Argued en banc April 15, 1980.
Certiorari Denied November 17, 1980. See 101 S.Ct. 529.
Opinion for the court filed by Chief Judge WRIGHT.
J. SKELLY WRIGHT, Chief Judge:
Dresser Industries, Inc. (Dresser) appeals from a decision of the District Court
The principal issue facing this en banc court is whether Dresser is entitled to special protection against this SEC subpoena because of a parallel investigation into the same questionable foreign payments now being conducted by a federal grand jury under the guidance of the United States Department of Justice (Justice). Dresser argues principally that the SEC subpoena abuses the civil discovery process of the SEC for the purpose of criminal discovery and infringes the role of the grand jury in independently investigating allegations of criminal wrongdoing. On November 19, 1979 a panel of this court issued a decision affirming the District Court but, with Judge Robb dissenting, attaching a condition prohibiting the SEC from providing
A. Origin of the Investigations
Illegal and questionable corporate payments surfaced as a major public problem in late 1973, when several major scandals implicated prominent American corporations in improper use of corporate funds to influence government officials in the United States and foreign countries. The exposure of these activities disrupted public faith in the integrity of our political system and eroded international trust in the legitimacy of American corporate operations abroad.
Beginning in the spring of 1974 the SEC brought a series of injunctive actions against certain American corporations. It obtained consent decrees prohibiting future violations of the securities laws and establishing internal corporate procedures for investigation, disclosure, and prevention of illegal corporate payments. However, the problem of questionable foreign payments proved so widespread that the SEC devised a "Voluntary Disclosure Program" to encourage corporations to conduct investigations of their past conduct and make appropriate disclosures without direct SEC coercion.
B. The Dresser Investigations
On January 27, 1976 an attorney and other representatives of Dresser met with members of the SEC staff to discuss a proposed filing. At the meeting Dresser agreed to conduct an internal inquiry into questionable foreign payments, in accordance with the terms of the Voluntary Disclosure Program.
As part of its general monitoring program the SEC staff requested access to the documents underlying Dresser's report. On July 15, 1977 Dresser refused to grant such access. The company argued that allowing the staff to make notes or copies might subject its documents to public disclosure through the Freedom of Information Act.
JA 7-8 (order directing private investigation and designating officers to take testimony). Moreover, the staff reported that Dresser's proxy soliciting materials, reports, and statements may have been misleading with respect to the potential risks involved in its conduct of business through questionable foreign payments, and may have included false statements in connection with such payments. JA 8. Dresser vigorously opposed issuance of an order of investigation.
Meanwhile, the Department of Justice had established a task force on transnational payments to investigate possible criminal violations arising from illegal foreign payments. Two SEC attorneys participated in the task force. In the summer of 1977 the Justice task force requested access to SEC files on the approximately 400 companies, including Dresser, that had participated in
Before any summons or subpoena had issued in either the SEC or the grand jury investigation, Dresser filed suit in the Southern District of Texas against the SEC and Justice to enjoin any further investigation of it by either agency.
On May 1, 1978 the District Court in Houston, Texas dismissed Dresser's suit against Justice without opinion. Three days later, after the period for compliance with its subpoena had lapsed, the SEC applied to the District Court for the District of Columbia for enforcement. In the meantime, Dresser had appealed the adverse judgment in the Texas action to the Fifth Circuit, and sought interim relief. On May 5 Judge Coleman of the Fifth Circuit enjoined further prosecution of the SEC subpoena enforcement action until after the District Court for the Southern District of Texas had ruled on Dresser's action against the SEC. Judge Coleman also obtained a stipulation from Justice that Justice would not require Dresser or its agents to appear before the grand jury until after the Company had filed a motion to quash the grand jury subpoena in the District of Columbia and had received a ruling on such motion.
On May 8, 1978 Dresser filed a motion to quash the grand jury subpoena in the District Court for the District of Columbia. On May 19 the District Court (Parker, J.) denied Dresser's motion to quash, but imposed a protective order requiring strict confidentiality in accordance with Rule 6(e) of the Federal Rules of Criminal Procedure. In imposing the protective order the court stated that the "concern of Dresser and especially its employees is not illusory and should not be lightly considered." See JA 163. This was in reference to Dresser's argument that public disclosures of the names, places, and dates connected with its questionable foreign payments could endanger the lives of its employees in certain turbulent foreign countries. Dresser thereafter complied with this grand jury subpoena.
