Stooksbury v. Ross et al

Filing 724

ORDER granting in part and denying in part 709 Plaintiff's Motion for Full Access to Defendants' Computer Data. Signed by Magistrate Judge H Bruce Guyton on August 31, 2012. (AYB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
ROBERT T. STOOKSBURY, JR.,
Plaintiff,

v.
MICHAEL L. ROSS,
LTR PROPERTIES, INC.,
RPL PROPERTIES, LLC,
LC DEVELOPMENT COMPANY, LLC,
MICHAEL L. ROSS doing business as
RARITY REALTY doing business as
RARITY POINTE REALTY,
REBECCA ROSE ROSS JORDAN,
RARITY COMMUNITIES, INC.,
TELLICO LAKE PROPERTIES, L.P.,
NICKAJACK SHORES HOLDINGS, LLC,
RARITY INVESTMENT COMPANY, LLC,
RARITY CORPORATION,
RARITY MANAGEMENT COMPANY, LLC,
RARITY PROPERTY MANAGEMENT, INC.,
RARITY RIDGE CLUB, INC.,
RARITY CLUB CORPORATION,
BROADBERRY DEVELOPMENT COMPANY, LLC,
HIAWASSEE PROPERTIES LLC,
RM COMPANY, LLC,
LOM DEVELOPMENT COMPANY, LLC,
VPI COMPANY, LLC,
PATRICIA ROSS ON THE BEHALF OF ESTATE OF
DALE M. ROSS, and
TELLICO COMMUNITIES, INC.,
Defendants.

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No. 3:09-CV-498
(VARLAN/GUYTON)

MEMORANDUM AND ORDER
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court,
and the referral orders of the District Judge. This case came before the Court on August 28,
2012, to address post-judgment discovery issues and Plaintiff’s Motion for Full Access to

Defendants’ Computer Data [Doc. 709]. Attorney Wayne Ritchie was present representing the
Plaintiff, who was present in the courtroom. Attorneys Michael Meares and Christopher Oldham
were present representing the Defendants, and Attorney Luis Bustamante was present
representing Receiver Sterling Owen IV, who was also present in the courtroom.

I.

BACKGROUND
Earlier this year, a jury awarded the Plaintiff a multimillion dollar judgment against the

Defendants listed above. Thereafter, the Court found it appropriate to appoint a receiver to
prevent diminution of or improper conveyance of the Defendants’ property. Sterling Owen, IV,
was appointed receiver in this matter, and he has begun a due-diligence investigation into the
assets of the Defendants and into alleged fraudulent conveyances by the Defendants.
The Court’s attention is now directed to post-judgment discovery. The post-judgment
discovery in this case, like the initial discovery in this case, has been plagued by issues of noncompliance and tardy compliance on the part of the Defendants. On June 13, 2012, the parties
and the receiver appeared before the Court. The Plaintiff questioned various former employees
of various Defendant entities about the availability of documents relating to the post-judgment
discovery in this case. The Court allowed the parties additional time to supplement their filings
following the hearing.
On July 11, 2012, the Court entered a Memorandum and Order directing each of the
persons and entities who are Defendants in this case to identify: all real property currently
owned; all contracts and agreements concerning real property presently in effect; all appraisals of
property interests currently held in real property; all business ownership interests; all work or
services performed this year; all debts presently owed to others; all debts presently owed to the
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Defendants; all payments made to the Defendants representing property owners’ association dues
or fees; all personal property valued at over $1,000.00; all open bank accounts and safety deposit
boxes; all current financial statements; all financial records; all investment accounts, retirement
accounts, stocks, bonds, and security trading accounts; all computers presently in any
Defendant’s possession; lawsuits and judgments currently pending against any Defendant; claims
currently pending against any Defendant; the current residence of each Defendant; all current
business records; all current and threatened claims; and all sources of income. [Doc. 651 at 4-5].
The Court further directed that the Defendants “produce all 2011 tax returns, or if no 2011 tax
returns have been filed, the most recently filed tax returns.” [Doc. 651 at 4]. The Court ordered,
“[T]he Defendants shall have up to and including August 22, 2012, to fully identify and, where
appropriate, produce the items listed above.” [Doc. 651 at 5].

