Attorney-Client Privilege — Perlman Doctrine, Which Permits Immediate Review of Order Requiring Third Party to Disclose Privileged Information It Possesses, No Longer Applies If Privilege Holder Is a Party, after Mohawk

From Hold-Orsted v. City of Dickson, 2011 U.S. App. LEXIS 10379 (6th Cir. May 24, 2011):

One such justification for an immediate appeal exists in situations "where a party claiming a privilege is 'powerless to avert the mischief of the order.'" Ross, 423 F.3d at 599 (quoting Perlman v. United States, 247 U.S. 7, 13 (1918)). "Under Perlman, 'a discovery order directed at a disinterested third party is treated as an immediately appealable final order because the third party presumably lacks a sufficient stake in the proceeding to risk contempt by refusing compliance.'" John B., 531 F.3d at 458 n.6 (quoting Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n.11 (1992)); see also In re Air Crash at Belle Harbor, New York on November 12, 2001, 490 F.3d 99, 106 (2d Cir. 2007) ("[T]he Perlman exception is relevant only to appeals brought by the holder of a privilege where the disputed subpoena is directed at someone else. It is impossible for such an appellant to pursue the normal avenue of review — submission to contempt — because . . . that appellant has not been required to do anything by the district court."); Burden-Meeks v. Welch, 319 F.3d 897, 899-900 (7th Cir. 2003) ("The idea behind Perlman is that someone who is neither a party to the suit nor a person aggrieved by the disclosure cannot be expected to put his own neck on the chopping block, standing in contempt of court just to help the privilege holder obtain appellate review."); Fed. Deposit Ins. Corp. v. Ogden Corp., 202 F.3d 454, 459-60 (1st Cir. 2000) (finding jurisdiction in circumstances analogous to the present case and holding that "a substantial privilege claim that cannot effectively be tested by the privilege-holder through a contemptuous refusal ordinarily will qualify for immediate review if the claim otherwise would be lost."); Bowen v. Zack, 103 F.3d 128, 1996 WL 668558, at *1 (6th Cir. 1996) (unpublished table decision) ("This court has not interpreted this rule as allowing an immediate appeal by every third party that is directed to comply with a discovery order. Rather, if the person with custody of the information has no interest in the right against disclosure that is being asserted, then Perlman allows an appeal without the necessary step of submitting to contempt.").

The Perlman exception permits the holder of the privilege, not the custodian of the sought-after documents, to immediately appeal without being subject to contempt. John B., 531 F.3d at 458 n.6 (citation omitted).

We have applied Perlman in limited circumstances. In Ross, a § 1983 action, we held that the district court's order allowing the plaintiff to obtain discovery from the former director of police regarding advice he received from the defendant city's attorneys about possible disciplinary action against the plaintiff was immediately appealable by the city, which asserted the attorney-client privilege. Ross, 423 F.3d at 598-99. We held that jurisdiction was proper because the city could not otherwise prevent the former director from complying with the discovery order and divulging the allegedly privileged information. Id. at 599. In In re Grand Jury Proceedings — Gordon, 722 F.2d 303, 305-07 (6th Cir. 1983), we determined that an order compelling an attorney's testimony before a grand jury was immediately appealable by his client, who asserted that the order violated the attorney-client privilege.

Plaintiffs argue that we should apply Perlman and hear their appeal. However, the Mohawk decision has altered the legal landscape related to collateral appeals of discovery orders adverse to the attorney-client privilege and narrowed the category of cases that qualify for interlocutory review. Indeed, one court has speculated about the continued viability of Perlman in the wake of the Mohawk decision.

In Wilson v. O'Brien, 621 F.3d 641 (7th Cir. 2010), the Seventh Circuit Court of Appeals stated that "Mohawk Industries calls Perlman and its successors into question, because, whether the order is directed against a litigant or a third party, an appeal from the final decision will allow review of the district court's ruling. Only when the person who asserts a privilege is a non-litigant will an appeal from the final decision be inadequate." Id. at 643 (emphasis added). [Footnote 4. However, the Wilson court found it unnecessary to address this question because the appeal was rendered moot by the deponent's compliance with the disclosure order. Wilson, 621 F.3d at 643.]

