S.E.C. v. RAJARATNAM Docket No. 10-462-cv.
622 F.3d 159 (2010)
SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Raj RAJARATNAM, Danielle Chiesi, Defendants-Appellants, Galleon Management, LP, Ali Hariri, Ali T. Far, Anil Kumar, Choo-Beng Lee, David Plate, Deep Shah, Far & Lee LLC, Gautham Shankar, Mark Kurland, New Castle Funds LLC, Rajiv Goel, Robert Moffat, Roomy Khan, S2 Capital Management, LP, Schottenfeld Group LLC, Spherix Capital LLC, Steven Fortuna, Zvi Goffer, Defendants.
United States Court of Appeals, Second Circuit.
Decided: September 29, 2010.
Kevin P. McGrath , Senior Trial Counsel, Securities and Exchange Commission, New York, NY ( Valerie A. Szczepanik , Senior Trial Counsel, Securities and Exchange Commission, New York, NY; David M. Becker , General Counsel, Mark D. Cahn , Deputy General Counsel, Jacob H. Stillman , Solicitor, Mark Pennington , Assistant General Counsel, David Lisitza , Senior Counsel, Securities and Exchange Commission, Washington, DC, on the brief), for Plaintiff-Appellee.
Patricia A. Millett , Akin Gump Strauss Hauer & Feld LLP, Washington, DC ( Robert H. Hotz, Jr. , Samidh Guha, Akin Gump Strauss Hauer & Feld LLP, New York, NY; John M. Dowd , Terence J. Lynam , William E. White , Kevin R. Amer , Issaac J. Lidsky , Anne J. Lee , Akin Gump Strauss Hauer & Feld LLP, Washington, DC, Alan R. Kaufman , James M. Keneally , Thomas B. Kinzler , Kelley Drye & Warren LLP, New York, NY, on the brief), for Defendants-Appellants.
Reed M. Brodsky , ( Andrew L. Fish , on the brief), Assistant United States Attorneys for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Amicus Curiae United States of America in support of Plaintiff-Appellee.
Craig Green , Associate Professor, Temple Law School, Philadelphia, PA, Douglas R. Jensen , Park & Jensen LLP, New York, NY, for Amici Curiae John Does Number One, Two and Three.
Marc Rotenberg , ( John Verdi , Jared Kaprove , on the brief), Electronic Privacy Information Center, Washington, DC, for Amicus Curiae Electronic Privacy Information Center (EPIC) in support of Defendants-Appellants.
Before: RAGGI, LYNCH, and CHIN, Circuit Judges.
GERARD E. LYNCH, Circuit Judge:
Defendants-Appellants Raj Rajaratnam and Danielle Chiesi (hereinafter, "Appellants") appeal from a district court (Jed S. Rakoff, Judge) discovery order compelling Appellants to disclose thousands of wiretapped conversations, originally provided to Appellants by the United States Attorney's Office ("USAO") in parallel criminal proceedings, to Plaintiff-Appellee Securities and Exchange Commission ("SEC") for use in this civil enforcement action against Appellants. We conclude that Title III of the Omnibus Crime Control and Safe Streets Act of 1968 ("Title III"), 18 U.S.C. §§ 2510-2522, does not absolutely prohibit the disclosure of wiretapped conversations from defendants in a civil enforcement proceeding to a civil enforcement agency where the defendants have received those conversations lawfully pursuant to Title III. However, in deciding whether and how much to disclose, a district court must balance the agency's right of access to these materials in civil discovery against the privacy interests at stake. In the instant case, we conclude that although there is no interlocutory jurisdiction over an appeal from this order, a writ of mandamus is warranted, because the district court clearly exceeded its discretion in ordering disclosure of thousands of conversations involving hundreds of parties, prior to any ruling on the legality of the wiretaps and without limiting the disclosure to relevant conversations.
On October 16, 2009, the United States Attorney's Office for the Southern District of New York unsealed criminal complaints charging several defendants, including Appellants Raj Rajaratnam and Danielle Chiesi, with securities fraud and conspiracy.
The Appellants' criminal case was assigned to Judge Richard Holwell. See United States v. Rajaratnam, No. 09 Cr. 1184(RJH). Meanwhile, a separate indictment charging similar crimes against other defendants, arising from the same investigation, was assigned to Judge Richard Sullivan. See United States v. Goffer, No. 10 Cr. 56(RJS). The instant civil SEC action was assigned to yet a third judge, Judge Jed Rakoff.
While the Appellants' civil and criminal cases are proceeding before different judges, both cases revolve around the same allegations: that Appellants engaged in widespread and repeated insider trading at several hedge funds, including Galleon Management, LP, a firm founded by Appellant Rajaratnam, where he remains the managing general partner, and New Castle Funds LLC, where Appellant Chiesi was a hedge fund manager and investment consultant. According to the SEC, the scheme, which allegedly generated over $52 million in illegal profits, involved tips from insiders concerning "market moving events such as quarterly earnings announcements, takeovers, and material contracts," that spurred the defendants to trade shares of numerous public companies illegally.
The criminal investigation into these allegations included court-ordered wiretapping of communications between the defendants and others. According to Appellants, the wiretapped conversations, which spanned sixteen months, included 18,150 communications involving 550 separate individuals, which were intercepted from ten separate telephones—including Appellants' home, office and mobile phones. As part of criminal discovery, the USAO provided to Appellants copies of these wiretapped communications, the orders authorizing the wiretaps, and the government's applications for those orders. The USAO did not, however, share those materials with the SEC.
The SEC instead sought access to the wiretap recordings by demanding them from Appellants in discovery in the civil case before Judge Rakoff. Appellants opposed the demand on the grounds that the materials were not relevant and that disclosure was prohibited by Title III, the statute that authorizes such wiretaps. The SEC then moved to compel disclosure.
The district court heard oral argument on the motion, and, pursuant to a written opinion, ordered Appellants to produce the wiretapped conversations to the SEC and to any other party to the civil action that demanded them.
