Shih v. Petal Card, Inc.
| Decision Date | 06 October 2021 |
| Docket Number | 18-CV-5495 (JFK) (BCM) |
| Citation | 565 F.Supp.3d 557 |
| Parties | Cassandra SHIH, Plaintiff, v. PETAL CARD, INC., f/k/a CreditBridge, Inc., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Demetri Brumis Blaisdell, Marilyn C. Kunstler, Steven Ian Froot, Boies Schiller Flexner LLP, New York, NY, Eliot M. Schuman, Peter Stuart Dawson, DelBello Donnellan Weingarten Wise & Wiederkehr, L.L.P., White Plains, NY, for Plaintiff.
Joanna Calne Hendon, Scott Macdonnell O'Brien, Alston & Bird LLP, Joshua Adam Matz, John Charles Quinn, Martha Fitzgerald, Roberta Ann Kaplan, Valerie Hletko, Kaplan Hecker & Fink LLP, New York, NY, Kelley Connolly Barnaby, Ryan Patrick Martin-Patterson, Alston & Bird LLP, Washington, DC, for Defendants Petal Card, Inc., Andrew Endicott, Jason Gross.
The Court conducted a discovery conference on August 17, 2021, with respect to plaintiff's letter-motion to compel the production of certain communications to or from defendant Jason Gross (who was once a lawyer admitted to practice in New York), which were withheld or redacted by defendants on attorney-client privilege grounds, see Pl. Letter dated July 28, 2021 (Pl. July 28 Ltr.) (Dkt. No. 177); and (2) defendants’ letter-motion to compel the production of certain communications to or from Lane Kauder (who is now plaintiff's husband and a lawyer admitted to practice in New York), which were withheld by plaintiff on work product, spousal privilege, and/or attorney-client privilege grounds. See Def. Letter dated July 28, 2021 (Def. July 28 Ltr.) (Dkt. No. 176.) Thereafter, in compliance with this Court's Corrected Order dated August 20, 2021 (Aug. 20 Order) (Dkt. No. 196), the parties submitted certain exemplar documents, as to which privilege was claimed, for in camera review, along with revised privilege logs. (Dkt. Nos. 198, 199.) The Court has carefully reviewed the exemplar documents, as well as the parties’ legal arguments. For the reasons that follow, plaintiff's motion will be granted in part and denied in part, while defendants’ motion will be denied.
Plaintiff Cassandra Shih alleges that she entered into an enforceable oral joint venture agreement with her friend Andrew Endicott (a Harvard Law School graduate then working as an investment banker in New York) to develop a novel business concept – originated by her and shared with him as her prospective co-founder – for a "credit bridging" company, to be called CreditBridge, which would meet the credit needs of new immigrants and migrants to the United States. See Opinion and Order dated September 23, 2020 (Op. & Order) (Dkt. No. 116) at 2-12. In May 2015, after Shih "expressed reservations" about bringing in a third co-founder, Endicott agreed not to give away any equity in CreditBridge without her approval. Id. at 9-10. In July of that year, however, Endicott stopped responding to Shih's messages and began working with defendant Elliot Gross (Endicott's Harvard Law School classmate) to finalize the CreditBridge "pitch" materials that he previously worked on with Shih. Id. at 13-14. By August, Endicott and Gross were meeting with venture capitalists and describing themselves as the co-founders of the new business, "without ever mentioning" Shih. Id. at 14.
In February 2016, Endicott and Gross incorporated their business under the name CreditBridge, Inc., and Endicott locked Shih out of the shared Dropbox account that the two of them had used while developing the initial CreditBridge pitch materials and related work product. Op. & Order at 15-16. On February 16, 2016, Shih sent an email to Endicott, with a copy to Gross, in which she reminded Endicott that it was "my business idea," shared "on the mutual understanding that we would pursue its development in partnership," and accused him of "cut[ing] me out of the business which I conceived of and pursued in good faith with you, and to which I am entitled to 50 per cent ownership." Id. at 15-16. Neither Endicott not Elliot responded at that time. Id. at 16. But on March 23, 2016 (after Shih followed up several times), Endicott sent her an email claiming that the new company was "not based on any of your business ideas." Id. at 17.
In September 2016 the company changed its name to Petal Card, Inc. (Petal), and in December of that year Endicott and Gross raised $3.4 million from investors. Op. & Order at 19. In October 2018 Petal formally launched "a credit card product targeting young adults, students, immigrants, and minorities who have not yet had the opportunity to build credit in the United States." Id. By the time Shih filed her Second Amended Complaint (SAC) (Dkt. No. 93) against Endicott, Gross, and Petal, the company had raised $80 million and was "self-valued at more than $200 million." Id.
