Opinion ID: 686728
Heading Depth: 2
Heading Rank: 1

Heading: The Scope of the Subpoenas

Text: 45 The Directors contend that the FDIC subpoenas are so broad in scope as to amount to a fishing expedition into the finances of the Directors and their families, in the hope that it will find something, somewhere, in the vast amount of requested financial information that will create a case for the FDIC. Brief for Petitioner-Appellants (Directors' Brief) at 6. Much of the requested information, they argue, bears no relation to the investigation of Landmark's collapse. In particular, extensive personal financial records are sought from members of the Directors' families who had no involvement in the bank's management. These records, they contend, are sought on the basis of only unsubstantiated and vague assertions of wrongdoing and bear at best a speculative relation to the subject of the investigation. The FDIC, they contend, is thus leapfrogging over the possible wrongdoer to an innocent party and then working its way back to try and find a possible wrongdoer. Id. at 10. Such an approach, they contend, violates the constitutional right to privacy of the Directors and their families. We concur with the Directors' assertions in part. 46 The statute which grants the FDIC power to issue subpoenas places few restrictions on that power. The statute provides: 47 The Corporation may, as conservator, receiver, or exclusive manager and for purposes of carrying out any power, authority, or duty with respect to an insured depository institution (including determining any claim against the institution and determining and realizing upon any asset of any person in the course of collecting money due the institution), exercise any power established under section 1818(n) of this title.... 48 12 U.S.C.A. Sec. 1821(d)(2)(I)(i) (West Supp.1994). Section 1818(n) provides that the FDIC, among other powers, shall have the power ... to issue, revoke, quash, or modify subpenas [sic] and subpenas duces tecum ... 12 U.S.C. Sec. 1818(n) (1988 & Supp. I 1989). Thus, the only statutory restriction on the FDIC's power to issue subpoenas is that they be issued for purposes of carrying out any power, authority, or duty with respect to an insured depository institution. Any limitation beyond this on the agency's subpoena power must be found, if at all, in the Constitution, particularly in the Fourth and Fifth Amendments. 49 Courts have imposed few constitutional limitations on agencies' power to issue administrative subpoenas. While the Supreme Court early in this century strongly condemned fishing expeditions into private papers on the possibility that they may disclose evidence of crime, FTC v. American Tobacco Co., 264 U.S. 298, 306, 44 S.Ct. 336, 337, 68 L.Ed. 696 (1924), that position was decisively abandoned in Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494, 90 L.Ed. 614 (1946), and United States v. Morton Salt Co., 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950). See generally 1 Kenneth C. Davis & Richard J. Pierce, Jr., Administrative Law Treatise Secs. 4.1, 4.2, 4.5 (3d ed. 1994). 50 In Oklahoma Press, the Supreme Court made clear the distinction between cases of actual search and seizure, as to which the Fourth Amendment requires probable cause, and those involving subpoena of documents, which it characterized as, at best, constructive searches. 327 U.S. at 202-08, 66 S.Ct. at 502-05; see also United States v. Dionisio, 410 U.S. 1, 8-10, 93 S.Ct. 764, 768-70, 35 L.Ed.2d 67 (1973) (grand jury subpoena is not a seizure); United States v. Doe (Schwartz), 457 F.2d 895, 898 (2d Cir.1972) (Friendly, J.) (same), cert. denied, 410 U.S. 941, 93 S.Ct. 1376, 35 L.Ed.2d 608 (1973). The Court concluded that, with regard to subpoenas ordering production of corporate records, 51 the Fifth Amendment affords no protection by virtue of the self-incrimination provision, whether for the corporation or for its officers; and the Fourth, if applicable, at the most guards against abuse only by way of too much indefiniteness or breadth in the things required to be particularly described, if also the inquiry is one the demanding agency is authorized by law to make and the materials specified are relevant. The gist of the protection is in the requirement, expressed in terms, that the disclosure sought shall not be unreasonable. 52 327 U.S. at 208, 66 S.Ct. at 505; see also In re Grand Jury Subpoena Duces Tecum, 1 F.3d 87, 93 (2d Cir.1993) (Fifth Amendment does not protect the contents of voluntarily prepared documents, regardless of their business or personal nature), cert. denied, --- U.S. ----, 114 S.Ct. 920, 127 L.Ed.2d 214 (1994). 53 In Morton Salt, the Court extended and refined the Oklahoma Press analysis. An administrative agency, the Court reasoned, has a power of inquisition akin to that of a grand jury, which it may exercise merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. 