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Chaffee v. Keller Rohrback LLP

Court of Appeals of Washington, Division 1

August 7, 2017

ALAN CHAFFEE, an individual; JEANNE DeMUND, an individual; YUPING CHEN, an individual; MATTHEW WAHLMAN, an individual; LAIRD DEVICK, an individual; ASH HANLON, an individual; MIKE SCHEFFLER, an individual; MICHAIL WILSON, an individual; NATHANIEL HEATHCOTE, an individual; PETER HEATHCOTE, an individual; and TODD HAGER, an individual, Respondents,

          Dwyer, J.

         Pacific Realty Advisors, as general receiver for Fairplay Financial, Inc. (collectively Fairplay), and 11 individual investors (Investors) sued Keller Rohrback, LLP and its managing partners, Glen Garrison and Robert Over (collectively Defendants), for legal malpractice related to the acquisition of a bank. After the separate civil suits commenced, Defendants learned of an ongoing federal criminal investigation into the acquisition. Believing that they were also subjects of the criminal investigation, Defendants moved for a discovery stay in the civil proceeding pending the resolution of the criminal investigation. The trial court denied the motion. After discovering new information relating to the criminal investigation, Defendants moved for a six-month discovery stay. The renewed motion was denied. We granted discretionary review and now reverse the trial court's order denying the motion to stay.


         This matter relates back to Fairplay's desire to invest in Hometown National Bank (the Bank)-a small, one-branch bank in Longview, Washington. In 2012, Fairplay retained Keller Rohrback to address certain regulatory issues relating to the investment. Keller Rohrback advised Fairplay that Fairplay itself could not acquire the Bank. In lieu of Fairplay acquiring the Bank directly, certain investors decided to pursue the acquisition themselves-all of whom were owners, officers, board members, or investors in Fairplay. Garrison advised Fairplay that the investment could not come from Fairplay itself: "For example, Fairplay cannot loan the money to the investors. Or at least, we would have to disclose this and I think it would put an end to the application."

         Contrary to Garrison's advice, Fairplay elected to loan money to the Investors and present the aggregated funds as individual investments. Bill Widmer, who at that time served as president and chief executive officer of Fairplay, instructed the Investors to conceal this fact when filling out required documentation. Widmer later stated, "In my mind, I believed the loan back to the investors from Fairplay achieved the same result (i.e., that the money for all practical purposes was that of the investors), but I never informed Mr. Garrison of this, and I asked the investors not to disclose this arrangement on the regulatory forms that they were filling out." Six months after the Investor's acquisition of the Bank, Widmer instructed the Investors to execute false promissory notes in favor of Fairplay.

         Prior to the acquisition, Garrison circulated an escrow agreement that listed Fairplay as signatory. After some of the Investors signed the escrow agreement, Garrison purportedly deleted Fairplay as a signatory and informed Widmer-but not the Investors-of the change. Garrison submitted the new escrow agreement to the Office of the Comptroller of the Currency (OCC) for approval. Following an investigation led by the OCC, Fairplay brought suit against Defendants for legal malpractice and other claims.

         In December 2015, counsel for Fairplay informed counsel for Defendants that Fairplay was cooperating with the Federal Bureau of Investigation (FBI) and the United States Attorneys' Office (USAO) in connection with an investigation into the Bank acquisition. In early 2016, counsel for the receiver also informed counsel for Defendants of the criminal inquiry into the Bank acquisition.

         In July 2016, the USAO e-mailed Fairplay to request a copy of the August 21, 2013 Bank board minutes. The subject matter of that board meeting included attorney Garrison's views on the bank acquisition. A copy of the e-mail was sent to Defendants. In December 2016, counsel for Fairplay sent an e-mail to counsel for Defendants stating that an FBI agent planned to attend Garrison's deposition. Following receipt of this e-mail, Defendants informed Fairplay that the Garrison deposition would be rescheduled. Counsel for Defendants subsequently spoke with FBI Special Agent Ben Williamson, who confirmed that he planned on attending the Garrison deposition in an "official capacity, " but declined to further elaborate.

         Defendants moved to stay the deposition "due to an ongoing parallel criminal investigation." The trial court performed the required Olympic Pipeline[1]balancing test on the record, denied the motion, and ordered Garrison to appear for the deposition.