The court acknowledged Appellants' argument that the privacy and other concerns that led Congress to pass Title III weighed in favor of reading the statute as implicitly prohibiting any disclosure of recordings not expressly authorized, but considered that argument foreclosed by our statement in In re Newsday, Inc., 895 F.2d 74 (2d Cir.1990), that while "Title III generates no right of access,  it is a non-sequitur to conclude the obverse: that Congress intended § 2517 ... to forbid public access by any other means on any other occasion." Id. at 77. The court then noted that Title III made clear that "[a]ny person" could disclose wiretap contents during testimony, and therefore it would be "absurd for the civil attorneys preparing the witness not to have access to the wiretap recordings beforehand."
To accommodate the relevant privacy interests and because Appellants indicated that they would move to suppress the wiretap recordings on the ground that they were unlawfully obtained, the court entered a protective order prohibiting disclosure of the wiretap recordings to any non-party until, at a minimum, a court of competent jurisdiction had ruled on the suppression motion. Appellants appealed the order and we granted a stay pending appeal.
At the time of the district court's order, it had scheduled the civil trial to begin on August 2, 2010. However, when Judge Holwell, who is presiding over Appellants' parallel criminal proceeding, set the criminal trial for October 25, 2010, the USAO intervened and moved to adjourn the civil trial until after the completion of the criminal trial. While no party opposed this adjournment, the district court reserved judgment "because of the strong public interest in having cases of this kind move forward promptly."
Following our grant of a stay of the discovery order, however, the court found that this stay, along with an indication from the bench during the oral argument on the stay motion that the appeal could be affected by a resolution of the suppression motion in the criminal case then scheduled to be heard on June 17, 2010, "tipped the balance toward adjournment." Because resolution of the wiretap issue could not reasonably be expected prior to July 2010 and because counsel for the Appellants would by then be preoccupied preparing for the October criminal trial, the court found that the August trial date was no longer practical and therefore, "with reluctance," adjourned the civil trial until February 14, 2011.
In deciding this appeal, we first address whether we have jurisdiction to review the district court's interlocutory order, and conclude that we lack jurisdiction to hear an appeal of the district court's discovery order. We then consider whether a writ of mandamus is warranted, and conclude that it is, because the district court clearly exceeded its discretion by ordering disclosure of the wiretaps without awaiting a ruling on the legality of the wiretaps or limiting the disclosure order to relevant conversations.
I. Do We Have Appellate Jurisdiction to Review the District Court's Order?
Section 1291 of the Judicial Code provides federal courts of appeals with jurisdiction to review "final decisions of the district courts." 28 U.S.C. § 1291; accord Mohawk Indus., Inc. v. Carpenter, ___ U.S. ___, 130 S.Ct. 599, 603, 175 L.Ed.2d 458 (2009). A "final decision is typically one by which a district court disassociates itself from a case." Mohawk, 130 S.Ct. at 604-05 (brackets and internal quotation marks omitted). However, "a small set of prejudgment orders that are `collateral to' the merits of an action and `too important' to be denied immediate review," id. at 603, quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), are also considered "final decisions" for purposes of the statute. Id. This small set of interlocutory orders that are deemed "final" "includes only decisions [(1) ] that are conclusive, [ (2) ] that resolve important questions separate from the merits, and [ (3) ] that are effectively unreviewable on appeal from the final judgment in the underlying action." Id. at 605 (internal quotations marks omitted).
In determining whether an interlocutory order fits within this exception, we do not engage in an "individualized jurisdictional inquiry" into the specific order appealed from. Id. (internal quotation marks omitted). Instead, our focus is on "the entire category to which a claim belongs." Id. (internal quotation marks omitted). So long as the category of claim can be vindicated by other means, "the chance that the litigation at hand might be speeded, or a particular injustice averted, does not provide a basis for jurisdiction under § 1291." Id. (internal quotation marks and brackets omitted). The Supreme Court has emphasized that the collateral order exception to the final judgment rule must "never be allowed to swallow the general rule that a party is entitled to a single appeal," and that "[p]ermitting piecemeal, prejudgment appeals... undermines efficient judicial administration and encroaches upon the prerogatives of district court judges, who play a special role in managing ongoing litigation." Id. (internal quotation marks omitted); see also id. at 609 ("[W]e reiterate that the class of collaterally appealable orders must remain `narrow and selective in its membership.'").
The parties disagree about how to define the category of orders to which the challenged order belongs. The SEC would define the category as "civil discovery orders requiring disclosure of wiretap
In City of New York, we addressed whether or not a writ of mandamus was appropriate to review a discovery order requiring the City of New York to produce "sensitive intelligence reports" prepared by undercover police officers to class action plaintiffs. Id. at 928. The City argued that the documents were protected from disclosure by the "law enforcement privilege." Id. In explaining why a petition for mandamus was the only "adequate means" for the City to seek review of the order, we found that it was "clear that the City cannot challenge the District Court's order by means of an interlocutory appeal." Id. at 933. We noted that "the Supreme Court has recently clarified [that] the collateral order doctrine does not extend to disclosure orders adverse to a claim of privilege." Id., citing Mohawk, 130 S.Ct. at 609 (internal quotation marks omitted). The Supreme Court has made clear that when a court rejects a claim of privilege, the losing party must "pursue other `avenues of review apart from collateral order appeal,' including, `in extraordinary circumstances,' a `petition to the court of appeals for a writ of mandamus.' "Id., quoting Mohawk, 130 S.Ct. at 607 (brackets omitted).
While it is true that both Mohawk and City of New York dealt with claims of common-law evidentiary privilege, and the instant case involves statutorily recognized privacy rights that carry "constitutional overtones," we do not think that difference is sufficient to take the instant case outside of our holding in City of New York. Indeed, while Appellants do not phrase their argument as involving a "privilege," in effect, they seek a finding that Title III makes wiretap materials "privileged" vis-à-vis a civil enforcement agency's discovery request. Moreover, while the claimed "privilege" at issue in the instant case derives from statute, City of New York also dealt with a privilege that was at least partially embodied in statutes. See id. at 941 (noting that the law enforcement privilege "developed at common law from executive privilege," but that it had "been largely incorporated into both New York state and federal statutory law." (footnotes omitted)). In any event, even if City of New York had dealt with a purely common-law privilege, we do not see why the fact that the instant case involves a claimed statutory privacy right would take it outside our holding in City of New York that disclosure orders adverse to a claim of privilege are categorically not immediately reviewable.
