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Pipeline Productions, Inc. v. The Madison Companies, LLC

United States District Court, D. Kansas

August 30, 2019

PIPELINE PRODUCTIONS, INC., et al., Plaintiffs and Counterclaim Defendants,
v.
THE MADISON COMPANIES, LLC, et al., Defendants and Counterclaimants.

          MEMORANDUM AND ORDER

          Angel D. Mitchell U.S. Magistrate Judge.

         This matter comes before the court on Plaintiff’s Motion to Compel Production of Certain Documents from Defendants’ Privilege Log (ECF No. 556). Plaintiffs Pipeline Productions, Inc., Backwood Enterprises, LLC, OK Productions, Inc., and Brett Mosiman (collectively “Pipeline”) argue that Defendants The Madison Companies, LLC and Horsepower Entertainment, LLC (collectively “Madison”) waived the attorney-client privilege by putting certain matters at issue in the case. Madison opposes the motion. For the reasons explained below, the court finds that Madison has not waived the attorney-client privilege, and therefore Pipeline’s motion is denied.

         I. BACKGROUND

         Pipeline asserts claims against Madison for breach of contract, breach of fiduciary duty, fraud, and tortious interference arising from the parties’ business dealings relating to the Thunder on the Mountain country music festival (“Thunder”) in 2015. (Pretrial Order, ECF No. 477 ¶ 4(a)(1)-(4), at 18-20.) Pipeline alleges that it formed a joint venture with Madison to put on Thunder, but Madison pulled out shortly before the festival was scheduled to occur. Pipeline contends this “left [Pipeline] holding the bag for all artist payments and festival expenses” and, furthermore, that Madison tried to destroy Pipeline’s business, reputation, and financial condition by hiring away Pipeline’s partners and employees. (Id. at 14-15.) Because of this, Pipeline claims that it was unable to provide ticket refunds, it had to divert funds to other businesses, and its festival-related businesses were essentially destroyed. (Id.) Meanwhile, Pipeline contends that Madison tried to make its entities “judgment proof by scheming and ‘transitioning’ their interests, assets, and businesses to other entities in the hopes of preventing Plaintiffs from obtaining fair and just remuneration.” (Id.) After the parties fully briefed this motion, the court granted Pipeline’s motion to amend its complaint to add Defendants KaabooWorks, LLC, KaabooWorks Services, LLC, Kaaboo Del Mar, LLC, and Wardawgs (collectively “the Kaaboo entities”). Pipeline alleges the Kaaboo entities are essentially an extension of Madison, organized as different corporate entities but largely owned and operated by the same individual. Pipeline asserts a successor liability claim against the Kaaboo entities.

         Pipeline contends that Madison waived the attorney-client privilege by putting at issue the transfer of Madison’s music-festival business to Kaaboo by making suspect statements about the switch, including why and when Madison made the transfer and by failing to produce any documents to support Madison’s theory (ECF No. 556, at 1). Because of this, Pipeline seeks to compel the production of documents listed in 53 entries on Madison’s privilege log and certain documents listed in Madison’s litigation counsel’s declaration in further support of Madison’s privilege claim.[1] Madison’s declaration establishes that the communications involve giving or seeking legal advice. (ECF No. 556-1.) The bulk of the documents involve communications by Madison’s outside transactional counsel with Madison officials (in some instances, Madison’s in-house counsel) regarding a consulting agreement with Nathan Prenger, a former Pipeline minority partner whom Pipeline claims Madison poached. (ECF Nos. 556-1, 556-2.) In a few instances, the communications concern revisions to the agreement in light of impending litigation with Pipeline. And one entry involves communications between outside transactional counsel and a Madison consultant regarding a proposed settlement with Mr. Mosiman. Other entries involve communications between Madison officials and outside counsel concerning a Horsepower letter.

         II. LEGAL STANDARD

         “[S]tate law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Fed. R. Evid. 501; Frontier Refining, Inc. v. Gorman-Rupp Co., Inc, 136 F.3d 695, 699 (10th Cir. 1998). In this case, the court has diversity jurisdiction over common law claims, which are governed by Kansas law. Additionally, both parties cite Kansas law in support of their arguments, so the court will also apply Kansas law.

         In Kansas, the attorney-client privilege is codified at Kan. Stat. Ann. § 60-426. Under the statute, with few exceptions, communications “between a lawyer and his or her client in the course of that relationship and in professional confidence, are privileged.” See State v. Gonzalez, 234 P.3d 1, 10 (Kan. 2010). The party asserting privilege bears the burden to establish that it applies. In re Grand Jury Proceedings, 616 F.3d 1172, 1183 (10th Cir. 2010); Cypress Media, Inc. v. City of Overland Park, 997 P.2d 681, 693 (Kan. 2000). This includes showing the privilege has not been waived. See Johnson v. Gmeinder, 191 F.R.D. 638, 642 (D. Kan. 2000).

