Opinion ID: 176129
Heading Depth: 2
Heading Rank: 4

Heading: Did the District Court Exceed its Discretion in Entering the Instant Order?

Text: We review discovery rulings for abuse of discretion. In re Agent Orange Prod. Liab. Litig., 517 F.3d 76, 102 (2d Cir.2008). Pursuant to Newsday, the district court was required to determine whether or not the SEC had a right of access to the materials, and, if so, whether any such right outweighed the privacy interests at stake. We conclude that the district court correctly found that the SEC had a legitimate right of access to the materials, but that it clearly exceeded its discretion in findingon the record before itthat this right of access outweighed the privacy interests implicated by the order. Further inquiry was necessary, specifically, into the legality of the wiretaps and the relevancy of the recordings to be disclosed, before any such conclusion could be reached.
Under the circumstances of this case, where the civil defendant has properly received the Title III materials at issue from the government, the SEC has a presumptive right to discovery of these materials from its adversary based on the civil discovery principle of equal information. The Supreme Court has acknowledged the fundamental maxim of discovery that `[m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.' Société Nationale Industrielle Aérospatiale v. U.S. Dist. Court for the S. Dist. of Iowa, 482 U.S. 522, 540 n. 25, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987), quoting Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 91 L.Ed. 451 (1947) (alteration in original); see also Weiss v. Chrysler Motors Corp., 515 F.2d 449, 457 (2d Cir.1975). To that end, either party may compel the other to disgorge whatever facts he [or she] has in his [or her] possession. Hickman, 329 U.S. at 507, 67 S.Ct. 385; see also Ratliff v. Davis Polk & Wardwell, 354 F.3d 165, 170 (2d Cir.2003) (`[C]ivil trials in the federal courts no longer need be carried on in the dark.' (quoting Schlagenhauf v. Holder, 379 U.S. 104, 115, 85 S.Ct. 234, 13 L.Ed.2d 152 (1964))). Federal Rule of Civil Procedure 26(b)(1) embodies this principle by permitting parties to obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense. Fed. R.Civ.P. 26(b)(1); see also id. (Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.). However, while the SEC has a right of access to the materials possessed by Appellants, that right of access does not outweigh any and all privacy interests at issue. A balancing is required for a district court reasonably to exercise its discretion. The right of access to discovery materials is frequently qualified in the interest of protecting legitimate interests. See, e.g., In re Agent Orange, 517 F.3d at 103 (A district court has wide latitude to determine the scope of discovery ... [and] abuses its discretion only when the discovery is so limited as to affect a party's substantial rights. (internal quotation marks and citations omitted)); see generally In re Subpoena Issued to Dennis Friedman, 350 F.3d 65, 69 (2d Cir.2003) ([T]he federal rules give district courts broad discretion to manage the manner in which discovery proceeds.). For example, a district court may permit the withholding of otherwise discoverable evidence to avoid disclosing privileged information, Fed. R.Civ.P. 26(b)(5)(A) (accounting for a party withhold[ing] information otherwise discoverable by claiming that the information is privileged); see, e.g., City of New York, 607 F.3d at 948 (Once the party asserting the privilege successfully shows that the privilege applies, the district court must balance the public interest in nondisclosure against the need of a particular litigant for access to the privileged information. (internal quotation marks omitted)), or trial preparation materials, Fed.R.Civ.P. 26(b)(3) (setting limitations on when and what kind of attorney work-product documents and tangible things may be disclosed, but noting that court must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation); see, e.g., In re Grand Jury Subpoenas Dated Mar. and Aug. 2002, 318 F.3d 379, 383-84 (2d Cir.2003). A district court must also limit the frequency or extent of discovery if it determines that it is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive ... [or where] the burden or expense of the proposed discovery outweighs its likely benefit. Fed.R.Civ.P. 26(b)(2)(C); see, e.g., In re Subpoena Issued to Dennis Friedman, 350 F.3d at 69. And a district court may issue protective orders for good cause ... to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. Fed.R.Civ.P. 26(c)(1); see, e.g., City of New York, 607 F.3d at 949; In re Subpoena Issued to Dennis Friedman, 350 F.3d at 69. In short, as is true generally in the discovery context, the SEC has a discovery right to the information in question, but that right is not absolute. We first examine the weight of the SEC's interest. Appellants' unilateral access to this information