Munson Hardisty, LLC v. Legacy Pointe Apartments, LLC (TV3)
MEMORANDUM OPINION AND ORDER; the Court hereby OVERRULES defendant's Objection to Judge Shirley's Order 56 . Furthermore, as the Court has now resolved the attorney disqualification issue, the Clerk of Court is directed to LIFT the stay in this case. Signed by Chief District Judge Thomas A. Varlan on 5/30/17. (ADA)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
MUNSON HARDISTY, LLC,
LEGACY POINTE APARTMENTS, LLC, )
MEMORANDUM OPINION AND ORDER
This civil matter is before the Court on defendant’s Objection [Doc. 56] to United
States Magistrate Judge C. Clifford Shirley Jr.’s December 8, 2016, Order [Doc. 54].
Plaintiff responded to the objection [Doc. 64], and defendant replied [Doc. 66].1 For the
reasons explained herein, the Court will affirm the ruling of the magistrate judge.
Standard of Review2
The Motion to Disqualify Counsel [Doc. 17] was before the magistrate judge
pursuant to 28 U.S.C. § 636(b). That provision states: “A judge of the court may
reconsider any pretrial matter under [28 U.S.C. § 636(b)(1)(A)] where it has been shown
that the magistrate judge’s order is clearly erroneous or contrary to law.” See 28 U.S.C. §
636(b)(1)(A)]. Moreover, Federal Rule of Civil Procedure 72(a) provides that a district
judge must “set aside any part of [a nondispositive] order that is clearly erroneous or is
The Court notes that plaintiff’s response to the objection was not timely filed [Doc. 64].
Because defendant filed a reply to the response [Doc. 66], the Court finds that it is appropriate to
consider both plaintiff’s response and defendant’s reply in reaching its conclusions.
The Court assumes familiarity with Judge Shirley’s Order [Doc. 54].
contrary to law.” Fed. R. Civ. P. 72(a). As the instant matter is nondispositive, this
Court will consider defendant’s objection and set aside the magistrate judge’s order only
if it is “clearly erroneous or contrary to law.” Nisus Corp. v. Perma-Chink Sys., Inc., 327
F. Supp. 2d 844, 848 (E.D. Tenn. 2003). This standard mandates that the district court
affirm the magistrate’s decision unless, “on the entire evidence, [it] is left with the
definite and firm conviction that a mistake has been committed.”
Congress v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985).
Judge Shirley disqualified defendant’s counsel Long, Ragsdale & Waters
(“LRW”) from this case based on his finding that LRW attorney Taylor Forrester was
substantially involved in the representation of plaintiff in a related case. Defendant
objects to the disqualification, arguing that it is clearly erroneous because: 1) Judge
Shirley improperly relied on the Bond Action to disqualify LRW; 2) the Order applied
the incorrect legal standard by improperly conflating exposure to allegedly confidential
information with substantial involvement; and 3) the Order erroneously relied upon
plaintiff counsel’s description of undisclosed documents not in the record in holding that
plaintiff had carried its burden of proof. Defendant also argues that in the event that the
Court disagrees with defendant’s objections, the Court should defer a ruling to permit the
state court handling the Interpleader Action to determine the disqualification issue. The
Court will address each of these arguments in turn.
Whether the Disqualification Is Based on the Bond Action
Defendant first contends that the Order is clearly erroneous because Judge Shirley
relied upon the Bond Action in disqualifying LRW. Defendant argues that any reliance
on the Bond Action was improper because it was not pending at the time Forrester
The Court has considered this argument in light of the Order, and finds that it is
not well taken. While Judge Shirley did find in the Order that both the Bond Action and
the Interpleader Action are substantially related to this case, Judge Shirley actually based
the disqualification on the fact that Forrester was substantially involved in the
Interpleader Action, not the Bond Action [See Doc. 54 p. 19 (“Accordingly, the Court
finds that Attorney Forrester was substantially involved in the Interpleader Action and
that pursuant to Rule 1.10(d) LRW is disqualified from this case.”)]. Therefore, because
Judge Shirley based LRW’s disqualification on Forrester’s substantial involvement in the
Interpleader Action and not the Bond Action, the Court will overrule defendant’s
objection in this regard.
Finding of Substantial Involvement
Defendant next contends that Judge Shirley applied the incorrect legal standard in
Specifically, defendant argues that instead of basing the
disqualification on whether Forrester was substantially involved in the Interpleader
Action, Judge Shirley based the disqualification on the fact that Forrester was exposed to
confidential information in that case. In particular, defendant points to portions of the
Order that state that Forrester was substantially involved in the Interpleader Action
“because he was privy to conversations that involved theories,” and because he had
access to plaintiff’s file [Doc. 54 p. 18].