         Pipeline argues Madison waived privilege by putting certain matters at issue-i.e., “at issue” waiver. Under Kansas law, a party waives privilege when “it puts the fact of the communication at issue.” See State ex rel. Stovall v. Meneley, 22 P.3d 124, 142 (Kan. 2001) (citing Hearn v. Rhay, 68 F.R.D. 574, 579–81 (E.D. Wash. 1975). Kansas appellate courts have not adopted (or declined to adopt) a more specific test for at-issue waiver.

         Other courts commonly employ one of three approaches to determining whether a party waived privilege by putting the fact of communication at issue. The first approach is the automatic waiver rule. It provides that a party automatically waives privilege by asserting an affirmative claim or defense that raises as an issue a matter to which otherwise privileged information is relevant. See Indep. Prods. Corp v. Loew’s, Inc., 22 F.R.D. 266, 276–77 (S.D.N.Y. 1958) (originating automatic-waiver rule). An intermediate approach provides that a party waives privilege when (1) asserting the privilege is a result of an affirmative act, such as filing suit, by the party asserting it; (2) through the affirmative act, the party has put protected information at issue by making it relevant to the case; and (3) application of the privilege would deny the opposing party access to vital information to its own case. See Hearn v. Rhay, 68 F.R.D. 574, 579–81 (E.D. Wash. 1975) (originating the intermediate test, often known as “the Hearn test”). The Tenth Circuit has not adopted an approach for assessing at-issue waiver, but it has applied the Hearn test in addressing state law privilege claims. See Seneca Ins. Co. v. W. Claims, Inc., 774 F.3d 1272, 1276 (10th Cir. 2014) (recognizing the Oklahoma Supreme Court had not adopted a test but applying Hearn because both parties agreed that Oklahoma courts would apply a version of the Hearn test); see also Frontier Ref., Inc. v. Gorman-Rupp Co., 136 F.3d 695, 701 (10th Cir. 1998) (applying Wyoming law). In more recent decisions, courts have criticized the Hearn test and adopted a more conservative test, finding waiver only in cases where a litigant directly puts its attorney’s advice at issue in the litigation. See In re Itron, Inc., 883 F.3d 553, 561-62 (5th Cir. 2018) (“[F]or this type of waiver to occur, the client “must rely on privileged advice from his counsel to make his claim or defense.”); In re Cty. of Erie, 546 F.3d 222, 229 (2d Cir. 2008) (“We hold that a party must rely on privileged advice from his counsel to make his claim or defense.”); Rhone–Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851 (3d Cir. 1994) (“The advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney-client communication.”).

         III. ANALYSIS

         The court need not predict which test the Kansas Supreme Court would apply because Madison has not placed the material Pipeline seeks “at issue” under any test. Pipeline contends that Madison put various Kaaboo-related documents[2] at issue by making suspect statements about Madison transitioning its music-festival business to Kaaboo, “including why they did it and when it happened, and failing to produce any documents to support their statements.” (ECF No. 556, at 1.) Pipeline identifies three “defenses” to support at-issue waiver. (Id. at 2.) First, Madison argues the Kaaboo entities cannot be liable for Madison’s conduct because they are separate entities. Second, Madison argues it cannot be liable for tortious interference because Kaaboo (not Madison) employs the former Pipeline associates. Third, Madison CEO Bryan Gordon testified that he did not discuss a consulting agreement with Mr. Prenger until after the Thunder deal blew up. In support, Pipeline cites Mr. Gordon’s affidavit filed in conjunction with Madison’s motion for a protective order (ECF No. 246-12, at 3-4), Madison’s response to Pipeline’s motion for sanctions (ECF No. 472, at 1), and Gordon’s deposition transcript (ECF No. 534-1).

         Pipeline misunderstands at-issue waiver. Pipeline does not articulate any way in which Madison is asserting any legal advice it may have received as a “sword” while trying to “shield” that very legal advice from discovery, thereby depriving Pipeline of the opportunity to test the nature, legitimacy, or veracity of that legal advice. It is not enough that a party may have consulted an attorney on an issue that later becomes relevant in litigation. Such a broad proposition would defeat the purposes of and largely eviscerate the attorney-client privilege. Rather, the party must put “the fact of the communication at issue.” Stovall, 22 P.3d 142. Madison has not put the fact of any attorney-client communication at issue that would, in fairness, require Pipeline to be allowed to examine those protected communications.

         The classic at-issue waiver scenario occurs when a party injects the issue of affirmative reliance on counsel’s advice. 1 Edna Selan Epstein, The Attorney–Client Privilege and the Work–Product Doctrine, 666-67 (6th ed. 2017). This commonly arises in legal malpractice actions, when proof of a party’s legal contention implicates legal advice (e.g., when a client asserts a good-faith defense), or when the client relies on a portion of a privilege-protected document while testifying. Id.; see also Seneca Ins. Co. v. W. Claims, Inc., 774 F.3d 1272, 1276 (10th Cir. 2014) (involving an issue of reliance on advice of counsel); Doe v. USD 237, No. 16-2801-JWL, 2019 WL 2612941, at *5 (D. Kan. June 26, 2019) (affirming the magistrate judge’s finding that a party puts its counsel’s investigation at issue by asserting a Faragher affirmative defense based on that investigation); Williams v. Sprint/United Mgmt. Co., ...


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