Case Title: Merits Incentives v. Eighth Judicial Dist. Court

Citation: 127 Nev. Adv. Op. No. 63

Docket Number: 

State: nevada

Court: Nevada Supreme Court

Date: 2011-10-06T00:00:00Z

Document:
4127 Nev., Advance Opinion 63
IN THE SUPREME COURT OF THE STATE OF NEVADA

MERITS INCENTIVES, LLC, A No, 56313

NEVADA LIMITED LIABILITY

COMPANY; RAMON DESAGE,

INDIVIDUALLY; AND CADEAU

EXPRESS, INC,

Petitioners, |
vs. |

‘THE EIGHTH JUDICIAL DISTRICT

COURT OF THE STATE OF NEVADA, FILED

IN AND FOR THE COUNTY OF

CLARK, AND THE HONORABLE

MARK R. DENTON, DISTRICT JUDGE, | ocr Os 208

Respondents, cushy Se sSrinete Sun
‘and w.

BUMBLE AND BUMBLE PRODUCTS, “ese

LLC, A NEW YORK LIMITED
LIABILITY COMPANY; FENNEMORE.
CRAIG, P.C.; AND JOHN H.
MOWBRAY,

Real Parties in Interest.

 

Original petition for a writ of mandamus challenging a district
court order denying a motion to dismiss or, alternatively, to disqualify
counsel and to prohibit the use of certain information.

Petition denied,

Pisanelli Bice, PLLC, and Todd L. Bico, Las Vegas; Glaser, Weil, Fink,

Jacobs, Howard & Shapiro, LLC, and Lance Coburn, Las Vegas,
for Petitioners.

Lionel Sawyer & Collins and Paul R. Hejmanowski and Samuel S, Lionel,
Las Vegas,
for Real Parties in Interest Fennemore Craig, P.C., and John H. Mowbray.

 

on a 30483)
‘Fennemore Craig, P.C., and John H. Mowbray, Las Vegas,
for Real Party in Intorest Bumble and Bumble Products, LLC.

BEFORE SAITTA, C.J., HARDESTY and PARRAGUIRRE, JJ.

OPINION

By the Court, HARDESTY,
In this original writ proceeding we review a district court's

 

decision to deny a motion to disqualify opposing counsel, when opposing
counsel reviewed confidential documents he received, unsolicited, from an

 

anonymous source.! We initially conclude that although there is no
Nevada Rule of Professional Conduct that specifically governs an
attorney's actions under these facts, the attorney in this case fulfilled any
ethical duties by giving prompt notification to opposing counsel, soon after
his receipt of the disk from an unidentified source, through an NRCP 16.1
disclosure,

We must also determine whether the district court abused its
discretion when it refused to disqualify counsel, even though one of the
documents sent to counsel was privileged. We adopt factors to aid a
district court in determining whether disqualification is warranted under
such circumstances, and conclude in this case that the factors weigh in

2While the challenged order also denied a motion to dismiss, this
writ petition seeks only counsel's disqualification, not dismissal of the
underlying action, and thus only disqualification is discussed herein.

 

 
 

favor of the district court's decision. ‘Therefore, although we consider the
writ petition, we ultimately deny the relief requested.
RACTS AND PROCEDURAL HISTORY

Real party in interest Bumble & Bumble, LLC, manufactures
and sells high-end salon products. Petitioners Merits Incentives, LLC,
Ramon DeSage, and Cadeau Express, Inc. (collectively, petitioners),
contracted with Bumble to distribute Bumble’s products to the Wynn
Hotel in Las Vegas, Nevada. After entering into the contract with
petitioners, Bumble discovered that some of its products were being sold at
unauthorized retailers such as CVS, Rite Aid, and Walgreens, Bumble
sued petitioners for breach of contract, fraud, and injunctive relief because
of the alleged distribution of Bumble products by petitioners to entities
other than those authorized by the parties’ contract.

