In re Grand Jury

Citation705 F.3d 133
Decision Date11 December 2012
Docket Number12–2878.,Nos. 12–1697,s. 12–1697
PartiesIn re GRAND JURY, John Doe 1; John Doe 2; ABC Corporation, ABC Corp.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

OPINION TEXT STARTS HERE

Stephen R. LaCheen, Esquire (Argued), LaCheen Wittels & Greenberg, Ian M. Cominsky, Esquire (Argued), Matthew D. Lee, Esquire, Philadelphia, PA, for ABC Corp.

Frank P. Cihlar, Esquire, Gregory V. Davis, Esquire, S. Robert Lyons, Esquire, Alexander P. Robbins, Esquire (Argued), United States Department of Justice, Tax Division, David I. Sharfstein, Esquire, United States Department of Justice, Civil Division, Appellate Staff, Washington, DC, Karen L. Grigsby, Esquire, Patrick J. Murray, Esquire, Office of the United States Attorney, Philadelphia, PA, for Appellee.

Before: AMBRO, HARDIMAN and VANASKIE, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

ABC Corp., John Doe 1, and John Doe 2 are subjects of an ongoing grand jury investigation into an alleged criminal tax scheme.1 As part of that scheme, ABC Corp., under the direction of John Doe 1 and John Doe 2, purchased and subsequently sold numerous companies. These consolidated appeals concern whether documents and testimony relating to legal advice obtained by ABC Corp. in connection with these transactions are shielded by the attorney-client and work product privileges.

When ABC Corp. objected that the Government had improperly served a subpoena for documents on ABC Corp., the Government issued grand jury subpoenas for those documents to ABC Corp.'s current outside counsel—LaCheen, Wittels & Greenberg, LLP, and Blank Rome, LLP. Later, it also served subpoenas for documents and testimony on three attorneys formerly employed by ABC Corp. as in-house counsel. In each instance, the firms and counsel asserted attorney-client and work product privileges on ABC Corp.'s behalf, the Government moved to enforce the subpoenas, and ABC Corp. opposed the motion as the purported privilege holder.

The District Court granted the Government's motions to enforce based in part on the crime-fraud exception, which permits the Government to obtain access to otherwise privileged communications and work product when they are used in furtherance of an ongoing or future crime. Finding that the requested communications and work product either did not qualify as privileged or that any protection afforded was vitiated by this exception, the Court largely rejected ABC Corp.'s privilege claims and issued corresponding disclosure orders—the first directed to ABC Corp., LaCheen Wittels, and Blank Rome in March 2012 (the “March Order”), and the second directed to the three in-house counsel in June 2012 (the “June Order”).

ABC Corp. seeks to appeal these Orders.2 Disclosure orders are not normally immediately appealable final decisions. To obtain immediate appellate review, a privilege holder must disobey the court's order, be held in contempt, and then appeal the contempt order. That has not happened here. ABC Corp. argues nonetheless that it can appeal under an exception to the contempt rule established in Perlman v. United States, 247 U.S. 7, 38 S.Ct. 417, 62 L.Ed. 950 (1918). Under Perlman, a privilege holder may immediately appeal an adverse disclosure order when the traditional contempt route is unavailable to it because the privileged information is controlled by a disinterested third party who is likely to disclose that information rather than be held in contempt for the sake of an immediate appeal.

We disagree that we have jurisdiction to hear ABC Corp.'s appeal from the March Order.3 It directs both ABC Corp. and the law firms to produce the withheld documents. While Blank Rome is in physical possession of them, it is holding them at the behest of ABC Corp. If ABC Corp. wants immediate appellate review, it can take possession of the documents, defy the disclosure Order, and appeal any resulting contempt sanctions.4 Because it has not yet taken these steps, we dismiss its appeal from the March Order for lack of appellate jurisdiction.

We agree, however, that we have jurisdiction to hear ABC Corp.'s appeal from the June Order, which is directed solely to its former in-house counsel. ABC Corp. cannot be held in contempt of this Order because it does not direct ABC Corp. to take or refrain from any action. And there is no indication that ABC Corp.'s former employees are anything but disinterested third parties unwilling to be held in contempt to vindicate its purported privilege. We therefore reach the merits of ABC Corp.'s appeal from the June Order.

