Free Motion to Compel - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 04-K-1099 (DLW) WOLF CREEK SKI CORPORATION, INC., Plaintiff, v. LEAVELL-McCOMBS JOINT VENTURE, d/b/a THE VILLAGE AT WOLF CREEK, Defendant. JOINT VENTURE'S MOTION TO COMPEL RETURN OF ATTORNEY-CLIENT PRIVILEGED DOCUMENTS Defendant Leavell-McCombs Joint Venture d/b/a The Village At Wolf Creek, ("Joint Venture"), through its counsel, hereby respectfully submits its Motion to Compel Return of Attorney-Client Privileged Documents, and in support of this Motion, the Joint Venture states the following: Certification Pursuant to D.C.Colo.L.R. 7.1 Pursuant to D.C.Colo.L.Civ.R. 7.1, counsel for the Joint Venture has conferred with counsel for the Wolf Creek Ski Corporation regarding this Motion and counsel has indicated that it opposes the relief sought herein. I. INTRODUCTION

As a member and managing venturer of the Joint Venture, Pete Leavell received privileged and work product documents from the Joint Venture's attorneys, including Holland & Hart, Crowell Morning and others. It is undisputed that on September 25, 2003, the Leavell

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family sold their interest in the Joint Venture, which terminated Pete Leavell's position as a member and managing venturer of the Joint Venture. Thereafter, in response to a subpoena issued to Pete Leavell by Plaintiff Wolf Creek Ski Corporation ("Ski Corporation'), and without the Joint Venture's consent, Pete Leavell produced documents that were contained in his files, without regard to privilege. Many of the subject documents had previously been identified in the Joint Venture's privilege log and the Joint Venture has requested that the Ski Corporation return or destroy these privileged documents.1 The Ski Corporation has refused to return or to destroy these privileged documents without an order from this Court directing it to do so. The Ski Corporation contends that the documents are not privileged work product documents and/or that the privilege was waived by Pete Leavell's disclosure. Moreover, the Ski Corporation claims that Pete Leavell's unauthorized actions constituted a subject matter waiver of the Joint Venture's attorney client privilege. II. A. ANALYSIS

Under Principles of Corporate Law and Partnership Law a Former Employee Lacks the Authority to Waive the Corporation's Attorney-Client Privilege

It is well settled under the principles of corporate law and partnership law2 that a former For the Court's convenience, a privilege log specific to the Leavell document production has been created by counsel and is attached hereto as Exhibit A. At the outset, the Joint Venture notes that no case law regarding the attorneyclient privilege as held by joint ventures was found. However, it has been recognized that corporate law applies to other entities. See e.g. In re Bieter Co., 16 F.3d 929, 935 (8th Cir. 1994) (wherein the Court noted that the rules regarding a corporation's attorney-client privilege are instructive when applied to partnerships and other entities.) Therefore, the law, as it relates to a corporation's attorney-client privilege, can be analogized and applied to joint ventures. 2
2 1

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employee of a corporation lacks the authority to waive the corporation's attorney-client privilege. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 349, 105 S.Ct. 1986, 1991 (1985) wherein the U.S. Supreme Court recognized that the power to waive the attorney-client privilege lies with the corporation's management. In Commodity Futures, the Court held that the authority to assert or waive privilege lies in the new management when the control of the corporation passes to new management and only the new managers may waive privilege. Id. Furthermore, the Court held that "[d]isplaced managers may not assert the privilege over the wishes of current managers, even as to statements that the former might have made to counsel concerning matters within the scope of their corporate duties." Id. Courts from other jurisdictions have held in accord. In United States v. Chen, 99 F.3d 1495, 1502 (9th Cir. 1996), the Ninth Circuit held that "since a corporate employee cannot waive the corporation's privilege, that same individual, as an ex-employee cannot do so." Similarly, in Southwire Co. v. Essex Group, Inc., 570 F.Supp. 643 (N.D.Ill. 1983), the court found that testimony a former corporate president provided at deposition did not constitute a waiver of the corporation's attorney-client privilege as only the party holding the privilege may waive it and a former employee does not hold the privilege. Id. at 645.

Furthermore, as will be addressed in further detail below, the substantive law of partnerships is also applicable to joint ventures, See Bushman Construction Co. v. Air Force Academy Housing, 327 F.2d 481, 484 (9th Cir. 1964) and Hooper v. Yoder, 737 P.2d 852, 857 (Colo. 1987), and the well settled law of partnerships provides that a partner may not bind the partnership for acts occurring after the dissolution of the partnership and for acts for which he has no authority. See C.R.S.§§7-60-133 and 135. Thus, the law with regard to corporations and partnerships is instructive in this matter. 3

