Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-09-03498/USCOURTS-ca8-09-03498-0/pdf.json

Parties Involved:
Michael Roman Afremov
Appellant
Computer Forensic Services
Appellee
Mark Lanterman
Appellee
United States of America
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

________________

No. 09-3498

________________

United States of America,

Plaintiff,

v.

Michael Roman Afremov, 

Defendant-Appellant,

v.

Computer Forensic Services;

Mark Lanterman,

Movants-Appellees.

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

Appeal from the United States

District Court for the 

District of Minnesota.

_______________

Submitted: June 16, 2010

 Filed: July 29, 2010

________________

Before LOKEN, ARNOLD and GRUENDER, Circuit Judges.

________________

GRUENDER, Circuit Judge.

This case involves a contract dispute between the defendant in a federal

criminal case and third parties that the defendant served with subpoenas duces tecum.

Appellate Case: 09-3498 Page: 1 Date Filed: 07/29/2010 Entry ID: 3688095
-2-

The district court found that it had ancillary jurisdiction to decide the contract claim,

even after entering final judgment in the criminal case. On the merits, the court found

that the defendant had hired the subpoenaed witnesses to perform expert consulting

services and ordered the defendant to pay a disputed bill in the amount of

$628,737.33. We hold that the district court lacked jurisdiction to decide the contract

claim. Accordingly, we vacate the district court’s order and remand with instructions

to dismiss the ancillary proceeding.

I. BACKGROUND

The seeds of this appeal were planted in 2002, when Michael Afremov’s former

business partners decided to force Afremov out of the closely held corporation they

had founded together, AGA Medical Corporation. In October of that year, Afremov

sued in state court, seeking to regain his position with AGA. AGA, through a courtappointed receiver, retained Mark Lanterman, a computer forensic analyst, to collect,

search, and deliver certain electronic files stored on hard drives, disks, and the like.

At the time, Lanterman was employed by a consulting firm called Espiria. Lanterman

eventually left Espiria to found his own firm, Computer Forensic Services (“CFS”),

taking the AGA job with him. 

In October 2005, the state court issued a sealed order that is not included in the

record on appeal. According to the parties, the order discharged the receiver and

provided that AGA must preserve all files relating to the civil litigation for a period

of time, during which Afremov would be allowed to access them. This apparently

marked the end of the initial action in state court.

In June 2006, Afremov was indicted on charges of mail fraud and conspiracy

to commit mail fraud. The indictment alleged that Afremov received kickbacks from

a parts supplier in exchange for committing AGA to do business with that supplier

(unbeknownst to AGA’s other shareholders). The federal grand jury later returned a

Appellate Case: 09-3498 Page: 2 Date Filed: 07/29/2010 Entry ID: 3688095
-3-

superseding indictment that added charges of money laundering and filing false tax

returns.

On April 18, 2007, Joseph Petrosinelli, one of Afremov’s attorneys, sent a letter

to Lanterman, informing him that Afremov intended to subpoena certain documents

from the AGA civil litigation that remained in Lanterman’s possession. Here is what

the letter said:

We represent Michael Afremov in connection with the abovecaptioned criminal case [United States v. Afremov], now pending in

federal court in Minneapolis. We understand that some time ago, in your

capacity as an expert consultant to the Receiver of AGA Medical

Corporation, you and/or your company took custody of certain AGA

documents, including electronic files. We believe those documents

contain information that is relevant to our defense of Mr. Afremov in the

criminal case, and at the appropriate time we intend to serve subpoenas

on you and your company calling for production of the documents to us.

Thus, we request that you preserve such documents in your possession,

and that you conduct whatever compilation and review of the documents

that you believe is necessary in advance of production to us. For your

information, the trial is currently scheduled for September 10, 2007, and

we intend to serve our subpoenas well in advance of that date.

We note that on October 24, 2005, the trial court in the . . . [AGA]

civil litigation entered an Order concerning discharge of the Receiver,

Mr. Afremov’s right to continued access to AGA’s litigation files, and

other matters. Pursuant to that Order, Mr. Afremov will pay any costs,

including reasonable attorney’s fees, that you incur in connection with

responding to this request and the forthcoming subpoenas. Please send

all bills for such costs to my attention at the above address.

