Court Opinion

ID: 4703994
Source: CourtListenerOpinion
Date Created: 2021-07-16 00:00:43.16824+00
Date Added: 2024-06-11T08:05:03.710994
License: Public Domain

Case: 19-20624      Document: 00515939908          Page: 1     Date Filed: 07/15/2021

              United States Court of Appeals
                   for the Fifth Circuit                            United States Court of Appeals
                                                                             Fifth Circuit

                                                                           FILED
                                                                       July 15, 2021
                                    No. 19-20624
                                                                      Lyle W. Cayce
                                                                           Clerk

   Harbor Healthcare System, L.P.,

                                                             Plaintiff—Appellant,

                                        versus

   United States of America,

                                                             Defendant—Appellee.

                   Appeal from the United States District Court
                       for the Southern District of Texas
                            USDC No. 4:18-CV-3195

   Before Higginbotham, Elrod, and Haynes, Circuit Judges.
   Per Curiam:*
          Harbor Healthcare System, L.P., filed a pre-indictment motion under
   Rule 41(g) of the Federal Rules of Criminal Procedure, seeking return of
   documents seized by the United States in five searches of Harbor locations
   and offices. After exercising its discretionary equitable jurisdiction for a time
   to oversee the implementation of protective processes to screen Harbor’s

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 19-20624      Document: 00515939908          Page: 2    Date Filed: 07/15/2021

                                    No. 19-20624

   privileged information, the district court declined to exercise that equitable
   jurisdiction further and dismissed the case.       Harbor appealed, seeking
   reversal of the district court’s decision to not reach the merits of Harbor’s
   motion. Because we have jurisdiction to consider this appeal and because the
   district court erred in its assessment of the pre-indictment harm resulting
   from an allegedly unlawful seizure of privileged material, we REVERSE and
   REMAND.
                                          I.
          Harbor became the subject of two qui tam lawsuits—filed in 2014 and
   2016—alleging violations of the False Claims Act, 31 U.S.C. §§ 3729–3733.
   As part of its investigation into the allegations of those qui tam lawsuits, the
   United States Department of Health and Human Services, Office of
   Inspector General issued a “Request for Information” regarding certain
   patients from Harbor.
          The Civil Division of the Department of Justice then issued a Civil
   Investigative Demand to Harbor in March of 2017, seeking documents and
   answers to interrogatories. Harbor responded to the demand in April of 2017,
   producing those documents and answers to the interrogatories.
          Eric Sprott, Harbor’s Director of Compliance, coordinated Harbor’s
   response to the Request for Information and the Civil Investigative Demand.
   Sprott hired Justo Mendez—a solo practitioner and former general counsel
   of Harbor—as outside counsel to assist in the response to the Civil
   Investigative Demand.      Both Sprott and Mendez communicated with
   attorneys in the United States Attorney’s Office for the Eastern District of
   Texas and the Department of Justice regarding the Civil Investigative
   Demand.
          The Department of Justice shared the allegations in the qui tam
   actions with its prosecutors to investigate possible criminal activity.

                                          2
Case: 19-20624     Document: 00515939908          Page: 3   Date Filed: 07/15/2021

                                   No. 19-20624

   Prosecutors from the United States Attorney’s Office for the Eastern District
   of Texas sought warrants to search Harbor locations and offices. The
   warrants were signed by magistrate judges from the Western District of
   Louisiana and the Eastern and Southern Districts of Texas. The warrants
   authorized seizure of twenty-two broad categories of documents dating from
   January 1, 2010 to May 2017 as well as “[c]ellular telephones, [s]mart
   phones, iPads, tablets or other mobile electronic devices used in the course
   of business” and stored e-mail exchanges between Harbor employees,
   agents, and representatives.
          The government executed those search warrants on May 18, 2017.
   The government seized twenty-nine smartphones, twenty computers and
   computer hard drives, and the e-mail accounts of seventeen employees. In
   total, the government seized 3.59 terabytes of data and hundreds of boxes of
   paper records. As part of the search, the government seized Sprott’s
   computer, e-mail account, iPhone, and all of the paper documents in his
   office. Harbor asserts that these materials contained a wealth of information
   protected by the attorney–client privilege, including recent communications
   with Mendez regarding the government’s Civil Investigative Demand.
          The government assembled a “filter team” from “another division of
   the Eastern District” to review the seized documents for privileged
   materials. At the government’s request, Harbor provided a list of the names
   of lawyers and law-firms “who might have emailed with Harbor employees.”
   According to Harbor, the government did not inform the magistrate judges
   who authorized the search warrants that the government had seized
   privileged material from Harbor.
          Harbor repeatedly attempted, but ultimately failed, to meet with the
   head of the government’s taint team to discuss the return of privileged
   documents. On September 7, 2018, Harbor filed a motion under Federal

