In re Grand Jury Subpoenas
| Decision Date | 13 July 2006 |
| Docket Number | No. 04-124-05.,No. 05-2274.,No. 05-2275.,No. 04-124-03.,04-124-03.,04-124-05.,05-2274.,05-2275. |
| Citation | 454 F.3d 511 |
| Parties | In re: GRAND JURY SUBPOENAS |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: David M. Zinn, Williams & Connolly, Washington, D.C., Kevin D. Finger, Greenberg & Traurig, Chicago, Illinois, for Appellants. Stephen L. Hiyama, Assistant United States Attorney, Detroit, Michigan, for Appellee.
ON BRIEF:
David M. Zinn, Craig D. Singer, Williams & Connolly, Washington, D.C., Kevin D. Finger, Greenberg & Traurig, Chicago, Illinois, Deborah L. Fish, Allard & Fish, Detroit, Michigan, for Appellants. Stephen L. Hiyama, Ross MacKenzie, Assistant United States Attorneys, Detroit, Michigan, for Appellee.
Before: BOGGS, Chief Judge; SUTTON, Circuit Judge; and SCHWARZER, District Judge.*
These two cases, filed under seal, present a legal question regarding the conduct of reviews of documents for privilege.1 Specifically, we must determine who has the right to conduct a review for privilege of documents subject to a grand jury subpoena directed to a third party who possesses the documents but has not yet produced them to the government: the targets of the investigation whose rights of privilege are potentially implicated, or the federal government, operating a "taint team" behind a "Chinese wall" or protective screen.
These cases arise from events leading up to the 2003 bankruptcy filing of Venture Holdings LLC ("Venture"), a company once controlled by appellant Larry Winget. After Venture's new (post-filing) management conducted an internal investigation, the company filed suit against Winget for allegedly fraudulent conveyances of goods and services from Venture to other entities that Winget owned or controlled. Shortly thereafter, a federal grand jury issued two subpoenas duces tecum, filed under seal, to Venture. Winget filed a motion to intervene, and seven companies affiliated with Winget (the "Affiliated Companies") later joined this motion. The documents in question have not been examined by any of the parties, and they remain in locations under Venture's control. Winget and the Affiliated Companies demanded the right to conduct their own privilege review of the documents responsive to the subpoenas, as both the government and Venture are actually or possibly litigation opponents of Winget's or the Affiliated Companies'. The government opposed this motion, and asserted that any privilege review be conducted by its own "taint team." The district court granted Winget's and the Affiliated Companies' motions to intervene, but agreed with the government with respect to the "taint team" review procedure. The district court issued an alternative holding that Winget had also failed to meet the threshold requirement of showing any rights of privilege in the requested documents. For the reasons stated below, we reverse and remand.
The circumstances leading to the instant controversy are sufficiently convoluted to require some summary description despite the fact that the documents in the suit remain under seal. Larry Winget was once the sole owner of Venture, a global automotive supplier, and had served as its Chairman and Chief Executive Officer. Winget also owned or controlled numerous other companies, including the Affiliated Companies. The headquarters of Venture and of each of the Affiliated Companies were located in the same office in Fraser, Michigan.
In 1999, Venture purchased a German company called Peguform. In October 2002, a German court declared Peguform insolvent under Germany's bankruptcy regime. This threatened Venture's solvency and caused a group of bank creditors to assert more control over the company. Consequently, Joseph Day was installed as a director in January 2003. Venture then filed for bankruptcy on March 28, 2003 under Chapter 11 in the Eastern District of Michigan. At the same time, Day replaced Winget as Venture's Chief Executive Officer. Six months later, on September 22, 2003, Winget and Venture entered into a Contribution Agreement ("Contribution Agreement"), whereby several entities owned by Winget and certain of his affiliates would transfer their assets and ownership to a new company that would be formed in connection with Venture's reorganization.
Also in September 2003, Venture's new management hired an accounting firm to conduct a forensic audit of related-party transactions between Venture and some of the many companies associated with Winget. In March 2004, Venture's auditors concluded that Venture had in the past paid millions of dollars to some Winget-owned or -controlled companies for products and services whose fair market value was allegedly substantially less than the price paid, which would have contradicted certain statements in Venture's SEC filings during the relevant years. The auditors' conclusions remain untested, and we will not venture to assess their accuracy.
