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In re Grand Jury Proceedings

United States Court of Appeals, First Circuit

September 4, 2015



Page 58

Timothy E. Zerillo, with whom Hallet, Zerillo & Whipple, P.A., was on brief, for intervenor-appellant.

René e M. Bunker, Assistant United States Attorney, with whom Thomas E. Delahanty, II, United States Attorney, was on brief, for appellee.

Before Kayatta, Selya, and Dyk,[*] Circuit Judges.


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DYK, Circuit Judge.

Appellant is the target of an ongoing grand jury investigation into an alleged scheme to defraud investors regarding the salvaging of a sunken vessel. The district court granted the government's motion to compel the production of documents from appellant's attorneys in connection with the grand jury investigation and granted the government's motion for a judicial determination that the crime-fraud exception applied to materials seized from appellant's home. The district court rejected appellant's claim of attorney-client privilege, holding that the crime-fraud exception applied. Although appellant requested in camera review of the documents that were the subject of the motion to compel, neither appellant nor appellant's attorneys ever produced the privilege log required under the Federal Rules. We affirm.


The P.N.[1] is a British cargo ship that was sunk by a German U-boat off the coast of Massachusetts on June 16, 1942.[2] The government contends that appellant and appellant's company, S.H., raised $8 million from investors to salvage the P.N. by falsifying documents to make it appear as though the ship contained valuable cargo. Appellant currently contends that S.H. discovered the P.N. " [i]n approximately 2007." [3] E.M., who is now a witness for the government, is a shipwreck researcher hired by appellant to research the P.N. The government contends that appellant conspired with E.M. to falsify documents related to the P.N.'s cargo to defraud investors, whereas appellant contends that E.M. falsified the documents without appellant's knowledge. According to appellant, appellant first learned during a November 23, 2014, telephone conversation with E.M. that the documents had been altered.

The government asserts that the fraudulent activity dates back to August 29, 2006, the date that E.M. purchased Volume III of Lloyd's War Losses, a compendium of information about merchant ships owned by British, allied, and neutral countries that were sunk or destroyed during World War II. According to E.M., appellant paid E.M. to purchase a copy of Lloyd's War Losses. The original entry for the P.N.

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from Lloyd's War Losses indicated that the ship sank on June 16, 1942, and listed her cargo as " 1600 tons automobile parts & 4000 tons military stores." According to E.M., E.M. showed the entry to appellant who said that E.M. " needed to show more to get investors on board." E.M. " altered an image of the [P.N.] entry in Lloyd's War Losses to indicate that the ship was carrying 1,707,000 troy ounces of platinum." E.M. also admitted to heavily redacting the remainder of the document and adding a forged " declassification" stamp to conceal its origin. As discussed below, the altered document was later used to secure money from investors and was filed in the associated admiralty proceeding.

In May 2008, S.H. produced a confidential offering summary for potential investors. The summary claimed to have discovered the P.N. on May 5, 2007, and stated that " [i]ncluded in the bounty are seventy-one tons of platinum and a very real possibility of ten tons of gold bullion." It added that the ship's " manifest records" revealed that 1.5 tons of industrial diamonds were also aboard the ship with an " [u]nknown value at this time." [4]

On August 19, 2008, S.H. filed an admiralty claim in federal district court seeking a warrant for the arrest of the P.N. and salvage or ownership rights to it. A claim for salvage requires three elements: " 1. A marine peril. 2. Service voluntarily rendered when not required as an existing duty or from a special contract. 3. Success in whole or in part, or that the service rendered contributed to such success." The " Sabine", 101 U.S. 384, 384, 25 L.Ed. 982 (1879); see also Clifford v. M/V Islander, 751 F.2d 1, 5 (1st Cir. 1984). " To obtain possession over the res, district courts sitting in admiralty may issue a warrant of arrest for a physical part of a shipwreck (an 'artifact') and, based on this arrest, exercise constructive jurisdiction over the entire shipwreck." Great Lakes Exploration Grp., LLC v. Unidentified Wrecked & (For Salvage-Right Purposes), Abandoned Sailing Vessel, 522 F.3d 682, 694 (6th Cir. 2008).

