Pinnacle Packaging Company, Inc. et al v. One Equity Partners LLC et al
Filing
180
OPINION AND ORDER by Magistrate Judge T Lane Wilson the Court will conduct an in camera review of following documents: Dkt. 138, Exhibits 4, 5, 6, 18, 20, 23, 25, 26, and 34. Defendants are ordered to produce the unredacted versions of those do cuments in chambers on or before 2/15/16. ; granting in part 135 Motion for Miscellaneous Relief (Re: 137 SEALED Unredacted Version of ( 136 Redacted BRIEF in Support of Motion) per Local Rule 5.3(b), 138 Sealed Additional Attachment(s) to Sealed Document Exceeding File Size Limit, ) (crp, Dpty Clk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
PINNACLE PACKAGING
COMPANY, INC.,
an Oklahoma corporation,
POLO ROAD LEASING, LLC,
an Oklahoma limited liability company,
and
J. SCOTT DICKMAN,
)
)
)
)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
CONSTANTIA FLEXIBLES GmbH,
)
an Austrian corporation, and
)
ONE EQUITY PARTNERS (EUROPE) )
GmbH,
)
)
Defendants.
)
Case No. 12-CV-537-JED-TLW
OPINION AND ORDER
Before the Court is Plaintiff’s Motion to Apply Crime Fraud Exception to Claims of
Privilege by Defendants and for Other Relief on Claims of Privilege. (Dkt. 135). Plaintiffs
contend that defendant made fraudulent misrepresentations during negotiations to purchase
plaintiff Pinnacle Packaging and that defendants used their legal counsel to perpetuate that fraud.
(Dkt. 137). Plaintiffs argue that the Court should apply the crime fraud exception to every email
in the three privilege logs attached as Exhibits 1, 2, and 3 of their motion, but plaintiffs focus
their argument on their request for an in camera review of a smaller collection of emails, listed
as Exhibits 4-6 and 18, 20, 23, 25, 26, and 34 to their motion. (Dkt. 135, 138).
FACTUAL BACKGROUND1
This case arises from a failed business deal. Plaintiff Pinnacle is the sole shareholder of
Oracle, a flexible packaging company. The remaining plaintiffs own stock in Pinnacle, and
plaintiff Dickman was the majority shareholder and CEO. Plaintiffs describe Oracle as “very
well positioned in the U.S. flexible packaging manufacturing industry” but admit that “it was
undergoing substantial liquidity problems due to business and general economic circumstances
beyond its control that began in October, 2011.” (Dkt. 89, ¶ 10).
In March 2012, plaintiffs entered into an agreement with a third party, Centre Lane, to
purchase Oracle. This agreement included an exclusivity provision that prevented plaintiffs from
attempting to negotiate a sale with any third parties. In May 2012, Centre Lane sued plaintiffs,
alleging that they had breached the exclusivity provision. At that time, Constantia’s
representatives contacted Dickman to inquire about purchasing or entering into a joint venture
with Oracle. Plaintiffs met with defendants but continued to work toward a settlement with
Centre Lane, with the intent that Centre Lane would purchase Oracle. Plaintiffs allege that the
timing of the sale of Oracle was critical because Wells Fargo, which had loaned Oracle funds
through Credit and Security Agreements since 2010, had recently declared Oracle in breach of
those agreements. Wells Fargo demanded that the loan be repaid in full through a sale or
refinancing by July 31, 2012.
Defendants and plaintiffs began efforts to negotiate a purchase of Oracle by Constantia.
Plaintiffs allege that defendants agreed to loan plaintiffs the money to settle its lawsuit with
Centre Lane, thereby ending negotiations for Centre Lane to purchase Oracle. Plaintiffs also
1
The information in this section is taken from plaintiffs’ Second Amended Complaint. (Dkt. 89).
2
allege that defendants agreed to pay off the Wells Fargo debt so that plaintiffs could avoid
defaulting on the loan.
Defendants loaned plaintiffs the money to effectuate the settlement with Centre Lane, but
the July 31, 2012 deadline passed without satisfaction of the debt to Wells Fargo. Wells Fargo
froze Oracle’s credit account, forcing Oracle into a position where it could not fund its day-today operations. Thereafter, the deal with defendants fell through, and plaintiffs were “forced” to
sell Oracle to Centre Lane quickly and at a much lower price than plaintiffs had originally
negotiated. This lawsuit followed.
