J. Sam Bonafede1A.B. 2018, Princeton University; J.D. Candidate 2021, The University of Chicago Law School. For helpful feedback and discussion, the author thanks Deb Malamud, Matthew Reade, and The University of Chicago Law Review. The author would also like to thank Colby Chanenchuk for her indispensable support.
Picture this: the Department of Justice (DOJ) plans to open a criminal grand jury investigation into the business conduct of a foreign corporation. But United States law prohibits the DOJ from issuing a subpoena to a foreign individual or an entity located abroad. To obtain foreign-based evidence, testimony, or documents to aid its investigation, the DOJ instead asks an American judge to send a letter of rogatory to a foreign court to compel production of discovery materials and invokes a Mutual Legal Assistance Treaty (MLAT) with the foreign state to do the same. But a response can take weeks, and the DOJ does not want to wait.
Undaunted, the DOJ launches a criminal investigation anyway, knowing that the class-action bar will file dozens of civil lawsuits against the foreign entity in a matter of days once the government’s criminal investigation is revealed. In response to these civil actions, the foreign entity engages an American law firm. The American law firm quickly requests that a federal court enter a civil protective order to strictly limit the use of all foreign-crafted discovery materials sent to America to the defense and the settlement of the civil suits. With the protective order in place, the foreign corporation sends its discovery materials located abroad to its U.S. counsel to comply with civil discovery demands. Then comes the coup de grâce: the DOJ serves a grand jury subpoena on the American law firm, demanding the firm turn over the foreign discovery materials for use in its criminal investigation. Feeling duped, the foreign corporation then brings a motion to quash the criminal grand jury subpoena, citing its civil protective order.
At this point, the question is whether a civil protective order shields a foreign party’s civil discovery material from production during a criminal grand jury investigation. The court’s answer ultimately depends on the jurisdiction in which the grand jury subpoena is served. The Second Circuit, alone among the circuits, applies the Martindell standard. Per this standard, when any third party subpoenas a private party to obtain discovery material sealed by a valid civil protective order, there is a strong presumption against disclosure. That is, under the Martindell standard, parties are presumptively entitled to rely on the enforceability of their civil protective orders against the grand jury subpoena power of the U.S. government. Yet the presumption against disclosure is not absolute. It is rebuttable when the party seeking to enforce its subpoena demonstrates some “extraordinary circumstance” or “compelling need” for the protected information.
In the decades since Martindell v. International Telephone & Telegraph. Co., the Second Circuit has steadfastly applied the Martindell standard. When the government seeks sealed documents or deposition transcripts that would not exist but for the defendant’s reliance on a civil protective order, the Second Circuit has held that protective orders trump grand jury subpoenas.2See, for example, Palmieri v. New York, 779 F.2d 861 (2d Cir. 1985) (extending the Martindell standard to situations where the government attempts to modify a protective order and subsequently issues a grand jury subpoena to gain access to the protected information). See also Minpeco S.A. v. Conticommodity Serv., Inc., 832 F.2d 739 (2d Cir. 1987) (holding that the government’s right to access evidence protected by a civil protected order is even weaker when an administrative action is involved (in comparison to a criminal investigation)); United States v. Davis, 702 F.2d 418 (2d Cir. 1983) (refusing to quash the government’s grand jury subpoena seeking depositions in prior civil litigation because (1) the attorney-client privilege did not protect the documents and (2) because there was no evidence that the witness testified in reliance on the civil protective order). But a 2018 decision added a largely undiscussed wrinkle to the forty-year-old Martindell standard. That decision, Kiobel v. Cravath, Swain & Moore, LLP, did not cite to Martindell directly. But the plaintiff in Kiobel, to support her claim against Royal Dutch Shell in a Dutch court, subpoenaed Shell’s American counsel, Cravath, in the United States to access discovery materials that Shell sent to America in reliance on a protective order entered into during prior U.S. civil litigation between Shell and the plaintiff. The court ultimately held, resting on attorney-client privilege grounds instead of the Martindell standard, that Cravath need not produce the sealed discovery materials.
