In re Powerhouse Licensing, LLC

• Decision Date: 02 March 2006
• Docket Number: No. 05-2327.,05-2327.
• Citation: 441 F.3d 467
• Parties: In re: POWERHOUSE LICENSING, LLC; Powerhouse Marks, LLC; Dabish Family Trust; Dabish Brothers Business Trust; Henry Dabish; William Dabish, Jr.; Dalaly Dabish; Norman Dabish; Powerhouse Merchandising, LLC; Dabish Brothers Real Estate Holdings, LLC; Powerhouse Gym Consultants, LLC; Dabish Brothers Group, LLC, Petitioners.
• Court: U.S. Court of Appeals — Sixth Circuit

441 F.3d 467

In re: POWERHOUSE LICENSING, LLC; Powerhouse Marks, LLC; Dabish Family Trust; Dabish Brothers Business Trust; Henry Dabish; William Dabish, Jr.; Dalaly Dabish; Norman Dabish; Powerhouse Merchandising, LLC; Dabish Brothers Real Estate Holdings, LLC; Powerhouse Gym Consultants, LLC; Dabish Brothers Group, LLC, Petitioners.

No. 05-2327.

United States Court of Appeals, Sixth Circuit.

Argued January 31, 2006.

Decided March 2, 2006.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Allan S. Rubin, Law Office of Allan S. Rubin, Southfield, Michigan, for Petitioners. Kenneth M. Schneider, Schneider, Miller & Lim, Detroit, Michigan, for Respondent.

Before MARTIN, NORRIS, and DAUGHTREY, Circuit Judges.

OPINION

ALAN E. NORRIS, Circuit Judge.

Petitioners consist of individuals and corporate entities who are defendants in a diversity action currently pending in the Eastern District of Michigan. In that suit, plaintiff Venice Renaissance, LLC, alleges that petitioners participated in fraudulent asset transfers in order to avoid paying a $1 million judgment rendered by a California court. In the course of the litigation below, Venice Renaissance sought to take the deposition of an attorney involved in structuring the disputed transactions. Over the objection of petitioners, the district court ordered that the deposition proceed; further, it ordered that documents, which petitioners claim are privileged, be produced in conjunction with that deposition. This petition for a writ of mandamus asks us to vacate the order of the district court. For the reasons that follow, we deny the petition.

I.

In this mandamus action, this matter stems from a landlord-tenant relationship that went sour. In 1997, Powerhouse Gym's Venice, Inc., entered into a lease with a predecessor-in-interest of Venice Renaissance. The lease was guaranteed by Powerhouse Gyms International, Inc., and one of its principals, William Dabish. After a dispute arose over the use of certain portions of the leased property, Powerhouse Gym's Venice filed suit in a California court against Venice Renaissance for breach of its lease obligations. Resort to the courts proved to be ill-advised: Venice Renaissance filed a counterclaim that led to the $1 million judgment referenced earlier.

In 1999, the year prior to the lease dispute, Powerhouse Gyms International and two related companies—Powerhouse Products, Inc., and Powerhouse Body Building Gyms, Inc.—sold certain assets to three newly formed companies: Powerhouse Licensing, LLC, Powerhouse Marks, LLC, and Powerhouse Merchandising, LLC. On July 11, 2003, Venice Renaissance filed the instant diversity suit, alleging that the California judgment debtors engaged in fraudulent transfers of property for the purpose of hindering collection of the judgment, which had been entered on November 26, 2001. According to the complaint, these and other transfers were fraudulent under Michigan law. Mich. Comp. Laws §§ 566.34, 566.221. A second suit, filed by New Market Acquisitions, Limited ("New Market"), was consolidated with the one now before us based upon the similarity of the claims. It has subsequently been settled and dismissed.

With this by way of background, we turn to the matter before us. Attorney Philip J. Shefferly¹ assisted in the disputed transactions as a partner of the law firm Shefferly, Silverman & Morris (now Silverman & Morris). Specifically, he represented the newly formed companies that purchased the assets in question. Shortly before the close of discovery, New Market served a subpoena and discovery requests upon Shefferly's former firm, seeking non-privileged documents in its possession. These documents were produced.

After discovery was concluded, Venice Renaissance and New Market moved for summary judgment. In a memorandum filed in response, petitioners implied that the transactions could not have been fraudulent, in part because they were undertaken on the advice of counsel:

[T]o claim that the transactions were concocted for the purpose of defrauding creditors not only attacks the integrity of the transferees and transferors, but attacks the integrity of the attorneys and accountants that represented the parties in the transactions.

