Safe Acquisition v. Gf Protection Inc ( 2018 )

FILED
COURT OF APPEALS DIV I
STATE OF WASHINGTON
2018 NOV -5 AN 9:29
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
SAFE ACQUISITION, LLC, a ) No. 77309-7-1
Washington corporation, LUCIDY, )
LLC, a Washington corporation, and )
SCOTT FONTAINE, an individual, )
)
Appellant, )
)
v. )
)
GF PROTECTION INC., d/b/a ) UNPUBLISHED OPINION
Guardian Fall Protection, a Washington )
corporation, ) FILED: November 5, 2018
)
Respondent. )
)
VERELLEN, J. —A party asserting an attorney-client privilege bears the
burden of proving the existence of an attorney-client relationship. The absence of
findings of fact that an attorney-client relationship existed is deemed an adverse
finding to the party asserting the privilege. Here, the trial court concluded that
appellant SAFE Acquisition, LLC did not meet its burden of establishing the
attorney-client privilege applied to e-mails between its litigation counsel and the
two individuals who acted on behalf of both SAFE and respondent GF Protection
Inc.(GFP). In the absence of any findings that an attorney-client relationship
existed between the litigation counsel for SAFE and two individuals, there is no
reversible error.
No. 77309-7-1/2
A party asserting the work product rule bears the burden of establishing the
documents or items in question were prepared in anticipation of litigation. SAFE
failed to offer anything more than the conclusory statement that all
communications between litigation counsel and the two individuals were "for the
purpose of advising and representing" SAFE.1 But the substance of the disputed
e-mails is unknown. And it is conceivable that some portion of the e-mails might
reveal litigation strategy or other information that constitutes an attorney's work
product. Accordingly, we remand to the trial court to conduct in camera review or
otherwise resolve whether any or all of the disputed e-mails are protected work
product.
FACTS
Scott Fontaine founded SAFE to develop and market his patented safety
inventions, including a safety device for roofers called the HitchClip. Starting in
2009, Fontaine asked his friend Mike Vasquez for help promoting the HitchClip. In
August 2013, SAFE contracted with GFP to manufacture, sell, and distribute its
patented inventions in exchange for a share of the proceeds. In March or April of
2014, Brock Bullard, another friend of Fontaine's, began working with SAFE. The
venture between SAFE and GFP did not go well, however, and by April 10, 2015,
SAFE's then-counsel threatened to sue GFP. Soon after, SAFE retained its
present counsel and filed suit against GFP for breach of contract, misappropriation
of trade secrets, and conversion.
1 Clerk's Papers(CP)at 120.
2
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. On August 23, 2016, GFP served SAFE with requests for production of all
communications with Mike Vasquez and Brock Bullard "from December 2011 to
present. .. including but not limited to, COMMUNICATIONS regarding the present
lawsuit."2 SAFE refused the requests as to communications with litigation counsel
because they "ask[ed]for attorney-client communications and/or work product."3
Almost one year later, GFP filed a motion to compel. The court granted the
motion and denied SAFE's motion for reconsideration. On September 15, 2017,
the court granted GFP's motion for monetary sanctions after SAFE continued to
resist production of the disputed materials.
On September 19, 2017, a commissioner of this court granted a temporary
stay of the trial court's order levying sanctions pending a ruling on SAFE's motion
for discretionary review. On October 25, 2017, the commissioner denied review
and lifted the stay. A panel of this court granted SAFE's motion to modify the
commissioner's ruling denying interlocutory appeal and ordered the temporary
stay on sanctions continue pending appeal.
ANALYSIS
We review discovery orders for an abuse of discretion.4
2 CP at 18.
3 Id.
4 Cedell v. Farmers Ins. Co. of Wash., 176 Wash. 2d 686, 694, 295 P.3d 239
(2013); see Washington State Physicians Ins. Exch. & Ass'n v. Fisons Corp., 122
Wash. 2d 299, 355, 858 P.2d 1054(1993)(holding that courts are "given wide
latitude" in managing sanctions for discovery violations).
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No. 77309-7-1/4
Civil Rule(CR)26 governs discovery. The scope of discovery is broad.5
But privileged matters are generally not subject to discovery.6
Attorney-Client Privilege
Attorney-client privilege is "'narrow" and "'protects only communications
and advice between attorney and client.'"7 When a corporation or limited liability
company is a client, the general rule is that the privilege may extend beyond the
"control group" of upper management to include some non-managerial employees
and other agents.°
Whether an attorney-client relationship exists is a question of fact.° The
party invoking the privilege bears the burden of establishing an entitlement to it.1°
Here, the court considered both parties' detailed arguments regarding
attorney-client privilege and concluded that SAFE failed to carry its burden in
invoking the privilege. The court did not enter any findings of fact resolving the
conflicting facts regarding Bullard and Vasquez's relationships with SAFE and
GFP.