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Colorado courts have also addressed this waiver of privilege issue and have issued rulings that are consistent with the Joint Venture's position. In Genova M.D. v. Longs Peak Emergency Physicians, P.C., 72 P.3d 454 (Colo.App. 2003), the Colorado Court of Appeals considered whether a professional corporation could assert the attorney-client privilege on behalf of the corporation against a former employee who had subpoenaed corporate files. In upholding the corporation's attorney-client privilege, the court concluded that: [a]lthough plaintiff's status as a former director would have entitled him to learn privileged information when he was a director, he would then have been duty bound to keep such information confidential. He would not have been entitled alone to assert or waive the privilege on behalf of [the entity]. (Citations omitted). . . . The attorney client privilege belongs to [the entity] . . . and only [the entity] can waive that privilege. Id. at 463. See also Ethics Opinion No. 69, "Propriety of Communicating with Employee or Former Employee of an Adverse Party Organization," Revision adopted June 20, 1987, Addendum issued 1995, wherein the Colorado Bar Association Ethics Committee, in addressing the attorney-client privilege, acknowledged the fact that "[a]fter leaving the organization's employ, a former employee cannot bind the organization as a matter of law." Id. at pg. 6. (Further citations omitted). Colorado partnership law is also informative on this issue. Colorado courts have held that the substantive law of partnerships is equally applicable to joint ventures. See Bushman Construction Co., supra. Similarly, in Bebo Construction Co. v. Mattox & O'Brien, P.C., 998 P.2d 475 (Colo.App. 2000) the Colorado Court of Appeals held that "a joint venture is a partnership formed for a limited purpose." The Court went on to hold that "the acts of one joint 4

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venturer are binding upon other joint venturers if those acts pertain to matters within the scope of the joint venture and the joint venturer had authority to act." Id. at 477. Emphasis added. Thus the key to whether a partner or a joint venturer may bind the partnership/joint venture with his or her acts is whether the partner/joint venturer had the authority to act. A.B. Hirschfeld Press, Inc. v. Weston Group, Inc., 824 P.2d 44, 47 (Colo.App. 1991). Additionally, C.R.S. §760-133(1) provides that a dissolution of a partnership "terminates all authority of any partner to act for the partnership." Similarly, §7-60-135 provides that "the partnership is in no case bound by any act of a partner after dissolution...." B. As a Former Member of the Joint Venture, Pete Leavell Did Not Have the Authority to Waive the Attorney-Client Privilege

Pete Leavell, as a former member and manager of the Joint Venture, did not have the authority to waive the Joint Venture's attorney-client privilege. As is set forth in detail above, a former employee of a corporation does not hold the authority to waive the attorney-client privilege on behalf of the corporation. It has been held that with regard to the issue of the attorney-client privilege, the law of corporations may be applied to other entities. See In re Bieter Co., supra. Therefore, this corporate law may be applied in the instant case and its application makes it clear that Mr. Leavell, as a former member and manager of the Joint Venture, was without the requisite authority to waive the Joint Venture's attorney-client privilege. Colorado's partnership law provides further support for the proposition that Pete Leavell had no authority to waive the Joint Venture's attorney-client privilege. Pete Leavell sold out his interest in the Joint Venture to the remaining Joint Venture members on September 25, 2003. 5

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This action left him without the authority to bind the Joint Venture by his actions. The subpoena which was served on Mr. Leavell by the Ski Corporation on was served directly to Mr. Leavell after he was no longer a member or manager of the Joint Venture. Moreover, the subpoena was served on Mr. Leavell directly and it did not go through counsel for the Joint Venture. Clearly, at the time Mr. Leavell produced the privileged documents to the Ski Corporation in response to the subpoena, he no longer had any authority whatsoever to bind the Joint Venture by his actions, and, more specifically, he had no authority to waive the attorney-client privilege held by the Joint Venture. For these reasons, Mr. Leavell's disclosure of documents to the Ski Corporation did not constitute a waiver of the Joint Venture's privilege and, on this basis alone, the Ski Corporation should be directed to return any and all privileged documents produced by Mr. Leavell. C. Inadvertent Disclosure

Assuming this Court does not find the discussion in Sections A and B of this Motion dispositive on the issue of privilege, the Joint Venture alternatively asserts that the disclosure of privileged materials by Mr. Leavell was inadvertent and, therefore, such disclosure did not result in a waiver of the Joint Venture's attorney-client privilege. The issue of inadvertent disclosure of attorney-client privileged material has been addressed by the Colorado Court of Appeals in Floyd v. Coors Brewing Co., 952 P.2d 797 (Colo.App. 1997), rev'd. on separate grounds Coors Brewing Co. v. Floyd, 978 P.2d 663 (Colo. 1999). Therein, the Plaintiff sought to suppress several privileged documents that were alleged to have been inadvertently disclosed to the Defendant through the discovery process and the 6

