Pearlshire Capital Group, LLC v. ZaidPearlshire Capital Group, LLC v. Zaid
Case Information
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
PEARLSHIRE CAPITAL GROUP, LLC, )
) Plaintiff, ) No. 18 C 4787 )
v. ) Magistrate Judge Jeffrey Cole
)
ANA REHAN ZAID and )
RRZ REAL ESTATE LLC, an Illinois )
Limited Liability Co., )
)
Defendants. ) MEMORANDUM OPINION AND ORDER
The Plaintiff has filed “Objections to Defendants’ Privilege Assertions and Motion to Compel Discovery Compliance” [Dkt. #109], which seeks production of about 800 documents over which the defendants have asserted the privilege. For the reasons in the accompanying Memorandum Opinion, the Motion [Dkt. #109] is granted, and the Defendant is ordered to produce the documents in the privilege log in seven days.
ARGUMENT
This case is two years old. It’s not entirely clear what has been going on in that time, other than the fact that the Plaintiff has filed four versions of his Complaint. They say they have exchanged about a quarter million documents in discovery. [Dkt. #93]. But, despite the parties’ representations to the contrary, massive discovery issues have been left to the eleventh hour and beyond.
The case was reassigned to Judge Kness on February 28, 2020 [Dkt. #77], and he indicated that the deadlines his predecessor, Judge Shah, had set remained in effect as of March 9, 2020. [Dkt. #79]. Just a week later, however, the first of Chief Judge Pallmyer’s Coronavirus Orders was entered, the amalgam of which extended deadlines by 77 days. [Dkt. #80]. As per Judge Shah’s Order, the Covid-19 Orders extended the March 31 st deadline to June 16 th . [Dkt. ##71, 85, at 4]. The parties told the court that, as of March 9, 2020, they were nearly finished with written discovery and would be done with it in three weeks, by the March 31, 2020 deadline. [Dkt. #85, at 4].
But, even with so much extra time, the parties didn’t make the new June 16 th deadline. The parties’ representations that they had been just three weeks from completing discovery at the beginning of March were not close to reality. In fact, they sought what they termed a six-week “extension” of the June16th deadline on June 24 th which, of course, was actually a motion to reopen fact discovery. [Dkt. #88]. Judge Kness generously granted the motion, and set another new deadline: July 27, 2020. [Dkt. #90]. And he stressed: “No further extensions of these deadlines will be granted absent extraordinary circumstances.” [Dkt. #90].
But then, on the day of the expiration of the deadline, the Plaintiff filed another Motion for an extension – this one to allow the filing of a motion to compel fact discovery after the close of fact discovery. [Dkt. #93]. Plaintiff’s counsel said the parties had made “good progress,” although he anticipated needing to file a motion to compel regarding the defendants’ assertion of the privilege as to certain documents. [Dkt. #93]. This was misleading, to say the least. Left unsaid was the fact that this remaining dispute involved a motion to compel covering almost 900 pages with exhibits, a 90-page privilege log, 800 at-issue documents, allegations of crime/fraud, and suggestions that an in camera review of those documents if not a mini-trial [1] might be necessary to resolve the one little thing left to take care of. Not to mention a response and reply brief which, with exhibits, ave turned out to cover an additional 380 pages. That’s not “good progress” by any stretch of the imagination and to have told Judge Kness what was said was misleading to say the least. Generally speaking, representations made in support of motions for extensions of deadlines – easily the most common motions in any courthouse – are taken with the proverbial grain of salt. But what was said to Judge Kness did not begin to convey the true state of things. Lawyers have an obligation to be candid with the court. Cleveland Hair Clinic, v. Puig , 200 F.3 1063, 1067-68 (7 th Cir. 2000).
All that is maddening but, sadly, all too common. The most remarkable revelation was that,
at that very late date, with fact discovery closed, the defendant
had not yet produced
complete
privilege logs for the documents it had been withholding from discovery throughout this case. [Dkt.
#93, Par. 12]. Such tardiness and failure to comply with Fed.R.Civ.P. 26(b)(5) can, in many
circumstances, be found to constitute a waiver of the privilege as to the unlogged documents.
See,
e.g., Blackard v. Hercules, Inc.
,
And, so, here we are. Distilled to its essence, the present controversy is about a person doing a family friend a favor and living to regret it. Two years into this case, however, all we have are allegations and accusations on both sides. Nothing has been addressed or resolved with a dispositive motion, so the only view of the case is an amalgam of those allegations and accusations on both sides. What we have said should not be interpreted as suggesting that we have an impression that either side is right or wrong or that one side is wearing a white hat and the other is not. Long experience teaches two things: tentative impressions are often as wrong as they are right and that white hats, like haloes, rarely fit through the courthouse doors.
