Howard J. Bashman's appellate columns, etc.

Three Leading Candidates For Rehearing En Banc In The 3d Circuit

By Howard J. Bashman
Monday, March 11, 2002
Like most high quality appellate courts, the U.S. Court of Appeals for the Third Circuit reaches the correct result in nearly all of the appeals that it decides. Occasionally, however, a Third Circuit panel resolves an important question of law in a way that, with the benefit of sufficient hindsight, seems clearly wrong.

When that happens, other federal appellate courts may criticize, and choose not to follow, the Third Circuit's ruling. Respected commentators may question the ruling. And, other Third Circuit panels may try to evade the decision's holding in creative, but not necessarily persuasive, ways.

Because the Third Circuit follows a sensible policy that prohibits a later three-judge panel from overruling holdings announced in an earlier panel's published opinions, there is no easy way for the court to escape the consequences of a clearly wrong decision on an important issue of law.

If the issue is the subject of a circuit split, the U.S. Supreme Court may grant review and announce a decision overruling the Third Circuit's earlier opinion. Or, the Third Circuit can grant rehearing en banc in a pending case that presents the same issue, thereby allowing a majority of the court's participating active judges to overrule the earlier, clearly wrong panel decision.

Taking a case en banc can be a cumbersome and time-consuming process. Yet, the process serves as an important safety valve on the mechanism of federal appellate review and the pressure to get more cases resolved as quickly as reasonably possible.

This column highlights three areas in which existing Third Circuit law is in serious need of en banc review. All three instances involve issues of great significance that our local federal appellate court has incorrectly decided.

First, the Third Circuit has erroneously restricted the availability of interlocutory appellate review of orders denying preliminary injunctions, and the time has come to rectify this error.

Second, the Third Circuit has issued directly conflicting rulings concerning whether the principal purpose of federal criminal restitution is to punish the offender or compensate the victim. Rehearing en banc should be granted to resolve the serious tension between these rulings.

Third, the court has erroneously ruled that an order compelling discovery notwithstanding a party's claim of privilege or trade secret protection is subject to immediate appellate review under the collateral order doctrine. The Third Circuit is the only federal appellate court to have reached this conclusion, and respected commentators have questioned its rulings on this point. The Third Circuit should grant rehearing en banc in the next case that raises the issue and hold that the only form of appellate review available in these circumstances is by means of a petition for writ of mandamus.

Interlocutory appellate review of orders denying preliminary injunctions: Section 1292(a)(1) of Title 28, United States Code, gives a federal appellate court jurisdiction to review an interlocutory order refusing to issue a preliminary injunction. Thus, where a federal district court directly denies a party's request for a preliminary injunction, that party can take an immediate appeal as of right to the federal appellate court, which must then decide whether the trial court's denial was correct.

The U.S. Supreme Court ruled in 1981 that where a federal district court issues an order that has only the indirect effect of denying a injunction, the party whose injunction was indirectly denied can appeal pursuant to Section 1292(a)(1) if the indirect denial is causing irreparable injury. Carson v. American Brands, Inc., 450 U.S. 79 (1981).

The Third Circuit has erroneously understood the Supreme Court's ruling in Carson to require that irreparable harm be shown in order to appeal from all denials of preliminary injunctions, direct or indirect. Vuitton v. White, 945 F.2d 569, 574 (3d Cir. 1991); Ross v. Zavarella, 916 F.2d 898, 902 (3d Cir. 1990). The Supreme Court, however, has held no such thing, and requiring an appellant to establish irreparable harm to appeal a direct denial of an injunction eviscerates the appeal as of right that Section 1292(a)(1) expressly confers.

As the Seventh Circuit has observed, "[a]sking whether an order plainly denying an injunction also caused irreparable injury would add a gratuitously complicating factor to the simple statutory rule." Holmes v. Fisher, 854 F.2d 229, 232 (7th Cir. 1988). Professors Charles Alan Wright and Arthur R. Miller, in their highly respected treatise "Federal Practice and Procedure" (hereinafter "FPP"), have disagreed with the Third Circuit's improperly restrictive view of Section 1292(a)(1). 16 FPP 2d § 3924.1, at 157 (1996).

The Third Circuit's rulings on this issue prove most troublesome when a district court directly denies a preliminary injunction because the movant has failed to prove irreparable harm. As a threshold showing to maintaining the appeal as of right that Section 1292(a)(1) provides, the movant must prove to the Third Circuit's satisfaction at the outset of the appeal that the district court's finding of no irreparable harm was wrong.

Section 1292(a)(1) does not require this threshold showing, and the Third Circuit decisions that impose this requirement are clearly wrong. Proving irreparable harm is certainly relevant to the merits of an appeal challenging a trial court's order directly refusing to issue a preliminary injunction. Nevertheless, the existence of appellate jurisdiction over an order directly denying a preliminary injunction does not depend on a threshold showing of irreparable harm.

