Opinion
Case No. 06-35903-H4-11, Adversary No. 07-03019.
July 8, 2009
I. INTRODUCTION
Although the reference has been withdrawn in this adversary proceeding, this Memorandum Opinion resolves pretrial matters in this adversary proceeding pursuant to instructions from the Honorable Nancy F. Atlas, United States District Judge for the Southern District of Texas. The remainder of this highly acrimonious lawsuit will be addressed at trial in the United States District Court.
In this Memorandum Opinion, this Court will resolve four pretrial motions which the plaintiff has filed: a motion in limine, two motions to seal documents, and a motion for a protective order. In the motions to seal, the plaintiff has requested this Court to seal approximately 1,900 documents based on its sweeping and non-specific assertion that some or all of these documents are privileged. Because the plaintiff has not identified which of these documents are privileged, it has necessarily requested this Court to wade through this sea of documents to determine which are entitled to protection. Despite the fact that the plaintiff bears the burden of showing, with specificity, which documents are privileged, this Court has conducted an independent review of all these documents and finds that the plaintiff is not entitled to the relief that it seeks in the motions to seal.
After considering the arguments and pleadings of the parties, the testimony adduced at the hearings, and the evidence admitted, the Court now makes its written findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties.
Any reference herein to "the Code" refers to the United States Bankruptcy Code. Further, reference to any section (i.e. §) refers to a section in 11 U.S.C., which is the United States Bankruptcy Code. Reference to a "Rule" or "Bankruptcy Rule" refers to the Federal Rules of Bankruptcy Procedure.
II. FINDINGS OF FACT
See infra Finding of Fact Number 28 noting that the Court signed the Stipulation of Dismissal of Claims dismissing with prejudice YAP's claims against the Debtor but not the other two Defendants — Acord and Ortega. [Docket No. 297.]
On February 26, 2009, Pitts gave her deposition. Joint Exhibit 1 refers to Pitts's deposition which was admitted into evidence as "YAP JA As 1" (Joint Ex. 1). See infra Finding of Fact No. 34.
Ivey Mason is Mason's wife and was involved in the operations of YAP.
The Court referenced these documents at the hearing held on December 19, 2008. When asked by this Court which documents are the ones allegedly "secreted" by YAP's counsel, Acord's counsel, Joe A. Izen, stated that these documents are what YAP's counsel referred to as Exhibit 2. [Docket No. 304, pp. 66-67.]
Thomas Freeman (Freeman) is YAP's counsel in Maryland who is admitted pro hac vice in this Court.
The litigation in Maryland is a pending action against the Debtor and others as of the petition date in the United States District Court for the District of Maryland, styled as Young Again Products, Inc. v. John Acord a/k/a John Livingston et al., Civil No. RWT 03CV2441. The litigation in Utah is a pending action against the Debtor and others as of the petition date in the United States District Court for the District of Utah, styled as Dodart et al. v. Young Again Products, Inc., Civil No. 2:03-CV-0035 PGC.
A transcript of the hearing held on July 14, 2008 is available at Docket Number 262.
A transcript of this hearing is available at Docket Number 304.
At this hearing, YAP's counsel stated that if Acord needed any documents, Acord should have called Freeman's law office and the documents would have been produced to Acord. Given the extremely high degree of acrimony in this case, the Court finds that a simple phone call would not have been enough for Acord to obtain documents in Freeman's possession.
III. CREDIBILITY OF WITNESSES
At the hearing held on July 14, 2008, the Court heard testimony from Mason and Acord. The Court finds Mason's testimony to be mostly credible. The Court finds Acord to be evasive at times, which casts doubts on his credibility.IV. CONCLUSIONS OF LAW
A. Jurisdiction and Venue
The United States Code sets forth that "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Furthermore, "[e]ach district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." 28 U.S.C. § 157(a). The United States District Court for the Southern District of Texas maintains a "General Order of Reference" that provides, in pertinent part, that "[b]ankruptcy cases and proceedings arising under Title 11 of the United States Code are automatically referred to the bankruptcy judges of this district." See 2005 General Order of Reference.
On July 25, 2008, this Court signed the Report and Recommendation to the United States District Court Recommending the Withdrawal of the Reference of this Adversary Proceeding. [Finding of Fact No. 22.] On August 7, 2008, the Honorable Nancy F. Atlas, United States District Judge for the Southern District of Texas, issued an Order withdrawing the reference. [Finding of Fact No. 22.] On August 18, 2008, Judge Atlas assigned all pretrial matters in the adversary proceeding to this Court. [Finding of Fact No. 22.]
Although the Debtor is no longer a party-defendant in this adversary proceeding [Finding of Fact No. 32], the Court has "related to" jurisdiction. The suit at bar is similar to In re Coral Petroleum, Inc., 62 B.R. 699 (Bankr. S.D. Tex. 1986). In Coral Petroleum, the plaintiff brought suit against a Chapter 11 debtor and other parties not in bankruptcy. Subsequently, the debtor settled with the plaintiff. In evaluating whether jurisdiction existed for the bankruptcy court to hear the plaintiff's complaint, Bankruptcy Judge Wheless recognized that if jurisdiction existed at the time that the complaint was filed, it is not defeated by subsequent events. Id. at 701. As such, Judge Wheless found that he had jurisdiction over the suit despite the fact that the debtor had settled with the plaintiff, thereby removing the debtor as a party-defendant.
Accordingly, for all pretrial matters in this adversary proceeding, the Court has related to jurisdiction pursuant to 28 U.S.C. § 1334(b). Venue is proper pursuant to 28 U.S.C. § 1409.
B. The Unresolved Portion of YAP's Motions in Limine
The Court's July 25, 2008 Order Granting Motion in Limine instructed the Defendants not to introduce any evidence concerning Mason's 23-year-old criminal conviction, but the Court reserved its ruling on the Motion in Limine insofar as it sought to suppress evidence of defamatory statements made by YAP or Mason against the Defendants. [Finding of Fact No. 21.] The Court now addresses this unresolved portion of the Motion in Limine.
