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Enron Mail |
FYI.
Thanks. Gary < -----Original Message----- < From: Fergus, Gary S. < Sent: Monday, May 14, 2001 7:45 PM < To: Michael L. Kirby (E-mail) < Cc: Molland, Michael E.; Smith, Amanda D. < Subject: Draft Research Memorandum on Senator Dunn Issues < < Mike, < < Here is the draft research memo that Amanda prepared on some of the < questions surrounding Senator Dunn's investigation (some of this you saw < before): < < Legislative Committee Subpoena Power < < Government Code Section 9401, provides that "a subpoena requiring the < attendance of any witness before the Senate, Assembly, or a committee may < be issued by the President of the Senate, Speaker of the Assembly, or the < chairman of any committee before whom the attendance of the witness is < desired if permission has been secured from the rules committee of the < respective house." < < There is a relative dearth of case law interpreting Govt. Code 9401 et < seq. and the Govt. Code reporters cross reference to the Code of Civil < Procedure Sections on issuance of subpoenas (C.C.P. 1985, et seq.). < Therefore, it is possible that the provisions of both the Govt. Code and < the C.C.P. will govern the issuance and enforceability of a subpoena < issued by a legislative committee. < < Govt. Code Section 9402 provides that a subpoena is sufficient if it "(a) < states whether the proceeding is before the Senate, Assembly or a < committee. (b) is addressed to the witness [presumably the custodian of < records when documents are sought]. © requires the attendance of the < witness at a time and place certain and (d) is signed by the President of < the Senate, Speaker of the Assembly or chairman of the committee before < whom attendance of the witness is desired." < < If the witness does not appear or refuses to testify or "neglects or < refuses ... to produce upon reasonable notice any material and proper < books, papers or document sin his possession or under his control, he has < committed a contempt." Govt. Code Section 9405. If the contempt is < committed while the Legislature is in session, Govt. Code Section 9407 < provides that the committee shall report the contempt to the Senate or < Assembly "for such action as may be deemed necessary by the Senate or < Assembly." If the Legislature is not in session, "the superior court in < and for the county in which any inquiry, investigation hearing or < proceeding [is] held ... may compel the ... production of books, papers, < documents and accounts, as required by the subpoena issued by the < committee, on the filing by the committee of a petition to the court < asking that the witness be so compelled." < < Govt. Code Section 9409 provides that "any witness neglecting or refusing < to attend in obedience to subpoena may be arrested...." It is unclear how < this provision would (or whether it could) be applied to a subpoena issued < to the custodian of records of a non-resident company. < < Motion to Quash Subpoena < < California courts have held, under C.C.P. Section 1985, that a motion to < quash is the procedurally appropriate method of testing the validity of a < subpoena duces tecum. See e.g. People ex rel. Dept. of Public Works v. < Younger (1970) 5 Cal.App.3d 575. My research has revealed no case in < which a subpoena issued by a legislative committee has been challenged by < a motion to quash, but, as noted above, there appear to be only a very few < cases interpreting Govt. Code 9401 et seq. Therefore, it appears that a < superior court may be able to grant a motion to quash a subpoena issued by < a legislative committee (assuming that we want to take the risk of state < court jurisdiction). < < In one early case, the Court of Appeal held that the contempt order and < accompanying affidavit issued by the Court upon the request of a Senate < Committee were fatally defective. Ex Parte McLain (1950) 99 Cal.App.2d < 274. In McLain, the Senate Interim Committee on Social Welfare served < upon Mr. McLain, the Chairman of the Board of Trustees of a corporation a < subpoena calling for the production of various books, papers and < documents. Mr. McLain appeared before the committee but refused to answer < questions or produce the documents. Upon representation of the Committee, < the Superior Court issued an order directing Mr. McLain to produce the < documents. Mr. McLain again appeared before the Committee and again < refused to produce the documents at which point, an affidavit was filed in < Superior Court stating: < < "That, based upon evidence in its possession, the said Senate Interim < Committee has determined that each of the books, papers, and documents < specified in said subpoena duces tecum is material to the matters now < under investigation by the said Senate Interim Committee, and the < production of such books, papers and documents is necessary in order to < enable said Senate Interim Committee properly to perform the duties < imposed upon it and to report to the Senate of the State of California < pursuant to said Senate Resolution No. 162." and "That each of