Oops?!? Failure To Include Transcript In Appellate Record Results In Harsh Sanction

by:  Peter J. Gallagher (@pjsgallagher)

It's not quite "deflategate" but the U.S. Circuit Court of Appeals for the Second Circuit recently reminded all of us that rules are rules and they need to be followed whether they involve the air in a football or the contents of an appellate record.

In Lehman Brothers Holdings, Inc. v. Gateway Funding Diversified Mortgage Services, L.P.,  plaintiff alleged that defendant was required to "make good on four mortgage loans" that plaintiff's subsidiary had purchased from defendant's predecessor ten years earlier. The district court eventually granted plaintiff's summary judgment motion, and held that defendant was liable to plaintiff for an amount totaling around $450,000 plus interest. The reasons for the district court's decision are not as interesting as what happened to defendant when it appealed that decision.



On appeal, defendant argued, among other things, that the district court should have denied summary judgment because a clause in the original agreement — between plaintiff's subsidiary and defendant's predecessor — allegedly extinguished defendant's predecessor's liability, and therefore extinguished defendant's liability. The district court ruled that defendant had waived this argument when it explicitly abandoned it during telephonic oral argument on the motion. Defendant did not submit a transcript of the oral argument as part of the appellate record, but argued that it never abandoned the argument and that there was "no record to support the [district court's] position" to the contrary.


The problem for defendant was that plaintiff provided a transcript of the oral argument and the transcript revealed that defendant had abandoned the argument. Defendant attempted to explain its failure to include the transcript by claiming that it was "under the impression that the argument was conducted off the record and that no transcript existed." It also raised a no-harm-no-foul argument that its failure to include the transcript in the record was irrelevant because plaintiff subsequently made it part of the record. The Second Circuit rejected both of these "cavalier" arguments.

The court noted that Fed R App P. 10 requires an appellant to "order . . . a transcript of such parts of the proceedings not already on file as the appellant considers necessary." The court noted that it further requires: "If the appellant intends to urge on appeal that a finding or conclusion is unsupported by the evidence or is contrary to the evidence, the appellant must include in the record a transcript of all evidence relevant to that finding or conclusion." While the court acknowledged that Rule 10 does not provide for any sanctions for failure to comply with its requirements, Rule 3 states that, when a party fails to comply with the rules, the appellate court may "act as it considers appropriate, including dismissing the appeal."

The Second Circuit acknowledged that dismissal of an appeal for failure to abide by the appellate rules was generally "not favored," but nonetheless felt the case before it presented the "unusual situation where forfeiture [was] appropriate." The court noted that, before imposing the ultimate sanction, it was required to consider a number of factors, including whether defendant acted willfully or merely inadvertently, whether a lesser sanction could bring about compliance, and whether plaintiff was prejudiced by the defendant's failure to include the transcript in the record. After taking these factors into account, the court concluded that defendant's actions "at best show[ed] a remarkable lack of diligence and at worst indicate[d] an intent to deceive [the] Court." Specifically, in arriving at this conclusion, the court relied upon: (1) the fact that defendant had argued that there was "no record" to support the district court's decision, when in fact the record explicitly supported the decision; and (2) defendant's "weak post hoc justification" that it believed the oral argument was being conducted off the record.

The lesson from Lehman Brothers is the same one you hear repeated about "deflategate" — the rules are there for a reason and if you break them, you risk the consequences even when those consequences seem harsh. The consequences of failing to abide by the Federal Rules of Appellate Procedure will not usually be the dismissal of your appeal, but when your conduct demonstrates a "remarkable lack of diligence" that borders on an "intent to deceive" the court, it may be the "unusual situation" where forfeiture is appropriate.

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