Eleventh Circuit Reaffirms Requirement that a Party Must Stand in Contempt Before Seeking to Appeal an Order Enforcing a Subpoena

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On October 16, 2024, the Eleventh Circuit issued an opinion in In Re: Grand Jury Investigation (Sealed) reaffirming and, arguably, expanding the longstanding requirement that a party may not seek to appeal an order requiring compliance with a subpoena if it does not first refuse compliance and stand in contempt.[1] 

A. Factual Background

The case arose out of an investigation into a tax shelter.  During the course of the investigation, the government served grand jury subpoenas on an investment company and an accounting firm.[2]  The accounting firm withheld around 2,700 documents on the basis that the materials were covered by the attorney-client privilege claims of third parties, including the investment company and its executives.[3]  After the government filed a motion to compel production of the withheld documents, the investment company moved to intervene.  It argued that intervention was necessary “to assert attorney-client privilege and work-product protections.”[4]  The government contended that the withheld documents were not privileged because the accounting firm had no attorney-client relationship with the attorneys on the emails.  The district court agreed.  It denied the motion to intervene and ordered the accounting firm to produce the documents.[5]

Meanwhile, the investment company also challenged, on privilege grounds, the subpoena it received.  Initially, the investment company moved to quash the subpoena and the district court denied the motion.  In November of 2022, almost 18 months after the investment company received the subpoena, the government filed an ex parte motion asking the district court to make a finding as to the applicability of the crime-fraud exception and to compel production of certain documents.  In the motion, the government urged the district court to apply the crime-fraud exception to “records held by the investment company itself, the accounting firm . . . , two engineering firms . . . , and the government filter team.”[6]  On the same day that the district court denied the investment company’s motion to intervene in the dispute involving the subpoena served on the accounting firm, the district court also granted the crime-fraud motion and motion to compel.[7]  The investment company then obtained access to the ex parte docket and persuaded the district court to stay the order pending appeal.  Next, the investment company appealed the district court’s order denying the motion to intervene in the accounting firm-subpoena case and its order granting the crime-fraud motion. 

B. The Court’s Opinion

In an opinion authored by Chief Judge William H. Pryor, Jr., the Eleventh Circuit held that it did not have jurisdiction to consider the appeal because the district court orders at issue were not “final decisions.”[8]  The court explained, “When a witness seeks to challenge a subpoena on appeal, he ordinarily must first stand in contempt.”[9]  For this proposition, the court relied on Cobbledick v. United States, a 1940 Supreme Court decision.[10] 

In Cobbeldick, the Supreme Court reasoned that allowing an investigation to proceed without the interruption of an appeal must take precedence over permitting a third-party witness to litigate a claimed right to not comply with a subpoena.[11]  The Cobbledick Court noted it was only after a witness “chooses to disobey and is committed for contempt” that “the witness’ situation becomes so severed from the main proceeding as to permit appeal.”[12] 

The analysis was more nuanced when it came to the investment company’s ability to appeal the district court’s denial of its motion to intervene in the case involving the subpoena served on the accounting firm.  The court recognized that “there is a narrow exception to [the Cobbledick] rule when the subpoenaed party is one who has no direct and personal interest in the suppression of the information desired by the grand jury.”[13]  This exception originated in another Supreme Court decision—Perlman v. United States.[14]  In that case, the Supreme Court “allowed immediate appellate review of an order enforcing a subpoena when the objector was not the party subject to the subpoena.”[15]  The Perlman Court considered the enforcement order final because the recipient of the subpoena “was unlikely to risk contempt for another’s privilege.”[16] 

The investment company urged the Eleventh Circuit to apply the Perlman exception.  The court declined to do so.  The court reasoned that Perlman did not apply because “the crime-fraud order compelled the investment company to produce a set of documents that included the same documents that the third parties were required to produce.”[17]  The court observed that the accounting firm, as well as the engineering firms and the government filter teams, had given the all of the disputed documents to the investment company to create a privilege log.[18]  Therefore, regardless of whether the accounting firm complied with the subpoena, the investment company could have refused to turn over the same documents, been held in contempt, and then obtained appellate review of the privilege issue.[19]  On the other hand, the Perlman exception was limited to circumstances when the privilege holder “would have no other means of appellate review.”[20]

At the conclusion of the opinion, the court touched on the argument that appellate review was necessary to avert the harm that would result from the accounting firm turning over privileged material in its possession while the investment company stood in contempt and litigated the privilege issue.  Quoting an Eighth Circuit opinion dealing with a similar issue, the court stated, “the likelihood of production by a third-party custodian, however, is not sufficient by itself to invoke Perlman.”[21]  The Eleventh Circuit added, “That the district court stayed the crime-fraud order pending appeal is further evidence that the investment company could have raised all its privilege arguments before any disclosure had it stood in contempt.”[22]

C. Analysis

The Eleventh Circuit’s very narrow reading of the Perlman exception here is striking.   The court rested its analysis on the fact that the investment company and the accounting firm both possessed and were required to produce the same documents.  Therefore, in the court’s view, the investment company could decline to produce its set of documents, be cited for contempt, and then appeal the district court’s crime-fraud determination.  Meanwhile, the accounting firm could turn over the very same documents at issue long before the Eleventh Circuit had a chance to consider the investment company’s arguments.  At that point, the government would be in possession of and using in its investigation the potentially privileged communications.  The damage would be done.