in preparing for trial would surely be prejudicial to the SEC, because, even if Appellants do not use any of the recordings at the civil trial, they could still use the materials in preparation for trialfor example, by preparing to cross-examine witnesses at deposition or at trial, by attacking the credibility of witnesses, or by deciding how to structure their defense. Placing the parties on a level playing field with respect to such functions is the very purpose for which civil discovery exists. For this reason, we find that the SEC's right of access is significant. Appellants make several arguments that there is no relevant informational imbalance. They argue that Congress intentionally created any imbalance that might exist when it withheld wiretap authority from the SEC, and that the SEC could simply depose Appellants if it wished to learn about their telephone conversations. Moreover, they argue that they do not intend to use these materials in their civil defense. Appellants also argue that informational equality is not always guaranteed, pointing to differential rules of access for civil and criminal litigants with regards to sensitive information involved in grand jury proceedings and materials protected by executive privilege. Finally, Appellants argue that there is no informational harm because the wiretapped conversations at issue here are not relevant. While these arguments demonstrate that the SEC's rights to discovery cannot be absolute, and some of them bear on the balance to be struck, they do not convince us that the SEC does not have a significant interest in access to these materials that, if it outweighs the privacy interests at stake, could permit a district court to order disclosure. First, for reasons already discussed, we are not persuaded that Congress has acted to deny the materials at issue to the SEC. The fact that Title III does not permit the SEC to engage in wiretapping does not mean that it forbids the SEC from possessing the fruits of wiretaps legitimately intercepted during a criminal investigation and disclosed to parties against whom the SEC is litigating. The issue is not whether the SEC has a right to obtain verbatim accounts of its adversaries' conversations by wiretappingthe power that Congress denied to the SEC. Rather the question is whether Appellants are entitled to withhold such verbatim accounts of their conversations, which are in their possession, from their adversary in litigation. Second, as Appellants admit, any depositions of Appellants would be unlikely to be fruitful given the likelihood that Appellants would invoke their Fifth Amendment rights due to the pending criminal proceeding. Appellants submit that this concern would be mitigated if the SEC had waited to file its case until after the criminal proceeding concluded; or, for that matter, if the district court had agreed to adjourn the enforcement proceeding until after the criminal proceeding. Even if we were to agree, such mitigation would not resolve this appeal. Appellants's deposition is not a perfect substitute for access to the wiretapped conversations even apart from any invocation of Fifth Amendment rights, given the likelihood that Appellants would not remember the contents of many potentially relevant conversations to which their attorneys, in possession of recordings of those conversations, would still have access. In any event, parties to litigation are not limited in discovery to their adversaries' recollection as to matters reduced to writing, recorded, or otherwise memorialized. The point is clear if we imagine that Appellants themselves, rather than the government, had taped their own conversations: the argument that the SEC (or any other litigation adversary) had no interest in discovering such recordings because its lawyers could simply depose Appellants and get their recollections of the conversations would be rejected out of hand. Third, while Appellants state that they do not intend to use the materials in preparation for their civil trial, that intention does not eliminate the unfair advantage they might have against the SEC, given that the team of lawyers defending the criminal case substantially overlaps with that defending the civil case. It would be nearly impossible to stop the attorneys from, at the very least subconsciously, using information from these materials in preparation for the civil trial. [24] At any rate, Appellants do not maintain that they are legally precluded from using the wiretap materials at their civil trial should it become tactically advisable to do so. It therefore cannot be said that this imbalance would be insignificant. Fourth, while Appellants may be correct that civil and criminal litigants may have different discovery rights regarding grand jury proceedings and claims of executive privilege, the cases cited by Appellants do not bear on the instant case. While it is true that government civil attorneys may only receive grand jury materials from prosecutors