Jones v. Tauber & Balser, P.C., Civil Action No. 1:11–CV–2995–AT.

• Citation: 503 B.R. 162
• Decision Date: 05 July 2013
• Docket Number: Civil Action No. 1:11–CV–2995–AT.
• Parties: Harold D. JONES, as Liquidating Trustee, Plaintiff, v. TAUBER & BALSER, P.C., et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

503 B.R. 162

Harold D. JONES, as Liquidating Trustee, Plaintiff,

v.TAUBER & BALSER, P.C., et al., Defendants.

Civil Action No. 1:11–CV–2995–AT.

United States District Court,

N.D. Georgia,

Atlanta Division.

July 5, 2013.

David James Worley, James M. Evangelista, Atlanta, GA, Jeffrey R. Harris, Stephen G. Lowry, Savannah, GA, Harris Penn Lowry LLP–GA; J. Antonio DelCampo, DelCampo Weber & Grayson, LLC, Dunwoody, GA, for Plaintiff.

Johannes Stuart Kingma, John L. Bunyan, John Colquitt Rogers, Lindsey Palmer Hettinger, Thomas Alan Cox, Carlock Copeland & Stair, LLP, Atlanta, GA, for Defendant Tauber & Balser, P.C.

Alison M. Ballard, John M. Gross, John K. Rezac, Rachael Lee Zichella, and Todd Edward Jones, Taylor English Duma LLP, Atlanta, GA, for Defendant Habif, Arogeti & Wynne, LLP and HA & W Holdings, LLC.

Christopher Scott Anulewicz, Malissa Anne Kaufold–Wiggins, Michael J. Bowers, Balch & Bingham LLP, Atlanta, GA, John Colquitt Rogers, Carlock Copeland & Stair, LLP, Atlanta, GA, for Defendants Martin L. Tanenbaum, Richard W. Millman, James M. Welch, Scott A. Rittenberg, Samuel L. Tuck and Howard A. Zandman.

John Colquitt Rogers, Carlock Copeland & Stair, LLP, Atlanta, GA, for Defendant Leslie Balmforth.

Christopher Scott Anulewicz, Malissa Anne Kaufold–Wiggins, Michael J. Bowers, Balch & Bingham LLP, Atlanta, GA, John L. Bunyan, John Colquitt Rogers, Thomas Alan Cox, Carlock Copeland & Stair, LLP, Atlanta, GA, for Defendant Paul D. Dopp.

ORDER

AMY TOTENBERG, District Judge.

Overview

168

Tauber & Balser Defendants' Motion to Withdraw Admission

171

I.

Background

171

A.

Factual Background

171

B.

Procedural Background

174

II.

Analysis

175

Plaintiff's Omnibus Motion to Compel Defendants' Production of Documents

176

I.

The Form of Plaintiff's Omnibus Motion

176

II.

Analysis

177

A.

Allegations that Defendants are Withholding Responsive Non–Privileged Documents

177

B.

Allegations that Defendants' Privilege Assertions are Baseless or Inapplicable

179

1.

Attorney–Client Privilege and the Crime–Fraud Exception

179

2.

Work Product Doctrine

188 3.

Common Interest Privilege

189

C.

Plaintiff's Demand to Inspect Computers

190

III.

Conclusion

190

Plaintiff's Motion to Compel Production of CAMICO Documents

191

I.

Background

191

A.

Factual Background

191

B.

Procedural Background

193

II.

Analysis

194

A.

Work Product Doctrine

194

B.

Common Interest Privilege

195 C.

Attorney–Client Privilege and Crime–Fraud Exception

196

III.

Conclusion

196

Plaintiff's Motion for Sanctions

196

I.

Introduction

196

II.

The Form of Plaintiff's Sanctions Motion

196

III.

Background

197

A.

Discovery During the Adversary Proceedings

197

B.

Discovery in this Court

199

IV.

Analysis

199

A.

Sanctions Under Rule 37(b)

200

B.

Sanctions Under Rule 26(g)

201 C.

Appropriate Sanctions

202

Summary of Rulings

204

Overview¹

This matter is before the Court on Plaintiff's two motions to compel discovery [Docs. 88, 89] and one motion for sanctions [Doc. 120] and Defendant Tauber & Balser, P.C., Mark Murovitz, Sheldon Zimmerman, and Paul Dopp's (collectively “Tauber & Balser Defendants”) motion to withdraw admissions [Doc. 112].

This case began as an adversary proceeding during the ongoing bankruptcy of Debtor Verso Technologies, Inc. (“Verso”). Verso was a publicly traded company. Verso's public accounting firm, Defendant Tauber & Balser, P.C. (“Tauber & Balser” or “T & B”) filed a $468,000 Proof of Claim, seeking to recover a debt Verso allegedly owed it for services Tauber & Balser rendered. Plaintiff, as Liquidating Trustee,² objected to this Proof of Claim and on April 23, 2010, initiated this adversary proceeding alleging that Tauber & Balser committed various acts of fraud related to its audits of Verso's financial statements. ( See generally Am. Compl., Doc. 9–1.) ³ Plaintiff argues that T & B concealed Verso's dire financial situation in order to prolong the company's life and keep it out of bankruptcy. Consequently, Verso allegedly dug itself into a deeper financial hole while Verso's management continued to draw salaries, bonuses and stock options. T & B allegedly benefited from its course of conduct. Verso was its biggest client, and its engagement with Verso allegedly allowed T & B to market itself as a successful niche accounting practice at a time when T & B was looking for a succession plan for its aging partners.

