Perlman Exception Allowing Appeal of Privilege Ruling When Documents Held by Third Party Does Not Apply When Order Directs Privilege Holder to Secure Production by Third Party — Presidential Exception — Impact of Mohawk on Perlman
In re Grand Jury ABC Corp., 2012 U.S. App. LEXIS 10558 (3d Cir. May 24, 2012) (note: this opinion was withdrawn on December 11, 2012, in In re Grand Jury, 2012 U.S. App. LEXIS 25318 (3d Cir. Dec. 11, 2012), which is subsequently excerpted on this blog in January 2013):
ABC Corp., John Doe 1, and John Doe 2 seek to appeal an order of the District Court requiring ABC Corp., Blank Rome LLP, and LaCheen, Wittels & Greenberg, LLP to produce certain documents to the Government as part of an ongoing grand jury investigation. The sought-after documents are currently in the custody of Blank Rome, a law firm that represents John Doe 2. Blank Rome is housing the documents at the request of LaCheen Wittels, a law firm representing ABC Corp. and John Doe 1. Appellants claim the attorney-client privilege -- ABC Corp. is the privilege holder -- and the work product rule shield the documents from disclosure. The District Court disagreed, concluding that the crime-fraud doctrine vitiates any privilege or work product protection.
When a district court orders the production of supposedly privileged documents, its order usually is not an immediately appealable final decision. To obtain immediate appellate review, an objecting privilege holder must disobey the disclosure order, be held in contempt, and then appeal the contempt order. Appellants argue that Perlman v. United States, 247 U.S. 7 (1918), provides an exception to the contempt rule here because the documents are in the custody of a third party (Blank Rome) who is not willing to suffer contempt for the sake of an immediate appeal.
We disagree, and hold instead that Perlman does not allow an immediate appeal of a district court's order mandating the production of supposedly privileged documents when (1) the court's order directs the privilege holder itself to produce the documents and (2) the privilege holder has, or may obtain, custody of the documents. In short, Perlman does not apply when the traditional contempt route is open to the privilege holder. That route is open to ABC Corp. The District Court ordered the company to produce the documents, and it may obtain custody of the documents from its agents. If ABC Corp. wants pre-conviction appellate review of the District Court's crime-fraud ruling, it must take possession of the documents and defy that Court's disclosure order before appealing any resulting contempt sanctions. Because it has not yet met these preconditions, we dismiss for lack of appellate jurisdiction. ***
ABC Corp. is an administratively "dissolved" corporation. It was formed in early 2004 and it ceased business operations in late 2005. John Doe 1 was the company's President and sole indirect shareholder and John Doe 2 is his son. ***
In mid-2010, Appellants learned that the Government was investigating the tax implications of ABC Corp.'s acquisition and sale of certain closely held companies. In December 2010, the Government issued a grand jury subpoena to ABC Corp.'s former vice president of corporate acquisitions as the company's custodian of records. The subpoena sought any and all records relating to transactions and business dealings between ABC Corp. and specific entities and individuals.
At some point the Government received access to, or copies of, certain ABC Corp. documents from a law firm that previously represented the company. The firm withheld certain documents it claimed were privileged, but it did not supply the Government with a privilege log. After LaCheen Wittels and Blank Rome assumed their current representations, the former firm of ABC Corp. transferred the documents to Blank Rome. According to Appellants, LaCheen Wittels did not have sufficient space to store the documents, so Blank Rome agreed to hold them as custodian.
In *** March 2011, LaCheen Wittels and Blank Rome provided the Government with a privilege log, which they revised in April 2011, for the documents ABC Corp.'s former firm once withheld.
Because ABC Corp. refused to accept service of the subpoena issued to its former employee, the Government issued grand jury subpoenas to LaCheen Wittels and Blank Rome in May 2011. The subpoenas sought all documents the two firms received from ABC Corp.'s former law firm relating to ABC Corp. and another entity. In response to these subpoenas, the law firms produced approximately 24 boxes of documents. These were the same documents that ABC Corp.'s former firm had previously produced. They continued to withhold, however, the documents listed on the April 2011 privilege log, and provided the Government with another privilege log in June 2011 for additional documents withheld.
