Finn v. Schiller ( 1996 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARK T. FINN,
Plaintiff-Appellant,
v. No. 94-2373
S. DAVID SCHILLER,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-94-743-R)
Argued: February 1, 1995
Decided: January 3, 1996
Before HALL and WILKINS, Circuit Judges, and
CHAPMAN, Senior Circuit Judge.
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Affirmed but remanded for further proceedings by published opinion.
Senior Judge Chapman wrote the opinion, in which Judge Hall and
Judge Wilkins joined.
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COUNSEL
ARGUED: Jed S. Rakoff, FRIED, FRANK, HARRIS, SHRIVER &
JACOBSON, Washington, D.C., for Appellant. Robert William Jas-
pen, Assistant United States Attorney, Richmond, Virginia, for
Appellee. ON BRIEF: Harvey L. Pitt, Debra M. Torres, Karl A.
Groskaufmanis, Gregory J. Ikonen, James A. Hutchinson, FRIED,
FRANK, HARRIS, SHRIVER & JACOBSON, Washington, D.C.;
Hunter W. Sims, Jr., L. Allan Parrott, Jr., KAUFMAN & CANOLES,
P.C., Norfolk, Virginia, for Appellant. Helen F. Fahey, United States
Attorney, Richmond, Virginia, for Appellee.
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OPINION
CHAPMAN, Senior Circuit Judge:
Mark T. Finn filed suit in the United States District Court for the
Eastern District of Virginia against S. David Schiller, Assistant
United States Attorney, alleging an ongoing pattern of prosecutorial
misconduct including violations of Federal Rule of Criminal Proce-
dure 6(e)(2) and seeking injunctive relief so as to prevent Schiller
from disclosing grand jury material. The district court determined that
only criminal contempt of court is provided by the Rule and, there-
fore, that only the court or the United States Attorney may institute
contempt proceedings thereunder. The district court dismissed the
suit, and Finn appeals. For the reasons discussed below, we affirm the
dismissal under Rule 12(b)(6) for failure to state a claim upon which
relief can be granted. However, we conclude that Rule 6(e)(2) pro-
vides both civil and criminal contempt but does not create a private
cause of action. Accordingly, we remand for further proceedings con-
sistent with this opinion.
I.
Finn served on the Virginia Retirement System ("VRS") Board of
Trustees in the early 1990s. From May 1990 until August 1990, the
VRS increased its stock ownership in the Richmond, Fredericksburg
& Potomac Railroad Corporation through open-market purchases.
After learning of these stock purchases, Schiller, an Assistant United
States Attorney, commenced a grand jury inquiry into the VRS's
actions to determine if there had been securities laws violations.
On September 19, 1994, Schiller filed a plea agreement and a three
page criminal information charging Patrick Bynum with a federal
mail fraud violation. The information did not mention Finn. On Sep-
2
tember 23, 1994, Schiller signed and filed an eighty-three page state-
ment (the "Statement") in the criminal proceeding against Bynum.
Only six pages of the Statement dealt with the guilty plea of Bynum,
and the remainder of the Statement generally alleged that Finn and
other VRS officials conspired to commit mail, wire, and securities
fraud in acquiring the railroad stock. Finn was mentioned by name
over 370 times in the Statement.
On September 30, 1994, at Bynum's arraignment, his counsel
informed the court that Bynum did not accept the Statement for sev-
eral reasons, including the fact that "the majority of the information
contained therein is not associated with Mr. Bynum." Schiller then
filed a one-and-one-half page stipulation of facts (the "Stipulation")
as the factual predicate for Bynum's plea.1 When the court asked
Schiller why he filed both the Statement and the Stipulation, Schiller
responded that the Stipulation reflects "the essential elements for
today," while the Statement "is the government's proffer as to the
entire matter."
