DAILY JOURNAL CORPORATION, Plaintiff and Respondent, v. SUPERIOR COURT of Orange County, Defendant and Respondent; Merrill Lynch & Co., Inc. et al., Real Parties in Interest and Robert L. Citron et al., Real Parties in Interest and Respondents.
This case proceeded through three levels of our legal system captioned “In re Request for Transcripts of Phase Three Grand Jury Proceedings,” and was so described by all the parties and courts involved. While that title does not comport with California procedures for reporting decisions, requiring the case to be rechristened in its present form, it aptly illustrates the singularity of the matter: even its name is problematic.
While it now carries a more banal appellation, the case still requires reconnoitering of legal terrain which is sufficiently exotic to have escaped thus far the tread of appellate review. We confront here a question of first impression in California: Does a court have the authority to order disclosure of grand jury proceedings terminated by a “settlement” prior to deliberations by the grand jury. We hold that it does.
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In 1994, the County of Orange, its treasury eviscerated by the collapse of a series of debt offerings in which it had participated, filed for bankruptcy protection. It was the largest municipal bankruptcy in history, and losses were pegged at $1.67 billion. Subsequently, the county's district attorney initiated successive grand jury investigations into the roles of various county officials in the failed investment scheme, After the first of these grand juries returned two separate sets of indictments of county officials, “Phase Three” was initiated, focusing upon the role of Merrill Lynch & Co., the underwriter of the offerings in question.
Testimony was taken in 74 sessions from July 16, 1996, through June 10, 1997. But a week later, before the grand jury had commenced deliberations, “Phase Three” came to a close with the announcement the district attorney's office was calling off its investigation in return for payment by Merrill Lynch of $30 million ($3 million to reimburse the district attorney for the costs of the investigation and $27 million to the county's general fund). After this announcement, the district attorney dismissed the grand jury. It never deliberated on “Phase Three.” The result was neither indictment nor exoneration.
The next week, the Los Angeles Daily Journal sent a letter to the superior court, requesting it to release the transcripts of the testimony before the grand jury. The superior court responded by calendaring a hearing for July 16, noticing the district attorney, county counsel, Attorney General, Merrill Lynch & Co., and “all media agencies or their representatives” who requested the transcripts. On July 30, despite the torrent of paper which had descended upon the court, the hearing was held, and the district attorney was ordered to release transcripts of the testimony. These appeals followed.
California's grand jury system operates under a legislative scheme which recognizes the beneficial aspects of secret proceedings. (See McClatchy Newspapers v. Superior Court (1988) 44 Cal.3d 1162, 245 Cal.Rptr. 774, 751 P.2d 1329.) It is, however, a system which is quite pragmatic in its identification of appropriate exceptions to the rule of secrecy. These exceptions include provision of a transcript in all cases in which an indictment is returned 1 (Pen.Code, § 938.1), cases in which a succeeding grand jury requests transcripts (Pen.Code, § 924.4), cases in which testimony is relevant and admissible in a separate criminal proceeding (Pen.Code, § 924.6), and cases in which a court requires transcripts in order to ascertain whether a witness has given conflicting testimony in another matter. (Pen.Code, § 924.2.)
In fact, while it is not true that the exceptions have swallowed up the rule, a disinterested examination of the system leads inexorably to the conclusion expressed by our Judicial Council in 1971 that-far from following an unvarying policy of secrecy- “California is one of the few states that has rejected the traditional secrecy of grand jury transcripts.” (Jud. Council Report to the Governor and the Legislature, Jan. 4, 1971, p. 20.)
Nonetheless, even though the traditional strict adherence to secrecy has not been California's approach, it is the starting point of any analysis. Both the courts and Legislature have trodden carefully in this area, and with good reason. But while we appreciate the import of the issues involved here, we see nothing in the action of the trial court which represents a departure from California's Constitution, legislation, or tradition.
Appellants argue that grand jury proceedings are and must remain secret because they have always been so. Their contentions are based almost entirely upon the erroneous premise that the preternaturally wise framers of the California Constitution provided for an adamantine policy of inviolate grand jury secrecy, which the California Legislature has polished over the years. Appellants repeatedly express their angst over the prospect of upsetting “century-old precedent” in this area, maintaining that any retreat from such a policy will expose the citizenry of our state to a parade of horribles unmatched since the advent of rock and roll.
But they are unable to provide, and we are unable to find, any statutes or cases which would prohibit the disclosure in question. The Legislature seems not to have addressed the question. Certainly we cannot adopt appellants' argument that Penal Code section 938.1 is their answer.
