Sealed Case, In re
| Decision Date | 02 September 1988 |
| Docket Number | No. 87-5290,87-5290 |
| Citation | 856 F.2d 268 |
| Parties | , Fed. Sec. L. Rep. P 94,009, 12 Fed.R.Serv.3d 344 In re SEALED CASE. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeal from the United States District Court for the District of Columbia (Miscellaneous No. 87-00269).
Harvey A. Levin, with whom Michael I. Smith and Marc B. Dorfman, Washington, D.C., were on the brief, for appellant.
Thomas G. Sheehan, Attorney, S.E.C., of the bar of the Court of Appeals of the District of Columbia, pro hac vice, by special leave of court, with whom Paul Gonson, Sol., Daniel L. Goelzer, Gen. Counsel and Elizabeth Stein, Counsel, S.E.C., Jay B. Stephens, U.S. Atty., John D. Bates, R. Craig Lawrence, Michael J. Ryan and Charles F. Flynn, Asst. U.S. Attys., Washington, D.C., were on the brief for appellee.
Before STARR and WILLIAMS, Circuit Judges, and WEIGEL, Senior District Judge. *
Opinion for the Court filed by Senior District Judge WEIGEL.
Appellant, a corporation, appeals from the orders of the District Court denying its motion to compel discovery of appellee Securities and Exchange Commission and granting the motions of appellee Department of Justice to intervene and to file an ex parte affidavit under seal. 1 We affirm the District Court's orders granting the motions of the Department of Justice, but remand the discovery motion for further consideration.
This case arises out of an action pending between private parties in the United States District Court for the Southern District of New York. In that action, appellant seeks damages from several parties for alleged insider trading in the stock of a corporation later acquired by appellant. Appellant alleges that its cost of acquisition was artificially inflated as a result of the illegal insider trading.
In connection with its investigations of insider trading on Wall Street, the SEC had looked into suspicious activity by several defendants in the underlying action. As a result, the Commission accumulated a large quantity of documents. Appellant has received some 40,000 pages of them delivered pursuant to request under the Freedom of Information Act.
Appellant seeks more through a subpoena obtained from the United States District Court for the District of Columbia. The subpoena directs the Commission to designate a witness to testify and produce documents related to alleged insider trading in the stock of the corporation acquired by appellant. Pursuant to the subpoena, the Commission did provide some documents but declared its intention to seek a court ruling that, based upon claims of privilege, it need not produce a small quantity of the documents.
At this point, counsel for appellant and the Commission met and agreed to cancel the oral deposition and proceed on written questions. The SEC agreed to answer a limited number of questions focused on the purchase of stock in the acquired corporation by certain defendants in the underlying action. The SEC reserved the right to object to any of appellant's questions.
Appellant thereafter propounded questions to be answered by the SEC at a deposition on July 13, 1987. Six questions called for production of all evidence of securities laws violations by several defendants in the underlying action. Appendix [App.] 12-13. Appellant later propounded two related, redirect questions. App. 24-26. On July 10, 1987, the Commission notified appellant that it would object to all eight questions as calling for protected attorney work-product and to three (direct questions 2, 3, and 7) on the basis of law enforcement investigatory privilege. The SEC appeared at the deposition, made its objections, and refused to answer.
On August 12, 1987, appellant, pursuant to Federal Rule of Civil Procedure 37, moved to compel the Commission's response. On September 10, 1987, appellee Department of Justice (Department) moved for leave to intervene in opposition. App. 53-66. The Department argued that disclosure of the information would interfere with on-going criminal investigations. The Department also moved for permission to file an ex parte affidavit under seal containing "sensitive and confidential information." Supplemental Appendix [Supp.App.] 53.
On September 11, 1987, the District Court granted the Department's motions to intervene and to file an ex parte affidavit, and denied appellant's motion to compel. Appellant appeals.
An appellate court will reverse a district court's discovery orders only for abuse of discretion, that is, "if its actions were clearly unreasonable, arbitrary, or fanciful." Northrop Corp. v. McDonnell Douglas Corp., 751 F.2d 395, 399 (D.C.Cir.1984). The district court has broad discretion to weigh the factors in deciding whether discovery should be compelled. In re Multi-Piece Rim Products Liability Litigation, 653 F.2d 671, 679 (D.C.Cir.1981).
