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American Express Warehousing v. Transamerica Insurance Co.

decided: July 5, 1967.

AMERICAN EXPRESS WAREHOUSING, LTD., DEBTOR-IN-POSSESSION ET AL., PLAINTIFFS,
v.
TRANSAMERICA INSURANCE COMPANY ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLEES, AMERICAN EXPRESS COMPANY, ADDITIONAL DEFENDANT AND THIRD-PARTY DEFENDANT-APPELLANT



Lumbard, Chief Judge, and Smith and Feinberg, Circuit Judges. Lumbard, Chief Judge (dissenting).

Author: Feinberg

FEINBERG, Circuit Judge:

This is an attempt to obtain interlocutory review of a discovery order in a so-called "big case."*fn1 American Express Company ("Amexco") appealed from an order of Judge Ryan of the Southern District of New York directing Amexco to produce certain documents for discovery. While the appeal was pending, appellees Transamerica Insurance Company and other insurance companies ("the insurers") moved to dismiss on the ground that the order was not appealable. We ordered that the appeal be heard with argument on the insurers' motion; we now grant the motion to dismiss and deny Amexco's alternative application for leave to file a petition for a writ of mandamus.

Although we are amply presented with analysis of the precise legal issues before us, because of the speed with which the appeal has been handled not all of the extremely complicated underlying facts have been made similarly clear. As best we can tell from the papers before us and other matters of record, this appeal is part of the complicated litigation growing out of the "salad-oil" scandal at Bayonne, New Jersey, in the fall of 1963. At that time, Allied Crude Vegetable Oil Refining Corp. ("Allied") "became notoriously insolvent and then a bankrupt, [and] it was discovered that it had been the vortex of frauds and the unexplained non-existence or disappearance of huge quantities of edible oils for which warehouse receipts had been issued to others."*fn2 Thereafter, holders of these receipts made claims against present and former wholly-owned field warehousing subsidiaries of Amexco, both of which are now in proceedings under the Bankruptcy Act. Various related claims have been asserted against Amexco itself, counsel inform us, for "many millions of dollars -- in fact, for amounts far in excess of the net worth of Amexco." When the claims were asserted against Amexco, the insurers were put on notice; thereafter, they substantially repudiated the insurance contracts, claiming that there had been misrepresentation and concealment in obtaining the insurance. Various legal actions followed, and the many cases in the Southern District of New York have been handled by Judge Ryan. The instant appeal thus presents but a small aspect of this massive litigation;*fn3 it raises only one question of discovery between appellant Amexco and the appellee insurers.

Amexco and the insurers have apparently been negotiating since at least July 1965 as to the production of documents. In January 1966, by stipulation of counsel, Judge Ryan entered an order requiring Amexco, by February 15, to produce to the insurers for inspection and copying all of the "non-privileged" documents relating to certain matters. Amexco was given until February 21 to notify defendants of those categories of documents withheld from production pursuant to "any claim of privilege." Each document thus claimed to be privileged was to be delivered to the judge "at the time that judicial review of such claim of privilege is sought."

Thereafter, Amexco produced thousands of documents for discovery, but in March served a statement claiming privilege as to others. In response, defendants moved for production of certain of the latter, which were prepared after November 19, 1963, the date on which Allied had filed for relief under the Bankruptcy Act. Amexco thereupon claimed work-product "privilege" because the papers sought were reports made by a Special Investigative Unit ("the Unit") to counsel for Amexco, and the Unit worked solely under counsel's direction and control.

The Unit was set up by Amexco in December 1963, following Allied's petition in bankruptcy, in anticipation of litigation. The Unit has its own quarters at Amexco's offices and is composed of trained investigators and accountants, mostly former Federal Bureau of Investigation special agents. The Unit is headed by two Amexco employees, who had had the title of Inspector and as such had previously investigated fraud and crime. Reports made by members of the Unit were stamped "PRIVILEGED AND CONFIDENTIAL PREPARED AT THE REQUEST OF AND FOR THE USE OF COUNSEL ONLY."

