Pipeline Productions, Inc. v. The Madison Companies, LLC, et al
Filing
569
MEMORANDUM AND ORDER denying 556 Motion to Compel Production of Certain Documents from Defendants' Privilege Log. Signed by Magistrate Judge Angel D. Mitchell on 8/30/2019. (ht)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
PIPELINE PRODUCTIONS, INC., et al.,
Plaintiffs and
Counterclaim Defendants,
v.
THE MADISON COMPANIES, LLC, et al.,
Defendants and
Counterclaimants.
)
)
)
)
)
)
)
)
)
)
)
Case No. 15-4890-KHV-ADM
MEMORANDUM AND ORDER
This matter comes before the court on Plaintiff’s Motion to Compel Production of Certain
Documents from Defendants’ Privilege Log (ECF No. 556). Plaintiffs Pipeline Productions, Inc.,
Backwood Enterprises, LLC, OK Productions, Inc., and Brett Mosiman (collectively “Pipeline”)
argue that Defendants The Madison Companies, LLC and Horsepower Entertainment, LLC
(collectively “Madison”) waived the attorney-client privilege by putting certain matters at issue in
the case. Madison opposes the motion. For the reasons explained below, the court finds that
Madison has not waived the attorney-client privilege, and therefore Pipeline’s motion is denied.
I.
BACKGROUND
Pipeline asserts claims against Madison for breach of contract, breach of fiduciary duty,
fraud, and tortious interference arising from the parties’ business dealings relating to the Thunder
on the Mountain country music festival (“Thunder”) in 2015. (Pretrial Order, ECF No. 477 ¶
4(a)(1)-(4), at 18-20.) Pipeline alleges that it formed a joint venture with Madison to put on
Thunder, but Madison pulled out shortly before the festival was scheduled to occur. Pipeline
contends this “left [Pipeline] holding the bag for all artist payments and festival expenses” and,
furthermore, that Madison tried to destroy Pipeline’s business, reputation, and financial condition
by hiring away Pipeline’s partners and employees. (Id. at 14-15.) Because of this, Pipeline claims
that it was unable to provide ticket refunds, it had to divert funds to other businesses, and its
festival-related businesses were essentially destroyed. (Id.) Meanwhile, Pipeline contends that
Madison tried to make its entities “judgment proof by scheming and ‘transitioning’ their interests,
assets, and businesses to other entities in the hopes of preventing Plaintiffs from obtaining fair and
just remuneration.” (Id.) After the parties fully briefed this motion, the court granted Pipeline’s
motion to amend its complaint to add Defendants KaabooWorks, LLC, KaabooWorks Services,
LLC, Kaaboo Del Mar, LLC, and Wardawgs (collectively “the Kaaboo entities”). Pipeline alleges
the Kaaboo entities are essentially an extension of Madison, organized as different corporate
entities but largely owned and operated by the same individual. Pipeline asserts a successor
liability claim against the Kaaboo entities.
Pipeline contends that Madison waived the attorney-client privilege by putting at issue the
transfer of Madison’s music-festival business to Kaaboo by making suspect statements about the
switch, including why and when Madison made the transfer and by failing to produce any
documents to support Madison’s theory (ECF No. 556, at 1). Because of this, Pipeline seeks to
compel the production of documents listed in 53 entries on Madison’s privilege log and certain
documents listed in Madison’s litigation counsel’s declaration in further support of Madison’s
privilege claim.1 Madison’s declaration establishes that the communications involve giving or
seeking legal advice. (ECF No. 556-1.) The bulk of the documents involve communications by
Madison’s outside transactional counsel with Madison officials (in some instances, Madison’s inhouse counsel) regarding a consulting agreement with Nathan Prenger, a former Pipeline minority
1
Madison clarifies that many of these entries are duplicates and that the number of unique
entries at issue is 35.
2
partner whom Pipeline claims Madison poached. (ECF Nos. 556-1, 556-2.) In a few instances,
the communications concern revisions to the agreement in light of impending litigation with
Pipeline. And one entry involves communications between outside transactional counsel and a
Madison consultant regarding a proposed settlement with Mr. Mosiman. Other entries involve
communications between Madison officials and outside counsel concerning a Horsepower letter.
II.
