Judge: Mark H. Epstein, Case: 20SMCV01766, Date: 2023-03-23 Tentative Ruling
Case Number: 20SMCV01766 Hearing Date: March 23, 2023 Dept: R
These are six motions to compel. Two are filed by defendant and four by
plaintiff. However, they can be grouped
together as defendants’ motions and plaintiffs’ motions and they will be dealt
with in that fashion.
The motions to compel by defendants are unopposed. They are to compel compliance with subpoenae issued to two third parties. The court has reviewed the subpoenae and is inclined to GRANT the motions. The production is to take place within 30 days accompanied by an appropriate declaration.
The four motions by plaintiffs are more difficult. (As an aside, the court notes that they are on 32 line pleading papers. Due to a glitch in the rules, such is not a violation. However, the court strongly urges parties not to take advantage of that loophole. The court very much prefers 28 line pleading paper.) They seek to enforce discovery propounded to defendant Pryor Cashman. It is essentially the continuation from the court’s earlier McDermott ruling. For the reasons below, the court is inclined to DENY the motions, but WITHOUT PREJUDICE to renewal (through a new filing) within 45 days of today.
In the court’s prior ruling the court discussed at some length the question of privilege in the context of this case (and the court stands by that reasoning, which will not be repeated in detail here). Specifically, KKE USA was represented by Pryor Cashman when it undertook the various transactions here at issue and Pryor Cashman is being sued for its role in those transactions. Pryor Cashman moved to dismiss under the McDermott doctrine, contending that it could not defend itself without breaching the privilege, something it could not ethically do. The court ultimately denied that motion. The court agreed that Pryor Cashman might have to disclose privileged information to defend itself, but that led directly to the question of waiver. The court assumed that at least some information was privileged and that the privilege was held by KKE USA. The question was which humans or entities were authorized to speak for KKE USA to waive or not waive that privilege. Pryor Cashman contended that under California law only the defendants who managed KKE USA could waive the privilege. But the court disagreed. The court concluded that this question was governed by the internal affairs doctrine and, because KKE USA is a Colorado entity, Colorado law controls the question who can waive the privilege. Under Colorado law, as set forth in Neusteter v. District Court for Denver (Colo. 1984) 675 P.2d 1, that question is answered by reference to a balancing test. In a derivative case, a derivative plaintiff can, with good cause shown, cause the corporate entity to waive the privilege. However, the court also held that it could not decide whether there was good cause here in the context of the motion then before it. The court told the parties to meet and confer to determine how best to tee up the specific question for resolution. Plaintiffs contend that the instant motions do just that.
Pryor Cashman has not submitted a merits defense. Rather, its defense is procedural. That was a somewhat gutsy move, but in this case, it has succeeded.
First, Pryor Cashman states that the other defendants were not served with the motions to compel. In reply, plaintiffs do not dispute it. That is very surprising. As a near universal matter, every party has the right to notice of every filing. It is no answer to say that a motion need not be served on some defendants because the motion is not directed against them. Worse, given that Pryor Cashman is not the privilege’s holder, serving those who claim that they do speak for the entity is required. Plaintiffs’ explanation is simply and obviously wrong (and that is the nicest spin the court can put on it) and its motion is DENIED for that reason alone (but subject to renewal as discussed below). That said, the court strongly doubts that today’s hearing came as a shocker to the other defendants. As a practical matter, the court has no doubt whatsoever that the other defendants were well aware of the motion and had the opportunity to be heard. Indeed, Pryor Cashman would be in breach of its ethical duties to the remaining defendants had it not timely informed them of the motion to obtain privileged documents and information. Even so, the failure of service, as a technical matter, precludes any resolution favorable to plaintiffs today.
Second, Pryor Cashman suggests that plaintiff did not file a separate statement. Again, Pryor Cashman is right, and this time not just as a technical matter. Indeed, plaintiffs’ reply well illustrates exactly why it is required. For the first time in reply, plaintiffs emphasize that there are lots of documents they requested that are not privileged at all. It is surprising to the court that this argument is raised in reply (maybe it is in the moving papers, but if so, it is subtle enough that the court missed it as a major plank of the motion). It should have been raised and emphasized in the moving papers. Had there been a separate statement, the court could have, and would have, seen that issue squarely joined and Pryor Cashman would have been forced to address at least that question in opposition. Now, plaintiffs seek some sort of order based on a reply argument. Plaintiffs’ logic is just obviously wrong (and again, that is the nicest way to put it), and the motion is alternatively DENIED for that reason alone (subject to renewal as discussed below).
Third, Pryor Cashman suggests that plaintiffs are really seeking a ruling on waiver, which they cannot do by trying to compel documents from counsel. That is less compelling. Had plaintiffs done it right, service would have been on the other defendants as well and the court would have expected the other defendants to have asserted the privilege directly in opposition. It is at least one way to join and resolve the issue. Further, although not optimal, Pryor Cashman could have defended the objection itself. (That is not optimal because where the privilege holder is a separate party with separate representation the court would expect the privilege holder to assert and defend the privilege rather than have prior counsel do it given that prior counsel does not actually hold the privilege.)
The bottom line is this. ALL OF THE PARTIES need to meet and confer and agree upon a procedure to tee up the privilege question. It could well be in the guise of a motion to compel, this time properly filed and served following a meaningful meet and confer. It could be in the guise of a separate motion to determine who is entitled to waive or not waive KKE USA’s privilege. The parties can figure out the most efficient way to do this. (The court’s suggestion would be to use the motion to compel as the vehicle, but as refined below.)
In the meantime, the court is at a loss as to why Pryor Cashman, if it was going to assert the privilege (which it has), has not submitted a privilege log. The log will allow the type of motion the court has in mind (discussed below). It will also flesh out whether there are some documents that are potentially not privileged at all (as plaintiffs claim). As to non-document discovery, the rule is different, as there is really no “log” to produce. But Pryor Cashman ought to set forth what non-privileged information it can and it ought to re-think its responses to see whether there is any information that can be provided. Just by way of example, plaintiff contends it seeks information as to when Pryor Cashman began and ended KKE USA’s representation. That is generally not privileged information.
Once the log has been turned over, the process that comes to the top of the court’s mind is for plaintiffs to pick one or two “bellwether” documents where they agree the privilege exists (putting crime/fraud claims to one side) as exemplars and move to compel the production of those. The theory ought to be that all agree that those documents are privileged (so there is no need for Pryor Cashman to make the initial showing). Rather, the motion would turn on the Neusteter case. Hopefully, the resolution of that motion will provide the guidance necessary for production or non-production of the other privileged documents and information. Defendants claiming to be able to speak for KKE USA can file a joint opposition and plaintiffs can reply. That is one potential way to tee up the issue, but the court is open to any other way upon which the parties agree. And, to the extent plaintiffs claim that there are documents on the log that are not privileged, they would have leave to bring a separate motion as to those documents.
As for the log, the court would believe that the log is ready to go and can be served within a week. If not, Pryor Cashman ought to put more people on the project so as to get it done in that time frame.
The point here is that all parties could have and should have done better, as the court explicitly recommended at the prior hearing. The approach actually taken is ill-suited and this kind of delay, which the court blames on all parties, causes the court to have serious doubt as to whether the case will in fact be ready for trial this fall.