United States v. All Funds on Deposit At , 233 F. Supp. 3d 143 ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 04-0798 (PLF)
)
ALL ASSETS HELD AT BANK JULIUS, )
Baer & Company, Ltd., Guernsey )
Branch, account number 121128, in the )
Name of Pavlo Lazarenko et al., )
)
Defendants In Rem. )
____________________________________)
MEMORANDUM OPINION AND ORDER
On November 3, 2015, Magistrate Judge G. Michael Harvey issued a
Memorandum Opinion [Dkt. 488] and Order [Dkt. 489], granting in part and denying in part
claimant Pavel Lazarenko’s motion to modify the Protective Order [Dkt. 393] he had issued on
May 29, 2015, in connection with this in rem proceeding. See United States v. All Assets Held
at Bank Julius Baer & Co., Ltd., 312 F.R.D. 16, 22 (D.D.C. 2015). On May 16, 2016, he issued
a second Memorandum and Order [Dkt. 694], granting in part and denying in part the United
States’ Cross-Motion for Reconsideration of the November 3, 2015 Order. The May 16, 2016
Memorandum and Order did not entirely displace the November 3, 2015 Memorandum Opinion
and Order. See Dkt. 694 at 7 (“[T]he same reasons given by the Court in the Protective Order
Ruling for protecting the contents of the Materials still apply.”). Magistrate Judge Harvey
vacated his May 29, 2015 Protective Order and provided that a new Protective Order should
issue with an important modification to paragraph 5. See infra at 6. He stayed both his rulings
pending the resolution of any Objections to them filed with this Court. See Dkt. 694 at
8-9.
Both Lazarenko and the United States have filed consolidated Objections to both
the November 3, 2015 Memorandum Opinion and Order and the May 16, 2016 Memorandum
and Order. See Dkts. 715, 716. Upon consideration of the parties’ papers, the relevant legal
authorities, the entire record in this case, and the arguments of counsel in open court on January
25, 2017, the Court concludes that Magistrate Judge Harvey’s decision was not clearly erroneous
or contrary to law, and it therefore overrules the objections and affirms both decisions. 1
I. FACTUAL AND PROCEDURAL BACKGROUND
This is a civil in rem action in which the United Sates seeks forfeiture of over
$250 million dollars scattered throughout bank accounts located in Antigua, Barbuda, Guernsey,
Liechtenstein, Lithuania, and Switzerland. See Amended Complaint (“Am. Compl.”) ¶ 1. This
Court’s prior opinions summarize the procedural history of this case, starting with the criminal
prosecution of Lazarenko, and continuing through this civil forfeiture proceeding. See, e.g.,
United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 571 F. Supp. 2d 1, 3-6 (D.D.C.
2008); United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F. Supp. 2d 81,
84-94 (D.D.C. 2013); United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 307
1
The documents reviewed by the Court in resolving the pending motion include the
following: Amended Complaint [Dkt. 20]; Protective Order [Dkt. 393]; Claimant’s Motion to
Modify the Protective Order [Dkt. 444]; Supplemental Reply and Objection to Plaintiff’s Use of
Claimant’s 2002 Proffer Statements [Dkt. 517]; United States’ Objection [Dkt. 715]; Claimant
Pavel Lazarenko’s Objection [Dkt. 716]; United States’ Response to Claimant Pavel Lazarenko’s
Objection [Dkt. 735]; Claimant Pavel Lazarenko’s Opposition to United States’ Objection [Dkt.
747]; United States’ Reply in Support of its Objection [Dkt. 748]; United States’ Surreply in
Response to Claimant Pavel Lazarenko’s Supplemental Reply and Objections to the Use of
Claimant’s 2002 Proffer Statements [Dkt. 867].
2
F.R.D. 249, 250-51 (D.D.C. 2014). In brief, Lazarenko is “a prominent Ukrainian politician
who, with the aid of various associates, was ‘able to acquire hundreds of millions of United
States dollars through a variety of acts of fraud, extortion, bribery, misappropriation and/or
embezzlement’ committed during the 1990s.” United States v. All Assets Held at Bank Julius
Baer & Co., Ltd., 959 F. Supp. 2d at 85 (quoting Am. Compl. ¶¶ 1, 10). Magistrate Judge
Harvey has been managing all discovery in this case for nearly two years.
In his November 3, 2015 Memorandum Opinion, Magistrate Judge Harvey
addressed Lazarenko’s arguments for modifying the Protective Order. He first explained why he
concluded that Lazarenko may not assert his Fifth Amendment privilege against self-
incrimination as a basis for modification of the Protective Order. See United States v. All Assets
Held at Bank Julius Baer & Co., Ltd., 312 F.R.D. at 19-21. 2 He then turned to the question of
whether Lazarenko nevertheless has an interest in the confidentiality of certain materials,
materials which Magistrate Judge Harvey referred to throughout both opinions as “Confidential
Materials.” See id. at 21-22. The “Confidential Materials” are those materials Lazarenko
identified in paragraphs 2 through 5 of his September 3, 2015 Motion to Modify the Protective
Order. See Dkt. 444 at 2-3.
