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Sectek, Inc. v. Diamond

United States District Court, E.D. Virginia, Alexandria Division

October 6, 2016

SECTEK INCORPORATED, Plaintiff,
v.
JEANETTE S. DIAMOND Defendant.

          MEMORANDUM ORDER

          Gerald Bruce Lee United States District Judge

         THIS MATTER is before the Court on the Order of Magistrate Judge Michael S. Nachmanoff regarding Defendant Jeanette S. Diamond's ("Diamond") Motion for Entry of Order Allowing Retention and Use of Documents (Doc. 93), Plaintiffs Motion for Protective Order (Doc. 96), and Diamond's objections thereto. The Court sustains Diamond's Objection to the Magistrate Judge's Order on July 12, 2016, and grants her Privilege Waiver Motion for three reasons. First, SecTek did not file its Privilege Log in a timely manner, which amounts to a waiver of privilege. Second, SecTek has failed to meet its burden in proving that the 491 documents in question are privileged. Third, SecTek failed to rectify the inadvertent disclosure within the time frame delineated by the Discovery Plan. Accordingly, the Magistrate Judge erred by denying Diamond's Privilege Waiver Motion.

         BACKGROUND

         Plaintiff SecTek, a Virginia corporation, provides security services to businesses and governments. Doc. 67 at 1-2. Until 2012, Defendant Diamond was the owner of TDG, a Texas corporation also in the security business. Doc. 67 at 2-3. On February 3, 2012 (the "Closing Date"), SecTek, Diamond, and TDG entered into a Stock Purchase Agreement ("SPA") whereby SecTek purchased TDG from Diamond. See Doc 1, 71, 101. Pursuant to the section 3.9 of the SPA, by signing, Diamond warranted that TDG had paid and was up to date on all of its taxes. See SPA 3.9.1. On July 10, 2014, SecTek received notice from the New Mexico Tax Department that TDG owed the New Mexico $1, 180, 483.47 in Gross Receipts Taxes. See Doc. 71-1 at 69 (hereinafter "2014 Tax Assessment"). The 2014 Tax Assessment stated that, if SecTek disputed the total amount due, it should contact the New Mexico Department within 90 days. Id. On September 26, 2014, the Department issued TDG a statement of the account, which included a month-by-month breakdown of the total gross receipts tax owed per month. Doc. 71-1 at 73. Of the months occurring before the Closing Date, TDG owed $533, 085.23, not including taxes and penalties. Id.; see also Doc. 71 at 8-9. In spite of receiving both items, SecTek did not dispute the Tax Assessment until October 14, 2014, six days after the 90-day dispute period expired. Doc. 101-1 at 35-36. From the time SecTek received the Tax Assessment on July, 14, 2014 until October 24, 2014, SecTek did not inform Diamond of the Tax Assessment, nor attempt to contact her to assist in defending it. Id.

         SecTek filed this suit against Diamond on December 8, 2015. Dkt. 1. The parties submitted their Rule 26(f) Joint Proposed Discovery Plan ("Discovery Plan") on March 16, 2016, which was approved by the Court and incorporated into the Rule 16(b) Scheduling Order on March 28, 2016. Docs. 21, 30. In response to document requests by Diamond, SecTek began producing documents around May 8, 2016, with the majority of production made on May 13, 2016. Doc.94, Exh.2 ¶3.

         On June 2, 2016, SecTek filed a Motion for Partial Summary Judgment (Doc. 70), which Diamond opposed (Doc. 81). On June 21, 2016, Diamond filed a brief in opposition to SecTek's Motion for Partial Summary Judgment, wherein she introduced, as an exhibit, an email between SecTek CEO Wilfred Blood and SecTek's New Mexico attorney, Suzanne Wood Bruckner. Doc. 81-3, "Exhibit C".[1] On June 23, 2016, SecTek invoked the claw back provision contained in the Section 16 of the Discovery Plan, and sent a written request to Diamond notifying her that she had inappropriately used Exhibit C. Doc. 119-6. Diamond then re-filed her Opposition with a replacement Exhibit on June 29, 2016. Doc. 88.

         On July 1, 2016, SecTek's counsel sent a letter to Diamond's Counsel, requesting to claw back the production of 491 documents. Doc. 94-1. On July 8, 2016, however, Diamond filed an Motion for Entry of an Order Allowing Retention And Use Of Documents As To Which The Attorney-Client Privilege Has Been Waived and for Expedited Hearing ("Privilege Waiver Motion"). Doc. 93. On July 11, 2016, SecTek filed its Motion for Protective Order and for Sanctions and Opposition to Diamond's Privilege Waiver Motion ("Motion for Protective Order"). Doc. 96. SecTek also filed a privilege log, attached as an exhibit to the Motion for Protective Order. Doc. 96, Exh. 7. On July 12, 2016, Magistrate Judge Nachmanoff held a telephonic hearing on both Motions. Judge Nachmanoff denied both motions by Order on July 12, 2016. Doc. 97.

         STANDARD OF REVIEW

         Federal Rule of Civil Procedure 72(a) permits a party to submit objections to a magistrate judge's ruling on non-dispositive matters. Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A); see also Fed Election Comm'n v. Christian Coal, 178 F.R.D. 456, 459-60 (E.D. Va. 1998). As a non-dispositive matter, the review of a magistrate's discovery order is properly governed by the "clearly erroneous or contrary to law" standard of review. See Jesselson v. Outlet Assocs. of Williamsburg, Ltd. P'ship, 784 F.Supp. 1223, 1228 (E.D. Va. 1991).

         Only if a magistrate judge's decision is "clearly erroneous or contrary to law" may a district court judge modify or set aside any portion of the decision. Fed.R.Civ.P. 72(a). The Fourth Circuit has held that the "clearly erroneous" standard is deferential and that findings of fact should be affirmed unless review of the entire record leaves the reviewing court with "the definite and firm conviction that a mistake has been committed." Harman v. Levin, 772 F.2d 1150, 1153 (4th Cir. 1985) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395(1948)). A decision is considered contrary to law "when it fails to apply or misapplies relevant statutes, case law, or rules of procedure." Attard Indus., Inc. v. U.S. Fire Ins. Co., No. 1:10-cv-121, 2010 WL 3069799 at *1 (E.D. Va. Aug. 5 2010) (citing DeFazio v. Wallis, 459 F.Supp.2d 159, 163 (E.D.N.Y.2006)). The Eastern District of Virginia has noted that for questions of law, "there is no practical difference between review under Rule 72(a)'s contrary to law standard and [a] de novo standard." Bruce v. Hartford, 21 F.Supp.3d 590, 594 (E.D. Va. 2014) (citation omitted). Therefore, the Court reviews the factual findings of the magistrate judge's Order for clear error, and reviews de novo legal conclusions. Id. at 593-94.

         ANALYSIS

         The Court sustains Diamond's Objection to the Magistrate Judge's Order on July 12, 2016, and grants her Privilege Waiver Motion for three reasons. First, SecTek did not file its Privilege Log in a timely manner, which amounts to a waiver of privilege. Second, SecTek has failed to meet its burden in proving that the 491 documents in question are privileged. Third, SecTek failed to rectify the inadvertent disclosure within the time frame delineated by the Discovery Plan.

         A. SecTek's Failure to Issue The Privilege Log in A Timely Manner Amounts To A Waiver of Privilege

         SecTek failed to issue the privilege log in a timely manner. Although the discovery plan does not contemplate a specific due date for the privilege log, Fed.R.Civ.P. 26(b)(5)(A) addresses the issue of when a party is to produce a privilege ...


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