IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
THE UNITED STATES OF AMERICA,
VIRGILIO TALAO, GERARDINA TALAO, MARIA TALAO
and SAN LUIS GONZAGA CONSTRUCTION, INC.,
Before the court is the government's motion for leave to file a motion for reconsideration of the court's August 14, 1998, order, as well as defendants' motion for additional sanctions based on improper ex parte contact between Assistant United States Attorney Robin Harris and defendant San Luis Gonzaga Construction's bookkeeper, Lita Ferrer.
In its August 14, 1998, order, the court held in part that California's ethical prohibition, Rule of Professional Conduct 2-100, applied to the pre-indictment contact between AUSA Harris and Ferrer. The court further indicated its intention to impose sanctions in the form of an instruction informing the jury about the government's misconduct and referral of a copy of the order to the State Bar of California in order to notify it of AUSA Harris' violation of Rule 2-100. The court, in an October 1, 1998, order, vacated the referral of AUSA Harris' conduct to the state bar.
On February 14, 1999, the court conducted an evidentiary hearing in an attempt to clarify facts relevant to the possible further evidentiary sanctions and to the good faith of AUSA Harris in engaging in the ex parte contact with Ferrer. The evidentiary hearing leaves the court confident in the ruling contained in the August 14, 1998, order. The issues of AUSA Harris' referral to the state bar and the need for further evidentiary sanction, however, merit further discussion.
Defendant San Luis Gonzaga Construction, Inc. (SLGC) is a closely held corporation owned wholly by Virgilio Talao (Virgilio). On February 26, 1996, five SLGC employees filed a formal complaint against SLGC with the United States Department of Labor Wage and Hour Division. The employees claimed that SLGC did not pay them the prevailing wage, required them to kickback a portion of their wages and made false statements to the government regarding the wages earned and hours worked by the complainants. In March 1996, the same SLGC employees filed a labor union grievance with the Laborers' Contract Administration Trust Fund Board of Adjustment consisting of the same allegations. Christopher Brose, attorney for SLGC and the Talaos appeared at a subsequent April 30, 1996, interview with a Wage and Hour Division investigator and at a subsequent Labor Grievance hearing.
On June 27, 1996, the Asian Law Caucus initiated a qui tam action against SLGC and the Talaos on behalf of the aforementioned SLGC employees based on the same facts and causes of action alleged in the preceding complaint and grievance. And, on October 14, 1996, the criminal division of the United States Attorney's Office initiated an investigation against defendants based on the same conduct. The prosecutor assigned to the criminal action was AUSA Robin Harris. An October 31, 1996, United States Attorney Interim Investigatory Report notes Brose's representation of defendants.
In early 1997, Brose initiated unsuccessful conversations with the United States Attorney's office and specifically AUSA Harris regarding the possibility of settling the pending civil and criminal investigations against SLGC and the Talaos. On August 29, 1997, the United States and the City and County of San Francisco, after extending the qui tam investigatory period, intervened in the civil action and subsequently filed two amended complaints. And, on December 12, 1997, attorney Brose answered the government's second amended complaint and filed a counterclaim for a declaratory judgment.
On April 21, 1997, Special Agent Nodal served SLGC's bookkeeper, Lita Ferrer, with a grand jury subpoena requiring her to testify before the grand jury on April 30, 1997. Nodal served Ferrer at home and, according to Ferrer, instructed her to keep the subpoena secret. Nodal denies making any such statement. Neither the Talaos nor Brose were informed by the government or Ferrer of this subpoena. On April 28, 1997, after independently learning of the subpoena, Virgilio Talao contacted Brose and instructed him to be present at the April 30, 1997, hearing.
On April 29, 1997, Brose telephoned Ferrer and arranged to meet with her prior to her grand jury testimony. Brose also contacted AUSA Harris to discuss the subpoena. Later that day, Ferrer went to the federal building in order to attempt to change the day of her grand jury testimony because she did not want Brose to be present before or during her grand jury testimony. Her motivation for this was allegedly to avoid pressure to testify falsely. Ferrer was informed that although the date could not be changed, no attorneys other than the government's lawyers were allowed to attend grand jury proceedings.
