IN THE IOWA DISTRICT COURT FOR POLK COUNTY : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT IN THE IOWA DISTRICT COURT FOR POLK COUNTY BELLE OF SIOUX CITY, L.P., v. Plaintiff Counterclaim Defendant MISSOURI RIVER HISTORICAL DEVELOPMENT, INC., Defendant Counterclaimant MISSOURI RIVER HISTORICAL DEVELOPMENT, INC., v. Third Party Plaintiff, PENN NATIONAL GAMING, INC., Third Party Defendant, SIOUX CITY ENTERTAINMENT, INC., v. Intervenor, BELLE OF SIOUX CITY, L.P., and PENN NATIONAL GAMING, INC., Intervention Defendants. CL 126161 RULING ON MOTION TO QUASH SUBPOENAS DUCES TECUM SERVED UPON DAVID BERNSTEIN AND CURTIS BEASON This matter came before the court on November 8, 2013, on the motions to quash subpoenas duces tecum served upon David Bernstein and Curtis Beason. Attorneys Mark Weinhardt and Steven Wandro represented Belle of Sioux City, L.P. ( Belle ). Attorney Douglas L. Phillips represented Missouri River Historical Development, Inc. ( MRHD ). Having 1

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT reviewed the court file, considered the arguments of counsel for the parties, and being otherwise fully advised in the premises, the court makes the following ruling I. PERTINENT BACKGROUND INFORMATION The factual background to this matter was recently provided by the court in its ruling on Belle s motion to appoint a receiver and will not be repeated herein. During the course of discovery in this matter, Belle served David Bernstein ( Bernstein ) with a subpoena duces tecum seeking documents and communications relating to Bernstein s negotiations with Belle, negotiations with MRHD, and communications with any other individual or entity regarding Bernstein s affiliation with MRHD and the development of a land-based casino in Woodbury County. Belle also sought documents and communications regarding the exact date on which Bernstein became licensed with the IRGC, regarding any property interest Bernstein has relating to a land-based casino, and regarding numerous other specified subjects. Belle served Curtis Beason ( Beason ) with a subpoena duces tecum seeking documents and communications relating to Belle, relating to MRHD, relating to negotiations relating to the 2012 operating agreement extension, and relating to development of a land-based casino in Woodbury County. On June 14, 2013, MRHD filed its privilege log pertaining to the Bernstein and Beason subpoenas, asserting that attorney client privilege and work product privilege shielded numerous documents and communications from discovery. MRHD also asserted that other documents and communications were not relevant to any issues in the litigation. MRHD contemporaneously filed a motion to quash the Bernstein and Beason subpoenas and a supporting brief. In support of its motion to quash subpoenas, MRHD argues that the Bernstein subpoena is overly broad and burdensome as it seeks documents and communications with no set time period, and that the only relevant time period is from August 26, 2011 until July 6, 2012. MRHD 2

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT argues that much of the requested information is not relevant to this case, as many categories of documents and communications sought have nothing to do with establishing a contract between Belle and MRHD, or with establishing any alleged breach of that contract. MRHD argues that the Bernstein and Beason subpoenas seek documents and communications protected by the attorney client privilege and work product privilege. MRHD also argues that Belle is attempting to abuse the discovery process in this civil litigation to obtain documents pertinent to its pending petitions for judicial review. Therefore, MRHD argues the subpoenas should be quashed. On June 24, 2013, Belle resisted the motions to quash the Bernstein and Beason subpoenas. Belle briefly withdrew its resistance during negotiations regarding discovery, then subsequently filed a brief in support of its resistance to the motions to quash on August 26, 2013. In support of its resistance, Belle argues that, overall, Bernstein s and Beason s interactions with MRHD and other entities are relevant to its claims against MRHD and that the motions to quash should be denied. Specific to the Bernstein subpoena, Belle argues that MRHD may not rely on the lack of relevance argument in refusing to produce requested documents dating before 2011, or after July 6, 2012. Belle argues that MRHD has failed to substantiate its claims that production of these documents would be burdensome. Therefore, Belle argues that Bernstein should be ordered to produce all responsive documents. Specific to the Beason subpoena, Belle argues that the attorney client privilege and work product privilege do not apply as Beason was not working as an attorney for Bernstein or MRHD when the subpoenaed documents and communications were created. Belle points to testimony from Bernstein regarding the role Beason played, and the fact that another individual claims Beason as his attorney, to show that Beason could not have represented Bernstein or MRHD during the times in question. Belle argues that any privilege attached to certain documents and 3