Appellant first challenges the District Court's grant of the Department's motions to intervene and to file an ex parte affidavit under seal. It is not clear whether the court granted intervention of right under Federal Rule of Civil Procedure 24(a) or permissive intervention under Rule 24(b). Even assuming that the requirements for intervention of right were not satisfied, permissive intervention is clearly authorized. The Department's assertion of the law enforcement investigatory privilege involves the same legal question as that asserted by the SEC. Federal Rule of Civil Procedure 24(b)(2).
Appellant's objections to the motions really go to the merits of the Department's assertion of the privilege. However, the Department made a plausible claim of law enforcement investigatory privilege which the District Court properly accepted for the purpose of deciding the motion to intervene. See United States v. American Tel. and Tel. Co., 642 F.2d 1285, 1293 (D.C.Cir.1980). The District Court's orders granting the Department's motions to intervene and to file an ex parte affidavit under seal are affirmed. 2
The SEC claims the law enforcement investigatory interrogatory privilege to three of appellant's direct questions. To sustain the claim, three requirements must be met: (1) there must be a formal claim of privilege by the head of the department having control over the requested information; (2) assertion of the privilege must be based on actual personal consideration by that official; and (3) the information for which the privilege is claimed must be specified, with an explanation why it properly falls within the scope of the privilege. Black v. Sheraton Corp. of America, 564 F.2d 531, 542-43 (D.C.Cir.1977); Friedman v. Bache Halsey Stuart Shields, Inc., 738 F.2d 1336, 1341-42 (D.C.Cir.1984). These conditions ensure that the privilege is presented in a deliberate, considered, and reasonably specific manner. Friedman, 738 F.2d at 1342.
As a threshold matter, appellant asserts that the privilege applies only to disclosure of documents from law enforcement investigatory files, not to testimony about the information obtained in the files. The Court disagrees. It make little sense to protect the actual files from disclosure while forcing the government to testify about their contents. The public interest in safeguarding the integrity of on-going civil and criminal investigations is the same in both situations. The privilege may be asserted to protect testimony about or other disclosure of the contents of law enforcement investigatory files.
The SEC has met the requirements for asserting the privilege. The decision to claim the privilege was made by the agency's Commissioners, who personally reviewed the deposition questions at issue. Declaration of Jonathan G. Katz, Secretary of the Securities and Exchange Commission, August 24, 1987, App. 118-21. The Commission also specified the information to which the privilege applied. Id. at 118-20.
The Commission further explained that disclosure of the information would jeopardize on-going investigations by prematurely revealing facts and investigatory materials to potential subjects of those investigations. Id. at 120. In support of this contention, the SEC submitted a lengthy declaration detailing the effect disclosure would have on its ongoing Wall Street investigation. Declaration of John H. Sturc, Associate Director of the SEC Division of Enforcement, August 20, 1987, App. 73, 85-6. In view of appellant's broadly-worded deposition questions, the SEC has asserted the privilege with sufficient specificity and particularity. 3
However, the law enforcement investigatory privilege is qualified. The public interest in nondisclosure must be balanced against the need of a particular litigant for access to the privileged information. Black, 564 F.2d at 545; Friedman, 738 F.2d at 1341. The process of identifying and weighing the competing interests cannot be avoided. Friedman, 738 F.2d at 1342. This Circuit has cited the list contained in Frankenhauser v. Rizzo, 59 F.R.D. 339 (E.D.Pa.1973), as illustrative of the factors the district court must consider:
(1) the extent to which disclosure will thwart governmental processes by discouraging citizens from giving the government information; (2) the impact upon persons who have given information of having their identities disclosed; (3) the degree to which governmental self-evaluation and consequent program improvement will be chilled by disclosure; (4) whether the information sought is factual data or evaluative summary; (5) whether the party seeking discovery is an actual or potential defendant in any criminal proceeding either pending or reasonably likely to follow from the incident in question; (6) whether the police investigation has been completed; (7) whether any interdepartmental disciplinary proceedings have arisen or may...
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