A federal judge considering whether to unseal documents from a 14-year-old criminal case yesterday barred the public from a hearing where prosecutors apparently argued to keep some records secret and possibly to seal others that are already in the public domain.

Eastern District Judge I. Leo Glasser (See Profile) closed the courtroom to everyone other than representatives of the U.S. attorney’s office, including two lawyers who are seeking to open the files and who contend the records in play include documents they wrote and which have already been publicly disseminated. Among those records, the attorneys say, are documents discussing topics as mundane as 14th- and 15th-century judicial impeachments.

The dispute centers on the 1998 conviction of Felix Sater, who pleaded guilty to a $40 million stock swindle in exchange for a sentence of probation, a $25,000 fine and a promise that his file would be sealed.

Sater, a cooperating witness, was identified as the “John Doe” of the 1998 case partially as a result of litigation involving a subsequent real estate development project. Investors claim they did not know of Sater’s criminal past when they engaged in a business relationship with him and lost $500 million through fraud.

Long Island attorney Frederick Oberlander, who represents a plaintiff in the civil case against Sater, set off a flurry of gag orders after attaching to his complaint sealed records pertaining to Sater’s conviction that he had obtained from a third party. Oberlander and his attorney, Richard Lerner, a former Wilson Elser Moskowitz Edelman & Dicker partner, are under investigation for both civil and criminal contempt, apparently for allegedly leaking secret documents identifying Sater.

However, Sater also has been identified in the press and, inadvertently, by federal officials who mistakenly included his name on a press release and on a public docket sheet. With Sater’s identity clear, Glasser had unsealed the docket report and ordered a hearing to determine if there is any reason to keep the underlying documents under seal.

That hearing took place in Brooklyn yesterday after Oberlander, Sater and the public were ordered by Glasser to leave. Lerner and Oberlander objected, as did the media, but to no avail.

In a letter to the court identifying the documents it seeks to seal in whole or in part, the government acknowledged that there is no point in continuing to keep some records from the public.

“The government has determined that many documents that previously were properly sealed to protect the safety of [Sater] and his family may now be unsealed in light of the fact that the defendant’s identity and cooperation have become public,” the U.S. attorney’s office said in a letter to Glasser.

However, the office said it will seek to keep under seal certain documents, including those that “refer to certain details of [Sater's] cooperation, documents that refer to the 2004 Presentence Investigation Report that [Oberlander] improperly obtained, and documents that attach exhibits or refer to matters that remain under seal in the Second Circuit Court of Appeals or the Southern District of New York.”

The letter was signed by Assistant U.S. Attorneys Todd Kaminsky, Elizabeth Kramer and Evan Norris.

Outside of the courtroom, Lerner and Oberlander said the documents that the Eastern District U.S. Attorney’s Office had identified, by docket number only, as files that should remain under wraps are transcripts that have already been publicly distributed as well as motions they wrote. The attorneys said they will file an immediate appeal with the U.S. Court of Appeals for the Second Circuit to invalidate any decisions Glasser makes as a result of the closed hearing.

In a related matter, a document filed by Lerner and Oberlander yesterday in the unsealing case, 12-MC-150, reveals that the criminal contempt investigation was removed from the Eastern District U.S. Attorney’s Office by the Executive Office for United States Attorney and transferred to the Northern District. It is unclear why the matter was transferred, but Lerner and Oberlander said in a motion that they will seek to disqualify the Eastern District U.S. Attorney’s Office from the entire case, not just the contempt portion, because of “rampant governmental misconduct.”

Lerner and Oberlander accuse the office of “aiding, abetting, facilitating, and emboldening Sater’s concealment frauds by unlawfully hiding his conviction.”

Robert Nardoza, spokesman for the U.S. attorney’s office, declined to comment on any part of the case.

Attorney Leaves Firm

Meanwhile, Lerner said he left Wilson Elser, where he has practiced for 23 years and served as cochair of the firm’s appellate practice, on Oct. 8. His departure came on the heels of an Oct. 5 decision in which Glasser granted Wilson Elser’s motion to withdraw from the case, which was brought over the objections of Lerner and Oberlander.

Wilson Elser claimed the interests of Oberlander and Lerner were potentially in conflict since both are under investigation for contempt.

Lerner and Oberlander denied any conflict and claimed that Wilson Elser had gone around their backs to get out of the case.

In his Oct. 5 ruling, Glasser pointed to Oberlander’s and Lerner’s language in opposing the Wilson Elser motion as a reason for granting it. Both attorneys, in a motion opposing Wilson Elser’s withdrawal, were deeply critical and suggested the firm had gone around the back of its own partner and client to get out of a controversial case. Glasser said the filings evince a tension that is more than sufficient to grant Wilson Elser’s motion.

The judge noted that Wilson Elser was brought into the matter by Oberlander’s malpractice carrier, Zurich American Insurance Co. He agreed with Wilson Elser that Oberlander was a client of the firm, not of Lerner, and that the firm could move to withdraw even over the opposition of Lerner.

“To the extent that Lerner’s continuation as a partner of the firm may raise concerns about partnership liability for his conduct, that is a matter for them to resolve,” Glasser wrote.

Lerner declined to reveal the terms of his departure from the firm.

“Wilson Elser attorneys are fine attorneys and I have no doubt that they did what they believed they were ethically required to do in good faith,” he said.

But Lerner said he was unwilling to give up his representation of Oberlander on First Amendment and other grounds, and willing to give up his partnership to defend “Oberlander’s right to tell what he knows, and what he knows and has learned is of extreme, utmost importance, as we will see when our papers are unsealed by the court.”

Thomas Hyland, Wilson Elser’s general counsel, declined to comment.

@|John Caher can be contacted at jcaher@alm.com.