Blum v. Merrill Lynch Pierce Fenner & Smith Inc. ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SCOTT A. BLUM, Individually and as No. 11-55635
Trustee of the Scott A. Blum
Separate Property Trust, the Will D.C. No.
Scott Blum Trust, the Emma Rose 8:03-cv-1434
Blum Trust and the Scott Blum Grat, JVS-MLG
Plaintiff-Appellant,
v. OPINION
MERRILL LYNCH PIERCE FENNER &
SMITH INC., a Delaware Corporation,
AKA Merrill Lynch & Co.,
Defendant,
KPMG LLP,
Intervenor-Appellee.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted
January 9, 2013—Pasadena, California
Filed April 11, 2013
2 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
Before: Stephen Reinhardt and Kim McLane Wardlaw,
Circuit Judges, and Robert Holmes Bell,* District Judge.
Opinion by Judge Bell
SUMMARY**
Intervention
The panel affirmed the district court’s order granting a
motion to intervene, and modifying a protective order so that
a deposition transcript would be held in escrow rather than
destroyed.
The panel held that the district court did not abuse its
discretion in finding that the motion to intervene was timely
because even though the underlying litigation had concluded,
motions to intervene for the purpose of seeking modification
of a protective order are not untimely. The panel further held
that granting the motion to intervene did not unfairly
prejudice the plaintiff. The panel also held that the district
court did not abuse its discretion by ordering that the
deposition transcript be placed in escrow rather than
destroyed where the district court determined that the
transcript remained relevant.
*
The Honorable Robert Holmes Bell, United States District Judge for
the Western District of Michigan, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 3
COUNSEL
Michael J. Avenatti, (argued) Eagan O’Malley & Avenatti,
LLP, Newport Beach, California; Michael Q. Eagan, Law
Offices of Michael Eagan, San Francisco, California, for
Plaintiff-Appellant.
Robert Leo Dell Angelo, Mark Dworsky, and James Rutten,
Munger, Tolles & Olson, LLP, Los Angeles, California, for
Defendant.
Jack P. DiCanio, Richard Marmaro, Ronda McKaig, and
Peter B. Morrison, Skadden, Arps, Slate, Meagher & Flom,
LLP, Los Angeles, California, for Intervenor-Appellee.
OPINION
BELL, District Judge:
Scott A. Blum appeals a district court order granting
KPMG LLP’s motion to intervene, and modifying a
protective order so that a deposition transcript would be held
in escrow rather than destroyed. We have jurisdiction
pursuant to 28 U.S.C. § 1291, and we affirm.
I. Factual and Procedural Background
In 2003, in a case that was removed to the Central District
of California, Blum sued Merrill Lynch Pierce Fenner &
Smith Inc. (“Merrill Lynch”) and Thomas Mazzucco for their
advice in connection with an initial public offering of
Buy.com (the “federal action”). Blum alleged that but for
Merrill Lynch’s advice, he would have sold his Buy.com
4 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
shares for $500 million in 1999. Blum provided deposition
testimony in this matter. In 2004, a blanket protective order
was issued,1 and in 2005, the parties entered into a settlement
agreement. The protective order contained an obligation for
the parties to destroy all confidential documents, including
Blum’s deposition transcript. According to Blum, the
settlement agreement explicitly required continued adherence
to the protective order as a condition of settlement.
In 2009, Blum sued KPMG in Los Angeles Superior
Court (the “state action”). Blum claimed in this action that
but for KPMG’s advice he would have sold all his shares in
Buy.com in 1998 for $400 million. During discovery, Blum
acknowledged the existence of his deposition transcript from
the federal action. However, he refused to produce the
transcript, citing the protective order and settlement
agreement. KPMG’s counsel, allegedly inadvertently,
received a copy of this transcript from the court reporting
service that had transcribed the deposition. Upon receipt,
KPMG’s counsel notified both the court-appointed Discovery
Master in the state action and Blum’s counsel of his receipt
of the transcript.