Motions in limine allow a trial court to make a pretrial ruling on the admissibility and relevance of evidence. Wechsler v. Hunt Health Sys., Ltd., 381 F. Supp. 2d 135, 140 (S.D.N.Y. 2003) (citing Luce v. United States, 469 U.S. 38, 41 n. 4 (1984) ("Although the Federal Rules of Evidence do not explicitly authorize in limine rulings, the practice has developed pursuant to the district court's inherent authority to manage the course of trials. See generally Fed.R.Evid. 103(c).")). Unless the evidence at issue is clearly inadmissible on all potential grounds, it should not be excluded in limine. Rivera v. Salazar, No. C-04-552, 2008 WL 2966006, at *1 (S.D. Tex. July 30, 2008) (citing Hawthorne Partners v. AT T Tech., Inc., 831 F. Supp. 1398, 1400 (N.D. Ill. 1993)); United States v. Ozsusamlar, 428 F. Supp. 2d 161, 164-65 (S.D.N.Y. 2006) ("The trial court should exclude evidence on a motion in limine only when the evidence is clearly inadmissible on all potential grounds."). A motion in limine that seeks to exclude broad categories of evidence is rarely granted. Rivera, 2008 WL 2966006, at *1 (citing Sperberg v. Goodyear Tire Rubber Co., 519 F.2d 708, 712 (6th Cir. 1975)).
In the unresolved portion of the Motion in Limine, YAP urges this Court to specifically "exclude any evidence, testimony, or argument by the Defendants regarding any alleged derogatory and/or defamatory statements by YAP and/or Roger Mason against Marcella Ortega (`Ortega'), John Acord (`Acord') or Supplement Spot (`the Debtor')." [Finding of Fact No. 10.] Federal Rule of Evidence (FRE) 402 states that only evidence relevant to the issue before the court will be admissible, and irrelevant evidence is inadmissible. Fed.R.Evid. 402. Evidence is relevant if it tends to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would otherwise be without the evidence. Fed.R.Evid. 401.
The Court concludes that the evidence, testimony, or argument sought to be excluded (i.e. the alleged derogatory or defamatory statements made by YAP or Mason against the Defendants) are irrelevant to the claims and defenses at issue in this adversary proceeding and do not assist the Court in reaching an ultimate determination of the legal issues in this suit. See Fed.R.Evid. 401. Therefore, because the evidence is irrelevant, it is inadmissible in this adversary proceeding. See Fed.R.Evid. 402. Specifically, derogatory or defamatory statements by Mason or YAP, even if made, do not have any bearing on the claims of fraud and failure to disclose assets which YAP has asserted against the Defendants. Moreover, on June 23, 2008, this Court denied Acord's motion for leave to file a claim for defamation or tortuous interference with business relations. [Finding of Fact No. 7.] Indeed, for consistency, to the extent that any of the information sought to be excluded by the Motion in Limine concerns these claims, this Court is unwilling to allow such evidence.
Accordingly, this Court concludes that the unresolved portion of the Motion in Limine should be granted. Therefore, any evidence, testimony, or argument by the Defendants regarding any alleged derogatory or defamatory statements by YAP or Mason against the Defendants are hereby excluded from trial.
Because this Court concludes the Motion in Limine should be granted, the Documents which this Court refuses to seal must be redacted to exclude any mention of what this Court finds to be potentially derogatory or defamatory statements by YAP or Mason against the Defendants. This Court will require counsel for all parties to meet and redact the Documents. Where agreement cannot be reached on what specifically should be redacted, this Court will hold a hearing to resolve the specific disputes over what to redact.
C. The Motions to Seal
In the Motions to Seal, YAP requests that the Court seal and order Acord to destroy the Documents and any other exhibits Acord has received from Pitts. [Finding of Fact No. 14.] Specifically, YAP argues that the Documents are protected by the attorney-client privilege and the work product privilege. However, Acord and Ortega argue that this Court should deny the Motions to Seal. [Finding of Fact No. 19.] For the reasons set forth below, this Court concludes that the Motions to Seal should be denied. 1. The Common Law Presumption of Public Access
"[T]he courts of this country recognize a general right to inspect and copy . . . judicial records and documents." Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597 (1978). This right of public access serves to "promote trustworthiness of the judicial process, to curb judicial abuses, and to provide the public with a more complete understanding of the judicial system, including a better perception of fairness." SEC v. Van Waeyenberghie, 990 F.2d 845, 849 (5th Cir. 1993) (quoting Littlejohn v. BIC Corp., 851 F.2d 673, 678 (3d Cir. 1988)). Thus, "[u]nder the common law, there is a long-standing presumption of public access to judicial records." Gitto v. Worcester Telegram Gazette Corp. (In re Gitto Global Corp.), 422 F.3d 1, 6 (1st Cir. 2005). Because most courts endorse a presumption of public access to discovery materials, the district court is required to make a determination of good cause before entering an order keeping the documents out of the public. See Citizens First Nat'l Bank of Princeton v. Cincinnati, 178 F.3d 943, 946 (7th Cir. 1999) (citing numerous federal cases from various circuits).
However, the common law presumption of public access to judicial records is not absolute. Id.; see also Van Waeyenberghie, 990 F.2d at 848 ("[T]he common law right of access to judicial records is not absolute."); Fed. Sav. Loan Ins. Corp. v. Blain, 808 F.2d 395, 399 (5th Cir. 1987) ("[T]here are well-recognized situations in which the seal may and should be used."). As the Supreme Court has recognized, "[e]very court has supervisory power over its own records and files, and access has been denied where court files might have become a vehicle for improper purposes." Nixon, 435 U.S. at 598. Therefore, the Court must "balance the factors favoring secrecy against the common law presumption of access." Bank of Am. Nat'l Trust v. Hotel Rittenhouse, 800 F.2d 339, 345 (3d Cir. 1986). Because this balancing exercise is fact intensive, "the decision as to access is one best left to the sound discretion of the trial court, a discretion to be exercised in light of the relevant facts and circumstances of the particular case." Nixon, 435 U.S. at 599. The decision to seal court records and pleadings should not be taken lightly; as the First Circuit explained, "[o]nly the most compelling reasons can justify non-disclosure of judicial records." Gitto, 422 F.3d at 6.
