United States ex rel. Woodard v. Tynan

757 F.2d 1085, 53 U.S.L.W. 2497

• Court: Court of Appeals for the Tenth Circuit
• Decided: March 21, 1985
• Docket: No. 83-1931
• Status: Published

Opinions

LOGAN, Circuit Judge.

I

This is a civil case filed by the Colorado Attorney General on behalf of the United States and the State of Colorado in federal district court as a qui tarn proceeding under a federal statute, the False Claims Act, now codified at 31 U.S.C. §§ 3729-3731. Named as defendants were Robert M. Tynan and seven corporate entities involved in the operation of nursing home facilities in Colorado. The Colorado Attorney General alleged in the complaint that the several defendants had filed fraudulent claims against the Colorado Medicaid program, obtaining reimbursements of approximately $120,000 to which they were not entitled. The suit sought double damages and forfeitures under the provisions of the False Claims Act and refund of these overpayments because of fraud.

In the course of the proceeding it became apparent that in order to make its case plaintiff required access to the ordinary business records of the defendant corporate entities. These records had been seized from the defendants pursuant to a search warrant issued by a state court and were the basis for a criminal prosecution in 1979 against Tynan and two other individuals in a Colorado state court. The defendants in the state court criminal proceeding moved to suppress the use of the records on constitutional grounds. On August 20, 1980, a state district court granted this motion, suppressed the use of the records in the state criminal proceeding and ordered the records sealed. The state court judge then sealed her order and instructed the attorneys that they could not discuss any aspect of it with anyone.

The federal district court continued the trial date for the instant case several times to allow the Attorney General time to obtain an order from the state court freeing the records in question for use in the present proceeding. These efforts, however, were unavailing.

When the instant case finally came on for trial, the Attorney General again advised the federal district court that he had been unable to obtain the records in question and that he could not proceed to trial without them. He filed a motion to compel the defendants to consent to release of the records. The federal district court denied this motion. It was in this setting that the federal district court subsequently dismissed the action, on May 31, 1983, noting that although numerous continuances had been granted to the Attorney General to allow him to obtain release of the records from the state court, he had been unable to do so, and, further, that the Attorney General on several occasions had stated that he could not proceed to trial without the records. The initial dismissal was without prejudice, subject to the condition that if no new lawsuit was filed by September 1, 1983, based on a release by the state court of the records the Attorney General claimed he needed, then the dismissal would become one with prejudice. The Attorney General did not file a new suit, and he now appeals the denial of the motion to compel and the order of dismissal with prejudice.

On appeal the Attorney General asserts as grounds for reversal that the federal district court abused its discretion in three particulars: (1) by denying his motion under Fed.R.Civ.P. 34 to compel the defendants in the present proceeding to execute authorizations for release of the seized records; (2) by refusing to hold a hearing and to make an independent inquiry as to whether the seized records were admissible under federal law; and (3) by dismissing the instant action for failure to prosecute.

II

The normal procedure in a case like the one before us is for plaintiffs to file a motion under Fed.R.Civ.P. 34 to require the defendants to produce documents that plaintiffs are entitled to discover under usual procedures. If plaintiffs had filed such a discovery request in this case, the defendants would have been, unable to produce the disputed documents because a Colorado court held them in its custody and was treating them as sealed grand jury materials. An alternative available in that situation would have been, upon plaintiffs’ request, for the federal district court to order the defendants to request permission from the state court maintaining custody of the documents to release those records so that defendants could comply with their discovery obligations in the federal civil proceeding. Such an order would be within the power of the federal district court. See, e.g., Karlsson v. Wolfson, 18 F.R.D. 474 (D.Minn.1956). Both federal and Colorado law appear to allow a party’s business records held by a grand jury to be withdrawn either upon the consent of the documents’ owner or pursuant to a court order after the grand jury has completed its work. See, e.g., United States v. Interstate Dress Carriers, Inc., 280 F.2d 52, 54 (2d Cir.1960); Granbery v. District Court, 187 Colo. 316, 531 P.2d 390, 394 (1975). Another judicially accepted procedure, which we consider less desirable, is for the party seeking the documents related to a grand jury investigation to apply directly to the court with custody of the documents. See, e.g.. In re Grand Jury Matter, 697 F.2d 511, 512 (3d Cir.1982); In re Grand Jury Investigation, 630 F.2d 996 (3d Cir. 1980), cert. denied, 449 U.S. 1081, 101 S.Ct. 865, 66 L.Ed.2d 805 (1981). Such a direct application for documents should be granted if the records sought are not of the type properly considered confidential grand jury materials. Even if they are part of confidential grand jury materials they might be reachable as explained below.