In its complaint in the admiralty action, S.H. claimed to be the salvor-in-possession of the P.N. and that it had effected the arrest by recovering six " metal pieces" from the vessel. The United Kingdom appeared in the action, claiming ownership of the P.N. On August 26, 2008, the court issued the requested warrant naming S.H. salvor-in-possession of the ship based on the purported recovery of the six metal pieces on April 21, 2008.

Although the arrest warrant established the admiralty court's in rem jurisdiction over the P.N., it did not settle the parties' ultimate rights, and the admiralty action continued with respect to that question. See Fla. Dep't of State v. Treasure Salvors, Inc., 458 U.S. 670, 697, 102 S.Ct. 3304, 73 L.Ed.2d 1057 (1982) (" Of course, the warrant itself merely secures possession of the property; its execution does not finally adjudicate the State's right to the artifacts." ).

The nature and value of the P.N.'s cargo was pertinent to the admiralty proceeding because " [t]he value of the property saved" is a factor in determining the amount of the salvage award. The Blackwall, 77 U.S. 1, 14, 19 L.Ed. 870 (1869); see also R.M.S. Titanic, Inc. v. Wrecked & Abandoned Vessel, 286 F.3d 194, 204 (4th Cir. 2002) (" Courts have held that [a salvage] award cannot exceed the value of the property itself." ); Allseas

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Maritime, S.A. v. M/V Mimosa, 812 F.2d 243, 246 (5th Cir. 1987) (" The salvage award is . . . limited by the value of the property saved . . . ." ); Lambros Seaplane Base v. The Batory, 215 F.2d 228, 234 (2d Cir. 1954) (" [A]mongst the factors which affect a salvage claim are the values . . . of the vessel or property saved . . . ." ).

On or about February 14, 2011, S.H. issued a second confidential offering summary for potential investors, repeating the prior claims about the P.N.'s cargo and adding that S.H. had a claim to the shipwreck because it had " filed an arrest warrant in the U.S. Federal Court." In response to the question of to whom " the material (cargo) belong[ed]," the same offering summary explained that " [i]f the original owner or owners are known or the salvor desires not to dispute a third party's title claim to the wreck, then the salvor will seek a recovery award under the law of salvage, a well-established doctrine with significant international legal precedent, that has been in [the] past around 90% of the recovery."

In 2011, E.M.'s company, in a further effort to substantiate the claim that the P.N. contained valuable cargo when it sank, contracted with R.L., a private archival researcher, to review National Archives and Records Administration (" NARA" ) records regarding the P.N. and other vessels. On February 15, 2012, E.M. forwarded R.L.'s February 14, 2012, email to appellant, which indicated that R.L. had copied " cargo reports" " for earlier trips only."

On February 19, 2012, E.M. sent appellant a document that was purportedly " the last cargo of the [P.N.]" and was " on file at the National Archives." The document was titled " Cargo, Mail, and Passenger Report" (the " Cargo Report" ) and was date-stamped " FEB 6 1941" [not 1942, the date of the sinking]. Adjacent to a box labeled " GENERAL CARGO," the document contained a reference to " BULLION."

In a June 19, 2012, status report filing in the admiralty case, S.H. attached three altered documents: (1) the altered document derived from Lloyd's War Losses labeled as a " Copy of U.S. Treasury Ledger--Listing Platinum as cargo" (the " Treasury Ledger" ); (2) a version of the Cargo Report purportedly from the P.N.'s final voyage that removed or completely obscured the " FEB 6 1941" date-stamp; and (3) a third document, a purported copy of a " U.S. Treasury Department, Procurement Division" cargo listing (the " Treasury Procurement" ) altered to show that the P.N. contained 741 platinum bars and 4,889 gold bullion bars. A September 10, 2012, amended complaint in the admiralty case referred to the " [o]fficial documents of the United States Customs Service and the United States Treasury Department," which " contain a list of (at least part) of the commercial cargo being transported" and were " attached to the [June 19, 2012, status report]." According to E.M., appellant " pressured [E.M.] to alter the documents based on demands that [S.H.] was facing from potential investors who were interested in the [P.N.]."

S.H. issued a third confidential offering summary on December 5, 2012, attaching the same three documents (the Treasury Ledger, Cargo Report, and Treasury Procurement) that had been filed with the admiralty court, referring to them in the table of contents as " SMOKING GUN DOCUMENTS" and as evidence of valuable cargo aboard the P.N. This summary claimed that a remote-operated vehicle had entered the ship and the " bullion boxes [we]re then ...

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