Ciuffitelli et al v. Deloitte & Touche LLP et al

Filing 215

OPINION AND ORDER: The Intervenors' Motion (ECF No. 196 ) for Protective Order is DENIED. Signed on 3/1/2017 by Magistrate Judge John V. Acosta. (kms)

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION

LA WREN CE P. CIUFFITELLI, for himself
and as Trustee ofCIUFFITELLI REVOCABLE
TRUST; GREG and ANGELA JULIEN;
JAMES and SUSAN MACDONALD, as CoTrustees of the MACDONALD FAMILY
TRUST; R.F. MACDONALD CO.; ANDREW
N 0 WAK, for himself and as Trustee of the
ANDREW NOWAK REVOCABLE LIVING
TRUST U/A 212012002; WILLIAM
RAMSTEIN; and GREG WARRICK, for
himself and, with SUSAN WARRICK, as CoTrustees of the WARRICK FAMILY TRUST,
individually and on behalf of all others
similarly situated,
Plaintiffs,
v.
DELOITTE & TOUCHE LLP,
EISNERAMPER LLP; SIDLEY AUSTIN
LLP; TONKON TORP LLP; TD
AMERITRADE, INC.; and INTEGRITY
BANK & TRUST,
Defendants.

ACOSTA, Magistrate Judge:

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Case No. 3:16-cv-0580-AC
OPINION AND ORDER

Introduction

Intervening parties RobertJesenik, Brian Oliver, and Scott Gillis (collectively, "Intervenors")
move for a protective order requiring defendant law firms Sidley Austin LLP ("Sidley") and Tonkon
Torp LLP ("Tonkon") (collectively, "the law finn defendants") to allow Intervenors to review
documents in each of the law firm defendants' possession. Intevenors seek review of these
documents so that they may determine if any of those docwnents are protected by the attorney-client
privilege.

Intervenors wish to conduct this review before Sidley and Tonkon produced any

documents in this case, and they propose both protocols and a time line for their document review. 1

Because Intervenors, and each ofthem, have failed to demonstrate the existence of a attorneyclient relationship with either of the law firm defendants, the court denies Intervenors' motion.
Background

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The Lawsuits.
Plaintiffs filed this securities fraud lawsuit against an international accounting firm, an

international law firm, a national accounting firm, an Oregon law firm, a national stock trading firm,
and a bank, alleging that each of them participated in and aided the Aequitas group of companies'
("Aequitas companies") sale of securities through material misrepresentations and omissions. (ECF
No. 1 (Complaint), at ii 1; ECF No. 57 (First Amended Complaint), at ii 1.) Plaintiffs served on each
of the defendants in this lawsuit extensive requests for production all of which have been the subject
of motions for protective orders. The court already has rnled on those motions. (See ECF No. 174

1

Intervenors' motion for protective order is ECF No. 196. The court previously granted
(ECF No. 164) Intervenors' motion (ECF No. 157) to intervene for the purpose of moving for a
protective order.
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(granting in patt and denying part motions for protective order filed by defendants Deloitte & Toucl1e
LLP, and EisnerAmper LLP); ECF No. 213 (granting in part and denying in part motions for
protective order filed by defendants Sidley; TD Ameritrade, Inc.; and Integrity Bank & Trust).)
Intervenors are former executives of one or more Aequitas companies and defendants in a
separate lawsuit, Securities and Exchange Commission, et al. v. Aequitas Management, LLC, et al.,
Case No. 3:16-cv-00438-PK, filed in this district on March 10, 2016 ("SEC lawsuit"). Specifically,
Jesenik formerly served as Chief Executive Officer, Chief Investment Officer, and President of
ceitain Aequitas companies; Oliver formerly served as Executive Vice President of"at least one"
Aequitas company; and Gillis formerly served as Executive Vice President, Chief Operating Officer,
and Chief Financial Officer of certain Aequitas companies. Jesenik and Oliver also are pati owners
in Aequitas Management, LLC, the lead defendant in the SEC lawsuit. All three Intervenors are
alleged to have engaged in a "scheme to defraud and misuse client assets in connection with
investments offered through the Aequitas group of companies[.]" (SEC lawsuit, ECF No. 1, at 1.)
II.