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT communications was waived, and that other documents and communications do not originate from a client seeking legal advice. Therefore, Belle argues that Beason should be ordered to produce all responsive documents. On November 15, 2013, Belle supplemented its brief, identifying specific documents and communications from the Beason and Bernstein privilege logs which Belle asserts must be produced. Belle noted that it only challenged the documents identified in the brief supplement, and that Belle may later challenge other privilege log entries. From the Beason privilege log, Belle identifies numerous documents and communications with individuals outside of MRHD, and argues that disclosure of a document to a third party waives any applicable privilege. Therefore, Belle argues that the documents specifically identified in its brief supplement must be produced. Belle also identified specific documents and communications from the Bernstein privilege log, arguing that the documents identified are highly relevant to the claims brought against MRHD and must be produced. Belle argues that both Bernstein and Beason should be ordered to search for additional documents which fall under the subpoenas, dating back to at least January 1, 2011. Belle argues that MRHD s motions to quash should be denied in their entirety, that Bernstein and Beason should be ordered to provide full and complete responses to the subpoenas, and that documents improperly placed on privilege logs and all other responsive documents and communications should be produced. II. LEGAL STANDARD a. Discovery Iowa Rule of Civil Procedure 1.501 provides 1.501(1) Parties may obtain discovery by one or more of the following methods depositions upon oral examination or written questions; written interrogatories; 4

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT production of documents or things or permission to enter upon land or other property, for inspection and other purposes; physical and mental examinations; and requests for admission. 1.501(2) The rules providing for discovery and inspection shall be liberally construed and shall be enforced to provide the parties with access to all relevant facts. Discovery shall be conducted in good faith, and responses to discovery requests, however made, shall fairly address and meet the substance of the request. Iowa R. Civ. P. 1.501. [Courts] begin [their] analysis by noting the philosophy underlying [Iowa s] discovery rules is that litigants are entitled to every person's evidence, and the law favors full access to relevant information. Thus, the district court should liberally construe our discovery rules. However, there are several avenues available to those who wish to resist discovery.... Rule 1.503, relating to scope of discovery, provides Unless otherwise limited by order of the court in accordance with the rules in this chapter, the scope of discovery is as follows 1.503(1) In general. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things... It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. As this rule makes clear, a party is entitled to discover any information that is not privileged and that is relevant to the subject matter of the lawsuit. Relevancy to the subject matter of the lawsuit is broader than relevancy to the precise issues in the pleadings because the rule allows discovery of inadmissible information as long as it leads to the discovery of admissible evidence. Mediacom Iowa, L.L.C. v. Inc. City of Spencer, 682 N.W.2d 62, 66 (Iowa 2004) (internal citations and quotations omitted). When a party withholds information otherwise discoverable under these rules by claiming that it is privileged or subject to protection as trial-preparation material, the party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, 5

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT without revealing information itself privileged or protected, will enable other parties to assess the applicability of the privilege or protection. Iowa R. Civ. P. 1.503(5)(a). In a discovery dispute, the burden to establish an applicable privilege is on the party resisting discovery. If the privilege is established and the question becomes whether an exception to it applies, the burden of persuasion shifts to the proponent of the exception. City of Coralville v. Iowa Dist. Ct. for Johnson Cnty., 634 N.W.2d 675, 677 78 (Iowa 2001). b. Communications Protected by Privilege i. Requirements to Establish Attorney-Client Privilege Iowa Code section 622.10 provides 1. A practicing attorney... who obtains information by reason of the person's employment,... shall not be allowed, in giving testimony, to disclose any confidential communication properly entrusted to the person in the person's professional capacity, and necessary and proper to enable the person to discharge the functions of the person's office according to the usual course of practice or discipline. 2. The prohibition does not apply to cases where the person in whose favor the prohibition is made waives the rights conferred; nor does the prohibition apply... in a civil action in which the condition of the person in whose favor the prohibition is made is an element or factor of the claim or defense of the person or of any party claiming through or under the person. The evidence is admissible upon trial of the action only as it relates to the condition alleged. Iowa Code 622.10(1) (2) (2013). The rule is quite clear that to constitute a privileged communication to an attorney there must be some element of confidence imposed in the attorney himself, and for him to accept that relationship it must be apparent that the transaction or his action in relation thereto is for the mutual benefit of the parties, knowingly and willingly seeking his professional services. Henke v. Iowa Home Mut. Cas. Co., 87 N.W.2d 920, 923 24 (Iowa 1958). 6