On April 30, 1997, Ferrer met with Brose to discuss the subpoena and Ferrer's upcoming testimony. The two made plans to continue their meeting at the federal building prior tot he time when Ferrer was scheduled to give testimony. Ferrer, however, arrived at the building by herself where she encountered Nodal and Harris. After nodal introduced Ferrer to Harris, Nodal asked Ferrer if she would be willing to meet with him and Harris before the grand jury proceedings. Ferrer agreed and the three went to a witness room adjoining the grand jury room.
Ferrer then informed Harris and Nodal of the pressure she was allegedly receiving from the Talaos to testify untruthfully and indicated that she would be unable to testify truthfully if Brose was present. Ferrer also spoke about the rates paid by SLGC, her preparation of corporate payroll records and the possible destruction of corporate documents. During the interview, Brose knocked on the door and indicated that he wanted to speak with Ferrer and that he planned to accompany her to the grand jury hearing. Harris told Brose that she would inform Ferrer of his presence and that Brose wished to speak with her, but stated that only government attorneys are allowed to attend grand jury proceedings. Ferrer indicated that she did not wish to meet with Brose.
Confronted with the situation of Brose wanting to speak with Ferrer. Ferrer not wishing to do so and indicating that she wished to speak with the government, AUSA Harris decided to contact her superior, AUSA Sandra Teters. AUSA Teters was not available so Harris contacted the next level in the chain of command, the chief of the criminal division, AUSA Joel Levin. Levin told Harris that Brose was wrongfully engaging in witness tampering and gave Harris permission to continue interviewing Ferrer outside the presence of corporate counsel.
On May 1, 1997, Nodal served a grand jury subpoena duces tecum on Ferrer while she was at work at SLGC. The subpoena required Ferrer to supply the requested documents by May 14, 1997. On July 16, 1997, a grand jury returned an indictment against SLGC and the Talaos charging conspiracy, kickbacks and false statements. The grand jury also charged Virgilio Talao with witness tampering based upon his alleged attempt to influence Ferrer's grand jury testimony.
AUSA Harris, despite her knowledge that defendant SLGC was represented by counsel in regard to the matter under investigation, interviewed Ferrer about corporate matters central to the government's civil and criminal investigations, i.e. SLGC's payroll documentation, instructions given by SLGC's president, the practices of SLGC with respect to the preparation of payroll reports, how employees reported their time and how the bookkeeper filled out reports to be submitted to the City and County of San Francisco. This ex parte interview was conducted not only outside the presence, but also over the protests of corporate counsel. This interview was a violation of California's Rule of Professional Conduct 2-100.
The applicability of Rule 2-100 to the investigatory stages of a criminal proceeding may sometimes present a difficult question. The court's conclusions, however, that Rule 2-100 may be triggered in an instance in which a suspect corporation has retained counsel specifically for representation in conjunction with the criminal matter in which it is held suspect and the government has knowledge of that fact, cannot have come as a surprise to the government. The issue of Rule 2-100's application to federal prosecutors, particularly in regard to investigatory practices, has a lengthy history.
Rule 2-100 or its equivalent has been adopted an applied in one form or another in all fifty states and has been cited an elaborated upon by numerous courts. And, the applicability of such state ethical prohibitions to federal prosecutors has been the subject of extensive litigation and discussion prompted in large part by the Department of Justice's refusal to adopt policies instructing government lawyers to conform their conduct to state ethical rules. On June 8, 1989, then-Attorney General Dick Thornburgh promulgated a memorandum to all Justice Department attorneys entitled "Communication With Persons Represented By Counsel." The memorandum purported to exempt federal prosecutors from the ethical restrictions embodied in Rule 2-100 and its analogs. In the memorandum, the attorney general stated,
It is the clear policy of the Department that in the course of a criminal investigation, an attorney for the government is authorized to direct and supervise the use of undercover law enforcement agents, informants, and other cooperating individuals to gather evidence by communicating with any person who has not been made the subject of formal federal criminal adversarial proceedings arising from that investigation, regardless of whether the person is known to be represented by counsel.
It is further the policy and the experience of the Department that what it may do in an undercover setting, it may do overtly. Routine contacts with witnesses, even when not done undercover, are an integral part of federal law enforcement, even where a lawyer may represent the witness. Traditionally, local bar rules have not been thought to prohibit such contact and any attempt to use the rules this way runs afoul of the Supremacy Clause.