Prior to Bumble’s suit against petitioners, Cadeau Express

 

fired one of its logistics engineers, Mohamed Issam Abi Haidar. In a
separate action from this one, petitioners sued Haidar, alleging that he
stole “confidential and proprietary information and trade secrets.” The
district court in that case permanently enjoined Haidar from distributing

any of the stolen information to petitioners’ “customers, manufacturers,

 

suppliers, or business partner
Receipt of disk from an anonymous third party

After filing suit against petitioners, Bumble received an
anonymous package from Lebanon at its New York headquarters on
September 24, 2009. The package contained a disk and a note stating that
the package should be forwarded to Bumble’s counsel, John Mowbray, an
attorney with Fennemore Craig, P.C., a law firm in Las Vegas. On
October 15, less than one month later, Mowbray served on petitioners a
supplemental NRCP 16.1 mandatory pretrial discovery disclosure (16.1

  

 
disclosure). ‘The third of three disclosures identified a “[dlisk received by
Bumble and Bumble on September 24, 2009 from an unidentified source.”
‘The 16.1 disclosure also included a copy of the disk and a copy of the
envelope it arrived in, which bore Lebanese stamps and the phrase
“{hlighly [clonfidential.” On October 19, Bumble served an amended
supplemental 16.1 disclosure on petitioners and provided another identical
copy of the disk. At the time, petitioners did not inform Bumble that they
objected to Bumble having the disk, and they did not file any motions with
the court to preclude Bumble’s use of the disk or its contents.

On November 6, 2009, Bumble served petitioners with a
second request for production (second RFP), listing individually over 500
documents that were contained on the disk and requesting authentication
and hard copies of some of the documents. Petitioners did not file their
response to the second RFP until January 11, 2010, and generally objected
to the request as follows:

[Petitioners] object to this Request on the
grounds that it seeks information and documents
already in Bumble’s possession, on the grounds
that it is overbroad and unduly burdensome, on
the grounds that it seeks information protected by
the attorney/client and/or attorney work product
privilege, on the grounds that many of the
documents on the Disk are corrupted and will not
open, and on the grounds that it is vague and
ambiguous in that Bumble has not identified the
source of the Disk. Subject to the foregoing,
[petitioners] state that they have produced all
documents they have an obligation to produce in
response to this Request. The documents
previously produced ....are generally responsive
to this Request.

On January 27, 2010, Bumble used some of the documents from the disk

to depose one of petitioners’ employees, and petitioners still did not object

4

 
or argue that the documents were privileged.* On May 14, 2010, nearly
eight months after Bumble first disclosed its receipt of the disk,
petitioners first objected to Bumble’s use and possession of the documents
on the disk through a motion to the district court.
Petitioners’ motions regarding the disk

Petitioners filed a motion with the district court for the
dismissal of Bumble’s case with prejudice or, in the alternative, a motion
to prohibit Bumble’s use of misappropriated confidential and privileged
documents and for disqualification of Bumble’s counsel. In the motion,

petitioners alleged that Mowbray received the disk from Haidar in

 

violation of the injunction petitioners had obtained against him.
Petitioners also alleged that Bumble failed to notify them for over eight
months that it had petitioners’ confidential and privileged documents, and
that Bumble used that information “to gain a tactical advantage in (the)
litigation.” Bumble opposed the motion, arguing that it had produced the
disk through the normal course of discovery. Bumble included with its
response an expert report supporting its claim that Mowbray did not
violate any of Nevada’s ethical rules and that disqualification was not
warranted. Petitioners replied and included a rebuttal expert report.

After a hearing on the motion, the district court declined to
dismiss the case or disqualify Mowbray and his firm, Fennemore Craig. In
its findings of fact, which neither side challenges, the district court stated

 

2Although petitioners raised the above-quoted general objection to
Bumble’s request for production, that type of objection is insufficient to
assert a privilege. See Nevada Power Co. v. Monsanto Co., 151 F-R.D.
118, 121 & n.6 (D. Nev. 1993),

 

 
   
 
 
 
 
 
 
 
 
 
 
 
    
  
 
    
   
  
 
   

that, “foln or about September 24, 2009, [Bumble] received... an
unsolicited package from an anonymous source.” The district court also
found that Bumble and its counsel “conspicuously set forth” their receipt
of the disk in the NRCP 16.1 disclosure, and that “[neither [Bumble] nor
its counsel had actual knowledge of the injunction [petitioners had against
Haidar}.”

