UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-4080
In Re: GRAND JURY SUBPOENA
---------------------------
UNDER SEAL 1; UNDER SEAL 2,
Intervenors - Appellants,
v.
UNITED STATES OF AMERICA,
Respondent - Appellee.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Max O. Cogburn, Jr.,
District Judge. (3:13-mc-00107-MOC-DCK-1)
Argued: October 27, 2015 Decided: March 23, 2016
Before KEENAN, WYNN, and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Keenan and Judge Diaz joined.
ARGUED: Jeffrey Bryan Wall, SULLIVAN & CROMWELL LLP, Washington,
D.C., for Intervenors-Appellants. Amy Elizabeth Ray, OFFICE OF
THE UNITED STATES ATTORNEY, Asheville, North Carolina, for
Respondent-Appellee. ON BRIEF: Steven R. Peikin, Beth D.
Newton, SULLIVAN & CROMWELL LLP, New York, New York; Jack M.
Knight, Jr., Phoebe N. Coddington, WINSTON & STRAWN LLP,
Charlotte, North Carolina; Michael S. Schachter, Alexander L.
Cheney, Nicholas W. Chiuchiolo, WILLKIE FARR & GALLAGHER LLP,
New York, New York; Brian S. Cromwell, Sarah F. Hutchins, PARKER
POE ADAMS & BERSTEIN LLP, Charlotte, North Carolina, for
Intervenors-Appellants. Jill Westmoreland Rose, Acting United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Asheville, North Carolina, for Respondent-Appellee.
Unpublished opinions are not binding precedent in this circuit.
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WYNN, Circuit Judge:
In this white-collar criminal matter, a federal grand jury
has been investigating whether commodities traders engaged in
misconduct. At the heart of this appeal is whether evidence
that the grand jury sought and that otherwise might be
privileged is nonetheless discoverable because the crime-fraud
exception to the attorney-client privilege applies.
Grand jury investigations are confidential, and we are thus
barred from including here much detail. But just because we may
not write about particulars does not mean that we either lack
them or have failed to consider them. On the contrary, we have
reviewed this matter thoroughly and conclude that the district
court did not clearly abuse its discretion in holding that the
government successfully made a prima facie showing that evidence
that might otherwise have been shielded from discovery enjoys no
such protection due to the crime-fraud exception. Accordingly,
we affirm.
I.
Two traders who are the subject of a grand jury
investigation (“Traders”) worked for a bank executing block
futures trades for large investors. In 2010, a private
regulatory body inquired into various trades, investigating
potential front-running, i.e., misusing material information
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about impending trades for personal gain. See United States v.
Mahaffy, 693 F.3d 113, 120 (2d Cir. 2012).
In November 2010, the regulator sought to interview the
Traders and others in connection with the suspicious activity.
The bank that employed the Traders engaged an attorney
(“Lawyer”) to represent the Traders and the bank vis-à-vis the
regulator. Lawyer met the Traders individually and collectively
and then participated in the interviews.
In December 2010, Lawyer followed up with the regulator by
written submission. The written submission, for which the
Traders’ feedback was sought, asserted legal and factual
defenses of the suspect trades. The submission asserted, for
example, that the Traders “flatly denied having entered
proprietary orders in advance of and with knowledge of any
customer block order” and noted that “each trader gave clear,
consistent and undeniable explanations of why such trading was
not even feasible.”
At a later point in time, the government began
investigating the Traders’ suspicious trading activity. And in
July 2013, a federal grand jury looking into whether any crimes
had been committed issued a subpoena to Lawyer, seeking
documents relating to Lawyer’s representation of the Traders,
especially regarding the November 2010 interviews and the
December 2010 written submission to the regulator. While
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others, including the bank, waived any applicable attorney-
client privilege, the two Traders did not. They therefore
intervened and sought, along with Lawyer, to quash the grand
jury’s subpoena.
A magistrate judge denied the motions to quash. But the
district court remanded the matter to the magistrate for an in
camera review. Upon review, the magistrate judge yet again
denied the motions. And the second time around, the district
court agreed. The district court held, among other things, that
the crime-fraud exception applied here, where the Traders’
communications with Lawyer were made “precisely to further the
Traders’ criminal scheme” of misusing information about
impending trades for personal gain. The Traders appealed to
this Court.
II.
