In Re: Carco Elec

• Court: Court of Appeals for the Third Circuit
• Decided: July 29, 2008
• Docket: 07-1009
• Status: Published

Opinion

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In Re: Carco Elec Precedential or Non-Precedential: Precedential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

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Recommended Citation "In Re: Carco Elec " (2008). 2008 Decisions. Paper 745. http://digitalcommons.law.villanova.edu/thirdcircuit_2008/745

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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.