Rising Tide I, LLC v. Fitzsimmons

Background

The opinion addresses linked motions in two related cases: Rising Tide I, LLC and Rising Tide II, LLC v. Michael Fitzsimmons, et al., No. 17-cv-01232-TSH, and John E. Abdo, et al. v. Michael Fitzsimmons, et al., No. 17-cv-00851-TSH. Investors alleged that former directors and officers of Delivery Agent, Inc., a corporation that later filed for Chapter 11 bankruptcy, made fraudulent misrepresentations on which the investors relied when purchasing securities.

In both cases, defendants moved to compel nonparty Latham & Watkins, LLP, Delivery Agent’s former counsel, to produce documents responsive to subpoenas. Latham argued that it had to take steps to preserve its former client’s attorney-client privilege. In the Rising Tide case, plaintiffs moved under Federal Rule of Civil Procedure 12(f) to strike defendants’ advice-of-counsel defenses, or alternatively to prevent defendants from presenting advice-of-counsel evidence at trial. The Abdo plaintiffs filed a notice joining that motion.

Analysis

Federal Rule of Civil Procedure 45 governs subpoenas to nonparties, but the permissible scope of subpoena discovery is the same as the scope under Rule 26(b). Rule 26(b)(1) permits discovery of nonprivileged information relevant to a claim or defense and proportional to the needs of the case.

The court noted that Delivery Agent filed for Chapter 11 bankruptcy in September 2016 and ceased functioning. Relying on decisions from other courts, it stated that attorney-client privilege and work-product protection are presumed no longer viable when a corporate entity ceases to function, unless the party seeking to preserve the protection shows authority and good cause. The court also stated that the party asserting an evidentiary privilege bears the burden of proving that the privilege applies.

Delivery Agent’s trustee indicated that he did not intend to waive any applicable privilege held by the company, but the court found that the trustee had not provided a basis showing that the privilege existed. The court further noted defendants’ representation that the trustee’s counsel did not believe the estate would benefit from litigating who held the privilege over particular advice given years earlier to a company then in liquidation. The court concluded that, even if Delivery Agent had a viable privilege, the burden of proving it had not been met.

Rulings

The court granted defendants’ motions to compel Latham to produce documents responsive to the subpoenas. The court denied plaintiffs’ motion to strike because that motion was based on plaintiffs’ claimed inability to conduct discovery into defendants’ advice-of-counsel defense, and the subpoena ruling likely resolved that issue. The court also vacated the scheduled hearing and decided the matters without oral argument. Judge Thomas S. Hixson signed the order as United States Magistrate Judge.