Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-05286/USCOURTS-caDC-96-05286-0/pdf.json

Parties Involved:
Jack Lavin
Appellant
Robin Lavin
Appellant
Securities and Exchange Commission
Appellee

Document Text:

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 14, 1997 Decided May 2, 1997

No. 96-5286

SECURITIES AND EXCHANGE COMMISSION,

APPELLEE

v.

JACK LAVIN AND ROBIN LAVIN,

APPELLANTS

Appeal from the United States District Court 

for the District of Columbia 

(No. 95ms00393)

Bruce Birenboim argued the cause for appellants, with 

whom Leslie Gordon Fagen and William C. Silverman were 

on the briefs.

Ross A. Albert, Special Counsel, Securities and Exchange 

Commission, argued the cause for appellee, with whom Paul 

Gonson, Solicitor, Richard H. Walker, General Counsel, and 

Eric Summergrad, Principal Assistant General Counsel, were 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 1 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

on the brief. Jacob H. Stillman, Associate General Counsel, 

entered an appearance.

Before: WALD, GINSBURG and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Appellants Jack and Robin Lavin 

appeal from an order enforcing a subpoena for seven taped 

telephone conversations that they maintain are protected 

from disclosure by the privilege for confidential marital communications. The district court rejected the Lavins' claim of 

privilege, finding that their communications were not confidential and that, even if initially confidential, the Lavins 

waived the right to assert the privilege. The Lavins contend 

that the district court's finding that their conversations were 

not confidential was unsupported by the evidence, and that 

the district court erred in denying their request for discovery 

on the disputed issue of the confidentiality of their conversations. The Lavins also contend that the district court's 

finding of waiver of the privilege was erroneous as a matter 

of law insofar as the court based its conclusion on their failure 

to secure physical possession of all copies of their taped 

conversations and on the inclusion in their pleadings of an 

excerpt from the conversations. We hold that because the 

record was insufficiently developed to determine whether the 

communications were confidential, the district court erred in 

limiting discovery on the issue of confidentiality. We also 

hold that the Lavins took all reasonable steps to protect the 

confidentiality of their conversations, and thus did not waive 

the right to assert the privilege. Accordingly, we reverse and 

remand the case to the district court to permit the Lavins 

discovery.

I. 

On June 30, 1995, the Securities and Exchange Commission 

("SEC") issued a subpoena duces tecum to Mr. Lavin as part 

of its ongoing investigation, commenced in June 1994, into 

fraudulent sales practices in derivative securities at Bankers 

Trust Company ("Bankers Trust" or "the bank") and BT 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 2 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

1 Bankers Trust and BT Securities are wholly-owned subsidiaries of Bankers Trust New York Corporation. 

Securities Corporation ("BT Securities"), a broker-dealer registered with the SEC.1 The subpoena sought production of 

tape recordings of seven conversations that Mr. Lavin had 

with his wife from mid-June to mid-July 1994. By the time it 

sought the Lavins' conversations, the SEC had already obtained from the bank over 5,000 tape-recorded conversations 

of bank employees involved in selling derivatives. In December 1994, the SEC reached a settlement with the bank but 

continued its investigation of certain BT Securities employees.

At the time of the conversations, Mr. Lavin was a managing director of BT Securities and head of its U.S. Corporate 

Capital Markets Group, which sold derivatives to corporate 

customers, and was head of BT Securities' Chicago office. 

Until January 1994, Mr. Lavin had worked at BT Securities' 

main office in New York. There, he had a desk on a trading 

floor, and, consistent with the New York office's policy, the 

telephone on his trading desk was taped. He also shared a 

personal office in New York and conversations on his office 

telephone were not taped.

Before Mr. Lavin's appointment in January 1994 as head of 

the BT Securities' Chicago office, that office dealt primarily in 

corporate financings and did not have a taping system for its 

telephone calls. With the arrival of Lavin's derivatives group, 

Mr. Lavin decided that the Chicago office should have a 

system for the routine taping of telephone calls with its 

customers. The taping system was put in place between 

February and April 1994, and it recorded the seven conversations between Mr. and Mrs. Lavin. Whether Mr. Lavin had 

originally arranged for the telephones of all three persons 

engaged in selling derivatives, including himself, to be recorded, or whether he had requested all those lines except his 

private line in his office to be recorded was in dispute. Mr. 

Lavin claimed the latter instruction was the one he gave, and 

testified that as soon as he became aware of the tape recording of the conversations on his private line, he ordered the 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 3 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

2

See 12 U.S.C. § 325. 

taping stopped. It is undisputed that by September 2, 1994, 

pursuant to Mr. Lavin's instructions, the tape recording of his 

private office line had ceased.

In mid-November 1994, Mr. Lavin's counsel was notified by 

Bankers' Trust's counsel that copies of the tapes of the 

Lavins' seven conversations had been provided as part of a 

production of several thousand tapes earlier that month to the 

Federal Reserve Bank of New York in response to a request 

made pursuant to the Federal Reserve's examination powers.2

Mr. Lavin's counsel immediately alerted Bankers Trust and 

its counsel that the Lavins were asserting the confidential 

marital communications privilege as to the conversations between Mr. and Mrs. Lavin, and requested that the bank take 

all steps necessary to preserve the privilege. Consistent with 

this request, Bankers Trust asserted the marital privilege to 

the Federal Reserve on behalf of the Lavins as part of a 

privilege list on which Bankers Trust asserted its own privileges with respect to the thousands of tapes provided to the 

Federal Reserve. The Lavins also secured an agreement 

with Bankers Trust that it would provide them with notice 

and an opportunity to seek judicial relief prior to any further 

disclosure of the tapes. Thereafter, in January 1995, the 

Lavins formally requested that Bankers Trust return all 

copies of the tapes to the Lavins; the bank denied the 

request on the grounds that there were outstanding document requests and subpoenas for the production of the tapes, 

but confirmed its intention to abide by its agreement with the 

Lavins.

