AMY TOTENBERG, District Judge.
Overview 168Tauber & Balser Defendants' Motion to Withdraw Admission 171 I. Background 171 A. Factual Background 171 B. Procedural Background 174 II. Analysis 175Plaintiff's Omnibus Motion to Compel Defendants' Production of Documents 176 I. The Form of Plaintiffs Omnibus Motion 176 II. Analysis 177 A. Allegations that Defendants are Withholding Responsive Non—Privileged Documents 177 B. Allegations that Defendants' Privilege Assertions are Baseless or Inapplicable 179 1. Attorney—Client Privilege and the Crime—Fraud Exception 179 2. Work Product Doctrine 188 3. Common Interest. Privilege 189
C. Plaintiffs Demand to Inspect Computers 190 III. Conclusion 190 Plaintiff's Motion to Compel Production of CAMICO Documents 191 I. Background 191 A. Factual Background 191 B. Procedural Background 193 II. Analysis 194 A. Work Product Doctrine 194 B. Common Interest Privilege 195 C. Attorney-Client Privilege and Crime-Fraud Exception 196 III. Conclusion 196Plaintiff's Motion for Sanctions 196 I. Introduction 196 II. The Form of Plaintiffs Sanctions Motion 196 III. Background 197 A. Discovery During the Adversary Proceedings 197 B. Discovery in this Court 199 IV. Analysis 199 A. Sanctions Under Rule 37(b) 200 B. Sanctions Under Rule 26(g) 201 C. Appropriate Sanctions 202Summary of Rulings 204
This matter is before the Court on Plaintiffs two motions to compel discovery [Docs. 88, 89] and one motion for sanctions [Doc. 120] and Defendant Tauber & Balser, P.C., Mark Murovitz, Sheldon Zimmerman, and Paul Dopp's (collectively "Tauber & Balser Defendants") motion to withdraw admissions [Doc. 112].
This case began as an adversary proceeding during the ongoing bankruptcy of Debtor Verso Technologies, Inc. ("Verso"). Verso was a pubhcly traded company. Verso's public accounting firm. Defendant Tauber & Balser, P.C. ("Tauber & Balser" or "T & B") filed a $468,000 Proof of Claim, seeking to recover a debt Verso allegedly owed it for services Tauber & Balser rendered. Plaintiff, as Liquidating Trustee,
Plaintiff also alleged that in 2008, T & B transferred substantially ah its assets to Defendants Habif Arogeti & Wynn and HA & W Holdings, LLC (collectively, "Habif Defendants" or "Habif) in such a manner as to also transfer T & B's liability to Verso. (Am. Compl. Counts 14-17.) Most relevant to the instant discovery dispute. Plaintiff alleged that, to "isolate T & B's liabilities to Verso and ... render T & B unable to pay to any judgment against it," T & B fraudulently transferred its assets to Habif (Am. Compl. at ¶ 488.) Plaintiff thus included in his Complaint several claims against Habif including a fraudulent transfer claim. (Id.)
Finally, Plaintiff sued Tauber & Balser's individual shareholders ("Shareholders"), alleging their hability under (1) a theory of piercing the corporate veil and (2) a theory of direct liability for fraud.
The Habif Defendants and the Tauber & Balser Defendants filed motions to dismiss all claims against them. (See Docs. 8-1 and 9-2.)
On June 18, 2012, the Court granted in part and denied in part the Defendants' motions. (Doc. 31.) The Court held that Plaintiff failed to allege sufficient facts to support the extraordinary relief of piercing the corporate veil and thus dismissed all claims against the individual defendants predicated on this theory. (Id. at 9-13.) Likewise, the Court dismissed Plaintiffs claims of direct habihty for fraud against most of the individual defendants because Plaintiff failed to allege particularized facts
The parties then engaged in several months of additional discovery. Plaintiff served Defendants with a document request on September 19, 2012, requesting, inter alia, T & B shareholder meeting notes and documents associated with T & B's insurance coverage. (Rogers Decl., Doc. 104-1, ¶ 11; Evangelista Decl. Ex. 1(1), ("Resp. PI. 6th Req. Prod.").)
The Court held a hearing on December 7 and 12, 2012, to address Defendants' motions to quash and related discovery issues. The Court considered: (1) whether Plaintiff produced sufficient evidence to apply the crime-fraud exception justifying the vitiation of the attorney-client privilege as to certain communications; and (2) whether T & B's voluntary production of a privileged memorandum, (Dec. 7, 2012 Hrg. Ex. 4, Doc. 87-4 (the "Sutherland Memo")), constitutes a waiver of the attorney-client privilege as to all communications associated with that memorandum. (See Doc. 62.)
After the hearing, the Court made three primary decisions. First, because Plaintiff agreed to exclude documents generated in connection with the instant litigation from the scope of the documents sought in the subpoenas, the Court denied in part Defendants' motions to quash, (Id.)
Shortly thereafter, the parties filed the instant discovery motions. On February 22, 2013, Plaintiff filed: (1) Plaintiffs Omnibus Motion to Compel Discovery ("Omnibus Motion") (Doc. 88); and (2) Plaintiffs Motion to Compel Camico's Production of Documents Responsive to Subpoena ("Motion to Compel CAMICO") (Doc. 89). The T & B Defendants then filed a Motion to Withdraw Admissions. (Doc. 112.) Lastly, Plaintiff filed a Motion for Sanctions. (Doc. 120.) Each of these motions is now ripe for adjudication. The Court begins with Defendants' Motion to Withdraw Admissions.
The Tauber & Balser Defendants move to vnthdraw their admission that the 2007 T & B shareholder operating agreements are still in effect. (Doc. 112.) According to T & B, a recently discovered 2008 Amendment to the operating agreement shows that their initial denial was erroneous. As explained below, the Court
Tauber & Balser, P.C. entered into operating agreements with its shareholders on December 20, 2007. (E.g., Omnibus Motion, Evangelista Decl. Ex. 2, Doc. 88-4 at 114 ("2007 Shareholder Agreement").) This agreement defined the rights and obhgations of the individual T & B shareholders ("Shareholders") in relation to Tauber & Balser, P.C. a Georgia professional corporation. (Id. at 114.) Section 3.06(b) of the 2007 Shareholder Agreement, entitled, "Pre and Post Termination Compensation, Services Rendered to Corporation's Chents," is particulaiiy relevant to this case.
Section 3.06(b) limits the extent to which a Shareholder-Employee can solicit work from T & B clients after termination of his or her employment. Pursuant to this section, each Shareholder-Employee (i.e. the Individual Tauber & Balser Defendants) may continue to offer or sohcit professional services to any of T & B's clients with whom the Shareholder has had a material contact within the previous four years. (Id. at 121, § 3.06(b).) However, for the five years after termination, the Shareholder must pay T & B 18 percent of the gross fees it collects from such relationships. (Id.) Plaintiff argues that according to section 3.06(b), Tauber & Balser, P.C. not the individual Shareholders, owned the Shareholder's goodwill (i.e. "book of business").
About three months later, on March 14, 2008, T & B and Habif entered into a
On April 15, 2008, T & B notified its insurer, CAMICO, of a "situation involving [Verso], a public company client." (Id. Ex. 4 at 2.) T & B's Chief Operating Officer Leshe M. Balmforth noted that Verso was a "going concern risk, as indicated in [the T & B prepared Verso] 10K report that has not yet been filed." (Id.) Balmforth explained that she was concerned about getting paid the $450,000 outstanding balance on Verso's account.
Verso filed for bankruptcy on April 25, 2008. In a subsequent board meeting, T & B expressed concern about hability to Verso for its own provision of accounting services. (See Motion to Compel CAMICO, Evangelista Decl. Ex. 8, Doc. 89-2 at 75-79, 77 (T & B board meeting notes) (noting concern regarding exposure with the Verso engagement related to Generally Accepted Auditing Standards ("GAAS") and Generally Accepted Accounting Principles ("GAAP"))).
The T & B Defendants and Habif resumed discussion about their transaction in June and July 2008. One of the elements of the discussion was how T & B's goodwill would be categorized and contributed to Habif (Jan. 23, 2013 Notice, Doc. 71, Ex. 5.) The Defendants wanted the book of business to be considered personal goodwill. (Id. Ex. 6.) One advantage to characterizing the book of business in this way is that the T & B Shareholders could contribute the goodwill personally to Habif without first receiving a corporate distribution of the goodwill from T & B, which would be an expensive taxable event. (See id. Ex. 13 at 1-2.) However, Defendants' counsel understood that at least one reading of the 2007 Shareholder Agreement suggested that the book of business was corporate goodwill. (Id. Exs. 6, 7, 10.) In particular, Section 3.06 is similar to a noncompete agreement, and according to Defendants' counsel, "[t]he IRS has said that if the shareholders have a non-compete with the corporation the goodvsdll is corporate goodwill." (Id. at Ex. 6.)
Near the end of July, attorneys at Powell Goldstein LLP ("Poweh Goldstein") (now Bryan Cave LLP ("Bryan Cave")) and Taylor English, on behalf of T & B, P.C. considered tax implications of the transaction if the goodwill were to be considered corporate goodwill. (Id. Ex. 5.)