                                         3
Case: 19-20624       Document: 00515939908         Page: 4    Date Filed: 07/15/2021

                                    No. 19-20624

   Rule of Criminal Procedure 41(g) in the United States District Court for the
   Southern District of Texas.       Because there was not yet any criminal
   proceeding against Harbor, the motion was filed as its own civil case. See
   Fed. R. Crim. P. 41(g); Bailey v. United States, 508 F.3d 736, 738 (5th Cir.
   2007).
            The government did not timely respond to Harbor’s motion, so
   Harbor moved first for an entry of default and then for default judgment
   against the government. The district court scheduled a hearing on the
   motions. The government responded by filing a motion to transfer to the
   Beaumont Division of the Eastern District of Texas, where the government’s
   criminal investigation originated and where Harbor’s corporate offices are
   located. At the December 4, 2017 hearing, the district court denied the
   motions for entry of default and default judgment and declined to rule on the
   motion to transfer.
            The district court also declined to enter a scheduling order or set
   deadlines for the government to screen and return privileged information.
   Instead, the district court encouraged the parties to test a proposed privilege-
   screening plan: first, the government would give Harbor information about
   documents seized from Sprott; second, Harbor would produce a privilege
   log; and third, the government would file any objections to assertions of
   privilege. Once this screening process was complete, the district court would
   review the privilege log and objections and determine how to proceed. As a
   test run, this screening process would be conducted only on Sprott’s e-mail
   account but not yet on the sixteen other e-mail accounts, nor on the
   information from the twenty-nine smartphones and twenty computers, nor
   on the physical documents seized.
            On February 8, 2019, the government moved to dismiss Harbor’s civil
   case for lack of equitable jurisdiction. The government argued that Harbor

                                          4
Case: 19-20624      Document: 00515939908           Page: 5    Date Filed: 07/15/2021

                                     No. 19-20624

   had not “demonstrate[d] any irreparable harm to its legitimate property
   interests” and that the Rule 41(g) motion was mooted by the privilege-
   screening plan. The government characterized the Rule 41(g) motion as an
   “improper suppression motion.”
          Meanwhile, Harbor identified 3,843 e-mails from Sprott’s account as
   privileged. Harbor also received from the government a list of documents
   that had already been transferred from the government’s filter team to its
   civil and criminal investigators. Based on this list, Harbor asserted in an April
   2, 2019 letter to the district court that “a significant number of privileged
   documents” had already made their way into the hands of investigators.
   Harbor thus requested that the district court rule in its favor on its Rule 41(g)
   motion and order the government to return all seized documents to Harbor.
          The district court granted the government’s motion to dismiss on
   August 19, 2019. The district court explained that it would no longer exercise
   its equitable jurisdiction over Harbor’s Rule 41(g) motion because it was
   assured that processes were in place to protect Harbor’s privileged
   information. In its order, the district court emphasized two aspects of the
   government’s investigation that it considered adequate to protect Harbor.
   First, the parties “reached a working agreement to reasonably address
   Harbor’s assertions of privilege” through the joint privilege-screening plan.
   Second, “Harbor may make its arguments in a post-indictment motion to
   suppress, if an indictment is ultimately returned” against Harbor.
          Harbor filed an emergency motion for reconsideration on August 29,
   2019. The district court held a telephone conference on the motion on
   September 3, 2019.      In that conference, Harbor expressed three main
   concerns about how the screening process was playing out. First, the
   government had not responded to Harbor’s privilege designations or
   confirmed that it had deleted or returned privileged material. Second,