the books, < papers and documents specified in said subpoena duces tecum is material to < the matters now under investigation by the said Senate Interim Committee < and that the production of such books, papers and documents is necessary < in order to enable said Senate Interim Committee properly to perform the < duties imposed upon it and to report to the Senate of the State of < California pursuant to said Senate Resolution No. 162." < < The Superior Court found Mr. McLain guilty of contempt and ordered him < committed to the sheriff until he produced the records. The Court of < Appeals found that the order and affidavit were defective because "a < witness who is otherwise orderly and respectful cannot be adjudged guilty < of contempt unless the order affirmatively sets forth the materiality and < pertinency of the books and papers called for. In cases of constructive < contempt, as is this, not only the order but also the affidavit upon which < it is based must sufficiently charge the alleged facts constituting the < offense." McLain at 276. < < This holding appears to be somewhat consistent with cases interpreting < C.C.P. 1985, which hold that the subpoena and affidavits must allege < material facts rather than conclusory statements. See e.g. Grannis v. < Board of Medical Examiners (1971) 19 Cal.App.3d 551. < < However, cases interpreting C.C.P. 1985 also require the subpoena to < demonstrate a level of specificity, materiality and relevance to be held < proper. See e.g. Pacific Auto Ins. Co. v. Superior Court (1969) 273 < Cal.App.2d 61. It is unclear whether subpoenas issued by legislative < committees are held to this same standard. < < What is the likely impact of a legislative committee subpoena issued < against the Enron' custodian of records, an out-of-state resident, < intended to affect the production of out-of-state Enron documents? < < < Here are the threshold questions: < < A. Since we have found so few cases interpreting Govt. Code Section 9401, < to what extent would a legislative committee subpoena be governed by the < same procedural and substantive rules as a subpoena issued in a pending < civil state court action? < < B. Would a court determining the validity of a legislative committee < subpoena make reference to the Code of Civil Procedure Sections governing < subpoenas "generally" (i.e. C.C.P. 1985 et seq.) or those governing < "deposition subpoenas" (i.e. C.C.P. 2020 et seq.)? This is a toss-up and < the answer may well be "both." The Government Code reporter sections on < legislative subpoenas cross references to C.C.P. 1985 et seq. ("subpoenas < generally"). However, the "deposition subpoena" provisions (C.C.P. 2025 < et seq.) more closely resemble the "discovery" process that the Senator < seems to be undertaking. < < Subpoenas against out-of-state residents under C.C.P. 1985 et seq. < < C.C.P. 1989 is entitled "Residency requirements for attendance of < witnesses" and provides that "A witness, including a witness specified in < subdivision (b) of Section 1987, is not obliged to attend as a witness < before any court, judge, justice or any other officer, unless the witness < is a resident within the state at the time of service." < < There is a statutory limitation on the residency requirement imposed by < Section 1989. Section 1987.3 provides "[w]hen a subpoena duchess mecum is < served upon a custodian of records or other qualified witness as provided < in Article 4 (commencing with Section 1560) of Chapter 2 of Division 11 of < the Evidence Code, and his personal attendance is not required by the < terms of the subpoena, Section 1989 shall not apply." (Evade. Code 1650 < lays out the terms for compliance with a subpoena for business records < where the business is "neither a party nor the place where any cause of < action is alleged to have arisen.") < < On commentator noted the following with respect to C.C.P. 1987.3: < < "The rule limiting subpoenas to California "residents" (C.C.P. 1989) does < not apply to subpoenas duchess mecum served on custodians of records < unless their personal attendance is required. See C.C.P. 1987.3; Amoco < Chem. Co. v. Certain Underwriters at Lloyd's of London (1995) 34 < Cal.App.4th 554, 561 fn. 9. Thus, a nonresident custodian of business < records may be required to respond to a subpoena duces tecum served upon < him or her while present in California, by producing the records in < accordance with Cal. Evid. Code 1560 (delivering copies of the records and < accompanying affidavit to the court clerk)... [However], C.C.P. 1987.3 < probably applies only where the nonresident custodian is employed by a < business entity subject to California jurisdiction. Otherwise, there would < be no way for the court to enforce compliance with a subpoena served on a < nonresident. See Amoco Chem. Co. v. Certain Underwriters at Lloyd's of < London, supra." < < Werner, Fairbanks & Epstein, Rutter Group, California Practice Guide: < Civil Procedure & Trials at 1.57-58 < < Moreover, in one unpublished case, Allee v. King (1988) 206 Cal.App.3d < 1081, the court held that it lacked power to