UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
- against -
RAMESH CHAKRAPANI,
Defendant.
ECF Case
09 Civ. 325 (RJS)
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
- against -
NICOS STEPHANOU,
Defendant.
ECF Case
09 Civ. 1043 (RJS)
MEMORANDUM OF LAW OF THE UNITED STATES ATTORNEY’S OFFICE IN
OPPOSITION TO THE MOTION TO COMPEL FILED BY JOSEPH CONTORINIS
AND IN SUPPORT OF A RENEWED MOTION FOR A LIMITED STAY OF
DISCOVERY
PREET BHARARA
United States Attorney for the
Southern District of New York
86 Chambers Street, 3rd Floor
New York, NY 10007
Tel. No. (212) 637-2774
Fax. No. (212) 637-2686
Email: sarah.light@usdoj.gov
SARAH E. LIGHT
– Of Counsel –
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 1 of 22
TABLE OF CONTENTS
PAGE
BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. This Litigation and Related Criminal Prosecutions.. . . . . . . . . . . . . . . . . . . . . . . . 2
B. The USAO’s Prior Motion to Stay Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
C. Contorinis’s Touhy Request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
POINT I–
THIS COURT SHOULD NOT DECIDE THE MOTION TO COMPEL UNTIL IT
HAS RESOLVED THE SEC’S MOTION TO DISMISS CHAKRAPANI FROM
THIS SUIT AND THE GOVERNMENT’S RENEWAL OF ITS MOTION TO
STAY DISCOVERY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. This Court Should First Resolve the SEC’s Motion to Dismiss Chakrapani. . . . . 5
POINT II–
THIS COURT SHOULD DENY THE MOTION TO COMPEL PRODUCTION OF THE
REQUESTED DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. This Court Need Not Resolve Whether the Standard of Review is Arbitrary
and Capricious Under the APA as the Motion Should Be Denied Under
Any Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
B. The Requested Production of Documents Is Barred by
The Law Enforcement Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1. The Law Enforcement Privilege Applies.. . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Contorinis Cannot Demonstrate a Need for the Privileged Information
That Outweighs the Harm Caused By Disclosure. . . . . . . . . . . . . . . . . . . 14
C. The Work Product Privilege Applies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 2 of 22
Since October 7, 2009, when the Declarations of Reed Brodsky, Peter Grupe and Boyd1
Johnson were submitted to the Court in support of the Government’s claims of law enforcement
privilege, the following facts, of which this Court may take judicial notice, have changed. On
November 5, 2009, a grand jury returned an indictment against Contorinis charging him with
securities fraud and conspiracy, United States v. Contorinis, 09 Cr. 1083 (RJS). On November
Non-party the United States Attorney’s Office for the Southern District of New York
(“USAO”) respectfully submits this memorandum of law in opposition to defendant Joseph
Contorinis’s motion to compel production of documents. In addition, if the Court dismisses this
action against Ramesh Chakrapani, the USAO renews its limited motion to stay document
discovery regarding Nicos Stephanou’s statements until such time as documents are produced in
United States v. Contorinis, , 09 Cr. 1083 (RJS), pursuant to 18 U.S.C. § 3500, and to stay oral
testimony by Stephanou until after he has testified in that case.
BACKGROUND
A. This Litigation and Related Criminal Prosecutions
On or about January 13, 2009, the Securities and Exchange Commission (“SEC”) filed
this civil action against, among others, Ramesh Chakrapani, Joseph Contorinis, Michael
Koulouroudis, and Nicos Stephanou. With respect to Contorinis, the civil complaint alleges that
Stephanou tipped Contorinis with insider information regarding the acquisition of Albertson’s.
Four of the defendants in this civil case, including Contorinis, are also defendants in
substantially related criminal prosecutions in this District arising from schemes to execute
securities transactions based on material, nonpublic information that had been misappropriated
from UBS Investment Bank. Three of the defendants – Nicos Stephanou, George Paparrizos,
and Michael Koulouroudis – have pleaded guilty to charges of conspiracy and securities fraud in
the cases captioned United States v. Stephanou, 09 Cr. 467 (CM), United States v. Paparrizos,
09 Cr. 400 (PAC), and United States v. Koulouroudis, 09 Cr. 440 (PGG). On November 5,1
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 3 of 22
10, 2009, Koulouroudis pleaded guilty to one count of conspiracy to commit securities fraud and
one count of securities fraud. See Docket Entry 23 (Transcript), 09 Cr. 440 (PGG). In addition,
although not subject to judicial notice, while the privilege log submitted by the FBI listed certain
302s as “draft” documents, final 302s have now been prepared.
2
2009, a grand jury returned an indictment against Contorinis, charging him with conspiracy and
securities fraud the case captioned United States v. Contorinis, 09 Cr. 1083 (RJS). The criminal
investigation remains ongoing. See Declaration of Boyd M. Johnson, III, dated October 7, 2009
(“Johnson Decl.”) (attached to Declaration of Sarah E. Light, dated December 17, 2009 (“Light
Decl.”) as Exhibit 1; Declaration of Peter Grupe, dated October 7, 2009 (“Grupe Decl.”)
