Appeal from orders of the United States District Court for the Southern District of New York (Broderick, J.) which required production of testimony and documents subpoenaed by a grand jury despite claims of confidentiality. Affirmed.
Before: Feinberg, Chief Judge, Cardamone and Davis,*fn* Circuit Judges.
CARDAMONE, Circuit Judge:
The conflict between protection of privacy interests of litigants in confidential material submitted in a civil proceeding and public needs of the grand jury in a criminal investigation is neatly posed by this appeal. Here grand jury subpoenas duces tecum seek to compel production of evidence used in a bankruptcy proceeding -- the transcript of a witness' deposition and certain corporate records. Appellants have resisted compliance, claiming that an agreement of confidentiality regarding the deposition and a settlement agreement, which placed the corporate records under a protective order and directed them sealed, shield these items from compelled production.*fn1
We sketch briefly the background from which this case arose. Frigitemp, a New York corporation formerly engaged in marine construction, did substantial business with General Dynamics Corporation, including subcontracting work on vessels being built by General Dynamics at its shipyards in Quincy, Massachusetts. At the time when Frigitemp was involved in this subcontracting, P. Takis Veliotis was General Manager of the General Dynamics Quincy Shipbuilding Division, and George C. Davis was serving as Senior Vice President of Frigitemp in charge of its Quincy subcontracting work. In early 1978 Davis formed a new corporation -- appellant Intersystems Design and Technology Corporation (IDT) -- and a month or so later Frigitemp filed a petition in bankruptcy in the Southern District of New York. General Dynamics promptly terminated Frigitemp's Quincy subcontracts and awarded them to IDT.
Shortly after Frigitemp filed its petition, the United States Attorney for the Southern District of New York commenced a criminal investigation into the circumstances surrounding the bankruptcy. In January 1980 Bankruptcy Judge Lewittes of the Southern District of New York authorized the trustee in bankruptcy of the Frigitemp estate to investigate causes of action available to the estate, including so-called "business crimes"*fn2 involving Davis, IDT and several General Dynamics employees. In February 1980 the trustee, utilizing the provisions of Bankruptcy Rule 205, sought to examine General Dynamics by deposing several of its employees, including Veliotis. Because the parties were located in Quincy, ancillary proceedings were conducted before the Bankruptcy Court for the District of Massachusetts. Those to be deposed appeared by counsel who requested a protective order. After a series of hearings before Bankruptcy Judge Lavien of the District of Massachusetts, an "understanding" was reached that afforded limited protection to portions of the testimony and accompanying documents which were later to be designated as containing confidential business information and/or scurrilous allegations of crime.
The Southern District Bankruptcy Court, in June 1980, approved a protective order which restricted the trustee's access to and use of confidential information contained in business records belonging to Davis and IDT. The trustee was only allowed to view these records in counsel's office and could not make copies. However, paragraph 9 of the order provided that "Nothing herein shall preclude IDT from disclosing any confidential information to any person or entity."
In April 1981 a settlement agreement was reached between Davis, IDT and the trustee which required IDT to pay $1.4 million to the Frigitemp estate. It also required the trustee to turn over to IDT all copies of transcripts of the examinations taken under Rule 205 and exhibits marked at those examinations. The originals were filed with the Clerk of the Bankruptcy Court under seal until the Frigitemp estate was closed, at which time they were to be destroyed.
A grand jury is currently investigating the claimed diversion of $5 million from Frigitemp through bribery, alleged kickbacks, embezzlement and fraudulent misappropriation by means of fictitious invoices and contracts. Appellant Davis is a target of this investigation. In early 1982 grand jury subpoenas duces tecum (which are the subject of this appeal) were issued to Davis and IDT requiring production of the corporate documents discussed above. A similar subpoena was issued to General Dynamics calling for the production of a variety of documents, including the transcript of Veliotis' testimony taken at the Rule 205 examination. The government also moved the Bankruptcy Court for an order permitting it access to the materials under seal.*fn3 General Dynamics has turned over all the requested records in its possession except the Veliotis transcript. Davis has produced some but not all of the records subpoenaed from him and IDT.
Veliotis was permitted to intervene in order to argue against production of his testimony. On appeal he assets that General Dynamics need not turn over to the grand jury the transcript of his Rule 205 testimony because he relied on the understanding of confidentiality described above before agreeing to testify. Davis and IDT contend that the terms to the protective order of June 1980 shield them from any obligation to produce the subpoenaed corporate documents; they also urge that the settlement agreement and consequent sealing by the Bankruptcy Court forecloses access by the United States Attorney and the grand jury to those sealed documents in the Clerk's custody.
In pressing their arguments before us appellants rely heavily on our decision in Martindell v. International Telephone and Telegraph Corp., 594 F.2d 291 (2d Cir. 1979) (Mansfield, J.). In Martindell we were faced with the government's formal and informal attempts to secure evidence covered by a Federal Rule of Civil Procedure 26(c) protective order issued in a civil suit to which it was not a party. In our analysis we stated that the function of a Rule 26(c) protective order is to "secure the just, speedy, and inexpensive determination" of civil disputes. We also noted the policy consideration that encouragement of full disclosure of all relevant evidence is a key objective in the true administration of justice. The court recognized that without enforcement of Rule 26(c) protective order witnesses might frequently refuse to testify if the government, in disregard of the order, could use the witnesses' testimony for criminal investigatory purposes. Id. at 295-96.
Regarding the government's efforts to obtain the information in Martindell by means of a telephone call and letter to the court, we held that the government's power to investigate, including use of the grand jury process, cannot be enhanced by such attempts to circumvent a protective order issued in a civil suit. We thus ...