Kiobel’s aftermath puts a spotlight on several open legal questions. First among them is how far the Martindell standard extends. In particular, the question of whether the Second Circuit would extend Martindell to preclude the U.S. government from subpoenaing a U.S. law firm to uncover sealed discovery materials sent to America by the firm’s unindicted overseas clients has avoided critical legal analysis. The answer to this question has significant legal and economic implications for U.S. law firms deciding where they should review their foreign clients’ discovery materials. So long as obtaining international discovery remains “cumbersome and uncertain,” the U.S. government has every incentive to announce a criminal investigation into a foreign party, wait for inevitable follow-on civil litigation to occur, and then convene a grand jury to subpoena the foreign defendant’s U.S. counsel to access the discovery material the foreign party sends to America under the compulsion of civil discovery. U.S. law firms must then balance the “speed, cost, and efficiency considerations” of modern-day transnational legal practice with their foreign clients’ exposure to American prosecution.
This Essay seeks to answer the following threshold question of Second Circuit law: whether the government should be able to serve a grand jury subpoena on U.S. law firms to access their foreign clients’ otherwise undiscoverable materials.
To answer this question, this Essay proceeds in two Parts. Part I sets the stage for legal analysis in Part II by outlining the relevant binding and persuasive case law. Part II will first detail the legal and incentive considerations that stem from extending Kiobel’s holding to the grand jury subpoena context. Against this background, I then argue that the government’s unilateral exploitation of existing procedures should not broaden its grand jury subpoena power absent exceptional circumstances. The Martindell standard should presumptively shield discovery materials sent by foreign defendants to their U.S. counsels, in reliance on a civil protective order, which would not exist but for the announcement of a U.S. government grand jury investigation and subsequent follow-on civil litigation. For the government, it should be a small world after all.
I. The Circuit Court Split Concerning the Interplay Between Civil Protective Orders and Grand Jury Subpoenas
Sound legal reasoning in this area of law requires a clear understanding of the tension between civil protective orders, grand jury subpoenas, and the varied interests at stake. This Part briefly outlines the express, three-way circuit split in this domain. Charting each circuit’s approach, as well as their competing justifications, will facilitate the evaluation of the issue at bar in Part II.
A. The Second Circuit’s Martindell Standard
Martindell is the first U.S. Court of Appeals decision to examine whether the government can access discovery materials sealed by a protective order to further a criminal investigation. There, the Second Circuit recognized a court’s power to issue a protective order to forbid the disclosure of certain discovery materials. Rule 26(c) of the Federal Rules of Civil Procedure allows “any person from whom discovery is sought [to] move for a protective order” blocking disclosure of discovery materials. In holding that a criminal investigation cannot pierce a Rule 26(c) protective order, the Second Circuit balanced the interests between upholding the efficiency of our civil justice system and the government’s ability to conduct a competent and well-informed criminal investigation. The court found the civil-litigation-efficiency argument more compelling, reasoning that upholding protective orders that “secure the just, speedy, and inexpensive determination” of civil lawsuits outweighs the government’s desire to “exploit the fruits” of private litigation, especially when the government has other “awesome powers” that give it other ways to access information.
The Martindell court established a strong, yet rebuttable, presumption against disclosure of protected discovery material. Unless a third party demonstrates the existence of an “extraordinary circumstance” or a “compelling need,” a valid civil protective order must prevent disclosure. Though Martindell’s facts did not involve the government issuing a grand jury subpoena to access discovery material covered by a protective order, the Second Circuit has read the case to cover such situations.3Dan K. Webb, Corporate Internal Investigations (Litigation Series) 1, 14 (1993).
To make matters worse for the U.S. government, Martindell failed to explain precisely how to rebut the presumption against disclosure. The Second Circuit did no better in United States v. Davis and Palmieri v. New York. In Davis, the Second Circuit held that an “extraordinary circumstance” justifies disclosure when the sought-after discovery materials merely could have been subpoenaed before the advent of civil litigation—a situation that is rarely present when the DOJ sues a foreign company. In Palmieri, the Second Circuit came closer to providing an explicit definition of what constitutes a “compelling need.” Though the court did not define the phrase explicitly, it implied that “a compelling need may exist if there is no alternative method for obtaining the information.” For the government, hurdling the “compelling need” bar is nearly impossible because several other methods for obtaining international discovery, from MLATs to letters of rogatory, are usually available.