PLAINTIFFS’ MOTION
The privileged documents sought by plaintiffs fall into three different subject areas: (1)
those related to the Settlement Agreement and General Release between Centre Lane and
plaintiffs, including the promissory note that plaintiffs signed with defendants to secure that
settlement; (2) those related to plaintiffs’ Wells Fargo debt2 and defendants’ discussions either to
pay-off or to extend that debt as part of a plan to purchase Oracle; and (3) those related to the
role that One Equity Partners (Europe) or One Equity Partners LLC played in negotiating with
plaintiffs in 2012. Id. Plaintiffs seek discovery of all emails identified in the privilege logs from
Thomas Blaige, Freshfields Bruckhaus Deringer US LLP, and One Equity Partners LLC but
specifically request an in camera review of nine email strings, identified as Exhibits 4-6 and 18,
20, 23, 25, 26, and 34 to plaintiffs’ motion, and all the emails identified in the privilege log
submitted by One Equity Partners LLC. Id.; (Dkt. 138).
Relevant to plaintiffs’ motion are the following alleged misrepresentations and
omissions:
The Wells Fargo debt belonged to Oracle (wholly owned by Pinnacle) and was personally
guaranteed by Dickman. Polo Road owned Pinnacle.
2
3
(1)
von Hugo misrepresented to Dickman that “we” will either move forward
with the purchase of the Wells Fargo debt or tell Dickman that they
cannot. (Dkt. 137 at 6).
(2)
One Equity Partners (Europe) and/or One Equity Partners LLC
misrepresentated that they were participants in the negotiations with
Constantia to purchase Oracle. (Dkt. 137). One Equity Partners LLC is no
longer a party to this lawsuit.3
(3)
During a July 25, 2012, telephone call, defendants promised to lend
plaintiffs up to $6 million to settle with Centre Lane, but they also
misrepresented that plaintiffs could keep half of the difference between the
$6 million and any actual settlement figure. Id.
(4)
During the July 25, 2012, telephone call, defendants misrepresented that,
following the settlement with Centre Lane, defendants would “buy out”
plaintiffs’ loan with Wells Fargo at par while defendants conducted due
diligence regarding the purchase of Oracle. Id. Defendants also
misrepresented that they would assume the Wells Fargo debt in the event
that they did not purchase Oracle and give plaintiffs six months to place
the debt with another financial institution. Id.
(5)
Instead of purchasing the loan, however, defendants omitted to tell
plaintiffs that they intended to approach Wells Fargo on July 31, 2012 –
the day the loan was due in full – with a plan to pay a $1 million fee and
provide Wells Fargo with other benefits to obtain an extension of the loan
for forty-five days. Id.
Plaintiffs argue that defendants used their law firm, Freshfields, and one of its attorneys,
Tim Wilkins, to perpetuate their alleged fraud by having Wilkins assist in drafting the settlement
agreement with Centre Lane. Id. Plaintiffs also argue that Wilkins communicated with plaintiff
Dickman directly about the Wells Fargo loan and that those communications were intended to
mislead plaintiffs regarding defendants’ “scheme” not to pay off the loan. Id. Additionally,
3
One Equity Partners LLC was named as a defendant in the Complaint and then dismissed for a
lack of personal jurisdiction. (Dkts. 2, 84). One Equity Partners (Europe) remains a defendant. In
their motion, plaintiffs imply that One Equity Partners LLC participated in the negotiations to
purchase Pinnacle Packaging.
4
plaintiffs cite a number of emails between the parties, in which Wilkins was copied but did not
respond, furthering a “conspiracy” among defendants to mislead plaintiffs. Id.
Defendants argue generally that Oklahoma’s crime-fraud exception is an “exceptional”
remedy applicable only in limited circumstances, as evidenced by the limited number of cases in
which it has been applied. (Dkt. 144). Defendants also argue that Oklahoma’s crime-fraud
exception statute does not apply to civil cases. Id. With respect to the application of the privilege
to this case, defendants contend that plaintiffs have failed to present a prima facie showing of the
elements of fraud or that any of the attorney-client privileged communications were intended “to
promote or conceal the alleged fraud.” Id. at 18.
Plaintiffs have submitted the three privilege logs at issue, as well as a mix of discovery
and affidavits to support their claim that defendants and their counsel perpetrated a fraud, thus
triggering the crime fraud exception.
