Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04435/USCOURTS-cand-3_06-cv-04435-11/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

 v.

GREGORY L. REYES, et al.,

Defendants. /

No. C 06-04435 CRB

ORDER

The Securities and Exchange Commission (“SEC”) brought this enforcement action

against Gregory Reyes, Antonio Canova, and Stephanie Jensen (collectively, “Defendants”)

following an investigation into an alleged backdating scheme at Brocade Communications

Systems, Inc. (“Brocade”). Defendants then sought to depose certain witnesses whom the

SEC interviewed during the course of its investigation. Many, if not all, of these witnesses,

however, either have refused, or are likely going to refuse, to answer Defendants’ questions

by invoking the Fifth Amendment and asserting their privilege against self-incrimination.

Now pending before the Court is Defendants’ motion “to compel deposition

testimony, for an evidentiary hearing, and for other appropriate remedies.” Defendants argue

that these witnesses, whom they label the “Silent Eleven,” have no genuine fear of

prosecution and that the witnesses’ invocation of the Fifth Amendment is facetious. 

Defendants further assert that the SEC and the Department of Justice (“DOJ”) have been

“playing games” by granting use immunity to these witnesses in order to obtain information

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about the case, and thereafter withholding immunity in order to deprive Defendants of the

same information. Through this motion, Defendants seek an order compelling the witnesses

to testify, or in the alternative, imposing sanctions on the government for its alleged

opportunistic conduct.

DISCUSSION

To begin, the Court notes that not all of the witnesses in the so-called Silent Eleven

stand in the same legal position. For instance, while most of the witnesses received grants of

immunity before talking to government attorneys, some received only limited “use

immunity,” and others received more complete grants of “derivative use immunity.” Some

of the Silent Eleven at first freely provided the SEC and the DOJ with information and then,

in subsequent interviews, spoke pursuant to grants of immunity. Others made no statements

at all without assurances of immunity. Meanwhile, it appears that at least one witness, Heidi

Rado, has never met with government attorneys and has received no grant of immunity

whatsoever. Moreover, as to most of these witnesses, Defendants have not yet posed any

questions. Without more specific facts regarding the witnesses’ different situations and

without reference to specific questions that they have refused to answer, this Court lacks

adequate information to assess whether their decisions (actual or imputed) to invoke the Fifth

Amendment are legitimate. 

When a witness fears self-incrimination, “the proper procedure is for the deponent to

attend the deposition, be sworn under oath, and respond to those questions he can answer

without running a risk of self-incrimination.” United States v. Hansen, 233 F.R.D. 665, 668

(S.D.Cal. 2005). Just as a witness “cannot refuse to attend a deposition under a blanket claim

of Fifth Amendment privilege,” id., so too is it improper for the party deposing the witness to

preclude any invocation of the Fifth Amendment with a blanket claim that the privilege is

unavailable. A witness’s decision to invoke the privilege against self-incrimination must be

evaluated on a case-by-case basis, and sometimes even on a question-by-question basis. 

Defendants cannot preempt the invocation of the Fifth Amendment as to an entire flock of

witnesses for all purposes related to their depositions. For this reason, the motion to compel

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the deposition of all of these witnesses as to all questions related to the alleged backdating

scheme at Brocade is DENIED without prejudice. If and when Defendants come forward

with specific witnesses who have improperly invoked the Fifth Amendment as to specific

questions, the Court will reconsider any motion to compel testimony that they may file.

To deny Defendants’ motion without prejudice because it does not specifically

identify the circumstances under which these witnesses have invoked or will invoke the

privilege, however, is merely to invite innumerable challenges in the future--a course of

action that is not in the parties’ best interests, or in the Court’s. Therefore, more specific

guidance is necessary as to the application of the privilege against self-incrimination under

the circumstances of this case. 

I. Witnesses

In general terms, “the right to assert one’s privilege against self-incrimination does not

depend upon the likelihood, but upon the possibility of prosecution.” In re Master Key Litig.,

507 F.2d 292, 293-94 (9th Cir. 1974) (emphasis added). A citizen is therefore

constitutionally entitled to remain silent if he genuinely believes that his response to a

question will tend to incriminate him or “furnish a link in the chain of evidence needed to

prosecute [him] for a federal crime.” Hoffman v. United States, 341 U.S. 479, 486 (1951). 

Moreover, the Supreme Court has clearly established that a witness may not be compelled to

provide incriminating information, even if he has provided the same information pursuant to

a grant of immunity in a previous interview. Pillsbury Co. v. Conboy, 459 U.S. 248, 263-64

(1983).