On September 23, 2020, the Honorable John F. Keenan, United States District Judge, denied, in substantial part, defendants’ motion to dismiss the SAC, holding that that:
[T]he SAC plausibly alleges, at a minimum, an oral joint venture agreement between Shih and Endicott, which Endicott subsequently breached by abruptly and surreptitiously cutting Shih out of the "CreditBridge" enterprise that, consistent with the terms of their partnership, he began pitching to potential investors in July 2015, and later incorporated as CreditBridge, Inc.
Op & Order at 32. Judge Keenan likewise held that the SAC states a claim against Endicott for breach of the covenant of good faith and fair dealing, id. at 32-33; breach of fiduciary duty, id. at 33-37; misappropriation of business idea, id. at 37-40; unfair competition; promissory estoppel; and unjust enrichment, id. at 42; and against Gross for aiding and abetting Endicott's breach of fiduciary duty, id. at 43-44; breach of his own fiduciary duty as Petal's promoter and officer, id. at 44-45; and unjust enrichment. Id. at 46-47. As to Petal itself, Judge Keenan sustained Shih's claims for breach of contract (to issue to her a 50% ownership interest) and to hold Petal vicariously liable for the tortious conduct of Endicott and Gross. Id. at 50-53. He also found that she plausibly alleged claims for declaratory judgment and specific performance. Id. at 55, 58.
On October 27, 2020, I issued a supplemental scheduling order (Dkt. No. 122) directing the parties to substantially complete party document production by February 26, 2021; to commence depositions (which had been stayed pending decision on the motion to dismiss, see Dkt. No. 62); and to complete fact discovery by June 15, 2021. However, discovery has been contentious, requiring the Court to resolve numerous disputes, and the schedule has been revised several times. See Dkt. Nos. 134, 137, 150, 155, 160, 165, 196, 197.1 Under the current scheduling order (Dkt. No. 165), party depositions will commence on October 10, 2021, and all depositions will be completed by December 10, 2021.
Defendants withheld or redacted over 1100 documents on privilege grounds. See Pl. July 28 Ltr. at 1. As to many of the redacted or withheld documents, including emails and other communications between Endicott and Gross, as well as their attachments, defendants invoke the attorney-client privilege, asserting that Gross was acting as counsel to Petal and its personnel (including Endicott). Id. Ex. A. Plaintiff challenges the assertion of privilege over these documents, noting that business communications do not become privileged simply because one or more or the participants is a lawyer. Id. at 2 (citing In re Cnty. of Erie , 473 F.3d 413, 421 n.9 (2d Cir. 2007) ).
Defendants respond that "between 2015 and 2017," Gross served not only as a co-founder and officer (ultimately CEO) of the company, but as its "general counsel." Def. Opp. Letter dated Aug. 2, 2021 (Def. Aug. 2 Ltr.) (Dkt. No. 178) at 1. They further assert that they have only withheld (or redacted) documents (or portions of documents) discussing legal advice. Id. As support for their contention that Gross was the company's general counsel for a period of time, defendants attach his declaration, which states, in pertinent part: "Between 2015 and 2017, I acted as general counsel and provided legal advice to the company that eventually became Petal, and to its employees and co-founders." Gross Decl. (Dkt. No. 178-1) ¶ 3. Gross provides no further description of his legal role. He does note that in July 2017 he voluntarily resigned from the New York bar, id. ¶ 2, and that in "December 2018," Petal "hired Shiri Wolf to serve as general counsel." Id. ¶ 4.2
There is very little corroboration, in the record before the Court, for the claim that Gross served, for a period of time, as counsel to Petal ("and to its employees and co-founders"). Defendants were unable to identify any documents in which the company (or Gross himself) held Gross out to the public or third parties as Petal's counsel.3 To the contrary: in July 2016, in email conversations with Petal's prospective Head of Growth David Ehrich, Gross repeatedly described Ehrich's draft employment agreement and related documents as having been prepared by and/or discussed with "our lawyers." Pl. Aug. 4 Ltr. Ex. 2. Consequently, plaintiff argues, defendants are not entitled to withhold or redact any documents on attorney-client privilege grounds where the claim of privilege rests on the assertion that Gross was acting as counsel to the business and its personnel. Id. at 1-2.
Plaintiff is largely, but not entirely, correct.
"In diversity cases such as this, where state law governs the claims, the Court looks to state law for determining privilege." Kleeberg v. Eber , 2019 WL 2085412, at *6 (collecting cases). "The elements of the attorney-client privilege under New York law are the existence of an attorney-client relationship, a communication made within the context of that relationship for the purpose of obtaining legal advice, and the intended and...
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