International Business Machines Corp. v. United States

493 F.2d 112, 18 Fed. R. Serv. 2d 130, 1973 U.S. App. LEXIS 6428

Opinions

OAKES, Circuit Judge:

These appeals are by International Business Machines Corporation (IBM) and Cravath, Swaine & Moore (Cra-vath), a law firm which has represented IBM throughout the proceedings involved in this Government civil antitrust suit. In No. 73-2126 IBM seeks review of an adjudication of civil contempt against it for failure to comply with the very pretrial discovery order which IBM unsuccessfully sought to appeal or have vacated through a petition for an extraordinary writ in International Business Machines Corp. v. United States, 480 F.2d 293 (2d Cir. 1973) (en banc), petition for cert. filed, 42 U.S.L.W. 3033 (U.S. June 11, 1973) (No. 72-1662). In that case the appeal and petition for mandamus were dismissed on the basis of a lack of jurisdiction under the Expediting Act (15 U.S.C. § 29) and it was held that in no event was there any basis to review the trial court’s interlocutory order either by appeal or mandamus. 480 F.2d at 299. On petition of the Government filed June 25, 1973, Chief Judge Edelstein, after a hearing, entered an opinion, findings and order imposing a contingent, coercive fine of $150,000 per day until IBM complies with his discovery order, Pretrial Order No. 5. This order directed IBM to produce for the Government certain documents which IBM had previously delivered to a third party, Control Data Corporation, in the course of discovery in a civil antitrust action in the United States District Court for the District of Minnesota. IBM’s claim both in the prior appeal and in this one is that the documents were protected from discovery by the attorney-client and work-product privileges. The trial judge, however, had ruled that, for purposes of the Government’s antitrust suit, IBM had waived its claims of privilege by delivering the documents to Control Data in the Minnesota suit.

In No. 73-2127, IBM and Cravath assert that the district court has erroneously denied Cravath’s petition to intervene in its own behalf as a party in the civil contempt hearing, for the purpose of asserting an attorney’s work-product privilege against production of some of the documents and to require the district court to impose civil contempt sanctions upon Cravath or its partner, Mr. Bromley, so that it can obtain appellate review of the district court’s rulings in connection with Pretrial Order No. 5.

Nos. 73-2145-6 is a petition for an extraordinary writ pursuant to 28 U.S. C. § 1651 and Fed.R.App.P. 21 in which IBM asks us to direct Chief Judge Edel-stein to vacate the contempt order.

It should be noted that a direct appeal from the district court to the Supreme Court under the Expediting Act, 15 U. S.C. § 29, challenging the validity of Pretrial Order No. 5 is presently pending, appeal filed, 42 U.S.L.W. 3031 (U.S. Feb. 24, 1973) (No. 72-1173). There is also pending before the Supreme Court an extraordinary writ to review the district court’s pretrial order, petition filed, 42 U.S.L.W. 3033 (U.S. June 11, 1973) (No. 72-1661), and a petition for a writ of certiorari to review International Business Machines Corp. v. United States, supra.

I. Character of the Contempt Order.

An order finding a party in criminal contempt is appealable. This is true because, in the language of the Supreme Court in Bloom v. Illinois, 391 U. S. 194, 201, 88 S.Ct. 1477, 1481, 20 L.Ed.2d 522 (1968), “[c]riminal contempt is a crime in the ordinary sense; it is a violation of the law, a public wrong which is punishable by fine or imprisonment or both.” See Gompers v. United States, 233 U.S. 604, 610, 34 S.Ct. 693, 58 L.Ed. 1115 (1914); Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 444, 31 S.Ct. 492, 55 L.Ed. 797 (1911). Hence an order punishing one criminally for contempt is a final judgment and review may immediately be obtained. Union Tool Co. v. Wilson, 259 U.S. 107, 111, 42 S.Ct. 427, 66 L.Ed. 848 (1922); Bessette v. W. B. Conkey Co., 194 U.S. 324, 336-338, 24 S.Ct. 665, 48 L.Ed. 997 (1904). The procedure in relation to criminal contempts is prescribed by 18 U.S.C. §§ 401 and 402 and Fed.R.Crim. P. 42. Appeals from criminal contempt orders are governed by Fed.R.Crim.P. 37. See generally Dobbs, Contempt of Court: A Survey, 56 Cornell L.Rev. 183, 235-45 (1971).