Evidently, the T & B Defendants sought further counsel on this tax issue with the firm of Sutherland Asbill & Brennan LLP ("Sutherland"). On August 12, 2008, Sutherland drafted a memorandum advising that T & B could "significantly reduce the taxes owed on the sale" if it characterized a portion of the purchase price as professional (i.e. individual) goodwill. (Id. Ex. 13.) Sutherland assessed the circumstances and concluded that "[u]nder the facts, it appears the T & B shareholders possess the vast majority of any goodwill to be sold." (Id. at 9.) Nonetheless, Sutherland suggested that the "T & B shareholders agree to terminate [Section 3.06(b) of the 2007 Operating Agreement,] the portion of their operating agreement related to the T & B Fee." (Id. at 10; see also id. at 7.) According to Sutherland, this would help sohdify the characterization of T & B's book of business as the personal goodwill of the individual Shareholders.
Negotiations proceeded and in early October, 2008, Sutherland drafted another memorandum, (the "Sutherland Memo"), again addressing the T & B/Habif transaction. (Dec. 7, 2012 Hrg. Ex. 4, Doc. 87-4; see also Jan. 23, 2013 Notice, Doc. 71, Ex. 14 (collecting drafts of the Sutherland Memo).) In this memorandum, shared and discussed with lawyers from Powell Goldstein and T & B Shareholder Mark Murovitz, Sutherland reiterated a number of factors it beheved suggested the absence (or near absence) of corporate goodwill in T & B. (Id. at 7.) Sutherland again recognized Section 3.06(b) of the 2007 Shareholder Operating Agreement. (See id. at 10.) However, now Sutherland advised that Section 3.06(b) "is not a covenant not to compete, [which normally would indicate that the goodwill adheres to the company,] and there is no explicit covenant not to compete in the T & B agreements." (Id.) Instead, Sutherland construed Section 3.06(b) as a "deterrent to
In any case, the T & B Defendants decided to eliminate the post-termmation compensation provision (Section 3.06(b)) and revise the 2007 Shareholder Agreement. Accordingly, on October 31, 2008, T & B and the individual Shareholders executed the First Amended and Restated Shareholder Operating Agreement ("2008 Amended Agreement"). (E.g., Mot. Withdraw Exs. G, H, I.) Among other changes, the 2008 Amended Agreement eliminated Section 3.06(b). This amendment purported to be retroactively effective as of February 1, 2007. (Id.)
The T & B/Habif transaction closed the next day. (See Mot. Withdraw Ex. J ("Index of Glosing Documents"), Doc. 112-10.) As part of the transaction, the individual Shareholders entered into the Goodwill Gontribution and Assignment Agreements, signed on October 31, 2008 and effective November 1, 2008. (See, e.g., Dec. 7, 2012 Hrg. Ex. 1, Doc. 87-1 ("Zimmerman's Goodwill Gontribution Agreement"); see also Pl. Omnibus Mot. Gompel ("Omnibus Mot."), Evangehsta Decl. Ex. 17, Doc. 88-6 at 123-133 ("Draft Goodwill Contribution Agreement").)
On or about January 15, 2009, Bryan Cave (formerly Powell Goldstein) provided T & B with a CD containing executed copies of closing documents in connection with T & B/Habif transaction. (Index of Closing Documents, Doc. 112-10.) The 2008 Amended Agreement is not hsted among the included documents. (See id.)
About three months after the Court ruled on Defendants' motion to dismiss. Plaintiff served requests for admission. (See Doc. 49; Mot. Withdraw Admissions, Doc. 112, Exs. K, L, M, N (collectively, "Responses to RFA").) Plaintiff requested that the T & B Defendants admit or deny that "there are no documents reflecting the termination or voiding of all or any part of the Tauber & Balser, P.C. Shareholder Operating Agreement entered into on December 20, 2007 by each of the Tauber Shareholders." (Mot. Withdraw Admissions, Doc. 112, Exs. K, L, M, N.).
According to the T & B Defendants, they did not recall the 2008 amendments at this time, "as they never received copies." (Mot. Withdraw Admissions, Doc. 112 at 2.) The T & B Defendants admit, however, that they had in their records an "unsigned, electronic copy of the text" of the 2008 Amended Shareholder Agreement. According to the T & B Defendants, this document "turned up in the
The T & B Defendants suggest that Defense counsel first saw the 2008 Amended Agreement when Bryan Cave produced its file in response to Plaintiffs subpoena of Bryan Cave. (Id. at 3.) Plaintiff received a copy of the 2008 Agreement with the non-privileged portion of the Bryan Cave paper file on January 22, 2013. (Id. Ex. F ("Rogers Decl."), Doc. 112-6 ¶ 4.) Defense counsel then promptly served Plaintiff with an amended response to Plaintiffs request for admission. (Id. Ex. F ¶ 5.)
Over two months later, on April 5, 2013, the T & B Defendants moved to withdraw the admission that "there are no documents reflecting the termination or voiding of aU or any part of the [2007 Shareholder Agreement]." (Mot. Withdraw Admissions, Doc. 112.)
The Court may "permit withdrawal or amendment [of an admission] if it would promote the presentation of the merits of the action and if the [C]ourt is not persuaded that it would prejudice the requesting party in maintaining or defending the action on the merits." Fed.R.Civ.P. 36(b). Thus, on ruling on the T & B Defendants' Motion to Withdraw Admissions, the Court considers only (1) whether doing so would promote the presentation of the merits and (2) whether prejudice would result. See Perez v. Miami-Dade Cnty., 297 F.3d 1255, 1265 (11th Cir.2002) ("We hold, therefore, that a district court abuses its discretion under Rule 36(b) in denying a motion to withdraw or amend admissions when it applies some other criterion beyond the two-part test....").
As to the second element, the prejudice contemplated by this rule "relates to the difficulty a party may face in proving its case, e.g., caused by the unavailability of key witnesses, because of the sudden need to obtain evidence with respect to the questions previously answered by the admissions." Smith v. First Nat. Bank of Atlanta, 837 F.2d 1575, 1578 (11th Cir. 1988).
Both criteria weigh in favor of granting the motion to withdraw. First, allowing the withdrawal aligns the record to reality, and thus provides a more accurate basis upon which the Court can reach the merits of Plaintiffs case. Second, the withdrawal of the admissions does not prejudice Plaintiff in any material way. As the T & B Defendants have noted. Plaintiff has not yet taken depositions and discovery is still ongoing.
Plaintiff nonetheless objects to the T & B Defendants' withdrawal of the admission on several grounds. First, Plaintiff argues that allowing the withdrawal at this point would "prevent[] Plaintiff from demonstrating the contrast between the two positions," presumably referring to the T & B Defendants decision to characterize the goodwill as either corporate or personal. (Doc. 122 at 2.) The Court sees no reason why Plaintiff cannot demonstrate this contrast with a more complete and accurate record.
Second, Plaintiff asserts that the T & B Defendants' erroneous admission has delayed Plaintiffs efforts to uncover facts about the alleged fraudulent transfer. (See Doc. 122 at 19.) This assertion is valid but misplaced. Indeed, the Court has substantial concerns about the Defendants' failure to adequately respond to discovery requests, especially in light of court orders requiring such. However, these concerns are more appropriately addressed
Accordingly, the Court
On February 22, 2013, Plaintiff filed his "Omnibus Motion to Compel Discovery" ("Omnibus Motion"). (Doc. 88.) The Plaintiff makes three requests. First, Plaintiff appears to suggest that the Defendants are withholding responsive, nonprivileged documents and thus requests an Order compelling the production of such documents. Second, Plaintiff argues that Defendants' assertions of the attorney-client privilege or work product protection are either waived or inapplicable as to documents created prior to August 25, 2009, and thus the Court should compel the production of such documents. Finally, Plaintiff seeks an Order granting him broad access to the Defendants' computers and servers. The (]ourt considers each of Plaintiffs requests in turn, but first addresses deficiencies in the form of Plaintiffs Omnibus Motion.
As an initial matter. Plaintiffs Omnibus Motion fails to comply with, or abuses, the Court's local rules regarding the proper form for such motions. See LR 5.1C, NDGa; LR 7.1D, NDGa; LR 37.1A, NDGa. For example. Plaintiffs motion does not conform to Local Rule 37.1A. Pursuant to Rule 37.1A, a motion to compel must "be arranged so that the objection, grounds, authority, and supporting reasons follow the verbatim statement of each specific disclosure, interrogatory, deposition question, request for designation of deponent, or request for inspection to which an objection is raised." LR 37.1A, NDGa. In contrast. Plaintiff, provides a lengthy nan'ative, full of factual assertions without record citations, disjointed arguments, and conclusions that beg the essential questions in this case.
Plaintiff also skirts the local rules to ensure that his lengthy description of the "relevant" facts in this case fit vwthin the page limitations set by the Court. For example, substantive text must be doublespaced. LR 5.1C(2), NDGa. Parties may however single-space the text in a footnote. LR 5.1C. Generally, footnotes are reserved for nonessential material. Here, however. Plaintiff riddles his memorandum of law with single-spaced footnotes containing substantive arguments to support his motion. Plaintiff likewise relies on several pages of single-spaced bulleted lists. Although technically consistent vrith the local rules. Plaintiffs memorandum of law
In addition. Plaintiff incorporated by reference the factual assertions made in six separate filings but failed to provide pinpoint citations to direct the Court to the specific apphcable portions of these filings. (See, e.g., Doc. 88-1 at 6 n.3.) Although Fed.R.Civ.P. 10(c) allows for the incorporation by reference in a motion of a statement made in pleading, this Rule is not an invitation to incorporate by reference entire briefs without any indication as to what specific portions are to be adopted. Technically Rule 10(c) only allows for the adoption by reference of statements made in pleadings. Fed.R.Civ.P. 10(c). A motion is not a pleading. See Fed.R.Civ.P. 7(a) (hsting "pleadings" including complaints and answers); Lowery v. Hoffman, 188 F.R.D. 651, 653 (M.D.Ala.l999) (noting that motions, briefs or memoranda, and objections are not pleadings) (citing 2 James W. Moore, et al., Moore's Federal Practice § 12.37[2] (3d ed. 1999)).