Penal Code section 938.1, subdivision (b) provides, “The transcript shall not be open to the public until 10 days after its delivery to the defendant or his attorney. Thereafter the transcript shall be open to the public unless the court orders otherwise․” Appellants insist that ends the discussion: “The prohibition on disclosure in the first sentence of this subsection is mandatory, and no exception is stated.” Since there is no defendant, the argument goes, there is no one to whom the transcript can be delivered, and it therefore can never be publicly disclosed. This is simplistic to the point of disingenuousness.
Penal Code section 938.1 deals not with whether a transcript can be provided but with how. Its purpose is to set forth a procedure which will insure fairness to the accused in the case of an indictment. While it originally provided for provision of a transcript upon the apprehension of the accused, the Legislature amended it after the suggestion in Craemer v. Superior Court (1968) 265 Cal.App.2d 216, 226, 71 Cal.Rptr. 193, that this often provided too little opportunity to the accused to “examine the grand jury transcript for objectional matter, and, if such is found, to move the court that such matter be held from public scrutiny until after trial of the case.” 2 Of course, the statute says nothing about our situation; it limits its application to cases in which “an indictment has been found or accusation presented against a defendant.” (Pen.Code, § 938.1, subd. (a).) Description of how and when transcripts are to be delivered when there is an indictment cannot be interpreted as a pronouncement upon the proper course when there is not.
Nor is there any other statute which speaks to the question. Appellants point out that the Legislature enacted Penal Code section 924.6 in 1975. That section provides that a court may order the release of grand jury transcripts where no indictment is handed down to the parties in a related criminal case. They note that the Legislature was told by its legislative analyst that the section was necessary because, “Under existing law if no indictment is returned by a grand jury, the parties are not entitled to a disclosure of the testimony of witnesses that appeared before the grand jury.” (Leg. Counsel's Dig., Assem. Bill No. 284 (1974-1975), enacted as Pen.Code, § 924.6.) From this they reason that the Legislature's adoption of section 924.6 represented rejection of public disclosure in all other cases where an indictment is not returned.
But we can find nothing in the legislative history to indicate such a reasoning process. What we find is the consideration of a limited question and an appropriately limited response. There is no suggestion the overall scheme for publication of grand jury proceedings was scrutinized, and we note that whether the parties are entitled to disclosure in no way dictates to whether the court may-in its discretion- order disclosure. What is clear is that the Legislature recognized the propriety and advisability of disclosure in some circumstances even when no indictment is returned. In the absence of any indication they gave any attention to broader applications of the law, we can hardly ascribe to them the sweeping rejection of disclosure for which appellants argue.
Appellants urge us to find support for such ascription in the idea that Penal Code section 938.1 is a general statute of prohibition, and that, “as a general rule of statutory construction, if a statute announces a general rule and makes no exception thereto, the courts can make none.” (Burnsed v. State Bd. of Control (1987) 189 Cal.App.3d 213, 217, 234 Cal.Rptr. 316.) But section 938.1 is not a general statute. It is a very specific one. Unlike the statutes before the court in Burnsed, which defined “victim” and “expenses” in the most general of terms for all criminal cases, section 938.1 purports to deal only with cases where an indictment has been returned. Its first dozen words are, “If an indictment has been found or an accusation presented against a defendant․” It would be difficult to be more specific. We cannot apply a rule of statutory construction to inapposite facts. So we cannot reason through this one to a rule barring disclosure.
Nor can we find it anywhere else in the statutory scheme. There are statutes prohibiting individual grand jurors from disclosing testimony (See, e. g., Pen.Code, §§ 924.1, 924.2), and the courts have repeatedly recognized the disability imposed upon grand jurors and other individuals in this regard (see McClatchy Newspapers v. Superior Court, supra, 44 Cal.3d 1162, 1173-1174, 245 Cal.Rptr. 774, 751 P.2d 1329, and cases cited therein) but nowhere has it been extended to the courts.