In further support of their position, petitioners attached an affidavit from Shefferly. Among other matters, he stated that "[b]ecause the owners of the Transferor Entities were related to the owners of the Transferee Entities, the parties desired to have an expert valuation of the assets to be acquired performed by an independent financial expert." To that end, they retained Mauricio Kohn who, according to Shefferly, determined a fair market value for the assets, which was then used as the purchase price. Finally, Shefferly averred, "I am not aware of any actions taken by either the Transferor Entities or the Transferee Entities to conceal either the existence of the Acquisition, or the documentation of the Acquisition, from third parties."

Based upon the affidavit, New Market concluded that petitioners had waived the attorney-client privilege. It filed a motion to take Shefferly's deposition and to compel production of documents withheld by his former firm on the basis of privilege. The district court entered an order two weeks later allowing plaintiffs to depose Shefferly and directing the law firm to submit a privilege log. After the log was filed, New Market moved to compel the production of the listed documents; Venice Renaissance joined in the motion. After petitioners objected, the matter was referred to a magistrate judge who scheduled a hearing for August 15, 2005.

By the time of the hearing, New Market had settled its claims with petitioners. Although Venice Renaissance had not issued its own subpoena, the magistrate judge deemed the subpoena issued by New Market "applicable to Venice Renaissance because... the requirement of issuing a new identical subpoena ... would elevate form over substance." In so ruling, the court allowed the parties to address the extent, if any, of the waiver of privilege occasioned by the use of the affidavit.

After the magistrate judge noted that the document request by Venice Renaissance "seems somewhat overly broad because is doesn't seem to be limited in time," counsel for Venice Renaissance indicated that an attempt would be made to narrow the request. After hearing argument from counsel, the magistrate judge entered an order granting in part the motion to compel based upon the following findings:

1) New Market's subpoena is deemed applicable to Venice Renaissance LLC.

2) Both counsel have agreed upon a narrower form of the subpoena.

3) Judge Friedman has previously ordered the deposition of Phil Shefferly to proceed and previously denied defendants' motion for summary judgment.

4) Plaintiff's counsel requests the documents related to the transfers and establishments of the trust in order to conduct the deposition.

5) Court finds that the affidavit and related disclosures constitute a waiver of the attorney-client privilege.

6) It is impossible to say on the record currently before the court the exact parameters of disclosure necessary to conduct an effective deposition.

Order Granting in Part Plaintiff's Motion to Compel, August 15, 2005 at 2. The magistrate judge concluded by ordering the documents produced within five days of the Shefferly deposition. Petitioners filed objections and moved to stay the order. On September 27, 2005, the district court entered an order affirming the magistrate judge.

Petitioners now seek a writ of mandamus from this court directing the district court to vacate its orders permitting the deposition of Shefferly and compelling the production of documents. They also seek certification of an appeal pursuant to 28 U.S.C. § 1292(b).²

II.

As this court has repeatedly recognized, "mandamus relief is an `extraordinary remedy' that should be utilized only infrequently. This extraordinary remedy is usually reserved for `questions of unusual importance necessary to the economical and efficient administration of justice,' or `important issues of first impression.'" In re Lott, 424 F.3d 446, 449 (6th Cir.2005) (quoting EEOC v. K-Mart Corp., 694 F.2d 1055, 1061 (6th Cir.1982)), petition for cert. filed, (U.S. Jan. 27, 2006) (No. 05-962). With this in mind, we have suggested that the district court employ a multi-faceted test in order to determine if the petition qualifies as suitably extraordinary:

(1) The party seeking the writ has no other adequate means, such as direct appeal, to attain the relief desired.

(2) The petitioner will be damaged or prejudiced in a way not correctable on appeal. (This guideline is closely related to the first.)

(3) The district court's order is clearly erroneous as a matter of law.

(4) The district court's order is an oft-repeated error, or manifests a persistent disregard of the federal rules.

(5) The district court's order raises new and important problems, or issues of law of first impression.

In re Bendectin Prods. Liab. Litig., 749 F.2d 300, 304 (6th Cir.1984) (quoting Bauman v. United States District Court, 557 F.2d 650, 654-55 (9th Cir.1977)). Moreover, we have recognized that all of the factors will rarely point in a single direction instead the district court should attempt to balance them against one another. Id.; see also In re Chimenti, 79 F.3d 534, 540 (6th Cir.1996). In short, a "flexible rather than a rigid approach" is needed. In re Perrigo Co., 128 F.3d 430, 435 (6th Cir.1997) (quoting Chimenti).

A district court's decision regarding the waiver of the attorney-client privilege is reviewed de novo. United States v. Collis, 128 F.3d 313, 320 (6th Cir.1997). In a diversity case, the court applies federal law to resolve work product claims and state law to resolve attorney-client claims. Baker v. General Motors Corp., 209 F.3d 1051, 1053 (8th Cir.2000); see also Fed. R.Evid. 501; Jewell v. Holzer Hosp. Found., Inc., 899 F.2d 1507, 1513 (6th...