United States v. Under Seal ( 1999 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: GRAND JURY SUBPOENA
UNDER SEAL; UNDER SEAL 2,
Petitioners-Appellees, No. 98-4841
v.
UNITED STATES OF AMERICA,
Respondent-Appellant.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Chief District Judge.
(MISC-98-92-MU)
Argued: March 3, 1999
Decided: April 29, 1999
Before ERVIN, HAMILTON, and LUTTIG, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Luttig wrote the opinion, in
which Judge Ervin and Judge Hamilton joined.
_________________________________________________________________
COUNSEL
ARGUED: David S. Kris, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellant. Thomas Louis Patten,
LATHAM & WATKINS, Washington, D.C.; E. Fitzgerald Parnell,
III, POYNER & SPRUILL, L.L.P., Charlotte, North Carolina, for
Appellees. ON BRIEF: Faith S. Hochberg, United States Attorney,
Mark R. Winston, Assistant United States Attorney, Mark T. Cal-
loway, United States Attorney, Frank D. Whitney, Assistant United
States Attorney, Brian L. Whisler, Assistant United States Attorney,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellant. Jennifer C. Archie, LATHAM & WATKINS,
Washington, D.C., for Appellees.
_________________________________________________________________
OPINION
LUTTIG, Circuit Judge:
The United States appeals a decision by the federal district court
to quash a subpoena in an ongoing criminal investigation on the
ground that the sole purpose of the subpoena was to obtain discovery
for a parallel civil qui tam proceeding. Because the district court's
findings as to the purpose of the subpoena were not clearly erroneous,
we affirm.
I.
This case involves allegations of potentially fraudulent pricing
practices by Baker & Taylor, Incorporated (B&T), the nation's largest
wholesale bookseller. On June 1, 1995, two private parties -- Ronald
Thornburg, a former employee of B&T, and Robert Costa, a public
librarian in Richmond, Virginia1-- filed a sealed qui tam civil com-
plaint in the United States District Court for the Northern District of
California against B&T and its former corporate parent, W.R. Grace
& Company - Connecticut ("Grace"), alleging that B&T fraudulently
overcharged institutional customers, including federally funded
libraries, in violation of the civil provisions of the False Claims Act.
See United States ex rel. Costa v. Baker & Taylor, Inc., 955 F. Supp.
1188, 1189 (N.D. Cal. 1997). From the date of filing until January
_________________________________________________________________
1 Thornburg has since been dismissed from the case, leaving only Costa
as relator in the qui tam action. SeeUnited States ex rel. Costa v. Baker
& Taylor, Inc., No. C-95-1825-VRW, 1998 WL 230979, at *4 (N.D. Cal.
March 20, 1998).
2
1997, the government conducted an investigation under seal to deter-
mine whether or not to intervene in the action, during which the gov-
ernment amassed thousands of documents and interviewed numerous
witnesses. The investigation was spearheaded by Dee Lord, a lawyer
in the Commercial Litigation Branch of the Civil Division of the
Department of Justice, and Marty McGuire, a special agent in the
Defense Criminal Investigative Service (DCIS), a branch of the
Office of the Inspector General at the Department of Defense. In Jan-
uary 1997, after the district court decided to lift the seal on the com-
plaint, the government formally intervened in the case.
On February 8, 1996, the Department of Justice asked DCIS to
commence a criminal investigation against B&T to determine whether
B&T's allegedly fraudulent pricing practices violated any federal
criminal statutes. Between May 1996 and August 1998, officials
working on the civil case intermittently met with their counterparts on
the criminal case. Notably, McGuire participated in the criminal
investigation, as well as the civil investigation. During this period,
however, little progress was made on the criminal case, and indeed
the statute of limitations appears to have run on a number of potential
criminal charges. In early 1998, Mark Winston, Assistant United
States Attorney for the District of New Jersey, took over as the prose-
cutor responsible for the criminal case. He was assisted by Frank
Whitney, Assistant United States Attorney for the Western District of
North Carolina.2
In July 1998, the government issued a subpoena in the civil case
against Gerald Garbacz, president of B&T. Attached to the subpoena
was a request for a list of records relating to B&T's billing practices,
designated as "Attachment A." On July 31, 1998, B&T and Grace
objected to this subpoena and requested that discovery be stayed. The
district court scheduled a telephone hearing for August 6, 1998, in
order to rule on the objection.