Generally speaking, however, an order of civil contempt is interlocutory and may not be challenged on an appeal until the entry of final judgment. Fox v. Capital Co., 299 U.S. 105, 107, 57 S.Ct. 57, 81 L.Ed. 67 (1936) (supplementary proceedings; contempt for failure to disclose assets); Doyle v. London Guarantee Co., 204 U.S. 599, 608, 27 S. Ct. 313, 51 L.Ed. 641 (1907). See also Mulligan, J., dissenting in International Business Machines Corp. v. United States, 471 F.2d 507, 519 n.3 (2d Cir. 1972) (panel decision reversed en banc) .1

Appellant IBM argues first that Judge Edelstein’s contempt order, although styled as a “civil” order, is in reality a criminal contempt order and is hence appealable. This argument has three underlying premises: (1) vindication of a court’s authority is a characteristic of criminal, not civil, contempt and such was the purpose of the order here; (2) if the order were civil, it could not be entered without consideration of “the character and magnitude of the harm threatened by continued contumacy,” United States v. UMW, 330 U.S. 258, 303-304, 67 S.Ct. 677, 701, 91 L.Ed. 884 (1947); and (3) the severity of the penalties imposed here, i. e., $150,000 per day for noncompliance, is so great that necessarily the contempt order is criminal.

None of these premises are correct. The hallmark of civil contempt is that the sanction imposed is only contingent and coercive. Shillitani v. United States, 384 U.S. 364, 370, 86 S. Ct. 1531, 16 L.Ed.2d 622 (1966); Penfield Co. v. SEC, 330 U.S. 585, 590, 67 S.Ct. 918, 91 L.Ed. 1117 (1947); United States v. UMW, 330 U.S. at 303, 67 S.Ct. 677, 91 L.Ed. 884; Gompers v. Bucks Stove & Range Co., 221 U.S. at 442, 31 S.Ct. 492, 55 L.Ed. 797. See Dobbs, 56 Cornell L.Rev. at 237. Civil contempt, moreover, has a remedial purpose — compelling obedience to an order of the court for the purpose of enforcing the other party’s rights, or obtaining other relief for the opposing party. Nye v. United States, 313 U.S. 33, 42, 61 S.Ct. 810, 85 L.Ed. 1172 (1941); McCrone v. United States, 307 U.S. 61, 64, 59 S.Ct. 685, 83 L.Ed. 1108 (1939); Gompers v. Bucks Stove & Range Co., 221 U.S. at 441, 31 S.Ct. 492, 55 L.Ed. 797. The distinction between civil and criminal contempt is, in short, “usually based on the purpose for which the contempt sentence is meted out.” Dobbs, 56 Cornell L.Rev. at 235.

The district court did not leave in doubt the purpose which the contempt citation here was to serve. The order, dated August 1, 1973, makes it clear that the fine is for each day that IBM “fails to comply with Pretrial Order No. 5” and that IBM is “entitled to purge itself of this contempt at any time” by compliance with the discovery order. The order of July 10, 1973, requiring that the hearing proceed in respect to the possibility of contempt, clearly states that the hearing is to be “on the issue of a coercive fine . . . .” Thus the order was both coercive and contingent, indicating a civil rather than criminal contempt. ' ■

In regard to the amount of the coercive fine it was proper for the court to take into account the contemnor’s resources and ability to pay. This it did, noting in the contempt order that its 1972 annual report showed earnings for that year in excess of $1,279,000,000 as against $1,078,000,000 in 1971 and that the stockholders’ equity as of December 31, 1972, was reported at $7,565,000,000. While $150,000 a day is a substantial sum, in reference to IBM’s financial resources and the consequent seriousness of the burden to IBM, the sum represents only 5 per cent of any given day’s earnings.² In any case, we fail to see how the magnitude of such a sum can turn a civil contempt into a criminal one, any more than the sending of an individual to jail turns a civil contempt into criminal contempt. See Shillitani v. United States, 384 U.S. at 370, 86 S.Ct. 1531, 16 L.Ed.2d 622. In neither case does the severity of the penalty change the nature of the contempt. See Gompers v. Bucks Stove & Range Co., 221 U.S. at 443, 31 S.Ct. 492. It is not as if there were any punitive aspect in this contingent fine. Indeed, this is a classic case of using the court’s power to afford “full remedial relief,” McComb v. Jacksonville Paper Co., 336 U.S. 187, 193, 69 S.Ct. 497, 93 L.Ed. 599 (1949), so as to enforce the right of the opposing party — here the right to discover certain documents.

