United States: Second Circuit Denies En Banc Rehearing Of Stored Communications Act Decision In Microsoft Case

Last summer, in a closely watched decision, the United States Court of Appeals for the Second Circuit quashed a warrant issued to Microsoft seeking a customer's electronic communications that the company had elected to store on a server in Ireland. As we reported at the time in a Kramer Levin Alert, a three-judge panel of the court declined to uphold the warrant, issued by a magistrate judge pursuant to the Stored Communications Act (SCA). The court concluded that requiring Microsoft to access the files stored overseas and turn them over to the government would amount to an extraterritorial application of the law. According to the panel, the SCA should not be applied extraterritorially because Congress had not expressed its intent for the SCA to apply outside of the United States. The panel further found that, in this particular case, the government was not seeking to apply the statute domestically because execution of the warrant would require the seizure of communications stored in Ireland. 

Last week, in a 4-4 vote, the full court of the Second Circuit denied the government's petition to rehear the case en banc, leaving the ruling quashing the warrant in place. Judge Carney, who wrote the original panel decision, concurred with three other judges in the denial of rehearing en banc, and authored an opinion defending the original ruling. Judges Jacobs, Cabranes, Raggi and Droney each wrote opinions dissenting from the denial, and then joined in the dissents of the other three. Judges Pooler, Livingston and Lohier Jr. did not participate in the rehearing decision.

Similar arguments run through the four dissents, many of which were also made by the government in its petition for rehearing. Because the government may very well seek certiorari to the Supreme Court on the difficult question presented in this case, it is worthwhile to briefly review the arguments, with a focus on those now writing in dissent.

Judge Carney Defends the Original Majority Panel Decision

Judge Carney, author of the original panel decision, defended that ruling, arguing that it was properly based on a textual analysis of the SCA guided by the approach to extraterritoriality laid down by the Supreme Court in Morrison and refined in RJR Nabisco. Because the data at issue was stored overseas, and because Microsoft would need to access those communications to enforce the warrant, the original panel — which included Judge Carney, Judge Lynch (who authored a concurring opinion) and District Judge Bolden, sitting by designation — concluded that the order qualified as an impermissible extraterritorial application of a statute that Congress must be presumed to have intended to apply only within the United States. While Judge Carney lamented the "anachronistic" nature of the SCA and acknowledged that a recalibrated statutory regime might produce a different result, she stood by the original panel's decision as a faithful application of the words of the law to the facts at hand.

The Dissents

In his dissent, Judge Jacobs offered what he considered a relatively "reductionist" approach as compared to his fellow dissenters, concluding that because no extraterritorial "reach" was required to "deliver" the information sought by the government, the warrant was domestic and properly issued. The communications covered by the warrant could be obtained by Microsoft with ease from one of the company's computer terminals in Washington state, so the fact that the data happened to be stored in Ireland was immaterial. As he put it, "[e]xtraterritoriality need not be fussed over when the information sought is already within the grasp of a domestic entity served with a warrant."

Disagreeing with the denial of rehearing, Judge Cabranes claimed that the panel's opinion created a "roadmap" for evading detection of criminal activity conducted in part through electronic communications: Simply inform your service provider that you live overseas, which, with luck, will prompt it to store your data abroad, beyond the reach of a warrant under the SCA. Highlighting the decision's immediate impact, Judge Cabranes observed that major companies like Google and Yahoo have already begun limiting their cooperation with the government by producing only data stored in the United States at the moment they are served with a warrant under the SCA. Accepting the original majority panel's reading that the SCA was designed to protect customer privacy, Judge Cabranes would hold that this privacy interest is affected, and thus the warrant is enforced, at the moment of disclosure of the communications in the United States, not at the moment of its access by the service provider. 

Judge Raggi also disagreed with the original panel's conclusion, calling it "simply unprecedented" to hold that the presumption against extraterritoriality would prohibit the issuance of a warrant to a United States entity to produce property in its possession. Judge Raggi argued that warrants issued under the SCA function not as traditional warrants focusing on places to be searched, but rather as subpoenas targeting persons, to be executed by service providers when customer content is disclosed to the government. Thus, even assuming that the original panel majority was correct to identify "privacy" as the focus of the SCA, Judge Raggi agreed with Judge Cabranes that the customer's privacy is compromised not when materials are returned to the United States from abroad by Microsoft (an action for which they need no permission from the customer or the government), but rather at the instant the communications are disclosed to the government. It is the moment of disclosure at which the warrant is executed, not the moment of access. Therefore, as disclosure would occur within the United States, there would be no extraterritorial application of the SCA in executing the warrant.

After acknowledging the good faith efforts of the original majority panel to accomplish the difficult task of applying the SCA to a factual scenario that its drafters could not have foreseen, Judge Droney also took issue with the denial of rehearing en banc for several reasons. Judge Droney wrote that the privacy interests of the customer were adequately protected by the neutral magistrate who issued the initial warrant, and reasoned that, because Microsoft's compliance with the warrant would occur in the United States, there was no extraterritorial application of the statute in this case. "It makes no difference," Judge Droney wrote, "that Microsoft has chosen to store some electronic communications in other countries. That decision is based on its own business considerations, not privacy concerns for its customers."

The Next Chapter?  Supreme Court Review or Legislative Action

With an equal division amongst the participating judges of the Second Circuit in such an important case, we may see the Department of Justice seek Supreme Court review of the decision. While the parties and the judges disagree on many issues, all concur that congressional action to modernize the legal framework for protecting the privacy of digital communications and for requiring their production to the government in the course of criminal investigations would be welcome. In the absence of a Supreme Court ruling or legislative action to amend or replace the SCA, the Second Circuit's ruling stands, and for the time being the government may have to rely on mutual legal assistance treaties and other mechanisms of cooperation with foreign nations to obtain stored communications held on servers overseas.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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