On May 26, 1978 the Southern District of Texas dismissed Dresser's action against the SEC without reaching the merits. Dresser appealed to the Fifth Circuit and on June 8 obtained an order from the court that:
The District Court (Flannery, J.) denied Dresser's motion to compel discovery on June 16, without opinion. Judge Flannery explained in court that he had carefully examined the papers filed by Dresser, that discovery is rarely necessary in subpoena enforcement cases, and that he did not think this was an appropriate case for it. JA 256. Then, on June 30, 1978, the District Court (Flannery, J.) issued a memorandum opinion and order rejecting all of Dresser's objections to the SEC subpoena and requiring Dresser to comply with the subpoena within ten days after notice from the SEC. JA 301, reported at 453 F.Supp. 573 (D.D.C.1978). Rehearing was denied on July 15. This appeal followed.
Meanwhile, the United States Court of Appeals for the Fifth Circuit affirmed the decisions of the District Court for the Southern District of Texas dismissing Dresser's actions against Justice and the SEC in that court, largely on ripeness grounds. Dresser Industries, Inc. v. United States, 596 F.2d 1231 (5th Cir. 1979), cert. denied, 444 U.S. 1044, 100 S.Ct. 731, 62 L.Ed.2d 730 (1980). Accordingly, the interlocutory injunction requiring the SEC to preserve inviolate the confidentiality of Dresser's materials pending a decision on appeal was dissolved.
Having set forth the complicated procedural history of this case, we turn now to the principles that govern parallel administrative and criminal proceedings concerning the same conduct.
II. GENERAL PRINCIPLES
A. Parallel Investigations
The civil and regulatory laws of the United States frequently overlap with the criminal laws, creating the possibility of parallel civil and criminal proceedings, either successive or simultaneous.
The Supreme Court returned to this theme in United States v. Kordel, 397 U.S. 1, 90 S.Ct. 763, 25 L.Ed.2d 1 (1970). In that case the Food and Drug Administration (FDA) investigated a company and certain of its officers in connection with possible
The officers in Kordel argued that use of the civil discovery process to compel answers to interrogatories that could be used to build the government's case in a parallel criminal proceeding "reflected such unfairness and want of consideration for justice" as to require reversal. 397 U.S. at 11, 90 S.Ct. at 769. The Supreme Court did not agree. The Court noted that the government had not brought the civil action "solely to obtain evidence for its criminal prosecution," id. at 11-12, 90 S.Ct. at 769, or without notice to the defendants that it contemplated a criminal action, id. at 12, 90 S.Ct. at 769. Moreover, the defendant was not unrepresented by counsel, id., and had no reason to fear "prejudice from adverse pretrial publicity or other unfair injury," id. Nor were there any other "special circumstances" suggesting that the parallel proceedings were unconstitutional or improper. Id. In the absence of such "special circumstances" the Court recognized that prompt investigation of both civil and criminal claims can be necessary to the public interest. It said:
Id. at 11, 90 S.Ct. at 769 (footnote omitted).
The Constitution, therefore, does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings. See Baxter v. Palmigiano, 425 U.S. 308, 98 S.Ct. 1551, 47 L.Ed.2d 810 (1976); DeVita v. Sills, 422 F.2d 1172, 1181 (3d Cir. 1970). Nevertheless, a court may decide in its discretion to stay civil proceedings, postpone civil discovery, or impose protective orders and conditions "when the interests of justice seem to require such action, sometimes at the request of the prosecution, * * * sometimes at the request of the defense[.]" United States v. Kordel, supra, 397 U.S. at 12 n.27, 90 S.Ct. at 770 (citations omitted); see Horne Brothers, Inc. v. Laird, 463 F.2d 1268, 1271-1272 (D.C.Cir.1972). The court must make such determinations in the light of the particular circumstances of the case.
