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United Bank v. Buckingham

United States District Court, D. Maryland

March 13, 2018

UNITED BANK, Plaintiff,
DAVID BUCKINGHAM, et al., Defendants.



         On September 7, 2017, Plaintiff United Bank (“United Bank”) filed an Objection (ECF No. 135) to Magistrate Judge Timothy J. Sullivan's August 25, 2017 Order (ECF No. 129) denying, for reasons stated during the hearing held before him on August 24, 2017, its Motion to Compel Calvin H. Cobb, III to Produce Documents and Testify at Deposition (ECF No. 104). Defendants filed a timely response to the Objection on September 15, 2017 (ECF No. 140). On October 13, 2017, this Court entered an Order (ECF No. 145) overruling United Bank's Objection. This Opinion now explains the basis for the October 13, 2017 Order.

         1. Background

         United Bank is the successor in interest to Virginia Commerce Bank (“VCB”), which began this lawsuit in 2013. VCB, and now United Bank, had been a creditor of the estate of John D. Buckingham (“John”) and of John's business, Sun Control Systems, Inc. (“SCS”). ECF No. 16 ¶ 8. United Bank alleges that John's son, Defendant David Buckingham (“David”), in his capacity as guardian of John's property, transferred the ownership and changed the beneficiaries of certain life insurance policies to remove the value of the policies from John's estate, the estate of Elizabeth (“Betty”) Buckingham, David's mother, and SCS. Id. ¶ 1. These changes were made, United Bank claims, “for the purposes of hindering, evading and/or defrauding” United Bank. Id. ¶ 1. United Bank asserts that the transfer of ownership and change of beneficiaries to David, in his personal capacity and as trustee of the Osprey Trust and the Blue Heron Trust, both of which were created just before the changes of ownership and beneficiaries, were fraudulent conveyances under the Maryland Uniform Fraudulent Conveyance Act (“MUFCA”), Md. Code Ann., Com. Law §§ 15-201, et seq., because they (1) were made without consideration, (2) exceeded David's powers as a guardian, (3) constituted self-dealing, and (4) were done to avoid the reach of VCB as John's and SCS's creditor. Id. ¶¶ 1, 42, 47, 54, 59. In addition to David, United Bank joins as Defendants Susan Buckingham (“Susan”), David's sister, in her personal capacity and as co-personal representative of John's estate and trustee of the Cardinal Trust (the third trust created before or around the time the changes in the policies were made), and Richard Buckingham (“Richard”), David's brother, solely in his capacity as co-personal representative of John's estate.

         On February 17, 2017, United Bank served a subpoena duces tecum on Calvin H. Cobb, III to produce documents and give testimony at a deposition scheduled for March 22, 2017. ECF No. 104-1 at 1. Cobb has served as the Defendants' trusts and estates attorney over a period of years and provided the Defendants with legal advice related to the transactions at issue here. See Id. at 4. On March 3, 2017, Cobb served objections to the subpoena's document request, asserting, as is relevant here, that the documents were protected from disclosure under the attorney-client privilege. Id. at 3-4. Although the parties were able to negotiate a resolution of a number of issues to narrow the scope of the disclosure request, they were unable to resolve all of the issues. Id. at 2-3.

         United Bank's Motion to Compel was filed as the contemplated next step in the working agreement among the parties to obtain a ruling by the Court on the issues of:

(i) whether any or all of the information sought by the Plaintiff from Cobb is protected by the attorney-client privilege or work product privilege; (ii) if any of the information is protected by the attorney-client privilege, whether and to what extent the privilege may have been expressly or impliedly waived or might be subject to the crime-fraud exception to the attorney-client privilege; and (iii) whether and to what extent documents which might be considered confidential documents prohibited from disclosure pursuant to Maryland Rule of Professional Conduct 1.6 should be produced.

Id. at 3.

