Case Title: Club Vista Fin. Servs., LLC v. Dist. Court

Citation: 

Docket Number: 

State: nevada

Court: Nevada Supreme Court

Date: 2012-05-17T00:00:00Z

Document:
128 Nev., Advance Opinion Z|
IN THE SUPREME COURT OF THE STATE OF NEVADA

CLUB VISTA FINANCIAL SERVICES,
L.L.C., A NEVADA LIMITED
LIABILITY COMPANY; THARALDSON
MOTELS II, INC., A NORTH DAKOTA.
CORPORATION; AND GARY D.
THARALDSON,

Petitioners,

vs.

‘THE EIGHTH JUDICIAL DISTRICT
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF
CLARK; AND THE HONORABLE
MARK R. DENTON, DISTRICT JUDGE,
Respondents,

and

SCOTT FINANCIAL CORPORATION, A
NORTH DAKOTA CORPORATION;
BRADLEY J. SCOTT; BANK OF
OKLAHOMA, N.A., A NATIONAL.
BANK; GEMSTONE DEVELOPMENT
WEST, INC., A NEVADA
CORPORATION; AND ASPHALT
PRODUCTS CORP. D/B/A APCO.
CONSTRUCTION, A NEVADA
CORPORATION,

Real Parties in Interest.

   
 
 
 
  
 
  
 
   
   
 
 
 
 
 
 
  
 

No, 57641

FILED

way 17 2012

te

Original petition for a writ of mandamus or prohibition

challenging a district court order permitting real parties in interest to

dopose petitioners’ trial attorney.

Petition granted in part,

Lemons, Grundy & Kisenberg and Robert L. Bisenberg, Reno; Marquis
Aurbach Coffing and Micah S. Echols, Terry A. Coffing, and David T.

Duncan, Las Vegas,
for Petitioners.

13-156 54

 

 
Kemp, Jones & Coulthard, LLP, and J. Randall Jones, Mark M. Jones,
and Jennifer C. Dorsey, Las Vegas,

for Real Parties in Interest Scott Financial Corporation and Bradley J.
Scott.

Howard & Howard and Wade B. Gochnour, Gwen Rutar Mullins, and
Robert L. Rosenthal, Las Vegas,
for Real Party in Interest Asphalt Products Corporation.

Lewis & Roca, LLP, and Von S. Heinz, Las Vegas; Frederic Dorwart
Lawyers and John D. Clayman and Piper Turner, Tulsa, Oklahoma,
for Real Party in Interest Bank of Oklahoma, N.A.

Patrick K. Smith, Las Vegas,
for Real Party in Interest Gemstone Development West, Inc.

 

BEFORE THE COURT EN BANC
OPINION

By the Court, CHERRY, C.J.:

In this original writ petition, we address whether, and under
what circumstances, a party to a lawsuit may depose an opposing party's
former attorney. In considering this issue, we adopt the framework
espoused by the Highth Circuit Court of Appeals in Shelton v. American
Motors Corp., 805 F.2d 1323 (8th Cir. 1986). Under the Shelton analysis,
the party seeking to depose opposing counsel must demonstrate that the

information sought cannot be obtained by other means, is relevant and

'The Honorable Ron Parraguirre, Justice, did not participate in the
decision of this matter.

 

 
nonprivileged, and is crucial to the preparation of the case. Id, at 1327.
Because the district court did not analyze these factors, we grant the writ
petition in part and direct the district court to evaluate whether, applying
the Shelton factors, real parties in interest may depose petitioners’ former
trial attorney,
FACTS AND PROCEDURAL HISTORY

Petitioners Club Vista Financial Services, L.L.C.; Gary
Tharaldson; and Tharaldson Motels II, Inc. (collectively, Club Vista),
entered into a real estate development project known as Manhattan West
with real parties in interest Scott Financial Corporation; Bradley J, Scott;
Bank of Oklahoma, N.A.; Gemstone Development West, Inc.; and Asphalt
Products Corporation d.b.a, APCO Construction (collectively, Scott

Financ

 

1). When a multimillion dollar loan guaranteed by Tharaldson
and Tharaldson Motels II went into default, Club Vista hired Arizona
attorneys K. Layne Morrill and Martin A. Aronson to determine whether
legal action was warranted. Based on their investigation, Morrill and
Aronson filed, through local counsel, an action in the Nevada district court
on behalf of Club Vista against Scott Financial, alleging that Seott
Financial, as lenders on the loan, had failed to ensure that certain pre-
funding conditions were satisfied before advancing money on the loan.
The complaint included claims of, among other things, fraud, constructive
fraud, and breach of fiduciary duty. In their NRCP 16.1 initial
disclosures, Club Vista identified attorney Morrill as a person who “may
have discoverable information related to dealings between Seott Financial
and Tharaldson and related companies.”