IBM also claims that language in United States v. UMW, supra, compels a finding of criminal contempt here. There the Court said that a court imposing a civil, coercive fine “must consider the character and magnitude of the harm threatened by continued contumacy . . . .” 330 U.S. at 304, 67 S.Ct. at 701. Several independent reasons militate against our concluding that the district court’s failure explicitly to weigh this consideration turns what would otherwise be civil contempt into a criminal contempt. First, it must be noted that the Government in the July 16, 1973, hearing attempted to offer evidence of the harm to it by continued refusal by IBM to comply with the court’s order. IBM objected to the introduction of that evidence, and the objection was sustained. (Tr. 35-40.) Thus, even if IBM had a right to consideration by the court of the harm to the Government, it waived that right by objecting to the evidence of it.³ Second, there is no reason to believe that a contempt order which is styled civil by the judge imposing it, which has a clearly civil purpose and which was imposed only after consideration of questions relevant only to civil contempt, would become criminal by failure to find explicitly with reference to one of the civil considerations. In other words, were we to read the language in the UMW case to require an explicit finding as to harm in all coercive, civil contempts, we still would not treat a failure to make such a finding as converting the civil contempt to a criminal contempt, which is essentially what IBM would have us do here. Third, in any case, we do not so read the language in the UMW case,. The so-called requirement — that a court consider the harm of continued contempt — first appeared in United States v. UMW, and there it was propounded without explanation or citation. No ease is cited to us where a civil, coercive contempt was voided for failure to meet this “requirement,”⁴ nor do civil, coercive contempts always involve such findings. See, e. g., NLRB v. Teamsters Local 282, 438 F.2d 100 (2d Cir. 1970) ; NLRB v. Teamsters Local 676, 450 F.2d 413 (3d Cir. 1971); NLRB v. Lynair, Inc., 380 F.2d 286 (6th Cir. 1967). We read this language in UMW as requiring that the coercive fine be reasonably set in relation to the facts, that it not be arbitrary. Judge Edelstein’s memorandum is evidence that his decision was reasoned and that he gave consideration to the various factors which led to this particular fine — the ability of IBM to meet these payments without undue hardship and the imposition of a fine stiff enough to bring about expeditious compliance. Indeed, unlike the violation of a labor injunction, it is impossible to determine what harm is being suffered here by failure to provide this material for discovery. It may be worthless, or, more likely in view of the Government’s offer of proof, it may be relevant and worthwhile, but to expect a finding of the “character and magnitude of the harm” involved in withholding essentially unknown documents would be to expect miracles of the court — indeed, would involve a prejudgment of the case on the merits. Fourth, and finally, the court’s failure to make such a finding at worst would only go to the amount of the coercive fine, not to the merits of the civil contempt itself. In light of IBM’s often stated intention that it will comply with a definitive ruling on the Pretrial Order, rather than stand in contempt, no matter how nominal the fine, there would be little point in delaying the process by remanding for reconsideration of the amount of the fine.

