Interlocutory Appeals: Monetary Sanctions Don’t Satisfy Collateral Order Doctrine (Whether Severity Is Apt Is Judged in Light of Merits) — Breadth of Cunningham — Does Practical Finality Doctrine Survive Cunningham?

LaTele Television, C.A. v. Telemundo Commc’ns Grp., LLC, 2016 U.S. App. LEXIS 20345 (11th Cir. May 26, 2016):

Plaintiff LaTele Television appeals the district court's pre-trial order awarding Defendant Telemundo Communications $513,750.15 in attorney's fees as a sanction for Plaintiff's numerous discovery violations. Defendant moved to dismiss the appeal, arguing that we lack subject matter jurisdiction to review the district court's interim order. Plaintiff contends that both the collateral order doctrine and the practical finality doctrine permit us to exercise jurisdiction. We disagree and therefore dismiss the appeal.

I. BACKGROUND

In this copyright infringement action, Plaintiff alleges that Defendant's telenovela, En Rostro de Analia, infringes on Plaintiff's prior work, Maria Maria. To prevail on its claim, Plaintiff must show, among other things, that it owns the copyright to Maria Maria. See Peter Letterese & Assocs., Inc. v. World Inst. of Scientology Enters., Int'l, 533 F.3d 1287, 1300 (11th Cir. 2008) ("To make out a prima facie case of copyright infringement, a plaintiff must show that (1) it owns a valid copyright in the [work] and (2) defendants copied protected elements from the [work]."). A party that cannot establish valid ownership of a copyright lacks standing [*3]  to pursue an infringement claim. Saregama India Ltd. v. Mosley, 635 F.3d 1284, 1286 (11th Cir. 2011).

During discovery, Defendant served on Plaintiff multiple requests for documents pertaining to Plaintiff's ownership of the Maria Maria copyright. Each time, Plaintiff maintained that it had produced all responsive documents. Defendant was skeptical and thus filed a motion to compel production of documents concerning Plaintiff's copyright ownership. The magistrate judge denied Defendant's motion because Plaintiff had already asserted that it "had nothing else to produce."1 Nevertheless, the magistrate judge directed Plaintiff to "clarify in a proper response that it ha[d] produced 'all responsive documents.'" Plaintiff then filed a Verified Notice of Full Compliance, which averred that "all responsive documents [concerning ownership] ha[d] already been produced." Shortly thereafter, Defendant discovered that Plaintiff had failed to produce documents showing that Plaintiff had transferred its copyright in Maria Maria ("the Transfer Documents") shortly before filing this lawsuit.2

1   The case was referred to a magistrate judge with the parties' consent.

2   Defendant discovered that Plaintiff had failed to produce these responsive documents when it received the documents [*4]  in response to a third-party subpoena.

Defendant moved to dismiss Plaintiff's complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, or, in the alternative, under Federal Rule of Civil Procedure 37 for Plaintiff's failure to comply with the court's discovery orders.3 In its opposition to Defendant's motion to dismiss, Plaintiff attached yet another previously undisclosed document ("the Addendum") that purported to rescind Plaintiff's assignment of Maria Maria.

3   Rule 37(b)(2)(A)(v) provides that a court may dismiss an action when a party disobeys a discovery order.

The magistrate judge denied Defendant's motion given that factual disputes remained as to whether Plaintiff's the copyright transfer had been effective and, accordingly, whether Plaintiff had standing to sue. However, the magistrate judge found that Plaintiff had committed serious discovery violations and that sanctions were warranted. Specifically, Plaintiff had "failed to produce relevant documents responsive to discovery requests, provided an incorrect or significantly misleading interrogatory answer, submitted a false or substantially incorrect declaration, provided incorrect or misleading deposition testimony and never timely advised its []counsel about significant transactions [*5]  which might affect its standing to prosecute this case." The magistrate judge ordered Plaintiff to pay Defendant's attorney's fees incurred in connection with the motion to dismiss and any discovery concerning the Transfer Documents and Addendum. The magistrate judge directed Defendant to submit an affidavit setting out the amount of fees being sought.

