Opposition Brief — Raven's Hollow, Ltd. v. United States

Supreme Court, U.S,

EILED

| OCT 28 19096

f No. 86-267 JOSEPH F, SPANIOL, JR.

ta

Iu te Supreme Court of the United States

OCTOBER TERM, 1986

RAVEN’S HOLLOW, LTD., ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A. WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION

CHARLES FRIED

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

————

a

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met

TABLE OF AUTHORITIES

Cases: Page

Chicot County Drainage District v. Baxter State

I a asdtinmeniete 6

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469........ 9

Davis v. Wakelee, 156 U.S. 680 ......22.2.2...ee eee eee eee 8

December 1974 Term Grand Jury Investigation, In

eg eR e eerer 2

Gluck v. United States, 771 F.2d 750 ........................ 7

Grand Jury Subpoenas, April 1978, at Baltimore,

In re, 581 F.2d 1103, cert. denied, 440 U.S. 971.... 2

Nixon v. Warner Communications, Inc., 485 U.S.

TO ne AER Bs Se pV SAE a ed cE 9

Raphan v. United States, 759 F.2d 879, cert. de-

nied, re. Beak (Get. 7, BOO). .-....-......-....-.-.... 8

Seattle Times Co. v. Rhinehart, 467 U.S. 20 ............ 9

Ss ie Te ee eins ernininescettcieccnccsnen 10

System Federation No. 91 v. Wright, 364 U.S. 642.. 6,10

Thorpe V. Housing Authority, 393 U.S. 268 ............ 10

United States v. Baggot, 463 U.S. 476 .......... 4, 5, 6, 7, 8, 10

United States v. Head, 641 F.2d 174 ..0000..0. 2

United States v, Head, 697 F.2d 1200, cert. denied,

I ince i i sccsesccwnnmncmnenincatvgnee 2

United States v. John Doe, Inc. I, cert. granted,

No. 85-1618 (May 27, 1986) .........00....202......2.--000--- 7

United States v. Leon, 468 U.S. 897 ........002222..2eeeeeeee 7

United States v. Manglitz, 590 F. Supp. 177, aff’d,

6, BY 6 ASIDE 2, See 9

United States v. Sells Engineering, Inc., 463 U.S.

Beh CE AOR A pees i east Ge RO, 4, 5, 6, 7,8

Constitution and rules:

EERE A Ne opNer tee ROTTEN 9

Fed. R. Crim. P.:

i 1, 2, 3, 4, 5, 6, 7, 8, 9, 10

I gia cscaascien nent nieadiendcessdlbaiin 9

(I)

Iu the Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-267

RAVEN’S HOLLOW, LTD., ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION

Petitioners seek review of the court of appeals’

refusal to vacate a district court order entered in

1979 pursuant to Fed. R. Crim. P. 6(e), which au-

thorized the disclosure of grand jury materials to

the Internal Revenue Service for use in determining

and litigating petitioners’ civil tax liabilities.

1. a. In 1978, a federal grand jury sitting in the

Eastern District of Virginia began an investigation

of petitioners. During that investigation, petitioners

and related persons and entities produced voluminous

financial records for examination by the grand jury

(C.A. App. 31-32). Various persons testified before

the grand jury during the course of the investigation.

(1)

2

Petitioner Head was indicted, was tried twice, and

was ultimately convicted on one count of conspiracy

to commit bribery and tax evasion and on one count

of making an illegal gratuity.’ Pet. App. 2a, 7a.

At the conclusion of the first trial in November

1979, the government sought and obtained from the

district court an order, pursuant to Fed. R. Crim. P.

6(e), »uthorizing the disclosure of grand jury mate-

rials to the Internal Revenue Service (IRS) to de-

termine whether petitioners owed additional taxes

and whether petitioner Airlie Foundation was en-

titled to retain its tax-exempt status (C.A. App.

35-36, 40-41). The government’s application for the

Rule 6(e) order met the standards then prevailing

in the Fourth Circuit for the disclosure of grand jury

materials to the IRS (Pet. App. 6a).* Review of pe-

titioner’s civil tax deficiencies is currently pending

before the Tax Court, and petitioner Airlie Founda-

tion’s tax exempt status is still under consideration

by the IRS.

Counsel for petitioners have to the best of our

knowledge received access to all of the documents sub-

poenaed by, and all of the testimony before, the

grand jury that was disclosed to the IRS and that is

1See United States v. Head, 641 F.2d 174 (4th Cir. 1981) ;

United States v. Head, 697 F.2d 1200 (4th Cir. 1982), cert.

denied, 462 U.S. 1132 (1983). ’

?The district court issued an original order (C.A. App.

35-36) and an order on the government’s motion for clarifica-

tion (id. at 40-41). Although the government filed both mo-

tions ex parte, petitioners were aware of and opposed the gov-

ernment’s initial motion (id. at 134-136).

