AZIMA v. DEL ROSSO et al
Filing
433
MEMORANDUM OPINION AND ORDER signed by JUDGE WILLIAM L. OSTEEN, JR on 01/27/2025, that Plaintiff's Appeal of Special Master's Report and Decision No. 7, (Doc. 358 ), is DENIED. (cc)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
FARHAD AZIMA,
Plaintiff,
v.
NICHOLAS DEL ROSSO and VITAL
MANAGEMENT SERVICES, INC.,
Defendants.
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1:20-cv-954
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Before this court is Plaintiff’s Appeal of Special Master’s
Report and Decision No. 7. (Doc. 358.) For the reasons stated
herein, Plaintiff’s motion will be denied.
I.
PROCEDURAL HISTORY
On December 29, 2023, this court ordered the appointment of
a Special Master pursuant to Federal Rule of Civil Procedure 53.
(Doc. 313.) The Special Master was appointed specifically to
“assist the parties to regulate discovery for the remainder of
this case.” (Id. at 1.)1 This court’s order stated that “[a]ny
All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
1
appeals from the rulings of the Special Master will be taken in
accordance with the Joint Agreement of the Parties.” (Id. at 6.)
The parties’ Joint Agreement provides that “[e]ither party
may, within seven calendar days of a decision of the special
master, appeal that decision” to this court. (Doc. 312-1 at 2.)
The Special Master filed her Special Discovery Master’s Report
and Decision #7 (“Report #7”) under seal on May 31, 2024. (Doc.
354.) She also filed a minimally redacted version of Report #7
on the same date. (Doc. 355.) Plaintiff filed his appeal of
Report #7 on June 5, 2024, (Doc. 358), and Defendants responded
on June 12, 2024, (Doc. 363). Non-parties Christopher Swecker
and Christopher Swecker, LLC (“Swecker”), (Doc. 364), and
Dechert, LLP (“Dechert”), (Doc. 365), also filed responses to
the appeal.
II.
STANDARD OF REVIEW
“When reviewing a party’s timely objection to a special
master’s report and recommendation, the Court must decide de
novo any objections to the Special Master’s factual finding(s).”
Daedalus Blue, LLC v. Microstrategy Inc., No. 2:20-cv-551, 2023
WL 5337826, at *2 (E.D. Va. Aug. 18, 2023) (citing Fed. R. Civ.
P. 53(f)). “Similarly, the Court must decide de novo any
objections to conclusions of law recommended by the Special
Master.” Id. However, as set forth in the Order appointing the
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Special Master in this case, the court will set aside the
Special Master’s rulings on procedural matters only for abuse of
discretion. See Fed. R. Civ. P. 53(f)(5); (Doc. 313 at 7). “In
acting on a master’s order . . . the court . . . may adopt or
affirm, modify, wholly or partly reject or reverse, or resubmit
to the master with instructions.” Fed. R. Civ. P. 53(f)(1).
III. ANALYSIS
Plaintiff appeals the Special Master’s resolution of four
discovery motions which were resolved by Report #7:
1. the Motion to Compel Christopher Swecker and Christopher
Swecker Enterprises to Produce Information Improperly
Withheld for Privilege (“Swecker Privilege Motion”);
2. the Motion to Compel Dechert LLP to Produce Information
Improperly Withheld for Privilege (“Dechert Privilege
Motion,” together with the Swecker Privilege Motion, the
“Privilege Motions”);
3. the Motion to Compel the Production of Documents
Pursuant to the Crime-Fraud Exception (“Crime-Fraud
Motion”); and
4. the Motion to Compel Dechert LLP to Produce Documents
Relating to Prior Allegations of Hacking (“Hacking
Motion”).
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(Doc. 361 at 1–2.) Plaintiff urges the court to overrule the
Special Master’s denial of these motions because Report #7
(1) fails to apply a critical prior ruling on
privilege [(the ruling in Report #1 that Defendants
cannot assert RAK’s privilege on its behalf)] that
renders Ruling 7, at best, premature; (2) misapplies
the law as to privilege waiver and the crime-fraud
exception; and (3) denies the motion without full
opportunity to be heard and a thorough examination of
the facts.
(Doc. 358 at 6.)
Plaintiff asks the court to “hold an evidentiary hearing
and/or conduct an in camera review of documents in order to
resolve these critical privilege issues,” and “order Dechert to
produce all withheld documents related to allegations of prior
hacking” against Defendants. (Id.)