Events in the civil and criminal cases came to a head on August 6.
On the morning of August 6, members of the civil and criminal teams,
_________________________________________________________________
2 The criminal investigation proceeded simultaneously in New Jersey
and North Carolina because B&T maintained corporate offices in both
locations.
3
including Lord, McGuire, and Winston, met in Washington to
exchange information and discuss how to proceed in the criminal case.3
That afternoon, during the scheduled telephone conference in the civil
case -- in which Lord participated -- the district court granted B&T
and Grace's request to stay discovery in that case, pending the resolu-
tion of various motions by states to intervene as plaintiffs.4
With discovery in the civil case stayed, members of the criminal
team, including Whitney and McGuire, met on August 26 and decided
to begin using a grand jury to assist in the criminal investigation. On
September 11, Whitney directed McGuire to prepare a criminal sub-
poena for Thomas Neblett, a B&T salesman with responsibility for
sales to schools and libraries. In preparing the subpoena, McGuire
attached a photocopy of Attachment A, the same list of documents
that he had attached to the Garbacz subpoena in the civil case. The
subpoena was issued on September 16 and duly served. No other
criminal subpoenas were served.
Upon learning about the Neblett subpoena, counsel for Grace con-
tacted Lord on October 7 and informed her of Grace's intention to
seek sanctions against the government for its allegedly improper use
of a criminal subpoena to obtain discovery for a civil case. On Octo-
ber 8, the day after she learned that Grace knew about the subpoena,
Lord wrote to McGuire recommending that he be "walled off" from
any further involvement in the civil proceedings. On October 19,
B&T and Grace filed motions in the United States District Court for
the Western District of North Carolina to intervene in the criminal
grand jury proceedings and to quash the Neblett subpoena. The dis-
trict court granted both motions, but permitted the government to
reapply for the subpoena once the stay in the civil proceeding was
lifted.
The government then moved to unseal the pleadings in the criminal
case in order to allow officials from the civil team to review the alle-
gations of misconduct against them. After the district court granted
_________________________________________________________________
3 Whitney participated in the meeting by telephone.
4 The district court has yet to rule on the motions to intervene, and the
stay therefore remains in force.
4
the motion, the government then moved for reconsideration of the dis-
trict court's order quashing the subpoena, attaching affidavits from
Lord, McGuire, Winston, and Whitney, in which they testified that
members of the civil team did not know about, and were not involved
in, the decision to issue the subpoena. The district court denied the
motion. From the district court's original order quashing the subpoena
and its subsequent order denying the motion for reconsideration, the
government now appeals.
II.
As a preliminary matter, we must dispose of appellee's motion to
dismiss for lack of subject matter jurisdiction. Although we have fre-
quently reviewed district court orders quashing subpoenas, see, e.g.,
In re Grand Jury Proceedings No. 92-4, 42 F.3d 876, 877 (4th Cir.
1994); United States v. Under Seal, 757 F.2d 600, 602 (4th Cir.
1985); United States v. Under Seal, 745 F.2d 834, 835 (4th Cir.
1984), vacated on other grounds sub nom. United States v. Doe, 471
U.S. 1001 (1985); United States v. Under Seal, 714 F.2d 347, 348
(4th Cir. 1983), we have never discussed the source of our jurisdiction
to do so, except in the 1984 Under Seal case, and then only in a one-
sentence footnote. There, we stated simply that"[o]ur jurisdiction is
based on 18 U.S.C. § 3731," without further elaboration. Under Seal,
745 F.2d at 835 n.1.
Appellant contends that jurisdiction lies on two independent
grounds: 18 U.S.C. § 3731, which provides jurisdiction for appeals by
the United States from district court orders suppressing or excluding
evidence in criminal proceedings, and 28 U.S.C.§ 1291, which pro-
vides jurisdiction generally for appeals from final district court deci-
sions.
