The opinion of the court was delivered by: Randolph F. Treece United States Magistrate Judge
MEMORANDUM-DECISION and ORDER
On May 3, 2010, the Securities and Exchange Commission (hereinafter "SEC") filed a Complaint against Matthew John Ryan (hereinafter "Ryan") and Prime Rate and Return, LLC (hereinafter "Prime Rate"), seeking to stop an alleged ongoing fraud purportedly being perpetrated by these Defendants upon senior citizens who were seeking fixed income investments. Dkt. No. 1, Compl. Concurrent with filing the Complaint, the SEC filed a Motion for a Temporary Restraining Order, Dkt. No. 5, which resulted in the Honorable Norman A. Mordue, Chief United States District Judge, issuing an Order to Show Cause and an Order freezing assets and temporarily appointing Paul A. Levine, Esq., as Receiver for Prime Rate, Dkt. No. 6. Ultimately, based upon a joint Stipulation, a Preliminary Injunction was imposed, which directed, inter alia, that Levine shall serve as Receiver over Prime Rate and all entities it controls with the penultimate responsibility to "succeed to all rights to manage all properties owned or controlled by Prime Rate," to control all of the assets, books, records, and documents, to preserve the status quo, to ascertain the extent of commingling of funds and assets, and to prevent dissipation of assets. Dkt. No. 11, Stip. & Consent Order (hereinafter Prelim. Inj.), dated June 7, 2010, at ¶¶ IV & V.
Prior to the issuance of the Preliminary Injunction, Bosman & Associates PLLC (hereinafter "Bosman & Associates") provided legal advice to Ryan, Prime Rate, and its associated businesses. However, the Injunction eventually restrained and enjoined Bosman & Associates, as well as others, from transacting further business with and on behalf of Prime Rate and the collective entities. In exercising the duties and responsibilities delegated to him, Levine sought from Bosman & Associates approximately eight (8) specific items, which would be expected to be found within the law firm's files regarding Prime Rate. When Bosman & Associates would not cooperate with the Receiver's request by providing the files or information, Levine appealed to this Court to intervene. Dkt. No. 17, Rec. Lt-Mot. to Intervene, dated June 22, 2010. Bosman & Associates opposed the Receiver's Motion, raising that since it was owed more than $32,000 for services rendered, it had both a charging and retaining lien on the files, and, by virtue of these liens, it would not be sharing the files nor revealing related information to the Receiver. Dkt. No. 23, Bosman & Assocs. Lt.-Br., dated July 1, 2010.
Because of this discovery imbroglio, the Court directed further briefing and set a Hearing date. On September 30, 2010, the Receiver filed a Pre-Hearing Statement and Memorandum of Law. Dkt. No. 45. On October 7, 2010, both Ryan and Bosman & Associates filed their respective Opposition thereto, Dkt. Nos. 52, Bosman's Mem. of Law,*fn1 54, Ryan's Lt.-Mem., to which Levine filed a Reply on the following day, Dkt. No. 55, Rec. Reply Mem. of Law, dated Oct. 8, 2010. The Hearing was convened on October 13, 2010, and all of the issues were exhaustively discussed on the record. During the Hearing the Court ruled on several issues and reserved as to others, all of which will be fully expounded upon herein.
The records reveals that Ryan, who has worked in the securities and insurance industry since 1997, served as the single member of Prime Rate, a limited liability company formed in 2001 under the laws of Delaware. Compl. at ¶¶ 10 & 11. At least in terms of this litigation, Prime Rate was doing business as American Integrity Financial Company (hereinafter "American Integrity").*fn2 The SEC's Complaint alleges that Ryan and Prime Rate raised approximately $6.5 million from investors - mostly the elderly - by falsely promising them "guaranteed" fix rates of return ranging from 3.85% to 9.35 %. The SEC asserts that "American Integrity is a classic Ponzi scheme." Id. at ¶ 1. Because of these allegedly fraudulent representations, which may have commenced as early as 2002, Ryan and Prime Rate are accused of violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Sections 5(a) and (c) of the Securities Act. Id. at ¶ 6.