The Intervenors' Requested Protective Order.
Based on a claim of individual attorney-client privilege, Intervener ask the court in this case

to enter a protective order requiring both Sidley and Tonkon to:
(a) identify among any docwnents that are responsive to Plaintiffs' discovery requests
ce1tain e-mail communications and other electronically searchable documents using
the e-mail addresses and search terms set foith in the Proposed Protective Order
attached hereto as Exhibit 1; (b) withhold the documents identified using these e-mail
addresses and seai·ch terms from production to Plaintiffs (the "Provisionally Withheld
Docwnents"); and © allow the Individuals 45 days to review the Provisionally
Withheld Documents to identify those that are subject to personal claims ofprivilege,
and 15 additional days to produce a privilege log to Sidley and/or Tonkon and to
Plaintiffs. After this 60-day review and log period has passed, Sidley and Tonkon
would be permitted to produce to Plaintiffs any of the Provisionally Withheld
Documents not contained on the log of any Individual. Sidley and Tonkon could
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produce any other documents to the Plaintiffs without prior review by the Individuals
(the "Directly Produced Documents"), subject to claw-back by the Individuals
following another 60-day review and log period to determine whether any personal
claims of privilege may exist over those documents.
(ECF No. 196, at 3-4.)
III.

The Parties' Positions.
Intervener asse1t that a protective order is necessaiy so that they may review documents from

Sidley's and Tonkon's respective files to determine whether any of those documents me subject to
"personal claims of privilege by one or more" of them. (ECFNo. 196, at 2-3.) Intervenors observe
that Sidley represented certain Aequitas companies in the SEC' s investigation aiid claim that Tonkon
represented certain Aequitas companies "in connection with other matters involving one or more of
the [Intervenors], including litigation in which one or more of the [Intervener] was named as a
defendant ai1d/or received advice from Tonkon in connection with the litigation." (ECF No. 196,
at 4-5.) Intervenors also assert that "[o]ne or more of the [Intervenors] sought, and received,
confidential legal advice concerning his personal rights and potential liability from in-house and
outside counsel for the Receivership Entities, including from Tonkon and Sidley lawyers, among
others." (ECF No. 196, at 5.)
Plaintiffs oppose the Intervenors' motion because, they argue, "Intervenors have not satisfied
their burden to establish that any individual privilege exists as to either law firm[.]" (ECF No. 204,
at 1.) Plaintiffs observe that Intervenors have provided no evidence to suppmi the existence of the
attorney-client privilege between any of them and Sidley or Tonkon. (ECF No. 204, at 2.) Even
Jesenik's offering of a decimation from his attorney, Plaintiffs note, is unaccompanied by any
documents, such as a joint-defense agreement, containing or describing privileged communications

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between Jesenik and any Sidley or Tonkon attorney. (ECF No. 204, at 4.) Intervenors' failure to
show an attorney-client relationship exists, Plaintiffs contend, results in an absence of good cause
to suppo1t entiy of the protective order Intervenors seek. (ECF No. 204, at 2.)
Sidley also opposes Intervenors' motion. It firsts notes the "significant burden" Intervenors'
request would impose, because the overbroad proposed search terms implicate "more than 150,000
pages of documents," a number still expanding as Sidley continues to collect documents relevant to
the issues in this case. (ECF No. 205, at 2, 6, 7.) Sidley next challenges that an attorney-client
privilege exists at all, first noting that Intervenors' motion only "presupposes that such a privilege
exists." (ECF No. 205, at 7.) Sidley observes that at least two of the Intervenors, Oliver and Gillis,
"do not even claim that they had an individual attorney-client relationship with Sidley," or even have
set forth the nature and scope of the claimed privilege. (ECF No. 205, at 2-3, 6, 7.) Sidley also
observes that none of the Intervenors have provided supporting documents, such as an engagement
letter - which, Sidley states, it never entered into with any of the Intervenors - or have identified
even a single subject on which any of them sought or received legal advice. (ECF No. 205, at 3, 8.)
Sidley lastly observes that none of the Intervenors have offered any argument or facts to support the
legal test articulated in United States v. Graf, 610 F.3d 1148 (9th Cir. 2010)-which Intervenors cite
as the controlling test to determine the existence of an attorney-client relationship in these
circumstances. (ECF No. 205, at 8.)
Tonkon did not file a response to Intervenors' motion. Intervenors represented that Tonkon
does not oppose their motion and takes no position whether any document Intervenors claim is
privileged is, in fact, privileged. (ECF No. 196, at 1.) In October 2016, however, Tonkon's lawyers
informed Intervenors' lawyers that Tonkon "believes it never entered into an attorney client

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relationship with any of the [Intervenors], and your August 30 [2016] letter does not contain any
information that leads Tonkon to question its belief." (ECF No. 198-6, Page ID No. 2.)
Legal Standard

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Protective Orders.
A court may issue a protective order "to protect a pmiy or person from annoyance,

embarrassment, oppression, or undue burden or expense" upon a showing of good cause. FED. R.
C1v. P. 26(c)(l). The party seeking the protective order must establish "specific harm or prejudice
will result if no protective order is granted." Foltz v. State Farm Mut. Auto Ins. Co., 331 FJd 1122,
1130 (9th Cir. 2003)(citing Phillips ex rel. Estates ofByrd v. Gen. Motors Corp., 307 FJd 1206,
1210-11 (9th Cir. 2002). Good cause is generally a "heavy burden." Blankenship v. Hearst Corp.,
519 F.2d 418, 429 (9th Cir. 1975). The court has "broad discretion ... to decide when a protective
order is appropriate and what degree of protection is required." Phillips, 307 F.3d at 1211 (citing
Seattle Times Co. v. Rhinehardt, 467 U.S. 20, 36 (1984)).