We begin with 18 U.S.C. § 3731. In relevant part, the statute reads:
An appeal by the United States shall lie to a court of appeals
from a decision or order of a district court suppressing or
excluding evidence or requiring the return of seized property
in a criminal proceeding, not made after the defendant has
been put in jeopardy and before the verdict or finding on an
indictment or information, if the United States attorney cer-
5
tifies to the district court that the appeal is not taken for the
purpose of delay and that the evidence is a substantial proof
of a fact material in the proceeding.
18 U.S.C. § 3731.5 In candor, given the text of section 3731, we are
less than convinced that this provision was actually intended to afford
appellate jurisdiction to review an order quashing a grand jury sub-
poena. First, the phrase "a decision or order of a district court sup-
pressing or excluding evidence," is most naturally (even if not
exclusively) understood as an order in either a post-indictment, pre-
trial proceeding or the trial itself; that is, we do not often refer to the
"suppression" or "exclusion" of evidence from a grand jury -- indeed,
we do not even often have the occasion to do so. Second, the provi-
sion seems to presuppose (even if not necessarily so) a post-
indictment decision, through its limitation to orders entered prior to
the time that "the defendant" has been put in jeopardy, because, of
course, only as to post-indictment orders is there a"defendant."
Finally, that the United States Attorney must certify both "that the
appeal is not taken for the purpose of delay" and"that the evidence
is a substantial proof of a fact material in the proceeding" further
tends to confirm that the statute was intended to afford an appeal right
only from trial-related and actual trial orders, because these are
requirements that seem to have little or no relevance in the context of
a grand jury proceeding.
However, while we harbor doubts as to whether Congress intended
section 3731 to extend to appeals from orders quashing grand jury
proceedings, there is no question that, even though it was conclusory,
our footnote statement in Under Seal that section 3731 provided juris-
diction to review the order quashing the subpoena in that case consti-
_________________________________________________________________
5 Appellant alternatively contends that jurisdiction lies under a different
provision of 18 U.S.C. § 3731, which grants jurisdiction over any appeal
from a district court order "dismissing an indictment or information,"
without any certification requirement. Appellant contends that the district
court's order quashing the subpoena would effectively render it impossi-
ble to obtain an indictment against B&T. Even assuming that this is the
case, we do not believe that this provision of section 3731 can be read
to extend to cases in which the mere effect of a district court order is to
render it impossible to obtain an indictment.
6
tuted a holding of the court. Moreover, albeit also without an
extended discussion of the statutory text, our sister circuits that have
considered the issue have come to the same conclusion concerning the
reach of section 3731. See, e.g., In re Grand Jury Subpoena Duces
Tecum, 112 F.3d 910, 914 (8th Cir.), cert . denied sub nom. Office of
President v. Office of Independent Counsel , 521 U.S. 1105 (1997); In
re Kiefaber, 774 F.2d 969, 972-73 (9th Cir. 1985), vacated on other
grounds, 823 F.2d 383 (9th Cir. 1987); In the Matter of Grand Jury
Empanelled February 14, 1978, 597 F.2d 851, 854-55 (3d Cir. 1979).
Therefore, bound by our decision in Under Seal , we conclude that
jurisdiction does lie under section 3731 to review the district court's
order in this case.6
Notwithstanding the textual uncertainties in extending section 3731
to appeals from orders quashing subpoenas in grand jury proceedings,
appellee does not really dispute that jurisdiction to review such orders
ordinarily lies under section 3731. Instead, appellee makes the more
circumscribed argument that jurisdiction should not lie in this particu-
lar case because appellant failed to obtain a timely certification from
the district court. Appellee appears to contend that appellant should
have filed its request for certification at least within the 30-day period
specified for filing a notice of appeal, if not before filing the actual
notice of appeal itself. The certification requirement in section 3731,
however, is discretionary, not jurisdictional. See, e.g., United States
v. Salisbury, 158 F.3d 1204, 1206 (11th Cir. 1998); United States v.