         Garrison and Over subsequently retained independent criminal counsel, who then met with two Assistant United States Attorneys (AUSAs) to discuss the criminal investigation into the Bank acquisition. The AUSAs informed Defendants' criminal counsel that the government had yet to determine who, if anyone, would face charges. The AUSAs informed counsel that Garrison and Over "were not being viewed as mere witnesses" and that the government's investigation should be completed within six months. A subsequent e-mail to Defendants' criminal counsel from AUSA Susan Roe stated that the USAO "could not commit" to whether Defendants were viewed "solely as witnesses."

         Criminal counsel for Defendants then discovered documents establishing that Fairplay itself had contacted the USAO to refer Garrison and Over for criminal investigation relating to the Bank acquisition. Criminal counsel for Garrison advised him that he should assert his Fifth Amendment privilege and decline to answer any questions related to the Bank acquisition during the civil proceedings.

         Based on counsel's newly discovered evidence, Defendants filed an emergency motion to stay the trial court's order compelling Garrison to appear for deposition and filed a renewed request to stay discovery.[2] Defendants' renewed motion asked for a limited discovery stay of six months. The trial court denied the Defendants' renewed motion:

The Court, applying the factors in King v. Olympic Pipeline to the present motion, finds that the status and potential duration of any criminal investigation into Defendants' actions remains unknown, the similarity of any possible criminal investigation to the pending civil cases is unknown, Plaintiff and the Fairplay Receivership creditors will be significantly prejudiced by an indefinite stay of the pending actions, Defendants can point to no significant or unique prejudice in proceeding with the depositions, granting the requested stay will result in waste of judicial resources, the interest of nonparties favors denying the requested stay, and the equities of the case favor denying the requested stay.

         Defendants filed a motion for discretionary review in this court. Our commissioner granted an emergency motion to temporarily stay Garrison's deposition and expedited the motion for discretionary review. After hearing argument on the motion, the commissioner granted discretionary review and set the matter for consideration by a panel on the merits. Having had the benefit of the parties' briefs and oral argument, we now remand this matter for the entry of a discovery stay.


         As a preliminary matter, it is necessary to clarify the nature of Defendants' renewed motion.

         Following the trial court's denial of Defendants' first motion to stay discovery, Defendants filed an emergency motion "(1) to stay order compelling depositions and (2) for reconsideration of order denying defendants' motion to stay depositions." Although Defendants characterized this motion as a motion "for reconsideration, " the motion did not cite to or discuss the requirements of Civil Rule (CR) 59.

         CR 59 provides, in pertinent part,

(a) Grounds for New Trial or Reconsideration. On the motion of the party aggrieved, a verdict may be vacated and a new trial granted to all or any of the parties, and on all issues, or on some of the issues when such issues are clearly and fairly separable and distinct, or any other decision or order may be vacated and reconsideration granted. Such motion may be granted for any one of the following causes materially affecting the substantial rights of such parties:
(4) Newly discovered evidence, material for the party making the application, which the party could not with reasonable diligence have discovered and produced at the trial;
(b) Time for Motion; Contents of Motion. A motion for a new trial or for reconsideration shall be filed not later than 10 days after the entry of the judgment, order, or other decision. The motion shall be noted at the time it is filed, to be heard or otherwise considered within 30 days after the entry of the judgment, order, or other decision, unless the court directs otherwise.

         On appeal, Fairplay and the Investors assert that Defendants' renewed motion failed to comply with the requirements of CR 59. Specifically, Fairplay and the Investors assert that (1) Defendants' renewed motion was untimely because it was filed more than 10 days following the trial court's order denying the original motion, and (2) Defendants failed to properly establish that the motion was supported by newly discovered evidence that could not have been previously discovered with due diligence.

         Fairplay's and the Investors' assertions are without merit, as their contentions are at odds with our Supreme Court's decision in In re Detention of Williams. 147 Wn.2d 476, 491-92, 55 P.3d 597 (2002). In that case, the State sought an order to compel a CR 35 mental examination of the respondent. The trial court denied the motion. The State later renewed the motion and the trial court again denied the request. The State moved for discretionary review, which was granted. Williams. 147 Wn.2d at 481-82.

         Williams argued that the State failed to timely appeal the denial of its renewed motion pursuant to the time limitation in CR 59(b). The Supreme Court rejected that argument:

CR 59(b) explicitly applies to a motion for reconsideration filed after the entry of judgment. In the matter before us, the State filed a renewed motion for CR 35 examination and then sought interlocutory review of the decision denying that motion. The State's notice for discretionary review was filed within the time allowed under RAP 5.2(b), the applicable rule. The Court of Appeals did not err in ...

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