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Hall CA-NV, LLC v. Ladera Development, LLC

United States District Court, D. Nevada

October 24, 2019

HALL CA-NV, LLC, a Texas limited liability company, Plaintiff
v.
LADERA DEVELOPMENT, LLC, a Nevada limited liability company, Defendant LADERA DEVELOPMENT, LLC, a Nevada limited liability company, Counterclaimant,
v.
HALL CA-NV, LLC, a Texas limited liability company, Counter-defendant

          ORDER RE: ECF NOS. 40, 90, 91, 92

          William G. Cobb, United States Magistrate Judge.

         The court issues this order regarding: (1) plaintiff/counter-defendant Hall CA-NV, LLC's (Hall) motion to modify subpoena duces tecum on Kolesar & Leatham (K&L) (ECF No. 40); and, (2) K&L's response to that briefing and motion for sanctions under Federal Rule of Civil Procedure (FRCP) 45(d)(1), motion to quash subpoena under FRCP 45(d)(3)(A)(iii), (iv)[1], or alternatively, motion for reasonable compensation under FRCP 45(d)(3)(C)(ii) (ECF Nos. 90, 91, 92, 93 (in camera submission)).[2]

         Having considered the extensive briefing on these motions, the court: finds based on the totality of circumstances there was no joint client relationship between Hall and defendant/counterclaimant Ladera Development, LLC (Ladera) concerning representation by K&L; and, as a result the subpoena should be modified to exclude the request for materials in the Hall file subject to the attorney client privilege and work product protection; as to those materials that may be responsive to the subpoena that are not privileged or protected, the court grants K&L's motion to quash the subpoena as compliance by K&L would be unduly burdensome under the circumstances because Ladera may request non-privileged and non-protected materials directly from Hall under Rule 34[3]; denies Hall's motion to modify the subpoena as moot; and, denies K&L's motion for sanctions or reasonable compensation under FRCP 45.

         I. PROCEDURAL INTRODUCTION

         This dispute arises from a subpoena served by defendant/counterclaimant Ladera under FRCP 45 on non-party K&L in this action. K&L represented both Hall and Ladera in adversary proceedings in a bankruptcy case preceding this litigation. Generally speaking, Ladera's subpoena asked K&L to produce its entire file for Hall from the prior proceedings, including any communications with Hall and/or Ladera, under the theory that K&L jointly represented Hall and Ladera such that there is no attorney-client privilege or work product doctrine protection as between Hall and Ladera with respect to those actions now that Hall and Ladera have become adverse to one another in this action. Hall and K&L disagree, and maintain that K&L's representation of Hall and Ladera in the adversary proceedings was separate, and the materials requested are protected by the attorney-client privilege and work product doctrine. K&L further contends that it already provided the entire Hall case file from those proceedings to Hall; therefore, even if its position regarding its representation of the parties does not prevail, it should not be subject to the undue burden and expense of having to respond to the subpoena as Ladera can request the materials directly from Hall.

         This case was initially assigned to District Judge Robert C. Jones and Magistrate Judge Carla Baldwin Carry. Hall originally filed its motion to modify the subpoena on August 28, 2018. (ECF Nos. 40, 40-1 to 40-4.) Ladera filed a response. (ECF Nos. 43, 43-1 to 43-3.) Hall filed a reply. (ECF No. 44.) Ladera was granted leave, to file a sur-reply. (ECF No. 50.) Judge Carry held a hearing on Hall's motion on November 9, 2018. (ECF No. 53.) On November 30, 2018, Judge Carry issued an order denying the motion to modify and required K&L to comply with the subpoena. (ECF No. 56.) Hall filed an objection. (ECF Nos. 58, 58-1 to 58-4.) Ladera filed a response. (ECF No. 69.) District Judge Jones held a hearing on the objection on February 19, 2019, and sustained Hall's objection. Judge Jones reversed and vacated Judge Carry's order, and remanded the matter for consideration of all objections to the subpoena, including K&L's, and allowed K&L to submit evidence regarding K&L's prior legal representation of Hall and Ladera. (ECF Nos. 72, 75, 80.)

