Anderson v. Cordell (In re Infinity Bus. Grp., Inc.)
| Citation | 530 B.R. 316 |
| Decision Date | 03 April 2015 |
| Docket Number | Bankruptcy Case No. 10–06335–jw,Adv. Proc. No. 12–80208–jw |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re: Infinity Business Group, Inc., Debtor. Robert F. Anderson, as Chapter 7 Trustee for Infinity Business Group, Inc., Plaintiff, v. Wade Cordell, O. Bradshaw Cordell, Cordell, LLC, The Cordell Group, LLC, Gibson Commons, LLC, Bryon K. Sturgill, Sturgill & Associates, Inc., John F. Blevins, Law Offices of John F. Blevins, LLC, Golden Ghost, Inc., Haines H. Hargrett, Donald Brent Grafton, D. Larry Grafton, Grafton & Company, PLLC, Morgan Keegan & Company, Inc., and Keith E. Meyers, Defendants. |
Infinity Business Group, Inc., Lexington, SC, pro se.
Marilyn E. Gartley, Anderson & Associates, PA, Robert Frank Anderson, Columbia, SC, for Plaintiff.
James Edward Bradley, West Columbia, SC, Edward M. Woodward, Jr., Woodward, Cothran & Herndon, Robert F. Anderson, Columbia, SC, John F. Blevins, Lexington, SC, Ralph Gleaton, Greenville, SC, John F. Blevins, Ellicott City, MD, Robert C. Byrd, Parker, Poe, Adams & Bernstein, LLP, Charleston, SC, Michael K. Freedman, Olga Greenberg, Steven Lawrence Polk, Sutherland Asbille & Brennan LLP, Atlanta, GA, for Defendants.
Bryon K. Sturgill, pro se.
Sturgill & Associates Inc., pro se.
Donald Brent Grafton, pro se.
D. Larry Grafton, pro se.
Grafton and Company, P.L.L.C, pro se.
ORDER DENYING MOTION TO COMPEL
This matter is before the Court on the Motion to Compel filed by Morgan Keegan & Company, Inc. and Keith E. Meyers (collectively, “MK Defendants”). The MK Defendants seek an order compelling Robert F. Anderson, as Chapter 7 Trustee for Infinity Business Group, Inc. (“Trustee”) to provide full and complete disclosure of certain documents he withheld from production to the MK Defendants on the basis of attorney client privilege. The Trustee objected to the Motion and a hearing was held. Pursuant to Fed.R.Civ.P. 52, which is made applicable to this adversary proceeding by Fed. R. Bankr.P. 7052, the Court makes the following findings of fact and conclusions of law.
1. On August 31, 2012, the Trustee commenced this adversary proceeding by filing the Complaint against the MK Defendants among others. The Complaint asserts the following causes of action against the MK Defendants: Constructive Fraud, Federal Securities Fraud, Malpractice, Common Law Fraud, Aiding and Abetting Fraud, Breach of Contract, Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, and Unjust Enrichment.
2. The Complaint alleges that certain members of the management of Infinity Business Group, Inc. (“Debtor”) engaged in a scheme to make Debtor appear more profitable than it was by using fraudulent financial statements to attract funds from potential investors and obtain loans, which those members of management then looted from Debtor. The MK Defendants are alleged to have known that the financial statements were false, but to have used them to prepare documents used to attract investors for Debtor.
3. On October 18, 2012, the MK Defendants filed a Motion to Dismiss. After several continuances requested by the parties, the Court conducted a hearing on February 1, 2013, and issued orders on June 19, 2013 and July 15, 2013, which granted in part and denied in part the Motion to Dismiss.
4. Since the entry of the orders regarding the Motion to Dismiss, the parties have engaged in extensive discovery for more than eighteen months and discovery is ongoing.
5. On March 21, 2014, the MK Defendants served their First Request for Production of Documents to the Trustee. Due to the significant volume of data and documents requested, production of documents by the Trustee to the MK Defendants has been made on a rolling basis beginning June 11, 2014, and was still ongoing as of the date of the hearing on the Motion to Compel. The documents requested by the MK Defendants include, in relevant part: (1) all documents relating to the MK Defendants; (2) all documents relating to communications between anyone and Defendants in this proceeding, or their representatives and relating to: the capital raising efforts of Debtor, the Grafton Financials, and/or any other allegations in the Complaint; and (3) all documents relating to the engagement of or services provided by the MK Defendants.
6. The Trustee has withheld numerous documents from disclosure to the MK Defendants due to attorney-client and work product privilege and produced others with redactions, and has provided two privilege logs as to those documents.
7. On November 3, 2014, counsel for the MK Defendants advised the Trustee that they considered the attorney-client privilege to have been previously waived in a June 16, 2011 email sent by Trustee's counsel at the time, which is discussed further below. Therefore, the MK Defendants demanded production of the withheld documents.