The memorandum essentially declared that federal prosecutors would not be bound by state rules of ethics governing ex parte communications with represented parties. Attorney General Thornburgh's attack on the judiciary's inherent supervisory power over officers of the court and the right of state bars to govern the ethical conduct of attorneys licensed in their jurisdictions was quickly and vigorously rejected by the courts. The Attorney General's subsequent attempt to bolster his position in an article failed to win many converts. See "Ethics and the Attorney General: The Attorney General Responds," 74 Judicature 290 (April-May 1991).
In United States v. Lopez, this court repudiated the government's reliance on the Thornburgh Memorandum as a defense and justification of its actions stating that the government's position was "preposterous." 765 F.Supp. 1433 (ND Cal 1991), vacated, 989 F.2d 1032 (9th Cir), amended and superseded, 4 F.3d 1455 (9th Cir 1993). Moreover, in addressing the government's claim that the government lawyer's actions were "authorized by law," the court held that nothing in the statutes cited by the government "expressly or impliedly authorizes contact with represented individuals beyond that permitted by case law." Lopez, 4 F.3d at 1461.
The majority of courts following Lopez have held that the memorandum, far from being meaningful authority, was nothing more than a policy statement issued by the head of a federal agency which could not constitute federal law sufficient to supplant state regulations. Having failed to exempt its lawyers from state ethical restraints, the Justice Department regrouped and launched a new attack, this time in the form of a federal regulation purporting to exempt federal prosecutors from state and local codes of ethics. The department relied principally on 5 USC §301 and the Supremacy Clause in promulgating its regulation which, on September 6, 1994, was codified in Title 28 of the Code of Federal Regulations, Part 77. The edict not only attempted to exempt federal prosecutors from state ethics codes, but also purported to vest the attorney general with exclusive authority over whether his attorneys violated internally created rules. See 28 CFR pt 77, §77.11.
The Eighth Circuit rejected this second attempt to invoke the "authorized by law" provision of an ethical rule analogous to Rule 2-100, holding that the department lacked the authority to issue the regulation. See United States v McDonnell Douglas Corporation, 132 F.3d 1252, 1257 (8th Cir. 1998). The authority on which the government principally and unsuccessfully relied, 5 USC §301 (1993), also known as the "housekeeping statute," provides in pertinent part:
The head of an Executive department or military department may prescribe regulations for the government of his department, the conduct of his employees, the distribution and performance of its business, and the custody, use, and preservation of its records, papers and property.
The court noted that it had been "unanimously agreed that [the housekeeping statute] originally was adopted in 1789 to provide for the day-to-day office housekeeping in the Government departments, and that attempts to construe it as something more was 'misuse' which 'twisted' the statute." Id. at 1255 (quoting Chrysler Corp v Brown, 441 U.S. 281, 310 n.41 (1979)). Similarly, the court went on to reject the government's arguments that various sections of Title 28 authorized the regulation. See id at 1256.
Beginning in 1995, the Justice Department focused its attention on restructuring Model Rule 4.2, which governs ex parte contacts with represented parties. This effort, however, has been overshadowed by the passage of the McDade Amendment, also known as the Citizen's Protection Act, which appears to rebut the Justice Department's position by requiring the government's lawyers to comply with ethical rules "to the same extent and in the same manner as other attorneys." 28 USC 530B. The debate, however, appears to be far from over as Senator Hatch has presented a bill to the Senate Judiciary Committee which would repeal the Citizen's Protection Act and codify the Thornburgh memorandum as well as other ethics exemptions for federal prosecutors.
The government's contact with Ferrer, therefore, can hardly be said to have occurred in a vacuum. Indeed, AUSA Harris' decision to contact her superiors in this case is likely a reflection of a sensitivity to the issues surrounding ex parte contacts brought on by the history discussed above.
The substantive question before the court is to what extent must the government, and specifically AUSA Harris and her superior AUSA Levin, be held responsible for violating Rule 2-100. The brief history reviewed above makes clear that the government's conduct in this case can be understood as part of a consistent refusal to recognize the ethical problems inherent in ex parte contacts with represented parties. Nevertheless, the ex parte contact in this case was an investigatory contact and, as such, is a type of contact that has been a source of some conflict and confusion among the courts.
