In re Subpoena Issued to Dennis Friedman

• Decision Date: 21 November 2003
• Docket Number: Docket No. 03-5001.
• Citation: 350 F.3d 65
• Court: U.S. Court of Appeals — Second Circuit
• Parties: In re: SUBPOENA ISSUED TO DENNIS FRIEDMAN, Esq. of Gibson, Dunn & Crutcher LLP, Hechinger Investment Company of Delaware, Inc., Debtor The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. on behalf of Hechinger Investment Company of Delaware, Inc., et al., Plaintiff-Appellant, v. Dennis Friedman, Esq., John W. Hechinger, Sr., John W. Hechinger, Jr., W. Clark McLelland, Kenneth J. Cort, Ann D. Jordan, Robert S. Parker, S. Ross Hechinger, Melvin A. Wilmore, Alan J. Zakon, Defendants-Appellees, Fleet Retail Finance Group, Defendant.

350 F.3d 65

In re: SUBPOENA ISSUED TO DENNIS FRIEDMAN, Esq. of Gibson, Dunn & Crutcher LLP Hechinger Investment Company of Delaware, Inc., Debtor The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. on behalf of Hechinger Investment Company of Delaware, Inc., et al., Plaintiff-Appellant, v. Dennis Friedman, Esq., John W. Hechinger, Sr., John W. Hechinger, Jr., W. Clark McLelland, Kenneth J. Cort, Ann D. Jordan, Robert S. Parker, S. Ross Hechinger, Melvin A. Wilmore, Alan J. Zakon, Defendants-Appellees Fleet Retail Finance Group, Defendant.

Docket No. 03-5001.

United States Court of Appeals, Second Circuit.

Argued: September 4, 2003.

Decided: November 21, 2003. Cir.1986

David E. Ross, Kasowitz, Benson, Torres & Friedman, LLP (Andrew K. Glenn and Ian D. Katz, of counsel), New York, NY, for plaintiff-appellant.

Mitchell A. Karlan, Gibson, Dunn & Crutcher LLP (Thomas A. Gentile, of counsel), New York, NY, for defendants-appellees.

Before: NEWMAN, SOTOMAYOR, and WESLEY, Circuit Judges.

Judge WESLEY concurs in result only in a separate opinion.

SOTOMAYOR, Circuit Judge.

Plaintiff-appellant appeals from an order of the United States District Court for the Southern District of New York (Pollack, J.) quashing its deposition subpoena of defendant-appellee Dennis Friedman, Esq. ("Friedman"), an attorney who previously served as counsel during merger negotiations to a now-bankrupt corporation of which the non-attorney defendants-appellees are former directors. The former directors are being sued by plaintiff-appellant in the United States District Court for the District of Delaware for breach of their fiduciary duties in connection with the merger and have raised a defense based on Friedman's advice. Although no longer serving as a formal adviser to the former directors, Friedman is a non-litigation partner at the law firm now representing them in the Delaware litigation. The district court ruled, relying on the rule set forth in Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir.1986), that plaintiff-appellant must exhaust all practical alternative means of obtaining the information sought from Friedman before it would consider allowing the proposed deposition and ordered plaintiff-appellant to proceed first by written interrogatories. We conclude that the deposition-discovery regime of the Federal Rules of Civil Procedure requires a more flexible approach to attorney depositions than the rigid Shelton rule, which improperly guided the District Court's exercise of discretion in quashing the subpoena, but we need not rule definitively on the matter, because we have recently been advised that Friedman has consented to the deposition, thereby rendering this appeal moot.

BACKGROUND

Plaintiff-appellant, the Liquidation Trust of Hechinger Investment Company of Delaware, Inc., and the non-attorney defendants-appellees, former members of the company's board of directors, are currently involved in securities litigation in the United States District Court for the District of Delaware. That litigation concerns the defendants' actions in connection with the merger of Hechinger Investment Company ("Hechinger") and another home improvement company, Builder's Square. The combined companies declared bankruptcy approximately two years after the merger. Plaintiff's predecessor-in-interest (an unsecured creditors' committee) subsequently brought the underlying Delaware lawsuit, claiming inter alia that Hechinger's former directors breached their fiduciary duties to the company's creditors by approving the merger. The directors have asserted affirmative defenses in the lawsuit based on the business judgment rule and their reliance on the advice of their counsel, defendant-appellee Friedman, during the merger negotiations. According to defendants, at the time Hechinger's board was considering the Builder's Square merger, Friedman (then of Chadbourne & Parke LLP) advised them about their fiduciary obligations and the business judgment rule. Friedman's representation of Hechinger ended after the merger, and he subsequently moved to Gibson Dunn & Crutcher ("GDC"), the law firm serving as trial counsel for the defendants in the pending Delaware litigation. Friedman is not a litigator and is not counsel of record either in the court below or in the underlying action.