In addition, Plaintiffs blanket incorporation by reference puts the onus on the Court (and opposing party) to slog through Plaintiffs voluminous material to glean support for Plaintiffs argument. This method of adoption by reference is improper. See, e.g., Muhammad v. Bethel-Muhammad, No. 11-0690-WS-B, 2012 WL 1854315, at *3 n. 5 (S.D.Ala. May 21, 2012) (stating that incorporation of entire pleadings into a separate fihng is legally impermissible); U.S. Fid. & Guarantee Co. v. U.S. Sports Specialty Ass'n, No. 07-CV-996 TS, 2012 WL 2403530, at *1 (D.Utah June 25, 2012) (recognizing that when adopting by reference, "[t]he later pleading must adopt specific portions or all of the earlier pleading with a degree of clarity which enables the responding party to ascertain the nature and extent of the incorporation" (quotation marks omitted) (quoting Gen. Accident Ins. Co. of Am. v. Fid. & Deposit Co. of Md., 598 F.Supp. 1223, 1229 (E.D.Pa.l984))). Neither the Court, nor the Defendants have a duty to scour Plaintiffs other filings to discern what he beheve specifically supports his arguments here.
Plaintiffs disregard for both the letter and spirit of the local rules is not merely a technical point. As the Habif Defendants recognize, "[t]he failure of Plaintiffs Motion and supporting brief to comply with the local rules of this Court renders the requested relief and the arguments asserted by Plaintiff foggy and confusing." (Doc. 103 at 1; see also Doc. 104 at 3 ("Local Rule 37.1's mandate allows the parties and the Court to determine precisely what documents Plaintiff has requested, whether the document requests and objections are proper, and exactly what documents properly respond to the requests.").)
Although the Court could rightly disregard the material incorporated by reference in Plaintiffs brief or squeezed into footnotes throughout, the Court instead cursorily reviewed this material in an effort to reach the merits of Plaintiffs motions. However, the Court's primary focus in analyzing Plaintiffs Omnibus Motion is the text and citations in the body of his supporting brief. To the extent Plaintiffs argument relies on other material, the Court might not have considered it.
Plaintiff suggests in his Omnibus Motion that Defendants are withholding responsive, non-privileged documents. (See Doc. 88-1 at 18-19.) Defendants aver that no such responsive, non-privileged
(1) T & B's Audit Work Papers Associated with the Verso Engagement: The Pubhc Company Accounting Oversight Board ("PCAOB") requires auditors to maintain a written record of the basis of their conclusions. See PCAOB, Auditing Standard No. 3, § 2, available at http:// pcaobus.org/Standards/Auditing/Pages// Auditing_Standard_3.aspx (last visited May 27, 2013). This record is known as an auditor's documentation or "work papers." Id. Plaintiff requested T & B's documentation associated with the Verso engagement. (See Evangalista Decl. Ex. 1(a) ("Def. Resp. Pl. 1st Req. Prod.") Nos. 1-4.) Presumably, such documentation should include T & B's 2007 going concern analysis of Verso and Verso's associated chentprepared budget for that year. (See Evangelista Decl. Ex. 14 (noting that T & B's accountant's report of Verso filed on April 15, 2008 contained a going concern emphasis paragraph).) According to Plaintiff, no Defendant has produced these documents. (Doc. 88-1 at 12 n.12.)
(2) T & B Management, Board, or Shareholder Meeting Documents: Plaintiff has requested documents associated with T & B management, board, or shareholder meetings. (See, e.g., Evangelista Decl. Ex. 1(f) ("Def Resp. Pl. 4th Req. Prod.") Nos. 7, 22, 27.) According to Plaintiff, Defendants have failed to identify or produce documents associated with such meetings held in 2006, 2007 and 2008. In particular, recently produced time records show that T & B held management, board or shareholder meetings on 33 separate days in 2008. (Evangehsta Decl. ¶ 12.) However, for 2008, Defendants produced only one set of board minutes (for a May 14, 2008 meeting) and three sets of shareholder meeting minutes. And Defendants produced only 103 pages of associated documents (such as agendas, notes and calendar entries) for ah three years worth of meetings. (Doc. 114 at 5; see also Doc. 88-1 at 10, 13, n.l4.) It is hard to imagine that a firm such as T & B would keep such a thin record of its meetings.
(3) Emails Regarding the Verso Engagement and T & B/Habif Transaction: Plaintiff requested emails related to T & B's Verso Engagement. (See, e.g., Def Resp. PI. 1st Req. Prod. No. 1.) According to Defendant's Counsel, T & B's billing records show that 29 individual T & B partners or employees worked almost 5,000 hours on the Verso engagement. (Woriey Decl., Doc. 116, ¶ 27.) For example, Barbara Catherall, audit manager on the Verso engagement, billed nearly 1, 300 hours. Defendants, however, produced emails from only the computer of one T & B partner, Sheldon Zimmerman. (Id. ¶ 26.) Considering the hours biUed on the Verso project, it is reasonable to assume that more emails exist. Likewise, Plaintiff
(4) T & B's Due Diligence Material: Plaintiffs broad requests for documents related to the T & B/HA & W transaction naturally encompass T & B's due diligence materials. (See, e.g., Resp. Pl. 3d Req. Prod. Nos. 2-3.) T & B produced several responsive documents. (Rogers Decl, Doc. 104-1, K13.) Included in T & B's responsive set of documents are due diligence lists, which themselves reference documents that, according to Plaintiff, Defendants have not produced. (See Rogers Decl. Ex., Doc. 105-4, at 63-69; Doc. 114 at 5.)
Although the Court cannot compel Defendants to produce documents that do not exist, the Court will not allow Defendants to collectively withhold documents merely because Plaintiff requested such documents from the party who does not technically possess such document, particularly where the Defendants have shared documents and the T & B shareholders have now joined Habif. Indeed, the Court has already stated that at this point in litigation, when all the Defendants are coordinating discovery, it does not matter to which defendant Plaintiff has directed his document requests. (Dec. 12, 2013 Hrg. Tr., Doc. 66, at 82-83 ("I don't care who ovms it at this point. Whoever has them needs to produce them.").) In sum, it would be inexcusable for Defendants to play "hide the ball" in handling their discovery. It is clear that the T & B Defendants and the Habif Defendants have coordinated their respective discovery responses so as to preserve their position that T & B and Habif are separate entities. (See Evangelista Decl. ¶ 7, Ex. 6.) Such conduct is not inherently inappropriate or in violation of the federal rules of discovery. However, at this point in litigation, if responsive, non-privileged documents exist, they must be produced regardless of who possesses them.
To be dear, all Defendants are
On a final note, to the extent Plaintiff continues to seek documents from Bryan Cave, T & B's counsel on the T & B/Habif transaction, such attempt is now moot. Bryan Cave avers that it has produced to T & B all "hard-copy chent files," "hardcopy non-client files," and "electronic client files" associated with its representation of T & B related to the T & B/Habif transaction. (Doc. 96 at 2.) Thus, according to Bryan Cave, "Bryan Cave now has no responsive documents in its possession, custody or control." (Id.) Pursuant to this Order, however, Defendant T & B must produce, to the extent it has not already done so, responsive, non-privileged documents to Plaintiff as if Plaintiffs subpoena to Bryan Cave was directed at T & B.
Plaintiff lodges three primary arguments for why the attorney-client privilege
Second, Plaintiff argues that the T & B Defendants and Habif have selectively produced and waived clearly privileged information regarding the transfer of assets from T & B to Habif Plaintiff appears to be referencing T & B's waiver of the attorney-client privilege as to communications related to the Sutherland Memo. The Court has already ruled that the voluntary production of the Sutherland Memo constitutes a waiver of the attorney-client privilege as to associated communications. Plaintiff failed to provide any support for widening the application of this waiver.
Finally, Plaintiff argues that the crimefraud exception apphes to vitiate Defendants' attorney-client privilege. (Doc. 88 at 1; see also Pl. Mot. Compel CAMICO's Production of Docs. Resp. Subpoena ("Mot. Compel CAMICO"), Evangelista Decl. ¶ 8.)
"The crime-fraud exception does not require proof of the existence of a crime or fraud to overcome the claim that a communication is privileged. Rather, its applicability depends upon whether a prima facie ease has been made that the communication was made in furtherance of
Although Georgia law governs the question of whether the crime-fraud exception apphes here, see In re Fink, 876 F.2d 84, 85 (11th Cir.1989), federal law provides a two-prong test that is "very similar to Georgia law and more instructive in how application of the exception must be justified by the moving party." Tindall v. H & S Homes, LLC, et al., 757 F.Supp.2d 1339, 1351 (M.D.Ga.2011) (citing United States v. Cleckler, 265 Fed.Appx. 850, 853 (11th Cir. 2008)); see also McDonald v. H & S Homes, LLC, No. 5:08-cv-298(CAR), 2009 WL 4251174, at *5-6 (M.D.Ga. Nov. 23, 2009).