Bagasrawala Sponsors Zaid
The Plaintiff, Pearlshire Capital Group (“PCG”), is, essentially, Farrukh Bagasrawala. He formed PCG in 2013 in order to invest in the hospitality industry. In 2013, PCG successfully negotiated the purchases of hotels in Itasca, Roselle, and Countryside, Illinois, and closed those purchases in the names of single purpose entities which, in turn, were controlled by Bagasra Real Estate LLC ("BRE"), another SPE that Bagasrawala solely owned. This was going to be the general idea going forward.
The Bagasrawala family went back some time with the defendant’s family, the Zaids. The two families invested together for years. The defendant, Rehan Zaid, came here from Pakistan and went to college at DePaul University, earning a degree in Hospitality Leadership & Lodging Management. After a brief stint as a consultant with a hospitality firm, Zaid joined PCG. He had to get an H-1B work visa to remain in the United States, and needed PCG as a sponsor. As a family friend and an associate, Bagasrawala sponsored Zaid to work for PCG as a financial analyst. Among other duties, he was to analyze existing hotel properties and potential sites for PCG and future joint ventures. [Dkt. ##1-1, 114-1]. He began this work in Ocotber 2014, at twenty-seven years of age. [Dkt. #1-1].
H–1B visas allow U.S. companies to hire noncitizen workers in “specialty occupations,”
defined as those that typically require at least a bachelor's degree in a specific field of study.
See
8
U.S.C. § 1184(i);
Rubman v. U.S. Citizenship & Immigration Servs
.,
It didn’t work out too well for Bagasrawala. Plaintiff’s Third Amended Complaint alleges that, during his employment with PCG – about a year into it – Zaid usurped three (3) PCG corporate opportunities involving hotel acquisition or development in Des Plaines and BurrRidge, Illinois and Valparaiso, Indiana. Plaintiff claims his losses and defendant’s gains exceeded $13 Million. Plaintiff is asserting claims Fraud and Deceit (Count I), Breach of Fiduciary Duty (Count II), Tortious Interference with Prospective Economic Advantage (Count III) and Unjust Enrichment (Count IV).
Defendant says it wasn’t as bad as it looks. Bagasrawala and his family and Zaid and his family had been co-investors in several properties prior to Zaid’s employment with, and sponsorship by, Bagasrawala. Supposedly, the families had an understanding that Zaid would be permitted to serve as a member, manager, and investor in various investments outside of his H-1B employment with Bagasrawala. Zaid would be an independent investor, free to investigate and pursue new investment and development opportunities on his own, for investment by himself and his family, as well as for other investors while being sponsored as Bagasrawala’s ostensible employee. [Dkt. ##85, 114].
Despite his H-1B status, and the job duties described in the sponsorship visa application, Zaid claims that his duties with PCG did not include pursuing development deals or potential investments. Any such opportunities he looked into were separate from his work for PCG, supposedly in accordance with his agreement with Bagasrawala. Zaid’s view of his work here in the United States was that he was free to pursue hotel developments and other investments that had nothing to do with PCG for the benefit of himself, his family, and other investors. [Dkt. #114-1, Ex. 1,Par. 24]. As Zaid sees it, Bagasrawala only raised the claims at issue in this action after Zaid was no longer employed by him and after it became clear that the hotel developments in Des Plaines and Burr Ridge and the purchase of the Fairfield Inn in Valparaiso were successful. [Dkt. ##85, 114] The Three Hotel Deals
First we have the Valparaiso Fairfield Inn and Suites. Zaid engaged the law firm of Hoeppner, Wagner & Evans ("HWE"), by all appearances on behalf of PCG. The November 21, 2014 Letter of Intent for the purchase was not only on Pearlshire letterhead, but stated it evidenced “the agreement in principle of Pearlshire Capital Group . . . .” It was signed by Zaid, but clearly on behalf of Pearlshire. [Dkt. #109-6]. Invoices from HWE firm for this deal went to PCG. [Dkt. #109- 7]. Zaid also engaged Wolin & Rosen, Ltd. ("WR"), whose invoices also went to PCG. [Dkt. #109- 10]. Zaid then created the SPE BSD Hospitality in January 8, 2015. [Dkt. #109-8]. The Firm drew up a purchase agreement originally for PCG in December of 2014, then edited it for BSD. [Dkt. #109-9].
The Des Plaines TIF deal has similar earmarks. Lyon & Caron LLP ("LC") was the firm Zaid
engaged, again, ostensibly, on behalf of PCG. Terms of the TIF deal were put together for PCG, and
emailed to Zaid. [Dkt. #109-16]. The agreement was clearly between Des Plaines and PCG. [Dkt.
