Friday Invs., LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.
Friday Invs., LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.
Opinion
*641 This appeal requires us to consider the common interest doctrine, which extends the attorney-client privilege to communications between and among multiple parties sharing a common legal interest. We hold that an indemnification provision in an asset purchase agreement, standing alone, is insufficient to create a common legal interest between a civil litigant indemnitee and a third-party indemnitor.
*642 Bally Total Fitness of the Mid-Atlantic, Inc. ("Mid-Atlantic") and Bally Total Fitness Holding Corporation ("Holding") (collectively "Defendants") appeal the trial court's Order denying their Motion for a Protective Order on Supplementation of Written Discovery and granting Plaintiff Friday Investments, *173 LLC's ("Plaintiff") Motion to Compel production of email and written communication between Defendants and third party Blast Fitness Group ("Blast"). Defendants contend that the trial court failed to recognize that they had entered into a tripartite attorney-client relationship with Blast, so that communications between Defendants and Blast are protected by the attorney-client privilege. After careful review, we affirm.
Facts and Background
In February 2000, the predecessor in interest of Mid-Atlantic entered into a lease agreement with the predecessor in interest of Plaintiff for a 25,000 square foot commercial suite in the Tower Place Festival Shopping Center in Charlotte, North Carolina. The lease was guaranteed by Holding, the parent company of both Mid-Atlantic and the original tenant. In 2012, Mid-Atlantic sold certain of its health clubs, including the Tower Place Club, to Blast. The Asset Purchase Agreement between Mid-Atlantic and Blast (the "Blast Agreement") provided that the sale transferred any "obligations ... arising ... under the Real Property Leases" of the clubs sold. The Blast Agreement also included an indemnification clause wherein Blast agreed to "defend, indemnify, and hold [Defendants] ... harmless of, from[,] and against any [l]osses incurred ... on account of or relating to ... any Assumed Liabilities, including those arising from or under the Real Property Leases after closing."
Plaintiff brought suit against Defendants on 9 May 2014 in Mecklenburg County Superior Court for payment of back rent and other charges under the lease. Blast subsequently agreed to defend Defendants as provided for in the Blast Agreement.
Defendants and Plaintiff completed an initial exchange of documents and answers to interrogatories on 24 October 2014. Defendants' Senior Vice President and General Counsel, Earl Acquaviva, was deposed by Plaintiff on 11 February 2015. On 19 February 2015, counsel for Plaintiff sent an email to Defendants' counsel requesting copies of "post-suit correspondence and documents exchanged between [Defendants] and Blast." Defendants refused, and on 3 March 2015, Plaintiff filed a Motion to Compel production of the requested documents. Defendants responded by filing a Motion for a Protective Order on 24 March 2015, claiming that communications between themselves and Blast were subject to attorney-client privilege. On 25 March 2015, the trial court orally *643 ordered Defendants to produce the documents and a privilege log for in camera inspection.
On 27 March 2015, Defendants submitted to the trial court the requested documents and a privilege log. After completing an in camera review of the documents, the trial court notified counsel via email on 2 April 2015 that it had denied Defendants' Motion for a Protective Order and granted Plaintiff's Motion to Compel. The trial court entered a written order on 13 April 2015 consistent with the court's email notice but granted a motion by Defendants to stay the decision for review by this Court.
Defendants timely appealed. The Record on Appeal was settled via stipulation, pursuant to Rule 11 of the North Carolina Rules of Appellate Procedure, on 29 May 2015. The Record was amended on Defendants' Motion on 24 July 2015 to include the trial court's 2 April 2015 email message. 1 On 1 September 2015, Defendants filed a "Motion to Submit Documents Under Seal," seeking to transmit the documents reviewed in camera to this Court for review.
I. Plaintiff's Motion to Dismiss
Plaintiff argues that a "substantial right" is not at stake because Defendants waived their right to appeal the discovery order by failing to specifically assert their attorney-client privilege during the initial round of discovery, and that Defendants' subsequent Motion for a Protective Order was *174 insufficient to constitute an objection. We disagree.
"An interlocutory order is one made during the pendency of an action, which does not dispose of the case, but leaves it for further action by the trial court in order to settle and determine the entire controversy."
Veazey v. City of Durham,
*644
Both this Court and the North Carolina Supreme Court have recognized that a trial court's "determination of the applicability of [attorney-client] privilege ... affects a substantial right and is therefore immediately appealable."
In re Miller,
Nevertheless, the availability of such appeals is contingent upon the proper assertion of the claimed privilege. In
K2 Asia Ventures v. Trota,
this Court held that to assert a statutory privilege for interlocutory review, the appellant must have complied with Rule 34(b) of the North Carolina Rules of Civil Procedure by lodging specific objections to individual discovery requests.