Other than where there is specific evidence of agency bad faith or malicious governmental tactics, the strongest case for
B. SEC Investigations
The case at bar concerns enforcement of the securities laws of the United States, especially the Securities Act of 1933 ('33 Act), 48 Stat. 74, 15 U.S.C. § 77a et seq. (1976), and the Securities Exchange Act of 1934 ('34 Act), 48 Stat. 881, 15 U.S.C. § 78a et seq. (1976). These statutes explicitly empower the SEC to investigate possible infractions of the securities laws with a view to both civil and criminal enforcement, and to transmit the fruits of its investigations to Justice in the event of potential criminal proceedings. The '34 Act provides in relevant part: "The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision of this chapter[.]" Section 21(a) of the '34 Act, 15 U.S.C. § 78u(a) (1976). This investigative authority includes the power to administer oaths and affirmations, subpoena witnesses, take evidence, and require production of any books, papers, correspondence, memoranda, or other records which the SEC deems relevant or material. Id., Section 21(b), 15 U.S.C. § 78u(b). If it determines that a person "is engaged or is about to engage in acts or practices constituting a violation" of the Act, the SEC may bring an action in federal district court to enjoin such acts or practices. Id., Section 21(d), 15 U.S.C. § 78u(d). Under the same subsection of the '34 Act the SEC may "transmit such evidence as may be available concerning such acts or practices * * * to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this chapter." Id. The '33 Act is to similar effect. See Sections 19(b), 20(a), (b)
Effective enforcement of the securities laws requires that the SEC and Justice be able to investigate possible violations simultaneously. Dissemination of false or misleading information by companies to members of the investing public may distort the efficient workings of the securities markets and injure investors who rely on the accuracy and completeness of the company's public disclosures. If the SEC suspects that a company has violated the securities laws, it must be able to respond quickly: it must be able to obtain relevant information concerning the alleged violation and to seek prompt judicial redress if necessary. Similarly, Justice must act quickly if it suspects that the laws have been broken. Grand jury investigations take time, as do criminal prosecutions. If Justice moves too slowly the statute of limitations may run, witnesses may die or move away, memories may fade, or enforcement resources may be diverted. See United States v. Fields, 592 F.2d 638, 646 (2d Cir. 1978), cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1979). The SEC cannot always wait for Justice to complete the criminal proceedings if it is to obtain the necessary prompt civil remedy; neither can Justice always await the conclusion of the civil proceeding without endangering its criminal case. Thus we should not block parallel investigations by these agencies in the absence of "special circumstances" in which the nature of the proceedings demonstrably prejudices substantial rights of the investigated party or of the government. See United States v. Kordel, supra, 397 U.S. at 11-13, 90 S.Ct. at 769-770.
III. APPLICABILITY OF
United States v. LaSalle Nat'l Bank
Dresser principally relies on an analogy to United States v. LaSalle Nat'l Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978),
These two alternatives are vulnerable to the same objection: the LaSalle rule applies solely to the statutory scheme of the Internal Revenue Code, in which the IRS's civil authority ceases for all practical purposes upon referral of a taxpayer's case to Justice; it does not apply to the securities laws, in which the SEC's civil enforcement authority continues undiminished after Justice initiates a criminal investigation by the grand jury.
The IRS summons authority derives from Section 7602 of the Internal Revenue Code, 26 U.S.C. § 7602 (1976). Its authority is restricted to the terms and purposes of that provision. The Supreme Court said in LaSalle:
In the pre-referral stage of an IRS investigation the civil and criminal elements of the investigation are intertwined. Id. at 308-311, 98 S.Ct. at 2363-2364. The same information is useful in negotiating with the taxpayer, in suing in court for additional taxes, or in deciding whether to recommend criminal prosecution. Thus the IRS at that stage is empowered to issue investigative summonses under Section 7602, even though the fruits of such summonses may be useful for the illegitimate purpose of "filing criminal charges against citizens" as well as the legitimate purposes of determining and collecting taxes.
However, upon referral of the case to Justice with a recommendation for criminal prosecution, "the criminal and civil aspects of a tax fraud case begin to diverge." Id. at 311, 98 S.Ct. at 2365. After that point the IRS loses its ability to compromise the case, either criminally or civilly. All such authority devolves upon Justice. Id. at 312, 98 S.Ct. at 2365. Although theoretically the IRS might use its summons power during the pendency of the criminal proceeding to discover information for the purpose of a future civil tax suit, id. at 311-312, 98 S.Ct. at 2364-2365, in practice the IRS holds all civil action in abeyance until the criminal proceeding is completed.
Thus, in the LaSalle Court's view, the authorized purposes for summonses under Section 7602 cease as a practical matter during the pendency of the criminal proceeding. Because of this the Court was willing to impose a "prophylactic" rule flatly forbidding any use of the Section 7602 authority once a case has been referred to Justice for criminal prosecution. Id. at 312, 98 S.Ct. at 2365. This rule restricts the IRS within the confines of its statutory authority and also "safeguards * * * two policy interests," id. at 313, 98 S.Ct. at 2365. These interests are to avoid broadening the Justice Department's right of criminal litigation discovery and to avoid infringing on the role of the grand jury as a principal tool of criminal accusation. Id. at 312, 98 S.Ct. at 2365.
