Charlestown Capital Advisors, LLC v. Acero Junction, Inc.

• Decision Date: 14 February 2020
• Docket Number: 18-CV-4437 (JGK) (BCM)
• Parties: CHARLESTOWN CAPITAL ADVISORS, LLC, Plaintiff, v. ACERO JUNCTION, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

CHARLESTOWN CAPITAL ADVISORS, LLC, Plaintiff, v. ACERO JUNCTION, INC., et al., Defendants.

18-CV-4437 (JGK) (BCM)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

February 14, 2020

MEMORANDUM AND ORDER

BARBARA MOSES, United States Magistrate Judge.

Plaintiff Charlestown Capital Advisors, LLC (Charlestown) a private equity firm, has invoked the attorney-client privilege to withhold from production numerous emails sent to or from its principals John Weber and Lee Smith, as well as various draft business documents prepared by Weber. Some of the withheld communications were limited to Charlestown personnel; some included Charlestown's outside counsel at the law firm Arnold & Porter Kaye Scholar LLP (Arnold & Porter); and some went to or from Kenneth Grossman, a senior managing director at Steppingstone Group LLC (Steppingstone), a non-party financial advisory firm that had a business relationship with Charlestown.

In its most recent Revised Privilege Log, dated January 28, 2020 (Dkt. No. 135-15), plaintiff identifies Weber, Smith, and Grossman as "attorneys." They are in fact law school graduates, and each of them was, at some point, admitted to practice in New York. However, by the time they prepared, sent or received the challenged documents and emails, each of them was employed in a business capacity, and none of them was authorized, under New York law, to provide legal services to Charlestown. Weber certified in 2015 - prior to any of the events now at issue - that he was "retired" from the practice of law within the meaning of 22 N.Y.C.C.R. § 118.1(g). Smith's law license was suspended in 1999, because he failed to file his biennial registration form or pay the required fee. Grossman "retired from the practice of law some years ago," Weber Decl. (Dkt. No. 139-1) ¶ 34, and is now listed as "delinquent" in his attorney registration because he too failed to file the required form or pay the required fee. Id.

For these reasons and others, as explained in more detail below, I conclude that no attorney-client relationship existed between Charlestown and any of the three law school graduates whose drafts and communications are now at issue. I also conclude - after reviewing a sample of the withheld documents, submitted to me in camera - that the communications among Weber, Smith, and Grossman were not primarily or predominantly legal in character, as required to sustain a claim of privilege under New York law. Consequently, Charlestown may not rely on the attorney-client privilege to withhold otherwise-discoverable drafts by Weber, or emails to or from Weber or Smith, unless there is an independent basis for the claim of privilege. Nor may Charlestown withhold its communications with Grossman on privilege grounds. To the contrary: since Grossman was never a Charlestown employee or agent, and plaintiff does not contend that any common interest privilege applies, plaintiff has waived any claim of privilege with respect to materials that it disclosed to Grossman.

I. BACKGROUND

Charlestown, headquartered in New York City, is a "well-respected private equity firm with a particular focus on mergers and acquisitions," Compl. (Dkt. No. 1) ¶¶ 27, 43. It has four professional employees, including its founder and managing director Raj Maheshwari and three principals: Weber, Smith, and Robert Bose. See Charlestown Capital Advisors, "Our Team," https://www.charlestowncapital.com/who-we-are-1 (last visited Feb. 14, 2020).

Charlestown filed this diversity action on May 18, 2018, asserting claims for breach of contract against Acero Junction, Inc. (Junction) and its parent Acero Junction Holdings, Inc. (Holdings) (collectively, Acero), both of which are headquartered in Mingo Junction, Ohio, and for tortious interference with contract against Holdings' former parent JSM International Limited(JSM), which was formed in the United Arab Emirates and is headquartered in Dubai. Id. ¶¶ 28, 29, 36. All of Charlestown's claims arise out of a January 11, 2018 Engagement Letter executed by Maheshwari and Jateen S. Kapoor, the co-president of Junction and Holdings. See Compl. (Dkt. No. 1) ¶ 52 & Ex. A. In the Engagement Letter, Charlestown agreed to act as financial advisor to the "Company" (defined as Junction and its "subsidiaries, divisions, and affiliates") and to use its best efforts to affect a "Transaction" or "M&A Transaction" for its benefit. The Company, in turn, agreed to pay Charlestown a fee on the consummation of any Transaction or M&A Transaction "occurring after the execution of this Agreement but before the end of the term of this Agreement." Eng. Ag. ¶¶ 1.1, 3.1, 3.2. The Engagement Letter is governed by New York law. Id. ¶¶ 9.7-9.8.

According to Charlestown, the Engagement Letter entitles it to a fee of approximately $2.6 million (plus interest) in connection with a transaction announced on March 30, 2018, in which JSM transferred 100% of the shares of Holdings to non-party JSW Steel Limited (JSW). Compl. ¶¶ 8-15, 69. Charlestown demanded that fee by invoice dated April 11, 2018, id. Ex. C, but defendants failed and refused to pay. Id. ¶¶ 18-23. This lawsuit followed.

