United States v. Drake, 1:16CR205–2

• Court: United States District Courts. 4th Circuit. Middle District of North Carolina
• Writing for the Court: OSTEEN, JR., District Judge
• Citation: 310 F.Supp.3d 607
• Parties: UNITED STATES of America v. Shannon Michelle DRAKE, Ronald Keith Earnest, Robert Thomas Taylor
• Decision Date: 18 April 2018
• Docket Number: 1:16CR205–3,1:16CR205–2,1:16CR205–4

310 F.Supp.3d 607

UNITED STATES of America
v.
Shannon Michelle DRAKE, Ronald Keith Earnest, Robert Thomas Taylor

1:16CR205–2
1:16CR205–3
1:16CR205–4

United States District Court, M.D. North Carolina.

Signed April 18, 2018

310 F.Supp.3d 611

Frank Joseph Chut, Jr., Sandra J. Hairston, U.S. Attorney's Office, Greensboro, NC, Jeffrey A. McLellan, U.S. Dept. of Justice, Washington, DC, Matthew G.T. Martin, United States Attorney's Office, Greensboro, NC, Nathan P. Brooks, U.S. Department of Justice, Washington, DC, for Plaintiff.

Edward T. Hinson, Jr., J. Alexander Heroy, James McElroy & Diehl, P.A., Claire J. Rauscher, Thomas R. Ferguson, III, Allen T. O'Rourke, Womble Bond Dickinson (US), LLP, Charlotte, NC, Joshua Brian Howard, Gammon, Howard & Zeszotarski, PLLC, Wes J. Camden, Caitlin M. Poe, Ward and Smith, P.A., Raleigh, NC, Deborah B. Barbier, Deborah B. Barbier, LLC, Columbia, SC, James W. Bannister, Bannister Wyatt & Stalvey, LLC, Greenville, SC, for Defendant.

MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

Defendant Shannon Michelle Drake ("Drake") has filed several related pretrial motions, including a Motion for Ex Parte Hearing (Doc. 122 (joining Defendant Earnest's Motion (Doc. 115) ) ) and a Motion to Dismiss and Suppress Grand Jury Testimony (Doc. 163).¹ Defendant Drake has also joined in Defendant Earnest's motion to dismiss on Fifth Amendment grounds (Doc. 214).² Following a motions hearing, this court requested additional briefing. Defendant Drake filed a supplemental brief, (Doc. 224), to which the Government responded, (Doc. 233). Drake then filed a motion to strike the Government's Response, (Doc. 235), to which the Government responded, (Doc. 237). On April 13, 2018, a motions hearing was held at which the parties addressed the substantive issues within the supplemental briefing as well as the motion to strike. (Minute Entry 04/13/2018.) For the reasons stated herein, both of Drake's motions seeking dismissal of the indictment or suppression of her Grand Jury testimony will

310 F.Supp.3d 612

be denied and Drake's motion for an ex parte hearing will be denied as moot. Drake's motion to strike will also be denied.

I. FACTUAL BACKGROUND

In summary, it is not disputed that during the course of a criminal investigation by the United States beginning in 2012, GrandSouth Bank ("the Bank") engaged attorney Jim Medford and law firm Smith Moore Leatherwood, LLP ("Smith Moore") to represent the Bank in that investigation. At that time, Defendant Ronald Earnest ("Earnest") was President and Drake was an employee of the Bank. It is also undisputed that the Bank was subpoenaed to appear and produce records to a Grand Jury in the Middle District of North Carolina as part of that investigation. These motions by Defendant Drake are all premised upon Drake's allegation that she was represented in her individual capacity during that investigation by Smith Moore; that she was improperly induced to testify before a Grand Jury conducted in the Middle District of North Carolina; and further that she has not waived attorney-client privilege as to various documents now in the custody of the Bank. The United States is seeking production of those documents in preparation for trial.

As will be explained in more detail below, the United States and a Grand Jury in the Middle District of North Carolina were conducting an investigation into bank fraud and tax violations originating from the prior investigation and eventual prosecution of Gregory Harrison. United States v. Harrison, No. 1:10CR411–1 (M.D.N.C.). The Grand Jury issued a subpoena to the Bank seeking the production of certain records relating to this earlier investigation. Defendant Drake appeared and testified on two occasions, once in 2012 and again in 2013, in response to those subpoenas. On both occasions, the United States advised Drake and her counsel, prior to the Grand Jury and during her Grand Jury testimony, that she was neither a target nor a subject of its investigation. (Government's Consolidated Resp. to Mots. Filed by Def. Shannon Drake on June 9, 2017 ("Government's Consolidated Resp."), Ex. 1, Drake Sept. 25, 2012 Grand Jury Test. (Doc. 62–1) at 3; Government's Consolidated Resp., Ex. 2, Drake May 29, 2013 Grand Jury Test. (Doc. 62–2) at 2; Tr. of Nov. 9, 2017 Hr'g (Doc. 135) at 198.)³ The United States also specifically advised Defendant Drake that she was called as a fact witness. (Government's Consolidated Resp., Drake Sept. 25, 2012 Grand Jury Test. (Doc. 62–1) at 3; Government's Consolidated Resp., Ex. 2, Drake May 29, 2013 Grand Jury Test. (Doc. 62–2) at 2.)