Preliminarily, for reasons explained infra at 5, 8, it is no longer necessary to
maintain the cryptic designation “Confidential Materials,” and it will be easier to describe them
in this Memorandum Opinion and going forward in this litigation as what they are. There are
essentially two kinds of materials addressed by Magistrate Judge Harvey in his two Opinions:
(1) proffer letter agreements entered into between Lazarenko and the United States Attorney’s
2
Neither party objects to this ruling.
3
Office for the Northern District of California in 2000 and 2002; and (2) any statements that may
have been made to agents of the United States government pursuant to those proffer letters.
Lazarenko already disclosed on the public docket in this case both the existence
and the contents of the 2000 proffer letter agreement when he filed it as an exhibit to his motion
to modify the protective order on September 1, 2015. See Dkt. 441-2. Likewise, Lazarenko’s
then-attorney, Doron Weinberg, revealed the existence of the May 13, 2002 proffer letter
agreement — but not the proffer letter agreement itself — in a March 11, 2007 declaration filed
in a related case in the U.S. District Court for the Northern District of California, Universal
Trading & Inv. Co. v. Kritchenko, N.D. Cal. No. 99-3073. See Dkt. 553-2 at 2. Mr. Weinberg’s
declaration states that “a proffer agreement was entered into on May 13, 2002 between the
United States” and Lazarenko, and that Lazarenko’s “statements [] to the U.S. government . . .
were provided pursuant to proffer agreements.” Id. A published opinion in that same case also
references Lazarenko’s “proffer agreement.” Universal Trading & Inv. Co. v. Kritchenko, 2007
WL 1674013, at *1 (N.D. Cal. 2007). The language of all of the proffer letter agreements
provided to Magistrate Judge Harvey and to this Court is virtually identical. By contrast, the
contents of any proffer statements made by Mr. Lazarenko pursuant to these agreements — if
any — are not a matter of public record, and Magistrate Judge Harvey’s opinions would provide
further protection for them. See Dkt. 694 at 7-8.
In his November 3, 2015 Memorandum Opinion [Dkt. 488], Magistrate Judge
Harvey found that Lazarenko has an “equitable, non-contractual interest” in the confidentiality of
the proffer letter agreements and in the proffers and a valid interest in not disclosing them
publicly, “at least until trial of this matter.” United States v. All Assets Held at Bank Julius Baer
& Co., Ltd., 312 F.R.D. at 22. Magistrate Judge Harvey also found that there would be no undue
4
prejudice to the government imposed by Lazarenko’s proposed modification to the Protective
Order, so long as the government could make “derivative use of the [proffer letter agreements
and proffer statements] in discovery [and] provided that the government does not disclose the
source of that information.” Id.
In his May 18, 2016 Memorandum and Order [Dkt. 694] addressing Lazarenko’s
motion to compel further redactions in several of the government’s filings, Magistrate Judge
Harvey agreed with the United States that the existence of the proffer letter agreements was
already a matter of public record and that their existence need not be protected. See Dkt. 694 at
5. He stated:
Claimant has allowed the fact of the creation of the Confidential Materials to be
publicly disclosed in several discrete instances. Claimant cannot now argue that it
is equitable to require more redactions to filings in this case in order to protect
information which he himself has already publicly disclosed. In fact, in his reply
in support of his objection to the Protective Order Ruling, Claimant addressed the
government’s newly found evidence and all but concedes that the fact of the
creation of the Confidential Materials is public, although he continues to
vigorously defend the confidentiality of the Materials’ contents. Therefore,
Claimant has not established good cause for his requested further modification of
the protective order.
Id. (internal citations omitted) (emphasis in original). By contrast, Magistrate Judge Harvey
found that plaintiff had provided no evidence that the contents of the Confidential Materials —
that is, the proffer statements themselves (if any) — had been publicly disclosed. He therefore
rejected the assertion of the United States that “a reader who knows of the creation of them
would be able to divine their contents.” Id. at 7. As a result, he concluded that “the same
reasons given by the Court in the [November 3, 2015] Protective Order ruling in protecting the
contents of the materials still apply.” Id.