As a result of Schiller filing the Statement, Finn's picture appeared
on the front page of the Richmond Times Dispatch the next day under
the heading "Fraud Alleged in VRS Takeover of RF&P."2 The
Washington Post featured a similar article the same day in its front
page headlines.3 Articles referring to or quoting from the Statement
continued to appear in newspapers throughout October 1994.4 The
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1 Finn's name does not appear in the Stipulation.
2 When Schiller filed the Statement, Bynum was the only person
charged, and the charges did not mention the VRS stock purchases.
3 The Washington Post article discussed alleged violations of state and
federal law by three senior officials of VRS: Jacqueline Epps, Mark
Finn, and Glen Pond. The article cited the Statement as the source for the
information contained therein. The article quoted from the Statement that
all three officials "sought to enrich themselves financially, reputationally,
politically and obtain business benefits for their careers."
4 A Richmond Times Dispatch article on September 27, 1994 stated that
the Statement implicated Finn. The same day, another article from the
same newspaper stated:
Now the federal government has alleged that in a scheme to
hide the VRS takeover of the RF&P, three former officials of the
3
last newspaper article appeared on October 12, 1994 and featured a
picture of Finn with a caption under the picture that read: "The U.S.
attorney . . . alleges that Mark T. Finn . . . , president of a Virginia
Beach money-management firm and a former board member of the
[VRS], plotted with a former board chairman to have the pension fund
illegally take control of RF&P Corp." A magazine article in the
December 1994 issue of Managed Derivatives incorrectly stated that
"Mark Finn . . . pleaded guilty to charges of felony mail fraud."
Finn claims that the release of the Statement and the resulting
media coverage have harmed his reputation and his business. On
October 7, 1994, Finn filed suit alleging that because the Statement
disclosed matters occurring before the grand jury, Schiller had vio-
lated Federal Rule of Criminal Procedure 6(e) and had violated his
constitutional rights under the Fifth and Sixth Amendments. Finn
sought both preliminary and permanent injunctions to enjoin Schiller
from further violations of Rule 6(e) and from an ongoing pattern of
prosecutorial misconduct. Also, Finn requested the district court to
strike the Statement from the record in United States v. Bynum.
Finally, Finn asked the court to poll the grand jurors to determine if
they could continue deliberations in an unbiased manner. In response,
Schiller filed a motion to dismiss.
The district court heard the motions on October 20, 1994 and noted
that it had never seen a stipulation of facts, accompanying a plea, that
accused individuals of criminal activity who were not included in the
indictment. The court asked Schiller's counsel if the United States
Attorney was "initiating some new technique of in terrorem tactics in
the Eastern District of Virginia that is going to create a lot of stressors
for district judges like myself?" However, the court concluded that
without an indictment, Finn could not establish that the Statement
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VRS -- Jacqueline Epps, Mark Finn, and Glen Pond-- broke
securities laws, mail- and wire-fraud laws, and state statutes con-
cerning prohibitions against secret meetings, perjury, misuse of
public funds, falsification of records, and more. The document is
not an indictment, although federal prosecutors say they expect
to file criminal charges.
The newspaper articles appearing throughout October continued to dis-
cuss the charges against Finn and the others.
4
prejudiced him and that the contempt of court remedy provided by
Rule 6(e)(2) was limited to criminal contempt. The district court dis-
missed Finn's complaint, finding that it lacked jurisdiction over
Finn's civil claims and that the complaint did not state a claim upon
which relief could be granted. The judge indicated that Finn could file
a motion to strike the Statement from the public record in United
States v. Bynum. On October 27, 1994, Finn filed an application to
intervene in Bynum for the limited purpose of moving to strike the
Statement. On November 2, 1994, the government filed a motion
seeking to withdraw the Statement from the Bynum record on the
ground that the Stipulation rendered the Statement superfluous. Con-
currently, the government moved to dismiss Finn's motion to strike
as moot. On November 4, 1994, Finn responded to the government's
motion to dismiss and claimed that because the Statement was filed
for an improper purpose,5 the district court should strike it from the
record. On November 14, 1994, the district court granted Finn's
motion to intervene, granted the government's motion to withdraw the
Statement from the record, and found moot Finn's motion to strike.
