MAMACITA, INC. v. COLBORNE ACQUISITION COMPANY, LLC d/b/a COLBORNE FOODBOTICS, LLC et al
Filing
102
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 6/1/2012:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ILENE F. GOLDSTEIN, not
individually. but solely in
her capacity as Trustee of the
Estate of Cold 2005, Inc.,
Plaintiff,
Case No. 10 C 6861
v.
COLBORNE ACQUISITION COMPANY,
LLC, d/b/a COLBORNE
FOODBOTICS, LLC, an Illinois
Limited Liability Company;
RICHARD HOSKINS III; LINDA
HOSKINS; RICHARD HOSKINS IV;
LYSA HOSKINS; and HOSKINS
PROPERTY, LLC, a Delaware
Corporation,
Hon. Harry D. Leinenweber
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants’ Motion for a Protective Order
and Plaintiff’s Cross-Motion/Response to Compel.
For the reasons
contained herein, the Plaintiff’s Motion to Compel is granted. The
Motions of Defendant Colborne Acquisition Company, LLC (“CAC”) and
Individual Defendants Richard Hoskins III’s (“R3”), Richard Hoskins
IV (“R4”) and Lysa Hoskins (“Lysa”) for a Protective Order is
denied.
I.
BACKGROUND
Familiarity with the Court’s previous background statements in
its rulings of March 11, 2011 and July 27, 2011 is presumed.
The
Court therefore, provides only a minimum of facts necessary to this
opinion.
R3, R4 and Lysa were all shareholders in Colborne Corp.
(“Colborne 1”).
R3 was the president and owner (90 percent
shareholder) of Colborne 1.
daughter
of
Colborne 1.
R3)
each
R4 and Lysa (who are siblings and the
owned
5
percent
and
were
officers
of
In 2008, a New Jersey court entered judgment against
Colborne 1 for $538,167.08 for a former Colborne 1 customer,
Mamacita, Inc. (“Mamacita”).
After appeal and further court
proceedings, Plaintiff says, the judgment tripled. (R3 denied this
alleged fact in his answer, but enunciated no basis for the
denial.)
Mamacita pursued Colborne 1 to the Lake County, Illinois
courts in an effort to collect, but was thwarted by a Uniform
Commercial
Code
sale
of
all
Colborne
1
assets
to
Colborne
Acquisition Company, LLC (“Colborne 2”) on May 19, 2009.
R3
consented in writing to the sale of Colborne 1’s assets.
Mamacita filed the instant lawsuit on October 25, 2010,
alleging the UCC sale was a fraudulent effort to avoid judgment.
On November 29, 2010, Colborne 1 filed for Chapter 7 bankruptcy.
The Bankruptcy Trustee stepped into Mamacita’s shoes as Plaintiff.
The Trustee has been attempting, both in Bankruptcy Court and here,
to
obtain
the
pre-UCC
sale
company
e-mails
of
Colborne
1.
Colborne 2, as purchaser of Colborne 1’s assets, is in possession
of the e-mails.
See Colborne 2’s Reply, 7 (stating “there is no
- 2 -
contractual provision whereby [Colborne 2] agreed that pre-UCC sale
emails would remain the property of [Colborne 1]. To the contrary,
the
Bill
of
Sale
provides
that
all
assets
were
sold
to
[Colborne 2], and that [Colborne 2] has full right and title to
those assets.”).
R3, R4 and Lysa, collectively, have filed for a protective
order, arguing the pre-sale e-mails contain correspondence between
them and their individual attorneys and are subject to attorneyclient privilege.
R3 also contends there are e-mails containing
his other, minor children’s Social Security numbers and medical
information.
order,
Colborne 2 also filed a motion for a protective
ostensibly
individual
because
defendants
if
it
it
could
turned
face
liability
over
their
from
the
privileged
information.
The parties met and conferred on the issue on March 7, 2012.
Counsel for Colborne 2 and the individual defendants thought they
left that meeting with an agreement by trustee’s counsel that, by
electronically searching for certain terms, those e-mails would be
segregated and given to Hoskins’ counsel for review before turnover
to the trustee.
(The bulk of the pre-sale e-mails, 99.9 percent of
the e-mails at issue, were produced by Colborne 2 during the course
of briefing this issue.)
