In re Jafroodi

1

In re:MAHMOOD JAFROODI, Debtor.

No. 9:19-bk-11918-MB

United States Bankruptcy Court, C.D. California, San Fernando Valley Division

June 30, 2023

Chapter 7

MEMORANDUM OF DECISION RE: MOTIONS TO COMPEL DEBTOR AND MICHAEL L. KAYLOR TO COMPLY WITH SUBPOENA [DKTS. 597 599]

Martin R Barash United States Bankruptcy Judge

Chapter 7 trustee Jerry Namba (the "Trustee") seeks disclosure of communications between Mahmood Jafroodi ("Debtor") and his attorney Michael L Kaylor.^[1] Although Debtor waived any attorney-client privilege he may hold, Debtor and Mr. Kaylor oppose production of the subject communications on the basis that Azar Jafroodi, Debtor's wife, and 906 Eucalyptus Nursery LLC ("906 Eucalyptus"), an entity affiliated with Debtor, also were clients of Mr. Kaylor's. As a result they contend that Mrs. Jafroodi and 906 Eucalyptus may assert the attorney-client privilege to prevent disclosure of the subject documents. The Trustee objects to Mr. Kaylor's classification of Mrs. Jafroodi and 906 Eucalyptus as clients and argues, among other things, that the crime-fraud exception applies to vitiate the attorney-client privilege.

As set forth below, the Court holds: (i) Mrs. Jafroodi was not Mr. Kaylor's client; (ii) 906 Eucalyptus was Mr. Kaylor's client; and (iii) pursuant to the crime-fraud exception, the Court will conduct an in camera review of the subject communications.

I. BACKGROUND

A. The State Court Litigation and Retention of Mr. Kaylor

On February 3, 2011, Carolina Ramirez et al. (the "Ramirez Creditors") filed a class action lawsuit against Debtor and other defendants in California state court, initiating case no. CV110083 (the "State Court Action"). See Motion for Relief from the Automatic Stay [case dkt. 63], Declaration of Ezra Kautz, Exhibit 1. In their amended complaint, the Ramirez Creditors asserted nine causes of action against the defendants, including claims for unpaid wages, failure to provide meal and rest breaks, failure to provide necessary protecting clothing and equipment, and violation of the Private Attorney General Act. The state court set a trial date of December 18, 2019.

In December 2017, amidst the ongoing litigation, Debtor and 906 Eucalyptus retained Mr. Kaylor's law firm to provide "estate planning services." Declaration of Michael L. Kaylor [case dkt. 614], ¶ 2. On December 15, 2017, in furtherance of this retention, Debtor completed a client intake form (the "Intake Form"). Declaration of Laila Masud [case dkt. 597], ¶ 8, Exhibit 2.

In Part B of the Intake Form, which asked Debtor to provide an asset summary, Debtor reported $126,000 in checking accounts and $450,000 in other tangible personal property. Debtor also reported that the amount of cash he has "varies." The Intake Form prompted Debtor to fill out the "ownership type" of each asset. As to the cash, checking accounts, and tangible personal property assets, Debtor left blank the space under "ownership type."

In response to a prompt to identify his "business interests," Debtor referred to an attached flow chart of entities (the "Flow Chart"). The Flow Chart illustrated the ownership and management of six entities in which Debtor held an interest. As relevant to this matter, Debtor indicated in the Flow Chart that one of these entities, Jafroodi Properties, LP ("JPLP"), owned real property located at 887 Mesa Road, Nipomo, CA 93444 (the "Nipomo Property"). In addition to these assets, Debtor also reported $5.5 million in residential real property, $2,702,356 in retirement plans, and $11,815,000 in "other property," which Debtor noted referred to the Nipomo Property, as assets. As to these assets, Debtor filled in the space under "ownership type" with "1980 Jafroodi Family Trust," "P.S. and 401K," and "JPLP," respectively.

In Part C, which asked Debtor to fill out any retirement, disability, or death benefits, Debtor listed a 401K, which he valued at $178,986, and the Plant Growers Management, Inc. Profit Sharing Plan (the "PGM PSP"), which he valued at $2,523,370. Debtor noted that he was the beneficiary of both plans.

On February 22, 2018, Mr. Kaylor signed a retainer agreement between his law firm and 906 Eucalyptus (the "Retainer"). Id., ¶ 7, Exhibit 1. In the Retainer, Mr. Kaylor agreed to provide the following legal services: (A) "Creation and Implementation of a Private Retirement Plan;" and (B) "Yearly Analysis and Actuarially Services." The last page of the Retainer includes a space for the client to provide a signature; below that space, the Retainer refers to the client as: "Client(s) Mahmood Jafroodi, for 906 Eucalyptus Nursery, LLC." Debtor did not sign the Retainer, either on behalf of himself or 906 Eucalyptus. The Retainer is signed only by Mr. Kaylor.