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT The party seeking to assert the privilege bears the burden to show an attorney-client relationship existed and that the communication was made in confidence. Keefe v. Bernard, 774 N.W.2d 663, 669 (Iowa 2009). ii. Requirements to Establish Work Product Privilege Iowa Rule of Civil Procedure 1.503(3) provides Subject to the provisions of rule 1.508, a party may obtain discovery of documents and tangible things otherwise discoverable under rule 1.503(1) and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the party's attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the case and that the party seeking discovery is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation. A party may obtain without the required showing a statement concerning the action or its subject matter previously made by that party. Upon request, a person not a party may obtain without the required showing a statement concerning the action or its subject matter previously made by that person. If the request is refused, the person may move for a court order. The provisions of rule 1.517(1)(d) apply to the award of expenses incurred in relation to the motion. For purposes of this rule, a statement previously made is any of the following a. A written statement signed or otherwise adopted or approved by the person making it. b. A stenographic, mechanical, electrical, or other recording, or a transcription thereof, which is a substantially verbatim recital of an oral statement by the person making it and contemporaneously recorded. Iowa R. Civ. P. 1.503(3). Iowa Rule of Civil Procedure 1.503(3) codifies a qualified immunity from discovery of materials prepared in anticipation of litigation. Keefe, 774 N.W.2d at 673. [T]he overarching inquiry in determining whether a document was prepared in anticipation of litigation is whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have 7

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT been prepared or obtained because of the prospect of litigation. If documents would have been created in essentially similar form irrespective of the litigation,... it cannot fairly be said that they were created because of actual or impending litigation. Wells Dairy, Inc. v. Am. Indus. Refrigeration, Inc., 690 N.W.2d 38, 48 (Iowa 2004) (internal citations, quotations, and brackets omitted). Attorney notes of a witness's statement created in anticipation of litigation are protected by work product privilege. Keefe, 774 N.W.2d at 673. Attorney notes have been held to be opinion work product. Attorney notes reveal an attorney's legal conclusions because, when taking notes, an attorney often focuses on those facts that she deems legally significant. Id. (internal citations and quotations omitted). iii. Extension of the Attorney-Client and Work Product Privileges a. Joint Client Privilege Iowa recognizes an exception to the attorney-client privilege where two or more persons jointly consult with the same attorney to act for them in a matter of common interest. This exception is known as the joint-client exception.... Thus, when the same attorney acts for two parties, the communications are privileged from third persons in the controversy, but not in a subsequent controversy between the two parties. Brandon v. W. Bend Mut. Ins. Co., 681 N.W.2d 633, 639 (Iowa 2004) (internal citations and quotations omitted). Brandon recognizes that a common interest exists where two or more parties consulted an attorney for the mutual benefit of the parties. Id. at 641. The Iowa Supreme Court characterized a common interest as two or more parties having an interest in some problem or situation. Id. When two or more persons, each having an interest in some problem, or situation, jointly consult an attorney, their confidential communications with the attorney, 8

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT though known to each other, will of course be privileged in a controversy of either or both of the clients with the outside world, that is, with parties claiming adversely to both or either of those within the original charmed circle. But it will often happen that the two original clients will fall out between themselves and become engaged in a controversy in which the communications at their joint consultation with the lawyer may be vitally material. In such a controversy it is clear that the privilege is inapplicable. Id. (quoting 1 John W. Strong, McCormick on Evidence 91, at 365 66 (5th ed.1999)). b. Common Interest / Joint Defense Privilege Though other jurisdictions have recognized the common interest, or joint defense, privilege, Iowa courts have not specifically recognized this extension of the attorney-client and work product privilege. The joint defense privilege is quite different from the joint client exception to the attorney-client privilege, which withholds the privilege from communications made in circumstances where two clients employ the same attorney for the same action, at least as far as the ability to assert the privilege against one of the joint clients. The joint defense privilege is not an independent privilege, but an extension of the privilege for attorney-client communications or the work product immunity, and only applied when conditions for the application of the attorney-client privilege or the work product privilege have been met. Lee R. Russ, Couch on Insurance Third Edition Joint Defense Privilege to Preclude Waiver of Attorney-Client Privilege 25013 (Westlaw 2012) available at Westlaw 17A Couch on Ins. 25013. [T]he common-interest doctrine, which expands the coverage of the attorneyclient privilege in certain situations[, provides] If two or more clients with a common interest in a litigated or nonlitigated matter are represented by separate lawyers and they agree to exchange information concerning the matter, a communication of any such client that otherwise qualifies as privileged... that relates to the matter is privileged as against third persons. Any such client may invoke the privilege, unless it has been waived by the client who made the communication. 9