United States v. Cleckler, 265 Fed.Appx. 850, 853 (11th Cir.2008) (citations omitted).
"The first prong is satisfied by a showing of evidence that, if beheved by a trier of fact, would estabhsh the elements of some violation that was ongoing or about to be committed." Id. (quoting In re Grand Jury Investigation (Schroeder), 842 F.2d 1223, 1226-27 (11th Gir.1987)). "The second prong is satisfied by a showing that the communication is related to the criminal or fraudulent activity established under the first prong." Id. The Gourt considers both elements of the crime-fraud exception in turn.
Plaintiffs assertion of the crime-fraud exception appears to arise out of his claim that T & B and Habif violated the Georgia Uniform Fraudulent Transfers Act, O.C.G.A. § 18-2-74 ("UFTA"), by fraudulently transferring the corporate goodvsdll of T & B, P.C. (T & B's client lists known as the "book of business") to Habif.
Generally, goodwill is a term used to describe the value that Inheres in an ongoing business typically as a result of a constant or habitual customer base. See Smith V. Davidson, 198 Ga. 231, 31 S.E.2d 477, 479 (1944).
Smith v. Davidson, 198 Ga. 231, 31 S.E.2d 477, 479 (1944); accord Howard v. United States, 448 Fed.Appx. 752, 753 (9th Cir. 2011) ("(Joodwill `is the sum total of those imponderable qualities which attract the custom of a business,—what brings patronage to the business.'" (quoting Grace Brothers v. Comm'r, 173 F.2d 170, 175-76 (9th Cm. 1949))). GoodwiU may be personal, adhering to an individual, or "enterprise," adhering to a business. See Miller v. Miller, 288 Ga. 274, 705 S.E.2d 839, 844 (2010).
Neither the parties nor the Court were able to identify a Georgia case addressing whether the transfer of goodwill, an intangible thing, may constitute a violation of UFTA. However, "in light of the dearth of Georgia decisions construing the provisions of the Georgia UFTA, [Georgia courts] look to the decisions of other jurisdictions for guidance." Truelove v. Buckley, 318 Ga.App. 207, 733 S.E.2d 499, 501 (2012). This Court wiU therefore do the same.
Several courts have held that the transfer of enterprise goodwiU, if done fraudulently, would violate UFTA. See, e.g.. Air-flow Houston, Inc. v. Theriot, 849 S.W.2d 928, 933 (Tex.Ct.App.1993); Quinn v. Elite Custom Transporters & Motorcoaches, LLC, No. 10-118(MJD/AJB), 2011 WL 1869391, at *5 (D.Minn. May 16, 2011) (collecting cases); see also Miller v. Miller, 288 Ga. 274, 705 S.E.2d 839, 844 (2010) (recognizing that enterprise goodwiU is generally viewed as property capable of transfer in business transactions); Constitution Realty, LLC v. Oltarsh, et al., 309 A.D.2d 714, 714, 766 N.Y.S.2d 425
Defendants do not appear to dispute that the transfer of enterprise goodwill is a transfer subject to the provisions of UFTA. (See Habif Resp. June 12, 2013 Ord., Doc. 130 at 4 ("[C]ases [from other jurisdictions] indicate that a transfer of enterprise goodwill may constitute a fraudulent conveyance."); Tauber Defs. Resp. Ord. June 12, Doc. 131, at 5 ("This does not mean that intangible goodwill cannot be fraudulently transferred in some circumstances or that it lacks any value.").) Instead the Defendants argue the transfer of goodwill in this case simply could not have violated UFTA. The Defendants make two arguments to support this.
First, the Defendants argue that, although enterprise goodwill may constitute a fraudulent conveyance, personal goodwdh does not. Even if this were so, "a determination of [goodwill] is a question of fact and not of law." Miller, 705 S.E.2d at 843. Here, Plaintiff has put forth prima facie evidence that the goodvidll involved in the T & B/Habif transaction was in fact T & B, P.C.'s enterprise goodwill. (Motion to Compel CAMICO, Evangehsta Decl. Ex. 8, Doc. 89-2 Exs. 6, 7, 10 (shovnng that the Defendants' counsel understood the 2007 Shareholder Agreement might be construed as suggesting the existence of enterprise goodwill)). Whether the Defendants ultimately rebut this evidence is irrelevant for purposes of the crime-fraud exception. See Rose, 586 S.E.2d at 42.
Second, the T & B Defendants argue that the alleged goodvrill here "has no value to any creditor" and thus cannot logically be the subject of a fraudulent transfer. (Tauber Defs. Resp. Ord. June 12, Doc. 131, at 4.) This argument certainly has superficial appeal. Indeed, at least one court has recognized that intangible assets like goodwill "may have no liquidation value or going concern value" and thus "cannot be sold to satisfy a creditor's claim." Bay Plastics, Inc. v. BT Comm,ercial Corp. (In re Bay Plastics, Inc.), 187 B.R. 315, 330 (Bankr.C.D.Cal.l995). However, Plaintiff has produced evidence that the goodwill transferred here had substantial value. (See Jan. 23, 2013 Notice, Doc. 71, Ex. 8 at 4 (attorney Cohen's notes from telephone conference with Habif tax partner Alan Vaughn, Aug. 28, 2008).) Accordingly, the Court rejects the Defendants' arguments that the alleged transfer of goodwill from T & B, P.C. to Habif cannot as a matter of law under these circumstances constitute a fraudulent transfer under UFTA. The Court next trans to whether Plaintiff has made a prima facie showing that the transfer of goodwill here was fraudulent.
According to UFTA, a debtor's transfer is fraudulent as to a creditor if the debtor made the transfer under one of two circumstances:
Plaintiff is only pursuing a claim of intentional fraud. (See 2d Am. Compl. ¶¶ 486-490; see also Doc. 31 at 19.)
Id.
The Court has reviewed the evidence Plaintiff presented in light of these factors and finds that Plaintiff successfully estabhshes a prima facie case of intentional fraud. First, Plaintiff presents evidence that the T & B/Habif transaction resulted in a transfer of substantially all of T & B's assets. For example, the Assignment and Assumption Agreement entered into on November 1, 2008 expressly provides that T & B, P.C. agreed "to sell, transfer, assign and contribute to [Habif] all of the assets used in connection with the Company's business." (T & B Defs. Resp. Mot. Compel, Ex. H, Doc. 104-6 at 1, 4.)
Second, shortly after the transfer was made, T & B became insolvent. An October 20, 2008 Powell Goldstein Memorandum confirms that the parties intended the ultimate result of the transaction to be the liquidation and dissolution of T & B, P.C. (Pl. Reply Defs. Resp. Mot. Compel, Worley Decl. Ex. 4, Doc. 116-4).
Third, this transfer of T & B's corporate goodwill to Habif occtured just after T & B became aware of Verso's potential lawsuit against it. T & B expressed concerns about a "situation" involving Verso on April 15, 2008 when it contacted its professional hability insurer, CAMICO. (Motion to Compel CAMICO, Evangelista Decl. Ex. 5, Doc. 89-2 at 67-68.) Some evidence suggests that T & B's main concern was "exposure with the Verso engagement relating to [Generally Accepted Auditing Standards (`GAAS') and Generally Accepted Accounting Principles (`GAAP')] issues."
Fourth, because the T & B Shareholders became shareholders of Habif after the transaction, T & B Shareholders arguably retained possession of the transferred goodwill. (See Habif Shareholder Operating Agreement, Pl. Reply Defs. Resp. Mot. Compel, Worley Decl. Ex. 19, Doc. 116-19 (recognizing that the T & B Shareholders became members of Habif)).
Finally, the Plaintiff has pointed to at least some evidence that T & B attempted to conceal the nature of this transfer of goodwill. On a number of occasions, the Defendants represented the transaction as a merger. (See, e.g., Omnibus Mot. Compel. Evangehsta Decl. Ex. 16, Doc. 89-2 at 120-130, 129 (Jan. 16, 2009 letter from Habif to PCAOB; Evangelista Decl. Pursuant to Dec. 12, 2012 Order, Ex. 1(h), Doc. 68-1 (referring to Habif as "successor to Tauber & Balser, P.C."))). The Defendants now argue that Habif is in fact not the successor in interest to T & B. (See Evangelista Decl. ¶ 7, Ex. 6; Adversary Proceeding, T & B Initial Disclosures, Doc. 19-2 at 3 (stating that " "Habif Arogeti & Wynne, LLP" has never merged with Tauber & Balser, P.C. nor is it a successor company")). Moreover, there is some evidence that Defendants concealed the transaction to the extent it involved an initial transfer of T & B, P.C.'s goodwill to the individual defendants. The T & B Defendants amended the Shareholder Agreement on the eve of the goodwill contribution to Habif in a manner that was arguably intended to result in the transfer of goodwill from the corporation to the individual shareholders. However, the Defendants failed to reveal this fact to Plaintiff the Bankruptcy Court, or this Court for years, offering ignorance of this amendment as their only excuse for their failure to disclose. (See (Court's Analysis of Plaintiffs Motion for Sanction, infra.)