#109-17]. The Economic Disclosure Statement was in the name of PCG. [Dkt. #109-19]. Then,
about January of 2015, references became PCG d/b/a O’Hare Real Estate. [Dkt. #109-19]. ORE was
the SPE Zaid put together to take control of this deal for himself. Zaid has admitted the Economic
Disclosure Statement and Affidavit he submitted to Des Plaines April 13, 2015fraudulently stated
that his wholly owned LLC, Pearl Hospitality Manager LLC, held an interest in PCG when the
Proposal was submitted. Exhibit 19(A), Des Plaines Declaration; Exh. 3,Answer to RTA Pars. 19-20.
Zaid engaged LC in November 2015 on behalf or O’Hare Real Estate. [Dkt. #109-23]. But,
remarkably, Zaid claimed he was unaware of Lyon & Caron in Requests for Admissions. [Dkt.
#109-3. Pars. 23-24]. “Honesty of purpose prompts frankness of statement.”
Crosby v. Buchanan
Finally, there is the Burr Ridge Property. Again, by all appearances it was a PCG deal. The outline of purchase was for Pearlshire Capital Group. [Dkt. #109-28, -29]. Again the LC Firm worked on the deal. [Dkt. #109-30]. The retainer agreement was in the name of PCG. [Dkt. #109- 32]. Zaid also retained Goldstine, Skrodzki, Russian, Nemec & Hoff ("GSRNH”), once again on behalf of PCG. [Dkt. #109-33].
The only explanation from Zaid regarding his use of the name of PCG throughout these deals and in retainer agreements and communications with law firms is singularly unsatisfying. Zaid claims he “occasionally” used the PCG name in certain communications and agreements at the early stages of these developments, he intended the name only as a symbol of his “family office” arrangement, and never intended PCG to be a party to the investments. And he closed each investment by a separate entity unaffiliated with PCG, because that was what had always been intended. [Dkt. #114-1, Ex. 1,Par. 25]. Moreover, while he “occasionally” used the name of PCG to engage and correspond with the law firms of Lyon & Caron LLP, Wolin & Rosen, Ltd, Hoeppner, Wagner & Evans, and Goldstine Skrodzki (the “Law Firms”), he always intended them to represent him and the entities through which he made his investments. He claims he never intended those firms to represent PCG regarding any of the investments at issue. [Dkt. #114-1, Ex. 1,Par. 27]. Based on that explanation of what he was doing when he repeatedly employed the PCG name in retainer agreements, discussions with attorneys, and investment deals, all while working for PCG on an H-1B visa in a job involving putting together investment deals, Zaid makes a broad, sweeping claim of privilege as to about 800 documents.
The Documents at Issue
It is an oft-recited aphorism that the attorney-client privilege is one of the oldest and most
widely recognized privileges of confidential communication.
Swidler & Berlin v. United States
, 524
U.S. 399, 403 (1998). It is intended to “encourage full and frank communication between attorneys
and their clients and thereby promote broader public interests in the observance of law and
administration of justice.”
Upjohn Co. v. United States
,
Unfortunately, experience teaches that abuse of the privilege is all too common.
See, e.g.,
Urban 8 Fox Lake Corp. v. Nationwide Affordable Hous. Fund 4, LLC
,
Simply put, the defendant has failed to meet his burden. This is not a dispute about Zaid’s
authority to bind Bagasrawala to a contract or legal malpractice; it is a dispute about whether
application of the privilege in these circumstances “will serve a public good transcending the
normally predominant principle of utilizing all rational means for ascertaining truth.”
Shaffer
, 662
F.3d at 446. Zaid has not shown that it will. The evidence Plaintiff has submitted regarding these
deals and these communications between Zaid and the law firms is that Zaid was PCG’s employee,
on a limited H-1B visa, and acting in PCG’s name. All that leads to the unassailable conclusion that
the privilege belongs to Bagasrawala, not Zaid. On the other hand, the evidence Zaid has submitted
is
his
explanation that, sure, he may have used the PCG name “occasionally” but he never meant it
the way the evidence makes it look and that his family had a secret agreement with his sponsor to
provide him with residency status and a platform to make his own deals. “[B]ut saying so doesn’t
make it so.”
United States v. 5443 Suffield Terrace, Skokie, Ill.,
The claimed agreement, conveniently or inconveniently as the case may be, is not evidence by any documentation, legal or personal; not a contract or an email. That’s not nearly enough for Zaid, given the circumstances of this dispute, to meet his burden of proof here or overcome the evidence on the Plaintiff’s side. Indeed, when the court reviewed Zaid’s Reply brief, what was significant was not simply a dearth of evidence, but a glaring omission. And, as it was not lost on the Plaintiff, who summed it up this was:
It would have presumably been quite simple for Zaid to tender real evidence demonstrating that he was the Law Firms’ client, such as an engagement letter in his name or an affidavit from even one of the attorneys at four separate law firms averring to Zaid’s status as client. Defendants failed to submit any evidence to meet their burden of proving their status as client.
