*1 Before the Court is Defendants/Counterclaimants Kristopher Rinehart, Brent Murakami, Los Angeles Studios of Self Defense, LLC, South Bay Studios of Self Defense, LLC, S.B. Ninja, LLC, and Counterclaimant Rolling Hills USSD, LLC (collectively “Rinehart Parties”) Motion to Pierce the Attorney-Client Privilege (“Motion”) between Plaintiff/Counterdefendants United Studios of Self Defense, Inc. and Charles Mattera, and their law firm Fortis, LLP (collectively “USSD Parties”).[1] See Dkt. 73 (Mot.). The USSD Parties filed their Opposition on May 20, 2019. See Dkt. 81 (Opp'n). The Rinehart Parties filed their Reply on May 24. See Dkt. 83 (Reply). Both parties filed supplemental briefs on August 19. See Dkts. 116 (Rinehart Supp.), 122 (USSD Supp.). The Court conducted a hearing on August 29.

Upon review of the record, the parties' briefs, and the oral hearing, the Court recommends that the Motion be DENIED.

I. Background

A. Genesis of the Jessica Allegations

This action was once a simple contract dispute. The initial Complaint broadly alleged that the Rinehart Parties materially breached their respective franchise agreements. See Dkt. 1 ¶¶ 29-39. The First Amended Complaint additionally alleged that Rinehart engaged in statutory rape, thereby putting him in breach of several of the agreement's clauses:

Dkt. 17, First Amended Complaint (“FAC”) ¶ 47 (the “Jessica Allegations”). The District Judge later granted the parties' stipulation to strike portions of the FAC, including Paragraph 47 in its entirety. See Dkts. 59, 61. Shortly after, this Motion was filed.

B. The Rinehart Parties' Motion

The story told by the Motion is so bizarre that it bears repeating. On May 30, 2018, Hargraves found an envelope on her car. See Mot. at 6. The envelope contained a handwritten note that Rinehart was involved in a sexual relationship with an underage woman named Jessica Gruenberg and a sexually suggestive picture of a young woman. See id. at 6-7.

*2 On July 12, 2018, Fortis communicated the Jessica Allegations to the Rinehart Parties during a meet-and-confer call. See id. at 7. On August 8, 2018, Fortis delivered two declarations, one signed by Jessica and another signed by Jessica, Ashlee Masco, and Alejandro Corrales, along with an audio recording. See id.; Dkt. 73-15 (“Bautista Decl.”) ¶ 2, Ex. 1 at 5 (“Sworn Declaration”), 6 (“Unsworn Declaration”), Ex. 2 (“Jessica Audio Recording”). The Jessica Audio Recording is a 13-minute interview between an unknown male and Jessica, describing sexual encounters at Rinehart's medical office. See id. Although Rinehart provided declarations refuting Jessica's claims, see id., Ex. I (“Rinehart Decl.”) ¶¶ 9-14, Fortis nevertheless included the Jessica Allegations in the FAC, see FAC ¶¶ 47, 53(j).

Over the next year, the Rinehart Parties allege that they were “stonewalled” by Fortis in their attempt to discover information regarding the Jessica Allegations. Mot. at 8-9. The Rinehart Parties learned that Fortis did not have contact information for Jessica, Masco, or Corrales, nor knew who the male voice on the audio recording was. See id. at 9. The Rinehart Parties believe information was kept from them so that the Jessica Allegations could be used as leverage in settlement discussions. See id. at 9-10, 14.

The Rinehart Parties eventually unearthed that “Jessica” was Nicole Doaiji, a student and actress. See id. at 10. After Doaiji placed an ad on Craigslist for her acting services in the summer of 2018, a man named “Matt” responded and asked to meet. See id., Ex. B (“Doaiji Decl.”) ¶¶ 1-5. Matt had Doaiji read a script during a recorded interview, which became the Jessica Audio Recording. See id. Doaiji later identified Matt as Josh George, a Vice President of USSD. See id. ¶¶ 2-5.