The indicia of fraud revealed by this evidence are more readily ascertainable when viewed in totality and in combination with Defendants conduct during the course of this htigation. Thus, the Court provides the following timeline of the most relevant events, including the Defendants' discovery-related conduct discussed in the Court's Analysis of Plaintiffs Motion for Sanctions, Section III, infra.
Date Even Dec. 20, 2007 T & B, P.C. enters into operating agreements with its shareholders. The agreements contain Section 3.06(b), the post-termination compensation provision, which limits the extent to which a Shareholder-Employee can sohcit work from T & B chents after
termination. In particular, Section 3.06(b) essentially provides that, once the shareholder-employee leaves T & B, P.C., he must remit to the corporation, for five years, 18% of the gross fees he collects for work performed for clients he had while he worked at T & B. Mar. 14, 2008 T & B, P.C. and Habif enter into a Letter of Intent evidencing a proposed transaction between the two entities. Apr. 9, 2008 T & B, P.C. and Habif decide not to go through with the transaction. Apr. 15, 2008 T & B, P.C. notifies its insurer, CAMICO, of a "situation involving [Verso]." One concern was whether T & B, P.C. would get paid for the services it provided Verso Apr. 25. 2008 Verso filed for bankruptcy. April/May 2008 T & B expresses concern about hability to Verso for T & B's own provision of accounting services. June-Aug., 2008 Negotiations between T & B, P.C. and Habif resume. T & B and its counsel recognize that the T & B goodwill, valued at $9 milHon or more, represents most of the assets to be contributed to Habif. T & B's and its counsel consider tax implications if the T & B Shareholders contribute goodwill to Habif as part of the transaction. Extensive discussions ensue regarding whether the goodwill is corporate or professional (also called personal). June-Aug., 2008 (cont.) A lawyer at Taylor English considered the tax implications of this transaction on T & B's behalf. He stated that if the goodwill is corporate, but the shareholders individually contribute the goodwill to Habtf, the transaction would pose the highest risk because the IRS could be expected to argue that the transaction included an initial distribution of the goodwill to the shareholders, which would be a significant taxable event. Sutherland, counsel for T & B, recommends the termination of Section 3.06 of the 2007 Shareholder Operating Agi-eement to further the characterization that the goodwill was professional (not corporate). Early Oct., 2008 Sutherland drafts a memorandum now recognizing the absence (or near absence) of corporate goodwill in T & B, P.C. regardless of Section 3.06. Oct. 31, 2008 T & B and the T & B Shareholders execute the 2008 Amended Agreement, which, among other changes, eliminates Section 3.06. The 2008 Amended Agreement purports to be retroactively effective as of Feb. 1, 2007. Nov. 1, 2008 The T & B/Habif transaction closes. As part of the transaction, the T & B Shareholders contribute their goodwill to Habif. Dec. 24, 2008 Habif responds to a discovery request in an unrelated matter and refers to itself as "successor to Tauber & Balser, P.C." Jan. 15, 2009 Bryan Cave (formerly Powell Goldstein) provides executed copies of closing documents but does not list the 2008 Amended Agreement as one of these documents. Jan. 16, 2009 Habif sends letter to the PCAOB stating that T & B, P.C. "merged its practice into [Habif] effective Nov. 1, 2008." Apr. 23, 2010 Verso's Liquidating Trustee initiates the adversary proceeding against Tauber & Balser, P.C. July 1, 2010 T & B provides its initial disclosures in the adversary proceeding stating that Habif has never merged with T & B, P.C. T & B
nonetheless identified itself as "Tauber & Balser, P.C. (n/k/a Habif. Arogeti & Wynne. LLP)." (Doc. 19-2 at 3.) March, 2011 Bankruptcy Judge Bihary directs the T & B Defendants to produce the Shareholder Agreements in effect in 2007. Plaintiff subsequently produces the 2007 Shareholder Operating Agreement but not the 2008 Amended Agreement that, by its own terms, was in effect in 2007. Nov. 3, 2011 This Court withdrew the reference to the Banki'uptcy Court. Oct. 23, 2012 In response to Plaintiffs request for admissions, the T & B Defendants admit that the 2007 Shareholder Agreement was never amended or terminated. Dec, 2012 This Court directs Defendants to produce certain documents in response to Plaintiffs subpoenas. Jan. 22, 2013 T & B Defendants received a copy of the 2008 Amended Agreement. Apr. 5, 2013 T & B Defendants move to withdraw their admission that the 2007 Shareholder Agreement had never been amended or terminated.
The Court recognizes that the Defendants have made reasonable arguments to contradict Plaintiffs allegation of a fraudulent transaction. For example, the Defendants assert that counsel provided Defendants with advice regarding the tax implications of the T & B/Habif transaction, and that there is no evidence that such advice involved in any way concealing assets from a potential creditor like Verso. (Doc. 78 at 8; Doc. 79 at 7-8.) And as mentioned, there is some evidence suggesting that the good-will might have been personal goodwill all along. If true, there would have been no corporate distribution of goodwill. But in assessing the crime-fraud exception the Court looks only for prima facie evidence of a fraudulent transfer, without considering the existence of evidence to the contrary. See Rose, 586 S.E.2d at 42. As the Court finds prima facie evidence of a fraudulent transfer, it now considers whether communications with counsel were closely related to this transfer and thus discoverable.
The crime-fraud exception applies to any communications with counsel made in furtherance of the alleged fraudulent transfer or closely related to it. Cleckler, 265 Fed. Appx. at 853. However, the crime-fraud exception wall only vitiate the attorney-client privilege as to communications occurring prior to the fraudulent transfer. Both v. Frantz, 278 Ga.App. 556, 629 S.E.2d 427, 433-34 (2006); Atlanta Coca-Cola Bottling Co. v. Goss, 50 Ga.App. 637, 179 S.E. 420, 421 (1935) ("As to violations of law or commissions of fraud, however, the protection extends only to communications after the act or transaction is finished. It does not cover communications respecting proposed infractions of the law in the commission of a crime or the perpetration of a fraud.").
The Plaintiff has failed to identify precise documents on the Defendants' privilege logs indicating communications made in furtherance of the alleged fraudulent transfer. Instead, Plaintiff makes the blanket request for all documents created on or before August 25, 2009, the date Plaintiffs counsel first notified T & B Defendants' counsel of Plaintiffs potential claim against them. Nonetheless, Plaintiff has shown examples of numerous communications made prior to the execution of
Accordingly, the Court
Unlike the attorney-client privilege, the scope of protection provided by the work product doctrine is a procedural question and thus governed by federal law in a diversity action. See Underwriters Ins. Co. v. Atlanta Gas Light Co., 248 F.R.D. 663, 667 (N.D.Ga.2008) (Carnes, J.) (citing Shipes v. BIC Corp., 154 F.R.D. 301, 305 (M.D.Ga.1994)). The work product privilege provides a qualified immunity for materials prepared in anticipation of litigation by a party, an attorney, or other representatives of the party. Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947). Rule 26(b)(3)(A)(ii) protects from discovery "documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)" unless the requesting party "shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." Fed.R.Civ.P. 26(b)(3)(A)(u). "[T]he burden is on the party withholding discovery to show that the documents should be afforded work-product [protection]." Fojtasek v. NCL (Bahamas) Ltd., 262 F.R.D. 650, 654 (S.D.Fla.2009).
Plaintiff argues that the work product doctrine does not shield Defendants' documents created before August 25, 2009, the date that Plaintiff first put Defendants on notice of any potential claim, because "Defendants had no notice of any claim against T & B relating to Verso until that time." (Doc. 88-1 at 22.) Plaintiff essentially argues that such documents were not "prepared in anticipation of litigation." In their responses, the Defendants do not challenge this assertion, except to the extent the T & B Defendants argue that certain communications with CAMICO or documents created by CAMICO are protected by the work-product doctrine. (See Doc. 104-1 at 11-17.) The Court will consider the CAMICO-related documents separately in its analysis of Plaintiffs Motion to Compel against CAMICO, infra. As to all other documents, however, the Court finds that, by failing to assert any basis for the application of the work product doctrine, the Defendants have not met their burden. Accordingly, the Defendants are
The "Common Interest Rule" (also known as "common interest privilege") is an exception to a waiver of attorney-client privilege or work product doctrine. Under this rule, parties who share "strong common interests" may also share privileged or protected material without waiving the privilege or protection. See McKesson Corp. v. Green, 266 Ga.App. 157, 597 S.E.2d 447, 452 (2004) (recognizing this rule in the context of the work product doctrine). "[T]he doctrine applies where (1) communications are made by separate parties in the course of a matter of common interest (though there need not be a complete unity of interests; parties may be adversaries on other issues), (2) the communications are designed to further the parties' common interests, and (3) the privilege has not been waived by either party at the time the communications are made." Paul Milich, Ga. Rules of Evidence, § 21:5 Joint Defense doctrine at n.4
"[T]he common interest ... may be either legal, factual, or strategic in character. The interests of the separately represented clients need not be entirely congruent." Restatement (Third) of the Law Governing Lawyers § 76 cmt. e (cited in In re Teleglobe Comm'ns Corp., 493 F.3d 345, 365 (3d Cir.2007)). Disclosure to an adversary, however, will obviously result in waiver. McKesson Corp., 597 S.E.2d at 453.