Bailey, 136 F.3d 1160, 1163 (7th Cir. 1998); United States v. Smith,
135 F.3d 963, 967-68 (5th Cir. 1998); United States v. Shareef, 100
F.3d 1491, 1499 n.2 (10th Cir. 1996); United States v. Becker, 929
F.2d 442, 444-45 (9th Cir. 1991). And, in weighing the equities in this
case, we find it dispositive that appellee suffered no prejudice from
_________________________________________________________________
6 Appellee argues that, even if jurisdiction is generally appropriate
under section 3731, jurisdiction is inappropriate in this case because the
district court's order quashing the subpoena was effectively only "tempo-
rary," leaving open the possibility that appellant could seek the subpoena
again after the stay in discovery in the civil case was lifted. Whether or
not the district court's order was effectively "temporary," however, is not
relevant to the question whether the district court's order -- however
"temporary" -- is an "order . . . suppressing or excluding evidence . . .
in a criminal proceeding" for purposes of 18 U.S.C. § 3731.
7
any delay by appellant in obtaining a timely certification. To the con-
trary, appellant filed its request for certification only two weeks after
the period for filing a notice of appeal had elapsed, and appellant in
fact had already moved for an expedited appeal. Consequently, we
agree with appellant that our exercise of jurisdiction under section
3731 is appropriate despite appellant's failure to obtain a timely certi-
fication, and therefore deny appellee's motion to dismiss.7
III.
Turning to the merits of the dispute, we begin by reviewing the dis-
trict court's finding that appellant sought the subpoena in the criminal
proceeding for the purpose of obtaining discovery for the civil pro-
ceeding. As both parties agree, a government prosecutor is barred,
absent judicial approval, from sharing grand jury material with gov-
ernment civil attorneys. See Fed. R. Crim. P. 6(e)(2); United States
v. Sells Eng'g, Inc., 463 U.S. 418, 435 (1983). As both parties also
agree, we review the district court's finding regarding appellant's pur-
pose in seeking the subpoena for clear error. See, e.g., United States
v. Moss, 756 F.2d 329, 332 (4th Cir. 1985); see generally United
States v. United States Gypsum Co., 333 U.S. 364, 395 (1948) (elabo-
rating on clear error standard).
The district court based its finding that appellant was engaging in
a "thinly-veiled effort to circumvent" the civil discovery stay on
essentially three grounds. J.A. at 280. First, the district court reasoned
that it was more than "merely a coincidence" that the civil and crimi-
nal attorneys conferred on the same day as the judge in the civil case
was scheduled to consider the civil discovery stay issue and actually
did stay discovery, thus raising the inference that, during the confer-
ence, the attorneys agreed to circumvent any stay in the civil case by
means of a grand jury investigation in the criminal case. Id. Second,
the district court concluded that McGuire, the DCIS investigator, had
not been "walled off" from the civil case. Id. Third, the district court
reasoned that it was again more than "merely a coincidence" that the
records sought in the criminal subpoena -- as listed in Attachment A
_________________________________________________________________
7 Because we conclude that jurisdiction lies under 18 U.S.C. § 3731, we
need not reach the issue of whether jurisdiction alternatively lies under
28 U.S.C. § 1291.
8
-- were identical to those sought in the earlier civil subpoena, again
raising the inference that the purpose of the criminal subpoena was to
obtain evidence for the civil case. See id.
Although appellant challenges each of these grounds for the district
court's finding, we conclude that these grounds, even if insufficient
to do so individually, provide sufficient support for the district court's
finding when taken as a whole to render the finding not clearly erro-
neous. Regarding the district court's conclusion concerning the timing
of the conference between the civil and criminal attorneys, appellant
contends that the civil and criminal attorneys could not possibly have
agreed to circumvent the civil discovery stay during the course of
their conference because the conference occurred earlier in the day
than the conference in which the discovery stay was issued. This
argument fails, however, because the mere fact that the conference of
the civil and criminal attorneys occurred first is not necessarily dispo-
sitive: although the attorneys did not know for certain that discovery
would be stayed at the time of their conference, they knew that a
motion to stay discovery would be discussed in the subsequent con-
ference, and therefore knew that there was a possibility that a stay
would issue later that day. Appellant further contends that the confer-
ence between the civil and criminal attorneys was scheduled before
the conference in which the civil discovery stay was issued was
scheduled. This argument, however, is not necessarily dispositive
either: although the fact that the morning conference was scheduled
first would suggest that, at the time it was scheduled, there may have
been no intention to discuss the effects of a potential civil discovery
stay during that conference, it does not negate the possibility that, the
afternoon conference having been scheduled, the civil and criminal
attorneys did discuss the effects of a potential civil discovery stay in
the course of the morning conference. The district court's inference
that the civil and criminal attorneys agreed to circumvent a potential
stay in the civil proceeding during their conference was therefore not
implausible, even if it was not compelled.
