In Re: Carco Elec ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
7-29-2008
In Re: Carco Elec
Precedential or Non-Precedential: Precedential
Docket No. 07-1009
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008
Recommended Citation
"In Re: Carco Elec " (2008). 2008 Decisions. Paper 745.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/745
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 07-1009
___________
IN RE: CARCO ELECTRONICS, a California Corporation,
Debtor
IDEAL AEROSMITH, INC.,
Appellant
___________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 06-cv-01190)
District Judge: The Honorable Terrence F. McVerry
___________
ARGUED MAY 20, 2008
BEFORE: SMITH and NYGAARD, Circuit Judges,
and STAFFORD,* District Judge.
*.
Honorable William H. Stafford, Jr., Senior District
Judge for the United States District Court for the Northern
(continued...)
(Filed: July 29, 2008)
___________
George T. Snyder, Esq. (Argued)
Roy E. Leonard, Esq.
Stonecipher, Cunningham, Beard & Schmitt
125 First Avenue
Pittsburgh, PA 15222
Counsel for Appellant
Leland P. Schermer, Esq. (Argued)
Bryan A. Loose, Esq.
Michael Monyok, Esq.
Leland Schermer & Associates
11 Stanwix Street, 7 th Floor
Pittsburgh, PA 15222
Counsel for Appellee
___________
OPINION OF THE COURT
___________
NYGAARD, Circuit Judge.
*.
(...continued)
District of Florida, sitting by designation.
2
The question before us is whether a discovery order
granting a trade secret protection from exposure is immediately
appealable if the prevailing party is dissatisfied with the scope
or degree of protection afforded? We hold that such an order is
neither final nor appealable and will dismiss the appeal.
I.
Carco Electronics filed for Chapter 11 protection. Ideal
Aerosmith Inc., a supplier of precision inertial guidance test
systems, rotational rate tables, centrifuges, and high dynamic
flight test tables, improperly took possession of Carco’s
production facilities without obtaining court approval. Carco
then filed an emergency petition in the Bankruptcy Court to
confirm, and thus legitimate this transaction. Acutronic USA
Inc., a competitor of Ideal’s in the aerospace field, had filed a
counter-offer for Carco’s assets. Upon learning that Ideal was
already on the premises and operating Carco’s business,
3
Acutronic filed a motion to prohibit Ideal from appropriating
Carco’s assets.
The Bankruptcy Court issued a desist order, directing
Ideal to discontinue using and appropriating the assets it had
removed and/or converted from Carco. Ultimately, Acutronic
was the successful bidder and purchased Carco’s assets at a
court-sanctioned sale. When Acutronic personnel attempted to
take possession of Carco’s assets immediately following the
hearing, Ideal employees stalled, retaining possession for
another day. Acutronic claims that numerous files were copied
and deleted during this interregnum and requested discovery to
determine the extent to which Ideal had violated the Bankruptcy
Court’s desist order.
Acutronic and Ideal each filed a motion for a protective
order relating to the exchange of trade secrets during discovery.
A computer source code for the parties’ motion controllers (the
4
Ideal Aero 400 and Acutronic's Cascade) was the central issue.1
Following a hearing, the Bankruptcy Court entered a protective
order allowing “counsel and one senior executive of each
company to see ‘Highly Confidential’ information under strict
terms.”
Ideal appealed the entry of the protective order to the
District Court, which affirmed. Ideal now appeals to this Court.
II.
Appellate jurisdiction is traditionally predicated on 28
U.S.C. § 1291 which gives us “jurisdiction of appeals from all
final decisions of the district courts of the United States.” This
finality requirement is an essential element of § 1291 and most
often requires that a district court issue a decision that
completely ends the litigation and leaves nothing for the court
1.
A “controller” is the “brain” of a motion simulator and
inertial guidance test system made by both companies.
5
to do but execute its judgment. See Coopers & Lybrand v.
Livesay, 437 U.S. 463, 467 (1978). It is axiomatic that
discovery orders “are not final orders of the district court for
purposes of obtaining appellate jurisdiction under 28 U.S.C. §
1291.” Bacher v. Allstate Ins. Co., 211 F.3d 52, 53 (3d Cir.
2000) (internal quotation and citations omitted). The collateral
order doctrine, first enunciated by the Supreme Court in Cohen
v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949), provides
an exception to the general rule which limits appellate review to
final orders.2
2.
An appeal of a non-final order will only lie if (1) the
order from which the appellant appeals conclusively determines
the disputed question; (2) the order resolves an important issue
that is completely separate from the merits of the dispute; and
(3) the order is effectively unreviewable on appeal from a final
judgment. In re: Ford Motor Co., 110 F.3d 954, 958 (3d Cir.
1997).
6
In this Circuit we have created an exception to the non-
appealability of discovery orders. In Smith v. BIC Corp., 869
F.3d 194 (3d Cir. 1989), we held that if a party is ordered to
disclose trade secrets, it can invoke the collateral order doctrine
to obtain an immediate appeal. Id. at 198-199; see also ADAPT
of Philadelphia v. Philadelphia Housing Authority, 417 F.3d
390, 395 (3d Cir. 2005) (citing Powell v. Ridge, 247 F.3d 520,
524 (3d Cir.2001)); Bacher, 211 F.3d at 57.3
In Bacher, we specifically upheld our holding in Smith.
869 F.2d at 198-99. But, we went to some length to cabin Smith
3.