The T & B Defendants' appear to assert the common interest privilege to protect only a narrow selection of documents.
Plaintiff also argues that "[t]here is no common interest between the T & B entity and the T & B Shareholders (including the Individual T & B Defendants), who share the same counsel and have completely adverse interests as to the fraudulent conveyance issues." (PL Memo. Law Supp. Omnibus Mot. Compel Discovery, Doc. 88-1, at 25.) This argument is misplaced and without merit. The T & B Defendants do not appear to assert a common interest privilege as to any such communications. And in any case, while it may be true that T & B, P.C. and the individual Shareholders do not stand in the same position regarding Plaintiffs fraudulent transfer claim, this fact is irrelevant here. Instead, the Court looks to whether, at the time of the communications, the transferor and transferee shared a "strong common interests." Both the company and the shareholders had a strong interest in avoiding a significant tax event when they communicated about the T & B/Habif transaction. The Court finds that T & B, P.C. and the individual T & B Shareholders shared a sufficiently strong common interest to warrant the application of the attorney-client privilege to any communications among them and their counsel regarding the transaction with Habif that originated prior to Plaintiffs assertion of a fraudulent transfer claim.
Plaintiff argues that "Defendants' egregious stonewalling in this action has prevented Plaintiff from getting at the truth for more than two years." (Doc. 115 at 10.) According to Plaintiff "[t]he only ef fective remedy left is to grant Plaintiff access to Defendants' computers for an appropriate forensic examination." (Id.) The Court has thoroughly reviewed the record in this manner and determines that such a remedy is unnecessary at this time.
For the foregoing reasons, the Court
The Court also finds that, by failing to assert any basis for the apphcation of the work product doctrine,
In addition, the Court finds that the T & B Defendants did not waive the attorney-client privilege by communicating with Habif or Habif s counsel after Plaintiff indicated his intention to sue Habif because all the Defendants in this action share a strong interest in a coordinated defense strategy. Nor have the T & B Defendants waived the attorney-client privilege by discussing among themselves, prior to Plaintiffs assertion of a fraudulent transfer, the decision to transfer goodwill. The T & B Defendants do not appear to assert the common interest privilege as to any other communications.
Finally, the Court declines Plaintiffs request for access to Defendants' computers for a forensic examination.
Plaintiff filed two motions to compel on February 22, 2013 and in both, he seeks communications between CAMICO and Carlock Copeland, T & B's professional hability insurer and counsel, respectively. (Docs. 88, 89.) For the reasons set forth below, the Court
Tauber & Balser, P.C. had a $5 million professional liability insurance pohcy with CAMICO, effective November 1, 2007 through December 21, 2008. (PL Mot. Compel CAMICO Prod. Docs. Responsive to Subpoena ("Motion to Compel CAMICO"), Evangehsta Decl. Ex. 4, Doc. 89-2 at 39-66 ("CAMICO Pohcy").) In addition to its coverage for certain claims against the insured, the CAMICO Policy provided benefits "designed to minimize [the insured's] professional hability exposure by helping [the insured] manage [its] firm." (Id. at 53.) Consistent with these benefits, CAMICO states that it "assigns attorneys in anticipation of litigation at an early stage to attempt to mitigate or prevent claims from being asserted." (Wilson Deck, Doc. 60-1, ¶¶ 3-5.) The policy also provided a reduced deductible if the insured notifies CAMICO of a potential claim before the actual claim is made against the insured. (See Motion to Compel CAMICO, Evangelista Decl. Ex. 6, Doc. 89-2 at 69-71.)
On April 15, 2008, Leslie Balmforth, Chief Operating Officer of T & B, P.C. emailed CAMICO regarding a "situation involving a public company chent." (Motion to Compel CAMICO, Evangehsta
On April 25, 2008, Verso filed for bankruptcy. Around this time, T & B and the T & B Shareholders continued discussing T & B's potential exposure. Not only was T & B concerned that Verso might not pay its bills, it also was concerned about "exposure with the Verso engagement relating to [Generally Accepted Auditing Standards (`GAAS') and Generally Accepted Accounting Principles (`GAAP') ] issues." (Motion to Compel CAMICO, Evangelista Decl. Ex. 8, Doc. 89-2 at 75-79, 77 (T & B board meeting notes)); see also id. Ex. 7, Doc. 89-2 at 72-74 (noting that Defendant Murovitz, an individual T & B Shareholder, contacted Verso to ask about whether T & B should resign as auditors of Verso).
On May 20, 2008, at CAMICO's direction, T & B retained Carlock Copeland to conduct an investigation in connection with potential claims relating to T & B's Verso engagements. (See Pl. Reply CAICO's Opp. Pl. Mot. Compel, Doc. 110, at 9 n.3 (recognizing the letter from CAMICO to Murovitz); Pl. Omnibus 0pp. Defs. Mot. Quash Subpoena, Doc. 54, at 7 (same); CAMICO Opp. Pl. Motion Compel, Doc. 98, at 5 (same); Second Wilson Decl., Doc. 99, ¶ 6.)
Then on June 9, 2008, CAMICO sent T & B a letter stating that there were "no coverage issues that are apparent in this matter, based on the hmited information we received to date." (Motion to Compel CAMICO, Evangelista Decl. Ex. 1, Doc. 89-2 at 26-28.) Accordingly, CAMICO stated that it had not opened a "Claim File." (Id.)
(Id.)
In their briefing on Plaintiffs Motion to Compel, neither the parties nor CAMICO
Plaintiff notified T & B Defendants' counsel of his potential claim against them on August 25, 2009.
On November 9, 2012, Plaintiff served CAMICO with a subpoena to produce documents. (Motion to Compel CAMICO, Evangehsta Decl. Ex. 1., Doc. 89-2 at 9-25 ("CAMICO Subpoena").) Plaintiff sought documents related to its underwriting and coverage of T & B, P.C. and in particular, those associated with any claims or potential claims relating to T & B's engagements with Verso. (See, e.g., CAMICO Subpoena, Doc. 89-2 at 22-23 (Request Nos. 4, 6, 8.))
CAMICO objected to the subpoena in its entirety. (Motion to Compel CAMICO, Evangehsta Decl., Ex. 2, Doc. 89-2 at 31-33 ("CAMICO Objection").) CAMICO argued primarily that Plaintiffs requested documents were either irrelevant to the underlying litigation or created in anticipation of litigation and thus not discoverable. CAMICO did not provide a privilege log at this time.
On November 16, 2012, the T & B Defendants moved to quash this subpoena to CAMICO asserting the same basic arguments as CAMICO. (T & B's Mot. Quash Subpoenas, Doc. 51.) After fuU briefing on this motion was complete, the Court held a hearing. (See Dec. 7, 2012 Hrg. Tr., Doc. 65, at 58-64; Dec. 12, 2012 Hrg. Tr., Doc. 66, at 41-58.) At the hearing. Plaintiffs counsel agreed to narrow the scope of his request. Plaintiffs counsel stated that Plaintiff is not seeking CAMICO's proprietary information such as its undeiwiting methodologies and processes, (see also Dec. 12, 2012 Hrg. Tr. at 47-48.) Nor is Plaintiff interested in "communications related to [CAMICO's] evaluation of the plaintiffs claims." (Dec. 12, 2012 Hrg. Tr. at 49.) Rather, Plaintiff appeared interested in communications between CAMICO and T & B regarding the potential claims arising out of the Verso engagement—documents likely in T & B's possession. (Id. at 48.) As to those documents. Plaintiff argued that the work product doctrine did not apply, and even if it did, the crime fraud exception warranted their production. (See Pl. Omnibus Opp. Defs. Mots. Quash Supboena ("Pl. Omnibus Resp."), Doc. 54, at 25 (arguing that the work product doctrine does not protect documents "generated in the early stages of claims investigation (such as the Carlock Copeland firm's investigation)").) Based on this hearing, the Court denied the motion to quash but reserved ruling on the work product doctrine issue. The Court then ordered the T & B Defendants to confer with CAMICO to provide the subpoenaed documents to the Court for in camera inspection along with an accompanying privilege log. (See Doc. 62.)
On February 22, 2013, Plaintiff filed two Motions to Compel. (Doc. 88, 89.) In Plaintiffs Omnibus Motion to Compel Documents directed towards the Defendants, Plaintiff seeks communications between the T & B Defendants and CAMICO regarding the Verso engagement. (Pl. Omnibus Motion Compel ("Omnibus Motion"),
In his Motions to Compel, Plaintiff reiterates the narrowed scope of his document request with respect to CAMICO. (See Pl. Memo. Supp. Motion to Compel CAMICO, Doc. 89-1, at 18.) In particular. Plaintiff appears to seek only communications between Carlock Copeland (or the T & B Defendants) and CAMICO prior to August 25, 2009. (Id. at 7 n.6.) The Court now turns to the merits of Plaintiffs motions to compel the production of these CAMICO-related documents.
CAMICO and the T & B Defendants refuse to produce a small set of documents to Plaintiff asserting the work product doctrine and the common interest privilege. (CAMICO Privilege Log, Doc. 98-1; T & B Privilege Log, Doc. 104-12, at 13-14.) Plaintiff challenges both assertions. Plaintiff first argues that the work product doctrine did not attach to CAMICO related documents until August 25, 2009, and even if it applied earlier. Plaintiffs substantial need for the documents, and the documents' unavailability elsewhere, warrant their production. (Pl. Memo. Supp. Motion to Compel CAMICO, Doc. 89-1, at 20-24.) He then argues that the crimefraud exception applies to any assertions of privilege or protection regarding communications with CAMICO. (Id. at 18-20.) The Court considers each assertion in turn.