For this reason, while there may be arguments in any particular case, as there are in the instant case, that the rejection of a claim of privilege by a discovery order impinges significant interests, there is no interlocutory jurisdiction to review the order.
II. Is a Writ of Mandamus Appropriate?
Even though we lack interlocutory jurisdiction to review the district court's order, a writ of mandamus may still be appropriate. However, we invoke this "extraordinary remedy" only in "exceptional circumstances amounting to a judicial usurpation of power, or a clear abuse of discretion." Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 380, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004) (citations and internal quotation marks omitted). A writ of mandamus is a "drastic and extraordinary remedy reserved for really extraordinary causes." Id. (internal quotation marks omitted); see also City of New York, 607 F.3d at 943. To issue the writ, three conditions must be satisfied:
City of New York, 607 F.3d at 932-33, quoting Cheney, 542 U.S. at 380-81, 124 S.Ct. 2576 (brackets omitted).
The writ is appropriate here because no adequate alternative remedies are available, the issue involved is novel and significant and its resolution will aid the administration of justice, and Appellants have shown a "clear and indisputable right" to the writ, because the district court's order undeniably failed to weigh properly the privacy interests at stake against the SEC's right to disclosure. Specifically, the district court failed to ascertain the legality of the wiretaps at issue, a critical factor in determining how to weigh the competing interests. Further, it ordered a wholesale disclosure of the wiretaps without regard to the relevancy of particular recordings, another factor that necessarily informs an assessment of weight.
A. Whether Alternative Remedies are Adequate
Despite the SEC's argument to the contrary, the privacy interests harmed by the disclosure order here could not be adequately remedied on final appeal.
In Bartnicki v. Vopper, 532 U.S. 514, 121 S.Ct. 1753, 149 L.Ed.2d 787 (2001), the Supreme Court noted that
Id. at 533, 121 S.Ct. 1753 (emphasis added). Similarly, in Gelbard v. United States, 408 U.S. 41, 92 S.Ct. 2357, 33 L.Ed.2d 179 (1972), the Court noted that "[c]ontrary to the Government's assertion that the invasion of privacy is over and done with, to compel the testimony of [ ] witnesses compounds the statutorily proscribed invasion of their privacy by adding to the injury of the interception the insult of compelled disclosure." Id. at 51-52, 92 S.Ct. 2357. In short, there is a distinct privacy right against the disclosure of wiretapped private communications that is separate and apart from the privacy right against the interception of such communications. Because suppressing illegally intercepted evidence, or finding the discovery order erroneous on appeal of a final judgment, would not remedy the harm done to the right against disclosure, we find that, at least in the context of the
In the instant case, the harm to this interest is compounded by the fact that the ordered disclosure affects the rights of numerous innocent parties, who will have even their irrelevant conversations disclosed to the SEC and other parties, whose constitutional and statutory rights may already have been violated should the wiretaps prove to have been illegal, and who will have no means of vindicating their privacy rights in any final appeal.
The SEC's heavy reliance on United States v. Miller, 14 F.3d 761 (2d Cir.1994), for the proposition that an order disclosing wiretap evidence can be adequately remedied on direct appeal is misplaced. In Miller, we did find that final review was adequate to vindicate the privacy rights at issue in certain defendants' appeal of the denial of motions to prohibit the entry of wiretapped conversations into evidence. In Miller, however, the tapes at issue had already been played at the defendants' public trials after a judicial determination that the interceptions had been lawful. Id. at 764. In addition, of the two defendants involved in Miller, one had already been found guilty and sentenced, and the other had been convicted and awaited sentencing. Id. at 762-63. There was no reason to hear an appeal before sentencing instead of after it. More fundamentally, however, the defendant's right against disclosure was not at issue; illegally obtained or not, the conversations had already been disclosed to the public. See id. at 764 (finding defendants' appeal moot because "the tapes ... have already been played at... trial"). Indeed, we noted in Miller that because the conversations had been played at trial, "the `cat [was] out of the bag' so to speak, and there [was] no way the trial court or this Court [could] put it back in." Id. Unlike Miller, where the only relevant privacy right at issue was the right against unlawful interception, in the instant case the cat is not yet out of the bag, and we must consider both the Appellants' (and others') rights against unlawful interception and their rights against the initial disclosure. Once the "cat is out of the bag," the right against disclosure cannot later be vindicated.
This finding, of course, does not mean that a writ of mandamus will always be appropriate to remedy an erroneous disclosure order. The other elements of the test for the appropriateness of the writ must still be met. However, given the particular circumstances of this case, where the privacy rights of hundreds of parties are at issue, the legality of the interceptions has not yet been decided, and the disclosure order encompasses both relevant and irrelevant conversations, we find final review would be an inadequate alternative remedy.
B. Whether the Writ is Appropriate in the Circumstances of This Case
While we have "expressed reluctance to issue writs of mandamus to
While we have addressed the propriety of disclosures of wiretap evidence in civil proceedings before, our prior cases have never involved the circumstances here: where there are parallel civil and criminal trials, where the government has disclosed materials to a criminal defendant, where the legality of the wiretaps has yet to be adjudicated, and where a civil enforcement agency suing the defendant in parallel proceedings seeks access to these materials from the defendant. The issues in this appeal are therefore clearly novel. In addition, given the importance of both the privacy rights at stake and the public interest in civil enforcement of the law, these issues are also significant. Cf. City of New York, 607 F.3d at 941-42.
Resolving the issues in this appeal would also "aid in the administration of justice" by helping district courts avoid erroneous discovery orders in the future. As we stated in City of New York, "we have previously recognized that the resolution of a novel and significant privilege question in a mandamus proceeding will `aid the administration of justice.' Addressing the merits of this petition ... may `forestall future error in trial courts' by correcting a privilege determination with a potentially broad applicability and influence." Id. at 942, quoting von Bulow, 828 F.2d at 99.
