U.S. Home Corporation v. Settlers Crossing, L.L.C. et al

Filing 668

MEMORANDUM AND ORDER OVERRULING 663 objection filed by Counter-Defendant Lennar Corporation to the March 24, 2014, order issued by United States Magistrate Judge William Connelly granting a motion for sanctions filed by Defendant/Counter-Plaintiff iStar Financial, Inc. Signed by Chief Judge Deborah K. Chasanow on 3/26/14. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
U.S. HOME CORPORATION
:
v.

:

Civil Action No. DKC 08-1863

:
SETTLERS CROSSING, LLC, et al.
:
MEMORANDUM OPINION AND ORDER
Over

the

course

of

discovery

in

this

case,

Counter-

Defendant Lennar Corporation served Defendant/Counter-Plaintiff
iStar Financial, Inc., with a number of privilege and redaction
logs reflecting Steven Engel as the author or recipient of email
communications
privilege.

withheld

on

the

basis

of

attorney-client

At an April 17, 2013, deposition, iStar learned that

Mr. Engel was not licensed to practice law in any jurisdiction
at any point during the pendency of the litigation.
2013,

iStar

sought

a

judicial

determination

related to him was improperly withheld.
opposing

that

retained

by

motion,

[its]

Lennar

General

asserted

Counsel

in

On June 14,

that

discovery

(ECF No. 524).
that

2008

In

“Mr.

Engel

was

(i.e.,

after

the

commencement of this litigation) to be part of a team tasked by
counsel to review documents and provide mental impressions to
counsel for use in the litigation.”

(ECF No. 538, at 3).

By an order issued August 22, 2013, Judge Connelly granted
iStar’s

motion,

finding

that

“Lennar’s

bases

for

claiming

communications involving Mr. Engel as privileged pursuant to the
attorney-client

privilege

and/or

the

attorney

work

product

doctrine (particularly those e-mails where Mr. Engel was the
author or the primary recipient) are invalid[.]”
8).

(ECF No. 570 ¶

Judge Connelly ordered Lennar “to review every privilege

log entry involving Mr. Engel, review every document associated
with each privilege log entry, and because Mr. Engel was not a
licensed attorney, to either release the non-privileged document
to iStar or state with particularity in an amended privilege log
why the document should be protected from disclosure.”
¶

9

(internal

emphasis

removed)).

Lennar

was

(Id. at

directed

to

“accomplish this task” by no later than September 18, 2013 (id.
at ¶ 9), and to “provide to counsel for iStar and the [court
with] a copy of the 2008 engagement letter from Lennar to Mr.
Engel . . . as soon as possible” (id. at ¶ 10 (internal emphasis
removed)).

Lennar did not file an objection to this order.

On or about September 18, 2013, Lennar served iStar with an
“Amended Privilege Log, an Amended Redaction Log, and a compact
disc containing 67 documents numbering 169 pages, many of which
were letters, emails, and discovery documents . . . [or] wholly
or largely redacted emails.”

(ECF No. 622-1, at 6).

Lennar

also produced a draft of a “Professional Services Agreement”
2

between

Lennar

and

Seasons

Financial

Consulting,

LLC,

Engel’s business, but not an executed agreement.
agreement,

dated

January

30,

2007,

provided,

Mr.

The draft

in

part,

that

Seasons Financial “is an independent contractor and neither [it]
nor any individual performing Services on its behalf shall be
considered
Lennar.”

an

employee,

agent,

joint

venture

or

partner

of

(ECF No. 620-1, at 9).

On January 17, 2014, iStar filed a motion for sanctions,
arguing that Lennar had “failed to make the necessary factual
showing
would

to

demonstrate

support

the

attorney-client

any

establishment

privilege

to

(ECF No. 619-1, at 9).
directing

Lennar

with

Engel

Mr.

to
that

relationship
or

with

the

Mr.

Engel

extension

communications

with

of

Mr.

any

Engel.”

iStar sought, inter alia, an order

produce
it

all

documents

previously

and

withheld

on

communications
the

basis

attorney-client privilege or the work product doctrine.
No. 619).

that

of

(ECF

In opposing this motion, Lennar argued that it had

“withheld documents sent or received by Mr. Engel only to the
extent

such

documents

address

issues

relating

to

this

litigation, similar to any other situation in which counsel . .
.

retains

the

services

of

rendering of legal advice.”

non-lawyers

to

assist

with

(ECF No. 627, at 7).

the

Despite

express language in the draft agreement to the contrary, Lennar
argued

that

Mr.

Engel

was

“an
3

agent

or

subordinate”

of

its

general

counsel

who

“function[ed]

rendering of legal advice.”

to

assist

in

counsel’s

(Id. at 15).

By an order issued March 24, 2014, Judge Connelly granted
iStar’s
Lennar

motion
never

for

sanctions.

provided

the

(ECF

court

No.

with

658).

a

Noting

copy

of

that

the

2008

engagement letter, as it had been directed to do, and that the
draft

agreement

expressly

provided

that

Mr.

