MICHAEL M. BAYLSON, District Judge.
Brothers fighting about corporate ownership and control describes this case. Less than ideal, but frequently encountered. Cain and Abel in the Bible, through the Greek myth of Antigone (Polynices & Eteocles), Wagner's Ring (Mime & Alberich; Fasolt & Fafner), to the tragedy of our own civil war, brothers fighting serves as a metaphor about human nature out of control.
The issue presented in this case is the extent to which the attorney-client privilege extends to communications between two brothers and their closely held family corporations, and their attorneys. The underlying facts of the case have been set forth in a Memorandum dated March 12, 2014 (ECF 39) concerning defendant's motion to dismiss or stay this case. In brief, this is an international dispute over precious metals leases involving three closely held family corporations.
Plaintiffs are Alliance Industries Limited ("Limited"), a Gibraltar corporation, and Alliance Industries FZC ("FZC"), a United Arab Emirates corporation. Limited is wholly owned and controlled by Ashok Kumar Khosla ("Kumar"). FZC is owned 50 percent by Kumar and 50 percent by his brother, Suresh Khosla ("Suresh").
Defendant is A-1 Specialized Services & Supplies, Inc. ("A-1"), a Pennsylvania corporation. A-1 is owned 32 percent by Suresh, 5 percent by Suresh's wife Leena Khosla, 32 percent by Om Khosla, a brother of Suresh and Kumar, and 31 percent by Kumar.
These closely held family corporations are now at odds. Plaintiffs claim that A-1 is in breach of precious metals leases because A-1 has failed to return the leased metals to Plaintiffs. Plaintiffs assert their damages are approximately $80 million. A-1 contends that the leases were supposed to be extinguished as part of a larger business restructuring of the Khoslas' business interests following the purchase of Limited and FZC by Suresh and Kumar from a third party, Vivek Gulatee.
The facts germane to the issue of privilege have been developed in a number of briefs with numerous attachments filed by the parties, a series of depositions, excerpts of which have been presented to the Court, and a hearing on March 31, 2015.
There are three attorneys who have been involved in this case, only two of whom are to be subject to depositions. The parties are in dispute about the precise contours of each lawyer's representation, including precisely whom the lawyer was representing and the date ranges when the lawyer represented those clients. The attorneys are as follows:
A. Isaac Massias is an attorney based in Gibraltar. Mr. Massias has submitted an affidavit in which he acknowledges representing Kumar, Suresh, and Limited, but denies ever representing A-1. ECF 144, Def.'s Br., Ex. 38. A-1 seeks to depose Mr. Massias and to obtain communications involving Mr. Massias which Plaintiffs claim are privileged.
B. John Bullock is an attorney based in Connecticut. It is undisputed that Mr. Bullock represented A-1 prior to the events that are the subject of this litigation. Plaintiffs contend that Mr. Bullock then represented Kumar, and they submit an email from Mr. Bullock to A-1's counsel in which Mr. Bullock denies representing A-1 with respect to Plaintiffs.
C. Pratap Dange is an attorney based in the United Arab Emirates. It is undisputed that Mr. Dange represented Kumar and Suresh. A-1 contends that he also represented A-1. Because of Mr. Dange's location in the U.A.E., he is not subject to deposition in this case. However, A-1 seeks communications by several individuals to or from Mr. Dange which Plaintiffs claim are privileged.
Additional details about these individuals and the dates of their representation of the various companies were placed on the record by counsel at the hearing on March 31, 2015.
The attorney-client privilege applies if the following elements are satisfied: (1) a communication; (2) made between privileged persons; (3) in confidence; (4) for the purpose of obtaining or providing legal assistance for the client.
Privilege "protects only those disclosures necessary to obtain informed legal advice which might not have been made absent the privilege."
The Court must determine which law to apply in this diversity action. To determine which law governs, the Court refers to the choice-of-law rules in the jurisdiction in which it sits, Pennsylvania.
To the extent that New Jersey law could apply because Suresh and Kumar are New Jersey residents, the Court will apply Pennsylvania law because there is no conflict between Pennsylvania and New Jersey privilege law.
Plaintiffs contend that any privilege between Isaac Massias, a Gibraltar lawyer, and Kumar and Suresh should be governed by Gibraltar law.