2. The Bankruptcy Code Presumption of Public Access: 11 U.S.C. § 107
The right of public access to judicial records "is of special importance in the bankruptcy arena, as unrestricted access to judicial records fosters confidence among creditors regarding the fairness of the bankruptcy system." Id. at 7 (quoting In re Crawford, 194 F.3d 954, 960 (9th Cir. 1999)). In the bankruptcy context, the presumption of public access is codified in 11 U.S.C. § 107(a). Section 107(a) provides that "a paper filed in a case under this title and the dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge." However, like the common law right of public access, § 107(a) is not absolute. Section 107(b) provides limited exceptions to the right of public access in bankruptcy cases. Section 107(b) provides that the bankruptcy court "shall," on request of a party in interest, or "may," on its own motion: "(1) protect an entity with respect to a trade secret or confidential research, development, or commercial information; or (2) protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this title." 3. The First Motion to Seal should be denied.
The exact language of § 107(b) is as follows:
(b) On request of a party in interest, the bankruptcy court shall, and on the bankruptcy court's own motion, the bankruptcy court may —
(1) protect an entity with respect to a trade secret or confidential research, development, or commercial information; or
(2) protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this title.
On July 9, 2008, YAP filed its First Motion to Seal. [Finding of Fact No. 14.] Though the Court recognizes that it filed this pleading promptly as an emergency motion, the Court concludes that the two paragraphs of this First Motion to Seal fail to adequately explain why the Documents are entitled to protection. Indeed, YAP must overcome the well-established presumption of public access to judicial records and filings. See In re Gitto Global Corp., 422 F.3d at 6.
The First Motion to Seal — in its entirety — is as follows:
John Acord, Defendant herein, filed a Motion to Strike with attached exhibits with this Court, which was docketed on July 9, 2008 [sic]. Within the Exhibits attached thereto are documents provided to John Acord by Vicki Pitts, a former employee of Young Again Products, Inc. In part, those documents contain attorney-client privileged and work product documents, mental impressions of the president of Young Again Products, Inc., and its attorneys, Freeman Freeman and divulge Plaintiff's litigation strategy in the Maryland federal litigation. This Motion to Strike and its Exhibits were delivered to counsel for the Plaintiff by an employee of John Acord and/or Supplement Spot at or about 3:00 p.m. on July 8, 2008. Prior to that time and date, Plaintiff had no knowledge that John Acord had these documents in his possession.
Plaintiff moves this Honorable Court to seal and order John Acord to destroy the documents which are the subject of this Motion, along with any and all other documents that he has received from Vickie [sic] Pitts. Plaintiff prays for general relief.
[Docket No. 228] (emphasis added). YAP failed to identify which of "those documents" are entitled to protection. It is not enough for the movant to make a sweeping statement that a voluminous collection of documents should be sealed. United States v. El Paso Co., 682 F.2d 530, 539 (5th Cir. 1982) ("[W]e have made clear that the attorney-client privilege may not be tossed as a blanket over an undifferentiated group of documents.") (citing United States v. Davis, 636 F.2d 1028, 1044 n. 20 (5th Cir. 1981)). The party seeking to seal the documents must identify which specific documents must be sealed, and the attorney-client privilege "must be specifically asserted with respect to particular documents." El Paso Co., 682 F.2d at 539. Here, YAP failed to specifically identify which documents are entitled to protection in the First Motion to Seal.
Additionally, YAP does not even mention § 107(b) in the First Motion to Seal. However, even if it had asserted that the Documents are entitled to protection under § 107(b), YAP would have needed to establish that the Documents contained a "trade secret" or "confidential research, development, or commercial information" or "scandalous or defamatory matter." Because YAP has failed to establish that the Documents contain any such material, and because YAP did not argue § 107(b), the Court is not required to protect YAP under this section of the Code. Nevertheless, pursuant to § 107(b), the Court may on its own motion protect YAP.
In the First Motion to Seal, YAP describes the Documents as "contain[ing] attorney-client privileged and work product documents [and] mental impressions" of YAP's attorneys. In re 50-Off Stores, Inc., an opinion by the Honorable Leif M. Clark, Bankruptcy Judge for the Western District of Texas, holds that "[c]ertainly, a lawyer's work product is one type of `confidential research' that falls within the plain language of the statute's [i.e. § 107(b)'s] protection. And certainly a client's disclosures made in confidence to its attorneys is one kind of `confidential . . . commercial information.'" 213 B.R. 646, 655-56 (Bankr. W.D. Tex. 1997). In 50-Off Stores, the debtor affirmatively sought the protection of the bankruptcy court under § 107(b), and, therefore, the bankruptcy court was required to protect the debtor under § 107(b). Id.; see § 107(b) ("On request of a party in interest, the bankruptcy court shall . . . protect an entity." Emphasis added.). Here, unlike the debtor in 50-Off Stores, YAP has not sought protection under § 107(b), and the Court concludes that it should not exercise its discretion under § 107(b) to sua sponte seal the Documents. Accordingly, the First Motion to Seal should be denied.
The bankruptcy court in 50-Off Stores mentioned in a footnote that it was "unable to find any cases specifically applying section 107(b)(1) to attorney-client privilege or attorney work product." In re 50-Off Stores, Inc., 213 B.R. at 655 n. 14. Because this Court ultimately does not apply § 107(b) to the present discovery dispute, this Court need not address whether § 107(b) applies to attorney-client privileged documents or work product.
4. The Second Motion to Seal should be denied.
On August 21, 2008, YAP filed the Second Motion to Seal. [Finding of Fact No. 14.] In paragraph 4 of this Motion, YAP makes the following broad assertion: "Based upon the nature of information contained in Exhibit 2, Plaintiff has a substantial basis for believing that Exhibit 2 is properly subject to an order precluding inspection, and that disclosure to the public or any other non-party will result in immediate, substantial, and irreparable harm to Plaintiff." As with the First Motion to Seal, the Second Motion to Seal is devoid of citations to legal authorities and contains no details about which particular documents are privileged. See El Paso Co., 682 F.2d at 539 ("[W]e have made clear that the attorney-client privilege may not be tossed as a blanket over an undifferentiated group of documents."). For example, in paragraphs 1 and 2 of this Motion, YAP asserts that the Documents contain "communications protected under the attorney-client privilege and work product doctrine" and that the Documents "include the mental impressions of the president of Young Again Products, Inc. and its attorneys, Freeman Freeman, P.C. and communications divulging Plaintiff's litigation strategy in the Maryland federal litigation." Mere conclusory statements simply will not suffice to overcome the presumption of public access.
