Opinion
Index No.: 114874/10
01-12-2017
KATHERINE PRIESTLEY, Plaintiff, v. PANMEDIX INC., ELECTRONIC KNOWLEDGE PUBLISHING, INC., HEADMINDER, INC., MCDONALD COMRIE, DR. DAVID ERLANGER, PHILLIP YEE, BALLON, STOLL, BADER & NADLER, PC, HALKET WEITZ, CURTIS COMRIE, ROBERTA COMRIE, MARY ERLANDER, DARIN KAPLAN, RICHARD PECK, LINDA BIERER, TARA MACLEOD, MELVIN HELLER, JOHN THEODORACOPULOS, ALEXIS THEODORACOPULOS, STEPHANIE PARK, NICOLE KAPLAN, LITTLE ROCK, LTD., TANYA KAUSHIK, MABEL TRUESDELL, RELIDE REALTY, THEODORE WEITZ, ESQ., and DWIGHT YELLEN, ESQ., Defendants. HALKET WEITZ LLP and THEODORE WEITZ, ESQ., Third-Party Plaintiffs, v. BALLON, STOLL, BADER & NADLER, PC, DWIGHT YELLEN, ESQ., and PANMEDIX, INC., Third-Party Defendants.
DECISION/ORDER
Mot. Seq. 005 & 006 KELLY O'NEILL LEVY, J.:
In this action, plaintiff Katherine Priestley (Priestley) sues to recover damages for fraud, fraudulent conveyance, aiding and abetting fraud, and tortious interference with enforcement of a money judgment. Plaintiff now moves (seq. no. 005) to compel defendant/third-party defendant Ballon, Stoll, Bader & Nadler, PC (Ballon Stoll) to produce documents identified by Ballon Stoll as privileged. By separate motion (seq. no. 006), defendants/third-party plaintiffs Halket Weitz LLP and Theodore Weitz, Esq. (together, Halket Weitz) also seek an order compelling Ballon Stoll to produce documents. The two motions are consolidated for purposes of their disposition.
Plaintiff originally moved against both Ballon Stoll and Dwight Yellen, Esq. (Yellen), but has withdrawn the motion as against Yellen. See Reply Affidavit of Jay Edmond Russ, ¶ 2.
Only Ballon Stoll submits opposition to both motions. Defendants Panmedix, Inc. (Panmedix), McDonald Comrie (Comrie), Philip Yee, Dr. David Erlanger, and Headminder, Inc. (collectively, the Panmedix defendants) submit "limited opposition" to Halket Weitz's motion. Defendants Melvin Heller and Little Rock, Ltd. submit no opposition papers, but, at oral argument, their counsel appeared and briefly expressed opposition to Halket Weitz's motion. See Transcript of Oral Argument, dated July 6, 2016 (Tr.), at 23-24. No other defendant, except Yellen, appeared or otherwise opposed either motion.
Pursuant to a stipulation filed August 17, 2016, the action has been discontinued as against Dr. David Erlanger, Headminder, Inc., Mary Erlanger, and Linda Bierer. The action is stayed as against Panmedix, pursuant to a Notice of Bankruptcy, dated December 3, 2015.
Background
In April 2001, Priestley loaned $750,000 to Panmedix, pursuant to a senior security promissory note and a patent security agreement, which granted plaintiff a security interest in, respectively, Panmedix's personal property and patents. Plaintiff recorded her security interests by filing a UCC financing statement (UCC-1). The loan was to mature in a year. By March 2005, Panmedix had stopped making payments to plaintiff on the loan.
In 2007, plaintiff sued in federal court to recover the amount owed, and, in 2008, obtained a judgment against Panmedix and others in the amount of approximately $1.6 million. See Priestley v Comrie, 2007 WL 4208592, 2007 US Dist LEXIS 87386 (SD NY 2007). Because Panmedix was financially unable to pay the judgment, plaintiff and Panmedix entered into a payment agreement, providing that payment to plaintiff would be made from the sale of the company and other possible transactions. When no sale or other transactions occurred, and plaintiff was not paid, she contacted the federal court, in or around June 2009, seeking an order of. attachment, and was advised that it would be faster to take her judgment to the marshal and levy on the assets. See generally Priestley v Panmedix Inc., 18 F Supp 3d 486, 490-491 (SD NY 2014). Plaintiff asserts that she and Comrie, President and CEO of Panmedix, subsequently began negotiating another payment agreement.
