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Williams v. Big Picture Loans LLC

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

March 16, 2018

LULA WILLIAMS, et al., on behalf of themselves and all individuals similarly situated, Plaintiffs,
BIG PICTURE LOANS, LLC, et al., Defendants.


          Robert E. Payne Senior United States District Judge.

         This matter is before the Court on MATT MARTORELLO'S NOTICE OF MOTION AND MOTION TO QUASH PLAINTIFF'S SUBPOENAS TO ARANCA US, INC. (ECF No. 1) . For the reasons set forth below, the motion will be denied.


         A. Factual Background

         This action-and the primary case to which it is related, Lula Williams, et al. v. Big Picture Loans, LLC, et al., 3:17-cv-461-revolves around the role of Matt Martorello ("Martorello") in the creation of a lending business, Big of Lake Superior Chippewa Indians ("the Tribe").[1] Big Picture offers short-term, high-interest loans through its website. Before Big Picture was formed, Bellicose Capital ("Bellicose"), a company in which Martorello had a significant ownership stake, provided marketing, underwriting, and related services to another lending entity that the Tribe had created. Then, in January 2016, Bellicose was purchased by a separate tribal entity, Tribal Acquisition Company, LLC ("TAC"). TAC dissolved after transferring control of Bellicose to another tribal entity, Tribal Economic Development Holdings, Inc. ("TED"). As part of this transaction, the Tribe and another company, which is managed by a separate entity of which Martorello is president, entered into a note requiring variable payments over the course of a seven-year term ("the Note"). Martorello Certification (ECF No. 1-1) ¶ ¶ 3-4.

         Given the complicated nature of the transaction and the possibility of audits and litigation based on the terms of the Note, Martorello's tax attorneys recommended that he engage a third party to provide a valuation of the Note. Id. ¶ 5. The parties dispute whether Martorello or Bellicose engaged Aranca, Inc. ("Aranca") to complete that valuation. Plaintiffs highlight the report prepared by Aranca ("the Valuation Report"), which states that Aranca "has been engaged by Bellicose ... to conduct valuation analysis and prepare a written report to express an opinion on the 'Fair Market Value' [of] [Bellicose]." Valuation Report (ECF No. 8-2) (Under Seal) at 5. In contrast, Martorello asserts that he engaged Aranca, and the engagement letter between Aranca and Kairos PR, LLC ("Kairos")- an entity of which Martorello was the president-says that Kairos "desires to retain Afranca] to perform certain designated valuation services . . . and to provide [Kairos] with a certain valuation report." Engagement Letter (ECF No. 12) at 1; Martorello Certification ¶ 6. In any event, after Aranca was engaged, Martorello provided it with certain documents, including the documents at issue here, to enable Aranca to accurately valuate the Note. In addition, Martorello's attorneys at times interacted directly with Aranca's employees about the valuation. Martorello Certification ¶¶ 7-8. Aranca then completed the Valuation Report on May 5, 2017. Valuation Report at 1.

         B. Procedural Background

         On June 22, 2017, Lula Williams, Gloria Turnage, George Hengle, Dowin Coffy, and Felix Gillison, Jr. ("Plaintiffs") brought suit in the related case against Big Picture, Martorello, and other tribal entities and officials, alleging that they violated the Racketeer Influenced and Corrupt Organizations Act and Virginia usury laws by conspiring to offer loans to Plaintiffs and other Virginia residents at extremely high annual percentage rates without obtaining the requisite licenses to do so. After Defendants indicated that they would seek dismissal of the Complaint for lack of subject matter jurisdiction and personal jurisdiction, among other grounds, the Court ordered the parties to conduct jurisdictional discovery. Sept. 1 Order (ECF No. 17, Docket No. 3:17-cv-461) . The Court later rejected Defendants' objections to Plaintiffs' third-party subpoenas on the basis that they were "intended to frustrate business operations." Oct. 18 Order (ECF No. 49, Docket No. 3:17-cv-461) at 3; see also Oct. 16 Transcript (ECF No. 48, Docket No. 3:17-cv-461) at 23:4-25.

