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Michael G. Stag, LLC v. Stuart H. Smith, LLC

United States District Court, E.D. Louisiana

October 4, 2019

MICHAEL G. STAG, LLC ET AL.
v.
STUART H. SMITH, LLC ET AL.

         SECTION “D” (2)

          ORDER AND REASONS ON MOTION

          JOSEPH C. WILKINSON, JR. UNITED STATES MAGISTRATE JUDGE

         This case is an unseemly dispute between lawyers over the substantial spoils of their former law practice, Smith Stag LLC. It centers around a June 8, 2015 contract between former law partners. (“the Separation Agreement”). Each side has asserted claims and counterclaims against the other. Plaintiffs\counterclaim defendants are Michael G. Stag (“Stag”), Michael G. Stag, LLC; Smith Stag LLC, and Stag Liuzza, LLC (collectively “the Stags”). Defendants/counter-claimants are Stuart H. Smith (“Smith”) and Stuart H. Smith, LLC (collectively “the Smiths”).

         In addition to breach of the 2015 Agreement, the parties have asserted broad-sweeping and serious allegations of misconduct against each other. Throughout their amended complaint, Record Doc. No. 116, the Stags allege that in 2014, Smith “represented that he was gravely ill, [and] unable to continue the practice of law” as a means of obtaining a financially beneficial “Preferred Withdrawal” from the parties' former law firm, as opposed to a less financially favorable “Nonpreferred Withdrawal.” Id. at ¶ 10, p. 3. The Stags allege, however, that Smith “was not in fact disabled.” Id. at ¶ 11, p. 4. They refer to Smith's condition as a “purported disability, ” id. at ¶ 14, p. 4, and assert that Smith was “motivated” to assert the “purported disability” because the Smiths “benefitted by avoiding approximately one million dollars ($1, 000, 000.00) in payments for Smith Stag, L.L.C.'s obligations” and “the uncertainty of a pending attorney disciplinary action against Smith related to his conviction for violation of Louisiana's cyberstalking law, which had the potential to cause a Nonpreferred Withdrawal . . . if Smith were disciplined to the extent of being suspended from the practice of law. . . .” Id. at ¶¶ 12, 13, p. 4. The Stags consistently refer to Smith's “fortuitous medical recovery” and insinuate misrepresentation by Smith in various alternative allegations, including that “if contrary to Smith's representations about his health and disability, the possibility for his recovery and return to the practice of law was foreseeable, . . . this intention was not disclosed, ” id. at ¶ 19, p. 5; that Smith's characterizations of the effect of his health and medical conditions on his ability to practice law “were a misrepresentation or suppression of the truth, ” id. at ¶ 20, pp. 5-6; and that “Smith foresaw his return to the practice of law at the time of the 2015 Agreement and represented the contrary to the Stag[s], . . .” Id. at ¶ 40, p. 10.

         In their counterclaim, the Smiths disclose a letter from Smith's physician describing his condition as “metastatic kidney cancer in his kidneys, lungs, left shoulder bone, and lower spine” and “chemically induced Addison disease, which is the cause of his Adrenal insufficiency.” Record Doc. No. 122 at ¶ 108, p. 12. The Smiths characterize the Stags' complaint as a “frivolous[1] suit.” Id. They assert that the Stags' principal allegations are false: “Contrary to the allegations made against Smith, his medical condition was grave and precarious at the time period in question; in some manner, it still remains that way. . . .” Id. at ¶ 118, p. 15. In broad terms, the Smiths allege that “Stag . . . continues to commingle Smith's and other funds with his own” that “Stag intentionally and without authority, and really contrary to the rules of Professional Conduct, paid himself attorney fees following settlement but declined to pay Smith;” “the Stag parties are liable for putting Smith's funds in their operating account as a breach of their professional responsibilities and embezzlement per se;” “Stag Liuzza [engaged] in their cover-up of their mishandling of the lawyer's trust account, ” resulting in “commingling of third-party funds with the funds of Stag Liuzza, LLC's operating account funds;” and that “[t]he Stag Parties who are escrow agents of all settlement funds through their trust account related to the Separation Agreement” breached their fiduciary duty to the Smiths. Id. at ¶¶ 136, p. 19; 139 at p. 20; 143 at p. 20; 150-51, 201 at pp. 22-23, 31; 183-84 at p. 27.