‘The court concluded that petitioners failed to show that any of
the documents, except a draft affidavit, contained on the disk were
privileged. The court excluded the use of the draft affidavit, but otherwise
allowed the use of the documents contained on the disk. Despite the one
privileged document on the disk, the district court concluded that
Bumble's counsel “acted reasonably and in accordance with the Nevada
Rules of Professional Conduct with respect to the documents and the
Disk.” The court also concluded that Mowbray “went out of {his] way to
advise [petitioners] that [he] had received the documents and Disk, to let
[petitioners]

 

yrtain their provenance and to give them every

opportunity to register an objection and demand return and non-

 

 

Potitioners now seek extraordinary writ relief to instruct the district court
to disqualify Mowbray and his firm or, alternatively, to compel the district
court to reconsider the disqualification motion.
DISCUSSION

Petitioners maintain that the district court abused its
discretion when it failed to disqualify Mowbray and his firm as counsel for
Bumble. “A writ of mandamus is available to compel the performance of
an act that the law requires as a duty resulting from an office, trust, or

station or to control an arbitrary or capricious exercise of discretion.”

Williams v. Dist. Ct,, 127 Nev. __, __, __ P.8d__, __ (Adv. Op. No. 45,
July 28, 2011) (quoting International Game Tech. v. Dist. Ct,, 124 Nev.
6

 

 
 

193, 197, 179 P.3d 556, 558 (2008)); see also NRS 34.160. This court will
not issue a writ of mandamus if the “petitioner has a plain, speedy, and
adequate remedy in the ordinary course of law,” Williams, 127 Nev. at

__. __ P.8d at __ (quoting Mineral County v, State, Dep't of Conserv.,
117 Nev. 285, 243, 20 P.8d 800, 805 (2001)), and “[mJandamus will not lie

 

to control [the district court's) discretionary action, unless discretion is
manifestly abused or is exercised arbitrarily or capriciously,” Round Hill
Gon, Imp. Dist. v. Newman, 97 Nev. 601, 603-04, 637 P.2d 534, 586 (1981)
(internal citation omitted). A writ may issue, however, “where an
important issue of law needs clarification and public policy is served by
this court's invocation of its original jurisdiction.” Mineral County, 117
Nev. at 243, 20 P.2d at 805 (quoting Business Computer Rentals v, State
Treas., 114 Nev. 63, 67, 953 P.2d 13, 15 (1998).

Although we conclude that the district court did not abuse its
discretion by denying petitioners’ motion to disqualify Mowbray and his
law firm, we take this opportunity to adopt a notification requirement to
apply to situations where an attorney receives documents or evidence from
an anonymous source or from a third party unrelated to the litigation.
Additionally, we also set forth factors for district courts to consider in
determining whether an attorney who reviews privileged information
under such circumstances should be disqualified. Thus, while we consider
the writ petition because it raises important issues of law that neod
clarification, we deny the relief requested.

Mowbray did not violate any ethical duties

Petitioners argue that Mowbray and his law firm did not meet
their ethical duties when Mowbray reviewed the disk he received from an
anonymous source. Bumble and Mowbray argue that Mowbray exceeded
any ethical obligations by immediately disclosing the disk received from

7

 
om a

 

an anonymous source in a supplemental 16.1 disclosure, by propounding
discovery on opposing counsel seeking authentication regarding the
documents contained on the disk, and by listing each document
individually in a discovery request.

At the outset, we note that both parties agree that RPC 4.4(b),
which provides that “[a] lawyer who receives a document relating to the
representation of the lawyer's client and knows or reasonably should know
that the document was inadvertently sent shall promptly notify the
sender,” is not applicable here. We also agree that RPC 4.4(b) is not
applicable,
Bumble and Mowbray.