The Rinehart Parties believe that Mattera was behind the Jessica Allegations in order to extort Rinehart. See Mot. at 9-11. In July 2018, Luis Auza, a USSD franchisee, recorded several conversations he had with Mattera. See id., Exs. A (“Auza Audio Recordings”), K (“Auza Decl.”). In one recording, Mattera states he “hold[s] all the cards” and that “Jessica is a half a million at least.” Id. Mattera identified his motive was to punish Rinehart. See id. Mattera stated his hope that a lawyer would represent Jessica and communicate with Rinehart for a settlement. See id. In August 2018, Mattera asked Tyler Martin, a USSD franchisee based in Utah, to tell Rinehart that USSD “had a girl” that would “ruin [Rinehart],” but if Rinehart settled, Mattera “might be able to keep this girl under wraps.” Mot., Ex. D (“Martin Decl.”) ¶¶ 6-7, 26-27.

Given these facts, the Rinehart Parties argue they have established a prima facie showing of attempted extortion, obstruction of justice, and fraud. See id. at 15-24. The Rinehart Parties ask for an order piercing the attorney-client privilege to fully pursue the Jessica Allegations. See id. at 25.

C. The USSD Parties' Opposition

The Opposition tells a different story: Auza and Doaiji concocted an elaborate tale that the USSD Parties initially believed in good faith to be true. Once they learned otherwise, the USSD Parties stipulated to dismiss the Jessica Allegations.

In May 2018, Auza provided Mattera with the Jessica Audio Recording, text messages between Jessica and Rinehart, and Jessica's Unsworn Declaration stating she had a sexual relationship with Rinehart. See Opp'n at 3-4; Dkt. 81-1 (“Mattera Decl.”) ¶ 13, Ex. 2. Auza told Mattera he was the male voice on the Jessica Audio Recording. See Mattera Decl. ¶¶ 13-15. Mattera passed the information on to Fortis and three different police departments in Los Angeles County. See id. ¶¶ 15, 21, 24-25.

On July 17, 2018, five days after Fortis shared the Jessica Allegations with opposing counsel, Mattera provided Auza with the Sworn Declaration, which detailed the facts of Jessica's Unsworn Declaration, this time in the form of a declaration under penalty of perjury. See id. ¶ 23. On July 25, 2018, Auza provided Mattera with a signed copy of the Sworn Declaration and stated that Jessica signed it in his presence. See id., Ex. 5. On August 8, 2018, Fortis informally sent opposing counsel a copy of Jessica's Sworn Declaration, Unsworn Declaration, and the Jessica Audio Recording. See Opp'n at 7; Dkt. 81-12 (“Hardeman Decl.”) ¶ 17, Ex. 3.

*3 Beginning in August 2018, Fortis interviewed Auza several times. See Opp'n at 7; Hardeman Decl. ¶¶ 4, 19-21; Dkt. 81-17, (“Harris Decl.”) ¶¶ 7, 27, 20, 33, 38. Auza told Fortis that he was helping Jessica out of a sense of “moral obligation,” had conducted the Jessica Audio Interview, and that he and Jessica feared Rinehart. Id. Fortis later had a telephonic interview with Jessica where she represented that Rinehart had sexual relations with her beginning in 2016, her Sworn Declaration was true and accurate, and that she was looking for legal representation. See Opp'n at 8; Hardeman Decl. ¶¶ 23-24. Fortis referred Jessica to two lawyers. See Opp'n at 8.

Between November 2018 and January 2019, Jessica consulted with two different attorneys, Brian Carlin and Nicholas Kohan. See id. at 9; Mattera Decl. ¶¶ 30-33; Dkt. 81-27 (“Kohan Decl.”) ¶¶ 3-6; Dkt. 81-30 (“Carlin Decl.”) ¶ 3. Auza told Mattera that he drove Jessica to these interviews. See Mattera Decl. ¶ 30. On January 8, 2019, Auza met with Mattera, Fortis, and USSD's CEO. See Opp'n at 10; Harris Decl. ¶ 38. Auza informed all parties that Jessica was ready to go to the police and wanted a referral to new counsel. See id.

On January 12, 2019, Auza (through Mattera) provided Fortis with a copy of a police report filed with the Hermosa Beach Police Department. Harris Decl. ¶ 38. (“Hermosa Police Report”). When a Fortis attorney went to the station to discuss the report, however, the Captain on duty said he did not recognize the form of the report. See id. At that point, Fortis started to doubt Auza's story.

