Featherstone v. Schaerrer, 990310.

• Decision Date: 16 October 2001
• Docket Number: No. 990310.,990310.
• Citation: 34 P.3d 194,2001 UT 86
• Parties: Steve FEATHERSTONE, Plaintiff, v. Grant SCHAERRER, Paul Burt, Thermo Mechanical Sales, Inc., dba TMS, Inc., and Roger Johnson, Defendants, Appellees, and Cross-Appellants. Blake S. Atkin, Appellant and Cross-Appellee.
• Court: Utah Supreme Court

34 P.3d 194

2001 UT 86

Steve FEATHERSTONE, Plaintiff, v. Grant SCHAERRER, Paul Burt, Thermo Mechanical Sales, Inc., dba TMS, Inc., and Roger Johnson, Defendants, Appellees, and Cross-Appellants.

Blake S. Atkin, Appellant and Cross-Appellee.

No. 990310.

Supreme Court of Utah.

October 16, 2001.

Rehearing Denied November 14, 2001.

Keith A. Kelly, Melissa H. Bailey, John W. Mackay, Salt Lake City, for defendants.

Blake S. Atkin, Scott M. Lilja, Jonathan L. Hawkins, Salt Lake City, for Atkin.

RUSSON, Associate Chief Justice:

¶ 1 Attorney Blake S. Atkin, counsel for plaintiff Steve Featherstone in the dispute underlying this appeal, challenges two trial court orders finding that he violated Utah Rule of Professional Conduct 4.2 and Utah Rule of Civil Procedure 34, and awarding sanctions for his actions. We affirm in part and reverse and remand in part.

BACKGROUND

¶ 2 On April 16, 1993, plaintiff Steve Featherstone ("Featherstone") filed suit against two of his business partners, Paul Burt ("Burt") and Grant Schaerrer ("Schaerrer"), and the corporation they had together founded, Thermo Mechanical Sales, Inc. ("TMS"). The central issue in the dispute was the extent of Featherstone's ownership in the corporation, specifically "[d]efendants' conduct in refusing to issue stock to Plaintiff."

¶ 3 To proceed with his action, Featherstone retained attorney Blake S. Atkin ("Atkin"). On April 29, 1993, defendants served their first request for production of documents pursuant to Utah Rules of Civil Procedure 33 and 34. In these interrogatories, defendants requested production of "all documents ... concerning [Featherstone's] asserted ownership or interest in TMS, including documents concerning any communications about [the] alleged ownership or interest," along with "all documents . . . related to ... any communications with the Defendants or any other person concerning [Featherstone's] interest in or ownership of TMS." The production request further provided that "[i]f any documents are withheld under a claim of privilege," plaintiff was to notify defendants of each document's identification, date, general content, and grounds for nondisclosure. Following defendants' request, both parties reached a stipulation agreement providing that "Plaintiff ... will produce ... on or before May 13, 1993, ... the documents requested by Defendants in their First Request for Production of Documents..., with the exception of Plaintiff's tax returns ...."

¶ 4 On the same day the stipulation agreement was reached, May 10, 1993, Roger Johnson ("Johnson"), a founding director of TMS who was serving as secretary and treasurer of the corporation at the time, telephoned Atkin and agreed to allow Atkin to record their conversation. During their conversation, Atkin questioned Johnson about a number of issues related to the ownership of TMS, including "why the shares in the corporation were never issued," the "dispute ... between [Featherstone], [Burt], and [Schaerrer]," their "original negotiations" over the founding of the business, the division of ownership among the corporate founders, and Johnson's own interest in the company. At the end of their discussion, Atkin informed Johnson that he had been "name[d] . . . as a defendant in the lawsuit now."

¶ 5 Shortly after Atkin's conversation with Johnson, progress in the suit languished. Eventually, in 1996, activity began anew, and both parties again pursued discovery. On November 19, 1996, defendants served a second set of document production requests. These interrogatories requested production of "[a]ll documents ... on which your damage claims in this action are based, including materials bearing on the nature and extent of injuries suffered." In addition, defendants propounded "[e]ach document ... that [plaintiff] reasonably believe[s] [plaintiff] will offer at the trial of this matter, or which [plaintiff] may offer if the need arises." Subsequently, on December 18, 1996, plaintiff responded, among other things, that he objected to defendants' interrogatories "to the extent [they] call for information or documents protected under the attorney-client or the work product doctrine."

