Sessions v. Sloane

• Decision Date: 19 July 2016
• Docket Number: No. COA15–1095.,COA15–1095.
• Citation: 789 S.E.2d 844
• Court: North Carolina Court of Appeals
• Parties: John H. SESSIONS, Plaintiff, v. Michael SLOANE, Tracey Kelly, Susan Edwards & Phillip Sloane, as individuals, and Cruise Connections Charter Management 1, LP, a North Carolina Limited Partnership, and Cruise Connections Charter Management GP, Inc., Defendants.

789 S.E.2d 844

John H. SESSIONS, Plaintiff,

v.Michael SLOANE, Tracey Kelly, Susan Edwards & Phillip Sloane, as individuals, and Cruise Connections Charter Management 1, LP, a North Carolina Limited Partnership, and Cruise Connections Charter Management GP, Inc., Defendants.

No. COA15–1095.

Court of Appeals of North Carolina.

July 19, 2016.

Hendrick Bryant Nerhood Sanders & Otis, LLP, Winston–Salem, by Matthew H. Bryant and Wyche, P.A., by Henry L. Parr, Jr. (admitted pro hac vice) and Sarah Sloan Batson, for plaintiff-appellee.

Wilson, Helms & Cartledge, LLP, Winston–Salem, by G. Gray Wilson and Lorin J. Lapidus and Strauch Green & Mistretta, P.C., Winston–Salem, by Jack M. Strauch and Stanley B. Green, for defendant-appellant.

HUNTER, JR.

, ROBERT N., Judge.

Defendants appeal from an order compelling discovery. The trial court ordered Defendants to produce documents withheld by the Defendants based on their assertions that the documents were prepared in anticipation of litigation and were therefore subject to confidentiality based on application of the attorney-client privilege, the work product doctrine or the joint defense privilege. After careful examination of the record and the procedures which the Defendants used to assert these privileges, we hold the trial court did not abuse its discretion in compelling the production of the withheld communications.

I. Factual and Procedural Background

Defendants Cruise Connections Charter Management GP, Inc. (“Cruise Corporation”) and Cruise Connections Charter Management 1 LP (“Cruise Limited Partnership”) planned to bid $50,575,000 on a government contract with the Royal Canadian Mounted Police (the “Mounties”) to supply three cruise ships to house security police forces during the 2010 Winter Olympic Games. In order to show financial strength to perform this task, bidders to the government contract had to provide a letter of credit for ten percent (10%) of their total bid amount with their proposal. Proposals were due on 23 May 2008. If they won, Defendants Cruise Corporation and Cruise Limited Partnership expected to make a net profit of at least $14,000,000.

As of 17 May 2008, Defendants had not secured a letter of credit for ten percent (10%) of their overall bid. Defendants asked Plaintiff Sessions to provide a letter of credit for their bid in the amount of $5,057,500 in order to meet this bid requirement. On 22 May 2008, Sessions agreed to provide Defendants a letter of credit in consideration for $5,057,500 from contract proceeds should Defendants be awarded the contract. Defendants signed a letter of intent agreeing to Sessions' terms. The letter of intent reads in part:

In exchange for providing an unredeemable, nonpayable Letter of Credit in the amount of $5,057,500, Mr. Sessions shall be granted assignable rights to receive Warrants at no cost to him for special limited partnership interest in the Partnership which he or his assignee solely at their election may either cause the Partnership to redeem or convert to special limited partnership interests.

If the Partnership is the successful bidder and enters into a contract providing services for the Royal Canadian Mounted Police (the “RCMP Contract”), and if Sessions or his assignee elects to exercise his right to receive a special limited partnership interest in the Partnership or demand that the Partnership redeem the Warrants, Sessions or his assignee shall receive allocations and distributions from the Partnership in an amount equal to the sum of (i) $5,057,500.00 plus (ii) two (2) times the amount of additional capital advanced, loaned, or provided by Mr. Sessions or his nominee together with the principal amount so advanced, loaned, or provided with his assistance. For example, if Sessions or his assignee provides $275,000 for working capital, then the original $275,000 is paid back plus an additional $275,000, prior to any distributions to the other partners of the Partnership or payments of any kind to the other parties to this agreement or to any entity in which they are associated.

If the Partnership is the successful bidder and enters into the contract contemplated herein, the Partnership shall pay Sessions' choice of either the redemption for special limited partnership interest or if the Warrants are exercised allocations and distributions of the amounts described above within 10 days after the Partnership receives its initial payment from the Royal Canadian Mounted Police or Government of Canada or the contracting authority whomever that should be (currently expected to be 75% of the total project fee) (the “Initial Fee Installment”).