Counsel for trustee, Riccardo A. DiMonte (“DiMonte”), denies
an agreement was reached.
DiMonte informed opposing counsel on
- 3 -
March 13, 2012 that he did not agree with the Hoskins’ counsel
screening these e-mails before turnover.
On March 22, 2012,
DiMonte appeared before this Court and represented that the parties
were “cooperating in good faith” on the issue and that it was “not
worth motion practice,” at that time, but that eventually, “we may
have to resort to some motion practice.”
Eventually came rather quickly.
DiMonte left this Court and
filed a Motion for the e-mails in Bankruptcy Court four (4) hours
later.
Defendants filed their Motions for a Protective Order, and
Bankruptcy Judge Goldgar has entered and continued the Motion to
compel until after this Court has ruled on the issue.
Individual Defs.’ Reply, 2.
See
Given DiMonte’s behavior, Defendants
have asked for reasonable costs in filing and briefing this motion
for a protective order.
The Trustee argues she is entitled to the e-mails on three
grounds.
First, as Trustee of Colborne 1, the e-mails are on
Colborne 1’s server and are thus the property of the estate, which
the Trustee controls.
Second, she maintains that the individual Defendants waived
attorney-client privilege by writing their attorney on their work
e-mail account.
Colborne 1 had a written policy whereby:
[E]mployees are not permitted to use the information
systems for personal use during normal business hours.
This includes E-mail and any access to the internet or
related service.
Colborne management will permit
personal activities of this nature outside of normal
business hours. . . .
- 4 -
All messages and web-use logs are Colborne records.
Colborne reserves the right to access and disclose all
messages sent over its electronic mail system for any
purpose.
Pl.’s Response, Ex. A; ECF No. 88-1, PageID 1128.
II.
LEGAL STANDARD
“Because a claim of privilege has the effect of withholding
relevant information from the trier of fact, the attorney-client
privilege is construed to apply only where necessary to achieve its
purpose.”
Smith v. Berge, 1998 U.S. App. LEXIS 4400, at *5-6 (7th
Cir. Mar. 9, 1998).
That purpose is to foster free and open
communication between a party and his lawyer regarding legal
advice.
The party seeking to invoke the privilege bears the burden of
proving all of its essential elements. United States v. Evans, 113
F.3d 1457, 1461 (7th Cir. 1997).
Because the privilege is in
derogation of the search for the truth, it is construed narrowly.
Id.
“[T]he recognition of a privilege based on a confidential
relationship should be determined on a case-by-case basis.” Upjohn
Co., et al. v. United States, et al., 449 U.S. 383, 396 (1981)
(additional citations and punctuation omitted).
“The Supreme Court reasoned that a bankruptcy trustee has the
authority
because
to
the
waive
trustee
a
corporation’s
exercises
attorney-client
functions
- 5 -
analogous
privilege
to
those
exercised by management.”
In re L&S Indus., 989 F.2d 929, 933-934
(7th Cir. 1993).
In regards to waiver, “[w]hile the client need not intend to
waive the privilege (or even be aware of its existence), he must
intend to disclose the privileged information or to consent to its
disclosure. If the client intended to disclose certain matters, he
will not be heard to later say that he did not realize that he was
disclosing privileged material or that such disclosure amounted to
a waiver of the privilege.”
Charles Alan Wright & Kenneth W.
Graham, Jr., FEDERAL PRACTICE & PROCEDURE, §5507, 578 (West Publishing
Co. 1986).
“If the client cares so little for the confidentiality
of the communications as to fail to take steps to insure against
unintended disclosures, it is hard to justify requiring the court
to take elaborate measures to protect the client against the
results of his own carelessness.”
Id. at 387 of 2011 Supplement.
“Who can waive the privilege? . . . This normally will be the
client; if she does not consent to the disclosure, there is no
waiver even though the privileged information is published in the
newspapers.”
Id. at 577.
Whether use of work e-mail to communicate with an attorney
destroys the privilege is a relatively undeveloped area of law,
both nationally and in this District.
The Court found just one case in the District dealing with it.