II.

Attorney-Client Privilege.
"[A] pmiy asserting the attorney-client privilege has the burden of establishing the [existence

of an attorney-client] relationship and the privileged nature of the communication." United States
v. Ruehle, 583 F.3d 600, 607 (9th Cir. 2009) (quoting United Statesv. Bauer, 132 F.3d 504, 507 (9th

Cir. 1997)). Corporate officers or employees claiming the existence of a personal claim of attorneyclient privilege over communications with the corporation's attorney must demonstrate that each of
five factors is satisfied:
First, they must show they approached counsel for the purpose of seeking legal
advice. Second, they must demonstrate that when they approached counsel they
made it clear that they were seeking legal advice in their individual rather than in
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their representative capacities. Third, they must demonstrate that the counsel saw fit
to communicate with them in their individual capacities, knowing that a possible
conflict could arise. Fmuih, they must prove that their conversations with counsel
were confidential. And fifth, they must show that the substance of their
conversations with counsel did not concern matters within the company or the
general affairs of the company.

United States v. Graf, 610 F.3d 1148, 1159-60 (9th Cir. 2010) (quoting In re Bevill, Bresler &
Schulman Asset Mgmt. Corp., 805 F.2d 120, 123 (3d Cir. 1986); adopting "the Bevill test" and noting
that the First, Second, and Tenth Circuits also have adopted the test). "Because it impedes full and
free discovery of the truth, the attorney-client privilege is strictly construed." Ruehle, 132 F.3d at
507 (quoting United States v. Martin, 278 F.3d 988, 999 (9th Cir. 2002)).

Analysis
Intervenors c01Tectly cite the Graftest as controlling their privilege claims, but they offer no
facts or analysis to meet their burden under Graf and demonstrate that they each have an attorneyclient relationship with Sidley or Tonkon. The litigants do not dispute that Sidley represented certain
Aequitas companies during the SEC's investigation, but that fact is in-elevant under Grafto whether
an individual attorney-client privilege exists. In fact, none oftheintervenors asse1ishe asked Sidley
to represent him personally regarding the events at issue in this lawsuit. This failure, by itself, is
sufficient to find Intervenors do not satisfy Graf's requirements. See Graf, 610 F .3d at 1162 ("Graf s
admission at the pre-trial motion hearing that he never requested that the Alexander Firm represent
him personally causes him to fail the second and third Bevill factors.").
Furthermore, none of the Intervenors makes any attempt to show through their own or a
Sidley lawyer's declaration, an engagement letter orretainer agreement (which, as relevant evidence,

see Graf, 610 F.3d at 1162), a confirming email, or a billing entiy (which, as relevant evidence, see

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Graf, 610 F.3d at 1161, 1162), that any Sidley lawyer explicitly agreed to and did give them legal
advice in their individual capacities, knowing and despite the clear conflict of interest a Sidley
lawyer could create for the firm in doing so. No Intervenor claims he paid for personal legal advice
from Sidley, another factual indicator the Grefcomt considered in determining whether an attorneyclient relationship existed. Graf, 610 F.3d at 1162. And none of the Intervenors provides any
description or summmy of the conversations-or even the general subject matter of the conversations
- they claim to have had with any Sidley lawyer to show, under Graf, that their conversations were
confidential and not merely about matters "within the company or the general affairs of the
company."
Only Jesenik attempts to establish facts to suppmt his claim of privilege regarding
conversations with Sidley, but those facts m·e sparse and conclusory, and m·e not offered by Jesenik
at all, but instead presented in SU!llmaty fashion by his attorney. In his declaration (ECF No. 197)
offered in support of the motion for protective order, Jesenik's attorney makes two assertions
regarding Sidley: that at various times "during his tenure with the Aequitas companies," Jesenik
"sought, and received, confidential legal advice concerning his personal rights and potential liability"
from Sidley lawyers, and that a "joint defense and/or common interest agreement" existed between
Sidley and Jesenik's former personal counsel, in cmmection with the SEC investigation. (ECF No.
197, at 4.) These conclusory assertions are not sufficient to suppott Jesenik's burden under Grafor
overcome Sidley's clear denial that it ever represented any of the Intervenors and only underscore
Jesenik' s failure to produce evidence. The alleged joint defense agreements were not submitted for