In January 1995, the SEC learned that Bankers Trust had 

withheld production of the seven Lavin tapes from previously 

produced materials because of the Lavins' claim of privilege. 

Four months later, the SEC deposed Mr. Lavin on the 

circumstances surrounding the making of the tapes, and also 

conducted four ex parte investigatory depositions of BT Securities personnel. After the Lavins denied its renewed request 

for the tapes, the SEC served a subpoena on Mr. Lavin for 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 4 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

3 The SEC and the Lavins agreed that the tapes would be 

deemed to be in Mr. Lavin's possession, custody, and control for 

purposes of his response to the subpoena. The SEC sought to 

litigate the privilege issue without having to proceed directly 

against the bank. 

production of the tapes.3 Following the Lavins' formal objection to production on the ground of the confidential marital 

communications privilege, the SEC, on November 9, 1995, 

applied to the district court for an order enforcing its subpoena, and Mrs. Lavin intervened in the proceeding.

Meanwhile, the issue of the Lavins' privilege also arose in a 

civil suit brought against Bankers Trust and BT Securities by 

one of their derivatives customers. See Procter & Gamble 

Co. v. Bankers Trust Co., 909 F. Supp. 525 (S.D. Ohio 1995). 

In October 1995, Procter & Gamble sought to compel the 

bank to produce the Lavins' taped conversations. After the 

bank, which asserted the confidential marital communications 

privilege on the Lavins' behalf, refused to produce the tapes, 

the Lavins intervened to assert their privilege claim. The 

Lavins contend that although the SEC was not a party to the 

proceedings, the district court's denial of Proctor & Gamble's 

motion was based upon a record identical in all relevant 

respects to that in the instant case. Id. at 526. The court 

found that neither Mr. nor Mrs. Lavin was aware that their 

conversations were being recorded, id. at 527, and without 

reaching the question of whether Mr. Lavin waived the 

privilege, the court concluded that Procter & Gamble made 

no showing that Mrs. Lavin had done so. Id. at 528. Ruling 

that even if one spouse desires to disclose confidential marital 

communications without the consent of the other spouse, the 

privilege can still be asserted by the non-waiving spouse, the 

court affirmed the Lavins' assertion of the privilege. Id.

Subsequently, the district court here ordered the SEC's 

subpoena to be enforced. SEC v. Lavin, 937 F. Supp. 23 

(D.D.C. 1996). The court found that because Mr. Lavin knew 

or should have known that his telephone conversations were 

being recorded, "the conversations at issue did not take place 

in a confidential setting and, therefore, the confidential mariUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 5 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

tal communications privilege does not attach." Id. at 25. 

Alternatively, assuming the privilege did attach, the district 

court found that the Lavins' conduct demonstrated that they 

had waived the privilege. Id. at 30-32. The Lavins appeal.

II.

The federal common law recognizes two types of marital 

privileges: the privilege against adverse spousal testimony 

and the confidential marital communications privilege. The 

former allows a spouse called as a witness against his or her 

spouse in a criminal proceeding to refuse to testify, see 

Trammel v. United States, 445 U.S. 40, 53 (1980), and the 

latter protects from disclosure private communications between the spouses in the confidence of the marital relationship. See Blau v. United States, 340 U.S. 332, 333 (1951);

Wolfle v. United States, 291 U.S. 7, 14 (1934). Noting the 

evolutionary development of testimonial privileges, the Supreme Court in Trammel expressed doubt about the continued vitality of the justifications for the privilege against 

adverse spousal testimony and limited the circumstances under which it may be invoked. 445 U.S. at 47-53. By 

contrast, the Court reaffirmed the significance of the confidential marital communications privilege and its important 

role in protecting the marital relationship, " "the best solace 

of human existence.' " Id. at 51 (quoting Stein v. Bowman,

38 U.S. (13 Pet. 209, 220-23) 184, 194-97 (1839)); see also 2 

JACK B. WEINSTEIN ET AL., WEINSTEIN'S EVIDENCE ¶ 505[04] 

(1996). As the Supreme Court observed on an earlier occasion, "[t]he basis of the immunity given to communications 

between husband and wife is the protection of marital confidences, regarded as so essential to the preservation of the 

marriage relationship as to outweigh the disadvantages to the 

administration of the justice which the privilege entails." 

Wolfle, 291 U.S. at 14.

The confidential marital communications privilege may be 

asserted against the production of evidence when four prerequisites are met: (1) there must have been a communication, 

see Pereira v. United States, 347 U.S. 1, 6-7 (1954); (2) there 

must have been a valid marriage at the time of the communiUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 6 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

cation, United States v. Evans, 966 F.2d 398, 401 (8th Cir.), 

cert. denied, 506 U.S. 988 (1992); United States v. Lustig, 555 

F.2d 737, 747 (9th Cir. 1977), cert. denied, 434 U.S. 926 (1977) 

and 434 U.S. 1045 (1978); (3) the communication must have 

been made in confidence, see Pereira, 347 U.S. at 6; Blau,

340 U.S. at 333; Wolfle, 291 U.S. at 14; and (4) the privilege 

must not have been waived. See United States v. Premises 

Known as 281 Syosset Woodbury Road, 71 F.3d 1067, 1072 

(2d Cir. 1995); United States v. Figueroa-Paz, 468 F.2d 1055, 

1057 (9th Cir. 1972); Fraser v. United States, 145 F.2d 139, 

144 (6th Cir. 1944), cert. denied, 324 U.S. 849 (1945). Only 

the final two elements are at issue here, and our discussion is 

confined to the Lavins' contentions that the district court 

erred in denying them discovery on the issue of confidentiality, and in finding that they had waived the privilege.