         Martorello produced a copy of the Valuation Report in the course of jurisdictional discovery. Then, on October 27, 2017, Plaintiffs served a subpoena on Aranca ("the Subpoena") that sought, in relevant part: (1) "[a]ll documents submitted by . . . Martorello ... as part of [Aranca's] engagement with Bellicose"; (2)"[a]ll documents submitted by any third parties that were reviewed and/or considered by [Aranca] as part of [its] business valuation of Bellicose"; and (3)n[a]ll e-mail correspondence between any employee, officer, director, and/or representative of Aranca and . . . Martorello." Subpoena (ECF No. 7-2), Ex. A ¶¶ 1-2, 6. The Subpoena required Aranca to produce the requested documents by November 15, 2017. Subpoena at 1. However, after conferring on November 10, Plaintiffs' counsel, Andrew Guzzo ("Guzzo”), and Aranca's counsel, Fenn Horton III ("Horton"), agreed to extend Aranca's deadline to respond to November 30. Horton then sent Aranca's objections to the Subpoena to Guzzo on November 22. The objections stated in part that certain requests called for information protected by the attorney-client privilege and work-product doctrine. See, e.g., Subpoena Objections (ECF No. 1-1) at 9.[2]

         On November 27, Martorello's counsel contacted Aranca's counsel to notify them that some of Aranca's documents were privileged and should be withheld at Martorello's direction. Boughrum Decl. (ECF No. 12-1) ¶ 8. Then, on November 29, Martorello's counsel, Richard Scheff ("Scheff"), notified Guzzo that he had identified responsive documents in Aranca's possession that were subject to the attorney-client privilege, and that Martorello intended to file a motion for a protective order, or to quash, "by early next week." ECF No. 7-6 at 2.[3]Then, on December 1, Martorello provided Plaintiffs with a privilege log containing 102 documents, asserting that every document therein was protected by the attorney-client privilege, and two also by the work-product doctrine. Boughrum Decl. H 10; Privilege Log (ECF No. 1-1) at 2 0-22.

         When Aranca did not produce any documents by November 30, Guzzo contacted Horton, who expressed his understanding that there was an agreement to give Bellicose "a few more days” to move for a protective order regarding the Subpoena, and that Aranca did not need to respond until that motion was resolved. ECF No. 7-6 at 6. After Guzzo clarified Plaintiffs' expectations, Aranca still did not produce the documents. On December 5, Horton indicated that he was separating non-privileged documents (which would be produced) from privileged documents (which would be withheld pending resolution of "Bellicose's" expected motion). However, he further stated that, if he was "not served soon with [that motion], " he would consider that failurea waiver of the privilege by Bellicose" and would produce both privileged and non-privileged documents. Id. at 2. Aranca subsequently produced the non-privileged documents on December 8, Boughrum Decl. t 15, but it is still withholding the purportedly privileged documents.

         On December 7, Martorello's counsel suggested a meet-and-confer to Plaintiffs' counsel about Martorello's privilege claims. The parties agreed to table that discussion so that Plaintiffs could focus on an upcoming filing deadline in the related case. The meet-and-confer did not occur until December 11. Martorello's counsel then notified Plaintiffs' counsel on December 19 that Martorello did not agree with Plaintiffs' arguments. Id.¶¶ 14, 16-17.

         Martorello finally moved to quash the Subpoena on December 21, 2017. ECF No. 1. He filed the motion in the Northern District of California, where the Subpoena requires Aranca's compliance. See Subpoena at 1; Fed.R.Civ.P. 45(d)(3)(A). After the motion became ripe, that court transferred it here on February 6, 2018 finding that "exceptional circumstances" existed because this Court issued the orders governing the scope of jurisdictional discovery, under which Plaintiffs served the Subpoena. See ECF Nos. 14-15; Fed.R.Civ.P. 45(f).