Defendant filed a verified motion seeking $513,750.15 in attorney's fees. The magistrate judge awarded Defendant the full amount of attorney's fees requested, noting that (1) the attorneys' hourly billing rates were reasonable (and indeed substantially less than each timekeeper's standard billing rate); (2) the total number of hours billed was reasonable given the significant amount of follow-up work that the discovery misconduct had triggered; (3) the misconduct was pervasive; (4) the documents at issue are potentially dispositive of the litigation; (5) a significant portion of the fees were incurred as a result of the second evidentiary hearing, which was held at Plaintiff's request; and (6) Plaintiff had ignored its counsel's warnings that Plaintiff was engaging in discovery misconduct

Plaintiff appealed the fees award. Defendant moved [*6]  to dismiss the appeal for lack of jurisdiction. Plaintiff responded in opposition, Defendant replied, and we entered an order ruling that Defendant's motion to dismiss would be carried with the case.4

4   On May 7, 2015, Plaintiff filed a motion for a declaratory judgment that Plaintiff's president, Fernando Fraiz, could continue to represent Plaintiff in these proceedings to the exclusion of the company's governing board. A Venezuelan court had provisionally appointed the board to control Plaintiff's day-to-day operations, but it was disputed whether the order had any legal effect. On September 25, 2015, after Plaintiff filed its notice of appeal, the district court denied Plaintiff's motion, explaining that the declaratory judgment action would have to be filed separately since it was not properly pleaded. The district court stayed and administratively closed this case pending a determination of who is entitled to represent Plaintiff in this case.

II. DISCUSSION

"Before proceeding to the merits, this court must determine if it has jurisdiction to review the district court's order." Farr v. Heckler, 729 F.2d 1426, 1427 (11th Cir. 1984). With certain exceptions not relevant here, our jurisdiction is limited to appeals from "final decisions of [*7]  the district courts." 28 U.S.C. § 1291. "Normally, an order by the district court is not considered 'final' and appealable unless it 'ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.'" McMahon v. Presidential Airways, Inc., 502 F.3d 1331, 1338 (11th Cir. 2007) (quoting Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863, 867 (1994)). The district court's order at issue in this appeal obviously did not "end the litigation on the merits" because it addressed only the narrow issue of attorney's fees for Plaintiff's discovery violations. Plaintiff contends, however, that we have jurisdiction under both the collateral order doctrine and the practical finality doctrine. We address each doctrine in turn. Because we ultimately conclude that we lack jurisdiction over this appeal, we do not reach the merits of the sanctions order.

A. The Collateral Order Doctrine

The collateral order doctrine, which derives from Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541, 546 (1949), permits courts of appeals to exercise jurisdiction over "a 'small class' of rulings, not concluding the litigation, but conclusively resolving 'claims of right separable from, and collateral to, rights asserted in the action.'" Will v. Hallock, 546 U.S. 345, 349 (2006) (quoting Behrens v. Pelletier, 516 U.S. 299,305 (1996)). "The requirements for collateral order appeal have been distilled down to three conditions: that an order [1] conclusively determine the disputed [*8]  question, [2] resolve an important issue completely separate from the merits of the action, and [3] be effectively unreviewable on appeal from a final judgment." Will, 546 U.S. at 349 (quotation marks and citation omitted). The Supreme Court has "repeatedly stressed" that that each prong of the Cohen test is "stringent." Digital Equip. Corp., 511 U.S. at 868; accord Will, 546 U.S. at 350 (explaining that the class of collateral orders for which interim review is permitted must remain "narrow and selective," lest the collateral order doctrine "overpower the substantial finality interests [that] § 1291 is meant to further").

Because the Cohen test is conjunctive, we need only determine that one of the three prongs is not met to conclude that the collateral order doctrine does not permit us to exercise jurisdiction over this appeal. We focus on the second prong, which requires us to determine whether the district court's sanctions order resolved an important issue completely separate from Plaintiff's copyright infringement claim. In considering this question, we do not write on a clean slate. In Cunningham v. Hamilton County, Ohio, 527 U.S. 198 (1999), the Supreme Court addressed the question whether the collateral order doctrine permits a court of appeals to review an order imposing discovery sanctions on an attorney under Rule 37(a)(4) [*9] . Justice Thomas, writing for a unanimous Court, held that "a sanctions order imposed on an attorney is not a 'final decision' under § 1291." Id. at 210. Regarding Cohen's second prong, the Court held, in broad terms, that "appellate review of a sanctions order [cannot] remain completely separate from the merits." Id. at 205. This is so because "[a]n evaluation of the appropriateness of sanctions may require the reviewing court to inquire into the importance of the information sought or the adequacy of the truthfulness of a response." Id. Such inquiries "differ only marginally from an inquiry into the merits." Id. at 206.