C. Whether There is a "Clear and Indisputable Right" to the Writ
A district court abuses its discretion "if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence," or if it has "rendered a decision that `cannot be located within the range of permissible decisions.'" Sims, 534 F.3d at 132 (citations omitted). We will issue the writ only if a district court committed a "clear and indisputable" abuse of its discretion in one of these ways. See City of New York, 607 F.3d at 929. As we explain below, it is "clear and indisputable" that, given the privacy interests at stake, the district court's decision ordering disclosure of the wiretap conversations prior to any ruling on the legality of the interceptions and without limiting the disclosure to relevant conversations "cannot be located within the range of permissible decisions." A writ of mandamus is therefore appropriate.
Below, we first examine whether Appellants are correct that Title III prohibits all pre-trial discovery disclosure orders in civil
III. Does Title III Prohibit All Civil Pre-Trial Discovery Disclosure Orders?
Appellants primarily argue that the text of Title III, which authorizes certain methods of disclosing wiretap materials, implicitly forbids civil discovery orders requiring disclosure of wiretap materials from criminal defendants. We disagree.
A. Textual Arguments
Largely in response to two Supreme Court decisions, one holding that a broadly written statute authorizing police to conduct wiretaps violated the Fourth Amendment, see Berger v. New York, 388 U.S. 41, 87 S.Ct. 1873, 18 L.Ed.2d 1040 (1967), and the other that attaching a recording device outside a telephone constitutes a search within the meaning of that Amendment, see Katz v. United States, 389 U.S. 347, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967), "`Congress undertook to draft comprehensive legislation both authorizing the use of evidence obtained by electronic surveillance on specified conditions, and prohibiting its use otherwise.'" Bartnicki, 532 U.S. at 523, 121 S.Ct. 1753, quoting Gelbard, 408 U.S. at 78, 92 S.Ct. 2357 (Rehnquist, J., dissenting). The result of Congress's efforts was Title III, which established a "comprehensive scheme for the regulation of wiretapping and electronic surveillance." Gelbard, 408 U.S. at 46, 92 S.Ct. 2357.
"Title III authorizes the interception of private wire and oral communications, but only when law enforcement officials are investigating specified serious crimes and receive prior judicial approval." Id., citing 18 U.S.C. § 2516, 2518(1)-(8). All interceptions of wire and oral communications not authorized in Title III are "flatly prohibited," and Title III generally "bars the use as evidence before official bodies of the contents and fruits of illegal interceptions, and provides procedures for moving to suppress such evidence in various proceedings." Id., citing 18 U.S.C. § 2515, 2518(9)-(10).
Appellants argue that Title III's text prohibits the disclosure at issue. However, Appellants point to no provision that prohibits the disclosure of wiretap materials to a civil enforcement agency by a civil defendant in the course of ordinary civil discovery in an enforcement proceeding, following the government's disclosure of the materials to the civil defendant in the defendant's parallel criminal proceedings. Instead, Appellants point to numerous provisions in Title III barring and permitting types of disclosures and interceptions not at issue in the instant case. Despite Appellants' arguments to the contrary, we reiterate today that Title III does not prohibit whatever disclosures of lawfully seized communications it does not expressly permit. See Newsday, 895 F.2d at 77.
Appellants first note that Title III only authorizes the government to wiretap communications when investigating certain crimes, which do not include insider trading or securities fraud. See 18 U.S.C. § 2516. However, even if wiretaps could not be authorized for the purpose of investigating these crimes, nothing in Title III bars the use of the fruits of authorized wiretaps obtained in the pursuit of investigations of suspected crimes that are listed in Title III in securities fraud or insider trading proceedings. Cf. 18 U.S.C. § 2517(5) (permitting disclosure and use of wiretap communications relating to offenses other than those specified in the order of authorization).
Next, Appellants focus on the language in 18 U.S.C. § 2518(8)(b) requiring a showing of "good cause" before wiretap applications or orders can be disclosed, and argue that the SEC is not an "aggrieved person" such that it can show the requisite "good cause." See In re New York Times Co., 577 F.3d 401, 406 (2d Cir.2009) ("[O]ur Court concluded a quarter-century ago that `good cause' could be found where the applicant seeking to unseal wiretap applications was an `aggrieved person,' but not upon any lesser showing."); 18 U.S.C. § 2510(11) (defining "aggrieved person" as "a person who was a party to any intercepted ... communication or a person against whom the interception was directed"). However, section 2518(8)(b) applies only to the disclosure of wiretap applications and orders, not to the disclosure of the contents of wiretapped communications, which is discussed briefly in a separate subsection of the same section that has no "good cause" requirement, compare 18 U.S.C. § 2518(8)(a) with 18 U.S.C. § 2518(8)(b); see also 18 U.S.C. § 2518(9), and, at length, in a separate section of Title III, see 18 U.S.C. § 2517. Since Congress has specifically laid out different requirements for the disclosure of wiretap applications and orders than for the disclosure of wiretapped communications, we decline to read the requirements for the former to apply to the latter.
18 U.S.C. § 2517(1)-(3).
Appellants argue that because § 2517(1) and (2) do not permit the USAO itself to provide the wiretapped conversations to the SEC, these provisions must implicitly bar the SEC from acquiring the conversations from the Appellants. The USAO supports the first part of this proposition in an amicus curiae brief filed in this appeal, agreeing that it could not provide the wiretap conversations to the SEC "without any law enforcement purpose and solely to assist the SEC in a civil case."
Without ruling on whether the USAO's position is correct, we conclude that even if Title III does not authorize the USAO to disclose the wiretap contents to the SEC, it would not follow that Title III prohibits the disclosure here, where the USAO has lawfully disclosed wiretapped communications to criminal defendants pursuant to § 2517(2). That is the only disclosure that has been made by law enforcement officers in this case, and it is plainly permitted by § 2517(2). Nothing in § 2517(1) or (2) addresses the rights or duties of criminal defendants to whom intercepted communications are lawfully disclosed to engage in further disclosures.
