Botched Search Puts Federal Fraud Case in Peril

A criminal fraud case against a Southern California defense contractor is on the verge of being thrown out of court because federal prosecutors and investigators botched a search at the company’s headquarters.

The company, Solid State Devices of La Mirada, and five other defendants are under indictment for allegedly selling substandard semiconductors for use in the F-18 fighter jet, the Atlas and Titan missiles, the space shuttle and the unfinished International Space Station.

In January, 35 Defense Department investigators raided the company’s offices, ostensibly looking for evidence of other crimes. Despite strenuous protests from company officials and their lawyers, members of the search team read privileged attorney-client documents, including an outline of defense strategy in the case.

Ruling that the government committed serious procedural mistakes during and after the search, a Los Angeles federal court judge last month dismissed the entire case with prejudice, meaning it cannot be refiled.

Judge Robert M. Takasugi said the U.S. attorney’s office acted “sloppily” and perhaps with “callousness” by failing to set up adequate safeguards to insulate the agents who read the privileged documents from members of the prosecution team.

Whatever efforts were made to do that, the judge said, were too little and too late.

Takasugi stayed his order, however, to give federal prosecutors time to make a last-ditch bid to salvage their case. It calls for starting from scratch with a new cast of investigators and prosecutors.

A final ruling is expected soon.

Even if the government wins a reprieve, the cost of time and effort lost in the three-year investigation, and the price of mounting a new probe, will be staggering.

Worse yet, legal observers said, the entire imbroglio could have been avoided if the investigators had followed conventional practice to “seize, seal and do not review” any attorney-client documents found during the search.

Those documents could then have been turned over to a judge or a special master appointed by the court to determine which, if any, were privileged. In that way, no questions could have been raised about prejudice to the defense.

The prosecution also could have followed guidelines spelled out in a Justice Department manual that call for creating an independent team of government lawyers and investigators, unrelated to the prosecution, to search for documents in a lawyer’s office.

The U.S. attorney’s office declined to comment while the issue remains under judicial review.

During lengthy hearings before Takasugi, however, prosecutors contended that there was no evidence that anyone directly connected with the prosecution ever learned the contents of any privileged documents. They accused the defense of trying to thwart the search by exaggerating the amount of attorney-client papers stored at the company’s headquarters.

But the prosecutors admitted that they were tardy in formally cautioning members of the search party not to discuss anything they read in the privileged attorney-client documents.

This is not the first time the government has stubbed its toe in a search at Solid State Devices, which was indicted along with a related company, Unisem International of Sante Fe Springs, and four mid-level managers.

Previous Search Invalidated

Barely a month after the first indictments were returned in October, the U.S. 9th Circuit Court of Appeals invalidated a 1995 search of Solid State Devices that resulted in the seizure of more than 2 million pages of documents, half a million semiconductors and the data stored in every computer at the company.

The only thing they left behind, said a defense lawyer. were “the stains on the floor.”

The appeals court ruled that the “scope of the search exceeded the government’s showing of probable cause.” It ordered prosecutors to return everything taken.

Six weeks after that setback, federal prosecutors authorized Defense Department investigators to conduct another search of Solid State Devices.

It was this search Jan. 15 that led to Takasugi’s ruling that the government violated the defendants’ right to counsel guaranteed by the 6th Amendment of the Constitution.

Prosecutors said in pleadings before Takasugi that the second search was sparked by information that the company had been selling faulty semiconductors to a U.S. Navy missile program contractor, a claim the company denies.

The decision to launch the search was not made lightly, said Assistant U.S. Atty. Jeffrey C. Eglash, lead prosecutor in the case and head of the U.S. attorney’s public corruption and government fraud section.

“It’s doubtful that there has been a search warrant in recent memory which received more supervisory review than this one,” he said in a court declaration, noting that the decision was reviewed and approved by David C. Scheper, head of the criminal division, and Chief Assistant U.S. Atty. Richard E. Drooyan, second in command of the U.S. attorney’s office.

When agents from the Defense Department’s criminal investigative service arrived at the La Mirada facility, they found signs on file cabinets and various offices marked “privileged attorney-client communications.”