The Court acknowledged that there may be some cases in which discovery sanctions will not be inextricably intertwined with the merits but nevertheless embraced a seemingly categorical rule that discovery sanctions orders, as a class, are not separate from the merits of the underlying action. See id. ("Perhaps not every discovery sanction will be inextricably intertwined with the merits, but we have consistently eschewed a case-by-case approach to deciding whether an order is sufficiently collateral."); see also Banks v. Office of Senate Sergeant-At-Arms & Doorkeeper of the U.S. Senate, 471 F.3d 1341, 1347 (D.C. Cir. 2006) (stating that Cunningham suggests that "discovery sanctions do not, as a group, constitute a category for immediate appeal under the collateral order doctrine"); Camuso v. Nat'l R.R. Pass. Corp., 267 F.3d 331,339 (3d Cir. 2001) (explaining that Cunningham adopted a per se rule that sanctions orders are inextricably intertwined with the merits of the case). Cunningham would thus appear to foreclose Plaintiff's argument that the collateral order doctrine permits us to exercise jurisdiction over this appeal.

But even if Cunningham did not establish a categorical rule that orders imposing discovery sanctions [*10]  flunk Cohen's second prong, the sanctions order at issue here is clearly inextricably intertwined with the merits. Plaintiff's argument on appeal is that the district court abused its discretion in awarding the full amount of attorney's fees sought by Defendant. To address this argument, we would have to carefully consider the import and effect of the Transfer Documents and Addendum because the magistrate judge predicated the sanctions award in part on the centrality of those documents to Plaintiff's claim. Whether the Transfer Documents or Addendum were effective in either assigning or rescinding assignment of Plaintiff's copyright to Maria Maria is potentially a case-dispositive question that a jury will eventually have to address. Thus, Plaintiff's appeal is not completely divorced from the merits, and the collateral order doctrine does not allow us to exercise jurisdiction.

B. The Practical Finality Doctrine

Plaintiff argues that a second and independent basis for our jurisdiction is the so-called practical finality doctrine, which derives from Forgay v. Conrad, 47 U.S. (6 How.) 201 (1848). Forgay was a bankruptcy case in which the debtor had deeded away real estate and slaves. The trial court set aside the deeds as fraudulent [*11]  transfers and then ordered that the real estate and slaves be immediately delivered to the individual managing the estate. Id. at 202. On appeal to the Supreme Court, the threshold issue was whether the trial court's decree was final and appealable. Id. at 203. The Supreme Court held that "when the decree decides the right to the property in contest, and directs it to be delivered up by the defendant ... or directs the defendant to pay a certain sum of money to the complainant, and the complainant is entitled to have such decree carried immediately into execution, the decree must be regarded as a final one." Id. at 204.

This Court has interpreted Forgay to permit appellate review of an interim order that directs "immediate delivery of physical property and subjects the losing party to irreparable harm" if review is postponed until entry of final judgment. In re Martin Bros. Toolmakers, Inc., 796 F.2d 1435, 1437 (11th Cir. 1986); accord Atlantic Fed. Sav. & Loan Assoc. v. Blythe Eastman Paine Webber, Inc., 890 F.2d 371, 379 (11th Cir. 1989) ("The type of issue triggering review of interim orders under Forgay are immediately executable judicial decrees deciding property rights."). In Ortho Pharmaceutical Corporation v. Sana Distributors, we held that an attorney ordered to pay Rule 11 fees could immediately appeal the order under the practical finality doctrine.5 847 F.2d 1515, 1515 (11th Cir. 1988). Plaintiff relies on Ortho Pharmaceutical [*12]  to argue that we have jurisdiction over this interim appeal. Defendant responds that Cunningham "completely undermined and essentially abrogated" Ortho Pharmaceutical. In the alternative, Defendant argues that even if Ortho Pharmaceutical survived Cunningham, the practical finality doctrine does not permit us to exercise jurisdiction over Plaintiff's appeal. Ultimately, we think it likely that Cunningham abrogated Ortho Pharmaceutical's practical finality holding.6 But it is a close question that we can save for a later date. Even assuming that Ortho Pharmaceutical's practical finality holding remains good law, Plaintiff has not established irreparable harm, and thus the practical finality doctrine does not permit us to exercise jurisdiction over this appeal.

