Pro-business and criminal defense advocacy groups are accusing the Department of Justice of overreaching its subpoena power by using an aggressive new tactic to retrieve foreign documents for use in criminal antitrust proceedings.

Historically, foreign documents fall outside the scope of grand jury subpoenas, but the Justice Department is arguing that those documents are fair game once they enter the United States. The matter is expected to ultimately make its way to the U.S. Supreme Court.

“This is the first time I can recall that the Justice Department issued subpoenas to the law firm of a party as a way of getting foreign documents that they otherwise would not be able to get,” says Richard Donovan, a partner of Kelley Drye & Warren, who co-chairs the firm's antitrust and trade regulation practice group.

In December 2006, the Justice Department launched a probe into alleged price-fixing in the liquid crystal display panel market. The Justice Department targeted Hitachi, LGPhillips, Sharp, Samsung, Panasonic, Toshiba, and others. While many companies have pleaded guilty, the antitrust investigation remains ongoing.

As part of their investigation, prosecutors served grand jury subpoenas to four law firms—K&L Gates, Lieff Cabraser Heimann & Bernstein, Nossaman, and White & Case—that were representing parties in dozens of parallel civil proceedings. Included in the subpoenas were requests for foreign documents under a civil protective order that were part of the firms' civil discovery.

California District Court Judge Susan Illston granted a motion to quash the subpoenas, but a three-judge Ninth Circuit panel in December 2010 unanimously reversed that decision last December, ruling that grand jury subpoenas trump civil protective orders. “By a chance of litigation, the documents have been moved from outside the grasp of the grand jury to within its grasp,” the court said. “No authority forbids the government from closing its grip on what lies within the jurisdiction of the grand jury.”

Criminal defense lawyers have always been aware of the risk that the government could obtain foreign documents that come into the United States. “This case just confirms that, once the documents are here, the government has the ability to get them,” says Donovan.

The ruling represents a circuit split. The Fourth and Eleventh Circuits adopted the same approach as the Ninth Circuit, while the Second Circuit believes civil protective orders trump grand jury subpoenas, and the First and Third Circuits have adopted a rebuttable presumption that grand jury subpoenas take precedence over civil protective orders. 

Hoping for greater clarification, White & Case, which represents Toshiba in the antitrust investigation, filed a petition with the U.S. Supreme Court in February.

The U.S. Chamber of Commerce and DRI, an international organization of defense attorneys and corporate counsel, filed a consolidated amicus brief in April  supporting White & Case. The circuit split creates “inconsistent laws nationwide and inevitably leads to predatory forum shopping,” said Lisa Blatt, a partner with Arnold & Porter and author of the brief.

“Over the last decade this policy has led companies to fall like dominoes, because many believe the evidence from cooperating parties is so strong against them that there is no point in going to trial.”

—Mark Popofsky,

Partner & Co-Chair, Anti-Trust Group,

Ropes & Gray

Additionally, the Washington Legal Foundation, a corporate legal advocacy group, also filed a brief in April, urging the Court to review and reverse the Ninth Circuit's decision. On its Website, WLF says the appeals court decision “threatens to inhibit a multinational company's ability to fully defend itself in civil litigation” when there is a parallel criminal investigation.”

The decision unfairly limits a company's ability to provide discovery in a civil matter, where it may want foreign-based executives to provide testimony. “If such testimony can come within the jurisdiction of the grand jury, foreign-based employees may refuse to provide testimony for fear of risking criminal jeopardy,” Cory Andrews, WLF senior litigation counsel, said in a statement.

Gina Talamona, a spokesperson for the Justice Department's Antitrust Division, declined to comment.

Refusal to Settle

According to the Justice Department, its LCD investigation has resulted in more than $860 million in criminal fines. Additionally, a total of 22 executives and eight companies have been charged in the ongoing investigation.