Company executives angrily protested when members of the search party insisted on looking in those file cabinets and offices. Defense lawyers were summoned. One of them, Peter Morris, a former federal prosecutor, got on the phone and called Eglash, telling him that the investigators were violating his clients’ constitutional rights by inspecting privileged materials.

Eglash, according to court records, replied that he had advised the investigators to scan the disputed documents to determine whether they contained information within the search warrant’s scope.

If they found that a document did not contain information covered by the warrant, they were to stop reading it immediately. And if the agents determined that a document did contain such information, they were to stop reading as soon as that determination was made and place the document in a sealed envelope.

During the hearings before Takasugi, however, defense lawyers presented a memo from one member of the search party indicating he had been told by his superior that if he ran across any attorney-client materials he was to “read through all docs.”

Questions Raised About Memos

Further blurring the picture was a pre-search briefing memo prepared on the eve of the raid by the case agents’ supervisor. Although the prosecution said the memo was never used, it said that the agents assigned to the search should be instructed to “place any allegedly privileged documents in separate sealed envelopes or boxes without reviewing the documents.” The supervisor testified that he erred when he wrote that memo, perhaps because of a distraction.

Another investigator’s memo gave the false impression that the search party was instructed at the outset not to discuss the contents of any attorney-client documents with the case agents or prosecutors. On the witness stand, the investigator acknowledged that the instruction was not given until weeks after the raid.

Prosecutors conceded during the hearings that the government should have instituted more formal procedures “such as prompt written notification to all participants concerning the wall” that should be established between the searchers and the prosecution team.

However, they said, “the test is not whether the government could have built a better wall but whether that which was done to guard against disclosure was sufficient to serve its purpose. On that point, the evidence is clear and the answer is an unqualified yes.”

Although two agents assigned to the prosecution team directed the search at Solid State Devices, they said they did not take part in examining any of the privileged documents and did not speak to any other members of the search team about what they read.

All members of the prosecution team, lawyers and investigators alike, and everyone on the search team submitted signed declarations, denying any exchange of privileged defense information.

The prosecution also said that no one expected to find attorney-client documents at the company’s headquarters, but that claim was disputed too.

Dispute Over Motives

Before the raid, the search party was briefed by a case agent on what to do if they encountered attorney-client documents. And one investigator was found to have written in a memo draft that the searchers did expect to find privileged attorney-client documents when they arrived at Solid State Devices.

Defense lawyers argued that the search was nothing more than a pretext to learn the defense strategy in the case.

Prosecutors branded that allegation a “red herring,” along with a defense claim that searchers took detailed notes on the contents of confidential attorney-client documents.

In fact, the government said, the notes were taken to record the hostile behavior of company officials and attorneys during the more than three-hour search.

A company owner shouted profanities at one agent and threatened to “get” the Defense Department’s case agent, prosecutors said. They also charged that company officials and their lawyers tried to thwart the search through hostile confrontations and by exaggerating the amount of privileged materials stored at the headquarters.

Throughout the court hearing, prosecutors argued that the defense failed to show that anyone on the prosecution team actually had been exposed to the defense papers or that the defense case had been compromised.

But that was not the legal issue before the court.

“Where the government chooses to take matters into its own hands rather than use the more traditional alternatives of submitting disputed documents under seal for in camera review by a neutral and detached magistrate or by court-appointed special masters, it bears the burden to rebut the presumption that tainted material was provided to the prosecution team,” Takasugi said.

The judge said he was “somewhat surprised” that the government did not anticipate that the search party would find privileged documents at Solid State Devices, given the fact that the defendants in the case were all represented by attorneys. So were other company officials who had not been indicted but who were targets of the probe.

Once the search team arrived at the company’s offices and encountered file cabinets marked “privileged” and lawyers and employees claiming the files contained attorney-client materials, the government “was in a position to deal with the concern regarding the defendants’ rights,” Takasugi said.

Instead, he continued, the two case agents in charge of the search elected to construct what turned out to be a “porous and vulnerable” wall between themselves and agents exposed to the privileged materials.

“I believe the wall was sloppily built and sloppily maintained,” he said, concluding that the government must be presumed to have violated the defendants’ constitutional rights even though “I can’t point my finger at the sinner, so to speak.”