United States: En Banc Second Circuit Reinstates Conviction Despite Government Retention Of ESI

On May 27, the United States Court of Appeals for the Second Circuit, sitting en banc, in United States v. Ganias, 2016 WL 3031285, _ F.3d _ (2d Cir. May 27, 2016), reversed the 2014 decision of a three-judge panel and held that a search of electronically stored information, which had been collected under a prior search warrant executed more than two years earlier, and the results of which — including nonresponsive data — had been retained by law enforcement throughout that time, was made in good faith and that the evidence therefrom was properly not suppressed. The en banc panel did not determine whether the government's actions violated the Fourth Amendment, an issue considered and decided adversely to the government by the three-judge panel in 2014. The key conduct at issue concerned the government's seizure of a defendant's hard drive with respect to a fraud investigation against other individuals and companies for whom the defendant served as an accountant. After retaining nonresponsive data from the hard drives for two and a half years, the government conducted a new search of the data for information concerning Stavros Ganias, the accountant, that ultimately led to his tax evasion conviction. The decision was co-authored by Circuit Judges Debra Ann Livingston and Gerald E. Lynch. Circuit Judge Denny Chin, who wrote the panel decision reversing the district court in 2014, dissented from the en banc decision.1

In 2003, the Criminal Investigative Command of the Army obtained search warrants for two companies on the basis of alleged fraudulent billing. One of these pertained to Ganias, an accountant for one of these companies. Agents copied the drives of his computers, which included files beyond the scope of the warrant, for later review. Investigators maintained Ganias' electronically stored information ("ESI") on a mirror image set of DVDs and began their review 13 months after the initial seizure.  By this time, the government had segregated relevant ESI, but did not purge or destroy the remaining non-relevant ESI. Approximately 20 months after the initial search warrant was executed, the government began to suspect Ganias of criminal tax violations and expanded its investigation. The government obtained a second search warrant to search preserved ESI collected under the initial warrant, which, by this time, the government had possessed for nearly two and a half years. Ganias was indicted and sought to suppress the ESI seized under the initial warrant. The trial court denied the motion and Ganias was convicted.

The Second Circuit panel, in a decision by Judge Chin, held that the Fourth Amendment does not permit officials executing a warrant for the seizure of particular data on a computer to indefinitely retain every file on that computer for use in future criminal investigations. He reasoned that this would constitute an interference in Ganias' possessory rights in the files and constitute a seizure for Fourth Amendment purposes. See United States v. Ganias, 755 F.3d 125 (2d Cir. 2014). Judge Chin wrote that the Fourth Amendment afforded modern computer files the same protections as traditional materials (including 18th century "papers"), noting that in traditional non-ESI seizures the government is rarely allowed to remove all of an individual's papers for later review because that would violate the mandate of the warrant, which must state with particularity the areas to be searched and the items to be seized. A majority of the three-judge panel reversed the trial court ruling on the suppression motion, holding that the good faith exception did not apply and the search of the unreasonably and impermissibly retained ESI warranted the application of the exclusionary rule.

The 13 active judges of the Second Circuit elected to rehear the case en banc without a request from either party to do so. See United States v. Ganias, 791 F.3d 290 (2d Cir. 2015). The court held that the agents acted in good faith, and therefore it was not necessary to decide whether the Fourth Amendment was violated. 2016 WL 3031285. The court did however consider the Fourth Amendment issues in order to "make some observations bearing on the reasonableness of the agents' actions, both to illustrate the complexity of the questions in this significant Fourth Amendment context and to highlight the importance of careful consideration of the technical contours of digital search and seizure for future cases." The court was generally receptive to the idea that defendants have the same expectations of privacy for digital records as they do for physical files, but also noted the logistical challenges in the preservation of digital evidence and the benefits of keeping an entire set of the defendants' data, including to protect the interests of the defendant. In that regard, the panel noted that ESI is not always stored in one place, but rather that "word documents and spreadsheets such as those the Government searched in this case ... are in fact 'fragmented' on a storage device, potentially across physical locations." Similarly, they observed that metadata and other temporary files may be stored in other locations across the computer systems, adding further support for removal or imaging of an entire hard drive prior to review for responsive ESI. Despite the ultimate conclusion, the panel stated that they did not

mean to thereby minimize or ignore the privacy concerns implicated when a hard drive or forensic mirror is retained, even pursuant to a warrant. The seizure of a computer hard drive, and its subsequent retention by the government, can give the government possession of a vast trove of personal information about the person to whom the drive belongs, much of which may be entirely irrelevant to the criminal investigation that led to the seizure. Indeed, another weakness of the file cabinet analogy is that no file cabinet has the capacity to contain as much information as the typical computer hard drive.

However, the court noted that "parties with an interest in retained storage media are not without recourse." A defendant can make a motion for return of property under Fed. R. Crim. P. 41(g), something Ganias did not do.

Ultimately, the court found that the government acted in good faith because the agents provided sufficient information in their affidavits, disclosing the relevant facts concerning the data retention, when they sought the second warrant; they had no reason to believe that the retention was unconstitutional, and they acted reasonably throughout the investigation.

Judges Raymond Lohier Jr. and Rosemary Pooler concurred in the result but did not join the court's discussion of the Fourth Amendment issues.

Judge Chin, in a lengthy dissent highlighting many of the themes of the panel decision, characterized the government position as "when computers are involved, it is free to overseize files for its convenience, including files outside the scope of a warrant, and to retain them until it has found a reason for their use." Judge Chin argued the position that "[o]nce responsive files are segregated or extracted, the retention of nonresponsive documents is no longer reasonable, and the government is obligated, in my view, to return or dispose of the nonresponsive fields within a reasonable period of time."

While the Second Circuit en banc ruling did roll back the previous influential panel decision, the case remains important. Although the en banc court did not identify a Fourth Amendment violation and did not suppress the search, the decision, by thoroughly considering these claims, sets the stage for future suppression arguments that the government may not, without limitation, overseize data for one purpose, retain it indefinitely and use it for another purpose — and then rely on a subsequent "good faith" defense. At minimum, the government is now on notice that it may face scrutiny for this type of conduct, and both the prosecution and defense may now become more mindful of data management policies and practices. In particular, practitioners should keep in mind the strategic utility of an early request under Rule 41 for the return of nonresponsive ESI taken in any search.

Footnote

*Kramer Levin filed an amicus brief in support of an affirmance of the panel decision in this matter on behalf of the Center for Constitutional Rights.  Summer Associate Joseph Jampel assisted with this client alert.

1 Judge Chin was joined by Circuit Judge Peter Hall and Judge Jane Restani of the United States Court of International Trade, sitting by designation, on the original panel. In the panel decision, Judge Hall concurred with respect to the Fourth Amendment violation but dissented with respect to the suppression finding. Judge Restani was not eligible to participate in the en banc decision.

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