One day after sending the letter, Afremov served the subpoenas. Lanterman

was commanded to appear in the district court on September 10, 2007, and to bring

with him the following documents:

Appellate Case: 09-3498 Page: 3 Date Filed: 07/29/2010 Entry ID: 3688095
1

Gougeon and Amplatz are Afremov’s former business partners. Fischer was

Afremov’s alleged co-conspirator and the owner of Foremost Machining Company,

the parts supplier that purportedly sent kickbacks to Afremov. 

-4-

1. All documents, including all electronic files or data, obtained from

AGA Medical Corporation or any of AGA’s officers, directors, owners,

employees, attorneys, or receivers.

2. All documents, including all electronic files or data, that refer, relate,

or pertain to Franck Gougeon, Kurt Amplatz, Michael Afremov, AGA

Medical Corporation, Frederick Fischer, or Foremost Machining

Company.[1

]

3. All electronic mail created or received by Franck Gougeon, Kurt

Amplatz, Michael Afremov, or any officer, director, or employee of

AGA Medical Corporation.

Thereafter, Afremov’s local counsel, Frank Berman, discussed the document

production on more than one occasion with Lanterman and his counsel.

Lanterman says he thought that Afremov had retained CFS to perform a fullblown consulting project at its ordinary rates. Lanterman allegedly had CFS staff

work in shifts, twenty-four hours a day, restoring, copying, decrypting, extracting,

searching, collecting, verifying, and delivering the relevant data. Lanterman has

attested that CFS spent more than 1,500 hours processing the equivalent of four

million printed pages of information. Afremov asserts that Lanterman ultimately

turned over only about 1,200 pages of documents. Along with these documents,

Lanterman sent Afremov an invoice dated June 15, 2007, which set out charges in the

amount of $674,861.08, including $46,123.75 in attorney’s fees. Afremov paid the

portion of the invoice covering attorney’s fees but refused to pay the balance. 

In October 2007, Petrosinelli sent a letter to Lanterman’s counsel, stating that

Afremov viewed Lanterman as a “fact witness” (as opposed to an expert consultant)

Appellate Case: 09-3498 Page: 4 Date Filed: 07/29/2010 Entry ID: 3688095
2

Hereafter, we will typically refer only to Lanterman, without adding “and

CFS.” As far as we can tell, Lanterman’s contract claim and the arguments he makes

on appeal are coterminous with his company’s claim and arguments, so our analysis

applies equally to both Lanterman and CFS.

3

This request ignored the $46,123.75 in attorney’s fees that Afremov had

already paid.

-5-

and offering to reimburse Lanterman for the “actual, reasonable, out-of-pocket costs

he incurred in providing the requested documents.” Informal settlement negotiations

between the parties were unsuccessful. 

On March 3, 2008, Lanterman filed a document in the district court styled as

a motion to quash the subpoenas under Rule 17 of the Federal Rules of Criminal

Procedure.2

 (Afremov’s trial, originally set to begin in September 2007, had been

rescheduled for April 2008.) Lanterman first argued that “[t]he subpoenas as served

are incredibly overbroad,” and asked the district court to quash the subpoenas on that

basis. Lanterman went on to assert, however, that Afremov had promised to pay for

his expert consulting services in connection with the documents he was commanded

to produce. Lanterman noted Afremov’s refusal to pay for the work CFS had already

performed and claimed that processing the rest of the data would involve “immense”

effort. Although some of the language in Lanterman’s briefing in the district court is

imprecise, he evidently sought a declaration that the subpoenas did not require

“continued performance” of the alleged contract for expert consulting services.

Lanterman also asked the district court to hold Afremov and his counsel jointly and

severally liable for $674,861.08, the entire amount of the June 2007 invoice.3

Less than three weeks later, Afremov entered into a plea agreement with the

Government. In accordance with that agreement, on March 19, 2008, Afremov pled

guilty to three tax charges. The same day, the district court cancelled a scheduled

hearing on pre-trial motions. 

