U.S.A v. Afremov
| Decision Date | 29 July 2010 |
| Docket Number | No. 09-3498.,09-3498. |
| Citation | 611 F.3d 970 |
| Parties | UNITED STATES of America, Plaintiff,v.Michael Roman AFREMOV, Defendant-Appellant,v.Computer Forensic Services; Mark Lanterman, Movants-Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Craig D. Singer, argued, Joseph G. Petrosinelli and William P. Ashworth, on the brief, Washington, D.C., for appellant.
John F. Bonner, III, argued, Robert Joseph Borhart, on the brief, Minneapolis, MN, for appellee.
Before LOKEN, ARNOLD and GRUENDER, Circuit Judges.
This case involves a contract dispute between the defendant in a federal criminal case and third parties that the defendant served with subpoenas duces tecum. The district court found that it had ancillary jurisdiction to decide the contract claim, even after entering final judgment in the criminal case. On the merits, the court found that the defendant had hired the subpoenaed witnesses to perform expert consulting services and ordered the defendant to pay a disputed bill in the amount of $628,737.33. We hold that the district court lacked jurisdiction to decide the contract claim. Accordingly, we vacate the district court's order and remand with instructions to dismiss the ancillary proceeding.
The seeds of this appeal were planted in 2002, when Michael Afremov's former business partners decided to force Afremov out of the closely held corporation they had founded together, AGA Medical Corporation. In October of that year, Afremov sued in state court, seeking to regain his position with AGA. AGA, through a court-appointed receiver, retained Mark Lanterman, a computer forensic analyst, to collect, search, and deliver certain electronic files stored on hard drives, disks, and the like. At the time, Lanterman was employed by a consulting firm called Espiria. Lanterman eventually left Espiria to found his own firm, Computer Forensic Services (“CFS”), taking the AGA job with him.
In October 2005, the state court issued a sealed order that is not included in the record on appeal. According to the parties, the order discharged the receiver and provided that AGA must preserve all files relating to the civil litigation for a period of time, during which Afremov would be allowed to access them. This apparently marked the end of the initial action in state court.
In June 2006, Afremov was indicted on charges of mail fraud and conspiracy to commit mail fraud. The indictment alleged that Afremov received kickbacks from a parts supplier in exchange for committing AGA to do business with that supplier (unbeknownst to AGA's other shareholders). The federal grand jury later returned a superseding indictment that added charges of money laundering and filing false tax returns.
On April 18, 2007, Joseph Petrosinelli, one of Afremov's attorneys, sent a letter to Lanterman, informing him that Afremov intended to subpoena certain documents from the AGA civil litigation that remained in Lanterman's possession. Here is what the letter said:
One day after sending the letter, Afremov served the subpoenas. Lanterman was commanded to appear in the district court on September 10, 2007, and to bring with him the following documents:
Lanterman says he thought that Afremov had retained CFS to perform a full-blown consulting project at its ordinary rates. Lanterman allegedly had CFS staff work in shifts, twenty-four hours a day, restoring, copying, decrypting, extracting, searching, collecting, verifying, and delivering the relevant data. Lanterman has attested that CFS spent more than 1,500 hours processing the equivalent of four million printed pages of information. Afremov asserts that Lanterman ultimately turned over only about 1,200 pages of documents. Along with these documents, Lanterman sent Afremov an invoice dated June 15, 2007, which set out charges in the amount of $674,861.08, including $46,123.75 in attorney's fees. Afremov paid the portion of the invoice covering attorney's fees but refused to pay the balance.
In October 2007, Petrosinelli sent a letter to Lanterman's counsel, stating that Afremov viewed Lanterman as a “fact witness” (as opposed to an expert consultant) and offering to reimburse Lanterman for the “actual, reasonable, out-of-pocket costs he incurred in providing the requested documents.” Informal settlement negotiations between the parties were unsuccessful.
On March 3, 2008, Lanterman filed a document in the district court styled as a motion to quash the subpoenas under Rule 17 of the Federal Rules of Criminal Procedure.2 (Afremov's trial, originally set to begin in September 2007, had been rescheduled for April 2008.) Lanterman first argued that “[t]he subpoenas as served are incredibly overbroad,” and asked the district court to quash the subpoenas on that basis. Lanterman went on to assert, however, that Afremov had promised to pay for his expert consulting services in connection with the documents he was commanded to produce. Lanterman noted Afremov's refusal to pay for the work CFS had already performed and claimed that processing the rest of the data would involve “immense” effort. Although some of the language in Lanterman's briefing in the district court is imprecise, he evidently sought a declaration that the subpoenas did not require “continued performance” of the alleged contract for expert consulting services. Lanterman also asked the district court to hold Afremov and his counsel jointly and severally liable for $674,861.08, the entire amount of the June 2007 invoice. 3
Less than three weeks later, Afremov entered into a plea agreement with the Government. In accordance with that agreement, on March 19, 2008, Afremov pled guilty to three tax charges. The same day, the district court cancelled a scheduled hearing on pre-trial motions.
John Bonner, one of Lanterman's attorneys, sent a letter to the district court, dated March 20, 2008, requesting a new hearing date on the motion that Lanterman filed on March 3. Bonner observed that the motion asked the court to do two things: “(1) to quash subpoenas served by Defendant Afremov pursuant to Rule 17(c), and (2) to order Defendant Afremov and counsel to pay ... [CFS's and Lanterman's] costs in responding to the subpoenas as agreed by them [sic].” Bonner then wrote the following:
While we understand that the trial has been indefinitely postponed (if not mooted) based upon the ... plea[s] entered on March 19, we believe that the issue regarding payment of ... [CFS's and Lanterman's] costs to access, verify, process, and produce documents under the Rule 17(c) subpoenas prior to trial, as agreed to by Afremov and counsel, remains pending before the Court.
The district court referred the motion to a magistrate judge, who ordered briefing and held two hearings. After the referral, Lanterman sent Afremov a second invoice, setting out additional charges in the amount of $178,850.
On July 17, 2008, the magistrate judge submitted a report and recommendation to the district court in which she recommended finding that a contract had been made, that the charges set out in the first invoice were reasonable, and that the charges set out in the second invoice were unreasonable. Based on these findings the magistrate judge recommended ordering Afremov to pay $628,737.33, the unpaid balance of the first invoice, to CFS.4
Afremov filed objections to the report and recommendation and submitted two supplemental memoranda. In his first supplemental memorandum, Afremov introduced a new objection, arguing that the district court lacked subject matter jurisdiction over the pending motion. In particular, Afremov asserted that the only possible source of power to consider the motion was “under the limited doctrine of ancillary jurisdiction[,] ... [which] ‘recognizes federal courts' jurisdiction over some matters ...
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