A.

"[S]ubpoena enforcement proceedings must be adversarial 

in character and ... afford an adequate opportunity to raise 

all objections to (the) administrative subpoena." FTC v. 

Atlantic Richfield Co., 567 F.2d 96, 106 n.22 (D.C. Cir. 1977) 

(internal quotations marks omitted). The precise nature of 

this adversary proceeding will vary, depending on the particular circumstances of each case. Id. Because subpoena enforcement proceedings are generally summary in nature and 

must be expedited, discovery is not usually permitted. SEC 

v. Dresser Industries, Inc., 628 F.2d 1368, 1388 (D.C. Cir.) (in 

banc), cert. denied, 449 U.S. 993 (1980); United States v. 

Exxon Corp., 628 F.2d 70, 77 n.7 (D.C. Cir.), cert. denied, 446 

U.S. 964 (1980). Yet when "the circumstances indicate that 

further information is necessary for the courts to discharge 

their duty," discovery may be available. Dresser Industries,

628 F.2d at 1388. Our review of the district court's decision 

to permit or disallow discovery is for abuse of discretion. 

Northrop Corp. v. McDonnell Douglas Corp., 751 F.2d 395, 

399 (D.C. Cir. 1994).

In the district court the Lavins argued that if the court 

concluded that the SEC's inadmissible hearsay evidence 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 7 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

4 Because the district court erred in denying the Lavins' discovery request, we do not reach the Lavins' contentions that the 

district court erred in finding that Mr. Lavin knew his telephone 

conversations were being recorded, erred in applying the wrong 

legal standard in denying their request for a hearing, and denied 

them due process by refusing them discovery while relying on their 

failure to provide supportive testimony as a basis for its finding that 

the communications were not confidential. 

raised disputed issues of fact that precluded the Lavins' 

assertions of the privilege, the Lavins should be allowed 

several days to conduct discovery. Specifically, the Lavins 

sought to depose and cross-examine the BT Securities' witnesses relied on by the SEC, and to depose one or two other 

persons with knowledge of the circumstances that led to the 

taping in Chicago. On appeal the Lavins contend that the 

district court applied the wrong legal standard in denying 

discovery, focusing on whether the Lavins demonstrated a 

lack of institutional good faith by the SEC in its investigatory 

policies instead of on whether the circumstances indicated 

that additional information was necessary for the court to be 

in a position to evaluate their privilege claim. The Lavins 

also contend that the district court abused its discretion by 

treating the discovery request as part of a "run-of-the-mill" 

subpoena enforcement proceeding because denial of the requested discovery deprived them of the only means by which 

they could have developed their side of the story. We agree 

that the district court abused its discretion.4

The district court relied on Resolution Trust Corp v. 

Frates, 61 F.3d 962, 965 (D.C. Cir. 1995), and Dresser, 628 

F.2d at 1388, stating that in subpoena enforcement proceedings, discovery procedures beyond interrogatories or affidavits are inappropriate absent extraordinary circumstances. 

Lavin, 937 F. Supp. at 28. Citing United States v. Fensterwald, 553 F.2d 231 (D.C. Cir. 1977) and United States v. 

Marine Midland Bank, 585 F.2d 36 (2d Cir. 1978), the court 

explained that these "[s]pecial circumstances exist when a 

person offers some evidence which demonstrates a lack of 

institutional good faith in an agency's investigatory policies." 

Lavin, 937 F. Supp. at 28. In Dresser, however, this court 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 8 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

pointed to questions about an agency's good faith in issuing 

summons as an "example" of circumstances indicating that 

discovery may be appropriate; the court did not suggest that 

such questions were the only circumstances that could give 

rise to the need for discovery. 628 F.2d at 1388. The court's 

aversion to discovery focused on discovery into an agency's 

summons decision-making process, and was based on the 

concern that "subpoena enforcement proceedings [might be 

transformed] into exhaustive inquisitions into the practices of 

the regulatory agencies." Id. (citations omitted). In the 

cases relied on by the district court, Resolution Trust Corp., 

Dresser, Fensterwald, and Marine Midland Bank, the respondents were challenging the administrative subpoena on 

the basis that the administrative agency was not acting in 

good faith, and were thus seeking discovery into the agency's 

investigative practices. By contrast, the Lavins neither suggested that the SEC had acted in bad faith nor sought 

discovery into the agency's investigative practices. Hence, 

there was no danger that the requested discovery would 

involve an "exhaustive inquisition" into the agency's practices. 

The proper inquiry was whether special circumstances existed 

requiring discovery, not whether the agency had acted in bad 

faith. Dresser Industries, 628 F.2d at 1388. The district 

court thus erred in denying the Lavins' discovery request on 

the ground that "Mr. and Mrs. Lavin have failed to show or 

even allege a lack of good faith on the part of the SEC." 

Lavin, 937 F. Supp. at 28.

As an additional ground for denying the Lavins' discovery 

request, the district court concluded that "there [was] adequate evidence to decide all issues of credibility and to reach 

a well-informed result." Id. However, the evidence regarding whether Mr. Lavin knew or should have known that his 

telephone was being recorded was sufficiently in dispute that 

the court could not properly rely on ex parte depositions of 

employees of BT Securities and ambiguous taped remarks 

made by Mr. Lavin. Especially because Mr. Lavin's claim 

that the evidentiary discrepancies resulted from confusion 

and miscommunication surrounding the issue of taping in 

Chicago offered a possible explanation for inconsistencies in 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 9 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

the testimony of BT Securities personnel, the circumstances 

warranted granting the Lavins' discovery request.