ANALYSIS
Federal Rule of Evidence 501 states that, “[i]n a civil case, state law governs privilege
regarding a claim or defense for which state law supplies the rule of decision.” Fed. R. Evid. 501.
Oklahoma provides the rule of decision here, and Oklahoma’s attorney-client privilege statute
allows a client,
to refuse to disclose and to prevent any other person from disclosing confidential
communications made for the purpose of facilitating the rendition of professional
legal services to the client:
1. Between the client or a representative of the client and the client’s attorney or
a representative of the attorney;
2. Between the attorney and a representative of the attorney;
3. By the client or a representative of the client or the client’s attorney or a
representative of the attorney to an attorney or representative of an attorney
5
representing another party in a pending action and concerning a matter of
common interest therein;
4. Between representatives of the client or between the client and a
representative of the client; or
5. Among attorneys and their representatives representing the same client.
Okla. Stat. tit. 12, § 2502(B). The privilege does have limited exceptions, including a crimefraud exception, which waives the privilege “[i]f the services of the attorney were sought or
obtained to enable or aid anyone to commit or plan to commit what the client knew or reasonably
should have known to be a crime or fraud.” Id. at § 2502(D)(1).
Application of the Oklahoma Crime-Fraud Exception to Civil Cases
Defendants argue that the crime-fraud exception has never been applied to a case
involving civil fraud. (Dkt. 144 at 17). Defendants further contend that even in civil cases, the
exception has been applied only to criminal behavior, citing White v. American Airlines, Inc.,
915 F.2d 1414 (10th Cir. 1990), a wrongful termination case in which the plaintiff alleged that
the defendant’s attorney, at the behest of the defendant, asked plaintiff to perjure himself in a
deposition. See White, 915 F.2d at 1417-18. (Dkt. 144 at 17).
Notwithstanding defendants’ contention, the Tenth Circuit has interpreted Oklahoma’s
crime-fraud exception to apply to both crime and civil fraud. See Motley v. Marathon Oil Co., 71
F.3d 1547, 1551 (10th Cir. 1995) (declining to extend the exception to torts but acknowledging
the exception as applicable to either crime or fraud). A plain reading of the statute is consistent
with the Tenth Circuit’s interpretation. The statute specifically refers to “a crime or fraud.” Okla.
Stat. tit. 12, § 2502(D)(1) (emphasis added). The word “or” is disjunctive and “unless the context
or [legislative] intent [of a statute] indicates otherwise, the use of a disjunctive in a statute and
regulations indicates that alternatives were intended.” Knutzen v. Eben Ezer Lutheran Housing
6
Ctr., 815 F.2d 1343, 1349 (10th Cir. 1987) (citations omitted). As the Supreme Court has held,
“[c]anons of construction ordinarily suggest that terms connected by a disjunctive be given
separate meanings, unless the context dictates otherwise.” Reiter v. Sonotone Corp., 442 U.S.
330, 339, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). Because the term “crime” would encompass all
criminal activity, including criminal fraud, the term “fraud” must refer to civil fraud. Therefore,
the Court finds that the crime-fraud exception does apply to civil fraud.
Prima Facie Evidence
Before the Court may conduct an in camera review of privileged documents to determine
whether the crime-fraud exception applies, plaintiffs “must present prima facie evidence that the
allegation of attorney participation in the crime has some foundation in fact.” In re Grand Jury
Subpoenas, 144 F.3d 653, 660 (10th Cir. 1998). The “exact quantum” of evidence necessary to
establish a prima facie case is not well-defined. Id. The Supreme Court has held only that
[b]efore engaging in in camera review to determine the applicability of the crimefraud exception, ‘the judge should require a showing of a factual basis adequate to
support a good faith belief by a reasonable person,’ Caldwell v. District Court,
644 P.2d 26, 33 (Colo. 1982), that in camera review of the materials may reveal
evidence to establish the claim that the crime-fraud exception applies.
United States v. Zolin, 491 U.S. 554, 572, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). The decision
to conduct an in camera review “rests in the sound discretion of the district court.” Id.
