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07/03/84 Samuel Friedman, v. Bache Halsey Stuart

July 3, 1984

SAMUEL FRIEDMAN, APPELLANT

v.

BACHE HALSEY STUART SHIELDS, INC., ET AL. APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (MISC. NO. 83-00027). 1984.CDC.190

ON MONDAY, JANUARY 31, 1983, PURSUANT TO RULE § 45(D), FED. R. CI

v.

P., THE GENERAL COUNSEL OF CFTC SERVED A NOTICE OF OBJECTION TO THE CFTC SUBPOENA ON THE GROUNDS THAT:



UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

APPELLATE PANEL:

Wilkey and Starr, Circuit Judges, and James E. Doyle,* Senior District Judge for the Western District of Wisconsin.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE DOYLE I.

Friedman was a party to two civil lawsuits arising out of the silver crisis. *fn1 The price of silver futures rose and fell dramatically in 1979-80.SEC investigated this unusual fluctuation and published its findings in October 1982. As the agency primarily responsible for regualtion of the commodity futures market, CFTC initiated its own investigation to determine whether there had been violations of the federal commodities laws. The CFTC investigation is not complete and no report has been published.

On January 26, 1983, a Wednesday, Friedman served a subpoena duces tecum et ad testificandum, issued by the United States District Court for the District of Columbia, on the general counsel of CFTC, requiring appearance on Wednesday, February 2, 1983. The subpoena demanded production of the following documents for inspection and copying:

(a) All transcripts of the testimony which refers or relates to or was given in connection with the investigation of the activity in the silver and silver futures markets in 1979-80 by the Commodity Futures Trading Commission.

(b) All indices of documents produced in connection with the investigation referred to above.

On the same date Friedman served a subpoena duces tecum et ad testificandum, issued by the United States District Court for the District of Columbia, on the Secretary of SEC, also requiring an appearance on February 2, 1983. The subpoena demanded production of the following documents for inspection and copying:

(a) Transcripts of testimony given by (1) Nelson Bunker Hunt, (2) William Herbert Hunt, (3) Lamar Hunt, (4) James Parker, and (5) Charles Mercer in connection with the investigation of the activity in the silver and silver futures markets in 1979-1980, conducted by the Securities and Exchange Commission Investigation No. HO-1233.

(b) All indices of documents produced in connection with Investigation No. HO-1233. *fn2

The [general counsel] to whom the subpoena is directed, does not have custody or control of any documents which could be deemed to be responsive to the instant subpoena. . . . Second, . . . Section 222(5) of the Futures Trading Act of 19823 . . . allows the Commission to disclose information in its possession pursuant to a subpoena, . . . only if : (1) a copy of the subpoena . . . has been mailed to the last known home or business address of the person who submitted the information that is the subject of the subpoena; and (2) at least fourteen (14) days have expired from the date of such mailing of the subpoena. . . . Further, . . . the subpoena on its face only seeks information which is protected from disclosure by the law enforcement investigatory files privilege. . . . Finally, . . . Section 8(a) of the Commodity Exchange Act4 . . . generally prohibts the Commission form disclosing such confidential information.

On Tuesday, February 1, 1983, pursuant to Rule 45(d), Fed. R. Civ. P., the secretary of SEC served an objection to the subpoena on the ground that the "disclosure of the requested documents . . . would interfer with an ongoing investigation being conducted by the Commondities Futures Trading Commission."

On Wednesday, February 2, 1983, pursuant to Rule 45, Fed. R. Civ. P., Friedman filed motions in the United States District Court for the District of Columbia to enforce both subpoenas. Accompanying these motions was a request for an expedited briefing schedule (five days) and hearing (the seventh day). The expressed reasons for requesting these accelerated procedures were the imminence of trial set for April 7, 1983, at Bache's insistence, in Bache's action against Friedman in the Florida state court and nine depositions scheduled in February 1983, commencing February 9, 1983, in the Illinois district court.

On Friday, February 4, 1983, the district court heard oral argument on the enforcement motions. The court requested a brief from CFTC by Tuesday, February 8, 1983, "supporting [its] position that [the general counsel] is not the appropriate officer to be subpoenaed, and telling the court why, and secondly, on [its] claim of privilege as being appropriately raised before the court under Black versus Sheraton in this circuit." (Tr. 26) On February 8, 1983, CFTC submitted its brief. On the same date Friedman submitted a supplemental brief in support of his motion. SEC was not required to, and did not submit a brief.