II. Appealability of a Civil Contempt Order.

IBM argues next that even if the contempt here were civil in nature, it would be appealable under a decision of this court, New York Telephone Co. v. Communications Workers, 445 F.2d 39 (2d Cir. 1971), and then, if we were to apply the Expediting Act so as to prevent appealability here, it would be unconstitutional under Reisman v. Kaplan, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). In New York Telephone Co., supra, however, the court specifically noted that, even though the union was adjudged in civil contempt, the main action in which the order had been issued had effectively been terminated, so that the civil contempt adjudication being appealed from was no longer interlocutory. The court said: “. . . we doubt that anything further remains of the main action unless the district court grants leave to replead. Accordingly, our intervention by way of appeal runs no risk of disrupting the orderly course of proceedings below.” 445 F.2d at 45. Fox v. Capital Co., supra, and Doyle v. London Guarantee Co., supra, both involved orders to produce books and records in civil proceedings and resulted in civil contempts. These were held to be interlocutory only and not appealable. This continues to be the law in this circuit, Vincent v. Teamsters Local 294, 424 F.2d 124 (1970); Dickinson v. Rinke, 132 F.2d 884 (1943), as well as in other circuits. See Hughes v. Sharp, 476 F.2d 975 (9th Cir. 1973); Hodgson v. Mahoney, 460 F.2d 326, 327 (1st Cir.), cert. denied, 409 U.S. 1039, 93 S.Ct. 519, 34 L.Ed.2d 488 (1972); SEC v. Naftalin, 460 F.2d 471, 475 (8th Cir. 1972); Firemen’s Fund Insurance Co. v. Myers, 439 F.2d 834, 838 (3d Cir. 1971); Southern Railway Co. v. Lanham, 403 F.2d 119, 124 (5th Cir. 1968).

Our own opinion, moreover, in International Business Machines Corp. v. United States, 480 F.2d, 293, supra, is clear in saying that the Expediting Act, 15 U.S.C. § 29, deprives this court of jurisdiction to hear an appeal from an interlocutory order. See also Tidewater Oil Co. v. United States, 409 U.S. 151, 173-174, 93 S.Ct. 408, 34 L.Ed.2d 375 (1972). We fail to see why an interlocutory order of civil contempt is not equally included within the Expediting Act’s prohibition. Cf. United States Alkali Export Association v. United States, 325 U.S. 196, 203, 65 S.Ct. 1120, 89 L. Ed. 1554 (1945). Reisman v. Kaplan, supra, is simply not applicable to this case. There the claim was that the IRS’s summons machinery should be enjoined as to plaintiff because the summons sought material which incriminated him and also unlawfully appropriated the attorney's work product. The Supreme Court denied the injunction, because there was already adequate judicial review of the IRS’s summons in a contempt proceeding, which was the only means to enforce the summons. Indeed, Reisman is contrary to IBM’s case, because it stands for the adequacy of the judicial review in a contempt proceeding itself. In passing, the Court noted that a finding of civil or criminal contempt enforcing the summons would be appeal-able. This is so, and not surprisingly,⁵ because it would not be interlocutory. It would be the final order of the only proceeding before the court, which is certainly not the case here.⁶

The rule of Fox v. Capital Co., supra, and Doyle v. London Guarantee Co., supra, is not affected by the authorities cited to us and this is as it should be, because discovery orders at the pretrial stages of litigation are especially inappropriate for interlocutory appeals, as this court has recognized. Weight Watchers of Philadelphia v. Weight Watchers International, Inc., 455 F.2d 770, 773-774 (2nd Cir. 1972); American Express Warehousing, Ltd. v. Trans-America Insurance Co., 380 F.2d 277, 280-281 (2nd Cir. 1967). IBM makes a very emotional and rather heartwarming appeal relating to the sanctity of the attorney-client privilege and of the attorney’s work-product and how — absent ap-pealability in a civil contempt proceeding —they would be subject to invasion in the district court.⁷ This emotional appeal, however, must be recognized for what it is — an attempt to provide a right of appeal of all discovery orders, for the same legal arguments IBM makes here with respect to its perhaps unique factual situation apply equally to the run-of-the-mill objections to discovery orders. And, indeed, attorney-client privilege and work-product are among the more common grounds of objection. The considerations advanced by IBM for review as well as the considerations to the contrary were well considered by this court in a not dissimilar situation in American Express Warehousing, Ltd. v. Transamerica Insurance Co., supra. There too a .judge had ordered production of documents which appellants claimed were work-product. This court stated:

The rule of non-appealability is no different when a claim of attorney's work-product ... is made. Counsel have not cited, nor have we been able to find, a single case where an assertion of work-product, either accepted or rejected by the district court, so colored the case as to cause an appellate court to assert jurisdiction in contravention of the normal rule against appealability of discovery orders. . We do not think that the mere possibility of erroneous application of the Hickman principle to a given set of documents raises a spectre of such dire consequences that immediate appellate review as of right must follow. For such would be the inescapable conclusion if this appeal were allowed.

