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Privilege doesn't attach to valuation documents.

Byline: Rebecca M. Lightle

Financial documents submitted to a valuation company and later sought by subpoena were not privileged under either attorney-client privilege or the work-product doctrine. In any event, the defendant's motion to quash the subpoena was untimely filed. Background This action revolves around the role of Matt Martorello in the creation of a lending business, Big Picture Loans LLC. Before Big Picture was formed, Martorello had a significant ownership stake in a company called Bellicose Capital. Bellicose was then purchased by a succession of corporate entities, for at least one of which Martorello served as president. Given the complicated nature of the transaction and the possibility of audits and litigation based on the terms of the purchase note, Martorello's tax attorneys recommended that he obtain a valuation of the note. Ultimately, Aranca Inc. was engaged either by Bellicose or Martorello to provide a Valuation Report. Prior to preparing the Valuation Report, Aranca sent Martorello an engagement letter for services. To enable an accurate valuation, Martorello provided Aranca with certain documents. These documents are sought in a subpoena in the current litigation. On June 22, 2017, Lula Williams and other Plaintiffs brought a RICO suit against Big Picture, Martorello, and other entities. When the Defendants indicated that they would seek dismissal on various jurisdictional grounds, the court ordered the parties to conduct jurisdictional discovery. In the course of this discovery, Martorello produced a copy of the Valuation Report. On October 27, 2017, the Plaintiffs served a subpoena on Aranca that sought, in part, all documents submitted to Aranca by Martorello as part of its business valuation of Bellicose and all email correspondence between Martorello and any representative of Aranca. Martorello moved to quash the subpoena on December 21. Subpoenadefects Martorello has credibly asserted that some documents requested in the Subpoena are protected by the attorney-client privilege and the work-product doctrine; accordingly, he has standing to challenge the subpoena on privilege grounds. He asserts two deficiencies that he claims are fatal flaws to the subpoena's enforcement. Both are misguided. First, Martorello claims that the subpoena is merits discovery masquerading as jurisdictional discovery and, as such, improper at this stage. Specifically, he contends that documents relating to the Valuation Report could not be relevant to the jurisdictional issues because the information only concerns Martorello's tax planning. But Martorello himself produced the Valuation Report in the course of jurisdictional discovery because it contained information about Bellicose's operations. Consequently, it is reasonable for the Plaintiffs to believe that communications and documents sent by Martorello to Aranca reasonably can be expected to shed light on Bellicose's operations, and thus it was also reasonable for the Plaintiffs to seek those documents from Aranca. The subpoena did not exceed the scope of jurisdictional discovery. Second, Martorello asserts that the subpoena is unenforceable because it states that Aranca must produce documents pursuant to Federal Rule of Civil Procedure 34, rather than Rule 45. While the subpoena's Exhibit A misstates the applicable rule, it is attached to a form subpoena that notes throughout that the Aranca's obligations are set by Rule 45. It even includes a full page with the relevant text of that rule. The full subpoena makes clear that the incorrect rule citation in Exhibit A is a typographical, and harmless, error. Accordingly, Martorello's facial attacks on the subpoena fail. Untimelyobjections Aranca's objections were clearly untimely. The subpoena was served on October 27, 2017, and the original production date was November 15. Although the parties later agreed to extend the production deadline to November 30, that agreement does not change the plain language of Rule 45, which requires objections to be served before the earlier of the production date or 14 days after service. Therefore, Aranca needed to object before November . Moreover, the parties' communications don't indicate that the extension was also intended to apply to objections. Indeed, Horton didn't appear to be aware that Aranca was in non-compliance with Rule 45 when he served the objections on November 22. Under the circumstances, the court finds no good cause to consider Aranca's objections, and they must be considered waived. Aranca's waiver doesn't affect Martorello's objections, however. He could still have preserved his privilege challenges by timely moving to quash. Untimelymotiontoquash Most courts consider a motion to quash timely if it is filed before the return date of the subpoena. But Martorello's motion was not filed until December 21, well after the 14-day objection deadline and several weeks after even the amended return date of November 30. Consequently his motion is not timely within the meaning of Rule 45(d)(3)(A). Martorello's contention that any delay from his late filing can be disregarded is unconvincing because he has not shown unusual circumstances or other good cause for the untimely filing. He has provided no plausible explanation for his counsel's repeated delays, even after conferring