Further, in the Second Motion to Seal, YAP once again failed to argue that the Documents are entitled to protection under § 107(b). Thus, for the reasons set forth above, the Court concludes that it should not exercise its discretion under § 107(b) to sua sponte seal the Documents. The Second Motion to Seal should be denied.
In sum, because YAP has failed to meet its burden to overcome the presumption of public access codified in § 107(a), the Court concludes that the two Motions to Seal should be denied.
D. Pitts was an independent contractor, not YAP's employee.
There is a separate and independent reason why this Court should not seal the Documents: the Documents were turned over by a former contractor of YAP (i.e. Pitts) and, therefore, are not entitled to any privilege protections. Acord and Ortega argue — and this Court agrees — that because Pitts was a contractor, and not YAP's employee, the documents she turned over to Acord are not subject to any privilege protections.
1. Texas and Federal Law on Employment Classifications
Under Texas law, whether a person is an employee or independent contractor is a question of fact. Campbell v. Keystone Aerial Surveys, Inc., 138 F.3d 996, 1006 (5th Cir. 1998) (citing Halliburton v. Texas Indent. Ins. Co., 213 S.W.2d 677 (Tex. 1948)). In Halliburton, the Texas Supreme Court provided the applicable test:
If one contracts to do a specific piece of work for another and furnishes, and has the absolute control of, his assistants, and the work is done in accord with his own ideas, or with a previously agreed plan, without being subject to the other's orders with respect to the details of the work, he is an independent contractor. However, if he and his assistants are subject to the control of the other party with respect to the details and method of doing the work then he is an employee. The supreme test in determining whether one is an employee or an independent contractor, according to our decisions and most of the modern cases, is the test with respect to the right of control.
Halliburton, 213 S.W.2d at 680 (citing numerous Texas cases).
Moreover, the Fifth Circuit has defined "the traditional Texas common law distinction between employees and independent contractors" as follows:
Under Texas common law, "[t]he test to determine whether a worker is an employee or an independent contractor is whether the employer has the right to control the progress, details, and methods of operations of the employee's work." Thompson v. Travelers Indem. Co. of R.I., 789 S.W.2d 277, 278 (Tex. 1990). For an individual to be considered an employee, "[t]he employer must control not merely the end sought to be accomplished, but also the means and details of its accomplishment as well." Id. In contrast, an independent contractor is an individual who, "[i]n the pursuit of an independent business, undertakes to do a specific piece of work for other persons, using his own means and methods, without submitting himself to their control and all its details." William Sommerville Son, Inc. v. Carter, 571 S.W.2d 953, 956 (Tex.Civ.App.-Tyler 1978), aff'd on other grounds, 584 S.W.2d 274 (Tex. 1979).
Consumers County Mut. Ins. Co. v. P.W. Sons Trucking, Inc., 307 F.3d 362, 364 n. 3 (5th Cir. 2002). Therefore, if YAP "control[led] not merely the end sought to be accomplished, but also the means and details of its accomplishment as well," then Pitts would be YAP's employee. Thompson, 789 S.W.2d at 278. However, if Pitts used her own means and methods, without submitting herself to YAP's control, then Pitts would not be YAP's employee.
Although it seems that "`control of the detailed physical performance may be the most critical factor in identifying an employee, it is not necessarily the only factor.'" Linkous v. United States, 142 F.3d 271, 275 (5th Cir. 1998) (quoting Broussard v. United States, 989 F.2d 171, 175 (5th Cir. 1993)). The Fifth Circuit has held that the factors which are deemed relevant to determining whether an individual is an employee or an independent contractor are listed in Section 220 of the Restatement (Second) of Agency:
(a) the extent of control which, by the agreement, the master may exercise over the details of the work;
(b) whether or not the one employed is engaged in a distinct occupation or business;
(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
(d) the skill required in the particular occupation;
(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
(f) the length of time for which the person is employed;
(g) the method of payment, whether by the time or by the job;
(h) whether or not the work is a part of the regular business of the employer;
(i) whether or not the parties believe they are creating the relation of master and servant; and
(j) whether the principal is or is not in business.
Restatement (Second) of Agency § 220(2); Linkous, 142 F.3d at 275; Rodriguez v. Sarabyn, 129 F.3d 760, 766 (5th Cir. 1997); see Emtel, Inc. v. Lipidlabs, Inc., 583 F. Supp. 2d 811, 829-30 (S.D. Tex. 2008) (citing the ten factors); see also Salameh v. Provident Life Acc. Ins. Co., 23 F. Supp. 2d 704, 712 (S.D. Tex. 1998) ("[I]n addition to control, the court must consider the other factors listed in the Restatement to differentiate between an employee and an independent contractor.") (citing Linkous, 142 F.3d at 276).
2. Based on the arguments and evidence, Pitts was never an employee of YAP.
After considering the evidence, deposition testimony, and pleadings, this Court concludes that Pitts was never YAP's employee, but rather, she was an independent contractor. The Court applies the ten factors from the Restatement (Second) of Agency in making this determination. After considering this non-exclusive list of factors, the Court concludes that Pitts was an independent contractor rather than YAP's employee.
a. Factor #1: The extent of control which, by the agreement, the master may exercise over the details of the work
As noted earlier, the control factor is often thought of as the most critical factor for determining whether someone is an employee or an independent contractor. Linkous, 142 F.3d at 275. The more control an employer exerts over a person employed, the more likely that person is an employee. Therefore, if YAP "control[led] not merely the end sought to be accomplished, but also the means and details of its accomplishment as well," then Pitts would be YAP's employee. Thompson, 789 S.W.2d at 278. However, if Pitts used her own means and methods, without submitting herself to YAP's control, then Pitts would not be YAP's employee.