DeGeer v. Gillis, No. 09-6974, 2010 U.S. Dist. LEXIS 97457, at *26
- 6 -
(N.D. Ill. Sept. 17, 2010).
It relied heavily on United States v.
Hatfield, and its five-factor test asking (1) does the employer
maintain a policy banning personal use of e-mails; (2) does the
employer monitor the use of its computer or e-mail; (3) does the
employer have access to the computer or e-mails; (4) did the
employer notify the employee about these policies; and (5) how did
the employer interpret its computer usage?
United States v.
Hatfield, 2009 U.S. Dist. LEXIS 106269, at *8-10 (E.D.N.Y. Nov. 13,
2009).
In DeGeer, the parties had not addressed most of the
factors and the record did not reflect information regarding
Factors 1, 2, 4.
DeGeer, at *26-28.
However, the DeGeer court
found that the employer clearly had the right to access the
employee’s laptop, but that the employer’s actions (screening
plaintiff’s e-mails for privilege before responding to defendants’
subpoenas) unequivocally showed the employer thought plaintiff had
not waived attorney-client privilege.
The test in DeGeer seems derived from the most oft-quoted case
on the subject, In re: Asia Global Crossing, Ltd., et al., 322 B.R.
247, 257 (S.D.N.Y. 2005).
Asia Global looked to Fourth Amendment
case law on expectations of privacy in the workplace to develop its
test.
In looked to four, rather than five, factors:
(1) whether
the corporation banned personal or objectionable use of company
computer or e-mail; (2) whether the company monitored the use of
the employee’s computer or e-mail; (3) whether third parties had a
- 7 -
right of access to the computer or e-mail; and (4) whether the
corporation notified the employee, or whether the employee was
aware, of use and monitoring policies.
In formulating that test,
the Asia Global court looked to this Circuit’s Muick v. Glenayre
Elecs., 280 F.3d 741, 743 (7th Cir. 2002) (finding no reasonable
expectation of privacy in workplace computer files where employer
had announced that he could inspect the computer).
It also
reviewed United States v. Simons, 206 F.3d 392, 298 & n.8 (4th Cir.
2000) (finding no reasonable expectation of privacy in office
computer and downloaded Internet files where employer had a policy
of auditing use and employee did not assert that he was unaware of
or had not consented to the policy).
In
Asia
Global,
the
court
found
no
waiver
because
the
subjective belief that the messages were sent in confidence was
reasonable.
That conclusion stemmed in part, from the claims of
those asserting the privilege that no policy regarding e-mail use
existed, and the trustee’s showing of two existing corporate-family
written policies was negated by the fact that neither specifically
noted it applied to the company at issue.
The court thus found no
waiver.
III.
ANALYSIS
The Court dismisses the argument that the Trustee owns the emails.
That may very well be true, but it fails to win the day
here for two reasons.
First, whether the sale of Colborne 1 was a
- 8 -
legitimate sale of a fraudulent slight of hand to avoid a creditor
is the ultimate issue of this case (and likely the bankruptcy
case).
It would be premature to decide it now.
Even if the Court did decide in the Trustee’s favor, it would
not
resolve
the
privilege
issue.
A
Trustee
can
waive
the
corporation’s attorney-client privilege, but she cannot speak for
an individual’s attorney-client privilege.
Asia Global
Crossing,
Ltd., et
al.,
322
See, generally, In re:
B.R.
247
(trustee’s
possession of business where former officers’ privileged e-mails
were on company’s server remained privileged despite trustee’s
possession of the business).
If waiver is to be found, it must
come from the actions of the individual client or his agent acting
on his behalf.
A.
Richard Hoskins III’s Waiver
Defendants have maintained throughout this litigation that
Colborne 2 is a legitimate, separate corporate entity not owned by
the Hoskins.
That makes part of this decision relatively easy. No
attorney-client privilege can exist in regards to the e-mails
written to or from R3, because he signed the agreement consenting
to the sale of Colborne 1’s assets.
He knew, or should have known,
that the sale included the company’s servers and its e-mails,
including his own personal e-mails.
As Colborne 2’s own counsel
wrote “there is no contractual provision whereby [Colborne 2]
agreed that pre-UCC sale emails would remain the property of
- 9 -
[Colborne 1].”
