Unpublished Disposition, 936 F.2d 581 (9th Cir. 1987)

UNITED STATES of America, Plaintiff-Appellee,v.Russell B. SMITH, III, Defendant-Appellant.

No. 87-1274.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 8, 1988.Decided June 24, 1991.

Before EUGENE A. WRIGHT and POOLE, Circuit Judges, and WILLIAMS, District Judge^** .

MEMORANDUM^**

In Young v. United States ex rel Vuitton et Fils S.A., 481 U.S. 787 (1987) (Young), the Supreme Court disapproved of the practice of appointing counsel for a party who is the beneficiary of a court order to undertake criminal contempt prosecutions for alleged violations of that order. This appeal presents the question whether the rule established in Young is violated when the court appoints counsel for an interested party ostensibly to assist the public prosecutor, then countenances an arrangement by which the private counsel plays the entire active role in preparing and presenting the case against the defendant, unsupervised by the public prosecutor. We hold that such an arrangement violates Young, and we therefore reverse the judgment of contempt entered against appellant.

FACTS AND PROCEEDINGS BELOW

Smith, a tax attorney, represented Elmas Trading Co. and its president, who, along with Republic Overseas Bank, Ltd. (ROBL), were named as defendants in an action for injunctive and other equitable relief brought by the Securities and Exchange Commission in district court. (SEC v. Elmas, et al., Dist. of Nevada, No. CV-R-85-263-ECR). The complaint alleged that the defendants promoted, offered and sold securities in violation of federal securities laws. On June 24, 1985, the district court appointed Richard Shaffer as Receiver for Elmas and ROBL and permanently enjoined them, as well as Smith, from engaging in certain securities violations. On October 16, 1986, the Receiver filed a complaint naming Smith and others as defendants and alleging misappropriation of investor funds and transfer of the funds to foreign financial institutions for the purpose of concealing assets from the court and the Receiver. Shaffer v. Attarian, et al., Dist. of Nevada, No. CV-N-86-486-ECR, (referred to by the parties as the "Nipshire action"). On the same day, the district court ordered Smith to appear on November 21 to show cause why he should not be held in civil contempt until such time as he complied with the court's previously issued orders in SEC v. Elmas, et al. After he failed to appear, the district court issued a bench warrant for Smith's arrest. He was subsequently arrested and charged with criminal contempt for failure to appear as ordered. Eventually he was charged with another count of criminal contempt in the Nipshire action and with civil contempt in both actions. All the contempt charges were heard together, but only the criminal charge relating to SEC v. Elmas, et al. is involved in this appeal. Smith was acquitted of the criminal charge arising out of the Nipshire action.

On May 1, 1987, the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Case (Finley firm), attorneys for the Receiver in SEC v. Elmas, et al. and in the Nipshire action, was appointed Special Prosecutor for the purpose of prosecuting the criminal contempt charges against Smith. A few weeks later, on May 26, the Supreme Court issued its decision in Young, 481 U.S. 787, holding that "counsel for a party that is the beneficiary of a court order may not be appointed to undertake contempt prosecutions for alleged violations of that order." Id. at 790. In view of that decision, and recognizing the potential for impropriety of its appointment as prosecutor, the Finley firm filed a motion to vacate the appointment and requested that it be appointed as special assistant to the United States Attorney instead. On June 19, 1987, the district court granted the motion, vacating the prior appointment and ordering that "at all times relevant to these proceedings, the United States Attorney shall be in control of and principally responsible for the prosecution efforts against Russell B. Smith III." At the same time, the district court appointed the Finley firm as "Special Assistant to the United States Attorney."

As Smith's trial began, an Assistant United States Attorney, Brian Sullivan, designated to handle the case for the government, outlined the proposed functioning in the trial of the United States Attorney's Office and the Finley firm. The entire colloquy between Mr. Sullivan and the court is set forth in the Appendix. Mr. Sullivan stated that it had been agreed that the United States Attorney's Office would undertake the prosecution with the assistance of the Finley firm. He explained to the court that he had worked with the Finley firm during the pre-trial phase of the case, that those attorneys had deposed or spoken to most of the witnesses, and that the witnesses had been selected and subpoenaed at their suggestion. He further explained that the firm's lawyers had prepared letters outlining the facts of the case and legal memoranda outlining the elements of and defenses to the crime. Mr. Sullivan informed the court that the private counsel understood the case much better than he and that they would be examining the witnesses during trial, although he would be present. Finally, Mr. Sullivan represented, at the court's prompting, that he would be supervising the prosecution, although he did not indicate then or at any other time specifically of what his supervision would consist.