Here, all of the Silent Eleven worked at Brocade when the alleged backdating scheme

was in place. Indeed, all but one of them has been identified by Defendants as having

worked in the human resources department, which was responsible for administering many

of the stock options granted by Brocade. These witnesses were summoned by the

government and interviewed in concert by the SEC and the DOJ in connection with what

those two government agencies view as corporate misconduct. Under these circumstances, it

is not farfetched for the witnesses to believe that their answers would provide some link to a

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1 In Zicarelli, for example, a witness claimed that he could not be forced to testify since

questions about his international exploits would have required responses permitting “prosecution

or use of his testimony by a foreign sovereign.” 406 U.S. at 478. The Supreme Court held that

the witness’s invocation of the Fifth Amendment was not well-founded because the witness “was

never in real danger of being compelled to disclose information that might incriminate him under

foreign law.” Id. at 480. Similarly, in Murphy, the Supreme Court addressed a probationer’s

claim that the government had improperly dissuaded him from asserting his privilege against

self-incrimination. The Court rejected the probationer’s argument because the information he

thought he should have withheld related only to the conditions of his probation and was thus

irrelevant to any possible independent criminal prosecution. 465 U.S. at 434-39. Neither of

these cases applies to the case now before this Court, in which the witnesses have been

summoned by the very government attorneys who they fear will prosecute them in related and

pending criminal proceedings.

Defendants’ citations to other cases are similarly inapposite. For example, in United

States v. Apfelbaum, 445 U.S. 115 (1980), the Supreme Court held that a witness could be

prosecuted for perjury by giving false testimony, even though he had been given use immunity

for that testimony, which pertained to previously committed crimes. Id. at 128. That case has

little relevance here, given that no party has made any suggestion that any member of the Silent

Eleven ever made false statements in their interviews with the government. Similarly,

Defendants’ citation to Judge Weinfeld’s opinion in Camelot Group, Ltd. v. W.A. Krueger Co., 486 F. Supp. 1221 (S.D.N.Y. 1980), is unhelpful. In that case, the district court rejected the

assertion of privilege by two witnesses. As to both witnesses, the Court held that the invocation

of the privilege was not well-founded because the witnesses were relying on “dated and

uninformative data,” including “assertions of privilege in completely unrelated proceedings.”

Id. at 1226-27. Unlike those cases, the testimony of the Silent Eleven pertains directly to the

prosecution they fear; indeed, it ostensibly formed the basis for the criminal indictments issued

against the very Defendants who now wish to depose them.

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chain of evidence that could be used in a criminal prosecution against them. See United

States v. Rendahl, 746 F.2d 553, 556 (9th Cir. 1984) (“The fact that respondents were not the

subject of any criminal investigation is not significant. The existence of a criminal

investigation serves only to establish that answers are likely to be incriminating.”). This

Court thus accepts the view of these witnesses that their prosecution is possible, even if it

may not be probable, and rejects Defendants’ suggestion that their invocation of the privilege

is specious or improper.

Defendants are correct to note that the Fifth Amendment protects “against real

dangers, not remote or speculative possibilities,” Zicarelli v. New Jersey State Comm’n of

Investigation, 406 U.S. 472, 478 (1972), and that a witness may not invoke the privilege

against self-incrimination if there is “no realistic threat of incrimination in a separate criminal

proceeding,” Minnesota v. Murphy, 465 U.S. 420, 435 n.7 (1984). But the cases to which

Defendants cite are quite different from the case at bar.1

 Here, the Silent Eleven all are (or

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were) employees of a company whose executives are now facing criminal and civil charges

regarding the implementation of a scheme to backdate stock options at that same company. 

All of the Silent Eleven appear to have some connection, more or less tenuous, to the

administration of this scheme. And ten of these witnesses have been summoned by the SEC

and the DOJ to discuss their knowledge of, and perhaps their participation in, this same

scheme. Defendants point to no case in which a court has declared that claims of privilege

by witnesses under similar circumstances are not well-founded. To the contrary, the case law

clearly supports the proposition that a witness’s decision to invoke the Fifth Amendment in

these circumstances is proper and that it would be error for a court to compel them to speak. 

See, e.g., Rendahl, 746 F.2d at 556-57 (holding that a witness was entitled to refuse to

answer certain questions regarding his conduct and that of another defendant where such

responses would have revealed his own criminal liability for failing to file tax returns, and

reversing a district court’s decision to compel such testimony).