Colborne 2’s Reply, 7.
That R3 may not have
realized the import of his actions is immaterial.
“If the client
intended to disclose certain matters, he will not be heard to later
say that he did not realize that he was disclosing privileged
material or that such disclosure amounted to a waiver of the
privilege.”
See
Wright
&
Graham,
supra.
R3
deliberately
disclosed, by sale, his e-mails to a third party (Colborne 2) and
waived the privilege.
B.
Richard Hoskins IV and Lysa Hoskins’ Waivers
The same might well be said of R4 and Lysa if it could be
shown they knew of the sale and consented to it.
This seems
likely, but has not been definitively shown at this point.
The
record indicates that R4 and Lysa were company officers, but
approval, or even knowledge, of every company officer is not
necessary to sell the business.
Thus, the Court then moves to the issue of whether their use
of a company e-mail system to correspond with their individual
attorney waived attorney-client privilege.
The Court prefers the four Asia Global factors over DeGeer’s
five factors.
employer’s
That is because the fifth factor, involving the
attitude
or
beliefs
as
to
the
privilege
of
the
communication, seems irrelevant. Waiver must come from the actions
of
the
client,
and
what
he
knew
- 10 -
or
believed
regarding
the
confidentiality of the communication.
What another party believes
seems irrelevant.
Additionally,
while
the
Court
leans
on
the
Asia
Global
factors, it does not rely on that case as the exclusive authority,
as each privilege waiver inquiry must be a case-by-case analysis,
and there are facts present here that were not present there.
Defendants argue the first factor weighs in their favor
because personal use was permitted outside normal business hours.
However, it also banned objectionable use (use during work hours
and use as a means of transmitting racially or sexually charged
material).
The Court is mindful that the point of all these
factors is assessing the reasonableness of an employee’s belief
that their messages would remain confidential.
Defendants’ belief
that this factor weighs in their favor forgets the point of the
entire
exercise,
reasonable.
whether
the
belief
of
confidentiality
was
More specifically, the point of this factor is to
assess whether there were any restrictions on use of the company email.
If there were, an employee’s belief that his communications
were confidential is less reasonable, because if a third party can
dictate the means of communication, an employee is less reasonable
in believing it secure.
While this policy allowed employees to
feel comfortable that they would not be fired for personal use of
the
work
e-mail
system,
information was secure.
it
gave
them
no
comfort
that
their
To the contrary, it unequivocally stated
- 11 -
that “[a]ll messages . . . are Colborne records. Colborne reserves
the right to access and disclose all messages sent over its
electronic mail system, for any purpose.”
Thus, the first factor
weighs heavily against Defendants.
The second factor, whether the company actually monitored email (which Defendants identify as practice rather than policy)
weighs in Defendants’ favor because they maintain they never
monitored employees’ e-mail.
The third factor, whether third parties had a right of access,
is somewhat redundant of the first.
Third parties most certainly
did have a right of access, because whatever employees wrote became
the company’s property under the policy.
The fourth factor – whether the employee was aware of the
company policy – is the most interesting in this case.
A policy
itself caries some implication that employees were on notice.
But
the Court sees that there might be some reasonable dispute of that
proposition if the policy were never disseminated to employees. On
this point, both parties are silent.
Plaintiff, but to Defendants.
That is fatal not to
It is, after all, the burden of the
party claiming privilege to show it has met the criteria for it.
See Simons, 206 F.3d 392, 398 & n.8 (no reasonable expectation of
privacy where employee asserting privilege failed to assert that he
was unaware of policy).
That Defendants did not allege they were
unaware of the policy is not surprising.
- 12 -
They owned the company
and were its officers. They likely cannot make that assertion with
a straight face.
Instead, they maintain that once the e-mails were sold, they
were never looked at or accessible by anyone at Colborne 2 but
themselves, because they still have password protection over them.
This is irrelevant.
R4 and Lysa have not asserted that they were
not on notice that Colborne 1 owned their e-mails the moment they
sent them.
waiver
Whether anyone else saw them is beside the point.
can
also
take
place
where
there
is
a
“[A]
‘consent
to
disclosure.’. . . Hence, if the client deposited his communications
in the public library, the privilege would be waived, even though
no one ever read them. . . .”