The purpose behind any prohibition on the USAO's sharing wiretap contents with a civil enforcement agency would appear to be to limit law enforcement uses of the materials to those prescribed in the statute. This purpose does not suggest that the SEC should not receive these materials from a civil defendant in the instant case. Such disclosure implicates completely different interests relating to the role of civil discovery in ensuring informational
Nor are we persuaded that 18 U.S.C. § 2517(3), which permits "[a]ny person," to disclose wiretap contents "while giving testimony" prohibits the ordered disclosure in this case. Congress's categorical authorization of testimonial disclosures is not reasonably construed as a bar to a district court's authorizing other disclosures as warranted in particular cases.
Finally, Appellants claim that Title III bars the disclosure at issue, because they could be subject to criminal sanctions for complying with the order, since they would be "intentionally disclos[ing]" the wiretapped communications while "knowing or having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication," 18 U.S.C. § 2511(1)(c), in violation of Title III. We disagree. Criminal sanctions would not be applicable to any disclosure by Appellants pursuant to the order, because "good faith reliance on a court ... order ... is a complete defense against any civil or criminal action" brought under Title III. 18 U.S.C. § 2520(d)(1). Section 2511(1)(c) provides a criminal sanction for disclosures that violate the provisions of Title III, but it does little or nothing to help answer the question of whether a particular disclosure is allowed or not.
In sum, Appellants have failed to point to any provision of Title III that explicitly
Although Appellants can point to no provision in Title III prohibiting the disclosure at issue, they argue more broadly that Title III's failure expressly to permit the disclosure at issue implicitly prohibits it. This argument is foreclosed by our decision in In re Newsday, Inc., 895 F.2d 74.
In Newsday, a newspaper sought access to a search warrant application containing wiretap communications that had been sealed by the district court at the request of the government. Id. at 75. Following a guilty plea by the subject of the wiretap, the government withdrew its earlier objection to unsealing the application, and the district court released a redacted copy of the warrant materials. Id. The subject of the wiretap appealed, making essentially the same argument that Appellants make in the instant case: that Title III forbade such public disclosure of wiretap information, because the disclosure provisions of Title III are the "exclusive means by which intercepted communications may be released to the public." Id. at 77.
We held that Title III did not specifically address the issue of a right of "public access to intercepted communications when those communications become part of a public document [such as the warrant affidavit at issue] after having been used by the government in the course of its law enforcement activities." Id. at 76. Rejecting the appellant's reliance on the Seventh Circuit's decision in United States v. Dorfman, 690 F.2d 1230, 1232 (7th Cir. 1982) ("Title III implies that what is not permitted is forbidden"), we agreed that Title III "generates no right of [public] access," but found it "a non-sequitur to conclude the obverse: that Congress intended in § 2517, which relates solely to use in law-enforcement activities and judicial proceedings, to forbid public access by any other means on any other occasion." Newsday, 895 F.2d at 77. We noted that "nowhere does Title III state rules regarding disclosure of intercepted communications to the public incident to, or after, their use under § 2517.... No doubt the framers of Title III expected that the main channel of public disclosure of intercepted communications would be testimonial, but they did not so confine it." Id. at 78.
In Newsday, we ruled that there was a common law right of access to the judicial documents at issue, but that the right of access needed to be balanced against the privacy rights at issue, i.e., "the privacy rights of the person whose intimate relations may ... be disclosed." Id. at 79. We then concluded that the district court had not abused its discretion in ordering the release of a redacted affidavit. Id. at 80; see also id. at 75 ("[W]e hold that the district court properly balanced the common law right of access to judicial records with the defendant's privacy rights, and affirm its release of a redacted copy of the warrant application.").
In short, in Newsday, we held that Title III does not prohibit all disclosures of legally intercepted wire communications that it does not expressly permit, and that in determining whether a right of access should lead to disclosure of Title III materials, the right of access should be
Appellants argue that Newsday is distinguishable, because it involved a disclosure of wiretap materials that had already been filed as part of a "public document."
We have repeatedly employed such balancing when dealing with Title III issues.
C. NBC and New York Times
Appellants argue that other circuit precedent counsels against such an analysis. First, Appellants cite our decision in National Broadcasting Co. v. U.S. Department of Justice, 735 F.2d 51 (2d Cir.1984) ("NBC")—our only precedent that deals directly with a civil discovery dispute, as opposed to a common-law or First Amendment right of access, involving wiretap materials. In NBC, we noted that "Congress did not utilize a provision in the Organized Crime Control Act [amending § 2517] to make the fruits of wiretapping broadly available to all civil litigants who show a need for them." Id. at 54. While that statement is clearly correct so far as it goes, NBC does not stand for the proposition that the disclosure of Title III materials in civil discovery is necessarily foreclosed.
NBC involved a libel suit brought by Wayne Newton, the entertainer, against NBC, the broadcasting corporation, based on broadcasts concerning organized crime investigations involving Newton. Id. at 51-52. The government had conducted wiretaps in an investigation of organized crime members' attempts to extort money from Newton and others. Id. at 52. To defend against the libel action, NBC sought discovery from the government of the wiretap applications, orders, and recordings. Id. The government opposed disclosure of these documents. Id. The district court found that, while the interceptions were legal, "it lacked the power to order the government to disclose the[ ] contents [of the wiretaps] in a civil proceeding to which the government was not a party." Id. at 53.
We affirmed the district court, noting that, while § 2517(3) had been amended in 1970 to permit disclosure of materials in civil as well as criminal proceedings, "turning Title III into a general civil discovery
While NBC stands for the proposition that a civil litigant cannot force the government to disclose Title III materials in an ordinary civil case for the simple expedient of aiding its defense, it does not govern the instant case. NBC is distinguishable in two fundamental ways. First, it dealt with whether a court could order the government to disclose previously undisclosed wiretap recordings against its wishes in a civil proceeding unrelated to the government's criminal case. In the instant case, on the other hand, the government has disclosed these materials to a party pursuant to § 2517(2), and the question is whether or not the court can order that party to disclose the materials in the interest of the civil discovery principle of equal knowledge. Second, there was no relevant informational imbalance in NBC, as Newton did not have access to these materials either. Here, in contrast, Appellants have free access to the materials to prepare their defense in the SEC action.
