Third Circuit Affirms District Court Holding the Perlman Doctrine Inapplicable Criminal Tax Grand Jury Subpoena

Jun 25, 2012   

In the case of In re: Grand Jury, decided on May 24, 2012, the Third Circuit Court of Appeals confronted the following set of facts:

ABC Corp., John Doe 1, and John Doe 2 were the targets of a grand jury investigation. In mid-2010, the targets learned that the Government was investigating the tax implications of ABC Corp.s acquisition and sale of certain closely held companies. In December 2010, the Government issued a grand jury subpoena to ABC Corp.s former vice president of corporate acquisitions as the companys custodian of records. The subpoena sought any and all records relating to transactions entities and individuals.

At some point the Government received access to, or copies of, certain ABC Corp. documents from a law firm that previously represented the company. The firm withheld certain documents it claimed were privileged, but it did not supply the Government with a privilege log. After the current law firm commenced its representation, the former law firm transferred the documents to the law firm representing John Doe 2. In a January 2011 letter, ABC Corp.’s law firm took the position that the Government did not effectively serve the subpoena issued to ABC Corp.s former vice president. Because ABC Corp. refused to accept service of the subpoena issued to its former employee, the Government issued grand jury subpoenas to the law firms in May 2011. The subpoenas sought all documents the two firms received from ABC Corp.s former law firm relating to ABC Corp. and another entity. In response to these subpoenas, the law firms produced approximately 24 boxes of documents. These were the same documents that ABC Corp.s former firm had previously produced. They continued to withhold, however, the documents listed on the April 2011 privilege log, and provided the Government with another privilege log in June 2011 for additional documents withheld.

The Government then filed an ex parte motion to compel ABC Corp., and the law firms to produce the withheld documents.  The Government argued that the documents should be produced based on the crime-fraud doctrine, which provides that evidentiary privileges may not be used to shield communications made for the purpose of getting advice for the commission of a fraud or crime, pursuant to United States v. Zolin, 491 U.S. 554 (1989), available here. On March 8, 2012, the District Court granted the Governments motion. Shortly thereafter, the targets proceeded to the Third Circuit Court of Appeals to challenge the order of the District Court requiring ABC Corp., and the target’s attorneys and the law firms to produce documents to grand jury. 

It is fairly well settled that when a district court orders the production of possibly privileged documents, its order is typically not immediately appealable under 28 USC section 1291, available here. Instead, to obtain immediate appellate review, an objecting privilege holder must disobey the disclosure order, be held in contempt, and then appeal the contempt order; see Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n.11 (1992), available here; (a witness who “seeks to present an objection to a discovery order immediately to a court of appeals must refuse compliance, be held in contempt, and then appeal the contempt order.”)

However, the appellants argued that Perlman v. United States, 247 U.S. 7 (1918), available here, provides an exception to the contempt rule because the documents were in the custody of a third party (the law firm representing John Doe 2) who was not willing to suffer contempt for the sake of an immediate appeal.  The reason that the Perlman doctrine allows an immediate appeal is that the person/entity asserting the privilege is powerless to compel a third part to be held in contempt, so there is nothing that the person/entity can do to assert the claim of privilege. 

In this case, the Third Circuit disagreed with the targets that Perlman applied, and held that Perlman does not allow an immediate appeal of a district courts order mandating the production of supposedly privileged documents when (1) the courts order directs the privilege holder itself to produce the documents, and (2) the privilege holder has, or may obtain, custody of the documents. In short, according to the Third Circuit, Perlman does not apply when the traditional contempt route is available to the privilege holder.  The Third Circuit held that because ABC Corp. could obtain the documents from its agent (in this case the attorneys and/or law firms), the Perlman doctrine was inapplicable.  The Third Circuit went on to note that if ABC Corp. wants pre-conviction appellate review of the District Courts crime-fraud ruling, it must take possession of the documents and defy that Courts disclosure order before appealing any resulting contempt sanctions.

However, the Court also issued a dissenting opinion which reasoned that the Perlman doctrine was applicable to the facts of this case, but nonetheless would have affirmed the decision of the District Court requiring the production of documents in response to the grand jury subpoena.  The dissent noted that the District Court order required direct production of the privileged documents to the Government, and that by giving the documents back to the targets, the law firms would be in violation of a court order.  Thus, reasoned the dissent, the Perlman doctrine was applicable.

A full copy of the opinion can be found here.

This case demonstrates, among other things, that the Government will go to great lengths to obtain documents and evidence in federal criminal investigations, including subpoenaing documents that attorneys believe are subject to the attorney-client privilege.  When this happens, targets litigating against the Government have certain alternatives to production, but whether these alternatives are available will depend upon the facts and circumstances of the particular case. 

The attorneys at Fuerst Ittleman have extensive experience litigating against the federal government in civil and criminal cases, including grand jury subpoenas demanding privileged documents.  You can contact an attorney by emailing us at:  contact@fidjlaw.com or by calling us at 305.350.5690.