On March 7, 2011, Blum filed an emergency ex parte
motion in the federal action to reopen the case and an ex parte
motion requesting that the court enforce the protective order
and settlement agreement by ordering KPMG to destroy the
transcript. KPMG filed an ex parte motion to intervene and
to oppose Blum’s motion. On March 9, 2011, the district
1
It is a “blanket” protective order because Blum obtained the protective
order “without making a particularized showing of good cause with
respect to any individual document.” Foltz v. State Farm Mut. Auto. Ins.
Co., 331 F.3d 1122, 1138 (9th Cir. 2003).
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 5
court granted Blum’s motion to reopen the case, granted
KPMG’s motion to intervene, and denied Blum’s request for
the destruction of the transcript, pending a determination of
its relevance to the state action by the state Discovery Master.
Blum filed a motion for reconsideration that same day. While
the motion was pending, the state court Discovery Master
issued a ruling that the transcript was relevant and
discoverable. Subsequently, Blum dismissed the state action
against KPMG without prejudice.2
On April 5, 2011, the federal court (unaware of the
dismissal of the state action) denied the motion for
reconsideration on the ground that it lacked jurisdiction to
enforce the settlement agreement. In light of the Discovery
Master’s relevancy finding, the court found that enforcement
of the protective order would violate public policy.
Consequently, the court modified the protective order to
allow the use of the transcript in the state action.
Blum filed a notice of appeal and moved to stay the
March 9 order. On May 12, the court denied the motion for
a stay and modified its March 9 order in light of the changed
circumstances (the dismissal of the state action). The court
ordered KPMG to place its single copy of the transcript in
escrow, and ruled that KPMG (or any other party) could
apply to the court for the release of the transcript “[s]hould
the transcript again be relevant to pending litigation.”
2
Shortly after filing his reply brief in this matter, Blum re-filed his
action against KPMG in the Central District of California.
6 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
II. Standard of Review
“We review a decision whether to grant permissive
intervention under an abuse of discretion standard.” Beckman
Indus., Inc. v. Int’l Ins. Co., 966 F.2d 470, 472 (9th Cir. 1992)
(citing Venegas v. Skaggs, 867 F.2d 527, 529 (9th Cir. 1989)).
We also review a district court’s decision to modify its
protective order for abuse of discretion. Id. A review for
abuse of discretion requires a two-prong test:
The Supreme Court has held that a district
court abuses its discretion when it makes an
error of law. Thus, the first step of our abuse
of discretion test is to determine de novo
whether the trial court identified the correct
legal rule to apply to the relief requested. If
the trial court failed to do so, we must
conclude it abused its discretion.
If the trial court identified the correct legal
rule, we move to the second step of our abuse
of discretion test. . . . [T]he second step of our
abuse of discretion test is to determine
whether the trial court’s application of the
correct legal standard was (1) “illogical,”
(2) “implausible,” or (3) without “support in
inferences that may be drawn from the facts in
the record.”
United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir.
2009) (en banc) (internal citations omitted) (quoting
Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577
(1985)). The second prong is “significantly deferential.”
Hinkson, 585 F.3d at 1262.
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 7
III. Analysis
A. Intervention
“On timely motion, the court may permit anyone to
intervene who . . . (B) has a claim or defense that shares with
the main action a common question of law or fact.” Fed. R.
Civ. P. 24(b)(1). Generally, permissive intervention under
Rule 24(b) requires “(1) an independent ground for
jurisdiction; (2) a timely motion; and (3) a common question
of law and fact between the movant’s claim or defense and
the main action.” Beckman, 966 F.2d at 473.
Blum argues that the district court abused its discretion
because KPMG’s motion to intervene was untimely.
Additionally, Blum argues that KPMG’s intervention would
unduly prejudice the parties in the underlying action.
1) Timeliness
Blum argues that KPMG’s motion to intervene was not
timely because the underlying litigation had been concluded
for years. However, motions to intervene for the purpose of
seeking modification of a protective order in long-concluded
litigation are not untimely.