With the exception of the Second Circuit, every court of appeals that has considered an instance of non-custodial, pre-indictment contact has refused to apply the relevant state ethical prohibition. See e.g., United States v Balter, 91 F.3d 427 (3rd Cir 1996); United States v Ryans, 903 F.2d 731 (10th Cir), cert denied, 498 US 855 (1990); United States v Sutton, 801 F.2d 1346 (DC Cir 1986); United States v Dobbs, 711 F.2d 84 (8th Cir 1983); United States v Kenny, 645 F.2d 1323, 1339 (9th Cir), cert. denied, 452 US 920 (1981); but see United States v Hammad, 858 F.2d 834 (2d Cir 1988), cert. denied, 498 US 871 (1990). These precedents would, at first glance, seem to justify a conclusion that the applicability of Rule 2-100 to non-custodial, pre-indictment contacts is highly limited or non-existent.
Indeed, as the government has been anxious to point out, the Ninth Circuit in United States v Powe, expressly stated, albeit in dictum, that "the duty to avoid ex parte contacts does not apply to preindictment, noncustodial conversations with a suspect." 9 F.3d 68, 69 (9th Cir 1993). In formulating this dictum, the court in Powe specifically relied on the precedent established by United States v Kenny, 645 F.2d 1323, 1339 (9th Cir 1981). Kenny, however, expressly declined to articulate such a bright line rule stating:
We again emphasize the factual setting of the tape recording: a non-custodial environment, prior to Kenny's charge, arrest, or indictment. In our view, the Government's use of such investigative techniques at this stage of a criminal matter does not implicate the sorts of ethical problems addressed by the Code. While the present case provides no opportunity for us to say just when the ethical line might be crossed, we do not believe it has been crossed here.
Kenny, 645 F.2d at 1339, (citation omitted) (emphasis added). The Ninth Circuit's express and considered refusal to articulate a bright line in Kenny cannot be transformed into an absolute bar on the basis of the dictum in Powe. See also Lopez, 4 F.3d at 1461 ("Thus beginning at the latest upon the moment of indictment, a prosecuting attorney has a duty under ethical rules like Rule 2-100 to refrain from communicating with represented defendants.") (emphasis added).
There is, moreover, no principled basis for a bright line test restricting Rule 2-100's application to post-indictment or custodial contact with represented parties. To the contrary, pre-indictment, non-custodial contact may, in certain instances, squarely implicate the ethical problems embodied in Rule 2-100. In fact, limiting the application of a state ethical rule to only post-indictment contact would appear to make its protections redundant with the Sixth Amendment's baseline requirements and, more importantly, place the timing of the ethical rule's application under the complete control of the federal government.
In Hammad, the Second Circuit noted that "[t]he timing of an indictment's return lies substantially within the control of the prosecutor. Therefore, were we to construe the rule as dependent upon indictment, a government attorney could manipulate grand jury proceedings to avoid its encumbrances." This concern led the court to reject the notion that a provision analogous to Rule 2-100 became operative only after Sixth Amendment rights had attached and, hence, remained inoperative until the onset of adversarial proceedings. The court expressly stated that there was "no principled basis in the rule to constrain its reach as the government proposes." Id at 838. The court, however, did not articulate a bright line rule identifying the circumstances under which the rule would apply to pre-indictment investigative contacts. Instead, the court held that the "delineation is best accomplished by a case-by-case adjudication." Id.
The Hammad court expressly rejected the lower court's attempt to articulate a doctrine limiting the rule's applicability "to instances in which a suspect has retained counsel specifically for representation in conjunction with the criminal matter in which he is held suspect, and the government has knowledge of that fact." Id. The court noted that while this limitation might not unduly hamper the government's ability to conduct effective criminal investigations in a majority of instances, the court believed that it would indeed be unduly restrictive in "that small but persistent number of cases where a career criminal has retained 'house counsel' to represent him in connection with an ongoing fraud or criminal enterprise." Id.