Appellate Case: 09-3498 Page: 5 Date Filed: 07/29/2010 Entry ID: 3688095
4

The magistrate judge issued an amended report and recommendation on

August 14, 2008, but the proposed findings and order did not change.

-6-

John Bonner, one of Lanterman’s attorneys, sent a letter to the district court,

dated March 20, 2008, requesting a new hearing date on the motion that Lanterman

filed on March 3. Bonner observed that the motion asked the court to do two things:

“(1) to quash subpoenas served by Defendant Afremov pursuant to Rule 17(c), and

(2) to order Defendant Afremov and counsel to pay . . . [CFS’s and Lanterman’s] costs

in responding to the subpoenas as agreed by them [sic].” Bonner then wrote the

following:

While we understand that the trial has been indefinitely postponed (if not

mooted) based upon the . . . plea[s] entered on March 19, we believe that

the issue regarding payment of . . . [CFS’s and Lanterman’s] costs to

access, verify, process, and produce documents under the Rule 17(c)

subpoenas prior to trial, as agreed to by Afremov and counsel, remains

pending before the Court.

The district court referred the motion to a magistrate judge, who ordered

briefing and held two hearings. After the referral, Lanterman sent Afremov a second

invoice, setting out additional charges in the amount of $178,850. 

On July 17, 2008, the magistrate judge submitted a report and recommendation

to the district court in which she recommended finding that a contract had been made,

that the charges set out in the first invoice were reasonable, and that the charges set

out in the second invoice were unreasonable. Based on these findings, the magistrate

judge recommended ordering Afremov to pay $628,737.33, the unpaid balance of the

first invoice, to CFS.4

Afremov filed objections to the report and recommendation and submitted two

supplemental memoranda. In his first supplemental memorandum, Afremov

introduced a new objection, arguing that the district court lacked subject matter

Appellate Case: 09-3498 Page: 6 Date Filed: 07/29/2010 Entry ID: 3688095
-7-

jurisdiction over the pending motion. In particular, Afremov asserted that the only

possible source of power to consider the motion was “under the limited doctrine of

ancillary jurisdiction[,] . . . [which] ‘recognizes federal courts’ jurisdiction over some

matters (otherwise beyond their competence) that are incidental to other matters

properly before them.’” (Quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511

U.S. 375, 378 (1994).) Afremov argued that the requirements for exercising ancillary

jurisdiction were not met because the motion raised “a state-law breach of contract

claim” that was neither “factually interdependent” with the criminal case nor

something the court must decide in order “to function successfully.” (Quoting

Peacock v. Thomas, 516 U.S. 349, 354 (1996), which in turn quoted Kokkonen, 511

U.S. at 379-80.) 

On July 21, 2009, the district court sentenced Afremov to a term of probation

and a fine. One month later, the court entered a written order describing the final

judgment in the criminal case. Afremov did not appeal his conviction or sentence. 

On September 28, 2009, the court issued an order adopting the magistrate

judge’s report and recommendation concerning the so-called “motion to quash.”

United States v. Afremov, No. 06-196, 2009 WL 3164739 (D. Minn. Sept. 28, 2009).

Having already addressed the merits, the district court took up the threshold question

of federal subject matter jurisdiction at the end of the analysis section of its order. See

id. at *7. The court noted at the outset that it “look[ed] very dimly on Afremov’s

raising of a jurisdictional issue so late in the litigation.” Id. The court then quoted

Peacock v. Thomas, in which the Supreme Court reiterated that federal courts may

exercise ancillary jurisdiction “(1) to permit disposition by a single court of claims

that are, in varying respects and degrees, factually interdependent; and (2) to enable

a court to function successfully, that is, to manage its proceedings, vindicate its

authority, and effectuate its decrees.” Id. at *8 (quoting Peacock, 516 U.S. at 354).

The district court went on to say that it was “satisfied that its resolution of a matter

that has consumed extensive judicial resources—without objection from parties who

Appellate Case: 09-3498 Page: 7 Date Filed: 07/29/2010 Entry ID: 3688095
-8-

stood to benefit a good deal from avoiding the expense of an entirely new

lawsuit—falls well within the bounds of that standard.” Id. “In short,” the court

explained, 

the evidentiary materials in dispute were closely tied to Afremov’s

defense against a significant criminal case in this Court; this motion

arose out of an invocation of this Court’s subpoena power; and the

federal court system’s interest in managing its resources is plainly

implicated by a party seeking to shift venues only after having

discovered the [recommended] outcome. 