Thus, defendant asserts that the Order
“erroneously equates the access to confidential information with being substantially
involved in the Interpleader Action” [Doc. 57 p. 12].
The Court notes that while Judge Shirley did base his finding of substantial
involvement in part on the fact that Forrester was privy to conversations that involved
theories, Forrester’s presence and participation in these conversations shows more than
the mere access to confidential information. Rather, as Judge Shirley noted, it shows that
Forrester participated in strategic telephone conferences, and even possibly at one point
summarized the legal theory of the Interpleader Action [Doc. 54 p. 18]. Furthermore,
Judge Shirley also based his decision that Forrester was substantially involved in the
Interpleader Action in part on Forrester’s participation in a deposition [Doc. 54 p. 18].
Indeed, Forrester concedes in his declaration that he was the attorney covering this
deposition [Doc. 26 pp. 3–4]. Therefore, because the activities Judge Shirley described
go far beyond the access to confidential information, defendant’s argument that Judge
Shirley misapplied the standard for substantial involvement by conflating it with access
to confidential information is not well taken.
While defendant argues that Forrester’s participation in the conferences and
deposition do not rise to the level of substantial involvement due to Forrester’s status as
an associate attorney and the limited preparation required for the deposition, it is not the
Court’s role to substitute its judgment for that of Judge Shirley. Rather, “the clearly
erroneous standard only requires the reviewing court to determine if there is any evidence
to support the magistrate judge’s finding and that the finding was reasonable.” See Nisus
Corp. v. Perma-Chink Sys., Inc., 327 F. Supp. 2d 844, 851 (E.D. Tenn. 2003). Forrester’s
participation in the deposition, as well as his participation in discussions of legal theories,
constitutes evidence that supports Judge Shirley’s conclusion that Forrester was
substantially involved in the Interpleader Action.3
In addition, Judge Shirley’s
conclusion is supported by other evidence in the record, such as the affidavit of John
Hardisty [See e.g., Doc. 17-1 pp. 3–4 (“Mr. Forrester was also involved in discussions
with my California counsel concerning, inter alia, strategy in the litigation in several
jurisdictions . . . .”)].
In sum, the Court finds that Judge Shirley did not apply an incorrect standard for
substantial involvement, and the Court will overrule defendant’s objection in this regard.
Use of the Sealed Documents
Defendant next objects to the Order’s reliance on sealed documents. As there
have been case developments bearing on this issue subsequent to defendant filing its
objection, the Court finds it useful to provide a brief background.
The Court notes that defendant cites to the case Eberle Design, Inc. v. Reno A&E, 354
F. Supp. 2d 1093 (D. Ariz. 2005), for the proposition that an attorney is not substantially
involved in a matter merely by obtaining confidential and sensitive client information [Doc. 57 p.
11]. Because Judge Shirley did not base his decision only on Forrester’s access to confidential
information, Eberle does not conflict with Judge Shirley’s conclusions.
In support of its initial motion to disqualify, plaintiff submitted the affidavit of
John Hardisty [Doc. 17-1]. Defendant subsequently responded in opposition to the
motion to disqualify, submitting in support a declaration by Forrester, in which Forrester
refuted a number of the assertions from the Hardisty affidavit [Doc. 26]. Plaintiff replied,
and included with the reply a number of proposed documents, which plaintiff moved for
leave to file under seal [Docs. 35–36]. Plaintiff contended that the documents should be
filed under seal because they contain privileged information. Judge Shirley subsequently
found that plaintiff had not met its burden of showing that the documents should be filed
under seal, and accordingly denied the motion to seal with leave to refile [Doc. 54]. In
disqualifying LRW, however, Judge Shirley cited to plaintiff’s attorney Janet Getz’s oral
description of the contents of these proposed sealed documents [See e.g., Doc. 54 p. 18].
Subsequent to defendant filing this objection, and in accordance with Judge Shirley’s
invitation to refile the documents, plaintiff filed a renewed motion for leave to file the
documents under seal [Doc. 61]. The Court then granted that motion, finding that
plaintiff had met its burden of demonstrating that the documents should be filed under
seal [Doc. 77].
Defendant contends that Judge Shirley’s citing to these documents in disqualifying
LRW renders his Order clearly erroneous. In particular, defendant argues that because
plaintiff submitted the documents with its reply brief, and because Judge Shirley denied
plaintiff’s motion for leave to file the documents under seal, plaintiff did not have an
opportunity to respond to the documents and they were never a part of the record.
Additionally, defendant argues that Judge Shirley’s reliance on Getz’s descriptions of the
documents was unfair and prejudicial.