 

written, because the disk was not inadvertently sent to

“In fact, the American Bar Association (ABA) has stated as much.
‘The comment to the ABA Model Rule identical to RPC 4.4(b) states that
“this Rule does not address the legal duties of a lawyer who receives a
document that the lawyer knows or reasonably should know may have
been wrongfully obtained by the sending person.” Model Rules of Profl
Conduct R. 4.4 emt. 2 (2007). Additionally, the ABA has stated that:

 

if the providing of the materials is not the result of
the sender's inadvertence, Rule 4.4(b) does not
apply to the factual situation.... A lawyer
receiving materials under such circumstances is
therefore not required to notify another party or
that party's lawyer of receipt as a matter of
compliance with the Model Rules. Whether a
lawyer may be required to take any action in such
an event is a matter of law beyond the scope of
Rule 4.400).

ABA Comm. on Ethics and Prof Responsibility, Formal Op. 06-440
(2006).

 
 

Petitioners’ caselaw is not persuasive

Petitioners cite to various cases and ethics opinions from other
jurisdictions in an attempt to persuade this court that Mowbray violated
his ethical duties because, once he realized the privileged nature of the
documents on the disk, he should have ceased reviewing the disk, notified

petitioners, and returned the disk (also referred to as the “cease, notify

 

 

and return” rule). ‘The caselaw they cite, however, is based on facts that

 

sily distinguishable from the current case.
In Burt Hill, Inc. v. Hassan, an attorney claimed to have
received documents anonymously but

  

iid not sign an affidavit to that
effect, and the court found the claimed lack of knowledge regarding the
delivery of the documents appeared “highly suspicious,” No. Civ. A. 09-
1285, 2010 WL 419433, at *1-2 (W.D. Pa. Jan, 29, 2010). In the instant
case, Mowbray signed an affidavit in which he declared that he did not

know the source of the disk, he produced the envelope he received the disk

 

in, and the district court found that the disk was sent anonymously.

‘Three other cases petitioners cite involve the attorney's client
providing the confidential documents to the attorney, rather than the
attorney receiving the documents from an anonymous third party, and the

 

attorney failing to immediately notify opposing counsel of the client’s
misconduct. See Maldonado v. New Jersey, 225 F.R.D. 120, 125-26 (D.N.J.
2004) (attorney's client obtained confidential letter from opposing party to
its counsel, gave the letter to his attorney, and attorney did not disclose or
return the document); In re Marketing Investors Corp., 80 S.W.3d 44, 46-

4Novada has no such rule.

 

 
47 (Tex. App. 1998) (attorney's client took documents from opposing party
in violation of employment agreement and gave to his attorney who kept
copies and refused to agree not to use documents despite a protective
order); Castellano v. Winthrop, 27 So. 84 134, 195 (Pla. Dist. Ct. App.
2010) (attorney's client illegally obtained opposing party's flash drive and
attorney used information contained on it to file a motion to vacate a final
order before notifying opposing counsel of receipt).*

Although petitioners do not specifically cite to either rule in
their writ petition, some of the above cases discuss, and petitioners’ ethical
expert in the district court opined, that Mowbray’s actions violated RPC
4A(a) and 8.4(@). RPC 4.4(a) states, in pertinent part, that “[iJn
representing a client, a lawyer shall not ....use methods of obtaining
evidence that violate the legal rights of {a third] person.” (Emphasis
added.) RPC 8.4(4) states that “Tift is professional misconduct for a lawyer
to... [elngage in conduct that is prejudicial to the administration of
added.)

In all of petitioners’ cited cases discussing RPC 4.4(a) or 8.4(@),

 

 

justice.” (Emphs

the courts found that the attorneys either played some part in obtaining

an opposing party's documents or were complicit in actions used to

8Petitioners also cite to jurisdictions that already have a cease,
notify, and return rule regarding inadvertent receipt of the opposing
party's documents to show that Mowbray violated his ethical duties. See
Maldonado v. New Jersey, 225 F-R.D. 120, 138 (D.NJ. 2004) (discussing
the rule in conjunction with the New Jersey Rules of Professional
Conduct); D.C. Bar Comm. on Legal Ethies, Op. 318 (2002) (construing the
rule with District of Columbia Rule of Professional Conduct 4.4(b)).
Because Nevada has no rule or caselaw to this effect, we determine that
this authority is unpersuasive.