(attached to Light Decl. as Exhibit 2); see also Ex Parte Declaration of Reed Brodsky, dated
October 7, 2009 (“Brodsky Decl.”) (previously submitted in camera to the Court).
The SEC has now moved to dismiss the sole remaining civil defendant who is not a
criminal defendant, Ramesh Chakrapani. That motion has not yet been fully briefed.
B. The USAO’s Prior Motion to Stay Discovery
On or about July 2, 2009, the USAO filed a motion seeking to stay (1) all discovery
(including interrogatories and deposition notices) directed at Nicos Stephanou and (2) all
discovery directed at determining the investigative steps taken by DOJ (including, for example,
Chakrapani’s interrogatory asking the SEC to identify, among other things, all individuals
interviewed by the DOJ). The basis for that motion was to avoid prejudice to the ongoing
criminal prosecutions by permitting criminal defendants to circumvent the normal procedural
rules for obtaining discovery in criminal cases. At oral argument on July 29, 2009, this Court
denied DOJ’s request for a stay, reasoning primarily that the stay would prejudice Chakrapani,
who was not a defendant in a criminal proceeding, as the criminal complaint against him was
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 4 of 22
The Contorinis Request followed a similar request by Chakrapani for the statements of2
Stephanou. In response to Chakrapani’s request and his subsequent motion to compel, the
USAO prepared and submitted to the Court two privilege logs, both dated October 7, 2009,
listing documents containing statements of Stephanou – primarily contained in FBI 302s. Light
Decl., Exhibit 2. In support of its claims of privilege for those documents, the USAO also
submitted the Declarations of Deputy United States Attorney Boyd M. Johnson III, and FBI
Assistant Special Agent In Charge Peter Grupe. In addition, in support of its assertion that the
law enforcement investigation is ongoing, the USAO submitted the Ex Parte Declaration of
Reed Brodsky, dated October 7, 2009.
3
dismissed without prejudice.
C. Contorinis’s Touhy Request
By letter dated November 23, 2009, with an accompanying subpoena (the “Contorinis
Request”) Contorinis made a request pursuant to the Department of Justice’s Touhy regulations,
see 28 C.F.R. § 16.21 et seq.; United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951), seeking
the production of “All documents including any reports, emails, recordings or any other type of
record related to statements made by defendant Nicos Achilleas Stephanou to any government
official or entity.” Declaration of Roberto Finzi, dated December 8, 2009 (“Finzi Decl.”), Exhs.
B-C. In addition, the letter, dated November 23, 2009, clarified that Contorinis “do[es] not seek
to discover information regarding [the USAO’s] mental impressions of the case.” Id. Exh. B.
The letter stated, however, that “to the extent that your internal communications about the case
include factual information or summaries of factual information, we ask that we receive those
materials in redacted form.” Id.2
By letter dated December 2, 2009, the USAO responded to the Contorinis Request (the
“USAO Response”), and requested that Contorinis withdraw the subpoena. Finzi Decl., Exh. D.
The USAO Response explained that the following documents were responsive, but would not be
produced:
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 5 of 22
Out of an abundance of caution the USAO also noted that it would consider a U.S.3
Marshals Service form for Stephanou, containing personal “pedigree” information, to contain
“statements” of Stephanou. However, the personal information on this form is protected under
the Privacy Act of 1974, 5 U.S.C. § 552a. Finzi Decl., Exh. D, at p.2 n.1. The USAO explained
that unless counsel informed the USAO otherwise, it would not consider this document
responsive. Counsel did not indicate that it sought this information in its motion to compel.
Subsequent to the December 2, 2009, letter, the USAO released to Contorinis, without
waiver or prejudice to any arguments, the following additional documents: Stephanou’s proffer
agreement and Stephanou’s signature on a 1-5-09 letter reflecting application of the proffer
agreement to meetings with FBI agents. In addition, on or before December 23, 2009, the
USAO will release copies of the recorded conversations between Stephanou and others listed
above, and Stephanou’s handwritten corrections to certain draft transcripts of recorded
4
(i) FBI 302s;
(ii) Documents listed on the USAO privilege log, dated Oct. 7, 2009, numbered: 1-10,
12-13, 15-16, 20;
(iii) Recorded conversations between Stephanou and others, as well as Stephanou’s
handwritten corrections to certain draft transcripts of recorded conversations as
follows:
Date/Time Participants
1/5/09 at 3:47 p.m. Stephanou and Koulouroudis
1/6/09 at 12:32 p.m. Stephanou and Chakrapani
1/6/09 at 1:26 p.m. Stephanou and UBS employee (Thomas LNU)
1/6/09 at 1:36 p.m. Stephanou left voicemail for Koulouroudis
1/6/09 at 2:19 p.m. Stephanou and Paparrizos
1/6/09 at 3:32 p.m. Stephanou left voicemail for Koulouroudis
1/12/09 at 1:16 p.m. Stephanou left voicemail for Koulouroudis
1/12/09 at 2:50 p.m. Stephanou and Koulouroudis
1/12/09 at 3:43 p.m. Stephanou left voicemail for Koulouroudis
1/16/09 at 1:54 p.m. Stephanou and Koulouroudis
1/28/09 at 2:13 p.m. Stephanou and Koulouroudis
In addition, the USAO noted that the following responsive documents either had already
been produced to counsel or were otherwise publicly available: waiver of indictment (publicly
available); Stephanou cooperation agreement (previously produced to counsel); transcript of
Stephanou’s guilty plea on 5-7-09 (publicly available); recorded conversations between
Stephanou and Contorinis, dated 1/5/09 at 3:09 p.m., 1/12/09 at 12:46 p.m., (previously
produced to counsel).3
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 6 of 22
conversations. Light Decl., ¶ 3.
