Newsom v. Lawson
Newsom v. Lawson
Opinion of the Court
Plaintiff P. David Newsome, Jr. ("Plaintiff") is the liquidating trustee and successor-in-interest to the claims of the reorganized debtor Mahalo Energy (USA), Inc. ("Mahalo USA"). (D.I.115). Plaintiff has asserted various claims against Defendants Jeff G. Lawson and Grant A. MacKenzie (collectively, the "Defendants") based on their role as attorneys for both Mahalo USA and its parent Mahalo Energy Ltd. ("Mahalo Canada"). (Id. at ¶¶ 9, 84). The parties are currently engaged in jurisdictional discovery, which has led to the present dispute. A magistrate judge denied Plaintiff's motion to compel certain documents Defendants withheld as privileged. (D.I. 128). Presently before the court are Plaintiff's objections to the magistrate judge's rulings. (D.I. 129). For the reasons stated below, the court affirms in part and reverses in part the magistrate judge's rulings.
I. BACKGROUND
A. Factual Background
Mahalo USA was a Delaware corporation and wholly-owned subsidiary of Mahalo Canada, a Canadian corporation headquartered in Calgary, Alberta. (D.I. 115 ¶¶ 27, 80). On May 21, 2009, Mahalo USA filed for bankruptcy and Mahalo Canada filed for the Canadian equivalent of bankruptcy. (Id. at ¶¶ 26, 28). Defendants are corporate lawyers at Burnett, Duckworth & Palmer, LLP, a Canadian law firm, and had an attorney-client relationship with both Mahalo USA and Mahalo Canada. (Id. at ¶¶ 9, 84). Defendants also served as officers or directors of the companies. Specifically, MacKenzie was the corporate secretary of both Mahalo USA and Mahalo Canada, and Lawson was a director of Mahalo Canada. (Id. at ¶ 84).
*660B. Procedural History
Plaintiff sued Defendants alleging breach of attorney fiduciary duty, attorney malpractice, aiding and abetting breach of fiduciary duties, and aiding and abetting illegal distributions in violation of 8 Del. C. § 174. (Id. at ¶¶ 115-82). On August 28, 2014, Defendants filed a motion to dismiss, asserting lack of personal jurisdiction. (D.I. 11). After briefing and oral argument, the court entered an order granting Plaintiff leave to conduct jurisdictional discovery. (D.I. 35). Plaintiff thereafter issued discovery requests which led to several discovery disputes. (D.I. 47, D.I. 49, D.I. 50).
On May 12, 2015, the court referred the determination of all discovery disputes to a magistrate judge. (D.I. 68). A ruling on the parties' discovery disputes was held in abeyance pending, among other things, disposition of Plaintiff's motion to amend, which the court granted. (D.I. 20, D.I. 59, D.I. 85). After Plaintiff filed his first amended complaint, Defendants filed their second motion to dismiss. (D.I. 115, D.I. 116). The second motion to dismiss, like the first motion to dismiss, argued that the court lacked personal jurisdiction. (D.I. 116 at 5-8). Accordingly, the parties requested that the court rule on the outstanding discovery disputes. (D.I. 117).
C. The Magistrate Judge's Rulings
The only portion of the discovery disputes currently before the court is whether Defendants have improperly asserted privilege to withhold certain documents from production. Plaintiff moved to compel production of the documents based on two exceptions to the attorney-client privilege: the adverse-litigation exception recognized by the Third Circuit in In re Teleglobe Communications Corp. ,
On June 9, 2016, the magistrate judge held a discovery conference, and the transcript of that conference served as the order of the court. (D.I. 126, D.I. 128). In general, the magistrate judge found that the adverse-litigation exception was inapplicable, because Plaintiff was suing the joint attorney and not the other joint client. (See, e.g. , D.I. 128 at 19:13-20:19). In addition, the breach of duty exception was inapplicable, because it "has nothing to do with joint representations." (See, e.g. , id. at 32:12-19). More specifically, the magistrate judge made the following six rulings to which Plaintiff objects:
THE COURT: [U]nder the Teleglobe case, the Court specifically stated, and I quote, the great caveat of the joint client privilege is that it only protects communications from compelled disclosures to parties outside the joint representation. When former co-clients sue one another ... the default rule is that all communications made in the course of the joint representation are discoverable. The Teleglobe case differs from this case because in that case, the subsidiary sued the parent. And there had been a joint representation involved between the parent and the sub. Here [it is] not joint clients suing one another, ... it's one client ... suing the attorney for both clients. A waiver cannot occur for the client who is not the party to the suit..... In other words, if your argument is we have a parent and a sub, the sub is now suing counsel who allegedly represented both the parent and the sub, that parent [doesn't] lose attorney/client privilege just because the sub has sued the attorney. That is a completely different circumstance. And that's what I understand we have here and what we didn't have in the Teleglobe case.
(D.I. 128 at 19:13-20:19).
THE COURT: [Y]ou're suggesting to me that the parent has given up ... any *661claim of attorney/client privilege in any document that has any reference to [Mahalo USA] because of the joint representation and [Mahalo USA is] now suing through the trustee ... the attorneys that represented it [and] the parent. I don't see how ... Teleglobe ... fits.