Therefore, while NBC establishes that Title III is not meant to make wiretap materials a repository of information available from the government by subpoena to civil litigants for use in private disputes, it does not address the legitimacy of ordering the discovery from a private litigant of Title III materials that have already been disclosed to that litigant by the government, in order to create a level playing field between a civil enforcement agency and that litigant.
Finally, while NBC makes clear that Title III does not make wiretap materials in the government's possession freely available to civil litigants, it does not support the proposition that discovery of such materials from anyone, made under any circumstances, is forbidden. Indeed, the result in NBC is entirely compatible with the balancing approach set forth in Newsday. Under the circumstances present in NBC, the interests weighing against disclosure were overpowering. In addition to the privacy interests of those who had been overheard, the government's strong interest in the confidentiality of a criminal investigation strongly counseled against disclosure. See NBC, 735 F.2d at 52 (noting that the government opposed disclosure, in part, because "the wiretap applications contained descriptive data regarding confidential informants"). Moreover, absent any new criminal prosecution, there was no reason to believe that the wiretap materials that had not been disclosed at the related criminal trial would ever be disclosed to anyone outside the government.
Appellants' reliance on New York Times, 577 F.3d at 406, for the proposition that there is a "strong presumption against disclosure of the fruits of wiretap applications," is also misplaced. Id. (emphasis omitted). In New York Times, we concluded that because The New York Times was not an "aggrieved person" it could not show the requisite "good cause" to release applications under Title III regarding wiretaps of the prostitution ring once patronized by former Governor Eliot Spitzer. Id. at 408. New York Times, however, dealt with the disclosure of wiretap applications, not contents.
In short, Appellants have failed to point us to any case law establishing that Title III prohibits the disclosure of wiretap materials in a situation such as this one: where the government has previously disclosed the contents of wiretaps to a party, and a civil enforcement agency seeks access to those contents from that party, not from the government.
IV. Did the District Court Exceed its Discretion in Entering the Instant Order?
"We review discovery rulings for abuse of discretion." In re Agent Orange Prod. Liab. Litig., 517 F.3d 76, 102 (2d Cir.2008). Pursuant to Newsday, the district court was required to determine whether or not the SEC had a right of access to the materials, and, if so, whether any such right outweighed the privacy interests at stake. We conclude that the district court correctly found that the SEC had a legitimate right of access to the materials, but that it clearly exceeded its discretion in finding—on the record before it—that this right of access outweighed the privacy interests implicated by the order. Further inquiry was necessary, specifically, into the legality of the wiretaps and the relevancy of the recordings to be disclosed, before any such conclusion could be reached.
A. The SEC's Right of Access
Under the circumstances of this case, where the civil defendant has properly received the Title III materials at issue from the government, the SEC has a presumptive right to discovery of these materials from its adversary based on the civil discovery principle of equal information.
The Supreme Court has acknowledged the "fundamental maxim of discovery that `[m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.'" Société Nationale Industrielle Aérospatiale v. U.S.
Federal Rule of Civil Procedure 26(b)(1) embodies this principle by permitting parties to "obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense." Fed. R.Civ.P. 26(b)(1); see also id. ("Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence."). However, while the SEC has a right of access to the materials possessed by Appellants, that right of access does not outweigh any and all privacy interests at issue. A balancing is required for a district court reasonably to exercise its discretion.
The right of access to discovery materials is frequently qualified in the interest of protecting legitimate interests. See, e.g., In re Agent Orange, 517 F.3d at 103 ("A district court has wide latitude to determine the scope of discovery ... [and] abuses its discretion only when the discovery is so limited as to affect a party's substantial rights." (internal quotation marks and citations omitted)); see generally In re Subpoena Issued to Dennis Friedman, 350 F.3d 65, 69 (2d Cir.2003) ("[T]he federal rules give district courts broad discretion to manage the manner in which discovery proceeds."). For example, a district court may permit the withholding of otherwise discoverable evidence to avoid disclosing privileged information, Fed. R.Civ.P. 26(b)(5)(A) (accounting for a party "withhold[ing] information otherwise discoverable by claiming that the information is privileged"); see, e.g., City of New York, 607 F.3d at 948 ("Once the party asserting the privilege successfully shows that the privilege applies, the district court must balance the public interest in nondisclosure against the need of a particular litigant for access to the privileged information." (internal quotation marks omitted)), or trial preparation materials, Fed.R.Civ.P. 26(b)(3) (setting limitations on when and what kind of attorney work-product "documents and tangible things" may be disclosed, but noting that court "must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation"); see, e.g., In re Grand Jury Subpoenas Dated Mar. and Aug. 2002, 318 F.3d 379, 383-84 (2d Cir.2003). A district court must also limit "the frequency or extent of discovery" if it determines that it is "unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive ... [or where] the burden or expense of the proposed discovery outweighs its likely benefit." Fed.R.Civ.P. 26(b)(2)(C); see, e.g., In re Subpoena Issued to Dennis Friedman, 350 F.3d at 69. And a district court may issue protective orders "for good cause ... to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." Fed.R.Civ.P. 26(c)(1); see, e.g., City of New York, 607 F.3d at 949; In re Subpoena Issued to Dennis Friedman, 350 F.3d at 69. In short, as is true generally in the discovery context, the SEC has a
We first examine the weight of the SEC's interest. Appellants' unilateral access to this information in preparing for trial would surely be prejudicial to the SEC, because, even if Appellants do not use any of the recordings at the civil trial, they could still use the materials in preparation for trial—for example, by preparing to cross-examine witnesses at deposition or at trial, by attacking the credibility of witnesses, or by deciding how to structure their defense. Placing the parties on a level playing field with respect to such functions is the very purpose for which civil discovery exists. For this reason, we find that the SEC's right of access is significant.