A.
Effect of Report #1 on RAK’s Privilege
In Special Discovery Master’s Report and Decision #1
(“Report #1”), the Special Master determined that Defendants
could not assert RAK’s privilege on its behalf because, at most,
Defendants were third-party consultants working for Dechert in
Dechert’s capacity as attorneys for RAK.2 (See Doc. 316 at 17.)
As a result, the Special Master directed that RAK must appear in
this case to assert its attorney-client privilege over the
documents Defendants have withheld on the basis that the
Separately, it appears that Dechert has appropriately
asserted attorney-client privilege on RAK’s behalf.
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documents are subject to RAK’s attorney-client privilege. (Id.)
RAK has not made this appearance. Defendants appealed this part
of Report #1, but, as the court explained in its Memorandum
Opinion and Order addressing Defendants’ appeal, the Special
Master’s determination that Defendants do not have standing to
assert RAK’s attorney-client privilege was correct. (See Doc.
431 at 7.)
Plaintiff argues that Report #7 erroneously “fails to
address the Special Master’s prior ruling on privilege, which
conflicts with Ruling 7.” (Doc. 358 at 6.) It appears that
Plaintiff argues Dechert and Swecker “cannot assert privilege
over many of the documents at issue” in this case because Report
#1 held that “third parties cannot assert privilege over any
documents whose privilege is purportedly held by RAK.” (Id. at
7.) But Report #1 did not sweep so broadly. Instead, it held
only that Defendants, as a third-party consultant hired by
Dechert for its representation of RAK, could not assert RAK’s
attorney-client privilege. (See Doc. 316 at 17.) Both Dechert
and Swecker, as attorneys for RAK and Defendants, respectively,
are capable of asserting the attorney-client privilege on their
clients’ behalf. This portion of Plaintiff’s appeal is denied.
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B.
Privilege Designations of NTi Reports
Plaintiff next argues that Report #7 “misapplied privilege
law regarding NTi hacking reports that Defendants and their
agents turned over to the FBI.” (Doc. 358 at 7.) Plaintiff
alleges that Defendants “commissioned and paid for reports that
were written by NTi and contained and analyzed Azima’s stolen
data. NTi prepared dozens of those reports, and voluntarily
provided them to the FBI and federal prosecutors in order to
create legal jeopardy for Azima.” (Id. at 7–8.) Plaintiff argues
that any potential privilege was waived by providing the NTi
reports to third parties. (Id. at 8 (citing Fed. Election Comm’n
v. Christian Coal., 178 F.R.D. 61, 67 (E.D. Va. 1998).)
In Report #7, the Special Master determined that production
of the NTi reports to the FBI did not waive any privilege over
those reports because, though they “appear to contain work
product information[,] . . . waiver of work product requires
that the disclosure must enable an adversary to get hold of the
information.” (Doc. 355 at 11 (citing Bowne of New York City,
Inc. v. AmBase Corp., 150 F.R.D. 465, 480 (S.D.N.Y. 1993).)
Plaintiff argues this conclusion was erroneous.
As another court in this district has explained, “[b]ecause
the work-product doctrine serves instead to protect an
attorney’s work product from falling into the hands of an
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adversary, a disclosure to a third party does not necessarily
waive the protection of the work-product doctrine. Most courts
hold that to waive the protection of the work-product doctrine,
the disclosure must enable an adversary to gain access to the
information.” United States v. Duke Energy Corp., 214 F.R.D.
383, 387 (quoting Westinghouse Elec. Corp. v. Republic of
Philippines, 951 F.2d 1414, 1427–28 (3d Cir. 1991)). “The
purpose of the work product doctrine is to protect information
against opposing parties, rather than against all others outside
a confidential relationship[.]” Fed. Elec. Comm’n v. Christian
Coal., 178 F.R.D. 61, 76 (E.D. Va. 1998) (quoting United States
v. Am. Tel. and Tel. Co., 642 F.2d 1285, 1299 (D.C. Cir. 1980)).