Other circuits rightfully criticize the Second Circuit for placing the burden on the government to demonstrate a “compelling need” or “extraordinary circumstance” without supplying any explicit definitions. But despite the Martindell standard’s definitional ambiguities, the Second Circuit should not limit Martindell’s application; instead, it should extend its presumption against disclosure to foreign parties’ discovery materials that come to America under a civil protective order. Such an application would both compel the government and foreign parties to act appropriately and allow the Second Circuit to clearly define the necessary “quantum of evidence” the government must demonstrate to rebut Martindell’s presumption against disclosure.
B. Alternatives to Martindell: The Fourth, Eleventh, and Ninth Circuit’s Per Se Rules
The Fourth Circuit expressly rejects the Second Circuit’s Martindell standard. The Fourth Circuit, in In re Grand Jury Subpoena, adopted a per se rule that accords automatic primacy to a grand jury’s request for discovery materials notwithstanding the existence of a civil protective order.4See In re Grand Jury Subpoena, 836 F.2d at 1471, 1477 (considering three competing interests: “(1) the authority of a grand jury to gather evidence in a criminal investigation, (2) the deponents’ right against self-incrimination, and (3) the goals of liberal discovery and efficient dispute resolution in civil proceedings”). See also Thomas O’Brien & Daniel Prince, Does a Civil Protective Order Protect a Company’s Foreign‐Based Documents from Being Produced in a Related Criminal Investigation?, Bloomberg Law Reports (2011). The Fourth Circuit did not express sympathy for the “civil court’s goals of liberal discovery and efficient dispute resolution.” The court held, instead, that the federal grand jury’s constitutional “right to all relevant evidence” outweighs upholding a protective order as a matter of course. The Fourth Circuit pronounced three reasons for this per se rule: First, protective orders serve as “a significant impediment to grand jury investigation[s].” Second, protective orders are “not totally effective in furthering the civil court’s interest in facilitating discovery.” And third, protective orders do not benefit the public more than a grand jury investigation does.
The Fourth Circuit extended its per se rule to cover the issue at bar in United States v. Under Seal (In re Grand Jury Subpoena). So long as the discovery materials are neither privileged nor attorney-client work product, and the government does not collude with follow-on civil plaintiffs to initiate civil proceedings against the implicated foreign party, the Fourth Circuit permits a grand jury to unearth protected and foreign-crafted discovery material sent to a U.S. law firm.5The Fourth Circuit determined that there was no untoward collusion despite the fact the DOJ and the civil follow-on plaintiff “were assisting one another in advancing their independent but shared interests.” According to the court, no collusion existed because “the government did not direct [the civil follow-on plaintiff] to request documents from [the civil follow-on defendant] in the Civil Litigation so that the government could then, in turn, subpoena those documents from [the civil follow-on plaintiff].” In other words, without direction, there is no collusion.
The Eleventh Circuit also rejects the Martindell standard. It instead favors a muscular per se rule that precludes a protective order from shielding sealed discovery materials from grand juries. In Williams v. United States, the Eleventh Circuit considered factors similar to those the Fourth Circuit examined in In re Grand Jury Subpoena. But, after weighing the utility of protective orders against the historical purpose of grand jury subpoenas, the Eleventh Circuit held that protective orders should never circumscribe a grand jury’s “sweeping” authority to investigate criminal activity. In sum, the Eleventh Circuit takes the stance that any “efficiency gained through the civil process does not outweigh the interests in facilitating grand jury investigations.”
The Ninth Circuit has rejected the Martindell standard, too. In re Grand Jury Subpoena Served on Meserve categorically precludes a civil protective order from superseding a grand jury’s attempt to access sealed discovery materials. To reach this holding, the Ninth Circuit relied on many of the same justifications as the Fourth and Eleventh Circuits did. For example, both the Ninth Circuit and the Fourth Circuit concluded that “allowing protective orders to be enforced at the expense of grand jury subpoenas would yield little benefit, at great cost.” (In fact, the Ninth Circuit cited the Fourth Circuit’s In re Grand Jury Subpoena opinion to support this proposition). The Ninth Circuit also agreed with the Eleventh Circuit’s determination, in Williams v. United States, that “there is nothing in Rule 26’s language or commentary to indicate that Congress, in enacting the protective order rule, intended to abrogate the historical investigative powers of the grand jury.” Like the Fourth Circuit, the Ninth Circuit then extended its per se rule to cover DOJ investigations of foreign entities. In In re Grand Jury Subpoenas Served on White & Case LLP, the Ninth Circuit permitted the U.S. government to grand jury subpoena White & Case to access its foreign clients’ non-privileged documents and deposition transcripts, which were sent to America in reliance on a civil protective order.
