U.S. Securities and Exchange Commission v. Commonwealth Advisors, Inc. et al

Filing 132

RULING denying 75 Motion to Compel Discovery. Signed by Magistrate Judge Stephen C. Riedlinger on 9/29/2015. (LLH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

U.S. SECURITIES AND EXCHANGE
COMMISSION

CIVIL ACTION

VERSUS

NUMBER 12-700-JWD-SCR

COMMONWEALTH ADVISORS, INC.
AND WALTER A. MORALES
RULING ON DEFENDANTS’ MOTION TO COMPEL
Before the court is Defendants’ Motion to Compel filed by
defendants Commonwealth Advisors, Inc. and Walter A. Morales.
Record document number 75.

The motion is opposed by the plaintiff

U.S. Securities and Exchange Commission (“SEC”).1
The subjects of this motion to compel are the defendants’
First

Set

of

Interrogatories

and

Requests

for

Production

of

Documents, Second Set of Interrogatories and Third Set of Requests
for Production of Documents.
compelling

the

Interrogatory
Production

plaintiff
Numbers

Numbers

1,

2,

5,

Defendants moved for an order

to

fully

2,

3,

6,

7,

and

4,

and

and

8

completely
11
of

and
the

respond

Requests
First

to
for

Set

of

Interrogatories and Requests for Production, and the Second Set of
Interrogatories

and

Third

Set

of

Requests

for

Production.2

Defendants argued that the plaintiff failed to produce an adequate

1

Record document number 79.

2

Record document numbers 75-3 and 75-5, Exhibits A and C.

privilege log.

Therefore, the court should find all privileges

claimed by the plaintiff are waived and order the documents
produced.
Defendants noted that a letter was sent to the plaintiff’s
counsel for the plaintiff on October 20, 2014, stating their
position that Interrogatory Numbers 1, 2, 3, 4, and 11, and Request
Numbers 2, 5, 6, 7 and 8 were deficient, and that the claims of
work product protection, attorney-client privilege, common interest
privilege, law enforcement privilege and the deliberative process
privilege were not supported by the privilege log provided on
September 2, 2014 with sufficient detail to comply with Rule
26(b)(5)(A), Fed.R.Civ.P.3

On October 27, 2014 the plaintiff’s

counsel responded with a letter and an updated privilege log.4
According to the defendants, the plaintiff provided additional
information for certain interrogatories and document requests, but
denied that any of its other discovery responses or privilege log
were deficient.
All

of

considered.5

This motion to compel followed.

the

parties’

arguments

and

exhibits

Plaintiff’s arguments have merit.

have

been

Defendants failed

3

Record document number 75-8, Exhibit F. Plaintiff’s first
privilege log was provided with its responses to defendants’ Second
Set of Interrogatories and Third Set of Requests for Production.
Record document number 75-7, Exhibit E.
4

Record document number 75-9, Exhibit G.

5

This ruling does not include any privileged or confidential
(continued...)
2

to support their claims that the plaintiff’s discovery responses
and privilege log are deficient.

The motion to compel is resolved

as follows.
Plaintiff argued that the motion should be denied because,
contrary to Rule 37(a)(1), Fed.R.Civ.P., the defendants failed to
engage in a good faith effort to confer and resolve the discovery
issues before filing the motion.

Plaintiff pointed out that the

defendants sent their letter on October 20, and received its letter
response on October 27.

However, after this date the defendants

never

letter

communicated,

by

or

otherwise,

their

continuing

disagreement with the plaintiff’s response and that they intended
to file a motion to compel.

Plaintiff noted that after October 27

its counsel had several telephone conversations with counsel for
defendants, and no indication was given that the defendants still
maintained

the

plaintiff’s

requests were deficient.

answers

and

responses

to

document

Plaintiff argued that these actions

support denying the defendants’ motion because the defendants made
no serious effort to meet and confer to resolve the discovery
issues without court action.
Plaintiff makes a persuasive argument that the defendants
should have engaged in further discussions before filing this
motion.

Given the history of this litigation, particularly the

5

(...continued)
information so that it does not have to be filed under seal.
3

protracted disputes over the sufficiency of privilege logs and
document

production,

the

effort

the

defendants

made

was

not

sufficient to comply with Rule 37(a)(1).
Plaintiff’s second argument is that in the defendants failed
to identify the specific discovery requests they contend are
deficient.

Instead, the defendants purported to reserve the right

to expand their motion “at a later date” to include specific
responses they claim are deficient with regard to the plaintiff’s
responses

to

requests.6

the

first

set

of

interrogatories

and

document

Plaintiff argued that these arguments should be

rejected because it would be: (1) unfair to require guessing as to
what responses the defendants maintain are still deficient after
the counsel’s October 27 letter; and (2) unfair to allow the
defendants

to

file

a

motion

to

compel

discovery

but

defer

explaining the basis for it to a later date.
Plaintiff’s argument is persuasive.