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Court addressed to what extent a voluntary, but inadvertent, disclosure of privileged materials waives the privilege. Id. at 808. The Court adopted the "ad hoc" approach, which has been adopted by the majority of courts addressing this issue, for determining whether the disclosure resulted from excusable inadvertence. Under this "ad hoc" approach, several factors are considered by the courts in order to determine if the disclosure of privileged documents was the result of excusable inadvertence and these factors are as follows: (1) the extent to which reasonable precautions were taken to prevent the disclosure of privileged information; (2) the number of inadvertent disclosures made in relation to the total number of documents produced; (3) the extent to which the disclosure, albeit inadvertent, has, nevertheless, caused such a lack of confidentiality that no meaningful confidentiality can be restored; (4) the extent to which the disclosing party has sought remedial measures in a timely fashion; and (5) considerations of fairness to both parties under the circumstances. (Citations omitted). Id. In applying the foregoing factors to the instant case, it is evident that the disclosure of the privileged documents by Pete Leavell was, at a minimum, excusable inadvertence. The Joint Venture took reasonable precautions to prevent the disclosure of the privileged materials, including designating many of these documents as privileged in its privilege log. This disclosure has not caused such a lack of confidentiality that confidentiality cannot be restored. The

documents were produced only to the Ski Corporation and include a discreet number of documents. In light of the complex issues related to this litigation, the Joint Venture has timely and appropriately sought remedial measures in order to address this inadvertent disclosure,
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including informally requesting that the Ski Corporation return or destroy the subject documents and filing in the instant Motion. Finally, in the consideration of fairness to both parties, it is evident that this disclosure by Mr. Leavell should not be considered to be a subject matter wavier of the Joint Venture's attorney-client privilege. Mr. Leavell, a former member of the Joint Venture, produced

documents contained in his files directly to the Ski Corporation in response to a subpoena issued to him by the Ski Corporation. He did not first consult with the members of the Joint Venture nor with legal counsel to the Joint Venture. In fact, the Joint Venture did not become aware of his disclosure until after the documents had been disclosed. The attorney-client privilege was at no time waived by the Joint Venture, and Mr. Leavell, as a former member of the Joint Venture had no authority to waive any privilege on behalf of the Joint Venture, let alone waive subject matter privilege to the documents and their underlying content. Providing further insight into the issue of fairness is the Colorado Bar Association's Ethics Opinion No. 69 previously cited herein. In addressing the propriety of an attorney's communication with a former employee of an adverse party organization, the ethics committee stated: [a]ccordingly, the inquiring attorney may not, while communicating with the organization's former employee, inquire into privileged attorney-client communications; nor may the inquiring attorney listen while the former employee attempts to divulge privileged communications voluntarily. Any privilege existing between the former employee and the organization's counsel belongs to the organization, and can be waived only by the organization."

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Id., at pg. 6, citing A. v. District Court, 191 Colo. 10, 550 P.2d 315, 323 (1976), cert. denied, 429 U.S. 10410 (1977). Emphasis added. In the instant case, the Ski Corporation directed a subpoena (communication) to a former joint venturer and the scope of the subpoena covered confidential attorney-client privileged documents. Moreover, upon receipt of these privileged documents, the Ski Corporation not only reviewed these documents, but the Ski Corporation has refused to return or destroy the documents absent an order of this Court. These actions are contrary to the spirit of Colorado ethics rules and certainly, in weighing the fairness to both parties under these circumstances, fairness dictates that the Joint Venture not be punished for the inadvertent actions of a former joint venturer, over whom the Joint Venture had no control. III. CONCLUSION

Pete Leavell produced attorney-client privileged Joint Venture documents to the Ski Corporation. At the time of this document production, Mr. Leavell had no authority to bind the Joint Venture by any of his actions and further, he had no authority to waive the attorney-client privilege on behalf of the Joint Venture. The Joint Venture had no control over Mr. Leavell's actions in this regard and the Joint Venture was unaware of the production of these privileged materials until after the fact, at which time, the Joint Venture timely requested the Ski Corporation to return or destroy the subject documents. The Joint Venture respectfully requests that this Court issue an order directly the Ski Corporation to return all privileged documents produced by Pete Leavell and further prohibiting the Ski Corporation from using any of the information contained in these documents for any purposes, whether related to this litigation or not.
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Respectfully submitted this 24th day of February, 2006. /s/ Sally P. Berg MORIARTY LEYENDECKER PC James R. Moriarty Sally P. Berg 1123 Spruce Street, Ste. 200 Boulder, CO 80302 Phone No. (713) 528-0700 Fax No. (713) 528-1390 Email: [email protected] and
BERG HILL GREENLEAF & RUSCITTI LLP

George V. Berg, Jr. Melissa M. Heidman 1712 Pearl Street Boulder, CO 80302 Phone No. (303) 402-1600 Fax No. (303) 402-1601 Email: [email protected]

Attorneys for Defendant Leavell-McCombs Joint Venture d/b/a The Village at Wolf Creek

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CERTIFICATE OF SERVICE I hereby certify that on February 24, 2006, I electronically filed the foregoing Joint Venture Motion to Compel Return of Attorney-Client Privileged Documents with the Clerk of the Court using the CM/ECF system which will send notification to such filing to the following e-mail addresses, and I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants in the manner (mail, hand-delivery, etc.) indicated by the non-participant's name: Andrew R. Shoemaker, Esq. HOGAN & HARTSON LLP 1470 Walnut Street, Suite 200 Boulder, CO 80302 Facsimile: 720-406-5301 Email: [email protected]

/s/ Sally P. Berg

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