Although a court might deny access on another ground, we have little doubt that if the documents sought in the instant case were held by a federal district court in connection with a federal grand jury investigation, the courts would rule that these documents, required to be kept by the defendants in the normal course of their business, are not privileged grand jury materials. Fed.R.Crim.P. 6(e) addresses the maintenance of secrecy of federal grand jury proceedings. The rule is intended to protect only against disclosures “of what is said or what takes place in the grand jury room.” United States v. Interstate Dress Carriers, Inc., 280 F.2d at 54. Although documents may come within the proscription against disclosure,

“it is not the purpose of the Rule to foreclose from all future revelation to proper authorities the same information or documents which were presented to the grand jury. Thus, when testimony or data is sought for its own sake — for its intrinsic value in the furtherance of a lawful investigation — rather than to learn what took place before the grand jury, it is not a valid defense to disclosure that the same information was revealed to a grand jury or that the same documents had been, or were presently being, examined by a grand jury.”

Id.; accord In re Grand Jury Investigation, 630 F.2d at 1000-01; SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1382-83 (D.C.Cir.) (en banc), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980); In re Grand Jury Impanelled October 2, 1978, 510 F.Supp. 112, 114-15 (D.D.C.1981); Capitol Indemnity Corp. v. First Minnesota Construction Co., 405 F.Supp. 929, 930-31 (D.Mass.1975). Thus, the Internal Revenue Service is not foreclosed from examining necessary records to determine the tax liability of a taxpayer merely because those records are held by a grand jury. See In re SJC Manufacturing Corp., 479 F.Supp. 647, 651 (E.D.N.Y.1979). Neither should the Colorado Attorney General, acting on behalf of the United States and Colorado, in its capacity as administrator of the Medicaid program, be foreclosed from discovery of the records of a nursing home necessary to determine possible civil liability for Medicaid overpayments merely because those records were at one time submitted to a grand jury investigating criminal culpability.

Even if the documents were considered part of federal grand jury materials normally entitled to secrecy, there is no doubt that if the two courts involved were federal courts they would use a weighing process to determine whether the documents should be released. Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 99 S.Ct. 1667, 60 L.Ed.2d 156 (1979), considered this situation. There the Supreme Court stated that parties seeking federal grand jury transcripts “must show that the material they seek is needed to avoid a possible injustice in another judicial proceeding, that the need for disclosure is greater than the need for continued secrecy, and that their request is structured to cover only material so needed.” Id. at 222, 99 S.Ct. at 1674 (footnote omitted). When the civil case is in one court and the grand jury records are in the custody of another court, Douglas Oil details a procedure to be followed. What is described as the “better” practice is for application to be made to the district court having custody of the records. That court makes a written evaluation of the need for continued grand jury secrecy and determines whether the limited evidence before it shows the disclosure to be appropriate. Id. at 230, 99 S.Ct. at 1678. That court then sends the materials to the court where the civil case is pending. With its special knowledge of the status of the civil action before it, the latter court then considers the request for disclosure and makes a decision, considering the views of the court having control over the grand jury. Id. at 230-31, 99 S.Ct. at 1678-79. With this procedure “both the need for continued secrecy and the need for disclosure [are] evaluated by the courts in the best position to make the respective evaluations.” Id. at 231, 99 S.Ct. at 1679 (footnote omitted).¹ Had the federal court in this case followed the procedures that Douglas Oil recommends,² considering that the grand jury has long since been discharged and that the materials are indispensable to the civil proceeding, it likely would have required the disclosure of these documentary records, unless it found that plaintiffs abused the grand jury process to make- their civil case. See Capitol Indemnity Corp., 405 F.Supp. at 931. Such a finding of abuse is not made easily. See United States v. Procter & Gamble Co., 356 U.S. 677, 683-84, 78 S.Ct. 983, 986-88, 2 L.Ed.2d 1077 (1958).

