Having lost in the trial court, counsel’s focus must turn to the appeal, and more importantly, the strategy on what issues to raise. Recent developments in the U.S. Court of Appeals for the Third Circuit related to waiver of arguments now should play a central role in that calculus both before and after a notice of appeal is filed. Those developments may be traps for the unwary, and underscore the importance of preservation of both issues and arguments in anticipation of a potential appeal. Avoiding the potential issue preservation traps requires communication between inside and outside counsel to ensure that the client and trial counsel are on the same page about what issues and supporting legal arguments are—and need—to be made.
Keeping this subtle—but critical—distinction between broad issues and the narrower arguments in support of those issues center stage can mean the difference between a successful appellate challenge to an unfavorable district court ruling and some heart-rending moments upon reading those dreaded words in an opposition brief or—even worse—the appellate court’s opinion: “this argument was not preserved below and has been waived.”
The sea change in the Third Circuit’s jurisprudence on this point began innocuously enough in a criminal case, United States v. Joseph, 730 F.3d 336 (3d Cir. 2013). Joseph involved an appellate challenge to a district court’s denial of the defendant’s motion to suppress evidence in a counterfeiting case. The motion before the district court raised two arguments: First, the stop was illegal under Terry v. Ohio, 392 U.S. 1 (1968); and second, that “officers lacked probable cause for the arrest because no one at the scene had sufficient expertise in counterfeiting to know whether the bills were in fact counterfeit.” The district court rejected both.
On appeal to the Third Circuit, Joseph continued to challenge probable cause, but took a different tact by arguing that the arresting officers “had insufficient evidence to establish his intent to defraud at the time he passed and possessed the counterfeit bills.” This required the court, speaking through now-Chief Judge D. Brooks Smith, to determine whether the new argument had been waived—even though it supported Joseph’s position on the lack of probable cause issue he had raised in the district court.
The Third circuit concluded that the argument was waived because, while Joseph had preserved the larger probable cause issue, he had not raised the intent argument in the district court. Accordingly, the court drew a distinction between the broader notion of “issues” and the narrow construct of “arguments.” Preservation of issues does not guarantee preservation of all possible supporting arguments.
In an effort to help litigants make sense of the distinction, the court identified how to distinguish between issues and arguments. Specifically, “a legal challenge that presents multiple avenues for granting relief is a broad issue. But if the legal challenge presents a single point of contention, which may not be recast or reframed to address a conceptually distinct contention, then what has been advanced is an argument.” With respect to distinguishing between multiple arguments, the court identified two characteristics that identical arguments share: they depend on the same legal rule or standard; and they depend on the same facts.
The logical question is: So what? Joseph was a criminal case involving a suppression motion and very particular facts. With any luck, most in-house counsel will never face such issues. Indeed, the court explicitly recognized the limits on its holding in Joseph: “Because waiver of suppression arguments is controlled by Rule 12, we do not have occasion to consider whether the framework explained here applies in other waiver contexts, such as … civil cases.” Nevertheless, almost immediately, counsel began to speculate that the principles outlined in Joseph could easily spread to the civil arena.
That is exactly what happened earlier this year in Spireas v. Commissioner of Internal Revenue, 886 F.3d 315 (3d Cir. 2018), a tax appeal addressing how royalties from certain intellectual property are to be taxed, i.e. as either ordinary income or as capital gains. The question in Spireas dealt with the taxpayer’s shifting theories about when and to what extent he had transferred intellectual property rights to a pharmaceutical company. Those facts, in turn, would dictate the appropriate tax treatment of the royalty payments.
The majority agreed that Spireas had taken inconsistent positions in the tax court and on appeal about when he transferred the rights to a particular formulation of the technology at issue and when that technology had actually been invented. With respect to the waiver issue, the court said that, under Joseph, Spireas’s “shifting position on the fact of when Mutual obtained its rights … does not necessarily mean his entire argument is waived.” But then it compared the two arguments and concluded that “changing the date on which Spireas granted Mutual rights to [the technology] changes the legal theory on which his position depends”—and as a result, Spireas had waived that argument on appeal.
Judge Jane Richards Roth penned a lengthy dissent, in part taking issue with how the majority had construed the court’s waiver jurisprudence. Specifically, she noted Joseph was a criminal case that turned on the narrow question of suppression arguments and the Rules of Criminal Procedure. She also highlighted the court’s practice of viewing civil waiver questions in light of the doctrine’s “prudential origins” as a basis for flexible application of the doctrine.
Despite Judge Roth’s disagreement, Spireas demonstrates that waiver rules set forth in Joseph now apply in the civil arena. But this begs the question of what counsel can do to best be prepared for waiver arguments regardless of which side of the “v.” they are on.
Specifically, Joseph and its progeny present corporate counsel with both pragmatic and theoretical questions that must be kept in mind whenever an appeal is possible.
On the pragmatic side of the equation is the nuts-and-bolts concern that all required arguments are preserved in anticipation of an appeal. Counsel should be aware that choosing to leave a particular argument “on the cutting-room floor” in the district court might lead to difficulty persuading the appellate court to consider a particular argument. The rule is not absolute, though, as the court in Joseph recognized that a party may still “place greater emphasis” on an argument, “more fully explain an argument on appeal,” or even “reframe” an argument “within the bounds of reason.” What is clear, however, is that parties must present a strong argument grounded in the Joseph test when demonstrating that a particular argument was made to the district court. Specifically, counsel must point with “exacting specificity” to the preserved arguments, and how they share a legal and factual commonality.
Appellees, on the other hand, should be aware of the advantage that can be gained by presenting a well-crafted waiver argument that analyzes the legal and factual underpinnings of an argument on appeal explaining how and why it differs from those presented in the district court. This may make the appellate court’s job easier, and in turn, clear the way for an easy affirmance.
Judge Roth’s dissent raised a more theoretical concern, questioning the degree to which Joseph and its progeny represents an erosion of the court’s “prior precedent that civil waiver is a prudential doctrine to be applied in a case-specific manner.” The practice of giving litigants a pass based on this doctrine that gives the court the discretion to consider an argument, even where waiver principles would otherwise apply, may become a thing of the past. This, of course, presents problems for any party facing a potential waiver argument, because it limits the available responses to the suggestion that a particular argument has been waived. But if all else fails, appealing to the reasoning articulated in Judge Roth’s Spireas dissent may be worth a try in an effort to help the court find a way around a waiver argument in a case that presents a close call.
At the end of the day, the clarification of waiver principles articulated in Joseph and its progeny require—first and foremost—careful coordination between in-house and outside counsel to make sure that all issues the client wants to pursue are supported by all arguments needed to prevail on those issues. This is the first and best line of defense against encountering any waiver problems on appeal.
While the potential for waiver should—justifiably—cause concern for even the most seasoned in-house counsel, the new rules set forth in Joseph, now applicable in the civil context, should provide at least some measure of comfort, because the cases now give counsel a bit more certainty regarding issue preservation and waiver and a roadmap for what to point to showing why an argument was (or was not) adequately preserved.
Devin Misour is a senior associate in Reed Smith’s appellate group working out of the firm’s Pittsburgh office. His practice encompasses a range of substantive areas, including the False Claims Act, the healthcare industry, regulatory matters, and other areas of both state and federal law.