Monco v. Zoltek Corp.

• Decision Date: 16 July 2018
• Docket Number: No. 17 C 6882,17 C 6882
• Citation: 317 F.Supp.3d 995
• Parties: Dean A. MONCO, an individual, John S., Mortimer, an individual, and Wood, Phillips, Katz, Clark & Mortimer, an Illinois professional partnership, Plaintiffs, v. ZOLTEK CORPORATION, a Missouri corporation, Zsolt Rumy, an individual, and Toray Industries, Inc., a Japanese corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

317 F.Supp.3d 995

Dean A. MONCO, an individual, John S., Mortimer, an individual, and Wood, Phillips, Katz, Clark & Mortimer, an Illinois professional partnership, Plaintiffs,

v.ZOLTEK CORPORATION, a Missouri corporation, Zsolt Rumy, an individual, and Toray Industries, Inc., a Japanese corporation, Defendants.

No. 17 C 6882

United States District Court, N.D. Illinois, Eastern Division.

Signed July 16, 2018

Paul K. Vickrey, Dylan Michael Brown, Patrick F. Solon, Vitale, Vickrey, Niro & Gasey LLP, Lee F. Grossman, Mark M. Grossman, Grossman Law Offices, Chicago, IL, for Plaintiffs.

David B. Jinkins, Matthew A. Braunel, Robyn H. Ast-Gmoser, Thompson Coburn LLP, St. Louis, MO, Vincent P. Schmeltz, III, Barnes & Thornburg LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

JEFFREY COLE, UNITED STATES MAGISTRATE JUDGE

A.

The parties' current discovery dispute¹ began with a motion to compel that the plaintiffs filed on April 4, 2018. On April 10^th, I ordered the defendants to produce (1) all agreements between the Zoltek Corporation, Toray Industries and/or Mr. Rumy, the founder of Zoltek Corporation, about the underlying case (including any agreement concerning the allocation of proceeds of settlement, and (2) all communications between Mr. Rumy and Toray Industries concerning the underlying case (including any communications relating to plaintiffs) ). The defendants were given a month in which to comply. They objected to the Order, but Judge Durkin denied those objections. [Dkt. # 110].

Taking every minute of the 30 days the Order gave them, defendants made their production on May 10^th. One of the documents produced was an email chain between Mr. Rumy and Zoltek Corporation and a representative of Toray Industries. The email referenced the draft of an agreement that Mr. Rumy sent Toray Industries, and explained that Toray Industries indicated it would be going over the draft with its counsel and Zoltek Corporation management.

Two weeks after production, Zoltek Corporation filed a motion asking that the court enter the parties' agreed Protective Order. [Dkt. # 113]. The Order was entered on May 15^th. [Dkt. # 115]. One of its provisions stated that "[i]nadvertent disclosures of material protected by the attorney-client privilege or the work product doctrine shall be handled in accordance with Federal Rule of Evidence 502." [Dkt. # 115, ¶ 6].² On May 16^th, plaintiffs asked Zoltek Corporation to produce the Agreement mentioned in the email chain. Hearing nothing for almost a week, plaintiffs' counsel called defendants' counsel again. Plaintiffs' counsel does not relate how that conversation went [Dkt. # 120, at 2], but he had to send an email request for the draft agreement on May 21^st. Zoltek Corporation's counsel promised she would get back to plaintiffs' counsel about the matter the afternoon of May 22^nd. By email that evening, for the first time in this entire exchange, Zoltek Corporations's counsel claimed that the email chain was privileged and had been inadvertently produced, demanded its destruction, and promised to provide a Privilege Log regarding the draft agreement. Zoltek Corporation's counsel referenced paragraph 6 of the parties' Protective Order, Fed.R.Civ.P. 26(b)(5)(B), and Fed.R.Evid. 502. [Dkt. # 120-3]. For the following reasons, the Motion of Zoltek Corporation is denied, and it is ordered that Zoltek Corporation produce the withheld draft agreement immediately.

B.

When defendant, Zoltek Corporation, made its court-ordered production on May 10^th, it withheld the draft agreement between defendant, Zsolt Rumy, and defendants, Toray Industries and Zoltek Corporation. The draft clearly fell into the categories referenced in the Order of April 10^th. Zoltek Corporation provided no Privilege Log describing the nature of each document being withheld, even though a Privilege Log describing the nature of each withheld document must be provided in a timely manner. Hobley v. Burge , 433 F.3d 946, 947 (7th Cir. 2006). Indeed, Zoltek Corporation made no claim of privilege, whether supported or unsupported, and gave no indication that it was withholding, for any reason, any documents in the categories it had been ordered to produce. That much is clear from Zoltek Corporation's "Opening Brief on Privilege of Questioned Document" and the Declaration of counsel, which contain no mention of any privilege log or timely claim of privilege for the withheld document. [Dkt. ## 138, at 3-4; 138-3]. Thus, Zoltek Corporation violated Federal Rule of Civil Procedure 26(b)(5)(A) :

When a party withholds information otherwise discoverable by claiming that the information is privileged or subject to protection as trial-preparation material, the party must: (i) expressly make the claim; and (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed-and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.

Zoltek Corporation failed to do both (i) and (ii).