B. Creation of the Private Retirement Plan and Transfers Into the Plan

Effective April 6, 2018, Mr. Kaylor and Debtor, whether on behalf of himself or 906 Eucalyptus, executed The Private Retirement Trust Plan for The Jafroodi Private Retirement Trust Created by 906 Eucalyptus Nursery, LLC (the "PRP"). Id., ¶ 45, Exhibit 16. Debtor signed the PRP as "Representative for 906 Eucalyptus Nursery, LLC." Id., p. 45. The PRP designated 906 Eucalyptus as the settlor of the PRP, Debtor and Mrs. Jafroodi as beneficiaries of the PRP, and Mr. Kaylor as the trustee of the PRP. Id., p. 2. As relevant to this matter, the Certification of Trust, attached to the PRP, provides:

The [PRP] Trustee shall also have the power to operate any such activities that occur within the business entities owned by the Trust or to delegate those duties to a manager or officer who will run the operations of the business entity for the benefit of the Trust. Notwithstanding the above, at no time may the [PRP] Trustee appoint the [PRP] Beneficiary as manager of a limited liability company or any similar type of position in a business entity that has the power and authority to bind the entity to act.

Id., Certification of Trust, Section IX(e).

On May 23, 2018, Debtor signed several assignments transferring all of the entities listed in the Intake Form into the PRP, including 906 Eucalyptus and JPLP. Id., ¶ 45, Exhibit 16. Debtor also executed, on behalf of the 1980 Jafroodi Family Trust (the "Family Trust"), a deed of trust valued at $4,700,000 in favor of the PRP (the "PRP DOT"). Id. The PRP DOT encumbered the real property located at 1186 Corte Tularosa, Camarillo, CA 93010 (the "Camarillo Property"), in which Debtor claimed a fee simple interest as of the petition date.

C. Communications Regarding the PRP

On April 17, 2018, Darlene Tardiff, Debtor's executive assistant, emailed Debtor's bankruptcy attorney, William Winfield, stating-

Michael Kaylor has confirmed that the [PRP] for [Debtor] has been set up. It was our understanding that once the [PRP] was established that [Debtor's] retirement assets would be protected. With his assets protected you mentioned on the conference call that this would add a bargaining chip to the Plaintiff's [sic] in the suit against him and that you would write a letter to his attorney stating his assets are protected.

[Debtor] would like to know when you feel the time is right to write such a letter. Declaration of Laila Masud [case dkt. 546], ¶ 13, Exhibit 2. On May 1, 2018, Mr. Winfield wrote Ms. Tardiff-

I have created a draft letter… but I would prefer not to send it until after the [PRP] has been finalized and funded and ideally a little time passes.

On June 11, 2018, Ms. Tardiff emailed Mr. Winfield to follow up on Mr. Winfield's progress on the letter. On June 12, 2018, Mr. Winfield responded-

I can have a draft letter to you to review tomorrow or Thursday. I would like it best if the ink on the transfers to the [PRP] Trust was dry before we touted it - however in this case the [PRP] is just an additional layer of protection. The structure that has previously been set up is excellent and is the primary protection. That has been in place long enough that it cannot be challenged as a fraudulent transfer.

On June 13, 2018, Mr. Winfield again emailed Ms. Tardiff-

Here is a draft of my letter…. Please pay special attention to the following to confirm my factual understanding is correct:

1)I state the [PRP] owns bank accounts and personal effects. I do not know how significant the bank accounts and personal effects are. Since the [PRP] was only recently funded, the transfers into the [PRP] could potentially be reached as a fraudulent transfer.

2)I state that the real estate is encumbered by $10,000,000. I do not know the current balance of outstanding loans or the current value of the real estate. However, the real estate should be protected in any event.

Overall, [Debtor] is in a very strong position to withstand his judgment. The only assets that are potentially reachable are the assets recently put into the [PRP]. They will remain potentially vulnerable for four years. However, it would require a lawsuit to determine the transfer was motivated by intent to hinder creditors as opposed to estate planning purposes. That lawsuit would be time consuming and expensive and would not be a slam dunk. Furthermore, [Debtor] could file a bankruptcy and make it even more difficult to reach the assets of the [PRP]. Please let me know if you have any questions or would like to discuss this.

D. Transfers To and From Debtor's IRA

According to Ms. Tardiff, who served as the trustee of the PGM PSP, on July 30, 2018, after termination of the PGM PSP, Debtor rolled over $95,575.98 from the PGM PSP to a self-directed individual retirement account at Sunwest Trust, Inc. (the "IRA"). Declaration of Darlene Tardiff [case dkt 485], ¶ 5. In addition, according to Debtor, approximately $2.1 million was transferred from the PGM PSP to the IRA. Declaration...