For foreign companies doing business in the United States, avoiding getting sued may be hard enough without having to worry about whether you’re being investigated by a grand jury and the U.S. Department of Justice. However, life can be really difficult for foreign companies that are not only getting sued, but also have to turn over their civil litigation documents for investigations of possible criminal conduct.
Under a recent 9th Circuit ruling, this is exactly the kind of misfortune that has befallen several foreign LCD manufacturers. The foreign companies, including LG Display, Sharp, and Chunghwa Picture Tubes, are embroiled in an antitrust class action suit and are simultaneously being investigated for antitrust criminal behavior.
Even though it couldn’t find any precedent to support its decision, the court ruled that if the documents were in the country then they were within the “grasp” of the grand jury. The 9th Circuit’s ruling comes as a big victory for the DOJ. It gives prosecutors expanded power to subpoena foreign documents that have entered the country for civil litigation purposes.
Antitrust Criminal Violations
The foreign companies involved in the investigations and civil litigation were mostly based in East Asia, countries such as Japan and South Korea. The companies produced LCD screens and marketed them within the United States, where they were used in cell phones, computers, and flat screen televisions. The foreign manufacturers reportedly controlled 90% of the U.S. market for such products.
In its criminal indictment, DOJ attorneys charged that the foreign companies had conspired to fix prices in the LCD screen market from 1996 to 2006. According to the DOJ, the scheme violated U.S. antitrust laws. In 2008, the companies pleaded guilty, resulting in one of the largest criminal settlements in U.S. antitrust history. One company, the South Korean LG Display paid a whopping $400 million, which a DOJ press release called the second highest criminal antitrust fine ever imposed. All in all, the companies racked up fines of nearly $600 million for violations of the Sherman Act.
Problems for the LCD makers, however, did not end with the criminal punishments. Soon after the criminal charges were levied against the LCD makers, private plaintiffs began filing civil suits, bringing similar claims of price fixing and civil violations of antitrust laws. Subsequently, all cases were consolidated into a multidistrict litigation (MDL). Then, in 2010, California District Court Judge Susan Illston certified a class action.
So far, according to the law firm of Lieff Cabrasser, which is serving as lead counsel for the class, the court has now given preliminary approval of partial class settlements from two of the foreign companies for a combined $17 million.
District Court Quashes
Civil suits are often filed on the heels of criminal antitrust charges. As such, a certain amount of overlap in the evidence is unavoidable. However, under current criminal law pertaining to the reach of grand juries, obtaining foreign documents requires letters rogatory or other methods. The grand jury’s subpoena power does not extend outside the U.S.
Nonetheless, the DOJ sought documents brought into the United States as part of discovery in the civil litigation and apparently located at the offices of the law firms.
What were the documents and why did the grand jury want them? According to an earlier protective order of the district court, the foreign documents may have contained “deposition transcripts of foreign national employees of the Toshiba Entities and AUO, as well as the other non-indicted foreign defendant (such as… Hannstar Display Corporation).”
The foreign defendants “vociferously argued against producing either their documents or their employees into this country during this entire litigation.” The district court reluctantly quashed the subpoenas, noting a lack of precedence in doing so and encouraging that the DOJ take the issue up on appeal to the 9th Circuit. Judge Illston reasoned that allowing the DOJ to have foreign discovery documents that had been brought into the United States under court order would grant the DOJ foreign discovery otherwise outside the grand jury’s subpoena power.
Law Firms’ Position
According to a press release from White & Case, one of several big name law firms representing the foreign LCD makers, the DOJ employed a “questionable” tactic: “subpoenaing law firms representing foreign manufacturers of such devices for documents originating and kept in the ordinary course of business outside the United States.” A partner at the big defense firm not involved in the dispute questioned whether this tactic would hurt the DOJ’s traditional policy of international comity and reciprocity:
“We don’t want foreign governments doing this to U.S. companies, [but] DOJ has sought to sidestep this policy by issuing subpoenas to law firms defending foreign targets of antitrust grand jury investigations.”
In arguing against the subpoenas, the law firms did not claim that the foreign documents were privileged. Nor did they allege that there was collusion between the government and the class action plaintiffs. And the district court found no acts of bad faith on the part of the government. The law firms argued instead that the district court had made a valid exercise of its discretion when ruling to quash the subpoenas pursuant to Federal Rule of Criminal Procedure 17.
9th Circuit Reverses
Writing for the 9th Circuit 3-judge panel, Judge Noonan disagreed with the law firms’ position. Judge Noonan reasoned that the appeal should not be considered under an abuse of discretion standard. That standard allows trial judges copious leeway in how they handle matters below. Appellate judges are typically reluctant to reverse decisions made with trial court discretion.
However, Judge Noonan responded to the lower court’s concern for lack of case law in the area. He considered the lower court’s opinion as a “passing of the decision” to the appellate court. The decision below was “a request for guidance.”
The judge applied an earlier established “per se rule that a grand jury subpoena takes precedence over a civil protective order.” By a chance of litigation, the documents have been moved from outside the grasp of the grand jury to within its grasp. No authority forbids the government from closing its grip on what lies within the jurisdiction of the grand jury.
The Takeaway Lesson
The Department of Justice is the big winner in this case. But just how much they will actually use this new tactic is not yet determined. After all, to some extent, they must play nicely with foreign entities to preserve relations with their governments. But to what extent is apparently now a question of the DOJ’s discretion.
Going forward, this ruling will have an impact on how law firms handle foreign clients simultaneously involved in civil and criminal litigation. Attorneys in such situations will need to consider carefully whether bringing foreign materials into the country might adversely position their clients if and when those materials are subpoenaed. They should ask that age-old discovery question: Are these documents really necessary?
Finally, for young attorneys entering the field of antitrust defense, you may want to brush up on your Korean, as the best strategy for reducing the risk that a client’s sensitive documents will end up in the hands of a grand jury might be simply to do document review in Seoul.