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In re Grand Jury Matter #3

United States Court of Appeals, Third Circuit

January 27, 2017

IN RE: GRAND JURY MATTER #3 John Doe, Appellant

          Argued: January 12, 2016

         On Appeal from the United States District Court for the Eastern District of Pennsylvania (No. 2:14-gj-631-003) District Judge: Honorable R. Barclay Surrick

          Scott A. Resnik, Esquire (Argued) Michael M. Rosensaft, Esquire Katten Muchin Rosenman LLP, Karl S. Myers, Esquire Andrew K. Stutzman, Esquire Stradley Ronon Stevens & Young Counsel for Appellant

          Zane David Memeger, Esquire Robert A. Zauzmer, Esquire Joel M. Sweet, Esquire Mark B. Dubnoff, Esquire (Argued) Office of the United States Attorney Counsel for Appellee

          Before: McKEE, Chief Judge [*], AMBRO and SCIRICA, Circuit Judges

          PER CURIAM. [1]

         This appeal presents an unusual question of appellate jurisdiction: May we continue to exercise jurisdiction over an appeal of an evidentiary ruling in a grand jury proceeding even after the grand jury has returned both an indictment and a superseding indictment? We conclude that, so long as the grand jury investigation continues, we retain jurisdiction and thus can resolve the controversy.

         With jurisdiction, we turn to an important question involving the limits of the exception to the confidentiality normally afforded to attorney work product. It loses protection from disclosure when it is used to further a fraud (hence the carve-out is called the crime-fraud exception). The District Court stripped an attorney's work product of confidentiality based on evidence suggesting only that the client had thought about using that product to facilitate a fraud, not that the client had actually done so. Because an actual act to further the fraud is required before attorney work product loses its confidentiality and we know of none here, we reverse.


         Company A, John Doe, his lawyer, and Doe's business associate are the subjects of an ongoing grand jury investigation into an allegedly fraudulent business scheme.[2]After the Government obtained access to an email Doe claims was privileged, it asked the District Court for permission to present it to the grand jury. The Court granted permission, finding that, although the email was protected by the work-product privilege, the crime-fraud exception to that privilege applied. Doe then filed an interlocutory appeal, requesting that our Court reverse the District Court's order.

         While the appeal was pending, the grand jury viewed the email in question. It then indicted Doe, his lawyer, and Doe's business associate for conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"), conspiracy to commit fraud, mail fraud, wire fraud, and money laundering. Thereafter the grand jury was discharged and a new grand jury was empaneled. It too saw the disputed email, and in December 2016 returned a superseding indictment that did not contain new charges but revisions to the previous ones. The grand jury investigation, however, continues still. What follows fleshes out this factual and procedural backdrop.

         Doe was the sole owner of Company A and its president. Nonetheless a November 2008 document purports to memorialize Doe's sale of 100% of the shares of Company A to Company B for $10, 000. Doe's business associate is the sole owner of Company B. Following this purchase agreement, Doe claims that the business associate engaged Doe to be responsible for Company A's day-to-day operations. However, numerous filings and tax documents suggested that Doe maintained control and ownership of Company A even after Doe's stock in it was purportedly transferred.

         Over the last decade and a half multiple individuals have sued Doe and his businesses in state courts around the country based on Doe's business practices. One such lawsuit was a class action filed against Company A in Indiana state court. In it the plaintiffs alleged that Company A's business practices violated various Indiana state laws. They sought to hold Doe accountable for these violations. However, during this litigation Doe stated in a deposition in 2014 that he had transferred ownership of Company A to Company B. Doe's business associate then represented that Company A was no longer in business and had limited assets. Shortly after Doe's deposition, the Indiana plaintiffs settled their claims for approximately $260, 000, about 10% of the value attorneys for the plaintiffs had put on them.

         Thereafter the Government empaneled a grand jury to investigate Doe and his business associate. Its theory is that Doe owned Company A but tricked the plaintiffs into thinking that he had sold it to his business associate to encourage the plaintiffs to settle for a lower value. This relies on the premise that Doe has deep pockets but his business associate does not.

         In the course of its investigation, the grand jury subpoenaed Doe's accountant requesting that he provide the Government with Doe's personal and corporate tax returns. Among other things, these tax documents revealed that Doe had claimed 100% ownership of Company A every tax year from 2008 through 2012. The accountant also told an IRS agent that, at some time in 2013, Doe's lawyer informed him that Doe had sold Company A in 2008. He also informed investigators that he might have taken notes on this conversation. The Government requested them, and the accountant's attorney sent the Government three documents.

         One of the documents was an email Doe had sent to the accountant on July 16, 2013, forwarding an email that Doe's lawyer had sent to Doe four days earlier that referenced an ongoing litigation. The attorney email advises Doe of the steps he needed to take to correct his records so that they reflect that the business associate, not Doe, owned Company A since 2008. When Doe forwarded this email to his accountant, he simply wrote: "Please see the seventh paragraph down re; my tax returns. Then we can discuss this." There is no evidence that Doe ever amended his returns or did anything else, apart from forwarding the email, to follow up on his attorney's advice. Indeed, the ...

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