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 922 (8th Cir. 1997) (quoting RESTATEMENT (THIRD) OF LAW GOVERNING LAWYERS 76(1) (2000)). This doctrine softens the ordinary requirement that lawyer-client communications must be made in confidence in order to be protected by the privilege. Id. The so-called joint defense or common interest privilege, which protects communications among its participants from disclosure, is an extension of the attorney-client privilege and the work product doctrine. Thomas G. Pasternak & R. David Donoghue, Making Joint Defense Agreements Work, 34 No. 4 LITIGATION 26 (Summer 2008). This protection has been extended to communications between different persons or separate corporations when the communications are part of an on-going and joint effort to set up a common defense strategy. In order to establish the existence of a joint defense privilege, the party asserting the privilege must show that (1) the communications were made in the course of a joint defense effort, (2) the statements were designed to further the effort and (3) the privilege has not been waived. Haines v. Liggett Group Inc., 975 F.2d 81, 94 (3d Cir. 1992) (internal citations and quotations omitted). To be entitled to the protection of the joint-defense privilege, the parties must share a common interest about a legal matter and the term "common interest" typically entails an identical, or nearly identical, legal interest as opposed to a merely similar interest. However, it is unnecessary that there be actual litigation in progress for the joint-defense privilege to apply to parties sharing a common interest about a legal matter. Communications between potential codefendants and their counsel are protected under the common legal interest theory if, at the time of the communications, there is a palpable threat of litigation, rather than a mere awareness that one's questionable conduct might some day result in litigation; a cognizable, common legal interest does not exist where a group of individuals seeks legal counsel not to prepare for future litigation but only to avoid conduct that might lead to litigation. 81 AM. JUR. 2D Witnesses 368 (internal footnotes omitted). Under the privilege, any member of a client set a client, the client's agent for communication, the client's lawyer, and the lawyer's agent (see 70) can exchange communications with members of a similar client set. However, a communication directly among the clients is not privileged unless made for the 10

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT purpose of communicating with a privileged person as defined in 70. A person who is not represented by a lawyer and who is not himself or herself a lawyer cannot participate in a common-interest arrangement within this Section. RESTATEMENT (THIRD) OF LAW GOVERNING LAWYERS 76(d) (2000) Exchanging communications may be predicated on an express agreement, but formality is not required. It may pertain to litigation or to other matters. Separately represented clients do not, by the mere fact of cooperation under this Section, impliedly undertake to exchange all information concerning the matter of common interest. RESTATEMENT (THIRD) OF LAW GOVERNING LAWYERS 76, cmt. c (2000) iv. Waiver / Disclosure The attorney-client privilege may be waived. The waiver may be express or implied. It may be based not only on words expressing intent to waive, but conduct making it unfair for a client to invoke the privilege. Thus, we recognize waiver occurs when a person holding a privilege discloses or, for purposes of discovery, plans to disclose privileged matters. Brandon, 681 N.W.2d at 642 (internal citations and quotations omitted). If privileged communications are revealed, then waiver occurs. Id. [T]he waiver of the privilege by sharing it with third persons requires that the sharing be done by the client. State v. Jackson, 587 N.W.2d 764, 766 (Iowa 1998). However, disclosures made by attorneys may waive the attorney-client and work product privileges, just as disclosures made by clients. See Young v. Gibson, 423 N.W.2d 208, 209 10 (Iowa Ct. App. 1988). [I]n some situations joint clients' interests may be so intrinsically adverse as to make a finding of a joint-client relationship untenable[.] [T]he critical time for determining whether an attorney-client relationship exists is when the relationship is formed. Coralville, 634 N.W.2d at 680. 11

