Westgate Resorts, Ltd. v. Wesley Fin. Grp., LLC
Westgate Resorts, Ltd. v. Wesley Fin. Grp., LLC
2021 WL 6882148 (M.D. Tenn 2021)
October 4, 2021
Frensley, Jeffery S., United States Magistrate Judge
Summary
The court ruled that Westgate may depose Mr. Grauberger on topics for which he is the sole Wesley designee in its Initial Disclosures and information related to his personal communications with existing and potential customers, but must not inquire into any other areas, including litigation strategy or any privileged information. Wesley must also designate an appropriate corporate representative to testify regarding Wesley's interrogatory responses and Mr. Grauberger's Declaration.
Additional Decisions
WESTGATE RESORTS, LTD, et al., Plaintiffs,
v.
WESLEY FINANCIAL GROUP, LLC, and CHARLES WILLIAM MCDOWELL III, Defendants
v.
WESLEY FINANCIAL GROUP, LLC, and CHARLES WILLIAM MCDOWELL III, Defendants
Case No. 3:20-cv-00599
United States District Court, M.D. Tennessee, Nashville Division
Filed October 04, 2021
Counsel
Jeffrey Aaron Backman, Pro Hac Vice, Richard W. Epstein, Pro Hac Vice, Benjamin Eliot New, Jeffrey A. Backman, Greenspoon Marder LLP, Ft. Lauderdale, FL, Gregory C. Logue, Sr., Woolf, McClane, Bright, Allen & Carpenter, PLLC, Knoxville, TN, Olga M. Vieira, Pro Hac Vice, Greenspoon Marder, LLP, Miami, FL, Robert Lee Vance, Woolf, McClane, Bright, Allen & Carpenter, PLLC, Knoxville, TN, for Plaintiffs Westgate Resorts, Ltd., Westgate Vacation Villas, LLC, Westgate Lakes, LLC, Westgate GV at the Woods, LLC, Westgate Towers, LLC, Westgate Flamingo Bay, LLC, Westgate Myrtle Beach, LLC, Westgate Palace, LLC, Westgate GV at Emerald Pointe, LLC, Westgate GV at Painted Mountain, LLC, Westgate Las Vegas Resort, LLC, Westgate Blue Tree Orlando, Ltd., Westgate Daytona, LLC, Westgate RVS Orlando, LLC, Westgate South Beach, LLC, Westgate GV at Tunica, LLC, Westgate Resorts, Inc.Aubrey B. Harwell, Jr., Erik C. Lybeck, John E. Quinn, Neal & Harwell, PLC, Nashville, TN, for Defendants.
Frensley, Jeffery S., United States Magistrate Judge
ORDER
I. INTRODUCTION
*1 In this lawsuit involving the timeshare industry, Plaintiffs Westgate Resorts, Ltd. and affiliated Westgate entities (collectively, “Westgate”) allege that Defendants Wesley Financial Group, LLC and Charles William McDowell III (collectively, “Wesley”) violated the Lanham Act (15 U.S.C. § 1125(a)) and the Florida Deceptive and Unfair Trade Practices Act (Fla. Stat. § 501.201, et seq.) by actions related to Wesley's advertising, marketing, and timeshare cancellation services. Docket No. 104 (Amended Complaint), p. 17-25. Wesley denies the allegations and has filed a Motion to Dismiss, which was denied. Docket Nos. 105, 136.
This matter is now before the Court upon Wesley's “Motion to Quash a Subpoena to Testify at a Deposition and for a Protective Order.” Docket No. 159. Wesley has also filed a Supporting Memorandum. Docket No. 160. Westgate has filed a Response in Opposition and Wesley has filed a Reply. Docket Nos. 161, 167. For the reasons set forth below, Wesley's Motion (Docket No. 159) is DENIED.
