Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, In re

• Decision Date: 15 September 1983
• Citation: 731 F.2d 1032
• Parties: 15 Fed. R. Evid. Serv. 327 In re GRAND JURY SUBPOENA DUCES TECUM DATED
• Court: U.S. Court of Appeals — Second Circuit

Page 1032

731 F.2d 1032

15 Fed. R. Evid. Serv. 327

In re GRAND JURY SUBPOENA DUCES TECUM DATED SEPTEMBER 15, 1983 MARC RICH & CO. A.G., Intervenor-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 673, Docket 83-6334.

United States Court of Appeals Second Circuit.

Argued Dec. 12, 1983.

Decided March 27, 1984.

Lawrence S. Feld, New York City (Boris Kostelanetz, Edward M. Spiro, New York City), for intervenor-appellant.

Martin J. Auerbach, Asst. U.S. Atty., New York City (Rudolph W. Giuliani, U.S. Atty., Gerard E. Lynch, Sp. Asst. U.S. Atty., New York City), for defendant-appellee.

Before MESKILL, KEARSE, and CARDAMONE, Circuit Judges.

KEARSE, Circuit Judge:

Intervenor Marc Rich & Co. A.G. ("AG") appeals from so much of an order of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, as denied a motion to quash a September 15, 1983 grand jury subpoena duces tecum ("1983 Subpoena") served on AG's former counsel, Proskauer, Rose, Goetz & Mendelsohn ("Proskauer"). Proskauer and AG claimed that many of the documents sought were privileged, either as attorney's work product or as attorney-client confidences. The district court held that the documents at issue on this appeal were not privileged because they related to business, rather than legal, advice; the court appears to have ruled that some of these documents were unprivileged also because they were communications in furtherance of a continuing crime or fraud. The court stayed its order pending this appeal. For the reasons below, we affirm as to certain of the documents and reverse as to others.

BACKGROUND

The instant subpoena is only one element in a lengthy grand jury investigation of Marc Rich and his affairs. See Matter of Marc Rich & Co., A.G., 707 F.2d 663 (2d Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 3555, 77 L.Ed.2d 1400 (1983) ("Marc Rich I"). On April 15, 1982, the government served on AG a subpoena ("1982 Subpoena") requiring the production of AG's corporate records relating to its transactions in crude oil during 1980 and 1981. AG moved to quash the subpoena for lack of personal jurisdiction and because Swiss law allegedly forbade compliance with the subpoena. These contentions were rejected by the district court, and when AG subsequently defied the court's order to comply with the subpoena it was held in contempt. The district court stayed collection of the penalties imposed, however, pending appeal. We affirmed the district court's contempt order in Marc Rich I, 707 F.2d 663, and the Supreme Court denied certiorari on June 27, 1983. --- U.S. ----, 103 S.Ct. 3555, 77 L.Ed.2d 1400. The district court's order staying collection of the contempt penalties thereupon dissolved.

AG then moved in the district court for relief from the contempt judgment on the basis that AG had been enjoined by a Swiss court from complying with the subpoena. The district court rejected this argument as reliance on a contrived foreign proceeding, and on June 29 it denied appellant's motion and refused to grant a stay pending another appeal. On July 1, AG filed a notice of appeal but did not seek from this Court a stay pending appeal.

AG did not pay the fines accumulating against it, and its counsel advised the government that AG would not pay those fines voluntarily. Consequently, on July 13, the government moved in the district court for an order directing AG to pay or entering judgment against it in the event that it persisted in its refusal to pay. AG opposed the motion, questioning the district court's jurisdiction since AG's latest appeal was pending, and argued that there did not appear to be any urgency warranting the entry of the judgment sought by the government. AG's counsel stated that "the supposed urgency of having a judgment come in athwart [sic ] of this Court's order is not visible to me at all." (Affidavit of Assistant United States Attorney Martin J. Auerbach, dated October 18, 1983, at p 19.) On July 15, 1983, the district court entered an order and judgment requiring AG to pay $1,000,000 in accrued contempt fines, and entering judgment of $50,000 per day for continued noncompliance with the subpoena.