LEGAL STANDARD
“[S]tate law governs privilege regarding a claim or defense for which state law supplies
the rule of decision.” FED. R. EVID. 501; Frontier Refining, Inc. v. Gorman-Rupp Co., Inc, 136
F.3d 695, 699 (10th Cir. 1998). In this case, the court has diversity jurisdiction over common law
claims, which are governed by Kansas law. Additionally, both parties cite Kansas law in support
of their arguments, so the court will also apply Kansas law.
In Kansas, the attorney-client privilege is codified at KAN. STAT. ANN. § 60-426. Under
the statute, with few exceptions, communications “between a lawyer and his or her client in the
course of that relationship and in professional confidence, are privileged.” See State v. Gonzalez,
234 P.3d 1, 10 (Kan. 2010). The party asserting privilege bears the burden to establish that it
applies. In re Grand Jury Proceedings, 616 F.3d 1172, 1183 (10th Cir. 2010); Cypress Media,
Inc. v. City of Overland Park, 997 P.2d 681, 693 (Kan. 2000). This includes showing the privilege
has not been waived. See Johnson v. Gmeinder, 191 F.R.D. 638, 642 (D. Kan. 2000).
Pipeline argues Madison waived privilege by putting certain matters at issue—i.e., “at
issue” waiver.
Under Kansas law, a party waives privilege when “it puts the fact of the
communication at issue.” See State ex rel. Stovall v. Meneley, 22 P.3d 124, 142 (Kan. 2001) (citing
Hearn v. Rhay, 68 F.R.D. 574, 579–81 (E.D. Wash. 1975). Kansas appellate courts have not
adopted (or declined to adopt) a more specific test for at-issue waiver.
3
Other courts commonly employ one of three approaches to determining whether a party
waived privilege by putting the fact of communication at issue. The first approach is the automatic
waiver rule. It provides that a party automatically waives privilege by asserting an affirmative
claim or defense that raises as an issue a matter to which otherwise privileged information is
relevant. See Indep. Prods. Corp v. Loew’s, Inc., 22 F.R.D. 266, 276–77 (S.D.N.Y. 1958)
(originating automatic-waiver rule). An intermediate approach provides that a party waives
privilege when (1) asserting the privilege is a result of an affirmative act, such as filing suit, by the
party asserting it; (2) through the affirmative act, the party has put protected information at issue
by making it relevant to the case; and (3) application of the privilege would deny the opposing
party access to vital information to its own case. See Hearn v. Rhay, 68 F.R.D. 574, 579–81 (E.D.
Wash. 1975) (originating the intermediate test, often known as “the Hearn test”). The Tenth
Circuit has not adopted an approach for assessing at-issue waiver, but it has applied the Hearn test
in addressing state law privilege claims. See Seneca Ins. Co. v. W. Claims, Inc., 774 F.3d 1272,
1276 (10th Cir. 2014) (recognizing the Oklahoma Supreme Court had not adopted a test but
applying Hearn because both parties agreed that Oklahoma courts would apply a version of the
Hearn test); see also Frontier Ref., Inc. v. Gorman-Rupp Co., 136 F.3d 695, 701 (10th Cir. 1998)
(applying Wyoming law). In more recent decisions, courts have criticized the Hearn test and
adopted a more conservative test, finding waiver only in cases where a litigant directly puts its
attorney’s advice at issue in the litigation. See In re Itron, Inc., 883 F.3d 553, 561-62 (5th Cir.
2018) (“[F]or this type of waiver to occur, the client “must rely on privileged advice from his
counsel to make his claim or defense.”); In re Cty. of Erie, 546 F.3d 222, 229 (2d Cir. 2008) (“We
hold that a party must rely on privileged advice from his counsel to make his claim or defense.”);
Rhone–Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851 (3d Cir. 1994) (“The advice of
4
counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that
claim or defense by disclosing or describing an attorney-client communication.”).
III.
ANALYSIS
The court need not predict which test the Kansas Supreme Court would apply because
Madison has not placed the material Pipeline seeks “at issue” under any test. Pipeline contends
that Madison put various Kaaboo-related documents2 at issue by making suspect statements about
Madison transitioning its music-festival business to Kaaboo, “including why they did it and when
it happened, and failing to produce any documents to support their statements.” (ECF No. 556, at
1.) Pipeline identifies three “defenses” to support at-issue waiver. (Id. at 2.) First, Madison argues
the Kaaboo entities cannot be liable for Madison’s conduct because they are separate entities.
