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United States v. Usplabs LLC

United States District Court, N.D. Texas, Dallas Division

May 10, 2018

UNITED STATES OF AMERICA
v.
USPLABS, LLC (01) JACOBO GEISSLER (02) JONATHAN DOYLE (03) MATTHEW HEBERT (04) KENNETH MILES (05) S.K. LABORATORIES, INC. (06) SITESH PATEL (07) CYRIL WILLSON (08)

          MEMORANDUM OPINION AND ORDER

          Sam A Lindsay, United States District Judge

         Before the court is the Government's Expedited Motion to Enforce Protective Order, filed April 17, 2018 (Doc. 445). Having considered the motion, Defendant S.K. Laboratories, Inc.'s opposition brief (Doc. 449), the Government's reply (Doc. 451), the revised Protective Order (Doc. 248), the record, and applicable law, for the reasons set forth below, the court denies the Government's Expedited Motion to Enforce Protective Order.[1]

         I.

         On November 1, 2013, the Government submitted an affidavit in support of a search warrant In the Matter of Search of S.K. Laboratories Inc., 5420 E. La Palma Ave., Anaheim, CA 92807, attesting to the existence of probable cause to believe that violations of federal law involving the introduction of adulterated food into interstate commerce had occurred at S.K. Laboratories, Inc.'s (“S.K. Labs”) place of business. See Search Warrant Affidavit Excerpts, attached as Exhibit A to Declaration of Joseph M. McMullen (“McMullen Declaration”) (Doc. 449-1), at Declaration Exhibit 1, at 4 (“I submit there is probable cause to believe that . . . Sitesh Patel, the VP and operator of SK Labs, as well as others, used the Subject Premises in furtherance of violations of federal law, including offenses involving . . . the introduction of adulterated foods into interstate commerce [and] conspiracy to cause the introduction of adulterated food into interstate commerce.”). The scope of the Search Warrant was limited to searching only S.K. Labs' premises. Id. at 1-2. On November 6, 2013, federal agents executed the warrant and, as part of the seizure, made a forensic copy of the computer hard-drive of Rahul Shah, an accountant who had an office physically located at S.K. Labs.

         In 2014, Department of Justice Attorney Patrick Runkle returned an electronic copy of the materials seized during the execution of the search warrant to Patrick Hall, then-counsel for S.K. Labs, which included a copy of Mr. Shah's computer hard-drive containing his confidential tax files. On November 4, 2015, the Government filed the Indictment in this case. Mr. Shah is not named as a defendant in the Indictment.[2] On December 22, 2015, the Honorable Magistrate Judge Karen E. Scott in the Central District of California granted the Government's motion to unseal the Search Warrant application and affidavit. In correspondence dated December 31, 2015, Mr. Runkle advised the parties that he distributed the “forensic images from the USP Labs and SK Labs search warrants” to the parties.

         On September 15, 2016, the Government filed an unopposed motion for a protective order (Doc. 157), which the court granted on September 20, 2016 (Doc. 168). The protective order barred Defendants and their counsel “from disclosing to any third party any federal government document that has been disclosed by the government in discovery” without leave of the court, except for use in this case. Id. On May 24, 2017, the Government filed a motion to broaden the language of the protective order to provide further protection to third parties. The court granted the motion and issued a Revised Protective Order expanding the language to cover “disclosing or using any document or factual information that has been disclosed by the government in discovery in the above-captioned matter, whatever that document or information's source.” Revised Protective Order 2 (Doc. 248).