Plaintiff attempts to draw a parallel to K2 Asia Ventures, noting that Defendants asserted no particularized claim of attorney-client privilege in their responses to the initial round of discovery. We are unpersuaded. None of the initial discovery requests expressly sought correspondence between Defendants and Blast. The initial discovery request that most plainly encompasses these documents-if the documents are not privileged-is the fourth "Request for Production of Documents," which requests "[a]ll non-privileged correspondence or written communication of any kind between [Defendants] and any other person or entity concerning the [Tower Place Club], Lease Agreement, Guaranty, or any other issues described or referenced in the Pleadings in this action." 2 (Emphasis added.) Given the limiting language in the request, it is unreasonable-for the purpose of determining waiver-to require Defendants *645 to have first acknowledged the existence of correspondence they considered privileged and to have objected to production in response to a request for "non-privileged" information. 3 *175 The record reflects that when faced with a specific request for their communications with Blast, Defendants promptly asserted the attorney-client privilege. During the 11 February 2015 deposition, counsel for Plaintiff asked the deponent, Mid-Atlantic's General Counsel Earl Acquaviva, to describe "all of the conversations that you have had personally with Blast or any representatives of Blast about this lawsuit." Defendants' counsel immediately objected on the basis of attorney-client privilege and advised the deponent not to answer. Plaintiff's further attempts to probe the issue were all met with similar objections by Defendants' counsel, and the deponent refused to answer such questions.
Based on the foregoing details in the record, we hold that Defendants properly asserted the attorney-client privilege in a manner that is neither frivolous nor insubstantial and that this interlocutory appeal affects a "substantial right" of Defendants. We therefore deny Plaintiff's motion to dismiss.
II. Defendants' Motion to Submit Documents Under Seal
In support of their argument that the trial court failed to recognize a tripartite attorney-client relationship between themselves, Blast, and their counsel, Defendants submitted a "Motion to Submit Documents Under Seal" to this Court to examine the documents reviewed in camera by the trial court. We decline to grant this motion because it is improper, untimely, and unfairly prejudicial.
This Court has repeatedly held that "[i]t is the appellant's duty and responsibility to see that the record is in proper form and complete."
*646
State v. Williamson,
Even after the Record on Appeal has been settled in the trial court, but prior to the filing of the Record on Appeal, a party may move this Court to "order additional portions of a trial court record or transcript sent up and added to the record on appeal." N.C. R.App. P. 9(b)(5)(b) (2015). Once the record has been filed, a party may still move to amend the record at any time prior to the filing of the opposing party's responsive brief. N.C. R.App. P. 9(b)(5)(a) (2015). Here, Defendants failed to ask the trial court to seal the records for appellate review, did not move this Court to order the records be sent from the trial court, and filed its unorthodox motion several days after the submission of Plaintiff's Brief.
To allow these documents to enter the record after briefing would be unfairly prejudicial to Plaintiff because such a significant amendment of the record would likely require both parties to re-brief the case to address legal issues not previously raised. For example, this Court reviews a trial court's
in camera
review of documents placed under seal
de novo,
as opposed to for abuse of discretion.
E.g.,
State v. Minyard,
Because the question presented by Defendants may be addressed by reference to the nature of the relationship between the parties and the existing Record on Appeal, the Court can reach the merits of this appeal *176 without reviewing the documents submitted to the trial court for in camera review.
III. Tripartite Attorney-Client Privilege (Common Interest Doctrine)
Defendants claim that the trial court abused its discretion by "disregard [ing] a tripartite attorney-client relationship" between
*647
Defendants, their attorneys, and Blast and ordering the production of communications between them. We hold that Defendants have failed to show that the trial court's ruling was either "manifestly unsupported by reason" or " arbitrary."
See
K2 Asia Ventures,
A. Standard of Review
This Court reviews trial court orders relating to discovery issues for abuse of discretion.
B. Analysis
Although attorney-client arrangements between two or more clients have been recognized by North Carolina courts for more than half a century,
Dobias v. White,
Arrangements between two or more parties to obtain legal counsel for a shared legal purpose are known as "tripartite" attorney-client relationships.
Raymond,
The linchpin in any analysis of a tripartite attorney-client relationship is the finding of a common legal interest between the attorney, client, and third party.
See
Raymond,
North Carolina courts have yet to formulate a bright line rule or articulate criteria for determining whether a common legal interest exists to extend the attorney-client privilege between multiple parties. Instead, our courts have engaged in specific analysis of the facts in each case involving this issue.
See, e.g.,
Raymond,
*177 Nationwide Mut. Fire Ins., 172 N.C.App. at 602-03, 617 S.E.2d at 45-46 (common legal interest based on contract between insured and insurer).
All fifty states and federal courts have recognized the extension of the attorney-client privilege to certain tripartite relationships under various monikers including,
inter alia,
the "joint defense privilege," the "common interest privilege," the "common interest doctrine," and the "common defense rule."
See, e.g.,
Aramony,
While not binding, decisions by several federal courts and the North Carolina Business Court provide some clarity as to what constitutes a common
legal
interest, distinguishing it in particular from a common
business
interest. "For the privilege to apply, the proponent must establish that the parties had some common interest about a
legal
matter."