On April 5, 2004, as part of the bankruptcy proceedings, Venture and its official committee of unsecured creditors filed a still-pending civil suit against Winget, some of his family members, and numerous associated entities, asserting claims of unjust enrichment, breaches of fiduciary duties, and fraudulent transfers arising from Venture's payment of funds to Winget's affiliated companies. Venture v. Winget, Adversary Proc. 04-4374, In re Venture Holdings Company LLC, No. 03-48939 (Bankr.E.D.Mich.). On May 13, 2004, Venture and Winget signed a Separation Agreement ("Separation Agreement"), whereby Winget agreed to terminate his employment by Venture and resign as officer and director. In exchange, he was to receive $50,000 every month while Venture remained under Chapter 11 protection, and he was further entitled to "continue the exclusive, uninterrupted use of the office which he currently occupies" at James J. Pompo Drive. This agreement forms part of the substantive basis for Winget's claims to privilege in the instant case, but we are in no position now to assess its substance or legal effect because the instant controversy involves a matter that is logically antecedent to the substance of any privilege disputes.
On January 21, 2005, the bankruptcy court rejected Venture's proposed reorganization plan, and, therefore, the Contribution Agreement as well. On April 8, 2005, with an April 29 amendment, New Venture Holdings LLC ("New Venture") was formed by Venture's pre-petition lenders, who agreed to buy the assets and assume the liabilities of (old) Venture and nine other companies owned or controlled by Winget that had filed for Chapter 11 in May 2004. The bankruptcy court subsequently approved this transaction. On May 2, 2005, (old) Venture and the nine affiliated companies formally transferred their assets and liabilities to New Venture. In October 2005, New Venture changed its name to Cadence Innovation LLC.
Meanwhile, the federal government began investigating the matter. In the fall of 2004, a number of grand jury subpoenas duces tecum were issued. Relevantly to the case at hand, New Venture received two such subpoenas, and the company soon agreed to cooperate with the federal investigation, waiving its corporate attorney-client and work-product privileges in October 2004. As the subpoenas in question were filed under seal, and as their precise substance is not particularly relevant to the instant controversy, we will respect grand jury secrecy and exercise our discretion by not discussing their contents. Instead, we simply note that the subpoenas were directed to New Venture, and they demanded production of some documents that, all sides concede, may be protected by either Winget's or the Affiliated Companies' attorney-client or work-product privileges.
On March 1, 2005, Winget filed a motion in the Eastern District of Michigan to intervene and to modify the subpoenas in order to preserve privilege. In this motion, he claimed that some of the records that New Venture had been called upon to produce were protected by Winget's personal attorney-client or work-product privileges even though the documents remained in offices under Venture's control. Winget therefore asked the court to approve a procedure, described in greater detail below, whereby his attorneys would conduct a privilege review of the responsive documents. On April 29, 2005, the Affiliated Companies filed a motion to join Winget's intervention, arguing that the subpoenas called for documents that could be protected by their corporate attorney-client and work-product privileges.
The government opposed Winget's motion, claiming that he was
requesting this Court to allow him to insert himself into the middle of a grand jury investigation so that he can be the first to screen documents produced . . . in response to the two subpoenas. . . . [S]uch a procedure would subvert the orderly functioning of the grand jury process and would be, to the best of the government's knowledge, unprecedented.
(emphasis in original). Instead, the government proposed that a "taint team" composed of government attorneys who are not involved in the grand jury investigation be established to segregate privileged documents from the residue of non-privileged material. As we discuss more extensively below, the proposed taint team would return to Venture any documents that it determined to be privileged, sending copies to Winget where appropriate, and would submit the materials it determined to be potentially protected by privilege to Winget and the district court for final adjudication. However, the taint team would send documents it deemed not to be protected by appellants' privilege directly to the grand jury, and so they would not provide appellants with any opportunity to review or challenge the team's privilege determinations with respect to those documents.
The district court conducted a closed hearing on August 3, 2003. At this hearing, the court sternly questioned the parties...
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