5
The USAO withheld the FBI 302s on the basis of law enforcement privilege and the
documents listed on the USAO privilege log on the basis of law enforcement and work product
privileges.
ARGUMENT
POINT I
THIS COURT SHOULD NOT DECIDE THE MOTION TO COMPEL UNTIL IT HAS
RESOLVED THE SEC’S MOTION TO DISMISS CHAKRAPANI FROM THIS SUIT
AND THE GOVERNMENT’S RENEWAL OF ITS MOTION TO STAY DISCOVERY
A. This Court Should First Resolve the SEC’s Motion to Dismiss Chakrapani
It is well established that the Court has broad discretion to control the discovery process
by staying discovery. See. e.g., Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 251
(2d Cir. 1985) (affirming grant of summary judgment and stay of discovery); Contemporary
Mission, Inc. v. U.S. Postal Serv., 648 F.2d 97, 105 (2d Cir. 1981) (“the district court acted well
within its discretion in preventing the plaintiff from burdening the defendants with a needless
round of discovery”); Spencer Trask Software v. Rpost Int'l Ltd., 206 F.R.D. 367, 368 (S.D.N.Y.
2002) (under Rule 26(c) “a court has discretion to stay discovery for good cause.”). This Court
should first resolve the SEC’s motion to dismiss Chakrapani. If Chakrapani is dismissed from
this action, the Court should then consider and grant the Government’s renewed request for a
limited stay of discovery. See Motion for Stay filed by the USAO (Docket Entres ## 49-51),
filed on or about July 2, 2009. In the event Chakrapani is dismissed, the remaining civil action
before this Court would be essentially a parallel civil proceeding to a federal criminal
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 7 of 22
The USAO takes no position as to whether the Court should likewise stay discovery of4
the civil defendants if it stays discovery as to Stephanou.
6
prosecution pending before this Court.
The Court previously denied the Motion for Stay in large part based on the fact that
Chakrapani was not a criminal defendant. See, e.g., Transcript of Argument, July 29, 2009, at
11, lines 9-16 (Light Decl., Exh. 3) (“That’s my concern generally, that everyone is using this
civil case for their advantage in the criminal case. The only guy who doesn’t have a dog in the
criminal fight is [Chakrapani] . . . . And I think he makes a very compelling point that if there is
any real prejudice here it’s [Chakrapani] who is feeling it.”). 4
If the civil action is dismissed against Chakrapani, what remains of the civil action will
become purely parallel to the criminal proceedings. In such circumstances, courts routinely
grant stays of civil discovery pending the resolution of criminal proceedings. See, e.g., In re
WorldCom, Inc. Securities Litigation, Nos. 02 Civ. 3288 (DLC), 02 Civ. 4816 (DLC), 2002 WL
31729501, at *10 (S.D.N.Y. Dec. 5, 2002) (barring discovery from Government witnesses in
parallel civil proceeding pending completion of criminal proceedings); SEC v. Doody IV, 186 F.
Supp. 2d 379, 382 (S.D.N.Y. 2002) (staying discovery in civil action pending resolution of
criminal action); SEC v. Downe, No. 92 Civ. 4092 (PKL), 1993 WL 22126, at *14 (S.D.N.Y.
Jan. 26, 1993) (granting stay of SEC enforcement action pending criminal investigation); Board
of Governors of Fed. Reserve Sys. v. Pharaon, 140 F.R.D. 634, 641 (S.D.N.Y. 1991) (same);
SEC v. Control Metals Corp., 57 F.R.D. 56, 58 (S.D.N.Y. 1972) (same); Founding Church of
Scientology of Washington, D.C. v. Kelley, 77 F.R.D. 378, 381 (D.D.C. 1977) (refusing to
compel federal officials to answer interrogatories during pendency of federal grand jury
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 8 of 22
7
investigation); United States v. One 1964 Cadillac Coupe DeVille, 41 F.R.D. 352, 353 (S.D.N.Y.
1966) (“where both civil and criminal proceedings arise out of the same or related transactions,
[the] government is ordinarily entitled to a stay of all discovery in the civil case until disposition
of the criminal matter”).