5 Cedell, 176 Wash. 2d at 695; see CR 26(b)(1)("Parties may obtain discovery
regarding any matter.").
6 CR 26(b)(1).
7Newman v. Highland Sch. Dist. No. 203, 186 Wash. 2d 769, 777, 381 P.3d
1188(2016)(quoting Hangartner v. City of Seattle, 151 Wn.2d 439,452, 90 P.3d
26 (2004))(internal quotation marks omitted).
8Id. at 781 n.3 (citing RESTATEMENT(THIRD) OF THE LAW GOVERNING
LAWYERS § 73 cmt. e); Youngs v. PeaceHealth, 179 Wash. 2d 645, 650-51, 316 P.3d
1035 (2014).
9 Dietz v. Doe, 131 Wash. 2d 835, 844, 935 P.2d 611 (1997).
10 Newman, 186 Wash. 2d at 777; Dietz, 131 Wash. 2d at 844.
4
No. 77309-7-1/5
SAFE relies on Fontaine's two identical "letters of intent"11 to Bullard and
Vasquez from July 21, 2014, to argue that Fontaine's friends are co-owners of
SAFE. The 2014 letters vaguely discuss an ownership percentage in Fontaine's
various companies:
Thank you for the investment of your time this year with SAFE
Acquisition, LLC. This letter will confirm the verbal agreement you
and I made in early June. That agreement was in regards to
ownership percentage.
In order to address the ownership percentage amount we agreed
upon was 10[percent] of SAFE Acquisitions LLC, 10[percent] of
Lucidy LLC, 10 [percent] of Roofing Technologies LLC, and both
patents associated with [the] LLC's.1121
Neither letter states when either friend took, or will take, his 10 percent stake in
Fontaine's companies.13
Deposition testimony from Fontaine, Bullard, and Vasquez confuses rather
than clarifies. Vasquez testified he never was an owner, employee, or
independent contractor for SAFE. But he understood his ownership interest in
SAFE to be a future interest contingent on the company becoming profitable.
Similarly, Bullard testified his agreement with SAFE involved "what ownership I
would have in SAFE."14 Fontaine testified that Lucidy, LLC, has no owners or
investors other than himself.
11 CP at 316.
12 CP at 152.
addition, SAFE does not contend, and nothing in the record reflects,
13 In
that SAFE satisfied the statutory requirements in RCW 25.15.116(2)for admitting
new members to a limited liability corporation.
14 CP at 367(emphasis added).
5
No. 77309-7-1/6
SAFE offers alternative theories of agency and independent contractor
relationships. But it appears Vasquez and Bullard were working as paid
consultants or independent contractors for GFP while arguably prospective co-
owners, ostensible co-owners, or agents of SAFE. Vasquez testified that GFP
paid him $5,000 per month as a product consultant beginning October 1, 2013 to
train and support the sales staff. Fontaine, however, described Vasquez's role in
SAFE, beginning around July or August of 2013, as a "product consultant and
sales rep[resentative]."15 SAFE never paid royalties or a salary to Vasquez.
Bullard received over $1,000 in reimbursements from GFP in December 2014.
And despite Fontaine's description of Bullard as SAFE's general manager, SAFE
never paid royalties or a salary to Bullard.
The court concluded that SAFE "failed to carry [its] burden in justifying their
assertion that documents to which [Bullard and Vasquez] are party may be
withheld on a claim of attorney-client privilege."16 The court did not make any
findings about Vasquez or Bullard's legal relationships with SAFE.
The general rule is "absence of a finding of fact on an issue is
'presumptively a negative finding against the person with the burden of proof.'"17
An exception to the negative finding rule applies where "there is ample
15 CP at 93.
16 CP at 107.
17Morgan v. Briney, 200 Wash. App. 380, 390-91, 403 P.3d 86(2017)
(quoting Taplett v. Khela, 60 Wash. App. 751, 759, 807 P.2d 885 (1991)), review
denied, 190 Wn.2d 1023(2018).
