Chemeon Surface Technology, LLC vs Metalast International, Inc, et al
Filing
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ORDER granting 151 plaintiff's motion to compel as it concerns the thirty-four documents submitted in camera. Defendants shall produce these documents to plaintiff's counsel within three court days of this order. Signed by Magistrate Judge Valerie P. Cooke on 9/15/16. (Copies have been distributed pursuant to the NEF - DN)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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CHEMEON SURFACE TECHNOLOGY, LLC,
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Plaintiff,
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Case No. 3:15-CV-0294-MMD (VPC)
ORDER
v.
METALAST INTERNATIONAL, INC., et al.,
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Defendants.
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_______________________________________
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AND RELATED CLAIMS.
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Before the court is plaintiff’s motion to compel (ECF Nos. 151, 152 & 153). Defendants
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opposed (ECF Nos. 156, 157 & 158), and plaintiff replied (ECF Nos. 163 & 164). On August
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11, 2016, the court heard oral arguments on the motion and other pending matters at the case
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management conference (ECF No. 166).
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asserted certain documents are protected by the attorney-client privilege, that defendants provide
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a privilege log for plaintiff’s review.
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challenged thirty-four email communications as falling within the subject matter waiver of the
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attorney-client privilege (ECF No. 175). Defendants submitted the thirty-four emails for the
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court’s in camera review (ECF No. 176).
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I.
The court directed that to the extent defendants
Id.
Counsel for the parties then met, and plaintiff
Background and Procedural History
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Metalast International, LLC (the “LLC”) was formed in 1994. The LLC operating
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agreement provides that Metalast International, Inc. (the “INC”) was the manager of LLC and
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had full authority to act on behalf of the LLC, which included running the LLC’s daily
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operations (ECF No. 152, Exhibit 2). Co-defendant, David Semas (“Mr. Semas”), was the
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President and CEO of the INC, and in that capacity, was responsible for the overall supervision
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of LLC’s business. Id. Mr. Semas was also charged with effectuating the decisions of the
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manager, INC, in connection with the management of the LLC. Id.
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Ian Burns (“Mr. Burns”) served as the intellectual property attorney for both the INC and
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the LLC for approximately twenty years (ECF No. 152; see, e.g., Exs. 2, 3, 5, & 6). There is no
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dispute that Mr. Burns provided legal advice to both the LLC and the INC on issues concerning
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the development, acquisition, registration, ownership, protection, licensing, and assignment of
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intellectual property rights, including trademarks.
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registration of the METALAST marks, which are the subject of the current lawsuit. Id. Mr.
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Burns applied for trademark registrations at the U.S. Patent & Trademark Office (“PTO”) related
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to the METALAST mark and other services related to trademarks assignments and licensing. Id.
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The LLC paid all of Mr. Burns’s attorney’s fees. Id.
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Mr. Burns was directly involved in the
In April, 2013, a state court found the LLC insolvent and appointed a receiver to oversee
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it (ECF No. 152, Ex. 13).
In connection with the receivership, the state court issued a
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preliminary injunction prohibiting the LLC and the INC from “. . . transferring, assigning,
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selling, conveying . . . concealing, or in any manner whatsoever destroying or disposing of the
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whole or any part of the assets of the receivership estate” and from “[d]oing any act which will,
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or which will tend to, impair, defeat, divert, prevent or prejudice the preservation of the proceeds
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of the receivership estate in whatever form the interest is held . . . .” Id.
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Plaintiff alleges that on May 7, 2013, during the pendency of the receivership, Mr. Semas
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caused the INC to assign all of its rights in the METALAST trademark to himself, as an
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individual (ECF No. 152, Ex. 14.) Seven months later, on November 4, 2013, the state court
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approved the sale of LLC’s assets out of the receivership to plaintiff. See id. Ex. 12. Believing it
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had acquired the rights to the METALAST mark, plaintiff changed its name to Metalast Surface
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Technology. See ECF No. 108. It was not until March 21, 2014 – after the assets had been
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transferred and the receivership terminated – that the assignments from the INC to Mr. Semas
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were filed with the PTO and made public (ECF No. 152, Ex. 14).
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Following these events, Mr. Semas and his wife filed for Chapter 11 protection, and
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plaintiff filed a proof of claim in the amount of $4,028,232.57, including $471,582.08 that Mr.
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Semas personally guaranteed (ECF No. 108). Plaintiff and the Semases thereafter entered into a
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settlement agreement, but the parties dispute which trademark assets were awarded to plaintiff as
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part of the receivership. Id. This lawsuit followed.
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When plaintiff acquired the LLC’s assets, it acquired all of the LLC and INC legal files,
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which were intermingled and contained in the LLC’s database (ECF No. 153). There were
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voluminous legal files, including attorney correspondence, draft and final legal documents, and
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there was no segregation of the documents on the basis of the LLC or the INC. Id. The
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documents ranged from hard copy documents to electronic files, and the legal files in electronic
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format were all stored in LLC’s document database, which the LLC created, paid for and
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maintained. Id. The legal files include numerous communications to and from Mr. Burns, and,
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as a result, many communications to and from Mr. Burns were included in the legal documents
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which are in plaintiff’s possession. Id.
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It is undisputed that at no time has INC, or any of its former or current principals, stated
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that plaintiff should not be in possession of the legal documents that plaintiff obtained in
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connection with LLC acquisition, nor has INC or it its current or former principals requested that
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any legal documents be returned. Id. During discovery, plaintiff produced responsive legal
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documents in its possession, which included many attorney-client communications involving Mr.