In or around August 2009, after Halket Weitz, as Panmedix's counsel, discovered that plaintiff's UCC-1 had expired, it drafted a security agreement (the security agreement), which Panmedix executed with twenty of its creditors, including Comrie, Halket Weitz, Ballon Stoll, and most of the defendants in this case, who are current and former employees of Panmedix, shareholders, investors, and family members of Comrie. The security agreement was signed in August and September 2009, and a UCC-1 was filed. Id. at 491-492. The security agreement, among other things, provided that the creditors would forebear taking any action to recover sums owed to them by Panmedix until January 1, 2010. At the time that the security agreement was signed, Panmedix owed Halket Weitz approximately $1.4 million in legal fees. Id. at 492, Table 1.
In October 2009, Priestley docketed the judgment in New York County Supreme Court, and in early December 2009, delivered an execution on the judgment to the New York City Marshal, who announced that a public sale of Panmedix's assets would be held in late December. On December 11, 2009, however, the sale was halted after Ballon Stoll and Yellen, as counsel for Panmedix, notified the marshal that the assets of Panmedix were pledged to creditors with rights, under the security agreement, superior to plaintiff's rights.
In November 2010, plaintiff commenced the instant action; she served an amended complaint in April 2011, a second amended complaint in February 2015, and a modified second amended complaint in December 2015. In 2013, she also commenced an action in federal court against Panmedix and all the creditors of Panmedix who executed the security agreement, seeking an order setting aside the security agreement as fraudulent and a determination that the rights of the creditors under the security agreement were not superior to hers. By opinion and order dated May 1, 2014, the federal court held that the security agreement was a fraudulent conveyance within the meaning of New York Debtor and Creditor Law §§ 273-a and 276, finding that "there is no reason to believe that Panmedix had any bona fide business reason to enter into the Security Agreement. . . . [which] advantaged the Respondent Creditors relative to Panmedix's longtime nemesis Priestley." Id. at 500.
The court found that the security agreement lacked "fair consideration" because the contractual forebearance period of four months agreed to by the creditors "was not a fair equivalent to the significant value of the security interest" conveyed by Panmedix. Id. at 499. The court further found that the security agreement was "void for lack of good faith, because it gave preferential treatment to a controlling group of Panmedix shareholders." Id. at 501. The court deferred its determination as to what remedies should be ordered. Id. at 504.
Ballon Stoll and Yellen represented the defendants, including Halket Weitz, in the 2013 federal action. In August 2015, Halket Weitz brought a third-party action against Ballon Stoll for indemnification and contribution and legal malpractice in connection with the 2013 federal action. Halket Weitz alleges that Ballon Stoll and Yellen negligently failed, in the 2013 federal action, to offer evidence that Panmedix had received adequate consideration from Halket Weitz; and that any damages sustained by plaintiff were due to Ballon Stoll's and Yellen's wrongful legal position that the rights provided in the security agreement were superior to plaintiff's rights as against Panmedix, and that their wrongful legal advice was motivated by a conflict of interest, i.e., that they were more interested in collecting their debt than in protecting their clients' rights. See Affirmation of Lisa L. Shrewsberry in Support of Halket Weitz's Motion (Shrewsberry Aff.), ¶¶ 19, 22-23.
During discovery, in response to requests from plaintiff and Halket Weitz for the production of documents, Ballon Stoll produced certain documents and a privilege log indicating that numerous documents were protected from disclosure by attorney-client or attorney work product privilege. On her motion to compel, plaintiff, in light of the court's decision in the 2013 federal action finding fraudulent conveyance, rejects Ballon Stoll's privilege log as to documents dated in 2009, and seeks documents related to the security agreement, based on the crime fraud exception to the attorney-client and attorney work product privileges. Halket Weitz also challenges Ballon Stoll's privilege log and seeks production of Ballon Stoll's entire file of its representation of Halket Weitz.