Auza's deposition took place on February 6, 2019. See id., Ex. D (“Auza Depo.”). The USSD Parties contend that Auza repeatedly lied under oath, including falsely testifying that he did not conduct the Jessica Audio Recording, provide Mattera with written documentation regarding Jessica, facilitate a phone call between Fortis and Jessica, or drive Jessica to interview with Kohan. See Opp'n at 10-11. Following the deposition, Rinehart and his attorney acknowledged that the male voice on the Jessica Audio Recording was Auza's. See id. at 11; Hardeman Decl. ¶ 31; Harris Decl. ¶ 17; Mattera Decl. ¶ 45. On February 11, the USSD Parties engaged in discussions to dismiss the Jessica Allegations. See Opp'n at 12. The Jessica Allegations were ultimately dismissed with prejudice in March 2019. See Dkt. 61.

D. Status Conference, Supplemental Briefs, and Oral Hearing

On July 7, 2019, the parties appeared for a status conference before the District Judge. See Dkt. 94. After the Rinehart Parties presented some of the facts underlying the Motion, the District Judge ordered the depositions of Auza, Doaiji, and Josh George (identified by Doaiji as “Matt” in the Jessica Audio Recording), continued the hearing date, and assigned the Motion to the undersigned Magistrate Judge. See id.; Dkt. 125 (“Supp. Harris Decl.”) ¶ 6, Ex. A (6/7/19 Hearing Transc.”). The parties agreed to submit supplemental briefing once the depositions were taken. See id.

Although the additional depositions did not reveal the person(s) behind the Jessica Allegations, the Rinehart Parties argue that Mattera engaged in attempted extortion and obstruction of justice. See Rinehart Supp. at 4-8. Additionally, they argue that post-Motion discovery revealed that Fortis withheld responsive, exculpatory documents in order to advance Mattera's alleged crimes. See id. at 5-8. For example, the Rinehart Parties contend that Mattera knew the Hermosa Police Report was bogus yet nevertheless instructed Auza to lie and say it was authentic at his deposition, all the while telling his lawyers to “bury” it. See id. at 13-17. The document was not produced but was provided by Auza at his deposition. See id. at 13. Other withheld documents include a Suspected Child Abuse Report that Mattera and his counsel filed in July 2018, a fake receipt for work performed by Jessica for Hargraves, an email from Harvgraves to Jessica, a report delivered to Mattera by Auza indicating that Hargraves sold drugs, and text messages between Rinehart and Jessica. See id. at 17-19.

*4 The USSD Parties respond that nothing links them to the Jessica Allegations, and it was Rinehart who acted inappropriately through his contacts with Jessica/Doaiji and Auza. They note that starting in January 2019, Rinehart and Auza exchanged over 200 messages pertaining to the Jessica Allegations. See Supp. Harris Decl. ¶ 7, Ex. B. In some of these texts, Auza claims that a “multinational obscure organization” hired him to “infiltrate” Mattera's inner circle. Id., Ex. 203 at KR019022. In others, Auza sets out a fantastic story regarding drugging and smuggling Doaiji into the United States from Mexico. Id. at KR019013 (“[T]his is going to become a situation where we are literally smuggling [Doaiji] into the states to appear.”), 19036 (“[Doaiji] is being extracted next week.”), 19038 (“I got a call already [Doaiji] is being brought in overnight.... [S]he will be asleep the whole time, and dropped in a safe house in [San Diego].”), 19040 (“I just got the call. [Doaiji] is in the US. She is in [San Diego], sedated, in a safe place.”), 19040 (“Target secured.”).

As for Doaiji, she repeatedly testified at her deposition that she could not remember incidents due to her mental issues. See Supp. Harris Decl., Ex. H (“Doaiji Depo.”) at 91:4-24 (stating she was “off mentally,” “manic,” “dissociative,” and that “everything[ was] so hazy” because “my meds were off”), 220:1-221:17 (stating she didn't remember if she made it to Mexico, if she traveled south, or whether she went by herself or with others). Josh George continued to maintain that he had never met Doaiji nor had anything to do with the Jessica Allegations. See Harris Decl., Ex. M (“George Depo.”).