         Judge Sullivan held a hearing on the Motion to Compel on August 24, 2017. He ruled from the bench, denying the Motion. ECF No. 129. As stated at the hearing, Judge Sullivan concluded that the Motion to Compel should be denied because United Bank had not “made out a prima facie case of fraud such that the crime fraud exception could apply.” ECF No. 130 at 53. He held that, even assuming that a conveyance deemed fraudulent under the MUFCA can trigger the crime-fraud exception to the attorney-client privilege (which this Court has not yet determined), United Bank had failed to make the requisite prima facie showing of fraud to pierce the privilege. Id. at 53-54. Specifically, Judge Sullivan held that “[United] Bank has not presented sufficient evidence for me to find that the Buckingham's [sic] engaged in deception, dishonesty, misrepresentation, falsification, or forgery.” Id. at 54. He distinguished between transactions that might be invalid under state law and transactions that include conduct of lying or misleading such that they are rendered sufficiently fraudulent to trigger the crime-fraud exception. See Id. at 54-55. Because the crime-fraud exception is to be viewed narrowly according to Maryland precedent, he held that it is only transactions that meet the higher level of fraud that warrant application of the crime-fraud exception to the attorney-client privilege. See id. at 55. Judge Sullivan also found that the Defendants did not waive the attorney-client privilege by invoking it in response to questions because they did not rely on advice of counsel to negate the alleged wrongdoing. Id.

         United Bank filed its Objection to the denial of its Motion on September 7, 2017. It bases its Objection on three grounds, arguing that Judge Sullivan erred in holding that: (1) a fraudulent conveyance does not warrant application of the crime-fraud exception to the attorney-client privilege under Maryland law; (2) United Bank did not establish a prima facie case of “fraud” because it failed to produce evidence of “deception, dishonesty, misrepresentation, falsification, or forgery” and thus the crime-fraud exception does not apply; and (3) the Defendants did not impliedly waive the attorney-client privilege. ECF No. 135 at 1‒ 2. The Defendants filed their Opposition to United Bank's Objection on September 15, 2017. ECF No. 140. The issue being fully briefed and a hearing on all dispositive motions then scheduled for November 27, 2017, the Court disposed of the matter promptly by Order entered on October 13, 2017 to allow the parties to prepare for the November hearing.

         2. Standard of Review

         Federal Rule of Civil Procedure 72 provides for the district court's review of a magistrate judge's order. Rule 72(a) provides that, for nondispositive matters, “[t]he district judge to whom the case is assigned shall consider such objections and shall modify or set aside any portion of the magistrate judge's order found to be clearly erroneous or contrary to law.” Fed.R.Civ.P. 72(a); see also 28 U.S.C. § 636(b)(1)(A) (“A judge of the court may reconsider any pretrial matter under this subparagraph (A) where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law.”); D. Md. L.R. 301.5.a. “Under the clearly erroneous standard, the reviewing court is not to ask whether the finding is the best or only conclusion permissible based on the evidence. Nor is it to substitute its own conclusions for that of the magistrate judge.” Huggins v. Prince George's Cty., 750 F.Supp.2d 549, 559 (D. Md. 2010). Rather the court is “only required to determine whether the magistrate judge's findings are reasonable and supported by the evidence.” Id. Indeed, “[i]t is not the function of objections to discovery rulings to allow wholesale relitigation of issues resolved by the magistrate judge.” Buchanan v. Consol. Stores Corp., 206 F.R.D. 123, 124 (D. Md. 2002).

         3. Discussion

         A. The Attorney-Client Privilege and Crime-Fraud Exception

         “The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) (citing 8 J. Wigmore, Evidence § 2290 (McNaughton rev. 1961)). As a rule of evidence, “the privilege prevents the disclosure of a confidential communication made by a client to his attorney for the purpose of obtaining legal advice.” Newman v. State, 384 Md. 285, 302, 863 A.2d 321, 335 (2004). The common law privilege has been codified under Maryland law.[1] Md. Code Ann., Cts. & Jud. Proc. § 9-108 (2017). The privilege's purpose

is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.

Upjohn Co., 449 U.S. at 389.

         Although an important protection to promote effective attorney-client relationships, the privilege is not absolute. Newman, 384 Md. at 302, 863 A.2d at 331. To enjoy the protection, the communication must be (1) for the purpose of seeking legal advice, (2) from a professional legal adviser in such capacity, (3) by the client asserting the privilege, and (4) made in confidence. See Id. at 302, 863 A.2d at 331. A communication is not privileged if it was made for the purpose of seeking advice or aid in furtherance of a crime or fraud. Id. at 309, 863 A.2d at 335. This carve-out of the privilege is known as the crime-fraud exception and was recognized under Maryland law in 2004. In Ne ...

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