Dresser asks this court to extend the reasoning of LaSalle to govern the conduct of the SEC under the securities laws. But IRS investigative and enforcement proceedings are not analogous to those of the SEC. The language of the securities laws and the nature of the SEC's civil enforcement responsibilities require that the SEC retain full powers of investigation and civil enforcement action, even after Justice has begun a criminal investigation into the same alleged violations.
The investigative provisions of the securities laws are far broader than Section 7602 of the Internal Revenue Code, as interpreted in LaSalle. See SEC v. Arthur Young & Co., 584 F.2d 1018, 1022-1024 (D.C.Cir.1978), cert. denied, 439 U.S. 1071, 99 S.Ct. 841, 59 L.Ed.2d 37 (1979). SEC investigations are not confined to "four purposes only." Cf. United States v. LaSalle Nat'l Bank, supra, 437 U.S. at 316 n.18, 98 S.Ct. at 2367 n.18. Rather, the SEC may, "in its discretion, make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision" of the '34 Act, Section 21(a) of the '34 Act, 15 U.S.C. § 78u(a) (1976) (emphasis added). Moreover, the SEC is "authorized in its discretion * * * to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforcement of such provisions, in the prescribing of rules and regulations under this chapter, or in securing information to serve as a basis for recommending further legislation concerning matters to which this chapter relates." Id. (emphasis added). See also Section 19(b) of the '33 Act, 15 U.S.C. § 77s(b) (1976). Given this broad statutory mandate, there is
Fulfillment of the SEC's civil enforcement responsibilities requires this conclusion. Unlike the IRS, which can postpone collection of taxes for the duration of parallel criminal proceedings without seriously injuring the public, the SEC must often act quickly, lest the false or incomplete statements of corporations mislead investors and infect the markets. Thus the Commission must be able to investigate possible securities infractions and undertake civil enforcement actions even after Justice has begun a criminal investigation. For the SEC to stay its hand might well defeat its purpose.
Dresser attempts to prevent enforcement of this subpoena by invoking the "policy interests" identified by the LaSalle Court: to avoid broadening Justice's right of criminal litigation discovery and to avoid infringing the role of the grand jury as a principal tool of criminal accusation. Brief of respondent-appellant at 21-23; supplemental brief of appellant Dresser Industries, Inc. at 10-21; see United States v. LaSalle Nat'l Bank, supra, 437 U.S. at 312, 98 S.Ct. at 2365. We reject this argument for two reasons.
First, Dresser disregards the context in which these "policy interests" arose in LaSalle. Only after the Court had determined that the IRS had no practical authorized purpose for issuing a summons after referral of a case to Justice did it direct its attention to these "policy interests." Then it did so solely to explain its imposition of a "prophylactic" rule forbidding any use of the IRS summons authority after referral to Justice, as opposed to forbidding only such uses as are unrelated to the purposes of Section 7602.
Second, the "policy interests" of LaSalle have little practical significance in this context. The first—to avoid broadening Justice's right to criminal discovery—is flatly inapplicable, as Dresser admits.
In its brief Dresser has concentrated upon the second "policy interest" identified in LaSalle: avoiding infringement upon the role of the grand jury. Dresser suggests
Federal Rule of Criminal Procedure 6(e) provides in relevant part:
We note that the Rule prohibits disclosure of "matters occurring before the grand jury[.]" This serves to protect the identities of witnesses or jurors, the substance of testimony, the strategy or direction of the investigation, the deliberations or questions of jurors, and the like. It does not require, however, that a veil of secrecy be drawn over all matters occurring in the world that happen to be investigated by a grand jury.
United States v. Interstate Dress Carriers, Inc., 280 F.2d 52, 54 (2d Cir. 1960).
In this case Dresser is obligated under the securities laws to provide documents to the SEC in obedience to a lawful subpoena. The existence of a grand jury proceeding neither adds to nor detracts from Dresser's rights before the SEC. Whatever rights to secrecy or confidentiality Dresser may have are the product solely of the laws governing the SEC; they are unaffected by the parallel grand jury proceeding.
The second way in which Dresser argues that enforcement of this subpoena might infringe the role of the grand jury is that the SEC could interpret and selectively disclose parts of the subpoenaed information to the grand jury through Justice, thereby undermining the independence of the grand jury's inquiry.