         The Smiths served two virtually identical subpoenas duces tecum on Hancock Whitney Bank (“Whitney”), one through its registered agent for service of process, Record Doc. No. 140-3, and the other upon Senior Vice President John Morton, Record Doc. No. 140-4. Each subpoena attaches Exhibit A requiring production of the same materials encompassing a broad range of all four of the Stags' financial records, both personal and law firm-related, from March 1, 2015, the effective date of the Separation Agreement, to the present.

         The Stags filed a motion to quash the Whitney subpoenas, Record Doc. No. 140, which is pending before me. The Smiths filed a timely opposition memorandum. Record Doc. No. 142. The Stags were granted leave to file a reply. Record Doc. Nos. 145-47. The Smiths were granted leave to file a sur-reply, Record Doc. Nos. 150, 152, 154, over the Stags's objection. Record Doc. No. 153. For the following reasons, the motion is GRANTED IN PART AND DENIED IN PART in that one of the subpoenas is quashed and the other is modified.

         Subpoenas duces tecum “‘are discovery devices which, although governed in the first instance by Rule 45, are also subject to the parameters established by Rule 26.'” Garvin v. S. States Ins. Exchg. Co., 2007 WL 2463282, at *5 n.3 (N.D. W.Va. Aug. 28, 2007) (quoting In re Application of Time, Inc., 1999 WL 804090, at *7 (E.D. La. Oct. 6, 1999), aff'd, 209 F.3d 719, 2000 WL 283199 (5th Cir. 2000)); see Nicholas v. Wyndham Int'l, Inc., 2003 WL 23198847, at *1-2 (D.V.I. Oct. 1, 2003) (the “clear majority position [is] that use of Rule 45 subpoenas constitutes discovery”); Mortg. Info. Servs. v. Kitchens, 210 F.R.D. 562, 566-67 (W.D. N.C. 2002) (“a Rule 45 subpoena does in fact constitute discovery”). The court has authority, even acting on its own, either to quash or to modify a subpoena that exceeds the strictures of either Rule. Fed.R.Civ.P. 26(b)(2)(c) and (c)(1)(A) and (D) and 45(d)(3).

         As an initial matter, I address some oddities and clearly erroneous legal arguments included in the Smiths' subpoenas and opposition memorandum. First, as noted above, the Smiths served two identical but separate subpoenas duces tecum on Whitney. They offer no explanation for this unnecessary duplication. “On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules . . . if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative. . . .” Fed.R.Civ.P. 26(b)(2)(C)(i). Thus, the subpoena served upon John Morton is QUASHED, leaving only its twin served upon Whitney's registered agent for service of process to address.

         Second, the Smiths' arguments about the law concerning the scope of discovery and plaintiffs' standing to challenge the subpoenas are erroneous as a matter of law and/or rely upon inapplicable precedent. “The Court's first inquiry in ruling on a motion to quash a Rule 45 subpoena directed to a non-party, like the subpoenas at issue in this motion, is to determine whether the movant has standing to challenge the subpoena.” Rice v. Reliastar Life Ins. Co., 2011 WL 5513181, at *1 (M.D. La. Nov. 10, 2011). “A motion to quash or modify a subpoena under Rule 45 may only be made by the party to whom the subpoena is directed, except where the party seeking to challenge the subpoena has alleged some personal privacy right or privilege in the documents sought.” Id. (citing Brown v. Braddick, 595 F.2d 961, 967 (5th Cir. 1979); Jez v. Dow Chemical Co., Inc., 402 F.Supp.2d 783 (S.D. Tex. 2005)(emphasis added)).