It bears repeating that compliance with Rule 26(b)(5)(A) is not optional. Motorola Sols., Inc. v. Hytera Commc'ns Corp. , No. 17 C 1973, 2018 WL 1281393, at *2 (N.D. Ill. Jan. 10, 2018). So, the real issue here isn't inadvertent disclosure of the email chain; it's waiver of the privilege as to the draft agreement itself. See, e.g. Burlington N. & Santa Fe Ry. Co. v. U.S. Dist. Court for Dist. of Mont. , 408 F.3d 1142, 1147 (9th Cir. 2005) (" ‘To withhold materials without such notice is contrary to the rule, subjects the party to sanctions under Rule 37(b)(2), and may be viewed as a waiver of the privilege or protection.’ ") (quoting Rule 26(b)(5) Advisory Committee's note (1993 Amendments) ).

To be sure, the waiver doctrine is not applied mechanistically. Towne Place Condo. Ass'n v. Philadelphia Indem. Ins. Co. , 284 F.Supp.3d 889 (N.D. Ill. 2018) ; Motorola Sols., Inc. v. Hytera Commc'ns Corp , No. 17 C 1973, 2018 WL 1281393, at *2 (N.D. Ill. Jan. 10, 2018) ; Muro v. Target Corp. , 250 F.R.D. 350, 365 (N.D. Ill. 2007). But what Zoltek Corporation has done here goes beyond the failure to file an adequate privilege log—or any log at all—or make an adequately supported claim. Here, the failure was to make any claim at all, and the document was therefore, it must be said, withheld surreptitiously. Defendant had multiple opportunities to indicate, even by an unadorned claim, that it was withholding this document from discovery based on privilege or work product. It did nothing. The defendants' silence is telling. See generally the discussion in R-Boc v. Minemyer , 233 F.Supp.3d 647, 684 (N.D. Ill. 2017), aff'd. , 726 Fed.Appx. 821 (Fed. Cir. 2018).

The document was only discovered because Zoltek Corporation produced—"inadvertently," it claims—an email chain referring to the document. In such an instance, a court should have no qualms about finding the party engaging in such a tactic has waived its privilege as to that document. Compare The Manitowoc Co., Inc. v. Kachmer , No. 14-CV-9271, 2016 WL 2644857, at *4 n.5 (N.D. Ill. May 10, 2016) (waiver found where party failed to list documents it did not produce in privilege log as this went "beyond a good faith oversight") with Kaufman v. Am. Express Travel Related Servs. Co., Inc. , No. 07 C 1707, 2011 WL 13262362, at *4 (N.D. Ill. Jan. 10, 2011) ("Minor procedural violations, good faith attempts at compliance, and other such mitigating circumstances militate against finding waiver.").

As for the email chain that referenced the draft agreement, there is no doubt that it was produced unwittingly—but not in the sense that Rule 502 uses the term, "inadvertently." After all, it was the document that revealed Zoltek Corporation's studied attempt to withhold documents it had been ordered to produce on April 10^th, and to withhold them without a claim of privilege or privilege log. Thus, its production from Plaintiffs' perspective was definitely a blunder; but it was not an "inadvertent disclosure," as the cases define the term.

The email, dated June 7, 2016, is between two non-attorneys, Mr. Zsolt Rumy and Mr. Aihara of defendant, Toray Industries. Mr. Rumy had sold Zoltek Corporation to Toray Industries in 2014. He then is said to have been a consultant and then "transition

[ed] away from involvement with Zoltek Corporation." [Dkt. # 139-2, ¶¶ 4, 6]. It's all very vague—vagaries are a feature of Zoltek Corporation's submissions, likely with good reason—and Zoltek Corporation provides no timeline. But, in the email chain, Mr. Rumy Mr. Rumy and Mr. Aihara are clearly negotiating the terms of an agreement, with Mr. Rumy having sent a draft—the document already discussed—and Mr. Aihara sending back his thoughts and questions. Mr. Rumy tells us, in a declaration attached to Zoltek Corporation's opening brief, that the document evinces a deal whereby Toray Industries would assign a patent that was the centerpiece in a 20-year litigation odyssey back to Mr. Rumy. [Dkt. # 139-1, ¶ 9]. Mr. Rumy would then take over the litigation, which Toray Industries had become disinterested in pursuing. [Dkt. # 139-1, ¶ 8]. Two months later, Mr. Rumy and Toray say they executed what they tendentiously term a "common interest agreement." [Dkt. # 139-1, ¶ 10; # 139-2, ¶ 6]. But, titles are not determinative; substance is. Health Care Industry Liability Insurance Program v. Momence Meadows Nursing Center, Inc. , 566 F.3d 689 (7th Cir. 2009) ; Smith v. Potter , 513 F.3d 781, 783 (7th Cir. 2008) ; Physicians Healthsource, Inc. v. Allscripts Health Sols., Inc. , No. 2017 WL 4682734, at *1 (N.D. Ill. 2017). What Mr. Rumy calls the draft patent transfer agreement [Dkt. # 139-1, ¶¶ 11, 15], Zoltek Corporation has chosen not to make a part of the record, so there is no way to tell if it even covers the deal discussed in the email at issue; it might exclude it or, as it was allegedly executed two months after the email chain at issue, might not...