Before Judge Ryan, the insurers gave many reasons why the documents sought had to be produced under the January 1966 order. They argued principally that the nature of the documents -- which had not been established by Amexco -- should control, rather than under whose auspices they were created; that the rubberstamped legend should be given no weight; e.g., it appears on a report describing the draining of water from a tank by the reporter -- hardly forensic labor; and that counsel was not identified, even though at least five law firms have represented Amexco in various phases of the dispute. In turn, Amexco's basic claim was that the documents were obtained as a result of an investigation conducted by its attorneys in preparation for litigation; since the documents are no different from those prepared by counsel themselves after a personal investigation, by "revealing the areas of interest and importance to counsel," the documents "reflect counsel's thought processes and litigation preparation efforts." An enormous number of papers and a "representative selection" thereof, supposedly to facilitate the court's review, were delivered to court under this claim.

On January 30, 1967, Judge Ryan held that to decide the claim of work-product on its merits he would have to examine the documents. However, this was unnecessary because the claim of "privilege" was based not on content but only on authorship (counsel acting through agents). Judge Ryan pointed out that Amexco did not identify "the nature or the number of the documents, the names of the persons preparing them or their relation to the client, the dates on which they were prepared and other pertinent information." Alternatively, since the January 1966 order, which specifically called for the production of results of "investigations," was agreed to by Amexco when the work of the Unit had been going on for three years to the knowledge of all concerned, Judge Ryan held that Amexco waived any work-product protection as to the Unit's work.*fn4 Indeed, Judge Ryan noted that "the parties agreed to exchange the results of their investigations." Therefore, the insurers' application for discovery was granted. A short while later, the judge granted reargument but adhered to his original order. He ruled that correspondence between counsel before the stipulation regarding discovery could not vary the terms of the stipulation and that if Amexco had considered the Unit's work to be counsel's work-product, it should have so provided in the stipulation. Judge Ryan also specifically stated that "the activities of this 'Special Unit' do not constitute attorney's work product."

On February 27, 1967, Amexco appealed from Judge Ryan's January 30, 1967 order requiring production.*fn5 In April, after Judge Ryan had decided the motion for reargument, the insurers moved to dismiss the appeal because the January 1967 order was not final. Upon the consent of counsel, the appeal was expedited and the panel hearing the motion to dismiss also heard the appeal. We shall first consider the question of appealability.

I.

Amexco first claims that Judge Ryan's order is a "final decision" within the gloss put upon 28 U.S.C. § 1291 by the Supreme Court in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 545-547, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949).*fn6 In that case, the Court held that denial of a motion to compel security for costs fell "in that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjucated." 337 U.S. at 546, 69 S. Ct. at 1225-1226. In giving section 1291 a "practical rather than a technical construction" -- before Congress provided another limited escape valve from the finality rule by enacting 28 U.S.C. § 1292(b) -- the Court nevertheless envisioned immediate appeal in only a "small class" of cases, a term hardly descriptive of the number of cases raising discovery questions. Therefore, as was to be expected, Cohen did not change the pre-1949 practice of denying interlocutory review to discovery orders. 4 Moore, Federal Practice para. 26.37 [1. -- 1] (2d ed. 1966). Thus, before and after Cohen, orders requiring the production of documents were held not "final" and therefore not appealable. For pre-1949 cases, see, e.g., Webster Coal & Coke Co. v. Cassatt, 207 U.S. 181, 28 S. Ct. 108, 52 L. Ed. 160 (1907); Apex Hosiery Co. v. Leader, 102 F.2d 702 (3d Cir. 1939) (per curiam); Bank Line, Ltd. v. United States, 163 F.2d 133, 136 (2d Cir. 1947) (dictum). For post-1949 cases, see, e.g., Paramount Film Distributing Corp. v. Civic Center Theatre, Inc., 333 F.2d 358 (10th Cir. 1964); Robinson v. Bankers Life & Casualty Co., 226 F.2d 834 (6th Cir. 1955) (per curiam). Further support could be cited for the proposition that an order requiring the production of documents is not ordinarily appealable. We note this not to stress the obvious but because in describing what this case is not -- as we do below -- the emphasis on the exceptional may obscure the normal statutory requirement for appealability and the sound reasons for it. Among the latter are: an appellant's ultimate right of review upon an appeal from a final judgment in the action; the elimination of unnecessary appeals, since the complaining party may win the case or settle it; the absence of irreparable harm from the vast majority of orders requiring production of documents; the potential for harassment of litigants by nuisance appeals, and the fact that any appeal tends to delay or deter trial or settlement of a lawsuit; the burden on the reviewing court's docket from appeals of housekeeping matters in the district courts; and the slim chance for reversal of all but the most unusual discovery orders.