Plaintiff also objected to Ballon Stoll's privilege log as inadequate and failing to comply with CPLR requirements. By interim orders dated May 11, 2016, the court held the motions in abeyance and directed Ballon Stoll, as to plaintiff's motion, to produce a revised privilege log for 2009 in full compliance with CPLR 3122 (d) and 22 NYCRR § 202.70; and, as to Halket Weitz's motion, directed Ballon Stoll to produce a revised privilege log for their entire file for Halket Weitz and Theodore Weitz, in full compliance with CPLR 3122 (d) and 22 NYCRR § 202.70. Ballon Stoll subsequently submitted a revised privilege log and an attorney certification pursuant to 22 NYCRR § 202.70 (g). See Affirmation of Lily A. Ockert, Esq. in Opposition to Plaintiff's Motion (Ockert Aff.), Ex. 1; NYSCEF Doc. Nos. 106, 107, 109, 110.
Discussion
"The attorney-client privilege shields from disclosure any confidential communications between an attorney and his or her client made for the purpose of obtaining or facilitating legal advice in the course of a professional relationship." Ambac Assur. Corp. v Countrywide Home Loans, Inc., 21 NY3d 616, 623-24 (2016); see Madden v Creative Servs., Inc., 84 NY2d 738, 745 (1995). Recognized at common law and codified in CPLR 4503 (a), the attorney-client privilege "fosters the open dialogue between lawyer and client that is deemed essential to effective representation" (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 377 [1991]), and "exists to ensure that one seeking legal advice will be able to confide fully and freely in his [or her] attorney, secure in the knowledge that his [or her] confidences will not later be exposed to public view to his [or her] embarrassment or legal detriment." Matter of Priest v Hennessy, 51 NY2d 62, 67-68 (1980). "The privilege belongs to the client" (People v Osorio, 75 NY2d at 84) and "is intended to protect the client." Matter of Tartakoff v New York State Educ. Dept., 130 AD3d 1331, 1333 (3d Dept 2015); see Arkin Kaplan Rice LLP v Kaplan, 107 AD3d 502, 503 (1st Dept 2013).
"The privilege, however, is not limitless." Matter of Priest, 51 NY2d at 68. It "must be narrowly construed because it is at odds with the general policy of this State favoring liberal discovery, and the party asserting the privilege bears the burden of establishing that it applies." ACE Sec. Corp. v DB Structured Prods., Inc., 40 NYS3d 723, 732, 2016 NY Slip Op 26337 (Sup Ct, NY County 2016), citing Ambac Assur. Corp., 27 NY3d at 624, citing Spectrum Sys. Intl. Corp., 78 NY2d at 377; see Matter of Priest, 51 NY2d at 68-69; NAMA Holdings, LLC v Greenberg Traurig LLP, 133 AD3d 46, 52 (1st Dept 2015). The privilege also "is subject to exceptions, both legislative and Judge-made." Madden, 84 NY2d at 745 (citations omitted). Such an exception, for example, at issue in this case, is the "crime fraud exception." Also at issue here, while the privilege generally is waived when confidential communications are shared with third parties, an exception may apply to communications between and among jointly represented clients and their attorney. See Ambac Assur. Corp., 27 NY3d at 624-625.
Crime Fraud Exception
"A party may not invoke the attorney-client privilege where 'it involves client communications that may have been in furtherance of a fraudulent scheme, an alleged breach of fiduciary duty or an accusation of some other wrongful conduct.'" Art Capital Group LLC v Rose, 54 AD3d 276, 277 (1st Dept 2008), quoting Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 1 AD3d 223, 224 (1st Dept 2003). "A party seeking 'to invoke the crime-fraud exception must demonstrate that there is a factual basis for a showing of probable cause to believe that a fraud or crime has been committed and that the communications in question were in furtherance of the fraud or crime.'" Matter of New York City Asbestos Litig., 109 AD3d 7, 10-11 (1st Dept 2013), quoting United States v Jacobs, 117 F3d 82, 87 (2d Cir 1997) (other citations omitted). The crime-fraud exception also applies to the attorney work product privilege. See Meyer v Kalanick, ___ F Supp 3d ___, 2016 WL 3981369, *5, *6 n 5, 2016 US Dist LEXIS 96583, *16, *22 n 5 (SD NY 2016).
