United States District Court, D. New Jersey
OPINION & ORDER
Michael Vazquez, U.S.D.J.
pending before the Court is Defendants George Callas and
Yvonne Callas' appeal of Magistrate Judge Clark's
April 3, 2018 Order denying Defendants' request to compel
Plaintiff William Dean Callas to produce certain discovery.
D.E. 233 ("Clark Order"). Defendants argue that the
fiduciary exception to the traditional attorney-client
privilege rule applies, preventing Plaintiff from asserting
privilege over the discovery sought. D.E. 233-3 at 1. The
Court reviewed all submissions,  and considered the motion
without oral argument pursuant to Fed.R.Civ.P. 78(b) and L.
Civ. R. 78.1(b). For the reasons that follow, Defendants'
appeal is denied.
Court included an extensive factual background in its prior
opinion denying Defendants' appeal of Magistrate
Clark's December 7, 2016 Order, which the Court
incorporates by way of reference here. D.E. 181 at 2-4. The
Court highlights the following facts for purposes of review
and to summarize the most recent dispute.
parties to this action are children of Constantine Callas,
who passed away on February 23, 2013. Clark Order at 1.
Plaintiff brought this action against Defendants, his
siblings and the executors of Constantine's estate (the
"Estate"), to determine the value of the
Estate's ownership in a real estate holding company,
Coffee Associates LLC (the "LLC"), of which
Plaintiff and Constantine were the only members. Id.
Pursuant to the LLC's operating agreement, Plaintiff is
entitled, and has elected, to buy out the Estate's 40%
interest in the LLC (which would give Plaintiff 100%
ownership, as he currently owns 60%). Id. at 1-2.
The core issue in this case is the value of the LLC's
primary asset - real property located in Edgewater, New
Jersey (the "Property"). Id. at 2.
present issue concerns whether Plaintiff must produce
documents relating to the LLC's challenges of the
Property's tax assessments; Plaintiff refused to produce
the information, relying on the LLC's attorney-client
privilege. Id. at 3. Defendants argue that by virtue
of their role as co-executors of the Estate, which includes
Constantine's 40% share in the LLC, they "have as a
matter of law a right to all documents related to the
activities of the [LLC]." Id. at 4.
first raised this privilege argument in a telephone
conference on March 27, 2017, stating vaguely that there was
"an issue with [P]laintiffs privilege assertions."
Id. at 5 (citing D.E. 184 at 45:15-24). In response,
Judge Clark directed Defendants "to submit any dispute
to Plaintiff, to meet and confer regarding any unresolved
portion of their disagreement, and to submit a subsequent
joint letter to the Court providing details of the
parties' dispute along with their respective positions if
further intervention was required." Id.
parties submitted their joint letter ("Joint
Letter") on April 10, 2017, D.E. 190, although it
appears that the parties did not meet and confer first as
directed. Clark Order at 6. In the Joint Letter, Defendants
argued (1) that any assertion of attorney-client privilege by
Plaintiff on behalf of the LLC is improper because Plaintiff
owes Defendants and the LLC a fiduciary duty; (2) that a
letter to Plaintiff from his attorney, David Carmel, Esq.,
dated November 19. 2007, discussing a contemplated challenge
to the Property's tax assessment, cannot be properly
withheld from disclosure on the basis of attorney-client
privilege; and (3) that Plaintiff should be ordered to
produce all documents related the Property's tax
assessments challenges. Id. at 6. Defendants only
appeal Judge Clark's decision allowing Plaintiff to
assert attorney-client privilege on behalf of the LLC. Def.
Br. at 1.
STANDARD OF REVIEW
magistrate judge may hear and determine any non-dispositive
pretrial matter pursuant to 28 U.S.C. § 636(b)(1)(A). A
district court may only reverse a magistrate's decision
on these matters if it is "clearly erroneous or contrary
to law." 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P.