In concluding that the evidence was adequate to resolve the 

disputed issue of the confidentiality of the tapes, the district 

court relied in large part on the ex parte deposition testimony 

obtained by the SEC from four bank employees: Sal Iannuzzi, Michael Ugliarolo, Art Vallette, and David Mellon. Lavin,

937 F. Supp. at 26-28. Iannuzzi's deposition lent some 

support for the SEC's allegation that Mr. Lavin knew his 

telephone was being recorded. Iannuzzi testified that sometime between February and April 1994, Mr. Lavin had stated 

that he wanted his telephone lines in Chicago to be recorded 

because he planned to transact derivatives business out of the 

Chicago office. Id. at 26-27. Ugliarolo's testimony, that he 

was asked by Iannuzzi to install a recording system in the 

Chicago office, corroborates Iannuzzi's statement of Mr. Lavin's request. Id. at 27. Yet, Ugliarolo's testimony merely 

points to what Iannuzzi understood Mr. Lavin's instructions 

to be; it does not directly reveal anything as to Mr. Lavin's 

intentions, and it is not necessarily inconsistent with Mr. 

Lavins' testimony that there was "confusion and miscommunication" as to what should have been taped in Chicago. Vallette's testimony, moreover, is more complex and confused 

than the district court suggests. Id. Vallette testified that, 

shortly before the tape recording began in the Chicago office, 

Mr. Lavin stated that he wanted the calls on his telephone 

and the telephones of the two other traders to be taped. Id.

But Vallette also testified that from "early on," Mr. Lavin 

"told me to tape or record his first line." (emphasis added). 

Although Vallette also testified that on more than two or 

three occasions after March 15, 1994, Mr. Lavin had asked 

whether the phones were being recorded, he did not specify 

which phones were referred to, and this testimony is thus not 

inconsistent with Vallette's testimony that Mr. Lavin expected only his first line to be recorded. With limited probative 

value similar to that of Ugliarolo's testimony, Mellon's testimony, that Vallette had asked him to check whether the 

telephones were being recorded, merely sheds light on Vallette's understanding of the requests, not Mr. Lavin's. Id.

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 10 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

The district court also found that Mr. Lavin's "own words 

and actions" demonstrated that he knew that his telephone 

conversations were being recorded. Id. In maintaining that 

he had no knowledge of the recording, Mr. Lavin stated by 

affidavit that he had had a meeting with two bank employees, 

Iannuzzi and Melvin Yellin, where it was expressly decided 

that Mr. Lavin's private line would not be taped. When 

questioned by the SEC, Iannuzzi testified that he had no 

recollection of such a conversation, but also acknowledged 

that his memory concerning the details of the taping procedures was "extremely weak" and "really hazy." Yellin, Bankers Trust's Assistant General Counsel, had not been deposed 

by the SEC, and the Lavins neither presented, nor represented that they had sought, his testimony. In denying the 

Lavins' request for discovery, the district court found it 

"significant[ ]" that the Lavins failed to offer any proof from 

Yellin confirming that the conversation described by Mr. 

Lavin had actually taken place. Lavin, 937 F. Supp. at 27. 

But, in view of their proffer of evidence supporting their 

position, as well as the district court's finding in Procter &

Gamble that Mr. Lavin had no knowledge that conversations 

on his line were being recorded, it was reasonable for the 

Lavins to rely on the record in maintaining that the taped 

conversations were subject to the confidential marital communications privilege, and that, if the district court disagreed, 

the Lavins were entitled to depose and cross-examine the 

principal witnesses on which the SEC relied.

Mr. Lavin's recorded statements from telephone conversations during the relevant time period also did not provide a 

basis for the district court's finding of adequate evidence to 

determine that the conversations at issue were not privileged. 

An April 4, 1994, conversation between Lavin in his Chicago 

office and a New York-based marketer suggested that Mr. 

Lavin did not believe his line to be taped. Mr. Lavin asked 

the marketer to place a telephone conference call to a customer, stating: "[Y]ou dial because I want it to be taped." 

Another taped telephone conversation, on July 19, 1994, arguably points to the opposite conclusion. In referring to a 

telephone call that he had made about thirty minutes earlier 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 11 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

from his Chicago office, Mr. Lavin stated to an associate, "I 

want to actually get a copy of this tape." The SEC's reconciliation of the two conversations, that the prior statement in 

April is not inconsistent with Mr. Lavin's knowing of the 

taping by July, might be persuasive but for Mr. Lavin's 

statement to his wife on July 21, 1994. Then, in response to 

Mrs. Lavin's question, "The phone call is being taped?," Mr. 

Lavin answered, "This line is not taped."

As further grounds in support of their discovery request, 

the Lavins presented additional evidence supporting Mr. Lavin's asserted lack of knowledge of the taping. First, the 

claim that his telephone in his private office in Chicago was 

not supposed to be tape recorded was consistent with the 

undisputed fact that his private office telephone in his New 

York office was not taped. Second, Vallette testified that Mr. 

Lavin appeared to be "surpris[ed]" upon learning that his 

conversations had been recorded. Third, the undisputed fact 

that Mr. Lavin, upon learning of the taping from Vallette, 

asked for the taping to stop tends to corroborate the Lavins' 

claim that Mr. Lavin had not intended that his telephone line 

be taped, and that he was previously unaware that it was 

being taped. Indeed, the Lavins' characterization of events, 

that Mr. Lavin's telephone was erroneously included among 

the telephones on which the taping system was installed, is at 

this point the account that best explains the contradictory 

evidence before the district court.

