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CSX Transporation, Inc. v. ABC&D Recycling, Inc.

United States District Court, D. Massachusetts

November 3, 2016




         I. Introduction

         CSX Transportation, Inc. (“CSX”) is a judgment creditor of defendant ADC&D Recycling, Inc. (“ABC&D”). Before the court in this civil case is a motion by third party Country Bank for Savings (“the Bank”) to quash and for a protective order, seeking to quash a deposition subpoena issued to the Bank by CSX. The Bank further requests that to the extent there are documents in the possession of the Bank's attorneys concerning the Bank's sale of debt against ABC&D and security interests it held in assets of ABC&D, the court decline to order the production of any such documents on the basis of work product protection. The motion was referred to the undersigned for decision by presiding District Judge F. Dennis Saylor, IV. CSX opposes the motion. The court having heard from the parties, the matter is ripe for decision. For the following reasons, and as more fully set forth below, the court denies the Bank's motion.

         II. Relevant background

         The underlying case here was an action for failure to pay rail common-carrier freight charges pursuant to a contract between CSX and ABC&D. ABC&D admitted to owing money to CSX for freight charges, but disputed its obligation to pay certain finance charges (Dkt. No. 54 at 5). Judge Saylor granted CSX's summary judgment motion (id. at 10-11), and, on August 1, 2013, entered judgment for CSX against ABC&D in the amount of $427, 530.36. The judgment provided that finance charges would continue to accrue until the freight bill was paid in full (Dkt. No. 58).

         Patrick Hannon (“Hannon”) had been the owner and operator of ABC&D and a real estate company, Ware Real Estate, LLC, which held title to the land on which ABC&D conducted its operations. In May 2012, Hannon and his wife sought protection from their creditors by filing a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. The case was subsequently converted to a Chapter 7 proceeding. See In re: Hannon, No. 15-2269, slip op. at 2 & n.1 (1st Cir. Oct. 7, 2016). Hannon bought ABC&D and Ware Real Estate, LLC with financial assistance from attorney George McLaughlin, who owned a financing company which loaned Hannon funds for the purchase. The loan terms included warrant rights that entitled McLaughlin's financing company to purchase a 50.1 percent interest in ABC&D and Ware Real Estate, LLC. After Hannon filed for bankruptcy protection, the financing company assigned its warrant rights to ABCD Holdings, LLC (“ABCD Holdings”), which exercised those rights. Id. at 3. On March 13, 2013, the bankruptcy court approved the sale of Hannon's remaining minority interest in ABC&D and Ware Real Estate, LLC to ABCD Holdings. Id. at 4. In Hannon, the First Circuit affirmed the Bankruptcy Court's denial of a discharge for Hannon, which denial was prompted by the filing of an adversary complaint by ABCD Holdings, ABC&D, and Ware Real Estate, LLC objecting to the discharge on the grounds that Hannon had diverted funds from ABC&D for his personal use. Id. at 5-6.

         During post-judgment discovery, CSX learned that the Bank held a lien and a note against ABC&D and its assets. CSX further learned that the lien and note had been sold to Ware Holdings, LLC (“Ware Holdings”). On January 16, 2015, CSX served the Bank with a post-judgment subpoena seeking documents related to the transfer of the lien and other debts the Bank had held against ABC&D. Following service of the subpoena, counsel for CSX conferred with the Bank's counsel to narrow and clarify the scope of the document requests. As clarified and narrowed, CSX's counsel represented that the subpoena sought: (1) documents regarding the Bank's assignment of a UCC lien; (2) documents regarding the transfer or discharge of any of the items appearing in an attached list of loans and collateral/security agreements held by the Bank against ABC&D; and (3) copies of documents showing payments made by or on behalf of ABC&D on any of the debts owed by ABC&D to the Bank. As to the kinds of documents sought within these three categories, counsel explained that, as to the first two, CSX was seeking copies of emails, written communications, documents of transfer such as contracts or agreements, and, as to the third, evidence of any payments made to the Bank, such as records of checks and wire transfers. CSX agreed to limit the time frame for these requests to January 1, 2013 to the present and to make production subject to a confidentiality agreement (Dkt. No. 60-3 at 8). CSX also agreed that documents showing the Bank's “internal” communications about the discharge or transfer of ABC&D's debts did not need to be produced because it was represented that the only such documents that existed represented the Bank's communications with its counsel (Dkt. No. 60-2 at 3).

