Court Opinion

ID: 3188186
Source: CourtListenerOpinion
Date Created: 2016-03-23 19:03:55.165828+00
Date Added: 2024-06-11T14:36:01.397352
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                                No. 15-4080

In Re:    GRAND JURY SUBPOENA

---------------------------

UNDER SEAL 1; UNDER SEAL 2,

                 Intervenors - Appellants,

            v.

UNITED STATES OF AMERICA,

                 Respondent - Appellee.

Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Max O. Cogburn, Jr.,
District Judge. (3:13-mc-00107-MOC-DCK-1)

Argued:    October 27, 2015                   Decided:   March 23, 2016

Before KEENAN, WYNN, and DIAZ, Circuit Judges.

Affirmed by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Keenan and Judge Diaz joined.

ARGUED: Jeffrey Bryan Wall, SULLIVAN & CROMWELL LLP, Washington,
D.C., for Intervenors-Appellants.   Amy Elizabeth Ray, OFFICE OF
THE UNITED STATES ATTORNEY, Asheville, North Carolina, for
Respondent-Appellee.    ON BRIEF: Steven R. Peikin, Beth D.
Newton, SULLIVAN & CROMWELL LLP, New York, New York; Jack M.
Knight, Jr., Phoebe N. Coddington, WINSTON & STRAWN LLP,
Charlotte, North Carolina; Michael S. Schachter, Alexander L.
Cheney, Nicholas W. Chiuchiolo, WILLKIE FARR & GALLAGHER LLP,
New York, New York; Brian S. Cromwell, Sarah F. Hutchins, PARKER
POE ADAMS & BERSTEIN LLP, Charlotte, North Carolina, for
Intervenors-Appellants.   Jill Westmoreland Rose, Acting United
States   Attorney,  OFFICE   OF  THE   UNITED  STATES  ATTORNEY,
Asheville, North Carolina, for Respondent-Appellee.

Unpublished opinions are not binding precedent in this circuit.

                               2
WYNN, Circuit Judge:

       In this white-collar criminal matter, a federal grand jury

has been investigating whether commodities traders engaged in

misconduct.      At the heart of this appeal is whether evidence

that    the    grand    jury   sought           and     that     otherwise       might    be

privileged is nonetheless discoverable because the crime-fraud

exception to the attorney-client privilege applies.

       Grand jury investigations are confidential, and we are thus

barred from including here much detail.                       But just because we may

not write about particulars does not mean that we either lack

them or have failed to consider them.                     On the contrary, we have

reviewed this matter thoroughly and conclude that the district

court did not clearly abuse its discretion in holding that the

government successfully made a prima facie showing that evidence

that might otherwise have been shielded from discovery enjoys no

such protection due to the crime-fraud exception.                              Accordingly,

we affirm.

                                        I.

       Two    traders    who   are      the           subject     of     a     grand     jury

investigation     (“Traders”)        worked       for     a     bank    executing      block

futures      trades    for   large    investors.                In     2010,    a   private

regulatory     body     inquired     into       various        trades,       investigating

potential     front-running,       i.e.,        misusing        material        information

                                            3
about impending trades for personal gain.                                  See United States v.

Mahaffy, 693 F.3d 113, 120 (2d Cir. 2012).

      In November 2010, the regulator sought to interview the

Traders and others in connection with the suspicious activity.

The   bank       that     employed        the            Traders         engaged     an     attorney

(“Lawyer”) to represent the Traders and the bank vis-à-vis the

regulator.       Lawyer met the Traders individually and collectively

and then participated in the interviews.

      In December 2010, Lawyer followed up with the regulator by

written    submission.              The   written               submission,        for    which     the

Traders’     feedback         was     sought,                 asserted     legal     and     factual

defenses of the suspect trades.                               The submission asserted, for

example,     that       the    Traders           “flatly             denied       having     entered

proprietary       orders      in    advance              of    and   with       knowledge    of     any

customer block order” and noted that “each trader gave clear,

consistent and undeniable explanations of why such trading was

not even feasible.”

      At     a     later      point         in           time,       the        government        began

investigating the Traders’ suspicious trading activity.                                      And in

July 2013, a federal grand jury looking into whether any crimes

had   been       committed         issued        a        subpoena         to    Lawyer,     seeking

documents relating to Lawyer’s representation of the Traders,

especially       regarding         the    November               2010      interviews       and     the

December     2010       written      submission                to    the    regulator.            While

                                                     4
others,    including        the     bank,     waived    any     applicable         attorney-

client    privilege,        the     two    Traders     did     not.         They   therefore

intervened and sought, along with Lawyer, to quash the grand

jury’s subpoena.

      A magistrate judge denied the motions to quash.                                   But the

district court remanded the matter to the magistrate for an in

camera    review.       Upon       review,     the    magistrate       judge       yet    again

denied the motions.               And the second time around, the district

court agreed.       The district court held, among other things, that

the   crime-fraud       exception          applied     here,        where    the    Traders’

communications with Lawyer were made “precisely to further the

Traders’    criminal             scheme”      of     misusing        information          about

impending trades for personal gain.                      The Traders appealed to

this Court.