In 1993, the Third Circuit recognized “the growing
consensus among the courts of appeals that intervention to
challenge confidentiality orders may take place long after a
case has been terminated.” Pansy v. Borough of Stroudsburg,
23 F.3d 772, 779 (3d Cir. 1994); see also Leucadia, Inc. v.
Applied Extrusion Techs., Inc., 998 F.2d 157, 161 n.5 (3d Cir.
1993) (“[A] district court may properly consider a motion to
intervene permissively for the limited purpose of modifying
8 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
a protective order even after the underlying dispute between
the parties has long been settled.”). The First and Tenth
Circuits have also issued holdings finding motions to
intervene timely in such cases. See United Nuclear Corp. v.
Cranford Ins. Co., 905 F.2d 1424, 1427 (10th Cir. 1990)
(“We find nothing improper in allowing intervention to
challenge a protective order still in effect, regardless of the
status of the underlying suit.”); Pub. Citizen v. Liggett Group,
Inc., 858 F.2d 775, 786 (1st Cir. 1988) (“Because Public
Citizen sought to litigate only the issue of the protective
order, and not to reopen the merits, we find that its delayed
intervention caused little prejudice to the existing parties in
this case.”).
Beckman, while not explicitly addressing the timeliness
requirement, affirmed the district court’s decision to grant the
motion to intervene, even though that motion was filed two
years after the underlying litigation had been settled.
966 F.2d at 471. At least one other Ninth Circuit panel has
made a similar ruling. See Olympic Refining Co. v. Carter,
332 F.2d 260, 265 (9th Cir. 1964) (affirming the district
court’s decision allowing intervenor to access discovery
materials “nearly three years after termination of the
Government suit”).
Here, KPMG’s interest in the transcript did not arise until
it was sued by Blum, and its motion to intervene was filed
one day after Blum filed ex parte motions to reopen the
federal action and enforce the terms of the protective order.
In light of these facts and the precedent finding motions to
intervene in similar circumstances timely, we conclude that
the district court did not abuse its discretion in finding
KPMG’s motion to intervene timely.
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 9
2) Prejudice
Blum also contends that the motion to intervene should
have been denied because it unfairly prejudiced him. “In
exercising its discretion, the court must consider whether the
intervention will unduly delay or prejudice the adjudication
of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3).
The existing parties have settled their dispute, and thus we
find that KPMG’s intervention has little effect on the original
parties’ underlying rights. See United Nuclear, 905 F.2d at
1427 (“Rule 24(b)’s timeliness requirement is to prevent
prejudice in the adjudication of the rights of the existing
parties, a concern not present when the existing parties have
settled their dispute and intervention is for a collateral
purpose.”); Public Citizen, 858 F.2d at 786 (“Because Public
Citizen sought to litigate only the issue of the protective
order, and not to reopen the merits, we find that its delayed
intervention caused little prejudice to the existing parties in
this case.”); Meyer Goldberg, Inc. v. Fisher Foods, Inc.,
823 F.2d 159, 162 (6th Cir. 1987) (“It is not clear what
prejudice the delay in seeking these tapes has occasioned in
this case to defendants or to any of the parties. Delay in any
event would not prejudice the adjudication of the rights of the
original parties.”).
To the extent that we must also consider whether allowing
intervention would be prejudicial to the ongoing rights of the
original parties due to their reliance on the protective order in
settling, we also find little prejudice. Blum’s allegations of
general reliance on the protective order fail to establish that
KPMG’s intervention to modify the protective order with
regard to one document will result in prejudice. Moreover,
even if he could show specific prejudice, Blum has made no
10 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
showing that such prejudice would not be eliminated by a
new protective order requiring KPMG to keep the transcript
confidential. See Foltz v. State Farm Mut. Auto. Ins. Co.,
331 F.3d 1122, 1134 (9th Cir. 2003) (“Any trade secrets,
financial information, and third-party medical or personnel
information can be protected by placing the [party seeking
modification] under the same use and disclosure restrictions
contained in the original protective order.”).
Thus, we conclude that the district court did not abuse its
discretion in granting the motion to intervene.
B. Modification of the Protective Order
Next, Blum argues that the district court abused its
discretion by modifying the protective order to allow KPMG
to use the deposition transcript in collateral proceedings.
