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December 16, 2009

Supreme Court Decision Resolves Split on Collateral Order Rule and Interlocutory Orders Adverse to Attorney-Client Privilege

In a decision that has significant implications for the attorney-client privilege, the United States Supreme Court recently held that interlocutory orders requiring production of arguably privileged material cannot be immediately appealed under the collateral order rule. The Supreme Court's decision in Mohawk Industries v. Carpenter, 558 U.S._ (2009), the first authored by Justice Sonia Sotomayor, resolves a split among the federal circuits on the applicability of the collateral order rule.

As a general rule, in federal court only "final" orders are appealable. However, the collateral order rule, which was established in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) and subsequent cases, allows for immediate appellate review of interlocutory orders that (a) conclusively determine a disputed question; (b) resolve an important issue completely separate from the merits of the case; and (c) effectively would be unreviewable if the party challenging the order was forced to wait until the end of the case to appeal. Before Mohawk Industries, three circuits held that the collateral order rule applied to decisions requiring disclosure of information arguably protected by the attorney-client privilege.

Mohawk Industries came to the Supreme Court on appeal from the Eleventh Circuit. The controversy involved a district court order requiring disclosure of confidential information because the petitioner, Mohawk, had waived the attorney-client privilege. Mohawk filed a notice of appeal and a writ of mandamus to challenge the ruling. The Eleventh Circuit dismissed the appeal for lack of jurisdiction under 28 U.S.C. § 1291, holding that the district court's ruling was not immediately appealable under the collateral order rule.

The Supreme Court affirmed the Eleventh Circuit's decision, and held that "collateral order appeals are not necessary to ensure effective review of orders adverse to the attorney-client privilege." The Supreme Court added that "[p]ermitting piecemeal, prejudgment appeals . . . undermines efficient judicial administration and encroaches upon the prerogatives of district court judges, who play a special role in managing ongoing litigation."

Mohawk argued that because the attorney-client privilege is so essential to the functioning of the legal system, decisions as to its application cannot wait until a final judgment has been rendered. In rejecting this argument, the Supreme Court stated that "[it] routinely require[s] litigants to wait until after final judgment to vindicate valuable rights . . . central to our adversarial system." The Supreme Court also rejected the argument that its ruling would have a "chilling effect" on full and frank discussions between attorneys and their clients, stating that "in deciding how freely to speak, clients and counsel are unlikely to focus on the remote prospect of an erroneous disclosure order, let alone on the timing of a possible appeal."

The Supreme Court also noted that parties ordered to disclose arguably privileged material have two options apart from appealing a disclosure order under the collateral order rule. The first option is to seek permission to file an interlocutory appeal pursuant to 28 U.S.C. § 1292(b). The second option is to seek mandamus review. The Supreme Court also noted that, if all else fails, a party could refuse to comply with a disclosure order and face sanctions, or be held in contempt and then appeal.

It is not likely that parties in Mohawk's position will derive any comfort from the Supreme Court's suggestions. Relief under the two alternative options mentioned is granted infrequently. Further, it is difficult to envision a situation where it makes sense for a party to risk sanctions or a contempt finding to prevent disclosure of privileged material. Thus, as a practical matter, disclosure of sensitive (and possibly privileged) material under such circumstances will provide a litigation advantage that is not counterbalanced by the right of appeal after a final decision is rendered. All the more reason to ensure that the utmost care is taken to preserve the attorney-client privilege.

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