Plaintiff argues that the FBI was adverse to Dechert,
Swecker, and NTi because the FBI agent who received the reports
“knew that Dechert’s client had been accused of stealing the
data contained in the Reports and seemed to suggest that
Dechert’s client was the subject of the government’s
investigation.” (Doc. 358 at 9 (citing Pl.’s Ex. 8, Dep. of Paul
Zukas (“Zukas Dep.”) (Doc. 358-8)). But the Zukas Deposition
states only that Zukas “was aware that there was litigation
ongoing between the parties. . . . I wasn’t aware nor were we
really concerned, necessarily, with who was filing the lawsuit .
. . . We were concerned with our investigation in chief.” (Zukas
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Dep. (Doc. 358-8) at 3.) Zukas testified he became aware that
Azima was suing RAK for hacking him during the investigation.
(Id. at 3–4.) Zukas later stated that “Farhad Azima and RAK are
basically synonymous with each other,” (id. at 9), but this page
of the deposition and the other excerpts provided by Plaintiff
as Exhibit 8 to his appeal lack context and do not demonstrate
to the court that the FBI was adverse to Dechert, Swecker, or
NTi at the time the reports were disclosed.
On appeal, Plaintiff relies on a Southern District of New
York case which held that “where the third party to whom the
disclosure is made is not allied in interest with the disclosing
party or does not have litigation objectives in common, the
protection of the [work product] doctrine will be waived.” (Doc.
358 at 9 (quoting Medinol, Ltd. v. Bos. Sci. Corp., 214 F.R.D.
113, 115 (S.D.N.Y. 2002) (holding that legally-required
disclosures by a company to an external auditor waived work
product protection).) Though Agent Zukas testified that he still
conducted his own investigation and did not rely solely on the
NTi reports for information, (see Zukas Dep. (Doc. 358-8) at 6),
this does not place Agent Zukas or the FBI in a position
adversarial to Dechert, Swecker, or NTi.
The court cannot conclude from the evidence presented that
the FBI was adverse to Dechert, Swecker, or NTi such that their
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production of the NTi reports to the FBI waived work product
privilege over those reports. Thus, the Special Master’s
determination that “[t]here is nothing to suggest that the FBI
was adverse to Dechert or Swecker, or any of their clients or
agents” was appropriate, given the evidence. (See Report #7
(Doc. 355 at 11.) Plaintiff does not demonstrate that the FBI
and Dechert, Swecker, or NTi were not allied in interest or that
the FBI was adverse to Dechert, Swecker, or NTi in a position
analogous to a company and its external auditor. Accordingly,
this portion of Plaintiff’s appeal must be denied.
C.
Crime-Fraud Motion
Next, Plaintiff argues that the Special Master “fail[ed] to
apply correct legal standards” when evaluating the crime-fraud
exception’s potential application to certain documents. (Doc.
358 at 17.) This claim is based on the fact that certain
documents regarding how Dechert obtained Plaintiff’s data, and
Dechert’s statements about how they obtained the data, were
subject to the “iniquity exception” in the aforementioned UK
litigation. (Id.) The iniquity exception, “like the crime-fraud
exception, provides that privilege does not attach to
communications for an iniquitous purpose.” (Report #7 (Doc. 355)
at 6.)
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Plaintiff argues that the Special Master’s reliance on
Window World of Baton Rouge, LLC v. Window World, Inc., Nos. 15cvs-1, 15-cvs-2, 2019 WL 3995941, at *18 (N.C. Super. Ct. Aug.
16, 2019) and its “preponderance of the evidence” standard for
evaluating the applicability of the crime-fraud exception was
misplaced. (Doc. 358 at 18–19.) Plaintiff instead urges that the
Special Master should have applied only a prima facie standard
as set forth in In re Grand Jury Proceedings #5 Empanelled
January 28, 2004, 401 F.3d 247, 251 (4th Cir. 2005). (Id.)
As the Special Master has previously stated, North Carolina
law applies to discovery disputes in this case because Plaintiff
brings state law claims against Defendants. Window World’s
preponderance of the evidence standard was set forth by the
Superior Court of North Carolina and was later affirmed per
curiam by the North Carolina Supreme Court. See 377 N.C. 551,
857 S.E.2d 850 (N.C. 2021). Accordingly, Window World governs
the standard applicable to Plaintiff’s crime-fraud exception
motion.
