Charlestown Capital Advisors, LLC v. Acero Junction, Inc.

Background

Charlestown Capital Advisors, LLC, a private equity firm, brought a diversity action involving claims for breach of contract against Acero Junction, Inc. and Acero Junction Holdings, Inc., and a claim for tortious interference with contract against JSM International Limited. Charlestown alleged that an engagement letter entitled it to approximately $2.6 million plus interest after a transaction involving the transfer of Acero Junction Holdings’ shares.

The opinion addressed Charlestown’s attorney-client privilege designations during discovery. Charlestown withheld emails and drafts involving its principals John Weber and Lee Smith, and communications with Kenneth Grossman, a senior managing director at Steppingstone Group LLC, a non-party financial advisory firm. The court reviewed five exemplar documents privately and considered the parties’ submissions and deposition excerpts.

Legal standards

Because New York law governed the claims, New York law governed the privilege dispute. Under that law, the party asserting attorney-client privilege must establish an attorney-client relationship, a confidential communication made for the purpose of obtaining legal advice or services, and a communication that is primarily or predominantly legal in character. The party must also show that the privilege was not waived.

The court explained that disclosure to a third party generally waives attorney-client privilege unless the third party is an employee or agent or another basis for protection applies. The court also distinguished attorney-client privilege from the work-product doctrine, which can protect documents prepared in anticipation of litigation or for trial.

John Weber

Weber had a law degree and had once been admitted to the New York bar, but he worked at Charlestown in a financial role and had certified that he was retired from practicing law. The court concluded that, after that certification, New York law did not authorize him to provide legal services to Charlestown.

The court further concluded that Charlestown had not shown that it formed an attorney-client relationship with Weber. Charlestown’s owner did not know whether Weber was a lawyer, did not rely on him as a lawyer, and did not identify specific occasions when Weber was consulted for legal advice. The court also found that the exemplar emails did not show that Weber was acting as a legal adviser or that the communications were primarily legal in character.

Lee Smith

Smith had a law degree and had previously worked in private practice, but his New York law license had been suspended since 1999. The court concluded that he was not authorized to provide legal services and that the record did not show that Charlestown personnel reasonably believed he was a licensed attorney.

The court also found that Charlestown had not established that its personnel contacted Smith in his capacity as an attorney for the purpose of obtaining legal advice. Weber’s declaration stated that he sought legal advice from Smith, but did not identify the advice sought or provide sufficient facts showing that the communications were legal rather than business-related.

Kenneth Grossman

Grossman had a law degree and had once been admitted to the New York bar, but he had retired from practicing law and was listed as delinquent for failing to complete required registration. He worked for Steppingstone, which had a business relationship with Charlestown concerning the potential Acero transaction.

The court concluded that Grossman was not Charlestown’s attorney. It found that the contractual relationship between Charlestown and Steppingstone concerned business activities, not legal representation, and that Weber’s unsupported belief that Grossman provided legal advice was insufficient. Because Grossman was not a Charlestown employee or agent and Charlestown did not assert a common-interest privilege, the court held that disclosure of privileged materials to Grossman waived the privilege.

Exemplar documents

The court ordered production of Document HIMA_00332554-55, an email from Weber attaching a draft Acero engagement letter, because the email contained no text and the draft concerned a regular business task rather than a primarily legal communication.

The court ordered production of Document HIMA_00795702, another draft engagement letter, because Charlestown did not show that it was a confidential communication between an attorney and client. The court also found that the work-product doctrine did not apply because the document was not shown to have been prepared in anticipation of litigation or for trial.

The court ordered production of Document HIMA_00986934, an email chain between Weber and Grossman, because it conveyed transaction information among investment professionals and did not discuss a potential lawsuit or otherwise have a primarily legal character.

The court held that the email transmitting Document HIMA_00987864-65 was not privileged because it merely circulated a draft complaint without communicating counsel’s opinions or advice. The draft complaint itself was protected as attorney work product because Charlestown’s outside counsel prepared it for the litigation, and circulation within Charlestown did not waive that protection.

The court also held that Document HIMA_00795935, an unsigned draft demand letter prepared by Charlestown’s outside counsel in anticipation of litigation, qualified for work-product protection. To the extent Weber’s edits were or were intended to be communicated confidentially to outside counsel, those edits were also protected by attorney-client privilege.

Disposition

Magistrate Judge Barbara Moses ordered Charlestown to promptly produce Documents HIMA_00332554-55, HIMA_00795702, and HIMA_00986934, along with other documents withheld because Weber, Smith, or Grossman was allegedly acting as Charlestown’s attorney. She also ordered production of otherwise privileged materials disclosed to Grossman and to other non-employees unaffiliated with Charlestown’s counsel.

The court stated that JSW was entitled under Federal Rule of Civil Procedure 37(a)(5)(A) to reasonable attorneys’ fees and related expenses incurred after January 21, 2020, and set deadlines for JSW’s fee application and Charlestown’s response.