Orders Compelling Production of Privileged Documents Are Not Immediately Appealable

Mohawk Industries, Inc. v. Carpenter, 130 S. Ct. 599 (2009), asked whether a party can immediately appeal an order requiring the production of privileged documents. The nub of the dispute is whether such an order is “effectively unreviewable” after final judgment (as the collateral order doctrine requires). In Mohawk, the Eleventh Circuit reasoned that such an order is not immediately appealable, because, even after an appeal following the entry of a final judgment, the court of appeals could order a new trial in which use of the challenged documents is forbidden. Five other circuits (First, Second, Seventh, Tenth, and Federal) shared that view. The Third, Ninth, and D.C. Circuits disagreed, reasoning that the practical effect of an order to produce potentially privileged documents is often irreparable, thereby warranting immediate appellate review.

Last month, the Supreme Court unanimously affirmed the Eleventh Circuit’s ruling. In her first opinion for the Court, Justice Sotomayor acknowledged that orders requiring the disclosure of documents a party contends are protected by the attorney-client privilege raise important issues impacting the attorney-client relationship. She emphasized, however, the narrowness of the collateral order exception to the general rule that an appeal should be allowed only after final judgment. Ultimately, the Court concluded that the “likely institutional costs” of permitting interlocutory appeals from such disclosure orders probably would outweigh the “limited benefits.” In the Court’s view, a number of other mechanisms for appellate review of the order suffice, namely:

  • The party can appeal the disclosure order at the end of litigation, and request vacatur of the judgment and a remand for a new trial in which privileged documents (and their fruits) are excluded
  • The party can ask the district court to certify the order for an interlocutory appeal under 28 U.S.C. § 1292(b), and then petition the court of appeals to accept that appeal
  • The party can petition the court of appeals for a writ of mandamus, or
  • The party can defy the disclosure order and incur sanctions (including, e.g., a ruling prohibiting it from supporting or opposing claims or defenses on the merits or a finding of contempt), and then appeal those rulings directly

Each of those mechanisms, however, entails considerable risk and/or requires that a litigant meet very high legal standards for relief. This means that litigants and counsel will face difficult choices when a court orders the disclosure of information they contend is privileged. When faced with such an order, counsel should develop a record that addresses all the factors appellate courts consider when ruling on § 1292(b) petitions and petitions for writs of mandamus. Litigants and their counsel should also fully consider the implications of placing legal advice even tangentially at issue in the litigation. And, before any litigation commences, corporate counsel should take particular care to advise all employees of the importance of communicating with counsel in a manner that will withstand an attack on the attorney-client privilege.

U.S. Supreme Court Cracks Open a Door for Appeals of Remand Orders

As discussed supra, an order remanding a case to state court for lack of subject matter jurisdiction is “not reviewable on appeal or otherwise.” In Carlsbad Technology, Inc. v. HIF BIO, Inc., 120 S. Ct. 1862 (2009), the Court weighed in on whether a remand order that rested on the court’s dismissal of the lone federal claim, coupled with a refusal to exercise supplemental jurisdiction over the state-law claims, constitutes a dismissal for “lack of subject matter jurisdiction.” The Court concluded that the remand order did not rest on a “lack of subject matter jurisdiction,” but rather involved the district court’s exercise of discretion not to exercise the jurisdiction conferred by 28 U.S.C. § 1367(c). The Court reversed the Federal Circuit’s dismissal of the appeal from the remand order. Given the unequivocal wording of 28 U.S.C. § 1447(d) (“[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise”), and the very limited judicial exceptions on that prohibition, Carlsbad Technology may provide a welcome avenue for many defendants to obtain appellate review of an order returning a case to state court.

The Collateral Order Doctrine In Pennsylvania: Collateral Issues Only, Please

As a general rule, an appellate court’s jurisdiction in Pennsylvania extends only to review of final orders. A litigant does have a right, however, to interlocutory appellate review of a collateral order under Pa. R. App. P. 313. A collateral order is one that: (1) is separable from and collateral to the main cause of action; (2) implicates rights that are too important to be denied review; and (3) the appellant’s claim as to that order will be lost if postponed until final judgment. In Robert Rae and Commonwealth Funeral Consultants, 977 A.2d 1211 (Pa. 2009), the Pennsylvania Supreme Court clarified that it is more precise to think of rulings on collateral issues (and not collateral orders per se) as the things that are immediately appealable as of right. In Rae, the trial court ordered the production of a file over the defendant’s objections that (1) it was protected by the deliberative process privilege and, in any event, (2) was not relevant. The defendant appealed to the Commonwealth Court. (In Pennsylvania, unlike in some federal courts (see discussion of Mohawk supra), an order compelling the production of privileged documents is immediately appealable as a collateral order.) The Commonwealth Court ultimately rejected the defendant’s assertion that the file was privileged.