A Second Circuit panel will inevitably have to determine whether the Martindell standard should extend to protect discovery materials that a foreign client of a U.S. law firm sends to America in reliance on a civil protective order. When one does, the Fourth, Eleventh, and Ninth Circuit’s case law will provide well-reasoned—yet ultimately scant—justifications for the indiscriminate use of grand jury subpoenas to obtain a foreign defendant’s discovery material held at a U.S. law firm.
C. Splitting the Difference: The First and Third Circuits’ Rebuttable Presumption Favoring a Grand Jury Subpoena Over a Civil Protective Order
The First and Third Circuits reject both the Martindell standard and the per se rule. Instead, these circuits apply a rebuttable presumption favoring a grand jury subpoena and the interests of a criminal investigation over confidentiality in civil litigation. They cite two reasons for this approach. First, the Martindell standard’s “creation of a presumption favoring the sanctity of civil protective orders tilt[s] the scale in exactly the wrong direction.” Second, the “inflexibility” of the Fourth, Eleventh, and Ninth Circuit’s per se rules overlook that the public’s interest and the interests of the parties seeking to preserve a civil protective order frequently converge in favor of quashing grand jury subpoenas.
As a result, the First and Third Circuits established a more moderate rule: “A grand jury’s subpoena trumps a . . . protective order unless the person seeking to avoid the subpoena can demonstrate the existence of exceptional circumstances that clearly favor subordinating the subpoena to the protective order” (emphasis added). To determine whether a “compelling need” or an “exceptional circumstance” exists, the First and Third Circuits provide non-dispositive lists of factors.6These factors include: “ the government’s need for the information (including the availability of other sources),  the severity of the contemplated criminal charges,  the harm to society should the alleged criminal wrongdoing go unpunished,  the interests served by continued maintenance of complete confidentiality in the civil litigation,  the value of the protective order to the timely resolution of that litigation,  the harm to the party who sought the protective order if the information is revealed to the grand jury,  the severity of the harm alleged by the civil-suit plaintiff, and  the harm to society and the parties should the encroachment upon the protective order hamper the prosecution or defense of the civil case”). See also In re Grand Jury, 286 F.3d at 162–63 (outlining a similar list of non-exhaustive factors). As Part II.C will discuss, these factors are significant sources of persuasive authority that a future Second Circuit panel should adopt to fill in the Martindell standard’s ambiguities.
II. Extending the Martindell Standard
Resolving whether the U.S. government’s grand jury subpoenas trump foreign entities’ civil protection orders has become a vital issue. It has become particularly important for U.S. law firms that facilitate their foreign clients’ high-stakes international business matters in the Second Circuit. This issue’s importance stems from the influx of follow-on civil cases that have increasingly been “filed on the heels” of the government’s announcement of a criminal grand jury investigation into a foreign party.7See Donald W. Hawthorne, Recent Trends in Federal Antitrust Class Action Cases, 24 Antitrust 58, 58 (2010) (in a survey of 1,811 “follow-on” antitrust class actions filed between January 1, 2007 and December 31, 2009, nearly 60% arose from prior government enforcement action). Therefore, related foreign-based discovery material, which would usually be untouchable by a grand jury subpoena, “might become present in the U.S. solely because of [follow-on civil] discovery” requests and subsequent reliance on protective orders.
Without Martindell protection, implicated foreign parties are stuck with a grim choice: they must either expose themselves to American prosecution or subject themselves to substantial discovery sanctions. A legal rule that produces such a “Hobson’s choice” for foreign parties is unfair. It also defeats a number of important public interests, such as candor between foreign companies and their U.S. counsel. Overseas discovery material that never would have come within reach of a grand jury but for follow-on civil discovery requests and reliance on a protective order should be presumptively shielded from disclosure. The Second Circuit should extend the appropriately flexible Martindell standard—and its presumption against disclosure—to preclude a grand jury from accessing overseas discovery material held at a U.S. law firm.