The court did not seem overly concerned about this conundrum.  As noted, at the conclusion of its opinion, the court pointed to the district court’s issuance of a stay.  However, nothing in the court’s opinion requires a district court confronted with this situation to enter a stay.  Indeed, given that the Cobbledick line of cases stems from a desire to allow criminal investigations to proceed without interruption, it seems at least possible that a district court confronted with the same situation would not stay an order requiring a non-objecting third-party to produce the same documents.  On the other hand, if a district court is effectively required to grant a stay whenever this situation arises, then is hard to see how the court’s contempt requirement results in the more efficient administration of criminal investigations.  Indeed, the court’s opinion builds in even more delay—delay stemming from the time required to cite the privilege holder for contempt—than there would be had the circuit simply held that the Perlman exception applied in these circumstances. 

The court’s opinion creates some risk for prosecutors as well.  The government could obtain materials from a third-party, only to have an appellate court determine much later that the materials are privileged.  The subsequent appellate ruling would, undoubtedly, cast doubt on the admissibility of evidence derived from the privileged materials and otherwise disrupt the investigation.

It is worth considering that the opinion deepens a growing circuit split.  As noted, the Eleventh Circuit cited favorably a recent Eighth Circuit opinion that also declined to apply the Perlman exception when the privilege holder was subject to the same obligation to produce documents as a third-party.[23]  The Eighth Circuit rejected the reasoning of the Tenth Circuit in a 1988 case, In re Grand Jury Proceedings.[24]  In the Tenth Circuit case, the district court ordered both a law firm and its client to produce documents responsive to grand jury subpoenas served on each.  The law firm indicated a willingness to comply with its subpoena, whereas the client sought to pursue its privilege argument on appeal.  In applying Perlman, the Tenth Circuit held that a third-party’s willingness to comply with a subpoena is sufficient to invoke the doctrine notwithstanding the fact that the privilege holder was under the same production obligation.[25]  The Tenth Circuit explained that, once the law firm indicated its willingness to produce the documents, “the Company must have the opportunity for appellate review at this time or the opportunity for appellate review of the district court’s order to compel prior to actual production of the documents for grand jury use will be lost forever.”[26] 

The Tenth Circuit’s reasoning is more pragmatic.  It allows for the circuit court to reach the privilege issue sooner without the time and formality of contempt proceedings and staying a third-party’s obligation to produce materials.  On the other hand, the approach of the Eleventh Circuit, as well as the Eighth, works to weed out spurious privilege claims.  These courts appear to assume that a party will only stand in contempt to assert a valid claim of privilege.  While this may be so, the opinions increase the burden of pursuing on appeal a meritorious privilege claim. 

In the wake of this opinion, parties in the Eleventh Circuit (and the Eighth before it) may very well determine that it is more advantageous to produce arguably privileged documents than to withhold those documents and face contempt sanctions—particularly when the government is going to receive the same documents from a third-party regardless of the actions of the privilege holder. 

_{[1]Nos. 23-10155, 23-10901, --- F.4th ---- (11th Cir. Oct. 16, 2024).
[2]Slip. Op. at 2.
[3]Id. at 3.
[4]Id. at 4.
[5]Id.
[6]Id. at 5–6.  
[7]Id. at 6. 
[8]Id. at 7; see 28 U.S.C. § 1291.  
[9]Slip. Op. at 8.  
[10]309 U.S. 323, 60 S. Ct. 540 (1940).   
[11]Id. at 327–28, 60 S. Ct. at 542.  
[12]Id. at 328, 60 S. Ct. at 542. 
[13]Slip Op. at 11. 
[14]247 U.S. 7, 38 S. Ct. 417 (1918). 
[15]Slip. Op. at 11.  
[16]Id.
[17]Id.  
[18]Id. at 13.
[19]Id. at 12. 
[20]Id. at 13 (quotation marks omitted).  
[21]Id. at 14 (quotation marks and alterations omitted) (quoting In re Grand Jury Subpoenas, 947 F.3d 842, 843 (8th Cir. 2020)).  
[22]Slip Op. at 14. 
[23]See In re Grand Jury Subpoenas, 974 F.3d 842, 844 (8th Cir. 2020).  
[24]In re Grand Jury Proceedings, 857 F.2d 710, 711 (10th Cir. 1988).  
[25]Id. at 711–12.  
[26]Id.}