Id. (internal citation omitted). The district court thus ordered Afremov to pay

$628,737.33 to CFS. Id. 

Afremov appeals, arguing that the district court lacked jurisdiction to decide the

contract claim. Afremov argues, in the alternative, that he did not contract with

Lanterman for expert consulting services, and that even if an enforceable contract had

somehow been made the charges set out in the first invoice were unreasonable.

II. DISCUSSION

We start our discussion by reaffirming our adherence to two principles that

should be beyond all doubt: namely, that federal courts are courts of limited

jurisdiction, and that parties may not enlarge that jurisdiction by waiver or consent.

See, e.g., Ark. Blue Cross & Blue Shield v. Little Rock Cardiology Clinic, P.A., 551

F.3d 812, 816 (8th Cir. 2009). It follows that challenges to federal subject matter

jurisdiction may be raised at any time, even for the first time on appeal. See, e.g., 4:20

Commc’ns, Inc. v. Paradigm Co., 336 F.3d 775, 778 (8th Cir. 2003). Indeed, if

Afremov had not challenged the district court’s jurisdiction in his supplemental

memorandum to the district court, we would have examined the jurisdictional issue

on our own initiative. See, e.g., United States v. Meyer, 439 F.3d 855, 858 (8th Cir.

Appellate Case: 09-3498 Page: 8 Date Filed: 07/29/2010 Entry ID: 3688095
-9-

2006) (“[E]very federal appellate court has a special obligation to satisfy itself not

only of its own jurisdiction, but also that of the lower courts in a cause under review.”

(alteration in original) (quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83,

95 (1998))).

With those fundamentals in mind, we proceed to review de novo the question

whether the district court had subject matter jurisdiction. See id. at 859. The burden

of establishing that a cause lies within the limited jurisdiction of the federal courts is

on the party asserting jurisdiction: in this instance, the burden is on Lanterman. See

Ark. Blue Cross & Blue Shield, 551 F.3d at 816 (citing Kokkonen v. Guardian Life Ins.

Co. of Am., 511 U.S. 375, 377 (1994)).

The parties agree that the jurisdictional inquiry turns on whether the district

court had ancillary jurisdiction over Lanterman’s motion. So it bears repeating that

the doctrine of ancillary jurisdiction “recognizes federal courts’ jurisdiction over some

matters (otherwise beyond their competence) that are incidental to other matters

properly before them.” Kokkonen, 511 U.S. at 378. As the district court recounted,

the Supreme Court has identified two purposes for which a federal court may exercise

ancillary jurisdiction: “(1) to permit disposition by a single court of claims that are,

in varying respects and degrees, factually interdependent; and (2) to enable a court to

function successfully, that is, to manage its proceedings, vindicate its authority, and

effectuate its decrees.” Peacock v. Thomas, 516 U.S. 349, 354 (1996) (quoting

Kokkonen, 511 U.S. at 379-80). 

Lanterman seeks to establish that his motion was incidental to the criminal case

against Afremov, which the district court plainly had jurisdiction to adjudicate. To

that end, Lanterman suggests that the district court had authority to consider the

motion under either head of ancillary jurisdiction. Regarding the first head,

Lanterman contends that the court had jurisdiction because “the subpoenas, the

documents sought, the work performed, and [CFS’s] fees were ‘factually

Appellate Case: 09-3498 Page: 9 Date Filed: 07/29/2010 Entry ID: 3688095
-10-

interdependent’ with Afremov’s criminal defense.” Regarding the second head,

Lanterman contends that the district court had jurisdiction “to manage its proceedings”

and “vindicate its authority” because Afremov had “invoked the district court’s

subpoena power” under Rule 17. We reject both contentions.