338 U.S. at 642-43, 70 S.Ct. at 364. It is possible, the Court concluded, that an investigation into corporate matters may be of such a sweeping nature and so unrelated to the matter properly under inquiry as to exceed the investigatory power. Id. at 652, 70 S.Ct. at 364. However, it concluded, it is sufficient if the inquiry is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant. Id. (emphasis added). 54 The Morton Salt standard, with minor linguistic variations, has become the accepted test for judicial enforcement of administrative subpoenas. See, e.g., United States v. Stuart, 489 U.S. 353, 359, 109 S.Ct. 1183, 1188, 103 L.Ed.2d 388 (1989) (IRS Commissioner must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed) (quoting United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 255, 13 L.Ed.2d 112 (1964)); United States v. Arthur Young & Co., 465 U.S. 805, 813 n. 10, 104 S.Ct. 1495, 1500-01 n. 10, 79 L.Ed.2d 826 (1984); Federal Election Comm'n v. Larouche Campaign, 817 F.2d 233, 234 (2d Cir.1987) (per curiam) (administrative subpoena must be enforced so long as it is for a proper purpose, the information sought is relevant to that purpose, and the statutory procedures are observed); FTC v. Rockefeller, 591 F.2d 182, 189 (2d Cir.1979); see also Resolution Trust Corp. v. Walde, 18 F.3d 943, 946-47 (D.C.Cir.1994); FTC v. Invention Submission Corp., 965 F.2d 1086, 1089 (D.C.Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1255, 122 L.Ed.2d 654 (1993); United States v. Church of Scientology, Inc., 933 F.2d 1074, 1076 (1st Cir.1991); Sandsend Fin. Consultants, Ltd. v. Federal Home Loan Bank Bd., 878 F.2d 875, 878-79 (5th Cir.1989). 55 The courts' role in a proceeding to enforce an administrative subpoena is extremely limited. NLRB v. C.C.C. Assoc., Inc., 306 F.2d 534, 538 (2d Cir.1962); Rockefeller, 591 F.2d at 189. We defer to the agency's appraisal of relevancy, which must be accepted so long as it is not obviously wrong. Walde, 18 F.3d at 946 (quoting Invention Submission, 965 F.2d at 1089). Furthermore, if the district court concludes that the information sought by the agency is relevant, we will affirm unless that determination is clearly erroneous. Id. at 946-47. 56 The burden of demonstrating that an administrative subpoena is unreasonable falls on the individual to whom it is directed. Rockefeller, 591 F.2d at 190. The relevance of the sought-after information is measured against the general purposes of the agency's investigation, which necessarily presupposes an inquiry into the permissible range of investigation under the statute. Linde Thomson Langworthy Kohn & Van Dyke, P.C. v. Resolution Trust Corp., 5 F.3d 1508, 1516 (D.C.Cir.1993). An affidavit from a government official is sufficient to establish a prima facie showing that these requirements have been met. See Stuart, 489 U.S. at 360, 109 S.Ct. at 1188; United States v. Comley, 890 F.2d 539, 541-42 (1st Cir.1989). 57 We have interpreted relevance broadly. See United States v. Arthur Young & Co., 677 F.2d 211, 216 (2d Cir.1982) (allowing IRS to investigate by means of a broad, generic document request because [b]efore the IRS knows where the issues lie, it has no choice but to utilize a general summons), aff'd in part and rev'd in part on other grounds, 465 U.S. 805, 104 S.Ct. 1495, 79 L.Ed.2d 826 (1984), cert. denied, 466 U.S. 936, 104 S.Ct. 1906, 80 L.Ed.2d 456 (1984); United States v. Noall, 587 F.2d 123, 125 (2d Cir.1978) (standard for relevance of sought-after tax records is whether the documents might have thrown light upon the object of the investigation), cert. denied, 441 U.S. 923, 99 S.Ct. 2031, 60 L.Ed.2d 396 (1979); accord Linde Thomson, 5 F.3d at 1517 (wide range of investigation is appropriate where multifaceted activities are involved, and the precise character of possible violations cannot be known in advance) (quoting FTC v. Texaco, Inc., 555 F.2d 862, 877 (D.C.Cir.) (en banc), cert. denied, 431 U.S. 974, 97 S.Ct. 2939, 53 L.Ed.2d 1072 (1977)). 58 The FDIC contends that the information it seeks is relevant to all four of the investigation's purposes--(1) determining the liability of the Directors (by revealing suspicious accretions of wealth or other evidence of improper transactions between the Directors and Landmark); (2) determining whether the pursuit of claims against the Directors would be cost-effective (by revealing the extent of the Directors' assets); (3) determining whether the Directors transferred assets to family members; and (4) determining whether to seek an attachment of assets. (The Directors attack the legitimacy of only the second of these purposes, see Section II infra.) Accordingly, the FDIC contends, the district court was correct in deferring to the agency's appraisal of the relevance of the requested documents. 59 We concur as far as the records of the Directors themselves are concerned. Under the Morton Salt standard set out above, the district court's determination that these records were relevant was not clearly erroneous. We disagree, however, about the reasonableness of the FDIC's subpoena of the personal financial records of the Directors' families. 