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Letter to Counsel - Saint Annes v Trabich Page 1 February 9, 2009

UNITED STATES DISTRICT COURT DISTRICT OF MARYLAND
CHAMBERS OF JAMES K. BREDAR U.S. MAGISTRATE JUDGE 101 WEST LOMBARD STREET BALTIMORE, MARYLAND 21201 (410) 962-0950 (410) 962-2985 FAX

February 9, 2009

TO ALL COUNSEL OF RECORD Subject: Saint Annes Development Company, LLC, et al. v. Neal Trabich, et al. Civil No. WDQ-07-1056 Dear Counsel: This matter has been previously referred to me for resolution of discovery disputes. Before the Court is Plaintiffs' Motion to Overrule Objections at Deposition and to Compel Defendant Terry Trabich to Answer Questions; in addition to seeking the Court's ruling on objections, Plaintiffs are asking the Court to award attorneys' fees incurred in connection with the motion. (Paper No. 127, p. 1.) The matter has been fully briefed in Defendants' Supplemental/Amended Opposition to Plaintiffs' Motion (Paper No. 133, incorporating Paper No. 132) and Plaintiffs' Reply (Paper No. 134). No hearing is necessary. Local Rule 105.6. The MOTION is GRANTED IN PART AND DENIED IN PART. The undersigned entered a ruling on a similar motion pertaining to the deposition of Ms. Trabich's husband, Neal Trabich. (Paper No. 126 ("November 4 Order").) As noted in that ruling, the Court has already entered partial summary judgment in Plaintiffs' favor on the claim of breach of contract and awarded damages of $2,999,792.71 plus post-judgment interest. (Paper No. 86.) Remaining issues in the case include claims of fraud and conspiracy to defraud. (Paper No. 1.) Plaintiffs deposed Ms. Trabich on June 19, 2008. (Paper No. 127, Exh. 1.) As occurred in Mr. Trabich's deposition on July 9, 2008, Defendants' counsel objected many times to various questions and instructed Ms. Trabich not to answer on grounds of either attorney-client privilege or spousal communications privilege or both. (Paper No. 127 Supp. Mem. pp. 2-3.) Plaintiffs argue that Ms. Trabich failed to establish valid grounds for assertion of these privileges, that she waived any privileges she might have had to certain questions by responding on the merits in Defendants' Answer as well as an Answer and Affidavit filed in a related New York case, and that her participation in a fraudulent course of conduct defeated any available privilege as to other questions. (Id.) Plaintiffs also contend that Ms. Trabich's counsel once improperly instructed her not to answer on grounds of relevancy and, in another instance, improperly coached her not to answer due to a claimed privilege when the real objection to the question was based on relevancy. (Id. p. 4.) The factual background for analysis of Plaintiffs' motion was set forth in the November 4 Order: Neal and Terry Trabich and Ronald and Irene Coruzzi entered into a Facility Agreement in May 2006 with Saint Annes Development Company ("SADC").