compel a nonresident < defendant to produce original out-of-state documents at trial. In so < holding, the court stated that: < < "even though King apparently voluntarily attended the trial, his presence < does not confer jurisdiction on the court to oblige him to deliver the < out-of-state documents. Although section 1989 uses the word "witness" < and does not refer to documents, it has long been presumed under common < law that documents in other states are outside the court's territorial < jurisdiction, so that a court will allow the use of copies or other < secondary evidence instead of originals. (See, e.g., Heinz v. Heinz < (1946) 73 Cal.App.2d 61, 66, 165 P.2d 967, and cases cited therein.) The < recognition that out-of-state documents are not subject to the court's < process is in conformity with the general rule under common law that, < absent a statute properly conferring broader powers, the extent of a < state's subpoena power and its accompanying subpoena duces tecum power is < coterminous with its borders. (See 97 C.J.S., Witnesses, S 17, p. 367, S < 23, p. 375, S 25, p. 380; 81 Am.Jur.2d, Witnesses, S 8, p. 32, S 14, p. < 39.) < < However, the Allee court notes that the "state-border" limitation on < subpoena power has not been extended to local branches of national < corporations who are subpoenaed to deliver documents which are < out-of-state. Therefore, even under Allee, if a subpoena was issued to a < California Enron entity that possessed responsive documents, that Enron < entity may be obligated to respond. See Boal v. Price Waterhouse & Co. < (1985) 165 Cal.App.3d 806. < < Therefore, if a subpoena is issued which requires the attendance of an < out-of-state officer of Enron, Enron has a very good argument that that < witness is not obligated to attend under C.C.P. 1989. It also seems < probable that, under Amoco and Allele cited above, if a subpoena is served < on an Enron custodian of records who is employed by a non-California Enron < entity, the subpoena may be invalid. However, if a subpoena seeking the < production of documents is served on the custodian of records (or someone < similarly situated) who is employed by an Enron entity that possesses < responsive documents and is subject to personal jurisdiction in < California, that Enron entity most likely is obligated to produce the < documents. It is an open question whether that custodian of records < (employed by an Enron entity in California) would only be required to < produce the Enron documents in the possession of the Enron California < entity or whether that person's obligation would extend further -- to < produce out-of state documents (i.e. documents from non-California Enron < entities) (This question is addressed somewhat in the commentary on the < C.C.P. 2020 statutory scheme, see below, but is still open) < < < Subpoenas against out-of-state residents under C.C.P. 2020 et seq. < < Additional threshold question: If the legislative subpoena was treated as < a "deposition subpoena," would a court deciding the enforceability of a < legislative subpoena treat Enron as a "party" or as a "non-party"? < < The rules governing the reach of discovery in California are obviously < different for the two. The deposition of a party or party-affiliated < witness may be noticed (without a subpoena) for a place within 75 miles of < the witness' residence. It is unclear how a court would resolve this < issue. After all, if a court was resolving the issue at all, an Enron < entity will have appeared before it. and would be a "party." However, it < seems moderately more likely that the court would treat Enron's < obligations under the legislative committee subpoena as similar to its < obligations if it was served with a "non-party" subpoena. < < There are three types of "deposition subpoena": a "testimony only < subpoena" (requires only the attendance and testimony of the witness), a < "business records subpoena" (requires only the production of business < records) and a "records and testimony subpoena" (requires both -- also < formerly called subpoena duces tecum). The second of these is the most < relevant to Enron. < < The attendance of an non party out-of-state witness or the production of < documents can be compelled only under the law of the place where the < deposition is to be taken. C.C.P. 2026 (b)(2). Specifically, C.C.P. < 2026(b)(2) provides "If the deponent is not a party to the action or an < officer, director, managing agent, or employee of a party, a party serving < a deposition notice under this section shall use any process and < procedures required and available under the laws of the state, territory, < or insular possession where the deposition is to be taken to compel the < deponent to attend and to testify, as well as to produce any document or < tangible thing for inspection, copying, and any related activity." < < Some states issue subpoenas routinely, some require a showing of < materiality or relevancy, and some require a commission from the court < where the action is pending. This question will depend on the law of < the state when the