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Central States, Southeast and Southwest Areas v. National Lumber Company

July 11, 2012

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND; AND ARTHUR H. BUNTE, JR., AS TRUSTEE, PLAINTIFFS,
v.
NATIONAL LUMBER COMPANY, A MICHIGAN CORPORATION; AND BRIGHTON ASSOCIATES, LLC, A MICHIGAN LIMITED LIABILITY COMPANY, DEFENDANTS, AND ANN ROSENTHAL, INDIVIDUALLY AND AS TRUSTEE OF ANN ROSENTHAL REVOCABLE LIVING TRUST DATED AUGUST 21, 1984, AS AMENDED; ALAN STRICKSTEIN, INDIVIDUALLY AND AS TRUSTEE OF ALAN STRICKSTEIN REVOCABLE LIVING TRUST DATED JUNE 18, 1987, AS AMENDED; JAMES I. ROSENTHAL, INDIVIDUALLY AND AS TRUSTEE OF JAMES I. ROSENTHAL DECLARATION OF TRUST DATED MARCH 11, 1993, AS AMENDED; ROCHELLE K. FORESTER, INDIVIDUALLY AND AS TRUSTEE OF ROCHELLE K. FORESTER DECLARATION OF TRUST DATED JANUARY 23, 1991, AS AMENDED; RONALD E. BITTKER, ) INDIVIDUALLY AND AS TRUSTEE OF RONALD E. BITTKER REVOCABLE TRUST U/A/D MARCH 29, 2000; ARLINE BITTKER, INDIVIDUALLY AND AS TRUSTEE OF MARITAL TRUST UNDER THE DAVID L. BITTKER REVOCABLE LIVING TRUST DATED MAY 8, 1986 AS AMENDED, INTERVENOR-DEFENDANTS.



The opinion of the court was delivered by: Judge Joan H. Lefkow

MEMORANDUM OPINION AND ORDER

On August 3, 2010, this court entered a default judgment in favor of plaintiffs Central States, Southeast and Southwest Areas Pension Fund and Arthur H. Bunte, Jr. ("Central States") and against defendants National Lumber Company ("National Lumber") and Brighton Associates, LLC ("Brighton") (collectively "defendants") in the amount of $7,158,658.76 for withdrawal liability incurred by defendants pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. § 1381 et seq. On April 20, 2012, Central States served a post-judgment request for production of documents on National Lumber requesting, inter alia, all attorney-client and work product privileged material responsive to its requests. Three former members of National Lumber's board of directors and their family members intervened, and they now move for a protective order precluding Central States from obtaining these documents. (Dkt. #17.) For reasons discussed herein, their motion will be granted in part and denied in part.

BACKGROUND*fn1

On May 11, 2010, Central States filed a one count complaint in this court (the "present case") alleging that National Lumber and Brighton were under "common control" and jointly and severally liable for withdrawal liability as a "single employer" under ERISA. See 29 U.S.C. § 1301(b)(1). National Lumber and Brighton declined to defend, and this court entered a default judgment against them in the requested amount. (Dkt. #10.)

Almost one year later, Central States filed a two count complaint against Ann Rosenthal, James I. Rosenthal, Alan Strickstein, Rochelle K. Forster, Ronald E. Bittker and Arline Bittker in their individual capacities and as trustees for various trusts (collectively "intervenors"). The case, No. 11-CV-3757, was assigned to Judge Kennelly. James I. Rosenthal, Alan Strickstein, and Ronald E. Bittker are former National Lumber officers and directors; Ann Rosenthal is the mother of James I. Rosenthal and Rochele K. Forester; and Arline Bittker is the mother of Ronald E. Bittker. (Case No. 11 C 3757, Dkt. #1 ¶¶ 7, 11, 33--35.) Central States alleges that intervenors transferred nearly one million dollars between September 1, 2007 and December 1, 2009 from National Lumber to various trusts for the purpose of evading or avoiding the payment of withdrawal liability in violation of ERISA § 1392(c) (an amount represented by the judgment in the present case) (count I). (Id. ¶ 36, 40--46.) Central States also seeks a declaration from the court that any future payments to intervenors would constitute a transaction prohibited under the trust fund theory of liability (count II). (Id. ¶¶ 47--57.)

On December 1, 2009, National Lumber's directors executed a trust mortgage with McTevia & Associates, LLC ("McTevia" or "trustee") naming McTevia as trustee and granting it a security interest in National Lumber's assets. (Case No. 10 C 2881, Dkt. #19 Ex. 2 at 1.) The trust mortgage acknowledged that National Lumber had "experienced significant losses" and it directed the trustee to "wind[] up its business," "liquidat[e] its assets and maximiz[e] the value of its assets for the benefit of creditors." (Id. at 1.) To accomplish this goal, the trustee was directed to "review the books, records and projections of [National Lumber] and make a determination as to the best way to maximize the distribution to the creditors." (Id. at 4.) The trust mortgage also authorized the trustee to "continue operating [National Lumber's business] until such time as [National Lumber's] work in process is completed," provided that so doing is in the interest of creditors. (Id.) Simultaneous with executingthe trust mortgage, National Lumber directors and officers James I. Rosenthal, Alan Strickstein and Ronald E. Bittker resigned their positions, although they remain creditors and shareholders of the company. (Intervenor's Mot. for Protective Order at 2.)

With discovery proceeding in Judge Kennelly's case, Central States issued a post-judgment request for documents to National Lumber in the present case seeking, inter alia, all attorney-client and work product privileged documents responsive to its requests. (Dkt. #19 Ex.1 at 6.)*fn2 Intervenors sought leave to intervene, which this court granted, and they now ask this court to enter a protective order precluding Central States from obtaining attorney-client and work product privileged documents from National Lumber. (Dkt. #17.)

LEGAL STANDARD

Rule 26 of the Federal Rules of Civil Procedure governs the scope of discovery in federal civil cases. Rule 26(b)(1) allows parties to discover information "regarding any non-privileged matter that is relevant to any party's claim or defense." Pursuant to Rule 26(c)(1), the court may, "for good cause shown," enter a protective order "forbidding the disclosure or discovery" or "forbidding inquiry into certain matters." Fed. R. Civ. P. 26(c)(1)(A) & (D). In deciding whether good cause exists, the court must balance the interests of the parties, taking into account the harm to the party seeking the protective order and the importance of the disclosure to the nonmoving party. Wiggins v. Burge, 173 F.R.D. 226, 229 (N.D. Ill. 1997). The party requesting the protective order has the burden of demonstrating to the court that "good cause" exists for its issuance. Jepson, Inc. v. Makita Elec. Works, Ltd., 30 F.3d 854, 858 (7th Cir. 1994).

ANALYSIS

Intervenors argue that a protective order is necessary because 1) as owners of National Lumber, certain intervenors retain the right to invoke the company's attorney-client privilege and the trustee has no authority to waive it; 2) in the alternative, the trustee has a duty not to elevate one creditor's claims over another's by waiving the attorney-client privilege in favor of Central States; and 3) the court should not compel the disclosure of attorney work product where the attorney has asserted the privilege.*fn3

I. Attorney-Client Privilege

The Seventh Circuit has adopted the following general principles of attorney-client privilege:

(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by ...


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