In re Subpoena Duces Tecum, Comm. Futures Trading

• Decision Date: 03 March 2006
• Docket Number: No. 05-5168.,05-5168.
• Citation: 439 F.3d 740
• Parties: In re: SUBPOENA DUCES TECUM ISSUED TO COMMODITY FUTURES TRADING COMMISSION WD ENERGY SERVICES INC., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

439 F.3d 740

In re: SUBPOENA DUCES TECUM ISSUED TO COMMODITY FUTURES TRADING COMMISSION WD ENERGY SERVICES INC., Appellant.

No. 05-5168.

United States Court of Appeals, District of Columbia Circuit.

Argued November 29, 2005.

Decided March 3, 2006.

Appeal from the United States District Court for the District of Columbia (No. 04ms00564).

Julian W. Poon argued the cause for appellant. With him on the briefs were David A. Battaglia, J. Christopher Jennings, and Miguel A. Estrada. Douglas F. John entered an appearance.

Steven N. Williams argued the cause for appellee E. & J. Gallo Winery. With him on the brief were Jon Cuneo and David W. Stanley.

Michael S. Raab, Attorney, U.S. Department of Justice, argued the cause for federal appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, Catherine Y. Hancock, Attorney, Kirk T Manhardt, Deputy General Counsel, Commodity Futures Trading Commission, Glynn L. Mays, Senior Assistant General Counsel, and Gloria P. Clement, Assistant General Counsel. Thuy T. Dinh, Attorney, entered an appearance.

Before: ROGERS, TATEL and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge.

This is an appeal of a discovery order. In April 2003, E. & J. Gallo Winery sued WD Energy Services, Inc. (f/k/a EnCana Energy Services, Inc.) in the Eastern District of California during the pendency of an investigation by the Commodity Futures Trading Commission of the California natural gas market. Gallo alleged that WD Energy (and other energy companies) had unlawfully manipulated the California energy market in violation of state and federal laws. During discovery, Gallo sought documents from WD Energy with respect to the Commission's investigation and settlement with WD Energy. WD Energy produced many of the subpoenaed documents, but withheld documents that it characterized as relating to the settlement with the Commission. When Gallo moved to compel compliance with its subpoena, a Magistrate Judge ruled that the withheld documents were protected by a federal settlement privilege under FED. R. EVID. 501.

Gallo also served on the Commission a third party judicial subpoena from the district court for the District of Columbia to produce the WD Energy documents in its possession. The Commission indicated it would interpose no governmental privilege in responding to the subpoena. However, WD Energy filed objections to the subpoena, arguing that Gallo was collaterally estopped by the Magistrate's ruling on the settlement privilege and, alternatively, that many of the documents were protected by a federal settlement privilege under FED. R. EVID. 501. The district court rejected WD Energy's collateral estoppel arguments, ruled that no federal settlement privilege existed under FED. R. EVID. 501, and granted Gallo's motion to compel the Commission's compliance with the subpoena. See In re Subpoena Issued to CFTC, 370 F.Supp.2d 201, 207 & n. 7, 212 (D.D.C. 2005) ("Subpoena"). WD Energy appeals.

Upon de novo review, we hold that the Magistrate's privilege ruling was not entitled to preclusive effect under the principle of collateral estoppel. In arguing that collateral estoppel applied to the Magistrate's ruling, WD Energy failed to meet its burden to show that the same documents were at issue in both fora; in addition, the Magistrate's ruling contains a potential ambiguity regarding whether the privilege issue was actually decided. WD Energy's contention based upon the doctrine of law of the case lacks merit because the third-party subpoena enforcement proceeding was a new proceeding in a different court. We do not reach the question whether a federal settlement privilege exists under FED. R. EVID. 501. WD Energy failed to meet its burden of demonstrating that the disputed subpoenaed documents were created for the purpose of settlement discussions and therefore would merit protection under any federal settlement privilege that the court might recognize. Accordingly, we affirm the grant of the motion to compel the Commission's compliance with Gallo's subpoena without reaching the merits of the district court's ruling that no settlement privilege exists under FED. R. EVID. 501.

I.