Finn appealed the district court's final order dismissing his suit.
II.
The following issues are presented for our review:
1. Has Finn stated a claim upon which relief can be granted under
Federal Rule of Criminal Procedure 6(e) to enjoin violations of the
Rule?
2. Does the district court have the authority under its inherent
supervisory power over grand jury proceedings to entertain a suit by
a private litigant seeking civil relief?
We review questions of law de novo. Richmond, Fredericksburg &
Potomac R.R. v. United States, 945 F.2d 765, 768-69 (4th Cir. 1991),
cert. denied, 503 U.S. 984 (1992).
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5 Finn claims that Schiller filed the Statement in an effort to pressure
him into a plea agreement. Based on the record before us, this is certainly
a reasonable conclusion.
5
III.
The central issue in this appeal is whether Federal Rule of Criminal
Procedure 6(e) provides a civil remedy for its violation.6 Rule 6(e)(2)
provides:
General Rule of Secrecy. A grand juror, an interpreter, a
stenographer, an operator of a recording device, a typist who
transcribes recorded testimony, an attorney for the govern-
ment, or any person to whom disclosure is made under para-
graph (3)(A)(ii) of this subdivision shall not disclose matters
occurring before the grand jury, except as otherwise pro-
vided for in these rules. No obligation of secrecy may be
imposed on any person except in accordance with this rule.
A knowing violation of Rule 6 may be punished as a con-
tempt of court.
At the heart of the present controversy is the last line of the Rule. We
must decide whether this language creates a private cause of action
-- that is, whether a private person who claims damage because of
a violation of this general rule of grand jury secrecy may bring an
action against a violator of the rule to enjoin such violation or any
threatened future violations and seek sanctions for contempt. We con-
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6 Rule 6 was enacted in an effort to guard the secrecy of grand jury pro-
ceedings. The Supreme Court has consistently acknowledged the impor-
tant interests that the secrecy requirements aim to protect.
First, if preindictment proceedings were made public, many pro-
spective witnesses would be hesitant to come forward voluntar-
ily, knowing that those against whom they testify would be
aware of that testimony. Moreover, witnesses who appeared
before the grand jury would be less likely to testify fully and
frankly, as they would be open to retribution as well as to
inducements. There also would be the risk that those about to be
indicted would flee, or would try to influence individual grand
jurors to vote against indictment. Finally, by preserving the
secrecy of the proceedings, we assure that persons who are
accused but exonerated by the grand jury will not be held up to
public ridicule.
Douglas Oil Co. v. Petrol Stops N.W., 441 U.S. 211, 219 (1979).
6
clude that Rule 6(e)(2) does not establish a private cause of action,
but a person claiming damage as a result of a violation of the rule has
the right to call such violation to the court's attention, and the court
shall take action as hereinafter directed. Notice to the court may be
by way of petition or by letter to the district judge. See Lance v.
United States Dep't of Justice (In re Grand Jury Investigation), 610
F.2d 202, 209 (5th Cir. 1980).
Plaintiff argues that if the rule provides for civil contempt then it
follows that a private cause of action may be maintained thereunder.
Several courts have adopted this reasoning. E.g. , Lance, supra, 610
F.2d 202; Blalock v. United States, 844 F.2d 1546 (11th Cir. 1988);
and Barry v. United States, 865 F.2d 1317 (D.C. Cir. 1989). Contra
In re Grand Jury Investigation (90-3-2), 748 F. Supp. 1188 (E.D.
Mich. 1990).
We find that the question of whether this rule of grand jury secrecy
creates a private cause of action is not determined by the nature of the
contempt provided therein. The rule does not modify contempt as
being either civil or criminal or both.
