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INDEX FUND, INC. v. HAGOPIAN

April 27, 1981

INDEX FUND, INC., Plaintiff,
v.
ROBERT R. HAGOPIAN, et al., Defendants.



The opinion of the court was delivered by: TENNEY

TENNEY, J.

 Plaintiff Index Fund, Inc. ("Index Fund") moves pursuant to Federal Rule of Criminal Procedure ("Rule") 6(e) *fn1" to obtain access to various documents and transcripts generated and employed in the course of grand jury investigations into the conduct of defendants John P. Galanis *fn2" and Akiyoshi Yamada. For the reasons described below, the motion is denied. The plaintiff may, however, renew this motion at such time as the need for specific materials can be shown with the requisite certainty and particularity.

 Background

 The background of this action was described at length in the Court's previous Opinion, 417 F. Supp. 738 (S.D.N.Y. 1976), and will not be repeated here. Briefly, Index Fund alleges that various individual and corporate defendants participated in or facilitated a scheme to defraud it with respect to the purchase of worthless securities from an "offshore" mutual fund. In 1970, two of the prime movers in this scheme, Galanis and Yamada, allegedly bribed Robert Hagopian, who controlled plaintiff's securities investments, to purchase securities of dubious value on plaintiff's behalf. Index Fund, an open-end investment company incorporated in Massachusetts, claims that it lost more than one million dollars as a result of these and other fraudulent purchases.

 During 1970, the Securities and Exchange Commission ("SEC") commenced an investigation into the activities of Galanis and Yamada. As a result of that investigation, the SEC instituted a civil injunctive action against these two individuals and forty-two other defendants in November 1971. SEC v. Everest Management Corp., et al., 71 Civ. 4932 (DNE). That action, which is now before Judge David N. Edelstein, is still pending against thirteen defendants; permanent injunctions have been issued against twenty-nine defendants, including Galanis and Yamada, and two defendants have been dismissed. The scheme alleged by Index Fund was referred to in the SEC's complaint and several individuals and entities were named as defendants in both suits.

 After the SEC commenced the action for injunctive relief, it referred the matter to the United States Attorney's Office for the Southern District of New York for possible criminal prosecution. Documents collected by the Commission during its formal investigation were transferred to that office and an SEC attorney was detailed to the United States Attorney to assist in the grand jury investigations. These investigations into the pre-1972 activities of Galanis and Yamada were conducted from 1972 through 1975 and gave rise to approximately fifteen criminal actions. Four of the defendants named in Index Fund's complaint were subject to criminal prosecutions: Galanis, Yamada, Hagopian, and Pericles Constantinou. *fn3" According to the plaintiff, these defendants plead guilty to criminal charges and were sentenced accordingly.

 The grand jury materials sought here were previously the subject of a discovery motion in the SEC's civil action, SEC v. Everest Management Corp., supra. One year ago, the SEC made a motion before Judge Edelstein requesting disclosure of the materials, which were at that time contained in twelve sealed boxes at the Commission's Washington, D.C. office. In an Opinion dated June 17, 1980, Judge Edelstein denied "the wholesale discovery of grand jury transcripts sought by the SEC" but granted the Commission's request "to cull through the materials contained in the twelve boxes in an effort to locate original documents (brokerage, bank, and corporate records) relevant to this action." According to the SEC, most of these documents were initially received by the Commission in the course of its formal investigation and then transferred to the United States Attorney's Office with the SEC's criminal reference report. The remainder of the documents was presented to the grand jury pursuant to subpoenas. After reviewing the material, the SEC presented Judge Edelstein with an "index of certain documents generated in the course of grand jury investigations of John Peter Galanis and Akiyoshi Yamada." Notice of Filing Index, dated September 5, 1980. The index divided the documents into three sections which are also relevant to the motion at hand: (1) documents that could be inspected pursuant to Judge Edelstein's June 17, 1980 Order; (2) documents that could not be inspected; and (3) transcripts of the grand jury testimony. Section I includes 109 numbered items (some items include several documents) and covers primarily corporate records, bank reports, and business letters. Section II includes ninety-three items for which a specific privilege was claimed (I.e., governmental, work product, confidentiality). Section III lists the grand jury transcripts by witnesses and the dates on which they appeared.

