Abrahami v. Meister Seelig & Fein LLP

AVISHAI ABRAHAMI, Plaintiff, v. MEISTER SEELIG & FEIN LLP and DANIEL J. DWYER, Defendants.

No. 21-CV-10203 (JFK) (KHP)

United States District Court, S.D. New York

February 22, 2023

OPINION AND ORDER ON MOTION TO COMPEL PRODUCTION OF DOCUMENTS WITHELD AS PRIVILEGED

KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE

Defendants Meister Seelig & Fein LLP (“MSF”) and Daniel J. Dwyer have moved to compel production of approximately 45 documents withheld by Plaintiff's counsel, Seyfarth Shaw LLP (“Seyfarth”), and listed on a privilege log. The grounds for withholding are that the documents are protected by the attorney-client privilege and/or work product doctrine and are otherwise irrelevant to the issues in the case.

BACKGROUND

Plaintiff Avishai Abrahami, founder and Chief Executive Officer of the software company Wix.com, brings this malpractice action against MSF and Dwyer in connection with their representation of him in connection with a $30 million loan he made to two companies within the HFZ Capital Group (“HFZ Borrowers”). (Compl. ¶ 1, ECF No. 1.) Abrahami is Israeli and a resident of Israel. His Israeli lawyer, Shachar Shimony, assisted in retaining U.S. counsel and ultimately retained Defendants to assist with the loan transaction. (Id. at ¶ 21.) Abrahami also engaged Ohad Avital to negotiate the transaction and interact with his lawyers and for which Avital received a commission. (Def. Br 1-2.) The written retainer with Defendants charged Defendants with “negotiating the documentation relating to” to the loan. Defendants worked with Avital and Shimony to prepare the documentation and close the deal. (Shimony Dep. 158:10, ECF No. 75-13.)

According to Plaintiff, a material condition of the transaction was that certain subsidiaries of the HFZ Borrowers were supposed to have assigned their membership interests in LLCs that owned real estate to Abrahami as collateral for the loan. (Def.'s Am. Answer & Countercl. 12-13.) Those assignments were then to be held in escrow by MSF and upon a default, MSF would deliver the assignments to Abrahami. (Id. at 13.) However, the HFZ Borrowers did not actually pledge the LLC interests to Abrahami and the LLC's co-members did not consent to the assignment, both of which were required to create a valid and enforceable security interest. (Pl.'s Resp. 6.) Additionally Defendants failed to conduct a proper UCC-1 search before closing, which would have revealed that another company, Monroe Capital, had issued a loan secured by the same collateral, and that the borrowers had already defaulted on the loan payments.^[1] (Id. at 4.) In other words, Monroe Capital had a superior interest in the collateral. In November 2020, Monroe Capital notified MSF that it had a senior interest in the collateral and was scheduling a UCC sale of assets in December. (Id. at 7.) MSF failed to notify Abrahami about this development. On December 2, 2020, Monroe Capital purchased certain foreclosed assets, including the collateral for Abrahami's loan. On December 16, 2020, Monroe Capital sent another notice to MSF stating that it was the winning bidder at the December 2, 2020 UCC sale. (Id.) MSF sent that notice to Abrahami, but the sale had already occurred and Abrahami was left with an unenforceable assignment. In January 2021, the HFZ Borrowers defaulted on their loan payments to Abrahami. (Id. at 8.) Abrahami terminated Defendants in late January 2021.

Abrahami asked the Chief Legal Officer, Eitan Israeli, of his company to assist in locating counsel to assist with the problem of the defaulting Borrowers and the purchase of the collateral by Monroe Capital. Israeli reached out to Seyfarth. Abrahami formally engaged Seyfarth on February 25, 2021 to enforce his rights under the defaulted loan. (Id.) Shimony, Abrahami's Israeli attorney, and Avital, who negotiated the loan transaction for Abrahami, were included in certain communications with Seyfarth. (Id. at 8-9.)

On March 4, 2021, Abrahami sent the HFZ Borrowers a default notice, prepared by Seyfarth, and copied Monroe Capital on the notice. (Id. at 8.) The notice demanded payment and indicated that Abrahami would direct MSF to release the assignments to him. Monroe Capital demanded that MSF not release the assignments on the grounds that the assignments were a fraudulent conveyance of collateral that the HFZ Borrowers had previously pledged to Monroe Capital, threatening legal action if MSF released the assignments. (Carley Decl. Exh. O, ECF No. 75-15.) MSF did not release the assignments from escrow, notwithstanding its alleged assurance that nothing but a court action by the HFZ Borrowers would interfere with delivery of the assignments.