Other courts of appeal have rejected our approach,
however, and have declined to exercise jurisdiction under the
collateral order doctrine over appeals from discovery orders
where privilege issues or trade secrets are involved. See, e.g.,
FDIC v. Ogden Corp., 202 F.3d 454, 458 & n. 2 (1st Cir. 2000);
Dellwood Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1125 (7th
Cir. 1997); Simmons v. City of Racine, 37 F.3d 325, 327 (7th
Cir. 1994); Boughton v. Cotter Corp., 10 F.3d 746, 149-50 (10th
Cir. 1993).
7
and, to a lesser extent, Ford, to their specific fact situations. We
were influenced in Bacher by the Supreme Court’s opinions in
Cunningham v. Hamilton County, 527 U.S. 198 (1999), and
Digital Equipment Corp. v. Desktop Direct, Inc., 511 U.S. 863
(1994) – both of which were decided after Smith.
In Cunningham, the Supreme Court held that an order
imposing sanctions on a party's attorney for discovery abuses
was not immediately appealable under the collateral order
doctrine. Cunningham, 527 U.S. at 203-204. In so ruling, the
Supreme Court indicated that the separability requirement of the
collateral order doctrine was not met. Id. at 204-205 (citations
omitted).4 Further, the Supreme Court's statement in
4.
Similarly, in Bacher, the district court's order
necessarily entailed some determination as to whether the
settlement information sought by the Bachers was relevant to the
merits of the bad faith claim and/or their claim for punitive
damages. Accordingly, we found it “questionable” as to whether
(continued...)
8
Cunningham that we should not apply the collateral order
doctrine on a “case-by-case” basis indicates that we should not
attempt to carve out individualized, case -specific exceptions to
the general rule that discovery orders are not immediately
appealable. Id. at 206; see also In re Pressman-Gutman Co.,
Inc., 459 F.3d 383, 397 (3d Cir. 2006).
The Supreme Court's decision in Digital Equipment
cautions that the collateral order doctrine is “narrow” and that
claims for its applicability should be subjected to “broad
scrutiny.” 511 U.S. at 868 (“[W]e have ... repeatedly stressed
that the ‘narrow’ exception should stay that way and never be
allowed to swallow the general rule that a party is entitled to a
single appeal, to be deferred until final judgment has been
4.
(...continued)
the separability requirement is satisfied.
9
entered ....”) (citation omitted); see also We, Inc. v. City of
Philadelphia, 174 F.3d 322, 324-25 (3d Cir.1999) (emphasizing
that the collateral order doctrine is to be construed narrowly).
Acutronic argues that while this panel may not directly
overrule Smith, the Supreme Court has already done so, sub
silentio.5 Admittedly, there are strong statements in both
Supreme Court opinions and, in particular, our opinion in
Bacher, supra., that seem to suggest that our holding in Smith is
flawed. But, a reversal of Smith must be left to the wise counsel
of the Court en banc. The concerns we expressed in Smith for
orders denying protection to trade secrets remain valid ones and
5.
Although our decision in Smith has been widely
criticized, it remains the law of this Circuit. See Mariana v.
Fisher, 338 F.3d 189, 201 (3d Cir.2003) (“‘[N]o subsequent
panel overrules the holding in a precedential opinion of a
previous panel. Court en banc consideration is required to do
so.’”) (quoting Third Circuit Internal Operating Procedure 9.1).
10
we conclude that these concerns were not invalidated by
intervening Supreme Court precedent. As we have explained,
[a]ppeal after final judgment cannot remedy the
breach in confidentiality occasioned by erroneous
disclosure of protected materials. At best, on
appeal after final judgement, an appellate court
could send the case back for re-trial without use
of the protected materials. At that point, however,
the cat is out of the bag.
Ford, 110 F.3d at 958-664.
However, when the appealing party objects solely to the
form or scope of the protection given, these same concerns do
not provide sound jurisprudential footing to appeal. Orders that
grant some protection to trade secrets are clearly distinguishable
from orders that deny all protection to trade secrets. The order
here grants protection from disclosure, and as with any other
garden variety discovery order, may be appealed in due course
and only when a final order is entered.
11
III.
Parties like Ideal who believe they have been granted
insufficient protection are not without remedy. They can still
seek permissive review under 28 U.S.C. § 1292(b) if the district
judge agrees that an interlocutory order “involves a controlling
question of law as to which there is substantial ground for
difference of opinion and that an immediate appeal from the
order may materially advance the ultimate termination of the
litigation.” See 28 U.S.C. § 1292(b) (2000); see also Chao v.
Roy's Const., Inc., 517 F.3d 180, 188 (3d Cir. 2008).6
Mandamus relief is also available to the parties in challenging
6.
We have noted, however, that a discovery order will not
ordinarily present a controlling question of law and that an
immediate appeal from such an order, in most circumstances,
will not materially advance the termination of the litigation. See
Cippolone v. Liggett Group Inc., 785 F.2d 1118 n. 14 (3d Cir.
1986).
12
the grant of a protective order to alleged trade secrets. See, e.g.,
Cippolone v. Liggett Group Inc., 785 F.2d 1108 (3d Cir. 1986).
Finally, a party could refuse to comply with the protective order,
be held in contempt and then appeal the contempt order. See
Church of Scientology v. United States, 506 U.S. 9, 18, n. 11
(1992) (citing United States v. Ryan, 402 U.S. 530 (1971)).
IV.
In sum and for the foregoing reasons we will dismiss the
appeal for lack of jurisdiction.
13