ABC Corp. alleges a series of problems with that Order: (1) the Court applied the wrong standard of proof in determining whether the Government made a sufficient showing to support application of the crime-fraud exception; (2) no matter the proof required, the Court wrongly found that the Government satisfied its burden; (3) the Court erred in applying the crime-fraud exception to work product generated by the in-house counsel because there is no suggestion these attorneys were involved in the alleged criminal scheme; and (4) with respect to five particular documents, the Court ruled incorrectly that they either did not qualify as privileged or were subject to the crime-fraud exception.

We sympathize with the difficult position of ABC Corp.'s attorneys. They are arguing against the applicability of the crime-fraud exception without knowledge of the underlying evidence for that exception. Because this evidence would reveal aspects of the grand jury's investigation and thus cannot be made public, the District Court filed its March and June Orders under seal and provided only redacted copies to the parties. SeeFed.R.Crim.P. 6(e)(2). Though we limit our discussion to background facts already disclosed to both parties in order to maintain this secrecy, we have received and closely reviewed unredacted versions of the Orders, as well as secret grand jury information submitted ex parte by the Government.5 On the basis of that review, we affirm the District Court's June Order.

I. BackgroundA. The Alleged Criminal Scheme

ABC Corp., John Doe 1, and John Doe 2 are subjects of an ongoing grand jury investigation that seeks to determine whether they and others undertook fraudulent business transactions in order to evade federal income taxes. ABC Corp. is an administratively “dissolved” corporation. It was formed in early 2004 and it ceased business operations in late 2005. John Doe 1 was the company's President and sole (though indirect) shareholder. John Doe 2, who was also affiliated with the company, is his son.

During ABC Corp.'s existence, it acquired companies with large cash accounts, few or no tangible assets, and considerable tax liabilities. ABC Corp. would transfer these target companies to two limited liability companies. According to the Government, shortly thereafter the limited liability companies would engage in various transactions that had the effect of fraudulently eliminating the target companies' tax liabilities. Having done so, John Doe 1 and John Doe 2 would then divert the target companies' cash assets to themselves and their family members.

B. The District Court's March Order

In December 2010, the grand jury issued a subpoena to ABC Corp.'s former vice president of corporate acquisitions as the company's custodian of records. The subpoena sought all records relating to transactions and business dealings between ABC Corp. and specific entities, including the two limited liability companies implicated in the alleged criminal scheme. At some time the Government received access to, or copies of, ABC Corp. documents from a law firm that previously represented the company. The firm withheld documents that ABC Corp. claimed were privileged but did not supply the Government with a privilege log.

ABC Corp. subsequently changed representation. LaCheen Wittels now represents ABC Corp. and John Doe 1, while Blank Rome represents John Doe 2. As is often the case, the grand jury subjects have a joint-defense agreement in place.

Following this change in representation, the documents that had been held by ABC Corp.'s former outside counsel were transferred to Blank Rome. The documents were transferred to Blank Rome rather than LaCheen Wittels because, according to ABC Corp., LaCheen Wittels does not have sufficient space to store the documents. After the documents were transferred, ABC Corp. provided the Government with a privilege log in April 2011 for the documents it was withholding. Despite previously producing documents and providing this privilege log, ABC Corp. for the first time also took the position that the Government had not effectively served the subpoena on its former vice president.

To address any problems arising from its alleged service error, the Government served grand jury subpoenas on LaCheen Wittels and Blank Rome. The subpoenas sought all documents relating to ABC Corp. that Blank Rome received from ABC Corp.'s former outside counsel. In response to these subpoenas, Blank Rome produced approximately 24 boxes of documents. It continued to withhold, however, the documents listed in the April 2011 privilege log, and ABC Corp. provided the Government with another privilege log in June 2011 for additional documents withheld.

Thereafter the Government filed a motion to enforce the subpoenas, requesting that ABC Corp., Blank Rome, and LaCheen Wittels be required to disclose 171 of the 303 documents identified in the privilege logs. It argued that even if the documents were otherwise entitled to protection under the attorney-client privilege and work product doctrine, the crime-fraud exception wipes away that protection.

The March Order directed ABC Corp., Blank Rome, and LaCheen Wittels to produce 167 of the 171 requested documents. The District Court concluded that the crime-fraud exception barred ABC Corp.'s privilege and work product claims. It did not resolve whether the Government had properly...

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