Wright & Graham, FEDERAL PRACTICE &
PROCEDURE, §5507, 580 n.126 (West Publishing Co. 1986).
In consideration of all the factors, the Court finds that R4
and
Lysa’s
subjective
belief
that
their
communications
were
confidential was not a reasonable one in light of the company
policy in place, and in light of their failure to assert that they
were unaware of it.
(Incidentally, this also applies to R3, which
the Court found already willingly disclosed his e-mails.)
They
knew what they wrote immediately became company property.
Thus,
the privilege was waived.
C.
R3
has
Richard III’s Minor Children’s Information
protested
that
the
e-mails
contain
irrelevant
information regarding his minor children’s health information and
- 13 -
Social Security numbers.
The Court rules that the producing
parties may redact the minor children’s Social Security numbers,
and any documents discussing their health issues may be labeled as
“confidential” and, although not a trade secret, treated as such
under the terms of the parties’ confidentiality agreement. ECF 421. Defendants are warned not to abuse this concession by the Court
as a tactic for delay, which has already been substantial on their
part.
Defendants must produce the remaining Colborne 1 e-mails,
including the ones bearing redacted Social Security numbers and
those marked “confidential” within seven (7) days of entry of this
order.
D.
DiMonte’s Misdirection
While the Court is ruling for the Trustee in this discovery
matter,
it
disturbing.
finds
its
attorney’s
representation
to
the
Court
Mr. DiMonte appeared here representing that all was
well and the parties were working out their discovery issues and no
intervention by the Court was needed.
Then, four hours later, he
filed in Bankruptcy Court for this discovery.
This misrepresented
the true state of affairs to both this Court and opposing counsel.
The Court also finds incredible DiMonte’s written representation to
this Court that he only filed in Bankruptcy Court after learning,
post-hearing, that Defendants intended to continue fighting the
discovery.
That is belied by Defendants’ e-mail the day before
clearly informing Plaintiff’s counsel it intended to continue to
- 14 -
fight the discovery.
See Colborne 2’s Reply, 5.
obfuscation
DiMonte
by
Mr.
only
takes
his
This written
previous
oral
misrepresentation and makes it worse.
“In
general,
courts
may
impose
appropriate
sanctions,
including dismissal or default, against litigants who violate
discovery rules and other rules and orders designed to enable
judges to control their dockets and manage the flow of litigation.”
Hoskins v. Dart, 633 F.3d 541, 543-544 (7th Cir. 2010).
The Court
should, as a rule, consider sanctions not as serious as dismissal
of an action.
The
Id.
Court
finds
Mr.
DiMonte’s
less-than-forthright
representation delayed proceedings in this Court unnecessarily, and
created unnecessary litigation.
DiMonte went to Bankruptcy Court
on a Motion that was subsequently stayed by that Court, sending him
back here.
Both parties were then forced to come back here and
address an issue Mr. DiMonte had hid from this Court. That created
unneeded
motion
Defendants.
practice
for
the
Bankruptcy
Court
and
for
In an effort to prevent the Trustee’s counsel from
repeating such behavior, the Court orders Mr. DiMonte and his firm
not to bill the Trustee for his appearance in this Court on
March 22, 2010 nor for the time spent writing the Trustee’s
Response (ECF No. 88). The Court prefers this sanction to charging
Defendants’ time to the Trustee, because that would just deplete
the estate and potentially injure its creditors.
- 15 -
Additionally,
Defendants have not been paragons of cooperation in discovery in
this case either, and declines to assess the Trustee for their
costs.
IV.
CONCLUSION
For the reasons stated herein, the Court rules as follows:
1.
Plaintiff’s Motion to Compel is granted.
Colborne 2 is
to produce the pre-UCC sale e-mails still outstanding within seven
(7) days of entry of this order
2.
Defendants’ Motions for a Protective Order is denied; and
3.
As a sanction for his misrepresentation to this Court and
its resultant delay of proceedings, Mr. DiMonte and his firm are
not to charge the Trustee for their March 22, 2012 appearance nor
for the time spent preparing the Trustee’s Response/Motion to
Compel.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 6/1/2012
- 16 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?