5   We also held that the order was appealable under the collateral order doctrine, but Plaintiff invokes Ortho Pharmaceutical for its holding concerning the practical finality doctrine.

6   Although Cunningham involved an attempt to invoke appellate jurisdiction under the collateral order doctrine, Cunningham held that "a sanctions order imposed on an attorney is not a 'final decision' under § 1291." Cunningham, 527 U.S. at 210. That holding is not cabined to the collateral [*13]  order doctrine but instead applies more broadly to all appeals brought under § 1291. Moreover, although Cunningham involved Rule 37 sanctions and Ortho Pharmaceutical involved Rule 11 sanctions, courts of appeals have uniformly held that Cunningham is not limited to the Rule 37 context. E.g., S.E.C. v. Smith, 710 F.3d 87, 96 (2d Cir. 2013) (applying Cunningham to orders imposing sanctions under Rule 11 and the district court's inherent powers); Stanley v. Woodford, 449 F.3d 1060, 1063-65 (9th Cir. 2006) (applying Cunningham to orders imposing sanctions under 28 U.S.C. § 1927 and the district court's inherent powers); see also Empresas Omajede, Inc. v. Bennazar-Zequeira, 213 F.3d 6, 9 n.4 (1st Cir. 2000) (noting that Cunningham confirmed circuit precedent holding that inherent-power sanctions and sanctions under Rule 26(g) are not immediately appealable). And at least two other courts of appeals have observed that Cunningham abrogated prior decisions holding that Rule 11 sanctions orders are immediately appealable. See Camuso v. Nat'l R.R. Passenger Corp., 267 F.3d 331, 339 (3d Cir. 2001); Williams v. Midwest Emps. Cas. Co., 243 F.3d 208, 208-09 (5th Cir. 2001).

Plaintiff asserts that paying the sanctions award would "threaten [Plaintiff's] continued financial viability." As support, Plaintiff points to (1) its Motion for Stay of Court Order Granting in Part and Denying in Part Defendants' Motion for Attorney's Fees ("the Motion") and (2) its Notice of Inability to Pay and Motion for Enlargement of Time ("the Notice"). The six-sentence, boilerplate Motion seeks a stay [*14]  of the order to pay fees pending appeal to this Court. It provides no facts from which one could infer that immediate payment would cause Plaintiff irreparable harm. The Notice asserts that Plaintiff "does not have sufficient liquid assets to pay for the sanctions" because it is in debt to its creditors and because it does not have cash in the United States. These self-serving assertions unsupported by concrete facts are insufficient to establish irreparable harm.7 C.f. Snook v. Trust Co. of Ga. Bank of Savannah, 909 F.2d 480,487 (11th Cir. 1990) ("The plaintiffs' failure to document Mr. Snook's assertion of financial hardship supports a finding of no irreparable harm."); Int'l Internships Programs v. Napolitano, 798 F. Supp. 2d 92, 100 (D.D.C. 2011) (declining to grant an injunction in part because the plaintiff's "bald assertions" of economic loss threatening the very existence of its business "simply do not suffice to prove irreparable harm"). Because we cannot discern whether Plaintiff is actually likely to encounter solvency issues upon payment of the discovery sanctions, Plaintiff has not met its burden of establishing irreparable harm, and the practical finality doctrine does not permit us to exercise jurisdiction over Plaintiff's appeal of the sanctions order.

7   Here, Plaintiff would have been well advised to at least refer to balance [*15]  sheets, budgets, financial reports, or the like.

III. CONCLUSION

Because we lack jurisdiction to hear Plaintiff's appeal of the district court's sanction award prior to entry of final judgment, Plaintiff's appeal is DISMISSED

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