Dollar Tree Stores, Inc. v. Toyama Partners, LLC et al - Document 423

Court Description:

ORDER re 285 Letter Brief filed by Dollar Tree Stores, Inc.. Signed by Magistrate Judge Nandor J. Vadas on 12/20/2011. (njvlc2, COURT STAFF) (Filed on 12/20/2011)

1 2 3 NOT FOR CITATION 4 5 IN THE UNITED STATES DISTRICT COURT 6 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 EUREKA DIVISION 9 United States District Court For the Northern District of California 10 11 12 13 No. CV 10-0325 SI (NJV) DOLLAR TREE STORES, INC., ORDER COMPELLING PRODUCTION OF DOCUMENTS PURSUANT TO THE CRIME FRAUD EXCEPTION TO THE ATTORNEY CLIENT PRIVILEGE Plaintiff, v. TOYAMA PARTNERS, LLC, et al., (Doc. No. 285) Defendants. 14 15 / 16 17 Plaintiff Dollar Store, Inc. argues that Defendants Toyama Partners, LLC et al. solicited the 18 services of their lawyers to fraudulently convey an asset in order to deprive Plaintiff of any remedy 19 in this action.1 See Doc. No. 285. To establish a prima facie case of fraudulent conveyance, a 20 moving party must show that a debtor made a transfer or incurred an obligation with the actual intent 21 to hinder, delay, or defraud a creditor, without receiving reasonable value in exchange for the 22 transaction. Cal. Civ. Code § 3439.04(a). A creditor can prove a debtor’s intent to “hinder, delay, 23 or defraud” through direct evidence of intent, or by establishing the existence of certain statutorily 24 defined “badges of fraud.” See Cal. Civ. Code § 3439.04(b). “The presence of a single badge of 25 fraud may spur mere suspicion; the confluence of several can constitute conclusive evidence of 26 actual intent to defraud.” In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir. 1994) (citation omitted). 27 Plaintiff argues that the asset that was fraudulently conveyed was its lease with defendant Toyama, 28 1 The factual and procedural background pertinent to Plaintiff Dollar Store, Inc.’s motion to compel discovery under the crime fraud exception is set forth in earlier orders of this Court. See Doc. Nos. 341, 373, 374, and 415. 1 or in the alternative, the Mowry Crossing Shopping Center property, which was the sole asset of 2 defendant Toyama. Plaintiff argues that Defendants (under either theory) were motivated by an 3 intent to prevent Plaintiff from recovering on its contract claims should it prevail in the instant 4 action. Fraudulent conveyance is a crime under California law. Cal. Penal Code § 531. 5 California Evidence Code section 956 establishes an exception to the attorney-client 6 privilege where “the services of the lawyer were sought to enable or aid anyone to commit or plan to 7 commit a crime or fraud.” See BP Alaska Exploration, Inc. v. Superior Court, 199 Cal. App. 3d 8 1240, 1268 (1988). Plaintiff moved to compel the production of documents that Defendants had 9 withheld as privileged, arguing that the privilege was vitiated by this exception. To vitiate the United States District Court For the Northern District of California 10 attorney-client privilege based on the crime-fraud exception and compel disclosure of the 11 documents, the moving party must establish (1) a prima facie showing that the services of the 12 attorney were sought or obtained to help the client commit a crime or fraud, and (2) that the 13 communication is “reasonably related” to the crime or fraud. Id. Because Plaintiff only sought to 14 compel in camera production of the documents, however, it only was required to show as a first step 15 that there was “a factual basis adequate to support a good faith belief by a reasonable person . . . that 16 in camera review . . . may reveal evidence to establish the claim that the crime-fraud exception 17 applies.” United States v. Zolin, 491 U.S. 554, 572 (1989) (internal quotation and citation omitted). 18 As a second step, the Court then had to determine whether the materials before it, including the 19 documents submitted for in camera inspection, established a prima facie case that the 20 communications were in furtherance of the fraudulent conveyance, and whether there was some 21 relationship between the communications and the crime. See United States v. Chen, 99 F.3d 1495, 22 1503 (9th Cir. 1996). 