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Ilene F. Goldstein, Not Individually. But Solely In Her Capacity As v. Colborne Acquisition Company

June 1, 2012

ILENE F. GOLDSTEIN, NOT INDIVIDUALLY. BUT SOLELY IN HER CAPACITY AS TRUSTEE OF THE ESTATE OF COLD 2005, INC., PLAINTIFF,
v.
COLBORNE ACQUISITION COMPANY, HON. HARRY D. LEINENWEBER LLC, D/B/A COLBORNE FOODBOTICS, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY; RICHARD HOSKINS III; LINDA HOSKINS; RICHARD HOSKINS IV; LYSA HOSKINS; AND HOSKINS PROPERTY, LLC, A DELAWARE CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Harry D. Leinenweber, Judge United States District Court

MEMORANDUM OPINION AND ORDER

Before the Court is Defendants' Motion for a Protective Order and Plaintiff's Cross-Motion/Response to Compel. For the reasons contained herein, the Plaintiff's Motion to Compel is granted. The Motions of Defendant Colborne Acquisition Company, LLC ("CAC") and Individual Defendants Richard Hoskins III's ("R3"), Richard Hoskins IV ("R4") and Lysa Hoskins ("Lysa") for a Protective Order is denied.

I. BACKGROUND

Familiarity with the Court's previous background statements in its rulings of March 11, 2011 and July 27, 2011 is presumed. The Court therefore, provides only a minimum of facts necessary to this opinion.

R3, R4 and Lysa were all shareholders in Colborne Corp. ("Colborne 1"). R3 was the president and owner (90 percent shareholder) of Colborne 1. R4 and Lysa (who are siblings and the daughter of R3) each owned 5 percent and were officers of Colborne 1. In 2008, a New Jersey court entered judgment against Colborne 1 for $538,167.08 for a former Colborne 1 customer, Mamacita, Inc. ("Mamacita"). After appeal and further court proceedings, Plaintiff says, the judgment tripled. (R3 denied this alleged fact in his answer, but enunciated no basis for the denial.) Mamacita pursued Colborne 1 to the Lake County, Illinois courts in an effort to collect, but was thwarted by a Uniform Commercial Code sale of all Colborne 1 assets to Colborne Acquisition Company, LLC ("Colborne 2") on May 19, 2009. R3 consented in writing to the sale of Colborne 1's assets.

Mamacita filed the instant lawsuit on October 25, 2010, alleging the UCC sale was a fraudulent effort to avoid judgment. On November 29, 2010, Colborne 1 filed for Chapter 7 bankruptcy. The Bankruptcy Trustee stepped into Mamacita's shoes as Plaintiff. The Trustee has been attempting, both in Bankruptcy Court and here, to obtain the pre-UCC sale company e-mails of Colborne 1. Colborne 2, as purchaser of Colborne 1's assets, is in possession of the e-mails. See Colborne 2's Reply, 7 (stating "there is no contractual provision whereby [Colborne 2] agreed that pre-UCC sale emails would remain the property of [Colborne 1]. To the contrary, the Bill of Sale provides that all assets were sold to [Colborne 2], and that [Colborne 2] has full right and title to those assets.").

R3, R4 and Lysa, collectively, have filed for a protective order, arguing the pre-sale e-mails contain correspondence between them and their individual attorneys and are subject to attorney-client privilege. R3 also contends there are e-mails containing his other, minor children's Social Security numbers and medical information. Colborne 2 also filed a motion for a protective order, ostensibly because it could face liability from the individual defendants if it turned over their privileged information.

The parties met and conferred on the issue on March 7, 2012. Counsel for Colborne 2 and the individual defendants thought they left that meeting with an agreement by trustee's counsel that, by electronically searching for certain terms, those e-mails would be segregated and given to Hoskins' counsel for review before turnover to the trustee. (The bulk of the pre-sale e-mails, 99.9 percent of the e-mails at issue, were produced by Colborne 2 during the course of briefing this issue.)

Counsel for trustee, Riccardo A. DiMonte ("DiMonte"), denies an agreement was reached. DiMonte informed opposing counsel on March 13, 2012 that he did not agree with the Hoskins' counsel screening these e-mails before turnover. On March 22, 2012, DiMonte appeared before this Court and represented that the parties were "cooperating in good faith" on the issue and that it was "not worth motion practice," at that time, but that eventually, "we may have to resort to some motion practice."

Eventually came rather quickly. DiMonte left this Court and filed a Motion for the e-mails in Bankruptcy Court four (4) hours later. Defendants filed their Motions for a Protective Order, and Bankruptcy Judge Goldgar has entered and continued the Motion to compel until after this Court has ruled on the issue. See Individual Defs.' Reply, 2. Given DiMonte's behavior, Defendants have asked for reasonable costs in filing and briefing this motion for a protective order.

The Trustee argues she is entitled to the e-mails on three grounds. First, as Trustee of Colborne 1, the e-mails are on Colborne 1's server and are thus the property of the estate, which the Trustee controls.

Second, she maintains that the individual Defendants waived attorney-client privilege by writing their attorney on their work e-mail account. Colborne 1 had a written policy whereby:

[E]mployees are not permitted to use the information systems for personal use during normal business hours. This includes E-mail and any access to the internet or related service. Colborne management will permit personal activities of this nature outside of normal business hours. . . .

All messages and web-use logs are Colborne records. Colborne reserves the right to access and disclose all messages sent over its electronic mail system for any purpose.

Pl.'s Response, Ex. A; ECF No. 88-1, PageID 1128.

II. LEGAL STANDARD

"Because a claim of privilege has the effect of withholding relevant information from the trier of fact, the attorney-client privilege is construed to apply only where necessary to achieve its purpose." Smith v. Berge, 1998 U.S. App. LEXIS 4400, at *5-6 (7th Cir. Mar. 9, 1998). That purpose is to foster ...


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