The rule of nonappealability is no different when a claim of attorney's work-product under Hickman v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 91 L. Ed. 451 (1947), is made. Counsel have not cited, nor have we been able to find, a single case where an assertion of work-product, either accepted or rejected by the district court, so colored the case as to cause an appellate court to assert jurisdiction in contravention of the normal rule against appealability of discovery orders.*fn7 Work-product questions do not frequently get to the circuit courts, but when they do, jurisdiction does not appear to be predicated on the ground that the discovery order was final under 28 U.S.C. § 1291. Thus, in Hickman itself, the appellants (respondents in the Supreme Court) had been adjudged in contempt for refusal to obey an order to produce statements of witnesses.*fn8 Similarly, in Alltmont v. United States, 177 F.2d 971 (3d Cir. 1949), cert. denied, 339 U.S. 967, 70 S. Ct. 999, 94 L. Ed. 1375 (1950), there was a judgment of liability, appealable in admiralty even though interlocutory, for appellant's failure to comply with a discovery order. In New York Central R.R. v. Carr, 251 F.2d 433 (4th Cir. 1957), and Southern Ry. v. Campbell, 309 F.2d 569 (5th Cir. 1962), the party compelled to turn over claimed work-product appealed from a judgment on the merits. See also Guilford National Bank v. Southern Ry., 297 F.2d 921 (4th Cir. 1962) (contempt); Hauger v. Chicago, R.I. & Pac. R.R., 216 F.2d 501 (7th Cir. 1954) (same); Goosman v. A. Duie Pyle, Inc., 320 F.2d 45 (4th Cir. 1963) (judgment against party refused discovery).

In analogizing its situation to Cohen, Amexco's thrust against the authorities barring appellate review is a claim of irreparable harm should discovery be erroneously granted. We do not think that the mere possibility of erroneous application of the Hickman principle to a given set of documents raises a spectre of such dire consequences that immediate appellate review as of right must follow. For such would be the inescapable conclusion if this appeal were allowed. Work-product protection is not so absolute that disclosure can never be justified. Hickman states to the contrary, 329 U.S. 495, at 511-514, 67 S. Ct. 385. Unlike the case of a trade secret, erroneous disclosure of work-product does not make almost certain the immediate destruction of a protected property right,*fn9 cf. Covey Oil Co. v. Continental Oil Co., 340 F.2d 993 (10th Cir.), cert. denied 380 U.S. 964, 85 S. Ct. 1110, 14 L. Ed. 2d 155 (1965) (appellants not parties to litigation). The interest protected is not only qualified but intangible and difficult to relate to immediate harm. Moreover, there can be appellate review of the order below even without a sanction under Fed.R.Civ.P. 37(b) (2). While success in an appeal after trial may be unlikely,*fn10 it nevertheless can be had, e.g., Southern Ry. v. Campbell, supra, 309 F.2d 569. It is true that if reversal is obtained, the disclosure has already been made. To the extent that trial strategy is thus uncovered, the harm occasioned resembles that suffered in any retrial because of error in the first. However, that by-product of confining appeals to final judgments has never been regarded as calamitous. Nevertheless, it may be pointed out that in a retrial each side has still been obliged to prepare independently for the first trial, a major justification for work-product protection. There is left then the possibility of a residue of significant irreparable harm -- i.e., encouragement of lazy preparation -- if work-product is erroneously disclosed at the discovery stage. That possibility may exist in a particular case, although we regard it as most improbable in this hotly contested litigation. Moreover, there are, after all, ...


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