         To support their argument that the Stags lack standing to challenge the subject subpoenas on privacy/confidentiality grounds, the Smiths cite a series of precedents that are factually distinguishable from the instant lawsuit, and one case that supports the argument that plaintiffs have standing: (1) Brown, 595 F.2d at 967 (movants lacked standing to challenge Rule 45 subpoena because they failed to allege any personal right or privilege with respect to the subpoenaed materials); (2) Frazier v. RadioShack Corp., 2012 WL 832285, at *1 (M.D. La. Mar. 12, 2012) (movant lacked standing to challenge Rule 45 subpoena on the basis that it violated his wife's privacy rights); (3) Keybank Nat. Ass'n v. Perkins Rowe Assocs., L.L.C., 2011 WL 90108, at *3 (M.D. La. Jan. 11, 2011) (movants lacked standing to challenge Rule 45 subpoenas seeking corporate business records on the basis of personal interest and confidentiality because materials did not contain any confidential information relating to movants but did have standing to challenge subpoenas seeking their personal banking records on privacy/confidentiality grounds); and (4) Pub. Serv. Co. of Oklahoma v. A Plus, Inc., 2011 WL 691204, at *4 (W.D. Okla. Feb. 16, 2011) (movants lacked standing to challenge Rule 45 subpoenas on the basis of privacy because movants failed to specify how subpoenaed materials affected their privacy rights). With the exception of Keybank's holding as to the subpoenaed bank records, these cases are distinguishable from this lawsuit because, unlike the movants described above, the Stags have asserted and established a privacy/confidentiality right over the subpoenaed materials, which consist entirely of the Stags's own banking records. Record Doc. Nos. 140-2 at p. 4; 147 at p. 3. The Stags clearly have standing to challenge the subject subpoena.

         The Smiths' opposition memorandum is entirely erroneous in setting out the legal standard governing the scope of discovery applicable to the subpoenaed material. Citing Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 350 (1978), a forty-year-old Supreme Court decision that correctly applied the version of the Rule in effect at the time of that decision four decades ago, the Smiths rely upon an outdated and long ago abandoned version of Fed.R.Civ.P. 26(b) in arguing that permissible discovery extends to “any matter not privileged, which is relevant to the subject matter in the pending action.” Record Doc. No. 142 at p. 3 (emphasis added).

         Rule 26(b) has been amended multiple times during the four decades following Oppenheimer, all to shrink the scope of permissible discovery. The 2015 Amendments to Rule 26(b), which are applicable to the instant case filed three years after their enactment, were the culmination of that shrinking process that began in Rules amendments dating back more than 35 years. Gone for good was the broad-ranging old standard that the Smiths assert; i.e., that discovery extends to information “relevant to the subject matter” of a case. That standard was first eliminated from Rule 26(b)(1) by the 2000 Amendments after discussions and proposals that it be deleted dating back to 1978. Federal Civil Judicial Procedure and Rules, Official Advisory Committee Notes at p.148 (Thomson Reuters 2019 Rev. Ed.)(hereinafter “Official Rule Notes”).

         The Smiths further argue the long abandoned cant from former Rule 26(b) that the permissible scope of discovery encompasses “‘any matter that bears on, or that reasonably could lead to other matters that could bear on, any issues that could bear on, any issues that is (sic) or may be in the case.'” Record Doc. No. 142 at p. 3 (quoting Oppenheimer, 437 U.S. at 351)(emphasis added). The 2015 Amendments eliminated from the Rule 26(b)(1) scope of permissible discovery the “reasonably could lead to” phrase that Oppenheimer referred to 40 years ago and that the Smiths now inapplicably parrot here. “The former provision for discovery of relevant but inadmissible information that appears ‘reasonably calculated to lead to the discovery of admissible evidence' is also deleted. The phrase has been used by some, incorrectly ...


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