¶ 6 On January 6, 1997, Atkin deposed Johnson. During the deposition, Atkin began using a transcript of his May 10, 1993, conversation with Johnson for cross-examination purposes. Upon revelation of this earlier conversation, counsel for defendants questioned Atkin about the conversation's substance, whether it had been conducted before or after the suit had been filed, and whether Johnson was a named defendant in the suit at the time. Following this exchange, counsel for defendants objected to use of the transcript, adjourned the deposition, and attempted to schedule a date for the deposition's continuation subsequent to the transcript's production. Atkin replied that defendants' counsel was "not entitled" to the transcript, and that he would "file a motion to compel" Johnson's deposition and "seek sanctions" for defendants' "outrageous... ploy to delay the discovery in th[e] case."

¶ 7 The next day, on January 7, 1997, Atkin moved to compel the deposition of Johnson and to obtain "attorney fees in pursuing this [m]otion and in preparing for another deposition." In support of his motion, Atkin contended that "a parties' [sic] prior statement need not be disclosed until he has been deposed."

¶ 8 On January 10, 1997, defendants moved to suspend Johnson's deposition until the parties' discovery dispute was resolved by the court. Specifically, defendants sought to have the trial court determine that Atkin had violated Utah Rule of Professional Conduct 4.2 by "conduct[ing] an ex-parte interview of Roger Johnson by telephone ... after th[e] litigation commenced," and to disallow use of any such "improperly obtained ex-parte conversation" during the course of the litigation. In addition, defendants requested that the trial court compel production of all recorded conversations "as previously requested by defendants," and that the court award "costs and legal fees incurred in [defendants'] efforts to compel discovery from plaintiff."

¶ 9 On January 21, 1997, Atkin responded to defendants' motion to compel production of the transcript, arguing among other things that he was not required to furnish defendants with the transcript because it was protected by the attorney work product privilege. Atkin stated, "The transcript of ... counsel's conversation with Mr. Johnson was prepared in anticipation of litigation and to assist in trial preparation. Pursuant to Rule 26(b)(3) of the Utah Rules of Civil Procedure, therefore, such transcript is protected from disclosure to third-parties under the work-product doctrine."

¶ 10 After considering the parties' respective motions, the trial court ruled on the matter in a written order dated July 9, 1997. The court found that when Atkin recorded his conversation with Johnson on May 10, 1993, Johnson "was a director, officer[,] and employee" of TMS, Atkin had already named TMS as a defendant in the suit, and Johnson was named as a defendant on that "very day." The court therefore determined that Atkin had violated Utah Rule of Professional Conduct 4.2 by engaging in ex parte communications with a person represented by counsel, and accordingly ordered that "no ex-parte conversation by Plaintiff's counsel with any of the Defendants, including the May 10, 1993[,] conversation between Johnson and [Atkin], be referred to or used in this litigation." The court further ruled that, despite his argument asserting the transcript was protected from production by the work product privilege, Atkin had, in violation of Utah Rule of Civil Procedure 34(b), inappropriately withheld the transcript of the conversation from defendants after they had requested such documents in their interrogatories and again during Johnson's deposition. Consequently, the court ordered Atkin to produce the document pursuant to rule 37(a) of the Utah Rules of Civil Procedure, and awarded defendants their "costs and legal fees incurred" in pursuing their motion to compel production and in defending against Atkin's motion to compel Johnson's deposition pursuant to Utah Rule of Civil Procedure 37(a)(4). According to the order, these costs and fees were to "be paid directly by [Atkin], and not by Plaintiff."

¶ 11 Subsequently, on February 19, 1998, Atkin moved the trial court to reconsider and set aside its July 9, 1997, order. Specifically, the motion argued that Atkin had not violated Utah Rule of Professional Conduct 4.2 because "the evidence at trial" failed to show Johnson was a "high-level or managerial employee" of TMS. In response, defendants asserted that the evidence at trial showed Johnson to be "an incorporator and officer of TMS," and also requested that "additional sanctions" be awarded for additional ethical violations Atkin had allegedly committed. Defendants further pointed out that Atkin had failed in his February 19, 1998, motion to challenge the portion of the court's July 9, 1997, order awarding attorney fees against Atkin for his failure to produce the transcript of his conversation with Johnson in compliance with Utah Rule of Civil Procedure 37(a)(4). Atkin then replied by reasserting his contention that Johnson neither possessed "managerial responsibility" at TMS nor "ha[d] authority to bind" the corporation. In addition, Atkin argued that rule 37 "was not the basis of the [c]ourt's [July 9, 1997], ruling" and that even if the rule was the basis for the court's order, he "was not obligated to produce a transcript of the telephone conversation prior to ... Johnson's deposition" because the transcript was "protected by the work-product doctrine."

¶ 12 On January 4, 1999, the trial court ruled on the amount Atkin would be required to pay defendants pursuant to the court's July 9, 1997, order. Although the court recognized defendants' evidence demonstrating they had incurred $21,997 of...