Posted by: evanjdavis | November 6, 2019

4th Circuit Upends Longstanding DOJ Practice for Filter Teams to Review Attorney-Client Privileged Materials By Evan J. Davis

White-collar prosecutors and defense counsel have noticed a downward trend in the number of fraud cases, including tax cases, since the 9/11 attacks. The FBI and other agencies since then have reallocated their resources to counterterrorism investigations.  However, this re-orientation only accounts for part of the drop; one of the other critical factors has been the increased resources needed to review the ever-growing volume of digital evidence.  The quicksand of federal investigations turns out not to be recalcitrant witnesses or destruction of evidence, but a volume of digital evidence that outstrips the agents’ and prosecutors’ capacity to review.  This is particularly true where the review must be done twice – first by a “filter team” for privileged matters and then, by a separate “investigative team,” for evidence to be used in the investigation.

When prosecutors think lawyers possess evidence of a crime, either as co-conspirators or as unwitting dupes who helped clients commit fraud, then prosecutors can circumvent the attorney-client privilege and work product protection of their records through a “crime-fraud” motion with the district court.  The question is, once a court is satisfied that prosecutors have demonstrated that they should gain access to some legal files, what process should be used to sort through a lawyer’s files to determine what is privileged and what is not (either because the crime-fraud exception applies or because the files aren’t privileged for another reason)?

Diligent prosecutors anticipate this problem, and most diligent prosecutors will propose a filter team procedure for the federal magistrate judge to approve at the time the prosecutors seek a search warrant for the lawyer’s files.  Filter teams are made up of prosecutors and agents who aren’t working on the investigation, and generally there should be a logical separation between the filter team and the investigative team, such as working in a different office or different section, to make accidental or sloppy sharing of privileged information less likely.

Until Halloween 2019, most prosecutors would have assumed that the use of a filter team, approved in advance by a magistrate judge, was a “best practice” that would gold-plate admissibility of any documents that ran the gauntlet and ended up in the prosecutor’s hands.  In a Halloween decision by the Fourth Circuit, the use of filter teams and advanced approval moved from gold standard to lead.  The biggest losers in the process are federal district and magistrate judges, who will be required to take a much-more-hands-on role in the privilege-determination process.

In re: Search Warrant Issued June 13, 2019 No: 19-1730

In a unanimous decision, the Fourth Circuit struck down a magistrate judge’s pre-search approval of a filter team that appeared to check most (or all, depending on the federal district) of the “best practice” boxes for prosecutors.  In re: Search Warrant Issued June 13, 2019 (No. 19-1730, October 31, 2019).  The filter team of lawyers from a separate office would separate privileged from non-privileged materials; once materials were determined as non-privileged, they were sent to the investigative team; and for privileged materials, the filter team would try to redact items and would allow the investigation’s target (a lawyer in a 20-lawyer firm) to contest redactions and argue about a third category of potentially privileged documents.

The search revealed a pittance of responsive documents – only 116 of the 52,000 seized emails were from the client who was also under investigation. The vast majority of documents reviewed were related to the law firm’s clients who weren’t under investigation.

The law firm sought return of items so it could conduct a privilege review on its own, but the government refused.  Alternatively, the firm asked that all seized materials be submitted to the magistrate judge for in camera review – an unenviable task given the press of other business for a magistrate judge – but the government refused that request as well (in fact, the government simply ignored the law firm’s requests, which likely didn’t help the government’s litigating position).

The Fourth Circuit zeroed-in on the filter team’s unfettered discretion to decide what was not privileged and struck down the filter protocol that the magistrate judge had confirmed was appropriate. The law firm and government then tussled over a preliminary injunction.  Notably, after the district court initially agreed with the magistrate judge’s rejection of the preliminary injunction, the parties agreed that the filter team must allow the law firm to object to any “non-privileged” determination before a document was disclosed to the investigative team.