The basis for a stay of parallel civil proceedings arises from the fundamental differences
between civil and criminal proceedings, and the compelling public interest in facilitating
enforcement of the criminal laws. As the Fifth Circuit has explained:
The very fact that there is a clear distinction between civil and
criminal actions requires a government policy determination of
priority: which case should be tried first. Administrative policy
gives priority to the public interest in law enforcement. This
seems so necessary and wise that a trial judge should give
substantial weight to it in balancing the policy against the right of a
civil litigant to a reasonably prompt determination of his civil
claims or liabilities.
Campbell v. Eastland, 307 F.2d 478, 487 (5th Cir. 1962); see also In re Ivan F. Boesky
Securities Litig., 128 F.R.D. 47, 49 (S.D.N.Y. 1989) (“the public interest in the criminal case is
entitled to precedence over the civil litigant” (emphasis in original)).
Discovery in a civil proceeding may not be used to circumvent the limitations on
discovery in a criminal action. Discovery under the Federal Rules of Criminal Procedure is
narrowly circumscribed. The criminal procedure rules generally limit discovery to certain
statements of the defendant, see Fed. R. Crim. P. 16(a)(1)(A), the defendant’s prior criminal
record, see Fed. R. Crim. P. 16(a)(1)(B), and other information that is “material to the
preparation of the defendant’s defense or . . . intended for use by the government as evidence in
chief at the trial, or were obtained from or belong to the defendant,” see Fed. R. Crim. P.
16(a)(1)(C). Rule 16(a)(2) of the Federal Rules of Criminal Procedure expressly precludes
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 9 of 22
Although a district court has no authority to order early production of such witness5
statements, United States v. Percevault, 490 F.2d 126, 132 (2d Cir. 1974), the U.S. Attorney’s
Office will provide Contorinis with 3500 material and other discovery reasonably in advance of
trial by agreement among the parties.
8
discovery of “statements made by government witnesses or prospective government witnesses,
except as provided in 18 U.S.C. § 3500.” In turn, Section 3500 provides that in criminal cases,
the statements of Government witnesses shall not be “the subject of subpoena, discovery, or
inspection until said witness has testified on direct examination in the trial of the case.” In5
addition, absent “exceptional circumstances” and a court order, a criminal defendant may not
conduct depositions in a criminal case. Fed. R. Crim. P. 15(a).
Criminal discovery is narrow for compelling reasons, namely that (i) broad disclosure of
the details of the prosecution’s case will increase the likelihood of perjury and manufactured
evidence; (ii) revelation of the identity of prospective Government witnesses will create
opportunities for intimidation of those witnesses and subornation of perjury; and (iii) criminal
defendants will unfairly surprise the prosecution at trial with information gained through
discovery, while relying on the privilege against self-incrimination to shield against any attempt
by the Government to obtain relevant evidence from the defendants themselves. See Campbell,
307 F.2d at 487 n.12; Nakash v. U.S. Dep’t of Justice, 708 F. Supp. 1354, 1365-66 (S.D.N.Y.
1988); Kelley, 77 F.R.D. at 381; see also United States v. Percevault, 490 F.2d 126, 131 (2d Cir.
1974) (“Fear of intimidation of witnesses and concern over efforts to suborn perjury were not
flights of fantasy by those who drafted Rule 16”). Indeed, courts have repeatedly emphasized
that liberal civil discovery processes should not be allowed to undermine the criminal process.
See generally Chestman, 861 F.2d at 50 (recognizing governmental interest in “prevent[ing]
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 10 of 22
9
discovery in the civil case from being used to circumvent the more limited scope of discovery in
the criminal matter”).
In this case, there is minimal danger of prejudice to the parties. First, both Stephanou
and Contorinis have already invoked their Fifth Amendment rights, and others may invoke their
Fifth Amendment rights as well. Thus, no testimonial discovery will be obtained either on
behalf of the plaintiff SEC from a key witness, or from Contorinis as defendant, prior to
resolution of the criminal action. In contrast, a stay will prevent the imbalance that would result
from exposure of a key cooperating witness to the government prior to the criminal trial.
Second, as the Second Circuit has recognized, a civil party is not prejudiced by a stay because
the party will have ample opportunity for discovery when the stay is lifted:
Defendant has failed to show any prejudice to him . . . arising out of the
government’s intervention. The only result of the intervention has been the
staying of discovery, an order the district court could have entered sua sponte.
Moreover, so far as preparation for the trial in the civil action is concerned,
appropriate opportunities for discovery can be allowed when the stay is lifted.
Chestman’s defense of the civil case is thus not affected.
Chestman, 861 F.2d at 50. Therefore, the parties to this action will not suffer undue prejudice.
Accordingly, and for the reasons previously set forth in the Motion for Stay, this Court
should first determine whether to dismiss Chakrapani from the civil action, and if he is
dismissed, the Court should grant a limited stay of document discovery regarding Nicos
Stephanou’s statements until such time as documents are produced in United States v.
