Civil Practice – Subpoena – Foreign Company – Motion to Quash

In re: Grand Jury Subpoena (Lawyers Weekly No. 11-01-0643, 18 pp.) (Gilman, J.) No. 10-4815, June 15, 2011; USDC at Richmond, Va. (Payne, J.) 4th Cir. Click here for the full-text opinion.

Holding: In this case under seal, a foreign company cannot quash the government’s grand-jury subpoenas served on another company, the under-seal intervenor, to obtain documents the foreign company delivered to the intervenor during discovery in parallel civil litigation between the two companies over trade secrets; the 4th Circuit affirms the district court’s denial of the foreign company’s motion to quash the government subpoenas.

The under-seal appellant (Company 1), a foreign company, appeals the district court’s denial of its motion to quash the government’s grand-jury subpoenas served on the under-seal intervenor (Company 2). The subpoenas seek documents that Company 1 delivered to Company 2 in response to discovery requests that arose during the course of civil litigation between the two companies in the United States District Court for the Eastern District of Virginia. Company 2 has entered this case as an intervenor in support of the government. We affirm the denial of Company 1’s motion to quash the government’s subpoenas.

In 2007, the government commenced an investigation of a former Company 2 employee who began providing consulting services to Company 1 after his employment with Company 2 ended. The government was looking into the possible theft of Company 2’s trade secrets. This inquiry led the government to investigate Company 1’s use of the proprietary information. The employee ended up pleading guilty in December 2009 to theft of trade secrets, in violation of 18 U.S.C. § 1832, and to obstruction of justice in violation of 18 U.S.C. § 1512(c).

Company 2 sued Company 1 in 2009, alleging claims based on the same theft-of-trade-secrets allegations (the Civil Litigation). This separate lawsuit currently is pending before the district court.

In a January 2009, a federal prosecutor sent an email telling Company 2 the government investigation was “dead” and the prosecutor did not see any problem with Company 2 filing a civil complaint. But the prosecutor said the government could not “carte blanche … turn over everything” in its possession to Company 2. Company 1 claims that with Company 2’s assistance and with the information Company 2 obtained in the civil litigation, the government was able to revive its investigation of Company 1 in 2010.

In summer 2009, Companies 1 and 2 entered into a protective order governing disclosure of documents and outlining procedures for materials subject to subpoena. Two subpoenas served on Company 2 to obtain documents Company 1 produced in the Civil Litigation are at issue. The district court denied Company 1’s motion to quash the subpoenas, holding that the government’s interactions with Company 2 were not improper and the government’s communications with Company 2 were part of the government’s attempt to redress Company 2’s victimization by a former employee who had pleaded guilty to stealing Company 2’s trade secrets. The court also ruled that the subpoenas trumped the Protective Order. Company 1 appeals.

Company 1 argues the government subverted the limitations on obtaining documents from foreign parties that are imposed by Fed. R. Crim. P. 17 and the Mutual Legal Assistance Treaty (MLAT) between Company 1’s home country and the U.S.

We conclude the MLAT is not the exclusive means for the government to obtain documents from a party located in Company 1’s home country in aid of the government’s criminal investigation. Company 1 also has failed to show that the MLAT gives rise to a private right of action that can be used to restrict the government’s conduct.

The government here did not bring a parallel civil proceeding against Company 1. Rather, the government subpoenaed documents already located in the U.S. pursuant to discovery initiated by Company 2. The 9th Circuit recently decided a factually similar case in In re: Grand Jury Subpoenas, 627 F.3d 1143 (9th Cir. 2010), and reversed a lower court’s decision to quash the government’s subpoenas. We believe the result here upholding the subpoenas should be the same.

We also reject Company 1’s contention that Company 2 colluded with the government. The district court expressly found there was no evidence that Company 2 engaged in discovery in the Civil Litigation at the behest of the government. The cooperation between the parties reflects the fact that the government and Company 2 were assisting one another in advancing their independent but shared interests.

Finally, the district court did not err in denying Company 1’s request for an evidentiary hearing or in holding that the subpoenas trumped the Protective Order. There is a per se rule in the 4th Circuit favoring the enforcement of a grand jury subpoena despite the existence of an otherwise valid protective order.

Denial of the motion to quash is affirmed.