Joint Representation
Generally, when an attorney represents two or more parties with respect to the same matter, the attorney-client privilege may not be invoked to protect confidential communications concerning the joint matter in subsequent adverse proceedings between the clients, but may be asserted "against the outside world." Ambac Assur. Corp., 27 NY3d at 625, citing Wallace v Wallace, 216 NY 28, 35 (1915); see Arkin Kaplan Rice LLP, 107 AD3d at 502; Matter of McCormick, 287 AD2d 457, 457 (2d Dept 2001); see also Tekni-Plex, Inc. v Meyner & Landis, 89 NY2d 123, 137 (1996) (co-clients "have no expectation that their confidences concerning the joint matter will remain secret from each other, and those confidential communications are not within the privilege in subsequent adverse proceedings").
The joint representation or joint client privilege is a limited exception to the rule that the attorney-client privilege is waived when a confidential communication is disclosed to a third party, and "is justified because of the public policy encouraging full disclosure between a client and his attorney and the need to protect their confidential relationship." Arnold Constable Corp. v Chase Manhattan Mortg. & Realty Trust, 59 AD2d 666, 667 (1st Dept 1977). Its purpose, however, "is not concealment of evidence, and the fact that allegedly confidential information may operate to the client's disadvantage does not operate to extend the privilege to areas where it does not otherwise exist." Id. (citations omitted); see Finn v Morgan, 46 AD2d 229, 234 (4th Dept 1974); Bolton v Weil, Gotshal & Manges LLP, 14 Misc 3d 1220(A), 836 NYS2d 483, 2005 NY Slip Op 52329(U) (Sup Ct, NY County 2005).
Plaintiff's Motion (seq. no. 005)
Ballon Stoll has produced a privilege log that is 137 pages long, identifying documents, not in chronological order, from 2006 through 2015. Plaintiff limits her challenge to and seeks disclosure of documents dated in 2009, related to the creation and filing of the security agreement. Relying on the findings in the 2013 federal action that the security agreement was a fraudulent conveyance, plaintiff moves to compel production of these documents based on the crime-fraud exception to the attorney-client and attorney work product privileges.
Specifically, plaintiff seeks production of the following documents identified in Ballon Stoll's privilege log, as submitted as Ex. 3 to the Affidavit of Jay Edmond Russ in Support of Plaintiff's Motion (Russ Aff.):
The revised privilege log submitted by Ballon Stoll has resulted in some entries, as identified by plaintiff in her moving papers, appearing on different pages. For example, page 22 on the revised log has no 2009 documents, which now appear on page 21. It does not appear, however, that any entries have been eliminated or added. Thus, for simplicity, the court, with respect to plaintiff's motion, refers, as plaintiff does, to the pages in the earlier privilege log.
| Pages 1-10 | Each document dated in 2009 |
| Pages 21-22 | Each document dated in 2009 |
| Pages 86-123 | Each document dated in 2009 |
| Page 124 | The first and last documents, each dated in2009 |
| Page 124 | The first two documents, each dated in 2009 |
| Page 131 | The last four documents, each dated in 2009 |
| Page 132 | Each document dated in 2009 |
| Page 133 | The third document, dated in 2009 |
| Page 134 | The first two and the last documents, eachdated in 2009 |
| Page 135 | The last two documents, each dated in 2009 |
In its opposition, Ballon Stoll does not dispute that the crime-fraud exception applies, and otherwise offers no legal argument for withholding the documents requested by plaintiff, asserting only that it has previously complied with plaintiff's production requests and has supplemented its responses. See Affirmation of Marshall B. Bellovin, Esq. in Opposition to Plaintiff's Motion. While the crime-fraud exception applies whether or not defendants have waived the attorney-client privilege, Ballon Stoll also acknowledges, in a supplemental affirmation in opposition, that privilege has been waived with respect to documents "responsive to the execution and delivery of the August 24, 2009 Security Agreement, UCC-1's, or December 11, 2009 written communications with NYC Marshal Beinstock." Ockert Aff., ¶ 6.
