Opinion
Case No. 04-00769-PB11.
5-30-2008
In re NORTH PLAZA, LLC, Debtor.
Richard Kipperman, chapter 11 Trustee ("Trustee") of the estate of North Plaza, LLC ("Debtor") seeks discovery consisting in part of communications between Isaac Lei/The Alcon Group (collectively "Lei") and counsel for Dynamic Finance Corporation ("Dynamic") and Angela Sabella ("Sabella") (referred to at times collectively "Sabella"). Sabella objected to the discovery on the ground that Lei was serving as her "client representative" and hence the information was protected by the attorney-client privilege. The Trustee brought a motion to compel, which is before the Court.
The Court, having conducted an evidentiary hearing and reviewed the authorities cited by the parties, determines that Lei was not serving as "client representative" of Sabella for the purposes of the attorney-client privilege. The "client representative" extension of the attorney client-privilege does not extend so far as to cover Lei under the facts of this case. Accordingly, the Trustee's motion to compel is granted over the objection by Sabella on the ground of attorney-client privilege.
FACTS
Pursuant to Rule 2004 and this Court's Order dated September 19, 2006, the Trustee served the subpoenas to Alcon Group Inc., Custodian of Records of Alcon Group, Inc., and Isaac Lei on February 16, 2007. Under the subpoenas, Alcon and Lei were requested to appear and produce documents on March 2 and 5, 2007. On February 26, 2007, Lei served the Trustee with an Objection to the Subpoenas, which raised several objections including that Lei's communications with counsel for Sabella were protected by the attorney-client privilege because Lei was serving as "client representative" of Sabella.
Although the objection was filed by Lei, counsel for Lei explained that Lei would not be participating substantively in the matter — that it was "going to be a Dynamic Sabella show..." See Transcript dated January 29, 2008, at 18:4-5.
The Trustee filed a motion to compel responses from Lei. After substantial briefing and a lengthy evidentiary hearing, the Court took the matter under submission. For the reasons set forth below, the Court finds that Lei was not acting as a" client representative" of Sabella, and is thus not covered by her attorney-client privilege.
DISCUSSION
"Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense ...." Fed.R.Civ.P. 26(b)(1). Thus, a discovery request is objectionable under Rule 26(b)(1) if it requests information which is privileged.
In deciding whether a particular case presents facts which warrant the recognition and application of a privilege, certain principles apply. Foremost among these is the "fundamental maxim," recognized "[f] or more than three centuries, ... that the public ... has the right to every man's evidence." United States v. Brvan, 339 U.S. 323, 331, 70 S.Ct. 724, 94 L.Ed. 884 (1950). Thus, a court shall start "'with the primary assumption that there is a general duty to give what testimony one is capable of giving, and that any exemptions which may exist are distinctly exceptional, being so many derogations from a positive general rule.'" Id., at 323. "Because the privilege `stands in derogation of the public's "right to every man's evidence, ... it ought to be strictly confined within the narrowest limits consistent with the logic of its principle."'" In re Grand Jury Subpoenas Dated January 20, 1998, 995 F.Supp. 332, 337 (1998) (citations omitted.) It is the party seeking an exception from this principle that bears the burden of establishing the existence of a privilege and its applicability to a particular case. See, e.g., United States v. International Bhd. of Teamsters, 119 F.3d 210, 214 (2d Cir.1997).
Counsel for Sabella acknowledges that she has the burden of establishing that Lei is a "client representative" because she is the one asserting the attorney-client privilege. See Transcript dated January 29, 2008, at 14:12-17.
The attorney-client privilege prevents disclosure of a communication from a client to a lawyer, where that communication:
relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on the law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.
United States v. United Shoe Machinery Corp., 89 F.Supp. 357, 358 (D.Mass.1950); Colton v. United States, 306 F.2d 633, 637 (2d Cir.1962).
There is no statutory definition of the attorney-client privilege in the Federal Rules of Evidence (FRE). However, proposed FRE 503 (also referred to as Supreme Court Standard 503) provides guidance which has been used by courts in defining the privilege. The most relevant aspect of Standard 503 is its statement of the general rule:
A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, (1) between himself or his representative and his lawyer or his lawyer's representative, or (2) between his lawyer and his lawyer's representative, or (3) by him or his lawyer to a lawyer representing another in a matter of common interest, or (4) between representatives of the client or between the client and a representative of the client, or (5) between lawyers representing the client.
Supreme Court Standard 503(b).
Supreme Court Standard 503 does not define "representative." However, Uniform Evidence Rule 502(a)(4) also explains that communications between an attorney and a client and a client's representative can be protected. Uniform Rule of Evidence 502(a)(4) defines "client representative":
Uniform Evidence Rule 502 has been described as "a clear statement of the scope of the privilege as now generally accepted." McCormick on Evidence, (6th Ed. 2006).
"Representative of the client" means a person having authority to obtain professional legal services, or to act on legal advice rendered, on behalf of the client or a person who, for the purpose of effectuating legal representation for the client, makes or receives a confidential communication while acting in the scope of employment for the client.
The parties to this dispute agree that, as to the law within the Ninth Circuit, the case of Memry Corp. v. Ky. Oil Tech., NV., 2007 U.S. Dist. LEXIS 3094 (N.D.Cal. 2007), adopting the Eighth Circuit decision in In re Bieter Co., 16 F.3d 929, 937 (8th Cir. 1994), best sets forth the inclusion of "client representatives" within the attorney-client privilege, at least where the client is a corporation.