 In the instant motion, Index Fund requests permission to inspect and photocopy twenty-six specific Section I documents, forty-one Section II documents, and the grand jury transcripts of five witnesses including Galanis and Yamada. The defendants' responses to this motion vary. Defendants First National City Bank and First National City Trust Company (Bahamas) Limited *fn4" "take no position on the merits of plaintiff's motion" and "request that they be granted permission to inspect and copy the same grand jury documents and transcripts as plaintiff, plus document number 29 from Section II of the Grand Jury Index." Affidavit of Leonard Gross, sworn to January 9, 1981 ("Gross Aff."), PP2, 5. Similarly, defendants Armstrong Investors, S.A. and Armstrong Capital, S.A. "do not object to plaintiff's application" and request "that they be granted permission to inspect and copy the same grand jury documents and transcripts as plaintiff." Affidavit of Richard A. Cohen, sworn to January 13, 1981, P2. On the other hand, Robert Hagopian vigorously objects to plaintiff's motion. The government, not surprisingly, has taken a middle-of-the-road position. The United States Attorney does not oppose plaintiff's request to inspect Section I documents, but does object to the disclosure of Section II documents or the grand jury transcripts. Although not a party to this proceeding, the SEC has also responded to Index Fund's motion. The Commission "takes no position with respect to the objections raised by the United States Attorney's office except that . . . it objects to the public production of Section II documents 72, 78, 79, and 84." Affidavit of Robert M. Laprade, sworn to January 23, 1981, P2. The remaining five defendants, including Yamada, have not responded to this motion. *fn5"

 Proper Forum

 Before ruling on plaintiff's request for the grand jury materials, it must be determined whether this motion should be resolved by this Court. This question was raised only by defendants First National City Bank and First National City Trust Company (Bahamas) Limited which state that they "take no position with respect to the propriety of plaintiff's bringing this motion in this case rather than in SEC v. Everest Management Corp., a case being tried . . . before Hon. David N. Edelstein." Gross Aff. P2. After considering this question in light of the Supreme Court's recent decision in Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211 (1979), and upon following what appears to be the proper procedure in this case, the Court has concluded that it can entertain Index Fund's motion for a disclosure order.

 While the parties agree that Douglas Oil establishes the standard to evaluate a request for grand jury materials, they fail to discuss the Supreme Court's remarks concerning which district court should make that evaluation: the court that supervised the grand jury investigation and which thus has control over the materials, or the court in which the civil action is pending where the materials are sought. While the Douglas Oil Court discussed this question at some length, it provided little guidance with respect to the instant action because the cases are factually distinct and the procedure prescribed by the Supreme Court is not equally appropriate for the case at bar. Yet by applying the general principles propounded in Douglas Oil, this Court has followed what it considers to be the proper procedure in the context of this case. A review of the procedural posture of the Douglas Oil case will help to elucidate the issue at hand.

 In Douglas Oil, independent gasoline dealers brought a civil antitrust action against several large oil companies in the federal district court in Arizona. While these proceedings were in the pretrial stage, a government antitrust investigation in the central district of California culminated in an indictment for illegal price-fixing against two of the defendants in the Arizona suit. These defendants ultimately pleaded nolo contendere to the government's charges. Before entering this plea, the defendants asked for, and received, copies of the transcripts of testimony given by their employees to the California grand jury. After an unsuccessful discovery request, the private plaintiffs in the Arizona antitrust suit petitioned the California court for release of the grand jury transcripts now in the defendants' possession. With the consent of the government's Antitrust Division, the California district court ordered the transcripts disclosed, subject to several protective conditions.

 The Supreme Court ruled that the California district court abused its discretion in issuing the disclosure order because that court concededly had no knowledge of the status of the Arizona civil suit and the needs of the parties in that case. According to the Court: "A court more familiar with the course of the antitrust litigation might have seen important differences between the allegations of the indictment and the contours of the conspiracy [plaintiffs] sought to prove in their civil actions -- differences indicating that disclosure would likely be of little value to [the plaintiffs], save perhaps as a mechanism for general discovery." Id. at 229. Furthermore, the Court pointed out that the court where the civil proceeding was pending might have considered disclosure to be premature. "If there were to be conflicts between [the defendants'] statements and their actions in the criminal proceedings, the court might have preferred to wait until they ripened at depositions or even during testimony at trial." Id. at 230. In the view of the Supreme Court, the "better practice" would have been for the California district court to send the requested materials to the Arizona court after evaluating the need for continued grand jury secrecy and determining that disclosure might be appropriate. Id. "Armed with its special knowledge of the status of the civil actions," the Arizona court could then have considered the requests for disclosure in light of the California court's evaluation of the need for continued grand jury secrecy. Id. at 230-31. This way, the need for secrecy and the need for disclosure could be evaluated "by the courts in the best position to make the respective evaluations." Id. at 231.

 The Supreme Court recognized that "circumstances that dictate the need for cooperative action between the courts of different districts will vary." Id. Accordingly, the Douglas Oil holding was expressly limited to cases in which the district court that has custody of the grand jury records is not likely to know the needs of the parties or the status of the civil suit for which the materials are requested. Yet the thrust of the opinion -- that courts should strive to coordinate the informed views of ...


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