Defendants stated in

their motion that Interrogatory Numbers 1, 2, 3, 4 and 11, and
Requests for Production Number 2, 5, 6, 7 and 8 of the first set of
Interrogatories

and

Request

for

Production

of

Documents

were

deficient, and the plaintiff should be ordered to fully respond to
them.

Yet,

in

their

memorandum,

instead

of

explaining

the

deficiencies the defendants purported to reserve their right to
explain later. It is the defendants’ motion; neither the plaintiff

6

Record document number 75-2, Memorandum in Support, p. 4.
4

nor the court should have to speculate as to what the defendants
claim is still lacking in the plaintiff’s responses.

If the

defendant cannot clearly explain what is deficient about these
discovery responses, there is no basis to grant their motion.
Therefore, the motion is denied, insofar as the defendants seek an
order compelling the plaintiff to provide supplemental answers and
responses to Interrogatory Numbers 1, 2, 3, 4 and 11, and Requests
for Production Number 2, 5, 6, 7 and 8.
Defendants also argued that the plaintiff improperly withheld
communications between the SEC and FBI agents regarding witness
Ryan Marsh, and failed to produce or identify on a privilege log
emails between Marsh and the plaintiff’s counsel.7

Plaintiff

responded that: (1) in its answer to Interrogatory Number 2 of the
Second Set of Interrogatories the defendants were informed that
there are no documents/information related to communications with
the FBI about Marsh;8 and (2) the Marsh emails that the defendants
contend were not produced were in fact produced in April 2014 when
they were provided to the defendants with all non-privileged
communications that occurred during the investigation between the
SEC and third parties.9

7

Record document number 75-10 and 75-11, Exhibits H and I.

8

Record document number 75-10, Exhibit H; record document
number 75-6, Exhibit D, Answer to Interrogatory Number 2, p. 6.
9

Record document number 79-1, Declaration of David Williams
(continued...)
5

Plaintiff’s arguments are supported and persuasive. Plaintiff
has nothing to produce on the subject of communications with the
FBI about Marsh, and the declaration and exhibits supplied by the
plaintiff show that it has already produced the Marsh emails. This
aspect of the defendants’ motion is denied.
Defendants’ argued that the plaintiff waived any privileges
because it did not timely provide a privilege log.

Defendants

emphasized that the plaintiff did not produce a log until it
responded to the Second Set of Interrogatories and Third Set of
Requests for Production, which was almost two years after suit was
filed and one year after it received the defendants’ initial
discovery requests. Plaintiff argued that it has properly asserted
and documented its privilege claims in the log dated October 27,
2014.
Review of the parties’ arguments, the plaintiff’s privilege
logs and the supporting declarations and documents provided by the
plaintiff, demonstrate that the defendants’ arguments related to
the adequacy of the privilege log and waiver are unsupported.
Plaintiff

explained that the timing of the log was the result of

a voluminous record that was produced in a rolling fashion over a

9

(...continued)
in Opposition to Motion to Compel (hereafter, “Williams
Declaration”), ¶¶ 13 and 14; record document numbers 79-2 through
79-10, Exhibits A through I.
6

period of months.10

Defendants did not complain in their counsel’s

October 20, 2014 letter that the September 2, 2014 privilege log
was provided too late.11

Nor did the defendants provide any basis

in this motion to show that the timing of plaintiff’s initial
privilege log was unreasonable or caused them prejudice. For these
reasons, the court rejects the defendants’ argument that the
plaintiff’s

privilege claims of are waived because they were not

timely asserted.
Defendants made a general assertion that there is a “total
lack of information” in the privilege log that makes it virtually
impossible to determine whether attorney notes of interviews and
meetings should be privileged.
specific

arguments

that

the

Defendants also raised several
plaintiff’s

assertions of privilege are deficient.

privilege

log

and

Defendants argued that the

first entry on the log dated 7/2/2007 cannot be in anticipation of
litigation, because this was before Crestline invested in any
Commonwealth

advised

funds

and

before

the

SEC

began

its

investigation. With regard to entry numbers 361, 362, 363 and 364,
the defendants maintained that without a listing of each document
encompassed by these entries, the assertion of attorney work
product protection and other privileges for these documents cannot
be sustained. Defendants also noted that one attorney’s name

10

Williams Declaration, ¶¶ 2-9.

11

Record document number 75-8, Exhibit F.
7

included on the list for entry number 362 is Michael Unger, who was
an

attorney

for

the

defendants

during

the

investigation.