As stated above, the attorney-client privilege is an exception to the general rule that all information is discoverable, and is thus to be applied narrowly. It is generally destroyed if the client discloses the communications to third parties. The "client representative" concept is a limited extension of the attorney-client privilege to third parties to whom communications are disclosed if such disclosure is necessary for the client to obtain legal services. This extension, in turn, must also be applied narrowly within the limits of its purpose.
Case law shows the "client-representative" to be applicable in two distinct situations. The first is where the client is a corporation and requires communication on its behalf. See e.g. Memry and Bieter. The second is where an individual is in some unique position requiring another to intervene between she and counsel.
In Bieter, the court specifically extended the reach of the test it had adopted in Diversified Indus., Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977), from corporations to partnerships and other such entities. However, the court drew the line at individuals:
The test we adopted in Diversified, although expressly applicable to corporations and their employees, is not less instructive as applied to a partnership, or some other client entity (as opposed to an individual), and its employees...."
Bieter, 16 F.3d at 935.
Having considered the evidence produced, the Court determines that the line of cases which governs this dispute are those involving an individual. The objection to the Trustee's subpoenas is made in the name of "Dynamic Finance Corporation and Angella C. Sabella." However, the Court finds that with respect to the lending activities in which Lei was involved, it was Sabella the individual that was the lender/client. Though the Court is aware that Sabella conducts business at times in the name of Dynamic, it is clearly her individual business and loans made by her. The testimony at the trial indicated that it was Sabella who made the decision of whether to loan personally or through Dynamic. The relationship with Lei began as a personal relationship between Lei and Sabella's husband. Sabella the individual extended to Lei the opportunity to make money acting as loan broker. In the view of the Court, after considering the evidence, this case is about a personal relationship between Sabella and Lei implemented to carry out Sabella's lending business, which sometimes was funded through Dynamic. Thus, the applicable authority is those cases considering the application of the "client representative" extension of the attorney-client privilege to individuals.
In the situation of an individual, courts have recognized the "client representative" extension where the individual client is somehow disabled and unable to conduct their legal affairs. "While individuals can speak for themselves, a corporation must speak through its representatives." Leone v. Fisher, 2006 WL 2982145 at 4 (D.Conn. Oct. 18, 2006). "A private person, however, generally has no need for a representative to communicate with an attorney. Only in extraordinary cases ... has the attorney-client privilege been extended to the designated representative of an individual client." In re Grand Jury Subpoenas Dated January 20, 1998, 995 F.Supp. 332, 340 (1998).
In the case of an individual, the "client representative" exception was held to apply to communications between counsel for a college student involved in a life-threatening accident and his parents where the client's "injuries and the comprehensive medical interventions necessary to treat those injuries inhibited plaintiff from independently seeking legal counsel." See Hendrick v. Avis Rent a Car Sys., Inc., 944 F.Supp. 187, 189 (W.D.N.Y. 1996).
The extension was also applied to a mother's communications with counsel on behalf of her son who was incarcerated. Gerheiser v. Stephens, 712 So.2d 1252, 1254 (Fla.App. 1998). Also, communications between the parents of a minor child and the child's attorney. Grubbs v. K Mart Corp., 411 N.W.2d 477, 480 (Mich.Ct.App. 1987). In each situation, the communication between counsel and the representative was necessitated by the client's inability, temporary or otherwise, to seek legal counsel.
In Leone, on the other hand, the court did not extend the attorney-client privilege to communications between counsel and the client's husband where there was no evidence that the client could not have communicated directly with counsel herself. 2006 WL 2982145 at 5.
In the case at hand, the Court finds no reason to extend the exception to cover the communications between Lei and counsel for Sabella. The parties asserting the exception have established no "disability" which required Lei to communicate with counsel on Sabella's behalf. The evidence reveals that Sabella is an experienced business woman and that she is fluent in the English language.
As already noted, the evidence adduced at the evidentiary hearing made clear that the relationship between Sabella and Lei was a personal one. But assuming, arguendo, that Lei had a relationship with Dynamic that was not already subsumed in his relationship with Sabella, the Court finds and concludes that Dynamic has failed to meet its burden of establishing that Lei was somehow its "client representative" for purposes of invocation of the attorney-client privilege. Lei denies he was an employee of Dynamic or Sabella. He had no equity participation in any of the projects. His only economic interest was in payment of his commissions, which were payable by the borrowers, not by Dynamic or Sabella. In this Court's view, the relationships of Klohs in In re Bieter Co., supra, and Van Moorleghem's in Memry Corp. v. Ky. Oil Tech., NV, supra, are vastly different than Lei's relationship to Dynamic. Accordingly, if the Court considers Lei's relationship with Dynamic separately from his relationships with Sabella (which the facts do not support), the Court finds and concludes Lei's relationship with Dynamic does not support a finding that he was acting as a "client representative" for Dynamic for purposes of shielding his communications with Sabella's (and Dynamic's) same attorneys under the attorney-client privilege.
CONCLUSION
The facts of this case do not warrant an extension of Sabella's (or Dynamic's) attorney-client privilege to communications between counsel and Lei. Accordingly, the Trustee's motion to compel production of those records with respect to which the privilege was asserted is granted.
IT IS SO ORDERED.