Contorinis, , 09 Cr. 1083 (RJS), pursuant to 18 U.S.C. § 3500, and to stay oral testimony by
Stephanou until after he has testified in that case.
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 11 of 22
10
POINT II
THIS COURT SHOULD DENY THE MOTION TO COMPEL PRODUCTION OF THE
REQUESTED DOCUMENTS
A. This Court Need Not Resolve Whether the Standard of Review is Arbitrary and
Capricious Under the APA as the Motion Should Be Denied Under Any Standard
“In any suit in which the United States is a defendant, there must be a cause of action,
subject matter jurisdiction, and a waiver of sovereign immunity.” Presidential Gardens Assocs.
v. United States, 175 F.3d 132, 139 (2d Cir. 1999). With respect to the last element, well
established principles of sovereign immunity dictate that the United States cannot be sued
without its consent. See United States v. Mitchell, 463 U.S. 206, 212 (1983); Robinson v.
Overseas Military Sales Corp., 21 F.3d 502, 510 (2d Cir. 1994). An action seeking to compel a
federal agency or federal employee to provide discovery to a third party “is barred by sovereign
immunity in the absence of a waiver.” U.S. Envtl. Prot. Agency v. General Elec. Co. (“EPA I”),
197 F.3d 592, 597 (2d Cir. 1999), modified on other grounds, 212 F.3d 689 (2d Cir. 2000)
(“EPA II”).
The Second Circuit has held that “the only identifiable waiver of sovereign immunity that
would permit a court to require a response to a subpoena in an action in which the government is
not a party is found in the [Administrative Procedure Act].” EPA I, 197 F.3d at 598 (explicitly
rejecting Ninth Circuit’s contrary holding in Exxon Shipping Co. v. U.S. Dep’t of Interior, 34
F.3d 774 (9th Cir. 1994)). Specifically, section 702 of the Administrative Procedure Act
(“APA”), provides, in pertinent part:
An action in a court of the United States seeking relief other than money damages
and stating a claim that an agency or an officer or employee thereof acted or
failed to act in an official capacity or under color of legal authority shall not be
dismissed nor relief therein be denied on the ground that it is against the United
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 12 of 22
11
States or that the United States is an indispensable party.
5 U.S.C. § 702.
Once a waiver of sovereign immunity has been established, “the second inquiry comes
into play – that is, whether the source of substantive law upon which the claimant relies provides
an avenue for relief.” FDIC v. Meyer, 510 U.S. 471, 484 (1994). The Second Circuit recognized
in EPA I that a party seeking review of an agency decision promulgated under the Touhy
regulations has the choice of bringing a separate lawsuit pursuant to the cause of action
established by the APA, or seeking “enforcement of a non-party subpoena duces tecum for
discovery against the government through a motion to compel compliance” pursuant to Rule 45.
EPA I, 197 F.3d at 599.
In EPA II, the Second Circuit was confronted with but did not resolve the question of
whether section 706’s standard of review was applicable in a motion to compel agency
compliance with a subpoena brought pursuant to Rule 45. See EPA II, 212 F.3d at 689; cf. In re
SEC ex rel. Glotzer, 374 F.3d 184, 191 (2d Cir. 2004) (describing the issue reserved by the Court
in EPA II as “whether the APA’s standard of review . . . should govern the district court’s
evaluation of the EPA’s refusal to comply with [a] subpoena,” and noting that “some of our
sister circuits have affirmatively held that APA § 706 does not apply to motions to compel
agency compliance with subpoenas” (emphasis added)). The USAO takes the position that an
arbitrary and capricious standard would govern review of a motion to enforce a subpoena
seeking testimony from federal employees, see COMSAT Corp., 190 F.3d at 277; Moore v.
Armour Pharm. Co., 927 F.2d 1194, 1197 (11th Cir. 1991); see also Moran v. Pfizer, No. 99 Civ.
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 13 of 22
Section 706 dictates the narrow scope of review that the district court shall apply in an6
APA action: “[T]he reviewing court shall . . . hold unlawful and set aside agency action,
findings, and conclusions found to be (A) arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law . . . .” 5 U.S.C. § 706(2)(A); see also Supreme Oil Co. v.
Metropolitan Transp. Auth., 157 F.3d 148, 151 (2d Cir. 1998). This standard of review is
routinely applied in APA actions challenging an agency’s Touhy decision. See, e.g., Puerto Rico
v. United States, 490 F.3d 50, 60-61 (1st Cir. 2007); United States v. Williams, 170 F.3d 431,
434 (4th Cir. 1999); Edwards v. U.S. Dep’t of Justice, 43 F.3d 312, 315 (7th Cir. 1994); Davis
Enters. v. U.S. Envtl. Prot. Agency, 877 F.2d 1181, 1186 (3d Cir. 1989). An agency action is
“arbitrary and capricious” within the meaning of section 706(2)(A) if the agency “relied on
factors which Congress has not intended it to consider, entirely failed to consider an important
aspect of the problem, offered an explanation for its decision that runs counter to the evidence
before the agency, or is so implausible that it could not be ascribed to a difference in view or the
product of agency expertise.” Id.; see also LaFleur v. Whitman, 300 F.3d 256, 267 (2d Cir.