The Court notes two cases in which a reviewing court addressed the burden to establish a
prima facie case, with differing results. In White v. American Airlines, Inc., the Tenth Circuit
found that the plaintiff established a prima facie case to support application of the crime-fraud
exception. See 915 F.2d at 1424. Plaintiff testified that defendant’s counsel asked him repeatedly
to commit perjury during a deposition and presented additional evidence that defendant’s counsel
met with a vice-president of the defendant corporation “just prior to making a number of these
7
requests.” Id. However, in Cooper v. State, 671 P.2d 1168 (Okla. Crim. App. 1983), the
Oklahoma Court of Criminal Appeals declined to apply the crime-fraud exception in a case
where the only evidence was the defendant’s own testimony. Id. at 1172. Accordingly,
something other than plaintiff Dickman’s testimony is necessary to establish a prima facie case
of fraud for the purpose of conducting an in camera review.
Elements of Fraud
Oklahoma law defines the elements of fraud as follows: “1) a false material
misrepresentation, 2) made as a positive assertion which is either known to be false or is made
recklessly without knowledge of the truth, 3) with the intention that it be acted upon, and 4)
which is relied on by the other party to his (or her) own detriment.” Bowman v. Presley, 212
P.3d 1210, 1218 (Okla. 2009). “Silence may constitute a misrepresentation sufficient to support a
claim of fraud only where there is a failure to disclose a material fact by one having a duty to
disclose and who remained silent to that party’s benefit and to the detriment of the other party.”
Clinesmith v. Harrell, 992 P.2d 926, 928 (Okla. Civ. App. 1999) (citing Silk v. Phillips
Petroleum Co., 760 P.2d 174 (Okla. 1988)). In cases where a party has no duty to speak, “if he
volunteers to speak and to convey information which may influence the conduct of the other
party, he is bound to disclose the whole truth.” Uptegraft v. Dome Petroleum Corp., 764 P.2d
1350, 1353-54 (Okla. 1988).
In this case, plaintiffs assert that defendants participated in fraud and included attorney
Wilkins in that fraud both by making positive assertions intended to mislead plaintiffs, by failing
to disclose the whole truth regarding their negotiations with plaintiffs, and by remaining silent
when they had a duty to speak. (Dkt. 137). Plaintiffs do not explain defendants’ duty to speak but
do imply that attorney Wilkins had a professional, “legal” duty. Id. at 9, 17. Plaintiffs frame their
8
argument as a “scheme” or “conspiracy,” in which defendants encouraged plaintiffs to settle with
Centre Lane in order to make plaintiffs wholly dependent on defendants with respect to the
negotiations for the purchase of Pinnacle Packaging. Id. at 10-19. Defendants argue that
plaintiffs cannot establish prima facie evidence of all the required elements of fraud; therefore,
the crime-fraud exception does not apply. (Dkt. 144).
Plaintiffs’ Evidence of Fraud
Plaintiffs allege that defendants made five separate misrepresentations or omissions: (1)
that von Hugo told Dickman that “we” will either move forward with the purchase of the Wells
Fargo debt or tell him that they could not; (2) that One Equity Partners, LLC and One Equity
Europe were parties to the negotiations to purchase Pinnacle Packaging; (3) that plaintiffs had
the authority to negotiate up to $6 million to settle with Centre Lane and could keep half of the
difference between the $6 million authorized and the actual settlement; (4) that defendants would
pay off the Wells Fargo debt on or before it was due in full on July 31, 2012; and (5) that instead
of paying the Wells Fargo loan as represented, defendants offered $1 million and other
consideration to extend the loan for forty-five days without informing plaintiffs of this offer.
One Equity Partners LLC/One Equity Partners (Europe)
In their First Amended Complaint, plaintiffs named One Equity Partners LLC as a
defendant. (Dkt. 30). Plaintiffs alleged that “One Equity Partners” held itself out as a single LLC,
thereby encompassing One Equity Partners (Europe). Id. Plaintiffs further alleged that
Christopher von Hugo, a managing director of “One Equity Partners,” negotiated with plaintiffs
to purchase Pinnacle Packaging/Oracle. Id. In the description of the parties, plaintiffs stated that
they believed One Equity Partners LLC owned One Equity Partners (Europe), but “[i]n the event
the Court should find that there is no jurisdiction over One Equity Partners LLC, then in the
9
alternative, von Hugo was acting as an agent of One Equity Partners (Europe). Id. One Equity
Partners LLC moved to dismiss, citing a lack of personal jurisdiction. (Dkt. 53). The District
Court found that von Hugo was not affiliated with One Equity Partners LLC and dismissed it for
lack of personal jurisdiction.