 

 
os

 

wrongfully obtain those documents. Similarly, the emphasized language
in RPC 4.4(a) and 8.4(4) demonstrate that the attorney must take some
type of affirmative action, either by employing a method of obtaining
evidence or engaging in certain conduct, to violate either of those rules.
Mowbray did not do that here, as the district court's unchallenged findings
of fact stated that the disk was sent anonymously and unsolicited, and
that Mowbray had no knowledge of the injunction against Haidar.®

from_an_anonymous source ot from_a third party unrelated to the
litigation

As discussed above, Nevada does not have any ethical rules
that govern the specific issue presented in this petition. It appears,
however, that the district court applied RPC 4.4(b) by analogy, which
requires an attorney to notify the sender if he or she receives documents
inadvertently, and concluded that Mowbray met his ethical duties because
he promptly notified petitioners of his receipt of the disk through an
NRCP 16.1 disclosure.

We agree with the district court's reasoning; therefore, we now
adopt a notification requirement to apply in situations where an attorney
receives documents anonymously or from a third party unrelated to the
litigation, ‘Thus, an attorney who receives documents regarding a case

from an anonymous source must promptly notify opposing counsel, or risk

“While petitioners attempt to prove to this court that Mowbray knew
of the injunction against Haidar, they do not ask this court to overturn the
district court’s findings of fact that Mowbray had no knowledge of the
injunction. ‘Therefore, we conclude that the district court's findings of fact,
are undisputed.

u

 
being in violation of his or her ethical duties and/or being disqualified as
counsel. Notification must adequately put opposing counsel on notice that,
the documents were not received in the normal course of discovery and
describe, with particularity, the facts and circumstances that explain how
the documents or evidence came into counsel's or his or her client's
case, Mowbray did just that through an NRCP 16.1

 

possession.” In th
disclosure, Therefore, the district court correctly concluded that Mowbray
fulfilled his ethical duties

‘Mowbray and his firm as counsel for Bumble

‘The determination that Mowbray fulfilled his ethical duties
does not end our inquiry concerning disqualification. The district court
found that one document on the disk, a draft affidavit, was protected by
the attorney-client privilege. Despite this finding, the district court did
not disqualify Mowbray and his firm as counsel for Bumble. Petitioners
claim this was an abuse of discretion. “The district court has broad

discretion in attorney disqualification matters, and this court will not

Although we do not adopt a cease, notify, and return rule, that does
not prevent a party whose privileged information has been obtained by the
opposing party from secking the return of that information. If petitioners
believed that Mowbray was acting unethically or possessed their
privileged information, they should have immediately informed Mowbray
of their concerns and sought return of the disk and any documents
Mowbray retrieved from the disk. If Mowbray did not comply with their
request, they could have sought relief from the district court in a timely
manner. Despite petitioners’ claim that they were in the midst of
changing counsel, petitioners’ counsel may have had an independent
responsibility to promptly object to the use of documents provided by an
anonymous source. See RPC 1.3.

 
overturn its decision absent an abuse of that discretion.” Waid v, Dist. Ct,
121 Nev. 605, 609, 119 P.3d 1219, 1222 (2005). This court has not

previously determined what factors a district court should consider when

 

 

presented with a motion to disqualify an attorney who has received an
opposing party's privileged information, yet played no part in obtaining
the information.

‘The Supreme Court of Texas resolved a similar issue in In re
‘Meador, 968 S.W.2d 346 (Tex. 1998). In that case, the defendant filed suit

against a company and some of its employees for various claims, including

 

allegations of sexual harassment, Id, at 348. Another company employee
took and copied certain documents from the company that were potentially
relevant to the litigation. Id, That employee later contacted the

 

defendant because she was considering filing her own lawsuit against the
company, and the defendant referred the employee to her attorney. Id, at
349. When the employee met with the attorney, she gave him the
documents she had copied. Id, Later in the litigation, the company
claimed the documents were privileged, and the trial court instructed
defendant’s counsel that the documents could not be used in the litigation
and all copies had to be returned to the company. Id, The
declined, however, to disqualify the defendant
appealed that decision. Id.