The Government then filed an ex parte motion to compel ABC Corp., Blank Rome, and LaCheen Wittels to produce 171 of the 303 documents identified on the privilege logs. It argued that the documents should be produced based on the crime-fraud doctrine, which provides that evidentiary privileges may not be used to shield "communications made for the purpose of getting advice for the commission of a fraud or crime." United States v. Zolin, 491 U.S. 554, 563 (1989) (internal quotations omitted).***
The District Court had jurisdiction under 18 U.S.C. § 3231. Our jurisdiction is in dispute, but we have jurisdiction to determine our jurisdiction. Alaka v. Att'y Gen., 456 F.3d 88, 94 n.8 (3d Cir. 2006).
A. Finality and the Contempt Rule
"[T]he right to a judgment from more than one court is a matter of grace and not a necessary ingredient of justice . . . ." Cobbledick v. United States, 309 U.S. 323, 325 (1940). Congress has bestowed such grace by granting the Courts of Appeals jurisdiction over "final decisions" of the district courts. 28 U.S.C. § 1291. ***
When a district court orders a witness -- whether a party to an underlying litigation, a subject or target of a grand jury investigation, or a complete stranger to the proceedings -- to produce documents, the district court's order generally is not considered an immediately appealable "final decision" under § 1291. See United States v. Ryan, 402 U.S. 530, 532-34 (1971); Cobbledick, 309 U.S. at 326-29; Alexander v. United States, 201 U.S. 117, 118-22 (1906). It is well-settled that a witness who "seeks to present an objection to a discovery order immediately to a court of appeals must refuse compliance, be held in contempt, and then appeal the contempt order." Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n.11 (1992); see also Ryan, 402 U.S. at 532-34; Cobbledick, 309 U.S. at 326-29; Alexander, 201 U.S. at 118-22; DeMasi v. Weiss, 669 F.2d 114, 121-23 (3d Cir. 1982). A district court's contempt order is itself immediately appealable because it is a final judgment imposing penalties on the willfully disobedient witness in what is effectively a separate proceeding. ***
Requiring a person who objects to a disclosure order to "refuse to comply, be subjected to sanctions in contempt, and then appeal from the sanctions. . . . [,] puts the objecting person's sincerity to the test by attaching a price to the demand for immediate review." Wilson v. O'Brien, 621 F.3d 641, 643 (7th Cir. 2010).***
B. The Perlman Exception to the Contempt Rule
In Perlman, the Supreme Court carved out an exception to the rule that a custodian of documents must stand in contempt of a discovery order before an immediate appeal may be taken. 247 U.S. at 8-13. In that case, Louis Perlman testified on behalf of his company in a patent infringement suit in District Court. Id. at 8. When the company moved to dismiss its suit without prejudice, the District Court granted the company's motion but it ordered the court clerk to impound the exhibits Perlman used during his testimony and to maintain them under seal. Id. at 8-9.
Soon after, the Government began a grand jury investigation of Perlman, suspecting him of having committed perjury during his testimony. Id. at 11-12. To assist in the investigation, the Government sought an order from the District Court directing the court clerk to produce the exhibits Perlman used during his testimony. Id. at 9-10. Perlman objected, claiming that use of the exhibits as a basis for indictment against him would be an unreasonable search and seizure and would make him a compulsory witness against himself in violation of the Constitution's Fourth and Fifth Amendments. Id. at 10, 13. The District Court rejected Perlman's challenge and ordered the clerk to produce the exhibits to the Government. Id. at 10-11.
When Perlman ultimately appealed to the Supreme Court, which heard the case under its then-obligatory appellate jurisdiction, the Government argued that the District Court's disclosure order was not appealable. Id. at 12. The Court disagreed, saying only that
[t]he second contention of the government is somewhat strange, that is, that the order granted upon its solicitation was not final as to Perlman but interlocutory in a proceeding not yet brought and depending upon it to be brought. In other words, that Perlman was powerless to avert the mischief of the order but must accept its incidence and seek a remedy at some other time and in some other way. We are unable to concur.
Id. at 12-13.
Whatever else Perlman may require, we can discern the sine qua non: when a court orders a custodian that is not a privilege holder to produce purportedly privileged documents, the privilege holder may immediately appeal the disclosure order only when it is impossible for the privilege holder itself to disobey the order, be held in contempt, and appeal any contempt sanctions. In Perlman, the District Court did not order Perlman to produce any documents. Its order was directed only to the court clerk. There was simply no court order for Perlman to disobey. Furthermore, Perlman could not have obtained custody of the exhibits from the court clerk (and then stood in contempt of a later disclosure order directed at him) because a previous court order directed the clerk to impound the exhibits and maintain custody of them under seal. Perlman thus was "powerless to avert the mischief of the [disclosure] order" because he could not take the traditional contempt route to a final decision.