This is most likely because, “Penal Code section 888 defines a grand jury as ‘a body of the required number of persons returned from the citizens of the county before a court of competent jurisdiction․’ (Italics added.) As this section indicates, and as the California precedents have long recognized, the grand jury is a ‘judicial body’ (Ex parte Sternes (1889) 82 Cal. 245, 247 [23 P. 38]), ‘an instrumentality of the courts of this state․’ (In re Shuler (1930) 210 Cal. 377, 405 [292 P. 481]; see e.g., Turpen v. Booth (1880) 56 Cal. 65, 69; McFarland v. Superior Court (1948) 88 Cal.App.2d 153, 160 [198 P.2d 318]; Irwin v. Murphy (1933) 129 Cal.App. 713, 716 [19 P.2d 292].) [¶] As [the Supreme Court] stated emphatically almost 90 years ago: ‘There is no doubt that a grand jury is part of the court by which it is convened, and that is under the control of the court․’ (In re Gannon (1886) 69 Cal. 541, 543 [11 P. 240]. See generally Kennedy & Briggs, Historical and Legal Aspects of the California Grand Jury System (1955) 43 Cal.L.Rev. 251, 260-262; accord Levine v. United States (1960) 362 U.S. 610, 617 [80 S.Ct. 1038, 1043, 4 L.Ed.2d 989]; Brown v. United States (1959) 359 U.S. 41, 49 [79 S.Ct. 539, 546, 3 L.Ed.2d 609].)” (People v. Superior Court (1975) 13 Cal.3d 430, 438, 119 Cal.Rptr. 193, 531 P.2d 761, fn. omitted. Accord, In re Shuler, supra, 210 Cal. at p. 405, 292 P. 481.)
Concomitantly, the superior court in which a grand jury is convened has the power to administer and supervise that body. “[C]ourts have inherent equity, supervisory and administrative powers (Bauguess v. Paine (1978) 22 Cal.3d 626, 635 [150 Cal.Rptr. 461, 586 P.2d 942]) as well as inherent power to control litigation before them. (Western Steel & Ship Repair, Inc. v. RMI, Inc. (1986) 176 Cal.App.3d 1108, 1116-1117 [222 Cal.Rptr. 556].) Inherent powers of the court are derived from the state Constitution and are not confined by or dependent on statute. (Walker v. Superior Court (1991) 53 Cal.3d 257, 267 [279 Cal.Rptr. 576, 807 P.2d 418].)” (Cottle v. Superior Court (1992) 3 Cal.App.4th 1367, 1377, 5 Cal.Rptr.2d 882.)
In Walker, our Supreme Court dealt with Code of Civil Procedure section 396 which provided for transfer of cases from the superior court to the municipal court when the action failed to meet the superior court's jurisdictional requirement of a $25,000 amount in controversy. Rejecting Walker 's argument that the statute applied only if it could be determined from the face of the complaint or the verified pleadings that the case would not satisfy the minimum requirement, the court said, “Although this is a plausible interpretation of the statutory scheme, it is also one that would unduly interfere with the inherent powers of the courts, and it would produce consequences which, in our view, could not have been intended by the Legislature.” (Walker v. Superior Court, supra, 53 Cal.3d at p. 266, 279 Cal.Rptr. 576, 807 P.2d 418.)
While we consider appellants' arguments here less plausible than the one made in Walker, we are as reluctant as was the Supreme Court to ascribe to the Legislature an intention to fetter the inherent power of the superior court to administer the grand jury. Certainly we are loathe to do so under circumstances we feel confident could not, since they have no historical precedent, have been fully anticipated.
We believe the superior court here was in a position analogous to that of the court in James H. v. Superior Court (1978) 77 Cal.App.3d 169, 175, 143 Cal.Rptr. 398. There, a petition had been filed in juvenile court alleging that a minor had committed a forcible rape. The minor's attorney had come forward with evidence indicating the minor was both unable to understand the proceedings against him and unable to cooperate with counsel in his defense, but the juvenile court judge, finding no authorization for a competency hearing in the statutes before him, refused to allow such a hearing. This court reversed, explaining the competency hearing was within the court's inherent power: “Courts have the inherent power to create new forms of procedure in particular pending cases. ‘The ․ power arises from necessity where, in the absence of any previously established procedural rule, rights would be lost or the court would be unable to function.’ (Witkin, Cal. Procedure (2d ed.) Courts, § 123, p. 392.) This right is codified in Code of Civil Procedure section 187 which provides that when jurisdiction is conferred on a court by the Constitution or by statute ‘․ all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this code.’ (See also Code Civ. Proc., § 128, subd. 8.) As the Supreme Court said in People v. Jordan, 65 Cal. 644 at page 646, 4 P. 683, ‘[i]n the absence of any rules of practice enacted by the legislative authority, it is competent for the courts of this State to establish an entire Code of procedure in civil cases, and an entire system of procedure in criminal cases, ․’ (See also Citizens Utilities Co. v. Superior Court (1963) 59 Cal.2d 805, 813, 31 Cal.Rptr. 316, 382 P.2d 356, recognizing the inherent power of courts to adopt ‘ “any suitable method of practice ․ if the procedure is not specified by statute or by rules adopted by the Judicial Council.” ’) (James H. v. Superior Court, supra, 77 Cal.App.3d at p. 175, 143 Cal.Rptr. 398; accord Cottle v. Superior Court, supra, 3 Cal.App.4th at p. 1376, 5 Cal.Rptr.2d 882, [“As part of a trial court delay reduction program, in a complex litigation case, the trial court has the authority to issue an evidence exclusion order.”].)
