Friday Invs., LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.

• Decision Date: 07 June 2016
• Docket Number: No. COA15–680.,COA15–680.
• Court: North Carolina Court of Appeals
• Parties: FRIDAY INVESTMENTS, LLC, Plaintiff, v. BALLY TOTAL FITNESS OF THE MID–ATLANTIC, INC. f/k/a Bally Total Fitness of the Southeast, Inc. f/k/a/ Holiday Health Clubs of the Southeast, Inc. as successor-in-interest to Bally Total Fitness Corporation; and Bally Total Fitness Holdings Corporation, Defendants.

247 N.C.App. 641

788 S.E.2d 170

FRIDAY INVESTMENTS, LLC, Plaintiff,

v.BALLY TOTAL FITNESS OF THE MID–ATLANTIC, INC. f/k/a Bally Total Fitness of the Southeast, Inc. f/k/a/ Holiday Health Clubs of the Southeast, Inc. as successor-in-interest to Bally Total Fitness Corporation; and Bally Total Fitness Holdings Corporation, Defendants.

No. COA15–680.

Court of Appeals of North Carolina.

June 7, 2016.

Knox, Brotherton, Knox & Godfrey, Charlotte, by Lisa Godfrey, for Defendants–Appellants.

Horack, Talley, Pharr & Lowndes, P.A., Charlotte, by Keith B. Nichols, for Plaintiff–Appellee.

INMAN, Judge.

This appeal requires us to consider the common interest doctrine, which extends the attorney-client privilege to communications between and among multiple parties sharing a common legal interest. We hold that an indemnification provision in an asset purchase agreement, standing alone, is insufficient to create a common legal interest between a civil litigant indemnitee and a third-party indemnitor.

Bally Total Fitness of the Mid–Atlantic, Inc. ("Mid–Atlantic") and Bally Total Fitness Holding Corporation ("Holding") (collectively "Defendants") appeal the trial court's Order denying their Motion for a Protective Order on Supplementation of Written Discovery and granting Plaintiff Friday Investments, LLC's ("Plaintiff") Motion to Compel production of email and written communication between Defendants and third party Blast Fitness Group ("Blast"). Defendants contend that the trial court failed to recognize that they had entered into a tripartite attorney-client relationship with Blast, so that communications between Defendants and Blast are protected by the attorney-client privilege. After careful review, we affirm.

Facts and Background

In February 2000, the predecessor in interest of Mid–Atlantic entered into a lease agreement with the predecessor in interest of Plaintiff for a 25,000 square foot commercial suite in the Tower Place Festival Shopping Center in Charlotte, North Carolina. The lease was guaranteed by Holding, the parent company of both Mid–Atlantic and the original tenant. In 2012, Mid–Atlantic sold certain of its health clubs, including the Tower Place Club, to Blast. The Asset Purchase Agreement between Mid–Atlantic and Blast (the "Blast Agreement") provided that the sale transferred any "obligations ... arising ... under the Real Property Leases" of the clubs sold. The Blast Agreement also included an indemnification clause wherein Blast agreed to "defend, indemnify, and hold [Defendants] ... harmless of, from[,] and against any [l]osses incurred ... on account of or relating to ... any Assumed Liabilities, including those arising from or under the Real Property Leases after closing."

Plaintiff brought suit against Defendants on 9 May 2014 in Mecklenburg County Superior Court for payment of back rent and other charges under the lease. Blast subsequently agreed to defend Defendants as provided for in the Blast Agreement.

Defendants and Plaintiff completed an initial exchange of documents and answers to interrogatories on 24 October 2014. Defendants' Senior Vice President and General Counsel, Earl Acquaviva, was deposed by Plaintiff on 11 February 2015. On 19 February 2015, counsel for Plaintiff sent an email to Defendants' counsel requesting copies of "post-suit correspondence and documents exchanged between [Defendants] and Blast." Defendants refused, and on 3 March 2015, Plaintiff filed a Motion to Compel production of the requested documents. Defendants responded by filing a Motion for a Protective Order on 24 March 2015, claiming that communications between themselves and Blast were subject to attorney-client privilege. On 25 March 2015, the trial court orally ordered Defendants to produce the documents and a privilege log for in camera inspection.

On 27 March 2015, Defendants submitted to the trial court the requested documents and a privilege log. After completing an in camera review of the documents, the trial court notified counsel via email on 2 April 2015 that it had denied Defendants' Motion for a Protective Order and granted Plaintiff's Motion to Compel. The trial court entered a written order on 13 April 2015 consistent with the court's email notice but granted a motion by Defendants to stay the decision for review by this Court.