Therefore, any emails involving Unger could not be covered by a
privilege claim.

Defendants asserted that attorney notes of

witness interviews are not necessarily work product, given the
SEC’s statement that it does not have targets of its investigation.
Defendants also complained that it is impossible to determine the
substance of the interviews and meetings from the descriptions in
the log.

According to the defendants, some of the main witnesses

against them who have been deposed do not remember relevant facts,
and they may be entitled to notes made contemporaneously during the
investigation.
Defendants’

arguments

are

confusing,

conclusory

and

unsupported. For example, the defendants asserted that some of the
key witnesses regularly responded in their depositions that they
did not remember relevant information.

Yet, despite the fact that

the logs provides the names of the individuals interviewed, the
defendants failed to name any witnesses or cite any testimony to
support their assertion.12

Nor did the defendants explain how this

supports their claim that the privilege logs and/or assertion of
privilege

is

deficient.

It

is

also

not

apparent,

and

the

defendants failed to explain, why attorney interview notes cannot
be work product just because the SEC does not have targets of its

12

Williams Declaration, ¶ 10.
8

investigations.

Defendants

complained

that

the

plaintiff’s

privilege logs did not describe the “substance of the interviews
and meetings.”13 Plaintiff is not required to reveal the substance,
i.e. what was said in the interviews and meetings, in the log to
satisfy Rule 26(b)(5)(A), Fed.R.Civ.P.; plaintiff is only required
to provide enough information so that the claim of privilege or
protection can be assessed.14
Insofar as entry number 362 included the name of Michael
Unger, Williams clarified in his declaration that the name was
listed in error, and that no responsive emails involving Ungar have
been withheld.15

Williams confirmed, based on his review of the

plaintiff’s document production, that more than 1,000 documents
involving Unger were produced to the defendants.16

As to the

defendants argument that the first entry on the log dated 7/2/2007
cannot be in anticipation of litigation, the declarations of
Williams, Carol Schultze and Paul Gunson and Gary Zinkgraf clarify

13

Record document number 75-2, p. 11.

14

Defendants voluntarily waived their attorney-client
privilege by asserting an advice-of-counsel defense, which created
a situation in which knowing the subjects of interviews and
meetings is necessary to assess whether the asserted privilege is
waived. Defendants’ broad, subject matter privilege waiver made it
necessary for them to describe in more detail the subjects - but
not the substance, i.e. the actual content - of meetings and
interviews in order to assess whether the privilege waiver applies.
15

Williams Declaration, ¶ 15.

16

Id.
9

that the dates for items one through four on the privilege log were
in error, and the creation of the documents occurred well after the
commencement of the investigation.17
Finally, Williams also addressed the plaintiff’s claim that
entry numbers 361 through 364 amount to a blanket assertion of work
product, law enforcement and deliberative process protection that
cannot be sustained. Williams attested to the fact that his review
of the materials demonstrated they were all gathered in reasonable
anticipation of litigation with the defendants; created to assist
the investigative staff in gathering facts and evidence to enable
the

SEC

to

determine

whether

to

pursue

litigation,

facilitate the ultimate prosecution of any litigation.

and

to

Williams

also stated that, based on his experience, creating the individual
entries listed on the log it could take up to several months to
create individual entries for all the documents included within
entry numbers 361, 362, 363 and 364 on the privilege log.18
based

on

a

review

of

the

privilege

log

in

conjunction

Thus,
with

Williams’ declaration, the defendant’s argument that the plaintiff
is simply relying on an inadequate privilege log and blanket
assertions of privilege are unpersuasive.

17

Williams Declaration, ¶ 17; record document number 79-12,
Schultze Declaration, Defendant Exhibit K; record document number
79-13, Gunson Declaration, Defendant Exhibit L; record document
number 79-14, Zinkgraf Declaration, Defendant Exhibit M.
18

Williams Declaration, ¶¶ 9, 18, 21, 23-27.
10

In summary, review of the SEC’s privilege log and exhibits,
including
Gunson,

the

supporting

Zinkgraf,

and

declarations

Brent

J.

of

Fields,

Williams,
demonstrate

Schultze,
that

the

general and specific arguments raised by the defendants are without
merit.

Defendants have not presented a sufficient basis for the

court to find that the privileges asserted by the plaintiff should
be deemed waived and that all listed documents must be produced.
Accordingly,

the

Motion

to

Compel

filed

by

defendants

Commonwealth Advisors, Inc. and Walter Morales is denied.
Baton Rouge, Louisiana, September 29, 2015.

STEPHEN C. RIEDLINGER
UNITED STATES MAGISTRATE JUDGE

11