At least one company, however, is not going down without a fight. AU Optronics, a Taiwan-based LCD maker, said it was disappointed with the Justice Department's June 2010 indictment against AUO, its American subsidiary, and six senior executives for their alleged roles in the antitrust scheme. So far, it has refused to settle the case. “When institutions are confronted with allegations of wrongdoing, it is tempting to look for someone to blame, even its own managers or employees,” the company stated on its Website. “Regardless of what others may do, that is not the way AUO does business and is not the path it chooses now,” the company said in a statement.

BROAD IMPLICATIONS

The following excerpt from White & Case v. United States of America explains the broad implications the case will have on numerous areas of law:

As Petitioner correctly notes, civil suits often follow immediately on the heels of the government's announcement of a criminal investigation. Pet. 5; App. 8a. Nearly 60 percent of federal antitrust class action cases filed from 2007 to 2009 arose from a prior government enforcement action. Hawthorne, supra, at 58 (reviewing 121 lead cases compiled from 1,811 class action complaints). A survey of the 40 largest successful private antitrust lawsuits similarly revealed that only 15 of those cases did not follow government enforcement actions. Robert H. Lande & Joshua P. Davis, Benefits From Private Antitrust Cases: An Analysis of Forty Cases, 42 U.S.F. L. Rev. 879, 897-98 (2008). In antitrust cases like this one, piggyback plaintiffs seek to reap the spoils of a government investigation by filing civil lawsuits for treble damages and attorneys' fees under the Clayton Act. 15 U.S.C. § 15.

This “follow-on phenomenon” recurs in a broad range of cases affecting many business sectors. In addition to the antitrust context, similar suits have been filed in products liability, securities, white collar, civil rights, and consumer fraud litigation. Howard M. Erichson, Coattail Class Actions: Reflections on Microsoft, Tobacco, and the Mixing of Public and Private Lawyering in Mass Litigation, 34 U.C. Davis L. Rev. 1, 2 (2000); see also Pet. 24-25. The practice has become so ubiquitous that one commentator concluded, “[c]oattail class actions are a common feature of mass litigation” today. Erichson, supra, at 5. In this case alone, nearly 140 putative class-action complaints were filed throughout the country following news that the DoJ was investigating potential antitrust violations within the TFT-LCD industry. Pet. 4; App. 2a.

Consequently, the practical impact of the Ninth Circuit's per se rule and the existing circuit split will be felt in multiple areas of law and will affect numerous industries in the United States and abroad. These broad ramifications have prompted close attention to the outcome of this case, as well as amici's participation here. Mike Scarcella, DoJ Presses Law Firms in LCD Probe, Nat'l L. J., May 10, 2010, at 6. The importance of resolving this circuit split and correcting the Ninth Circuit's decision below warrants the Court's attention.

Source: White & Case v. United States of America.

The case is significant, says Mark Popofsky, a partner and co-chair of the anti-trust group at Ropes & Gray, because it marks the first time in 10 years that a company in an international cartel case has gone to trial against the antitrust division. “It's striking that this company has elected to proceed,” he says. The last international cartel case involving a corporate defendant to go to trial was in 2001 against Mitsubishi, which was ultimately convicted.

AUO is also facing a parallel civil class action. The Ninth Circuit decision could put AUO at a disadvantage in both cases, if documents in the Justice Department's possession make its case stronger, says Donovan. A guilty plea or conviction could ultimately make the civil case harder to defend, as well, because plaintiffs' attorneys would be able to point to criminal case as proof of guilt, he says.

On April 18, a California federal judge denied AUO's motion to dismiss. The tech company had argued that the Justice Department didn't have jurisdiction, because the activity fell outside the borders of the United States. The court, however, agreed with the government that enough of the antitrust activity took place in the United States for there to be jurisdiction here.

If AUO loses the case it could be looking at some very stiff penalties, say lawyers. The government will always give companies a break for cooperating, such as reducing fines or sending fewer people to jail. “Over the last decade this policy has led companies to fall like dominoes, because many believe the evidence from cooperating parties is so strong against them that there is no point in going to trial,” says Popofsky.

The AUO case will test that mentality. “International cartel cases are complex,” says Popofsky. “You shouldn't automatically just surrender to the government.”

The AUO trial is scheduled to begin Oct. 31.

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