                                          5
Case: 19-20624         Document: 00515939908              Page: 6       Date Filed: 07/15/2021

                                          No. 19-20624

   Harbor objected to the government’s filter team viewing e-mails that had
   been flagged as privileged.            Third, Harbor was concerned that the
   government’s litigation team had already gotten access to privileged
   materials.
           In response, the district court stated its intent to allow the
   government’s filter team to continue reviewing material designated as
   privileged. The district court then denied Harbor’s emergency motion for
   reconsideration in a written order on September 10, 2019. Harbor timely
   appealed.
                                                II.
           As an initial matter, we have jurisdiction over this appeal under 28
   U.S.C. § 1291.        A motions panel of this court previously denied the
   government’s motion to dismiss for lack of appellate jurisdiction. While we
   are not bound by the motions panel’s ruling, we agree with its necessary
   conclusions that Harbor’s motion is solely for the return of property and that
   a grand jury proceeding—which the government cannot even say exists 1—is
   not a “prosecution in esse.” See DiBella v. United States, 369 U.S. 121, 131–

           1
             The government asserts several times in its brief that “Harbor is a subject of a
   grand jury proceeding.” Under Rule 6 of the Federal Rules of Criminal Procedure, the
   government’s attorneys “must not disclose a matter occurring before the grand jury.”
   Fed. R. Crim. P. 6(e)(2)(B)(vi); see also In re Grand Jury Investigation, 610 F.2d 202, 213,
   219 (5th Cir. 1980) (“Punishment for contempt of court is the sanction specifically
   authorized by Rule 6(e)(1) for violations of its provisions, and a contempt citation will
   generally provide an adequate remedy for such violation.”); Wayne R. LaFave et al., Secrecy
   Requirements, 4 Crim. Proc. § 15.2(i) (4th ed. 2020) (discussing the need to “keep secret
   the subject of the grand jury’s inquiry while it is considering the possible issuance of an
   indictment” (citing United States v. Proctor & Gamble Co., 356 U.S. 677, 681 n.6 (1958))).
   An exception exists for “[t]he court [to] authorize disclosure—at a time, in a manner, and
   subject to any other conditions that it directs—of a grand-jury matter preliminarily to or in
   connection with a judicial proceeding.” Fed. R. Crim. P. 6(e)(3)(E)(i). The government
   has not pointed to such authorization by this or another court.

                                                6
Case: 19-20624        Document: 00515939908              Page: 7      Date Filed: 07/15/2021

                                         No. 19-20624

   32 (1962). The district court’s dismissal of Harbor’s pre-indictment Rule
   41(g) motion constitutes a final appealable decision of the district court. See
   DiBella, 360 U.S. at 131–32; see also Richey v. Smith, 515 F.2d 1239, 1242–43
   (5th Cir. 1975) (“Notwithstanding that the DiBella test would seem to be
   satisfied in the instant case . . . , we note that the order appealed from rested
   solely on jurisdictional grounds and was not a ruling on the merits of the
   motion as was the case in DiBella.”). 2
                                              III.
           The district court erred in dismissing Harbor’s Rule 41(g) motion.
   We review the district court’s decision to no longer exercise equitable
   jurisdiction for abuse of discretion. See Richey, 515 F.d at 1243. “A district
   court would necessarily abuse its discretion if it based its ruling on an
   erroneous view of the law or on a clearly erroneous assessment of the
   evidence.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); accord
   United States v. Gomez-Herrera, 523 F.3d 554, 563 n.4 (5th Cir. 2008) (“A
   district court abuses its discretion if its ruling rests on an erroneous view of
   the law.” (citing Cooter, 496 U.S. at 405)).
           In its dismissal order, the district court said that it initially exercised
   its equitable jurisdiction “to ensure that there were processes in place to
   protect Harbor’s privileged information.” Sealed Order at 2–3, Harbor

