Basin Electric Power Cooperative v. Henry et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
LACY M. HENRY and
JUDY B. HENRY,
Debtors. 	Case No. 05-04620-8-JRL
Chapter 11
_____________________________________________________________________________
BASIN ELECTRIC POWER COOPERATIVE,
Plaintiff,
v. 	Adversary Proceeding No.
L-05-00262-8-AP
LACY M. HENRY; JUDY B. HENRY;
MPS GENERATION, INC.; MECHANICAL
PLANT SERVICES, INC.; QUALIFIED PLANT
SERVICES, INC.; AND KEITH HENRY
Defendants,
and
MPS GENERATION, INC.,
LACY M. HENRY and JUDY B. HENRY,
Third-Party Plaintiffs,
SO ORDERED.
SIGNED this 04 day of June, 2007.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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v.
ORMAT, INC. and CLIFFORD WADDELL
Third-Party Defendants.
ORDER
The matter before the court is the motion filed by MPS Generation, Inc. (“MPSG”) 	to
compel production of redacted documents. On May 16, 2007, the court conducted a hearing on this
matter in Wilmington, North Carolina.
Ormat, Inc. (“Ormat”) 	has withheld 	portions of 440 documents from its Rule 26(a)
disclosures, asserting that the documents contain confidential client communications protected by
the attorney-client privilege. MPSG seeks the court to order Ormat to produce copies of the redacted
documents, and it asserts that the attorney-client privilege does not apply due to the crime/fraud
exception. MSPG asserts that it has established a prima facie case of fraud through its recent
deposition of Hezy Ram, an Ormat employee. The party asserting the crime/fraud exception “must
make a prima facie showing that the privileged communications fall within the exception.”
Chaudhry v. Gallerizzo, 174 F.3d 394, 403 (4th Cir. 1999). The moving party must prove: “(1) the
client was engaged in or planning a criminal or fraudulent scheme when he sought the advice of
counsel to further the scheme and (2) the documents containing the privileged materials bear a close
relationship to the client’s existing or future scheme to commit a crime or fraud.” Chaudhry, 174
F.3d at 403. Having considered the arguments and evidence presented by both MPSG and Ormat,
the court finds that MPSG has not met its burden of establishing a prima facie case of fraud at this
juncture. Accordingly, the crime/fraud exception does not apply.
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MPSG further questions the applicability of the attorney-client privilege to the redacted
documents for the following reasons:
1. Some of the redacted emails do not show that an attorney sent or received
the communication.
2. Some of the redacted emails show that the only attorney recipient was an
in-house attorney, Lynn Alster, the subject of the email appear to be business related,
not a communication seeking legal advice, multiple non-attorney employees received
the email, and Lynn Alster is only shown as receiving a courtesy copy rather than
being the author of the email or one of the primary recipients. Furthermore, based on
the deposition testimony of Hezy Ram (Ormat employee and one of the people
offered by Ormat as a Rule 30(b)(6) deponent), Lynn Alster does not appear to have
been involved in the Project.
3. Some of the redacted emails show that the only attorney recipient was
an in-house attorney, Lynn Alster, the subject of the email appears to be business
related, not a communication seeking legal advice, and multiple non-attorney
employees received the email.
4. The description of some of the redacted emails show that the subject of
the email appears to be business related, not a communication seeking legal
advice, and, in most cases, multiple non-attorney Ormat employees received the
email.
The attorney-client privilege is to be narrowly construed. Trammel v. U.S., 445 U.S. 40,
50 (1980); In re Grand Jury Subpoena: Under Seal, 415 F. 3d 333, 338 (4th Cir. 2005). The
Fourth Circuit has adopted the following test for determining whether a document can be
withheld on the basis of attorney-client privilege:
The privilege applies only if (1) the asserted holder of the privilege is or sought to
become a client; (2) the person to whom the communication was made (a) is a
member of the bar of a court, or his subordinate and (b) in connection with this
communication is acting as a lawyer; (3) the communication relates to a fact of
which the attorney was informed (a) by his client (b) without the presence of
strangers (c) for the purpose of securing primarily either (i) an opinion on law or
(ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the
purpose of committing a crime or tort; and (4) the privilege has been (a) claimed
and (b) not waived by the client.
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U.S. v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982); Santrade, Ltd. v. General Electric Co., 150
F.R.D. 539, 542 (E.D.N.C. 1993). “The party asserting the privilege has the burden of persuasion
as to each element of the privilege.” Santrade, 150 F.R.D. at 542.
The U.S. District Court for the Eastern District of North Carolina has shed light on how
the attorney-client privilege exists in the corporate context:
Corporations may communicate privileged information at various levels without
waiving the attorney-client privilege. North Carolina Electric Membership Corp.
v. Carolina Power & Light, 110 F.R.D. 511, 514 (M.D.N.C. 1986).
A document need not be authored or addressed to an attorney in order to be
properly withheld on attorney-client privilege grounds. First, in instances where
the client is a corporation, documents subject to the privilege may be transmitted
between non-attorneys to relay information requested by attorneys. Cuno, Inc. v.
Pall Corp., 121 F.R.D. 198, 202-03 (E.D.N.Y. 1988). Second, documents subject
to the privilege may be transmitted between non-attorneys (especially individuals
involved in corporate decision-making) so that the corporation may be properly
informed of legal advice and act appropriately. See Eutectic Corp. v. Metco, Inc.,
61 F.R.D. 35, 38 (E.D.N.Y. 1973). .
The attorney-client “privilege exists to protect not only the giving of professional
advice to those who can act on it but also the giving of information to the lawyer
to enable him to give sound and informed advice.” Upjohn Co. v. U.S., 449 U.S.
at 390, 101 S.Ct. at 683. The privilege includes communications involving
corporate officers and agents who possess the information requested by the
attorney or who will act on the legal advice. Id.
Santrade, 150 F.R.D. at 545. Even though the attorney-client privilege may exist in the corporate
context, “documents do not contain protected ‘client confidences’ where they relate to business
agreements with unrelated third parties, or general business matters or technical matters, unless they
were communicated primarily for a legal purpose.” Id. at 544; see also Metric Constructors, Inc. v.
Bank of Tokyo-Mitsubishi, Ltd., Case No. 5:97-CV-369BR1, 1998 WL 1742589 at *11 (E.D.N.C.
Sept. 28, 1998)(reiterating the standard set forth in Santrade). Santrade was a patent infringement
action where the defendant challenged the plaintiff’s withholding of documents from discovery on
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the basis of the attorney-client privilege. Id. at 542. Like here, due to the complexity of the case, the
court agreed to conduct an in camera review of the documents. Id. at 543.
While the court finds that the crime/fraud exception does not apply, MPSG has raised some
legitimate concerns regarding the applicability of the attorney-client privilege in the corporate
context. The court will conduct an in camera review of the subject documents to determine if the
attorney-client privilege applies and will use the standard set forth in Santrade as a basis for its
review. For those documents that do not appear to be covered by the attorney-client privilege, the
court will notify Ormat and give it the opportunity to meet its burden of showing the applicability
of the privilege as to the redacted documents at an ex parte hearing. The ex parte hearing will be
recorded for purposes of appeal.
END OF DOCUMENT
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