         On March 14, 2018, Joseph M. McMullen, Esq., who is counsel to S.K. Labs in this matter, filed a civil action on behalf of Mr. Shah in the Central District of California. Shah v. United States, No. 18-cv-405 (C.D. Cal. filed Mar. 14, 2018) (the “California Action”). A copy of the complaint in the California Action is attached to the Government's motion as Exhibit A. The complaint in the California Action alleges that federal agents executed a search warrant at S.K. Labs in 2013. Id. ¶ 17. During that search, the complaint alleges, agents imaged numerous hard drives and servers found on the premises, including a hard drive belonging to Mr. Shah. Id. ¶¶ 24-25. The complaint alleges that following the search, the Government (and in particular, DOJ Trial Attorney Mr. Runkle) “failed. . . to obtain a cooperating witness among the targets of [the USP Labs] investigation, ” but then “[n]onetheless . . . filed an indictment against USPLabs, S.K. Labs, and several individuals . . . .” Id. ¶ 27. The complaint alleges that “[t]he forensic copy of Mr. Shah's computer hard-drive was among the materials that DOJ Prosecutor Runkle sent to [the other defendants]” in the present criminal action. Id. ¶ 29.[3] The complaint alleges the Government's intent in producing the “Shah” hard drive to the USP Labs defendants was to “sew [sic] discord among the defendants named in the indictment.” Id. ¶ 28. According to the complaint, Mr. Shah later “discovered . . . that DOJ Prosecutor Runkle had disseminated . . . all of Mr. Shah's confidential CPA client files and his own federal and state income tax returns filed jointly with his wife” to the USP Labs defendants. Id. ¶ 30. The complaint alleges that the Government was not authorized to disclose the tax return information contained on Shah's hard drive to the defendants in the present case, and that the government has “taken no steps retrieve the copy of Mr. Shah's hard-drive from the members of the public who received it, nor to otherwise try to protect the privacy interests of [the parties whose tax returns were contained on the hard drive].” Id. ¶¶ 33-34. The complaint asserts that this series of events violated 26 U.S.C. § 6103. (A civil remedy for such a violation is provided by 26 U.S.C. § 7431.) The complaint states that in disclosing materials to the defendants pursuant to Rule 16, the government illegally leaked the files to members of the public. The complaint asks for more than $700, 000 in damages. Id. at 8-9.[4]

         II.

         In its motion, pointing to the California Action, the Government contends that Mr. McMullen recently filed a “frivolous civil lawsuit against the United States in the Central District of California incorrectly asserting that the government's Rule 16 discovery disclosures in the present case violated a federal tax privacy statute.” Mot. 1. According to the Government: “Mr. McMullen's litigation of the [California Action] necessitates violating the protective order in the present case, which precludes the defendants and their counsel from ‘disclosing or using any document or factual information that has been disclosed by the government in discovery' for any purpose other than ‘the litigation of this case.'” Id. (quoting Revised Protective Order, Doc. 248 at 2). The Government also contends that “the allegations in the [California Action] and related statements by Mr. McMullen to the press go well beyond zealous advocacy and are improper.” Id.[5] The Government asks this court to order Mr. McMullen to cease sharing or using discovery from the present case in other cases, order the defendants and counsel to account for any prior disclosures of information covered by the protective order for purposes other than the present litigation, and make any other order the court deems appropriate under the circumstances.[6]

         In opposition, S.K. Labs, relying on the attached Declaration of Mr. McMullen (see Doc. 449-1), and the chronology of events in this action, argues that none of the allegations in the California Action is “based on documents or factual information provided in the Government's discovery materials.” Opp'n Br. 6 (Doc. 449). According to SK Labs and Mr. McMullen's Declaration in support:

On November 7, 2017, in advance of the Court's pretrial motion deadline, undersigned defense counsel for S.K. Labs interviewed Mr. Shah regarding the execution of the Search Warrant. No. documents or factual information contained in the Government's discovery materials were shared or discussed with Mr. Shah.
Undersigned counsel interviewed Mr. Shah regarding his lack of awareness that the Government had seized, retained, and disclosed to S.K. Labs' counsel the contents of the pre-discovery 2014 Hard-Drives, which included his tax client files and personal tax information. Undersigned counsel further advised Mr. Shah of Mr.
Runkle's statement that he distributed the forensic images from the SK Labs search warrant to the other parties, and confirmed that Mr. Shah had not provided his consent ...

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