72(a); L. Civ. R. 72.1(c)(1)(A). "[A] finding is
'clearly erroneous' when although there is evidence
to support it, the reviewing court on the entire evidence is
left with the definite and firm conviction that a mistake has
been committed." Anderson v. City of Bessemer City,
N.C, 470 U.S. 564, 573 (1985). Under this standard, a
district court "will not reverse the magistrate
judge's determination even if the court might have
decided the matter differently." Bowen v. Parking
Auth. of City of Camden, No. 00-5765, 2002 WL 1754493,
at *3 (D.N.J. July 30, 2002). The court will, however,
"conduct a de novo review a magistrate
judge's legal conclusions." Cooper Hosp./Univ.
Med. Ctr. v. Sullivan, 183 F.R.D. 119, 127 (D.N.J.
the appeal seeks review of a matter within the exclusive
authority of the Magistrate Judge, such as a discovery
dispute, an even more deferential standard, the abuse of
discretion standard, maybe applied." Miller v. P.G.
Lewis &Assocs., Inc., No. 05-5641, 2006 WL 2770980,
at *1 (D.N.J. Sept. 22, 2006). An abuse of discretion occurs
"when the judicial action is arbitrary, fanciful or
unreasonable, which is another way of saying that discretion
is abused only where no reasonable [person] would take the
view adopted by the trial court." Ebert v. Twp. of
Hamilton, No. 15-7331, 2016 WL 6778217, at *2 (D.N.J.
Nov. 15, 2016). "This deferential standard is especially
appropriate when the Magistrate Judge has managed [the] case
from the outset and developed a thorough knowledge of the
proceedings." Id. III.
DISCUSSION Judge Clark denied Defendants'
request for an order '"preventing [Plaintiff] from
asserting attorney-client privilege on behalf of the LLC
against [Defendants]' in any circumstance." Clark
Order at 6-8 (quoting D.E. 190 at 3). Judge Clark first found
that, under New Jersey law, which applies in this diversity
jurisdiction case, "[t]here is no dispute that Plaintiff
is the holder of the controlling 60% interest in the LLC and
is therefore the individual entitled to assert the
attorney-client privilege on behalf of the LLC."
Id. at 7. Plaintiff does not dispute this
conclusion. See Def. Br.
Clark then analyzed whether the "fiduciary
exception" to the attorney-client privilege rule, set
forth by the United States Court of Appeals for the Fifth
Circuit in Garner v. Wolfinbarger, 430 F.2d 1093
(5th Cir. 1970), applies. Clark Order at 7-8. Judge Clark
explained that "[i]n Garner, the Fifth Circuit
determined that in stockholder derivative suits, privileged
communications between corporate management and corporate
attorneys could be obtained by shareholders to prove
fiduciary breaches upon a showing of 'good
cause.'" Id. at 7 (citing Garner,
430 F.2d at 1103). Judge Clark then included the following
list of factors (the ''Garner factors")
that are illustrative, but not exhaustive, in determining
whether "good cause" exists:
[T]he number of shareholders and the percentage of stock they
represent; the bona fides of the shareholders; the nature of
the shareholders' claim and whether it is obviously
colorable; the apparent necessity or desirability of the
shareholders having the information and the availability of
it from other sources; whether, if the shareholders'
claim is of wrongful action by the corporation, it is of
action criminal, or illegal but not criminal, or of doubtful
legality; whether the communication related to past or to
prospective actions; whether the communication is of advice
concerning the litigation itself; the extent to which the
communication is identified versus the extent to which the
shareholders are blindly fishing; the risk of revelation of
trade secrets or other information in whose confidentiality
the corporation has an interest for independent reasons.
Id. at 7-8 (quoting Garner, 430 F.2d at
1104). Although not specifically mentioned in Judge
Clark's Order, the party seeking to pierce the privilege
beards the burden of demonstrating good cause. See Arcuri
v. Trump Taj Mahal Assocs.,154 F.R.D. 97, 106 (D.N.J.
1994) (denying a motion to compel discovery because "the
plaintiff here has failed to meet its burden of demonstrating