 

istrict court

 

counsel, and the company

In determining whether the district court abused its discretion
by failing to disqualify the defendant's counsel, the Meador court stated
that “[w]ithout doubt, there are situations where a lawyer who has been
privy to privileged information improperly obtained from the other side
must be disqualified, even though the lawyer was not involved in

obtaining the information.” Jd, at 351. The court also realized, however,

 

 
that ‘it is impossible to articulate a bright-line standard for
disqualification where a lawyer, through no wrongdoing of his or her own,
receives an opponent's privileged materials.” Id, We agree.

‘The court went on to identify a nonexhaustive list of factors to
aid trial courts in determining whether disqualification is appropriate:

1) [Wjhether the attorney knew or should have
known that the material was privileged;

2) the promptness with which the attorney notifies
the opposing side that he or she has received its
privileged information;

8) the extent to which the attorney reviews and
digests the privileged information;

4) the significance of the privileged information;
ie., the extent to which its disclosure may
prejudice the movant's claim or defense, and the
extent to which return of the documents will
mitigate that prejudice;

5) the extent to which movant may be at fault for
the unauthorized disclosure; [and]

6) the extent to which the nonmovant will suffer
prejudice from the disqualification of his or her
attorney.®

Id, at 351-52. We now adopt these factors, and we further agree with the
Meador court that, in exercising its judicial discretion, the district courts
“must consider all the facts and circumstances to determine whether the
interests of justice require disqualification.” Id. at 351

Having adopted factors that inform a district court's

disqualification decision, we must now determine whether the district

As this list is nonexhaustive, the district court may consider other
factors that are pertinent to the facts of each individual case.

 

 
 

court abused its discretion when it refused to disqualify Mowbray and his
law firm as counsel for Bumble for allegedly reviewing the privileged draft
affidavit. Waid, 121 Nev. at 609, 119 P.3d at 1222.

In concluding that Mowbray met his ethical duties, the district,
court stated:

In fact, it appears to the Court that, instead of
lying in wait with the documents, [Mowbray] went
out of [his] way to point out that [he] had received
them and to let Defendants ascertain their
provenance, giving every opportunity for
Defendants to register an objection and demand
return and non-use.

Additionally, the second RFP did not list the draft affidavit as one of the
documents, and Mowbray filed an affidavit with the court stating that he
did not review any such document. The district court did not make any
findings that contradicted Mowbray’s assertion that he never reviewed the
document.

Applying the above factors, we agree with the district court's
order denying disqualification because the factors weigh in favor of the
district court's determination that Mowbray and his firm were not subject
to disqualification. The district court found that most of the documents on
the disk were not privileged, and Mowbray stated he did not review the
document the court determined was privileged. Mowbray sent petitioners’
counsel a supplemental NRCP 16.1 disclosure one month after Bumble
received the disk at its headquarters. Although the privileged document,
a draft affidavit, may have had some significance, the district court
prohibited its use, and petitioners failed to show any prejudice resulting
from the affidavit's disclosure. Finally, Bumble would suffer prejudice if it
had to retain new counsel because the litigation involves complex
contracts and numerous entities.

15

 
   
   
  
    
  
 
 
  
    
 
 
   

Although we conclude that Mowbray’s initial supplemental
NRCP 16.1 disclosure of the disk was an adequate method of notification,
he did not end there with his attempts to promptly notify petitioners of his,
receipt of the disk. Four day
supplemental 16.1 disclosure with another copy of the envelope the disk

 

later, Mowbray filed an amended

arrived in. Additionally, approximately one month later, Mowbray
propounded a second RFP that included a request spanning 22 pages and
individually listing 503 of the documents contained on the disk. Thu:
these additional steps taken by Mowbray further indicate that he was not

    

trying to deceive petitioners or conceal his receipt of the disk from them.

‘Therefore, we conclude that the district court did not abuse its discretion

 

by denying petitioners’ motion to disqualify Mowbray and his law firm.

Based on the foregoing, we deny the petition for extraordinary

[dnt 4

Hardesty

writ relief?

"Petitioners also requested this court address whether their seven-
month delay in seeking disqualification of Mowbray constituted waiver.
Because we denied writ relief based on our conclusion that the district
court did not abuse its discretion in denying petitioners’ motion to
disqualify, we need not reach this issue.