           2
              The government relies on an inapplicable case, Mohawk Indus. v. Carpenter, to
   argue that the district court’s order was not immediately appealable. 558 U.S. 100 (2009).
   Mohawk addressed interlocutory appeal of a district court’s discovery order in a pending
   civil case, and the Court noted that “several potential avenues of review apart from
   collateral order appeal” were available to the appellant. Id. at 104–05, 110–11. Here,
   however, Harbor is not involved in any pending case—civil or criminal—other than its Rule
   41(g) civil case, in which return of Harbor’s property is the single dispositive issue. The
   “avenues of review” available in Mohawk are thus not available to Harbor. The only
   available review of an adverse ruling on Harbor’s preindictment Rule 41(g) motion is direct
   appeal of the district court’s final judgment in this independent civil case.

                                               7
Case: 19-20624        Document: 00515939908         Page: 8   Date Filed: 07/15/2021

                                     No. 19-20624

   Healthcare Sys. v. United States, No. 4:18-CV-3195 (S.D. Tex. Aug. 19, 2019),
   ECF No. 35. The district court declined to further exercise its equitable
   jurisdiction because it was satisfied that sufficient protective measures were
   in place and because of its assessment of the factors articulated in Richey v.
   Smith. Id. at 3.
          Under Richey v. Smith, a district court must consider four factors when
   deciding whether to grant a pre-indictment motion for return of property:
          (1) “[W]hether the motion for return of property accurately
          alleges that the government agents . . . displayed ‘a callous
          disregard for the rights of [the plaintiff]’”;
          (2) “[W]hether the plaintiff has an individual interest in and
          need for the material whose return he seeks;”
          (3) “[W]hether the plaintiff would be irreparably injured by the
          denial of the return of the property; and”
          (4) “[W]hether the plaintiff has an adequate remedy at law for
          the redress of his grievance.”
   515 F.2d at 1243–44 (internal footnotes omitted) (quoting Hunsucker v.
   Phinney, 497 F.2d 29, 34 (5th Cir. 1974)). The district court erred in its
   understanding of these factors and thus abused its discretion by declining to
   further exercise its equitable jurisdiction.
          The district court incorrectly concluded that the government did not
   show a “callous disregard” for Harbor’s rights simply because it obtained
   search warrants prior to seizing Harbor’s privileged materials. But it is a
   stipulated fact in this case that “the government did not seek express prior
   authorization from the issuing Magistrate Judge for the seizure of attorney-
   client privileged materials.” Stipulations of Fact at 4, Harbor Healthcare Syst.
   v. United States, No. 4:18-CV-3195 (S.D. Tex. Dec. 4, 2018), ECF No. 17. It
   is further stipulated that the government knew that Sprott’s “office and
   computer contained attorney-client privileged documents and attorney work

                                           8
Case: 19-20624      Document: 00515939908           Page: 9    Date Filed: 07/15/2021

                                     No. 19-20624

   product” when it executed one of the search warrants. Id. at 3–4. The
   stipulated facts show that the government made no attempt to respect
   Harbor’s right to attorney–client privilege in the initial search. Cf. United
   States v. Zolin, 491 U.S. 554, 571 (1989) (“There is no reason to permit
   opponents of the privilege to engage in groundless fishing expeditions, with
   the district courts as their unwitting (and perhaps unwilling) agents.”);
   Taylor Lohmeyer Law Firm P.L.L.C. v. United States, 982 F.3d 409, 411 (5th
   Cir. 2020) (Elrod, J., dissenting from denial of rehearing en banc) (“Although
   the privilege may at times prevent the government from obtaining useful
   information, ‘this is the price we pay for a system that encourages individuals
   to seek legal advice and to make full disclosure to the attorney so that the
   attorney can render informed advice.’” (quoting In re Grand Jury Subpoena
   for Att’y Representing Crim. Defendant Reyes-Requena, 926 F.2d 1423, 1432
   (5th Cir. 1991))).
          Moreover, the government, by its treatment of Harbor’s privileged
   materials after the search, further disregarded Harbor’s rights. When asked
   at oral argument why the government had not already destroyed or returned
   copies of documents that it agreed were privileged, the government said:
   “The only reason they haven’t been destroyed is for the potential for a future
   filter team, if the criminal team looks at the privilege logs and disagrees for
   some reason.” A taint team serves no practical effect if the government
   refuses to destroy or return the copies of documents that the taint team has
   identified as privileged. The government has thus conceded that it has no
   intent to respect Harbor’s interest in the privacy of its privileged materials as
   the investigation unfolds.
          The district court was wrong to overlook the government’s continued
   retention of privileged documents as an aspect of its “callous disregard,” and
   it was simply mistaken in its belief that there were “processes in place to
   protect Harbor’s privileged information.”