II. LAW AND ANALYSIS
A. Discovery Under the Federal Rules
1. Generally
In general, the scope of discovery extends to nonprivileged information that is relevant to any party's claim or defense, regardless of whether the information sought is admissible, that is “proportional to the needs of the case.” Fed. R. Civ. P. 26(b)(1). The Rules were amended, effective December 1, 2015, in part to address the alleged costs and abuses attendant to discovery. Under Rule 26, “[t]here is now a specific duty for the court and the parties to consider discovery in the light of its ‘proportional[ity] to the needs of the case ....’ ” Turner v. Chrysler Grp. LLC, No. 3:14-1747, 2016 WL 323748 at *1, 2016 U.S. Dist. LEXIS 11133 at *2 (M.D. Tenn. Jan. 27, 2016), quoting Fed. R. Civ. P. 26(b)(1). The following factors are relevant to a consideration of whether the scope of discovery is proportional:
(1) the importance of the issues at stake in the action,
(2) the amount in controversy,
(3) the parties' relative access to relevant information,
(4) the parties' resources,
(5) the importance of the discovery in resolving the issues, and
(6) whether the burden or expense of the proposed discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1) (numbering added). “Nevertheless, the scope of discovery is, of course, within the broad discretion of the trial court.” United States v. Carell, No. 3:09-0445, 2011 WL 2078023 at *5, 2011 U.S. Dist. LEXIS 57435 at *5 (M.D. Tenn. May 26, 2011), quoting Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 402 (6th Cir. 1998) (internal quotation marks omitted).
The Court has the authority under Rule 26(b)(2)(C) to limit the frequency or the extent of discovery otherwise allowed by the rules. The Sixth Circuit has observed that “the desire to allow broad discovery is not without limits and the trial court is given wide discretion in balancing the needs and rights of both plaintiff and defendant.” Surles v. Greyhound Lines, Inc., 474 F. 3d 288, 305 (6th Cir. 2007), quoting Scales v. J. C. Bradford, 925 F. 2d 901, 906 (6th Cir. 1996). As to the judge's role in discovery disputes, “[t]he revisions in Rule 26(b)(2) are intended to provide the court with broader discretion to impose additional restrictions on the scope and extent of discovery.” Surles, 474 F. 3d at 305. That sentiment has continued through subsequent revisions to Rule 26 including the most recent ones.
*2 The Court also possesses inherent authority to manage litigation. As noted by the First Circuit, “[a]s lawyers became more adept in utilizing the liberalized rules ... [t]he bench began to use its inherent powers to take a more active, hands on approach to the management of pending litigation.” In re San Juan DuPont Plaza Hotel Fire Litigation, 859 F. 2d 1007, 1011 (1st Cir. 1988). “The judiciary is ‘free, within reason, to exercise this inherent judicial power in flexible pragmatic ways.’ ” Id. at 1011, n.2, quoting HMG Property Investors, Inc. v. Parque Indus. Rio Canas, Ins., 847 F. 2d 908, 916 (1st Cir. 1988).
2. Depositions and Enforcement by Subpoena
The Federal Rules of Civil Procedure provide that a party may depose “any person, including a party, without leave of court .... The deponent's attendance may be compelled by subpoena under Rule 45.” Fed. R. Civ. P. 30(a)(1). “On timely motion, the court for the district where compliance is required must quash or modify a subpoena that ... requires disclosure of privileged or other protected matter, if no exception or waiver applies ....” Fed. R. Civ. P. 45(d)(3)(A)(iii). “A person withholding subpoenaed information under a claim that it is privileged or subject to protection as trial-preparation material must: (1) expressly make the claim; and (ii) describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim.” Fed. R. Civ. P. 45(e)(2)(A).
3. Protective Orders
A motion for a protective order is available to “a party or any person from whom discovery is sought.” Fed. R. Civ. P. 26(c). The court may “issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense” when justice requires. Fed. R. Civ. P. 26(c)(1). Good cause for the issuance of a protective order is established with “specific facts showing ‘clearly defined and serious injury’ resulting from the discovery sought and cannot rely on merely conclusory statements.” Nix v. Sword, 11 F. App'x 498, 500 (6th Cir 2001) quoting Avirgan v. Hull, 118 F.R.D. 252, 254 (D.D.C. 1987).
B. The Attorney-Client Privilege and Depositions of Counsel
The Sixth Circuit has established the following elements with regard to attorney-client privilege:
(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence, (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or the legal adviser, (8) except the protection be waived.