MR. MOJDEHI: Let me address that question which was the second point. So Teleglobe gives us the general rule, and then the question is does this fall within that general rule?
THE COURT: And the answer is no.
(Id. at 21:4-21).
THE COURT: Then [ Teleglobe ] says when co-clients and their common attorneys communicate with one another both communications are in confidence for privilege purposes. Moreover, the waiving of attorney/client privilege requires a consent. That consent [is in] regards to a client. Under the statements there are other laws governing lawyers. And a client ... may unilaterally waive the privilege as to its own communications with a joint attorney so long as those communications concern only the waiving client. It may not, however, unilaterally waive the privilege as to any other joint client communication or to any of its communications that relate to the joint clients. And that was the finding by the Third Circuit. That was the finding of the law that was applicable by the Third Circuit.
(Id. at 24:2-19).
THE COURT: You may have a case in the Delaware statutes, but I am saying to you I am going to follow the Teleglobe case on this, because the Teleglobe case also considered that Delaware statute in its applications and findings.
MR. MOJDEHI: But it wasn't dealing with-for the reasons you have stated, so we have got to take the general rule in Teleglobe and apply it to what we have here.
THE COURT: But it has pointed out, you cannot-just because I decide to sue my attorney who is jointly representing somebody else, I cannot say-I mean, this would put attorney/client privilege on its head. And I don't agree with the California case [ Anten v. Super. Ct. ,233 Cal.App.4th 1254 ,183 Cal.Rptr.3d 422 , 423 (2015) ]. And I don't think the Third Circuit would, either.
(Id. at 25:8-26:4; see also Id. at 22:1-9).
THE COURT: I think when we're talking about breach of a duty by a lawyer or a client, I think that has nothing to do with joint representation by a lawyer to two clients or by two lawyers to the same two clients. I think that has to do with single lawyer or lawyer to that one client. It has nothing to do with joint representation.
(Id. at 32:12-19).
THE COURT: Well, Delaware has a similar statute.1 I also think that part of ... the reason why this exception was made was the fact that when, for example, ... a client sues a lawyer, the client cannot make the argument that the lawyer cannot use in his or her defense any confidential information that was provided by the lawyer to the client.
That's part of what happens under this breach of duty by the lawyer or client aspect of it. But I could go back, the Teleglobe case speaks volumes on this, and the Teleglobe case also addressed these points more directly than certainly this case did as far as the issues.
It was a thorough analysis and I'm standing by that. I understand what was said by the Court of Appeals in California [in Anten ], and that's fine, that's *662their own interpretation. And you think that when it comes to the joint clients common interest that that's a different situation?
MR. MOJDEHI: So, Your Honor-
THE COURT: Because otherwise you just basically eviscerate the attorney/client privilege for that one party who has nothing to do with the action, who has not waived its rights, who has not waived anything at all, who is not involved in the lawsuit.
(Id. at 113:5-114:13).
II. STANDARD OF REVIEW
Under Fed. R. Civ. P. 72(a), the district judge must consider timely objections to a magistrate judge's ruling on any "pretrial matter not dispositive of a party's claim or defense." Discovery orders are non-dispositive pretrial matters, even where questions of privilege are involved. Lebovitz v. Hartford Ins. Co. of the Midwest ,
III. DISCUSSION
The magistrate judge relied on Teleglobe to hold that neither the adverse-litigation exception nor the breach of duty exception were proper grounds to compel Defendants' production of privileged documents from the joint representation of Mahalo USA and Mahalo Canada. (D.I. 128 at 19:13-20:19, 25:8-26:4, 113:5-114:13). Other courts addressing the same factual scenario have uniformly reached a different conclusion: A joint client suing only the joint attorney may compel disclosure of privileged documents from the joint representation.
A. The Limits of Teleglobe
The parties did not cite, and the court did not find, any Delaware case addressing *663whether a joint attorney, sued by only one of his joint clients, could withhold communications from the joint representation on the basis of privilege. Instead, the parties cited, and the magistrate judge relied on, the Third Circuit's decision in In re Teleglobe Communications Corp. ,
On appeal, the Third Circuit reversed.
Here, the parties dispute whether the adverse-litigation exception applies when a joint client sues the joint attorney but not the other joint client. Teleglobe did not address this particular issue because, in Teleglobe , plaintiffs were trying to compel the production of documents from a purported joint-client, not the joint-attorney. Accordingly, Teleglobe has limited applicability to this case. For cases addressing the factual scenario presented here, the court must look outside Delaware.
B. Reasons to Compel Disclosure
In a lawsuit between a joint client and the joint attorney, all of the courts found to have addressed the issue relied on the adverse-litigation exception to compel disclosure of the privileged communications from the joint representation.