At the oral hearing, the Rinehart Parties reiterated their belief that Mattera engaged in attempted extortion and obstruction of justice and that Fortis assisted his wrongdoing by withholding and concealing documents. The USSD Parties acknowledged that Mattera made some “ill-advised statements” but maintained there was no nexus between any alleged wrongdoing and privileged communications.

II. STANDARD OF REVIEW

In a federal action based on federal question jurisdiction, federal common law governs claims of privilege. See Fed. R. Evid. 501; see also United States v. Zolin, 491 U.S. 554, 562 (1989).

While the attorney-client privilege is “arguably most fundamental of the common law privileges recognized under Federal Rule of Evidence 501,” it is “not absolute.” In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1090 (9th Cir. 2007). Under the crime-fraud exception, communications are not privileged when the client “consults an attorney for advice that will serve him in the commission of a fraud or crime.” Id. (quoting Clark v. United States, 289 U.S. 1, 15 (1933)). To invoke the crime-fraud exception, a party must “satisfy a two-part test”:

Id. (quoting In re Grand Jury Proceedings, 87 F.3d 377, 381 (9th Cir. 1988)) (alteration and emphasis added in In re Napster). “The attorney need not have been aware that the client harbored an improper purpose,” as it is “the client's knowledge and intent that are relevant.” Id. “The client's abuse of the attorney-client relationship, not his or her successful criminal or fraudulent act, vitiates the privilege.” Id.

Where outright disclosure is requested, the burden of proof is preponderance of the evidence, and the non-moving party may introduce countervailing evidence. See id. at 1093, 1095. A lower threshold showing of “a factual basis adequate to support a good faith belief” applies when the moving party requests only that the court conduct an in camera review of the allegedly privileged communications to determine if the crime-fraud exception applies. Zolin, 491 U.S. at 572.

III. DISCUSSION

*5 The Rinehart Parties argue they have established a prima facie showing of attempted extortion and obstruction of justice. Looking at the evidence presented, the Court concludes that the Rinehart Parties have failed to show that the crime-fraud exception applies to make any of the protected documents discoverable.

A. In Camera Review

After the oral hearing, the Court issued a minute order, finding that the Rinehart Parties' allegation of obstruction satisfied the minimal standard of proof established in Zolin such as to justify limited in camera review. See Dkt. 152. The Court ordered Fortis to deliver to chambers attorney-client communications that took place between January 1 and February 15, 2019. See id. The Court emphasized that the order should not be construed to suggest the Court's disposition on the pending Motion. See id.

The Court has now completed its review of the more than 1,000 documents provided. In so doing, the Court first examined the documents to determine in the first instance whether they were relevant, and, if so, were protected by the attorney-client privilege. After that, the Court conducted a second review to focus on whether any otherwise protected document fell within the crime-fraud exception.

B. Attempted Extortion

The Rinehart Parties allege that Mattera committed attempted extortion in violation of the Hobbs Act and California law when he directed Tyler Martin to tell Rinehart that he needed to settle, otherwise USSD would use Jessica to “ruin” him. Mot. at 16-21.

The Hobbs Act defines “extortion” as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” 18 U.S.C. § 1951(b). California's statute defines it similarly: “the obtaining of property or other consideration from another, with his or her consent, or the obtaining of an official act of a public officer, induced by a wrongful use of fear, or under color of official right.” Cal. Penal Code § 518.

Even crediting Martin's Declaration, the Rinehart Parties have not made a sufficient showing that Mattera's communications constituted attempted extortion. On this point, Sosa v. DIRECTV, Inc., 437 F.3d 923 (2006) is instructive. In that case, the Ninth Circuit considered whether claim-settlement letters sent by DIRECTV constituted “extortion” within the meaning of the Hobbs Act and California law. Id. at 939. The Ninth Circuit declined to adopt a broad construction of the Hobbs Act, explaining that “[t]he use of fear must be wrongful,” and although “the assertion of weak claims predicated on unsupportable factual allegations may be said in some sense to be wrongful,” an individual is not liable under the Hobbs Act or California's extortion statute for “threats of litigation where the asserted claims do not rise to the level of a sham.” Id. at 939-40.[2]