         Judge Carry recused from the case on April 5, 2019, and it was reassigned to the undersigned as magistrate judge. (ECF No. 89.) A status conference was held on May 10, 2019. The parties and K&L agreed that under FRCP 45, once a party objects to a subpoena that party does n.ot have an obligation to respond, and any time after there is an objection to the subpoena, the serving party may move the court for compliance or an order compelling production of the subpoenaed documents. FRCP 45 also allowed Hall to file a motion to modify the subpoena since it argued that it required disclosure of privileged material. Ladera had not filed a motion to compel because it believed that Hall's motion encompassed the relevant issues. In any event, K&L maintained that the documents responsive to the subpoena were subject to the attorney-client privilege and there was no joint representation privilege as between Hall and Ladera. K&L represented that it had a "1-inch stack" of documents evidencing that a joint privilege did not exist.

         The parties agreed, consistent with Judge Jones' ruling vacating and remanding Judge Carry's order, that K&L should have an opportunity to be heard regarding the privilege issue. The court ordered the parties and K&L to meet and confer on the representation and privilege issues, and if unsuccessful, directed K&L to file briefing on the topic, followed by responsive and reply briefs. (ECF No. 89.) The parties were unsuccessful at resolving their dispute, and the present briefing ensued.

         The court will provide an in depth factual and procedural background which is an essential precursor to the subsequent analysis of the representation and privilege issues.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         The court has carefully combed the entire record in this case to amalgamate this comprehensive summary of events leading up to the issuance of this Order.

         A. The Cal-Neva Redevelopment

         As Judge Carry aptly described it, this action is one of many lawsuits involving Hall and Ladera related to the failed re-development of the Cal-Neva property, which straddles the border of California and Nevada on the shores of Lake Tahoe. New Cal-Neva Lodge, LLC (Cal-Neva) undertook to re-develop the property. The general contractor for the project was Penta Building Group, LLC (Penta).

         On September 30, 2014, Hall agreed to loan Cal-Neva $29, 000, 000, and Ladera agreed to loan Cal-Neva $6, 000, 000. Both Hall and Ladera obtained title insurance policies from Old Republic National Title Insurance (Old Republic) to insure their respective loan priorities. Also on September 30, 2014, Hall and Ladera entered into what has been referred to in this litigation as the Intercreditor Agreement. The agreement deemed Hall's loan the senior loan on the project and Ladera's the junior loan, and defined obligations, roles and rights of the parties and imposed a variety of obligations and restrictions on Ladera. Hall was to be given first priority, while Ladera would be second only to Hall. The deeds of trust were respectively recorded in Washoe County, Nevada, and Placer County, California, on October 2, 2014.

         B. Penta Lien Cases and Cal-Neva's Bankruptcy Proceedings

         Issues arose during construction that led to Hall filing a notice of default and election to sell. On April 14, 2016, Penta filed a mechanic's lien foreclosure complaint in the Second Judicial District Court in Washoe County, Nevada, asserting claims against Cal-Neva, Hall and others, asserting that Penta's mechanic's lien had priority over Hall's deed of trust. (See ECF No. 90-6 at 3.) Penta filed a similar action in Placer County on May 19, 2016. (ECF No. 90-6 at 4.) Ladera was not a party to either of those cases.

         On July 28, 2016, Cal-Neva filed for Chapter 11 bankruptcy protection. (See ECF No. 98 at 3.)

         On October 25, 2016, the Penta lien priority cases pending against Hall in Nevada and California were removed to the United States Bankruptcy Courts for the Districts of Nevada and the Eastern District of California, referred to respectively as the Hall NV Adversary and Hall CA Adversary, and collectively as the Hall Adversary proceedings.

         C. K&L's Retention by Old Republic for the Adversary Proceedings

         On January 23, 2017, K&L was retained by Old Republic to represent Hall in the Hall NV Adversary, and was later retained by Old Republic to represent Hall in the Hall CA Adversary. (Maurice Decl., ECF No. 90-4 ¶ 3; Wood Decl., ECF No. 90-5 ¶ 3; Stephanie Byrd Decl., ECF No. 97-2 ¶ 2.)

