Southampton Ltd et al v. Salalati et al

Filing 66

ORDER denying 60 plaintiffs' Motion to Compel and to Determine Claim of Privilege (as more fully set out). Signed by Honorable Vicki Miles-LaGrange on 11/14/2016. (ks)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
SOUTHAMPTON, LTD. and
SOUTHWEST REINSURANCE, INC.,
Plaintiffs,
vs.
VAHID SALALATI, GREGORY
LUSTER, and ROGER ELY,
Defendants.

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Case No. CIV-14-852-M

ORDER
Before the Court is plaintiffs’ Motion to Compel and to Determine Claim of Privilege, filed
September 15, 2016. On September 30, 2016, defendants filed their response, and on October 5,
2016, plaintiffs filed their reply. Based upon the parties’ submissions, the Court makes its
determination.
I.

Background
On or about March 23, 2016, plaintiffs gave notice of their intent to subpoena documents

from non-parties Mr. Horton, Mr. Gardner, and Mr. Hartwig (the “Investor Witnesses”). The
Investor Witnesses were co-investors in two automobile dealerships in Duncan, Oklahoma through
the investment vehicle HGH Auto Group, LLC (“HGH”), along with defendants and non-party
Michael Terry. Two of the Investor Witnesses, together with HGH, and defendants were jointly
represented by John Thompson of the firm Crowe & Dunlevy in a receivership proceeding involving
those dealerships.
The return date on the subpoenas was approximately thirty days after service. On April 21,
2016, counsel for the Investor Witnesses called and was granted an extension of time on the
production of documents to accommodate his review of extensive e-mails. On May 11, 2016, the

Investor Witnesses made their initial production of documents, which was supplemented on May
20 and June 2, 2016.
On July 18, 2016, plaintiffs’ counsel gave notice to defendants’ counsel, the Investor
Witnesses’ counsel, and Mr. Thompson that he was in possession of facially-privileged documents.
In his letter, plaintiffs’ counsel advised that he believed there had been an intentional waiver of
privilege and that in any event, no privilege attached because of the crime-fraud exception, and made
demand that all documents relating to the subject matter held by Crowe & Dunlevy be produced.
On August 2, 2016, defendants’ counsel responded to the July 18, 2016 letter and disputed whether
there was an intentional waiver and the application of the crime-fraud exception. Defendants’
counsel further claimed that he had been promised by plaintiffs, but never received, a copy of the
documents produced by the Investor Witnesses.1 On August 4, 2016, counsel for the Investor
Witnesses denied there had been a waiver of the attorney-client privilege and denied the application
of the crime-fraud exception. On August 12, 2016, plaintiffs responded and requested a privilege
log in fifteen days. That same day, an email attaching the production was sent to defendants and to
Mr. Thompson. On September 6, 2016, plaintiffs again asked for a privilege log. On September
14, 2016, defendants provided plaintiffs with a privilege log.
Plaintiffs now move this Court to order that the documents be un-sequestered and that the
Investor Witnesses produce all responsive documents in Crowe & Dunlevy’s files, or, at a minimum,
that they not be required to return the documents to the Investor Witnesses so that they can be used
in litigation and other proceedings against them.

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Plaintiffs dispute any prior discussion or agreement to provide a copy of the production.
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II.

Discussion
Plaintiffs assert that the Investor Witnesses intentionally waived the attorney-client privilege

by producing the documents and that the intentional waiver also requires the production of all
documents responsive to the subpoenas in the possession of Crowe & Dunlevy. Plaintiffs further
assert that defendants waived any privilege by intentionally failing to protect subpoenaed documents
or timely preparing a privilege log. Finally, plaintiffs assert that the attorney-client privilege is
waived under the crime-fraud exception.
A.

Waiver

It is undisputed that the documents at issue fall within the protection of the attorney-client
privilege and/or the work product doctrine. It also is undisputed that two of the Investor Witnesses,
together with HGH, and defendants were jointly represented by Mr. Thompson and, thus, would
have a joint-client privilege in relation to these documents. The issue for the Court to decide is
whether said privilege has been waived by defendants.
Federal Rule of Evidence 502(b) provides:
(b) Inadvertent Disclosure. When made in a federal proceeding or
to a federal office or agency, the disclosure does not operate as a
waiver in a federal or state proceeding if:
(1)
the disclosure is inadvertent;
(2)
the holder of the privilege or protection took
reasonable steps to prevent disclosure; and
(3)
the holder promptly took reasonable steps to rectify
the error, including (if applicable) following Federal
Rule of Civil Procedure 26(b)(5)(B).
Fed. R. Evid. 502(b). Further, waiving the joint-client privilege requires the consent of all joint
clients. See In re Teleglobe Commc’ns Corp., 493 F.3d 345, 363 (3d Cir. 2007).