6
No. 77309-7-1/7
evidence to support the missing finding, and the findings entered by the court,
viewed as a whole, demonstrate that the absence of the specific finding was not
intentional."18
In this case, it is appropriate to infer a negative finding against SAFE
regarding attorney-client privilege. The record contains conflicting and confused
evidence whether Vasquez and Bullard are co-owners, prospective co-owners, or
agents of SAFE. In addition, the order's silence does not seem an inadvertent
oversight to enter findings in support of an attorney-client relationship because the
court expressly concluded that SAFE failed to carry its burden.
SAFE contends that the absence of findings of fact and the presence of
documentary evidence means we should engage in de novo review of whether
there was an attorney-client relationship. But the cases relied upon by SAFE
apply only where there is undisputed evidence or the material evidence is all
contained in documents in the record.18 Because the evidence about Bullard and
18 Douglas Nw., Inc. v. Bill O'Brien & Sons Constr., Inc., 64 Wn. App.661,
682, 828 P.2d 565(1992).
18 For example, SAFE relies on In re Firestorm 1991, 129 Wash. 2d 130, 135,
916 P.2d 411 (1996), to contend that de novo review is appropriate when the only
evidence consists of written documents and the trial court makes no specific
factual findings. But in Firestorm and the supporting cases cited by SAFE,
appellate de novo review of a fact question depends on the evidence actually
being before the reviewing court. Morgan v. City of Federal Way, 166 Wash. 2d 747,
755-57, 213 P.3d 596(2009)(report sought in a Public Records Act request was
in the court record with related documents); Firestorm, 129 Wash. 2d at 153-54
(contents of witness interview at issue on appeal were known to the court)
(Madsen, J. concurring); Bryant v. Joseph Tree, Inc, 119 Wash. 2d 210, 222, 829
P.2d 1099(1992)(legally dispositive documents were all in the court record).
7
No. 77309-7-1/8
Vasquez is disputed, includes deposition testimony, and the e-mails' contents are
unknown, de novo review is not warranted or practical.
Because SAFE failed to satisfy its burden of establishing the existence of
an attorney-client relationship that extends to Vasquez and Bullard, the trial court
did not abuse its discretion.
Work Product
The court also concluded that the work product rule did not prevent
discovery of Vasquez and Bullard's communications with SAFE's litigation
counsel. Civil Rule 26(b)(4) excludes from discovery materials "prepared in
anticipation of litigation or for trial."20 Strong public policy also favors shielding
genuine work product from discovery.21 In Heidebrink v. Moriwaki, our Supreme
Court defined the scope and purpose of the rule, concluding "[it] should provide
protection when such protection comports with the underlying rationale of the rule
to allow broad discovery, while maintaining certain restraints on bad faith,
irrelevant and privileged inquiries in order to ensure just and fair resolutions of
disputes."22
20 Harris v. Drake, 152 Wash. 2d 480, 486, 99 P.3d 872(2004).
21 Upjohn Co. v. United States, 449 U.S. 383, 398, 101 S. Ct. 677,66 L. Ed.
2d 584 (1981); see Soter v. Cowles Pub. Co., 162 Wash. 2d 716, 741, 174 P.3d 60
(2007)("Only in rare circumstances, for example, when the attorney's mental
impressions are directly at issue, can an attorney or legal team member's notes
reflecting oral communications be revealed.")
22 104 Wash. 2d 392, 400, 706 P.2d 212(1985). Heidebrink refers to
CR 26(b)(3) when discussing work product because the rule was renumbered in
1990. Harris, 152 Wash. 2d at 486 n.1.
No. 77309-7-1/9
Whether material should be shielded as work product by CR 26(b)(4) is a
two-step mixed question of law and fact.23 First, the court must consider whether
the party opposing discovery established that the materials were prepared in
anticipation of litigation and qualify as work product.24 A court must"examin[e]the
specific parties and their expectations" when determining whether one party
prepared materials in anticipation of litigation.25
Second, if the party opposing discovery meets its burden of production,
then the party seeking discovery bears the burden of persuading the court that it
"has substantial need of the materials" and cannot obtain them without "undue
hardship."26
The instant case presents unusual circumstances because the court had
little evidence before it when examining the parties' expectations. Nothing before
the court described the general or specific contents of the disputed e-mails or even
the number of e-mails at issue. SAFE's only offering was a conclusory declaration
from its litigation counsel stating, "All of my communications with [Vasquez and
23 Soter v. Cowles Publ'a Co., 131 Wash. App. 882, 891, 130 P.3d 840
(2006), aff'd, 162 Wash. 2d 716(2007); see Harris, 152 Wn.2d at 492(applying
abuse of discretion standard in affirming trial court's exclusion of evidence on the
basis of work product protections).
