U.S. ex rel. Woodard v. Tynan

• Decision Date: 21 March 1985
• Docket Number: No. 83-1931,83-1931
• Parties: , 1 Fed.R.Serv.3d 246 UNITED STATES of America ex rel. Duane WOODARD, Attorney General of the State of Colorado, and the State of Colorado, Plaintiffs-Appellants, v. Robert M. TYNAN; Arvada Nursing Home, Inc., a Colorado corporation; BTZ Incorporated, a Colorado corporation; Columbine Manor Incorporated, a Colorado corporation; Garden Manor Nursing Home, Inc., a Colorado corporation; Geri-Care, Inc., a Colorado corporation; Lake Manor, Inc., a Colorado corporation, and North Shore Manor, Inc., a Colorado corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1085

757 F.2d 1085

53 USLW 2497, 1 Fed.R.Serv.3d 246

UNITED STATES of America ex rel. Duane WOODARD, Attorney General of the State of Colorado, and the State of Colorado, Plaintiffs-Appellants, v. Robert M. TYNAN; Arvada Nursing Home, Inc., a Colorado corporation; BTZ Incorporated, a Colorado corporation Columbine Manor Incorporated, a Colorado corporation Garden Manor Nursing Home, Inc., a Colorado corporation Geri-Care, Inc., a Colorado corporation; Lake Manor, Inc. a Colorado corporation, and North Shore Manor, Inc., a Colorado corporation, Defendants-Appellees.

No. 83-1931.

United States Court of Appeals, Tenth Circuit.

March 21, 1985.

Gregory C. Smith, Deputy Atty. Gen., Denver, Colo. (Duane Woodard, Atty. Gen., Charles B. Howe, Deputy Atty. Gen., Richard H. Forman, Sol. Gen., and Valerie J. McNevin-Petersen, Asst. Atty. Gen., Denver, Colo., with him on the briefs), for plaintiffs-appellants.

Kenneth C. Groves, Denver, Colo. (Philip A. Rouse, Jr., Denver, Colo., with him on the brief), for defendants-appellees.

J. Lawrence Hamil, Denver, Colo. (Joel D. Russman of Hamil Professional Corp., Denver, Colo., with him on the brief), for defendant-appellee North Shore Manor, Inc.

Before LOGAN and McWILLIAMS, Circuit Judges, and BOHANON, ^* District Judge.

LOGAN, Circuit Judge.

I

This is a civil case filed by the Colorado Attorney General on behalf of the United States and the State of Colorado in federal district court as a qui tam proceeding under a federal statute, the False Claims Act, now codified at 31 U.S.C. Secs. 3729-3731. Named as defendants were Robert M. Tynan and seven corporate entities involved in the operation of nursing home facilities in Colorado. The Colorado Attorney General alleged in the complaint that the several defendants had filed fraudulent claims against the Colorado Medicaid program, obtaining reimbursements of approximately $120,000 to which they were not entitled. The suit sought double damages and forfeitures under the provisions of the False Claims Act and refund of these overpayments because of fraud.

In the course of the proceeding it became apparent that in order to make its case plaintiff required access to the ordinary business records of the defendant corporate entities. These records had been seized from the defendants pursuant to a search warrant issued by a state court and were the basis for a criminal prosecution in 1979 against Tynan and two other individuals in a Colorado state court. The defendants in the state court criminal proceeding moved to suppress the use of the records on constitutional grounds. On August 20, 1980, a state district court granted this motion, suppressed the use of the records in the state criminal proceeding and ordered the records sealed. The state court judge then sealed her order and instructed the attorneys that they could not discuss any aspect of it with anyone.

The federal district court continued the trial date for the instant case several times to allow the Attorney General time to obtain an order from the state court freeing the records in question for use in the present proceeding. These efforts, however, were unavailing.

When the instant case finally came on for trial, the Attorney General again advised the federal district court that he had been unable to obtain the records in question and that he could not proceed to trial without them. He filed a motion to compel the defendants to consent to release of the records. The federal district court denied this motion. It was in this setting that the federal district court subsequently dismissed the action, on May 31, 1983, noting that although numerous continuances had been granted to the Attorney General to allow him to obtain release of the records from the state court, he had been unable to do so, and, further, that the Attorney General on several occasions had stated that he could not proceed to trial without the records. The initial dismissal was without prejudice, subject to the condition that if no new lawsuit was filed by September 1, 1983, based on a release by the state court of the records the Attorney General claimed he needed, then the dismissal would become one with prejudice. The Attorney General did not file a new suit, and he now appeals the denial of the motion to compel and the order of dismissal with prejudice.