3 See In re Grand Jury Subpoenas, April 1978, at Baltimore,

581 F.2d 1103 (4th Cir. 1978), cert. denied, 440 U.S. 971

(1979) ; In re December 1974 Term Grand Jury Investigation,

449 F. Supp. 743 (D. Md. 1978).

3

relevant to these proceedings. Portions of these mate-

rials were made available to counsel for petitioner

Head in connection with his criminal trials, and sub-

stantial amounts of grand jury materials were intro-

duced into evidence at those trials. Pet. App. 2a, 7a;

C.A. App. 23-30. Counsel for petitioners were also

given access to grand jury materials in the IRS’ pos-

session in connection with the Tax Court proceedings

(see C.A. App. 42-49, 58-59, 84-86, 89-101, 165-180,

190-194, 197-198, 211) .*

4 Before trial in the criminal proceedings against petitioner

Head, the government disclosed: (1) the documents the gov-

ernment intended to introduce in its case-in-chief; (2) the

exhibits supporting the charges in the indictment; (3) an in-

ventory of records and documents obtained by the government

prior to the issuance of grand jury subpoenas; (4) all grand

jury transcripts of 13 government witnesses, and portions of

the transcripts of another witness; (5) trial transcripts of

seven witnesses and the congressional testimony of another

witness; and (6) all of the Federal Bureau of Investigation

(FBI) and IRS witness interview reports relevant to the

charges in the indictment. C.A. App. 23-26. Numerous grand

jury materials were thereafter introduced at petitioner Head’s

trials.

In 1981, petitioners filed a motion pursuant to Rule 6(e)

seeking the disclosure of: (1) all documents submitted to and

testimony before the grand jury; (2) a complete list of grand

jury witnesses; (3) witness interview reports prepared by the

FBI that were submitted to the grand jury; (4) the summary

report and appendices prepared by an IRS agent and sub-

mitted to the grand jury; and (5) witness interview reports

prepared by the IRS before and during the grand jury investi-

gation. See C.A. App. 44, 57-58. Petitioners’ motion was

granted in part and denied in part. Petitioners were granted

access to all books and records that they had submitted to the

grand jury (id. at 59; see also id. at 84-101). Petitioners were

granted access to the books and records of third parties inso-

far as the IRS relied on these items in the civil or administra-

tive proceedings; otherwise, petitioners’ motion for disclosure

4

b. Almost five years after entry of the 1979 order,

in December 1984, petitioners moved to vacate the

Rule 6(e) order and to prohibit the IRS from using

any grand jury materials obtained pursuant to the

order (C.A. App. 102-110). Relying on United States

v. Baggot, 463 U.S. 476 (1983) (Rule 6(e) does not

authorize disclosure of grand jury material to the

IRS to determine tax liabilities), and United States

v. Sells Engineering, Inc., 463 U.S. 418 (1983) (the

government must establish a particularized need for

grand jury materials to obtain disclosure under Rule

6(e) for use in a civil suit), petitioners argued that

the district court’s 1979 Rule 6(e) order should be

of these documents was denied (id. at 59). Petitioners’ motion

for disclosure of the FBI and IRS witness interview reports

was denied on the ground that these items were not grand

jury materials (ibid.). The government volunta’ily disclosed

numerous IRS witness interview reports, however (id. at 46),

and, as noted above, the govérnment had disclosed the FBI and

IRS witness interview reports to petitioner Head during his

criminal prosecution (id. at 25, 26). Although petitioners’

motion was denied in part, we are informed by the United

States Attorney’s Office and the TRS’s Chief Counsel’s Office

that all grand jury materials that were relevant, respectively,

to petitioner Head’s criminal prosecution or to the ongoing

civil or administrative proceedings have been disclosed to

petitioners.

Petitioners’ contention (Pet. 7n.6) that there is no support

in the record for the court of appeals’ statement (Pet. App. 7a)

that all of the grand jury materials possessed by the IRS have

been disclosed to the public or to petitioners, puts the matter

the wrong way around. It is clear that an enormous quantity

of grand jury materials has been so disclosed. Petitioners

have not identified—and we are not aware of—any materials

they have not obtained that are relevant to the ongoing tax

proceedings.

5

revoked and the government should be forbidden from

using any of the materials it had obtained.

The district court denied petitioner’s motion (C.A.

App. 120). The court found that “the equities

favor[ed] the government,” which had relied in good

faith on the 1979 order and had used the grand jury

materials for nearly five years (Pet. App. lia; C.A.

App. 126). The court also concluded that Sells and

Baggot should not be given retroactive effect (Pet.