We agree. In the instant case, where the privilege holder is a party to the litigation with recourse in a post-judgment appeal, we conclude that Perlman no longer affords jurisdiction to hear this interlocutory appeal. In the first and only case thus far to consider Mohawk's impact on the Perlman rule, the Ninth Circuit Court of Appeals, in United States v. Krane, 625 F.3d 568, 573 (9th Cir. 2010), has determined in the context of proceedings in which a non-litigant invoked Perlman, that "[t]he Perlman rule survives the Supreme Court's recent decision in Mohawk[.]" Id. at 572.

In Krane, the defendants, former executives of Quellos Group, LLC ("Quellos"), faced criminal charges related to their alleged development of a fraudulent tax shelter on behalf of Quellos. The government served the law firm of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), Quellos's former counsel, with a pretrial subpoena duces tecum seeking opinion letters and documents related to the tax shelter. Id. at 571. Quellos, which was not charged with any offenses, intervened to assert the attorney-client privilege as to these materials. Id. Skadden produced a privilege log that identified documents responsive to the subpoena, but indicated that Quellos was asserting the privilege. Id. The government's motion to compel a response to the subpoena was granted by the district court, and Quellos filed an interlocutory appeal. Id. The Ninth Circuit opined that, in these circumstances, the Perlman rule remains intact:

Perlman and Mohawk are not in tension. When assessing the jurisdictional basis for an interlocutory appeal, we have considered the Perlman rule and the Cohen collateral order exception separately, as distinct doctrines.

Mohawk forecloses interlocutory appeal of some district court orders in reliance on the fact that "postjudgment appeals generally suffice to protect the rights of litigants and assure the vitality of the attorney-client privilege." 130 S. Ct. at 606; see also id. at 607-08 (surveying "several potential avenues" by which "litigants confronted with a particularly injurious or novel privilege ruling" might seek its immediate review "apart from collateral order appeal," including by not receiving, and appealing, a contempt citation (citing, inter alia, Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n. 11, 113 S. Ct. 447, 121 L. Ed. 2d 313 (1992) (citing Perlman, 247 U.S. 7, 38 S. Ct. 417))). In contrast, the Perlman rule applies only when the privilege holder is "'powerless to avert the mischief of'" a district court's discovery order because the materials in question are held by a disinterested third party. [United States v.] Griffin, 440 F.3d [1138, 1143 (9th Cir. 2006)] (quoting Perlman, 247 U.S. at 13, 38 S. Ct. 417). Such third parties . . . may be likely to forgo suffering a contempt citation and appealing in favor of disclosure. If Skadden had produced the documents, Quellos would have been deprived of the opportunity to challenge the subpoena. Further, in this case, neither the privilege holder nor the custodian of the relevant documents are parties to the underlying criminal proceedings. Thus, for all practical purposes, this appeal is Quellos's only opportunity to seek review of the district court's order adverse to its claims of attorney-client privilege.

For all these reasons, we conclude that, under the Perlman rule and 28 U.S.C. § 1291, we have jurisdiction to hear Quellos's claims.

Id. at 572-73 (internal citations omitted, emphasis added).

We agree with the Ninth Circuit that the collateral order doctrine and the Perlman exception have historically been viewed as discrete jurisdictional bases for immediate appeal. The Mohawk decision, however, appears to have narrowed the scope of the Perlman doctrine. In Krane, neither Quellos, the privilege holder, nor Skadden, the custodian of the documents, were parties to the underlying litigation. These facts support application of the Perlman doctrine because, without the ability to raise the privilege issue in an interlocutory appeal, Quellos, as a nonparty, would have lost its ability to do so in the future. Going forward, application of the Perlman doctrine will likely be limited to such situations.

The case before us differs from Krane in one key way — the Holts, the privilege holders, are parties to the underlying litigation. Although attorney Jacobs is a disinterested nonparty holding the allegedly privileged materials, and therefore the contempt-citation avenue of review is for all practical purposes foreclosed, plaintiffs, asserting the attorney-client privilege, ultimately can avail themselves of a post-judgment appeal which, under Mohawk, suffices "to protect the rights of the litigants and preserve the vitality of the attorney-client privilege." Mohawk, 130 S. Ct. at 603.

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