The record also reflects that on August 18, 2009, both Ryan, in his individual capacity, and Prime Rate signed a retainer agreement with Bosman & Associates, a general practice law firm. Dkt. No. 23, Ex. A, Redacted Retainer Agreement.*fn3 Because Bosman & Associates would only provide Levine with a redacted version of the Retainer Agreement, the true extent of its representation to both or either Ryan and Prime Rate over the past years is barely known. But it is safe to presume that the legal representation primarily concerned real estate closings, preparing legal documents such as promissory notes, loan agreements, and mortgage notes, advising on other business transactions, counseling on personal legal matters for Ryan, and conducting litigation on behalf of both Ryan and Prime Rate. See Dkt. Nos. 45, Exs. A-F, & 6, Order to Show Cause Addendum. The record indicates that Bosman & Associates may have approximately 121 files related to Ryan and Prime Rate - approximately 93 archived files and 38 current files. Dkt. No. 17, Ex. A, Levine's Lt., dated May 25, 2010. In Bosman & Associate's view, Ryan was the primary client, that is, Prime Rate and Ryan were so inextricably intertwined that they are virtually indistinguishable.
Concurrently, albeit not intended as a coordinated endeavor with the SEC, a grand jury for the Northern District of New York returned a ten (10) count Indictment against Ryan which, based upon the same facts alleged in our Complaint, charges him with committing securities and mail fraud. Crim. Case No. 1:10-CR-319, Dkt. No. 1, Indict., dated June 18, 2010. Primarily concerned that discovery in this civil case may compromise the criminal prosecution of Ryan, the United States Attorney for the Northern District of New York filed a Motion to Intervene and a Stay of Discovery. Dkt. No. 33, U.S. Atty. Office's Mot. to Intervene, dated Sept. 8, 2010. Essentially, no objections were interposed against this Motion, see Dkt. Nos. 34 & 35, and accordingly Judge Mordue issued a Memorandum-Decision and Order granting the Motion to Intervene and staying Discovery pending the completion of the criminal prosecution, "except that Paul A. Levine, Esq., the Court- appointed Receiver, may continue to obtain discovery from third parties." Dkt. No. 57, Mem.-Dec. & Order, dated Oct. 8, 2010.
Section V of the Preliminary Injunction describes exhaustively how the Receiver is empowered to take control over all assets, "including all books, records, and documents, of Prime Rate," to preserve those records and documents, to assume all rights and powers set forth in the applicable management and LLC agreements, to take steps to locate assets, and to determine the disposition and use of funds. Dkt. No. 11, Prelim. Inj. Sec. V at pp. 5-9. When Levine approached Bosman & Associates for information, he was essentially seeking eight (8) discrete items: (1) a file list of the total universe of files; (2) a copy of the retainer agreement; (3) explanation of the settlement offer on the 669 Riverview Properties, Inc. matter; (4) copies of the EMC mortgage file; (5) a copy of pleadings handled by Steve Waite, Esq., (6) details regarding the potential sale of property located on 5th Avenue, Troy, New York; (7) a copy of settlement with Sandy Horowitz; and, (8) information regarding deposits by Ryan and Prime Rate into the Bosman & Associates' escrow account. Dkt. No. 17, Ex. A, Levine's Lt., dated May 25, 2010.
Initially, the only issue submitted to the Court was whether the Bosman & Associates' charging and retaining liens should prevent Levine from obtaining possession of its files on behalf of Prime Rate. To date, Bosman & Associates is owed $32,604.67 in legal fees and disbursements. Dkt. No. 23 at p. 1. Furthermore, the law firm represented Prime Rate on an unrelated lawsuit where a settlement may be imminent. Because of both the pending litigation with a possible favorable outcome and the fact that Bosman & Associates possesses at least 121 relevant files, the law firm invokes it rights to both the statutory and common law liens. See generally Dkt. Nos. 23 & 52. However, in its subsequent filing, Bosman & Associates raises a host of other legal impediments to sharing any files with the Receiver. Dkt. No. 52. In addition to the legal liens, Bosman & Associates raises, inter alia, the attorney-client privilege chiefly held by its primary client Ryan as well as the Receiver's conflict of interest with Bosman & Associates as significant obstructions to disclosure. The law firm posits that if attorney-client privileged communications were to be invaded by the Receiver or if it was compelled to reveal such privileged communications, even by court order, grave ethical consequences would be visited upon it. Id.