Defendants timely appealed. The Record on Appeal was settled via stipulation, pursuant to Rule 11 of the North Carolina Rules of Appellate Procedure, on 29 May 2015. The Record was amended on Defendants' Motion on 24 July 2015 to include the trial court's 2 April 2015 email message.¹ On 1 September 2015, Defendants filed a "Motion to Submit Documents Under Seal," seeking to transmit the documents reviewed in camera to this Court for review.

I. Plaintiff's Motion to Dismiss

Plaintiff argues that a "substantial right" is not at stake because Defendants waived their right to appeal the discovery order by failing to specifically assert their attorney-client privilege during the initial round of discovery, and that Defendants' subsequent Motion for a Protective Order was insufficient to constitute an objection. We disagree.

"An interlocutory order is one made during the pendency of an action, which does not dispose of the case, but leaves it for further action by the trial court in order to settle and determine the entire controversy." Veazey v. City of Durham, 231 N.C. 357, 362, 57 S.E.2d 377, 381 (1950). While there is generally "no right of immediate appeal from interlocutory orders and judgments," Goldston v. Am. Motors Corp., 326 N.C. 723, 725, 392 S.E.2d 735, 736 (1990), immediate appeals are available under N.C. Gen.Stat. §§ 1–277(a) and 7A–27(d)(1) (2015) if the order "deprives the appellant of a substantial right which would be lost absent immediate review." N.C. Dep't of Transp. v. Page, 119 N.C.App. 730, 734, 460 S.E.2d 332, 334 (1995).

Both this Court and the North Carolina Supreme Court have recognized that a trial court's "determination of the applicability of [attorney-client] privilege ... affects a substantial right and is therefore immediately appealable." In re Miller, 357 N.C. 316, 343, 584 S.E.2d 772, 791 (2003) ; see also Evans v. U.S. Auto. Ass'n, 142 N.C.App. 18, 24, 541 S.E.2d 782, 786 (2001) (holding that the appeal of a trial court order denying the assertion of attorney client privilege after an in camera review affects "a substantial right which would be lost if not reviewed before the entry of final judgment").

Nevertheless, the availability of such appeals is contingent upon the proper assertion of the claimed privilege. In K2 Asia Ventures v. Trota, this Court held that to assert a statutory privilege for interlocutory review, the appellant must have complied with Rule 34(b) of the North Carolina Rules of Civil Procedure by lodging specific objections to individual discovery requests. 215 N.C.App. 443, 446–47, 717 S.E.2d 1, 4–5 (2011). Blanket objections that broadly assert a privilege without attaching it to a particular request, such as the one made by one set of defendants in K2 Asia Ventures, are not only procedurally deficient but also fail to satisfy the requirement that the assertion of privilege be "not otherwise frivolous or insubstantial." Id. at 447, 717 S.E.2d at 4 (internal quotation marks and citations omitted).

Plaintiff attempts to draw a parallel to K2 Asia Ventures, noting that Defendants asserted no particularized claim of attorney-client privilege in their responses to the initial round of discovery. We are unpersuaded. None of the initial discovery requests expressly sought correspondence between Defendants and Blast. The initial discovery request that most plainly encompasses these documents—if the documents are not privileged—is the fourth "Request for Production of Documents," which requests "[a]ll non-privileged correspondence or written communication of any kind between [Defendants] and any other person or entity concerning the [Tower Place Club], Lease Agreement, Guaranty, or any other issues described or referenced in the Pleadings in this action."² (Emphasis added.) Given the limiting language in the request, it is unreasonable—for the purpose of determining waiver—to require Defendants to have first acknowledged the existence of correspondence they considered privileged and to have objected to production in response to a request for "non-privileged" information.³

The record reflects that when faced with a specific request for their communications with Blast, Defendants promptly asserted the attorney-client privilege. During the 11 February 2015 deposition, counsel for Plaintiff asked the deponent, Mid–Atlantic's General Counsel Earl Acquaviva, to describe "all of the conversations that you have had personally with Blast or any representatives of Blast about this lawsuit." Defendants' counsel immediately objected on the basis of attorney-client privilege and advised the deponent not to answer. Plaintiff's further attempts to probe the issue were all met with similar objections by Defendants' counsel, and the deponent refused to answer such questions.

Based on the foregoing details in the record, we hold that Defendants properly asserted the attorney-client privilege in a manner that is neither frivolous nor insubstantial and that this interlocutory appeal affects a "substantial right" of Defendants. We therefore deny Plaintiff's motion to dismiss.

II. Defendants' Motion to Submit Documents Under Seal

In support of their argument that the trial court failed to recognize a tripartite attorney-client relationship between themselves, Blast, and their counsel, Defendants submitted a "Motion to Submit Documents Under Seal" to this Court to examine the documents reviewed in camera by the trial court. We decline to grant this motion because it is improper, untimely, and unfairly prejudicial.

This Court has repeatedly held that "[i]t is the appellant's duty and responsibility to see that the record is in proper form and complete."

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