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DTC Energy Group, Inc. v. Hirschfeld

United States District Court, D. Colorado

October 29, 2019

DTC ENERGY GROUP, INC., a Colorado corporation, Plaintiff,
v.
ADAM HIRSCHFELD, an individual, JOSEPH GALBAN, an individual, and ALLY CONSULTING, LLC, a Wyoming limited liability company formerly known as Wyodak Staffing, LLC, CRAIG HIRSCHFELD, an individual, JOSEPH JOHNSON, an individual, KATIE STROMSTAD, an individual, and ROSS RHINEHART, an individual, Defendants.

          ORDER

          KRISTEN L. MIX MAGISTRATE JUDGE

         This matter is before the Court on Plaintiff's Motion to Amend Protective Order and Supporting Memorandum of Law [#155][1] (the “Motion”). Defendants filed a Response [#159] in opposition to the Motion [#155], and Plaintiff filed a Reply [#161]. Plaintiff “moves for modification of the Court's protective order to reflect the well-established rule that a grand jury subpoena requires a subpoenaed party to produce all documents responsive to the subpoena, including documents marked confidential pursuant to a civil protective order.” Motion [#155] at 1.

         I. Background

         In June 2019, Plaintiff's attorneys received a grand jury subpoena from the Denver District Attorney ordering them to produce documents relating to alleged criminal conduct by Defendants, including documents which had been produced by Defendants and marked by them as “confidential” under the terms of the protective order issued by the Court in this case. Plaintiff asserts that, prior to producing the confidential documents, it engaged in legal research to determine whether a grand jury subpoena prevails over a civil protective order, and concluded that it does. Defendants, after discovering that Plaintiff had funneled their confidential documents to the Denver District Attorney, accused Plaintiff of malfeasance and violation of the Court's protective order in this case. That order provides:

Any party can designate any information that is confidential pursuant to its good faith belief that the information contained within a document is confidential. Any information designated as confidential and produced to opposing counsel shall be used only for purposes of this litigation and shall not be disclosed to anyone other than attorneys of record, the Court and the parties. If there are any disputes regarding a confidential designation, counsel shall confer and follow the Court's discovery procedures to resolve any disputes. This Protective Order shall remain in effect until such time as it is superseded by other written protective order, if any.

See Minutes [#22] (transcribing the Court's September 8, 2017 oral protective order). In the present Motion, Plaintiff asks the Court to “amend its protective order to reflect the law that a grand jury subpoena trumps a civil protective order.” [#155] at 3.

         The Court notes that Defendants have also filed a Motion for Sanctions asking “that the Court issue an order to show cause and subsequently enter sanctions against both [Plaintiff] and its counsel for willfully violating the protective order entered by this Court on September 8, 2017 . . . .” [#165] at 1. The Court here solely adjudicates the issue of whether the protective order should be modified. In light of the fact that Defendants' request covers a range of issues, not all of which are fully related to modification of the protective order, the Court will issue a separate order in due course which addresses Plaintiff's conduct and whether sanctions should be imposed.

         II. Analysis

         A. Grand Jury Subpoenas and Civil Protective Orders

         The issue of whether a grand jury subpoena prevails over a civil protective order appears to be one of first impression in this circuit. The parties appear to agree that Securities and Exchange Commission v. Merrill Scott & Associates, Ltd., 600 F.3d 1262 (10th Cir. 2010), is the Tenth Circuit Court of Appeals' case offering the closest guidance on this issue. While Merrill Scott does not directly address the issue, it does provide some guidance, particularly in its discussion of In re Grand Jury Subpoena, 836 F.2d 1468 (4th Cir. 1988). Merrill Scott, 600 F.3d at 1274-75 (10th Cir. 2010).

