Pacific Coast Steel et al v. Leany et al

Filing 329

ORDER Denying 203 Plaintiff's Motion to Compel Accountants' Responses. Signed by Magistrate Judge Peggy A. Leen on 9/29/11. (Copies have been distributed pursuant to the NEF - EDS)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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PACIFIC COAST STEEL, et al.,

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Plaintiffs,
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vs.
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TODD LEE LEANY, et al.,
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Defendants. )
__________________________________________)

Case No. 2:09-cv-02190-KJD-PAL
ORDER
(Mot to Compel - Dkt. #203)

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Before the court is Plaintiffs’ Motion to Compel Accountants’ Responses (Dkt. #203), filed

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December 7, 2010. The court has considered the Motion, Defendants Todd Leany and the Century

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Entities’ Opposition (Dkt. #207), Lynn Leany and the Lynn Leany Trust’s Opposition (Dkt. #208), and

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Plaintiffs’ Reply (Dkt. #212).

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This is yet another motion to compel filed by Plaintiffs concerning tax and financial records.

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The undersigned required Defendants to disclose and produce financial and tax information responive

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to Plaintiffs’ discovery requests in an Order (Dkt. #93) which the district judge affirmed in an Order

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(Dkt. #214) over the Defendants’ objections. When the Defendants resisted disclosure of financial and

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tax information, and while the objections to the undersigned’s order compelling the Defendants to

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produce financial and other tax information were pending, Plaintiffs’ counsel served subpoenas duces

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tecum on Diane W. Clough (“Clough”), Hall & Associates CPA, Ltd., and Rich, Wightman & Co.,

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CPAs LLC, Defendants’ accountants. Although the Plaintiffs believe that discovery of the information

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subpoenaed would be determined by Judge Dawson’s order either affirming or overruling or modifying

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the undersigned’s order, this motion to compel was filed “out of an abundance of caution”.

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I.

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Plaintiffs’ Motion to Compel (Dkt. #203)
Plaintiffs subpoenaed documents concerning the Leany entities’ tax work papers and tax returns.

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The non-party accountants did not file objections or move to quash the subpoena. However, based

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upon the advice of opposing counsel, the Leany entities’ accountants have refused to produce

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responsive documents, citing privacy issues and other “vague concerns.”

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On June 22, 2010, the court entered a protective order precluding Plaintiffs from using

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confidential documents obtained pursuant to subpoenas for any purpose outside this litigation.

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Defendants indicated in several of their responses that they would produce Plaintiffs’ requested

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documents upon entry of the protective order. However, they did not do so, and the accountants were

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subpoened to obtain the discovery by other means.

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Clough, Wightman, and Hall have not produced the tax work documents. Plaintiffs argue the

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material they seek is not burdensome, and that the subpoenas were only issued after the undersigned

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found that financial documents from 2006 to the present were relevant and discoverable at the hearing

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conducted June 22, 2010. See Minute Order, Dkt. #93. The Plaintiffs also argue is the materialthey

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seek is not protected by the accountant-client privilege. At the hearing held on June 22, 2010, the

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undersigned found that the accountant-client privilege was not as broad as the Defendants claimed, and

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that the accountants’ assertion of the privilege was not proper basis to resist this discovery.

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Additionally, Plaintiffs argue Hall did not provided a privilege log, and has not indicated that it would

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comply with its obligations to produce a privilege log.

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II.

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Defendants Todd Leany and the Century Entities’ Opposition (Dkt. #207)
Defendants argue Plaintiffs motion failed to give notice to the parties to whom it was directed.

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Plaintiffs only served the motion on the parties to this case and not the subpoenaed third parties, and

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that the non parties have been deprived of the opportunity to demonstrate that the burden of complying

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with the subpoenas is undue. To date (as of the filing of the opposition at least), none of the

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subpoenaed entities were aware that the motion to compel then to respond had been filed..

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Secondly, there is no statement from counsel indicating they made an effort to consult with the

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non parties who are subject to the subpoenas at issue. Accordingly, Plaintiffs have not complied with

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LR 26-7, and the motion should be denied.

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Third, Defendants argue Plaintiffs’ motion misconstrues the breadth of the court’s prior orders.
The court has never addressed the specific subpoenas at issue here and the question of whether the
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information requested by the subpoenas at issue request material subject to the accountant-client

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privilege or whether the subpoenas place an undue burden on the subpoenaed non parties. The material

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requested by Plaintiff is protected by the accountant-client privilege, and contrary to Plaintiffs’

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assertion, Hall did provide a privilege log.