Footnote 4. To be clear, it is a necessary (but not sufficient) prerequisite to Perlman's application that the traditional contempt route is closed to the privilege holder. See 15B Charles Alan Wright et al., Federal Practice & Procedure § 3914.23 (2d ed. 1992) ("The Perlman decision never has meant that appeal can be taken simply because the alternative of disobedience and contempt is not available. Orders denying discovery do not afford any opportunity for disobedience, yet are not appealable on this theory.").
There is a unique exception to our holding that Perlman cannot apply when the contempt route remains open to the objector. It applies when the objector is the President of the United States. See United States v. Nixon, 418 U.S. 683, 691-92 (1974) (applying Perlman and holding that to require the President to travel the contempt route "would be unseemly, and would present an unnecessary occasion for constitutional confrontation between two branches of the Government"); 15B Wright, supra, § 3914.23 ("The Court's language [in Nixon] suggested that it was not anxious to create a corrosive principle that might allow others to bypass the disobedience and contempt path to appeal."). Appellants do not suggest that Nixon by analogy supports jurisdiction here.
In this vein, we have explained that "the Alexander-Cobbledick-Ryan [contempt] rule restricting appellate review is limited to situations where the contempt route to a final order is available to the appellant." In re Matter of Grand Jury Applicants (C. Schmidt & Sons, Inc.), 619 F.2d 1022, 1025 (3d Cir. 1980). In contrast, appellants in Perlman and its progeny "were not the targets of the subpoena itself, which meant that the contempt route for obtaining an appeal was not available to them." In the Matter of Grand Jury Empanelled Aug. 14, 1979 (Appeal of TRW Credit Data, Inc.), 638 F.2d 1235, 1237 (3d Cir. 1981).
Consistent with this understanding of the contempt rule and the Perlman exception, we have permitted an appeal of a disclosure order adverse to the attorney-client privilege when the privilege holder was not subpoenaed. See In re Grand Jury Proceedings (Appeal of FMC Corp.), 604 F.2d 798 (3d Cir. 1979).***
Some of our sister Courts of Appeals also have recognized that Perlman does not apply when the contempt route is open to the privilege holder. For example, the Second Circuit has explained that "in Perlman . . . 'the contempt avenue for ultimately securing review' of the district court's production order 'was not available since Perlman was not being required to do anything.'" In re Air Crash at Belle Harbor, N.Y. on Nov. 12, 2001, 490 F.3d 99, 105 (2d Cir. 2007) (quoting Nat'l Super Spuds, Inc. v. N.Y. Mercantile Exch., 591 F.2d 174, 179 (2d Cir. 1979)). "[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." Id. at 106 (emphasis added). "It is impossible for such an appellant to pursue the normal avenue of review -- submission to contempt ? because, like Perlman, that appellant has not been required to do anything by the district court." Id. Opinions from the Seventh and Tenth Circuits reflect a similar understanding. See Wilson, 621 F.3d at 642-43 ("contrast[ing]" Perlman with those situations in which "an order of disclosure is directed against a person whose legal interests are affected" because "that person has a means to obtain appellate review" -- namely, the contempt route) (emphasis in original); In re Motor Fuel Temperature Sales Practice Litig., 641 F.3d 470, 485-86 (10th Cir. 2011) (refusing to apply Perlman when non-party trade associations who objected to disclosing purportedly privileged information could "refuse to comply with the subpoenas directed to themselves, incur contempt citations, and appeal from the contempt orders").
C. Whether the Contempt Route Remains Open to ABC Corp.
ABC Corp. is subject to a court order to produce documents. Unlike Louis Perlman, the company has been required to do something. Appellants nonetheless contend that the contempt route is not open to ABC. While we are sensitive to some of Appellants' practical concerns, we cannot agree that Perlman permits this appeal.
Appellants assert that the District Court's order "erroneously included" ABC Corp. and in fact "should not have been directed to [the company] at all." Appellants' Reply Br. at 5. It therefore cannot be held in contempt for disobeying the order. According to Appellants, the District Court should not have ordered ABC Corp. to produce the documents because the Government never properly served the company with a subpoena and, in any event, ABC Corp. does not have custody of the documents.
