State ex rel. Antero Resources Corporation v. McCarthy

247 W.Va. 449

880 S.E.2d 915

STATE of West Virginia EX REL. ANTERO RESOURCES CORPORATION, Petitioner,

v.The Honorable Christopher MCCARTHY, Judge of the Circuit Court of Harrison County, Scott A. Windom, Trustee of the Carolyn E. Farr Trust and Its Beneficiaries, and Empire Oil & Gas, Inc., a West Virginia Corporation, Respondents.

No. 22-0400

Supreme Court of Appeals of West Virginia.

Submitted: November 1, 2022

Filed: November 17, 2022

Timothy M. Miller, Esq., Mychal S. Schulz, Esq., Katrina N. Bowers, Esq., Babst, Calland, Clements & Zomnir, P.C., Charleston, West Virginia and Joseph V. Schaeffer, Esq., Babst, Calland, Clements & Zomnir, P.C., Pittsburgh, Pennsylvania, Attorneys for Petitioner

David J. Romano, Esq., Romano Law Office, LC, Clarksburg, West Virginia, Counsel for Respondents, Scott A. Windom, Trustee and Empire Oil & Gas, Inc.

HUTCHISON, Chief Justice:

Petitioner, Antero Resources Corporation, seeks a writ of prohibition to prevent the respondent, the Honorable Christopher McCarthy, Judge of the Circuit Court of Harrison County, from enforcing an April 7, 2022, order granting a motion to compel filed by the plaintiffs below and respondents herein, Scott A. Windom, Trustee of the Carolyn E. Farr Trust and its Beneficiaries, and Empire Oil & Gas, Inc., (hereinafter "plaintiffs"). The order requires Kevin Ellis, an attorney employed by Antero, to appear at a deposition and respond to questions that Antero claims are subject to the attorney-client privilege and/or work product doctrine. Antero argues that the circuit court abused its discretion by making factual findings in its order that are contrary to the evidentiary record and erroneously applied the crime-fraud exception to the attorney-client privilege. Having considered the parties’ briefs and oral arguments, the submitted appendices, and the pertinent authorities, we grant the writ for the reasons set forth below.

I. Facts and Procedural Background

The Carolyn E. Farr Trust was created by its namesake on May 24, 1991, to provide funds for the general care, maintenance, and support of herself, and upon her death,¹ the same for her four children. The assets of the Trust include several natural gas mineral properties located primarily in Ritchie and Doddridge counties.² Ms. Farr designated Clarence E. Sigley, Sr., as the Trustee, and he served in that capacity until his death on September 22, 2019.

After Mr. Sigley's death, the underlying civil action commenced when the plaintiffs filed suit on June 22, 2020, against Mr. Sigley's estate, which was being administered by his wife, Barbara Wright Sigley. The complaint also named as defendants Ms. Sigley, individually; Amy R. Zannino, the Sigleys’ daughter; and Antero. The complaint alleged that Mr. Sigley converted, misappropriated, and fraudulently diverted Trust assets thereby breaching his fiduciary duties and obligations as Trustee. Relevant to the issue before this Court, the complaint specifically alleged that Mr. Sigley improperly leased certain mineral properties belonging to the Trust to himself and then simultaneously assigned those leases to Antero, which allowed him to collect bonuses and royalty payments that he kept for himself and his family to the detriment of the Trust. The complaint further alleged that Antero facilitated or participated in the fraudulent transfers of the property and that Antero knew or should have known that Mr. Sigley's actions were a violation of his fiduciary duties.

The petition for a writ of prohibition currently before this Court stems from a discovery dispute that arose when the plaintiffs took the deposition of Kevin Ellis on October 15, 2021. As noted above, Mr. Ellis is an attorney employed by Antero, and he held the title of "Manager, Administrative and Legal-WV" during the time period relevant to the plaintiffs’ complaint.³ The record indicates that Mr. Ellis secured the leases to the Farr Trust properties for Antero. During the deposition, counsel for Antero objected to many questions asked by counsel for the plaintiffs, instructing Mr. Ellis not to answer based upon the attorney-client privilege and/or work product doctrine. After Antero's counsel asserted multiple objections, the plaintiffs’ attorney adjourned the deposition and then filed a motion to compel with the circuit court seeking a ruling requiring Mr. Ellis to answer the questions. The circuit court referred the matter to a discovery commissioner who held a hearing and ultimately recommended that the motion to compel be granted based upon a finding that the crime-fraud exception applies and precludes Antero from claiming the protections afforded by the attorney-client privilege and work product doctrine.