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Finally, the Century Defendants reassert the arguments they made regarding the relevance and

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appropriateness of the information being sought by subpoena, including the scope of the corporate

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financial information sought from the corporate entities and the personal tax and financial information

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sought from Todd Leany.

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III.

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Lynn Leany and the Lynn Leany Trust Opposition (Dkt. #208)
The Lynn Leany Defendants also assert that Plaintiffs have not served the motion on the

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subpoenaed parties and have not complied with LR 26-7, and the motion should be denied on these

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grounds.

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These Defendants also argue that Plaintiffs’ subpoenas to the accountants improperly seek

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privileged, confidential, and irrelevant documents. The documents Plaintiffs seek are subject to the

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accountant-client privilege, and the requests invade Leany’s privacy rights. The only reason Plaintiffs

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are seeking this information is to conduct an improper judgment debtor exam.

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IV.

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Plaintiffs’ Reply in Support of Motion to Compel (Dkt. #212)
Plaintiffs reiterate that this matter was largely decided by the undersigned on June 22, 2010,

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when I held that the Plaintiffs had made a sufficient preliminary showing to support the finding that the

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requests to non party financial institutions for Mr. Leany’s financial records were discoverable subject

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to a protective order precluding the parties from disclosing or using the records for any purpose

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unrelated to this litigation.

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Plaintiffs assert that Defendants contention the motion was not served on the accountants is

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merely a ploy to dissuade the court from deciding this matter on the merits, but offer to serve the

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motion on the accountants if the court grants leave. Additionally, this procedural oversight should not

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prevent this court from deciding the issue on the merits. Denying the motion due to lack of notice

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would not resolve an issue that has been prevalent throughout the discovery process and will likely

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result in a similar motion at a later date. The connection between the Defendants and the accountants is
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evident through the accountants written objection to the subpoenas, in which they assert that they will

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not produce the documents because they are covered by the accountant-client privilege.

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Plaintiffs assert they have met and conferred with the subpoenaed parties and defense counsel to

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resolve the dispute prior to the motion to compel being filed. Further, because it is Defendants who

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oppose the requests, rather than the accountants, conferring with the accountants would have been

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futile, as Plaintiffs’ counsel would have simply been directed to defense counsel. Plaintiffs assert that

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the accountants are certainly aware of this dispute, and because it is Defendants themselves who would

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hold any applicable accountant-client privilege, conferring with Defendants on this issue was

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reasonable.

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Plaintiffs reiterate their arguments that the documents subpoenaed are not protected by the

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account-client privilege. Defendants have offered no specific proof indicating the requested

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information comes within the protection of the privilege. Plaintiffs assert that the privilege cannot

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apply because the financial information was used by Defendants to perpetrate a fraud on Plaintiffs.

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DISCUSSION
The accountants who were subpoenaed to provide the tax records at issue in this motion did not

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file a motion to quash the subpoenas duces tecum. Non party Diane Clough filed a response to the

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subpoena objecting that the information sought is protected by the accountant-client privilege under

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NRS 49.185. The objection was accompanied by a privileged document log which identified 1,218

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documents. Wightman & Company also sent a letter to opposing counsel objecting to complying with

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the subpoena on the grounds it would require disclosure of accountant-client communications. The

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letter indicated that the clients, through its counsel, had advised the CPA firm that the Defendants

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would not waive the privilege. Additionally, the letter indicated that “the copiousness of the documents

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requested combined with the limited time given to identify documents related to twenty-one entities

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covering a five-year period is unreasonable, and that the associated costs to the firm were unreasonable.

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The motions to compel were not served on the non party entities on whom the subpoena duces

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tecum were served. Defendants are correct that a party seeking to compel a non-party to comply with

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the subpoena must serve a motion to compel compliance with the subpoena on the person commanded

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to produce documents. Fed.R.Civ.P. 45(c)(2)(B). Additionally, the court has compelled the Defendats
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to produce financial and tax record the court has found relevant and discoverable within the meaning of

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Rule 26(b). Accordingly,

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IT IS ORDERED that Plaintiffs’ Motion to Compel Accountants’ Responses (Dkt. #203) is
DENIED.
Dated this 29th day of September, 2011.

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______________________________________
Peggy A. Leen
United States Magistrate Judge

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