Acknowledging In re Grand Jury Proceedings #5, the Window
World court explained that “[f]ederal decisions hold that the
party invoking the crime-fraud exception must make a prima facie
showing that otherwise privileged communications fall within the
exception.” 2019 WL 3995941, at *17 (citing In re Grand Jury
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Proc. #5, 401 F.3d at 251)). The party seeking to invoke the
exception
must show that “(1) the client was engaged in or
planning a criminal or fraudulent scheme when he
sought the advice of counsel to further the scheme,
and (2) the documents containing the privileged
materials bear a close relationship to the client’s
existing or future scheme to commit a crime or fraud.”
“Prong one of this test is satisfied by a prima facie
showing of evidence that, if believed by a trier of
fact, would established the elements of some
violation that was ongoing or about to be committed.”
“Prong two may be satisfied with a showing of a close
relationship
between
the
attorney-client
communications
and
the
possible
criminal
or
fraudulent activity.”
Id. (quoting In re Grand Jury Proceedings #5, 401 F.3d at 251)
(internal citations omitted).
The Window World court explained that courts “are divided
as to the appropriate quantum of proof necessary to make a prima
facie showing.” Id. (quoting In re Grand Jury, 705 F.3d 133,
151–53 (3d Cir. 2012)). The court then determined that, in North
Carolina, “a preponderance of the evidence standard is
appropriate in the civil context,” emphasizing that “under North
Carolina Rule of Evidence 104(a), preliminary questions of fact
concerning privileges must be established by a preponderance of
the evidence.” Id. at *18 (citing State v. McGrady, 368 N.C.
880, 892, 787 S.E.2d 1, 10 (2016)). Accordingly, the court
concluded
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that a party seeking to invoke the crime-fraud
exception to defeat the attorney-client privilege in
a civil case3 must bear the burden of showing by a
preponderance of the evidence that the opposing party
was committing or intending to commit a crime or fraud
and that the attorney-client communications were used
in furtherance of the alleged crime or fraud.
Id. at *18.
Based on the court’s review of the Special Master’s
resolution of Plaintiff’s crime-fraud motion, she first
determined that North Carolina law applies to the dispute, then
applied Window World’s preponderance of the evidence standard.
This was a correct application of North Carolina law, and this
portion of Plaintiff’s appeal must be denied.
D.
Procedural Objections
Finally, Plaintiff argues that Report #7 was produced
“without adequate opportunity to be heard or analysis to support
its decision.” (Doc. 358 at 12.) First, Plaintiff states
repeatedly that Report #7 “contains minimal and inadequate
analysis of the facts and law.” (Id. at 13.) Even a cursory
review of Report #7 confirms otherwise. Rather, it is more than
clear that the Special Master was thorough in her examination of
As Dechert points out, the Window World court examined In
re Grand Jury Proceedings #5 and then “explicitly concluded that
the burden of proof should be higher for civil cases under North
Carolina law than the burden applied to federal grand jury
cases.” (Doc. 367 at 16-17.)
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the evidence before her and the applicable law when making the
determinations published in Report #7.
Second, Plaintiff asserts Report #7 was produced without
providing him an opportunity to be heard or to present
supplemental briefing. (Id. at 12.) Plaintiff argues that the
court should overrule Report #7 in light of these “procedural
deficiencies and lack of analysis.” (Doc. 358 at 15.) However,
Plaintiff consented to the terms governing procedure before the
Special Master in this case. (See Doc. 312-1.) These terms
include that the parties are not entitled to hearings, but the
Special Master has discretion to conduct conferences if she
deems it necessary. (Id. at 2.) Plaintiff has not asserted that
he asked for an evidentiary hearing, the opportunity to submit
supplemental briefing, or to participate in oral argument. (Doc.
358 at 14.) Rather, Plaintiff argues the Special Master
erroneously “failed to conduct an evidentiary hearing, solicit
supplemental briefing, or request oral argument.” (Id.)
Plaintiff now asks this court for an evidentiary hearing, (id.
at 17), which it appears he did not ask the Special Master for,
but this court finds that Report #7 is sufficiently thorough and
demonstrates appropriate consideration of all the evidence
before the Special Master. Plaintiff does not demonstrate that
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any procedural deficiencies occurred, so this portion of
Plaintiff’s appeal is denied.
IV.
CONCLUSION
For the foregoing reasons, IT IS THEREFORE ORDERED that
Plaintiff’s Appeal of Special Master’s Report and Decision No. 7,
(Doc. 358), is DENIED.
This the 27th day of January, 2025.
__________________________________
United States District Judge
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