App. 12a).

ce. The court of appeals, by a divided vote, affirmed

(Pet. App. la-8a; 783 F.2d 450). The panel unani-

mously agreed that Sells and Baggot should not be

applied retroactively (id. at 6a-7a; id. at Ta-8a

(Butzner, J., dissenting) ). The panel majority con-

cluded that modification of the 1979 order was un-

necessary, because the order was valid when it was

entered (id. at 6a-7a). The dissenting judge believed

that the government should be required to meet the

standards imposed by Baggot and Sells in order to

make future use of the grand jury materials (id. at

8a).

2. The question presented by this case is one of

small and diminishing importance. Moreover, it is a

question that turns on the facts and circumstances

of each case—‘“the equities’—and which was cor-

rectly answered in this case. Further review is there-

fore not warranted.

a. Petitioners do not contend that the 1979 order

was not sought and issued in good faith based on then

prevailing standards and observed in good faith for

nearly five years thereafter. And petitioners do not

here challenge the court of appeals’ ruling that Sells

and Baggot do not apply retroactively. Their sole

contention is that pre-Sells and Baggot Rule 6(e)

6

orders should now be prospectively vacated unless the

orders could be issued today under the rules an-

nounced in those cases. But even if that contention

were susceptible to a single yes-or-no answer appli-

cable to every case, it would apply only to a small,

closed, and diminishing category of cases involving

Rule 6(e) orders entered before the 1983 decisions in

Sells and Baggot that remain partially executory.°

The contention is therefore at best of limited signifi-

cance that does not warrant review by this Court.

b. A Rule 6(e) order that was properly issued and

subsequently relied on in preparing a civil case should

be vacated only when there has been a showing—

“not made here—that a failure to vacate the order

would be inequitable. System Federation No. 91 v.

Wright, 364 U.S. 642 (1961), does not, as petition-

ers suggest, stand for the stunning proposition that

every valid executory court order must be vacated or

modified whenever there is a change in the law that

would preclude its issuance as an original matter.

To the contrary, the Court carefully noted that “[a]

balance must be struck between the policies of res

judicata and the right of the court to apply modified

measures to changed circumstances” (id. at 647-

648) and that because there is “such a balance of

imponderables there must be wide discretion in the

District Court” (id. at 648). Modification is required

only “when a change in law or facts has made in-

equitable what was once equitable” (id. at 652). In

Wright, a consent decree prohibiting certain private

conduct that was unlawful when the decree was en-

5 A final judgment in a civil case cannot be retrospectively

challenged on the basis of a subsequent decision. Chicot

County Drainage District v. Baxter State Bank, 308 U.S. 371

(1940).

7

tered was ordered modified when Congress legalized

the conduct in question. Continued application of the

decree would have imposed a no longer appropriate

burden on the parties subject to it.

ce. The decisions in Sells and Baggot do not re

quire the prospective vacation of the Rule 6(e) order

entered in this case either to vindicate the public

policies underlying those decisions or to eliminate

any actual unfairness to petitioners.

First, as noted, the materials in question were dis-

closed to the IRS pursuant to a disclosure order that

petitioners concede was valid when entered and was

not retroactively invalidated by Sells or Baggot.

There is no suggestion of improper government con-

duct that needs to be remedied. Cf. Gluck v. United

States, 771 F.2d 750, 757-758 (3d Cir. 1985) (up-

holding summons issued in good-faith reliance on a

validly entered pre-Baggot Rule 6(e) disclosure

order) ; United States v. Leon, 468 U.S. 897 (1984).

To the contrary, the only effect of vacating the order

here would be to delay and complicate tax proceed-

ings prepared in good faith over a five-year period

while the courts below sort out the effect of vacation

of the order.®

* This case does not, in its current posture, present the

question involved in United States v. John Doe, Inc. I, cert.

granted, No. 85-1613 (May 27, 1986): whether continued use

of grand jury materials by the same personnel constitutes a

“disclosure” of those materials requiring a Rule 6(e) order.

If the Rule 6(e) order were to be vacated in this case, we be-

lieve it very possible that the courts below would eventually

conclude that such vacation has no effect on continued use of

the materials, because they are in fact all public (see page

note 3 infra), or because no disclosure is involved. Substan-

tial proceedings would obviously be necessary before such a

determination could be made.

8

Second, prospective vacation of pre-1983 Rule 6(e)

orders is obviously not necessary to protect the public

policies underlying the decision in Sells: enhancing

the willingness of grand jury witnesses to come for-

ward and testify fully and candidly, and preventing

the improper use of the grand jury for civil discovery

purposes. See Sells, 463 U.S. at 482-483. Those in-

terests are safeguarded by applying the standards

adopted in Sells and Baggot to future disclosure ap-

plications.’

Third, there is no need to vacate the 1979 order

to avoid prejudice to petitioners. Through discovery

in petitioner Head’s criminal prosecution or during

the ongoing civil proceedings, petitioners obtained

all relevant grand jury materials that were dis-

closed to the IRS under the 1979 Rule 6(e) order.