As an initial matter, we briefly address our subject matter
jurisdiction over this appeal. Generally, “a district court’s
order enforcing a discovery request is not a ‘final order’
subject to appellate review.” Church of Scientology v. United
States, 506 U.S. 9, 18 n.11 (1992). In Perlman v. United
States, however, the Supreme Court made clear that courts may
review immediately a discovery order directing a third party to
produce exhibits that were the property of an appellant who
claims immunity or privilege. 247 U.S. 7, 12-13 (1918). And in
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United States v. Jones, this Court, relying on Perlman, held
that an order denying the motion of clients, who were targets of
a grand jury investigation, to quash grand jury subpoenas issued
to their attorneys, was immediately appealable. 696 F.2d 1069,
1071 (4th Cir. 1982). Based on Perlman and Jones, we have
jurisdiction to review the ruling regarding the grand jury
subpoena at issue here.
III.
On appeal, the Traders challenge the district court’s
determination that the crime-fraud exception to the attorney-
client privilege applied and that the privilege thus provided no
basis for shielding the subpoenaed documents and testimony from
the grand jury. 1 Our review is a deferential one: A district
court’s determination that the government made a prima facie
showing that the crime-fraud exception applies “should be upheld
‘absent a clear showing of abuse of discretion.’” In re Grand
Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d 247, 254
(4th Cir. 2005) (quoting In re Grand Jury Subpoena, 884 F.2d
124, 127 (4th Cir. 1989)).
1 The work-product privilege is not an issue on appeal. We
therefore do not address it.
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A.
The attorney-client privilege protects confidential
communications between clients and their counsel. “Its purpose
is to encourage full and frank communication . . . and thereby
promote broader public interests in the observance of law and
administration of justice. The privilege recognizes that sound
legal advice or advocacy serves public ends and that such advice
or advocacy depends upon the lawyer’s being fully informed by
the client.” Upjohn Co. v. United States, 449 U.S. 383, 389
(1981).
However, the privilege’s justifications “cease as the line
is crossed from legal advice given on how one may conform one’s
actions to the requirements of the law . . . into the domain of
contemplated or actual illegal prospective or on-going action.”
Edna Selan Epstein, The Attorney-Client Privilege and the Work-
Product Doctrine Vol. 1, at 675 (5th ed. 2007). Accordingly,
the attorney-client privilege is “lost . . . when a client gives
information to the attorneys for the purpose of committing or
furthering a crime or fraud.” In re Grand Jury Proceedings, 102
F.3d 748, 750-51 (4th Cir. 1996).
To overcome the attorney-client privilege and “secure
[sought] evidence,” Union Camp Corp. v. Lewis, 385 F.2d 143, 145
(4th Cir. 1967), the government must convince the court: (1)
that “the client was engaged in or planning a criminal or
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fraudulent scheme when he sought the advice of counsel,” and (2)
that the attorney’s assistance was obtained in furtherance of
the crime or fraud or was closely related to it. In re Grand
Jury Proceedings #5 Empanelled Jan. 28, 2004, 401 F.3d at 251.
The government need not “prove the crime or fraud” at the grand
jury stage, nor is the government required to make its showing
even by a preponderance of the evidence. Id. (quotation marks
and citation omitted). Instead, only a prima facie showing must
be made—i.e., “the proof ‘must be such as to subject the
opposing party to the risk of non-persuasion if the evidence as
to the disputed fact is left unrebutted.’” Id. (quoting Duplan
Corp. v. Deering Milliken, Inc., 540 F.2d 1215, 1220 (4th Cir.
1976)).
Our recitation of the burden, especially our use of the
word “rebut,” (incorrectly) suggests “that the party asserting
the privilege may respond with evidence to explain why the
vitiating party’s evidence is not persuasive.” In re Grand Jury
Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33
F.3d 342, 352 (4th Cir. 1994). But grand jury proceedings are
closed and secret. Fed. R. Crim. P. 6. And we have long held
that not only facts supporting the crime-fraud exception, but
even the nature of the alleged crime or fraud itself, may be
presented ex parte and held in confidence. In re Grand Jury
Proceedings, Thursday Special Grand Jury Sept. Term, 1991, 33
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F.3d at 352-53 (citing In re Grand Jury Subpoena, 884 F.2d 124).
The party asserting privilege may thus be forced to make a best
guess as to the crime and evidence it must counter. Id.