During discovery, Scott Financial deposed Tharaldson, who

testified that, with a few exceptions, he did not have any personal

 

 
knowledge of the factual allegations underlying the complaint, nor did he
know of anyone, other than his attorneys, who might have such
information. Tharaldson further testified that he, Ryan Kucker, and Kyle
Newman, both employed by Tharaldson, were the primary witnesses on
Club Vista's side of the transaction who would have personal knowledge
related to the Manhattan West project. In their depositions, Kucker and
Newman also denied having personal knowledge of factual allegations
underlying the complaint.

Following the depositions of Tharaldson, Kucker, and
Newman, Scott Financial informed attorney Morrill that it intended to
take his deposition as to the factual b:

 

for the allegations in the
complaint. In furtherance of this intention, Scott Financial obtained a
deposition subpoena in Arizona for Morrill.? Morrill then filed, also in
Arizona, a motion to quash the subpoena or for a protective order
preventing Scott Financial from taking his deposition. The Arizona court
granted the motion but expressly stated that it did not intend to suggest
how the Nevada discovery master should rule on any issues presented to
him related to the proposed deposition.» Shortly before the Arizona court
issued its decision, Club Vista filed a supplementary NRCP 16.1
disclosure, stating that it did not believe that Morrill had any discoverable
information relevant to the suit.

*Scott Financial also obtained a deposition subpoena for Morrill’s co-
counsel, Aronson, but it has since stated that it will not seek to depose
Aronson.

Due to the complex nature of the case, the parties stipulated to the
appointment of a discovery master to resolve discovery issues,

 

 
7

 

In addition to the Arizona motion to quash, Morrill filed a
motion in the Nevada district court for a protective order to preclude Scott
Financial from taking his deposition, The discovery master recommended
that the district court enter an order denying the motion for a protective
order and permitting Scott Financial to depose Morrill as to factual
matters supporting the allegations in the complaint. ‘The discovery master
noted that both parties had cited Shelton v. American Motors Corp., 805
F.2d 1923 (8th Cir, 1986), in discussing whether an opposing party's
attorney could be deposed in preparation for trial. While the discovery
master recognized that Shelton permits a party to depose the opposing
party's attorney only when relevant, nonprivileged, and crucial
information cannot be obtained by means other than deposing the
attorney, the master did not analyze the application of these factors to this

case, except to state that Tharaldson had admitted that his attorneys were

 

the only parties who were familiar with the facts underlying the
complaint. Morrill filed a timely objection to the discovery master’s
recommendation.

On review of the matter, the district court, without citing
Shelton or discussing the factors identified in that opinion, upheld the
discovery master’s recommendations, noting that the attorneys would be
able to object to questions they believed impinged on a privilege, a record
would be made such that the propriety of any specific question could be
sufficiently addressed by the court, and the attorney-client and work-
product privileges would not necessarily bar all questions that Scott
Financial would ask. Additionally, the court concluded that the discovery
master’s recommendation was appropriate in light of Scott Financial's

assertion that it only intended to ask questions about factual issues.

 
os

 

‘This petition for writ of mandamus or prohibition followed.*
During oral argument before this court, Club Vista unequivocally stated
that it would not call Morrill as a witness at trial, Moreover, while this
writ petition was pending, other counsel was substituted for Morrill, and
he is no longer an attorney of record for Club Vista,
DISCUSSION

This original proceeding requires us to determine whether,
and under what circumstances, a district court may allow a party to
depose an opposing party's attorney. Club Vista contends that it is
entitled to relief from the district court’s order authorizing the deposition
of Morrill because deposing an opposing party's attorney is a drastic
‘measure and is inappropriate when the attorney lacked any involvement
in the underlying dispute, Club Vista urges this court to adopt a stringent
test for permitting attorney depositions, whereas Scott Financial
advocates a more flexible approach.
Writ relief

A writ of prohibition may issue to arrest the proceedings of a
district court exercising its judicial functions when such proceedings are in
excess of the jurisdiction of the district court.© NRS 34.320. Writ relief is

“This court stayed the proposed deposition pending resolution of the
issues presented in this petition.

®As an initial matter, we conclude that the district court was not
required to give preclusive effect to the Arizona court's decision to quash
the deposition subpoena in light of that court's express qualification that it
did not intend its order to influence the discovery master’s resolution of
the deposition issue.