with Plaintiffs' counsel. Because Martorello is a party in the related case, he would have first learned of the subpoena on or around October 27, when it was served on Aranca. Martorello did not discover the purportedly privileged documents until November 27, apparently because of Aranca's slow response to the subpoena. Martorello's counsel conferred with the Plaintiffs' counsel on November 29 but for some reason did not initiate another meet-and-confer until December 7 a week after the agreed-upon production date had already passed. Even after the meet-and-confer, Martorello's counsel didn't formally reject the Plaintiffs' privilege arguments until December 19, a further delay of eight days. The Plaintiffs made their disagreement with Martorello's position clear at the outset of the discussions, and Martorello simply dragged his feet in investigating or responding to the Plaintiffs' arguments. Engaging in fruitless meet-and-confers is not the same as negotiating an agreement for document production. The fact that Martorello's untimely filing might not have prejudiced the Plaintiffs in the related case does not change this result. Rule 45(d)(3)(A) does not provide that lack of prejudice is a consideration in deciding if a motion to quash is timely. Accordingly, Martorello's motion can be denied for its untimeliness alone. Attorney-clientprivilege Even if Martorello's motion were timely, it fails on the merits because he has not demonstrated that a privilege applies to the documents listed in the privilege log. As to attorney-client privilege, the party claiming it must be a client who has sought legal advice. Assuming that Martorello had an attorney-client relationship with his tax lawyers, he has not shown that he was also Aranca's client. The record variously reflects three different parties who might have engaged Aranca; none of them is Martorello. Martorello relies on Aranca's engagement letter, which says that Aranca will provide business valuation services for the entity Kairos not Martorello. Aside from being addressed to and signed by Martorello as Kairos's president, the engagement letter does not reference Martorello by name at all. Martorello's arguments completely ignore the distinction between the privilege being possessed by Kairos or by Martorello himself. Therefore, he has not established that he is the party entitled to assert the privilege. Even if Martorello had standing to assert the privilege, his claims fail because he waived the privilege by disclosing the privileged information to Aranca for purposes other than securing legal advice. The privilege only attaches if the agent's work is intended to help the attorney provide legal services. But here, almost all of the privilege log entries do not imply involvement by Martorello's attorneys. In fact, they suggest the opposite: that Martorello sent, and presumably received, the majority of the communications with Aranca for his personal benefit. This evidence of limited attorney involvement weighs in favor of finding waiver. Moreover, Aranca was engaged for the sole purpose of performing certain business valuation services and conducting valuation analysis for Martorello's tax purposes. Essentially, Aranca was engaged to better help Martorello understand the effect of the Bellicose sale on his taxes. Courts have rejected the extension of the attorney-client privilege in similar circumstances. The mere fact that an attorney recommended a transaction, as Martorello's attorneys did, does not place a cloak of secrecy around all the incidents of that transaction. And whether Martorello's attorneys helped Aranca evaluate the tax implications is immaterial, since an attorney can fulfill dual roles as an accountant or tax specialist and a lawyer. Workproduct In addition, Martorello has not shown that the documents at issue were prepared in anticipation of litigation and, as such, subject to the work-product doctrine. The privilege log describes some documents as a memorandum of legal counsel setting forth historical enforcement information relating to small-dollar lending, and another document as an attachment to that memorandum. The log provides no further information, including the date of the memorandum. The evidence provided is insufficient to demonstrate that the memorandum is work product. For a document to have been created in anticipation of litigation, a party must have been facing an actual claim or a potential claim following an actual event or series of events that reasonably could result in litigation. Martorello has provided no information about what pending or imminent litigation prompted the memorandum, and the vague, inchoate threat of future litigation based on the Bellicose sale is not enough. The memorandum appears to contain an assessment of general litigation risks related to the sale, which would be called for with any complex transaction. Accordingly, the memorandum is a document prepared in the ordinary course of business, since it would have been created in the same form with or without the prospect of litigation. Motion to quash denied. Williams v. Big Pictures Loans LLC, Case No. 3:18mc1, Mar. 16, 2018. EDVA at Richmond (Payne). VLW No. 018-3-085, 32 pp.

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Author:Lightle, Rebecca M.
Publication:Virginia Lawyers Weekly
Date:Apr 2, 2018
Words:1615
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