A. Discovery from Bosman & Associates
There are two fundamental principles we must dissect in order to determine if the Receiver is entitled to discovery of documents and data from Bosman & Associates. First, the Court must ascertain whether Prime Rate and Ryan are so indelibly connected that they are essentially one and the same or, whether they are independent entities and, secondly, whether Levine, as the Receiver for Prime Rate, is, for all intents and purposes, currently Bosman & Associates' client who may legitimately make a request for the disclosure of information within the attorneys' files.
Bosman & Associates, as well as Ryan, clings to the notion that Ryan and Prime Rate are inseparable; a fortiori, Ryan is the client, not Prime Rate. Basically, the law firm argues that whether Ryan sought legal assistance for his personal matters or as the sole member and representative of Prime Rate, Bosman & Associates responded solely to him without delineating between the two. As a consequence, only Ryan can assert or waive the attorney-client privilege; therefore, Levine as the Receiver does not have legal standing to ask for the files or information related to either Ryan or Prime Rate.
Bosman & Associates is both factually and legally wrong. Even though the Court is unable to fully evaluate the breadth of the law firm's representation, it is very clear, however, that at the time the Retainer Agreement was signed, Bosman & Associates was representing two clients, Ryan, individually, and Prime Rate. Ryan signed the Retainer Agreement in both his individual capacity and official capacity as the sole member and agent of Prime Rate. See Dkt. No. 23, Ex. A, Redacted Retainer Agreement. The law as well leads the Court to reach the same conclusion. Universally, both statutorily and through case precedents, limited liability companies, commonly known as LLCs, are formed as separate legal entities from the member(s). 6 Del.C § 18-201 ("A limited liability company formed under this chapter shall be a separate legal entity[.]");*fn4 People v. Highgate LTC Mgm't, LLC, 69 A.D.3d 185, 187 (N.Y. App. Div. 3d Dep't 2009) (noting that like a corporation, a limited liability corporation is a legal entity separate and distinct from the member); see also In re 1545 Ocean Ave., LLC, 72 A.D.3d 121, 126-28 (N.Y. App. Div. 2d Dep't 2010) (discussing the hybrid nature of a limited liability company). More to the point, the interest of the member of an LLC is analogous to a shareholder in a corporation in that he or she has no interest in specific assets nor can be held liable for the company's debts or obligations. Poore v. Fox Hollow Enter., 1994 WL 150872, at *2 (Del. Super. Ct. Mar. 29, 1994) (citing 6 Del.C. §§ 18-303 & 18-701). Accordingly, based upon the facts and the law, the Court concludes that Ryan and Prime Rate are not legally co-joined and stand autonomously from each other.
Now that the Court has determined that Prime Rate is an independent entity, our next inquiry is to ascertain if the Receiver steps into the proverbial shoes of Prime Rate, becoming a client of Bosman & Associates, who may have the right to seek its own files. Again, both the facts and law compel only one observation: Levine, as Receiver and successor to the management of Prime Rate, is indeed a client. As a pure operation of law, Judge Mordue ordered as much, when he declared that Levine, as the Receiver for Prime Rate, succeeds to all current management of the entity and acts with the full force of the law as its sole representative collecting, managing, and if necessary, selling the assets, as well as incurring and resolving related debt. Prelim. Inj. Sec. V. In fact, all of the Receiver's duties and responsibilities are broadly and comprehensively defined. Although the successor interest was raised in another context before the United States Supreme Court, Commodity Futures Trading Comm'n v. Weintraub stands for the proposition that when the control of a corporation passes to new management, the authority to assert certain privileges and rights passes as well. 471 U.S. 343 (1985);*fn5 Orbit One Commc'ns, Inc. v. Numerex Corp., 255 F.R.D. 98 (S.D.N.Y. 2008) (finding that successor management stands in the shoes of prior management and controls matters concerning the company's operation). In United States v. Shapiro, 2007 WL 2914218 (S.D.N.Y. Oct. 1, 2010), an analogous case, the SEC filed a civil action against a ...