Engel

was

an

independent contractor, the court found that “Mr. Engel was not
an

agent

employed

stenographer,

by

secretary,

Lennar’s
clerk

General
or

any

Counsel,

employee

such

as

necessary

a

for

effective operation between counsel and his client . . . because
the

Professional

employer-employee

Services

Agreement

relationship

is

clearly

created

(Id. at ¶ 8 (internal emphasis omitted)).

by

dictated
the

no

such

Agreement.”

Thus, he found, “the

privileged communications between Lennar’s General Counsel and
Lennar do not extend to Mr. Engel as a third party, non-employee
and non-agent of Lennar[.]”

(Id. (emphasis omitted)).

Upon

further finding that Lennar had not “articulated a legitimate
basis for withholding documents which are not bona fide work
product relating to [this] litigation” (id. at ¶ 10 (emphasis
omitted)), Judge Connelly ordered Lennar to produce, by March
27:
[A]ll
Engel-related
documents
and
communications withheld only on the basis of
the
attorney-client
privilege
in
its
4

privilege and redaction logs; . . . all
Engel-related documents and communications
withheld on the basis of attorney work
product claims . . . where there is no clear
litigation-related
work
product,
mental
impression, or legal strategy of an in-house
or outside counsel of Lennar; . . . to
present for an in-camera review to the
[court] . . . any and all documents and
communications . . . withheld based on
assertion of the attorney work product
[doctrine]; . . . to revise its privilege
and redaction logs; and . . . to produce to
iStar and the [court] . . . an executed copy
of the engagement letter between Lennar and
Mr. Engel or to certify no such letter
exists (explaining why the letter does not
exist.
(Id. at ¶ 12 (emphasis omitted)).
attorney’s

fees

and

costs

The court also awarded iStar

associated

with

its

motion

for

sanctions.
On March 25, Lennar filed the pending objection to Judge
Connelly’s order.

(ECF No. 663).

Lennar asserts that the order

is procedurally improper and “mistakenly concludes that none of
these

communications

is

protected

by

the

attorney-client

privilege, based on [a] finding that Mr. Engel was neither an
employee

of

employee[.]”

Lennar

nor

(Id. at 2).

the

‘functional

equivalent’

of

an

According to Lennar, “[t]he record

before Judge Connelly confirmed that all of the documents at
issue

reflect

post-litigation

communications

regarding

this

litigation, primarily among Lennar’s inside and outside counsel,
that

were

made

in

confidence

for

5

the

purpose

of

seeking,

obtaining, or providing legal advice” and, therefore, that they
“are shielded from discovery by the attorney-client privilege
and/or work product doctrine.”

(Id. at 3).

Lennar further

contends that compliance with the order, days before trial, is
unduly burdensome and prejudicial.
Under 28 U.S.C. § 636(b)(1)(A), a district judge may modify
or set aside any portion of a magistrate judge’s non-dispositive
ruling “where it has been shown that the magistrate judge's
order

is

clearly

Fed.R.Civ.P.

erroneous

72(a).

“The

or

contrary

[district]

to

judge

law.”
may

See

also

also

receive

further evidence or recommit the matter to the magistrate judge
with instructions.”

28 U.S.C. § 636(b)(1)(C).

Under the clearly erroneous standard, the
reviewing court is not to ask whether a
finding is the best or only conclusion
permissible based on the evidence. Nor is it
to substitute its own conclusions for that
of the magistrate judge.
See Tri–Star
Airlines, Inc. v. Willis Careen Corp., 75
F.Supp.2d
835,
839
(W.D.Tenn.
1999).
Rather, the court is only required to
determine whether the magistrate judge’s
findings are reasonable and supported by the
evidence.
Id.
“It is not the function of
objections to discovery rulings to allow
wholesale relitigation of issues resolved by
the magistrate judge.”
Buchanan v. Consol.
Stores Corp., 206 F.R.D. 123, 124 (D.Md.
2002).
Int’l Ass’n of Machinists & Aerospace Workers v. Werner–Masuda,
390 F.Supp.2d 479, 485 (D. Md. 2005).

6

Lennar first argues that the order was clearly erroneous
insofar as Judge Connelly did not find that Lennar failed to
comply with the August 22, 2013, order, and did not address “any
of the four requisite factors for the imposition of sanctions
under Rule 37(b).”
argument,

Judge

(ECF No. 663, at 9).

Connelly

expressly

found

Contrary to this
that

Lennar

never

provided the court with a copy of the Engel engagement letter,
as

it

had

been

ordered

to

do.

Moreover,

based

on

the

“independent contractor” language in draft agreement, the court
found no basis for Lennar to assert attorney-client privilege,
as it did in its amended privilege and redaction logs.

Indeed,

it previously determined that Lennar’s assertion of attorneyclient privilege as to Mr. Engel was “invalid” and Lennar did
not object to that ruling.

(ECF No. 570 ¶ 8).

The four factors

to which Lennar refers – “(1) whether the non-complying party
acted

in

bad

faith;

(2)

the

amount

of

prejudice

that

noncompliance caused the adversary; (3) the need for deterrence
of the particular sort of non-compliance; and (4) whether less
drastic sanctions would have been effective,” Belk v. CharlotteMecklenburg Bd. of Educ., 269 F.3d 305, 348 (4th

Cir. 2001)

(internal marks omitted) – were implicitly considered by the
court.

