The Legal Intelligencer

Authors: Colin E. Wrabley

A party facing a discovery order, who wishes to protect the confidentiality of privileged information in documents held by its counsel, may need to regain possession of the documents, refuse to produce the privileged documents, and incur a contempt citation before appealing the order under a groundbreaking decision late last year by the Third Circuit.

The U.S. Court of Appeals for the Third Circuit's decision in In re Grand Jury, 705 F.3d 133 (3d Cir. 2012), tentatively reaffirms the right of a grand jury subject to immediately appeal an adverse discovery order directed at a third party when the subject objects to the order on privilege grounds. But the decision does not resolve whether a similar avenue for immediate appeal is available to civil litigants, and it acknowledges that future guidance from the U.S. Supreme Court may be required to clarify whether the right to an immediate appeal of such orders exists at all after Mohawk Industries v. Carpenter, 558 U.S. 100 (2009).

Mohawk and the Perlman Rule

As a general rule, a party cannot immediately appeal a federal court order directing it to produce documents that the party considers privileged until the party defies the order, is held in contempt, and appeals the contempt order, as held in Church of Scientology of California v. United States, 506 U.S. 9, 18 n. 11 (1992). But, under the Perlman rule, from Perlman v. United States, 247 U.S. 7 (1918), a privilege holder may immediately appeal an order directing a third-party custodian to turn over documents, because the privilege holder cannot compel the third party to defy the order and suffer contempt. More recently, in Mohawk, the Supreme Court held that a different doctrine — the collateral order doctrine — does not authorize immediate appeal of disclosure orders adverse to the privilege. That doctrine allows a small class of rulings to be appealed immediately, even though they do not terminate the litigation, namely rulings "(1) that are conclusive, (2) that resolve important questions separate from the merits, and (3) that are effectively unreviewable on appeal from the final judgment in the underlying action," as in Swint v. Chambers County Commission, 514 U.S. 35, 45 (1995). Mohawk held the collateral order doctrine did not apply to disclosure orders adverse to the privilege because a privilege holder could wait and appeal from the final judgment or obtain an immediately appealable order by defying the discovery order, incurring a contempt citation or other sanction, and appealing from that ruling.

In re Grand Jury

Grand Jury required the Third Circuit to consider whether the Perlman rule — allowing immediate appeals from nonfinal orders compelling discovery of privileged documents from third parties — survived the more recent Mohawk decision. There, the government issued a grand jury subpoena to ABC Corp. seeking documents. After ABC Corp. refused to accept service of the subpoena, the government issued grand jury subpoenas to law firms representing ABC Corp. and a former ABC Corp. officer. The officer's firm was the custodian of the documents at issue. The district court eventually ordered ABC Corp. and the law firms to produce documents that ABC Corp. claimed were subject to privilege. ABC Corp. sought an immediate appeal based on Perlman because the law firm was unwilling to suffer contempt, and ABC Corp. believed it had no way to defy the disclosure order without the law firm's cooperation.

The Third Circuit first considered the impact of Mohawk on Perlman. The court explained that in Perlman, as in the case before it, the defendant seeking to prevent the disclosure of documents to a grand jury was the subject of the grand jury's investigation. While acknowledging the potential conflict between Perlman and Mohawk, the Third Circuit "declined to hold that the Supreme Court narrowed the Perlman doctrine — at least in the grand jury context — sub silentio." Without more explicit language from the Supreme Court declaring that Mohawk was intended to narrow or eliminate the Perlman rule, the court continued, Perlman appeals in the Third Circuit by the subjects of grand jury investigations survive Mohawk.

Nevertheless, the Third Circuit held that the Perlman rule did not allow ABC Corp. to appeal from the order compelling it to produce the documents because the order was directed at both the law firms and ABC Corp. itself. Because ABC Corp. could obtain the documents from the law firm and then choose whether to produce the documents in accordance with the discovery order or alternatively choose to incur a contempt citation, ABC Corp. had an avenue for obtaining a final appealable order. At the same time, however, the court found that ABC Corp. could appeal under the Perlman rule from a separate order, directed only at its former attorneys, because ABC Corp. could not compel them to incur a contempt citation, and even if ABC Corp. obtained the documents from them, ABC Corp. itself had not been ordered to produce them and could not be held in contempt.

The Third Circuit's holding is narrow and, by its terms, applies only to appeals by the subjects of grand jury investigations, and only when the disclosure order is directed only at third parties outside the appellant's control. And the court recognized that the Supreme Court could find that Mohawk applies even to grand jury subjects, and "may well hold that the doctrine does not allow grand jury subjects to receive immediate appellate review of adverse privilege determinations [and], given the need for judicial efficiency in the criminal context, such a decision may be justifiable."

The Implications of Grand Jury

The implications of Grand Jury are unclear absent clarification from the Supreme Court of the interaction between Mohawk and Perlman. If the Supreme Court determines that Mohawk eliminates the Perlman rule entirely, then neither grand jury subjects nor civil litigants will be able to immediately appeal orders directed at third parties based on claims of attorney-client privilege. Both types of litigants would have to elicit a contempt order to obtain immediate appellate review. Just as a civil litigant would be forced to engage in lengthy discovery, motion practice and a trial before review, a grand jury subject would have to endure indictment, discovery, a trial and a conviction before review. Litigants in either position hoping to save legal expenses may be procedurally encouraged to settle or plead expeditiously. Rather than face prolonged litigation in addition to the forced disclosure of privileged and/or confidential information, both civil and criminal litigants may prefer an early resolution.

Conversely, if the Supreme Court upholds the Perlman rule, the Supreme Court could narrowly construe its applicability in light of Mohawk. It could limit it to discovery orders in the context of grand jury investigations or to discovery orders directed only to third parties over whom the litigant has no direct control. The Supreme Court also could impose a new requirement upon Perlman appeal applicants to show they have been unable to obtain the privileged documents from the third parties. Imposing that obligation would ensure any court evaluating a Perlman appeal that the petition falls clearly within the Supreme Court's intended class of Perlman appeals and not under the collateral order doctrine.

For now, litigants and their counsel who wish to avail themselves of the Perlman rule, while still avoiding the sweeping effect of Mohawk, should carefully consider to whom the discovery order is directed, whether they can obtain the documents that are the object of the order, and whether the order arises in a civil litigation or a grand jury investigation. Only then can they determine whether to appeal immediately, comply with the discovery order, or incur a contempt citation and then appeal.


Reprinted with permission from the March 20, 2013 edition of the "The Legal Intelligencer"© 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.