Appellants make several arguments that there is no relevant informational imbalance. They argue that Congress intentionally created any imbalance that might exist when it withheld wiretap authority from the SEC, and that the SEC could simply depose Appellants if it wished to learn about their telephone conversations. Moreover, they argue that they do not intend to use these materials in their civil defense. Appellants also argue that informational equality is not always guaranteed, pointing to differential rules of access for civil and criminal litigants with regards to sensitive information involved in grand jury proceedings and materials protected by executive privilege. Finally, Appellants argue that there is no informational harm because the wiretapped conversations at issue here are not relevant. While these arguments demonstrate that the SEC's rights to discovery cannot be absolute, and some of them bear on the balance to be struck, they do not convince us that the SEC does not have a significant interest in access to these materials that, if it outweighs the privacy interests at stake, could permit a district court to order disclosure.
First, for reasons already discussed, we are not persuaded that Congress has acted to deny the materials at issue to the SEC. The fact that Title III does not permit the SEC to engage in wiretapping does not mean that it forbids the SEC from possessing the fruits of wiretaps legitimately intercepted during a criminal investigation and disclosed to parties against whom the SEC is litigating. The issue is not whether the SEC has a right to obtain verbatim accounts of its adversaries' conversations by wiretapping—the power that Congress denied to the SEC. Rather the question is whether Appellants are entitled to withhold such verbatim accounts of their conversations, which are in their possession, from their adversary in litigation.
Second, as Appellants admit, any depositions of Appellants would be unlikely to be fruitful given the likelihood that Appellants would invoke their Fifth Amendment rights due to the pending criminal proceeding. Appellants submit that this concern would be mitigated if the SEC had waited to file its case until after the criminal proceeding concluded; or, for that matter, if the district court had agreed to adjourn the enforcement proceeding until after the criminal proceeding. Even if we were to agree, such mitigation would not resolve this appeal. Appellants's deposition is not a perfect substitute for access to the wiretapped conversations even apart from any invocation of Fifth Amendment rights, given the likelihood that Appellants would not remember the contents of many potentially relevant conversations to which their attorneys, in possession of recordings of those conversations, would still have access. In any event, parties to litigation are not limited in discovery to their adversaries' recollection as to matters reduced to writing, recorded, or otherwise memorialized.
Third, while Appellants state that they do not intend to use the materials in preparation for their civil trial, that intention does not eliminate the unfair advantage they might have against the SEC, given that the team of lawyers defending the criminal case substantially overlaps with that defending the civil case. It would be nearly impossible to stop the attorneys from, at the very least subconsciously, using information from these materials in preparation for the civil trial.
Fourth, while Appellants may be correct that civil and criminal litigants may have different discovery rights regarding grand jury proceedings and claims of executive privilege, the cases cited by Appellants do not bear on the instant case. While it is true that government civil attorneys may only receive grand jury materials from prosecutors for the purposes of pursuing a civil suit upon making a showing of "particularized need," United States v. Sells Eng'g, Inc., 463 U.S. 418, 420, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983); see also Illinois v. Abbott & Assocs., 460 U.S. 557, 566-67, 103 S.Ct. 1356, 75 L.Ed.2d 281 (1983); Douglas Oil Co. of Cal. v. Petrol Stops Nw., 441 U.S. 211, 222-24, 99 S.Ct. 1667, 60 L.Ed.2d 156 (1979), this does not affect the analysis of when a civil enforcement agency can receive wiretap materials from a civil litigant who has lawfully received the materials from the government. The cases cited by Appellants do not appear to have involved disclosure requests directed to private parties who have previously received the requested materials legitimately from the government.
Similarly, Appellants are correct that civil discovery interests may be less weighty than criminal discovery interests in dealing with executive privilege. See Cheney, 542 U.S. at 384, 124 S.Ct. 2576 ("The need for information for use in civil cases, while far from negligible, does not share the urgency or significance of the criminal subpoena requests in [United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) ]."). But that argument simply goes to the balance that must be undertaken and does not undermine the SEC's presumptive right to discovery. Indeed, not even executive privilege is absolute, see Nixon, 418 U.S. at 707, 94 S.Ct. 3090, and, just as in this case, interests must be weighed in deciding whether information subject to the privilege should be disclosed. In short, while a civil discovery interest in material may weigh less heavily than a criminal discovery interest, it does not follow that the SEC's right to informational equality is outweighed by Appellants' privacy interests in the instant case.
Finally, since the district court did not evaluate the materials to determine their relevance, we are not in a position to evaluate Appellants' claim that the wiretap conversations are not relevant. If they are relevant, see Fed.R.Civ.P. 26(b)(1) ("Unless otherwise limited by court order ... [p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense...."), then Appellants' possession of the conversations would put the SEC at a disadvantage, and the SEC has a presumptive right to discover them. And, as we conclude below, any disclosure of wiretap conversations should be limited to relevant conversations in any event.
In sum, despite Appellants' arguments to the contrary, the SEC clearly has an interest in access to these wiretap conversations insofar as they create an informational imbalance prejudicing its preparation for the civil trial.
B. The Privacy Interests at Stake
While the SEC has a right of access to the wiretap materials, that right must be balanced against the strong privacy interests at stake in connection with the fruits of electronic surveillance. The privacy interests in the instant case merit particular attention given that the disclosure order implicated thousands of conversations of hundreds of innocent parties, and that the district court ordered disclosure prior to any ruling on the legality of the interceptions and without limiting the disclosure to relevant conversations.
The Supreme Court has made clear that "although Title III authorizes invasions of individual privacy under certain circumstances, the protection of privacy was an overriding congressional concern." Gelbard, 408 U.S. at 48, 92 S.Ct. 2357; see also Bartnicki, 532 U.S. at 523, 121 S.Ct. 1753 ("One of the stated purposes of [Title III] was `to protect effectively the privacy of wire and oral communications.'"); id. at 532, 121 S.Ct. 1753 ("Privacy of communication is an important interest, and Title III's restrictions are intended to protect that interest...." (citation and footnote omitted)). Indeed, we have reiterated the importance of the privacy interests embodied in Title III time and again.
C. The District Court Could Not Properly Balance the Interests at Stake on the Record Before It
At the present stage of this litigation, a definitive balancing of the interests at stake in this case is impossible, because the record is not adequately developed to support the broad order appealed from. Nevertheless, it is clear that the order appealed from, for those very reasons, cannot be sustained. The district court exceeded its discretion in failing to balance properly the relevant privacy interests against the SEC's right of access in two major ways: (1) by ordering the disclosure of the conversations prior to a ruling on the legality of the interceptions, and (2) by failing to limit the disclosure order to relevant conversations.