Nonetheless, plaintiffs continue to argue that they “believe” von Hugo represented One
Equity Partners, LLC. (Dkt. 137). In support, they cite to One Equity Partners LLC’s privilege
log (dkt. 135-1, Ex. 3), in which Schecter asserts attorney-client privilege with respect to
documents related to the negotiations. Plaintiffs argue that Schecter was participating in the
discussions, not as an attorney, but as a “third-party participant in business discussion” and
request in camera review of all those documents. (Dkt. 137). Plaintiffs also argue, without any
analysis, that the crime-fraud exception would also apply to all of the documents in One Equity
Partners LLC’s privilege log. Id.
The privilege log from One Equity Partners LLC describes a series of emails dated July
24, 2012 through August 3, 2012, which contain requests for legal advice on such issues as “a
potential loan in connection with the potential acquisition of Oracle,” “the potential acquisition
of Oracle,” the “Pinnacle settlement with Centre Lane,” and “the potential Oracle deal structure.”
(Dkt. 135-1, Ex. 3). Many of the emails involve only Schechter and attorneys from Freshfields,
but some emails include Unger, von Hugo, Blaige, and Kelsey, all of whom were involved with
the negotiations to purchase Pinnacle Packaging/Oracle. However, nothing in the privilege log
suggests that One Equity Partners LLC, through Schechter, was involved in the actual
negotiations. The record does not explicitly define the exact relationship between One Equity
Partners LLC and One Equity Partners (Europe), but in defendants’ response, they identify One
10
Equity Partners LLC as “an indirect affiliate of Defendants [] not involved in the events at issue
here.” (Dkt. 144).
While plaintiffs’ theory is one interpretation of the privilege log, it is also possible that
One Equity Partners (Europe) reached out to its “indirect affiliate” in America for legal advice
pertaining to the purchase of an American company. Accordingly, plaintiff’s theory, supported
only by the notations in the privilege log, does not create a prima facie case that defendants
misrepresented One Equity Partners LLC’s lack of involvement in the negotiations or that it
participated in any “scheme” or “conspiracy.”
Plaintiffs also argue that von Hugo held himself out as a representative of One Equity
Partners (Europe), but the corporation now claims that it played no role in the negotiations, as
evidenced by its interrogatory responses. (Dkt. 138, Ex. 51-52). The interrogatory responses
from both Contantia and One Equity Partners (Europe) state that von Hugo was a managing
director for One Equity Partners (Europe) and that, as a result of his position with One Equity
Partners (Europe), von Hugo also held a position as Vice Chairman of the Supervisory Board of
Constantia, which was owned by One Equity Partners (Europe). Id. Plaintiffs cite two pieces of
evidence to support their contention that von Hugo represented One Equity Partners (Europe).
First, in a May 25, 2012, email, Jan Homan with Constantia identified von Hugo as
“Management Partner of OEP (the Private Equity Fund of JP Morgan).” (Dkt. 137).4 Second,
plaintiffs contend that in a July 13, 2012, meeting, both Blaige, Constantia’s agent, and Kelsey,
4
Plaintiffs do not identify this email as an exhibit to their motion.
11
Constantia’s Merger and Acquisition Manager, referenced One Equity Partners generally in their
verbal presentation to plaintiffs.5 Id.
Plaintiffs do not explain how these alleged misrepresentations fall under the crime-fraud
exception to the attorney-client privilege, nor do they explain how accessing privileged
documents would support their claims of fraud. Plaintiffs do not allege that any attorneys from
Freshfields were involved in any alleged misrepresentations regarding von Hugo’s agency during
the negotiations. The Court need not reach that analysis, however, because the Court finds, for
the purpose of this motion only, that the overwhelming evidence throughout the record supports
a finding that plaintiffs were negotiating with Constantia. Other than von Hugo, who held
positions with both Constantia and One Equity Partners (Europe), plaintiffs admit that all other
representatives involved in the negotiations were affiliated with Constantia. Id. See also (Dkt.
138, Ex. 7). Additionally, when plaintiffs settled with Centre Lane, it was Constantia who
provided the funds, and plaintiffs entered into a promissory note with Constantia. (Dkt. 138, Ex.
29). Accordingly, plaintiffs have not made a prima facie case that the crime-fraud exception
should apply to documents listed on the privilege log of One Equity Partners LLC.
Centre Lane Settlement and Incentive Money
Plaintiffs contend that defendants agreed to loan plaintiffs up to $6 million to settle with
Centre Lane. (Dkt. 137). As an incentive to negotiate a lower settlement, plaintiffs also contend
that defendants promised plaintiffs they could keep half of the difference between the settlement
and the $6 million. Id. The only evidence to support these allegations is Dickman’s statement
5
Although plaintiffs quote Blaige and Kelsey, plaintiffs again do not identify an exhibit
containing these quotes.