Arkwright Mutual Ins. Co. v. National Union Fire Ins. Co., No. 93-3084, 1994 WL 58999 at *5, 1994 U.S. App. LEXIS 3828 at *17-18 (6th Cir. Feb. 25, 1994), quoting U.S. v. Goldfarb, 328 F.2d 280 (6th Cir. 1964). The party asserting the attorney-client privilege has the burden of demonstrating that the privilege applies. Fed. R. Civ. P. 26(b)(5); In re Grand Jury Investigation No. 83-2-35, 723 F.2d 447, 450 (6th Cir. 1983).
Courts have recognized the potential for conflict between the privileged nature of some information held by an attorney knowledge and a party's right to depose “any person.” The leading case in this area is Shelton v. American Motors Corp., where the Court of Appeals for the Eighth Circuit articulated a three-prong test for determining whether a party may depose opposing counsel: (1) when no other means exist to obtain the information; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case. Shelton v. Amer. Motors Corp., 805 F.2d 1323, 1327 (8th Cir. 1986). The Sixth Circuit has adopted the “Shelton test” in full. Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 628 (6th Cir. 2002).
C. Wesley's Motion to Quash
*3 Westgate has served a subpoena upon and noticed the deposition of Stephen Grauberger, who until recently served as Wesley's General Counsel. Docket No. 159-1. Wesley contends that Mr. Grauberger's deposition should not be taken because he was “integrally involved in all of Wesley's litigation decisions for the entirety of this lawsuit” and any testimony he might provide “carries a high risk of inadvertently revealing information protected by the attorney-client privilege or the attorney-work [sic] product doctrine.” Docket No. 160, p. 1. Wesley outlines the number of ways that Mr. Grauberger has been involved in this matter, concluding that he was “a key member of Wesley's litigation team ....” Id. at 2-3. Westgate argues that “Wesley made Mr. Grauberger a fact witness, and he is not exempt from discovery just because he happens to be a lawyer.” Docket No. 161, p. 1.
“Ordinarily a party has no standing to seek to quash a subpoena issued to someone who is not a party to the action, unless the objecting party claims some personal right or privilege with regard to the documents sought.” 9A Charles Alan Wright and Arthur R. Miller, et al., Federal Practice and Procedure § 2549 (3d ed.); see also United States v. Llanez-Garcia, 735 F.3d 483, 498 (6th Cir. 2013). As a preliminary matter, the Court finds that Wesley's claim of privilege over the information at risk of disclosure in any deposition of Mr. Grauberger confers standing upon Wesley to pursue relief from the subpoena.
1. Applicability of the Shelton Test
Wesley contends that the propriety of Mr. Grauberger's deposition should be assessed under the Shelton test because the test is “aptly applied to any situations where deposition of opposing counsel carries the risk that the attorney's testimony might reveal litigation strategy related to the case.” Docket No. 160, p. 6. Wesley adds that “the applicability of the Shelton test turns upon whether the attorney was involved in directing litigation, not whether the attorney did so as part of an outside law firm or an in-house legal department.” Id. at 7. Westgate responds that “in making Mr. Grauberger a fact witness, Wesley removed him from the scope of the Shelton test.” Docket No. 161, p. 1.[1]
The Court finds that the Shelton test is applicable to this situation. Westgate does not dispute Wesley's assertion that Mr. Grauberger:
• Served as a point person for all communications between Wesley and its trial counsel, both before and after this case was transferred from the Middle District of Florida;
• Spear-headed and oversaw the transition of the case from predecessor trial counsel in Florida to current trial counsel in Tennessee, including ensuring that case strategy remained consistent throughout the transition;
• Spoke regularly (often multiple times per week) with trial counsel regarding all aspects of this litigation;
• Reviewed, revised, and approved all Court filings submitted in this matter; [and]
• Oversaw the preparation of discovery responses and the gathering of responsive documents for production ....
Docket No. 160, p. 2.
