SEC v. MERRILL SCOTT & ASSOCIATES, LTD.
| Decision Date | 23 March 2010 |
| Docket Number | No. 08-4029.,08-4029. |
| Citation | 600 F.3d 1262 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MERRILL SCOTT & ASSOCIATES, LTD.; Merrill Scott & Associates, Inc.; Phoenix Overseas Advisers; Gibralter Permanente; Patrick M. Brody; David E. Ross, II; Michael G. Licopantis, Defendants. United States of America, Intervenor-Appellee, and Richard Gerber, Interested Party-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
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Submitted on the briefs:*
Samuel Rosenthal, Patton Boggs, LLP, New York, NY, for Appellant.
Brett L. Tolman, United States Attorney, Stephen J. Sorenson, Assistant United States Attorney, Brian D. Bailey, Special Assistant United States Attorney, Salt Lake City, UT, for Appellee.
Before KELLY, McKAY, and BRISCOE, Circuit Judges.
This case requires us to determine the scope of certain protective orders entered to safeguard personal financial information provided by an alleged tax evader who was also the victim of a securities fraud scheme. Dr. Richard Gerber invested money with defendant Merrill Scott & Associates (Merrill Scott) under a nominee arrangement promising large tax savings. The Securities and Exchange Commission (SEC) subsequently sued Merrill Scott for securities fraud. A receiver was appointed in the SEC action. The receiver took charge of assets belonging to Dr. Gerber's nominee entity, Dark Amethyst, LLC. In order to recover these assets, Dr. Gerber agreed to provide certain personal and confidential financial information to the receiver. The district court entered two protective orders to safeguard the confidentiality of this information.
Dr. Gerber's confidential information later found its way into the hands of the Internal Revenue Service (IRS). Dr. Gerber sought a finding that the SEC had violated the protective orders. He also sought return of his confidential information from the IRS and the Department of Justice (DOJ). For its part, the United States intervened to seek modification of the protective orders specifically to permit disclosure to the IRS. The district court clarified that its protective orders permitted the SEC to disclose Dr. Gerber's confidential information to other governmental agencies, and denied his motion for return of documents. He appeals from this order. He also seeks review of an unappealed order of the magistrate judge permitting the United States to intervene in this action. We dismiss the appeal from the order permitting intervention for lack of jurisdiction, affirm in part and reverse in part the district court's Order and Memorandum Decision modifying the protective orders, and remand for further proceedings.
The district court appointed the receiver on January 23, 2002 to marshal and take control of Merrill Scott's assets. On February 2, 2004, pursuant to a stipulation between the SEC, the receiver, and Dr. Gerber, the district court entered the first protective order at issue. This order provided that all confidential information supplied by Dr. Gerber, including documents and deposition testimony, would be used solely for the purpose of litigating the SEC action and related litigation commenced by the receiver or the SEC, and for no other purpose, including "any other legal proceedings." Aplt.App. at 120. As relevant here, it further provided that the "Confidential Information shall not be disclosed, repeated, given, shown, made available, or communicated in any way to anyone other than to the following persons to whom it is necessary that such Confidential Information be given for purposes of pursuing the SEC action and related litigation: ... (f) the United States Attorney's Office for the District of Utah." Id. The order also provided that "within 45 days of the conclusion of this litigation by dismissal, final judgment, disposition of appeal, or settlement, Confidential Information produced in this litigation ... shall be returned to counsel for Dr. Gerber ... or else the receiving party shall destroy all such Confidential Information." Id. at 122-23. The order provided that it could be modified for good cause. Shortly after the issuance of this protective order, Dr. Gerber provided deposition testimony during which he supplied Confidential Information to the SEC and the receiver.
The second protective order, entered December 8, 2004, involved a number of former clients of Merrill Scott, including Dr. Gerber. It provided that all Confidential Information supplied by these former clients would be "used solely for purposes directly related to this Action" and for no other purpose. Id. at 131. The Confidential Information would "not be disclosed, repeated, given, shown, made available, or communicated in any way to anyone other than ... (f) the United States Attorney's Office for the District of Utah or any other department or agency of the federal government." Id. at 132 (emphasis added). In negotiating the terms of the order with the SEC and the receiver, the former Merrill Scott clients did not agree to the language permitting disclosure to departments or agencies of the federal government other than the United States Attorney's Office. The SEC and the receiver nevertheless approved the order as to form and forwarded it to the district court, which signed it.
The former investors subsequently filed an objection to the order as entered with the district court. They contended, among other things, that the disputed language was improper because the district court had previously ruled that disclosure would be limited to "the U.S. Justice Department, for the reason that the SEC was under statutory obligation to make such disclosures," but that disclosure should be made to no other federal agency. Id. at 140. On December 21, 2004, the district court entered an order removing the reference to "any other department or agency of the federal government," id. at 146, and otherwise left the language of the order in place. This second order also provided that it could be modified for good cause.
During the month of August 2005, an IRS Special Agent contacted counsel for Dr. Gerber. The Agent indicated that he was investigating Dr. Gerber and had reviewed a substantial amount of material concerning him. He subsequently sent Dr. Gerber's attorney a collection of documents, some of which had the word "Confidential" stamped on them and the name "Gerber" with a number, indications that they had been furnished by Dr. Gerber at his deposition in the SEC action. Apparently, the IRS received these documents from the United States Attorney's Office, which in turn had received them from the SEC.
Beginning in late 2005, the IRS issued a number of third-party administrative summonses to banks, law firms, and brokerages concerning Dr. Gerber's tax liability. Dr. Gerber moved in the United States District Court for the District of Columbia to quash the summonses, and the IRS moved to have them enforced. At a meeting in June 2007 with Dr. Gerber's attorneys, IRS Special Agents admitted that they had read Dr. Gerber's deposition taken in the SEC action. After the district court in the summons enforcement action was informed that there had apparently been a violation of the protective order, the IRS withdrew its summons and asked the district court to dismiss the enforcement action as moot.
In October 2007, the district court entered an order approving a settlement between the SEC, the receiver, and Dr. Gerber. Shortly before the settlement, the United States sought to intervene in this action and to modify the protective orders to permit broader disclosure to and use by agencies other than the SEC. The government admitted that the SEC had provided Confidential Information to the United States Attorney's Office, and that the U.S. Attorney had, in turn, provided this evidence "to interested investigators and auditors of the IRS." Id. at 165. It argued that this was consistent with the government's reading of the protective orders, which did not restrict the use that the U.S. Attorney could make of the documents. It requested that the protective orders be modified to make it clear that they "permit the United States Attorney's office to use the disclosed information and materials to perform its functions of promoting and enforcing compliance with the civil and criminal laws of the United States." Id. at 174.
Dr. Gerber opposed the intervention and filed a cross-motion with the court for return of all documents allegedly disseminated in violation of the protective orders and for discovery to determine the extent of any violation. A magistrate judge assigned to this case granted the motion to intervene. Proclaiming himself "troubled by the lack of information about the precise manner in which materials apparently subject to protective orders in this case have come into the possession of" the IRS, id. at 322, he ordered that discovery be permitted.
Dr. Gerber did not file objections to the portion of the order permitting intervention. The government objected to the magistrate judge's decision permitting discovery. The district court subsequently held a hearing on the government's objections. At this hearing, the district court stated, Id. at 343.
Dr. Gerber's counsel did not consider this judicial concession of error dispositive. He conceded that the SEC could turn over materials to the DOJ, but only for use "in this action." Id. at 344. He argued that the DOJ had therefore violated the order by turning materials over to the IRS, which were being used against him...
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