Second, Madison argues it cannot be liable for tortious interference because Kaaboo (not Madison)
employs the former Pipeline associates. Third, Madison CEO Bryan Gordon testified that he did
not discuss a consulting agreement with Mr. Prenger until after the Thunder deal blew up. In
support, Pipeline cites Mr. Gordon’s affidavit filed in conjunction with Madison’s motion for a
protective order (ECF No. 246-12, at 3-4), Madison’s response to Pipeline’s motion for sanctions
(ECF No. 472, at 1), and Gordon’s deposition transcript (ECF No. 534-1).
Pipeline misunderstands at-issue waiver. Pipeline does not articulate any way in which
Madison is asserting any legal advice it may have received as a “sword” while trying to “shield”
that very legal advice from discovery, thereby depriving Pipeline of the opportunity to test the
nature, legitimacy, or veracity of that legal advice. It is not enough that a party may have consulted
2
This description is a stretch. The bulk of the documents Pipeline seeks include attorneyclient communications involving changes to the Prenger consulting agreement. It does not appear
that any of the documents necessarily reveal anything about the reasons why Madison transitioned
its music-festival business to the Kaaboo entities.
5
an attorney on an issue that later becomes relevant in litigation. Such a broad proposition would
defeat the purposes of and largely eviscerate the attorney-client privilege. Rather, the party must
put “the fact of the communication at issue.” Stovall, 22 P.3d 142. Madison has not put the fact
of any attorney-client communication at issue that would, in fairness, require Pipeline to be
allowed to examine those protected communications.
The classic at-issue waiver scenario occurs when a party injects the issue of affirmative
reliance on counsel’s advice. 1 EDNA SELAN EPSTEIN, THE ATTORNEY–CLIENT PRIVILEGE AND
THE
WORK–PRODUCT DOCTRINE, 666-67 (6th ed. 2017).
This commonly arises in legal
malpractice actions, when proof of a party’s legal contention implicates legal advice (e.g., when a
client asserts a good-faith defense), or when the client relies on a portion of a privilege-protected
document while testifying. Id.; see also Seneca Ins. Co. v. W. Claims, Inc., 774 F.3d 1272, 1276
(10th Cir. 2014) (involving an issue of reliance on advice of counsel); Doe v. USD 237, No. 162801-JWL, 2019 WL 2612941, at *5 (D. Kan. June 26, 2019) (affirming the magistrate judge’s
finding that a party puts its counsel’s investigation at issue by asserting a Faragher affirmative
defense based on that investigation); Williams v. Sprint/United Mgmt. Co., 464 F. Supp. 2d 1100,
1116 (D. Kan. 2006) (finding no waiver where defendant’s witnesses did not voluntarily raise
advice of counsel and instead merely responded to questions from plaintiffs’ counsel concerning
privileged communications).
The cases Pipeline relies on further illustrate this. Pipeline cites IMC Chemicals, Inc. v.
Niro Inc. for its statement that “[e]ven if a party does not attempt to use privileged communication,
it may waive the privilege if it asserts a factual claim the truth of which can only be assessed by
examination of a privileged communication.” No. CIV.A.98-2348-JTM, 2000 WL 1466495, at
*23 (D. Kan. July 19, 2000). But IMC Chemicals also found that the plaintiff placed at issue its
6
attorney’s advice regarding a contract by introducing extrinsic evidence of both the plaintiff’s and
the plaintiff’s attorney’s intentions. Id. Pipeline also relies on Browne of New York City, Inc. v.
AmBase Corp. for its statement that conversations regarding “the legality of schemes” were
important to determining the extent of the client’s knowledge and resulting intent. 150 F.R.D.
465, 487 (S.D.N.Y. 1993). That portion of Browne discusses United States v. Bilzerian, in which
the defendant sought to invoke a good-faith defense to securities fraud charges. 926 F.2d 1285
(2d Cir.1991). Like IMC Chemicals, Bilzerian is distinguishable from this case because Bilzerian
involved waiver by placing an attorney’s advice at issue. The defendant in Bilzerian requested
that the trial court rule that the defendant could testify on his own behalf that he believed his
conduct complied with securities laws without waiving the attorney-client privilege, provided that
he did not claim to have relied on any advice by his attorney. Id. at 1292. The Second Circuit
found that it was only fair that the government be allowed to examine the basis for this good-faith
belief, including any protected communications. Id. (“This waiver principle is applicable here for
Bilzerian’s testimony that he thought his actions were legal . . . [because it] put his knowledge of
the law and the basis for his understanding of what the law required in issue. His conversations
with counsel regarding the legality of his schemes would have been directly relevant in
determining the extent of his knowledge and, as a result, his intent.”). In other words, “the
privilege may implicitly be waived when defendant asserts a claim that in fairness requires
examination of protected communications.” Id. at 1292.