Westgate does dispute the final item in this list (omitted above), that Mr. Grauberger “[g]enerally directed litigation strategy,” arguing that this assertion is “[w]ithout any evidentiary basis ....” Docket No. 161, p. 10; see Docket No. 160, p. 2. Instead, Westgate contends that Wesley “believed Mr. Grauberger was an appropriate witness and intended to rely on him as a witness” because:
*4 Wesley identified him as a witness on broad categories, without designating any other witnesses on those same categories, Wesley had him verify substantive interrogatories without referencing any other employees who provided the underlying information, and Wesley had him submit a declaration on substantive issues to address the most significant issue that has been litigated in this case.
Docket No. 161, p. 10. As further discussed below, the Court finds that Wesley's designation of Mr. Grauberger as the sole witness for certain topics does open the door to his deposition; however, the Court does not find that any of Wesley's conduct with regard to Mr. Grauberger removes this dispute from analysis under the Shelton test.
To the extent that Westgate argues that “the Shelton test should only be applied where the disclosure of litigation strategy is at issue” (Docket No. 161, p. 8), the Court finds that Wesley has established that Mr. Grauberger's involvement in this matter raises the risk that litigation strategy will be disclosed in the course of his deposition. Because this case was transferred from another District and Wesley experienced a corresponding change in trial counsel, it is especially understandable that in-house counsel would have a central role in ensuring continuity in litigation strategy. The dispute over Mr. Grauberger's deposition will therefore be analyzed under the Shelton framework.
2. Propriety of Mr. Grauberger's Deposition Under the Shelton Test
a) No other means exist to obtain the information sought.
Wesley contends that “there clearly are other means to obtain the information at issue,” including “a myriad of other individuals employed by Wesley who have the same (indeed, better) knowledge” of the issues about which Westgate wishes to depose Mr. Grauberger. Docket No. 160, p. 11-12. Wesley proposes that Westgate seek information from one or more of these other persons, either individually or in the capacity of a corporate representative. Id.
In response, Westgate argues that there are several areas where Mr. Grauberger appears to have unique knowledge. Docket No. 161, p. 14-17. Westgate asserts that:
Mr. Grauberger is clearly the correct person to answer questions about his testimony in his declaration and the substantive interrogatories he verified, as well as on the topics on which he was disclosed as a witness, and as to the interactions he personally had with Wesley customers. No one else can answer questions about his knowledge as to those topics, where he put his personal knowledge at issue.
Id. at 15.
Westgate contends that Mr. Grauberger has unique and crucial information related to the following categories. First, as to topics for which he was designated by Wesley in its Initial Disclosures: “Wesley's business structure, offices, employees, assets, licensing, recordkeeping, policies, practices, procedures, contracts, and litigation matters.” See Docket No. 161-1, p. 2. Regarding the topics of Wesley's business structure, offices, employees, assets, licensing, recordkeeping, practices, policies, and procedures, Mr. Grauberger appears to be the only person so designated.[2] See Docket No. 161-1. Second, as to Wesley's interrogatory responses, which Mr. Grauberger verified. See Docket No. 163-1, p. 7. Third, topics related to Mr. Grauberger's Declaration that Wesley submitted in support of a Reply brief related to a motion for a protective order (Docket No. 100-2). Fourth, the topic of Mr. Grauberger's involvement in direct communications with Wesley's existing or potential customers. Docket No. 161, p. 11-12.
*5 Deposition of opposing counsel is disfavored for good reason. As the Shelton Court noted:
Taking the deposition of opposing counsel not only disrupts the adversarial system and lowers the standards of the profession, but it also adds to the already burdensome time and costs of litigation. It is not hard to imagine additional pretrial delays to resolve work-product and attorney-client objections, as well as delays to resolve collateral issues raised by the attorney's testimony. Finally, the practice of deposing opposing counsel detracts from the quality of client representation. Counsel should be free to devote his or her time and efforts to preparing the client's case without fear of being interrogated by his or her opponent. Moreover, the “chilling effect” that such practice will have on the truthful communications from the client to the attorney is obvious.
Shelton, 805 F.2d at 1327.