Defendants vigorously contend that the witnesses in this case cannot genuinely fear

prosecution because the prosecutorial decisions in this case have already been made, because

they are low-level actors in whom the government is not really interested, and because they

have already been granted favors by the government for their cooperation. While these

observations do suggest that the government ultimately may elect to forego prosecution, they

do not remove the Silent Eleven from the specter of possible prosecution, especially when

the government specifically declined to extend complete immunity to them and instead

explicitly reserved the right to bring charges against them. A court cannot ride roughshod

over a witness’s constitutional right to invoke the Fifth Amendment based on the court’s own

view, or that of a litigant, as to whether the witness is “in reality” subject to prosecution. The

privilege against self-incrimination does not yield to a judge’s forecast, much less an

adversary’s, of what criminal charges a prosecutor might be inclined to bring. Where, as

here, witnesses establish their connection to and knowledge of an alleged course of corporate

conduct as to which the government is currently pressing criminal charges, this Court cannot

find that their invocation of the Fifth Amendment is specious.

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To say that the Silent Eleven may legitimately invoke the Fifth Amendment, however,

is not to say that they may always invoke it legitimately, or even that the witnesses already

deposed by Defendants invoked it legitimately. To the contrary, even a witness with

legitimate Fifth Amendment concerns must respond to questions that do not require him to

divulge incriminating information. Zicarelli, 406 U.S. at 478; Hansen, 233 F.R.D. at 668. 

Here, however, Defendants have elected to challenge across-the-board any assertion of

privilege by the Silent Eleven, rather than to challenge particular instances in which

deponents have invoked the privilege. Because the Court is unable to conclude across-theboard that these witnesses have no cause to fear prosecution, Defendants cannot prevail on

their argument that the witnesses’ invocations of the privilege are or not well-founded.

II. The Government

As for the government’s actions, the Court is sympathetic to Defendants’ argument

that SEC and DOJ attorneys have selectively used their power to grant use immunity. 

Whether or not the government is abusing its authority, as Defendants insist, there can be no

dispute that the government’s power to circumscribe the scope of a witness’s immunity has

allowed it to reap the benefit of testimony from the Silent Eleven, while effectively

preventing Defendants from accessing the same information. Such tactically beneficial

conferrals of immunity are at odds with the purpose of discovery in civil cases, which is to

ensure “that litigants have the right to ‘every man’s evidence’” and to promote “the search

for truth” by providing “wide access to relevant facts.” Rivera v. NIBCO, Inc., 384 F.3d

822, 824 (9th Cir. 2004) (quoting Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir. 1993)).

It is clear, however, that this Court may not order the government to immunize the

witnesses for the purpose of letting Defendants depose them. See Pillsbury, 459 U.S. at 261

(“No court has authority to immunize a witness. That responsibility, as we have noted, is

peculiarly an executive one, and only the Attorney General or a designated officer of the

Department of Justice has authority to grant use immunity.”); United States v. Alessio, 528

F.2d 1079, 1081 (9th Cir. 1976) (“It has repeatedly been held by this Court that the

government may not be compelled to seek a grant of immunity for a prospective defense

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2 At oral argument, and at the behest of Defendants, this Court inquired of the government

prosecutors in this case whether they intended to bring criminal charges against any of the Silent

Eleven. The prosecutors declined to give an answer. The Court is of the view that the

prosecutors were well within their rights so to decline. It is doubtful that this Court could

compel a United States attorney to announce the government’s plans to prosecute, or not to

prosecute, individual wrongdoers or suspects, any more than a United States attorney could

compel this Court to explain how it would be inclined to rule on a motion or a case not actually

pending before it. Even if constitutional principles do not forbid such an inquiry by the judicial

branch, out of deference and comity to the operation of the executive branch, this Court finds

that any further inquiry would be inappropriate.

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witness.”). The Ninth Circuit has established only limited exceptions to this rule, and the

Court finds that these exceptions do not apply in the present circumstances. See United

States v. Westerdahl, 945 F.2d 1083, 1086-87 (9th Cir. 1991); United States v. Lord, 711

F.2d 887, 892 (9th Cir. 1983); see also Jeffers v. Ricketts, 832 F.2d 476, 479 (9th Cir. 1987). 

Moreover, even if Defendants could show the specific, relevant testimony that the Silent

Eleven would provide and that the government has deliberately manipulated the factfinding

process--a showing that Defendants have not yet made to this Court’s satisfaction--the Ninth

Circuit has previously allowed courts to compel the government to grant of immunity only

when necessary to vindicate the constitutional right of criminal defendants to a fair trial. 