Consequently, in view of the conflicting nature of the 

evidence regarding Mr. Lavin's knowledge of the taping, we 

hold that the district court erred in denying the Lavins' 

discovery request. A claim of privilege must be "presented 

to a district court with appropriate deliberation and precision" 

before a court can rule on the issue, see Friedman v. Bache 

Halsey Stuart Shields, Inc. 738 F.2d 1336, 1342 (D.C. Cir. 

1984), and the fact that this claim arose in the context of a 

subpoena enforcement proceeding, rather than routine civil 

litigation, does not alter this requirement. See Atlantic 

Richfield Co., 567 F.2d at 106 n.22. Regardless of the 

context of the claim, the district court is obliged to resolve the 

question of privilege on a record that is both fairly and 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 12 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

5

In so ruling, the district court "[a]ssum[ed] arguendo that the 

privilege would attach and that Mrs. Lavin could assert the privilege independent of her husband." Lavin, 937 F. Supp. at 30. 

Previously, however, the court had ruled that Mrs. Lavin did not 

have an independent privilege to assert. Id. at 29. In light of our 

disposition, we do not reach the Lavins' contention that the district 

court erred in ruling that Mrs. Lavin could not independently claim 

the privilege. Because resolution of this question of first impression may prove unnecessary after further discovery following the 

remand, depending on Mr. Lavin's ability to assert the privilege, we 

reserve decision on it. On remand the Lavins may continue to 

press their argument and, if necessary, raise this issue in a subsequent appeal.

sufficiently developed. The SEC relied on inconclusive ex 

parte deposition testimony and transcripts of Mr. Lavin's 

conversations that excluded the portion of the tapes in which 

he told his wife that his telephone was not taped. Mr. Lavin 

proffered his own version of events, and the district court 

faulted his failure to present supportive evidence while at the 

same time denying the Lavins' request to develop their case 

through discovery. Moreover, as the Lavins observe, allowing them discovery would hardly have interfered with the 

summary nature of the proceeding: while the Lavins requested only a few days to conduct depositions and cross-examine 

witnesses, the SEC waited nearly four months to initiate the 

subpoena enforcement action after production of the tapes 

had been refused, and the district court's decision came more 

than six months after the SEC had submitted its application 

for an order enforcing the subpoena. Under the circumstances, allowing the litigants to develop the record would not 

have been unduly burdensome to the parties or the court.

B.

The question remains whether, even if their communications were initially made in confidence, the Lavins subsequently waived the confidential marital communications privilege and the district court thus properly ordered enforcement 

of the SEC's subpoena for the taped conversations. The 

district court concluded on two independent grounds that the 

Lavins had waived the privilege, pointing to their failure to 

obtain physical possession of the copies of the tapes that were 

in possession of other entities, and to their selective disclosure of the privileged materials in litigation.5 Lavin, 937 

F. Supp. at 30. The Lavins persuasively challenge each 

ground.

The district court first concluded that the Lavins' conduct 

was inconsistent with zealous protection of confidential marital communications because Bankers Trust, its counsel, and 

the Federal Reserve Bank continue to have "unfettered acUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 13 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

6

See generally Gray v. Bicknell, 86 F.3d 1472, 1483-84 (8th 

Cir. 1995) (discussing three approaches to waiver of the attorneyclient privilege by inadvertent disclosures). 

cess" to copies of the seven tape recordings, and the Lavins, 

after asserting the privilege in mid-November 1994, waited 

until January 1995 to request that Bankers Trust turn over 

the tapes, and have never taken legal action to compel the 

bank to turn over the tapes or to destroy them. Lavin, 937 

F. Supp. at 30-31. The court found that although Mr. Lavin 

knew no later than September 2, 1994, that his previous 

telephone conversations had been tape recorded, his "failure 

to act" to retrieve the recordings impugned "the mantle of 

confidentiality" surrounding the telephone conversations. Id.

(quoting United States v. de la Jara, 973 F.2d 746, 750 (9th 

Cir. 1992)).

In the attorney-client context, this court adheres to a strict 

rule on waiver of privileges.6"[T]he confidentiality of communications covered by [a] privilege must be jealously guarded by the holder of the privilege lest it be waived." In re 

Sealed Case, 877 F.2d 976, 980 (D.C. Cir. 1989). If the holder 

wishes to preserve its privilege, "it must treat the confidentiality ... like jewelsif not crown jewels." Id. In other 

words, the holder must zealously protect the privileged materials, taking all reasonable steps to prevent their disclosure. 

See Permian Corp. v. United States, 665 F.2d 1214, 1220 & 

n.11 (D.C. Cir. 1981); see also de la Jara, 973 F.2d at 749. 

Generally, the considerations that support a strict approach 

to waiver in the attorney-client context would appear to apply 

as well in the marital context: while both privileges serve to 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 14 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

7

See de la Jara, 973 F.2d at 748; In re Sealed Case, 877 F.2d 

at 977; In re Sealed Case, 676 F.2d 793, 817 (D.C. Cir. 1982);

Permian, 665 F.2d at 1217; In re Grand Jury Investigation of 

Ocean Transp., 604 F.2d at 674; In re Horowitz, 482 F.2d 72, 74 

(2d Cir. 1973); RTC v. Dean, 813 F. Supp. 1426, 1428-30 (D.Ariz. 

1993); O'Leary v. Purcell Co., 108 F.R.D. 641, 643-45 (M.D.N.C. 