Ill

The key question in the instant case is whether a different result is required because the records are in the custody of a state court with respect to a state grand jury. We think not. The Attorney General did not follow the normal Rule 34 discovery procedures until late in the proceedings when he made a request that defendants be ordered to ask for return of their records from the state court. But he did follow the alternative procedure, at the suggestion of the federal court, applying directly to the state court for access to these documents. The state court judge having custody of the records ruled against the request. Because the state court judge refused to divulge even her own opinion and ordered the attorneys not to discuss any aspect of it, we cannot ascertain the basis of the determination. But from what we have we surmise that the judge thought that Colorado law required these documents to be considered part of the grand jury proceedings and to be kept sealed. R. I, 181-82. The Attorney General made great efforts to get the state court to rule otherwise. He took various appeals and special writ cases to appellate courts within the state court system attempting to override the state judge’s decision. It must now be regarded as conclusively decided by the law of the case that Colorado law requires these documents be kept secret. But that does not resolve the issue.

The Attorney General’s claim arises under federal law, and so the privileged nature of these materials under state law is not controlling. See Socialist Workers Party v. Grubisic, 619 F.2d 641, 643 (7th Cir.1980). Socialist Workers Party is closely analogous to the case at bar. There the court considered a state secrecy requirement under Illinois law. It analyzed the state purposes for secrecy as being similar to the purposes under Fed.R. Crim.P. 6(e), considered the principles of comity, and suggested that the proper procedure is to seek a disclosure order from the state court first. Id. at 644. It then stated:

“As we have already noted, of course, federal law determines the scope of the privilege covering these materials, and the requirement that these plaintiffs first seek disclosure through the avenues available to them in the state court does not give the state courts a veto over disclosure in this federal civil rights case. This preliminary stage is designed merely to forestall unnecessary intrusion by the federal courts in state grand jury proceedings or, at least, to ensure that the important state interest in secrecy is thoroughly considered. On the other hand, although the state court may determine that the materials are privileged under state law, only the federal court may determine whether the materials are privileged under federal common law. In this way the federal interest in disclosure will be properly considered preliminarily to a final decision on the privilege issue. See Douglas Oil, supra, 441 U.S. at 227-28, 99 S.Ct. at 1677. The federal court will be more familiar than the state court with the pending litigation and thus will be more familiar with the needs of the party requesting them.

In the event the plaintiffs are unsuccessful in obtaining disclosure in the state court, the federal district court very well may have to take custody of the grand jury materials and rule on specific requests for disclosure, taking into account the need for secrecy developed during the state disclosure proceeding.”

Id. at 644-45 (citations omitted).

We agree with the Seventh Circuit’s approach. A state order cannot foreclose a federal court from access to materials if a federal district court determines that disclosure is essential in a case properly before it. In such a case the federal district court should order the state trial court to transmit to it the materials for examination in camera and treatment in accordance with the procedures set out in Douglas Oil. Lucas v. Turner, 725 F.2d 1095, 1109 (7th Cir.1984), ordered this sort of remedy for evidence recognized to be grand jury materials subject to disclosure only upon a showing of particularized need.

