August 16, 2012 Top Story

Limiting Availability of Interlocutory Appeals Regarding Privilege

Privilege holder must obtain documents and endure contempt charge to pursue appeal

John W. Joyce

Three grand jury subjects and their law firms, who had received subpoenas and were under court order to produce putatively privileged documents, could not immediately appeal, the Third Circuit Court of Appeals recently held. In re Grand Jury. The decision narrowly construes the doctrine announced in Perlman v. United States, which generally permits privilege holders to appeal immediately orders that require third-party custodians to produce potentially privileged materials.

Finality and the Contempt Rule

Federal appeals courts have jurisdiction from final decisions of district courts with limited exceptions. Because discovery orders are not final orders under 28 U.S.C. § 1291, a party or nonparty who seeks immediate review of a discovery order ordinarily must refuse compliance, stand in contempt, and then appeal the contempt order.

One exception to the finality rule stems from the U.S. Supreme Court’s 1918 decision in Perlman. Under Perlman, a privilege holder may appeal a discovery order aimed at a disinterested third-party custodian. The rationale for the exception is that a disinterested third party likely would produce the documents rather than stand in contempt, which effectively would eliminate pretrial review of the privilege assertion.

Another exception is the collateral order doctrine, which permits interlocutory appeals of decisions that are conclusive, resolve important questions separate from the merits, and are effectively unreviewable on appeal from a final judgment in the underlying action. In 2009, the Supreme Court in Mohawk Industries, Inc. v. Carpenter held that disclosure orders adverse to the attorney-client privilege do not qualify for immediate appeal under the collateral order doctrine. Some circuits have interpreted Mohawk to mean that Perlman can never apply when the person asserting privilege is a litigant with recourse to traditional appellate review.

Background of In re Grand Jury

ABC Corp. dissolved in 2005. John Doe A was the president of ABC Corp., and John Doe B is his son. In December 2010, the government issued a grand jury subpoena as part of an ongoing investigation ABC Corp.’s tax practices.

At the time of the subpoena dispute, the LaCheen, Wittels & Greenberg, LLP (LaCheen Wittels) law firm represented ABC Corp and John Doe 1. The Blank Rome, LLP law firm represented John Doe 2. Blank Rome housed certain privileged documents belonging to ABC Corp. at the request of LaCheen Wittels, which did not have sufficient space to store the documents.

When ABC Corp. refused to accept service of the subpoena, the government subpoenaed both law firms. The firms withheld from production several documents based on attorney-client privilege. The government moved to compel, and the U.S. District Court for the Eastern District of Pennsylvania granted the motion based on the crime fraud exception.

ABC Corp. and the law firms appealed, arguing that the court of appeals had jurisdiction under the Perlman doctrine because ABC Corp.’s privileged documents were in the possession of nonparty, Blank Rome, who intended to produce the documents. In addition, they argued that Blank Rome could not transfer the documents to ABC Corp. without exposing the law firm to contempt sanctions or obstruction of justice charges.

The Majority Opinion

The Third Circuit dismissed the appeal for lack of jurisdiction. The court reasoned that Perlman only applies when “it is impossible for the privilege holder to disobey the order, be held in contempt, and appeal and contempt sanctions.” Appellants could not satisfy that fundamental requirement because the privilege holder, ABC Corp., could obtain custody of the documents from the law firms and stand in contempt.

The court recognized that it could not find “any cases where 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 appeal while leaving the other parties free of contempt fears.” That said, so long as Blank Rome transferred the documents in good faith, the court of appeals indicated that it would reverse any contempt sanction imposed on the law firm. The majority did not address the government’s argument that Mohawk narrowed Perlman such that Perlman could never apply to a case where the privilege holder was a litigant.

The Dissent

Judge Vanaskie would have exercised Perlman jurisdiction over the law firms’ appeal and affirmed the district court on the merits. He pointed out that since the firms themselves were ordered to produce the documents, merely transferring the documents to ABC Corp. left open the possibility of the law firms being held in contempt.

Moreover, he recognized that the practice of subpoenaing the privilege holder directly and requiring it to obtain documents from a third-party custodian could eviscerate the Perlman doctrine. He also believed that Mohawk, which in terms applies to only to litigants, does not apply to grand jury subjects because they are not litigants.

A Law Firm’s Dilemma?

ABA Section of Litigation leaders shared the dissent’s concern regarding exposure to the law firms. “Though the majority indicated it would reverse any contempt sanction against the firms, no firm wants to risk contempt or obstruction even if subject to reversal later,” says D. Grayson Yeargin, Washington D.C., cochair of the ABA Section of Litigation’s Criminal Litigation Committee. “The law firms are almost certainly in a conflict situation here because of their own potential liability for disobeying the court order,” agrees Sean O’D. Bosack, Milwaukee, cochair of the Corporate Governance Subcommittee of the Section of Litigation’s Committee on Corporate Counsel.

Attorneys should consider all the angles in deciding whether to risk contempt as a means to challenge a discovery order. “From a practical standpoint, you need to remember that the same judge who issues the contempt order will decide other issues in your case and ultimately may exercise discretion in sentencing your client,” cautions Bosack.

“Once you produce the document, you can’t undo it,” notes Yeargin. “If the document is important enough to your case, sometimes you have no choice,” he observes.

If possible, the best practice is to communicate with the government beforehand, says Bosack. “Most prosecutors recognize that a ruling piercing the privilege that is wrong or tenuous creates a serious risk that a conviction based on privileged information may ultimately be reversed on appeal, and that the privileged information, and fruits of that information, may not be available in the event the government wishes to retry the case." Bosack adds.

John W. Joyce is an associate editor for Litigation News.

Keywords: attorney-client privilege, interlocutory, custodians 

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