II.

POSITIONS
At the hearing, the Plaintiff took the position that the Defendants had failed to comply

with the Court’s Memorandum and Order entered July 11, 2012. Counsel for the Plaintiff
represented, however, that the Plaintiff had reached an agreement with Defendants Rebecca Ross
Jordan, Rarity Management Company LLC, and Patricia Ross, as personal representative of the
Estate of Dale Ross, which would render the allegations of non-compliance relating to these
defendants moot. Specifically, Defendants Rebecca Ross Jordan, Rarity Management Company
LLC, and Patricia Ross, as personal representative of the Estate of Dale Ross, stipulated that they
did not oppose the Plaintiff’s request for full and immediate access to their computer hard drives,
and Ms. Jordan and Rarity Management Company agreed to deliver signed responses to the
written discovery, complying with the Court’s previous Memorandum and Order, on or before
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August 29, 2012. Ms. Jordan was also scheduled to give a deposition on behalf of herself and
Rarity Management Company on August 30, 2012.
Michael L. Ross and the other business entities listed in this case were not able to reach
an agreement to resolve their pending discovery disputes with the Plaintiff. As a result, the oral
arguments at the hearing focused upon the post-judgment discovery to be produced by Defendant
Michael L. Ross and the other business entities listed in this case.

For purposes of this

Memorandum and Order, Mr. Ross and the business entities for which he serves as the principal
will be referred to collectively as “Mr. Ross and the Ross Entities.”
The Plaintiff described Mr. Ross and the Ross Entities’ attitude toward discovery as
“shockingly cavalier.” Plaintiff took the position that, because Mr. Ross and the Ross Entities
have continuously frustrated the discovery process by failing to cooperate, the Court should
order the Mr. Ross and the Ross Entities to turn over their computers to the Plaintiff. The
Plaintiff would have the computers imaged and could preserve any records of assets or other
documents relevant to recovering on the judgment. The Plaintiff was specifically interested in a
Dell laptop and an iPad tablet, identified as Mr. Ross’s personal computers in the responses to
written discovery that were delivered to the Plaintiff on August 22, 2012, [Doc. 709-4 at 8]. The
Plaintiff emphasized that the Court should order the forensic imaging of Mr. Ross’s personal
computers. Plaintiff noted that these devices had not been imaged previously. The Plaintiff
argued that because Mr. Ross, individually, was a party to this litigation imagining of the devices
was appropriate. The Plaintiff agreed to bear the cost for forensic imaging of the devices.
Counsel for the Plaintiff noted that the deposition of Defendant Michael Ross was also
set to take place on August 30, 2012. Counsel submitted that when previously called to testify
Mr. Ross had a poor memory, and therefore, counsel for the Plaintiff maintained that responses
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to the written discovery were needed to ask pointed questions. The Plaintiff conceded that it
may be more efficient to ask Mr. Ross some of the questions posed in the written discovery at a
deposition rather than pursuing a written answer.
Counsel for Mr. Ross and the Ross Entities argued that some of the data from the
imaging of the computers was protected by attorney-client privilege. In addition, counsel for Mr.
Ross argued that imaging the iPad and personal computer of Mr. Ross would be “oppressive and
intrusive.”
Following the parties’ presentations, counsel for the receiver presented the receiver’s
position and noted additional matters that may be pertinent to the Court’s decision. First, the
receiver stated that he had obtained permission from American Harper Corporation – the entity
which now owns the business computers of the Defendants – to have those computers imaged by
Sword and Shield, a third-party vendor. The receiver noted that Mr. Ross had identified a
computer at the Rarity Bay offices as his “personal computer” and that computer had been
imaged by Sword and Shield. The receiver noted that, despite meeting with Mr. Ross on three
occasions, the “personal” Dell laptop and iPad tablet had never been identified to the receiver.
The receiver represented that he was in favor of the iPad and personal Dell computer being
imaged.
The receiver also noted that he planned to file a motion to address the emails withheld
from the receiver during his meetings with Mr. Ross and Attorney Meares. In addition, the
receiver represented that he hoped the written discovery served by the Plaintiff would be
answered by Mr. Ross and the Ross entities because the information was necessary to complete
his investigation in this case.