Letter to Counsel - Saint Annes v Trabich Page 2 February 9, 2009 (Paper No. 110, Exh. 3.) Under the agreement, SADC agreed to arrange a $1,000,000 line of credit, through a bank, for the Trabiches and Coruzzis to use for the sole purpose of financing construction of Saint Annes golf course and clubhouse in Delaware. (Id.) One of the considerations given was an agreement by Terry Trabich to grant SADC a mortgage on the Trabiches' New York residence, which was titled in her name; SADC agreed not to record the mortgage in exchange for the Trabiches' agreement not to put any further encumbrances on their property ahead of SADC's unrecorded mortgage. (Id.) To carry out SADC's obligations under the agreement, Aaron Young, a principal in SADC, arranged for a friend, Gerald David, to secure a line of credit through Wachovia Bank; Young personally guaranteed repayment. (Paper No. 34, Exhs. 8 & 10; Paper No. 110, p. 5.) Trabich immediately drew down the entire one million dollars and deposited it into the Trabiches' joint account. (Paper No. 110, p. 5.) Plaintiffs indicate that $350,000 of that amount went to Terry Trabich and $100,000 went to an entity called Global Golf. (Id.) Neal Trabich is owner and president of Global Golf. (Paper No. 110, Exh.10.) Gordon Lenz is owner of an entity called Confer Bethpage. (Id.) On November 3, 2006, Global Golf, Neal Trabich, and his wife, Terry Trabich, sued, among others, Aaron Young (a plaintiff in the instant suit) and Saint Annes Development Company ("SADC") (also a plaintiff in the instant suit) to void the May 2006 Facility Agreement and accompanying promissory note and consulting agreement at issue in the present case; Jay Edmond Russ was the attorney filing this lawsuit in New York. (Id. Exh. 5.) On December 15, 2006, Global Golf assigned golf concession rights at Bethpage (N.Y.) State Park to Confer Bethpage. (Id. Exh. 10.) On December 21, 2006, Terry Trabich executed a mortgage note on the Trabiches' residence for a loan of $500,000 from Gordon Lenz; Jay Edmond Russ was the notary public on the note. (Id. Exh. 8.) That mortgage note was recorded on January 5, 2007. (Id. Exh. 9.) The defendants in the New York case were served in February or early March 2007. (Paper No. 110-2, p. 6.) Another lawsuit was brought by an entity named AP Links (also controlled by Aaron Young and his co-principal, Peter Rubin) in the District of Maryland against Confer Bethpage, Gordon Lenz, Global Golf, and Neal and Terry Trabich. AP Links, LLC v. Global Golf, Inc., et al., No. CCB-08-705, Paper Nos. 1 & 6. This Court determined it lacked personal jurisdiction over Confer Bethpage and Terry Trabich and transferred the case to the Eastern District of New York. Id. Paper Nos. 27 & 29. In the Court's Memorandum Opinion, it was noted that Neal Trabich was hired as Confer Bethpage's Director of Golf at a yearly salary of $350,000 sometime after Gordon Lenz created Confer Bethpage on October 19, 2006; Confer Bethpage's designated agent was Daniel Rosenthal, who was of counsel to Jay Russ's law firm. Id. Paper No. 26, p. 3. (Paper No. 126, pp. 3-4.) As this Court ruled in the November 4 Order, the law of the forum state in a federal diversity action controls the applicability of a claim of privilege; in the instant case, that is the law of Maryland.

Letter to Counsel - Saint Annes v Trabich Page 3 February 9, 2009 (Id. p. 1.) See Ashcraft v. Conoco, Inc., 218 F.3d 282, 285 n.5 (4th Cir. 2000) (in diversity case, "the availability of an evidentiary privilege is governed by the law of the forum state," citing Fed. R. Evid. 501). However, this Court in Hill v. Huddleston, 263 F. Supp. 108 (D. Md. 1967), predicted, in the absence of authoritative Maryland precedent, that Maryland courts would apply the law of the state that has the most significant relationship with the communication to a claim of privilege asserted at a deposition. Id. at 110 & n.2 (noting that Maryland courts have relied upon the Restatement of the Law Second, Conflict of Laws, in their decision-making and applying present-day section 139 thereof). See also Hare v. Family Publications Service, Inc., 334 F. Supp. 953, 960-61 (D. Md. 1971) (finding that law of New York, which otherwise would govern question of privilege for communication having most significant relationship with that state, would not apply because it did not recognize an accountant-client privilege and, therefore, applying Maryland law because absence of accountant-privilege would violate Maryland's public policy). The Court is not aware of a Maryland case that contradicts these two decisions. Thus, New York law as to privilege would seem to apply since the communications at issue took place there and involved New York citizens, the Trabiches, and because there is no real issue of public policy as in Hare. See also Aetna Cas. & Sur. Co. v. Lloyd's London, 676 N.Y.S.2d 727, 730 n.4 (N.Y. Sup. Ct. 1998) (applying New York rather than English law because communications at issue occurred in New York), aff'd, 692 N.Y.S.2d 384 (N.Y. App. Div. 1999). Evidentiary privileges are to be strictly construed in a fashion that is consistent with their purposes. See Priest v. Hennessy, 431 N.Y.S.2d 511, 514 (N.Y. 1980) ("It has long been recognized that `the attorney-client privilege constitutes an "obstacle" to the truth-finding process, the invocation of which should be cautiously observed to ensure that its application is consistent with its purpose.'" (citations omitted)). A. The Court first considers the issue of attorney-client privilege. In New York, that privilege attaches only to confidential communications made by a client to an attorney for the purpose of obtaining legal advice or service. Priest, 431 N.Y.S.2d at 514. The burden of proving each element of the privilege rests on the party asserting it. Id. Under the Federal Rules of Civil Procedure, [w]hen a party withholds information otherwise discoverable by claiming that the information is privileged . . . the party must: (i) expressly make the claim; and (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed

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