“Because “prohibition is a more appropriate remedy for the
prevention of improper discovery than mandamus,” Wardleigh v. District
continued on next page ..

 
generally not available if the petitioner has “a plain, speedy and adequate
remedy in the ordinary course of law.” NRS 34.830; see International
Game Tech. v. Dist. Ct,, 124 Nev. 193, 197, 179 P.3d 556, 558 (2008).
Additionally, the decision to issue writ relief lies within the discretion of
this court. Smith v. District Court, 107 Nev. 674, 677, 818 P.2d 849, 851
(1991), Petitioners bear the burden to demonstrate that our intervention
by way of extraordinary relief is warranted. Pan v. Dist, Ct,, 120 Nev.
222, 228, 88 P.3d 840, 844 (2004).

 

Discovery matters are within the district court’s sound
discretion, and we will not disturb a district court's ruling regarding
discovery unless the court has clearly abused its discretion. Matter of
Adoption of Minor Child, 118 Nev. 962, 968, 60 P.3d 485, 489 (2002).
‘Thus, we generally will not exercise our discretion to review discovery
orders through petitions for extraordinary relief, unless the challenged

discovery order is one that is likely to cause irreparable harm, such as a

 

blanket discovery order, issued without regard to the relevance of the
information sought, or an order that requires disclosure of privileged
information. See Hetter_v. District Court, 110 Nev. 513, 515, 874 P.2d
762, 763 (1994).

Here, a writ of prohibition is the appropriate avenue for relief
because Club Vista does not have a plain, speedy, and adequate remedy at
law. Tf, as Club Vista asserts, the discovery permitted by the district
court’s order is inappropriate, a later appeal would not effectively remedy

any improper disclosure of information. Wardleigh v. District Court, 111
=. continued

Court, 111 Nev. 345, 360, 891 P-2d 1180, 1183 (1995), we deny Club
jernative request for mandamus relief.

 

 

 
om ae

 

Nev, 345, 350-51, 891 P.2d 1180, 1183-84 (1995) ('If improper discovery
were allowed, the assertedly privileged information would irretrievably
lose its confidential and privileged quality and petitioners would have no
effective remedy, even by a later appeal.”). Accordingly, we now turn to
whether a writ of prohibition should issue in this caso.

Attorney depositions

Nevada’s discovery rules “grant broad powers to litigants
promoting and expediting the trial of civil matters by allowing those
litigants an adequate means of discovery during the period of trial
preparation.” Maheu v, District Court, 88 Nev. 26, 42, 493 P.2d 709, 719
(1972). NRCP 26(a) permits discovery of information in a variety of
methods including “depositions upon oral examination.” Such depositions
are governed by NRCP 30, which allows a party to depose “any person” by
oral examination. NRCP 30(a)(1). ‘Thus, the rule does not prohibit the
taking of opposing counsel's deposition. Nevertheless, the district court
may, based on good cause shown, bar or limit discovery to prevent, among
other things, an undue burden. NRCP 26(c). With the foregoing
principles of depositional discovery in mind, we examine the policies
behind limiting the practice of taking the deposition of an opposing party's
attorney and whether these depositions create an undue burden,

Foreing an opposing party's trial counsel to personally
participate in trial as a witness “has long been discouraged and recognized
as disrupting the adversarial nature of our judicial system.” Shelton, 805
F.2d at 1327 (citation omitted). In particular, requiring attorneys to
participate in such a manner may increase the time and costs of litigation,
create delays to resolve work-product and attorney-client objections,
distract the attorney from representation of the client, and prevent clients
from openly communicating with their attorneys. Id, Permitting the

8

 
ee

 

unbridled deposition of a party's attorney could further command delays to
resolve collateral issues raised by the attorney's testimony. See
Wardleigh, 111 Nev. at 359, 891 P.2d at 1189 (courts must protect an
attorney's work product as “mental impressions, conclusions, opinions, and
legal theories of counsel concerning... litigation are not discoverable
under any circumstances"). Additionally, “such depositions could provide

a back-door method for attorneys to glean privileged information about an

 

opponent's litigation strategy from the opposing attorney's awareness of
various documents.” In re Subpoena Issued to Dennis Friedman, 350 F.3d
65, 70 (2d Cir, 2003); see also McMurry v. Eckert, 833 S.W.2d 828, 830-31
(Ky. 1992) (explaining that the potential for harm created by attorney
depositions is too great to permit them to be routinely performed); Kerr v.
Able Sanitary, 684 A.2d 961, 967 (NJ. Super. Ct. App. Div. 1996)

(concluding that the request to depose a party’

 

 

 

