IMPOUNDED

Decision Date20 February 2001
Docket NumberNo. 00-5186,00-5186
Citation241 F.3d 308
Parties(3rd Cir. 2001) IMPOUNDED
CourtU.S. Court of Appeals — Third Circuit

On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 97-MC-00389 (Honorable Nicholas H. Politan) [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Allan Tananbaum, Esquire (argued) George S. Leone, Esquire Office of United States Attorney 970 Broad Street, Room 700 Newark, New Jersey 07102 Attorneys for Appellant

Cathy Fleming, Esquire Wolf, Block, Schorr & Solis-Cohen 250 Park Avenue New York, New York 10177 Attorney for Appellee, John Doe 1

Paul J. Fishman, Esquire (argued) Friedman, Kaplan & Seiler One Gateway Center, 25th Floor Newark, New Jersey 07102 Attorney for Appellee, John Doe 2

Before: Scirica, Nygaard and Barry, Circuit Judges

OPINION OF THE COURT

Scirica, Circuit Judge.

In this grand jury proceeding, the issue on appeal is whether, on the facts presented, the crime-fraud exception overrides the attorney-client privilege. In the proceedings below, the District Court declined to enforce a grand jury subpoena issued to an attorney. Citing the crime-fraud exception, the government has appealed.1

I.

Over four years ago in April 1996, a federal grand jury commenced investigating the target's business transactions and issued several subpoenas to the target's affiliated businesses. The target's attorney assumed responsibility in responding to the United States Attorney's office. The government's first subpoena sought,

all records... relating to work performed [by the target].... These records should include but are not limited to: All business checks, check registers, cash receipt and disbursement records. These records should also include contracts, invoices, billing documents, bid documents and correspondence specifically relating to [the target's activities] for the [relevant] period.

The attorney produced several documents. But believing them inadequate, the government requested fuller document production. The attorney responded that certain categories of requested documents did not exist.

In May 1996, the government again requested the documents under its initial subpoena and advised the attorney that "the grand jury will also request that the target appear before it with regard to the production of the documents in question." The attorney provided some additional documents including check ledgers and canceled checks. The target was not summoned to appear before the grand jury.

In September 1996, the government issued a second subpoena requesting additional documents including: general ledgers, cash disbursement journals, cash receipts, sales and accounts payable journals, as well as calenders, diaries and appointment books for all of the target's business officers and employees. The attorney again responded that most of the requested documents did not exist. On January 10, 1997 the government advised the attorney that it was subpoenaing "the custodian of records [of one of] the target business[es] to produce all responsive original records before the Grand Jury next Thursday [January 16]." The government also subpoenaed an officer of the target business to testify before the grand jury (also on January 16) about her knowledge of the existence of the subpoenaed documents. The government never enforced its subpoenas.

In April 1997, November 1998, and March 1999 the government subpoenaed more records from the target business. The attorney produced some of the requested documents but again represented that certain categories of documents did not exist. On March 8, 1999, the Federal Bureau of Investigation executed search warrants on the target's home and also on the target's business offices. The FBI uncovered and seized many records and documents the attorney had represented did not exist. On April 30, 1999, the government subpoenaed the attorney to testify before the grand jury about the "source[s] of information for [his]... factual assertions... and basis for failing to produces [sic] certain categories of records."

After the attorney invoked the attorney-client privilege, the government filed a motion to compel his testimony. Claiming the crime-fraud exception invalidated the attorney-client privilege, the government argued the target used the attorney to obstruct justice in violation of 18 U.S.C. S 1503.2 Holding it was "fundamentally unfair" to compel the attorney's testimony, the District Court declined to assess the applicability of the crime-fraud exception. In the Matter of the Grand Jury Empaneled on December 4, 1997, Misc. No. 97-389, slip op. at *8 (D. N.J. February 8, 2000).

The government appeals contending the District Court erred in failing to decide whether the crime-fraud exception applied. It also contends the District Court exceeded its authority in quashing the subpoena because of "fundamental unfairness."

II.

We review the decision to quash a grand jury subpoena for abuse of discretion. In re Grand Jury Proceedings, 115 F.3d 1240, 1243 (5th Cir. 1997). We exercise de novo review over the legal issues underlying the application of the crime-fraud exception to the attorney-client privilege. United States v. Inigo, 925 F.2d 641, 656 (3d Cir. 1991). We review the District Court's factual determinations in applying the attorney-client privilege for clear error. Id.