As of February 9, 1983, the documents described in the subpoenas had not been examined, one by one, by responsible members or offiers of CTFC, in response to the subpoenas, to determine whether, in the opinion of CFTC, each particular document is relevant to the subject matter of the Illinois lawsuit or is privileged, within the meaning of Fed. R.Civ. P. 26(b)(1). Counsel for the CFTC represented to the district court that as of February 8, 1983, more than 40 persons had testified in CFTC's silver investigations, more than 6000 pages of their testimony has been transcribed, the indices of all doucments compiled identified over 60,000 pages of documents (located in four cities), and the indices compiled totaled over 1000 pages in length. Also, counsel for CTFC represented, on information provided by SEC counsel, that about 200,000 pages of material had been compiled in SEC's investigation, the combined length of two sets of indices to these documents was 200 pages and a third set of indices was on tape and untranscribed.

On February 9, 1983, the district court entered its order denying Friedman's motion to enforce each of the two subpoenas. II.

The entire operative portion of the order appealed from reads: "Plaintiff's motion to compel [is] denied for failure to (1) show the unavailability of the materials from persons or businesses that have an interest or play a role in the underlying civil action, (2) establish that Section 8(a) of the Commodities Exchange Act, as amended, does not bar disclosure of the requested materials in a pending enforcement case, and (3) establish that Section 522(5) ofthe Futures Trading Act does not bar enforcement of a subpoena on less than 14 days notice." We will express below our awareness of the time constraints by which the district court considered itself bound. They explain the brevity of the challenged order. That brevity requires us, however, to exercise a degree of intuition in amplifying the stated grounds, particularly the first. We address the three grounds in sequence.

A. Need: unavailability from alternative sources.

A showing of relevance can be viewed as a showing of need; for the purpose of prosecuting or defending a specific pending civil action, one is presumed to have no need of matter not "relevant to the subject matter involved in the pending action." Fed. R. Civ. P. 26(b)(1). But it is highly unlikely that relevance was a factor in the district court's decision. While it is true this or that specific document in the CFTC and SEC silver investigation files may not be relevant to the subject matter of Friedman v. Board of Trade of the City of Chicago, No. 80-C-1111 (N.D. Ill.),5 it seems clear that the bulk of the content of those investigation files is relevant. Neither CFTC nor SEC appears seriously to challenge this proposition.

Of course, the district court was well aware that since the 1970 amendment to Rule 34, a showing of good cause is not a general requirement for the discovery of documents under that rule or, by analogy, under Rule 45.4A J.MOORE, MOORE'S FEDERAL PRACTICE 34.02

We are confident that the district court's reference to availability of the materials from alternative sources was made exclusively in the context of the claim of privilege raised by CFTC and SEC.6 There surely is such a thing as a qualified common-law privilege,7 within the meaning of Fed. R. Civ. P. 26(b), for law-enforcement investigatory files. Black v. Sheraton Corp. of America, 184 U.S. App. D.C. 46, 564 F.2d 531, 541-542 (D.C. Cir. 1977). Also, when the existence of such a conditional privilege is established, there is a need to balance the public interest in nondisclosure against the need of the particular litigant for access to the privileged information. United States v. Reynolds, 345 U.S. 1, 11, 97 L. Ed. 727, 73 S. Ct. 528 (1953); Black v. Sheraton Corp. of American, 564 F.2d at 545-547. Whether the materials are available from other sources is a factor in determining the degree of the litigant's need to obtain it from the governmental agency or officer claiming the privilege. Finally, it was not clearly erroneous for the district court to conclude that as of February 9, 1983, Friedman had failed to make a strong showing of unavailability from alternative sources.

The major error we perceive in the district court's order, however, is that the existence of a qualified law-enforcement investigatory files privilege as to all of the subpoenaed documents had not been sufficiently established by CFTC so as to support wholesale and final rejection of Friedman's motion to compel compliance.

The party claiming privilege has the burden to establish its existence. Black v. Sheraton Corp. of America, 184 U.S. App. D.C. 46, 564 F.2d 531, 547 (D.C. Cir. 1977); see also Robinson v. Magovern, 83 F.R.D. 79 (W.D. Pa. 1979). It is doubtful CFTC had met the very threshold requirement of presenting the claim properly.It will not be ...


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