380 F.2d at 281 (citations and footnotes omitted). In short, the conclusion is and has been that, barring certain extraordinary circumstances, the possibility of abuse and injustice would actually be increased by opening wide the gates of review to discovery orders, than by leaving the determination to the wise discretion of experienced trial judges.⁸

It is not as if we leave IBM without any possible remedy. As noted above, it has an appeal and two petitions before the Supreme Court at this time, and, finally, it may comply with the order and later appeal any final judgment to have its documents returned, or it may pay the fine and after final judgment or settlement appeal for the return of its money.⁹

III. The Government’s Change of Position.

IBM also suggests an argument that because the Government has at various times before this court or in the Supreme Court specifically stated that the only way to obtain review of Pretrial Order No. 5 before the end of the case was for IBM or its representative to risk contempt, and thereby demonstrate its good faith and a solid basis of objections, the Government should be foreclosed from asserting nonappealability here. While we do not approve of the Government’s attempt to mislead IBM, if that is what it was, appellate jurisdiction cannot be conferred on a court of appeals by consent, Stratton v. St. Louis Southwestern Railway Co., 282 U. S. 10, 18, 51 S.Ct. 8, 75 L.Ed. 135 (1930), or by waiver, United States v. Griffin, 303 U.S. 226, 229, 58 S.Ct. 601, 82 L.Ed. 764 (1938).

IV. Procedure Below.

Finally, IBM argues that manifest error and deprivation of due process in the proceedings below require us to direct the court below to vacate the contempt order under this court’s All Writs Act power. This error, it is claimed, included a refusal to hold a hearing requested and required under Local Civil Rule 14 regarding the “alleged misconduct” involved, as well as the omission to hold the hearing required by Rule 42(b). The argument is that we have jurisdiction under the All Writs Act, 28 U.S.C. § 1651, to correct these abuses, it being urged that a pre-enforcement challenge will speed the action as in Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). These claims border on' the frivolous. IBM received ample notice of the claim against it. It was given a full opportunity to present evidence, which it declined. In any case, Local Rule 14(b) provides that only “If the alleged eontemnor puts in issue his alleged misconduct ... he shall upon demand therefor, be entitled to have oral evidence taken thereon . . . .” (emphasis added). Here IBM admitted all of the facts necessary for the determination of contempt, namely, that it had failed to produce the documents required by Pretrial Order No. 5, and that it was not beyond its power to produce them. The record is replete with references to IBM’s willingness to produce the documents if there were a final determination that it should produce them. The trial court, in separating the issue of a coercive fine from the Government’s claim of damages, and refusing to hear the latter or to take evidence thereon or to conduct discovery in connection therewith, did not harm IBM in any manner, shape or form. At no point has IBM denied its failure to comply with the pretrial order, even though it has claimed that legally the court should not impose a sanction against it. But even if we are wrong, there is no jurisdiction for us to issue an all-purpose writ under International Business Machines Corp. v. United States, 480 F.2d 293 supra,, in its construction of the Expediting Act. And, of course, in no event was the judge required to hold the hearing required in the case of criminal contempt by Fed.R.Crim.P. 42(b).

V. Intervention by Cravath.

We agree with the Government that Cravath’s attempted intervention in the contempt proceeding is not properly before this court. The application for intervention was never determined by the court below, because the application was not filed until the morning of the hearing on July 16, 1973. The intervention motion attempted to substitute the Cra-vath firm for IBM apparently on the ground that it was Cravath’s decision rather than IBM’s which led to the noncompliance with Pretrial Order No. 5. We feel, however, as was repeatedly stated, that the true purpose was to permit the lawyers to be adjudged in token contempt to provide an appellate vehicle and thereby escape the thrust of International Business Machines Corp. v. United States, 480 F.2d 293 supra. In any event, intervention questions like every other aspect of Government civil antitrust cases are reviewable only in the Supreme Court on direct appeal under the Expediting Act. See United States v. California Cooperative Canneries, 279 U.S. 553, 49 S.Ct. 423, 73 L.Ed. 838 (1929). There is no doubt that the Supreme Court may consider a direct appeal from such a denial. See, e. g., Nader v. United States, 410 U.S. 919, 93 S.Ct. 1363, 35 L.Ed.2d 582 (1973).¹⁰

We dismiss the appeal and deny the petition for mandamus.