1985); In re Dayco Corp. Derivatives Securities Litigation, 102 

F.R.D. 468, 469-70 (S.D. Ohio 1984). 

promote important public interests by encouraging full and 

frank communications within special relationships, see Jaffee 

v. Redmond, 116 S. Ct. 1923, 1929 (1996); Trammel, 445 U.S. 

at 51, they must be narrowly construed because of their 

adverse effect on the full disclosure of truth. See University 

of Pennsylvania v. EEOC, 493 U.S. 182, 189 (1990) (citations 

omitted); see also In re Grand Jury Investigation of Ocean 

Transp., 604 F.2d 672, 674 (D.C. Cir.), cert. denied sub nom. 

Sea Lion Service, Inc. v. United States, 444 U.S. 915 (1979).

However, the question of the Lavins' alleged waiver arises 

in an unusual context, different from that of any of the cases 

on which the district court and the parties rely. The Lavins 

assert the privilege with regard to communications, the physical manifestations of which belong to a third party, Mr. 

Lavin's employer. Consequently, the cases cited that discuss 

implied waiver when the holder of the privilege or his attorney is in possession of the materials at issue and fails to take 

adequate precautions to maintain their confidentiality,7i.e.,

negligent or inadvertent disclosures, offer limited guidance on 

whether disclosures by third parties over whom the holder of 

the privilege has virtually no control, i.e., involuntary disclosures, may nonetheless be held to constitute waiver. In cases 

of involuntary disclosure, at least one court has held that 

waiver occurs only when the holder has failed to take reasonable steps to reclaim the protected material. Thus, in de la 

Jara, on which the district court relied, the Ninth Circuit 

upheld the finding of waiver where the police, in executing a 

search warrant, seized a letter written by the defendant to his 

attorney and, during the six-month period between the seizure and the introduction of the letter at trial, the defendant 

failed to avail himself of various legal means (such as filing a 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 15 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

8 See Transamerica Computer Co. v. IBM, 573 F.2d 646, 650- 

51 (9th Cir. 1978). 

9 The Federal Rules of Evidence acknowledge that the law of 

privileges should not remain frozen but instead adjust to changing 

circumstances in light of reason and experience. See Trammel v. 

United States, 445 U.S. 40, 47-48 (1980) (discussing FED. R. EVID.

501). 

motion to suppress the letter under Federal Rule of Criminal 

Procedure 12(b)(3), or a motion for return of property under 

Federal Rule of Criminal Procedure 41(e)) that would have 

enabled him to claim the privilege or even perhaps recover 

his property. 973 F.2d at 750. The Ninth Circuit observed:

[W]hen the disclosure of privileged material is involuntary, we will find the privilege preserved if the privilege 

holder has made efforts "reasonably designed' to protect 

and preserve the privilege. Conversely, we will deem 

the privilege to be waived if the privilege holder fails to 

pursue all reasonable means of preserving the confidentiality of the privileged matter.

Id. at 749. Although de la Jara dealt with privileged communications disclosed under compulsion by law enforcement 

authorities, the Ninth Circuit's reasoning in another case 

(cited with approval in de la Jara) made clear that the 

standard applied to "compelled" disclosures would similarly 

apply in circumstances, such as those at issue here, where a 

party had no real control over the disclosure or nondisclosure of documents.8

In our view the Ninth Circuit's standard with regard to 

involuntary disclosures strikes the proper balance between 

the conflicting policies of facilitating truth-seeking by construing privileges strictly and, at the same time, fairly and 

adequately "protect[ing] the privacy of marriage and encourag[ing] open and frank marital communications." United 

States v. Sims, 755 F.2d 1239, 1243 (6th Cir.), cert. denied,

473 U.S. 907 (1985); see also Wolfle, 291 U.S. at 14. In light

of the modern regulatory age and technological advances, 

moreover, such an approach is necessary precisely because 

the ability to protect against all disclosures is becoming 

increasingly elusive.9See 1 MCCORMICK § 74, at 276; 2

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 16 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

10 See Natalie A. Kanellis, Comment, Applicability of the 

Attorney-Client Privilege to Communications Intercepted by Third 

Parties, 69 IOWA L. REV. 263, 270-71 (1983). 

WEINSTEIN ¶ 503(b)[02] (1996). Unless communications remain privileged as long as the holder has acted reasonably in 

attempting to protect them, involuntary disclosures by third 

parties may render illusory the privilege's guarantee of privacy.10

Applying the Ninth Circuit's approach here, we conclude 

that the Lavins took all reasonable steps to protect their 

taped conversations from disclosure and thus did not waive 

the privilege. Contrary to the district court's conclusion, the 

Lavins were not obligated to take any legal action during the 

period from early September 1994, when Mr. Lavin knew that 

some of his conversations were taped, until mid-November, 

when the Lavins did assert their privilege. Unlike de la 

Jara, where the defendant had reason to be aware of the 

threat that his letter would be used in the prosecution against 

him, as well as ample opportunities under the Federal Rules 

of Criminal Procedure to assert the attorney-client privilege 

prior to the introduction of his letter into evidence, until the 

Lavins were first notified by Bankers Trust that copies of the 

tapes had been turned over to the Federal Reserve Bank of 

New York, there was no event that should have triggered 

their assertion of the privilege. The fact that Mr. Lavin 

knew no later than September 1994 that his telephone line 

had been routinely recorded for the past five to seven months 

did not mean that he was obligated at that time to try to 

recollect all of the conversations that he had with his wife on 

that line and assert the privilege in a vacuum, anticipating 

production requests by third parties. Even if Mr. Lavin 

could have foreseen that third parties might eventually seek 

to examine the tapes, we know of no case, and the SEC points 

to none, that requires a privilege holder to engage in a 

preemptive strike to prevent further disclosure of involuntarily disclosed, privileged materialsin other words, to assert 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 17 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

11 By contrast with Permian, 655 F.2d at 1221, where an 

affirmative duty to retrieve the documents was placed on the party, 

the instant case involves an involuntary disclosure, not a voluntary 

disclosure, and the documents in Permian belonged to the party, 

whereas here the tapes do not belong to the Lavins. 