The Panmedix defendants further have expressly "waived all privileges with respect to documents and emails created in 2009." Affirmation of Howard Magaliff in Opposition to Halket Weitz's Motion (Magaliff Aff.), ¶ 1; see Tr. at 8-9. Although Ballon Stoll seeks to limit Panmedix's waiver to disclosure of documents related to the execution and delivery of the security agreement, attorney Magaliff sought to clarify, at oral argument, that his clients waived privilege "related to anything in 2009 that was relevant to the question of whether they participated in or aided and abetted the actual fraudulent transfer that Panmedix was found to have engaged in or the collectibility of the judgment." Id. at 10.
Although some emails identified in the privilege log appear to address ministerial tasks, such as scheduling meetings, seeking additional time for papers, getting paid, receipt of subpoenas, and even sending "happy holidays" greetings; others somewhat vaguely address unidentified Panmedix/Priestley motions, including a motion to alter judgment, as well as UCC-1 filings, "alternatives," "a few comments," "overture," "PMX judgment," a visit to the marshal, letters to the federal judge, and judgment enforcement. Ballon Stoll submits no affidavit stating that these documents are not relevant to the security agreement or enforcement of the judgment, and otherwise offers no explanation as to why they should not be produced. In view of the above, Ballon Stoll's objections to production of 2009 documents are overruled, and it is directed to produce documents, identified above, responsive to plaintiff's outstanding demand.
Halket Weitz's Motion (seq. no. 006)
Halket Weitz's first demand for production of documents, dated September 23, 2015, sought numerous documents from plaintiff and third-party defendants, including Ballon Stoll's "entire legal file from the representation of Weitz and the co-defendants in the dispute and actions between plaintiff and defendants (including Panmedix, Inc.)." Shrewsberry Second Reply Aff., ¶ 6; see First Demand for Production of Documents, Ex. C to Shrewsberry Aff. Ballon Stoll responded to Halket Weitz's request, and provided a privilege log, now revised, identifying documents withheld based on attorney-client and attorney work product privileges. See NYSCEF Doc. No. 109.
Halket Weitz contends that it is entitled to Ballon Stoll's legal file of its representation of Halket Weitz and other defendants in this action and the 2013 federal action, and that any privilege attached to such documents has been waived. As Halket Weitz's counsel stated at oral argument, it is "seeking basically the return of our case file." Tr. at 19.
It is undisputed that, where no claim for unpaid legal fees is outstanding, a client "presumptively" has the right to "full access to the entire attorney's file in a represented matter with narrow exceptions." Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn LLP, 91 NY2d 30, 34 (1997) (citations omitted); cf. Wyly v Milberg Weiss Bershad & Schulman, LLP, 12 NY3d 400, 407 (2009) (same presumptive right of access does not apply to "absent" class members in class action).
In opposition to Halket Weitz's motion, Ballon Stoll, again, submits no legal authority for its position, or otherwise addresses the privilege issues or the withheld documents, except to submit supplemental responses and objections to Halket Weitz's document demands. The Panmedix defendants submit partial opposition, reiterating that they have waived all privileges with respect to documents created during 2009, but have not waived privileges for documents that pre-date or post-date 2009. Magaliff Aff., ¶¶ 1, 6. While they argue that Halket Weitz cannot waive their privilege, they do not object to the production of documents or emails, including emails between Ballon Stoll and Halket Weitz, where the Panmedix defendants were neither senders nor recipients of those documents or emails. Id., ¶ 7.