2 60 In reaching this conclusion, we keep in mind the Supreme Court's admonition in Oklahoma Press that [t]he gist of the protection [provided by the Fourth Amendment against administrative subpoenas] is in the requirement, expressed in terms, that the disclosure sought shall not be unreasonable. 327 U.S. at 208, 66 S.Ct. at 505. 61 We note also that, in asserting a relatively unchecked administrative subpoena power into corporate affairs, the Court in Morton Salt relied substantially on the limited Fourth Amendment rights of corporations, which can claim no equality with individuals in the enjoyment of a right to privacy. 338 U.S. at 652, 70 S.Ct. at 368; accord G.M. Leasing Corp. v. United States, 429 U.S. 338, 353, 97 S.Ct. 619, 629, 50 L.Ed.2d 530 (1977) (Supreme Court has recognized that a business, by its special nature and voluntary existence, may open itself to intrusions that would not be permissible in a purely private context). 62 In contrast to the limited rights of corporations, the courts have recognized certain rights to privacy of individuals, variously said to be derived from the First, Fourth, Fifth, and Fourteenth Amendments. Among these protected rights is the individual interest in avoiding disclosure of personal matters. Nixon v. Administrator of General Services, 433 U.S. 425, 457, 97 S.Ct. 2777, 2797, 53 L.Ed.2d 867 (1977); Whalen v. Roe, 429 U.S. 589, 599, 97 S.Ct. 869, 876, 51 L.Ed.2d 64 (1977); see also Igneri v. Moore, 898 F.2d 870, 873 (2d Cir.1990); Eisenbud v. Suffolk County, 841 F.2d 42, 45 (2d Cir.1988); Barry v. City of New York, 712 F.2d 1554, 1559 (2d Cir.), cert. denied, 464 U.S. 1017, 104 S.Ct. 548, 78 L.Ed.2d 723 (1983); United States v. Westinghouse Elec. Corp., 638 F.2d 570, 577 (3d Cir.1980); Plante v. Gonzalez, 575 F.2d 1119, 1132 (5th Cir.1978), cert. denied, 439 U.S. 1129, 99 S.Ct. 1047, 59 L.Ed.2d 90 (1979). 63 Although these cases have recognized individuals' right to privacy in personal matters, and although the Morton Salt case recognized that individuals enjoy greater rights of privacy than do corporations, courts have nevertheless applied the lenient Morton Salt test to administrative subpoenas seeking personal records. See, e.g., United States v. Stuart, 489 U.S. 353, 109 S.Ct. 1183, 103 L.Ed.2d 388 (1989) (applying relevance test to IRS investigation of individuals' tax returns); Walde, 18 F.3d at 945-47 (applying Morton Salt test to agency subpoena for personal financial information of former directors of failed savings and loan institutions (S & Ls)). 64 While applying the relevance test, however, we have not lost sight of the fact that agency subpoenas directed at individuals do implicate privacy rights. See United States v. Harrington, 388 F.2d 520, 524 (2d Cir.1968) (applying a relevance standard for IRS subpoena, yet noting that the personal interest cannot be ... blithely brushed aside); Walde, 18 F.3d at 948-49 (distinguishing between subpoenas directed at corporations and at individuals in evaluating whether subpoenas were within RTC's authority). 65 Concern for these privacy rights has at times caused this court to be more reluctant to enforce subpoenas when agencies have sought records of third parties who were not targets of the agency's investigation. Judge Friendly, for example, when describing the low showing required of the IRS to secure enforcement of a subpoena, noted: The threshold is particularly low when, as here, the papers at issue are the taxpayer's own and there is no question of the invasion of the privacy of third persons against their will. Noall, 587 F.2d at 126; see also Harrington, 388 F.2d at 523 (judicial protection against the sweeping or irrelevant order is particularly appropriate in matters where the demand for records is directed not to the [target] but to a third-party who may have had some dealing with the person under investigation). 66 This concern for third parties' rights by no means has led courts to quash any and every subpoena directed at a third party. In cases in which the third party was a corporate entity, for example, the Morton Salt test has applied. See, e.g., Sandsend, 878 F.2d at 878-81 (upholding subpoena of bank's customer records where neither bank nor corporate customer was target). We have also evinced less concern with third party privacy rights when the third party involve[d] itself in matters that were likely to be the object of governmental inquiry. Arthur Young, 677 F.2d at 216 (relevance test appropriate where subpoena directed at independent auditor of target of investigation). 