The circuit court adopted the findings of the discovery commissioner in its April 7, 2022, order and granted the plaintiffs’ motion to compel. Antero then filed its petition for a writ of prohibition with this Court. By order entered on August 17, 2022, we issued a rule to show cause why the writ should not be granted and scheduled the matter for oral argument.

II. Standard for Issuance of Writ

In the context of discovery orders, this Court has held that clear legal error warrants the exercise of this Court's original jurisdiction through the issuance of a writ of prohibition. As syllabus point one of State Farm Mut. Auto. Ins. Co. v. Stephens, 188 W. Va. 622, 425 S.E.2d 577 (1992), provides: "A writ of prohibition is available to correct a clear legal error resulting from a trial court's substantial abuse of its discretion in regard to discovery orders." This Court has further held that "[w]hen a discovery order involves the probable invasion of confidential materials that are exempted from discovery under Rule 26(b)(1) and (3) of the West Virginia Rules of Civil Procedure, the exercise of this Court's original jurisdiction is appropriate." Syl. Pt. 3, State ex rel. U.S. Fidelity & Guar. Co. v. Canady , 194 W. Va. 431, 460 S.E.2d 677 (1995).⁴ The reason for this holding is obvious. "[T]he attorney-client privilege and the work product exception would be lost forever if the offended party is forced to ‘run the gauntlet’ before having the opportunity to seek redress before this Court." Canady , 194 W. Va. at 437, 460 S.E.2d at 683. Accordingly, with this standard in mind, we consider the parties’ arguments.

III. Discussion

Antero argues that the findings the circuit court made in its April 7, 2022, order granting the plaintiffs’ motion to compel are inadequate, contrary to the evidentiary record, and do not support the application of the crime-fraud exception to the attorney-client privilege. Specifically, Antero contends that the circuit court committed clear legal error by concluding that "Antero's participation in the fraudulent scheme can be inferred by its inspection of property records and its continued payment to [Mr. Sigley] as an individual without taking action to verify the propriety of the actions of [Mr. Sigley]." Antero asserts that this is clear error because an inference does not equate to the factual basis required for application of the crime fraud exception, and because the circuit court ignored the fact that the Trust Agreement expressly provided that Mr. Sigley as Trustee could sign documents and take title of Trust property in his own name. Antero also points out that the circuit court disregarded West Virginia Code § 44-5A-3(b) (2011) which provides that "the party dealing with the fiduciary⁵ is not under a duty to follow the proceeds or other consideration received by a fiduciary from the sale or exchange [of any property]." (Footnote added). Finally, Antero contends that the plaintiffs presented no evidence that it communicated with Mr. Ellis with the "intent and purpose" to commit a fraud which is a necessary part of the prima facie showing required for invocation of the crime-fraud exception to the attorney-client privilege. Antero maintains that it was also clear legal error for the circuit court to apply the crime-fraud exception in the absence of such evidence.

Conversely, the plaintiffs argue that none of the information they are seeking is protected by the attorney-client privilege. They contend that Mr. Ellis was not acting in his capacity as attorney, but rather was fulfilling his duty as Antero's "landman" when he secured the leases for the Farr Trust mineral properties. As such, the plaintiffs maintain that counsel for Antero had no basis to assert the attorney-client privilege and instruct Mr. Ellis not to respond to the questions posed to him during his deposition. The plaintiffs further argue that if the attorney-client privilege was properly invoked by Antero, then the circuit court's order contains the findings necessary for application of the crime-fraud exception.

"The attorney-client privilege is a common law privilege that protects communications between a client and an attorney during consultations." State ex rel. Doe v. Troisi , 194 W. Va. 28, 35-36, 459 S.E.2d 139, 146-47 (1995). It "is intended to ensure that a client remains free from apprehension that consultations with a legal advisor will be disclosed." Canady , 194 W.Va. at 438, 460 S.E.2d at 684. We have held that

"[i]n order to assert an attorney-client privilege, three main elements must be present: (1) both parties must contemplate that the attorney-client relationship does or will exist; (2) the advice must be sought by the client from that attorney in his capacity as a legal adviser; (3) the communication between the attorney and client must be identified to be confidential." Syllabus Point 2, State v. Burton, 163 W.Va. 40, 254 S.E.2d 129 (1979).

Id. at 433-34, 460 S.E.2d at 679-80, syl. pt. 7. We have also held that "[t]he burden of establishing the attorney-client privilege ... always rests upon the person asserting it." Id. at 434, 460 S.E.2d at 679, syl. pt. 4, in part.

The attorney-client privilege is not absolute; it is subject certain exceptions such as the crime-fraud exception,...