Fact discovery, which closed on December 24, 2019, was at times contentious. Three issues remain for decision: (1) Charlestown's motion for spoliation sanctions, arising out of Acero's failure to preserve Kapoor's email account (Dkt. No. 124); (2) Charlestown's application for attorneys' fees (Dkt. No. 112), to which it is entitled pursuant to Fed. R. Civ. P. 37(a) and my Order dated October 24, 2019 (Dkt. No. 111), which compelled JSM and Acero to produce witnesses and documents; and (3) JSM's challenge to Charlestown's claims of attorney-client privilege in relation to Weber, Smith, and Grossman, which is the subject of this Memorandum and Order.

On January 21, 2020, after a discovery conference at which the parties presented argument concerning the privilege dispute, I directed JSM to identify "five exemplars from plaintiff'sprivilege log for in camera review" and directed Charlestown to submit those documents directly to chambers for my review. (Dkt. No. 130, ¶ 2.) In addition, I directed both parties to submit letter-briefs, on the public docket, supporting their respective positions regarding Charlestown's privilege designations. After Charlestown submitted the exemplars in camera, and both sides filed their authorized letter-briefs, see Pl. Letter dated Jan. 28, 2020 (Dkt. No. 133); JSM Letter dated Jan. 28, 2020 (Dkt. No. 134), JSM filed a further, unauthorized letter-brief on February 3, 2020, see JSM Letter dated Feb. 3, 2020 (Dkt. No. 135), to which I permitted Charlestown to respond on February 6, 2020. See Pl. Letter dated Feb. 6, 2020 (Dkt. No. 139). Both sides rely on excerpts from the deposition testimony of John Weber (Dkt. Nos. 133-2, 134-1, 135-2) and Raj Maheshwari (Dkt. No. 134-2, 135-4) to support their respective positions. In addition, JSM relies on an excerpt from the deposition testimony of another Charlestown principal, Rob Bose (Dkt. No. 134-3), and plaintiff relies on Weber's declaration, executed on February 6, 2020.¹

II. ANALYSIS

A. Legal Standards

"State law governs privilege regarding a claim or defense for which state law supplies the rule of decision." Fed. R. Evid. 501. Thus, "[in] diversity cases such as this, where state law governs the claims, the Court looks to state law for determining privilege." Kleeberg v. Eber, 2019 WL 2085412, at *6 (S.D.N.Y. May 13, 2019) (collecting cases). "The elements of the attorney-client privilege under New York law are the existence of an attorney-client relationship, a communication made within the context of that relationship for the purpose of obtaining legal advice, and the intended and actual confidentiality of that communication." Bowne of New York City, Inc. v. AmBase Corp., 161 F.R.D. 258, 264 (S.D.N.Y. 1995) (Bowne II) (citing People v.Osorio, 75 N.Y.2d 80, 82-84, 550 N.Y.S.2d 612, 614-615 (1989)); see also N.Y.C.P.L.R. (CPLR) § 4503(a)(1) (the attorney-client privilege protects "evidence of a confidential communication made between the attorney or his or her employee and the client in the course of professional employment").

The purpose of the attorney-client privilege is to "promot[e] full and frank communications between attorneys and their clients," thereby encouraging "observance of the law" and aiding "in the administration of justice." Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 348 (1985); see also People v. Mitchell, 58 N.Y.2d 368, 373, 448 N.E.2d 121, 123 (1983) ("Its purpose is to ensure that one seeking legal advice will be able to confide fully and freely in his attorney, secure in the knowledge that his confidence will not later be revealed to the public to his detriment or his embarrassment."). However, "[b]ecause the privilege shields from disclosure pertinent information and therefore 'constitutes an "obstacle" to the truth-finding process,' it must be narrowly construed." Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 624, 36 N.Y.S.3d 838, 842 (2016) (quoting Matter of Jacqueline F., 47 N.Y.2d 215, 219, 417 N.Y.S.2d 884, 886 (1979)). Consequently, the party asserting the privilege bears the burden of establishing each element through competent evidence. Kleeberg, 2019 WL 2085412, at *7; see also Royal Park Investments SA/NV v. Deutsche Bank Nat'l Tr. Co., 2016 WL 2977175, at *4 (S.D.N.Y. May 20, 2016) (quoting von Bulow by Auersperg v. von Bulow, 811 F.2d 136, 144 (2d Cir. 1987) ("the burden is on a party claiming the protection of a privilege to establish those facts that are the essential elements of the privileged relationship"); Ambac, 27 N.Y.3d at 624, 36 N.Y.S.3d 838, 842-43 ("The party asserting the privilege bears the burden of establishing its entitlement to protection by showing that the communication at issue was between an attorney and a client for the purpose of facilitating the rendition of legal advice...