On October 3, 2002, plaintiff served Friedman with a non-party deposition subpoena, issued in the Southern District of New York, seeking his testimony concerning the nature and substance of his advice to the defendants in connection with the Hechinger-Builder's Square merger. Having deposed all of the available former Hechinger directors, plaintiff claims that the directors had either conflicting or no recollections of whether Friedman specifically directed the board to consider the interests of Hechinger's creditors in evaluating the merits of the proposed merger. Plaintiff therefore argues that deposing Friedman is necessary. Friedman and the Hechinger defendants moved to quash the subpoena on October 7, 2002.

After a hearing on November 12, 2002, the district court initially held the motion to quash in abeyance "pending a good faith showing by plaintiff of the propriety of the intended inquiries to the particular proposed witness." (Nov. 12, 2002 Order.) The district court instructed plaintiff to "show by proposed interrogatories covering the desired deposition that legally proper inquiries exist under the circumstances to ground the request for deposing the attorney-witness; and that the attempted deposition is not an abusive procedure under all the facts and circumstances involved herein, including the identity of the proposed witness, as attorney." Id. The plaintiff responded by submitting a list of subjects about which it wished to question Friedman, instead of the required interrogatories. The district court thereafter quashed the subpoena by order dated December 10, 2002.

In its December 10, 2002 order, the district court first held that the proposed deposition was not barred by attorney-client privilege because plaintiff, as bankruptcy trustee, could waive the privilege with respect to both defendants' communications with Friedman and his attorney work product.¹ In re Subpoena Issued to Friedman, 286 B.R. 505, 507-08 (S.D.N.Y. 2002). The district court went on to find that Friedman's advice was "both relevant and possibly crucial to the plaintiff's preparation of its case" and noted that "the only way to find out the attorney's advice may be to inquire directly of the attorney." Id. at 509. Nevertheless, the district court determined that the proposed deposition was barred under the three-pronged rule set forth in Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir.1986) (hereinafter "Shelton"), holding that parties seeking to depose "opposing trial counsel" must show that "no other means exist to obtain the information [sought] than to depose opposing counsel." Id. at 1327. Relying on other district courts' adoption of the Eighth Circuit's decision in Shelton, the district court ruled that a party seeking to depose opposing counsel "must demonstrate that the [proposed] deposition is the only practical means of obtaining the information" and that "[o]ther methods, such as written interrogatories, should [first] be employed." Friedman, 286 B.R. at 509 (quoting Pereira v. United Jersey Bank, Nos. 94 Civ. 1565, 94 Civ. 1844, 1997 WL 773716, at *8 (S.D.N.Y. Dec.11, 1997) (quoting West Peninsular Title Co. v. Palm Beach County, 132 F.R.D. 301, 302 (S.D.Fla.1990))). Consequently, despite finding that "it is not unreasonable for the Trust to seek to depose Mr. Friedman," the district court found that plaintiff's list of broad subject-matter inquiries did not show that an oral deposition was the only practical means of obtaining the information it sought and ordered plaintiff to proceed by written interrogatories. Id.

Plaintiff appealed from the December 10, 2002 order, and defendants moved to dismiss the appeal on the ground that the order was not sufficiently final to provide this Court with jurisdiction because it left open the possibility that the district court might, at some later point, permit the plaintiff to depose Friedman. A panel of this Court denied the motion and ordered the appeal expedited. (June 26, 2003 Order Denying Defendants' Motion to Dismiss the Appeal.)

DISCUSSION

We review a district court's ruling on a motion to quash a subpoena for abuse of discretion. See DG Acquisition Corp. v. Dabah (In re DG Acquisition Corp.), 151 F.3d 75, 79 (2d Cir.1998) (quoting Cruden v. Bank of New York, 957 F.2d 961, 972 (2d Cir.1992)). Although the district court "enjoys wide discretion in its handling of pre-trial discovery," id., it nevertheless abuses its discretion "when (1) its decision rests on an error of law or a clearly erroneous factual finding, or (2) its decision — though not necessarily the product of a legal error or a clearly erroneous factual finding — cannot be located within the range of permissible decisions." Amer. Sav. Bank, FSB v. UBS PaineWebber, Inc. (In re Fitch, Inc.), 330 F.3d 104, 108 (2d Cir.2003) (internal punctuation and quotation marks omitted); see also Koon v. United States, 518 U.S. 81, 100, 116 S.Ct. 2035, 135 L.Ed.2d 392 (1996) ("A district court by definition abuses its discretion when it makes an error of law.").

The deposition-discovery regime set out by the Federal Rules of Civil Procedure is an extremely permissive one to which courts have long "accorded a broad and liberal treatment to effectuate their purpose that civil trials in the federal courts [need not] be carried on in the dark." Schlagenhauf v. Holder, 379 U.S. 104, 114-15, 85 S.Ct. 234, 13 L.Ed.2d 152 (1964) (quoting Hickman v. Taylor, 329 U.S. 495, 501, 507, 67 S.Ct. 385, 91 L.Ed. 451 (1947) (internal quotation marks omitted)). Indeed, the rules provide for the taking of discovery,...