United States District Court, D. New Hampshire
For Rockwood Select Asset Fund XI, (6)-1, LLC, Plaintiff: Norman Williams, Robert F. O'Neill, LEAD ATTORNEYS, PRO HAC VICE, Gravel & Shea PC, Burlington, VT; Finis E. Williams, III, Williams Law Office, Concord, NH.
For Devine, Millimet & Branch, P.A., Karen S. McGinley, Esq., Defendants: James C. Wheat, Wadleigh Starr & Peters, Manchester, NH; Pierre A. Chabot, Wadleigh Starr & Peters PLLC, Manchester, NH.
Joseph N. Laplante, United States District Judge.
This case, based on fraud in the inducement, implicates the contours of the crime-fraud exception to the attorney client privilege. Plaintiff Rockwood Select Asset Fund XI, (6)-1, LLC has sued Karen McGinley, an attorney, and her law firm,
Devine, Millimet & Branch, PA, alleging that Attorney McGinley made false representations about the financial well-being of her client, Martha McAdam, to Rockwood in order to help McAdam obtain a loan from Rockwood. Specifically, Rockwood alleges that (1) Attorney McGinley told Rockwood that no litigation was pending against McAdam as of the date the loan agreement was to be signed when, in fact, Devine was aware of and represented McAdam in pending litigation at that time; and (2) Attorney McGinley informed Rockwood that one of McAdam's tenants in the collateral property, Monster Storage, was independent of McAdam when, in fact, it was not. The court has subject-matter jurisdiction under 28 U.S.C. 1332(a)(1) (diversity).
Rockwood now moves to compel Devine to produce documents prepared by Devine in connection with litigation and communications between Devine and McAdam relating to four topics: (1) an action filed against McAdam in Hamilton County, Ohio, for breach of contract (the " Ohio Action" ); (2) an action filed in New Hampshire by the prevailing Ohio plaintiff to collect the judgment entered against McAdam (the " New Hampshire Collection Action" ); (3) the Rockwood loan itself; and (4) a lease entered into between McAdam and Monster Storage. Devine has withheld these documents as protected by the attorney-client privilege and/or the work product doctrine. Rockwood contends that the crime-fraud exception withdraws that protection from these documents and requests that the court review them in camera to determine whether the crime-fraud exception applies.
After considering the parties' arguments and the evidence submitted in support thereof, the court grants the motion in part and denies it in part. The court will review, in camera, documents relating to the Ohio Action, the New Hampshire Collection Action, and the Rockwood loan, including those created after July 21, 2011. Rockwood has adduced evidence sufficient for a reasonable person to conclude that those documents may reveal evidence that the crime-fraud exception applies. Because Rockwood has not carried its burden with respect to the Monster Storage lease documents, Rockwood's request for in camera review of those documents is denied.
The facts, gleaned from the complaint and the parties' moving papers, are as follows. In 2011, Martha McAdam sought a loan from Rockwood in the amount of $1.65 million dollars. As collateral for the loan, she offered an office building located in Nashua, New Hampshire. She retained defendant Attorney McGinley, a partner in Devine's real estate practice group, to represent her in the negotiation of the loan.
In the days leading up to execution of the loan agreement, Rockwood sought and received certain assurances from McAdam directly and through defendants, her counsel. Most relevant to Rockwood's claims here, Devine issued a written legal opinion stating that it was not aware of any " action, suit, proceeding or governmental investigation"
against McAdam that was " pending or threatened in writing" as of the date of the letter--July 21, 2011. Purjes Affidavit (document no. 22-1), Exhibit H. Devine also assured Rockwood that Monster Storage, one of McAdam's tenants, was independent of McAdam and would thus provide an independent source of revenue from which McAdam could repay the loan. The parties finalized the loan agreement shortly thereafter, and McAdam soon defaulted on her repayments.
After McAdam defaulted, Rockwood alleges, certain uncomfortable facts came to its attention. First, Rockwood learned that, contrary to Devine's representation, litigation had been pending against McAdam on July 21, 2011. Specifically, Rockwood learned that an attorney in Ohio, Jack Donenfeld, won a judgment against McAdam in 2007 on a claim for breach of contract when McAdam failed to pay legal fees owed to him. During the course of that action, the Ohio court found that McAdam had falsified documents and made false statements in an affidavit in support of her opposition to a motion for summary judgment. Donenfeld then sued McAdam in New Hampshire to collect on the Ohio judgment. Devine admits that the New Hampshire Collection Action was pending when Devine assured Rockwood that it was not aware of any suit against McAdam.
Second, Rockwood alleges that it learned that Monster Storage was a pass-through entity owned and controlled by McAdam and her brother--and therefore not the anticipated independent source of revenue for the loan's repayment. Rockwood claims that, had it known these two facts prior to July 21, 2011, it would not have agreed to make the loan.
According to Rockwood, the story does not end there. McAdam continued to engage in fraudulent activity after the loan was disbursed, it claims, and continued to employ Devine to further that activity. A condition of the loan required McAdam to use the proceeds primarily for operations of and improvements to the collateral property. When Rockwood requested proof that McAdam was using the proceeds accordingly, McAdam submitted to Rockwood a set of invoices, bank wire confirmations, and bank statements. Rockwood contends that McAdam fraudulently altered these documents to overstate the amount spent on the improvements by several hundred thousand dollars, that the wire confirmations were falsified, and that the bank statements referenced a nonexistent account. And, Rockwood contends, McAdam did not act alone. For example, Attorney McGinley assured Rockwood that McAdam used the loan proceeds to install 60,000 feet of carpet, though neither McAdam nor Devine substantiated that expenditure.
In early 2012, after McAdam missed several payments, Rockwood pursued its default remedies, including taking ownership and management of the collateral property. McAdam sought a temporary restraining order in Vermont and, two months later, in New Hampshire to prevent Rockwood from doing so. In New Hampshire, Rockwood counterclaimed for, inter alia, fraud, breach of contract, and negligent misrepresentation and ultimately won a default judgment against McAdam. In the course of the New Hampshire default litigation, Attorney McGinley filed an affidavit with the Hillsborough County Superior Court stating that she was " in possession of a new lease" for the space being
vacated by McAdam's principal tenant when no such lease had ever been finalized and the entity identified in the draft lease ultimately produced was unaware that even a draft existed. McAdam herself later testified that she was uncertain whether a lease had ever been signed.
II. Applicable legal standard
Of crucial importance here is that the court is not called upon to resolve the privilege exception issues on this record. At this stage, the court need only determine whether it will conduct an in camera review of the documents in question. The required showing in that regard is not particularly burdensome. As explained below, the quantum of proof required to trigger an in camera review is less ...