custodian of records resides. < < Regarding the question of whether the service of a deposition subpoena on < an in-state custodian of records would compel the production of < out-of-state documents. Weil & Brown, Rutter Group, California Practice < Guide: Civil Procedure Before Trial at 5:540.4 notes: < < "It is unclear whether service of a "business records" subpoena on a < nonparty corporation in California compels production of its records < located outside the state. ... C.C.P. 2020(d) requires that the subpoena < be directed to the records "custodian" (or someone authorized to certify < the records). Whether "custodian" requires actual custody of the records < is unclear. If it does, serving an officer or agent in California would < not compel production of business records located elsewhere.... The result < is different where a "records and testimony" subpoena is used. That < procedure extends to records in control of the subpoenaed party, not < merely in his or her custody." < < If the State of California files civil suit against Enron to obtain < discovery of the requested documents, does the fact that the State is the < plaintiff (rather than a private party) affect Enron's prospects for < removal of the suit to federal court? < < < If the action filed by the State of California presents a federal < question, then under the rationale of the court in People of the State of < California v. Steelcase Inc. (C.D. Cal. 1992) 792 F.Supp. 84, the case < should be removable to federal court. < < In People of the State of California v. Steelcase Inc. (C.D. Cal. 1992) < 792 F.Supp. 84, the District Attorney of the County of Los Angeles brought < suit alleging violations of the Cartwright Act and the Unfair Competition < Statutes (Cal. Bus. & Prof. Code 16720 and 17200). The District Court < found that, although the district attorney is only allowed to prosecute < Cartwright Act violations on behalf of the county or public agencies < located in the county, the unfair competition statutes expressly provide < that suit be brought "in the name of the people of the State of < California." Id. at 85. Therefore, for the purposes of the Unfair < Competition Claims, the Court found that the State of California was the < real party in interest. < < The Court then found: < < (1) that "for diversity purposes, a state is not a citizen of itself. < Therefore it cannot sue or be sued in a diversity action." Id. < Specifically, the Court found that: "[e]ven assuming arguendo that < defendant is correct that the County of Los Angeles is the real party in < interest and the proper party in the Cartwright Act claim, diversity < jurisdiction does not lie because, under long- established teaching, there < must be complete diversity, i.e., all plaintiffs must be diverse from < defendant. E.g. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. < 435 (1806). Here, there cannot be complete diversity because, to repeat, < the State of California is not a citizen of any state. " Id. < < (2) that "[i]ndependent of its failure to meet the complete diversity < test, the court lacks jurisdiction over this case because of the bar of < the Eleventh Amendment to the Constitution. The Eleventh Amendment is a < grant of sovereign immunity to a state against suit in federal court. It < is in "the nature of a jurisdictional bar." .... Defendant, relying on < the literal wording of the Eleventh Amendment, contends that this is not a < "suit ... against one of the United States ..." because the State is the < plaintiff. However, since the immunity granted by the Eleventh Amendment < is an immunity from being made an involuntary party to an action in < federal court, it should apply equally to the case where the state is a < plaintiff in an action commenced in state court and the action is removed < to federal court by the defendant." Id. (internal citations removed). < < However, the Court noted that "where removal is predicated on federal < question jurisdiction, removal is permitted even where a "non-removable" < claim is joined with the removable claim...." Id. < < If a criminal case (price gouging, etc.) is brought against Enron, is < there any theory (preemption, primary jurisdiction or double jeopardy) < which would allow that criminal proceeding to be dismissed, stayed or < removed given the criminal penalty provisions of the Federal Power Act? < < < Our preliminary research shows that there is a body of substantive law < dealing generally with the question of whether criminal proceedings are < subject to the primary jurisdiction doctrine, but no case which considered < this question with respect to the Federal Power Act specifically. < < Generally, in one case concerning a District Court order staying criminal < action involving allegations of conspiracy and fraud against a defense < contractor pending the District Court's referral of various questions < regarding the case to the Armed Services Board of Contract Appeals, the < Ninth Circuit has said: < < "Our concern with the district court's stay and referral is heightened by < the fact that this action is a criminal