67 The instant case presents a subpoena that seeks personal records from individuals who are married to or are immediate family members of the targets of an FDIC investigation. Individual privacy rights are therefore implicated. The question is whether by virtue of marriage or other familial relationship the family members have somehow relinquished protection of these rights. We think that they have not. 68 Individuals, such as these family members, who do not participate in corporate matters that might reasonably become the subject of government inquiry have a greater reasonable expectation of privacy, Katz v. United States, 389 U.S. 347, 360, 88 S.Ct. 507, 516, 19 L.Ed.2d 576 (1967) (Harlan, J., concurring), in their personal financial affairs than do those individuals who do participate in such matters. To be sure, courts have tended to afford greater deference when the third party is directly associated with an investigation target or is not a stranger to the target. See Sandsend, 878 F.2d at 878; Arthur Young, 677 F.2d at 216. The family members here have been named in the subpoena precisely because of their close relationships to the targets. But while close, the relationships at issue are wholly personal. A person does not involve him or herself in matters foreseeably the object of agency inquiry simply by being a member of another's family. Conjugal or familial association with a corporate participant does not, by itself, strip an individual of his or her expectation of privacy. 69 Accordingly, we conclude that administrative subpoenas issued pursuant to an agency investigation into corporate wrongdoing, which seek personal records of persons who are not themselves targets of the investigation and whose connection to the investigation consists only of their family ties to corporate participants, must face more exacting scrutiny than similar subpoenas seeking records solely from corporate participants. 70 With regard to subpoenas seeking such material, we conclude, an administrative agency is not automatically entitled to obtain all material that may in some way be relevant to a proper investigation. Rather ... the agency must make some showing of need for the material sought beyond its mere relevance to a proper investigation. Federal Election Comm'n v. Larouche Campaign, 817 F.2d 233, 234 (2d Cir.1987) (per curiam). We note that we have applied a similar, intermediate level of scrutiny to laws requiring individuals to disclose personal financial information. See Bertoldi v. Wachtler, 952 F.2d 656, 659 (2d Cir.1991) (government must show that the compelled disclosure is designed to further a substantial governmental interest and is not unreasonable in scope); Igneri, 898 F.2d at 873 (same); Eisenbud, 841 F.2d 42 (same); Barry, 712 F.2d at 1559 (same). 3 71 Applying this enhanced scrutiny to the FDIC's subpoenas as they concern the Directors' spouses and family members, we do not think the agency has, at this point, made the required showing of need for the personal financial materials it seeks. 4 72 The FDIC contends that these materials are needed in order for it to determine whether the Directors transferred assets to spouses or family members. This purpose falls within the FDIC's statutory mandate. See 12 U.S.C.A. Sec. 1821(d)(17)(A) (West Supp.1994) (authorizing FDIC to avoid asset transfers as far as five years before the date the FDIC was appointed receiver which were motivated by an intent to hinder, delay, or defraud the insured institution or the agency). In order to determine whether such a transfer was made, the agency contends, it needs to look at both sides of any such transaction, and hence it needs access to the financial records of the Directors' families. 73 The FDIC has not, however, substantiated its need for these materials. Its motion for enforcement is supported only by the Glass Declaration. The only references in the Declaration to asset transfers are the following two statements: (1) the documents are sought to determine whether the Movants have transferred assets under circumstances in which the FDIC should attempt to avoid the transfers; and (2) [t]he FDIC has learned that at least one other former director of Landmark transferred millions of dollars worth of real estate to his spouse and an irrevocable family trust after the failure of Landmark. The FDIC must determine whether the Movants have transferred assets as well. Glass Decl. pp 10, 11. 74 We find these statements insufficient to demonstrate the agency's need for the extensive familial records it seeks. First, the FDIC has articulated no grounds for suspecting that any of these Directors (as opposed to the unnamed other former director) has transferred assets to family members. Second, the agency has made no showing as to why its stated goal could not be accomplished through more narrowly drawn subpoenas--limited either to the Directors' financial records, or, if some familial documents were needed, to records of transfers of assets from the Directors. Additionally, the references in paragraphs 4 and 18 of the subpoenas to any member of your immediate family are unnecessarily sweeping and vague; if any documents are required from family members, such persons must be specified with greater precision. 75 Accordingly, we vacate that portion of the district court's order which enforces those provisions of paragraphs 2, 3, 4, 12, and 18 of the subpoenas which seek records from family members. This is without prejudice to the FDIC's redrafting of these provisions and/or submission of further evidence in support of enforcement. 76