However, the order allowing the use of the transcript in this
manner was subsequently amended by the district court when
it learned of the dismissal of the state action. Thus, that order
is not before us, and instead we review only the district
court’s amended order requiring that the transcript be placed
in escrow or provided to the court for in camera retention.
“As an initial matter, the collateral litigant must
demonstrate the relevance of the protected discovery to the
collateral proceedings and its general discoverability therein.”
Foltz, 331 F.3d at 1132. As noted in Foltz, “[i]f any properly
protected [] discovery is relevant to the collateral suits, the
district court should have modified the protective order in the
interest of avoiding duplicative discovery[.]” Id. at 1134.
However, “before deciding to modify the protective order, the
court that issued it must consider other factors in addition to
the relevance of the protected discovery to the collateral
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 11
litigation. In particular, it must weigh the countervailing
reliance interest of the party opposing modification against
the policy of avoiding duplicative discovery.” Id. at 1133.
“Ninth Circuit precedent strongly favors disclosure to meet
the needs of parties in pending litigation.” Beckman,
966 F.2d at 475.
The district court appropriately adopted the opinion of the
state action Discovery Master that the transcript “contains
testimony relevant to and discoverable in the present action.”
The court found this relevance significant: “the Court finds
that in the present context enforced destruction of a transcript
relevant to pending litigation would contravene public policy
and would amount to Court-sanctioned destruction of
evidence.”
This finding of relevance was not undermined by the
subsequent dismissal of that state action. As the district court
correctly noted, the transcript remains relevant:
Ostensibly, KPMG’s need for the Transcript,
or at least an immediate need, has been
mooted by the dismissal of the Los Angeles
Superior Court action. But there is no
assurance, in view of the dismissal without
prejudice, that Blum’s claims will not be
revived.
In light of this finding of relevance, the district court was
within its discretion to order the transcript placed in escrow
rather than destroyed.
While the district court should also have explicitly
addressed the issue of Blum’s reliance on the protective
12 BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH
order, Foltz, 331 F.3d at 1133, its failure to do so in this
context does not change our conclusion that the district court
did not abuse its discretion. “Reliance will be less with a
blanket order, because it is by nature overinclusive.”
Beckman, 966 F.2d at 476. Once a party has challenged the
contention that documents protected by a blanket protective
order should be kept under seal, “the district court must
require [the party opposing modification] to make an actual
showing of good cause for [the relevant documents’]
continuing protection under Federal Rule of Civil Procedure
26(c).” Foltz, 331 F.3d at 1131. “A party asserting good
cause bears the burden, for each particular document [he]
seeks to protect, of showing that specific prejudice or harm
will result” from modification of the protective order. Id. at
1130. “[R]eliance on a blanket protective order in granting
discovery and settling a case, without more, will not justify a
refusal to modify.” Id. at 1133.
Blum did not advance any argument before the district
court that specific harm or prejudice would result from
modification of the protective order to hold the transcript in
escrow. Nor has he pointed to any particular portion of the
transcript that remains confidential information that should be
withheld from KPMG. Thus, because Blum bore the burden
of establishing this specific harm or prejudice (i.e. a
countervailing reliance interest), the district court was within
its discretion to order the transcript held in escrow based on
its finding of relevance.
Nor can we say that the district judge abused his
discretion in refusing to enforce the protective order despite
the manner in which Blum alleges the deposition transcript
was procured, particularly given KPMG’s countervailing
account of how it obtained the deposition transcript.
BLUM V. MERRILL LYNCH PIERCE FENNER & SMITH 13
IV. Conclusion
We conclude that the district court did not abuse its
discretion in granting the motion to intervene and modifying
the protective order to hold the transcript in escrow. Our
decision does not reach the merits of the district court’s
subsequently-amended order allowing KPMG to use the
transcript in litigation. Pursuant to the district court’s order
that the transcript be held in escrow, if KPMG wishes to use
the transcript in future litigation, it must apply to the district
court for relief.
AFFIRMED.