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Kyko Global Inc. v. Prithvi Information Solutions Ltd.

United States District Court, W.D. Washington, Seattle

June 13, 2014

KYKO GLOBAL INC. and KYKO GLOBAL GMBH, Plaintiffs,
v.
PRITHVI INFORMATION SOLUTIONS LTD., et al., Defendants.

ORDER ON MOTION TO DISQUALIFY AND MOTION TO DETERMINE ADMISSIBILITY

MARSHA J. PECHMAN, Chief District Judge.

THIS MATTER comes before the Court on Plaintiffs' Motion to Determine Admissibility of Materials on Computer of Defendant Madhavi Vuppalapati Purchased by Plaintiffs at Public Auction as Part of Execution of the Federal Judgment (Dkt. No. 163) and Defendants' Motion to Disqualify Counsel (Dkt. No. 168). Having reviewed the motions, Defendants' Response to the admissibility motion (Dkt. No. 177), Plaintiffs' Reply (Dkt. No. 182), Plaintiffs' Response to the disqualification motion (Dkt. NO. 197), and Defendants' Reply (Dkt. No. 209), and all related papers, the Court hereby DENIES the Motion to Disqualify Counsel and HOLDS that Defendants did not waive their attorney-client privilege. Accordingly, Plaintiffs are ORDERED to provide Defendants with a copy of the hard drive within three (3) days so that Defendants may review it for privilege and Plaintiffs are ORDERED to provide Defendants with a privilege log within seven (7) days of the transfer.

Background

Plaintiffs Kyko Global, Inc. and Kyko Global GMBH (together "Kyko") are in the business of factoring-a type of financial arrangement where Kyko fronts money as advances on customer account receivables. (Dkt. No. 11.) In this fraud case, Kyko alleges Defendants created fictitious entities for the appearance of imitating legitimate business transactions and companies. (Dkt. No. 1.) Plaintiffs allege that using these sham companies as supposed account receivables of five legitimate companies, Defendant Prithvi Information Solutions Ltd ("PISL") and its affiliates, officers, directors and certain individuals acting in concert contracted with Kyko for factoring services. (Dkt. No. 11. at 2.) PISL and several affiliated companies executed guarantees with Kyko, promising to pay any obligation owed under the factoring agreement. Kyko alleges that in early 2013, Defendants stopped paying their invoices, leaving $17, 000.00 outstanding. (Dkt. No. 11 at 4.)

The Complaint alleges fraud, negligent/intentional misrepresentation, conversion, unjust enrichment, Civil RICO claims for wire and mail, financial institution fraud, temporary and preliminary injunctive relief, and (against the entities who signed the guarantees) breach of guarantees. (Dkt. No. 1.)

Based on the Complaint and declarations submitted by Plaintiff, this Court issued an ex parte Temporary Restraining Order, finding Plaintiffs adequately pled a prima facie case for fraud and were likely to succeed on the merits of their claims. (Dkt. No. 11 at 10.) Shortly after the Order, twelve of the named Defendants, including Madhavi Vuppalapati, settled and confessed to judgment. (Dkt. Nos. 70, 116.)

Plaintiffs then obtained a Writ of Execution pursuant to which the King County Sheriff seized various items of personal property, including a computer owned by Ms. Vuppalapati, from Ms. Vuppalapati's residence on February 12, 2014. (Firuz Decl., Dkt. No. 164 & Ex. A.) The computer was sold at a public auction, and an attorney for Plaintiffs outbid a representative sent by Defendants and purchased the computer. (Dkt. No. 164 at 2-3; Dkt. No. 168 at 3; Jayaraman Decl., Dkt. No. 179 at 2.) Plaintiffs sent the computer to a third party for analysis (Dkt. No. 167 at 1-2) and now request a ruling as to the admissibility of potentially attorney-client privileged documents on the computer. (Dkt. No. 163.) Defendants, meanwhile, contend the actions of Plaintiffs violated ethical rules, that Plaintiffs must return the computer to Defendants, and that their attorneys should be disqualified from further representation of Plaintiffs. (Dkt. No. 168.)

Analysis

I. Disqualification

Defendant's Motion to Disqualify Plaintiffs' firms (Dkt. No. 168) is based on a case applying an old version of the model ethical rules and an outdated ABA opinion. See Richards v. Jain , 168 F.Supp.2d 1195 (W.D. Wash. 2001); Mt. Hawley Ins. Co. v. Felman Production, Inc. , 271 F.R.D. 125, 130-31 (S.D.W.Va. 2010). The current version of RPC 4.4 does not require return of inadvertently sent documents, so Plaintiffs cannot be faulted for failure to do so. See Wash. RPC 4.4(b).

It is true that when a party wrongfully obtains documents outside the normal discovery process, a court may impose sanctions including "dismissal of the action, the compelled return of all documents, restrictions regarding the use of the documents at trial, disqualification of counsel and monetary sanctions." Lynn v. Gateway Unified School Dist., No. 2:10-CV-00981-JAM-CMK, 2011 WL 6260362, *5 (E.D. Cal. Dec. 15, 2011) (citing Fayemi v. Hambrecht & Quist, Inc. , 174 F.R.D. 319, 324-27 (S.D.N.Y.1997)). However, such sanctions are only available where the acquisition of documents was wrongful. Niceforo v. UBS Global Asset Management Americas, Inc., ___ F.Supp.2d ___, 2014 WL 2071041, *2 (S.D.N.Y.); see also Josephson v. Marshall, 2001 WL 815517, *2 (S.D.N.Y. July 19, 2001) (holding that where documents were obtained outside the normal discovery process but not wrongfully, ordinary attorney-client privilege analysis applies).

Here, Plaintiffs' acquisition of the computer was not inherently wrongful. Plaintiffs purchased the computer at a public auction. To the extent Plaintiffs intended to obtain privileged materials through this purchase, the ethical considerations become somewhat murkier, but Plaintiffs claim they have not reviewed the materials (Dkt. No. 197 at 4), and Defendants have not cited case law that supports sanctions in this context.

Defendants also challenge Plaintiffs' use of forensic analysis to assess the contents of the hard drive, citing a WSBA opinion about the use of metadata that applied RPC 4.4(a). (Dkt. No. 168 at 7-8.) See WSBA Advisory Opinion 2216; RPC 4.4(a) ("In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person."). Defendants' use of a third party vendor to make a copy of the hard drive is not equivalent to metadata mining of documents produced through the normal discovery process, because whereas the hard drive might plausibly contain many documents unprotected by any privilege, metadata mining is expressly aimed at the kind of information one would expect to be protected by attorney-client privilege and/or work-product protections. See WSBA Advisory Opinion 2216 ("Metadata is the data about data' that is commonly embedded in electronic documents and may include the date on which a document was created, its author(s), date(s) of ...


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