As noted in the August 14, 1998, order, however, this is not a simple instance of the government using undercover investigatory techniques in the early stages of a criminal investigation. Application of the state ethical rule here does not create a doctrine whereby sophisticated criminals could immunize themselves from government investigations by retaining "in house counsel." In the case at bar, the complaint, grievance and qui tam action were each initiated well before the criminal investigation began. Each of these matters involves the same allegations and facts as the instant action.
Regardless of the government's unilateral decision to delay indictment on the criminal action and intervention in the civil action, the adversarial positions of the parties were clearly defined at the time of the ex parte contact. Indeed, the contours of the subject matter of Brose's representation were no less certain at the time of the ex parte contact than they were at the time of indictment. The government had assumed a pronounced adversarial role long before the contact. To argue that the government's adversarial position had not solidified prior to the criminal indictment ignores the reality of the situation at the time of the interview. A failure to apply Rule 2-100 to the facts at bar would be nothing more than a decision to allow the government to subvert the ethical norms embodied in Rule 2-100 by merely manipulating the timing of indictments. Nothing in the authority cited by the government commands such an evisceration of Rule 2-100 as applied to government lawyers.
Given the Ninth Circuit's express refusal to draw a bright line rule barring application of Rule 2-100 to pre-indictment, non-custodial contacts in Kenny, the teachings of Hammad contrary to such a rule, the particular posture of the parties at the time of the ex parte contact and the history of the Department of Justice's conduct with respect to state ethical prohibitions, this court cannot help but conclude that the government's decision to proceed with the interview was a knowing and willful transgression of the ethical principles embodied in Rule 2-100 made on the erroneous assumption that this court would be unwilling to enforce Rule 2-100's express provisions.
This court, like the court in Hammad, recognizes "that prosecutors have a responsibility to perform investigative as well as courtroom functions in criminal matters." 858 F.2d at 839. And, a federal prosecutor is surely "'authorized by law' to employ legitimate investigative techniques in conducting or supervising criminal investigations, and the use of informants to gather evidence against a suspect will frequently fall within the ambit of such authorization." Id. The mere fact, however, that application of the rule to criminal investigations must be undertaken with some care in order to avoid handcuffing law enforcement officers in their legitimate efforts to develop evidence, cannot be understood as mandating an absolute exception to Rule 2-100 covering all investigatory ex parte contacts. Moreover, notwithstanding the dictum in Powe, Ninth Circuit authority does not support the government's contrary conclusion.
There remain instances where contact with a represented party at the investigative stage will overstep the broad powers of the prosecutor's office, and in so doing violate the ethical precepts of Rule 2-100. Such a case is directly anticipated by Hammad. Such a case is now before the court. The complexity of these issues, however, and the admittedly conflicted and confusing nature of the existing case law, lead this court to conclude that any disciplinary action against AUSA Harris or AUSA Levine would be inappropriate. AUSA Levine's instruction and AUSA Harris' decision to follow it may well have been good faith attempts to navigate the muddy waters of this area. Moreover, the conduct of AUSA Harris is further mitigated by the fact that, upon being confronted with a difficult situation, she sought and received the guidance of her superiors.
Neither AUSA Levine's nor AUSA Harris' conduct so violates stated principles of ethical practice as to require discipline by this court. The court must conclude that AUSA Harris and AUSA Levine were operating upon a good faith and colorable belief that the ex parte contact was lawful. Accordingly, the court's October 1, 1998, order vacating the referral of a copy of the court's August 14, 1998, order to the California state bar will stand.
Nevertheless, the court must attempt to repair whatever damage may have been inflicted as a result of the government's breach of its ethical obligation and thereby deter future ethical violations. Accordingly, as provided in the August 14, 1998, order, should this case proceed to trail, the court will inform the jury about the government's misconduct with regard to Ferrer. The jury will be instructed to consider this information when evaluating the credibility of Ferrer's testimony. The court, however, is unwilling to suppress any evidence.
Suppression of evidence is an extreme remedy that may impede legitimate investigatory activities. It attempts to serve the goal of deterrence at the expense of the jury's opportunity to consider all probative evidence in the pursuit of the truth. It is, therefore, a remedy that deserves measured application.