This is not the first time a superior court has had to apply this inherent authority to a problem arising from administration of its grand jury. In People v. Superior Court, supra, 13 Cal.3d at pp. 433-434, 119 Cal.Rptr. 193, 531 P.2d 761, the superior court of Santa Barbara County refused to accept a grand jury report it concluded had exceeded the grand jury's authority. It required a new report, and the district attorney petitioned for writ relief, contending the court had no such power. Our Supreme Court denied the writ on the basis that, “Although no California statute explicitly authorizes such judicial action, this limited review is implicit in the statutory scheme confining the grand jury's investigatory authority to specifically enumerated subjects and is confirmed by the numerous common law decisions throughout the United States which uniformly recognize the propriety of a restricted court review of grand jury reports.” (Ibid.)
Likewise, in McClatchy Newspapers v. Superior Court, supra, 44 Cal.3d 1162, 245 Cal.Rptr. 774, 751 P.2d 1329, a case from which appellants and amici have generously lifted supportive language, the Supreme Court's holding was that the superior court had the authority to suppress part of a grand jury report. Since no one has been able to point us to any statutory support for that authority, we can only conclude it to be still another example of the inherent power of the superior court over its grand jury.
We also find support in the decisions of other jurisdictions for the actions taken by the superior court here. Other courts have recognized that disclosure of otherwise secret grand jury proceedings “may be required either in the general public interest or in the protection of private rights.” (Mannon v. Frick (1956) 365 Mo. 1203, 295 S.W.2d 158.) As the Mannon court put it, “[T]he weight of authority seems to be that, since the original rule of secrecy was adopted to protect and promote the public welfare, the law may, through its constituted tribunals, dispense with the observance of secrecy․” (Id. at p. 163.)
Federal authority is of the same mind. Indeed, after federal courts had expressed virtual unanimity in recognizing disclosure of grand jury materials as within the discretion of the district judge supervising the jury, Federal Rule 6(e) was adopted formalizing the rule. (Pittsburgh Plate Glass Company v. United States (1959) 360 U.S. 395, 398-399, 79 S.Ct. 1237, 1240-1241, 3 L.Ed.2d 1323.) As the 9th Circuit Court of Appeals explained in U.S. Industries, Inc. v. United States District Court (1965) 345 F.2d 18, 22, “ ‘Grand jury secrecy is, of course, not an end in itself. Grand jury secrecy is maintained to serve particular ends. But when secrecy will not serve those ends or when the advantages gained by secrecy are outweighed by a countervailing interest in disclosure, secrecy may and should be lifted, for to do so in such a circumstance would further the fair administration of criminal justice.’ ”
We believe the superior court has such discretion. The court below faced a unique set of circumstances. In the absence of any legislative prohibition, it had the power to fashion a procedure to deal with those circumstances.
The question then becomes whether the court appropriately exercised its power in ordering disclosure. In this regard, federal authority is instructive. Federal courts, which have a half-century of experience dealing with this question, have recognized the trial court's superior position for balancing of the interests involved, and have adopted an “abuse of discretion” standard for review of a trial court's order of disclosure. As the Supreme Court expressed the standard, “It is clear ․ that disclosure is appropriate only in those cases where the need for it outweighs the public interest in secrecy, and that the burden of demonstrating this balance rests upon the private party seeking disclosure. It is equally clear that as the considerations justifying secrecy become less relevant, a party asserting a need for grand jury transcripts will have a lesser burden in showing justification. [Citations.] In sum, ․ the court's duty in a case of this kind is to weigh carefully the competing interests in light of the relevant circumstances and the standards announced by this Court․ [A] court called upon to determine whether grand jury transcripts should be released necessarily is infused with substantial discretion.” (Douglas Oil Co. v. Petrol Stops Northwest (1979) 441 U.S. 211, 222-223, 99 S.Ct. 1667, 1674-1675, 60 L.Ed.2d 156.)
This is a case in which the considerations justifying secrecy are minimal. This was, after all, a case in which the grand jury was not allowed to deliberate.3 The public policy in favor of secrecy in order to preserve the reputation of exonerated parties, is not invoked because no one was exonerated. Nor is there any danger disclosure would impede future deliberations of the grand jury, since it was discharged when their term ended thirteen days after the settlement.