In Pitts' deposition, Pitts testified that she ran the YAP website, [Finding of Fact No. 34], and when asked by Freeman: "Is it fair to say you were running the website on behalf of Young Again Products?" Pitts responded: "I was running it on behalf of myself, as well as Young Again Products. Like I say [sic], I did never [sic] say I entirely owned the website." [Finding of Fact No. 34.] Under the arrangement Pitts had with YAP, YAP gave Pitts inventory to sell through the website, and Pitts was free to use her own means and methods to sell this inventory. [Finding of Fact No. 20.] Although YAP exercised some control over Pitts, Pitts was given wide latitude to run the business without YAP controlling the day-to-day operations of the website and sale of the nutritional products. [Finding of Fact No. 20.]
Because Pitts had considerable freedom to run the website and conduct business without significant oversight, the Court concludes that this factor weighs in favor of classifying Pitts as an independent contractor.
b. Factor #2: Whether or not the one employed is engaged in a distinct occupation or business
Pitts worked in the nutritional supplement business prior to developing a business relationship with YAP from 2004 to 2006. For example, prior to working with YAP, Pitts ran a website-based business called "The Natural Woman," another nutritional supplement business which sold inventory supplied by YAP through Mason. [Finding of Fact No. 4.] As such, the Court concludes Pitts is engaged in a distinct business and is therefore more likely an independent contractor than an employee.
c. Factor #3: The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision
YAP's web-based business for selling nutritional products to customers can be performed by a specialist with computer skills, like Pitts, and does not require much supervision. Although Mason testified that Pitts worked under his direction at all times, Pitts worked from home selling the products and running the website on her own without his supervision. [Finding of Fact No. 20.] Accordingly, the Court concludes that this factor indicates that Pitts was more likely an independent contractor than an employee.
d. Factor #4: The skill required in the particular occupation
Pitts was responsible for YAP's website maintenance, mailing lists and quality control of the website and server, key word advertising, article placement on the website, product description, pricing and complete fulfillment of orders, and username and password access for the website. [Finding of Fact No. 18.] To perform such tasks, Pitts needed to have computer skills and, to a certain extent, be technologically savvy. Indeed, Mason testified that Pitts had the expertise and skills necessary to operate the website. [Finding of Fact No. 20.] Therefore, because a particular set of skills was necessary to perform Pitts's responsibilities, this factor weighs in favor of Pitts's independent contractor status. e. Factor #5: Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work
YAP supplied the inventory (i.e. the nutritional products) to Pitts and the information about the products, and Pitts ran the web-based operations at a location of her own choosing. [Finding of Fact No. 20.] Pitts used her own computer and home-based office to run the web-based operations. [Finding of Fact No. 20.] However, without YAP providing the instrumentalities — i.e. the actual inventory and the product information — Pitts could not have consummated the website transactions. Thus, this factor weighs both for, and against, a finding that Pitts was an independent contractor because, although Pitts provided her own office and computer, YAP provided the actual inventory sold.
f. Factor #6: The length of time for which the person is employed
Pitts had a business relationship with YAP from 2004 to 2006. [Finding of Fact No. 4.] Short time periods of work performed indicate a status as an independent contractor. See Herman v. Express Sixty-Minute Delivery Serv., Inc., 161 F.3d 299, 305 (5th Cir. 1998) (finding drivers who worked for short periods of time to be independent contractors). Long periods of employment with an employer indicate an employee status. Robicheaux v. Radcliff Material, Inc., 697 F.2d 662, 666 (5th Cir. 1983) (Welders working for ten months to three years was "a substantial period of time" and was sufficient to indicate employee status.).
Pitts's approximately two — to three-year working relationship with YAP is lengthy enough to support a conclusion that Pitts was an employee rather than an independent contractor. See Linkous, 142 F.3d at 277 (concluding that a doctor who worked for the government for "a period of several years" weighed in favor of employee status); see also Robicheaux, 697 F.2d at 666 (Ten months to three years was sufficient to indicate employee status.). Therefore, the Court concludes that this factor weighs in favor of concluding that Pitts was an employee of YAP.
g. Factor #7: The method of payment, whether by the time or by the job
Acord argues that Pitts is not YAP's employee because W-4's or W-2's for Pitts were not produced. Indeed, Pitts was not paid with W-4's or W-2's. Among the Documents is an e-mail dated "2/9/2006" from YAP's president, Mason, to Pitts stating that Pitts, as "yap internet's contractor," was compensated as reported on a "1099 form" for income tax purposes. [Finding of Fact No. 5.] Moreover, in another e-mail dated "1/7/2005" Ivey Mason (the wife of YAP's president) sent Pitts an e-mail stating:
The Court concludes that Mason is a sophisticated person who should know whether someone is an employee of his or an independent contractor. Although Mason testified that his wife, not he, knows how taxes were taken out of Pitts's compensation — whether by W-2 or 1099 forms [Finding of Fact No. 20], the Court finds it highly unlikely that he knew nothing about his company's taxes. However, even if only Ivey Mason knew how Pitts's taxes were reported, the Court finds that sufficient to conclude that YAP knew Pitts's was an independent contractor.
I will need to send you a 1099 misc. tax form for the money you received from YAP Internet in 2004. I will verify the amount with you when I'm done. You act as an "independent contractor" and YAP Internet pays you the monthly payments for your services. You know you need to pay taxes from these earnings.