for the purposes of pursuing a civil suit upon making a showing of particularized need, United States v. Sells Eng'g, Inc., 463 U.S. 418, 420, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983); see also Illinois v. Abbott & Assocs., 460 U.S. 557, 566-67, 103 S.Ct. 1356, 75 L.Ed.2d 281 (1983); Douglas Oil Co. of Cal. v. Petrol Stops Nw., 441 U.S. 211, 222-24, 99 S.Ct. 1667, 60 L.Ed.2d 156 (1979), this does not affect the analysis of when a civil enforcement agency can receive wiretap materials from a civil litigant who has lawfully received the materials from the government. The cases cited by Appellants do not appear to have involved disclosure requests directed to private parties who have previously received the requested materials legitimately from the government. [25] In any event, these cases do not establish that disclosure of even the presumptively secret grand jury materials there at issue is flatly prohibited; they establish instead that disclosure is warranted only when on balance the need for [disclosure] outweighs the public interest in secrecy.... In sum, [ ] the court's duty in a case of this kind is to weigh carefully the competing interests in light of the relevant circumstances and the standards announced by this Court. Sells, 463 U.S. at 443, 103 S.Ct. 3133, quoting Douglas Oil, 441 U.S. at 223, 99 S.Ct. 1667. While the interests may be different in the instant case, this type of balancing is precisely what we call for today. Similarly, Appellants are correct that civil discovery interests may be less weighty than criminal discovery interests in dealing with executive privilege. See Cheney, 542 U.S. at 384, 124 S.Ct. 2576 (The need for information for use in civil cases, while far from negligible, does not share the urgency or significance of the criminal subpoena requests in [ United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) ].). But that argument simply goes to the balance that must be undertaken and does not undermine the SEC's presumptive right to discovery. Indeed, not even executive privilege is absolute, see Nixon, 418 U.S. at 707, 94 S.Ct. 3090, and, just as in this case, interests must be weighed in deciding whether information subject to the privilege should be disclosed. In short, while a civil discovery interest in material may weigh less heavily than a criminal discovery interest, it does not follow that the SEC's right to informational equality is outweighed by Appellants' privacy interests in the instant case. Finally, since the district court did not evaluate the materials to determine their relevance, we are not in a position to evaluate Appellants' claim that the wiretap conversations are not relevant. If they are relevant, see Fed.R.Civ.P. 26(b)(1) (Unless otherwise limited by court order ... [p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense....), then Appellants' possession of the conversations would put the SEC at a disadvantage, and the SEC has a presumptive right to discover them. And, as we conclude below, any disclosure of wiretap conversations should be limited to relevant conversations in any event. In sum, despite Appellants' arguments to the contrary, the SEC clearly has an interest in access to these wiretap conversations insofar as they create an informational imbalance prejudicing its preparation for the civil trial.
While the SEC has a right of access to the wiretap materials, that right must be balanced against the strong privacy interests at stake in connection with the fruits of electronic surveillance. The privacy interests in the instant case merit particular attention given that the disclosure order implicated thousands of conversations of hundreds of innocent parties, and that the district court ordered disclosure prior to any ruling on the legality of the interceptions and without limiting the disclosure to relevant conversations. The Supreme Court has made clear that although Title III authorizes invasions of individual privacy under certain circumstances, the protection of privacy was an overriding congressional concern. Gelbard, 408 U.S. at 48, 92 S.Ct. 2357; see also Bartnicki, 532 U.S. at 523, 121 S.Ct. 1753 (One of the stated purposes of [Title III] was `to protect effectively the privacy of wire and oral communications.'); id. at 532, 121 S.Ct. 1753 (Privacy of communication is an important interest, and Title III's restrictions are intended to protect that interest.... (citation and footnote omitted)). Indeed, we have reiterated the importance of the privacy interests embodied in Title III time and again. [26] The fact that Title III does not impose an absolute ban on civil discovery orders of the kind at issue here does not mean that the concerns for privacy that underlie Title III are irrelevant or can be disregarded. To the contrary, we conclude that those concerns, and the evident desire of Congress to limit disclosures of the fruits even of lawful wiretapping, must be carefully weighed before discovery is ordered.