In his May 18, 2016 Memorandum and Order, Magistrate Judge Harvey also
concluded that Lazarenko’s safety concerns were overblown and that the unredacted descriptions
5
of the contents of the proffer letter agreements in his own orders and in the government’s filings
were sufficiently general and indeterminate that they provide no basis for sealing on the basis of
Lazarenko’s personal safety. See Dkt. 694 at 4-5. Like this Court, Magistrate Judge Harvey
again expressed his concern and frustration with the unwarranted extent of the sealing and
redactions in this case by Lazarenko and expressed his conviction that the need for redactions
would decrease dramatically following his May 18, 2016 ruling. Id. at 7-8. He noted that “the
majority of the redactions that have consumed the parties’ time and effort in this case has been
caused by the Court’s decision to protect the fact of the creation of the Confidential Materials,”
and that “protecting the contents of the Confidential Materials has not created an undue burden
for the parties.” Id. at 8 (emphasis added). Now that the existence and language of the proffer
letter agreements is a matter of public record, fewer documents will need to be filed under seal
and many fewer redactions will be permitted. See Memorandum Opinion and Order at 1 (Sept.
29, 2015) [Dkt. 462] (“Sealed court proceedings are inconsistent with this country’s strong
tradition of access to judicial proceedings. . . . [T]he courts are not intended to be, nor should
they be, secretive places for the resolution of secret disputes.”) (internal citation and quotation
marks omitted). This case can and should be open to the public to the greatest extent possible.
On the basis of his analysis and conclusions, Magistrate Judge Harvey vacated the
May 29, 2015 Protective Order [Dkt. 393] and directed that a new Protective Order shall issue
that will include the following additional sentence at the end of paragraph 5:
Notwithstanding the foregoing, plaintiff may make derivative use, and only
derivative use, of the “Confidential Materials,” or those documents identified in
numbered paragraphs 2-5 on pages 2-3 of Claimant’s motion to modify the
protective order [Dkt. 444], subject to the restriction that plaintiff may not
disclose the source of the Confidential Materials to any foreign government or
any agent or representative thereof.
Dkt. 694 at 8.
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II. STANDARD OF REVIEW
A party may seek review of a magistrate judge’s decision in a discovery dispute
by filing an Objection pursuant to Rule 72 of the Federal Rules of Civil Procedure. A magistrate
judge’s determination in a non-dispositive matter such as a discovery dispute is entitled to “great
deference,” and the Court will set it aside only if it is “clearly erroneous or contrary to law.”
FED. R. CIV. P. 72(a); see also LOC. CIV. R. 72.2(c); Beale v. District of Columbia, 545 F. Supp.
2d 8, 13 (D.D.C. 2008). The district court reviews Objections to the magistrate judge’s factual
findings or discretionary decisions for clear error. Am. Ctr. for Civil Justice v. Ambush, 794 F.
Supp. 2d 123, 129 (D.D.C. 2011). Under this standard, the Court will affirm the magistrate
judge’s factual findings or discretionary decisions unless the court “is left with the definite and
firm conviction that a mistake has been committed.” Neuder v. Batelle Pac. Nw. Nat’l Lab., 194
F.R.D. 289, 292 (D.D.C. 2000) (quoting United States v. United States Gypsum Co., 333 U.S.
364, 365 (1948)). By contrast, the “contrary to law” standard requires the Court to review the
magistrate judge’s legal conclusions — including any asserted misapplication of the relevant
statutes, case law, and rules of procedures — de novo. Intex. Rec. Corp. v. Team Worldwide
Corp., 42 F. Supp. 3d 80, 86 (D.D.C. 2013); see Am. Ctr. for Civil Justice v. Ambush, 794 F.
Supp. 2d at 129.
III. DISCUSSION
The Court concludes that Magistrate Judge Harvey correctly articulated the
applicable legal principles and that the decisions and analysis sets forth in his November 13,
2015 Memorandum Opinion [Dkt. 488], as modified by his Memorandum and Order of May 18,
2016 [Dkt. 694], were not clearly erroneous or contrary to law. Therefore, both Lazarenko’s
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Objections to Magistrate Judge Harvey’s decisions [Dkt. 716] and the United States’ Objections
[Dkt. 715] will be overruled, and the Court will affirm Judge Harvey’s Memorandum Opinions
and Orders of November 3, 2015 and May 18, 2016.