In Gompers v. Buck's Stove & Range Co., 221 U.S. 418 (1911), the
United States Supreme Court held:
Contempts are neither wholly civil nor altogether criminal.
And "it may not always be easy to classify a particular act
as belonging to either one of these two classes. It may par-
take of the characteristics of both." But in either event, and
whether the proceedings be civil or criminal, there must be
an allegation that in contempt of court the defendant has dis-
obeyed the order, and a prayer that he be attached and pun-
ished therefor. It is not the fact of punishment, but rather its
character and purpose, that often serve to distinguish
between the two classes of cases. If it is for civil contempt
the punishment is remedial, and for the benefit of the
complainant. But if it is for criminal contempt the sentence
is punitive, to vindicate the authority of the court. It is true
that punishment by imprisonment may be remedial as well
as punitive, and many civil contempt proceedings have
resulted not only in the imposition of a fine, payable to the
7
complainant, but also in committing the defendant to prison.
But imprisonment for civil contempt is ordered where the
defendant has refused to do an affirmative act required by
the provisions of an order which, either in form or sub-
stance, was mandatory in its character. Imprisonment in
such cases is not inflicted as a punishment, but is intended
to be remedial by coercing the defendant to do what he had
refused to do.
Id. at 441-42 (citations omitted).
Guided by this reasoning and by the fact that Rule 6 does not mod-
ify or qualify in any way the phrase "contempt of court", we conclude
that the rule provides for both civil and criminal contempt.
If Plaintiff's allegations are true, both civil and criminal contempt
may be required to afford complete relief. Plaintiff alleges a continu-
ing pattern of prosecutorial misconduct that includes release of grand
jury material in violation of Rule 6(e)(2). An injunction to stop further
or future release of grand jury material would be remedial and civil
in nature. However, Plaintiff also alleges that Defendant has already
violated the rule by making public the eighty-three page Statement.
If this were proved, a finding of criminal contempt would be proper
as punishment for the past violation of the rule and to vindicate the
authority of the court.
Although we find that the language of the rule provides both civil
and criminal contempt, it does not follow that the rule creates a pri-
vate cause of action. A claimant may notify the court of a violation
of the rule or may petition the court to investigate an alleged viola-
tion, but such complainant may not proceed by way of a civil action
against the alleged violator. "[T]here is no such thing as an indepen-
dent cause of action for civil contempt." Blalock v. United States, 844
F.2d at 1550 (citing McComb v. Jacksonville Paper Co., 336 U.S.
187, 191 (1949); and Gompers v. Buck's Stove & Range Co., supra,
221 U.S. at 441-42).
The rule by its clear language does not indicate that there is a right
of private enforcement, and we find that such a right may not be
implied. "The federal judiciary will not engraft a remedy on a statute,
8
no matter how salutary, that Congress did not intend to provide."
California v. Sierra Club, 451 U.S. 287, 297 (1981). This reluctance
is more pronounced when one contemplates adding a remedy to a rule
of court.
Even if it may be argued that a civil remedy under Rule 6(e)(2)
would not be inconsistent with the congressional scheme, this is not
sufficient to justify a court-created cause of action where Congress
has not affirmatively indicated that it intended such. Federal Savings
& Loan Ins. Corp. v. Reeves, 816 F.2d 130, 138 (4th Cir. 1987).
In Cort v. Ash, 422 U.S. 66 (1975), the Supreme Court established
the preferred approach for determining whether a private right of
action should be implied from a federal statute. The Court listed four
factors to be considered:
First, is the plaintiff "one of the class for whose especial
benefit the statute was enacted," -- that is, does the statute
create a federal right in favor of the plaintiff? Second, is
there any indication of legislative intent, explicit or implicit,
either to create such a remedy or to deny one? Third, is it
consistent with the underlying purposes of the legislative
scheme to imply such a remedy for the plaintiff? And
finally, is the cause of action one traditionally relegated to
state law, in an area basically the concern of the states, so
that it would be inappropriate to infer a cause of action
based solely on federal law?