[Dkt. #118, at 4]. Perhaps it would not have been so easy. Again, in his discovery responses, Zaid claimed he had never heard of the law firm he had the most dealings with. [Dkt. #109-3. Pars. 23- 24]. There is really very little more that need be said about the record. It speaks for itself.
Corporations, partnerships, LLCs, etc., all can have an attorney client privilege with counsel engaged to represent them, of course. The Plaintiff in this case, PCG, is no different. When an employee – here, Zaid – engages an attorney in the name of his employer corporation or LLC, discusses business opportunities of that LLC with that attorney using the LLC’s name, and has the attorney draft agreement and correspondence in the name of that LLC, clearly, to any reasonable observer, whatever privilege may attach to those communications belongs to the LLC and not the employee.
The attorney-client privilege protects communications made in confidence by a client and
a client's employees to an attorney, acting as an attorney, for the purpose of obtaining legal advice.
See Upjohn Co. v. United States
,
It is certainly possible for a corporate employee to seek legal advice from the corporation’s
attorney or for that attorney to act as a “joint attorney,” giving the individual a claim of privilege as
well.
Diversified Indus
.,
In order to convince a court to depart from the default presumption – really, what would be
apparent to any reasonable observer – that an employee engaging a lawyer on behalf of his employer
and using his employer’s name, that employee ought to at least be able to show that: the employee
made it clear that he was seeking advice individually rather than in a representative capacity; the
attorney communicated with the employee in his individual capacity; the communications with
counsel were confidential; and the substance of the communications with counsel did not relate to
company matters.
Int'l Bhd. of Teamsters
,
All the defendants offer here are some vague assertions about a secret family deal to allow
Zaid to go off on a frolic of his own once his visa was sponsored, and Zaid’s claimed belief that his
use of the name of PCG when engaging counsel and setting up deals meant nothing at all. By way
of example, the type of evidence courts look for can be highlighted by
United States v. Smukler
, 333
F. Supp. 3d 484, 491 (E.D. Pa. 2018). There, the court was presented with a detailed report of the
purported client’s dealings with the attorney in question from that attorney, an audio recording of
an FBI interview with purported client; and representations made by the Government regarding the
relationship between the purported client and the attorney during the course of an investigation.
Smukler
,
To come at it from another angle, let’s say Zaid hadn’t lied about being aware of the law firm
and offered some convincing evidence that he sincerely believed he was a client and the law firms
were representing him from the start – again, that’s despite evidence to the contrary. An individual's
subjective belief that he is represented is not alone sufficient to create an attorney-client relationship,
as the court made clear in
United States v. Keplinger
,
At this point, the discussion could go into Zaid’s activities once he engaged counsel, but it need not. To do so would be to tread rather heavily on the substantive issues in this case, which is inappropriate on a referral limited to a discovery motion. [Dkt. #104]; see, eg., Swanson v. Citibank N.A. , 614 F.3d 400, 411–12 (7th Cir. 2010)(Posner, J., dissenting in part)(“. . . judges tend to delegate [discovery] authority to magistrate judges. And because the magistrate judge to whom a case is delegated for discovery only is not responsible for the trial or the decision and can have only an imperfect sense of how widely the district judge would want the factual inquiry in the case to roam . . . .”). Suffice it to say that, based on the record in this discovery motion, there is no countenancing what Zaid appears to have done. But we stop short of determining whether it amounted to crime or fraud which would, of course, undue any privilege there might otherwise have existed. That finding is unnecessary because the privilege here belongs to the Plaintiffs to exercise or waive as they see fit. And, as such the Plaintiffs’ motion to compel production of the documents at issue is granted and, as discovery has been closed since July 27 th , the Defendants are ordered to produce those documents within seven days. Failure to comply with this Order can have significant consequences. ENTERED: UNITED STATES MAGISTRATE JUDGE DATE: 9/29/20
Notes
[1] It is perhaps worthwhile pointing out to the parties that an in camera review of some 800 documents would be both unwieldy and extremely time-consuming, pandemic or no. When the numbers of documents to be reviewed move well into the hundreds, courts in this Circuit find it appropriate and far more efficient to engage a special master under Fed.R.Civ.P. 53(a)(1)(C). See, e.g.,Am. Nat. Bank & Tr. Co. of (continued...)
[1] (...continued)
Chicago v. Equitable Life Assur. Soc. of U.S.
,
[2] In Illinois, for the purposes of claiming the privilege, a corporation can only act through a “control
group.”
Consolidation Coal Co. v. Bucyrus-Erie Co.
,