2002) (petition for review of EPA order regarding permit application).
In the Touhy context in particular, DOJ has discretion to determine whether its employees
shall be permitted to provide documents in cases, such as this one, where the agency is not a
party. See, e.g., Edwards, 43 F.3d at 317 (“It is clear from the Department of Justice regulations
governing the disclosure of confidential information, as well as the common law doctrine in
Touhy and the litany of succeeding case law, that the United States may restrict the release of its
information.”). As the Fourth Circuit has observed, “[w]hen an agency is not a party to an
action, its choice of whether or not to comply” with a Touhy request “is essentially a policy
decision about the best use of the agency’s resources,” and the decision to deny third-party
discovery requests accordingly is “committed to agency discretion.” COMSAT Corp. v. Nat’l
Science Found., 190 F.3d 269, 278 (4th Cir. 1999). The “compromise between public and
private interests” embodied by the Touhy process “is necessary to conserve agency resources and
to prevent the agency from becoming embroiled in private litigation.” Id.
12
9969 (WHP)(HBP), 2000 WL 1099884 (S.D.N.Y. Aug. 4, 2000). But see Linder v. Calero-6
Portocarrero, 251 F.3d 178 (D.C. Cir. 2001); Exxon Shipping Co., 34 F.3d at 779. The Court
need not reach the issue in the present case, because whether the Court applies the APA’s
arbitrary and capricious standard, or the standards of Rules 26 and 45 of the Federal Rules of
Civil Procedure, the non-disclosure was proper and this Court should deny Contorinis’s motion
to compel production.
Case 1:09-cv-01043-RJS Document 109 Filed 12/18/09 Page 14 of 22
13
B. The Requested Production of Documents Is Barred By the
Law Enforcement Privilege
1. The Law Enforcement Privilege Applies
The Government’s privilege not to disclose information gathered in the course of a law
enforcement investigation is well recognized. See United States v. Amodeo, 44 F.3d 141, 147
(2d Cir. 1995); In re Dep’t of Investig. of the City of N.Y. v. Meyerson, 856 F.2d 481, 483-84 (2d
Cir. 1988). The privilege “is designed to prevent disclosure of law enforcement techniques and
procedures, to preserve the confidentiality of sources, to protect witness and law enforcement
personnel, to safeguard the privacy of individuals involved in an investigation, and otherwise to
prevent interference with an investigation.” Amodeo, 44 F.3d at 147 (citation omitted). The
privilege is designed not only to facilitate investigations, but also “to protect individuals whose
reputation may be damaged by disclosure of investigative leads or statements from witnesses
developed during the investigation.” Dep’t of Investigation, 856 F.2d at 484.
Accordingly, the law enforcement privilege protects from disclosure (i) law enforcement
techniques and procedures; (ii) confidential sources; (iii) the identities of witnesses and law
enforcement personnel involved in investigations; and (iv) information that would otherwise
interfere with an investigation. Dep’t of Investigation, 856 F.2d at 484, 485-86; Borchers, 874 F.
Supp. 80. Moreoever, “an investigation need not be ongoing for the law enforcement privilege to
apply as ‘the ability of a law enforcement agency to conduct future investigations may be
seriously impaired if certain information is revealed.’” Nat’l Congress for Puerto Rican Rights
v. City of New York, 194 F.R.D. 88, 95 (S.D.N.Y. 2000) (citing Morrissey v. City of New York,
171 F.R.D. 85, 90 (S.D.N.Y. 1997)) (additional internal citation omitted); see also MacNamara
v. City of New York, 249 F.R.D. 70, 79 (S.D.N.Y. 2008).
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The Contorinis Request expressly seeks documents from the investigative files of the
USAO. The Johnson Declaration and Grupe Declaration, in addition to the Ex Parte Brodsky
Declaration, all explain in detail how disclosure of the documents Contorinis seeks would impair
the ongoing investigation and prosecution; the subpoenaed materials are therefore privileged
from disclosure. See, e.g., Borchers v. Comm’l Union Assurance Co., 874 F. Supp. 78, 80-81
(S.D.N.Y. 1995) (quashing subpoena served on fire department for documents concerning arson
investigation). See Johnson Decl., ¶¶ 13, 18, 19, 21, 22, 23; Grupe Decl., ¶¶ 17-19.
To the extent that Contorinis does not seek information relating to Stephanou’s
statements about other individuals, but only statements regarding his own conduct, the premature
release of these documents would impair the ongoing investigation into and prosecution of him
as a criminal defendant. For example, premature release of these documents would permit
individuals to shape their testimony and would prematurely reveal the USAO’s criminal case.
Johnson Decl., ¶ 22; Grupe Decl. ¶ 17. Accordingly, the law enforcement privilege applies.