In re Grand Jury Subpoena Under Seal,
In
SCR-Tech,
the parties seeking protection under the common interest doctrine were linked by ownership interests as well as
*178
A
*650
cooperation agreement.
In Nationwide Mut. Fire Ins., the agreement between the insurer and the insured provided that the insurer would pay damages up to an amount specified in the policy, would provide a defense "at [the insurer's] expense by counsel of [the insurer's] choice," and could settle the claim at any time and on any terms the insurer deemed appropriate. 172 N.C.App. at 598, 617 S.E.2d at 43. This Court held that the insurer and the insured had a shared legal interest in defending against the underlying claim, relying in part on a North Carolina State Bar Opinion recognizing that an attorney may enter into dual representation of both an insurer and an insured. Id. at 602-03, 617 S.E.2d at 45.
Indeed, the primary purpose of an insurance contract is defense and indemnification. By contrast, an indemnification provision in an asset purchase agreement is generally ancillary to the sale of a business, and Defendants have presented no evidence that their agreement with Blast was otherwise. The agreement and resulting arrangement is almost identical in nature to the cooperation agreement in
SCR-Tech.
While Defendants attempt to analogize to the insured-insurer agreements recognized in
Nationwide Mut. Fire Ins.,
the analogy is unpersuasive. The indemnification provision in the asset purchase agreement requires Blast to defend and indemnify Defendants from "[l]osses incurred or sustained ... on account of or relating to ... the use of the [a]ssets by [p]urchaser and the operation of the ... [h]ealth [c]lubs...." This language, and the nature of the asset purchase agreement, are most similar to the purchase agreement which was held to be insufficient in
SCR-Tech
to create a tripartite privileged relationship.
SCR-Tech,
*651
Neither this Court nor the North Carolina Supreme Court has extended the common interest doctrine to relationships formed primarily for purposes other than indemnification or coordination in anticipated litigation.
Cf.
Raymond,
We hold that Defendants and Blast shared a common business interest as opposed to the common legal interest necessary to support a tripartite attorney-client relationship. Consequently, we hold that the trial court did not abuse its discretion in compelling Defendants to produce the documents.
AFFIRMED.
Judges STEPHENS and HUNTER, JR. concur.
Defendants initially filed Notice of Appeal from the 2 April 2015 ruling communicated to counsel via email, but they also filed Notice of Appeal from the order entered 13 April 2015. Both notices are contained in the Record on Appeal. The email is not an order because it was not filed with the Clerk of Court. N.C. Gen.Stat. § 1A-1, Rule 58 (2015) ( "[A] judgment is entered when it is reduced to writing, signed by the judge, and filed with the clerk of court.") Accordingly, this opinion reviews only the 13 April 2015 Order.
Plaintiff argues that correspondence between Defendants and Blast also was within the scope of several other specific discovery requests that were not limited to non-privileged information. Request 4, which specifically seeks communications between Defendants and "any other person or entity" most plainly encompasses correspondence between Defendants and non-parties to the litigation, such as Blast. Because we affirm the trial court's ruling that the documents at issue are responsive to Request 4, analysis of the other discovery requests is unnecessary.
Our holding should not be construed to encourage litigants to assert particularized objections only when a request clearly seeks privileged information or documents. The best practice for counsel responding to discovery is to give each request the broadest possible interpretation and to assert objections to producing information or documents the litigant believes to be beyond the scope of discovery allowed by the Rules of Civil Procedure. Even when privilege is claimed in good faith, the adage that it is easier to beg forgiveness than to seek permission undermines public confidence in the legal profession and our justice system. Defendants would have saved themselves, Plaintiff, the trial court, and this Court significant resources had they more broadly construed Plaintiff's requests and asserted a particularized objection in the first place.
Our Supreme Court in
Dobias
did not address a claim of privilege by members of a tripartite relationship adverse to a third party, but rather a claim of privilege by one party seeking to bar an adverse party from discovering documents related to a business transaction in which the parties had employed joint counsel. The Supreme Court held that "as a general rule, where two or more persons employ the same attorney to act for them in some business transaction, their communications to him are not ordinarily privileged
inter sese.
"
The most often cited controlling authority recognizing a tripartite relationship between insurer, insured, and counsel retained by the insurance company to represent the insured is
Nationwide Mut. Fire Ins. Co. v. Bourlon,
Reference
- Full Case Name
- FRIDAY INVESTMENTS, LLC, Plaintiff, v. BALLY TOTAL FITNESS OF THE MID-ATLANTIC, INC. F/K/A Bally Total Fitness of the Southeast, Inc. F/K/A/ Holiday Health Clubs of the Southeast, Inc. as Successor-In-Interest to Bally Total Fitness Corporation; And Bally Total Fitness Holdings Corporation, Defendants.
- Cited By
- 6 cases
- Status
- Published