Rather than ending its review there, however, the court went on to address the relevance of the documents, and concluded that the file was not relevant to plaintiff’s cause of action, and thus, was not discoverable. The Supreme Court reversed, holding that the Commonwealth Court lacked jurisdiction to determine the relevance of the documents on an interlocutory basis. Rather, each prong of the collateral order test must be satisfied as to each legal issue a litigant is asking the appellate court to address on an interlocutory basis. Because there is no statutory right to interlocutory appellate review of a lower court’s determination that documents are (or are not) relevant, the Supreme Court reversed the Commonwealth Court’s ruling on that issue. In doing so, the Court left open the question of whether the collateral order doctrine allows for an exercise of pendent appellate jurisdiction over issues that are “essential to the resolution of” a collateral issue over which the appellate court does have interlocutory jurisdiction.

A Mistake of Law Does Not Justify Relief Under Fed. R. Civ. P. 60(b)

Under Federal Rule of Civil Procedure 60(b)(1), a district court “may relieve a party . . . from a final judgment, order, or proceeding for . . . mistake, inadvertence, surprise, or excusable neglect.” Case law establishes that counsel’s mistake or inadvertence can justify relief under Rule 60(b)(1), typically when the mistake involves a misunderstanding of surrounding facts or circumstances. But what about counsel’s misperception about the controlling legal principles? Will that constitute mistake, inadvertence, or excusable neglect sufficient to warrant reconsideration of a prior adverse ruling? The answer typically is “no,” as the Seventh Circuit recently held in Eskridge v. Cook County, 577 F.3d 806 (7th Cir. 2009). Counsel’s delay or inattentiveness might be sufficient if, for example, the issue is a failure to comply with a deadline or order that results in the entry of judgment against the client. But an incorrect assessment of controlling law, unless it can be characterized as truly a “mistake” (as opposed to a poor decision), will not qualify for relief under Rule 60(b)(1). In Eskridge, the Seventh Circuit noted that the attorneys’ strategic decision to voluntarily dismiss a complaint, which was predicated on the misapprehension that they could re-file the suit in state court, would not warrant relief from an order of dismissal.

Seventh Circuit Applies Twombly, But Reaffirms Conley’s Notice Pleading Standards: Which is it?

A student’s allegation that Indiana University made an implied contract never to expel him (despite his dismal academic performance) gave the Seventh Circuit another opportunity to address the interplay between Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Conley v. Gibson, 335 U.S. 41 (1957). In Bissessur v. Indiana University Bd. of Trustees, 581 F.3d 599 (7th Cir. 2009), the court went through the now-familiar mantras that pleading only “bare legal conclusions” is not sufficient to survive a Rule 12(b)(6) motion, because Twombly demands more than a “formulaic recitation of the cause of action’s elements.”

Rather, Twombly requires a level of “facial plausibility” at the pleadings stage that raises the plaintiff’s right to relief above the speculative level.

After listing the Twombly requirements, however, the court made the surprising observation that federal pleading standards actually have not changed materially since 1957: “Our system operates on a notice pleading standard; Twombly and its progeny do not change this fact. . . . Under Conley, just as under Twombly, it is not enough to give a threadbare recitation of the elements of a claim without factual support.”

Ultimately, the court concluded that the plaintiff’s implied contract claim was lacking, because it alleged no facts or detail, such as “What was the contract? The promises made? The consideration? The nature of the breach?” Id. In short, despite its protestations that Conley’s liberal pleading standard is alive and well, the court applied a very Twombly-esque formulation. Bissessur should give plaintiffs in the Seventh Circuit pause as to whether Conley will save a complaint that is short on details.

In Pennsylvania, a Party Need Not Comply With a Notice of Termination/Right To Cure Provision of a Contract if the Breach Goes to the Contract’s Essence

In a case of first impression (LJL Transportation, Inc. v. Pilot Air Freight Corp., 962 A.2d 639 (Pa. 2009)), the Pennsylvania Supreme Court ruled that, in some circumstances, a party’s breach of a contract may justify the immediate termination of that contract, even in the face of an express “right to cure” clause. Citing decisions under other states’ laws, the Pennsylvania Supreme Court held: “[W]hen there is a breach of contract going directly to the essence of the contract, which is so exceedingly grave as to irreparably damage the trust between the contracting parties, the non-breaching party may terminate the contract without notice, absent explicit contractual provisions to the contrary.”

Significantly, the court’s holding is not limited to franchise agreements. In fact, Appellate Group partner Donna Doblick recently featured the superior court’s decision in LJL Transportation in a post-trial motion that led to a very favorable settlement of a breach of contract case between a minority-owned business and an independent contractor.

Sixth Circuit Determines the Statute of Limitations Applicable to Claims Under the Electronic Funds Transfer Act

In Wike v. Vertrue, Inc., 566 F.3d 590 (6th Cir. 2009), the Sixth Circuit became the first court of appeals to determine when the statute of limitations starts to run for alleged violations of the Electronic Funds Transfer Act (15 U.S.C. § 1693). Under § 1693m(g), claims alleging violations of the EFTA must be filed “within one year from the date of the occurrence of the violation.” The statute does not specify, however, whether the clock starts running when the defendant arranges for a transfer that would violate the Act, or the later date on which the transfer of funds actually occurs. The Sixth Circuit concluded that the limitations period does not start to run until funds are transferred. The court did not address the related question of whether the discovery rule might toll the running of the limitations period.