8. On or about December 22, 2010, Morgan Keegan & Company, Inc. (“Morgan Keegan”) received a subpoena from the South Carolina Office of the Attorney General, Securities Division (“SCAG”) in connection with its investigation of Debtor. The subpoena (“SCAG Subpoena”) sought broad categories of documents relating to the Morgan Keegan's involvement with Debtor and several of the other defendants in this adversary proceeding. In preparing its response, counsel for Morgan Keegan identified documents in its possession that included communications between Debtor and its in-house and outside counsel that were responsive to the subpoena, but for which the Trustee may have chosen to assert the attorney-client privilege.
9. Counsel for Morgan Keegan contacted the Trustee's counsel at the time, Stephanie Weissenstein of the Law Offices of Desa Ballard, to notify the Trustee of the SCAG Subpoena and determine whether the Trustee intended to assert the attorney-client privilege as to the responsive documents.
10. On May 11, 2011, during a hearing in the underlying bankruptcy case regarding a motion for relief from stay filed by several individuals who had commenced a state court action against several of the same defendants in this adversary proceeding, the Trustee reported to the Court that the filing of his complaint was delayed due to his efforts to coordinate with the Attorneys General in multiple states, including SCAG.
11. On May 26, 2011, SCAG filed a complaint commencing an administrative proceeding before the Securities Commission of South Carolina, In re Matter of Infinity Business Group, Inc., file no. 09089 (“SCAG Administrative Proceeding”) regarding the securities-related activities of Debtor, Wade B. Cordell, Haines Hargrett, John F. Blevins, and Otis B. Cordell.
12. On June 2, 2011, counsel for Morgan Keegan sent a letter to Ms. Weissenstein stating that she had left two voicemail messages with Ms. Weissenstein indicating that she needed to discuss Morgan Keegan's production of documents relating to the Debtor to the SCAG, including documents containing communications with Debtor's in-house and outside counsel.
13. On June 3, 2011, counsel for Morgan Keegan and Ms. Weissenstein participated in a telephone conference to discuss Morgan Keegan's production of documents in response to the SCAG Subpoena.
14. On June 16, 2011, Ms. Weissenstein sent an e-mail (“the June 16, 2011 e-mail”) to counsel for Morgan Keegan succinctly stating: “The Trustee waives any privilege, so you may produce the requested documents.”
15. On December 11, 2014, the Trustee and counsel for SCAG executed a document memorializing a mutual understanding and agreements previously reached by them regarding the preservation of attorney-client and work product privileges as to materials and information exchanged between the Trustee and SCAG (“Common Interest Memorandum”). The Common Interest Memorandum reflects their agreement to treat any materials or information exchanged as confidential and recognizes their common interests in the investigation of the Debtor.
The MK Defendants seek an order compelling the Trustee to provide full and complete disclosure, in response to their First Request for Production of Documents, of documents they argue were improperly withheld from production by the Trustee on the basis of attorney-client privilege. The MK Defendants argue that the Trustee may not withhold the documents at issue because the Trustee effected a blanket waiver of all pre-petition communications between the Debtor and its counsel via the June 16, 2011 e-mail. Even if the attorney-client privilege was not waived by the June 16, 2011 e-mail, the MK Defendants further argue that any applicable privilege was waived by the Trustee's failure to provide adequate privilege logs pursuant to Fed.R.Civ.P. 26(b)(5)(1), made applicable in this adversary proceeding by Fed. R. Bankr.P. 7026.
The federal common law regarding attorney-client privilege applies because this adversary proceeding involves both federal and state law claims. Vieira v. AGM II LLC (In re Worldwide Wholesale Lumber, Inc., 392 B.R. 197 (Bankr.D.S.C.2008) (citing Virmani v. Novant Health, Inc., 259 F.3d 284, 287 n. 3 (4th Cir.2001) ). As the party asserting the privilege, the Trustee bears the burden of demonstrating the applicability of the privilege to the documents withheld on those grounds. N.L.R.B. v. Interbake Foods, LLC, 637 F.3d 492, 501 (4th Cir.2011) (citing U.S. v. Jones, 696 F.2d 1069, 1072 (4th Cir.1982) ). The Fourth Circuit has set forth the following test for determining whether the attorney-client privilege applies:
(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or is his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney...
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Robert F. Anderson, for Infinity Bus. Grp., Inc. v. Wade Cordell, O. Bradshaw Cordell, Cordell, LLC (In re Infinity Bus. Grp., Inc.)
...530 B.R. 316In re: Infinity Business Group, Inc., Debtor.Robert F. Anderson, as Chapter 7 Trustee for Infinity Business Group, Inc., Plaintiff,v.Wade Cordell, O. Bradshaw Cordell, Cordell, LLC, The Cordell Group, LLC, Gibson Commons, LLC, Bryon K. Sturgill, Sturgill & Associates, Inc., John......