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Kipnis v. Bayerische Hypo-Und Vereinsbank, AG

United States District Court, S.D. Florida, Miami Division

September 1, 2017

DONALD KIPNIS, et al., Plaintiffs,



         In response to Orders [ECF Nos. 1');">1');">1');">120; 1');">1');">1');">124] requiring additional briefing about a discovery dispute not resolved at a discovery hearing, the parties have submitted memoranda [ECF Nos. 1');">1');">1');">122-1');">1');">1');">123; 1');">1');">1');">127-1');">1');">1');">128] addressing Defendants' theory that they are entitled to communications involving attorney Robert Stamen. Defendants assert two arguments, either of which (if accepted as applicable) would be sufficient to require production of documents (and testimony) in spite of Plaintiffs' attorney-client privilege assertion: (1');">1');">1');">1) waiver (generated by disclosure of communications with another attorney), and (2) the “at issue” doctrine.

         For the reasons outlined below, the Undersigned concludes that (a) Plaintiffs have not waived the attorney-client privilege, and (b) the “at issue” theory is insufficient to generate a waiver. Therefore, the attorney-client privilege protecting communications with attorney Stamen remain intact and, in the absence of further developments, Defendants are not permitted to obtain documents to and from Mr. Stamen that are subject to the attorney-client privilege, nor will they be permitted to ask deposition questions that would disclose privileged communications with Mr. Stamen.

         Factual and Procedural Background

         Donald Kipnis and Kenneth Welt are the two Plaintiffs listed in the Amended Complaint. [ECF No. 72]. Mr. Welt is the Chapter 7 bankruptcy trustee for the bankruptcy estate of Lawrence Kibler. Mr. Kipnis and Mr. Kibler are (or were) the owners of Miller & Solomon General Contractors, Inc., one of the largest general contractors in South Florida.

         The lawsuit involved Custom Adjustable Rate Debt Structures (“CARDS”), which Plaintiffs allege to be “one of a number of very sophisticated income tax shelter schemes” that Defendants and other unnamed co-conspirators “promoted and sold on a national and international level for their own financial gain and to defraud Messrs. Kipnis and Kibler” and others. [ECF No. 72, 1');">1');">1');">1');">p. 1');">1');">1');">1]. Defendants are a German Bank and its affiliate; they offer banking and credit services for financial transactions.

         Plaintiffs allege that Defendants did not disclose the illegitimate nature of the CARDS transactions, causing the United States Tax Court's judgment requiring Messrs. Kipnis and Kibler to pay millions of dollars in tax liability and interest after the Court concluded that the transaction lacked economic substance and disallowed losses stemming from the transaction. Plaintiffs contend that the transactions disallowed by the Tax Court could not have occurred without the Defendants' participation. They allege that they paid substantial fees to Defendants and others in connection with the CARDS transactions.

         In a Tax Court trial concerning the CARDS transactions, Mr. Kibler testified that Mr. Stamen, attorney Ron Braley, and Mike DeSiato (an accountant) had been “engaged to look at this transaction for us.” [ECF No. 1');">1');">1');">11');">1');">1');">19-1');">1');">1');">1, p. 5');">p. 5]. He also testified that he “understood from our CPA, who was retained to explain this to us, and the attorneys involved, how this worked.” [ECF No. 1');">1');">1');">11');">1');">1');">19-1');">1');">1');">1, p. 6]. He explained that he “just reviewed” the loan documentation and “relied on my partner to do the extensive investigation, along with the two attorneys that we hired, Mr. Braley and Mr. Robert Stamen.” [ECF No. 1');">1');">1');">11');">1');">1');">19-1');">1');">1');">1, p. 7].

         The Amended Complaint does not expressly allege reliance on advice from attorneys and accountants.

         At a recent discovery hearing, Plaintiffs' counsel unequivocally stated that Plaintiffs will not rely on the advice of Mr. Stamen, an attorney, in this action. Although the advice of counsel theory is typically used as a defense, it arose here because Defendants argue that Plaintiffs may use it as a basis to pursue their claims. Specifically, Defendants are concerned that Plaintiffs will contend that they entered into certain purported tax shelters on the advice of their attorneys and accountants. They are also concerned that Plaintiffs' concession does not provide them with adequate protection because Mr. Kibler already testified, in the Tax Court trial, that he did rely on Mr. Stamen's advice.

         Defense counsel stated that he plans to take Mr. Kibler's deposition and anticipates that Mr. Kibler, who is not technically a party himself to this case, [1');">1');">1');">1" name="FN1');">1');">1');">1" id="FN1');">1');">1');">1">1');">1');">1');">1] will repeat his testimony that he relied on Mr. Stamen's legal advice. And defense counsel further argued that Mr. Kibler may well repeat this testimony at trial, which means that the issue of reliance will arise notwithstanding the concession by Plaintiffs' counsel.

         In a post-hearing memorandum [ECF No. 1');">1');">1');">122, p. 3], Plaintiffs explain that their counsel raised the so-called reliance issue with Mr. Kibler and “can represent to the Court on his behalf that, like Plaintiffs, Mr. Kibler will not, in his personal capacity, rely on the advice of attorney Stamen in any testimony in this lawsuit.” And, according to Plaintiffs, “that should settle the issue.” [ECF No. 1');">1');">1');">122, p. 3].

         Plaintiffs initially withheld from production as privileged memoranda containing Mr. Braley's advice. Mr. Braley, subpoenaed by Defendants, also withheld and logged as privileged his legal advice. In a meet-and-confer, Defendants argued that the memoranda is not privileged because Mr. Braley had copied Roy Hahn, a member of the conspiracy, on them. According to Plaintiffs, Messrs. Kipnis, Kibler, and Braley were unaware that Hahn was a member of the conspiracy at the time, but nevertheless, his receipt of the advice broke the privilege. Therefore, Plaintiffs and Mr. Braley produced the documents.

         Plaintiffs contend that they did not waive the attorney-client privilege for communications with Mr. Stamen. They explain that their disclosure of certain privileged documents concerning Braley was because they “acceded to Defendants' argument, rather than force motion practice[.]” [ECF No. 1');">1');">1');">128, p. 2]. They also advise that none of the substance of the communications between Messrs. Kipnis, Kibler, and Braley were ever privileged in the first place “because it was shared with non-privileged participants, ” which they say means that “no privilege was waived.” [ECF No. 1');">1');">1');">128, p. 2');">p. 2]. Therefore, Plaintiffs further contend, the production of the Braley documents “cannot effect a waiver as to communications with another attorney at another law firm (Stamen) who did not disclose his advice to members of the conspiracy.” [ECF No. 1');">1');">1');">128, p. 2');">p. 2].

         In addition, Plaintiffs also argue that they “never made an intentional election to waive their privilege with Braley” because that waiver “was forced upon them by Braley's decision to copy a member of the conspiracy on ...

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