12 The SEC points to no evidence in the record showing that, 

before the Lavins' assertion of the privilege, anyone had listened to 

the Lavins' taped conversations other than in connection with 

production requests made to the bank by the Federal Reserve Bank 

and the SEC. 

the privilege or institute other legal measures absent a concrete threat of further disclosure.11

The inadvisability of adopting an affirmative duty is clear 

given the difficulties that arise in determining what would 

constitute sufficient preemptive measures, as well as the 

unfairness and wastefulness of requiring the privilege holder 

to take affirmative action likely to prove unnecessary or 

ineffective. Rules of privilege are designed to afford its 

holder the right to protect himself or herself against the use 

of privileged materials in legal proceedings; they do not, as 

Professor McCormick points out in his treatise, "speak directly to the question of unauthorized revelations of confidential 

matter outside the judicial setting." 1 MCCORMICK § 72.1, at 

271-72. Bankers Trust maintained the tapes primarily for 

the purpose of resolving trading disputes with customers. 

Had there been a customer complaint that required examination of his conversations with his wife, Mr. Lavin reasonably 

could have expected to have been afforded the opportunity by 

the Bank to review the tapes of his conversationsmuch as 

he was in fact later afforded this opportunityand at that 

point decide whether to assert any privilege. Here, as soon 

as Bankers Trust alerted Mr. Lavin in mid-November of the 

Federal Reserve's examination, the Lavins asserted the privilege, and they were under no obligation to have done so 

earlier.12

Upon learning that the tapes had been sought by and 

delivered to the Federal Reserve Bank, the Lavins immediately asserted the privilege against all three entities in posUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 18 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

13 The Lavins contend that such a remedy was unavailable 

because, in order to seek relief under the wiretap statute, the 

interception must have been "willful" and not, as the Lavins maintain in the instant case, the result of inadvertence or mistake. In 

light of our conclusion that the privilege claim does not rise or fall 

on whether the Lavins filed a lawsuit to obtain possession or 

destruction of the tapes, we have no occasion to decide whether 

such a lawsuit would have been available to the Lavins under the 

wiretap statute. 

session of the tapes: Bankers Trust, Bankers Trust's counsel, 

and the Federal Reserve Bank. In addition, they secured an 

arrangement whereby Bankers Trust would provide them 

with notice and an opportunity to object before it would 

produce copies of the tapes in response to any discovery 

requests. Thereafter, when Bankers Trust denied the Lavins' request to turn over the tapes because of outstanding 

subpoenas and document requests, the Lavins reconfirmed 

their assertion of the privilege and received assurances that 

their agreement concerning disclosure to third parties would 

be respected. Pursuant to this agreement, after receiving 

notice that Procter & Gamble sought the tapes in connection 

with its civil litigation against Bankers Trust, the Lavins 

immediately asserted the privilege and intervened in that 

case to preclude the tapes' production. The tapes have not 

been produced to any other parties. Hence, the district court 

erred in finding that third parties continued to have "unfettered access" to the tapes of the Lavins' conversations at the 

time of the district court's ruling, Lavin, 937 F. Supp. at 31; 

instead, any access was encumbered by the Lavins' assertion 

of the privilege.

The fact that the Lavins did not institute formal legal 

proceedings to gain physical possession of the tapes is irrelevant. The existence of a legally cognizable privilege has no 

bearing on the ownership of a document or recording; it 

simply determines whether the information contained in such 

materials should be subject to disclosure in a legal proceeding. Cf. MCCORMICK § 72.1, at 271-72. Regardless of whether the Lavins "possibly," as the SEC suggests, might have 

been able to bring an action under the federal wiretap statute 

to order Bankers Trust to erase or destroy the tapes, see 18 

U.S.C. §§ 2520, 2521,13 the Lavins took reasonable action to 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 19 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

14 The record suggests that Mr. Lavin's control over and access 

to the taped conversations at issue was limited. Mr. Ugliarolo, a 

managing director at Bankers Trust, for example, testified that Mr. 

Lavin did not have authority to stop the taping once it started. 

Also, the seven taped conversations were not in the form of 

separate cassettes, but were embedded in large reels of tape 

containing many conversations over many months. 

protect the confidentiality of the conversations by asserting 

the privilege as soon as there was a threat of further disclosure to third parties;14 taking reasonable precautions to 

preserve the confidentiality of privileged materials does not 

require gaining physical possession in cases such as this 

where the disclosure was completely involuntary and, in any 

event, attempts to gain such possession would have been 

futile because the tapes were not the property of the Lavins. 

Under these circumstances, it was sufficient for the Lavins to 

assert the privilege as soon as they were notified of the 

requests for the tapes by the Federal Reserve, and to assert 

the privilege here and in other litigation. Unlike the party in 

Permian, 665 F.2d at 1219, the Lavins had not disclosed or 

permitted disclosure of the tapes of their conversations to 

anyone.

