Stipp v. CML-Nv One, LLC (In re Plise)
| Decision Date | 07 March 2014 |
| Docket Number | Bankruptcy No. 2:12–bk–14724–LBR.,BAP No. NV–13–1205–KiTaJu. |
| Citation | 506 B.R. 870 |
| Parties | In re William Walter PLISE, Debtor. Mitchell D. Stipp, Appellant, v. CML–NV One, LLC; Shelley D. Krohn, Chapter 7 Trustee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
OPINION TEXT STARTS HERE
Nathan Andrew Schultz, Esq., Santa Monica, CA, of Greenberg Traurig, LLP argued for appellant Mitchell D. Stipp; Matthew Kneeland, Esq., Las Vegas, NV, of Sylvester & Polednak, Ltd. argued for appellee, CML–NV One, LLC.
Before: KIRSCHER, TAYLOR and JURY, Bankruptcy Judges.
Appellant Mitchell D. Stipp (“Stipp”) appeals an order sanctioning him $10,000 for his noncompliance with the subpoenas of appellee CML–NV One, LLC (“CML”), a creditor of chapter 7 1 debtor William Walter Plise (“Debtor”).2 Because the bankruptcy court applied an incorrect standard of law to a nonparty—applying Civil Rule 37 when it should have applied Civil Rule 45—we REVERSE.
A. Events leading to Stipp's motion for protective order and CML's countermotion to compel
Debtor owned and operated several commercial real estate development companies in Nevada. He filed an individual chapter 7 bankruptcy case on April 23, 2012. CML is the successor-in-interest to Silver State Bank.
Stipp served as Debtor's special litigation counsel and as general counsel for Aquila Management, LLC, one of Debtor's companies, which served as the manager of most (if not all) of the entities previously owned by Debtor. Stipp also, either individually or through MSJM Advisors, LLC (“MSJM”), a company in which Stipp held an interest, provided services to and/or managed, owned or controlled various entities also controlled by Debtor and/or his affiliate entities. Stipp also is the former COO and general counsel for other entities once owned and operated by Debtor.
On September 12, 2012, CML moved for a Rule 2004 examination of Stipp individuallyand as the person most knowledgeable of MSJM. At that time, CML was represented by the law firm Lionel Sawyer & Collins (“LS & C”). The Clerk issued orders granting both motions.
Pursuant to Civil Rule 45,3 CML served Stipp and MSJM with subpoenas to appear at Rule 2004 examinations and to produce documents. Stipp retained Quarles & Brady LLP (“Quarles & Brady”) to represent him.
In compliance with Civil Rule 45(c)(2)(B), Quarles & Brady prepared written objections to the subpoenas on behalf of Stipp and MSJM (“Written Objections”) and timely served them on LS & C on October 5, 2012.
CML agreed to continue the Rule 2004 examinations indefinitely to resolve Stipp's Written Objections. LS & C then filed two notices continuing the Rule 2004 examinations to a date and time to be subsequently noticed.
On November 19, 2012, LS & C informed Quarles & Brady that it was withdrawing from representing CML due to a conflict. LS & C told Quarles & Brady to “stand down” and wait for further instruction from substitute counsel. At that time, the parties had not yet engaged in any substantive discussions to resolve the Written Objections. Thereafter, CML retained Snell & Wilmer as substitute counsel. Snell & Wilmer never contacted Quarles & Brady regarding the Stipp matter.
On December 12, 2012, attorney Matthew Kneeland (“Kneeland”) of the law firm Sylvester & Polednak, Ltd. contacted Quarles & Brady to inquire about the status of Stipp's document production for CML. Specifically, Kneeland sought to obtain the documents he understood Quarles & Brady had already prepared for production.
Quarles & Brady promptly responded that it was confused by Kneeland's email because Snell & Wilmer had appeared as new counsel for CML. In response, Kneeland filed a notice of appearance on behalf of CML and expressed his concern to Quarles & Brady that Stipp had not yet produced any documents, despite the issuance of the subpoena duces tecum in September.
On December 14, 2012, Quarles & Brady informed Kneeland that it was forced to withdraw as counsel for Stipp due to a conflict.
Immediately thereafter Stipp, now pro se, began corresponding with Kneeland to discuss the document production matter. Stipp noted his Written Objections to the subpoenas and explained that no substantive discussions ever took place between Quarles & Brady and LS & C to resolve them. Stipp also explained the complications involved in complying with CML's document request due to his former role as Debtor's attorney. Stipp's young son also had been recently diagnosed with a significant medical condition, which was consuming a great deal of his time. However, Stipp expressed to Kneeland his intention of complying with the subpoenas and stated that he was confident the parties could amicably resolve the matter without resorting to costly litigation.