Rule 26(b)(3)(A)(ii) protects from discovery "documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)" unless the requesting party "shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." Fed.R.Civ.P. 26(b)(3)(A)(ii). "[T]he burden is on the party withholding discovery to show that the documents should be afforded work-product [protection]." Fojtasek v. NCL (Bahamas) Ltd., 262 F.R.D. 650, 654 (S.D.FIa.2009).
Insurance claim files generally do not constitute work product in the early stages of investigation, when the insurance company is primarily concerned with "deciding whether to resist the claim, to reimburse the insured and seek subrogation... or to reimburse the insured and forget about the claim thereafter." Underwriters Ins. Co. v. Atlanta Gas Light Co., 248 F.R.D. at 667 (quoting Carver v. Allstate Ins. Co., 94 F.R.D. 131, 134 (S.D.Ga.l982)). As the court explained in Carver, claim files "straddle both ends of this definition, because it is the ordinary course of business for an insurance company to investigate a claim with an eye toward litigation." 94 F.R.D. at 134. Once litigation is imminent, however, the claims investigation file is maintained "in anticipation of litigation" and its contents are protected by the work product doctrine. Underwriters Ins. Co. v. Atlanta Gas Light Co., 248 F.R.D. at 667; see also Lett v. State Farm Fire & Cas. Co., 115 F.R.D. 501, 503 (N.D.Ga. 1987) (Forrester, J.) (finding that reports prepared after a claim was reassigned from a regular representative to a senior representative, due to the company's suspicion of fraud, were protected by the work product doctrine).
Where, as here, an underlying third party liability claim is involved, the federal courts have generally recognized that "the investigation is made in anticipation
The Court finds that CAMICO and the T & B Defendants have failed to meet their burden of estabhshing that the work product doctrine attaches to documents created prior to August 25, 2009. Unlike in Underuniters Insurance Company, here the withheld documents were created before an actual or imminent thirdparty claim arose. Instead, these documents and communications appear to be part of CAMICO's ordinary course of business. And although in May 2008 CAMICO directed T & B to retain counsel in connection with potential claims relating to T & B's Verso engagement—a decision that was no doubt made "with an eye toward litigation"—T & B and CAMICO failed to show that at this time, actual litigation was imminent. In fact, CAMICO found by June 2008 that no coverage issues were apparent and that pre-claim legal assistance was not necessary. Other than August 25, 2009, CAMICO and the T & B Defendants point to no specific time when communications between T & B and CAMICO could have arguably been in anticipation of htigation. As the burden to establish the work product doctrine initially rests on the withholding party, the Court finds that the work product protection does not apply to CAMICO communications prior to August 25, 2009.
CAMICO also withholds communications it had with T & B and T & B's counsel. asserting the common interest privilege. Although on CAMICO's privilege log, CAMICO claims the common interest privilege for communications between it and T & B, P.C. (or T & B's individual Shareholders), (see CAMICO Privilege Log, Doc. 98-1 (Nos. 1, 9)), CAMICO only argues for the application of this doctrine to communications between it and T & B's counsel (see CAMICO's Br. Opp. Pl. Mot. Compel, Doc. 98, at 10-12). As the burden of estabhshing the privilege rests on the party withholding the documents, the Court finds that the common interest privilege does not protect CAMICO's communications with T & B, P.C. or the individual T & B Shareholders. The Court now turns to CAMICO's assertion of the common interest privilege to protect its communications with T & B's counsel.
Parties who share "strong common interests" may also share privileged or protected material without waiving the privilege or protection. See McKesson Corp. v. Green, 266 Ga.App. 157, 597 S.E.2d 447, 452 (2004) (recognizing this rule in the context of the work product doctrine). As such, an insurer's communications with the attorney assigned to represent the insured under an insurance policy are generally protected by this common interest or attorney-client privilege. See, e.g., Undenvriters Ins. Co., 248 F.R.D. at 670-71 (finding in an analogous case that the attorney-client privilege protects communications regarding the progress of a case between the insurer and the counsel the insurer retained to represent the insured); Lectrolarm Custom Sys.. Inc. v. Pelco Sales, Inc., 212 F.R.D. 567, 572-73 (E.D.Cal.2002) (holding that the common interest privilege protects communications between the insured and insurance company relating to the claims and defenses in an underlying lawsuit).
The T & B Defendants and CAMICO assert the attorney-client privilege as the basis for withholding some of the communications between them. (See, e.g., T & B Privilege Log, Doc. 89-2 at 109-110 (Nos. 133, 134, 137, 138, 144, 146, and 148); CAMICO Privilege Log, Doc. 98-1 (Nos. 2-6, 8, 11-12, 15-16, 18-19, 21-26, 28).) The Court does not read Plaintiffs Motion to Compel as seeking these documents, except to the extent they are accessible via the crime-fraud exception. In addition to documents produced to Plaintiff, the Court reviewed a set of CAMICO documents in camera. Nothing in these documents suggest that communications with CAMICO were made in furtherance of any crime or fraud. Accordingly, the crime-fraud exception does not vitiate any otherwise vahd assertions of the attorney-client privilege as to these documents.
For the reasons explained above, the Court
At this time, the T & B Defendants and CAMICO have no other obligations to produce to Plaintiff the communications between them.
On April 12, 2013, Plaintiff filed a Motion for Sanctions ("Sanctions Motion"). (Doc. 120.) Plaintiff urges the Court to impose sanctions upon the T & B, the Individual T & B Defendants, the other Shareholders of Tauber and Balser, and the Habif Defendants (collectively, "Defendants and Shareholders"). According to Plaintiff, the Defendants and Shareholders have misled Plaintiff, the Bankruptcy Court, and this Court about the nature of the T & B/Habif transaction and the existence of documents relevant to this transaction. Accordingly, Plaintiff moves the Court to sanction the Defendants and Shareholders in a variety of ways ranging from holding them and their counsel hable for attorney's fees to striking the Defendants' answers and entering default judgment on the entirety of Plaintiffs Amended Complaint.
For the reasons discussed below, the Court
Plaintiffs Sanctions Motion suffers from serious structural and technical deficiencies that justify outright denial. For example, Plaintiffs brief in support of his Sanctions Motion exceeds 25 pages in violation of the Local Rules. "Absent prior
In addition. Plaintiff abuses the page limit extension that he assumed would be granted. Much like Plaintiffs Omnibus Motion to Compel, discussed supra, Plaintiffs Sanctions Motion squeezes significant substantive material that should be presented in the main text into single-spaced footnotes, thus skirting the local rule requiring double-spaced text in the body of briefs. See LR 5.1C, NDGa. And Plaintiff again asks the Court to incorporate by reference the facts set forth in several other filings without specifying precisely what portion of these fihngs are meant to be incorporated. (See, e.g., Pl. Memo. Law Supp. Mot. Sanctions, Doc. 120-1, at 5 n.3.) As the Court has previously explained, this is an unacceptable way of presenting material.
The Court could rightly deny Plaintiffs Sanctions Motion for its failure to conform to the letter and spirit of the Local Rules, but doing so would force the Court to ignore the serious discovery-related issues Plaintiff has identified. Thus, the Court will address the merits of Plaintiffs motion. However, the Gourt primarily rehes on the text and record citations in the body of Plaintiffs brief, with only a cursory review of his additional material.
Discovery in this case is an extension of the discovery that began in the adversary proceedings during Verso's bankruptcy. Laddin v. Tauber & Balser, P.C. et al., No. 10-09035-mgd (N.D.Ga.Bankr.) ("Adversary Proceeding"). Thus, the Court first briefly describes the relevant portions of the Adversary Proceeding and then addresses actions that have taken place in this Court.
Plaintiff filed his complaint against Tauber & Balser, P.C. (n/k/a Habif Arogeti & Wynne, LLP) on April 23, 2010. (Adversary Proceeding, Doc. 1.) At this time. Plaintiff beheved that Habif was the successor to Tauber & Balser, P.C. On June 17, 2010, U.S. Bankruptcy Judge Joyce Bihary entered a scheduling order requiring that the parties file motions to join additional parties or to amend the pleadings by September 21, 2010 and October 21, 2010, respectively. According to this Order, discovery was to be completed by February 28, 2011. (See Adversary Proceeding, Docs. 10, 12.)
During discovery. Plaintiff received arguably contradictory information about Habif s status as the successor to T & B. For example, in T & B's initial disclosures on July 1, 2010, T & B stated that " "Habif,
Several months later, on December 13, 2010, Plaintiff filed a motion to modify the scheduling order. (Adversary Proceeding, Doc. 19.) Among other requests. Plaintiff sought an extension of time to add Habif as a party. (Id.) Plaintiff argued that he had "every right to rely on" representations in the Defendant's own pleadings that Habif was the successor to T & B. (Id. at 15-16.) Plaintiff asserted that he (and the Bankruptcy Court) had been misled to beheve that Habif was the successor to T & B, and thus requested an opportunity to add Habif as a party if necessary. (Id. at 16.)