Here, Madison has not put “the fact of the communication at issue” because it has not
asserted any claim or contention that implicates legal advice. See Stovall, 22 P.2d at 142 (defining
at-issue waiver). In other words, Madison is not attempting to use the attorney-client privilege as
both a sword and shield as it relates to creating the Kaaboo entities. Rather, Pipeline has come
7
forward with a laundry list of statements Madison and its CEO made via a brief, an affidavit, and
deposition testimony and contends that those are enough to put the matters at issue for waiver
purposes. Pipeline’s argument is essentially that the documents might be relevant to test certain
positions that Madison has taken in this litigation, but the fact that material might be relevant does
not equate to putting the material at issue for purpose of waiving privilege.
The Fifth Circuit recently addressed why relevance is not the standard for determining
whether material should be protected as privileged. See In re Itron, 883 F.3d at 561-62; see also
Sprint Commc’ns Co., L.P. v. Comcast Cable Commc’ns, LLC, No. 11-2684-JWL, 2015 WL
11121848, at *3 (D. Kan. Apr. 16, 2015) (“Courts in this district have held that when a litigant’s
mental state is placed at issue via the assertion of an affirmative defense, the mere fact that
privileged material is relevant to . . . an issue in connection with the assertion of the affirmative
defense is insufficient to trigger a waiver.”) (internal quotations omitted). The purpose of the
attorney-client privilege is 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.” Itron, 883 F.3d at 561 (quoting Upjohn Co. v. United States, 449 U.S. 383, 389,
(1981)). These goals are not met when a privilege “gives way whenever its contents become
relevant or even ‘highly relevant’ to an opposing party’s arguments[.]” Id. at 562; see also United
States v. Zingsheim, 384 F.3d 867, 871 (7th Cir. 2004) (“[W]hat a ‘privilege’ means is an
entitlement to withhold information even if it would bear on the merits of a disputed issue.”). This
is because “the rule’s unpredictability would impair the client’s ability to safely confide in
counsel.” In re Itron, Inc., 883 F.3d at 562; see also Rhone–Poulenc, 32 F.3d at 864 (“[B]ecause
the definition of what may be relevant and discoverable from those consultations may depend on
the facts and circumstances of as yet unfiled litigation, the client will have no sense of whether the
8
communication may be relevant to some future issue, and will have no sense of certainty or
assurance that the communication will remain confidential.”).
Madison has not waived the privilege. The court therefore denies Pipeline’s motion.
IV.
REASONABLE EXPENSES
Because the court denies Pipeline’s motion in full, it must consider whether to award
Madison its reasonable expenses, including attorneys’ fees, incurred in responding to this motion.
See FED. R. CIV. P. 37(a)(5)(B) (court must impose fees unless “the motion was substantially
justified or other circumstances make an award of expenses unjust”). Litigating whether fees and
expenses are warranted and, if so, the appropriate amount, often results in the parties spending as
much time and resources as they did litigating the underlying discovery motion. For this reason,
the court orders that by September 9, 2019, Madison shall file a notice informing Pipeline and the
court whether it intends to continue to seek fees. If Madison intends to continue to seek fees, the
notice shall provide the dollar amount Madison requests. Thereafter, the parties must confer to
attempt to reach agreement regarding the issue of fees and expenses. If necessary, Madison must
file its motion seeking fees by September 23, 2019. Pipeline’s response brief is due September
30, 2019, and Madison’s reply brief is due October 7, 2019. Madison’s motion and Pipeline’s
response brief are limited to five pages each. Madison’s reply brief is limited to three pages.
IT IS THEREFORE ORDERED that Plaintiff’s Motion to Compel Production of
Certain Documents from Defendants’ Privilege Log (ECF No. 556) is denied.
IT IS SO ORDERED.
Dated August 30, 2019, at Topeka, Kansas.
s/Angel D. Mitchell
Angel D. Mitchell
U.S. Magistrate Judge
9
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?