CKG Inc et al v. Budget Maintenance Concrete SVC Inc et al

Filing 26

OPINION AND ORDER granting in part and denying in part 19 Budget's motion; and granting 21 Jones, Jackson & Moll's motion. The subpoenas directed to Jones, Jackson & Moll and Orlando Law Offices are quashed. The subpoena directed to Tucker, Albin & Associates is not quashed. Signed by Judge J. Leon Holmes on 11/14/2018. (ljb)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
CKG, INC.; and KIMBERLY CARROL
v.

PLAINTIFFS

NO. 4:17CV00019 JLH

BUDGET MAINTENANCE CONCRETE
SVC, INC.

DEFENDANT

OPINION AND ORDER
In the summer of 2015 Budget Maintenance Concrete Services, Inc., performed subcontract
work for CKG, Inc., in central Arkansas.1 Budget allegedly assured CKG that it was licensed to do
the work, performed shoddy work, abandoned the project, and left Arkansas. After Budget
abandoned the project, CKG discovered that Budget was not and had never been a licensed
contractor.
CKG did not pay Budget. When Budget’s lawyers at Jones, Jackson & Moll sent a lien notice
to CKG, CKG informed them that seeking payment was improper for various reasons, including that
Budget was not licensed when it contracted for and performed the work in violation of Arkansas
law. Several months later, Budget again sought payment from CKG, this time through Tucker, Albin
& Associates. The complaint calls Tucker, Albin & Associates a law firm, but a recent filing
indicates that it is a debt collection agency. Document #24 at 7. CKG responded to Tucker, Albin
& Associates with the same information that it sent to Jones, Jackson & Moll. Finally, another law
firm, Orlando Law Offices, contacted CKG for the same purpose and threatened to file suit on
Budget’s behalf. CKG again responded that Budget’s operations had been illegal under Arkansas
law, rendering the subcontract void, and it threatened to file counterclaims. Budget then sued CKG,

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noted.

Background facts are described as alleged in the Complaint, Document #2, unless otherwise

as well as its registered agent, Kimberly Carroll, individually, in Pennsylvania. Orlando Law Offices
represented Budget.
Here, CKG and Carroll sued Budget, Orlando Law Offices, and a lawyer with that firm,
Christopher Garrell, asserting fraud and violations of the Arkansas Deceptive Trade Practices Act.
The Court dismissed Orlando Law Offices and Garrell several months ago for lack of personal
jurisdiction over them.
The plaintiffs have recently served subpoenas for production of documents upon Jones,
Jackson & Moll; Tucker, Albin & Associates; and Orlando Law Offices. All three subpoenas
command production of the following:
Copies of all emails, text messages, or any other correspondence between your office
. . . and [an employee of Budget] or any other person who is an employee, officer,
director or owner of Budget Maintenance Concrete Svcs, Inc., in relation to the
requests made in the attached discovery.
Document #19 at 4, 7 and 10. The term “attached discovery” references requests for admission the
plaintiffs sent to Budget earlier this year. See Document #24-1 at 1-2.
Budget moves to quash all three subpoenas pursuant to Federal Rule of Civil Procedure
45(d)(3). Budget argues that the plaintiffs failed to give it prior notice before serving the subpoena
as Rule 45(a)(4) requires, and that the attorney-client privilege covers all the communications. Jones,
Jackson & Moll also moves to quash the subpoena it received for the same reasons.
Federal Rule of Civil Procedure 45(a)(4) requires a party to serve notice and a copy of a
subpoena commanding the production of documents on each party, before such subpoena is served
on the person to whom it is directed. The purpose of the notice requirement is to afford the other
parties an opportunity to object. See Fed. R. Civ. P. 45, 2013 Amendment to Advisory Committee
Notes. Various district courts have routinely refused to quash subpoenas, however, for technical
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violations of this rule where there is no prejudice to the opposing party. See, e.g., Whitney v.
Franklin Gen. Hosp., 2015 WL 1879514 at *4 (N.D. Iowa) (refusing to quash subpoena where
opposing party received copy of the subpoena two days after it was served and had opportunity to
object; and collecting cases in which district courts have held likewise).
Here, plaintiffs’ counsel issued the subpoenas on October 22nd. The record does not show
when the subpoenas were mailed, but Budget says they were mailed the same day. On the following
day—October 23rd—plaintiffs’ counsel sent defendants’ counsel a copy of the subpoenas. At most,
therefore, the subpoenas were mailed to the non-parties one day before notice was mailed to
defendants’ counsel. Budget has had an opportunity to object, as it has moved to quash all the
subpoenas. Here, the plaintiffs’ technical violation of Rule 45(a)(4) does not require that the
subpoenas be quashed because the defendants have neither shown nor argued that they were
prejudiced. The Court will thus turn to the merits of the privilege issue.
A Court must quash or modify a subpoena if it “requires disclosure of privileged or other
protected matter, if no exception or waiver applies.” Fed. R. Civ. P. 45(d)(3)(A)(iii). The attorneyclient privilege is one of the oldest privileges, existing 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, 101 S. Ct.
677, 682, 66 L. Ed. 2d 584 (1981). The privilege survives even beyond the client’s death. Swidler
& Berlin v. United States, 524 U.S. 399, 411, 118 S. Ct. 2081, 2088, 141 L. Ed. 2d 379 (1998). In
diversity cases, like this one, the state law supplying the rule of decision governs application of the
privilege. Fed. R. Evid. 501.

