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5th Circuit underscores privilege rights of corporate defendants raided by DOJ

5 minute read

The crest of the United States Department of Justice is seen at their headquarters in Washington, D.C., May 10, 2021. REUTERS/Andrew Kelly

(Reuters) - It’s not OK, according to the 5th U.S. Circuit Court of Appeals, for federal prosecutors to disregard attorney-client and work-product privileges when they raid corporate offices, even when the government has obtained search warrants before the raids and uses a so-called taint team to review the seized documents and emails before prosecutors get hold of them.

The 5th Circuit’s ruling last week in Harbor Healthcare Systems LP v. United States should be a boon to corporations targeted in Justice Department investigations. The per curiam decision by Judges Patrick Higginbotham, Jennifer Elrod and Catharina Haynes, which is unpublished but can be cited, offered a clear warning to the DOJ: The government must respect targets’ right to confidential attorney communications, both before and after the seizure of corporate records.

The case was a challenge by Harbor, a Texas-based hospice and healthcare services company, to the government’s refusal to return privileged documents seized in 2017 raids on several Harbor properties. Technically, the appellate ruling simply reversed the dismissal of Harbor’s case and remanded the matter to U.S. District Judge Andrew Hanen of Houston.

But the 5th Circuit left no doubt of its conclusion that Harbor met the 5th Circuit test for the return of its property by showing both the government’s “callous disregard” for Harbor’s rights and Harbor’s ongoing harm from the DOJ’s failure to respect the company’s attorney-client privilege.

“Harbor remains injured as long as the government retains its privileged documents,” the appeals court said. “That injury can only be made whole by the government returning and destroying its copies of the privileged material.”

The Justice Department did not immediately respond to my query on the 5th Circuit decision, which also chided prosecutors for disclosing that Harbor and some employees are the subject of a grand jury investigation into potential health care fraud violations. The DOJ’s 5th Circuit brief insisted that the government showed sufficient regard for Harbor’s rights by obtaining search warrants to raid its offices and employing a team of lawyers uninvolved in the criminal investigation to review the seized documents. (The government's brief describes the reviewing lawyers as a “filter team." Harbor’s brief and the 5th Circuit’s opinion use the more evocative “taint team” phraseology.)

The government also argued that Harbor doesn’t need physical possession of the privileged materials seized by the DOJ because they’re duplicates of originals in the company’s possession. Harbor’s demand for the return of the documents, the DOJ said, was actually an attempt to suppress prosecutors’ use of the material in a case against the company, so the 5th Circuit should wait for possible criminal charges to decide what to do about the privileged information in government hands.

Those arguments, according to the 5th Circuit, missed the point: Harbor has a right to confer with its lawyers in confidence. The DOJ’s alleged breach of the company’s privacy rights, the appeals court said, is a different injury than the government’s possible use of privileged materials to build a criminal case.

The Justice Department’s first mistake was failing to obtain specific authorization to seize privileged materials, according to the 5th Circuit ruling. The appeals court cited a stipulation that the government knew its search of the office and the computer of Harbor’s chief compliance officer would turn up communications with lawyers for the company. (The compliance officer was a law school graduate but was not licensed to practice.) Harbor’s lawyers at BakerHostetler and Searby LLP actually contended that the government served a civil investigatory demand on Harbor only weeks before conducting the 2017 raids because it knew the demand would spark privileged communications that the government could subsequently seize.

The DOJ denied that allegation, but the government conceded in a stipulation that it did not notify the magistrates who signed its 2017 search warrants that privileged material would likely be seized. That showed “no attempt to respect Harbor's right to attorney-client privilege,” the 5th Circuit wrote.

The government then compounded the problem in its post-seizure handling of the privileged documents, according to the appellate opinion. Harbor identified thousands of privileged documents among those swept up in the raids. The government said its filter team would screen for privilege. But instead of destroying materials that the filter team deemed to be shielded by privilege – or returning the documents to Harbor – the government chose to retain the documents in case prosecutors subsequently disputed the taint team’s conclusions.

By doing so, the 5th Circuit said, the DOJ effectively nullified any curative purpose for the taint team. “A taint team serves no practical effect if the government refuses to destroy or return the copies of documents that the taint team has identified as privileged,” the court said. “The government has thus conceded that it has no intent to respect Harbor's interest in the privacy of its privileged materials as the investigation unfolds.”

Harbor counsel from BakerHostetler declined to provide a statement on the 5th Circuit ruling. Edmund Searby of the eponymous firm argued at the 5th Circuit for the company.

It’s relatively unusual for a company targeted by the Justice Department to demand the return of privileged documents. More often (but still rarely), law firms that have been raided sue for the return of their clients’ information. That was the case in a 2019 decision from the 4th Circuit in In re: Search Warrant Issued June 13, 2019. The 4th Circuit ruled that the government’s use of a taint team to screen documents seized from a Baltimore law firm was an improper abrogation of judicial power by the executive branch.

Harbor called in its appellate briefs for the 5th Circuit to adopt a similarly skeptical view of taint teams, citing the 4th Circuit ruling, among others. The appeals court didn’t bite, ruling just that the taint team process didn’t adequately protect Harbor’s privacy interests. But for Harbor and other DOJ targets, last week’s decision is definitely a step in the right direction.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin. Reach her at alison.frankel@thomsonreuters.com

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