[Finding of Fact No. 5.] Accordingly, because (1) Pitts was compensated as reported on a 1099 form rather than through an annual salary, and (2) both Mason, YAP's president, and Mason's wife referred to Pitts as an independent contractor, this factor weighs heavily in favor of concluding that Pitts was an independent contractor. See Linkous, 142 F.3d at 277 (concluding that a doctor who was paid on a fee-for-service rather than an annual salary was an independent contractor). h. Factor #8: Whether or not the work is a part of the regular business of the employer
Indeed, the work performed by Pitts — i.e. selling nutritional supplements — is the regular business of YAP. [Finding of Fact No. 4.] Because Pitts performs the "regular business" of YAP, Pitts is more likely an employee rather than an independent contractor. See Linkous, 142 F.3d at 277 (concluding that because a doctor performed the regular services of the hospital, that weighed in favor of employee status).
i. Factor #9: Whether or not the parties believe they are creating the relation of master and servant
In Mason's deposition and at the July 14, 2008 hearing, Mason identified Pitts as an employee of YAP. [Finding of Fact Nos. 20 34.] In Acord's Amended Opposition, Acord alleged that, contrary to Mason's deposition testimony, Pitts was not YAP's employee, but rather, she was YAP's sales agent (i.e. a contractor). [Finding of Fact No. 28.] While doing business with YAP, Pitts herself believed that the website business was hers or was going to be hers or her children's. [Finding of Fact No. 34.] Therefore, Pitts did not share Mason's belief that they created a master and servant relationship. Accordingly, the Court concludes that this factor weighs in favor of concluding that Pitts is not YAP's employee.
j. Factor #10: Whether the principal is or is not in business
As was stated above, supra Part IV.D.2.h, (i.e. factor #8: whether or not the work is a part of the regular business of the employer), YAP is in business of selling nutritional supplements over the internet, including the same or similar products Pitts sold while she worked for YAP. Therefore, this factor supports the conclusion that Pitts was an employee.
In summary, of the ten factors examined above, six weigh in favor of independent contractor status (i.e. factors #1, 2, 3, 4, 7, and 9), three weigh in favor of employee status (i.e. factors #6, 8, and 10), and one weighs neither for, nor against, a finding either way (i.e. factor #5). After considering these ten factors listed in Section 220 of the Restatement (Second) of Agency, and placing particularly heavy emphasis on factors #1 (i.e. control) and #7 (i.e. the method of payment), the Court concludes that Pitts was an independent contractor rather than YAP's employee. The Court reaches this conclusion because (a) YAP exercised little to no control over the detailed performance of Pitts; (b) YAP paid Pitts as an independent contractor and sent her 1099 tax forms; and (c) the balance of the remaining factors weighs in favor of independent contractor status. Additionally, the Court places particularly heavy emphasis on the fact that Mason (YAP's president) and Ivey Mason (Mason's wife) both referred to Pitts as either an "independent contractor" or YAP's "internet contractor." [Finding of Fact No. 5.]
Because Pitts is an independent contractor, the Court concludes that the documents she turned over to Acord are not entitled to any privilege protections and should not be sealed.
E. The Court's Independent Review of the Documents
Based on the Court's own review of the Documents in chambers, the Court concludes that the Motions to Seal should be denied because the Documents are not entitled to privilege or work product protections. Because the Court has already determined that the Motions to Seal should be denied for the reasons stated in supra Parts IV.C D, this Court's independent review of the Documents provides additional support for the conclusions reached above. 1. YAP makes no arguments that persuade this Court that the Documents should be sealed due to the attorney-client privilege or the work product privilege.
The Court has spent numerous hours reviewing each and every one of the approximately 1,900 documents which YAP produced in camera. Another court captured this Court's exact sentiments: "Because this Court no longer charges for its services it had no occasion to maintain time records covering its research and preparation, but those efforts certainly entailed the expenditure of a substantial number of hours." Scarlato v. Village of Bellwood, III., No. 08-C-546, 2008 WL 4866433, at *1 (N.D. Ill. 2008).
YAP argues that the Documents should be sealed and protected under the attorney-client privilege. The attorney-client privilege is one of the oldest common law privileges and it serves "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).
In Upjohn, the United States Supreme Court extended the attorney-client privilege to cases involving communication between a corporation's employees acting at the direction of its officers and the corporation's attorney. Upjohn, 449 U.S. at 394-95.
The elements of the attorney-client privilege are as follows: "(1) where legal advice of any kind is sought; (2) from a professional legal advisor in his capacity as such; (3) the communications relating to that purpose; (4) made in confidence; (5) by the client; (6) are at his instance permanently protected; (7) from disclosure by himself or by the legal advisor; (8) except that the protection be waived." El Paso Co., 682 F.2d at 539. Whether the attorney-client privilege applies is determined on a case-by-case basis. Upjohn, 449 U.S. at 396-97.
In the Revised Privilege Log, YAP failed to list certain documents which YAP now seeks to have sealed based on the attorney-client privilege. Additionally, as YAP's counsel admitted on the record, some of these omitted documents were not produced to this Court for in camera review. [Finding of Fact No. 9.] Federal Rule of Civil Procedure 26(b)(5) requires parties to submit a privilege log in order to claim that the attorney-client privilege or the work product doctrine apply. This privilege log must contain information sufficient to allow a court or a party to determine the applicability of the privilege. Fed.R.Civ.P. 26(b)(5). Furthermore, "[a] party asserting a privilege exemption from discovery bears the burden of demonstrating its applicability." In re Santa Fe Intern. Corp., 272 F.3d 705, 710 (5th Cir. 2001).
a. The e-mails between Pitts and Mason should not be sealed under the attorney-client privilege.
The elements outlined by the Fifth Circuit for the attorney-client privilege require that "the client" seek "legal advice" from "a professional legal advisor in his capacity as such." See El Paso Co., 682 F.2d at 539. Here, some of the e-mails contained in the Documents are e-mails between Pitts and Mason, neither of whom are attorneys. Therefore, by definition alone, the attorney-client privilege would not apply to protect the communications between Pitts and Mason.
YAP argues that the e-mails between Pitts and Mason contain information that Mason received from his attorneys, and that therefore, the privilege applies to protect the e-mails between Mason and Pitts. YAP cites Upjohn to support this proposition. In Upjohn, the United States Supreme Court held that "[m]iddle-level — and indeed lower-level — employees can, by actions within the scope of their employment, embroil the corporation in serious legal difficulties, and it is only natural that these employees would have the relevant information needed by corporate counsel if he is adequately to advise the client with respect to such actual or potential difficulties." Upjohn, 449 U.S. at 391-92. Here, Pitts is not the type of person protected under Upjohn. As this Court has already determined, Pitts is an independent contractor, not an employee. See supra Part IV.D. As such, Upjohn's holding that privileges may apply to middle-level and lower-level employees is inapplicable because Pitts is not an employee at all.