Sanctions were awarded based, in part, on “Lennar’s

shifting bases for asserting privilege concerning communications
with Mr. Engel” (ECF No. 658, at 5), at least some of which
7

Lennar either knew or should have known were untrue.

Thus,

there was clearly a basis to find that Lennar acted in bad
faith.

The degree of prejudice to iStar depends largely on the

content of the withheld documents and was, therefore, impossible
to discern.

The need to deter discovery abuses of this type is

patently obvious and, aside from the award of attorneys’ fees
and costs associated with the motion, Lennar was only ordered to
do what it should have done long ago.
Lennar further contends that Judge Connelly’s finding that
communications between Lennar’s attorneys and Mr. Engel are not
protected

by

erroneous.

the
While

attorney-client
Lennar

privilege

acknowledges

that

was

clearly

prior

counsel

erroneously based the withholding of documents on Mr. Engel’s
status as an attorney, it contends, since the time of iStar’s
motion to determine privilege, its position “has not changed.”
(ECF No. 663, at 13).
extend

application

independent,

According to Lennar, “courts routinely
of

third-party

the

attorney-client

consultants

retained

privilege
by

the

to

client”

(id. at 10), and Judge Connelly clearly erred by relying on the
language contained in the draft agreement.
Lennar cites Flo Pac, LLC v. NuTech, LLC, Civ. No. WDQ-09510, 2010 WL 5125447 (D.Md. Dec. 9, 2010), for the proposition
that

“the

attorney-client

communications

with

a

privilege

third

party
8

extends
who

is

to

confidential

present

‘at

the

attorney’s or the client’s behest.’”

(ECF No. 663, at 10).

In

support of that finding, however, Judge Grimm cited a number of
cases generally holding that “the attorney-client privilege will
not shield from disclosure statements made by a client to his or
her attorney in the presence of a third party who is not an
agent of either the client or attorney.”

Flo Pac, 2010 WL

5125447, at *8 (emphasis in original; quoting United States v.
Evans, 113 F.3d 1457, 1462 (7th Cir. 1997)).

Here, the draft

agreement between Lennar and Mr. Engel expressly stated that Mr.
Engel was an “independent contractor,” not “an employee, agent,
joint venture or partner of Lennar.”

(ECF No. 620-1, at 9);

Lennar argues, in effect, that the court should have ignored
that contractual language and focused instead on whether Mr.
Engel

was

the

“functional

equivalent”

of

a

Lennar

employee,

relying principally on the reasoning of In re Bieter, 16 F.3d
929 (8th Cir. 1994).

Judge Connelly considered that argument,

finding that “[Mr. Engel] did not work out of Lennar’s offices,
was not involved in the underlying Bevard development project,
did not represent Lennar at public hearings or otherwise, and
simply was not intimately involved in the Bevard development
such that Lennar’s counsel would need to confer confidentially
with Mr. Engel to understand the issues raised [] by Sellers.”
(ECF No. 658 ¶ 9).

Thus, he determined that Lennar’s argument

under In re Bieter – which was also relied upon by Judge Grimm
9

in

Flo

Pac

–

was

“not

persuasive”

(id.)

and

there

is

no

discernable basis for finding that ruling was clearly erroneous.
Lennar further contends that “Judge Connelly’s finding that
communications among Lennar’s counsel regarding this litigation
are not protected work product is clearly erroneous and contrary
to law.”
language

(ECF No. 663, at 14).
of

order,

which

was

This argument distorts the
simply

that

there

was

no

“legitimate basis for withholding documents which are not bona
fide work product relating to [the] litigation.”
10 (emphasis omitted)).
iStar

all

documents

(ECF No. 658 ¶

Lennar was not compelled to produce to

involving

Mr.

Engel

that

it

claims

are

protected work product; rather, it must produce documents it
claims to be protected to the court for an in camera review.
Given Lennar’s course of conduct during discovery, at least as
to this issue, that requirement was eminently reasonable and
designed to ensure no undue prejudice to either party.
Finally, while it is likely true, as Lennar argues, that
Judge Connelly’s order presents a significant hardship on the
eve of trial, this fact is offset by the hardship to iStar if
discoverable documents are not produced.

Because the prejudice

to Lennar is largely of its own making, the court does not find
this argument particularly persuasive.

10

Accordingly, it is this 26th day of March, 2014, by the
United

States

District

Court

for

the

District

of

Maryland,

ORDERED that:
1.

The

objection

filed

by

Counter-Defendant

Lennar

Corporation to the March 24, 2014, order issued by United States
Magistrate

Judge

William

Connelly

granting

a

motion

for

sanctions filed by Defendant/Counter-Plaintiff iStar Financial,
Inc. (ECF No. 663), BE, and the same hereby IS, OVERRULED; and
2.

The

clerk

is

directed

to

transmit

copies

of

this

Memorandum Opinion and Order to counsel for the parties.

________/s/_________________
DEBORAH K. CHASANOW
United States District Judge

11