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The party asserting a privilege bears the burden of showing the privilege applies. Kinkead
v. Union Nat’l Bank, 51 Ark. App. 4, 11, 907 S.W.2d 154, 158 (1995). In Arkansas, 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.” Ark. R. Evid. 502(b). An exception applies “[i]f the services of the lawyer were sought
or obtained to enable or aid anyone to commit or plan to commit what the client knew or reasonably
should have known to be a crime or fraud.” Ark. R. Evid. 502(d)(1). Fraud requires a false
representation, knowledge or belief that the representation was false, intent to induce action or
inaction in reliance on the misrepresentation, justifiable reliance upon the representation, and
resulting damages. 1 Howard W. Brill & Christian H. Brill, Law of Damages § 33.8 (6th ed. 2014).
As noted, the plaintiffs seek correspondence between the defendant and Jones, Jackson &
Moll; Tucker, Albin & Associates; and Orlando Law Offices relating to requests for admission that
the plaintiffs previously sent to Budget. The requests for admission ask Budget to admit that it hired
three separate law firms to collect payment “on the VOID contract”; that each firm was provided
notice that Budget had violated Arkansas law, rendering the contract void; that Jones, Jackson &
Moll declined to pursue collection after receiving such notice; that Tucker, Albin & Associates
declined to pursue collection after receiving such notice; and that Orlando Law Offices filed a
frivolous action in Pennsylvania on behalf of Budget after receiving such notice. Document #24-1
at 1-2. Budget denied the first request for admission, and responded to the latter three with, “Budget
cannot Admit or Deny . . . what a third party may or may not have received.” Id. The plaintiffs
objected, maintaining that Budget should have admitted each statement. Id. When Budget did not
change its answer, the plaintiffs sent the subpoenas described above.

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Budget asserts the attorney-client privilege. Budget admits, however, that only “[t]wo of the
non-parties subpoenaed are law firms.” Document #20 at 1-2. Budget has presented nothing to show
that Tucker, Albin & Associates “is a person authorized, or is reasonably believed by the client to
be authorized, to engage in the practice of law in any state or nation.” See Ark. R. Evid. 502(a)(3)
(defining “lawyer” for purposes of the privilege). Budget has not shown that the communications
sought from Tucker, Albin & Associates are privileged or protected. With respect to Jones, Jackson
& Moll and Orlando Law Offices, however, the communications sought between Budget and its
previous lawyers directly address the strength of Budget’s legal entitlement to payment from CKG,
so they were “made for the purpose of facilitating the rendition of professional legal services to the
client.” Ark. R. Evid. 502(b). These communications are privileged.
The plaintiffs argue that the fraud exception applies. They contend that communications
between Budget and its lawyers go to the heart of proving their claims, because they might show that
Budget had actual knowledge that the contract was void and unenforceable. Its subsequent decision
to file a lawsuit on the contract, their argument goes, shows that Budget chose to deliberately ignore
the law and knowingly filed a fraudulent lawsuit.
That argument is not persuasive. Budget hired its former lawyers to collect payment from
CKG. For present purposes, the Court will assume that those lawyers advised Budget that its claim
against CKG was weak or nonexistent under the law and that Budget decided to file suit anyway.
Legal advice regarding the merits of a potential claim is precisely the kind of frank communication
the privilege seeks to protect. McCrory v. Johnson, 296 Ark. 231, 246, 755 S.W.2d 566, 574 (1988)
(holding that lawyer’s advice to client was privileged); see also Schwimmer v. United States, 232
F.2d 855, 863 (8th Cir. 1956) (noting that the privilege extends to confidential communications from

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client to lawyer and from lawyer to client). That the client disregarded the advice does not negate
the privilege. Moreover, the act of filing a lawsuit that one knows to be frivolous—as the plaintiffs
allege it was—is not fraud because the element of justifiable reliance is absent. Miller v. Williams,
2008 WL 4811387 at *1 n.1 (Ohio Ct. App. Nov. 5, 2008); Neal v. Second Sole of Youngstown, Inc.,
2018 WL 340142 at *4 (N.D. Ohio, Jan. 9, 2018); Brill & Brill, Law of Damages § 33.8. Budget
may have knowingly filed a frivolous lawsuit to collect from CKG. Nothing shows, however, that
Budget knew, or should have known, that filing a lawsuit would constitute fraud when it sought or
obtained legal services. The fraud exception to the attorney-client privilege does not apply. Ark. R.
Evid. 502(d)(1).
For the foregoing reasons, Budget’s motion is GRANTED IN PART and DENIED IN PART.
Document #19. Jones, Jackson & Moll’s motion is GRANTED. Document #21. The subpoenas
directed to Jones, Jackson & Moll and Orlando Law Offices are quashed. The subpoena directed
to Tucker, Albin & Associates is not quashed.
IT IS SO ORDERED this 14th day of November, 2018.

J. LEON HOLMES
UNITED STATES DISTRICT JUDGE

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