In August 2018, when Mattera allegedly had Martin communicate his demands to Rinehart, the evidence indicates that the USSD Parties had a good faith belief that the Jessica Allegations were credible.[3] At that time, Auza was continuing the charade of Jessica's existence, even putting her on the phone with Fortis to affirm that she had sexual relations with Rinehart. See Hardeman Decl. ¶ 24. It was not until January 2019 that Fortis became suspicious of Auza after he provided the fake Hermosa Police Report. See Harris Decl. ¶ 38. Consequently, Mattera's “threats” to put the Jessica Allegations front and center unless Rinehart settled do not constitute attempted extortion. See Rothman v. Vedder Park Management, 912 F.2d 315, 318 (9th Cir. 1990) (holding that alleged threats were not wrongful and noting the general rule that “what you may do in a certain event you may threaten to do, that is, give warning of your intention to do it in that event, and thus allow the other person the chance of avoiding the consequences”). Additionally, it is not evident that Mattera's communications induced “fear” in Rinehart considering his outspoken and steadfast belief that the Jessica Allegations were untrue and that he wouldn't settle. See Dkt. 73-6 (“Martin Supp. Decl.”) ¶ 27.

*6 In all, while Mattera may have been too aggressive in communicating his desires to “ruin” Rinehart, his actions do not rise to the level of attempted extortion.[4]

C. Obstruction

Second, the Rinehart Parties contend that Mattera obstructed justice by instructing Auza to falsely testify at his deposition. Id. at 21-22.

“By its terms, [18 U.S.C.] § 1512(b) prohibits four specific categories of conduct directed toward witnesses: (1) intimidation, (2) physical force, (3) threats, and (4) corrupt persuasion.” United States v. Khatami, 280 F.3d 907, 911 (9th Cir. 2002). The last category includes “non-coercive attempts to persuade witnesses to lie.” Id. at 914.

In support, the Rinehart Parties point to recorded conversations that took place shortly before Auza's February 2019 deposition. Mattera tells Auza to say he does not remember the lawyer that Jessica was referred to: “Don't you see what I did? Don't you understand what I did, by getting her to [Kohan] and for [Kohan] to say OK, you don't have to answer that question. All you have to say is ‘that's attorney-client privilege between you and her.’ ‘Do you know anything about it?’ Say ‘All I know is she has an attorney, I don't really know who ... I don't remember his name.” Mot. at 13; Id., Ex. A at KR011187. Mattera later tells Auza to say he discouraged Jessica from coming forward and that Auza could “tell Jessica what to say later.” Id. at KR011188. And at the hearing, the Rinehart Parties referred to a recorded conversation in which Mattera tells Auza, “When they ask you about digital files, you lie.”

Mattera's conversations with Auza are troubling, as acknowledged by his own attorneys. But even if Mattera engaged in obstruction by encouraging Auza to lie, there has not been a showing sufficient to meet the second prong of the crime-fraud exception: that attorney-client communications were related to and in furtherance of the conduct at issue.

Indeed, after examining each of the 1000+ documents, the Court did not find a single one that appears connected to a claim of obstruction of justice or witness tampering. There is hardly any mention of Auza's deposition and there is certainly no evidence that Fortis encouraged Mattera to interfere with Auza's testimony.[5] In fact the documents suggest the opposite—that Fortis repeatedly encouraged Mattera to not contact Auza.

What the Court did find were communications about slowing down discovery while the Jessica story fell apart. Documents and interrogatory responses were eventually produced, but only after significant arm-twisting by opposing counsel. But while the Court would never condone discovery heel-dragging, those efforts, without more, do not establish a nexus to any alleged tampering or obstruction. Holding otherwise would pay little respect to the “importance of the attorney-client privilege and the potentially irreparable consequences of disclosure.” In re Napster, 479 F.3d at 1090; see also United States v. Mett, 178 F.3d 1058, 1065 (9th Cir. 1999) (“[H]ard cases [concerning attorney-client privilege] should be resolved in favor of the privilege, not in favor of disclosure.”).

*7 In the absence of any reference to encouraging Auza to lie, or any other information suggesting obstruction or tampering, the Court concludes that the Rinehart Parties have failed to show that the crime-fraud exception applies.

IV. CONCLUSION

The Court recommends that the Motion be DENIED. Under 28 U.S.C. § 636, any objections to this recommendation should be filed within fourteen (14) days of the date of this order.