As Afremov points out, the central premise of Lanterman’s first contention is

that certain things are germane both to the ancillary proceeding and to the criminal

case—i.e., the subpoenas, the subpoenaed documents, and so on. But Lanterman has

offered no plausible argument for finding that the claim raised in his motion is

factually or logically interdependent with any of the criminal charges against

Afremov. Indeed, Lanterman appears unwilling or unable to pin down the precise

nature of his claim. There is no good reason for such obscurity, however, since the

pertinent claim quite obviously sounds in contract. How could it be otherwise when

the district court ordered Afremov to pay an invoice stemming from an alleged private

agreement to pay for expert consulting services at the expert’s ordinary rates?

Lanterman has failed to show that his state law breach of contract claim has a

meaningful connection to the criminal charges against Afremov. Resolving the

contract claim will not affect the final judgment entered in the criminal case. See

Bounougias v. Peters, 369 F.2d 247, 249 (7th Cir. 1966) (holding that a district court

lacked ancillary jurisdiction to decide a fee dispute between a prevailing plaintiff and

his lawyers, in part because the result of the dispute “[would] not make more complete

or satisfactory or, indeed, even affect the judgment of the district court in

the . . . personal injury litigation which generated the fees”). Perhaps more

importantly, the material facts underlying the criminal charges—for instance, the who,

what, where, and when of the alleged kickback scheme—do not overlap with the

material facts underlying the contract claim. See Peacock, 516 U.S. at 355

(suggesting that a lack of factual and logical entwinement between primary and

ancillary claims precludes the assertion of authority under the first head of ancillary

jurisdiction). We are persuaded that the primary and the ancillary claims in the

Appellate Case: 09-3498 Page: 10 Date Filed: 07/29/2010 Entry ID: 3688095
5

Here, Lanterman is clearly using “CFS” as shorthand for “Lanterman and

CFS.” Elsewhere in his brief, Lanterman notes that the subpoenas served on him and

his company “demanded the identical documents.” 

-11-

present case are even less entangled than the claims in other cases where courts have

found an absence of subject matter jurisdiction. See, e.g., Stein v. KPMG, LLP, 486

F.3d 753, 760-64 (2d Cir. 2007) (holding that the district court, which had jurisdiction

over a criminal prosecution, lacked ancillary jurisdiction “to adjudicate a contract

dispute between the defendants and [their] nonparty former employer” about whether

the employer was obligated to advance the defendants’ legal expenses); Taylor v.

Kelsey, 666 F.2d 53, 54 (4th Cir. 1981) (per curiam) (holding that the district court

lacked ancillary jurisdiction to resolve a fee dispute between two attorneys who

represented the plaintiffs in an action against a chemical company); Bounougias, 369

F.2d at 249-50 (see above). 

Lanterman’s fallback position is that this action involves more than a run-ofthe-mill contract dispute; thus, he returns time and again to the theme that Afremov

dragged him into the criminal case by serving subpoenas under Rule 17 to demand

documents from the AGA civil litigation. Lanterman insists that the district court had

authority under the second head of ancillary jurisdiction to address Afremov’s misuse

of the subpoena power. We are not convinced, however, that the subpoenas have any

real importance for the jurisdictional inquiry in this case. 

Recall that the subpoenas did not mention expert consulting services—they

commanded Lanterman to appear in the district court and to bring with him certain

documents. The subpoenas did not direct Lanterman or his company to expend an

enormous amount of time and effort to restore, copy, decrypt, extract, search, collect,

verify, and deliver the relevant data. As Lanterman acknowledges, “CFS would have

been within its rights, and met its obligations under the court’s subpoena power,” if

it had “simply grant[ed] access to the underlying hardware containing the data.”5

(Emphasis added.) Hence, the district court found that “Afremov’s relationship with

Appellate Case: 09-3498 Page: 11 Date Filed: 07/29/2010 Entry ID: 3688095
-12-

CFS rose above a relationship with a subpoenaed witness,” and instead “constituted

an agreement [i.e., a contract]” calling “for Afremov to compensate CFS for its

forensic services.” Afremov, 2009 WL 3164739, at *5 (emphasis added). 