Bankers Trust and its counsel's initial review of the tapes 

also did not constitute waiver by the Lavins; there were 

numerous reels of tape recordings of telephone conversations 

held by Bankers Trust, and only because these entities were 

able to examine the tapes did the Lavins learn which tapes 

contained their conversations and have the opportunity to 

claim that they were privileged. Cf. Transamerica Computer, 573 F.2d at 651. Likewise, Bankers Trust and its counsel's subsequent examination of the tape recordings in connection with the ongoing investigation or related litigation, 

even after the Lavins claimed the confidential marital communications privilege, did not constitute waiver by the Lavins. 

The Lavins specifically requested that Bankers Trust take all 

steps necessary to preserve the privilege, and it was reasonUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 20 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

able for the Lavins to assume that this request would be 

honored. Indeed, the bank's notice to the Lavins in midNovember that the Federal Reserve's request for tapes included tapes of their conversations indicated that the bank 

intended to respect the Lavins' assertion of the privilege. It 

was also reasonable, moreover, for the Lavins to expect that 

Bankers Trust's counsel would respect their asserted privilege. As the bank's agents, the attorneys were no less bound 

than the bank to respect the bank's commitments to the 

Lavins. Any violation by Bankers Trust and its counsel of 

the asserted privilege did not result from the Lavins' conduct, 

and hence did not constitute waiver by the Lavins.

Finally, Bankers Trust's production of the Lavins' tapes, 

which were included among several thousand other tapes, to 

the Federal Reserve Bank of New York also did not constitute waiver by the Lavins. Bankers Trust produced the 

tapes for the Federal Reserve, not pursuant to a subpoena, 

but in response to the Federal Reserve's exercise of its 

examination powers. See 12 U.S.C. § 325. At that time, 

neither Bankers Trust nor its counsel had reviewed any of 

the thousands of tapes to determine whether they contained 

privileged communications. In connection with production of 

the tapes, however, Bankers Trust provided the Federal 

Reserve with a list of all tapes for which the bank was 

asserting a privilege. On this privilege list, Bankers Trust 

asserted the marital privilege on the Lavins' behalf. The 

Lavins thus asserted the marital privilege against the Federal 

Reserve as soon as it was reasonably possible to do so.

The district court's second ground for finding waiver, that 

the Lavins waived the privilege by making a selective disclosure in their pleadings in the district court, fares no better. 

It is true that any disclosure by a holder of a privilege 

inconsistent with maintaining the confidential nature of marital communications waives the privilege. See In re Sealed 

Case, 676 F.2d at 818. A party may not, for example, 

selectively disclose part of a privileged communication in 

order to gain an advantage in litigation. Id.; see also Permian, 665 F.2d at 1221. As noted, the purpose of the marital 

privilege is to protect the privacy of marital communications, 

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 21 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

15 Citing In re Sealed Case, 877 F.2d at 980, which involved 

disclosure of privileged materials to third parties, not to the court, 

the SEC maintains that the Lavins' uninvited submission of the 

transcripts for the district court's in camera review was improper, 

and the resulting disclosure thus constituted waiver of the privilege. 

This contention is meritless. Not only did the district court properly exercise its discretion in deciding to review the tapes in camera,

but we know of no case, and the SEC points to none, where the 

submission of privileged material to the court for in camera review 

in order to demonstrate the existence of a privilege has itself been 

held to constitute waiver. 

see Sims, 755 F.2d at 1241, a purpose that is not served by 

protecting communications that have been deliberately disclosed, even if only in part. Disclosure is generally inconsistent with confidentiality, and "courts need not permit hideand-seek manipulation of confidences in order to foster candor." In re Sealed Case, 676 F.2d at 818.

In attempting to demonstrate that, at the time of their 

telephone conversations, they understood their communications to be confidential, the Lavins submitted to the district 

court for in camera review transcripts of the seven taped 

conversations.15 In a Memorandum in Opposition to the 

SEC's Application for Enforcement, the Lavins referred the 

district court to the following excerpt from one of the conversations at issue as evidence of the Lavins' contemporaneous 

understanding that their telephone conversations were not 

being taped and were thus private and confidential:

Mr. Lavin: "This line is not taped."

Mrs. Lavin: "No."

Mr. Lavin: "No...."

The Lavins contend that this disclosure did not constitute a 

waiver of their privilege, and we agree.

The prohibition against selective disclosure of confidential 

materials derives from the appropriate concern that parties 

do not employ privileges both as a sword and as a shield. 

The purpose of the privilege is to protect the confidentiality 

of marital communications: "[it] is intended only as an incidental means of defense and not as an independent means of 

attack, and to use it in the latter character is to abandon it in 

the former." In re Sealed Case, 676 F.2d at 818. In quoting 

seven words of one of the taped conversations, the Lavins did 

not seek to shield the conversations from disclosure while at 

the same time relying on the conversations to address a 

substantive issue in the SEC investigation and thereby gain a 

litigation advantage. Instead, the Lavins sought only to 

establish the privilege by providing highly probative informaUSCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 22 of 23
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

tion regarding the Lavins' assumptions with regard to the 

nature of their conversations. See 1 MCCORMICK § 80, at 299. 

Because the limited disclosure involved not an unfair tactical 

manipulation of the privilege, see In re Sealed Case, 676 F.2d 

at 818, but a legitimate showing in support of the claim of 

privilege, the district court erred in ruling to the contrary.

Accordingly, we reverse the order enforcing the subpoena 

and remand the case to the district court to allow the Lavins 

to conduct discovery as the court shall direct, and to determine thereafter whether the Lavins may assert the privilege. 

If the court concludes that Mr. Lavin may not assert the 

privilege, the Lavins may appeal that determination as well as 

the district court's prior resolution of Mrs. Lavin's independent claim of privilege.

USCA Case #96-5286 Document #269760 Filed: 05/02/1997 Page 23 of 23