In the case at bar there is neither sufficient prejudice to SLGC nor the sort of flagrant disregard for the limits of appropriate professional conduct that would merit the suppression of evidence. It appears that the ex parte contact in this instance produced no information that would not have been obtained in the subsequent grand jury interrogation. Accordingly, suppression of the testimony or any evidence attributable to it would put the government in a worse position than it would have held absent the pre-grand jury contact. The Supreme Court has held that this result is at odds with the purpose of the exclusionary rule:
The interest of society in deterring unlawful police conduct and the public interest in having juries receive all probative evidence of a crime are properly balanced by putting the police in the same, not a worse, position than they would have been in if no police error or misconduct had occurred ***. When the challenged evidence has an independent source, exclusion of such evidence would put the police in a worse position than they would have been in absent any error or violation.
Nix v. Williams, 467 US 431, 443 (1984). The court is confident that an appropriate instruction can, in this instance, adequately address the harm inflicted as a result of the government's misconduct. Thus, while dictum in Powe indicates that the "court is empowered to exclude evidence obtained in violation of [Rule 2-100]," the court is unwilling to impose such an extreme remedy at this time. 9 F.3d at 69.
Finally, the court is compelled to address the government's protest that any application of Rule 2-100 to its investigative pre-indictment, non-custodial operations will stifle federal investigations. First, the court emphasizes that its decision is limited to the facts of this case, in particular to the advanced stage of the litigation at the time of the ex parte contact. Second, the more importantly, the court notes that the government has many powerful investigative techniques left untouched by today's ruling, most notably the grand jury.
A grand jury is an investigative and prosecutorial arm of the executive branch of government that allows for interrogation of represented parties absent counsel in the most intimidating of circumstances. Through the grand jury process, a federal prosecutor can obtain information from a party regarding an investigation regardless of whether that party has retained counsel.
If an Assistant United States Attorney wishes to question a represented person whose counsel refuses to allow such contact, the prosecutor can subpoena the represented individual to obtain information. This subpoena authority is the basic investigative advantage of the grand jury. See Yale Kanisar et al, Basic Criminal Procedure 689, 692 (8th ed 1994). Moreover, the court has the authority to hold in contempt any person who refuses, without legal justification, to comply with the subpoena's directive. In addition to the compulsion of the subpoena, the grand jury investigation is extremely effective because of the psychological pressure it places on witnesses who have been unwilling to cooperate. The witness is questioned in secret, in a room with twenty-three grand jurors, attorneys for the government and a stenographer. The witness' attorney may not enter the jury room.
Given the availability of such a procedure, the application of Rule 2-100 to the facts of the case at bar is hardly a significant blow for individual rights at the expense of the federal prosecutor's tremendous power. The ethical rules were designed to prevent lawyers from using "superior skill and acumen" to contact laypersons and take advantage of them in the absence of their attorneys. The government's assertion that the need for a bright line rule trumps California's statutory embodiment of this long standard policy is not only meritless, it is ignoble.
It is unfortunate that the United States Attorney finds it necessary to insist that his attorneys are exempt from ethical requirements applicable to all attorneys practicing in the State of California, including state prosecutors. Such a position denigrates federal prosecutors and undermines the ability of the court and the public to trust them. Federal prosecutors should be held to the highest ethical standards and it is, in the eyes of the undersigned, an unwise and short-sighted decision on the part of the Department of Justice to treat its attorneys as less than fully bound by the ethics of the state in which they practice law.
The United States Attorney is the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is an compelling as its obligation to govern at all; and whose interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done. As such, he is in a peculiar and very definite sense the servant of the law, the twofold aim of which is that guilt shall not escape or innocence suffer. He may prosecute with earnestness and vigor - - indeed, he should do so. But, while he may strike hard blows, he is not at liberty to strike foul ones. It is as much his duty to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.
Berger v. United States, 295 US 78, 88 (1935) (Sutherland).
The government's motion for leave to file a motion for reconsideration of the court's August 14, 1998, order (Doc 109) is DENIED. In addition, defendants' motion for additional sanctions (Doc 105) is DENIED.
A status hearing is hereby scheduled for Tuesday, June 29, 1999, at 2:30 pm.
IT IS SO ORDERED.
VAUGHN R. WALKER
United States District Judge