Orders compelling production of allegedly privileged information satisfy the three criteria for collateral review under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). In re Sealed Case (Med.Records), 381 F.3d 1205, 1209 (D.C. Cir. 2004). Under doctrine deriving from Perlman v. United States, 247 U.S. 7, 38 S.Ct. 417, 62 L.Ed. 950 (1918), a discovery order directed at a disinterested third party is treated as an immediately appealable final order because the third party generally lacks a sufficient stake in the proceeding to risk contempt by refusing compliance. See Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n. 11, 113 S.Ct. 447, 121 L.Ed.2d 313 (1992). In reviewing a discovery order directed at a third party, our review is for abuse of discretion. See In re Sealed Case, 121 F.3d 729, 740 (D.C. Cir. 1997). "Because a `district court by definition abuses its discretion when it makes an error of law,' the `abuse of discretion standard includes review to determine that the discretion was not guided by erroneous legal conclusions.'" In re Sealed Case (Med.Records), 381 F.3d at 1211 (quoting Koon v. United States, 518 U.S. 81, 100, 116 S.Ct. 2035, 135 L.Ed.2d 392 (1996)); see also Tuite v. Henry, 98 F.3d 1411, 1415 (D.C. Cir. 1996). Legal conclusions are reviewed de novo. See In re Sealed Case, 146 F.3d 881, 883 (D.C. Cir. 1998); In re Subpoena Served upon the Comptroller of the Currency, 967 F.2d 630, 633 (D.C. Cir. 1992).

Although WD Energy has failed to obtain a stay of the district court's order pending appeal, and the Commission has now produced the documents to Gallo, WD Energy's appeal is not moot. In Church of Scientology, 506 U.S. at 13, 113 S.Ct. 447, the Supreme Court held that a court's ability to offer a partial remedy, such as ordering the return or destruction of disputed materials, is sufficient to prevent mootness. WD Energy seeks the return of its documents to the Commission and the destruction of all work product stemming from Gallo's examination of the documents. Cf. FTC v. Compagnie De Saint-Gobain-Pont-a-Mousson, 636 F.2d 1300, 1327 (D.C. Cir. 1980). Thus, notwithstanding the Commission's compliance with Gallo's subpoena, the court can provide a meaningful remedy. See Church of Scientology, 506 U.S. at 12-13, 113 S.Ct. 447.

II.

WD Energy contends that the district court erred by not applying collateral estoppel to the Magistrate's order because all of the standards for establishing the preclusive effect of a prior judgment have been satisfied. It relies on Yamaha Corp. of America v. United States, 961 F.2d 245 (D.C. Cir. 1992), where the court set forth the three conditions that must be satisfied in order to bind a party to a prior determination of a legal or factual issue:

First, the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior case. Second, the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case. Third, preclusion in the second case must not work a basic unfairness to the party bound by the first determination.

Id. at 254 (citations omitted); see, e.g., Jack Faucett Assocs., Inc. v. Am. Tel. and Tel. Co., 744 F.2d 118, 125 (D.C. Cir. 1984); Otherson v. Dep't of Justice, 711 F.2d 267, 273 (D.C. Cir. 1983). As the party invoking collateral estoppel, WD Energy bears the burden of establishing that the conditions for its application have been satisfied. See Democratic Cent. Comm. of D.C. v. Washington Metro. Area Transit Auth., 842 F.2d 402, 409 (D.C. Cir. 1988); see also Blonder-Tongue Labs., Inc. v. Univ. of Ill Found., 402 U.S. 313, 350, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971).

A.

The background to WD Energy's collateral estoppel claim begins in 2002, when the Commission opened an investigation into the manipulation of California natural gas markets by a number of energy companies, including WD Energy, for violation of the Commodity Exchange Act, 7 U.S.C. §§ 9, 13b, 13(a)(2), 15 (2000). In June 2002, the Commission informed WD Energy that it was a subject of this investigation. WD Energy produced a large number of documents in response to a Commission subpoena of January 24, 2003 and the Commission's subsequent requests for information. WD Energy requested, pursuant to a Commission regulation, 17 C.F.R. § 145.9 (2003), that the documents it was submitting be treated as confidential under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552 (2000), which affords protection for certain privileged documents, see id. § 552(b)(4). On July 28, 2003, the Commission entered into a settlement agreement under which WD Energy paid $20 million as a civil penalty. See In the matter of WD Energy Services, Inc., Commission Docket No. 03-02, Comm. F. L. Rep. (CCH) ¶ 29,544, 2003 WL 21742069, at * 4 (July 28, 2003).

Following the settlement, the Commission notified WD Energy of FOIA requests lodged by parties contemplating suits against a number of energy companies for documents related to the Commission's investigation of California's natural gas market. The Commission asked WD Energy to provide a "detailed written justification" of its previous requests for confidential FOIA treatment. By letter of January 5, 2004, WD Energy listed the categories of documents it deemed to be privileged, including those it categorized as "settlement communications" and "voluntarily-created and produced material." The Commission agreed, by letter of February 6, 2004, that WD Energy's "requests for confidential treatment" under FOIA, contingent upon the requester's right to appeal, "should be granted in full."

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