The Court is mindful of these concerns and loath to permit the deposition of an attorney who has been involved in directing litigation. Yet in this instance, it is a problem of Wesley's own making. By designating Mr. Grauberger as a witness in its Initial Disclosures, and making him the only such witness designated for certain topics, Wesley has created a situation where it is unavoidable that Mr. Grauberger will be the person best suited, by definition, to answer questions on those topics. A similar situation exists with regard to the interactions Mr. Grauberger had personally with customers and potential customers, as demonstrated by the multiple letters and emails that purport to be written and signed by him, in some instances clearly identifying himself as Wesley's General Counsel. See, e.g. Docket Nos. 163-3; 163-4; 163-5; 163-6; 163-10; 163-11; 163-13; 163-14; 163-15. By directing or permitting Mr. Grauberger to send these letters and emails, Wesley injected him into its business operations such that he cannot fail to be the most appropriate witness to answer questions about those letters and emails. Mr. Grauberger's conduct is very different from that of the in-house attorney in Shelton (a case that involved a jeep rollover accident), about whom the Court observed:
In house counsel in this case had nothing to do with this lawsuit except to represent her client. She did not design the jeep or have any duties in relation to the design of the jeep; nor, of course, was she a witness to the accident.
Shelton, 805 F.2d at 1330.
Mr. Grauberger's communications with customers and potential customers suggests that he did more than advise his client; he appears to have been involved with the business practices that are at the heart of the claims and defenses of this case. For this reason, and because Wesley has chosen to designate Mr. Grauberger in its Initial Disclosures as the sole source of information as to certain topics, the Court finds that Westgate may depose Mr. Grauberger about his personal communications with customers and potential customers and those topics on which Mr. Grauberger is the sole designee.
The situation is different when it comes to Wesley's interrogatory responses and Mr. Grauberger's Declaration. Wesley argues that these documents contain only corporate knowledge gathered from other Wesley personnel, not Mr. Grauberger's personal knowledge, and that Mr. Grauberger signed them as a result of logistical difficulties caused by the COVID-19 pandemic. Docket No. 160, p. 3. The Court has examined the documents, and agrees that they appear to contain corporate knowledge. See Docket Nos. 100-2; 163-1. The Court finds that at this time, Westgate has not demonstrated that this corporate knowledge cannot be examined by questioning a different witness who will not pose the same risk of exposing privileged information and creating the many difficulties enumerated by the Shelton Court. Therefore, the Court will restrict Mr. Grauberger's deposition to the topics discussed above, and not permit him to be questioned on the interrogatory responses or the Declaration. But, the Court will require Wesley to identify a corporate representative to testify to those topics.
b) The information sought is relevant and nonprivileged.
*6 Wesley does not address this factor, and although Wesley contends that the risk of revealing privileged information is high, it does not assert that Westgate is specifically seeking privileged information. See Docket Nos. 160, 167. Westgate maintains that it intends to question Mr. Grauberger “primarily as to Wesley policies, practices, and procedures, and to a lesser extent, as to business structures,” and “matters in which he was personally involved, typically relating to his interactions with Wesley customers.”[3] Docket No. 161, p. 18. Wesley does not dispute the relevance of these topics, and the Court finds that they are relevant under the broad standard for relevance in discovery. Neither does Wesley provide any evidence or argument that would support a finding that any of these topics are themselves privileged. Of course, the question of whether information sought by a particular question is privileged must be assessed individually on a case-by-case basis. See Auto-Owners Ins. Co. v. A.G.O. Contracting, Inc., No. 3:14-1353, 2015 WL 13845881 at *2, 2015 U.S. Dist. LEXIS 195361 at *4 (M.D. Tenn. Sept. 10, 2015) (privilege cannot be established as a “blanket” claim, but must be asserted, challenged, and examined on a document-by-document basis).
c) The information is crucial to the preparation of the case.