12
that defendants made this representation during a July 25, 2012, telephone call.6 (Dkt. 138-3 at
Ex. 55). Unlike the issue of the pay-off for Wells Fargo, which Dickman mentions in multiple
emails, there is no evidence that plaintiffs raised the issue of the incentive money during the
drafting of the settlement agreement and the arrangements for payment to Centre Lane.
Plaintiffs’ statements alone are insufficient to establish prima facie evidence that defendants
made such a misrepresentation or that defendants involved counsel in that alleged
misrepresentation. See Cooper, 671 P.2d at 1172.
The Wells Fargo Debt
Plaintiffs allege that during the July 25, 2012, telephone call, defendants also agreed to
pay off the Wells Fargo debt by July 31, 2012, in order to avoid a default by Oracle. (Dkt. 137).
Plaintiffs allege that defendants agreed to pay off the loan with the understanding that the pay-off
would give defendants time to conduct due diligence on the purchase of Pinnacle
Packaging/Oracle and, if the purchase fell through, plaintiffs would have a set period of time to
place that debt with a new financial institution. Id. Plaintiffs contend that the promise of a payoff was a misrepresentation. Id. Defendants argue that plaintiffs can present no proof that
defendants promised to refinance the Wells Fargo debt and that the discovery process has
uncovered evidence that no such promise was made. (Dkt. 144). Defendants argue that the July
30, 2012, term sheet, the lack of existing documentation for the pay-off versus the
documentation for the Centre Lane settlement loan, and Dickman’s “support” for defendants’
6
This telephone call remains a point of controversy. Dickman routinely recorded his telephone
calls with defendants, but he claims not to have recorded this call because he took the call on a
headset, so his recording device would have picked up only his voice. (Dkt. 155-1). Defendants
contend that Dickman illegally recorded these calls because he failed to obtain the consent of the
other parties on the line; however, they point to Dickman’s failure to record this telephone call as
proof that defendants did not make the promises that Dickman alleges. (Dkt. 144). The Court
need not address the admissibility of the recordings or make findings regarding the absence of a
recording for the July 25, 2012 telephone call in order to resolve this motion.
13
efforts after the July 31, 2012, deadline demonstrate that no promise was made. Id. Defendants
also argue that Dickman made several “critical admissions” in his deposition that weigh against a
finding that defendants agreed to pay off the Wells Fargo debt as plaintiffs now claim. Id. at 2,
n.2.
Plaintiffs have submitted a series of emails and other documents to support their position.
(Dkt. 138). The emails demonstrate that in the days following the July 25, 2012, telephone call,
plaintiffs negotiated a settlement with Centre Lane with the assistance of defendants and their
counsel. Id. In the days between that telephone call and the deadline for the Wells Fargo debt,
Dickman consistently raised the issue of the pay-off with defendants, asking about strategy for
approaching Wells Fargo and requesting written confirmation that the loan would be paid. (Dkt.
138, Ex. 10, 11, 12, 17, 19, 21, 22, 26, 35, 42). Defendants either deflected Dickman’s questions
or ignored them. Id.
Additionally, plaintiffs have submitted several emails circulated among defendants that
indicate defendants did not intend to pay off the Wells Fargo debt on July 31, 2012. (Dkt. 138,
Ex. 15, 16, 25). For example, on July 28, 2012, three days after defendants allegedly promised to
pay off the Wells Fargo debt, Blaige emailed von Hugo and Unger regarding plans for the Centre
Lane release and Wells Fargo debt. In that email, Blaige states,
I spoke with Thomas [Unger] about getting the CL release first and then getting in
touch with wells [sic] Fargo to discuss buying up to two weeks to sign agreement
with Scott [Dickman], verify figures and sort out the mill situation. I would
initially just tell Scott [Dickman] we want to discuss the payoff directly with
wells [sic] Fargo ASAP today or tomorrow.
(Dkt. 138, Ex. 15). This email indicates that as of 3:25 PM on July 28, 2012, defendants’ strategy
was to approach Wells Fargo and request additional time on the loan and to make this request
without informing Dickman. Id. However, earlier that day, Blaige emailed Dickman to ask
14
whether the Wells Fargo debt “can wait a bit,” and Dickman answered, “No. All of the Wells
Fargo revolver and term loan and Centre Lane need to be paid on Tuesday.” (Dkt. 138, Ex. 16).