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III.

ANALYSIS
The Court will address each of the pending post-judgment discovery issues in turn.

A.

Attorney-Client Privilege in Computers Sold to American Harper Corporation
“Where, as here, the underlying claim is based on federal law, federal common law

determines the extent of the privilege.” Moss v. Unum Life Ins. Co., 2012 WL 3553497, at *10
(6th Cir. 2012). Under federal common law, “[t]he burden of establishing the existence of the
privilege rests with the person asserting it.” United States v. Dakota, 197 F.3d 821, 825 (6th
Cir.1999) (citing In re Grand Jury Investigation No. 83–2–35, 723 F.2d 447 (6th Cir.1983)).
“The privilege is generally considered waived if a client voluntarily reveals otherwise protected
communications to third parties.” In re Columbia/HCA Healthcare Corp., 192 F.R.D. 575, 577
(M.D. Tenn. 2000)
To the extent Mr. Ross and the Ross Entities claim that the computers found at the
Rarity Bay offices are privileged in whole or that the forensic images of these computers are
privileged in whole, the Court finds that this position is not well-taken. Mr. Ross and the Ross
Entities have not cited the Court to any case that would allow such a broad interpretation of the
attorney-client privilege, which is meant to protect only communications, not any device that
may contain a communication.
Further, even if the attorney-client privilege were applicable to the devices themselves or
the communications contained therein, the privilege has been unequivocally waived via the
selling of these devices to American Harper Corporation, a third party. Mr. Ross and the Ross
Entities’ decision to sell a vessel containing privileged communications with counsel to a third
party must certainly be interpreted as voluntarily revealing those communications to the third
party. The contents of the devices have been conveyed to third-parties, and therefore, the Court
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finds this conveyance effectively waives the protection afforded to the contents of the devices,
including the communications contained therein, under the attorney-client privilege.
Accordingly, the Court finds that the attorney-client privilege has been WAIVED, with
regard to any communications contained on computers or other devices conveyed to American
Harper Corporation.
B.

Forensic Imaging of the Dell Computer and iPad Tablet
The Court finds that the Plaintiff’s request that the Court order the Dell computer and

iPad tablet to be forensically imaged is well-taken to the extent it seeks the preservation of the
documents and discoverable materials that may exist on these devices. Mr. Ross SHALL
DELIVER these devices to Sword and Shield on or before September 7, 2012. Sword and
Shield SHALL forensically image these devices and SHALL notify the receiver when these
devices have been imaged. The receiver will then notify the parties and the Court that this
process has been completed. The Court will then determine the extent to which the imaging will
be provided to the parties. Sword and Shield SHALL RETAIN possession of the forensic
images and SHALL NOT provide the images to any other persons or entities pending further
orders of the Court.
C.

Written Discovery Responses
The Court has reviewed the discovery responses made by Mr. Ross and the Ross

Entities, pursuant to the Court’s Memorandum and Order of July 11, 2012 [Doc. 651]. The
Court finds that some of the responses are sufficient, while other responses are not.

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The

following responses are not sufficient,1 and they must be supplemented on or before September
21, 2012:
(a) All real property owned: list provided must be edited to show which
properties “have been transferred or are in foreclosure proceedings”;
(c) All appraisals of property interests currently held;
(d) All business ownership interests;
(g) All debts presently owed to the Defendants;
(k) Regarding 2011 tax information, all W-2 forms and 1099 forms from
2011;
(n) The stock certificates of the Ross Entity Defendants, and any investment
accounts not previously identified; and
(s) Current business records.

IV.

SANCTIONS
The Court reserves ruling as to any sanctions regarding these discovery matters. See

Fed. R. Civ. P. 37(b).

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The insufficient responses are noted using the letter used to label them in the original Memorandum and Order, i.e.
(a) or (n).

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V.

CONCLUSION
Accordingly, the Plaintiff’s Motion for Full Access to Defendants’ Computer Data [Doc.

709] is GRANTED IN PART and DENIED IN PART, as more fully stated above.
IT IS SO ORDERED.

ENTER:

s/ H. Bruce Guyton
United States Magistrate Judge

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