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT III. ANALYSIS a. Beason Privilege Log Documents In its motion to quash, MRHD asserts that the documents and communication identified by Belle in its supplemental brief are privileged; therefore, it is MRHD s burden to show the privilege exists. Keefe, 774 N.W.2d 669. As pointed out by Belle, Beason s privilege log entries 1 6, 8 29, 37, and 44 45 each provide that the document or communication was shared with Brian Ohorilko and/or other members of the IRGC. There has been no showing that Beason was acting as an attorney for the IRGC in these communications. Likewise, there has been no showing that any extension of the attorney client privilege under the joint client or common interest / joint representation doctrine applies here. There has been no showing that the parties involved in the communications had a common, or nearly identical, interest in the litigated matter, and no showing that the communications detailed in the supplemental brief were made in the course of any joint defense effort. See In re Grand Jury Subpoena Duces Tecum, 112 F.3d at 922; Haines, 975 F.2d at 94; 81 AM. JUR. 2D Witnesses 368. The court finds no attorney client privilege exists to protect these documents and communications from production. The court further finds that the disclosure of these documents and communications to Ohorilko and members of the IRGC waived any privilege, were a privilege to exist. MRHD s motion to quash relating to these documents must be denied. 1 Further, MRHD has provided no evidence to show that Beason s privilege log entries 7, 31 36, 38 43, and 46 49 are protected by a privilege. Even if a privilege did exist, the court finds that privilege waived by the disclosure of these documents and communications to a third 1 Given the court s finding that waiver through disclosure defeats any privilege claim, the motion to quash based on the work product privilege similarly fails. 12

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT party with whom no privilege was shared. MRHD s motion to quash relating to these documents must be denied. 2 b. Bernstein Privilege Log Documents In support of its motion to quash, MRHD also argues that certain items in Bernstein s privilege log are not relevant to this matter. As Belle points out in its supplemental brief, entries 22 28 in the Bernstein privilege log relate to Bernstein s interactions with MRHD, individual members of MRHD, and other related individuals and entities in Woodbury County. As provided by rule 1.503, a party is entitled to discover any information... relevant to the subject matter of the lawsuit. Relevancy to the subject matter of the lawsuit is broader than relevancy to the precise issues in the pleadings because the rule allows discovery of inadmissible information as long as it leads to the discovery of admissible evidence. Mediacom Iowa, L.L.C., 682 N.W.2d at 66 (internal citations and quotations omitted). The court finds that the Bernstein privilege log documents and communications identified by Belle in its supplemental brief are relevant to the subject matter of the law suit, and, regardless of these communications admissibility, may lead to the discovery of admissible evidence. Therefore, the court concludes that MRHD s motion to quash regarding these documents must be denied. c. General Relevance and Burden Arguments MRHD asserts that other documents and communications requested in the Bernstein and Beason subpoenas are not relevant, and that the requests are overly burdensome. As discussed above, the court finds that, overall; the documents and communications subpoenaed are relevant to the subject matter of the law suit and may lead to the discovery of admissible evidence. The 2 The court notes that Belle is only challenging the assertions of privilege over the documents and communications specifically identified in its supplemental brief. Therefore this court s order regarding production of these documents and communications is limited to only those identified in Belle s supplemental brief. 13

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT court also finds that, given the relatively short span of time in which the alleged actions leading to this suit occurred, the production of the subpoenaed documents and communications is not overly burdensome. Therefore, the court concludes that MRHD s motion to quash based on these arguments must be denied and MRHD may not rely on the relevance or burden arguments to resist production of documents under these subpoenas. IV. JUDGMENT IT IS THEREFORE THE ORDER OF THIS COURT that MRHD s motion to quash subpoenas duces tecum served upon David Bernstein and Curtis Beason is DENIED. David Bernstein and Curtis Beason are ordered to produce any and all documents or things responsive to said subpoenas duces tecum as more specifically identified in Belle s supplemental brief within ten (10) days of the entry of this order. DATED January 2, 2014. ROBERT B. HANSON, District Judge Fifth Judicial District of Iowa 14

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT Copies to Douglas L. Phillips Klass Law Firm, L.L.P. 4280 Sergeant Road, Suite 290 Sioux City, IA 51106 phillips@klasslaw.com Mark E. Weinhardt Weinhardt & Logan, P.C. 2600 Grand Avenue, Suite 210 Des Moines, IA 50312 mweinhardt@weinhardtlogan.com Steven Wandro 2501 Grand Avenue, Suite B Des Moines, IA 50312 swandro@2501grand.com 15

E-FILED 2014 JAN 02 736 PM POLK - CLERK OF DISTRICT COURT State of Iowa Courts Type Case Number LACL126161 OTHER ORDER Case Title BELLE OF SIOUX CITY LP VS MISSOURI RIVER HISTORICAL So Ordered Electronically signed on 2014-01-02 193605 page 16 of 16