In another sense Dresser's complaint on this score has little practical significance. No one would suggest that the grand jurors, unassisted by accountants, lawyers, or others schooled in the arcana of corporate financial accounting, could sift through the masses of Dresser's corporate documents and arrive at a coherent picture of the company's foreign payments and disclosure practices. In this area, as in many areas of great complexity, the grand jurors are assisted—guided and influenced, in fact—not only by the United States Attorneys assigned to the investigation, but also by experts provided by the federal regulatory agencies with experience in the particular subject areas. This expert assistance is permitted under Rule 6(e), and it promotes the efficiency and rationality of the criminal investigative process. See In re Perlin, 589 F.2d 260 (7th Cir. 1978); Robert Hawthorne, Inc. v. Director of IRS, 406 F.Supp. 1098, 1106-1107 (E.D.Pa.1975); Developments in the Law—Corporate Crime: Regulating Corporate Behavior Through Criminal Sanctions, 92 Harv.L.Rev. 1227, 1314-1315 (1979). In this case two SEC agents have been assigned to Justice's task force on transnational payments to assist in the investigation of companies possibly involved
Finally, we note that if Dresser is genuinely worried that the SEC might disclose only those documents prejudicial to the company, it may provide the grand jury with copies of all the documents it provides to the SEC, thereby obviating the danger. Alternatively, if Dresser obtains evidence that the SEC is in fact abusing its power to transmit documents to Justice, and is thereby distorting the grand jury's perception of the case, Dresser may apply to the courts at that time for appropriate relief.
We conclude that the danger that enforcement of this subpoena might infringe the role of the grand jury is too speculative and remote at this point to justify so extreme an action as denying enforcement of this subpoena.
In essence, Dresser has launched this attack on the parallel SEC and Justice proceedings in order to obtain protection against the bare SEC proceeding, which it fears will result in public disclosure of sensitive corporate documents. The prejudice Dresser claims it will suffer from the parallel nature of the proceedings is speculative and undefined—if indeed Dresser would suffer any prejudice from it at all.
IV. COOPERATION BETWEEN SEC AND JUSTICE
In its initial decision in this case a panel of this court ruled that "the broad prophylactic
First, we note that no party to this case had suggested or requested a modification such as that imposed by the panel majority, either in the District Court or in this court.
Second, we note that there is no support for the panel's modification in either the relevant statutes or legislative history. Both the '33 Act and the '34 Act—and other statutes related to securities law enforcement as well
The Foreign Corrupt Practices Act outlaws corporate bribery of foreign officials and associated inaccurate or misleading financial recordkeeping. In passing the statute Congress recognized the role of the SEC in combatting such practices under the '33 and '34 Acts, and sought to "strengthen the Commission's ability to enforce compliance with the existing reguirements [sic] of the securities laws[.]" S.Rep.No. 114, 95th Cong., 1st Sess. 12 (1977). Both the Senate and the House reports on the bill acknowledged
Id. at 12. It stated that it expected the SEC and Justice to "work out" between themselves certain "arrangements * * * on criminal matters" that would preserve the authority of each within its jurisdiction. Id. The House Committee said:
H.R.Rep.No. 640, 95th Cong., 1st Sess. 10 (1977).
Although the legislative history of the Foreign Corrupt Practices Act is not directly probative of congressional intent governing the '33 and '34 Acts, these statements by the 95th Congress are nevertheless entitled to some weight. The remarks in the committee reports concerning the investigative practices of the SEC and Justice were not intended to change, but to reaffirm, past practice. This indicates that Congress understands and approves of the "close working relationship" between the agencies in their investigative capacities. Since such a "close working relationship" will govern the activities of the agencies in enforcing the laws against questionable foreign payments under the new statute, it would be impractical for us to attempt to screen the agencies from each other when they are investigating the same sort of offense under the former statutes.
Congress manifestly did not intend that the SEC be forbidden to share information with Justice at this stage of the investigation. Under the panel majority's theory of the case the SEC would be foreclosed from sharing the fruits of its investigation with Justice as soon as Justice begins its own investigation through a grand jury. Only by waiting until the close of the SEC proceeding before initiating its own grand jury investigation could Justice obtain access to the evidence procured by the SEC. In view of Congress' concern that the agencies share information "at the earliest stage of any investigation in order to insure that the evidence needed for a criminal prosecution does not become stale," S.Rep.No. 114, supra, at 12, and that the agencies avoid "a costly duplication of effort," H.R.Rep.No. 640, supra, at 9, it would be unreasonable to prevent a sharing of information at this point in the investigation.