2. Contorinis Cannot Demonstrate a Need for the Privileged Information That
Outweighs the Harm Caused By Disclosure
Once the existence of the privilege is established, the Court must balance “the public
interest in nondisclosure against the need of the particular litigant for access to the privileged
information.” MacNamara, 249 F.R.D. at 79 (internal quotation marks and citations omitted).
The factors set forth in Frankenhauser v. Rizzo, 59 F.R.D. 339, 344 (E.D. Pa. 1973), do
not support disclosure. It is first important to note that the Frankenhauser factors, which are
non-exhaustive, are not to be applied rigidly. To the contrary, “a district court has considerable
leeway in weighing the different factors.” In re Sealed Case, 856 F.2d 268, 272 (D.C. Cir.
1988)). Furthermore, the Frankenhauser court itself recognized that “the balancing task will
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Notably, SEC v. Saad, 229 F.R.D. 90 (S.D.N.Y. 2005), which Contorinis cites in favor7
of disclosure, does not address the law enforcement privilege at all.
15
often be difficult and the ingredients of the test will vary from case to case.” Frankenhauser, 59
F.R.D. at 344. After weighing the factors, the Court should find that the law enforcement
privilege protects the documents at issue from disclosure.7
1. "The extent to which disclosure will thwart governmental processes by
discouraging citizens from giving the government information" and "The impact upon persons
who have given information of having their identities disclosed"
Disclosure of the 302s and the contents of witness interviews would
harm the FBI and the USAO by exposing prematurely information to be offered as part of its
investigations and prosecutions. Johnson Decl. ¶ 22; Grupe Decl. ¶ 17. Stephanou’s identity as
a cooperating witness is publicly known. However, both the 302s and the documents listed on
the USAO privilege log contain information regarding other potential cooperating witnesses, as
well as potential unindicted co-conspirators, as set forth fully in the Ex Parte Brodsky
Declaration.
2. “Whether the information sought is factual data or evaluative summary”
The 302s are the FBI agents’ reports documenting information obtained by investigative
personnel that may become the subject of testimony. Grupe Decl., ¶ 15. These documents
reveal not only names and identifying information of persons who may be the subject of ongoing
investigations, including transactions of interest to the USAO and FBI. Id. ¶ 16. Likewise, the
responsive documents listed on the USAO privilege log (numbered 1-10, 12-13, 15-16 and 20),
including, for example, the Cooperation Memorandum, AUSA notes regarding impressions of
the Stephanou proffer, an annotated version of the Cooperation Agreement containing names of
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unindicted co-conspirators, AUSA chronologies of events and analyses of proof are evaluative
summaries; thus, this factor favors non-disclosure. Ex Parte Brodsky Decl. ¶ 23.
3. “Whether the party seeking the discovery is an actual or potential defendant in
any criminal proceeding either pending or reasonably likely to follow from the incident in
question”
Courts have held that this factor “is often considered by courts to be the most important.”
SEC v. Shanahan, 2009 WL 1955747, at *3 (E.D. Mo. July 6, 2009); Lykken v. Brady, 2008 WL
2077937, at *7 (D.S.D. May 14, 2008) (“In general, courts interpreting [the law enforcement
privilege in the FOIA context] have held that the primary concern over disclosure of law
enforcement reports is to prevent a party who is himself the subject of a criminal investigation
from obtaining premature discovery of law enforcement actions that may be taken against
him.”). Contorinis is a criminal defendant in an action pending before this Court. This factor
weighs heavily in favor of non-disclosure.
4. “Whether the police investigation has been completed”
As set forth in both the Johnson Declaration and the Ex Parte Brodsky Declaration, the
USAO’s investigation based on Stephanou’s statements is both open and active, and this factor
weighs heavily in favor of non-disclosure. To the extent that Contorinis seeks only statements
regarding his own conduct, rather than the conduct of others, the prosecution has not yet been
completed; accordingly, the USAO and the public interest would be harmed by premature
revelation of the statements. Moreover, Contorinis’s argument that the investigation into him has
been completed is merely a straw man, as courts in this district have held that the privilege may
continue to apply even after completion of an investigation. See, e.g., Borchers, 874 F. Supp. at
80 (law enforcement privilege may continue after investigation is closed).
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Contorinis’s argument that there would be no harm to the USAO from the release of8
these documents because it was prepared to release them prior to Koulouroudis’s guilty plea, is
without merit. Had the Koulouroudis matter proceeded to trial, the USAO would have been
obligated, pursuant to 18 U.S.C. § 3500, to turn over Stephanou’s statements.
17
5. “Whether the [requester’s] suit is non-frivolous and brought in good faith”
Since Contorinis did not bring the suit, this factor is neutral. Given that the USAO is not
a party to the case, though, the factor’s significance is minimal. Courts are especially mindful of
the burden placed on non-parties. See Cusumano v. Microsoft Corp., 162 F.3d 708, 717 (1st Cir.
1998) (“concern for the unwarranted burden thrust upon nonparties is a factor entitled to specific
weight in evaluating the balance of competing needs”).