But there is a very strong public policy in favor of preserving the public confidence in the integrity of the grand jury system which can only be served by disclosure. Whatever might be said of the reasons for the “settlement” in this case, it is important that it not be misinterpreted. The corrosive effect of a perception that the target of a grand jury investigation could buy its way out, or that a prosecutor might sometime in the future initiate such an investigation simply to coerce such a payment, would be catastrophic. The irony of a rule that Penal Code section 938.1 requires disclosure of grand jury proceedings if the target is indicted, but proscribes such disclosure if the target “settles” before the grand jury can consider indictment, would not long be lost on either the law-abiding or the criminal public. It cannot have been the Legislature's intention that the courts be unable to defeat this tragic distortion of the law.
Appellants express concern that disclosure will leave future grand jury witnesses exposed to intimidation and ridicule. We think not. It is hardly a secret that most criminal grand jury investigations end in indictment. Grand jury witnesses therefore already know it is likely their testimony will become public record. The degree to which they are likely to perceive the fact their testimony might also be divulged on the rare occasion when a superior court judge decides its necessity outweighs the usual need for secrecy seems infinitesimal.
This is especially true where the only precedent for such an order is a case so clearly sui generis as to provide no future support to those who would seek disclosure other than recognition of its possibility. This case arose out of a financial disaster of historic proportion. Literally millions of people were affected, jobs were lost, school funds endangered, $1.67 billion dollars in public monies vaporized. The fact a superior court felt those facts justified disclosure can hardly have much deterrent effect in the average case.
Nor do we agree the court below should have been dissuaded by the personal discomfiture its order would cause these particular appellants. While we would wish to be as solicitous as possible in preserving the privacy of such personal information as the witnesses' compensation, job reviews, and opinions about their employer, none of these considerations, nor all of them, can compare with the interests described above. As the court below wisely recognized, “[T]he magnitude of the public's loss of funds and loss of confidence in government and financial markets transcends any minimal intrusion that may result from disclosure of testimony about promotions or salaries that might be contained in these transcripts.”
Appellants complain that they were assured secrecy by the district attorney. While they make no claim to a violation of any statutory or constitutional right on this basis, they do advance it as part of their argument that the balance should have been struck against disclosure. We cannot agree.
It is simply inconceivable to us that any competent attorney, much less the highly skilled and experienced lawyers who represented these parties before the grand jury, could have expressed to them anything more than a qualified assurance of secrecy. Even the most cursory reading of California law would have turned up Penal Code section 938.1 and the fact their testimony would be disclosed in the event of an indictment.
We accept at face value their assurance that they were confident no indictment would be forthcoming because they were confident they had done nothing wrong. But that is hardly a basis for insisting that they relied upon “assurances” of secrecy. They could not have expected more than any other witness, and there is no way any grand jury witness can ever be guaranteed secrecy.
In fine, we find no basis upon which to quarrel with the trial court's exercise of its discretion in this case. There were overwhelming public interests calling for disclosure, beside which the competing interests in favor of secrecy, while hardly nugatory, are clearly less significant.
Finally, appellant Merrill Lynch makes a half-hearted complaint that procedural irregularities below merit reversal of the court's order. The gravamen of this argument is that Penal Code section 924.6 provides for an in camera hearing before disclosure of grand jury testimony sans indictment to the parties in a criminal case. Since the court below was ordering disclosure of grand jury testimony sans indictment, Merrill Lynch argues it should have been accorded a similar hearing.
Chief among the flaws in this argument is that this proceeding was not pursuant to Penal Code section 924.6. A close second is the fact the in camera hearing described in section 924.6 is for the express purpose of determining “relevance and admissibility.” Relevance and admissibility are not at issue here. No one is suggesting that these transcripts are to be introduced in court. We can see that if disclosure is based upon the necessity of a criminal defendant or prosecutor, the law would require that the information sought be demonstrably relevant and admissible. We perceive no such requirement where disclosure is mandated by overwhelming public interest.
The order is affirmed. The order staying release of the transcripts will dissolve when the remittitur issues.
1. Subject to review by the superior court to protect the rights of the defendant.
2. It was consideration of the legislative response to Craemer which prompted the Judicial Council's comment quoted above.
3. We note appellant Merrill Lynch's statement that, “There is no indication that the grand jury objected to this settlement or desired to persist in its investigation in the face of the settlement.” Neither is there any indication they welcomed it. This is presumably because no one has an opportunity to ask them under these circumstances, and Penal Code sections 924.1 and 924.2 probably prohibit them from offering opinions. Suffice it to say we are unimpressed by this observation.
BEDSWORTH, Associate Justice.
SILLS, P.J., and CROSBY, J., concur.