Ultimately, Stipp requested an extension until January 14, 2013, to retain new counsel for purposes of completing the production process started by Quarles & Brady. Kneeland eventually agreed to the January 14 extension for Stipp to hire new counsel, but told Stipp that CML would file a motion to compel and/or for a contempt order if he failed to produce all documents responsive to the subpoenas by that date. In a January 7, 2013 email to Kneeland, Stipp asked that CML refrain from taking any action on the subpoenas and suggested that the parties meet within two weeks after January 14, 2013, assuming he had obtained new counsel by then. Kneeland did not respond to Stipp's January 7 email.
As promised, Stipp hired new counsel and sent an email to Kneeland on January 14, 2013, informing him that he was now represented by Bogatz & Associates. Stipp again expressed his desire to comply with the subpoenas in a timely manner. Later that same day, attorney Scott Bogatz (“Bogatz”) sent an email to Kneeland requesting that all Stipp communications be directed to his firm. Kneeland replied that no documents had been produced by the January 14 deadline. He further contended that none of Stipp's Written Objections would hold up in court. Kneeland demanded production of all documents responsive to the subpoenas as a “precondition” for CML not filing a motion to compel. Bogatz responded, explaining that his firm was reviewing the history of the discovery issues and noting that they appeared more complex than Kneeland had implied. Counsel for the parties engaged in several phone conferences in late January 2013.
On February 1, 2013, Kneeland's co-counsel, attorney Jeff Sylvester (“Sylvester”), sent Bogatz an email stating that he understood Stipp's intention, with some exceptions, to stand by his Written Objections. The “exceptions” related to documents that had been withheld under a claim of attorney-client privilege. Sylvester asked that the privileged documents be identified so he could obtain a waiver from the chapter 7 trustee to facilitate their production. Sylvester also notified Bogatz that his firm intended to file a motion to compel within the week.
On February 4, 2013, Bogatz replied to Sylvester's February 1 email, listing the documents responsive to the subpoena, that, subject to a resolution of attorney-client privilege and confidentiality issues, Stipp was willing to produce. Bogatz further informed Sylvester that because the parties could not reach an agreement on this process, Stipp was currently filing a motion for protective order.
B. The competing motions1. Stipp's motion for protective order
In response to CML's threatened motion to compel, Stipp filed a motion for protective order (“MPO”) on February 4, 2013, seeking to limit CML's scope of discovery and otherwise protect what he asserted was confidential and privileged information. Stipp argued that the subpoenas requested information that was largely unrelated to the administration of Debtor's bankruptcy case, intruded into Stipp's personal and confidential affairs and amounted to nothing more than an abuse of process designed to burden, annoy and harass him. Stipp projected that complying with the subpoenas to produce would take months and cost thousands, if not hundreds of thousands, of additional dollars. Stipp claimed that, to date, he already had incurred more than $100,000 in attorney's fees and costs regarding the subpoenas.
2. CML's countermotion to compel
On February 25, 2013, three weeks after Stipp filed his MPO and about two weeks before the motion's scheduled hearing, CML filed its opposition and countermotion to compel, also to be heard on March 13, 2013 (“Countermotion to Compel”). CML's opposition and separately-filed Countermotion to Compel were identical and requested the same relief.
CML contended that Stipp's MPO failed either to account for his failure of producing a single document over the last five months or to explain his failure of producing the privilege log required by Civil Rules 45(d)(2) or 26(b)(5). CML contended that Stipp's Written Objections were meritless and improper and that the subpoenas did not exceed the broad scope allowed by Rule 2004. Accordingly, CML argued that Stipp's MPO had to be denied and that he must be compelled to produce documents and submit to the Rule 2004 examinations. In conclusion, CML requested attorney's fees incurred in bringing its Countermotion to Compel pursuant to Civil Rule 37(a)(5).
In his reply, Stipp argued that the information requested by CML went beyond the admittedly broad scope of Rule 2004, was protected by the attorney-client privilege and/or work product doctrine or was subject to Stipp's other constitutional rights and privileges. Stipp merely sought to “place reasonable parameters on the breadth of discovery being requested by a creditor upon a non-debtor.” Stipp also argued that he was not evading discovery; he had complied with Civil Rule 45 by timely serving his Written Objections. Any delays in production, argued Stipp, had been caused by CML's multiple substitutions of counsel, by its...
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