prosecution. While it is true < that the primary jurisdiction doctrine has been applied in criminal cases, < see United States v. Pacific & A. Ry. & Navigation Co. (1913) 228 U.S. 87, < 106-08; United States v. Yellow Freight Sys. (9th Cir.1985) 762 F.2d 737, < 742, its use clearly interferes with the government's authority to < prosecute criminal cases. ... We said in a related context: < < 'We approach the interpretation of the statute with a presumption against < a congressional intention to limit the power of the Attorney General to < prosecute offenses under the criminal laws of the United States. In < general, the "conduct [of] federal criminal litigation ... is 'an < executive function within the exclusive prerogative of the Attorney < General,' " In re Subpoena of Persico, 522 F.2d 41, 54 (2d Cir.1975), < quoting United States v. Cox, 342 F.2d 167 (5th Cir.1965) (Wisdom, J., < concurring). Congress may limit or reassign the prosecutorial < responsibility. See Case v. Bowles, 327 U.S. 92, 96-97, 66 S.Ct. 438 < [440-41] 90 L.Ed. 552 (946); Nader v. Saxbe, 162 U.S.App.D.C. 89, 92-93, < 497 F.2d 676, 679-80 n. 19 (D.C.Cir.1974); FTC v. Guignon, 390 F.2d 323, < 324 (8th Cir.1968). But "[t]o graft such an exception upon the criminal < law would require a clear and unambiguous expression of the legislative < will." United States v. Morgan, 222 U.S. 274, 282, 32 S.Ct. 81, 82, 56 < L.Ed. 198 (1911).' United States v. International Union of Operating < Engineers, Local 701, 638 F.2d 1161, 1162 (9th Cir.1979), cert. denied, < 444 U.S. 1077, 100 S.Ct. 1026, 62 L.Ed.2d 760 (1980)" < < United States v. General Dynamics Corp. (9th Cir. 1987) 828 F.2d 1356, < 1366. The General Dynamics Court went on to say that "only where an issue < unambiguously requires initial agency determination under the primary < jurisdiction doctrine ... and the referring court has the authority to < review the agency's order, can the agency's regulatory interests be < required or allowed to subordinate the government's authority to prosecute < criminal offenses." Id. < < In another context, the Ninth Circuit held that the exhaustion of < administrative remedies before the Federal Election Commission was not a < prerequisite to indictment under the Federal Election Campaign Act: < < "... neither the language nor the legislative history of the Act provides < the kind of "clear and unambiguous expression of legislative will" < necessary to support a holding that Congress sought to alter the < traditionally broad scope of the Attorney General's prosecutorial < discretion by requiring initial administrative screening of alleged < violations of the Act. On the contrary, the language and legislative < history indicates that while centralizing and strengthening the authority < of the FERC to enforce the Act administratively and by civil proceedings, < Congress intended to leave undisturbed the Justice Department's authority < to prosecute criminally a narrow range of aggravated offenses." < < United States v. International Union of Operating Engineers, Local 701 < (1979) 638 F.2d 1161. See also In re Grand Jury Investigation of Shipping < Industry (D.D.C. 1960) 186 F.Supp. 298, 309 ("though the doctrine of < primary jurisdiction may be applied to both civil and to criminal actions, < it is more forceful in the civil regulatory type actions than in criminal < actions for in the latter actions the violations of other federal statutes < may more often be involved, and the regulatory scheme less affected.") < < Therefore, it seems clear that it will be difficult to invoke the doctrine < of primary jurisdiction to dismiss or stay criminal proceedings against < Enron, especially since the "criminal penalty" provisions of the Federal < Power Act are relatively limited. < < In addition, at least one court has held, in the civil context, that the < Federal Power Act was not designed to "shift the forum for the trial of < anti-trust questions affecting power companies from the District Courts to < the Power Commission [FERC's predecessor]" Pennsylvania Water & Power Co. < v. Consolidated Gas, Electric Light & Power Co. (4th Cir. 1950) 184 F.2d < 552, 562. < < I have not been able to find any case directly on point which invokes < "double jeopardy" type arguments. (In other words, if there are possible < criminal penalties under the Federal Power Act and the same conduct is at < issue that was examined by FERC, would State law criminal charges based < upon the same conduct be precluded.) Further research on this point after < the filing of a criminal claim (when the details of the allegations are < known) may be productive. Also, it may be worthwhile to look for < regulatory statutes that consider language similar to that in the Federal < Power Act to determine if preemption/primary jurisdiction case law exists < in analogous situations. < < < < < < < ======================================================= This email message is for the sole use of the intended recipient(s) and may contain confidential and privileged information. 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