Defendants have failed to identify a single case, and this Court is aware of none, in which a

federal court has compelled the government to grant immunity in order to force a witness to

give deposition testimony in a civil proceeding.2

That the Court lacks power to compel a grant of immunity, however, does not mean

that the Court is without power to assist Defendants. Numerous courts have fashioned

remedies, ranging from the exclusion of certain testimony to more comprehensive preclusion

orders, when information is unavailable to one party because of Fifth Amendment privileges,

and particularly where the machinations of one party make that information unavailable to an

adversary. See generally SEC v. Graystone Nash, Inc., 25 F.3d 187, 190-93 (3d Cir. 1994)

(collecting cases in which “invocation of the Fifth Amendment poses substantial problems

for an adverse party who is deprived of a source of information that might conceivably be

determinative in a search for the truth,” and noting that “the effects that an invocation of the

privilege against self-incrimination will have in a civil suit depends to a large extent on the

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circumstances of the particular litigation”). Here, the Court would be prepared to fashion an

exclusionary remedy, at an appropriate time, that would deprive the SEC of the benefit of the

government’s selective grants of immunity. 

At this stage of the proceedings, however, the Court finds it unnecessary to take any

such affirmative measures. The SEC has not yet presented evidence gleaned from the Silent

Eleven in support of its charges against Defendants, and Defendants have filed no motions

that would require the SEC to put such evidence to the test. Thus, aside from the

inconvenience of having to wait for the information they seek, Defendants have suffered no

concrete prejudice. As to that inconvenience, the Court finds an affirmative remedy

unnecessary--having opposed the SEC’s motion to stay proceedings in this civil enforcement

action, Defendants now must bear some of the burden of their own choice to proceed with

civil discovery at the same time that criminal charges are pending, including the danger that

some relevant witnesses may invoke the Fifth Amendment. If and when the Court is called

upon to evaluate evidence that was gathered by the SEC through its interviews of the Silent

Eleven--whether in the context of a motion for summary judgment or at trial--the Court

would be prepared to provide Defendants with a remedy suitable to their injury. For now,

the Court is unwilling to advance the trial date in this matter, and so the next move rests with

Defendants, who may choose either to press ahead with a motion for summary judgment (in

which case the Court would consider certain measures to remedy the Silence imposed on the

Eleven by the government’s refusal to grant immunity) or to wait until a later date for the

testimony of these eleven witnesses (in which case the Court would entertain a motion by

Defendants to consider whether a remedy would be necessary to cure whatever prejudice

Defendants might suffer, if any, by having to wait for the information now withheld from

them).

CONCLUSION

Defendants seek an order compelling eleven witnesses to provide deposition

testimony, notwithstanding their assertion of privilege under the Fifth Amendment. The

Court is unable to conclude that the deponents lack a well-founded belief that they may be

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3 The Court is unimpressed with the SEC’s argument that it is a hapless bystander and that

all authority regarding use immunity rests with the DOJ. While this may be literally true, see

18 U.S.C. §§ 6002, 6003, a government agency working in partnership with the DOJ enjoys

obvious benefits from its shared purpose with the Attorney General. Where, as here, that shared

purpose provides the SEC with access to information unavailable to its civil adversaries, the

Court concludes that the SEC must choose between enforcing its unique privileges and allowing

the witnesses to enforce theirs.

G:\CRBALL\2006\4435\order3.wpd 9

subject to criminal prosecution, and the Court therefore rejects Defendants’ request to order

these witnesses to testify. Nonetheless, because these witnesses are still required to answer

any and all questions that do not require the disclosure of incriminating information, the

Court holds that Defendants may revisit the issue of self-incrimination at a later date, if

necessary, in the context of a more specific motion.

The Court agrees with Defendants that the government has bestowed immunity on the

Silent Eleven intermittently and for the government’s own advantage in this case.3

 The

Court further agrees that, if these witnesses persist in their decision not to testify and if the

SEC relies on any evidence obtained due to its advantageous position in these proceedings,

Defendants are entitled to an appropriate remedy. Now, however, is not the time for such a

remedy, since the only prejudice suffered by Defendants is delay--a consequence partly of

Defendants’ own decision to oppose the SEC’s motion for a stay and to proceed with

discovery in this case while criminal proceedings go forward. Unless and until the

government employs information collected from the Silent Eleven in these civil proceedings,

the Court finds that an affirmative remedy would be premature.

For the reasons set forth above, Defendants’ motion “to compel deposition testimony,

for an evidentiary hearing, and for other appropriate remedies,” is hereby DENIED without

prejudice.

IT IS SO ORDERED.

Dated: February 6, 2007 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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