Id. at 78 (citations omitted).
Cases subsequent to Cort have explained that the ultimate issue is
whether Congress intended to create a private right of action,
Universities Research Ass'n, Inc. v. Coutu, 450 U.S. 754, 771-72
(1981); but the four factors specified in Cort remain the test to deter-
mine congressional intent. Davis v. Pasman, 442 U.S. 228, 241
(1979).
A consideration of the first two Cort factors is dispositive. The lan-
guage of the rule does not suggest that Congress intended to create
9
a federal right for the special benefit of a class of persons; rather, the
rule was established to protect the grand jury process and to codify
"a practice the district courts had been following for eighty years."
Blalock, 844 F.2d at 1556 (Tjoflat, J., specially concurring).
Under the second step of the analysis, there is no evidence that
Congress anticipated that there would be a private remedy. Therefore,
it is unnecessary to inquire further because factors three and four are
only relevant "if the first two factors give indication of congressional
intent to create the remedy." California v. Sierra Club, 451 U.S. at
298.
Our decision that Finn may not bring a private action under Rule
6 does not preclude the district court from granting relief. To the con-
trary, once an alleged Rule 6(e)(2) violation is brought to the court's
attention, it is the district court's duty to investigate the matter and
impose contempt sanctions when it finds a violation has occurred.
Because the victim of a breach of grand jury secrecy cannot bring suit
on his or her own behalf, the district court has an inherent duty to pre-
serve the integrity of Rule 6 by instituting contempt proceedings
when presented with a prima facie case of a violation. The United
States Attorney has a similar duty to preserve the integrity of the Rule
and to act promptly when he has information of a violation.7
At first glance, criminal contempt may appear to be a harsh rem-
edy, but compromising grand jury secrecy is a serious matter. It can
endanger the lives of witnesses and law enforcement officers and
undermine the grand jury system. Courts must not tolerate violations
of Rule 6(e) by anyone, especially United States Attorneys who, as
alleged in this case, may do so in an effort to pressure a target into
a plea agreement. Overzealous prosecutors must not be allowed to file
sweeping statements of fact alleging violations of various laws by
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7 In order to establish a prima facie case of a Rule 6(e) violation, the
complainant must show that (1) information was knowingly disclosed
about "matters occurring before the grand jury," and (2) the source of the
information is a person subject to Rule 6(e). If the allegations contained
in the eighty-three page Statement are "matters occurring before the
grand jury," it would appear that a prima facie case is present, as Schiller
is a person subject to the Rule.
10
unindicted individuals. A primary purpose of Rule 6 is to protect the
unindicted, and the United States Attorney has a duty to protect the
innocent as well as to prosecute those indicted by the grand jury.
The Rule is intended to protect grand jury secrecy, and one of the
purposes of grand jury secrecy is to "assure that persons who are
accused but exonerated by the grand jury will not be held up to public
ridicule." Douglas Oil, 441 U.S. at 219. We hold that upon a prima
facie showing to the district court of an alleged Rule 6(e) violation,
the court must take appropriate steps to determine whether a violation
has occurred. If the court finds that a violation has, in fact, occurred,
the court should take appropriate action to prevent further violations
and to sanction the violator as provided by the Rule.
IV.
Next, we turn to Finn's assertion that, independent of any statutory
authority, the district court retains jurisdiction over his private action
pursuant to the court's inherent supervisory power over grand jury
proceedings.
Schiller maintains that the Fourth Circuit should decline to con-
sider Finn's argument that the district court's inherent supervisory
authority is a basis for jurisdiction, because Finn never pursued this
issue in the district court. However, a review of the pleadings reveals
that Finn cites, as a basis for jurisdiction, the"inherent authority of
this court to supervise grand jury proceedings." In addition, Finn
raised the issue in his brief in support of his petition to strike the
Statement and to have the court interview the grand jurors to deter-
mine if they could continue deliberations in an unbiased manner. We
find that Finn adequately presented the issue to the district court.