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Having carefully reviewed the parties’ submissions, the Court finds that defendants have not
waived the attorney-client privilege in relation to the documents produced by the Investor Witnesses.
Specifically, the Court finds that the disclosure of the privileged documents was inadvertent.
Defendants, themselves, did not produce the documents; third-parties produced the documents.
Further, the Investor Witnesses did not obtain the consent of defendants to waive the joint-client
privilege and, thus, the Investor Witnesses, on their own, could not waive the joint-client privilege
as to the documents produced. Additionally, the Court finds defendants have satisfied the second
element of Rule 502(b). Specifically, the Court finds that based upon the subpoena issued to the
Investor Witnesses, it would have been reasonable for defendants not to anticipate that attorneyclient privileged/joint-client privileged documents would be produced in response to the subpoena.
The Court further finds that it would have been reasonable for defendants to believe that prior to the
Investor Witnesses producing joint-client privileged documents, the Investor Witnesses would have
contacted them to obtain their consent to waive the joint-client privilege. Finally, the Court finds
that defendants promptly took reasonable steps to rectify the error once they were aware that the
documents had been produced. Within four days of receipt of plaintiffs’ counsel’s letter advising
defendants that plaintiffs were in possession of facially privileged documents, defendants’ counsel
wrote a letter to plaintiffs’ counsel requesting the immediate return of the documents. Further, once
the documents were produced by plaintiffs to defendants on August 23, 2016, defendants’ counsel
reviewed the voluminous documents – duplicates and approximately 1000 or more emails and email

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strings – and prepared a privilege log, which was provided to plaintiffs’ counsel on September 14,
2016.2
B.

Crime-Fraud Exception

Plaintiffs also assert that the attorney-client privilege regarding the documents at issue is
waived under the crime-fraud exception. The crime-fraud exception provides that “[t]he attorneyclient privilege does not apply where the client consults an attorney to further a crime or fraud.”
Motley v. Marathon Oil Co., 71 F.3d 1547, 1551 (10th Cir. 1995) (internal quotations and citations
omitted). “[S]ome type of prima facie showing of a crime or fraud is required under Oklahoma law
in order to trigger the applicability of the crime-fraud exception.” Id. (internal quotations and
citation omitted).3
The party claiming that the crime-fraud exception applies must
present prima facie evidence that the allegation of attorney
participation in crime or fraud has some foundation in fact. The
determination of whether such a prima facie showing has been made
is left to the sound discretion of the district court.
Id. (internal citations omitted).
A district court may conduct an in camera review to determine the applicability of the crimefraud exception. See id.
Before engaging in in camera review to determine the applicability
of the crime-fraud exception, the judge should require a showing of

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During the time defendants’ counsel was reviewing the documents, defendants’ counsel had
a family member unexpectedly fall ill and pass away, which delayed review of the documents.
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Federal Rule of Evidence 501 provides, in pertinent part: “in 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. Plaintiffs’ claims in this case are governed by Oklahoma law, and, thus, Oklahoma law
governs the determination of whether the attorney-client privilege applies and the applicability of
the crime-fraud exception.
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a factual basis adequate to support a good faith belief by a reasonable
person, that in camera review of the materials may reveal evidence
to establish the claim that the crime-fraud exception applies.
Once that showing is made, the decision whether to engage in
in camera review rests in the sound discretion of the district court.
The court should make that decision in light of the facts and
circumstances of the particular case, including, among other things,
the volume of materials the district court has been asked to review,
the relative importance to the case of the alleged privileged
information, and the likelihood that the evidence produced through
in camera review, together with other available evidence then before
the court, will establish that the crime-fraud exception does apply.
United States v. Zolin, 491 U.S. 554, 572 (1989) (internal citation omitted). Finally, “the party
opposing the privilege may use any nonprivileged evidence in support of its request for in camera
review, even if its evidence is not ‘independent’ of the contested communications . . . .” Id. at 574.
Having carefully reviewed the parties’ submissions, and particularly the evidence submitted
by plaintiffs, the Court finds that plaintiffs have not shown a factual basis adequate to support a good
faith belief by a reasonable person that in camera review of the materials may reveal evidence to
establish the claim that the crime-fraud exception applies. Specifically, the Court finds that
plaintiffs have not shown that their allegation of attorney participation in crime or fraud, specifically
in the crimes of wire fraud, misprision of felony, and criminal conspiracy, has some foundation in
fact. Accordingly, the Court finds that the crime-fraud exception does not apply to the documents
at issue.

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III.

Conclusion
For the reasons set forth above, the Court DENIES plaintiffs’ Motion to Compel and to

Determine Claim of Privilege [docket no. 60] and ORDERS plaintiffs to destroy the documents in
their possession that are protected by the attorney-client privilege.4
IT IS SO ORDERED this 14th day of November, 2016.

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Plaintiffs request this Court make a ruling that plaintiffs are not required to return these
documents to the Investor Witnesses so that they can be used in litigation and other proceedings
against the Investor Witnesses. As the Investor Witnesses are not parties to this case and plaintiffs
have alleged no claims against them, the Court declines to address the propriety of using these
documents against the Investor Witnesses.
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