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In re Two Grand Jury Subpoenae Duces Tecum

June 10, 1986


Appeal and cross-appeal from the Order of the United States District Court for the Southern District of New York (Charles L. Brieant, J.) granting in part the government's motion to hold John Doe's pre- and post-incorporation law firms in contempt for failing to comply with two grand jury subpoenas, and quashing in part the subpoena directed to the pre-incorporation firm. Affirmed in part and reversed in part.

Author: Lumbard

BEFORE: FEINBERG, Chief Judge, LUMBARD, and OAKES, Circuit Judges.

LUMBARD, Circuit Judge:

The subpoenaed parties, "John Doe's" pre-and post-incorporation law firms, appeal from Judge Brieant's Order of October 19, 1985 granting in part the government's motion to hold the law firms in contempt under Fed. R. Crim. P. 17(g) for failing to comply with two grand jury subpoenas. The government cross-appeals that portion of Judge Brieant's Order quashing in part the subpoena directed to the pre-incorporation firm. We affirm, except as to the order to quash; that part of the Order is reversed and Doe, or a custodian selected by the law firms, is hereby directed to produce all of the subpoenaed documents.

On August 21, 1985, a grand jury sitting in the Southern District issued two subpoenas duces tecum, one to "The Law Practice of 'John Doe'" and the other to "'Doe and Roe,' P.C." addressing Doe's law firm both before and after incorporation in November, 1981. The grand jury is investigating possible criminal tax law violations by Doe's firms in connection with the payment of settlements and awards to personal injury clients whom the firms represented on a contingent-fee basis. The government alleges that the investigation focuses on the possible manipulation of the flow of money from litigation and settlements to the firms' escrow accounts and the ultimate distribution of the money to clients, their creditors, and the firms' own accounts. The two subpoenas direct the firms to produce records relating to, inter alia, fee arrangements with, and disbursement on behalf of, their clients.

In a letter to the Assistant United States Attorney dated September 11, 1985, Doe's counsel stated that the firms would produce some of the subpoenaed records, but that the firms refused-on the grounds of attorney-client privilege an the fifth amendment privilege against self-incrimination-to produce cancelled checks drawn on the escrow accounts of the firm, retainer agreements, closing statements, correspondence relating to client recoveries, invoices and receipts for disbursements, and records relating to liens upon funds received on behalf of clients.

The government moved for an order holding the pre- and post-incorporation law firms in contempt for failing to comply with the subpoenas. Judge Brieant heard argument on October 25, 1985 and ordered compliance with the entire subpoena addressed to the professional corporation. The judge ordered partial compliance with the subpoena directed at the pre-incorporation law firm, insofar as it called for the production of retainer agreements and closing statements which, according to New York Appellate Division Rules, must be filed with the Office of Court Administration in contingent-fee cases. Judge Brieant reserved decision on the balance of the latter subpoena.

On October 28, 1985, in an Endorsement Memorandum, the judge denied the undecided portion of the government's motion and quashed the remainder of the subpoena. He found that, although Doe had associated himself with other lawyers during the pre-incorporation period, Doe had acted primarily as a sole practitioner and had held the subpoenaed documents in his individual capacity. The judge ruled that Doe could therefore assert his fifth amendment privilege against self-incrimination with respect to pre-incorporation documents, except for those "required records" under Appellate Division Rules which the court had previously held were not protected by the amendment. Judge Brieant entered a formal Order on October 29, 1985.*fn1

Does argues on appeal that the information sought in both subpoenas is highly confidential and is within the attorney-client privilege. Doe also maintains that all of the documents in the subpoena addressed to his pre-incorporation practice fall within his fifth amendment privilege and that Judge Brieant erred in applying the required records exception to the retainer agreements and closing statements.

The government argues for affirmance of the district court's Order, except that it cross-appeals that portion of the Order that quashed, on fifth amendment grounds, part of the subpoena directed to the pre-incorporation firm. The government asserts that Doe was not a sole practitioner; that he in fact ran a law firm with "Richard Roe" as his partner prior to their incorporation; and that the firm constituted a "collective entity" not entitled to rely on the fifth amendment privilege.

We agree with the government that the grand jury is entitled to all of the documents. Judge Brieant properly rejected Doe's claim that the attorney-client privilege protects the documents. A principal purpose of the privilege is to "'encourage clients to make full disclosure to their attorneys' in order to enable the attorneys to provide sound legal advice." In re Grand Jury Subpoena Duces Tecum Dated September 15, 1983, 731 F.2d 1032, 1036 (2d Cir. 1984) (quoting Fisher v. United States, 425 U.S. 391, 403, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976)). This purpose is not served by protecting information about client awards and fee arrangements from disclosure except where disclosure of such information would "'amount to the prejudicial disclosure of a confidential communication,'" In re Grand Jury Subpoena Duces Tecum (Shargel), 742 F.2d 61, 64 (2d Cir. 1984) (quoting Colton v. United States, 306 F.2d 633, 637 (2d Cir. 1962), cert. denied, 371 U.S. 951, 83 S. Ct. 505, 9 L. Ed. 2d 499 (1963). Far from containing confidential communications, the subpoenaed documents here merely catalogue financial information often disclosed in pleadings, bills of particulars, discovery, trials and appeals.

We have consistently held that, "absent special circumstances, client identity and fee information are not privileged." In re Grand Jury Subpoena Served Upon John Doe, Esq., 781 F.2d 238, 247 (2d Cir.) (en banc), cert. denied, 106 S. Ct. 1515, 475 U. S. 1108, 89 L. Ed. 2d 914 (1986). Does fails to make a plausible claim for the existence of such circumstances. His principal argument is that the identities, awards and fee arrangements of the firms' clients should not be disclosed since the attorneys, not the clients, are the target of the grand jury investigation. This argument, however, only emphasizes that the rationale underlying the attorney-client privilege is inapplicable here: individuals such as Doe's clients are not likely to refrain from consulting lawyers because financial information arising out of the representation may be used against the lawyers.

Turning to Doe's fifth amendment argument, it is well settled that the amendment does not protect the subpoenaed records of the post- incorporation law firm. No artificial organization may invoke the personal privilege against self-incrimination. See Bellis v. United States, 417 U.S. 85, 90, 40 L. Ed. 2d 678, 94 S. Ct. 2179 (1974). As to the pre- incorporation firm, we agree with the government that it should be treated as a "collective entity", not as a solo practice, and that Doe's personal privilege against self-incrimination is therefore inapplicable.*fn2 See Bellis, supra.

The firm held itself out to the public and the legal community as a collective entity before its incorporation in 1981. It used a letterhead, "Law Offices of 'John Doe' and 'Richard Roe'" listing Doe and Roe at the top (ostensibly as partners) and listing the names of associated attorneys listed below. Three attorneys were at various times listed as "Counsel" to the firm, further indicating the firm's institutional character. The firm's "blue back" for court papers contained Doe's and Roe's names in printed form, and, in a state court affidavit, Roe described himself as a "member of the firm of 'John Doe' and 'Ridhard Roe,' attorneys for the plaintiffs." These public representations are entitled to weight as it would have been a ...

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