.2d 508 (1973), and Emery v. Oregon, 297 Or. 755, 688 P.2d 72 (1984); but see Robert Hawthorne, Inc. v. Director of Internal Revenue, 406 F.Supp. 1098, 1130 (E.D.Pa.1975); Application of Bendix Aviation Corp., 58 F.Supp. 953, 954 (S.D.N.Y.1945). But at the very least the appellants have a right to be heard on the disposition of their interests so that they can try to show, as they believe they can show, that the state does not have a legal right to take even temporary custody of all of the subpoenaed records. The analogy to the right to notice of persons having interests in property subject to an in rem proceeding, see, e.g., Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), is transparent.

The fact that the state has not taken the records for “keeps,” and will return them when it has finished its investigation, is also immaterial. Even a temporary deprivation entitles the property owner to due process — which means, as a general rule, to reasonable notice and an opportunity for a fair hearing. See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 606, 95 S.Ct. 719, 722, 42 L.Ed.2d 751 (1975); Sutton v. City of Milwaukee, 672 F.2d 644, 645 (7th Cir.1982). The appellants were not given these things. No emergency justified the district court in acting without notice to the appellants; and they ought at the very least to have had an opportunity, after the records were turned over to the state, for a hearing on their claim that the state was not entitled to inspect all of the subpoenaed records.

But when we turn to the question of the appropriate remedy for the district court’s violation of the appellants’ rights, we are driven rapidly to the conclusion that we ought not give them any in the unusual circumstances of this case. If the district court had given the appellants notice and an opportunity for a hearing, the result would not have been a denial of the requests in toto. The requested documents were not matters occurring before the grand jury and the appellants do not deny that the state is legally entitled to inspect most of them. At most the appellants might have been able to persuade the court that some of the records should be withheld. So if we ordered the district court to freeze the state’s use of these documents pending a hearing on the state’s request for the documents (the hearing the appellants were entitled to but never got), most of the records would be promptly unfrozen.

The appellants have alternative remedies against the state’s unauthorized use of their records that are more direct and discriminating. They can challenge that use either in actions against the state or in defending against actions brought by the state against them; both sorts of suits are pending, we are told. There is no reason to try to resolve the dispute over the state’s right of inspection in a hearing before a federal district judge who has no responsibility for resolving the underlying dispute between the state and the appellants, a dispute that the appellants acknowledge turns mainly on issues of state rather than federal law. When parallel federal and state suits are pending, the federal court should abstain if the state suit (here, suits) provides a distinctly more convenient and competent forum. See Microsoftware Computer Systems, Inc. v. Ontel Corp., 686 F.2d 531, 537-38 (7th Cir.1982).

It is true that when a federal court decides to abstain in favor of a parallel state proceeding, normally it should stay rather than dismiss the federal suit, so that the plaintiff is not deprived of a federal forum should the state proceeding not resolve the issue on which the federal suit was based. See Evans Transportation Co. v. Scullin Steel Co., 693 F.2d 715, 718 (7th Cir.1982). But as the appellants make no argument that they cannot obtain in the pending state proceedings (administrative and judicial) all the relief to which they are legally entitled, the difference between stay and dismissal seems academic; and in any event the difference has much more significance when a full-blooded lawsuit is dismissed than when a petition in a previously filed proceeding (the proceeding begun by the U.S. Attorney’s motions for release of the appellants’ record) is dismissed.

There is another ground for dismissing the appellants’ petition. Their claim is equitable in nature; they want a mandatory injunction directing the return of the documents to the custody of the district court and an injunction against the state’s making any use of the documents. Although many cases hold, that an adequate remedy at state law is not a valid ground for refusing to issue a federal injunction, see, e.g., United States v. New York, 708 F.2d 92, 93 (2d Cir.1983) (per curiam), the proposition cannot be maintained in unqualified form, given Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), which, as we recently noted, rests on principles of equity jurisprudence, see W.C.M. Window Co. v. Bernardi, 730 F.2d 486, 490 (7th Cir.1984); and given the many cases, illustrated by Microsoftware, that allow a federal court to abstain in favor of a parallel state proceeding — even if, as in Microsoftware, the federal suit is not equitable, see 686 F.2d at 536. See also Rizzo v. Goode, 423 U.S. 362, 379, 96 S.Ct. 598, 608, 46 L.Ed.2d 561 (1976). There is still a sense in which equitable remedies are extraordinary, and may be withheld on broader grounds than legal remedies. See, e.g., Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-13, 102 S.Ct. 1798, 1802-04, 72 L.Ed.2d 91 (1982). The existence of alternative remedies that appear fully adequate and more direct and economical, our reluctance to interfere with pending state- judicial and administrative proceedings, and our more than suspicion that the appellants are trying to use this proceeding to “deep six” records to which (or at least to most of which) the state clearly is entitled, make this a fitting case in which to invoke the principle that equitable relief is extraordinary and to hold, therefore, that the judgment of the district court dismissing the appellants’ petition for equitable relief should be, and it is,

AFFIRMED.