1

. Exceptions to this rule are rare, but where they occur it is because the interlocutory nature of the order is no longer present. Hence, civil contempts against non-parties are immediately appealable because the appeal does not interfere with the orderly progress of the main ease. See United States v. Fried, 386 F.2d 691, 694 (2d Cir. 1967). Where the main case is effectively terminated, the contempt order may no longer be interlocutory. New York Telephone Co. v. Communications Workers, 445 F.2d 39 (2d Cir. 1971). Finally, where the contempt proceeding is the sole court proceeding involved, as is the case where administrative agencies attempt to enforce orders, the civil contempt is not interlocutory in any sense. Cf. O’Connor v. O’Connell, 253 F.2d 365, 366 (1st Cir. 1958).

2

. While in absolute terms IBM’s fine may seem large, the same percentage of earnings fine against one with a salary of $50,000 would be less than $7 per day.

3

. Apparently Judge Edelstein’s exclusion of the Government’s evidence arose from a confusion between the question of harm to the Government in determining the appropriate amount of the coercive fine and the question of actual damages suffered by the Government as a result of the delay for which a compensatory fine might be granted, the latter of which Judge Edelstein had postponed to a later hearing. Civil contempts may also include a compensatory fine based on the complainant’s actual loss. See United States v. UMW, 330 U.S. 258, 304, 67 S.Ct. 677, 91 L.Ed. 884 (1947).

4

. The cases cited by IBM supporting the need for an inquiry into harm all relate to compensatory fines, not coercive fines. See Boylan v. Detrio, 187 F.2d 375 (5th Cir. 1951) ; United States v. Aberbach, 165 F.2d 713 (2d Cir. 1948) ; McKee Glass Co. v. H. C. Fry Glass Co., 248 F. 125 (3d Cir. 1918) ; Christensen Engineering Co. v. Westinghouse Air Brake Co., 135 F. 774 (2d Cir. 1905).

5

. See note 1 supra.

6

. Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947), also relied upon by IBM, did, to be sure, relate to the disobedience of an attorney in connection with documents prepared by him in anticipation of litigation. But as a reading of that case below discloses, there was an adjudication there of criminál, not civil, contempt. See 153 F.2d 212, 214 (3d Cir.). The issue of appealability was not even discussed in the Supreme Court opinion affirming the judgment of the court of appeals. 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451.

7

. The hardship involved is not a new one, nor has it been overlooked by courts.

It may be true, as said in argument, that . . . if the order cannot be reviewed until after final decree it may come too late to be of any benefit to the party aggrieved. But the power to punish for contempt is inherent in the authority of courts, and is necessary to the administration of justice and part of the inconvenience to which a citizen is subject in a community governed by law regulated by orderly judicial procedure.

Doyle v. London Guarantee Co., 204 U.S. 599, 607, 27 S.Ct. 313, 315, 51 L.Ed. 641 (1907).

8

. In American Express Warehousing, Ltd. v. Transamerica Ins. Co., 380 F.2d 277 (2d Cir. 1967), the posture of the case was an appeal directly from the discovery order rather than from a contempt order, but in terms of the policy considerations underlying the right to appeal there seems to us little difference, especially where in a ease like this the contumacious conduct is deliberately undertaken so as to evade the rule against appealability, and thereby to attempt to gain by indirection what was unavailable directly.

9

. Cf. First Security National Bank & Trust Co. v. United States, 382 U.S. 34, 86 S.Ct. 157, 15 L.Ed.2d 28 (1965), reversing a civil contempt judgment against a defendant in a Government antitrust suit when the civil contempt order was entered after the judgment in the main action became final. See also Terminal Railroad Ass’n of St. Louis v. United States, 266 U.S. 17, 45 S.Ct. 5, 69 L.Ed. 150 (1924).

10

. Cravath argues that the contempt petition should be treated as a separate action wholly apart from the main case, so as to take it outside the scope of the Expediting Act. We do not view the contempt hearing that way, but rather as integrally related to the underlying antitrust action in that the order is imposed to effectuate compliance with the discovery ordered in that case.