Additionally, the "`disclosure of any significant portion of a confidential communication waives the [attorney-client] privilege as to the whole.'" Nguyen v. Excel Corp., 197 F.3d 200, 208 (5th Cir. 1999) (quoting Indus. Clearinghouse, Inc. v. Browning Mfg. Div., 953 F.2d 1004, 1007 (5th Cir. 1992]). The Fifth Circuit has held that "[t]he confidentiality of a client's communications may be compromised either through the publication of evidence of the communications themselves or through the publication of evidence of attorney statements or documents that disclose the client's confidential communications." Indus. Clearinghouse, Inc., 953 F.2d at 1007. In the e-mails between Mason and Pitts, Mason made no effort to protect the attorney-client privilege. Accordingly, the Court concludes that, even if some or all of the Documents were privileged, Mason has waived the privilege as to the communications between Pitts and himself.
b. The e-mails between Pitts and Freeman should not be sealed under the attorney-client privilege.
Although Freeman (one of YAP's attorneys) and Pitts communicated via e-mails, some of which are reproduced in the Documents, his status as YAP's attorney alone does not necessitate the sealing of those documents containing their communications. Based upon this Court's review of the Documents, several reasons justify not sealing the Documents. First, Pitts did not seek legal advice from Freeman, as she was an independent contractor of YAP and not Freeman's client. Second, Freeman did not provide legal advice to Pitts. Third, his communications with Pitts — an independent contractor — are not entitled to protection under the attorney-client privilege. See El Paso Co., 682 F.2d at 539 (listing the requisite elements of the attorney-client privilege). YAP has failed to identify which documents in the voluminous set provided to this Court are e-mails between Pitts and Freeman deserving protection under the attorney-client privilege. YAP should have identified the purportedly privileged e-mails by date and briefly described why each are privileged. When a request to seal a large number of documents is made, the movant has the burden to prove with specificity which documents are entitled to protection and why. See El Paso Co., 682 F.2d at 539; see Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1122 (3d Cir. 1986) (Even when there is an umbrella protective order, "the burden of justifying the confidentiality of each and every document sought to be covered by a protective order remains on the party seeking the protective order.").
The Court notes that YAP failed to Bates-stamp the Documents for ease of reference.
For example, YAP should have identified to this Court if certain of the Documents contained legal advice or communications between Freeman and Pitts or were prepared in anticipation of litigation because those documents would fall under the privilege protection. See Fair Isaac Corp. v. Texas Mut. Ins. Co., 2006 WL 3484283, at *4 (S.D. Tex. Nov. 30, 2006) (holding that a set documents was protected by the attorney-client privilege and work product protections because the documents were created in anticipation of litigation); see also LaSalle Bank N.A. v. Mobile Hotel Props., LLC, 2004 WL 902169, at *7 (E.D. La. Apr. 23, 2004) (holding that a litigation committee's document that revealed opinions, thought processes and recommendations of counsel prepared in anticipation of litigation is "protected by both the work product and attorney-client privileges"). However, YAP failed to meet its burden to identify which e-mails contain communications protected by a privilege. Based upon this Court's independent review of the Documents, the e-mails between Pitts and Freeman do not contain privileged communications. Alternatively, even if the e-mails contained privileged communications, Pitts is not an employee, and therefore YAP, through the actions of its attorney, Freeman, waives any privilege that may exist by communicating with Pitts, an independent contractor. Therefore, the Court concludes that the Documents should not be sealed under the attorney-client privilege.
2. The work product privilege does not necessitate the sealing of the Documents.
"[T]he work product doctrine insulates a lawyer's research, analysis of legal theories, mental impressions, notes, and memoranda of witnesses' statements from an opposing counsel's inquiries." Dunn v. State Farm Fire Cas. Co., 927 F.2d 869, 875 (5th Cir. 1991) (citing Upjohn, 449 U.S. at 400). "The work product privilege applies to documents `prepared in anticipation of litigation.'" In re Kaiser Aluminum Chem. Co., 214 F.3d 586, 593 (5th Cir. 2000) (quoting Fed.R.Civ.P. 26(b)(3)). According to the Fifth Circuit, the work product privilege applies even when litigation is not imminent, "`as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation.'" Id. (quoting El Paso Co., 682 F.2d at 542).
Here, the Documents that YAP seeks to seal do not appear to be work product of an attorney or legal assistant. There may be an argument for a protection if the conversations between Pitts and Mason were in "anticipation of litigation." See In re Kaiser Aluminum Chem. Co., 214 F.3d at 593. However, YAP failed to identify which e-mails were prepared in anticipation of litigation. "The burden of establishing that a document is work product is on the party who asserts the claim, but the burden of showing that the materials that constitute work product should nonetheless be disclosed is on the party who seeks their production." Hodges, Grant Kaufman v. U.S. Gov't, Dept. of Treasury, I.R.S., 768 F.2d 719, 721 (5th Cir. 1985). Thus, YAP has the initial burden of proving that the Documents are work product, and, if YAP satisfies this burden, Acord and Ortega have the burden of proving that the work product should nonetheless be disclosed. YAP failed to prove to this Court which documents were work product. However, even if YAP had met its burden, the Court would still conclude that Mason's communications with Pitts waived any available protections. This Court's review of the documents has revealed that even though some of the e-mails between Pitts and Mason appear to be drafted and sent in anticipation of litigation, Mason has waived any protections to these communications through his e-mail communications with Pitts, an independent contractor. See supra Part IV.E.1.a (discussing waiver of privilege).
3. The privilege has been waived because the Documents were the subject of YAP's subpoena in another federal court.
Acord argues that because the Documents were obtained from Pitts through issuance of a subpoena in another case before another federal court, then YAP, through its counsel, waived any right to attorney-client privilege or work product immunity because Pitts produced the Documents to both YAP and Acord. The Court agrees. Production of records, documents, or evidence, in compliance with a subpoena waives any claim to attorney-client privilege or work product immunity. Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1427 n. 14 (3d Cir. 1991) ("[U]nder traditional waiver doctrine a voluntary disclosure to a third party waives the attorney-client privilege even if the third party agrees not to disclose the communications to anyone else."). By subpoenaing its own records, the Court concludes that YAP, through its counsel, voluntarily waived any claim to work product immunity or attorney-client privilege.