24 S CR 26(b)(4)(only materials "prepared in anticipation of litigation" are
shielded by the rule).
25 Kittitas County v. Allphin, 190 Wash. 2d 691, 704, 416 P.3d 1232(2018)
(quoting Harris, 152 Wash. 2d at 487).
26 CR 26(b)(4).
9
No. 77309-7-1/10
Bullard] relating to the subject matter of this case have been for the purpose of
advising and representing" SAFE.27
A court must have more than mere recitations of the definition of work
product or other "work product terms and catchphrases" when determining
whether materials were prepared in anticipation of litigation.28 The party invoking
the work product rule bears the burden of production and must provide more than
a conclusory statement that the materials relate to litigation.29 As in Kittitas County
v. Allphin,3° Leahy v. State Farm,31 and In re Detention of West,32 the usual course
27 CP at 120.
28 Estate of Dempsey ex rel. Smith v. Spokane Wash. Hosp. Co. LLC, 1
Wash. App. 2d 628, 639,406 P.3d 1162(2017)("An attorney's use of attorney work
product terms and catchphrases in a letter to a testifying expert does not shield the
letter from disclosure."), review denied, 190 Wn.2d 1012(2018).
29 See, e.g., Binks Mfg. Co. v. Nat'l Presto Indus., Inc., 709 F.2d 1109, 1118
(7th Cir. 1983)("It is axiomatic that in order to invoke the protection of the work
product privilege, one must show that the materials sought to be protected were
prepared 'in anticipation of litigation.")(quoting Fed. R. Civ. P. 26(b)(3)); United
States v. 22.80 Acres of Land, 107 F.R.D. 20, 22(N.D. Cal. 1985)(finding that the
work product rule did not apply to a statement by litigation counsel that was
unsupported by "any citation of data, case law, or other authority" and "remains a
bald, unsupported assertion"). We note that CR 26(b)(4) is "nearly identical" to
Fed. R. Civ. P. 26(b)(3) and that analyses of the federal rule provide persuasive
guidance about the comparable state rule. Soter, 162 Wash. 2d at 739. Binks and
22.80 Acres of Land are helpful because they predate the 1993 amendment
adding Fed. R. Civ. P. 26(b)(5)(A)(ii) to require that the party invoking any privilege
"describe the nature of the documents" to "enable other parties to assess the
claim," a provision not contained in the Washington rule. See Amendments to
Federal Rules of Civil Procedure, Rule 26(b)(5) & comm. note, 146 F.R.D. 401,
617,639-40 (1993).
39 190 Wash. 2d at 699 (materials provided for in camera review).
313 Wash. App. 2d 613, 622, 418 P.3d 175(2018)(defendant insurer raised
work product rule and provided redacted materials and a privilege log of the
materials sought).
10
No. 77309-7-1/11
would have had the party invoking the rule provide enough information to let the
court evaluate the claim.
One means of providing adequate information is a privilege log.33
In camera review is also an appropriate option when a party invokes a
privilege and the court does not know the nature or contents of the withheld
documents. In Limstrom v. Ladenburq,34 our Supreme Court considered whether
the work product rule applied to the Public Records Act, chapter 42.17 RCW
(PRA). After determining the work product rule could shield materials requested
pursuant to the PRA, the court remanded for further consideration of the record
request.35 "[B]ecause the documents requested were not viewed by the trial court,
and are not included in the record," the court was "unable to completely resolve
the matter before" it.36 The total lack of relevant documents in the record
prevented the court from determining whether any documents were protected from
32 171 Wash. 2d 383, 393-96, 405-06, 256 P.3d 302(2011)(affirming finding of
work product when the court had several examples of materials sought).
33 SAFE and GFP have argued extensively about whether the court's order
compelling production required that SAFE provide a privilege log for all
communications, including those at issue here. But GFP's motion to compel was
imited to "a complete privilege log that includes all communications with counsel
withheld on the basis of privilege up until April 10, 2015." CP at 28(emphasis
added). Although the eventual order, which was drafted by GFP's attorneys,
recited that SAFE produce a privilege log "for all documents withheld in this case,"
OP at 108, it seems doubtful that the trial court intended to grant relief not
requested by GFP. SAFE complied with the order by providing a privilege log of
all withheld documents predating April 10, 2015.