         On January 30, 2017, Cal-Neva's bankruptcy proceeding in the Eastern District of California was transferred to the District of Nevada under bankruptcy case: BK-N-16-51282-GWZ . The Hall CA Adversary was also transferred, and the Hall Adversary proceedings were assigned the following case numbers: BK-N-05036-GWZ (Hall NV Adversary) and BK-N-17-05003-GWZ (Hall CA Adversary). (See IECF No. 90-6 at 3-4.) Ladera was not a party to those adversary proceedings.

         On February 15, 2017, Penta filed a complaint commencing an adversary action against Ladera, asserting a claim of priority of Penta's mechanic's lien over Ladera's deed of trust. (ECF No. 90-6 at 5.) It was assigned adversary case number BK-N-17-05007-GWZ (Ladera Adversary). (Id.) Hall was not a party to the Ladera Adversary.

         On March 8, 2017, K&L was retained by Old Republic to represent Ladera in the Ladera Adversary. (Maurice Decl., ECF No. 90-4 ¶ 4; Wood Decl., ECF No. 90-5 ¶ 4; ECF No. 98 at 4.)

         D. K&L's First Conflict Waiver Letter

         Also on March 8, 2017, K&L sent a letter to Ladera with the subject line: "Waiver of Conflict of Interest." The letter states that it "shall confirm and memorialize the waivers of the actual and potential conflicts of interest described [therein] and consent to [K&L's] representation described [therein]." It goes on to state that K&L was retained by Old Republic to represent Hall in connection with the Hall mechanic's lien litigation (the Hall Adversary proceedings), and was also asked to represent Ladera in connection with the Ladera Adversary. It then says: "The purpose of this letter is to describe the proposed joint representation of [Hall] and [Ladera], to define the scope of said representation, and to secure the consent of those concerned to the representation as described herein."

         The letter goes on to cite Nevada Rules of Professional Conduct Rule 1.7 governing concurrent conflicts of interest. It then states that the Hall Adversary proceedings and the Ladera Adversary involved the same property and the same priority dispute, and at the court's request and instruction, K&L proposed to stipulate to consolidation of the Hall Adversary proceedings and the Ladera Adversary. K&L indicated that it could represent both Hall and Ladera without adversely affecting its relationship with either Hall or Ladera. This is because both Hall and Ladera would be taking the same position with respect to the claims asserted by the lien claimants, i.e., the scope and duration of the work of improvement, date on which the work of improvement commenced such that actual on-site construction was visible, and the intent to prohibit commencement of the work of improvement prior to the date on which Hall and Ladera recorded their deeds of trust to ensure they would have priority over the mechanic's liens. The letter then asked both Hall and Ladera to sign the letter to consent to K&L's "representation of Ladera Development, LLC and Hall CA-NV, LLC as outlined above." (ECF No. 43-1.)

         E. Consolidation of the Adversary Proceedings

         On April 11, 2017, the parties stipulated to consolidation of the three adversary proceedings and the bankruptcy court ordered the adversaries consolidated under the Hall NV Adversary case number. (ECF No. 90-6.)

         F. Hall Sues Ladera in Second Judicial District Court

         On August 14, 2017, Hall sued Ladera, in the Second Judicial District Court, Washoe County, Nevada, asserting Ladera had violated the Intercreditor Agreement and sought injunctive relief. (See ECF No. 98 at 5.)

         G. K&L's Second Conflict Waiver Letter

         Following the filing of that lawsuit, on August 15, 2017, K&L sent a second conflict waiver letter to Hall and Ladera. Again, the subject of the letter was: Waiver of Conflict of Interest. The letter stated that it was to supplement "the March 8, 2017 acknowledgement of joint representation" and to confirm and memorialize waivers of the actual and potential conflicts of interest described and consent to continued representation. It reiterated that K&L had first been retained to represent Hall in the Hall Adversary proceedings, and was then asked to represent Ladera in the Ladera Adversary. It recounted that Hall and Ladera "consented to joint representation by K&L" in the Hall Adversary proceedings and the Ladera Adversary by letter dated March 8, 2017. It then discussed the fact that that Hall had filed a complaint against Ladera in State court on August 14, 2017, asserting claims related to the Intercreditor Agreement between Hall and Ladera.

