June 21, 2013 Top Story

Ninth Circuit Allows Intervention to Preserve Deposition

Lawyers must take steps to fully enforce protective orders after a case settle

Caitlin Haney

The termination of litigation does not preclude a subsequent motion to intervene to modify a protective order. The U.S. Court of Appeals for the Ninth Circuit held that the U.S. District Court for the Central District of California did not abuse its discretion by modifying an original protective order to place the plaintiff’s deposition in escrow rather than destroying it in accordance with the original protective order’s terms.

Underlying State and Federal Actions 

In Blum v. Merrill Lynch Pierce Fenner & Smith Inc. [PDF] the plaintiff sued Merrill Lynch Pierce Fenner & Smith Inc. (Merrill Lynch) and Thomas Mazzucco, alleging that advice in connection with an initial public offering of Buy.com was faulty (the federal action). In 2004, a blanket protective order was issued that required the parties to destroy all confidential documents, including the plaintiff’s deposition testimony, at the end of the litigation. The parties settled the federal action in 2005.

In 2009, plaintiff sued KPMG in state court, alleging that but for KPMG’s advice he would have sold all of his shares in Buy.com in 1998 for $400 million (the state action). Although plaintiff acknowledged the existence of his earlier deposition transcript, he refused to produce it. KPMG’s counsel obtained a copy of the transcript from the court reporting service that transcribed the deposition.

In 2011, plaintiff filed an emergency ex parte motion in the federal action requesting that it be reopened and the district court order KPMG to destroy the transcript in compliance with the protective order and settlement agreement. The following day KPMG filed an ex parte motion to intervene to oppose plaintiff’s motion. Ultimately, the district court reopened the case, granted KPMG’s motion to intervene, and modified the protective order to have the transcript placed in escrow rather than destroyed. Plaintiff subsequently dismissed the state action against KPMG without prejudice.

Motion to Intervene Appropriate

On appeal, the Ninth Circuit held that when challenging confidentiality orders, motions to intervene may be filed long after a lawsuit terminates. In reaching this decision, the appellate court relied on cases from the FirstThird, and Tenth Circuits, which reached similar conclusions. The court held that because KPMG’s need for the transcript did not arise until after the state action commenced, and because it filed a motion to intervene the day after plaintiff moved to have the transcript destroyed, the motion was timely.

The Ninth Circuit also found that because the original parties previously had settled, the motion to intervene would not affect their rights. The appellate court also rejected the plaintiff’s argument that he “generally relied” on the protective order’s enforcement, finding no evidence that allowing the defendant to intervene would result in prejudice. Rather, the appellate court postulated that possible prejudice could be eliminated by the issuance of a new protective order to keep the information confidential.

Modification of Protective Order Warranted

The Ninth Circuit further found that the district court did not abuse its discretion by modifying the protective order. It held that because the deposition contained relevant testimony, the transcript’s destruction would amount to “court-sanctioned destruction of evidence.” Further, because the state action was dismissed without prejudice, it could subsequently be revived.

The Ninth Circuit reached the correct decision because “once an item is found to be relevant, our system would abhor its destruction,” according to Joan K. Archer, Kansas City, MO, cochair of the ABA Section of Litigation’s Pretrial Practice & Discovery Committee. “Its destruction would be contrary to fairness and the truth-seeking function of litigation and the law.”

Lawyers Must Take Steps to Ensure Protective Orders Enforced 

“As a litigator who deals with discovery all the time in settlements, this case shows that Blum and his counsel did not wrap up the case properly,” opines Benjamin K. Sanchez, Houston, cochair of the Section of Litigation’s Discovery & Motion Practice Subcommittee of the Pretrial Practice & Discovery Committee. From a litigator’s standpoint, one “has a duty to one’s client to be on the ball from the beginning to the end of the case and it was sloppy not enforcing the protective order,” argues Sanchez.

There can be an issue regarding notice if the “protective order is not given to all the prospective parties who had the documents,” according to Sanchez. In addition to actually giving notice to those parties, lawyers should “seek that the parties report back to the court that they have complied with the order and some sort of verified statement.”

“Typically,” notes Archer, “parties either require materials to be returned and/or destroyed, along with an attestation from the lawyer or third party involved confirming compliance with the protective order.” Although confirmation may “not necessarily ensure that all the documents have been destroyed, it gives you a reliance argument you can use in the future,” says Sanchez.

In the end, “there should not have been a transcript for KPMG’s attorneys to find in the first place,” argues Sanchez.

Questions Remain Unanswered

The Court of Appeals declined to address whether the deposition transcript could be used in subsequent litigation. Although preservation in escrow seems to achieve a proper balance of the relevant interests, “it seems to put off the ultimate question, which means the potential for further briefing and additional costs for the parties involved,” notes Archer.

Caitlin Haney is a contributing editor for Litigation News.

Keywords: civil procedure, motion to intervene, protective orders, discovery

Related Resources

  • Blum v. Merrill Lynch Pierce Fenner & Smith Inc., No. 11-55635 (9th Cir. Apr. 11, 2013).
  • Pansy v. Borough of Stroudsburg, 23 F.3d 772 (3d Cir. 1994).
  • United Nuclear Corp. v. Cranford Ins. Co., 905 F.2d 1424 (10th Cir. 1990).
  • Pub. Citizen v. Liggett Group, Inc., 858 F.2d 775 (1st Cir. 1988).

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