Third, we note that there is little or no judicial precedent for the panel's modification. The only support adduced by the panel opinion is a District Court opinion in SEC v. Gilbert, 79 F.R.D. 683 (S.D.N.Y.1978). In that case, which arose on the defendant's request for a protective order under the discovery rules of the Federal Rules of Civil Procedure—as contrasted to an investigative subpoena enforcement proceeding as in this case—the court ordered the SEC "not to furnish the U.S. Attorney specially with any information procured in the course of discovery in this case." Id. at 687. The court offered no authority for this order nor, indeed, any reason for its application. While we recognize the similarity of Gilbert to this case in many respects, its lack of reasoning and its distinguishable procedural posture make it but weak authority.
In fact, the reasoning of the Supreme Court in LaSalle is contrary to that of the panel in two respects, and should govern this case in lieu of Gilbert. The LaSalle
Finally, we note that the panel's modification would serve no compelling purpose, and might interfere with enforcement of the securities laws by the SEC and Justice. As the Second Circuit has said, the procedure permitting the SEC to communicate with Justice during the preliminary stages of an investigation has "significant advantages." United States v. Fields, supra, 592 F.2d at 646.
Id. The panel's modification would "interfere with this commendable example of inter-agency cooperation," id., to the detriment of securities law enforcement and in contravention of the will of Congress.
V. OTHER ISSUES
Several issues remain.
First, Dresser argues that enforcing the SEC subpoena would breach an agreement of confidentiality made at the January 27, 1976 meeting between SEC and Dresser representatives. The District Court held that "[t]hroughout the voluntary disclosure program the SEC reserved its
Second, Dresser argues that the District Court erred in granting judgment for the SEC without permitting Dresser to conduct discovery into the propriety of the SEC investigation. Although the precise nature of Dresser's desired discovery is not clear, the company apparently would investigate: (1) the SEC criminal referral and the concurrent criminal investigation, with a view to the possibility that the SEC has proceeded in bad faith; (2) the ethical propriety of SEC agents' participation in the criminal investigation; (3) the existence of an SEC commitment of confidentiality; and (4) the basis for the SEC staff's decision to request a formal investigation of Dresser. See brief of respondent-appellant at 36-42.
We recognize that discovery may be available in some subpoena enforcement proceedings where the circumstances indicate that further information is necessary for the courts to discharge their duty. United States v. Fensterwald, 553 F.2d 231 (D.C.Cir.1977) (per curiam); United States v. Wright Motor Co., 536 F.2d 1090 (5th Cir. 1976). For example, the Supreme Court in LaSalle apparently contemplated some degree of discovery in IRS summons cases to determine the institutional good faith of the IRS in issuing such summonses. United States v. LaSalle Nat'l Bank, supra, 437 U.S. at 316-317, 98 S.Ct. at 2367; id. at 320, 98 S.Ct. at 2369 (dissenting opinion); United States v. Marine Midland Bank, 585 F.2d 36, 38-39 (2d Cir. 1978) (per curiam). However, district courts must be cautious in granting such discovery rights, lest they transform subpoena enforcement proceedings into exhaustive inquisitions into the practices of the regulatory agencies. See FTC v. Anderson, 631 F.2d 741, at 747 (D.C.Cir. 1979). Discovery should be permitted only where the respondent is able to distinguish himself from "the class of the ordinary [respondent]," United States v. Fensterwald, supra, 553 F.2d at 231-232, by citing special circumstances that raise doubts about the agency's good faith. Even then, district courts must limit discovery to the minimum necessary in the interests of justice by requiring specific interrogatories or affidavits rather than "full-dress discovery and trial." United States v. Marine Midland Bank, supra, 585 F.2d at 39; see United States v. Fensterwald, supra, 553 F.2d at 232-233.
We conclude that the District Court acted within its discretion in denying Dresser discovery in this case, and that it properly granted judgment to the SEC on the record before it. There was nothing improper about the SEC's decision to transmit the files of the participants in the Voluntary Disclosure Program to Justice, or about the subsequent concurrent investigations by the two agencies. Nor does the participation of two SEC attorneys in the Justice task force cast doubt upon the good faith of the Commission. Dresser's allegations of an agreement by the SEC not to subpoena the documents underlying its voluntary report are not substantiated by any writing, and are directly contrary to the published terms of the Voluntary Disclosure Program.
