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Ap Links, LLC, and St. Anne's Development Company, LLC v. Jay Edmund Russ and Russ & Russ

July 30, 2012


The opinion of the court was delivered by: A. Kathleen Tomlinson, Magistrate Judge:


Plaintiffs AP Links, LLC ("AP Links") and St. Anne's Development Company, LLC ("SADC") (collectively, "Plaintiffs") filed this diversity action on November 16, 2010, alleging that Defendants Jay Edmund Russ ("Russ") and Russ & Russ, P.C. (collectively, "Defendants") breached their fiduciary duties and tortiously interfered with a contract. Presently before the Court is Plaintiffs' motion to compel non-party Neal Trabich and the Defendants to produce, respectively, documents in response to a subpoena and requests for production of documents. Plaintiffs also seek to have the Court overrule Defendants' and Trabich's objections asserted on the grounds of attorney-client privilege. See DE 54 ("Pls.' Mot."). Plaintiffs assert that any claim of attorney-client privilege has been waived and/or vitiated by the crime-fraud exception. Defendants and Trabich submit that Plaintiffs' motion should be denied because no waiver occurred and Plaintiffs' evidentiary submissions are insufficient to trigger the crime-fraud exception.


As is the case with certain other lawsuits filed in New York and Maryland, the present action stems from: (1) a November 8, 2000, Consulting Agreement entered into by AP Links and Global Golf, Inc.*fn1 ; and (2) a May 2, 2006, Facility Agreement entered into by, inter alia, SADC*fn2 and Neal and Terry Trabich (hereafter, "the Trabiches"), which enabled the Trabiches to borrow up to $1 million dollars on a revolving credit basis. See Compl. ¶¶ 7-29. In this particular action, Plaintiffs are now suing the attorney who, at one point, represented Global Golf and the Trabiches.

Plaintiffs allege in the Complaint that sometime in October 2006, the Trabiches sought the advice of Russ to extricate themselves and Global Golf from the obligations owed to SADC and AP Links under the Consulting Agreement and the Facility Agreement (collectively, the "Agreements"). Id. ¶ 30. On November 3, 2006, the Defendants, on behalf of Global Golf and the Trabiches, filed suit against AP Links, SADC and its principals in the Supreme Court, Nassau County (hereafter, "Nassau County Action") seeking to void the Agreements under legal theories of criminal and civil usury.*fn3 Id. ¶¶ 36, 66. Plaintiffs assert that Russ did not serve AP Links or SADC or otherwise notify them of this lawsuit until February or March 2007. Id. ¶ 40. During this gap in time, Plaintiffs contend that Russ represented Global Golf, the Trabiches and an entity named "Confer Bethpage LLC" ("Confer Bethpage") in a December 21, 2006, Asset Purchase Agreement ("APA") whereby Confer Bethpage acquired certain assets of Global Golf.*fn4 Id. ¶¶ 40-43. Also on this date, Gordon Lenz loaned $500,000 to Neal Trabich, and in return, Trabich granted Lenz a mortgage on personal property located at 1574 Laurel Hollow Road. Id. ¶ 44. However, this latter property was already serving as collateral for SADC under the Facility Agreement. Id. Plaintiffs allege that Russ, knowing that Trabich promised in the Facility Agreement not to further encumber the collateral property, advised the Trabiches to grant and record the mortgage to Lenz in direct violation of the Facility Agreement. Id. ¶¶ 49, 63.

Pursuant to an Escrow Agreement executed on December 21, 2006, all monies paid under the APA were required to be paid to Russ, as the agreed upon Escrow Agent. Id. ¶ 53. According to the Plaintiffs, this Escrow Agreement granted Russ absolute discretion to determine which debts of Global Golf would be paid out of the $2.4 million received under the APA. Id.

¶ 54. It is alleged that on January 25, 2007, Russ paid his firm $250,000, disguised as legal fees, out of the escrowed funds that were supposed to be paid to Global Golf's creditors. Id. ¶ 56. It is also alleged that Russ caused monies to be paid out of the escrowed funds to other individuals and entities that were not bona fide creditors of Global Golf. Id. ¶ 58. These and other actions by the Defendants serve as the basis for Plaintiffs' contention that Defendants procured breaches of the Consulting Agreement and the Facility Agreement.