Afremov states, correctly in our view, that the district court’s order “did not

award Lanterman anything under Rule 17,” but rather, “enforced the claimed

contract.” That Lanterman raised the state law breach of contract claim in a filing

styled as a motion to quash turns out to be inapposite. For even assuming that in

addition to seeking contract damages Lanterman initially sought to quash the

subpoenas under Rule 17, the Rule 17 claim was mooted either when Afremov pled

guilty to the tax charges, or when final judgment was entered in the criminal case, but

certainly before the district court issued its order. John Bonner, Lanterman’s lead

counsel on appeal, virtually admitted as much in the letter he sent to the district court

following Afremov’s guilty pleas, in which he strongly implied that Lanterman’s

request for an award of “costs” was the only ancillary claim still pending. 

Once the issue is properly framed, we have no difficulty concluding that

Lanterman’s reliance on the second head of ancillary jurisdiction is misplaced. The

contract dispute was not an inevitable consequence of the criminal case. See Taylor,

666 F.2d at 54. And the notion that the district court acted merely to check an abuse

of the subpoena power is transparently false. Simply put, the district court’s decision

to decide Lanterman’s state law breach of contract claim was not a matter of managing

its proceedings, vindicating its authority, or otherwise preserving its ability to function

successfully. See Peacock, 516 U.S. at 354; see also, e.g., Bounougias, 369 F.2d at

249 (finding that the ancillary proceeding could not be said to “relate[] to matters

coming so near to the life and dignity of the district court that an exercise of inherent

powers to protect its authority was necessary”). It is of no moment whether

Appellate Case: 09-3498 Page: 12 Date Filed: 07/29/2010 Entry ID: 3688095
6

We express no opinion about whether the district court could have exercised

ancillary jurisdiction over a claim seeking reimbursement of out-of-pocket costs that

were traceable to the subpoenas rather than the alleged contract for expert consulting

services. See generally 9A Charles Alan Wright & Arthur R. Miller, Federal Practice

and Procedure § 2459, at 456-58 (3d ed. 2008) (stating that when a subpoena issued

under Rule 45 of the Federal Rules of Civil Procedure—the civil counterpart to Rule

17—would impose an undue burden, district courts may “condition denial of [a]

motion to quash or modify upon the person who requested the subpoena advancing

the reasonable cost of producing the material sought”). Afremov is unquestionably

correct in saying that “Lanterman did not seek reimbursement for costs based on [Rule

17,] . . . or any right running to the recipient of a federal subpoena, and the district

court did not award that relief.” 

-13-

Lanterman initially sought to quash the subpoenas themselves, since by September

2009 the relief Lanterman sought had come completely untethered from Rule 17.6

 

We note that the district court was understandably distressed by the parties’

failure to raise the jurisdictional issue before “significant judicial resources” had been

expended. See Afremov, 2009 WL 3164739, at *7. Nevertheless, the Supreme Court

has made clear that “‘neither the convenience of litigants nor considerations of judicial

economy’ can justify the extension of ancillary jurisdiction” beyond its usual limits.

Peacock, 516 U.S. at 355 (quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S.

365, 377 (1978)). And in any event, leaving aside the judicial resources spent before

the jurisdictional issue was finally raised, the prospective benefits of exercising

ancillary jurisdiction to decide a state law breach of contract claim that had little or no

factual or logical interdependence with the underlying criminal charges (which of

course had already been disposed of) were likely outweighed by the costs. See Stein,

486 F.3d at 762 (“[W]hile the ancillary proceeding is a major undertaking, its

contribution to the efficient conclusion of the criminal proceeding is entirely

speculative.”); U.S.I. Props. Corp. v. M.D. Constr. Co., 230 F.3d 489, 499 n.9 (1st

Cir. 2000) (“[A]ny possible judicial economy from the simultaneous adjudication of

Appellate Case: 09-3498 Page: 13 Date Filed: 07/29/2010 Entry ID: 3688095
-14-

interdependent facts vanished when the initial proceedings closed.”). Under these

circumstances, the district court should have dismissed the ancillary proceeding. 

III. CONCLUSION

For the foregoing reasons, we vacate the district court’s order and remand with

instructions to dismiss the ancillary proceeding for lack of jurisdiction.

_____________________________

Appellate Case: 09-3498 Page: 14 Date Filed: 07/29/2010 Entry ID: 3688095