Two remaining substantive issues raised by Dresser do not require decision by this court at this time. Those issues are: the asserted right of Dresser or its employees to protect portions of the documents from public disclosure because of the possibility of hostile and injurious foreign reaction, and the asserted attorney-client privilege of Dresser or its employees with respect to some of the documents. Despite Dresser's suggestion to the contrary, see brief of respondent-appellant at 42-47, we conclude that the District Court did not reach the merits of Dresser's claims on these points.
With respect to confidentiality, the court noted that the SEC had offered to give Dresser ten days notice in advance of disclosure of the documents to the public, to enable the company to challenge the decision to disclose. This offer the court found to be "adequate" to protect Dresser's interests at this stage of the proceeding. 453 F.Supp. at 576.
We agree with the District Court that Dresser's claims of confidentiality and of attorney-client privilege cannot be judged by the courts on this record at this stage of the proceeding. Rather, once the subpoena has been enforced the SEC will have the opportunity to rule on specific requests for confidential treatment and assertions of attorney-client privilege. This procedure will follow the outlines described by this court in FTC v. Texaco, Inc., 55 F.2d 862, 883-885 (D.C.Cir.) (en banc), cert. denied, 431 U.S. 974, 97 S.Ct. 2939, 53 L.Ed.2d 1072 (1977), and the Supreme Court in FCC v. Schreiber, 381 U.S. 279, 290-291, 295-296, 85 S.Ct. 1459, 1467-1468, 1470, 14 L.Ed.2d 383 (1965).
We recognize that Judge Parker in the grand jury investigation of Dresser said that Dresser's concern for the lives of its employees and their families and property abroad in the event of public disclosure of portions of the documents is "not illusory and should not be lightly considered," see JA 163, but we believe that the SEC will be in a better position to evaluate this claim than the courts are now. This court has commented before that the danger that confidential materials might be wrongfully released to the public through the Freedom of Information Act is "by no means frivolous," FTC v. Anderson, supra, 631 F.2d at 748 n.11. Courts have held an offer of ten days notice before release of information to be adequate protection in several cases involving business information. Id., 631 F.2d at 748; FTC v. Texaco, Inc., supra, 555 F.2d at 884-885; SEC v. Wheeling-Pittsburgh Steel Corp., 482 F.Supp. 555,
The question of the attorney-client privilege must be resolved in a similar manner: viewed initially by the Commission with later review in the courts if necessary.
We see no ground for reversal in the District Court's determinations on the confidentiality and attorney-client privilege issues.
The final issue in this case is that raised in No. 78-1705: whether the District Court erred in its decision of June 23, 1978, JA 532, reconsideration denied, JA 559, denying Mr. Edward R. Luter, a senior vice president of Dresser, the right to intervene in this enforcement proceeding on behalf of himself and other employees of Dresser. Mr. Luter claims an interest in the proceeding on bases of an alleged confidentiality interest on the part of the employees in certain documents and an alleged attorney-client privilege. The District Court rejected Mr. Luter's motion to intervene, saying:
JA 559 (order denying reconsideration).
We are somewhat troubled by the District Court's treatment of Mr. Luter's motion. It appears that the court rejected his claim on the merits without first allowing him to pass the threshold. In this circuit an applicant to intervene need only show that the representation of his interest may be inadequate; the burden of proof rests on those resisting intervention. Nuesse v. Camp, 385 F.2d 694, 702 (D.C.Cir. 1967). In cases of alleged corporate misconduct it is especially important for the courts to be alert to the possibilities of conflict between the interests of the corporation and those of its employees.
In this case, however, we need not judge whether the court was correct in its conclusion that Mr. Luter has asserted no cognizable interest in the proceedings. With the benefit of hindsight, and informed by the arguments Mr. Luter has made on his behalf in this appeal, we are able to conclude that Dresser has adequately represented the interests of its employees through this stage of the litigation. So far, the disputes have centered on the enforceability of the SEC subpoena, not on particular questions of confidentiality or privilege pertaining to individual documents. We do not understand the District Court as having rejected the right of Mr. Luter or any other Dresser employees to intervene in future proceedings concerning this investigation. On the understanding that Mr. Luter or his fellow employees may seek to intervene in future SEC proceedings concerning confidentiality and the attorney-client privilege, and in any court proceedings that might follow, and that the SEC and the courts will evaluate any such motions to intervene afresh and on their merits, we affirm the judgment of the District Court in No. 78-1705. As previously indicated we affirm the judgment of the District Court in No. 78-1702 as well.
