Pegaso Development Inc. v. Moriah Education Management LP

Background

Pegaso Development Inc. brought a breach-of-contract action against Moriah Education Management LP and Moriah Software Management LP concerning two promissory notes. On April 13, 2020, the parties stipulated to judgment on Count I and dismissal of Count II. The court entered judgment against the defendants on Count I, holding them jointly and severally liable for $2,758,567.13, plus interest.

After judgment, Pegaso pursued enforcement proceedings involving non-parties and a subpoena to JP Morgan Chase Bank, N.A. Magistrate Judge Kevin Nathaniel Fox identified inconsistencies in the defendants’ filings and concluded that David Harrison, the defendants’ lawyer, appeared to represent an entity he said did not exist. Judge Fox ordered Harrison to show, through an affidavit supported by admissible evidence, why his statements did not violate Rule 11(b) of the Federal Rules of Civil Procedure. After Harrison submitted an affidavit, Judge Fox issued a Production Order requiring Harrison and his law firm, Spiro Harrison (SH), to produce twelve categories of documents supporting statements in the affidavit.

SH objected to the Production Order. It argued that the order should receive fresh review because it was supposedly a dispositive order, meaning an order resolving a claim or materially changing the parties’ rights. SH also argued that Judge Fox lacked authority to issue the related orders, that the existing filings showed no Rule 11(b) violation, and that the requested materials included attorney-client communications or attorney work product.

Court’s Analysis

Judge Torres held that the Production Order was non-dispositive because it arose in post-judgment enforcement proceedings and did not resolve any claim. It merely required SH to produce additional documents concerning its representation of the defendants and earlier statements in the litigation. The court therefore denied SH’s request for de novo review, which would have allowed the district court to reconsider the matter from the beginning. Instead, the court reviewed the order under Federal Rule of Civil Procedure 72(a), asking whether it was clearly erroneous or contrary to law.

The court rejected SH’s challenges to Judge Fox’s authority. SH had participated in proceedings before Judge Fox, made several filings responding to the show-cause order, and waited more than three months before challenging the referral. The court held that any defect in the referral was procedural and that SH had waived the objection by failing to raise it timely. The court also held that Judge Fox had authority to issue an order requiring SH to show cause why Rule 11 sanctions should not be imposed. Judge Fox had not imposed sanctions; he had required additional information before deciding whether sanctions were warranted or making a recommendation.

The court found no clear error in Judge Fox’s determination that Harrison needed to provide further support for his assertions. It also rejected SH’s broad privilege challenge. The court noted that SH had quoted an engagement letter in court filings, which placed its contents at issue, and that engagement letters are generally not treated as privileged because they ordinarily are not confidential communications made to obtain legal advice.

Nevertheless, Judge Torres was hesitant to require public filing of documents claimed to be privileged without first examining them. The court directed SH to make documents responsive to categories 5, 7, and 9 public because SH conceded those documents were arguably not privileged. For documents responsive to the other categories over which SH asserted privilege, the court directed SH to provide them to Magistrate Judge Jennifer E. Willis, together with a detailed explanation of the privilege claim, for private judicial review. That review would determine whether any documents were protected from disclosure.

Disposition

The court overruled SH’s objections to the Production Order except to the extent the order required public filing of potentially privileged documents without an initial private review. The Production Order was otherwise affirmed. SH was ordered to provide documents over which it asserted privilege to Judge Willis by May 20, 2022, comply with the remainder of the Production Order, and no longer rely on the stay that had paused its obligations.