A. Public Interest Favors Extending Martindell: Facilitating Civil Litigation Takes Precedence Over Facilitating a Grand Jury Investigation
Despite the grand jury’s historical investigatory function, its power to supersede a protective order is not absolute. When it comes to civil protective orders, for example, the public’s interest in facilitating and maintaining an efficient and fair system of civil litigation takes precedence over the public’s interest in a grand jury obtaining all relevant evidence required for its criminal investigation. The reasons for tilting the scale in favor of foreign defendants to civil follow-on litigation––and thereby extending Martindell protection to the present issue––are twofold.
First, the public interest demands that civil protective orders abrogate a grand jury subpoena (absent the government’s demonstration of a “compelling need” or an “exceptional circumstance”) when the U.S. government unilaterally seeks to exploit existing civil and criminal procedures to broaden its investigatory powers. To be fair, the public has an indisputable interest in the government’s “assiduous prosecution” of international crime. Such an interest diminishes, however, when the government attempts to bypass the territorial limitations ascribed to its grand jury subpoena power by luring foreign-based documents to America to prove its case.
The government will inevitably counterclaim that it should be able “close its grip” on any discovery material, created domestically or overseas, that ends up lying “within the jurisdiction of the grand jury.” The Second Circuit should reject this common refrain. The government can employ other established foreign proof-gathering mechanisms that better respect the confidentiality of attorney-client relationships and the principles of international comity that limit the government’s extraterritorial grand jury subpoena power.8See Petition for a Writ of Certiorari at 10, White & Case LLP v. United States, No. 10-1147, cert. denied (June 27, 2011) (explaining that the DOJ has established methods of obtaining international discovery such as (1) sending letters of rogatory, (2) relying on mutual legal assistance treaties (MLATs), and (3) using diplomatic channels with foreign sovereigns). See also Michael Gertzman & Michael Pernick, Should I Stay or Should I Go? Reviewing Documents Here or Abroad, New York Law Journal (2018)(citing Kiobel, 895 F.3d at 241). For example, a federal prosecutor can summon foreign witnesses, compel production of foreign documents and other real evidence, issue international search warrants, and serve process in a foreign state if the foreign state accepts the prosecutor’s request to invoke review of its Mutual Legal Assistance Treaty (MLAT) with the United States. Even without a treaty, the federal prosecutor can petition an American judge to send a letter of rogatory to the judiciary of a foreign state requesting its help. Disclosure of sealed discovery material held at a U.S. law firm ought to be appropriate after a foreign state refuses to review its MLAT with the United States or after a foreign court fails to execute a letter of rogatory. Yet in the interim, while awaiting a response to its transmissions, the U.S. government should not be able to hasten the process by nudging follow-on civil plaintiffs to initiate civil proceedings against an implicated foreign party. Broadening the government’s grand jury subpoena power “ought to occur from carefully considered rule-changing action” instead of through governmental circumvention of long-standing discovery procedures.
Second, the public’s interest in curbing the plausible rise in “unholy alliances” between the U.S. government and follow-on civil litigants outweighs the public’s interest in enforcing grand jury subpoenas against U.S. law firms that facilitate open and honest discussions with their clients about potential criminal exposure. Seeing that civil litigation works—and that parties to such litigation can explore their issues fully—is a central tenet to many of the privileges in our legal system. The public’s interest in a defendant obtaining fair representation should thereby outweigh the public’s interest in the government’s capability to “exploit the fruits” of private litigation to obtain all relevant evidence required for a grand jury investigation, especially when the government has other “awesome powers” that give it alternative mechanisms to access information. Allowing the government to use tricks to pursue criminal penalties without first exhausting other investigatory avenues will ultimately reduce the likelihood that civil cases will be decided fairly.