The second crime-fraud prong, whether the attorney’s
assistance was obtained in furtherance of the crime or fraud,
“may be satisfied with a showing of a close relationship between
the attorney-client communications and the possible criminal or
fraudulent activity.” In re Grand Jury Proceedings #5
Empanelled Jan. 28, 2004, 401 F.3d at 251. Further, “it is the
client’s knowledge and intentions that are of paramount concern”
in our analysis; the attorney need not be aware of any
illegality. Id.
Notably, communications “made with the intention of
covering up the crime/fraud” can qualify under the second crime-
fraud prong and “will not be privileged.” Epstein, The
Attorney-Client Privilege and the Work-Product Doctrine Vol. 1,
at 684. In such cases, “the concealment or cover-up of its
criminal or fraudulent activities by the client, the holder of
the privilege . . . controls the court’s analysis of whether the
attorney-client privilege may be successfully invoked.” In re
Grand Jury Proceedings, 102 F.3d at 751.
In In re Grand Jury Proceedings, for example, “a question
arose as to whether two lawyers, . . . at the request of the
Bank, and acting innocently, gave somewhat false information
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which might serve to cover up the Bank’s crime or fraud
activity.” Id. at 750. The grand jury thus sought the
attorneys’ documents and testimony. Id. This Court noted that
“the concealment or cover-up of its criminal or fraudulent
activities by the client, the holder of the privilege” controls
the crime-fraud analysis. Id. at 751. And the Court was
“satisfied” that the district court’s finding of a prima facie
case was adequately supported where “the attorneys, unknowingly,
furthered the Bank’s alleged fraud by referencing in various
documents,” including in submissions to government regulators,
fraudulent information. Id. at 751-52. 2
Ultimately, “the determination of whether a privilege
applies [is] reserved for the trial judge.” In re Grand Jury
Subpoena, 884 F.2d at 127. The trial judge engages in the two-
pronged crime-fraud analysis in the first instance. And in
reviewing its determination, we are mindful of the Supreme
Court’s warning that “[a]ny holding that would saddle a grand
jury [proceeding] with minitrials and preliminary showings would
assuredly impede its investigation and frustrate the public’s
2
This Circuit is not alone in holding that communications
aimed at concealing a criminal or fraudulent scheme obliterate
the privilege. See, e.g., In re John Doe Corp., 675 F.2d 482
(2d Cir. 1982) (holding that internal investigation intended to
persuade third parties that no irregularity had occurred was
part of cover-up and thus upended any privilege).
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interest in fair and expeditious administration of the criminal
laws.” United States v. Dionisio, 410 U.S. 1, 17 (1973). Not
least for this reason, we uphold such determinations “absent a
clear showing of abuse of discretion.” In re Grand Jury
Subpoena, 884 F.2d at 127.
B.
With this framework in mind, we have reviewed the
particulars of this case and determined that the district court
did not clearly err in determining that the government
successfully made a prima facie showing that the Traders engaged
in a criminal or fraudulent scheme of misusing information about
impending trades for personal gain. The district court’s
determination that the Traders intended to avoid detection and
continue their scheme in communicating with Lawyer, not least by
having Lawyer misrepresent their activities to the regulator, is
likewise supported by the record.
The Traders repeatedly argue that nothing “in the record”
supports the district court’s determination here. Appellants’
Br. at 43. The Traders claim, for example, that “the Government
lacks evidence” to support the crime-fraud exception and thus
attempts to “fall[] back on the communications themselves” to
make the necessary showing. Id. at 47. But the Traders, who
were, by definition, excluded from the grand jury proceedings
and thus not privy to what evidence or theories the complete
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record contains, see Fed. R. Crim. P. 6, are tilting at
windmills.
We, by contrast, have the full record, and we have reviewed
it thoroughly. And on that basis, we conclude that the Traders
have failed to make “a clear showing of abuse of discretion.”
In re Grand Jury Subpoena, 884 F.2d at 127. The district
court’s determination that the government made a showing
sufficient to support the crime-fraud exception must therefore
be upheld. See id. And because the exception annihilated any
privilege inhering in the Traders’ communications with Lawyer,
we need not address the Traders’ challenge to the district
court’s ruling that some of the documents responsive to the
grand jury’s subpoena were not privileged because they were
intended to be disclosed to third parties.
IV.
For the reasons discussed above, the district court’s
ruling is
AFFIRMED.
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