Blaige responded at 5:04 P.M. with this comment: “Ok I don’t think we have a current schedule
of each loan and balance due.” Id. A fact finder could reasonably infer from these emails that
Blaige, the agent for One Equity Partners (Europe), was leading Dickman to believe that the
Wells Fargo debt would be paid, even though the strategy was to avoid payment of the debt.
(Dkt. 138, Ex. 15 and 16).
A fact finder could also infer that defendants’ plan to request additional time from Wells
Fargo continued through July 30, 2012, the day before the loan was due. (Dkt. 138, Ex. 25). In
an email to defendants’ representatives at 5:28 P.M., Richard Kelsey at Constantia sent a brief
update of the status of the purchase, stating that after the Centre Lane settlement was finalized,
the “[n]ext step will then to be to approach banks, Wells Fargo, with view to getting time (at this
stage to be defined) to carry out due diligence.” Id. Meanwhile, earlier that afternoon, Dickman
had emailed attorney Wilkins twice, first stating that he “will need to insure that Constantia will
be in a position to make the payment to Wells and Centre Lane tomorrow” (dkt. 138, Ex. 26) and
then that “we need to arrange to secure the loan documents so that payments can be made
tomorrow in time for the Wells deadline” (dkt. 138, Ex. 27). Wilkins responded that he was
“[w]aiting on instructions from client” and was on a call with defendants. (Dkt. 138, Ex. 28).
Plaintiffs did ultimately receive, on July 30, 2012, a draft of the promissory note from
defendants that would secure the payment to Centre Lane. (Dkt. 138, Ex. 29). However, similar
documentation for the Wells Fargo debt was not sent, and at 10:39 P.M., Dickman emailed von
Hugo, attorney Wilkins, Unger, Blaige, and Kelsey again to request the loan documents. (Dkt.
138, Ex. 34). Dickman wrote that “the Wells team is very suspect of this situation because it is
15
unprecedented that we can not [sic] produce any documentation to support the fact we are going
to pay them off by 2:00 pm Central time tomorrow as well as Centre Lane” and asked again to
see the loan agreements. Id. Attorney Wilkins responded approximately thirty minutes later that
the Centre Lane agreement had to be finalized before defendants could speak with Wells Fargo
but that defendants had scheduled a conference call with them for the following morning. Id. At
approximately the same time Dickman emailed Blaige to ask if the Wells Fargo loan documents
were being withheld from him until after defendants spoke with Wells Fargo. (Dkt. 138, Ex. 37).
Blaige responded that von Hugo and Unger “want to work in sequence.” Id. Dickman replied
that the telephone call with Wells Fargo was a “new condition” to him and implied that the
telephone call should not prevent him from reviewing the proposed loan documents. Id.
In the early morning hours of July 31, 2012, von Hugo emailed Blaige, Unger, and an
attorney from Freshfields, Arend von Reigen, with information regarding the upcoming call with
Wells Fargo. (Dkt. 138, Ex. 42). Von Hugo stated that plaintiffs were not to be included in the
telephone call with Wells Fargo and laid out a strategy for convincing Wells Fargo to extend the
loan in exchange for the offer of future business with Constantia. Id. Constantia sent that offer to
Wells Fargo just three hours before the loan was due. (Dkt. 138, Ex. 44). It contains no mention
of a pay-off. Id. Wells Fargo rejected the offer, and nothing in the record before the Court
indicates that defendants attempted further negotiations or offered to refinance the debt.
Defendants contend that there is no evidence of a prima facie case for fraud and focus
much of their argument on refuting plaintiffs’ claims. (Dkt. 144). However, defendants do
proffer some evidence that they never made a promise to pay off the Wells Fargo debt. Id. First,
defendants point to the fact that Dickman, who was in the habit of recording all telephone calls,
did not record the July 25, 2012, telephone call in which defendants allegedly promised to pay
16
the Wells Fargo debt. (Dkt. 144 at 9). Defendants also cite Dickman’s habit of taking notes of all
telephone calls; however, his notes from that day do not mention the Wells Fargo debt, and
Dickman testified in his deposition that his notes contain only a reference to sending “debt
documents” to attorney Wilkins. (Dkts. 144-2; 144-3 at 222-23).