On appeal the Attorney General asserts as grounds for reversal that the federal district court abused its discretion in three particulars: (1) by denying his motion under Fed.R.Civ.P. 34 to compel the defendants in the present proceeding to execute authorizations for release of the seized records; (2) by refusing to hold a hearing and to make an independent inquiry as to whether the seized records were admissible under federal law; and (3) by dismissing the instant action for failure to prosecute.

II

The normal procedure in a case like the one before us is for plaintiffs to file a motion under Fed.R.Civ.P. 34 to require the defendants to produce documents that plaintiffs are entitled to discover under usual procedures. If plaintiffs had filed such a discovery request in this case, the defendants would have been unable to produce the disputed documents because a Colorado court held them in its custody and was treating them as sealed grand jury materials. An alternative available in that situation would have been, upon plaintiffs' request, for the federal district court to order the defendants to request permission from the state court maintaining custody of the documents to release those records so that defendants could comply with their discovery obligations in the federal civil proceeding. Such an order would be within the power of the federal district court. See, e.g., Karlsson v. Wolfson, 18 F.R.D. 474 (D.Minn.1956). Both federal and Colorado law appear to allow a party's business records held by a grand jury to be withdrawn either upon the consent of the documents' owner or pursuant to a court order after the grand jury has completed its work. See, e.g., United States v. Interstate Dress Carriers, Inc., 280 F.2d 52, 54 (2d Cir.1960); Granbery v. District Court, 187 Colo. 316, 531 P.2d 390, 394 (1975). Another judicially accepted procedure, which we consider less desirable, is for the party seeking the documents related to a grand jury investigation to apply directly to the court with custody of the documents. See, e.g., In re Grand Jury Matter, 697 F.2d 511, 512 (3d Cir.1982); In re Grand Jury Investigation, 630 F.2d 996 (3d Cir.1980), cert. denied, 449 U.S. 1081, 101 S.Ct. 865, 66 L.Ed.2d 805 (1981). Such a direct application for documents should be granted if the records sought are not of the type properly considered confidential grand jury materials. Even if they are part of confidential grand jury materials they might be reachable as explained below.

Although a court might deny access on another ground, we have little doubt that if the documents sought in the instant case were held by a federal district court in connection with a federal grand jury investigation, the courts would rule that these documents, required to be kept by the defendants in the normal course of their business, are not privileged grand jury materials. Fed.R.Crim.P. 6(e) addresses the maintenance of secrecy of federal grand jury proceedings. The rule is intended to protect only against disclosures "of what is said or what takes place in the grand jury room." United States v. Interstate Dress Carriers, Inc., 280 F.2d at 54. Although documents may come within the proscription against disclosure,

"it is not the purpose of the Rule to foreclose from all future revelation to proper authorities the same information or documents which were presented to the grand jury. Thus, when testimony or data is sought for its own sake--for its intrinsic value in the furtherance of a lawful investigation--rather than to learn what took place before the grand jury, it is not a valid defense to disclosure that the same information was revealed to a grand jury or that the same documents had been, or were presently being, examined by a grand jury."

Id.; accord In re Grand Jury Investigation, 630 F.2d at 1000-01; SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1382-83 (D.C.Cir.) (en banc), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980); In re Grand Jury Impanelled October 2, 1978, 510 F.Supp. 112, 114-15 (D.D.C.1981); Capitol Indemnity Corp. v. First Minnesota Construction Co., 405 F.Supp. 929, 930-31 (D.Mass.1975). Thus, the Internal Revenue Service is not foreclosed from examining necessary records to determine the tax liability of a taxpayer merely because those records are held by a grand jury. See In re SJC Manufacturing Corp., 479 F.Supp. 647, 651 (E.D.N.Y.1979). Neither should the Colorado Attorney General, acting on behalf of the United States and Colorado, in its capacity as administrator of the Medicaid program, be foreclosed from discovery of the records of a nursing home necessary to determine possible civil liability for Medicaid overpayments merely because those records were at one time submitted to a grand jury investigating criminal culpability.

Even if the documents were considered part of federal grand jury materials normally entitled to secrecy, there is no doubt that if the two courts involved were federal courts they would use a weighing process to determine whether the documents should be released. Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 99 S.Ct. 1667, 60 L.Ed.2d 156 (1979), considered this situation. There the Supreme Court stated that parties seeking federal grand jury transcripts "must show that the material they seek is needed to avoid a possible injustice in another judicial proceeding, that the need for disclosure is greater than the need for continued secrecy, and that their request is structured to cover only material so needed." Id. at 222, 99 S.Ct. at 1674 (footnote omitted). When the civil case is in one co...