The trial was held on July 20 and 21, 1987. Finley lawyers conducted all the witness examination for the prosecution and produced all the evidence. Smith was found guilty of contempt as charged, and he now appeals from that conviction on the grounds that the Finley firm, not the United States Attorney, in fact had conducted the prosecution in violation of Young.

STANDARD OF REVIEW

The standard for reviewing the Finley firm's participation in the prosecution is not straightforward. The district court withdrew its order appointing the firm as special prosecutor, thus avoiding the "fundamental error" which would compel reversal whether or not there was any actual impropriety or prejudice to Smith thereby. Young, 481 U.S. at 811-12. However, the question we must decide is whether the Young holding is implicated on this record; that is, whether the arrangement amounted to allowing the firm to become the actual prosecutor, the problem which concerned the court in Young. While our inquiry necessarily involves some assessment of the facts of record, our primary focus is on the values underlying Young. Because this is the thrust of our inquiry, our review is de novo. United States v. McConney, 728 F.2d 1195, 1202 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984).

The government argues that we should apply the "plain error" standard because Smith failed to object below to the Finley firm's appointment as special assistant. Although we have some doubt whether that is the proper standard here, we need not decide the question. The essence of Smith's objection is that the district court's appointment of the firm as Special Assistant to the United States Attorney resulted in the firm, not the government, prosecuting the public charges.¹  If this be so, we think that under Young, such error is reversible per se. See discussion in Young, 481 U.S. at 809-11.

DISCUSSION

The Young court was concerned with eliminating the opportunity for conflict of interest and the appearance of impropriety where counsel for the very party which stands to gain if the prosecution for violation of a court order is successful actually does the prosecution. Id. at 804-5 (plurality opinion). The Court said that even the appearance of impropriety "diminishes faith in the fairness of the criminal justice system in general." Id. at 811. Although otherwise divided in its rationale, all members of the Court, except Justice White, agreed that it was error to appoint an interested prosecutor; even Justice White did not endorse the practice. Id. at 802 (plurality opinion); 815 (Scalia, J., concurring in the judgment); 826 (Powell, J., joined by Rehnquist, C.J. and O'Connor, J., concurring in part and dissenting in part); 827 (White, J., dissenting). The plurality further held that such appointments are error whether or not any actual prosecutorial impropriety emerges from a particular case. Id. at 805-806. It reasoned that when a prosecutor represents an interested party, there arises an inherent conflict with the prosecutor's sworn duty to seek justice, not merely convictions. Id. at 807. In the face of such a conflict, "we cannot have confidence in a proceeding in which this officer plays the critical role of preparing and presenting the case for the defendant's guilt." Id. at 811. Because harmless error analysis would not be sensitive to this underlying concern, the plurality held that convictions obtained by interested prosecutors call for per se reversal. Id. at 811-814.

That part of the plurality opinion (Part III-B) holding harmless error analysis to be inappropriate was not supported by a majority of the justices, but is nonetheless the opinion of the Court. Justice Brennan's plurality opinion was joined by the Chief Justice and by Justices Marshall, Blackmun, Powell, Stevens and O'Connor, except with respect to Part III-B, which characterized appointment of an interested prosecutor as "fundamental error" and held that harmless error analysis was inappropriate. Id. at 809-814. Justices Marshall, Blackmun and Stevens joined Part III-B. Justice Powell dissented from Part III-B and was joined by the Chief Justice and Justice O'Connor. The dissenters believed that contempt convictions should not be overturned if the error were shown to be harmless; they would have remanded to the district court to make that determination. Id. at 826-827. Justice Scalia did not join in any part of Justice Brennan's opinion, but he concurred in the judgment reversing the contempt convictions. He was of the view that federal courts have no power to appoint private attorneys, interested or otherwise, to conduct contempt prosecutions. Id. at 825. Justice White did not endorse the practice of appointing interested prosecutors, but he dissented separately on the grounds that Fed. R. Crim. P. 42 and long-standing practice give authorization to such appointments. Justice Blackmun filed a separate concurring opinion, joining in all parts of the plurality opinion but stating his view that the error was of constitutional dimension. Id. at 814-815. Neither Justice White's dissent nor Justice Blackmun's separate concurrence bears on the effect of Part III-B of the plurality opinion.