In Re: Two Grand Jury Subpoenas Dated September 13, 2023
128 F.4th 127
2d Cir.2025Background
- The case involves grand jury subpoenas issued to a lawyer (Sealed Appellant 2) and a law firm (Sealed Appellant 3) that represented the former CEO (Sealed Appellant 1) of a public company, concerning alleged efforts to conceal sexual misconduct settlements with two former employees.
- The CEO and attorney withheld certain documents under attorney-client privilege, but the district court compelled disclosure, finding the crime-fraud exception applied.
- The government argued that these communications aided in circumventing the company’s internal controls and misleading auditors, both potential federal crimes.
- The district court found probable cause that the CEO and attorney structured settlements to avoid detection by the company’s legal and accounting departments, violating internal controls and associated federal laws.
- Sealed Appellant 1, 2, and 3 appealed the disclosure order before any contempt finding, raising questions about appellate jurisdiction and the application of the crime-fraud exception.
- The Second Circuit affirmed the district court’s ruling, holding that the Perlman exception permitted this interlocutory appeal and that the crime-fraud exception vitiated privilege for most documents at issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate Jurisdiction (Perlman Exception) | Immediate appeal allowed to prevent irreparable harm (privileged disclosure) | Appeal not allowed unless contempt order or final judgment; Perlman doesn't apply | Perlman applies; immediate appeal proper |
| Existence/Scope of Internal Controls | No viable legal contracts control at relevant time; controls must be formally documented | Sufficient evidence of internal control via CEO’s statements to auditors; documentation not required | Probable cause exists that such a control was in place |
| Crime-Fraud Exception to Attorney-Client Privilege | No crime/fraud; settlements lawful and disclosed funding not from company | Communications were intended to circumvent controls, conceal agreements, and mislead auditors—furthering crimes | Crime-fraud exception applies; privilege vitiated |
| Significance of Concealed Settlements | Settlement agreements not significant contracts under internal controls; funds were personal | Agreements involved millions, company liability potential, and should have legal review as significant contracts | Agreements are significant contracts under internal controls |
Key Cases Cited
- Perlman v. United States, 247 U.S. 7 (establishes exception for immediate appeal of privilege orders when privileged material is held by disinterested third party in grand jury context)
- Mohawk Industries, Inc. v. Carpenter, 558 U.S. 100 (excludes most privilege disputes from interlocutory appeal outside the grand jury/Perlman context)
- In re Katz, 623 F.2d 122 (applies Perlman exception for appeals by clients over subpoenaed privileged material held by third parties)
- In re John Doe, Inc., 13 F.3d 633 (crime-fraud exception standard in Second Circuit)
- United States v. Mejia, 655 F.3d 126 (standard of review for privilege determinations)
- In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032 (application of Perlman and crime-fraud exception in grand jury context)