 

attorney creates a
rebuttable presumption of good cause for issuing a protective order); but
see Munn_v. Bristol Bay Housing Authority, 777 P.2d 188, 196 (Alaska
1989) (asserting that “an attorney is no more entitled to withhold
information than any other potential witness, and may be required to
testify at a deposition or trial as to material, non-privileged matters”).
Based on the aforesaid apprehensions of placing counsel under
the microscope of interrogation, courts across this country “have
disfavored the practice of taking the deposition of a party's attorne;
‘Theriot v, Parish of Jefferson, 185 F.3d 477, 491 (th Cir. 1999); see. e.g,
Nationwide Mut. Ins. Co. v. Home Ins. Co,, 278 F.3d 621, 628 (6th Cir.
2002); Boughton v. Cotter Corp., 65 F.3d 823, 830-91 (10th Cir. 1995),

While we have not encountered rampant attorney depositions in Nevada,

 

we are wholeheartedly concerned with this vehicle of discovery and its

 
imaginable ability to create an undue burden. However, opposing counsel
should not be absolutely immune from being deposed. ‘Therefore, we
conclude that such depositions should only be permitted under
exceptionally limited circumstances.

‘To address the difficulties presented by attorney depositions,
the Bighth Circuit Court of Appeals has developed a stringent three-factor
test under which the party seeking to take the deposition of an opposing
party's counsel has the burden of proving that “(1) no other means exist to
obtain the information than to depose opposing counsel; (2) the
information sought is relevant and nonprivileged; and (3) the information
is crucial to the preparation of the case.” Shelton, 805 F.2d at 1327
citations omitted). We agree with the Shelton court that, in the absence
of these conditions, a party should not be permitted to depose an opposing
party's attorney, and thus, we adopt this three-factor test.” In evaluating
these three factors, the district court should consider whether the attorney
is a percipient witness® to the facts giving rise to the complaint. See Kerr,
684 A.2d at 967 (including, among factors to be considered in determining
whether to permit an attorney deposition, the “relative quality of the

  

information purportedly in the attorney's knowledge”), By establishing

this heightened standard when a party is attempting to depose opposing

In light of the substantial public policy concerns implicated by
attorney depositions, we decline to adopt the more flexible approach urged
by Scott Financial and discussed by the Second Circuit Court of Appeals in
In re Subpoena Issued to Dennis Friedman, 350 F.3d 65 (2d Cir. 2003).

5A percipient witness is “[a] witness who has perceived the things
about which he or she testifies.” Black's Law Dictionary 1741 (9th ed.
2009). A percipient witness is also known as an eyewitness or “[o]ne who
personally observes an event.” Id. at 667.

 

 
one

 

counsel, we advise litigants to resort to alternative discovery methods and
discourage endeavors to seck confidential and privileged information.
When the facts and circumstances are so remarkable as to allow a party to
depose the opposing party’s counsel, the district court should provide
specific limiting instructions to ensure that the parties avoid improper
disclosure of protected information.

In the instant case, the discovery master mentioned the

 

Shelton factors but did not analyze their application to this situation,
Further, the district court adopted the master’s recommendations without
any discussion of whether the Shelton factors were

 

tisfied, Accordingly,
as the district court did not consider pertinent factors for resolving the
motion for a protective order, we grant the writ in part and direct the
district court to reconsider the motion in light of the Shelton factors and
this opinion. In doing so, the district court should consider whether
Morrill has any relevant, discoverable information and the impact of Club
Vista's definitive assertion at oral argument that Morrill has been
withdrawn as a potential witness for trial.? To the extent that the instant
petition seeks an order compelling the district court to issue a protective
order preventing the proposed deposition, we deny it. Instead, we take no
position on the proper resolution of the motion for a protective order, as it
is for the district to evaluate the motion under the proper standard, as
discussed in this opinion,

We recognize also that Morrill is no longer Club Vista's counsel in
the district court action. While Morrill's substitution alleviates some of
the concerns generally raised by deposing a party's current trial counsel,
in this case, the district court should nonetheless apply the standards
discussed here because Morrill was responsible for the filing of the

‘complaint in this action and was Club Vista's trial counsel for a significant
portion of the proceedings below.

 

u

 
    
  
 
  

CONCLUSION

For the reasons discussed herein, we grant the petition in part
and direct the clerk of this court to issue a writ of prohibition directing the
district court to evaluate the underlying facts and circumstances of the
request for a protective order in light of the three-factor test set forth in
Shelton v. American Motors Corp., 805 F.2d 1823, 1327 (8th Cir, 1986),
and Club Vista’s 10

   
  

ssertion that Morrill has been withdrawn as a witnes:

Cherry

  
  
  

Pickering

esate

Hardesty

 

10In light of this opinion, we vacate the stay ordered by this court on
March 3, 2011.