1. The Suppression Motions Have Not Been Decided
The sheer number of conversations and parties at interest in this case evince a strong privacy interest that would require an equally strong right of access to support disclosure. Even absent such numbers, a district court could not effectively balance these competing interests while the legality of the wiretaps is at issue. If the legality of the wiretaps is upheld, any privacy rights against interception would have been infringed lawfully and with good purpose. On the other hand, if the wiretaps are found to have been unlawful, the privacy rights at issue would already have been grievously infringed, and further dissemination of conversations that had been illegally intercepted would only compound the injury. Title III limits the proper dissemination and use of lawfully-authorized electronic surveillance. It absolutely prohibits, however, the intentional disclosure of the fruits of unlawful wiretapping. See 18 U.S.C. §§ 2518(10)(a) & 2511(1)(c); see also id. § 2515; Gelbard, 408 U.S. at 46, 92 S.Ct. 2357 ("Unauthorized interceptions and the disclosure or use of information obtained through unauthorized interceptions are crimes, and the victim of such interception, disclosure, or use is entitled to recover civil damages." (citation omitted)).
A determination suppressing the fruits of the surveillance here at issue would drastically alter the balance of interests in the civil case. Moreover, while there would still be some asymmetry in the fact that Appellants' attorneys would have had access to the materials while preparing their defense, a suppression order would at
The additional violations of rights that would result if the disclosed conversations were found to be illegally intercepted could easily be avoided by requiring that the disclosure order await a ruling on the legality of the intercepts. In contrast, there appears to have been no significant benefit to either party in ordering the disclosure prior to the adjudication of the pending suppression motions in the criminal case. No emergency compelled the court to order all discovery completed prior to any decision on the legality of the electronic surveillance. Indeed, awaiting a ruling on the legality of the interceptions would advance all the interests at stake, because if the wiretaps were found to be legal, the privacy interests would be less weighty, and if the wiretaps were found to be illegal, the privacy interests would be protected because disclosure would not be permitted, thereby limiting both any "taint" on relevant actors and any further infringement on the right against disclosure.
The more prudent course in the instant case may have been to adjourn the civil trial until after the criminal trial. Apparently, all the parties agreed to such a request, yet the district court declined to grant it. Were the civil trial adjourned, the most relevant wiretapped conversations, assuming they were found to be legally intercepted, might well be publicly disclosed at the criminal trial, and the SEC would then be able to use these materials in a civil proceeding without implicating any weighty privacy rights. Such an adjournment would have the added benefit of making the district court's job of balancing any relevant interests significantly easier.
At a minimum, however, ordering discovery of the wiretap materials before any determination of the legality of the surveillance involved exceeded the district court's discretion. A primary reason for the pretrial disclosure of the material to Appellants in the criminal case in the first place was to enable them to make motions addressing their legality before the judges presiding over the related criminal cases. Appellants and the defendants in the related cases have indeed made, or indicated they will make, such motions before Judges Holwell and Sullivan, and proceedings to resolve them are under way. See United States v. Rajaratnam, No. 09 Cr. 1184(RJH), 2010 WL 3219340 (S.D.N.Y. Aug. 12, 2010) (Doc. No. 130) (ordering evidentiary hearing with respect to motion to suppress); United States v. Goffer, No. 10 Cr. 56(RJS) (S.D.N.Y. Sep. 10, 2010) (Doc. No. 98) (setting briefing schedule on motions). A district court has a legitimate interest in maintaining control over its docket and enjoys considerable discretion in setting schedules for discovery, motions, and trial, but that interest is insufficient to support an order directing the further dissemination
Given that there were so many reasons to wait until a court had ruled on the legality of the interceptions, and no persuasive reasons to proceed without waiting, the district court's decision to order disclosure of the wiretap communications prior to any ruling on their legality clearly "cannot be located within the range of permissible decisions." Sims, 534 F.3d at 132 (citation and internal quotation marks omitted). The privacy interests at stake prior to a ruling on the legality of interceptions clearly outweigh the SEC's interest in discovery.
2. The Court's Failure to Limit the Disclosure to Relevant Conversations
The district court also clearly exceeded its discretion by failing to limit the disclosure of the wiretapped conversations to relevant conversations. The SEC does not have a right of access to irrelevant conversations, even if lawfully intercepted, because Appellants' possession of these conversations would not benefit them in preparing for the civil trial. Indeed, both the SEC and USAO agree that the order should be limited to relevant disclosures. See, e.g., SEC Br. 8 ("Although not emphasized in the district court, the Commission has no objection to either this Court or the district court making it explicit that only relevant materials need be produced. This would exclude all-nonrelevant communications, including obviously all communications with third parties involving matters unrelated to the charged civil and criminal conduct."); see also id. at 55 ("The Commission does not seek materials that are not relevant to its claims, and if necessary the district court's order can be modified to make this point explicitly."). The point assumes particular significance here where ordering the disclosure of all the conversations without limiting discovery to relevant material could infringe the privacy rights of hundreds of individuals, whose irrelevant, and potentially highly personal, conversations with the Appellants would needlessly be disclosed to the SEC and other parties, without furthering any legitimate countervailing interest. The district court clearly exceeded its discretion by this failure to limit the disclosure.
While the district court was correct that the SEC had a legitimate right of access to the wiretap materials, it could not properly balance that interest against the privacy interests at stake while the legality of the wiretaps was still unresolved. In any event, the district court exceeded its discretion in ordering disclosure of wiretap materials without regard to relevancy, particularly in a case involving a large number of recordings intercepting conversations of innocent parties. In sum, because the challenged order was thus "clearly outside the range of permissible decisions," we conclude that Appellants have shown a "clear and indisputable right" to the writ of mandamus to vacate that order.
For the foregoing reasons, we GRANT the writ of mandamus, VACATE the district court's discovery order, and REMAND the cause to the district court for further proceedings not inconsistent with this opinion.
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