23 On October 28, 2011, the Court concluded that Plaintiff had satisfied the first step because 24 based on the evidence presented to the Court, a reasonable person would have a good faith belief 25 that in camera review could reveal evidence to establish that the exception applied. See Doc. No. 26 341. As an interim measure, the Court ordered Defendants to produce updated privilege logs, which 27 the Court reviewed to determine whether to order in camera production of any of the documents. Id. 28 The Court then ordered Defendants to produce certain documents in camera based on their 2 1 proximity in time to the creation of the Second Amendment and/or the subject matter of the 2 documents listed in the privilege logs. Doc. No. 415. Having reviewed these documents carefully, 3 the Court concludes that a limited number of them support the application of the crime-fraud 4 exception. Combined with the materials that Plaintiff offered in support of its motion to compel, the 5 materials the Court reviewed in camera establish a prima facie2 case of fraudulent conveyance, i.e., 6 (1) the existence of several of the badges of fraud listed in California Civil Code section 3439.04(b), 7 and (2) that the debtor did not receive reasonably equivalent value for entering into the transaction. 8 See generally Doc. No. 341. A number of these communications also establish a prima facie case 9 that Defendants sought or obtained the advice of their attorneys in furtherance of the alleged United States District Court For the Northern District of California 10 fraudulent conveyance. Accordingly, the Court orders Defendants to produce within three days, 11 subject to the protective order in this case, the documents listed in Exhibit A to this Order, each of 12 which is reasonably related to the alleged fraudulent conveyance. This finding is made for the 13 limited purpose of this discovery dispute and does not constitute an opinion on the merits of the 14 ultimate substantive issues in this case. 15 16 Dated: December 20, 2011 17 NANDOR J. VADAS United States Magistrate Judge 18 19 20 21 22 23 2 24 25 26 27 28 See BP Alaska Exploration, 199 Cal. App. 3d at 1262 (“There is little case law in California addressing the nature of a prima facie showing under Evidence Code section 956. . . . [M]ere assertion of fraud is insufficient; there must be a showing the fraud has some foundation in fact. . . . [A] prima facie case [is] one which will suffice for proof of a particular fact unless contradicted and overcome by other evidence. In other words, evidence from which reasonable inferences can be drawn to establish the fact asserted, i.e., the fraud”) (internal quotations and citations omitted). The Ninth Circuit has adopted the prima facie standard articulated in BP Alaska. See In re Grand Jury Proceedings, 87 F.3d 377, 380 (9th Cir. 1996) (to invade attorney-client privilege, a moving party must make “a prima facie showing that the communications were in furtherance of an intended or present illegality . . . and that there is some relationship between the communications and the illegality”) (internal quotation and citation omitted). 3 Dollar Tree Stores Inc. v. Toyama Partners, LLC, et al. 10‐325 SI (NJV) Exhibit A Time of  Date of email Email 1.21.2011 8:45 AM 1.29.2011 12:44 PM 1.31.2011 10:11 AM 2.08.2011 1:22 PM 2.17.2011 10:23 AM 2.17.2011 4:18 PM 2.17.2011 4:28 PM 4.17.2011 9:09 AM 4.18.2011 1:21 PM 4.18.2011 12:50 PM 4.18.2011 12:23 PM 4.18.2011 3:29 PM 4.18.2011 3:46 PM 4.18.2011 4:20 PM 4.18.2011 4:45 PM 4.18.2011 5:04 PM 4.18.2011 5:52 PM 4.18.2011 6:27 PM 4.18.2011 8:24 PM 4.19.2011 10:43 AM 4.19.2011 11:50 AM 4.19.2011 2:25 PM 4.19.2011 4:21 PM 4.20.2011 8:55 AM 4.20.2011 4:40 PM 4.20.2011 4:56 PM 4.20.2011 5:18 PM 4.20.2011 5:28 PM 4.21.2011 8:58 AM 4.21.2011 9:02 AM 4.21.2011 10:10 AM From  Mibs Matthews Peter Pau Mibs Matthews Lisa Roberts Lisa Roberts Peter Pau Lisa Roberts Mibs Matthews Mibs Matthews Peter Pau Mibs Matthews Lisa Roberts Mibs Matthews Lisa Roberts Peter Pau Mibs Matthews Lisa Roberts Peter Pau Lisa Roberts Lisa Roberts Mibs Matthews Mibs Matthews Lisa Roberts Mibs Matthews Lisa Roberts Mibs Matthews Peter Pau Lisa Roberts Mibs Matthews Mibs Matthews Lisa Roberts To (first recipient) Peter Pau Mibs Matthews Peter Pau Peter Pau Peter Pau Lisa Roberts Peter Pau Peter Pau Lisa Roberts Mibs Matthews Peter Pau Mibs Matthews Lisa Roberts Mibs Matthews Lisa Roberts Lisa Roberts Mibs Matthews Lisa Roberts Peter Pau Mibs Matthews Lisa Roberts Lisa Roberts Mibs Matthews Lisa Roberts Peter Pau Lisa Roberts Mibs Matthews Peter Pau Lisa Roberts Lisa Roberts Mibs Matthews Attachments Yes Yes Yes Yes