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Compound Property Management LLC v. Build Realty, Inc.

United States District Court, S.D. Ohio, Western Division

January 14, 2020

BUILD REALTY, INC., et al., Defendants.



         This cause comes before the Court on (i) Defendant Build Realty, Inc.'s (“Build”) Objection (ECF No. 109) to the Magistrate Judge's December 6, 2019 Order (ECF No. 104) regarding discovery issues relating to various PNC Bank records, and (ii) the parties' joint report of a discovery dispute relating to audio recordings of Build management meetings (ECF No. 114). For the reasons discussed more fully below, the Court ORDERS the following:

1) Build shall produce the requested Zoom Audio conference records.
2) As more fully set forth in Magistrate Judge Litkovitz's December 6, 2019 Order (ECF No. 104), Plaintiffs shall be entitled to banks records from PNC Bank relating to the escrow accounts of the Build Defendants[1] as follows:
a.) Plaintiffs shall specify two months from each calendar year starting with 2013 through 2019 (i.e., two months in 2013, two months in 2014, etc.); and
b.) the discovery requests to PNC Bank shall be limited to the requested records relating to the escrow account for the specified months. (See id.).

         A. Zoom Audio Tapes.

         Based on their respective filings, as well as the discussion that occurred at the Discovery Conference on January 9, 2020, the parties appear to agree that officers and employees of the Build Defendants, potentially along with others, would conduct business meetings from time to time using Zoom Video Communications' teleconferencing services, and that recorded audio (and perhaps video) of those business meetings is still available in electronic form. In discovery, Plaintiffs seek production of those recordings. The Build Defendants, however, assert that the electronic records have marginal relevance, if any, to the claim on which discovery is currently moving forward, i.e., Plaintiffs' breach of fiduciary duty claim. Moreover, the Build Defendants contend that Plaintiffs' burden to produce such private information is significant. As to the latter, the Build Defendants argue that Jonathan Peak, who maintains the recordings (and also participated in the meetings), is an attorney, and has served as an attorney for the Build Defendants from time to time (although he has also provided services to those entities as a non-attorney). Thus, Peak indicates that he must review the recordings for attorney-client information before providing them in discovery. Peak estimates that the necessary review process will cost approximately $18, 750. Arguing that producing the audio records is inappropriate, Build directs the Court's attention to this cost and asserts that its attorneys in this litigation would need to review and analyze the recordings, as well, resulting in additional fees. According to the Build Defendants, these expenses render the burden of production disproportionate to the needs of the case. See Fed. R. Civ. P. 26(b)(1). In the alternative, the Build Defendants ask the Court to require Plaintiffs to pay the roughly $18, 750 in review expenses cited above.

         When the parties presented this issue to Magistrate Judge Litkovitz, she concluded that the Zoom records could be relevant to at least the breach of fiduciary duty claims, but then inquired regarding the magnitude of the burden associated with assembling those materials. In response to that inquiry, Build developed the cost estimate set forth above.

         With regard to that cost estimate, Plaintiffs argued at the Discovery Conference that there is no need for Build to incur those costs for two reasons: (1) Peak was not acting as an attorney when he participated in the meetings, so there is no need to review for attorney-client privilege; and (2) in any event, the parties' Stipulated Protective Order (see ECF No. 80) provides a procedure by which privileged material can be “clawed-back” to the extent that such material is discovered after production. (See id. at ¶¶ 10, 16). Accordingly, Plaintiffs ask the Court to require the Build Defendants to produce the Zoom recordings at their own cost.

         The Court agrees with Magistrate Judge Litkovitz that the Zoom recordings could be relevant to one or more of Plaintiffs' claims in this matter, including the breach of fiduciary duty claim, under the allegations set forth in the Complaint. Plaintiffs assert that all of the Build entities are operated as alter egos of one another, and that the Build entities that are named as trustees in the trusts in which Plaintiffs were beneficiaries routinely violated their fiduciary duties to Plaintiffs as beneficiaries. Discussion among the Build officers and executives regarding how they have been managing the company could presumably shed substantial light on the relationships between those entities (thus providing relevant information regarding whether they are, in fact, alter egos of one another), as well as offer information regarding how the entities operate (which could be directly relevant to the breach of fiduciary issues). The Court further finds that, given the number of potential plaintiffs, the nature of the allegations, and the complex nature of this suit, the potential expenses for producing these records do not render the discovery disproportionate to the needs of the case, as that term is used in Fed.R.Civ.P. 26. This is particularly true in that, as noted above, production of the recordings would not act as a waiver of the attorney-client privilege given the claw-back procedure in the Protective Order that the Court has entered in this case. (See Stip. Prot. Ord. at ¶¶ 10, 16 [ECF No. 80]). Accordingly, the Court ORDERS the Build Defendants to produce, at their own expense, the Zoom recordings that Plaintiffs have requested.

         B. PNC Bank Records.

         PNC Bank provided banking services to the various Build entities, which included maintaining the escrow accounts that Build used to escrow rehab funds that were supposed to be paid to Plaintiffs as they completed various rehab activities on the properties as to which they were trust beneficiaries. In their Complaint, Plaintiffs contend that one of the ways in which the Build Defendants violated their fiduciary duties was by reporting to Plaintiffs that the escrow accounts had been funded (thereby causing Plaintiffs to start accruing interest), when in fact that was not the case. Plaintiffs similarly contend that the Build Defendants would freely move funds into and out of the escrow accounts to pay their own bills, treating the money as their own, when in fact they held it as trustees for Plaintiffs. Based on these allegations, Plaintiffs contend that the escrow account records, and in particular details regarding the transfers of funds in and out of the escrow accounts (such as the dates, amounts, and recipients or senders of those transfers), are relevant to their claims.

         In response, the Build Defendants again suggest that producing the requested bank records would impose an undue burden on them, thereby rendering this ...

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