In an appropriate case, the Third Circuit should grant rehearing en banc and hold that orders directly denying preliminary injunctive relief are immediately appealable under Section 1292(a)(1) without requiring, as a condition of appealability, a showing of irreparable harm to the appellant.

Is criminal restitution principally punitive or compensatory: In the Mandatory Victims Restitution Act of 1996, Congress required federal district courts to sentence convicted defendants to pay full restitution to their victims. Under prior law, the trial court had discretion to impose a lesser amount of restitution if the defendant was financially unable to pay the full amount. Congress specified that the MVRA would apply to sentences imposed after its effective date, even if the criminal conduct giving rise to the restitution obligation occurred before the law took effect.

Federal appellate courts have divided over whether the MVRA is an unconstitutional ex post facto law as applied to criminal conduct occurring before its passage. That issue only the U.S. Supreme Court can resolve. However, the Third Circuit's rulings on whether the principal purpose of restitution is punishment of the offender or compensation of the victim are themselves in conflict, and rehearing should be granted to resolve that intra-circuit division.

In 1995, a Third Circuit panel decided that the MVRA was an unconstitutionally ex post facto law when applied to restitution orders arising from criminal conduct that occurred before the law took effect. United States v. Edwards, 162 F.3d 87 (3d Cir. 1998). As the basis for its ruling, the panel held that the principal purpose of restitution in a federal criminal sentence was punishment of the offender.

In November 2001, however, a different Third Circuit panel concluded that the principal purpose of restitution under the MVRA is compensation of the victim. United States v. Christopher, 273 F.3d 294 (3d Cir. 2001). Thus, the panel concluded, an order of restitution was not nullified upon the criminal defendant's death but, rather, could still be enforced against his estate.

The Third Circuit recognized in Christopher the apparent incongruity between the court's holding there and the court's holding three years earlier in Edwards. After noting the preexisting intra-circuit conflict on the principal purpose of federal criminal restitution, the panel in Christopher decided to exacerbate further this conflict, explaining that "[a] survey of case law illustrates that restitution is best classified as compensatory, punitive, or a combination of both according to the context in which the issue arises."

The Third Circuit should grant rehearing en banc to resolve whether the principal purpose of restitution under the MVRA is punishment of the offender or compensation of the victim. The inconsistency between the Third Circuit's rulings in Edwards and Christopher is obvious and unwarranted, and this conflict should be resolved by the full court. The correct answer to the question appears to be that the principal purpose of restitution is, at all times, compensation of the victim, and therefore application of the MVRA to conduct preceding its enactment does not present an ex post facto violation. United States v. Bach, 172 F.3d 520, 523 (7th Cir.), cert. denied, 528 U.S. 950 (1999).

Appealability of orders compelling a party to provide discovery over a claim of privilege or trade secret protection: The Third Circuit stands alone in holding that an order compelling a party to provide discovery notwithstanding the party's assertion of privilege or trade secret protection is immediately appealable under the "collateral order" doctrine. In re Ford Motor Co., 110 F.3d 954, 964 (3d Cir. 1997). In every other federal appellate court, the only available review is by means of the extraordinary writ of mandamus. Delwood Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1125 (7th Cir. 1997).

While the Third Circuit's approach ensures the careful protection of the attorney-client and trade secret privileges, which may not be a bad policy, the Supreme Court has never given any indication that it would be appropriate to circumvent the generally-applicable rule that all discovery-related appeals by parties should await the final conclusion of a case.

In this instance, again, Professors Wright and Miller have questioned the soundness of the Third Circuit's decisions allowing collateral order review of district court rulings that reject claims of privilege. 15A FPP 2d § 3911.5 (Supp. 2001). Moreover, a Third Circuit panel in April 2000 declined to extend the court's rulings in this area to allow collateral order review of an order compelling discovery over a party's claim that the information sought was confidential and sensitive. Bacher v. Allstate Ins. Co., 211 F.3d 52 (3d Cir.), cert. dismissed, 530 U.S. 1300 (2000).

One reason why the Third Circuit's jurisprudence in this area is especially troublesome is that the collateral order doctrine gives the losing party the ability to appeal the order in question as of right while the rest of the case remains pending, unable to proceed forward, in the trial court. The alternate available method of appellate review -- filing a petition for writ of mandamus -- would still allow for the correction of the most egregious denials of legitimate privilege claims while avoiding unnecessary delay in the trial court. Requiring that review be sought by means of mandamus would also ensure that the Third Circuit would not have to hear and decide on the merits collateral order appeals presenting less meritorious claims of privilege.

The Third Circuit should therefore grant rehearing en banc and hold that orders compelling discovery that overrule claims of privilege or trade secret protection henceforth will only be reviewed on mandamus.

This article is reprinted with permission from the March 11, 2002 issue of The Legal Intelligencer © 2002 NLP IP Company.