                                          9
Case: 19-20624     Document: 00515939908            Page: 10   Date Filed: 07/15/2021

                                     No. 19-20624

          The district court likewise erred in its assessment of Harbor’s need
   for the documents and information the government seized. In the view of the
   district court, Harbor’s lack of a practical need for access to the copies of the
   documents retained by the government “weigh[ed] against granting Rule
   41(g) relief.” Sealed Order at 5, Harbor Healthcare Sys. v. United States, No.
   4:18-CV-3195 (S.D. Tex. Aug. 19, 2019), ECF No. 35. But Harbor’s need
   does not lie in accessing the government’s copies. Rather, it lies in protecting
   the privacy of the privileged material in the documents. Cf. Richey, 515 F.2d
   at 1242 n.5 (“We have indicated previously that a plaintiff in a civil action for
   the return of property has a sufficient proprietary interest in copies of
   documents which have been seized to demand their return as well as the
   return of the originals.”). The whole point of privilege is privacy. Cf. Fisher
   v. United States, 425 U.S. 391, 399 (1976) (“[T]he Court has often stated that
   one of the several purposes served by the constitutional privilege against
   compelled testimonial self-incrimination is that of protecting personal
   privacy. . . . Within the limits imposed by the language of the Fifth
   Amendment, which we necessarily observe, the privilege truly serves privacy
   interests . . . .”); Nixon v. Adm’r of Gen. Servs., 433 U.S. 425, 545 n.1 (1977)
   (Rehnquist, J., dissenting) (“The invocation of such privileges has the effect
   of protecting the privacy of a communication made confidentially . . . by a
   client to an attorney; the purpose of the privilege, in each case, is to assure
   free communication on the part of the confidant and of the client,
   respectively.”). Despite Harbor’s great privacy interest, the government has
   held its attorney–client privileged documents since May 18, 2017—the
   government has deliberately held on to Harbor’s privileged material for over
   four years. The district court erred by failing to account for Harbor’s privacy
   need, which weighs heavily in favor of granting Rule 41(g) relief.
          The government’s reliance on United States v. Search of Law Office,
   Residence, and Storage Unit Alan Brown, 341 F.3d 404 (5th Cir. 2003) is