Make no mistake—the public has a greater interest in enforcing a subpoena served on a U.S. law firm for its foreign clients’ discovery material when the government has exhausted all of its other investigatory powers to no avail. Yet, this public interest is seldom implicated. For example, in similar cases, the government utilized none of its useful and well-settled international discovery tools before subpoenaing U.S. law firms. The government should find no respite in arguing that it needs more time to acquire evidence for its grand jury investigation when it can merely seek to stay follow-on civil discovery. The Second Circuit should continue to extend Martindell to protect the enforceability of civil protective orders so that foreign defendants will feel comfortable giving essential testimony in civil litigation. Without such protection, the government’s mere lack of patience and reluctance to work with foreign sovereigns may undermine an effective, long-standing, and fair procedural system of solving civil differences.
Though the grand jury’s “investigative power must be broad if its public responsibility is adequately to be discharged,” it should not be so broad as to incentivize aggressive, mercenary, and “gotcha” methods of obtaining evidence for criminal investigations. The Second Circuit––faced with a novel issue with “far-reaching implications” about the already mighty power of the grand jury––should apply a legal rule that disincentivizes a federal prosecutor from trying to circumvent long-standing methods for obtaining foreign-crafted discovery materials. Extending the Martindell standard to the issue at bar fits the bill.
B. Extending Martindell Creates Proper Incentives for All Parties
Extending the Martindell standard’s presumption against disclosure to the issue at bar would optimally align the many interests at stake: those of the U.S. government, of foreign defendants subject to civil follow-on litigation, and of U.S. law firms defending their implicated foreign clients. Incentivizing all three groups to act in a way that respects the attorney-client relationship, our system of civil litigation, and international comity is the appropriate course of action.
1. Foreign party & U.S. law firm incentives.
Overseas clients to U.S. attorneys will have little reason to fear sending all pertinent discovery material to America in reliance on a protective order when Martindell protection mitigates the risk of disclosure to American prosecution. When an American law firm requests discovery information from a foreign client to dispute or settle a follow-on civil claim, this incentive structure will promote open and honest communications between U.S. lawyers and their foreign clients, allow U.S. law firms to give better legal advice about exposure to American prosecution, and drive down transaction costs between the law firm and the foreign party.9See Kiobel, 895 F.3d 238 at 247. See also Gertzman & Pernick (noting that such transaction costs include the expenses associated with “stor[ing] documents and servers abroad” and traveling overseas to access them); Reply Brief for Respondent-Appellant at 14, Kiobel v. Cravath, Swaine & Moore LLP, 895 F.3d 238 (2d Cir. 2018) (No. 17-424-cv), 2017 WL 2444296, at *15 (highlighting the added costs associated with “litigating every conceivable objection to discovery”); Amicus Brief of the Chamber of Commerce of the United States of America, Association of Corporate Counsel, and National Association of Manufacturers in Support of Respondent-Appellant at 14, Kiobel v. Cravath, Swaine & Moore LLP, 895 F.3d 238 (2d Cir. 2018) (No. 17-424-cv), 2017 WL 1549120, at *15 (opining that if protective orders are unreliable, “[foreign] parties will contest discovery requests with increasing frequency and tenacity, will be less forthcoming in giving testimony,” and will “chart [their] course through discovery cautiously and belligerently, to the detriment of the legal system”) (quotations omitted).
Failing to extend Martindell protection would create perverse incentives for U.S. law firms. They would be better served to shy away from a foreign party’s lucrative business than to incur the expenses required to regularly travel abroad to review their foreign clients’ documents. Law firms should not be put in the position of owing steadfast duties to two clients concomitantly––their foreign client on the one hand and the public interest of United States citizens on the other. The Sixth Amendment to the United States Constitution guarantees a criminal defendant the right to “adequate representation.” That this aspiration is often not achieved for indigent or low-income defendants does not excuse a legal rule that makes it more difficult for deep-pocketed criminal defendants to obtain fair representation by adequate counsel as well. A situation that forces lawyers to weigh such contradictory interests between clients cries out for governance by flexible legal rule.
The salutary effect that both of these incentive structures have on the attorney-foreign-client relationship—as well as the confidence in our civil litigation system—should weigh heavily in favor of extending Martindell’s presumption against disclosure, especially when foreign discovery material falls into the hands of an American law firm solely because the foreign client needs sound legal advice in response to a civil discovery request that was consciously triggered by a U.S. government grand jury investigation.