in camera review or otherwise, so the court cmmot evaluate whether they suppott the attorney-client
relationship Jesenik claims and entitles him to assert possible privilege as to the documents at issue.
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Fmihermore, Jesenik's vague reference to conversations "during his tenure" with the Aequitas
companies provides no basis for connecting those conversations to the SEC lawsuit or this lawsuit,
or to distinguish those conversations from "matters within the company or the general affairs of the
company" to which, as Graf instructs, a personal attorney-client privilege does not apply. And no
information is provided that explains why the detail necessary under Graf could not have been
provided here, either by Jesenik or his attorney, to demonstrate that Graf's requirements are met.
For the same reasons, Intervenors fail to suppo1i Graf's application to any communications
they had with Tonkon. Again, only Jesenik attempts to support his position and, again, his attempt
falls short of the line Graf draws. Jesenik's attorney, both in his declaration and at oral argument
on Intervenors' motion, referred to two prior litigation matters in which Tonkon apparently
represented Jesenik personally, as support for Jesenik's asse1iion that an attorney-client relationship
exists with Tonkon and warrants application of the privilege to documents produced in this lawsuit.
The first flaw in Jesenik's position is the absence of infonnation about these lawsuits - case names,
case numbers, the court or courts in which the lawsuits were filed, the subject matter of the lawsuit,
or any other information - information that would allow the comi and Plaintiffs to evaluate whether
and to what extent the attorney-client relationship was created and, thus, determine whether the
privilege applies to the doclllllents at issue in this lawsuit.
The second flaw in Jesenik's position is its implicit premise that Tonkon's previous
representation is enough to satisfy Grafor some paii of it, but this a premise the Grafcomi rejected.
There, Graf claimed the law firm represented him in two previous matters. The Ninth Circuit,
assuming for purposes of its decision that the law firm did previously represent Graf personally, still
found these facts insufficient because Grafhad failed to "rebut [the law firm's] hearing testimony
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that the subject matter of the two representations was different and that they were separated by
several years." Graf, 610 F.2d at 1162. Here, Jesenik offers no infonnation about the two previous
litigation matters that would allow the court to evaluate whether Tonkon's representation in either
or both of those two previous matters support his claim of privilege regarding the documents in this
lawsuit.
Finally, none of the Intervenors offers evidence to refute, contradict, or in any way call into
question Sidley' sand Tonkon' s statements that they never entered into an attorney-client relationship
with any of them. Gra/provides instruction on this point. That case involved claims of financial
fraud through the marketing and selling ofhealth care insurance plans by a company and its affiliates
that Graffonnded and in effect operated. 610 F.3d at 1153-54. The United States indicted Graf on
criminal charges and the U.S. Department of Labor filed a civil suit against him. Id. at 1152, 1153,
1154. Aju1y convicted Graf on the criminal charges and he appealed, claiming as one error the trial
judge's ruling that he had no individual attorney-client relationship with the company's attorneys
and, thus, they could testify at his criminal trial, which they did and unfavorably so. Id. at 1152,
1156. On appeal, the Ninth Circuit adopted the Bevill test and applied it to find Graf had no
individual attorney-client privilege. As relevant supporting facts the court relied in part on the
company's lawyers' statements that Graf never sought personal legal advice from them and never
was their or their firm's client. Id. at 1161.
Intervenors here unsuccessfully labor against a similar disclaimer from Sidley and Tonkon,
the attorneys they seek to call their own. They present no evidence to refute Tonkon's October 2016
denial that it ever entered into an attorney-client relationship with any of the Invenors. Similarly
absent is evidence that refutes Sidley' s representations, both in its response brief and at oral
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argument, that it never had an attorney-client relationship with any of the Intervenors. Thus,
Intervenors clearly fail to support their burden under Graf on this point as well.
Intervenors have not met their heavy burden of showing good cause for the protective order
they seek. They have not satisfied the requirements of the Graftest, which test they acknowledge
controls the court's determination of their motion. Consequently, Intervenors have not demonstrated
that an attorney-client privilege exists and wanants requiring the law firm defendants to shoulder the
burden of time and expense their protective order would impose.
Conclusion
For the reasons explained above, the Intervenors' Motion (ECFNo. 196) for Protective Order
is DENIED.
IT IS SO ORDERED.
DATED this

/ffday of March, 2017.

"ted States Magistrate Judge

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