A-1 asserts that it has the right to take the depositions of Mr. Massias and Mr. Bullock and to obtain communications involving Mr. Massias, Mr. Bullock, and Mr. Dange for a number of reasons. First, A-1 contends that the lawyers were representing A-1, not just Suresh and Kumar in their personal capacities, during the relevant time period. Accordingly, A-1 claims it is entitled to waive the attorney-client privilege. Second, A-1 has presented a letter dated September 11, 2014, from Suresh where he waived any attorney-client privilege he held with Mr. Massias. ECF 144, Def.'s Br., Ex. 40. Third, A-1 argues that the lawyers have knowledge of important facts relevant to the merits of this case that were not exclusively learned by them through attorney-client communications and, A-1 contends, are relevant to matters placed at issue by Plaintiffs. Fourth, A-1 contends that many of the communications at issue were not maintained in confidence but were consistently shared with third parties and disclosed to A-1 during discovery.
Plaintiffs dispute that any of the lawyers represented A-1 during the time period relevant to this dispute. Plaintiffs further contend that Kumar has not indicated any intent to waive the privilege as to his communications with the lawyers, and that Suresh cannot waive the privilege for Kumar. Plaintiffs contest Suresh's waiver, alleging that he lacked the capacity to make such a waiver and that the Court should disregard his testimony. Finally, Plaintiffs argue that the communications were maintained in confidence. Any third parties included on the communications were included for the purpose of facilitating legal advice, Plaintiffs claim, and the disclosure of communications to A-1 was inadvertent and followed by a claw-back request.
There are substantial disputes in the record about whether the attorneys represented A-1 or Suresh and Kumar in their personal capacities and at what times such representation occurred.
As noted, Mr. Massias has submitted an affidavit in which he acknowledges representing Kumar, Suresh, and Limited, but denies ever representing A-1. ECF 144, Def.'s Br., Ex. 38. An examination of numerous documents and deposition transcripts submitted by A-1 indicates the following:
1. Rajesh Seth, the current president and CEO of A-1, stated that Mr. Massias represented A-1.
2. Meena Jerath, an accountant who worked for A-1, Suresh, and Kumar, testified that Mr. Massias represented A-1, Kumar, and Suresh.
3. Ms. Jerath further testified that she had many conversations with Mr. Massias and received most of the emails he was sent. ECF 144, Def.'s Br., Ex. 6, 293:21-295:24. Ms. Jerath's testimony is corroborated by numerous communications produced by A-1 between Mr. Massias and Suresh and Kumar on which she is copied.
4. Ms. Jerath also testified that the transactions between Limited and A-1 were not at arm's length, which raises possible inferences of fraud that could not be cloaked by an asserted attorney-client privilege.
5. Leena Khosla ("Leena"), Suresh's wife and a 5 percent owner of A-1, testified that Mr. Massias represented A-1, Suresh, and Kumar.
6. Suresh testified Mr. Massias did work for A-1, Kumar, and Suresh, but he also testified that Mr. Massias was Kumar's lawyer.
7. Kumar testified it was possible that Mr. Massias represented A-1 and described one instance when Mr. Massias did provide legal advice to A-1. ECF 144, Def.'s Br, Ex. 10, 335:18-22; 349:3-7; 354:6-13.
8. A-1 paid an invoice from Mr. Massias for legal services dated October 11, 2012.
9. Sameer Khosla ("Sameer"), Kumar's son, also testified regarding the June 14, 2012, email from Kumar to Mr. Massias, which copies Suresh, Mr. Dange, and Ms. Jerath, in which Suresh is described as the "eminent majority owner" of Limited and "the person who has guided the company since its inception and guided all major day-to-day decisions of the company."
1. It is undisputed that Mr. Bullock represented A-1 prior to the dispute at issue in this case. Kumar testified that Mr. Bullock received a retainer from A-1 until approximately 2011.
2. Mr. Bullock contends he never represented A-1 with regard to Plaintiffs.
3. Sameer testified that Mr. Bullock represented A-1 and subsequently represented Kumar.
4. Leena testified that Mr. Bullock represented A-1.
5. Ms. Jerath testified that Mr. Bullock represented A-1, Suresh, and Kumar.
6. Kumar stated that the March 2012 meeting led to Mr. Bullock writing a letter on behalf of Suresh and Kumar to Mr. Gulatee. Suresh and Kumar were seeking to buy his ownership stake in Limited and FZC.
1. The record includes an engagement letter dated April 27, 2012, from Mr. Dange to Suresh, as the power of attorney holder for Kumar, showing that Mr. Dange was retained to represent Suresh and Kumar in the purchase of Mr. Gulatee's shares in Limited and FZC.