2. U.S. government incentives.
Extending the Martindell standard would also dissuade the U.S. government from attempting to collude with follow-on civil plaintiffs to lure foreign-crafted discovery materials into the hands of American law firms. Using coup fourrés to pursue criminal penalties is not only an undesirable governmental practice––it is a deeply problematic one as well. When the DOJ actively incentivizes a follow-on civil plaintiff to seek foreign documents from their adversaries and to share them with the government pursuant to a “favorable” grand jury subpoena, the creation of an “unholy alliance” between the two parties can occur. According a grand jury subpoena presumptive or per se authority over civil protective orders wrongly provides the DOJ and civil follow-on plaintiffs with considerable ancillary benefits for knowingly exploiting the territorial limitations of the grand jury subpoena power of the U.S. government.
The DOJ’s aggressive targeting of Foreign Agents Registration Act violations, coupled with continued difficulties of obtaining international discovery, suggests that such “unholy alliances” already do occur. Skeptics might argue that these alliances don’t actually happen. They might point to the fact that President Trump’s DOJ has prosecuted record low numbers of international white-collar crimes and that the president has attacked the Foreign Corrupt Practices Act. But the federal judiciary must not be a prisoner of the moment. In several FCPA and securities follow-on class action cases before President Trump took office, the interplay of grand jury subpoenas and civil protective orders invited such “unholy alliances” between the U.S. government and civil follow-on plaintiffs. A different administration, whenever that may be, may direct its DOJ to return to the aggressive prosecution of international white-collar crime and FCPA violations. When that day comes, a presumption against disclosure ought to already extend to the issue at bar.
If it does so extend, the U.S. government will focus its efforts on seeking out more workable ways to utilize Hague Evidence Convention procedures and bilateral agreements instead of trying to find ways to “unilaterally engage in extraterritorial discovery.” The Second Circuit should eliminate the possibility that the government’s aggressive investigative tactics in obtaining international discovery do not become imbued into a repository of bad faith tricks to pursue criminal penalties.10See, for example, In re Grand Jury Subpoena Served on Meserve, 62 F.3d at 1226–27 (inquiring about but not finding collusion between the follow-on civil plaintiffs and the U.S. government). See also Stanley Twardy Jr. and Doreen Klein, Grand Jury Subpoenas That Reach Around the World, American Bar Association (2011)(highlighting that, in United States v. Under Seal (In re Grand Jury Subpoena), “the government sought [a civil follow-on plaintiff]’s ‘assistance and advice in the government’s investigation;’ the two parties met to discuss the ongoing proceedings; and [the civil follow-on plaintiff] updated the government on its civil discovery progress, including advising the government that it had received a specific email about which the government had inquired”).
C. In Extending Martindell, the Second Circuit Should Adopt the First and Third Circuit’s “Compelling Need” and an “Exceptional Circumstance” Factors
The retained power that federal appellate courts possess to alter their judicially created standards is necessary to provide interested parties with a “safety valve” for “public interest concerns, changed circumstances[,] or any other basis that may reasonably be offered for later adjustment.” At present, such a safety valve is needed for the government to rebut the Martindell standard’s presumption against disclosure––as the principle of ensuring fair and effective law enforcement is, at the very least, a hugely commendable endeavor.
Though the U.S. government should be presumptively incapable of subpoenaing a U.S. law firm to uncover discovery material sent from overseas in reliance on a protective order in follow-on civil litigation, arguments in favor of divulging protected discovery to a grand jury should have purchase in particular, albeit narrow, circumstances. Unfortunately, the Second Circuit has been reticent to define these circumstances explicitly. When extending the Martindell standard to the issue at bar, the Second Circuit ought to finally explain, in plain English, what the government must demonstrate to override Martindell’s presumption against disclosure.
Fortunately, the Second Circuit need not look far for a solution. The First and Third Circuits have articulated a pertinent list of non-exhaustive factors the Second Circuit should adopt and apply when determining whether the government has demonstrated the existence of an “exceptional circumstance” or a “compelling need” that warrants a grand jury obtaining discovery material subject to a civil protective order. The Second Circuit need not weigh all eight factors when analyzing a case that implicates the issue at bar. Yet, it must maintain the flexibility to balance any combination of them, or even add or subtract some, depending on the circumstances that each future case in this area of white-collar litigation presents.