In Lucas, which involved a request for state grand jury materials in federal court, the court applied Fed.R.Crim.P. 6(e) principles by analogy, and we think this is generally appropriate because Rule 6(e) embodies the federal policy favoring secrecy of federal or state grand jury records. In Douglas Oil, the Supreme Court noted “several distinct interests” served by safeguarding the confidentiality of grand jury proceedings:

“First, if preindictment proceedings were made public, many prospective witnesses would be hesitant to come forward voluntarily, knowing that those against whom they testify would be aware of that testimony. Moreover, witnesses who appeared before the grand jury would be less likely to testify fully and frankly, as they would be open to retribution as well as to inducements. There also would be the risk that those about to be indicted would flee, or would try to influence individual grand jurors to vote against indictment. Finally, by preserving the secrecy of the proceedings, we assure that persons who are accused but exonerated by the grand jury will not be held up to public ridicule.”

441 U.S. at 219, 99 S.Ct. at 1673 (footnote omitted). None of these interests appear to be significant in the instant case, although it is difficult to be certain of this until the federal district court examines the materials and the state court’s reasons for sealing them. In Douglas Oil, the Supreme Court reaffirmed the view that grand jury materials should be disclosed when the enumerated secrecy interests are not involved. Id. at 221, 99 S.Ct. at 1674 (quoting Dennis v. United States, 384 U.S. 855, 86 S.Ct. 1840, 16 L.Ed.2d 973 (1966)). Colorado’s rule and rationale for secrecy appears to be analogous to these federal principles, although it is, as yet, less clearly explicated by statute, court rule and case law. See Colo.Rev.Stat. § 16 — 5 — 205(4); Colo.R.Crim.P. 6.7, 6.9; Charnes v. Lilly, 197 Colo. 460, 593 P.2d 967 (1979). We are uncertain what was the basis for the state court’s denial of access in the instant case, but it may have interpreted the state rule to require a different approach than that taken by the federal cases. If that is so, federal law must control, but only after the federal district court engages in the weighing process recommended in Douglas.

In the case before us the district judge did not order the transmittal of the materials or the disclosure. Hence we must determine whether this was pursuant to an exercise of informed discretion of the district judge. As noted in Douglas Oil, the district court has considerable discretion in this matter. See 441 U.S. at 229-30, 99 S.Ct. at 1678-79. Nevertheless, we cannot uphold the district court’s action in dismissing the case as a proper exercise of the court’s discretion. Our reading of the record indicates that the district court did not understand that it had the power to order the release of the state court records. The district court decision could not have been based upon a weighted consideration of the reasons the state court sealed the records and refused to release them, because the state court did not disclose to the federal- court the reasons for its order. Although this case was not handled in the best possible manner by the plaintiffs, we think their actions were sufficient to fulfill their responsibility.

Therefore, we reverse the order of dismissal and remand for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

1 . A recent Supreme Court case indicates that the court with custody of grand jury materials is permitted to look more favorably on a release to government attorneys seeking to bring a civil suit if it finds that such a release is less likely to compromise grand jury secrecy through leakage or improper use. See United States v. Sells Engineering, Inc., 463 U.S. 418, -, 103 S.Ct. 3133, 3149, 77 L.Ed.2d 743 (1983).

2 . Fed.R.Crim.P. 6(e) was extensively revised in light of Douglas Oil. See Notes of the Advisory Committee, 1983 Amendment. Rule 6(e)(3)(C)(i) specifically recognizes the propriety of disclosure “when so directed by a court preliminarily to or in connection with a judicial proceeding." Cf. United States v. Baggot, 463 U.S. 476,-, 103 S.Ct. 3164, 3167, 77 L.Ed.2d 785 (1983) (construing the scope of this provision). Rule 6(e)(3)(D) & (E) describe specific procedures for such disclosure, based on Douglas Oil's "better" practice. The initial request is filed in the district court where the grand jury convened. Id. at (D). The proceeding is then transferred to the federal district court giving rise to the petition unless the court connected to the grand jury “can reasonably obtain sufficient knowledge of the proceeding to determine whether disclosure is proper." Id. at (E). When a proceeding is transferred, the court supervising the grand jury sends the requesting court both the materials sought to be disclosed and a written evaluation of the need for continued grand jury secrecy. The receiving court then makes the final decision on release. Id.