2. Kumar testified that Mr. Dange represented Kumar and Suresh jointly. ECF 144, Def.'s Br., Ex. 10, 336:16-337:3. But Kumar noted that Suresh asked Mr. Dange for legal advice regarding A-1.
3. Mr. Seth testified that Mr. Dange represented A-1, Kumar, and Suresh.
4. Ms. Jerath testified that Mr. Dange represented A-1, Suresh, and Kumar.
5. Leena testified that A-1 reimbursed Kumar for legal bills that Kumar paid to Mr. Dange.
6. Sameer testified that he was forwarded numerous communications between Mr. Dange and Suresh and Kumar.
7. Sameer also testified that Mr. Dange referred to Limited and FZC being held in constructive trust for Suresh and Kumar, but that this was not true and was a "bullying tactic" to convince Mr. Gulatee to sell his shares in Limited and FZC to Kumar and Suresh.
8. The record also includes an email dated September 9, 2012, from Mr. Dange to Suresh, Kumar, and Ms. Jerath, in which Mr. Dange confirms his understanding that Suresh was to own 60 percent of Limited upon the purchase of Mr. Gulatee's shares, alludes to disagreements between Suresh and Kumar, and indicates his inability to act as the lawyer for either Suresh and Kumar individually against the other.
After review of the many deposition excerpts, there are substantial contradictions in the testimony as to which attorney was representing which client or clients at various times. Further, review of the documents that have been presented, in addition to the deposition transcript excerpts, leads to the following findings:
A. Given the conflicts in the deposition testimony and conflicts ascertained from other documents in the record, the Court notes that there are substantial factual disputes among the parties on issues underlying the attorney-client privilege dispute. In reviewing the evidence, the Court bears in mind that Plaintiffs bear the burden of showing that the privilege should apply.
B. Suresh gave testimony at times contradicting himself and others. Plaintiffs' position is that Suresh's mental state, and sometimes confusing deposition testimony, requires the Court to find him not credible and/or incompetent and to disregard his testimony. At the March 31, 2015, hearing, Plaintiffs' counsel stated that the Court should disregard Suresh's testimony as unreliable based on the written record. In the alternative, should the Court find the written record an insufficient basis on which to disregard Suresh's testimony, Plaintiffs asked the Court to hold an evidentiary hearing and have the party with the appropriate burden of proof present witnesses so that the Court could determine whether the attorney-client privilege should apply.
A-1's position is that although Suresh was contradictory and unclear at times, there are no grounds for the Court to simply disregard his testimony.
The Court concludes there is no need for an evidentiary hearing. Plaintiffs took no steps to secure an independent medical examination of Suresh or to otherwise back up their contention that his testimony is unreliable and should be disregarded. Suresh was sworn along with other witnesses, and the Court will accept his testimony on the privilege issue, but with caution.
However, the Court need not rely on Suresh's testimony or alleged privilege waiver alone to decide whether the attorney-client privilege applies. The Court has significant corroborating documentary evidence and depositions of numerous individuals from which to make that determination.
C. The record is clear that Suresh and Kumar were both represented by Mr. Massias and Mr. Dange at material times involved in the disputes in this case. Although Mr. Bullock contends he only represented Kumar with regard to Plaintiffs, there is evidence that Mr. Bullock was representing Suresh and Kumar at this time. ECF 144, Def.'s Br., Ex. 11.
D. There is conflicting evidence regarding whether Mr. Massias, Mr. Dange, or Mr. Bullock represented A-1 at the material times in this dispute or only represented Suresh and Kumar in their personal capacities. Although Mr. Massias and Mr. Bullock explicitly deny representing A-1, the Court must examine the evidence in the record and cannot simply rely on an attorney's statement.
E. Communications between Suresh, Kumar, and their attorneys, bearing on the issues of this case, are very relevant to determining the credibility of the principals and the legal consequences of the decisions leading up to this litigation. At the time Suresh and Kumar were purchasing Mr. Gulatee's stakes in Limited and FZC, the attorneys were representing both brothers. However, now Kumar and Suresh are essentially at odds and taking conflicting positions in this case. Accordingly, fairness requires that each one be able to call upon the recollection of their counsel in terms of developing testimony of the relevant facts for use in dispositive motions and/or at trial.