MSF contends that it was prevented from releasing the escrowed assignments because Monroe Capital threatened to sue and that but for copying Monroe Capital on the default notice, Monroe Capital would not have known that Abrahami was requesting release of the assignments to him. (Def. Br. 18.) Thus, Defendants posit that but for the “tip-off” MSF would and could have released the assignments to Abrahami. Defendants charge Plaintiff with manufacturing an escrow dispute and harming his own claim to the collateral. (Id.) They also contend that to the extent Plaintiff is alleging that MSF committed malpractice by failing to release the assignments from escrow notwithstanding the dispute between Plaintiff and Monroe Capital as to their release, advice by Seyfarth concerning the assignments is relevant to the claims and counterclaims and at issue. (Id. at 18-19.)

The escrow agreement provides that MSF may continue to hold the assignments in escrow until a final order or judgment is entered with respect to the delivery of the assignments. (Def.'s Am. Answer & Countercl. 11.) According to Defendants, Abrahami has not made any effort to resolve the dispute with Monroe Capital. The escrow agreement also states that MSF shall not be liable for a refusal to comply with a demand to release the assignments and that Abrahami will indemnify MSF for damages, costs and expenses incurred in the defense of claims concerning its role as escrow agent and reimburse MSF for reasonable costs and expenses incurred in performing its duty as escrow agent. (Id. at 14.) For this reason, Defendants assert counterclaims against Plaintiff for indemnification, fees and costs relating to this litigation to the extent they arise out of Defendants' role as escrow agent. (Id. at 15.)

THE DOCUMENTS AT ISSUE

Defendants sought discovery on why Abrahami copied Monroe Capital on the default notice to the HFZ Borrowers and alerted it to his intent to seek release of the assignments from MSF as escrow agent. (Def. Br. 17-18.) Plaintiff testified at his deposition that he did not know why Monroe Capital was copied. (Abrahami Dep. 332:25-334:25, ECF No. 75-12.) He declined to answer questions about his communications with Seyfarth, which had prepared the notice, on the ground of privilege.

Plaintiff did not include in his production any communications with Seyfarth, so Defendants subpoenaed Seyfarth seeking communications concerning the decision to copy Monroe Capital on the default notice as well as communications it had with Avital and Shimony. (Def. Br. 7-8.) Seyfarth responded to the subpoena but withheld the documents at issue (all email communications) on the grounds that they are protected by attorney-client privilege and/or the work product doctrine. (Id. at 8.) Plaintiff did not update his privilege log to include the documents on the Seyfarth-produced privilege log. (Id.)

Defendants contend that Abrahami waived privilege by including Avital in 23 communications and by including Shimony on 14 communications with Seyfarth. (Id. at 12.) They also fault Abrahami for not logging the communications on his privilege log and instead only including them on the log produced by Seyfarth. (Id.) Defendants also contend that Plaintiff has put Seyfarth's advice at issue in this litigation and thereby waived privilege. (Id. at 17.)

LEGAL STANDARD

Federal Rule of Civil Procedure 26(b)(1) permits discovery of “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case” considering certain listed factors. “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed.R.Civ.P. 26(b)(1).

In diversity cases such as this, where state law governs the claims, state law defines the scope of the attorney-client privilege. Bank Brussels Lambert v. Credit Lyonnais (Suisse), S.A. 210 F.R.D. 506, 508 (S.D.N.Y. 2002); Kleeberg v. Eber, 2019 WL 2085412, at *6 (S.D.N.Y. May 13, 2019); see also Fed.R.Evid. 501.

“Unlike the attorney-client privilege, the work product protection in diversity cases is governed by federal law.” Bowne of New York City, Inc., 161 F.R.D. 258, 264 (S.D.N.Y. 1995) (citing Fine v. Facet Aerospace Prods. Co., 133 F.R.D. 439, 444-45 (S.D.N.Y. 1990)); see also Fed.R.Civ.P. 26(b)(3-4) (defining trial preparation materials and communications subject to protection).

The party asserting privilege or work product protection bears the burden of showing they apply and have not been waived. See, e.g., United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011); Priest v. Hennessy, 51 N.Y.2d 62, 69 (1980); New York Times Newspaper Div. of NewYork Times Co. v. Lehrer McGovern Bovis, Inc., 300 A.D.2d 169, 172 (App. Div. 2002).

Under New York law, the state law applicable here, a communication is protected by the attorney-client privilege if it was made within the context of an attorney-client relationship for the purpose of obtaining or conveying legal advice and was intended to be and actually confidential. Bowne of New York City, Inc. v. AmBase Corp., 161 F.R.D....