As it turns out, Drake's status, at least in the two weeks prior to her second appearance, was something more complex. This order addresses three issues: (1) whether an attorney-client relationship existed between Drake and Smith Moore during 2012 and 2013 in the matter of the Grand Jury investigation; (2) whether the Government's advice to Drake, that she was neither a target nor a subject of the investigation, was accurate or whether it was misleading; and (3) if misleading, whether a remedy is appropriate in this case as a result of: (a) this court's supervisory powers over grand jury proceedings and/or (b) constitutional violations.

II. PROCEDURAL HISTORY

Drake was originally indicted on June 28, 2016. (Indictment (Doc. 1) at 1.) Subsequently, the Grand Jury returned superseding indictments, and the currently operative Superseding Indictment was returned

310 F.Supp.3d 613

on August 29, 2017. (Superseding Indictment (Doc. 85) at 1.) Various proceedings took place and this case was ultimately assigned to this court. (Order of Recusal (Doc. 110) at 2–3.) As noted above, a number of motions were filed, and on November 9, 2017, a hearing was held during which the parties presented evidence as to whether there was an attorney-client relationship between Earnest and Smith Moore and/or Drake and Smith Moore and, if so, what documents may be privileged. (Tr. of Nov. 9, 2017 Hr'g (Doc. 135) at 19–20.) Present at that hearing were the parties and their counsel; Jon Berkelhammer on behalf of Smith Moore; and Dan Boyce, Mark Moore, and Andrew Mathias on behalf of the Bank. This court overruled Smith Moore's objection as to attorney-client privilege in part and permitted the testimony of current and former Smith Moore attorneys. (Tr. of Nov. 9, 2017 Hr'g (Doc. 135) at 46–47.) This testimony was subject to specific objections raised by counsel during the hearing. (Id. ) This court did not issue a final ruling with respect to the objection as to the production of documents. (Id. at 224.) Both counsel for Smith Moore and the Bank were permitted to participate during the hearing for the purpose of lodging any objections to specific questions propounded by the parties. (Id. at 46–47.)

Defendant Earnest called as witnesses Bruce Ashley, Laura Dildine, and Stephen Petersen, all of whom were attorneys at Smith Moore during the relevant time period. The hearing was continued to February 8, 2018, at which time Defendant Earnest called as witnesses Professor Nathan Crystal and FBI Special Agent Mike Knapp. (Tr. of Feb. 8, 2018 Hr'g (Doc. 212) at 65, 181.) The United States called as a witness James B. Schwiers, the current President of the Bank. (Id. at 21.) A subsequent hearing was held on March 7, 2018, at which time Defendant Earnest called as witnesses Special Agent Mary Blackerby, Agent Kyle Myles, and Professor Nathan Crystal. (Tr. of Mar. 7, 2018 Hr'g (Doc. 248) at 3.)

In addition to the testimony and exhibits presented during the hearings, the court has also considered the attachments to pleadings not otherwise objected to by opposing counsel.

III. ANALYSIS

This court now determines (1) whether or not an attorney-client relationship existed between Drake and Smith Moore during 2012 and 2013 in the matter of the Grand Jury investigation; (2) whether the Government's advice to Drake, that she was neither a target nor a subject of the investigation, was accurate or whether it was misleading; and (3) if misleading, whether the Government's conduct requires or allows suppression of Drake's testimony or dismissal of the indictment as the result of (a) this court's supervisory powers over grand jury proceedings and/or (b) constitutional violations.

A. Whether an Attorney–Client Relationship Existed Between Drake and Smith Moore

Smith Moore represented the Bank in civil litigation involving factoring that started around 2008 and may have been resolved in early 2013. (Tr. of Nov. 9, 2017 Hr'g (Doc. 135) at 54–55.) While that civil case was pending, an individual named Bruce Gregory Harrison, III, was prosecuted and convicted in the Middle District of North Carolina, United States v. Harrison, No. 1:10CR411–1 (M.D.N.C.), apparently for tax violations that were related to transactions in which the Bank had some involvement.

On September 11, 2012, following the conviction and sentencing of Harrison, the United States issued a Grand Jury subpoena to the Bank for files related to Harrison

310 F.Supp.3d 614

...