34 136 Wash. 2d 595, 963 P.2d 869 (1998).
35 Id. at 612-13.
36 Id. at 612.
11
No. 77309-7-1/12
disclosure in any way.37 The court concluded that remand was appropriate
because it was "conceivable" that materials sought could "show litigation
strategy. . . that constitutes an attorney's work product."38
Consistent with our Supreme Court's holding in Limstrom, we conclude the
best course is remand for the trial court to exercise its discretion in considering
whether to conduct in camera review or another reasonable alternative.
Sanctions
Finally, SAFE contends it should not be subject to any sanctions accrued
during the pendency of this appeal. The court found that SAFE "willfully refused to
comply"39 with past orders and imposed a fine of $200 per day payable to GFP,
starting September 15, 2017, for each day SAFE did not comply. The court also
awarded GFP fees and expenses for bringing the motion to compel.
Commissioner Kanazawa stayed the sanctions order on September 19,
2017, and later lifted that stay when she denied discretionary review on October
25, 2017. Commissioner Neel stayed the sanctions order again on December 27,
2017, and a panel of this court later continued that stay. Because 66 days
elapsed while the trial court's sanctions order was not stayed, SAFE faces over
$13,000 in sanctions payable to GFP and an undetermined amount for fees and
expenses from litigating the motion to compel.
37 Id. at 615.
38 Id.
39 CP at 254.
12
No. 77309-7-1/13
Trial courts have "wide latitude" in imposing sanctions for discovery
violations.40 Accordingly, court orders sanctioning discovery violations are
reviewed for abuse of discretion.41 But, sanctions accrued during a good faith
appeal of attorney-client privilege and work product issues should be vacated.42
We conclude that any sanctions accruing during this good faith appeal
should be vacated.
GFP suggests that the issue is not properly before us on appeal because
SAFE did not include the court's sanction order in its notice for discretionary
review.
RAP 2.4(b) allows review of an order not designated in the notice for
discretionary review when two requirements are met: "(1) the order or ruling
prejudicially affects the decision designated in the notice, and (2)the order is
40 Fisons, 122 Wash. 2d at 355.
41 Amy v. Kmart of Wash. LLC, 153 Wash. App. 846, 855, 223 P.3d 1247
(2009)(citing id. at 338).
42 State v. Rogers, 3 Wash. App. 2d 1, 10, 414 P.3d 1143(2018)(citing
Seventh Elect Church in Israel v. Rogers, 102 Wash. 2d 527, 536-37, 688 P.2d 506
(1984)("When an attorney makes a claim of privilege in good faith, the proper
course is for the trial court to stay all sanctions for contempt pending appellate
review of the issue.")), review denied, 190 Wn.2d 1032(2018); see Dike v. Dike,
75 Wash. 2d 1, 16, 448 P.2d 490(1968)("An attorney is entitled to consideration of a
claimed privilege not to disclose information which he honestly regards as
confidential and should not stand in danger of imprisonment for asserting what he
respectfully considers to be lawful rights."(quoting Appeal of the United States
Sec. & Exch. Comm'n,226 F.2d 501, 520 (6th Cir. 1955))); Seattle Nw. Sec. Corp.
v. SDG Holding Co., Inc., 61 Wash. App. 725, 734, 812 P.2d 488(1991)("because
of the importance of protecting attorney-client privilege and the difficulty in
determining when it applies, ... a contempt judgment and its related sanctions
could be overturned" if the privilege were later ruled inapplicable).
13
No. 77309-7-1/14
entered... before the appellate court accepts review."
Because the order imposing daily sanctions would not have occurred but for
the court's earlier order compelling discovery, the imposition of sanctions
prejudicially affects the order compelling discovery.43 And because the order
imposing sanctions was entered after SAFE filed its notice of discretionary review,
both requirements of RAP 2.4(b) are satisfied. This appeal properly extends to the
sanctions incurred pending appeal.
Accordingly, we affirm the trial court's determination that SAFE did not meet
its burden of proving the existence of an attorney-client relationship. As to the
claim of work product, we remand for further proceedings consistent with this
opinion. Sanctions pending appeal should be vacated.
WE CONCUR:
_J
43 COX v. Kroger Co., 2 Wash. App. 2d 395, 407, 409 P.3d 1191 (2018)("Our
Supreme Court has interpreted the term 'prejudicially affects' to turn on whether
the order designated in the notice of appeal would have occurred absent the other
order.").
14