                                              II.

      As an initial matter, we briefly address our subject matter

jurisdiction over this appeal.                     Generally, “a district court’s

order    enforcing      a    discovery        request    is     not    a     ‘final      order’

subject to appellate review.”                  Church of Scientology v. United

States,    506   U.S.       9,    18   n.11    (1992).         In    Perlman       v.    United

States, however, the Supreme Court made clear that courts may

review immediately a discovery order directing a third party to

produce    exhibits     that       were     the     property    of    an     appellant      who

claims immunity or privilege.                 247 U.S. 7, 12-13 (1918).                  And in

                                               5
United States v. Jones, this Court, relying on Perlman, held

that an order denying the motion of clients, who were targets of

a grand jury investigation, to quash grand jury subpoenas issued

to their attorneys, was immediately appealable.            696 F.2d 1069,

1071 (4th Cir. 1982).        Based on Perlman and Jones, we have

jurisdiction   to   review   the    ruling   regarding    the   grand   jury

subpoena at issue here.

                                    III.

     On   appeal,   the   Traders    challenge   the     district   court’s

determination that the crime-fraud exception to the attorney-

client privilege applied and that the privilege thus provided no

basis for shielding the subpoenaed documents and testimony from

the grand jury. 1    Our review is a deferential one:            A district

court’s determination that the government made a prima facie

showing that the crime-fraud exception applies “should be upheld

‘absent a clear showing of abuse of discretion.’”               In re Grand

Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d 247, 254

(4th Cir. 2005) (quoting In re Grand Jury Subpoena, 884 F.2d

124, 127 (4th Cir. 1989)).

     1 The work-product privilege is not an issue on appeal.             We
therefore do not address it.

                                     6
                                        A.

       The     attorney-client     privilege        protects       confidential

communications between clients and their counsel.                  “Its purpose

is to encourage full and frank communication . . . and thereby

promote broader public interests in the observance of law and

administration of justice.        The privilege recognizes that sound

legal advice or advocacy serves public ends and that such advice

or advocacy depends upon the lawyer’s being fully informed by

the client.”       Upjohn Co. v. United States, 449 U.S. 383, 389

(1981).

       However, the privilege’s justifications “cease as the line

is crossed from legal advice given on how one may conform one’s

actions to the requirements of the law . . . into the domain of

contemplated or actual illegal prospective or on-going action.”

Edna Selan Epstein, The Attorney-Client Privilege and the Work-

Product Doctrine Vol. 1, at 675 (5th ed. 2007).                    Accordingly,

the attorney-client privilege is “lost . . . when a client gives

information to the attorneys for the purpose of committing or

furthering a crime or fraud.”           In re Grand Jury Proceedings, 102

F.3d 748, 750-51 (4th Cir. 1996).

       To    overcome   the   attorney-client       privilege      and   “secure

[sought] evidence,” Union Camp Corp. v. Lewis, 385 F.2d 143, 145

(4th Cir. 1967), the government must convince the court: (1)

that   “the    client   was   engaged    in   or   planning    a   criminal   or

                                        7
fraudulent scheme when he sought the advice of counsel,” and (2)

that the attorney’s assistance was obtained in furtherance of

the crime or fraud or was closely related to it.                    In re Grand

Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d at 251.

The government need not “prove the crime or fraud” at the grand

jury stage, nor is the government required to make its showing

even by a preponderance of the evidence.                 Id. (quotation marks

and citation omitted).        Instead, only a prima facie showing must

be    made—i.e.,   “the    proof    ‘must    be   such   as    to   subject   the

opposing party to the risk of non-persuasion if the evidence as

to the disputed fact is left unrebutted.’”                Id. (quoting Duplan

Corp. v. Deering Milliken, Inc., 540 F.2d 1215, 1220 (4th Cir.

1976)).

       Our recitation of the burden, especially our use of the

word “rebut,” (incorrectly) suggests “that the party asserting

the   privilege    may    respond   with    evidence     to   explain   why   the

vitiating party’s evidence is not persuasive.”                In re Grand Jury

Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33

F.3d 342, 352 (4th Cir. 1994).              But grand jury proceedings are

closed and secret.        Fed. R. Crim. P. 6.          And we have long held

that not only facts supporting the crime-fraud exception, but

even the nature of the alleged crime or fraud itself, may be

presented ex parte and held in confidence.                    In re Grand Jury

Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33

                                       8
F.3d at 352-53 (citing In re Grand Jury Subpoena, 884 F.2d 124).

The party asserting privilege may thus be forced to make a best

guess as to the crime and evidence it must counter.                       Id.