F. Even if the Court were to accept at face value Plaintiffs' contention that the lawyers only represented Suresh and Kumar in their personal capacities and did not represent A-1, it is obvious from the documents that both Kumar and Suresh shared their communications with the lawyers with others, including Ms. Jerath, the accountant for A-1, Suresh, and Kumar, Leena, Suresh's wife and a 5 percent owner of A-1, and Sameer, Kumar's son, whose role is unclear. This sharing of communications with third parties indicates a lack of effort by both Kumar and Suresh to keep the communications with their attorneys confidential.
Under settled law, an essential hallmark of a privileged communication is that the client and the attorney intended it to be confidential between them.
However, Plaintiffs take the position that the involvement of third parties in the communications should not destroy the attorney-client privilege because those third parties were only involved in the facilitation of legal advice.
Plaintiffs have not met their burden of showing that the conduit theory applies here. First, Ms. Jerath served as an accountant for Suresh, Kumar, and A-1. At the October 31, 2014, hearing, Plaintiffs' counsel withdrew Plaintiffs' claim of privilege as to 69 communications which included Ms. Jerath.
The factual record resembles, not physically but conceptually, a large house where Kumar and Suresh both live and chatter with the three lawyers, and the others mentioned above, on the stairs and in the hallways, about corporate ownership and control, with smatterings of legal advice occurring from time to time. This scenario does not preserve the attorney-client privilege, and plaintiffs cite no case supporting their arguments.
G. Upon review of the record, it is apparent that Mr. Massias, Mr. Dange, and Mr. Bullock have knowledge of relevant facts which they learned outside of communications with Suresh and Kumar, whom they acknowledge as their clients. The privilege only protects communications, not facts, from discovery.
H. A-1 also asserts as grounds for waiver the fact that Plaintiffs' counsel produced a number of privileged communications that were indicated at items 1-11 on a November 10, 2014, privilege log supplied to the Court in this case. A review of these documents shows that only one of them is clearly labeled as privileged. Many of the other documents at issue were shared with third parties, as discussed above, or were in the possession of A-1 and produced by A-1 in this case.
Plaintiffs assert that this production was inadvertent and assert that the clawback provisions of Fed. R. Evid. 502 require A-1 to return the documents. Although the Court has followed this clawback principle previously,
I. The conflicting evidence as to who Mr. Massias, Mr. Bullock, and Mr. Dange were representing and when, the evidence that Suresh and Kumar shared their attorney communications with third parties, the breakdown in the relationship between these two brothers, this subsequent litigation between the closely held corporations they control, and the possibility that the lawyers have knowledge of relevant facts obtained outside of confidential client communications, lead the Court the conclude that Plaintiffs have not met their burden of showing the attorney-client privilege applies at this time.
In view of the above discussion, the Court will
The following facts are to be established by counsel during these depositions as to each representation:
The following facts are to be established as to each client:
As stated at the March 31, 2015 hearing, Plaintiffs' counsel may note an objection on privilege at the deposition, but may not instruct the witness not to answer on grounds of attorney-client privilege. If the record subsequently supports a claim of privilege as to any of the communications or testimony, the Court may reconsider this ruling as to specific communications and preclude use of specific communication or testimony, if it deserves to be considered privileged, at summary judgment or at trial.
This ruling is for discovery purposes only. It is not necessarily a ruling as to the admissibility of attorney testimony or of any documents at trial, and, as noted, it is without prejudice to Plaintiffs' renewing their privilege arguments as to any testimony or documents found to be privileged at summary judgment or at the non-jury trial.
A. Following extensive briefing and a hearing on March 31, 2015, the Court will
B. As to A-1's motion to compel discovery (ECF 133 & 134), at the March 31, 2015, hearing, counsel for A-1 and Plaintiffs indicated that they had resolved some of the disputes at issue, but that they had been unable to reach a resolution regarding two matters: (1) Plaintiffs' instruction to Kumar and Sameer at their depositions not to answer certain questions on relevance grounds and (2) Plaintiffs' refusal to produce certain supporting documentation for Plaintiffs' financial statements.
As indicated at the hearing, the Court will
1. Plaintiffs shall not instruct Kumar and Sameer not to answer questions, on relevance grounds, concerning the defense that Kumar and Suresh had agreed to cause Plaintiffs to extinguish the leases in connection with a larger business restructuring. Any additional deposition of Kumar and Sameer shall be limited to 90 minutes.
2. Supporting documentation for those financial statements Plaintiffs have produced in this case is discoverable and shall be produced by Plaintiffs. A-1 will pay the cost of the production of these supporting documents.