The government therefore does not have “ ‘exclusive

access to a storehouse of relevant fact’” (Sells, 463

U.S. at 434 (citation omitted)). Petitioners will be

in the same position as the government if the 1979

order is left in place.

Finally, vacating the 1979 disclosure order could

significantly prejudice the government’s opportunity

to complete the on-going civil and administrative pro-

ceedings. The government reasonably relied on these

materials in preparing for and developing those pro-

ceedings. Vacating the 1979 Rule 6(e) order would,

7 Indeed, since petitioners obtained the grand jury mate-

rials (see pages 3-4 note 4, supra), they are in no position

to champion the public interest in secrecy at this late date

in this proceeding. Raphan v. United States, 759 F.2d 879,

887 (Fed. Cir. 1985), cert. denied, No. 85-11 (Oct. 7, 1985) ;

cf.. Davis v. Wakelee, 156 U.S. 680, 689 (1895) (parties

should not be permitted to take inconsistent positions in the

same case).

9

at a minimum, force the government to establish its

right to use the materials without a Rule 6(e) order *

or to reacquire these materials through civil discov-

ery, under the IRS’s subpoena power, or through a

new Rule 6(e) order. At worst, the government could

be denied the opportunity to obtain these materials

at all, on the ground that the IRS’s efforts to reac-

8 In fact, we believe the courts would eventually rule that the

government (and the petitioners) may now use any of the

materials in question without a Rule 6(e) order because they

have properly lost their confidentiality. All grand jury mate-

rials introduced into evidence at trial are now judicial records

and are not protected by Rule 6(e). United States v. Manglitz,

773 F.2d 1463, 1467-1468 (4th Cir. 1985) (Sells does not re-

quire a district court to seal the record of a guilty plea pro-

ceeding because grand jury material is introduced absent

proof that the government has sought to manipulate the pro-

ceeding to reveal grand jury materials) ; see, e.g., Nixon v.

Warner Communications, Inc., 435 U.S. 589, 597-599 (1978)

(common law grants a right of access to judicial records) ;

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 491-497

(1975) (First Amendment right to publish information law-

fully acquired during court proceedings) ; see generally United

States v. Manglitz, 590 F. Supp. 177, 178-179 (D. Md. 1984),

aff’d, 773 F.2d 1463 (4th Cir. 1985) (prosecution does not

need a Rule 6(e) order to introduce grand jury materials at

trial) (collecting authorities). Similarly, no limitation was

placed on the use that petitioners could make of the materials

disclosed to them under their Rule 6(e) request or in dis-

covery in petitioner Head’s criminal trials (see C.A. App.

204). (In fact, certain grand jury materials disclosed to peti-

tioner Head during his criminal prosecution were apparently

revealed by him to the media, see C.A. App. 137-138.) There

is, accordingly, no longer any secrecy interest in those materi-

als that would be protected by Rule 6(e). See Fed. R. Crim.

P. 6(e) (3) (C) (district court may impose conditions on dis-

closure of grand jury materials); cf. Seattle Times Co. v.

Rhinehart, 467 U.S. 20 (1984) (courts may limit the public

disclosure of information obtained in pretrial discovery).

10

quire these materials are “tainted” by the knowledge

it obtained from its current use of them. Petitioners

have offered no reason why they should be allowed to

obtain such an inequitable litigating advantage in

these proceedings.°

In sum, in these circumstances it would be a deci-

sion to revoke the 1979 Rule 6(e) order, not the dis-

trict court’s ruling below, that would serve as “ ‘an

instrument of wrong’” (System Federation No. 91

v. Wright, 364 U.S. at 647 (citation omitted) ). The

district court therefore did not err in refusing to

vacate the 1979 Rule 6(e) order.

It is therefore respectfully submitted that the peti-

tion for a writ of certiorari should be denied.

CHARLES FRIED

Solicitor General

OCTOBER 1986

® The decision below does not conflict with In re Sells, 719

F.2d 985 (9th Cir. 1983) (Sells IJ), upon which petitioners

rely. Unlike this case, Sells IJ involved a direct appeal from a

Rule 6(e) order, entered before Baggot was decided, that was

held on appeal until that decision was announced. Applying

the rule that an appellate court must apply existing law (e.g.,

Thorpe V. Housing Authority, 393 U.S. 268, 281-283 (1969) ),

the court of appeals held that the Rule 6(e) order must be set

aside under Baggot. The court also concluded that the applica-

tion of Baggot to that order would not result in a “manifest

injustice” (719 F.2d at 990; see id. at 990 & n.3). For the

reasons discussed in the text, the equitable considerations in

this case are quite different.

W UV. &. GOVERNMENT PRINTING OFFICE; 1986 181483 40047