United States District Court, D. Delaware
P. DAVID NEWSOME, JR., as Liquidating Trustee of Mahalo Energy (USA), Inc., Plaintiff,
JEFF G. LAWSON and GRANT A. MACKENZIE, Defendants.
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,
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.
ANDREWS, U.S. DISTRICT JUDGE.
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.
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).
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).
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).
The Magistrate Judge's Rulings
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).
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.
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
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
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 ...