Halket Weitz argues that co-defendants' assertion that they have not waived any privilege they have with respect to Ballon Stoll's legal file does not preclude Weitz from obtaining the documents it seeks, particularly "with respect to those documents in the file related to Ballon Stoll's representation of Weitz" (Shrewsberry Second Reply Aff., ¶ 8), and considering that Panmedix and Comrie have asserted legal malpractice cross claims against Halket Weitz and Ballon Stoll, thereby waiving any privilege that might attach to documents related to Ballon Stoll's representation of them. In addition to the Panmedix defendants, other defendants, including most of the individual defendants, have also asserted cross claims against Halket Weitz. Although defendants Little Rock, Ltd. and Melvin Heller have not asserted cross claims, Halket Weitz has asserted cross claims against them and all the other defendants.
Thus, because the defendants that were formerly jointly represented by Ballon Stoll are, at least to some degree, adverse parties in this lawsuit, Halket Weitz may obtain the joint representation file. See Arkin Kaplan Rice LLP, 107 AD3d at 502; Matter of McCormick, 287 AD2d 457, 458 (1st Dept 2001); see also XE Capital Mgt., LLC v XE-R, LLC, 2008 WL 828073, 2008 NY Misc LEXIS 8928, *17, 2008 NY Slip Op 30805(U) (Sup Ct, NY County 2008); Bolton, 14 Misc 3d 1220(A), 836 NYS2d 483, 2005 NY Slip Op 52329(U). Halket Weitz does not allege, however, that it was represented by Ballon Stoll, jointly or otherwise, prior to April 12, 2011, when the amended complaint in this action was served. See Shrewsberry Aff., ¶¶ 15, 26. Halket Weitz's request is therefore limited to documents post-dating April 2011, which appear as entries on about four pages of Ballon Stoll's revised privilege log. See NYSCEF Doc. No. 109, at 17-20.
Although the court has found that documents from 2009, as requested by plaintiff, are discoverable based on the crime fraud exception to attorney-client and attorney work product privilege, Halket Weitz has made no showing that it otherwise would be entitled to privileged documents outside the time frame when it was represented by Ballon Stoll. According to Halket Weitz, it acted as counsel to Panmedix from 2005 until March 2014 (Shrewsberry Aff., ¶ 5), and to the extent that Halket Weitz was acting as counsel with Ballon Stoll and Yellen during that time, any communications or documents exchanged between it and Ballon Stoll or Yellen are, of course, not privileged as to it. Such documents and communications are privileged, however, as to the other parties in this action, which privilege is not Halket Weitz's to waive. Nor does Halket Weitz claim that it does not have, or cannot obtain, its communications with Ballon Stoll and Yellen from the time that they acted as co-counsel.
The court does not reach the attorney work product claim, as none of the parties addresses the issue. The court notes, however, that "attorney work product applies only to documents prepared by counsel acting as such, and to materials uniquely the product of a lawyer's learning and professional skills, such as those reflecting an attorney's legal research, analysis, conclusions, legal theory and strategy." Brooklyn Union Gas Co. v American Home Assur. Co., 23 AD3d 190, 190-191 (1st Dept 2005); see Matter of New York City Asbestos Litig., 109 AD3d at 12; Hahn & Hessen, LLP v Peck, 2012 WL 11009456, *6, 2012 NY Misc LEXIS 6563, *15-16, 2012 NY Slip Op 33602(U) (Sup Ct, NY County 2012). Further, "the work-product privilege requires an attorney affidavit showing that the information was generated by an attorney for the purpose of litigation." Coastal Oil N.Y., Inc. v Peck, 184 AD2d 241, 241 (1st Dept 1992). Ballon Stoll provides no such affidavit or otherwise identifies specific documents covered by the privilege or how the privilege applies to the documents, including such documents as emails regarding late and missed payments, meeting and filing deadline reminders and due dates for papers, and scheduling conference calls and meetings.
It is accordingly
ORDERED that plaintiff's motion to compel is granted to the extent set forth above; and it is further
ORDERED that Halket Weitz's motion to compel is granted to the extent set forth above; and it is further
ORDERED that Ballon Stoll is directed to produce the subject documents within 30 days Of the date of entry of this order. Dated: January 12, 2017
ENTER:
/s/_________
Hon. Kelly O'Neill Levy, J.S.C.