Wesley does not address this factor. See Docket Nos. 160, 167. Westgate asserts that “Mr. Grauberger's testimony – what he has already put at issue, and the additional knowledge that he has – is crucial to the issues in this case for all the reasons set forth throughout this response.” Docket No. 161, p. 19. As to Mr. Grauberger's personal interactions with existing and potential customers, Westgate has identified as crucial the following “wide range of topics,” including:
(i) [U]sing his title as Wesley's general counsel to reassure hesitant prospects and sell Wesley's supposed services, (ii) explaining exit fees to Wesley's customers, (iii) offering significant discounts to induce customers to pay in advance, (iv) leading Wesley customers to believe they are getting legal assistance by assuring them that Mr. Grauberger is personally monitoring the supposed process, (v) suspending the running of Wesley's contract term when Wesley is concerned about Westgate not foreclosing fast enough, (vi) personally making promises to sell Wesley's supposed services to hesitant prospects, (vii) sending letters to customers, to present to lenders or others, claiming the supposed process will work, explaining the negative credit reporting Wesley customers will experience, and detailing the credit repair Wesley will provide, (viii) personally approving customer refunds or negotiating partial customer refunds.
Docket No. 161, p. 11-12.
As to the topics for which Wesley has made Mr. Grauberger the sole designee in its Initial Disclosures, Westgate argues that they are crucial because:
While those may seem to be mundane issues, there is real application. For example, the parties are currently working through a dispute over whether Wesley actually provides credit repair services, whether it does so in a deceptive and unfair manner by violating applicable statutes, and the impact on the customers and Westgate. Wesley's business structure, including its efforts to shield its credit repair services in a separate entity ... are relevant, and Mr. Grauberger is the only witness disclosed on that topic.
...
Wesley has several policies or procedures that are central to this case, including for example only, policies relating to how to handle Wesley customers stopping payments to Westgate, and policies relating to how to handle the fact that Wesley customers will have to perjure themselves as part of any agreement with Westgate for voluntary cancellation.
...
Separate from the policies, however, are Wesley's actual business practices. Based on their disclosures, it would appear Wesley acknowledges a distinction between policies—the scripted, self-serving position of the company as to a particular issue—and the company's actual practices. In fact, based on the discovery to date, it appears there is a significant gap between the company's policies, and its actual practices, as implemented by its business leaders.
*7 Id. at 15-16.
For these reasons, the Court finds that Westgate has established that information about Mr. Grauberger's direct personal interactions with existing and potential customers and the topics on which he is the sole designee is crucial.
III. CONCLUSION
For the foregoing reasons, Wesley's Motion (Docket No. 159) is DENIED. Westgate may depose Mr. Grauberger on the topics for which he is the sole Wesley designee in its Initial Disclosures (Docket No. 161-1) and information related to his personal communications with existing and potential customers. Westgate must not inquire into any other areas, including litigation strategy or any privileged information. To the extent that Mr. Grauberger's counsel believes that a question is inappropriate, counsel may object on the record and instruct Mr. Grauberger not to reveal privileged information. If necessary, the Court will consider related disputes in writing at a later time once both Parties have been able to brief the issues. Further, by no later than October 19, 2021, Wesley must designate an appropriate corporate representative to testify regarding Wesley's interrogatory responses and Mr. Grauberger's Declaration.
IT IS SO ORDERED.
Footnotes
To the extent that there is any dispute on the issue (see Docket No. 161, p. 7-8), the Court finds that Mr. Grauberger's former status as an in-house attorney is irrelevant to and does not, by itself, except him from the application of the Shelton test. As the Shelton Court made clear when applying its test to an in-house attorney, the relevant factors are those related to the privileged information the attorney may possess, not to his or her title. See Shelton, 805 F.2d at 1327; Alomari v. Ohio Dep't of Pub. Safety, 626 F. App'x 558, 573-74 (6th Cir. 2015).
Although Wesley identified him as an “individual likely to have discoverable information ... that the disclosing party may use to support its claims or defenses,” Wesley maintains that “despite his name appearing on Wesley's Rule 26(a)(1)(A)(i) disclosures, Wesley has no intention of calling, and will not call, Mr. Grauberger as a witness at trial.” Docket No. 160, p. 2.
The Court has already explained why the other topics on which Westgate seeks to depose Mr. Grauberger (his Declaration and Wesley's interrogatory responses) will not be permitted at this time.