In determining whether a grand jury can access sealed discovery material held at a U.S. law firm, the Second Circuit need only weigh the following relevant factors, the last of which a future panel should add to the list due to the context surrounding follow-on litigation: (1) the government’s need for the information (including the availability of other sources); (2) the interests served by continued maintenance of complete confidentiality in the civil litigation; (3) the harm to the party who sought the protective order if the information is revealed to the grand jury, and (4) evidence, or lack thereof, of the government engaging in bad faith tactics to obtain the discovery material.
Applying these factors, a Second Circuit should hold that the government demonstrates an “extraordinary circumstance” and a “compelling need,” thus justifying access to protected discovery material held at a U.S. law firm, when (1) it proves it failed to gather the sought after material after exhausting all of its long-standing foreign proof gathering mechanisms, (2) it proves the foreign defendant to civil follow-on litigation has minimal reliance interest in maintaining confidentiality, (3) it establishes that the foreign defendant would not be substantially harmed, aside from potential criminal prosecution, if a grand jury subpoena pierced the protective order it entered into, and (4) it proves there was zero collusion with civil follow-on plaintiffs to orchestrate a set of circumstances where a foreign defendant either had to send its documents to its U.S. counsel or face sanctions for non-compliance with U.S. discovery rules.
For the Second Circuit, the benefits of adopting and applying these extra-circuit factors certainly outweigh the costs. A factor test in this area of white-collar litigation not only promotes a “conscious balancing” of the public’s interest on a case-by-case basis, but it also provides the U.S. government with much-needed guidance to rebut Martindell’s presumption against disclosure. The advantage of a more calibrated, holistic, exact, and equitable balance of the public’s varying interests “more than offsets” any reduction in judicial efficiency, increase in information costs, or potential inconsistent application of the Martindell standard that might stem from the Second Circuit adopting these factors. Altering the Martindell standard in a way that carefully considers the varying public interests embedded in a transnational conflict and generates incentives for parties to respect long-standing civil and criminal procedures is a practical necessity in the issue at bar.
When addressing whether the U.S. government can use its grand jury subpoena power to obtain foreign-crafted discovery material sent to a U.S. law firm in reliance on a protective order, the Second Circuit ought to presumptively say “no.” Continuing to extend the Martindell standard is appropriate for two reasons. First, the public’s interest in upholding an efficient and fair system of civil litigation supersedes the public’s interest in conducting a grand jury investigation that manipulates the territorial limits of its subpoena power, undermines the sanctity of the attorney-client relationship, and belies fixed principles of international comity to obtain foreign discovery. For the government, consciously triggering investigations to lure otherwise undiscoverable materials into the U.S. is ultimately no different than directly serving a grand jury subpoena on a party overseas. The means change, but the impermissible ends remain the same. Second, extending Martindell creates an incentive structure that motivates all parties to a conflict to comply with established, and workable, civil, criminal, and international procedures.
Though the Second Circuit ought to presumptively honor expectations that parties form in reliance on the Martindell standard, a future panel must also use this juncture to acknowledge that the interplay between the public’s interest in facilitating civil litigation and conducting criminal investigations tilts the scale in the government’s favor in narrow circumstances. At present, it is unfair to expect the government to rebut the Martindell standard’s presumption against disclosure without giving it instructions on how to do so. The Second Circuit should, therefore, adopt the First and Third Circuit’s factors mentioned above to set in stone what constitutes a “compelling need” or an “exceptional circumstance.” Adopting these factors will not sacrifice the overall consistent application of the Martindell standard. Instead, the Second Circuit will produce results that accurately balance the public’s varying interests and provide an equitable safety valve for facilitating grand jury investigations when necessary. For the U.S. government’s grand jury subpoena power, it should be a small world after all. But the Second Circuit must also recognize there might be times in the future where the government can justify making it a little bit bigger.
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A.B. 2018, Princeton University; J.D. Candidate 2021, The University of Chicago Law School. For helpful feedback and discussion, the author thanks Deb Malamud, Matthew Reade, and The University of Chicago Law Review. The author would also like to thank Colby Chanenchuk for her indispensable support.
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Photo credit to Jeffrey Zeldman.