6. “Whether the information sought is available through other discovery or from
other sources”
Although Contorinis contends that he cannot obtain this information through other means
because Stephanou has asserted his rights under the Fifth Amendment, this argument fails for
two reasons. First, Contorinis knows the substance of Stephanou’s testimony based upon
Stephanou’s publicly available statements, including statements during his plea hearing in which
he conceded that he had tipped Contorinis with material non-public information regarding
Albertson’s. Second, to the extent that Contorinis does not know every detail that Stephanou has
reported, this “unavailability” is merely temporary. Once Stephanou has testified in the criminal
action, his statements will be public. Indeed, prior to the criminal trial, the USAO will release
his statements to Contorinis pursuant to its legal obligations under 18 U.S.C. § 3500. Contorinis8
argues that the evidence cannot be obtained through other means. Contorinis Memorandum of
Law (“Mem”) at 12-13. However, this unavailability is merely temporary. The USAO will be
obligated to produce the Stephanou statements pursuant to 18 U.S.C. § 3500 in the criminal case,
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and Stephanou will likely testify there. Accordingly, because the information he seeks is not
permanently unavailable, but will shortly become available, this factor weighs in favor of
non-disclosure.
7. “The importance of the information sought to the [requester’s] case”
As Contorinis seeks the testimony of a witness implicating him in securities fraud, this
factor favors disclosure.
8. “The degree to which governmental self-evaluation and consequent program
improvement will be chilled by disclosure,” and “Whether any intradepartmental disciplinary
proceedings have arisen or may arise from the investigation”
These factors are not at issue on this motion.
Considering all of the factors, Contorinis has not demonstrated that his need for the
documents outweighs the risks of non-disclosure. The strong governmental and public interests
in ensuring that criminal prosecutions are not compromised outweighs those few factors that
might favor disclosure here, especially because any disadvantage to the civil litigants is
temporary, and will cease once criminal disclosures are completed.
C. The Work Product Privilege Applies
In his motion, Contorinis indicated that he does not seek to discover information
regarding the AUSAs’ mental impressions of the case. However, Contorinis argues that to the
extent that internal communications about the case include factual information or summaries of
factual information, the USAO should produce those materials in redacted form.
The request on its face still seeks information protected under the attorney work product
doctrine. The attorney work product doctrine is codified in Federal Rule of Civil Procedure
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26(b)(3), which provides that “the court shall protect against disclosure of the mental
impressions, conclusions, opinions, or legal theories of an attorney or other representative of a
party concerning the litigation.” The attorney work product privilege “protects ‘the files and the
mental impressions of an attorney . . . reflected, of course, in interviews, statements, memoranda,
correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and
intangible ways’ prepared in anticipation of litigation.” A. Michael’s Piano, 18 F.3d at 146
(quoting Hickman v. Taylor, 329 U.S. 495, 510-11 (1947)). In determining whether information
is attorney work product, courts have asked “whether the document was created ‘with an eye
toward litigation.’” Id. at 146 (quoting Hickman, 329 U.S. at 511). The information Contorinis
requests, as well as all decisions made regarding what information to gather in the course of the
investigation, or what facts are relevant to the investigation or prosecution, were developed
“with an eye toward litigation;” namely, the prosecution of Contorinis and possibly others.
Accordingly, it is protected from disclosure by the attorney work product doctrine. See
Germosen v. Cox, 1999 WL 1021559, at *14 (S.D.N.Y. Nov. 9, 1999) (memoranda concerning
Government investigation of criminal target were not discoverable because of attorney work
product doctrine); Winterstein v. DOJ, 89 F. Supp. 2d 79, 81-82 (D.D.C. 2000) (same).
“Summaries” of factual information would likewise fall within this work product doctrine, as
such summaries would reflect AUSA mental impressions of the case.
Finally, in the materials listed on the USAO’s privilege log, which were previously
provided to the Court for in camera review, every reference to a statement of Stephanou
concerning Contorinis is merely cumulative of the information contained in the FBI 302s, which
will be released pursuant to 18 U.S.C. § 3500 in the criminal case. Accordingly, there is no basis
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to pierce the work product privilege here. Even under the Federal Rules of Civil Procedure,
which Contorinis argues is the appropriate standard here, Rule 26(c)(1) permits the court to
forbid disclosure or discovery on a showing of good cause and Rule 45(c)(3) provides that the
court should quash a subpoena when it “creates an undue burden.”
CONCLUSION
For the reasons set forth above, and in the USAO’s prior motion for a limited stay of
discovery, this Court should (a) first resolve the pending motion to dismiss the civil action
against Chakrapani; (b) if the Court dismisses the case against Chakrapani, grant the requested
stay of discovery as to Stephanou; and (c) if necessary, deny the motion to compel.
Respectfully submitted,
Dated: New York, New York PREET BHARARA
December 17, 2009 United States Attorney
By: /s/
SARAH E. LIGHT
Assistant United States Attorney
86 Chambers Street, 3 Floorrd
New York, New York 10007
Telephone: (212) 637-2774
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