These arguments miss the mark. An order does not become immediately appealable simply because a putative appellant believes that it is, in one way or another, wrong or improper. If ABC Corp. believes that the District Court's order is reversible for whatever reason -- whether because it was not preceded by proper service of a subpoena, because it is the result of an improper crime-fraud ruling, or for any other reason -- and it wishes to present its challenge in an immediate appeal, it must disobey the order and take the contempt route. Until and unless it is vacated, the District Court's order -- not the grand jury's subpoena -- binds the company and compels production of the documents. See Brown v. United States, 359 U.S. 41, 49 (1959) ("A grand jury is clothed with great independence in many areas, but it remains an appendage of the court, powerless to perform its investigative function without the court's aid, because powerless itself to compel the testimony of witnesses."), overruled on other grounds by Harris v. United States, 382 U.S. 162, 167 (1965).
Appellants then claim that, even if the District Court's order were valid, ABC Corp. could not disobey that order because it does not have custody of the documents. To repeat, Blank Rome is currently holding the requested documents and it holds them at the request of ABC Corp.'s counsel, LaCheen Wittels. The Government's response is simple: ABC Corp. may take the documents from Blank Rome. It is undisputed that Appellants and their respective law firms have a joint-defense agreement in place. If the privilege holder-client ABC Corp. directs its counsel LaCheen Wittels to direct the custodian Blank Rome to transfer the documents to ABC Corp.'s custody, then the agents must oblige the principal. See In re Grand Jury, 821 F.2d 946, 951 (3d Cir. 1987) (noting that, in the context of responding to a subpoena, "possession" means "legal control"). We agree with the Government.
Appellants contend the Government's position ignores the seriousness of a grand jury subpoena and court order. Appellants' Reply Br. at 8. After all, the law firms are subject to the same court order as the company. According to Appellants,
[h]ad Blank Rome, after receipt of a grand jury subpoena, done anything other than preserve the documents, the government would surely charge that [ABC Corp.] and, for that matter, the law firms, were guilty of obstruction of justice by engaging in behavior intended to thwart the grand jury's investigation. See 18 U.S.C. §1503 (obstruction of grand jury investigation). No law firm, under these circumstances, would transfer documents subject to subpoena to the privilege holder and the government's suggestion that this should be the "routine practice" finds no support in case law.
Id. at 8-9.
These concerns are understandable. Indeed we too have not found any case in which a court has approved a transfer of documents between multiple parties subject to a disclosure order so that the privilege holder could take the contempt route to immediate appellate review while leaving the other parties free of contempt fears. But here we put those fears to bed. It would not be obstruction of justice, as the Government conceded at oral argument, if Blank Rome transfers the documents to ABC Corp. -- after giving the Government and the District Court sufficient notice of the time, place, and other circumstances of the transfer -- so that the company can go down the well-established path of disobeying a disclosure order, suffering contempt, and then appealing any contempt sanctions. ***
D. Mohawk and its Effect on the Perlman Exception
Although not necessary for the disposition of this case, we would be remiss not to address the Supreme Court's recent decision in Mohawk Indus., Inc. v. Carpenter, 130 S.Ct. 599 (2009). The Government argues that, as several of our sister Courts of Appeals have suggested, the decision narrows the traditionally understood scope of the Perlman exception. We do not have to decide today the effect of Mohawk on the Perlman exception because we hold that Perlman -- even in its pre-Mohawk form -- does not permit this appeal. Nonetheless, the Mohawk Court's reasoning explains why refusing a Perlman appeal in these circumstances does not make the District Court's crime-fraud ruling effectively unreviewable.
The Supreme Court in Mohawk considered "whether disclosure orders adverse to the attorney-client privilege qualify for immediate appeal under the collateral order doctrine," and held that they do not. Id. at 603. The Court did not discuss, mention, or even cite Perlman, which is not surprising because the Perlman doctrine and the collateral order doctrine recognize separate exceptions to the general rules of finality under § 1291. The collateral order doctrine, first announced in Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949), provides that there is a "small class" of collateral rulings that, although they do not terminate the litigation, are appropriately deemed "final" under § 1291. Mohawk, 130 S.Ct. at 605 (quoting Cohen, 337 U.S. at 545-46). "That small category includes only decisions  that are conclusive,  that resolve important questions separate from the merits, and  that are effectively unreviewable on appeal from the final judgment in the underlying action." Swint v. Chambers Cnty. Comm'n, 514 U.S. 35, 45 (1995). Focusing exclusively on the third requirement of the collateral order doctrine, the Mohawk Court held that "collateral order appeals are not necessary to ensure effective review of orders adverse to the attorney-client privilege." Mohawk, 130 S.Ct. at 606.