1. The Adverse Litigation Exception
As one court explained, the adverse-litigation exception is not limited to lawsuits between former joint clients. Bolton ,
As a result, a joint attorney may not withhold from one joint client privileged communications from the joint representation, even if the other (non-party) joint client refuses to consent to the disclosure. See Farnsworth ,
Ultimately, the documents Plaintiff seeks would not be disclosed to a third party, but would remain among the joint clients and the joint attorney that participated in the joint representation. Accordingly, it is not enough that Mahalo Canada, a non-party joint client, objects to the disclosure of privileged documents from the joint representation. The court finds that the magistrate judge erred in holding that the adverse-litigation exception was not a proper legal basis for compelling disclosure of privileged documents from the joint representation.
2. The Breach of Duty Exception
Several courts have relied on the breach of duty exception to compel disclosure of privileged communications in a lawsuit *665between a joint client and the joint attorney. See, e.g. , Tunick ,
Here, the magistrate judge ruled that the breach of duty exception was limited to litigation involving a single lawyer and a single client. (D.I. 128 at 32:12-19). Defendants did not provide any authority suggesting that the breach of duty exception does not apply to joint clients. In addition, there is nothing in the rule itself that suggests such a limitation. More important, a narrow interpretation of the exception could lead to a situation where a joint lawyer could breach the duty owed to all of his joint clients, and those joint clients could not compel disclosure of privileged communications from the joint representation. For these reasons, the court finds that the magistrate judge erred in concluding that the breach of duty exception does not apply to cases involving a joint representation.
C. The Scope of Documents Subject to Disclosure
The magistrate judge rejected Plaintiff's suggestion that, under the adverse-litigation exception, Mahalo Canada gave up any claim of attorney-client privilege in any document referencing Mahalo USA. (D.I. 129 at 3). The court finds no error in this statement. The adverse-litigation exception does not entitle Plaintiff to unbounded discovery. A joint client is entitled to only those communications relevant to the matter of common interest that was the subject of the joint representation. See, e.g. , Tunick ,
Although the parties do not dispute that there was a joint representation, they have not identified the matter of common interest that was the subject of the joint representation. It is possible that Mahalo Canada has some privileged documents which reference Mahalo USA, but which are not the subject of the joint representation. Because the parties did not identify the matter of common interest, it is difficult to determine where exactly that line would be drawn. Nevertheless, once the parties have agreed on the matter of common interest, Plaintiff is entitled to all communications that fall within the scope of the joint representation, including communications where one joint client is not present. See Glacier Gen. Assurance Co. v. Super. Ct. ,
D. When A Conflict of Interest Arises in the Joint Representation
Defendants rely on dicta in Teleglobe to argue that a joint attorney's conflict of interest allows one joint client to withhold from the other joint client privileged documents from the joint representation. (D.I. 131 at 3). Specifically, Teleglobe favorably quoted the following statement from Eureka Inv. Corp., N.V. v. Chicago Title Ins. Co. ,
[C]ounsel's failure to avoid a conflict of interest should not deprive the client of the privilege. The privilege, being the client's, should not be defeated solely because the attorney's conduct was ethically questionable.
(D.I. 131 at 3 (quoting Teleglobe ,
Instead, as Teleglobe itself stated, " Eureka is merely one in a line of cases that hold that communications outside the scope of the joint representation or common interest remain privileged." Teleglobe ,
Bolton v. Weil, Gotshal & Manges LLP demonstrates the error of Defendants' position.
Taking Eureka and Bolton together, the touchstone for compelling disclosure is whether the communications are relevant to the matter of common interest that is the subject of the joint representation. The Defendants cannot maintain a claim of privilege over communications relevant to the matter of common interest for which they were retained as joint attorneys by claiming that they had a conflict of interest within that joint representation. Instead, Defendants must demonstrate that the communications are related to an individual matter for which they were separately retained.
IV. CONCLUSION
For the foregoing reasons, Plaintiff's objections (D.I. 129) are overruled in part and sustained in part. The magistrate judge's rulings (D.I. 126, D.I. 128) are affirmed in part and reversed in part. The matter is returned to the magistrate judge for further proceedings consistent with this memorandum opinion.
An appropriate order will be entered.
ORDER
IT IS HEREBY ORDERED, for the reasons stated in the accompanying Memorandum Opinion, that:
1. Plaintiff's objections (D.I. 129) are SUSTAINED IN PART AND OVERRULED IN PART;
2. The magistrate judge's rulings (D.I. 126, D.I. 128) are AFFIRMED IN PART and REVERSED IN PART.
3. The matter is returned to the magistrate judge for further proceedings consistent with the memorandum opinion.
The court is referring to the breach of duty exception codified at Del. R. Evid. 502(d)(3).
Defendants did not cite, and the court did not find, any case with the opposite outcome, i.e. , where a joint attorney sued by only one of the joint clients was allowed to withhold communications from the joint representation on the basis of privilege.
The court will not address Defendants' argument raised in their response to Plaintiff's objections that the documents are irrelevant. (D.I. 131 at 6-7). Defendants have not shown that this argument was presented to and ruled on by the magistrate judge.
Some of these cases refer to the adverse-litigation exception as the "joint client privilege" or the "co-client privilege."
Reference
- Full Case Name
- P. David NEWSOME, Jr., as Liquidating Trustee of Mahalo Energy (USA), Inc. v. Jeff G. LAWSON and Grant A. MacKenzie
- Cited By
- 4 cases
- Status
- Published