Regarding the district court's conclusion concerning the "walling
off" of McGuire, appellant points to Lord's letter to McGuire of Octo-
ber 8, 1998, which it says unequivocally indicates that McGuire had
in fact been "walled off." We reject this argument, however, for the
simple reason that, by October 8, 1998, it was too late for McGuire
9
to be walled off because the subpoena had already issued. The gov-
ernment introduced no evidence to suggest that McGuire was walled
off before the subpoena had issued. Indeed, it appears that, as early
as May 1996, an Assistant United States Attorney assigned to the
criminal case, Alain Leibman, requested that McGuire be walled off,
but that this request was never acted upon. See J.A. at 197. Because
it was reasonable for the district court not to credit Lord's post hoc
letter to McGuire as evidence that McGuire had previously been
walled off from involvement in the civil investigation, it was also rea-
sonable for the district court to conclude that McGuire had not prop-
erly been walled off.
Finally, regarding the district court's conclusion concerning the
identity of the records sought in the criminal subpoena and those
sought in an earlier civil subpoena, appellant contends that this iden-
tity was not surprising because the civil and criminal investigations
involved the same underlying conduct. This contention, however, is
somewhat, if not entirely, inaccurate. Because the statute of limita-
tions had apparently run on a number of the potential criminal
charges, the criminal investigation was focused solely on whether
B&T's conduct violated the Major Fraud Act, 18 U.S.C. § 1031,
which prohibits fraud involving federal contracts valued in excess of
$1 million.8 The civil investigation, by contrast, focused more gener-
ally on whether B&T had fraudulently overcharged institutional cus-
tomers, including federally funded libraries. Attachment A requested
documents regarding B&T's sales practices not just with respect to
government customers -- which would have fallen within the scope
of the criminal investigation -- but also with respect to school and
library customers -- which could only have been relevant to the civil
investigation. See J.A. at 72 (Attachment A). In view of the fact that
appellant used the same attachment in the criminal subpoena despite
the fact that some of the documents being sought were evidently rele-
vant only to the civil investigation, the district court was not unrea-
sonable in concluding that appellant used an identical attachment for
the purpose of circumventing the civil discovery stay.
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8 The Major Fraud Act, unlike various other criminal statutes, has a
seven-year, rather than a five-year, statute of limitations. See 18 U.S.C.
§ 1031(f).
10
Taking these three grounds for the district court's finding -- at
least in the aggregate -- we cannot conclude that the district court's
finding that appellant sought the subpoena in the criminal proceeding
for the purpose of obtaining discovery for the civil proceeding was
clearly erroneous.
In addition to contending that the district court erred in its original
order quashing the subpoena, appellant alternatively contends that the
district court erred in denying appellant's motion for reconsideration,
which was submitted together with affidavits in which various mem-
bers of the civil and criminal teams testified that members of the civil
team did not participate in the decision to issue the subpoena.9 Having
reviewed the affidavits, however, we conclude that the district court
did not clearly err by effectively discounting the affidavits in its order
denying the motion for reconsideration, in light of the evidence dis-
cussed in its original order. Accordingly, because we conclude that
the district court did not clearly err by leaving its initial finding undis-
turbed even after taking into account the evidence introduced together
with the motion for reconsideration, we affirm the district court's
order denying the motion for reconsideration.
IV.
Appellant alternatively contends that, even if the subpoena in the
criminal proceeding was being sought for the purpose of obtaining
discovery for the civil proceeding, the district court should not have
quashed the subpoena because the subpoena was also being used for
the legitimate purpose of obtaining information relevant to the crimi-
nal proceeding. We disagree.
