U.S. Commodity Futures Trading Commission v. Arrington et al

Filing 79

ORDER - IT IS ORDERED that Plaintiff's Motion to Compel Production of Documents Withheld by Defendant Michael Kratville (filing 65 ) is granted. Michael Kratville shall produce the documents in question by or before February 12, 2013. Ordered by Magistrate Judge F.A. Gossett. (TCL )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
U.S. COMMODITY FUTURES
TRADING COMMISSION,

)
)
)
Plaintiff,
)
)
V.
)
)
JONATHAN W. ARRINGTON,
)
ELITE MANAGEMENT HOLDINGS )
CORP., MJM ENTERPRISES LLC,
)
MICHAEL B. KRATVILLE,
)
MICHAEL J. WELKE, FRED
)
HONEA, JOHN RIZZLI, RON
)
BASSETT, FXIG, SONADOR, NEAL )
LABELLE, and MICHAEL
)
STEWART,
)
)
Defendants.

8:11CV181

ORDER

This matter is before the Court on Plaintiff’s Motion to Compel Production of
Documents Withheld by Defendant Michael Kratville. (Filing 65.) For the reasons set forth
below, Plaintiff’s motion will be granted.
BACKGROUND
Plaintiff’s Complaint alleges that Defendants Jonathan Arrington (“Arrington”),
Michael Welke (“Welke”) and Michael Kratville (“Kratville”), using multiple investment
pools operated by Defendants Elite Management Holdings, Corp. (“EMHC”) and MJM
Enterprises, LLC (“MJM”) (both of which were allegedly owned, operated and controlled
by Arrington, Welke and Kratville), orchestrated a fraudulent scheme that induced numerous
participants to invest in the pools. In particular, Plaintiff alleges that Defendants
misappropriated pool participant funds; made false statements to pool participants regarding
the pool’s trading activity, performance and account balances; failed to register as a
commodity pool operator (“CPO”); failed to register as associated persons of a CPO; and

failed to comply with pool disclosure and reporting requirements in violation of the
Commodity Exchange Act, 7 U.S.C. § 1, et seq.. (Filing 1.)
Plaintiff has filed a motion to compel (filing 65) requesting that Kratville be ordered
to produce emails and other communications (1) between Defendants Arrington, Welke and
himself and (2) communications with the Nebraska Bar concerning a complaint filed against
Kratville by pool-participant, Charles Vesely (“Vesely”). Kratville refuses to produce the
communications between him and the other Defendants, arguing that he is ethically obligated
to assert the attorney-client privilege on their behalf. He further contends that the
correspondence with the Nebraska Bar is protected by Nebraska law.
On January 15, 2013, the Court ordered an in camera review of the documents in
question. (Filing 72.) The Court has reviewed the documents and finds that they are not
privileged and should be produced.
DISCUSSION
I.

Email communications between Kratville, Arrington and Welke

Kratville contends that the emails he exchanged with Arrington and Welke are
protected by the attorney-client privilege because Kratville served as counsel for EMHC,
Arrington and Welke. Kratville’s primary argument in opposition to the motion to compel
is that the Nebraska Rules of Professional Conduct require him to assert the attorney-client
privilege on behalf of his former clients. Kratville maintains that he has sought an opinion
from the Nebraska Supreme Court Counsel for Discipline regarding his ability to produce the
documents given his obligations under Nebraska Supreme Court Rule § 3-501.6, which
generally provides that an attorney may not reveal information relating to the representation
of a client.1

1

Kratville expects an opinion from the Ethics Advisory Committee sometime between
April and June, 2013.
2

The Court finds Kratville’s argument concerning his alleged inability to produce the
documents given the requirements of Rule § 3-501.6 unpersuasive. Rule § 3-501.6 provides
several exceptions to its confidentiality requirement, including that an attorney may reveal
information relating to the representation of client “to comply with other law or a court
order.” Neb. Ct. R. § 3-501.6(b)(4). Therefore, to the extent that Kratville argues that § 3501.6 absolutely precludes him from producing the documents in question, this contention
is rejected. This order should alleviate any concerns Kratville has regarding his compliance
with Rule § 3-501.6 as it pertains to the production of these documents.
Also, following review, the Court concludes that the documents in question are not
protected by the attorney-client privilege. It appears that the documents simply consist of
communications regarding the business relationship which existed between Kratville,
Arrington and Welke, not the solicitation or rendering of legal advice. “The attorney-client
privilege protects confidential communications between a client and his attorney made for
the purpose of facilitating the rendering of legal services to the client. But when an attorney
acts in other capacities, such as a conduit for a client’s funds, as a scrivener, or as a business
advisor, the privilege does not apply.” United States v. Spencer, 700 F.3d 317, 320 (8th Cir.
2012) (internal citation omitted). See also Sedco Intern., S.A. v. Cory, 683 F.2d 1201 (8th
Cir. Aug. 8. 1982) (recognizing that the attorney-client privilege does not protect ordinary
business advice). “The issue usually arises in the context of communications to and from
corporate in-house lawyers who also serve as business executives. So the question usually
is whether the communication was generated for the purpose of obtaining or providing legal
advice as opposed to business advice.” In re County of Erie, 473 F.3d 413, 419 (2nd Cir.
2007) (internal citations omitted). Here, the communications generally reflect conversations
relating to the management of EMHC and related business matters. Because the materials
do not come within the scope of the attorney-client privilege, they must be disclosed.
II.

Correspondence with the Nebraska Bar Association

Kratville contends that the information related to Charles Vesley’s Nebraska Bar
Complaint against him is confidential under Nebraska law. In support of his argument,
Kratville points to Nebraska Supreme Court Rule § 3-318, which pertains to the publicity of
3

disciplinary proceedings. This Rule provides, in part:
(A) The hearings, records, or proceedings of the Counsel for Discipline, the
Committee on Inquiry, and the Disciplinary Review Board are confidential and
shall not be made public except that the pendency, subject matter, and status
of an investigation may be disclosed by the Committee on Inquiry involved or
the Disciplinary Review Board if
(1) the Respondent has waived confidentiality, either in writing or by public
disclosure of information regarding the proceeding; or
(2) the proceeding is based upon conviction of a crime.
(B) Unless the Respondent has waived confidentiality, either in writing or by
public disclosure of information regarding the proceedings, willful violation
of this rule shall be grounds for discipline.
Neb. Ct. R. § 3-318.
Rule § 3-318 permits disclosure of the requested documents if Kratville waives
confidentiality. Under Federal Rule of Civil Procedure 34, Kratville is required to produce
non-privileged, relevant documents in discovery. There is no legal support for the
proposition that Rule § 3-318 creates a privilege which protects documents related to bar
complaints from discovery in a civil lawsuit pending in federal court. Kratville cannot use
Rule § 3-318 as a shield to prevent the disclosure of these documents. Therefore, Kratville
will be ordered to produce the requested materials.
IT IS ORDERED that Plaintiff’s Motion to Compel Production of Documents
Withheld by Defendant Michael Kratville (filing 65) is granted. Michael Kratville shall
produce the documents in question by or before February 12, 2013.
DATED January 29, 2013.
BY THE COURT:
S/ F.A. Gossett
United States Magistrate Judge
4