Plaintiff also alleged that in 2008, T & B transferred substantially all its assets to Defendants Habif Arogeti & Wynn and HA & W Holdings, LLC (collectively, “Habif Defendants” or “Habif”) in such a manner as to also transfer T & B's liability to Verso. (Am. Compl. Counts 14–17.) Most relevant to the instant discovery dispute, Plaintiff alleged that, to “isolate T & B's liabilities to Verso and ... render T & B unable to pay to any judgment against it,” T & B fraudulently transferred its assets to Habif. (Am. Compl. at ¶ 488.) Plaintiff thus included in his Complaint several claims against Habif including a fraudulent transfer claim. ( Id.)

Finally, Plaintiff sued Tauber & Balser's individual shareholders (“Shareholders”), alleging their liability under (1) a theory of piercing the corporate veil and (2) a theory of direct liability for fraud.⁴

The Habif Defendants and the Tauber & Balser Defendants filed motions to dismiss all claims against them. ( See Docs. 8–1 and 9–2.) ⁵ Shortly after filing their motions to dismiss, the Defendants joined the Plaintiff in filing a consent motion to withdraw the reference to the Bankruptcy Court of Plaintiff's counts for affirmative relief. (Doc. 1–2.) The Court granted this consent motion and promptly began considering the motions to dismiss.

On June 18, 2012, the Court granted in part and denied in part the Defendants' motions. (Doc. 31.) The Court held that Plaintiff failed to allege sufficient facts to support the extraordinary relief of piercing the corporate veil and thus dismissed all claims against the individual defendants predicated on this theory. ( Id. at 9–13.) Likewise, the Court dismissed Plaintiff's claims of direct liability for fraud against most of the individual defendants because Plaintiff failed to allege particularized facts to support such claims. ( Id. at 15.) ⁶ However, the Court found that Plaintiff adequately pled direct liability for fraud against Murovitz, Zimmerman, and Dopp (collectively, “Individual Defendants”). Finally, the Court held that Plaintiff's fraudulent transfer claim against the Habif Defendants could go forward because Plaintiff pled sufficient facts to support a transfer “with actual intent to hinder, delay, or defraud any creditor of the debtor.” (Doc. 31 at 19 (quoting O.C.G.A. § 18–2–74).)

The parties then engaged in several months of additional discovery. Plaintiff served Defendants with a document request on September 19, 2012, requesting, inter alia, T & B shareholder meeting notes and documents associated with T & B's insurance coverage. (Rogers Decl., Doc. 104–1, ¶ 11; Evangelista Decl. Ex. 1(1), (“Resp. Pl. 6th Req. Prod.”).) ⁷ Shortly thereafter, in November 2012, Plaintiff served subpoenas to produce documents upon several non-parties including CAMICO Mutual Insurance Company (“CAMICO”), T & B's professional liability insurer, (Doc. 51–4), and three law firms that counseled T & B and Habif on the transaction between them, (Docs. 51–2, 51–3, 51–5).⁸ The Defendants moved to quash these subpoenas on November 16, 2012, alleging, inter alia, that documents Plaintiff seeks are protected by the attorney-client privilege or work product doctrine. (Docs. 51, 52.)

The Court held a hearing on December 7 and 12, 2012, to address Defendants' motions to quash and related discovery issues. The Court considered: (1) whether Plaintiff produced sufficient evidence to apply the crime-fraud exception justifying the vitiation of the attorney-client privilege as to certain communications; and (2) whether T & B's voluntary production of a privileged memorandum, (Dec. 7, 2012 Hrg. Ex. 4, Doc. 87–4 (the “Sutherland Memo”)), constitutes a waiver of the attorney-client privilege as to all communications associated with that memorandum. ( See Doc. 62.) ⁹

After the hearing, the Court made three primary decisions. First, because Plaintiff agreed to exclude documents generated in connection with the instant litigation from the scope of the documents sought in the subpoenas, the Court denied in part Defendants' motions to quash. ( Id.) ¹⁰ Second,the Court directed Defendants to confer with the non-parties to provide the remaining subpoenaed documents for in camera inspection so the Court could decide the issue of the crime-fraud exception. ( Id.) Finally, the Court held that Defendants' voluntary production of the Sutherland Memo constituted a waiver of the attorney-client privilege as to associated communications and directed Defendants to produce documents accordingly. ( Id.)

Shortly thereafter, the parties filed the instant discovery motions. On February 22, 2013, Plaintiff filed: (1) Plaintiff's Omnibus Motion to Compel Discovery (“Omnibus Motion”) (Doc. 88); and (2) Plaintiff's Motion to Compel Camico's Production of Documents Responsive to Subpoena (“Motion to Compel CAMICO”) (Doc. 89). The T & B Defendants then filed a Motion to Withdraw Admissions. (Doc. 112.) Lastly, Plaintiff filed a Motion for Sanctions. (Doc. 120.) Each of these motions is now ripe for adjudication. The Court begins with Defendants' Motion to Withdraw Admissions.

Tauber & Balser Defendants' Motion To Withdraw Admissions

The Tauber & Balser Defendants move to withdraw their admission that the 2007 T & B shareholder operating agreements are still in effect. (Doc. 112.) According to T & B, a recently discovered 2008 Amendment to the operating agreement shows that their initial denial was erroneous. As explained below, the Court GRANTS the Tauber & Balser Defendants' Motion to Withdraw Admission [Doc. 112].

I. BackgroundA. Factual Background

Tauber & Balser, P.C. entered into operating agreements with its shareholders on December 20, 2007. ( E.g., ...