         The letter requested confirmation of "joint representation of [Hall] and [Ladera], to define the scope of said representation, and to secure the consent of those concerned to the continued representation as described herein." Like the March 8, 2017 letter, this letter went on to cite Nevada Rule of Professional Conduct 1.7. It then stated that the Hall Adversary proceedings and the Ladera Adversary involved the same property and same priority dispute with respect to the lien claimants, and that the parties had stipulated to consolidation of those adversaries into the "Consolidated Adversary."

         The letter then said that notwithstanding the action Hall filed against Ladera regarding the Intercreditor Agreement in State court, K&L believed it could still represent both Hall and Ladera in the consolidated adversary without adversely affecting K&L's relationship with either Hall or Ladera. This was because Hall and Ladera continued to take the same position regarding the claims and counterclaims asserted in the Consolidated Adversary. K&L asked Hall and Ladera to sign and return the letter as consent to K&L's continued representation of Ladera and Hall, as outlined therein. Hall and Ladera both signed the letter. (ECF No. 40-3; ECF No. 43-2.)

         On October 5, 2017, Ladera retained separate coverage counsel to advise it regarding its rights under its policy. Hall also retained separate coverage counsel. (Maurice Decl., ECF No. 90-4 ¶¶ 29-30.)

         H. Hall's Settlement with Penta, Cal-Neva and Others and Dismissal of the Adversary Proceedings

         In late 2017, Hall entered into a settlement with Penta, Cal-Neva (the debtor) and others. (ECF No. 90-11 at 13-31.) Ladera was not a party to the settlement. (ECF No. 98 at 6.) On December 15, 2017, Penta and Hall, through separate counsel (not K&L), filed a joint motion to approve compromise and settlement and for dismissal. (ECF No. 90-11.) On December 18, 2019, K&L learned that Ladera intended to file a response to the joint motion, and as a result, Old Republic retained separate counsel for Ladera to file a response. (Maurice Decl., ECF No. 90-4 ¶ 44; Wood Decl., ECF No. 90-5 ¶ 44; ECF No. 98 at 6.)

         Ladera filed a limited response to the joint motion on December 19, 2017. (ECF No. 90-10.) It stated that Ladera did not accept the settlement because it was excluded from the negotiations and was not a party to the agreement, but nevertheless did not object to the sale of the property and did not appeal confirmation of the plan. Ladera also stated that it was considering all of its legal options, including pursuing separate legal action against Hall and/or Penta, and did not waive those rights.

         The bankruptcy court construed Ladera's response as an objection, and considering the response, arguments of counsel, and the Intercreditor Agreement between Hall and Ladera, overruled the objection and granted the motion. This resulted in the dismissal of the underlying bankruptcy proceeding and all three adversary proceedings with prejudice. (ECF No. 90-7.) The order specifically stated that it did not prejudice the rights and claims of Ladera against Hall or Old Republic nor the rights and claims of Hall against Ladera or Old Republic. (ECF No. 90-7 at 5.) The order was signed as approved by Frank Wright on behalf of Hall, and was signed as not approved by Jason Rios on behalf of Ladera. (ECF No. 90-7 at 6-7.)

         After dismissal of the adversary proceedings, K&L took steps to close its files. (Maurice Decl., ECF No. 90-4 ¶ 47; Wood Decl., ECF No. 90-5 ¶ 47.) It produced a hard drive to Ladera's counsel with Ladera's file in December of 2017, and a hard drive with Hall's file was produced to Hall's counsel in January of 2018. (Maurice Decl., ECF No. 90-4 ¶¶ 47-49; Wood Decl., ECF No. 90-5 ¶¶ 48-49.) By January 18, 2018, K&L's ...


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