On July 20, the government learned of an agreement dated July 7, 1983 ("Sale Agreement"), between AG and its chief executive officer, R. Alec Hackel, pursuant to which AG sold all of its stock in its wholly-owned American subsidiary, Marc Rich & Co. International ("International"), to Hackel, for a price to be fixed by AG's accountants at a future date. According to the two-page Sale Agreement, the sale was made retroactive to June 30, 1983, the day after the contempt fines resumed accruing against AG. Construing the Sale Agreement as part of an attempt by AG to make itself judgment-proof, the government began serving restraining orders on United States customers and banking associates of the Marc Rich corporations, a process that resulted in an agreement by AG to pay accrued fines and to comply with the 1982 subpoena. ¹

The 1983 subpoena now before us was served on Proskauer, the law firm that had represented AG during the litigation over the 1982 subpoena. The 1983 subpoena required production of all documents relating to the sale of International by AG, as part of the grand jury's investigation into a possible obstruction of justice by AG, in violation of 18 U.S.C. Sec. 1503 (1982), or conspiracy to defraud the United States, in violation of 18 U.S.C. Sec. 371 (1982). Proskauer moved to quash on the grounds that the documents in question are protected either by the privilege for attorney's work-product or by the privilege for attorney-client communications. AG intervened and joined in Proskauer's motion to quash.

In an oral decision delivered on November 3, 1983, the district court denied the motion in part, ² ordering the production of documents relating to the sale of International, documents relating to a possible reorganization of the Marc Rich companies, and documents relating to possible forms of employee compensation for AG employees. Although the November 3 transcript is far from clear, it appears that the court ruled that all of these documents were unprivileged because they conveyed business rather than legal advice. It appears that the court also found certain of these documents unprivileged because their contents would subsequently be disclosed to AG employees. As to documents dated prior to July 7, 1983, and involving advice concerning the sale of International, the court also appears to have held that the documents were unprivileged because they related to advice rendered in furtherance of a future or continuing crime or fraud and hence lost any right to protection under the attorney-client privilege.

AG has appealed from so much of the order of November 3 as denied the motion to quash. ³ Documents numbered 0001 to 0197, found unprivileged below, have been submitted to this Court under seal. We conclude that virtually all of these documents reflect legal advice but that certain of them are excluded from protection by the ongoing fraud exception to the attorney-client privilege.

DISCUSSION

A. Legal vs. Business Advice

We consider first whether the documents at issue on this appeal reflect communications with respect to legal advice that are ordinarily within the ambit of the privilege for attorney-client communications. The privilege attaches

(1) where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal advisor, (8) except the protection be waived ....

United States v. Bein, 728 F.2d 107 at 112 (2d Cir.1984) (quoting United States v. Kovel, 296 F.2d 918, 921 (2d Cir.1961)); accord In re Horowitz, 482 F.2d 72, 80-81 n. 7 (2d Cir.), cert. denied, 414 U.S. 867, 94 S.Ct. 64, 38 L.Ed.2d 86 (1973). The grant of protection for such communications is designed "to encourage clients to make full disclosure to their attorneys," Fisher v. United States, 425 U.S. 391, 403, 96 S.Ct. 1569, 1577, 48 L.Ed.2d 39 (1976), in order to enable the attorneys to provide sound legal advice. The availability of sound legal advice inures to the benefit not only of the client who wishes to know his options and responsibilities in given circumstances, but also of the public which is entitled to compliance with the ever growing and increasingly complex body of public law. See Upjohn Co. v. United States, 449 U.S. 383, 389, 392, 101 S.Ct. 677, 682, 684, 66 L.Ed.2d 584 (1981); Fisher v. United States, supra, 425 U.S. at 403, 96 S.Ct. at 1577; Hunt v. Blackburn, 128 U.S. 464, 470, 9 S.Ct. 125, 127, 32 L.Ed. 488 (1888).

As the district court recognized, the privilege is triggered only by a client's request for legal, as contrasted with business, advice. See In re John Doe Corp., 675 F.2d 482, 488 (2d Cir.1982) ("The Upjohn privilege is clearly limited to communications made to attorneys solely for the purpose of the corporation seeking legal advice and its counsel rendering it."); see In re Grand Jury Subpoena, 599 F.2d 504, 510 (2d Cir.1979). We disagree, however, with the district court's application of this limitation to the documents before us. These documents reflect AG's requests for advice from Proskauer relating to three transactions, and as to each our review convinces us that the advice sought was legal rather than commercial in character.

Documents 0001-0076, 0091-0094, 0098, 0126-0142, 0148-0163, and 0187-0188 relate to AG's request for tax advice under Swiss and American law with respect to alternative forms of employee compensation plans for key AG employees. Tax advice rendered by an attorney is legal advice within the ambit of the privilege. Colton v. United States, 306 F.2d 633, 637 (2d Cir.), cert. denied, 371 U.S. 951, 83 S.Ct. 505, 9 L.Ed.2d 499...