                                          10
Case: 19-20624     Document: 00515939908           Page: 11    Date Filed: 07/15/2021

                                    No. 19-20624

   unavailing. In that case, the Rule 41 movant argued that he would suffer
   irreparable reputational harm from a grand-jury indictment. Id. at 414–15.
   Here, however, Harbor has not alleged any harm arising from a possible
   grand jury—it alleges a harm from the ongoing intrusion into its privacy and
   the continued possession of attorney–client privileged documents.
   Importantly, in Alan Brown, the movant failed “to identify specific privileged
   documents in the hands of the government or provide a legal basis for
   asserting a particular privilege.” Id. at 414. Here, Harbor has identified
   thousands of privileged documents, and the government has conceded the
   basis for the privilege for many of those. Harbor has done far more than assert
   “vague allegations,” id., but has alleged a privacy harm arising from the
   seizure and retention of specific attorney–client privileged documents.
          The government’s ongoing intrusion on Harbor’s privacy constitutes
   an irreparable injury that can be cured only by Rule 41(g) relief. Harbor
   remains injured as long as the government retains its privileged documents.
   That injury can only be made whole by the government returning and
   destroying its copies of the privileged material. See Richey, 515 F.2d at 1242
   n.5
          Finally, Harbor does not have an adequate remedy at law. A motion
   to suppress in a possible criminal proceeding does not redress Harbor’s
   injury for two primary reasons. First, it is not certain that there ever will be
   criminal charges brought against Harbor. If no charges are brought but a
   suppression motion is Harbor’s only means of redress, Harbor would never
   have an opportunity to challenge the government’s seizure of its privileged
   materials.    Second, suppression motions vindicate an interest entirely
   different from Rule 41(g) motions.          Suppression merely prevents the
   government from using certain materials as evidence in a judicial
   proceeding—suppression does not force the government to return those
   materials to the criminal defendant. Cf. Hunt v. U.S. Dep’t of Just., 2 F.3d

                                          11
Case: 19-20624        Document: 00515939908              Page: 12       Date Filed: 07/15/2021

                                         No. 19-20624

   96, 97 (5th Cir. 1993) (determining that a Louisiana forfeiture proceeding was
   not an adequate remedy because it would not help the movant recover
   wrongfully seized funds). Rule 41(g), by contrast, says nothing about the
   admissibility of evidence. Instead, it is concerned solely with the return of
   property to the Rule 41(g) movant. Suppression and Rule 41(g) occupy two
   entirely distinct spheres within the universe of unlawful searches and
   seizures. 3
           The government unconvincingly argues that suppression is an
   adequate remedy because Rule 41(g), like suppression, is concerned with
   unlawful searches and seizures. That argument overlooks the distinction
   explained above.        Suppression protects criminal defendants from the
   procedural harm arising from the introduction of unlawfully seized evidence.
   Rule 41(g) protects persons from the “deprivation of property” by an
   unlawful search and seizure. It makes little sense to say that the Fourth
   Amendment can be litigated only in a suppression motion when there are
   other types of harm arising from unlawful searches and seizures. This is
   particularly true since Rule 41(g) expressly contemplates such a harm and
   offers a remedy.
           In short, the district court erred by misunderstanding the harm alleged
   by Harbor and by equating return of property with suppression of evidence.

           3
             The government relies on In re Sealed Case, 716 F.3d 603 (D.C. Cir. 2013) to argue
   that Harbor’s Rule 41(g) motion is really about suppression, not return of property. In
   Sealed Case, however, “the movant ha[d] already recovered the property from the
   government,” so the Rule 41(g) motion could not be “‘solely’ for its return.” 716 F.3d
   603, 607–08 (D.C. Cir. 2013). Indeed, the court determined that “the attorney–client
   privilege [dispute was] moot.” Id. at 609; accord id. at 612 (Kavanaugh, J., concurring).
   Here, by contrast, the government has not yet returned Harbor’s property and is instead
   refusing to do so.

                                               12
Case: 19-20624        Document: 00515939908                Page: 13     Date Filed: 07/15/2021

                                            No. 19-20624

   It therefore abused its discretion by refusing jurisdiction over Harbor’s Rule
   41(g) motion. 4
                                        *        *         *
           For the reasons set forth above, the judgment of the district court is
   REVERSED, and the case is REMANDED for further proceedings
   consistent with this opinion.

           4
             The district court expressed concern about the practicality of it parsing through
   reems of Harbor documents to rule of claims of privilege. The district court’s concern can
   be assuaged by the array of document-review options. For starters, the government could
   simply be ordered to return the documents for which it does not dispute the asserted basis
   for the privilege. For the balance, the court could engage a magistrate judge or special
   master to review the potentially privileged documents. Even this will not entail reviewing
   each and every document; Harbor’s privilege logs should allow for recommendations or
   rulings based on categories of documents. See In re Terra Int’l., Inc., 134 F.3d 302, 304–05,
   307 (5th Cir. 1998).

                                                 13