III.

The grand jury plays a unique role in our adversarial system. The Supreme Court has recognized "the whole theory of its function is that it belongs to no branch of the institutional Government, serving as a kind of buffer or referee between the Government and the people." United States v. Williams, 504 U.S. 36, 47 (1992). It has stated,

Although the grand jury normally operates, of course, in the courthouse and under judicial auspices, its institutional relationship with the Judicial Branch has traditionally been, so to speak, at arm's length. Judges' direct involvement in the functioning of the grand jury has generally be confined to the constitutive one of calling the grand jurors together and administering their oaths of office.

Id.

Several cases have recognized the judiciary's limited authority over the grand jury's subpoena and indictment power. See Williams, 504 U.S. at 54-55 (court can not exercise it's supervisory power to require prosecutors to present exculpatory evidence to the grand jury); Costello v. United States, 350 U.S. 359, 363-64 (1956) (court may not exercise its supervisory power to mandate a rule permitting defendants to challenge grand jury indictments because of inadequate or incompetent evidence). As we recently stated in In re Grand Jury Subpoena,

Because it is essential to the federal criminal justice system, [the grand jury]... has great powers of investigation and inquisition. [It]... may generally `compel the production of evidence or the testimony of witnesses as it considers appropriate, and its operation generally is unrestrained by the technical procedural and evidentiary rules governing the conduct of criminal trials.'

223 F.3d 213, 216 (3d Cir. 2000) (quoting United States v. Calandra, 414 U.S. 338, 343 (1974)).

"Any holding that would saddle a grand jury with minitrials and preliminary showings would assuredly impede its investigation and frustrate the public's interest in the fair and expeditious administration of the criminal laws." United States v. Dionisio, 410 U.S. 1, 17 (1973).

As the Supreme Court has made clear, "the government cannot be required to justify the issuance of a grand jury subpoena... because the very purpose of requesting the information is to ascertain whether probable cause exists." United States v. R. Enter., Inc., 498 U.S. 292, 297 (1991) (citing Hale v. Henkel, 201 U.S. 43, 65 (1906)). "Requiring the Government to explain in too much detail the particular reasons underlying a subpoena threatens to compromise `the indispensable secrecy of the grand jury proceedings.' " Id. at 299 (quoting United States v. Johnson, 319 U.S. 503, 513 (1943)).

Despite these broad investigatory powers, there are some limitations on the grand jury's authority to subpoena evidence. See Calandra, 414 U.S. at 346 (the grand jury "may not itself violate a valid privilege, whether established by the Constitution, statutes, or the common law"); Branzburg v. Hayes, 408 U.S. 665, 688 (1972) ("the powers of the grand jury are not unlimited and are subject to the supervision of a judge"); Kastigar v. United States, 406 U.S. 441, 453-54 (1971) (holding grand jury may override a Fifth Amendment claim only if the witness is granted immunity co-extensive with the privilege against self-incrimination). The Supreme Court has stated, "grand juries are not licensed to engage in arbitrary fishing expeditions, nor may they select targets of investigation out of malice or an intent to harass." R. Enter., Inc., 498 U.S. at 299.

As a safeguard against potential abuse of the grand jury's broad investigative power, the Federal Rules of Evidence and the Federal Rules of Criminal Procedure grant limited authority for courts to review grand jury subpoenas. In this case, the two principal mechanisms for judicial r review are Fed. R. Evid. 501,3 recognizing the attorney-client privilege which protects confidential communications between an attorney and his client from disclosure, and Fed. R. Crim. P. 17(c), providing that "[t]he court on motion made promptly may quash or modify the subpoena if compliance would be unreasonable or oppressive."

IV.

The District Court did not refer to Fed. R. Crim. P. 17(c) nor to the attorney-client privilege when it declined to compel the attorney's testimony. It stated,

The Court will assume for purposes of its analysis that [the attorney] is innocent of any wrongdoing and has been used merely as a conduit for wrongdoing, i.e., the obstruction of justice. Nevertheless it is fundamentally unfair for the U.S. Attorney's...

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