Sessions, through his company Carolina Shores Leasing LLC,¹ obtained a letter of credit from Southern Community Bank & Trust on 22 May 2008. The letter of credit dated 22 May 2008 in the amount of $5,057,500 lists Cruise Connections Charter as the applicant with Carolina Shores Leasing as the co-applicant, and Her Majesty the Queen in Right of Canada as the beneficiary. Sessions transferred $5,057,500 to the bank as security for the letter of credit and paid a fee of $25,000 to obtain the letter of credit.

The same day, Sloane, a partner and chief financial officer of Cruise Connections Charter Management, hand delivered the letter of credit from Winston–Salem, North Carolina to Seattle, Washington. Sloane gave the letter to Kelly, who then delivered the letter of credit to Edwards in Canada. Defendant Cruise Limited Partnership was awarded the contract on or about 30 May 2008. Subsequently, Defendants attempted to renegotiate the agreement with Sessions, but the agreement was not amended.

On 26 November 2008, Cruise Limited Partnership and Cruise Corporation filed suit against the Attorney General of Canada, representing the Mounties in United States District Court for the District of Columbia for breach of contract (hereinafter the “Canadian lawsuit”). On 9 September 2013, the Court granted summary judgment in favor of Cruise Limited Partnership and Cruise Corporation. On 21 July 2014, the Court entered an order for monetary damages against the Canadian government in the amount of $19,001,077. Defendants then entered into a settlement agreement with Canada on 12 December 2014 for the payment of $16,900,000 by 12 January 2015.

In the Canadian lawsuit, Defendants alleged they have no obligation to pay Sessions. Sessions was not a party to the Canadian lawsuit. After filing the Canadian lawsuit, all of the parties in this case entered into a forbearance and escrow agreement. The agreement recognizes a dispute between Sessions and Cruise Connections, but states the parties to the agreement are “willing to forbear from enforcing or taking other action on the Claims until the Canada Lawsuit is resolved....” The parties also agreed to deposit all proceeds arising out of the Canadian lawsuit into the trust account of Strauch Fitzgerald & Green. Thereafter, Strauch Fitzgerald & Green would pay itself litigations costs and attorneys fees, and then deposit thirteen percent (13%) of the net proceeds up to a maximum of $5,000,000 into an escrow account. Since the settlement agreement, Defendants have not paid or agreed to pay Sessions.

On 31 December 2014, Sessions filed a verified complaint and writ of attachment seeking damages for breach of contract and injunctive relief preventing the parties or their agents from disbursing the escrow funds pende lite. This complaint named the following as parties: Michael Sloane, Tracy Kelly, Susan Edwards, and Phillip Sloane in their individual capacities as well as Cruise Connections Charter Management 1, LP and Cruise Corporation as Defendants. The complaint also named as parties Strauch Green & Mistretta, a North Carolina law firm, as the settlement and escrow agent. Kelly, Sloane, and Edwards are partners in Cruise Limited Partnership, and Sloane is Cruise Limited Partnership's chief financial officer. In his complaint, Sessions claims the Defendants anticipatorily repudiated the contract and sought damages in excess of $25,000.

Sessions sought a writ of attachment alleging some Defendants are out of state residents and would likely remove the escrow money from North Carolina upon payment by the Canadian government. Sessions sought the writ to prohibit Strauch, Green, & Mistretta, Defendants' counsel, from disbursing the funds in an amount that would leave less than $5,457,500 in its trust account. Attached to the complaint, Sessions provided a copy of P. Sloane's affidavit dated 15 January 2013 from the Canadian lawsuit. The affidavit stated the following:

5. When Cruise Connections approached Mr. Sessions, another individual who was supposed to provide a letter of credit for the bid had just backed out, and the deadline for submitting the bid was fast approaching. Mr. Sessions knew that Cruise Connections was in a bad bargaining position, since Cruise Connections had no other viable alternatives for getting a letter of credit before its bid was due. Mr. Sessions took advantage of the situation, repeatedly raising the price for providing the letter of credit until he eventually demanded a price equal to the amount of the letter of credit ($5,057,500). Since we were out of time and out of options, Cruise Connections acceded to Mr. Sessions' demand. Given the fact that Mr. Sessions used his vastly superior bargaining position to force these unfair terms upon Cruise Connections, I have serious doubts as to the enforceability of the Letter of Intent.

6. Even if it is ultimately enforceable, the Letter of Intent does not create a debt obligation on the part of Cruise Connections. Instead, if Cruise Connections' bid was successful, Mr. Sessions was to be granted an option to receive a limited partnership interest, pursuant to which he would be able to receive funds in the form of partnership distributions. Cruise Connections did not intend to make distributions to partners until such time as it had confirmed that there was sufficient cash

...