         The Subpoena was issued pursuant to Fed.R.Civ.P. 45. Under that rule, a subpoena can demand "production of documents, electronically stored information, or tangible things at a place within 100 miles of where the [recipient] resides, is employed, or regularly transacts business." Fed.R.Civ.P. 45(c)(2)(A). However, " [o] n timely motion, " a court "must quash or modify a subpoena that, " as relevant here, "requires disclosure of privileged or other protected matter, if no exception or waiver applies." Id. 45(d)(3)(A)(iii). Courts have broad discretion in determining whether a movant has established that predicate. See Cook v. Howard, 484 Fed.Appx. 805, 812 (4th Cir. 2012) ("District courts are afforded broad discretion with respect to discovery generally, and motions to quash subpoenas specifically.").

         The Court must first decide whether Martorello has standing to quash the Subpoena. The Subpoena is, of course, directed at Aranca, and not Martorello, who is a party in the related case. "Ordinarily, a party does not have standing to challenge a subpoena issued to a nonparty unless the party claims some personal right or privilege in the information sought by the subpoena." Singletary v. Sterling Transp. Co., 289 F.R.D. 237, 239 (E.D. Va. 2012) (quoting United States v. Idema, 118 Fed.Appx. 740, 744 (4th Cir. 2005)); see also Green v. Sauder Mouldings, Inc., 223 F.R.D. 304, 306 (E.D. Va. 2004).[4] Here, Martorello has credibly asserted that some documents requested in the Subpoena are protected by the attorney-client privilege and the work-product doctrine. Whether those privilege claims should prevail is a separate question that concerns the merits of Martorello's motion to quash, not his standing to bring it. Furthermore, Martorello isa party-[d]efendant] to th[e] litigation, with interests adverse to Plaintiff[s]." Green, 223 F.R.D. at 307. Thus, as in Green, Martorello has standing to challenge the Subpoena on privilege grounds.

         I. Alleged Deficiencies of Subpoena

         Before discussing the substance of his privilege claims, Martorello notes two mistakes by Plaintiffs that, he claims, are fatal flaws to the Subpoena. First, he argues that the Subpoena is "procedurally deficient" because it seeks documents relating to a party, Martorello, that has not asserted jurisdictional defenses, and which have no bearing on other Defendants' jurisdictional arguments. Thus, Martorello says, the Subpoena is merits discovery masquerading as jurisdictional discovery, and Plaintiffs have not engaged in the Rule 26(f) conference required to engage in that merits discovery. Second, Martorello asserts that the Subpoena is "substantively deficient" because it states that Aranca must produce documents pursuant to Rule 34, rather than Rule 45, and this error is not harmless.

         Both arguments are misguided. Martorello's first contention misunderstands the scope of the jurisdictional discovery authorized by the Court. Martorello concedes that Plaintiffs are permitted to serve subpoenas as a part of jurisdictional discovery, as the Court has already recognized. See Oct. 16 Transcript at 23:20-22 ([]I]t's perfectly all right to use any procedural vehicle authorized by the Federal Rules of Civil Procedure in pursuit of the discovery about a jurisdictional issue . . . ."). He contends, however, that documents relating to the Valuation Report could not be relevant to the jurisdictional issues because Martorello himself has not asserted any jurisdictional defenses, and the privileged information only concerns Martorello's tax planning. But these relevance assertions are belied by the fact that Martorello himself produced the Valuation Report in the course of jurisdictional discovery because it contained information about Bellicose's operations. Consequently, it is reasonable for Plaintiffs to believe that communications and documents sent by Martorello to Aranca reasonably can be expected to shed light on Bellicose's operations, and thus it was reasonable for Plaintiffs to seek those documents from Aranca. Therefore, the Subpoena did not exceed on its face the scope of jurisdictional discovery.

         Martorello's second argument overlooks the language of the full Subpoena that Aranca received. Exhibit A to the Subpoena states that Aranca is required to produce the requested documents pursuant to Rule 34. But that exhibit is attached to a form subpoena, which notes throughout that Aranca's obligations are set by Rule 45, and even includes a full page with the relevant text of that rule. See Subpoena at 1, 3. As a result, Aranca would have been fully aware that the rule number mentioned in Exhibit A was a typographical error, which does not make the Subpoena substantively deficient. Thus, both of Martorello's facial attacks on the Subpoena fail, and the Court must turn to the merits of his motion.

         II. Timeliness of Martorello's Objections ...

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