As an initial point, the Court notes that although plaintiff did not file the initial
motion to seal contemporaneously with its motion to disqualify, it filed the documents to
rebut Forrester’s affidavit. Therefore, because defendant submitted Forrester’s affidavit
with its response, it was not improper for plaintiff to file the documents in support of its
reply brief as opposed to contemporaneously with its motion to disqualify. Additionally,
while Judge Shirley did cite to Getz’s description of documents that he did not then
permit to be filed under seal, the Court recently granted plaintiff’s renewed motion for
leave to file these very documents under seal [Doc. 61]. In connection with that motion,
on January 3, 2017, plaintiff publicly filed lightly redacted versions of the relevant
documents [Doc. 61-2]. Defendant then filed its reply in support of this objection on
January 17, 2017, after having had an opportunity to view these redacted documents.
While defendant’s reply takes issue with plaintiff’s characterization of a number of the
relevant documents, it does not attack the veracity of the findings that Judge Shirley
actually made based on the description of the documents.
Specifically, Judge Shirley found that Forrester was a participant in a telephone
conference where case strategy was discussed, that he participated in a deposition, and
that he had access to plaintiff’s file [Doc. 54 p. 18]. While defendant argues that these
activities are not sufficient to support Judge Shirley’s finding of substantial involvement,
an argument that the Court has already rejected, defendant does not appear to argue that
these facts are not true. Furthermore, while defendant repeatedly criticizes plaintiff’s
characterizations of the documents, it frequently concedes that Judge Shirley rejected
those characterizations [See e.g., Doc. 57 p. 19 (“Magistrate Judge Shirley spotted the
inconsistency immediately.”]. Therefore, the Court finds that there was no prejudice to
defendant in Judge Shirley having relied on the sealed documents or plaintiff counsel’s
description of those documents, because defendant has not taken issue with any of Judge
Shirley’s actual findings based on those documents. Significantly, these findings are also
supported by other evidence that was in the record at the time Judge Shirley disqualified
LRW, such as Hardisty and Forrester’s declarations [See e.g., Doc. 17-1 pp. 3–4 (“Mr.
Forrester was also involved in discussions with my California counsel concerning, inter
alia, strategy in the litigation in several jurisdictions . . . .”); Doc. 26 p. 4 (stating that
Forrester participated in a telephonic deposition in the Interpleader Action)].
Furthermore, there is additional evidence in both Hardisty and Forrester’s
affidavits that, although not cited by Judge Shirley, supports his conclusion that Forrester
was substantially involved in the Interpleader Action. For instance, Forrester concedes in
his affidavit that he was tasked with arguing and drafting a motion to stay in that case
[Doc. 26 p. 6]. Forrester’s affidavit also indicates that he communicated with the client
on at least several occasions [Id.]. While Forrester seeks to downplay the extent and
significance of his involvement, these actions are further evidence that he was
substantially involved in the Interpleader Action. Thus, even without considering the
sealed documents, there is ample evidence to support Judge Shirley’s conclusions. See
Nisus Corp., 327 F. Supp. 2d at 851.
In sum, the Court is not left with “the definite and firm conviction that a mistake
has been made,” and as such, will affirm Judge Shirley’s Order disqualifying LRW. See
Heights Cmty. Congress, 774 F.2d at 140.
Deferring a Ruling
Defendant also argues that in the event that the Court disagrees with its
substantive objections to Judge Shirley’s Order, the Court should defer issuing a ruling
on the objection. Defendant asserts that this is appropriate because the disqualification
issue would best be decided in the context of the Interpleader Action, which is currently
pending in Knox County Chancery Court.
Defendant submits that as the primary
disqualification issue is whether Forrester was substantially involved in the Interpleader
Action, the court handling the Interpleader Action is in the best position to make a
The Court has considered defendant’s argument, and finds that deferring a ruling
on the objection is unwarranted.
First, Judge Shirley has already issued an order
disqualifying LRW from this case, and the Court has itself invested time and resources in
considering defendant’s objections.
Permitting a different court to rule on the
disqualification issue would thus be a significant waste of judicial resources.
Additionally, deferring a ruling on the disqualification issue would prevent the Court
from ruling on dispositive motions in this case, as the Sixth Circuit has cautioned that “a
district court must rule on a motion for disqualification of counsel prior to ruling on a
dispositive motion because the success of a disqualification motion has the potential to
change the proceedings entirely.” Bowers v. Ophthalmology Grp., 733 F.3d 647, 654
(6th Cir. 2013). As such, the Court will not defer ruling on the objection.
For the reasons discussed herein, the Court hereby OVERRULES defendant’s
Objection to Judge Shirley’s Order [Doc. 56].
Furthermore, as the Court has now
resolved the attorney disqualification issue, the Clerk of Court is directed to LIFT the
stay in this case.
IT IS SO ORDERED.
s/ Thomas A. Varlan
CHIEF UNITED STATES DISTRICT JUDGE
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