On June 15, 2011, Plaintiffs served a subpoena on Neal Trabich seeking the production of 89 specific e-mail exchanges between Trabich and Russ during the period of October 9, 2006, through December 17, 2007.*fn5 See Pls.' Mot., Ex. B. On July 8, 2011, Trabich wrote to Plaintiffs' counsel indicating that "I do not waive the attorney client privilege, attorney client confidentiality or the attorney work product privilege, or any other applicable privileges." Id., Ex. C. These e-mails were also requested from the Defendants as part of Plaintiffs' First Request for Production of Documents. Defendants served their responses on August 26, 2011, objecting to each of the requests on the basis of attorney-client privilege. Id., Ex. D. The responses by Neal Trabich and the Defendants serve as the basis for the instant motion to compel.


Since the basis for subject matter jurisdiction in this action is diversity of parties, the attorney-client privilege is governed by New York State law. See Aiossa v. Bank of America, No. CV 10-1275, 2011 WL 4026902, at *3 (E.D.N.Y. Sept. 12, 2011); Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 470 (S.D.N.Y. 1993) (citing Fed. R. Evid. 501). As previously indicated, the Plaintiffs present the Court with two arguments as to why the attorney-client privilege should not attach to the e-mails in question: (1) the crime-fraud exception applies; and (2) the privilege was waived by Neal Trabich. Each contention will be addressed in turn.

A. Crime-Fraud Exception

"Under New York law, the attorney-client privilege protects confidential communications between client and counsel where such communications are made for the purpose of providing or obtaining legal advice."*fn6 HSH Nordbank AG New York Branch v. Swerdlow, 259 F.R.D. 64, 70 (S.D.N.Y. 2009) (citing N.Y. C.P.L.R. 4503(a)(1)). However, the privilege "may not be invoked where it involves client communications that may have been in furtherance of a fraudulent scheme, an alleged breach of fiduciary duty or an accusation of some other wrongful conduct." Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 1 A.D. 3d 223, 224, 767 N.Y.S.2d 228 (1st Dep't 2003); see also In re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032, 1038 (2d Cir. 1984) ("It is well-established that communications that otherwise would be protected by the attorney-client privilege . . . are not protected if they relate to client communications in furtherance of contemplated or ongoing criminal or fraudulent conduct.").

"In the Second Circuit, application of the crime-fraud exception requires a party to 'demonstrate that there is probable cause to believe that a crime or fraud has been attempted or committed and that the communications were in furtherance thereof.'" Linde v. Arab Bank, 608 F. Supp. 2d 351, 357 (E.D.N.Y. 2009) (quoting In re Richard Roe, Inc., 68 F.3d 38, 40 (2d Cir. 1995)); accord United States v. Jacobs, 117 F.3d 82, 87 (2d Cir. 1997). The Second Circuit has defined "probable cause" in this context to mean "a reasonable basis for believing that the objective was fraudulent." In re Grand Jury Subpoena Duces Tecum, 731 F.2d at 1039; see also Aiossa, 2011 WL 4026902, at *6 ("[C]courts in the Southern and Eastern Districts of New York have applied a standard more demanding than a simple, if reasonable, suspicion of fraud and less demanding than fraud shown by a preponderance of the evidence.") (internal quotation marks and citations omitted). "Once there is a showing of factual basis, the decision whether to engage in an in camera review of the evidence lies in the discretion of the district court." Shahinian v. Tankian, 242 F.R.D. 255, 258 (S.D.N.Y. 2007).

The Plaintiffs' theory behind the applicability of the crime-fraud exception begins with Neal Trabich's retention of Russ in October 2006 in an attempt to shed financial obligations under the Agreements. After consulting with Russ, Neal Trabich took the position that the Agreements were usurious and unenforceable; the Nassau County Action brought by Russ on behalf of the Trabiches followed. However, after the Nassau County Action was dismissed for lack of subject matter jurisdiction, SADC brought suit on April 24, 2007, in the District of Maryland, asserting claims against the Trabiches for breach of contract and fraud pursuant to the Facility Agreement (hereafter, "Maryland Action"). Notwithstanding express language in the Facility Agreement requiring that the $1 million loan be used solely for commercial purposes -- specifically, to fund the construction of the Saint Anne's golf course -- the Trabiches took the position, in sworn statements, that the loan was really intended for personal use, not solely for commercial purposes. The Court specifically notes that ...

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