Even this modification to the filter protocol couldn’t save it on appeal.  In an unusual order, the Fourth Circuit quickly entered an interim order that benched the filter team and reassigned all its functions to the magistrate judge.  Six weeks later, it explained its decision in a lengthy opinion.  After noting that it’s hard to win a preliminary injunction under a four-factor test, the Fourth Circuit stated that the law firm did precisely that by showing it would suffer irreparable harm through the use of a filter team, the law firm was likely to win on the merits, the balance of equities tilted in the law firm’s favor, and that the public interest favored a preliminary injunction.  What’s particularly notable is that a target of the investigation could show that the public interest favored the target, over the public’s interest in conducting a quick criminal investigation.

The Fourth Circuit noted that the magistrate judge erred by not considering the result of the search – that fewer than 1% of the law firm’s records were responsive to the search warrant, and that the filter team was reviewing emails concerning other, ongoing federal criminal investigations of unrelated clients.  Delegating the privilege review to federal prosecutors and non-lawyer agents considering these factors was improper because it gave almost no weight to the attorney-client privilege and work product protections that are critical to the Sixth Amendment’s right to counsel.  The Fourth Circuit cited a recent decision, United States v. Elbaz (D. Md. June 20, 2019), as an example where a government filter team improperly disclosed thousands of potentially privileged documents, which further bolstered its conclusion that the magistrate judge can’t delegate its judicial responsibility to make privilege determinations.  The circuit also determined that the magistrate judge should have conducted adversarial proceedings on the use of a filter team.  Finally, the circuit was deeply troubled by the filter protocol’s authorization of the filter team’s contacting the law firm’s clients to seek waivers that endorsed prosecutors and their agents directly contacting represented parties.  The entire process smacked of unfairness, so the public’s interest weighed in favor of nixing the filter team and tasking the magistrate judge with the privilege-review process.

The Use of Filter Teams Going Forward

What are the takeaways from this decision?  Filter teams as we know them may be a thing of the past, at least filter teams that make decisions without allowing defense counsel to second-guess the decisions (and greatly slow down the process, as I learned as a prosecutor).  Judges, perhaps aided by special masters, will have to make privilege decisions and cannot delegate this role to filter prosecutors.  This inability to delegate will, in turn, further slow down the review process and exponentially increase costs over using agents and lawyers already on the government’s payroll.  Prosecutors will be leery of searching lawyers’ offices and computers, which will incentivize fraudsters to use lawyers even more to cover their tracks.  Particularly given that the courts aren’t set up to use sophisticated search technology, any case with a large volume of data will likely be shuttled to the bottom of the pile for already-busy magistrate judges.  They didn’t become magistrate judges to act as a filter team.  This could, in turn, make magistrate judges think long and hard before approving search warrants of law firms, as they may be buying a weeks- or months-long privilege review at the same time.  None of this bodes well for an increase in white-collar prosecutions.

EVAN J. DAVIS – For more information please contact Evan Davis – davis@taxlitigator.com or 310.281.3288. Mr. Davis is a principal at Hochman Salkin Toscher Perez PC.  He spent 11 years as an AUSA in the Office of the U.S. Attorney (C.D. Cal), spending three years in the Tax Division of the where he handed civil and criminal tax cases and 11 years in the Major Frauds Section of the Criminal Division where he handled white-collar, tax, and other fraud cases through jury trial and appeal.  As an AUSA, he served as the Bankruptcy Fraud coordinator, Financial Institution Fraud coordinator, and Securities Fraud coordinator.  Among other awards as a prosecutor, the U.S. Attorney General awarded him the Distinguished Service Award for his work on the $16 Billion RMBS settlement with Bank of America.  Before becoming an AUSA, Mr. Davis was a civil trial attorney in the Department of Justice’s Tax Division in Washington, D.C. for nearly 8 years, the last three of which he was recognized with Outstanding Attorney awards. 

Mr. Davis represents individuals and closely held entities in criminal tax investigations and prosecutions, civil tax controversy and litigation, sensitive issue or complex civil tax examinations and administrative tax appeals, and federal and state white-collar criminal investigations including money laundering and health care fraud.  He is significantly involved in the representation of taxpayers throughout the world in matters involving the ongoing, extensive efforts of the U.S. government to identify undeclared interests in foreign financial accounts and assets and the coordination of effective and efficient voluntary disclosures (Streamlined Procedures and otherwise).

 


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