In United States v. Shaffer Equip. Co., 11 F.3d 450 (4th Cir. 1993),
this court recognized:
Due to the very nature of the court as an institution, it
must and does have an inherent power to impose order,
respect, decorum, silence, and compliance with lawful man-
dates. This power is organic, without need of a statute or
11
rule for its definition, and it is necessary to the exercise of
all other powers. Because the inherent power is not regu-
lated by Congress or the people and is particularly subject
to abuse, it must be exercised with the greatest restraint and
caution, and then only to the extent necessary.
Id. at 461-62 (citations omitted). Additionally, in Chambers v.
NASCO, Inc., 501 U.S. 32, 50 (1991), the Supreme Court noted that
when there is bad-faith conduct in the course of litigation
that could be adequately sanctioned under the Rules, the
court ordinarily should rely on the Rules rather than the
inherent power. But if in the informed discretion of the
court, neither the statute nor the Rules are up to the task, the
court may safely rely on its inherent power.
The district court's inherent supervisory power over grand jury
proceedings is sufficient for it, upon proper proof, to impose either
civil or criminal contempt sanctions because its inherent powers are
not proscribed by Rule 6.8 However, the court's supervisory power
does not authorize a private cause of action because such power is
vested in the court, and only the court may invoke it.
V.
Finally, we turn to Finn's assertion that the district court has juris-
diction over his complaint directly under the Fifth Amendment. Finn
argues that the Due Process Clause of the Fifth Amendment guaran-
tees that he will not be charged with criminal misconduct by a U. S.
Attorney or by a grand jury absent a proper indictment, and he claims
that the district court erred in dismissing his complaint for lack of
subject matter jurisdiction because the district court has "original
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8 Rule 6(e)(2) states in part,"No obligation of secrecy may be imposed
on any person except in accordance with this rule." However, 18 U.S.C.
§ 401 gives the court authority to punish"misbehavior of any of its offi-
cers in their official transactions." The Assistant United States Attorney
is an officer of the court, and if he did what has been alleged in the pres-
ent case, it would certainly qualify as "misbehavior" and subject him to
punishment under § 401.
12
jurisdiction of all civil actions arising under the Constitution, laws or
treaties of the United States." 28 U.S.C. § 1331 (1988).
In response, Schiller asserts that Finn did not request relief based
upon alleged due process violations, but rather limited his request for
relief to alleged violations of Rule 6(e). Therefore, Schiller argues, we
should not consider this jurisdictional claim because it was not raised
below. Under a liberal reading of the complaint, one might find a con-
stitutional question presented, and Finn did mention due process in
his argument and in his brief before the district court, but the district
judge did not mention this claim of jurisdiction in his ruling. Because
this matter is being remanded, we will not consider the due process
claim and allow the district court the opportunity to first consider it.
For the foregoing reasons, we find that the district court correctly
dismissed Finn's complaint under Rule 12(b)(6) because neither Rule
6(e)(2) nor the district court's inherent power creates or provides a
private cause of action for its enforcement. However, we find that the
district court has a duty to protect the integrity of grand jury proceed-
ings. Upon remand, the district court must investigate the matter to
determine whether the information contained in the statement violates
Rule 6(e)(2). If so, the court shall impose such sanctions as it may
find appropriate. Additionally, the district court may, under its inher-
ent power impose either civil or criminal contempt sanctions if it
finds that sanctions under Rule 6(e)(2) are not appropriate. Also, the
district court shall, on remand, consider Finn's claim of jurisdiction
for denial of due process. Consequently, the district court's order is
AFFIRMED BUT REMANDED FOR FURTHER
PROCEEDINGS CONSISTENT WITH THIS OPINION.
13