         The Bank produced documents to CSX on or around June 15, 2015 (Dkt. No. 68-2), consisting of the account payment history from January 2013 through March 2014; the executed Note Purchase Agreement; the executed Guaranty and Indemnification Agreement; the executed Discharge and Termination of Mortgages and Collateral Assignments of Leases and Rents and UCC Financial Statement; the executed Receipt and Certificate of Compliance; the executed Assignment of Mortgage and Collateral Assignment of Rents and Leases; the executed Assignment of Security Agreements; the executed Assignment of Additional Term Loan Closing Documents; the executed Voluntary Surrender of Collateral Accounts; the executed Release of Trust Fund Property; the four U.C.C. Financing Statement Amendments; and the transmittal letter from Sapirstein and Sapirstein, P.C. to Frank P. Fitzgerald, P.C. (Dkt. No. 71 at 4-5). Following its review of the production, CSX noted the absence of documents evidencing communications by the Bank with representatives of Ware Holdings, ABC&D or other individuals or entities concerning the sale, transfer or discharge by the Bank of any debts or liens the Bank held against ABC&D. CSX requested the production of all such documents or a representation by the Bank's counsel that no such documents existed (Dkt. No. 60-3 at 4).

         At the hearing on the Bank's motion for a protective order, CSX's counsel represented that a company called Tri-County Recycling is now using equipment that used to belong to ABC&D to run a recycling business on the site previously owned by Ware Real Estate, LLC and occupied by ABC&D. The reported decision regarding Hannon's bankruptcy petition shows a prior relationship between Hannon, McLaughlin, and ABCD Holdings. See Hannon, No. 15-2269, slip op. at 3. Ware Holdings is the purchaser of the ABC&D commercial paper that the Bank held. Although, in its filings, the Bank refers to Ware Holdings as “a third party purchaser, ” and an “unrelated third party purchaser” (Dkt. No. 86 at 7, 12) - and Ware Holdings is unrelated to the Bank - Ware Holdings' relationship, if any, to ABC&D, Hannon, ABC&D Holdings, or McLaughlin is, at least as far as this court is aware, unknown. Also unknown, so far as the court is aware, is the identity of owner(s) and members of Ware Holdings and the source of Ware Holding's payment to the Bank for the ABC&D commercial paper.

         III. Discussion

         1. Information at Issue

         CSX seeks deposition testimony from a representative of the Bank about the sale and transfer of the liens and debt the Bank held against ABC&D, and it seeks compliance with this court's prior order requiring, inter alia, the production of documents showing communications exchanged between the Bank and Ware Holdings, possibly through their representatives, about the transaction. According to CSX, counsel for the Bank has admitted that her firm has documents in its file evidencing communications exchanged between the Bank and Ware Holdings in the process of negotiating and effecting the sale and transfer of liens and debt the Bank held against ABC&D (Dkt. No. 72 at 6).

         The Bank argues strenuously that, by producing the payment history on the Bank's loan to ABC&D and the final transactional documents related to Ware Holdings' acquisition of a commercial note and security interests given to the Bank by ABC&D, it has produced the only potentially relevant information it possesses. The Bank further argues that communications between counsel for the Bank and Ware Holdings about the transaction reflect the mental impressions of counsel and are entitled to work product protection. On this basis, the Bank seeks a protective order precluding CSX from deposing a representative of the Bank about the sale, transfer and discharge by the Bank of its debts and liens against ABC&D, and a ruling that documents ...

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