Second, defendants cite to the term sheet dated July 30, 2012, outlining the plan for
Constantia’s purchase of Pinnacle Packaging. (Dkt. 144-2). The price terms include “$16.5
million to refinance Wells Fargo credit facility,” but the term sheet also states that, with respect
to the Wells Fargo debt, “Buyer will initiate discussions directly with Wells Fargo in relation to
the Wells Fargo Credit Facility.” Id. Nothing in the term sheet specifies that defendants intended
to pay the Wells Fargo debt by July 31, 2012. Id.
Dickman did not respond to the term sheet until August 2, 2012. Id. In that response, he
stated that “[w]e also had prepared Wells for a pay off on Tuesday which as you know did not
happen. I am personally guaranteed on all of that debt and it was made very clear to me that
Wells was going to do everything possible to place us into Chapter 11. I did not worry much
because of our conversations but it did get the attention of a lot of people that would be impacted
if the worst did happen.” Id. (errors in original). Dickman goes on to explain the impact of the
failure to pay that loan, which included returned checks for more than $100,000.00 total and cites
“[t]he urgency of the situation.” Id.
Defendants argue that this response, along with Dickman’s contemporaneous response to
Wells’ refusal to extend the loan, demonstrate that no promise of pay-off was made. (Dkt. 144).
Defendants cite to Dickman’s emails on July 31, 2012. (Dkt. 144-5). Dickman sent a group email
shortly after Wells Fargo refused to extend the loan, expressing disappointment and a lack of
understanding at Wells Fargo’s refusal. Id. Dickman did state that he believed paying the loan
17
was the only option and he implied that defendants should make the pay-off, but he also
referenced another option – a proposal from Bank of America that would take forty-five days to
close. Id. In a subsequent email to von Hugo, Dickman referenced Constantia’s “generous waiver
fee offer” and requested a telephone call with von Hugo to “discuss next steps.” Id. Von Hugo’s
response expresses surprise that Wells Fargo had refused the offer and states that Wells Fargo’s
refusal to take $1 million in exchange for an extension of time raised questions about “hidden
risks” at Pinnacle Packaging. Id. Defendants argue that this response is not consistent with a
broken promise to pay off the entire Wells Fargo debt. (Dkt. 144). Plaintiffs contend that they
were desperate when the loan became due and that Dickman was forced to play along in order to
salvage a deal. (Dkt. 155).
Having reviewed the evidence submitted by both sides, the Court finds that for purposes
of the crime-fraud exception, plaintiffs have made a prima facie case for fraud, but only with
respect to the events surrounding the Wells Fargo debt. Dickman has not provided direct proof
that defendants agreed to pay off the Wells Fargo debt, but at least some of his actions are
consistent with his assertion that defendants did, in fact, make that promise and a fact finder
could reasonably reach this conclusion. Likewise, a fact finder could reach the conclusion that
defendants’ actions show a pattern of deflecting Dickman’s questions regarding the Wells Fargo
debt or delaying responses. Additionally, at least one email from Blaige to Hugo, Unger, and
Kelsey could evidence a plan to conceal Constantia’s strategy, as alleged by plaintiffs, regarding
the Wells Fargo debt from plaintiffs. (Dkt. 138-1, Ex. 15). If a fact finder were to reach these
conclusions, the further conclusion that plaintiffs relied, to their detriment, on the alleged
misrepresentations logically follows.
18
Each of the emails identified by plaintiffs in exhibits four through six, eighteen, twenty,
twenty-three, twenty-five, and twenty-six of the additional attachment in support of their motion
appears to relate to the Wells Fargo debt. See (Dkt. 138 at Ex. 4-6, 18, 20, 23, 25, 26). Thus,
these emails shall be submitted to the Court for an in camera review.
CONCLUSION
For the reasons set forth in this order, the Court GRANTS IN PART the Motion of
Plaintiffs to Apply Crime Fraud Exception to Claims of Privilege by Defendants. (Dkt. 135). The
Court will conduct an in camera review of the following documents: Dkt. 138, Exhibits 4, 5, 6,
18, 20, 23, 25, 26, and 34. Defendants are ordered to produce the unredacted versions of those
documents in chambers on or before February 15, 2016. The Court reserves ruling on plaintiffs’
request that the Court apply the crime-fraud exception to all of defendants’ emails until after the
Court’s review.
SO ORDERED this 10th day of February, 2016.
19
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?