         In Merrill Scott, the Securities and Exchange Commission (“SEC”) voluntarily disclosed materials marked confidential under the applicable civil protective order to the Internal Revenue Service (“IRS”), a non-party. Id. at 1275. The Tenth Circuit noted that the facts of the case were “easily distinguishable” from those in In re Grand Jury Subpoena. Id. “There, the Fourth Circuit, relying in part on ‘[t]he sweeping power of the grand jury to compel the production of evidence,' ruled that deponents in a civil case could not use a civil protective order to block a grand jury criminal subpoena requiring production of their sealed depositions.” Id. (internal citation omitted). Thus, the Tenth Circuit distinguished In re Grand Jury Subpoena on the basis that “no such criminal subpoena [was] at issue in” Merrill Scott. However, a criminal subpoena is precisely what is at issue in the present case. Id. The Tenth Circuit also stated without further comment that “[t]he Fourth Circuit noted that the government had two options in seeking to obtain the deposition transcripts: it could subpoena the transcripts as part of a grand jury investigation, or seek permissive intervention in the civil action to request that the protective order be modified or vacated.” Merrill Scott, 600 F.3d at 1275 n.3 (citing In re Grand Jury Subpoena, 836 F.2d at 1470).

         The Fourth, Ninth, and Eleventh Circuits have all “adopted a per se rule that [civil] protective orders cannot shield discovery from grand jury subpoenas.” In re Grand Jury Subpoena Served on Meserve, Mumper & Hughes, 62 F.3d 1222, 1226-27 (9th Cir. 1995); In re Grand Jury (Williams), 995 F.2d 1013 (11th Cir. 1993). The Ninth Circuit in particular thoroughly examined the Fourth and Eleventh Circuits' prior opinions, concluding that (1) “[t]he Fourth Circuit's exhaustive delineation of the various considerations reveals that allowing protective orders to be enforced at the expense of grand jury subpoenas would yield little benefit, at great cost, ” (2) “[t]he Eleventh Circuit's dogged devotion to the grand jury's constitutional and historical stature . . . suggests that a per se rule in favor of the grand jury subpoena is not only the practical result, but also the proper one, ” and (3) “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.” In re Grand Jury Subpoena Served on Meserve, Mumper & Hughes, 62 F.3d at 1224-27.

         These circuit courts all expressly distinguished or declined to extend the Second Circuit's opinion of Martindell v. International Telephone and Telegraph Corporation, 594 F.2d 291, 296 (2d Cir. 1979), which “concerned an informal government request to a federal district court for copies of deposition transcripts which were the subject of a Rule 26 protective order.” In re Grand Jury Subpoena, 836 F.2d at 1473. The Martindell court held that, “absent a showing of improvidence in the grant of a Rule 26(c) protective order or some extraordinary circumstance or compelling need, . . . a witness should be entitled to rely upon the enforceability of a protective order against any third parties, including the Government . . . .” 594 F.2d at 296. Thus, the Second Circuit “affirmed the district court's decision to deny the request, concluding that the interest in protecting efficient resolution of civil disputes outweighed the interest of the government in effective law enforcement when such interest was expressed “‘simply by picking up the telephone or writing a letter to the court.'” In re Grand Jury Subpoena, 836 F.2d at 1473 (quoting Martindell, 594 F.2d at 294). The Fourth Circuit noted that the Second Circuit “did not express an opinion on how these interests should be balanced when a grand jury subpoena seeks to override a valid protective order.” In re Grand Jury Subpoena, 836 F.2d at 1473.

         The First and Third Circuits have also addressed this issue, both rejecting Martindell's reasoning. In re Grand Jury Subpoena (Roach), 138 F.3d 442 (1st Cir. 1998); In re Grand Jury, 286 F.3d 153, 158 (3d Cir. 2002). The Third Circuit, which appears to be the most recent circuit court to address the issues, “join[ed] the First Circuit in concluding that a strong but rebuttable presumption in favor of a grand jury subpoena best accommodates the sweeping powers of the grand jury and the efficient resolution of civil litigation fostered by protective orders.” In re Grand Jury, 286 F.3d at ...


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