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Newsome v. Lawson

United States District Court, D. Delaware

December 12, 2017

P. DAVID NEWSOME, JR., as Liquidating Trustee of Mahalo Energy (USA), Inc., Plaintiff,

          Laura Davis Jones, Esquire and James E. O'Neill, Esquire of Pachulski Stang Ziehl & Jones LLP, Wilmington, Delaware. Counsel for Plaintiff. Of Counsel: AH M.M. Mojdehi, Esquire and Janet Dean Gertz, Esquire of Cooley LLP, San Diego, California.

          James W. Semple, Esquire of Cooch and Taylor, P.A., Wilmington, Delaware. Counsel for Defendants. Of Counsel: Paula J. Quillin, Esquire and Joseph R. Farris, Esquire of Franden, Farris, Quillin, Goodnight, & Roberts, Tulsa, Oklahoma.



         Plaintiff P. David Newsome, Jr. ("Plaintiff) is the liquidating trustee and successor-in-interest to the claims of the reorganized debtor Mahalo Energy (USA), Inc. ("Mahalo USA"). (D.I. 115). Plaintiff has asserted various claims against Defendants Jeff G. Lawson and Grant A. MacKenzie (collectively, the "Defendants") based on their role as attorneys for both Mahalo USA and its parent Mahalo Energy Ltd. ("Mahalo Canada"). (Id. at ¶¶ 9, 84). The parties are currently engaged in jurisdictional discovery, which has led to the present dispute. A magistrate judge denied Plaintiffs motion to compel certain documents Defendants withheld as privileged. (D.I. 128). Presently before the court are Plaintiffs objections to the magistrate judge's rulings. (D.I. 129). For the reasons stated below, the court affirms in part and reverses in part the magistrate judge's rulings.

         I. BACKGROUND

         A. Factual Background

         Mahalo USA was a Delaware corporation and wholly-owned subsidiary of Mahalo Canada, a Canadian corporation headquartered in Calgary, Alberta. (D.I. 115 ¶¶ 27, 80). On May 21, 2009, Mahalo USA filed for bankruptcy and Mahalo Canada filed for the Canadian equivalent of bankruptcy. (Id. at ¶¶ 26, 28). Defendants are corporate lawyers at Burnett, Duckworth & Palmer, LLP, a Canadian law firm, and had an attorney-client relationship with both Mahalo USA and Mahalo Canada. (Id. at ¶¶ 9, 84). Defendants also served as officers or directors of the companies. Specifically, MacKenzie was the corporate secretary of both Mahalo USA and Mahalo Canada, and Lawson was a director of Mahalo Canada. (Id. at ¶ 84).

         B. Procedural History

         Plaintiff sued Defendants alleging breach of attorney fiduciary duty, attorney malpractice, aiding and abetting breach of fiduciary duties, and aiding and abetting illegal distributions in violation of 8 Del. C. § 174. (Id. at ¶¶ 115-82). On August 28, 2014, Defendants filed a motion to dismiss, asserting lack of personal jurisdiction. (D.I. 11). After briefing and oral argument, the court entered an order granting Plaintiff leave to conduct jurisdictional discovery. (D.I. 35). Plaintiff thereafter issued discovery requests which led to several discovery disputes. (D.I. 47, D.I. 49, D.I. 50).

         On May 12, 2015, the court referred the determination of all discovery disputes to a magistrate judge. (D.I. 68). A ruling on the parties' discovery disputes was held in abeyance pending, among other things, disposition of Plaintiff s motion to amend, which the court granted. (D.I. 20, D.I. 59, D.I. 85). After Plaintiff filed his first amended complaint, Defendants filed their second motion to dismiss. (D.I. 115, D.I. 116). The second motion to dismiss, like the first motion to dismiss, argued that the court lacked personal jurisdiction. (D.I. 116 at 5-8). Accordingly, the parties requested that the court rule on the outstanding discovery disputes. (D.I. 117).

         C. The Magistrate Judge's Rulings

         The only portion of the discovery disputes currently before the court is whether Defendants have improperly asserted privilege to withhold certain documents from production. Plaintiff moved to compel production of the documents based on two exceptions to the attorney-client privilege: the adverse-litigation exception recognized by the Third Circuit in In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir. 2007), and the breach of duty exception codified at Del. R. Evid. 502(d)(3). (D.I. 128 at 18:15-20, 21:24).

         On June 9, 2016, the magistrate judge held a discovery conference, and the transcript of that conference served as the order of the court. (D.I. 126, D.I. 128). In general, the magistrate judge found that the adverse-litigation exception was inapplicable, because Plaintiff was suing the joint attorney and not the other joint client. (See, e.g., D.I. 128 at 19:13-20:19). In addition, the breach of duty exception was inapplicable, because it "has nothing to do with joint representations." (See, e.g., Id. at 32:12-19). More specifically, the magistrate judge made the following six rulings to which Plaintiff objects:

THE COURT: [U]nder the Teleglobe case, the Court specifically stated, and I quote, the great caveat of the joint client privilege is that it only protects communications from compelled disclosures to parties outside the joint representation. When former co-clients sue one another ... the default rule is that all communications made in the course of the joint representation are discoverable. The Teleglobe case differs from this case because in that case, the subsidiary sued the parent. And there had been a joint representation involved between the parent and the sub. Here [it is] not joint clients suing one another, ... it's one client ... suing the attorney for both clients. A waiver cannot occur for the client who is not the party to the suit.....In other words, if your argument is we have a parent and a sub, the sub is now suing counsel who allegedly represented both the parent and the sub, that parent [doesn't] lose attorney/client privilege just because the sub has sued the attorney. That is a completely different circumstance. And that's what I understand we have here and what we didn't have in the Teleglobe case.

         (D.I. 128 at 19:13-20:19).

THE COURT: [Y]ou're suggesting to me that the parent has given up ... any claim of attorney/client privilege in any document that has any reference to [Mahalo USA] because of the joint representation and [Mahalo USA is] now suing through the trustee ... the attorneys that represented it [and] the parent. I don't see how ... Teleglobe ... fits.
MR. MOJDEHI: Let me address that question which was the second point. So Teleglobe gives us the general rule, and then the question is does this fall within that general rule?
THE COURT: And the answer is no.

(Id. at 21:4-21).

THE COURT: Then [Teleglobe] says when co-clients and their common attorneys communicate with one another both communications are in confidence for privilege purposes. Moreover, the waiving of attorney/client privilege requires a consent. That consent [is in] regards to a client. Under the statements there are other laws governing lawyers. And a client... may unilaterally waive the privilege as to its own communications with a joint attorney so long as those communications concern only the waiving client. It may not, however, unilaterally waive the privilege as to any other joint client communication or to any of its ...

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