Before reaching its conclusion, the Court first pointed out that "[p]ermitting piecemeal, prejudgment appeals . . . undermines 'efficient judicial administration' and encroaches upon the prerogatives of district court judges, who play a 'special role' in managing ongoing litigation." Id. at 605 (quoting Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 374 (1981)). Mindful of these costs, the Court did not engage in an "individualized jurisdictional inquiry" based on the facts of the particular case before it, but instead focused on the "entire category" of disclosure orders adverse to the attorney-client privilege. Id. (quotations omitted).
Doing so, the Court concluded that "postjudgment appeals generally suffice to protect the rights of litigants and assure the vitality of the attorney-client privilege." Id. at 606. "Appellate courts can remedy the improper disclosure of privileged material in the same way they remedy a host of other erroneous evidentiary rulings: by vacating an adverse judgment and remanding for a new trial in which the protected material and its fruits are excluded from evidence." Id. at 606-07.
The Court also surveyed other appellate options available to aggrieved privilege holders. It pointed out that, when confronted with an adverse decision from the district court, a party in a civil proceeding can ask the district court to certify, and the court of appeals to accept, an interlocutory appeal pursuant to 28 U.S.C § 1292(b). Id. at 607. In extraordinary circumstances, it also can petition the court of appeals for a writ of mandamus. Id. Importantly, the Court reiterated the "long-recognized option . . . for a party to defy a disclosure order and incur court-imposed sanctions." Id. at 608.
Mohawk's reasoning about the effective reviewability of disclosure orders adverse to the attorney-client privilege may narrow the scope of the Perlman exception. More specifically, we will have to decide whether Mohawk prohibits applying the Perlman exception when the person asserting privilege is a party in the underlying litigation with recourse to other avenues of appellate review, as some other Courts of Appeals either have held or suggested. See Holt-Orsted v. City of Dickson, 641 F.3d 230, 238 (6th Cir. 2011) (holding that, after Mohawk, "where the privilege holder is a party to the litigation with recourse in a post-judgment appeal, . . . Perlman no longer affords jurisdiction to hear [an] interlocutory appeal"); Wilson v. O'Brien, 621 F.3d 641, 643 (7th Cir. 2010) (noting that "Mohawk Industries calls Perlman and its successors into question," and suggesting that, after-Mohawk, the Perlman exception no longer applies when the person asserting privilege is a "litigant" in the underlying litigation); see also United States v. Krane, 625 F.3d 568, 573 (9th Cir. 2010) (holding, in a case in which "neither the privilege holder nor the custodian of the relevant documents [were] parties to the underlying criminal proceedings," that "[t]he Perlman rule survives . . . Mohawk").
An order requiring the disclosure of privileged materials is as effectively reviewable, absent an immediate appeal, for subjects of a grand jury investigation as it is for parties in civil litigation. If the grand jury's investigation leads to an indictment and later a conviction, we can remedy an "improper disclosure of privileged material . . . by vacating the adverse judgment and remanding for a new trial in which the protected material and its fruits are excluded from evidence." Mohawk, 130 S.Ct. at 606-07. Of course, a subject of a grand jury investigation may never be indicted. Appellants are correct that "[e]ven if the subject is charged, the charges may be dismissed or the subject may be acquitted following trial. In each of these circumstances, there would be no way to vindicate the privilege or protection that has been breached." Appellants' Br. at 27. The Court in Mohawk, however, rejected similar arguments in the civil litigation context. After an unfavorable privilege ruling, a civil litigant may nonetheless settle, obtain summary judgment, or win a favorable verdict, leaving the privilege broken and the District Court's ruling unchallenged.
The Court's reasoning in Mohawk underscores how denying ABC Corp. a Perlman appeal will still leave the company with sufficient (though admittedly not perfect) means for making its privilege claims. However, we leave for another day the broader question of whether Mohawk forecloses Perlman appeals when the privilege holder is a subject or target of an underlying grand jury investigation.
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