Dollar Tree Stores, Inc. v. Toyama Partners, LLC et al

Filing 423

ORDER re #285 Letter Brief filed by Dollar Tree Stores, Inc.. Signed by Magistrate Judge Nandor J. Vadas on 12/20/2011. (njvlc2, COURT STAFF) (Filed on 12/20/2011)

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NOT FOR CITATION

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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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EUREKA DIVISION

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United States District Court
For the Northern District of California

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No. CV 10-0325 SI (NJV)

DOLLAR TREE STORES, INC.,

ORDER COMPELLING PRODUCTION
OF DOCUMENTS PURSUANT TO THE
CRIME FRAUD EXCEPTION TO THE
ATTORNEY CLIENT PRIVILEGE

Plaintiff,
v.
TOYAMA PARTNERS, LLC, et al.,

(Doc. No. 285)

Defendants.

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Plaintiff Dollar Store, Inc. argues that Defendants Toyama Partners, LLC et al. solicited the

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services of their lawyers to fraudulently convey an asset in order to deprive Plaintiff of any remedy

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in this action.1 See Doc. No. 285. To establish a prima facie case of fraudulent conveyance, a

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moving party must show that a debtor made a transfer or incurred an obligation with the actual intent

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to hinder, delay, or defraud a creditor, without receiving reasonable value in exchange for the

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transaction. Cal. Civ. Code § 3439.04(a). A creditor can prove a debtor’s intent to “hinder, delay,

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or defraud” through direct evidence of intent, or by establishing the existence of certain statutorily

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defined “badges of fraud.” See Cal. Civ. Code § 3439.04(b). “The presence of a single badge of

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fraud may spur mere suspicion; the confluence of several can constitute conclusive evidence of

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actual intent to defraud.” In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir. 1994) (citation omitted).

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Plaintiff argues that the asset that was fraudulently conveyed was its lease with defendant Toyama,

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The factual and procedural background pertinent to Plaintiff Dollar Store, Inc.’s motion to
compel discovery under the crime fraud exception is set forth in earlier orders of this Court. See Doc.
Nos. 341, 373, 374, and 415.

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or in the alternative, the Mowry Crossing Shopping Center property, which was the sole asset of

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defendant Toyama. Plaintiff argues that Defendants (under either theory) were motivated by an

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intent to prevent Plaintiff from recovering on its contract claims should it prevail in the instant

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action. Fraudulent conveyance is a crime under California law. Cal. Penal Code § 531.

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California Evidence Code section 956 establishes an exception to the attorney-client

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privilege where “the services of the lawyer were sought to enable or aid anyone to commit or plan to

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commit a crime or fraud.” See BP Alaska Exploration, Inc. v. Superior Court, 199 Cal. App. 3d

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1240, 1268 (1988). Plaintiff moved to compel the production of documents that Defendants had

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withheld as privileged, arguing that the privilege was vitiated by this exception. To vitiate the

United States District Court
For the Northern District of California

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attorney-client privilege based on the crime-fraud exception and compel disclosure of the

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documents, the moving party must establish (1) a prima facie showing that the services of the

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attorney were sought or obtained to help the client commit a crime or fraud, and (2) that the

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communication is “reasonably related” to the crime or fraud. Id. Because Plaintiff only sought to

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compel in camera production of the documents, however, it only was required to show as a first step

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that there was “a factual basis adequate to support a good faith belief by a reasonable person . . . that

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in camera review . . . may reveal evidence to establish the claim that the crime-fraud exception

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applies.” United States v. Zolin, 491 U.S. 554, 572 (1989) (internal quotation and citation omitted).

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As a second step, the Court then had to determine whether the materials before it, including the

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documents submitted for in camera inspection, established a prima facie case that the

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communications were in furtherance of the fraudulent conveyance, and whether there was some

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relationship between the communications and the crime. See United States v. Chen, 99 F.3d 1495,

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1503 (9th Cir. 1996).