The subpoena was issued out of the Bankruptcy Court for the District of Arizona. A review of the docket sheet in this adversary proceeding reveals that YAP failed to file notice of the issuance of the Pitts Subpoena as required by Federal Rule of Civil Procedure 45 (Rule 45) which is applicable to this proceeding under Bankruptcy Rule 9016. Fed.R.Civ.P. 45(b)(1) ("If the subpoena commands the production of documents, electronically stored information, or tangible things . . ., then before it is served, a notice must be served on each party."). Rios, counsel for the Trustee, received a copy of the Pitts Subpoena at his office on January 17, 2008. [Finding of Fact No. 31.]
As an aside, YAP asserts that it did not raise privilege objections as soon as Acord received the Documents (and prior to Acord attaching the Documents to the Motion to Strike on July 7, 2008) because the Documents were not obtained through the normal discovery channels. [Finding of Fact No. 20.] YAP alleges that Pitts, as a disgruntled former employee of YAP, turned over the Documents to Acord unbeknownst to YAP. YAP argues that, if the Documents had been produced to Acord through proper discovery, then privilege objections could have been made before Acord attached the Documents to his Motion to Strike. The Court notes that the timeliness of YAP's privilege objections are of no import to the question of whether the privilege has been waived with respect to the Documents.
The Court agrees with the Third Circuit's decision in Westinghouse that disclosure through a subpoena waives privilege protections. Westinghouse, 951 F.2d at 1427 n. 14. Therefore, YAP's January 2008 subpoena waived any privilege protections on the Documents. See, e.g., United States v. Rockwell, 897 F.2d 1255, 1265 (3d Cir. 1990) ("The attorney-client privilege does not apply to communications that are intended to be disclosed to third parties or that in fact are so disclosed."); see also S.E. C. v. Brady, 238 F.R.D. 429, 444 (N.D. Tex. 2006) ("Waiver of work product protection only results if the work product is disclosed to an adversary or treated in a manner that substantially increases the likelihood that an adversary will come into possession of that material.") (citing Ferko v. Nat'l Ass'n for Stock Car Auto Racing, Inc., 218 F.R.D. 125, 136 (E.D. Tex. 2006)). Accordingly, the Court concludes that the subpoena eliminates any privilege that may have existed and provides this Court with yet another reason to conclude that the Documents should not be sealed. 4. YAP's concerns over what the jury may think of the Documents at trial are unfounded.
The Court recognizes that the use of the word "only" in Brady is limiting, but nevertheless the Court finds YAP has waived the privilege protections.
Any concerns YAP may have regarding whether the jury will see these documents and be improperly influenced is unfounded. YAP has the option of protecting itself at trial in the District Court by objecting to the introduction of any of these documents into evidence. The only issue presently before this Court is whether to seal these documents for purposes of pretrial discovery.
For all the reasons set forth above, this Court concludes that the Motions to Seal should be denied.
F. The Motion for Protective Order
On March 17, 2009, YAP filed the Motion for Protective Order to preclude Defendants from using or disclosing YAP's proprietary business information and communications produced by Mason or Pitts to further Defendants' own business interests or to gain any competitive business advantage. [Finding of Fact No. 37.] "Ample precedent exists for limiting disclosure of highly sensitive, confidential or proprietary information to outside attorneys and experts, particularly when there is some risk that a party might use the information or disseminate it to others who might employ it to gain a competitive advantage over the producing party." Asch/Grossbardt, Inc. v. Asher Jewelry Co., No. 02 Civ. 5914 (SAS), 2003 WL 660833, at *2 (S.D.N.Y. Feb. 28, 2003) (citing Westside-Marrero Jeep Eagle, Inc. v. Chrysler Corp., No. Civ. A. 97-3012, 1998 WL 186728, at *2 (E.D. La. Apr. 17, 1998)).
Because this Court has denied the Motions to Seal, this Court realizes that the Defendants may attempt to use the Documents in any manner they see fit. In YAP's Motion for Protective Order, it did not mention § 107 in support of its arguments. However, this Court concludes that § 107 provides the applicable law for protective orders.
Federal Rule of Bankruptcy Procedure 9018 sets forth the procedure governing § 107, which authorizes this Court to issue an order to protect any entity in the manner YAP set forth in the Motion for Protective Order. Specifically, Rule 9018 provides:
Although § 107(b)(2) requires a bankruptcy court to only protect a "person" with respect to scandalous or defamatory filings, Rule 9018(2) authorizes the Court to protect "any entity." According to the definition set forth in § 101(15), "[t]he term `entity' includes person, estate, trust, governmental unit, and United States trustee." 11 U.S.C. § 101(15).
On motion or on its own initiative, with or without notice, the court may make any order which justice requires (1) to protect the estate or any entity in respect of a trade secret or other confidential research, development, or commercial information, (2) to protect any entity against scandalous or defamatory matter contained in any paper filed in a case under the Code, or (3) to protect governmental matters that are made confidential by statute or regulation. If an order is entered under this rule without notice, any entity affected thereby may move to vacate or modify the order, and after a hearing on notice the court shall determine the motion.
"There is no true privilege against discovery of trade secrets or other `confidential' business information, but the courts nevertheless will exercise their discretion to avoid unnecessary disclosure of such information, particularly where the action is between competitors." United States v. United Fruit Co., 410 F.2d 553, 557 (5th Cir. 1969).
To prevent the unnecessary disclosure of the Documents, this Court will grant the Motion for Protective Order to prevent the Defendants from using the Documents outside this adversary proceeding and to prevent the Defendants from using the Documents to further their own business interests or to gain any competitive business advantage.
V. CONCLUSION
For all the reasons set forth herein, the Court hereby concludes that the unresolved portion of the Motion in Limine regarding suppression of evidence of defamatory or derogatory statements made by YAP or Mason against the Defendants should be granted. The Court further concludes that the Motions to Seal should be denied. Finally, the Court concludes that the Motion for Protective Order should be granted.
An order consistent with this Opinion will be entered on the docket simultaneously with the entry on the docket of this Opinion.