As already explained, supra at 4, there is no merit to Lazarenko’s argument that
either the existence or the content of the proffer letter agreements of 2000 or 2002 should be
protected. 3 There is no reason why the government should not be permitted to discuss the
existence of the proffer letter agreements or to disclose their contents in its public filings in this
case. This Court’s decision in Blanton v. United States Dep’t of Justice, 63 F. Supp. 2d 35(D.D.C. 1999), is inapposite. The Court also agrees with the United States that Lazarenko
cannot use the proffer letter agreements “to shield himself from providing discovery responses in
the instant matter.” Dkt. 735 at 3. As for the proffer statements, if any, Lazarenko can answer
discovery without relying directly on his proffer statements and can respond truthfully to all
discovery requests, interrogatories, requests for admission, and deposition questions without
disclosing his proffers statements, if any, in haec verba. Nothing in the proffer letter agreements
limits either his ability to respond to discovery or the United States’ ability to make derivative
use of Lazarenko’s proffer statements, if any, in propounding questions to Lazarenko or any
other witness, so long as the United States does not disclose the source of its information to
certain foreign governments or any agent or representative thereof. The Court also agrees with
Magistrate Judge Harvey that Lazarenko’s alleged safety concerns are not a legitimate basis for
his requested modifications to the Protective Order to seal references to his alleged safety
concerns or to the existence and contents of the proffer letter agreements.
3
At oral argument before this Court, Lazarenko withdrew his argument with
respect to the 1999 and 2000 proffer letter agreements, but maintained his position with respect
to the 2002 proffer letter agreements.
8
As for the United States’ objections to Magistrate Judge Harvey’s decisions [Dkt.
715], the Court understands Magistrate Judge Harvey’s reluctance to find that the proffer letter
agreements constitute contractual agreements to protect for all time and for all purposes the
contents of any statements Lazarenko may have made pursuant to the proffer letter agreements.
He relied instead on a so-called “equitable, non-contractual interest” in the confidentiality of the
proffers. 4 The United States criticizes Magistrate Judge Harvey for relying on footnote 21 in the
Supreme Court’s decision in Seattle Times Co. v. Rinehart, 467 U.S. 20 (1984). Id. at 35 n.21.
It argues that his ruling was contrary to Rule 26 of the Federal Rules of Civil Procedure and
existing case law, including Seattle Times, and that Magistrate Judge Harvey incorrectly relied
on Rule 26 and the Supreme Court’s footnote to impose limitations on how the United States
may use its own records that existed prior to the institution of this litigation. See Dkt. 715 at 15.
The Court disagrees. Nothing in Seattle Times limits the “equitable powers of courts of law over
their own process, to prevent abuses, oppression, and injustices.” 467 U.S. at 35. The provision
for protective orders in Rule 26 confers “broad discretion on the trial court to decide when a
protective order is appropriate and what degree of protection is required.” Id. at 36; see, e.g.,
FED. R. CIV. P. 26(c)(1)(A), (D), (F). Magistrate Judge Harvey’s analysis was not clearly
erroneous or contrary to law.
4
This Court might have employed a different analysis, as it believes the language
of the proffer letter agreements permits the use of the proffer statements (if any) in discovery and
at trial, while at the same time clearly precluding the United States from sharing any statements
or other information that may have been made or provided by Lazarenko with certain foreign
governments. See also Tr. Sept. 8, 2015 at 37-38, 42-44 (statements of Magistrate Judge
Harvey) (on file with Court). It appears to this Court that neither the contractual agreements —
that is, the proffer letter agreements — nor Rule 410(a)(4) of the Federal Rules of Evidence is a
bar to their use either in discovery or at trial. Judge Gladys Kessler’s opinion in S.E.C. v.
Johnson, 534 F. Supp. 2d 63 (D.D.C. 2008), is not to the contrary, as there the parties were
engaged in plea negotiations at the time of the proffers; here, as the letter agreements make plain,
they were not.
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The Court also agrees with Magistrate Judge Harvey that there is no prejudice or
undue burden on the United States in restricting its use of Lazarenko’s proffer statements to
derivative use and by preventing the government from disclosing Lazarenko as the source of
information when it interviews or deposes witnesses or communicates with foreign governments.
IV. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that the United States’ Objections [Dkt. 715] are OVERRULED; it is
FURTHER ORDERED that claimant Pavel Lazarenko’s Objections [Dkt. 716]
are OVERRULED; it is
FURTHER ORDERED that the Court AFFIRMS Magistrate Judge Harvey’s
November 3, 2015 Memorandum Opinion [Dkt. 488] and Order [Dkt. 489], as well as his May
18, 2016 Memorandum and Order [Dkt. 694]; and it is
FURTHER ORDERED that the Protective Order [Dkt. 393] is VACATED. A
new protective order shall issue that will include the following additional sentence or some
variant thereof at the end of paragraph 5:
Notwithstanding the foregoing, plaintiff may make derivative use, and only
derivative use, of the “Confidential Materials,” or those documents identified in
numbered paragraphs 2-5 on pages 2-3 of Claimant’s motion to modify the
protective order [Dkt. 444], subject to the restriction that plaintiff may not
disclose the source of the Confidential Materials to any foreign government or
any agent or representative thereof.
SO ORDERED.
/s/
PAUL L. FRIEDMAN
United States District Judge
DATE: February 2, 2017
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