After a hearing. Judge Bihary granted Plaintiffs motion in a one-page Order. (Adversaiy Proceeding, Doc. 25.) She allowed continued discovery on the issue of successor hability and amended the scheduling order accordingly.
Discovery continued to proceed, and by March 2011, the parties reached an impasse regarding the production of certain documents. On March 23, 2011, Judge Bihary held a status conference. (See Adversary Proceeding, Doc. 38 ("Mar. 23, 2011 Hrg. Tr.").)
Plaintiff filed his Amended Complaint by Judge Bihary's deadline. (Adversary Proceedings, Doc. 48.) Shortly thereafter, the Defendants filed their motions to dismiss and then filed, along with Plaintiff a consent motion to withdraw the reference. The Court granted the motion to withdraw on November 3, 2011.
After the Court ruled on the Defendants' motions to dismiss on June 18, 2012, (Doc. 31), the parties engaged in further discovery. Plaintiff served Defendants with a document request on September 19, 2012, requesting, among other things, T & B shareholder meeting notes and documents associated with T & B's insurance coverage. (Rogers Decl, Doc. 104-1, ¶ 11; Evangehsta Decl. Ex. 1(1), ("Resp. Pl. 6th Req. Prod.").) Shortly thereafter, in November 2012, Plaintiff served subpoenas to produce documents upon several non-parties including CAMICO Mutual Insurance Company ("CAMICO"), T & B's professional liability insurer, (Doc. 51-4), and three law firms that counseled T & B and Habif on the transaction between them, (Docs. 51-2, 51-3, 51-5). The Defendants moved to quash these subpoenas on November 16, 2012, alleging, inter alia, that documents Plaintiff seeks are protected by the attorney-client privilege or work product doctrine. (Docs. 51, 52.)
The Court held a hearing on December 7 and 12, 2012, to address Defendants' motions to quash and related discovery issues. The Court considered: (1) whether Plaintiff produced sufficient evidence to apply the crime-fraud exception justifying the inapphcability of the attorney-client privilege as to certain communications; and (2) whether T & B's voluntary production of a privileged memorandum, (Dec. 7, 2012 Hrg. Ex. 4, Doc. 87-4 (the "Sutherland Memo")), constitutes a waiver of the attorney-client privilege as to all communications associated with that memorandum. (See Doc. 62.)
After the hearing, the Court made three primary decisions. First, because Plaintiff agreed to exclude documents generated in connection with the instant litigation from the scope of the documents sought in the subpoenas, the Court denied in part Defendants' motions to quash. (Id.) Second, the Court directed Defendants to confer with the non-parties to provide the remaining subpoenaed documents for in camera inspection so the Court could decide the issue of the crime-fraud exception. (Id.) Finally, the Court held that Defendants' voluntary production of the Sutherland Memo constituted a waiver of the attorney-client privilege as to associated communications and directed Defendants to produce documents accordingly. (Id.)
Plaintiff moves for sanctions pursuant to Rules 37(b) and 26(g) of the Federal Rules of Civil Procedure.
Plaintiff seeks sanctions pursuant to Rule 37(b). Rule 37(b)(2) provides that the Court may impose sanctions if a party "fails to obey an order to provide or permit discovery." Fed.R.Civ.P. 37(b)(2)(A). Accordingly, to warrant sanctions. Plaintiff must (1) identify a discovery order or directive and (2) show that the order or directive has been violated. See U.S. v. Certain Real Prop. Located at Route 1, Bryant, Ala., 126 F.3d 1314, 1317 (11th Cir.1997) (suggestmg that the absence of a violation of a discovery order renders inappropriate the imposition of sanctions, particularly the harsh sanction of dismissal); accord Melendez-Garcia v. Sanchez, 629 F.3d 25, 33 (1st Cir.2010) ("The plain language of Rule 37(b) provides that before a court can impose sanctions, the offending party must `fail[] to obey an order to provide or permit discovery.'") (quoting Fed.R.Civ.P. 37(b)(2)(A)); 7 Moore's Federal Practice, § 37.42[1] (Matthew Bender 3d Ed.) ("The absence of a prior order or direction compelling discovery precludes Rule 37(b) sanctions."); Wright & Miller, 8B Fed. Practice & Procedure § 2289 (3d. ed. 2013).
The violated order, however, need not be a formal vmtten order; Rule 37(b) sanctions may be imposed for violations of the Court's oral discovery directives as well. See, e.g., Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 n. 7 (11th Cir. 1993) ("[An] oral discovery order is a vahd basis for Rule 37 sanctions."); Dreith v. Nu Image, Inc., 648 F.3d 779, 787 (9th Cir.2011) ("The definition of `order', in Rule 37(b) has been read broadly. Sanctions may be imposed even for violation of a court's oral order, as long as a party has unequivocal notice that court has asked that certain documents be produced."). Plaintiff argues that the Defendants have violated the Bankruptcy Court's March 23, 2011 Bench Order and corresponding March 31, 2011 Written Order.
The Court finds that the T & B Defendants violated the Bankruptcy Court's March 23 and 31 Orders directing them to produce by April 22, 2011 "all shareholder, employment and related agreements in effect 2005 through 2007." (Adversary Proceeding, Doc. 35 at 2; Mar. 23, 2011 Hrg. Tr. at 69.) The T & B Defendants failed to produce by this deadline the 2008 Amended Agreement, which by its own terms was effective as of February 1, 2007. Instead, the T & B Defendants produced the 2008 Amended Agreement on January 22, 2013, nearly two years later. The T & B Defendants argue that this failure to produce was inadvertent, and counsel for the T & B Defendants avers that he only first became aware of the 2008 Amended Agreement in
Plaintiff also seeks sanctions under Rule 26(g). Rule 26(g) authorizes the imposition of sanctions in certain circumstances. Pursuant to Rule 26(g)(1), every discovery response or objection must be signed by at least one attorney of record in the attorney's own name. Fed.R.Civ.P. 26(g)(1). This signature certifies compliance with the federal rules and the parties' discovery obligations.
Fed.R.Civ.P. 26(g)(1)(B).
The comments to subsection (g)(1) clarify that Rule 26(g) broadly "imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37." Fed.R.Civ.P. 26(g) advisory committee's note. Thus, for example. Rule 26(g) "requires that the attorney make a reasonable inquiry into the factual basis of his response, request, or objection." Id.; see, e.g.. In re Delta/Air-Tran Baggage Fee Antitrust Litigation, 846 F.Supp.2d 1335, 1351-52 (N.D.Ga. 2012) (Batten, J.).
Rule 26(g)(3) requires the Court to impose sanctions if a certification violates this rule without substantial justification. Fed.R.Civ.P. 26(g)(3); see Chudasama, 123 F,3d at 1372 (recognizing that the decision to impose sanctions is not discretionary when the Court finds that violation has occurred) (citing Malautea, 987 F.2d at 1545). "The sanction may include an order to pay the reasonable expenses, including attorney's fees, caused by the violation." Id.
After a thorough review of the record, the Court finds that the T & B Defendants and their counsel violated Rule 26(g) by admitting, without a thorough investigation, that the 2007 Shareholder Agreement was still in effect. As the Court described in its discussion of the T & B Defendants' motion to Withdraw, the T & B Shareholders and their counsel on that transaction spent months considering the effects of the 2007 Shareholder Agreement on any T & B/Habif transaction. After much consideration, they ultimately decided to amend the 2007 Shareholder Agreement so as to remove Section 3.06(b), a post-termination compensation provision that could be construed as establishing corporate (as opposed to personal) goodwill. Then, on the same day the T & B Shareholders executed their Goodwill Contribution Agi-eements, they also executed the 2008 Amended Agreement, which purported to be retroactively effective on February 1, 2007. (E.g., Mot. Withdraw Exs. G, H, I.)
Plaintiff has put forth no other basis for the apphcation of sanctions. The Court now turns to the question of what sanctions to impose.
Upon finding that Rule 37(b) has been violated, the Court "must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust." Fed. R.Civ.P. 37(b)(2)(C). Likewise, the Court must sanction a party who violates Rule 26(g) unless such violation is substantially justified. Fed.R.Civ.P. 26(g)(3). The imposition of expenses under Rule 26(g), however, is permissive. Id.; see also Chudasama, 123 F.3d at 1372 ("The decision of what sanction is appropriate [under Rule 26(g) ] ..., is committed to the district court's discretion.").
Here, the Court has determined that the T & B Defendants violated Rules 37(b) and 26(g) by failing to timely produce the 2008 Amended Agreements or admit to their existence. The T & B Defendants counsel's only explanation for this failure was that he was unaware of the existence of the executed copy of these agreements until December 2012. As the Court has previously noted, a reasonable investigation would have revealed the executed 2008 Amended Agreement or, at the very least, that such agreements were entered into. The Court finds that the T & B Defendants and their counsel have failed to put forth a substantial justification for violating Rules 37(b) and 26(g). Accordingly, the Court imposes upon the T & B Defendants the reasonable expenses caused by the T & B Defendants' failure regarding the discovery of the 2008 Amended Agreement. The Court also imposes upon the T & B Defendants a portion of the cost of bringing this motion for sanctions.
Under the circumstances here, the Court finds that no other sanctions are warranted.
Plaintiff is
For the foregoing reasons, the Court
O.C.G.A. § 18-2-71(2). None of these exceptions apply here.