A district court retains the power to quash a subpoena whenever
"compliance [with the subpoena] would be unreasonable or oppres-
_________________________________________________________________
9 For purposes of this discussion, we assume that the district court did
not consider the affidavits in its original written order quashing the sub-
poena, despite the fact that the motion for reconsideration appears to
have been filed just before the written order actually issued. To the
extent that it did consider the affidavits, however, our ultimate conclu-
sion that the district court did not clearly err by refusing to credit the affi-
davits is unaffected.
11
sive." Fed. R. Crim. P. 17(c). A subpoena will ordinarily issue when-
ever there is a "reasonable possibility that the category of materials
the Government seeks will produce information relevant to the gen-
eral subject of the grand jury's investigation." United States v. R.
Enters., Inc., 498 U.S. 292, 301 (1991). When such a showing of rele-
vance can be made, a subpoena will issue even if the subpoena is also
being sought for another, illegitimate purpose. 10 See Under Seal, 714
F.2d at 350 ("Once it is shown that a subpoena might aid the grand
jury in its investigation, it is generally recognized that the subpoena
should issue even though there is also a possibility that the prosecutor
will use it for some purpose other than obtaining evidence for the
grand jury.").11 A subpoena should therefore only be quashed when
the illegitimate purpose is the "sole or dominant purpose of seeking
the evidence." Id.12
In this case, the district court found only that the government was
"attempting . . . to use the criminal process of the grand jury subpoena
to obtain documents for use in the California civil action"; the court
made no finding that the Neblett subpoena would produce informa-
tion relevant to what, in fact, it described as a"moribund" criminal
investigation. J.A. at 280. Based on the record before us, we cannot
conclude that the district court's essential finding that the government
sought the criminal subpoena solely for the purpose of obtaining evi-
dence for the civil proceeding was clearly erroneous. As noted above,
many of the documents sought in Attachment A related to B&T's
sales to school and library customers, which could only have been rel-
_________________________________________________________________
10 In a case in which relevant information was being sought, but in
which that information was nevertheless subsequently provided to civil
attorneys, the proper redress would be sanctions for contempt. See Fed.
R. Crim. P. 6(e)(2).
11 In Under Seal, we noted that a prosecutor's affidavit that a subpoena
was being sought for the purpose of obtaining relevant information could
suffice to establish relevance. See Under Seal , 714 F.2d at 350. The dis-
trict court in this case, however, chose not to credit the affidavits that
were offered into evidence, see supra at 11, and we do not think that its
decision was erroneous.
12 Appellant's assertion that"there is no `sole or dominant purpose' test
in this Court's cases," see Reply Br. of Appellant at 8, is therefore evi-
dently incorrect.
12
evant to the civil investigation. See supra at 10. In addition, the crimi-
nal investigation already had most, if not all, of the documents sought
in Attachment A, rendering any further attempts to obtain those docu-
ments by means of the subpoena largely, if not entirely, superfluous.
J.A. at 263.
Appellant contends that, even if the district court correctly quashed
Attachment A of the subpoena, it should nevertheless have allowed
to stand the portion of the subpoena compelling Neblett himself to
testify. We see no evidence in the record, however, to suggest that the
district court clearly erred by failing to find that Neblett himself
would provide evidence relevant to the criminal investigation, even if
Attachment A would not. As counsel for appellant conceded at oral
argument, Neblett was not involved in any way with sales by B&T
pursuant to federal contracts, much less federal contracts large enough
to fall within the scope of the Major Fraud Act, and instead was
responsible only for sales to schools and libraries, including sales to
the Richmond, Virginia, library -- the same library at which the rela-
tor in the civil case was formerly employed.
In the absence of sufficient evidence to the contrary, we conclude
that the district court did not commit clear error in finding that the
government sought the Neblett subpoena solely for the purpose of
obtaining discovery for the civil proceeding. We therefore uphold the
district court's decision to quash the subpoena without prejudice to
the United States to return to the court with a renewed subpoena once
the discovery stay in the civil qui tam action is lifted.
The judgment of the district court is affirmed.
AFFIRMED
13