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Burns (ECF No. 152, Exs, 5, 6, 9, & 28). Neither INC nor its former or current principals
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objected to this production, sought to claw back the materials on the basis of attorney-client
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privilege or attorney work product, or made any other complaints about this production (ECF
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No. 152).
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In April 2016, plaintiff served a request for production of documents, and defendants
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objected that the requested documents were subject to the attorney-client privilege. Id., Exs. 15
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& 16. After a hearing on the motion to compel, two case management conferences, and several
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meet-and-confers between counsel, plaintiff challenged the thirty-four emails as falling within
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the subject matter waiver of the attorney-client privilege. These emails were submitted for in
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camera review, and this order follows.
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II.
Discussion
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The question in what remains of this dispute is whether defendants waived the attorney-
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client privilege as to the remaining email communications submitted for the court’s in camera
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review. The attorney-client privilege protects confidential communications between a client and
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his or her attorney for the purpose of obtaining or dispensing legal advice. United States v.
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Chen, 99 F.3d 1495, 1501 (8th Cir. 1996).
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communication between attorneys and their clients and thereby promote broader public interests
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in the observance of law and administration of justice.” Upjohn v. United States, 449 U.S. 383,
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389 (1981). Federal privilege law applies where the court’s jurisdiction is based in part on
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federal question claims with pendent state law claims. See Agster v. Maricopa Cty., 422 F.3d
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836, 839 (9th Cir. 2005).
“Its purpose is to encourage full and frank
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The burden of establishing the attorney-client relationship and the privileged nature of
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each communication lies with the party claiming the privilege. United States v. Bauer, 132 F.3d
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504, 507 (9th Cir. 1997). “One of the elements that the asserting party must prove is that it has
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not waived the privilege.” Weil v. Inv./Indicators, Research & Mgmt., Inc., 647 F.2d 18, 25 (9th
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Cir. 1981). Waiver may be express or implied. Bittaker v. Woodford, 331 F.2d 715, 719 (9th Cir.
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2003). The voluntary disclosure of privileged or work product information to third parties
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constitutes a waiver and destroys any privilege claims. See Weil, 647 F.2d at 24. The scope of
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the waiver is broader than the communications themselves, and “it has been widely held that
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voluntary disclosure of the content of a privileged attorney communications constitutes waiver of
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the privilege as to all other such communications on the same subject.” Id.
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In re In-Store Advertising Sec. Litig., 163 F.R.D. 452 (S.D.N.Y. 1995) is instructive on
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this issue.
The court considered the effect of a transfer of assets from In-Store, which
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reorganized in bankruptcy as Emarc. Emarc then transferred certain assets to Valassis, including
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250 documents. Id. at 455-56. In subsequent securities litigation related to In-Store, Valassis
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produced the documents in response a third-party subpoena. This drew objections from certain
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defendants and a law firm who contended that at least some of the documents were protected by
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the attorney-client privilege. The court rejected the claims of privilege and stated, “”When those
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communications were transferred to Valassis in connection with the sale of assets by Emarc to
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Valassis, Emarc thereby waived any privilege still in effect as to those communications. . . . The
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former attorney of In-Store. . . cannot claim the privilege that has been waived by the successor
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to its former client.” Id. at 458.
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The analysis in In-Store is persuasive in this case. Here, when plaintiff purchased the
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Metalast assets out of receivership, the co-mingled legal files of the LLC and the INC were
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included. Plaintiff admits that it has many LLC and INC legal documents in its possession, yet
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defendants never sought return of the documents, nor did they attempt to claw back materials
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based on attorney-client privilege.
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It is the burden of party asserting the privilege to establish all of the elements of the
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privilege. United States v. Marton, 278 F.3d 988, 999-1000 (9th Cir. 2002). One of the elements
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the party claiming the privilege must prove is that it has not waived the privilege. Weil, 647 F.2d
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at 24. Since the basis for the attorney-client privilege is to protect confidential communications,
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that purpose ends when confidential communications are voluntarily disclosed to a third party.
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Defendants asserted the attorney-client privilege in refusing to produce the documents at issue,
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yet their opposition contains no discussion whatsoever concerning the pivotal issue of whether
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there was a waiver as to attorney-client communications involving legal services associated with
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the LLC or INC’s development, acquisition, registration, ownership, protection, licensing, and
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assignment of intellectual property rights. See generally ECF No. 156. By failing to oppose
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plaintiff’s claim of waiver of the privilege, defendants concede the point. LR 7-2(d).
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The court finds that defendants’ voluntary disclosure of the attorney-client
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communications constitutes a waiver of the privilege “as to all other such communications on the
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same subject.” Weil, 647 F.2d at 24. By “the same subject,” the court finds this includes the
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provision of legal services related to the development, acquisition, registration, ownership,
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protection, licensing, and assignment of intellectual property rights for the LLC and the INC.
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As to the thirty-four documents submitted to the court in camera, the court finds that
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these documents relate to the universe of documents included in the subject matter waiver;
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therefore, they are not entitled to any privilege protections.
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III.
Conclusion
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Based upon the foregoing, plaintiff’s motion to compel (ECF No. 151) as it concerns the
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thirty-four documents submitted in camera is GRANTED. Defendants shall produce these
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documents to plaintiff’s counsel within three court days of this order.
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Defendants shall make arrangements to have the in camera documents picked up from
the court no later than Thursday, September 22, 2016 or they shall be destroyed.
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IT IS SO ORDERED.
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DATED: September 15, 2016.
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UNITED STATES MAGISTRATE JUDGE
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