Blum v. Merrill Lynch Pierce Fenner & Smith Inc.

• Decision Date: 11 April 2013
• Docket Number: No. 11–55635.,11–55635.
• Parties: Scott A. BLUM, Individually and as Trustee of the Scott A. Blum Separate Property Trust, the Will Scott Blum Trust, the Emma Rose Blum Trust and the Scott Blum Grat, Plaintiff–Appellant, v. MERRILL LYNCH PIERCE FENNER & SMITH INC., a Delaware Corporation, aka Merrill Lynch & Co., Defendant, KPMG LLP, Intervenor–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

712 F.3d 1349

Scott A. BLUM, Individually and as Trustee of the Scott A. Blum Separate Property Trust, the Will Scott Blum Trust, the Emma Rose Blum Trust and the Scott Blum Grat, Plaintiff–Appellant,

v.MERRILL LYNCH PIERCE FENNER & SMITH INC., a Delaware Corporation, aka Merrill Lynch & Co., Defendant,KPMG LLP, Intervenor–Appellee.

No. 11–55635.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Jan. 9, 2013.

Filed April 11, 2013.

Michael J. Avenatti, (argued) Eagan O'Malley & Avenatti, LLP, Newport Beach, CA; Michael Q. Eagan, Law Offices of Michael Eagan, San Francisco, CA, for Plaintiff–Appellant.

Robert Leo Dell Angelo, Mark Dworsky, and James Rutten, Munger, Tolles & Olson, LLP, Los Angeles, CA, for Defendant.

Jack P. DiCanio, Richard Marmaro, Ronda McKaig, and Peter B. Morrison, Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles, CA, for Intervenor–Appellee.

Appeal from the United States District Court for the Central District of California, James V. Selna, District Judge, Presiding. D.C. No. 8:03–cv–1434 JVS–MLG.

Before: STEPHEN REINHARDT and KIM McLANE WARDLAW, Circuit Judges, and ROBERT HOLMES BELL,^* District Judge.

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 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 destroyall 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 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.”

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, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). The second prong is “significantly deferential.” Hinkson, 585 F.3d at 1262.

III. AnalysisA. 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 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.

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...