     The      second      crime-fraud    prong,      whether        the     attorney’s

assistance was obtained in furtherance of the crime or fraud,

“may be satisfied with a showing of a close relationship between

the attorney-client communications and the possible criminal or

fraudulent         activity.”      In    re     Grand    Jury       Proceedings      #5

Empanelled Jan. 28, 2004, 401 F.3d at 251.                    Further, “it is the

client’s knowledge and intentions that are of paramount concern”

in   our     analysis;     the    attorney    need      not    be    aware      of   any

illegality.        Id.

     Notably,         communications     “made     with       the    intention       of

covering up the crime/fraud” can qualify under the second crime-

fraud      prong    and   “will    not   be   privileged.”            Epstein,       The

Attorney-Client Privilege and the Work-Product Doctrine Vol. 1,

at 684.       In such cases, “the concealment or cover-up of its

criminal or fraudulent activities by the client, the holder of

the privilege . . . controls the court’s analysis of whether the

attorney-client privilege may be successfully invoked.”                          In re

Grand Jury Proceedings, 102 F.3d at 751.

     In In re Grand Jury Proceedings, for example, “a question

arose as to whether two lawyers, . . . at the request of the

Bank,   and    acting     innocently,    gave    somewhat       false      information

                                         9
which       might     serve     to   cover    up     the        Bank’s    crime      or    fraud

activity.”          Id.    at    750.        The    grand        jury    thus       sought      the

attorneys’ documents and testimony.                       Id.     This Court noted that

“the       concealment     or    cover-up      of    its        criminal    or      fraudulent

activities by the client, the holder of the privilege” controls

the    crime-fraud        analysis.        Id.      at    751.      And     the      Court      was

“satisfied” that the district court’s finding of a prima facie

case was adequately supported where “the attorneys, unknowingly,

furthered the Bank’s alleged fraud by referencing in various

documents,” including in submissions to government regulators,

fraudulent information.              Id. at 751-52. 2

       Ultimately,        “the       determination         of     whether       a    privilege

applies [is] reserved for the trial judge.”                              In re Grand Jury

Subpoena, 884 F.2d at 127.               The trial judge engages in the two-

pronged      crime-fraud        analysis     in     the    first     instance.            And   in

reviewing       its    determination,         we    are     mindful        of    the      Supreme

Court’s warning that “[a]ny holding that would saddle a grand

jury [proceeding] with minitrials and preliminary showings would

assuredly impede its investigation and frustrate the public’s

       2
       This Circuit is not alone in holding that communications
aimed at concealing a criminal or fraudulent scheme obliterate
the privilege.   See, e.g., In re John Doe Corp., 675 F.2d 482
(2d Cir. 1982) (holding that internal investigation intended to
persuade third parties that no irregularity had occurred was
part of cover-up and thus upended any privilege).

                                              10
interest in fair and expeditious administration of the criminal

laws.”        United States v. Dionisio, 410 U.S. 1, 17 (1973).                           Not

least for this reason, we uphold such determinations “absent a

clear    showing       of   abuse    of    discretion.”                In   re    Grand   Jury

Subpoena, 884 F.2d at 127.

                                               B.

        With    this     framework        in    mind,       we     have      reviewed      the

particulars of this case and determined that the district court

did     not     clearly      err    in    determining            that       the   government

successfully made a prima facie showing that the Traders engaged

in a criminal or fraudulent scheme of misusing information about

impending       trades      for    personal         gain.        The    district     court’s

determination that the Traders intended to avoid detection and

continue their scheme in communicating with Lawyer, not least by

having Lawyer misrepresent their activities to the regulator, is

likewise supported by the record.

      The Traders repeatedly argue that nothing “in the record”

supports the district court’s determination here.                                 Appellants’

Br. at 43.       The Traders claim, for example, that “the Government

lacks evidence” to support the crime-fraud exception and thus

attempts to “fall[] back on the communications themselves” to

make the necessary showing.                Id. at 47.             But the Traders, who

were, by definition, excluded from the grand jury proceedings

and thus not privy to what evidence or theories the complete

                                               11
record      contains,      see    Fed.      R.    Crim.     P.   6,     are    tilting        at

windmills.

        We, by contrast, have the full record, and we have reviewed

it thoroughly.        And on that basis, we conclude that the Traders

have failed to make “a clear showing of abuse of discretion.”

In   re   Grand     Jury   Subpoena,        884    F.2d     at   127.         The    district

court’s      determination        that      the     government        made      a     showing

sufficient to support the crime-fraud exception must therefore

be upheld.         See id.       And because the exception annihilated any

privilege inhering in the Traders’ communications with Lawyer,

we   need    not    address      the   Traders’      challenge        to      the    district

court’s     ruling    that     some    of    the    documents      responsive          to   the

grand     jury’s    subpoena      were      not    privileged      because          they    were

intended to be disclosed to third parties.

                                             IV.

      For    the     reasons      discussed        above,    the      district        court’s

ruling is

                                                                                    AFFIRMED.

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