The judgments of the District Court are
I concur in the opinion of the court in this case. I wish to point out, however, that I do not read the court's opinion as expressing any view as to the proper outcome in a case of this sort once an indictment has issued. See text of opinion at notes 33-34, supra. Once an indictment has issued, the policy interest expressed in United States v. LaSalle National Bank, 437 U.S. 298, 312, 98 S.Ct. 2357, 2367, 57 L.Ed.2d 221 (1978), concerning the impermissibility of broadening the scope of criminal discovery through the summons authority of an agency, may come into play. I express no opinion as to whether or not the summons authority of a government agency may continue once an indictment has been issued or, if it may, whether protective conditions need be placed on the exercise of that power. These issues raise questions which are not presented here. The resolution of these questions, therefore, must await another day.
S.Rep.No. 114, 95th Cong., 1st Sess. 3 (1977).
Section 20(a) of the '33 Act, 15 U.S.C. § 77t(a) (1976).
Id. § 19(b), 15 U.S.C. § 77s(b). From § 20(b) derives the authority to initiate civil injunctive actions and to transmit evidence to Justice:
Id. § 20(b), 15 U.S.C. § 77t(b).
Id. at 536, 91 S.Ct. at 545. The Donaldson Court recognized that under prior precedent the limitation on the IRS summons authority came into effect only in "the situation of a pending criminal charge or, at most, of an investigation solely for criminal purposes." Id. at 533, 91 S.Ct. at 544 (emphasis added). See Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 513, 11 L.Ed.2d 459 (1964) (citing Boren v. Tucker, 239 F.2d 767, 772-773 (9th Cir. 1956)). "Any other holding," according to the Donaldson Court, "would thwart and defeat the appropriate investigatory powers that the Congress has placed in `the Secretary or his delegate.'" 400 U.S. at 533, 91 S.Ct. at 544. Nevertheless, after a detailed discussion of the enforcement scheme of the Internal Revenue Code, the Court reiterated the rule in modified form: instead of prohibiting enforcement of an IRS summons if there is a pending criminal charge, the Court prohibited such enforcement if there had been a referral to Justice for criminal prosecution. Compare 400 U.S. at 533, 91 S.Ct. at 543, with id. at 536, 91 S.Ct. at 545. Obviously, the difference between these two formulations is substantial. The Court did not explicitly state why it shifted from the one to the other, but the best available explanation lies in its discussion of the statutory scheme, which appears between the two conflicting statements of the rule. In LaSalle Justice Blackmun, who also wrote the opinion for the Court in Donaldson, explained that the decision in Donaldson was not predicated on its analysis of precedent. United States v. LaSalle Nat'l Bank, 437 U.S. 298, 307, 98 S.Ct. 2357, 2362, 57 L.Ed.2d 221 (1978). Rather, the decision relied on its review of the statutory scheme. Id. "The validity of the summonses depended ultimately on whether they were among those authorized by Congress," the Justice said. Id. This emphasizes that the rule espoused in LaSalle and Donaldson is not based on principles generally applicable to parallel civil and criminal proceedings, but on limitations unique to the IRS.
Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 219 n.10, 99 S.Ct. 1667, 1673 n.10, 60 L.Ed. 156 (1979) (brackets in original) (quoting United States v. Rose, 215 F.2d 617, 628-629 (3d Cir. 1954), approved in United States v. Proctor & Gamble Co., 356 U.S. 677, 681 n.6, 78 S.Ct. 983, 986 n.6, 2 L.Ed.2d 1077 (1958)). See also Note, Administrative Agency Access to Grand Jury Materials, 75 Colum.L.Rev. 162, 166 (1975) (suggesting a further rationale: "to prevent the grand jury from being diverted from its primary concern—the investigation of criminal activity"). None of these rationales has any application to an independent agency subpoena of corporate documents. No witnesses or targets will be frightened from testifying fully, no grand jurors will be threatened or suborned, no target will be embarrassed— any more than it might be embarrassed by any other SEC subpoena. Since the fact that Dresser is the target of a grand jury investigation is already public knowledge—as witness this case—there is no danger of exposing the identity of an innocent grand jury target.
453 F.Supp. at 576. We interpret the SEC's offer as encompassing any decision to release the documents, whether or not pursuant to the FOIA. Moreover, we assume that, upon examination of particular documents or groups of documents, the SEC has the authority to stiffen the confidentiality or notice agreement.