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On October 28, 2011, the Court concluded that Plaintiff had satisfied the first step because

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based on the evidence presented to the Court, a reasonable person would have a good faith belief

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that in camera review could reveal evidence to establish that the exception applied. See Doc. No.

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341. As an interim measure, the Court ordered Defendants to produce updated privilege logs, which

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the Court reviewed to determine whether to order in camera production of any of the documents. Id.

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The Court then ordered Defendants to produce certain documents in camera based on their
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proximity in time to the creation of the Second Amendment and/or the subject matter of the

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documents listed in the privilege logs. Doc. No. 415. Having reviewed these documents carefully,

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the Court concludes that a limited number of them support the application of the crime-fraud

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exception. Combined with the materials that Plaintiff offered in support of its motion to compel, the

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materials the Court reviewed in camera establish a prima facie2 case of fraudulent conveyance, i.e.,

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(1) the existence of several of the badges of fraud listed in California Civil Code section 3439.04(b),

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and (2) that the debtor did not receive reasonably equivalent value for entering into the transaction.

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See generally Doc. No. 341. A number of these communications also establish a prima facie case

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that Defendants sought or obtained the advice of their attorneys in furtherance of the alleged

United States District Court
For the Northern District of California

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fraudulent conveyance. Accordingly, the Court orders Defendants to produce within three days,

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subject to the protective order in this case, the documents listed in Exhibit A to this Order, each of

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which is reasonably related to the alleged fraudulent conveyance. This finding is made for the

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limited purpose of this discovery dispute and does not constitute an opinion on the merits of the

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ultimate substantive issues in this case.

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Dated: December 20, 2011
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NANDOR J. VADAS
United States Magistrate Judge

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See BP Alaska Exploration, 199 Cal. App. 3d at 1262 (“There is little case law in California
addressing the nature of a prima facie showing under Evidence Code section 956. . . . [M]ere assertion
of fraud is insufficient; there must be a showing the fraud has some foundation in fact. . . . [A] prima
facie case [is] one which will suffice for proof of a particular fact unless contradicted and overcome by
other evidence. In other words, evidence from which reasonable inferences can be drawn to establish
the fact asserted, i.e., the fraud”) (internal quotations and citations omitted). The Ninth Circuit has
adopted the prima facie standard articulated in BP Alaska. See In re Grand Jury Proceedings, 87 F.3d
377, 380 (9th Cir. 1996) (to invade attorney-client privilege, a moving party must make “a prima facie
showing that the communications were in furtherance of an intended or present illegality . . . and that
there is some relationship between the communications and the illegality”) (internal quotation and
citation omitted).
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Dollar Tree Stores Inc. v. Toyama Partners, LLC, et al.
10‐325 SI (NJV)
Exhibit A

Time of 
Date of email Email
1.21.2011
8:45 AM
1.29.2011
12:44 PM
1.31.2011
10:11 AM
2.08.2011
1:22 PM
2.17.2011
10:23 AM
2.17.2011
4:18 PM
2.17.2011
4:28 PM
4.17.2011
9:09 AM
4.18.2011
1:21 PM
4.18.2011
12:50 PM
4.18.2011
12:23 PM
4.18.2011
3:29 PM
4.18.2011
3:46 PM
4.18.2011
4:20 PM
4.18.2011
4:45 PM
4.18.2011
5:04 PM
4.18.2011
5:52 PM
4.18.2011
6:27 PM
4.18.2011
8:24 PM
4.19.2011
10:43 AM
4.19.2011
11:50 AM
4.19.2011
2:25 PM
4.19.2011
4:21 PM
4.20.2011
8:55 AM
4.20.2011
4:40 PM
4.20.2011
4:56 PM
4.20.2011
5:18 PM
4.20.2011
5:28 PM
4.21.2011
8:58 AM
4.21.2011
9:02 AM
4.21.2011
10:10 AM

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To (first recipient)
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