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Scherer v. Steel Creek Property Owners Association

United States District Court, W.D. North Carolina, Asheville Division

April 29, 2015

WILLIAM R. SCHERER and ANNE SCHERER, Plaintiffs,
v.
STEEL CREEK PROPERTY OWNERS ASSOCIATION, PAUL IOOSS AND STEPHEN IOOSS, Defendants.

ORDER

DENNIS L. HOWELL, Magistrate Judge.

Pending before the Court is the Motion to Compel [# 115] and Status Report [# 112]. On April 28, 2015, the parties appeared for a hearing before the Court and the Court heard oral argument as to the outstanding discovery issues before the Court. Upon a review of the record, the relevant legal authority, and after the benefit of oral argument, the Court GRANTS in part and DENIES without prejudice in part the Motion to Compel [# 115].

I. Background

In his Answer to the Amended Complaint, Defendant Paul Iooss asserted the advice of counsel as his eighth affirmative defense. (Def. Iooss's Answer. to Compl. ("Def. Iooss's Answer." at p. 29.) Specifically, this affirmative defense stated that: "Plaintiffs' claims are barred, in whole or in part, because Defendant relied upon information provided by legal counsel, which he reasonably believed was in counsel's professional or expert competence, in discharging his duties as a director or de facto director of the POA." (Id.) Defendant Steel Creek Property Owners Association ("Steel Creek") also asserted the advice of counsel defense in its Answer. (Def. Steel Creek's Answer to Compl. ("Def. Steel Creek's Answer.") at p. 43.) The fifth affirmative defense provided that:

Plaintiffs' claims are barred, in whole or in part, because the decisions made by the Board at issue in this lawsuit were made after consulting with and in reliance on the advice of counsel. Such reliance was reasonable and made in good faith, and Reliance on Counsel is pled as a defense to the claims asserted in this action. Those decisions and actions include, but are not limited to, the charging of retroactive assessments based on 16 platted lots instead of four, calculation of future assessments, interpretation of the Covenants, charging of 18% interest, the rejection of so called construction "plans" or drawings, and the initial refusal to comply with the Plaintiffs' request for inspection.

(Id.)

On March 27, 2015, the parties appeared for a hearing on a Motion to Quash Subpoena of Robert Dungan. The central issue for the March 27, 2015, hearing was to what extent Defendants waived the attorney client privilege and attorney work product doctrine by asserting the advice of counsel affirmative defense. As Defendants acknowledged in their brief at the time, when a party places at issue the legal advice he or she receives by asserting the advice of counsel defense, the party waives the attorney client privilege with respect to those issues. (Def.'s Mem. Supp. of Objection & Mot. Quash Subpoena of Robert Dungan p. 3.) "Defendants acknowledge that by raising the advice of counsel defense in this action they have waived the attorney-client privilege, but only with respect to the subject matter of the relied upon communications." (Id. at pp. 3-4.) Both Defendants then identified three specific areas where they had waived the attorney client privilege: "(1) to retroactively charge the Plaintiffs assessments based on 16 lots as opposed to 5 lots and allocate Plaintiffs 16 votes, (2) to impose 18% interest on all past due assessments, and (3) to reject the Plaintiffs' plan or drawings for construction of a barn." (Id. at pp. 4-5.)

The Court, however, found that Defendants had waived the attorney client privilege as to the subject matter of each and every claim asserted in the Amended Complaint as the result of the broad assertion of the advice of counsel affirmative defense in Defendants' Answers. Specifically, the Court held:

There has been a waiver of both privileges, in this case, because of the broad and expansive language used by both Defendants in raising the defense of advice of counsel. In the Answers of both Defendants, Defendants raised the advice of counsel defense as a complete defense to all of Plaintiffs' claims. (#53, p. 29, #54, p. 43.) Defendants did not limit their assertion of the advice of counsel defense.

(Order, Apr. 10, 2015, at pp. 5-6.)

In response to the Court's April 10, 2015, Order, Defendants' moved for leave to amend their Answers to narrow the scope of their asserted affirmative defenses. Defendants attached proposed amended answers to their motions. Defendant Iooss's proposed amended answer contained the following language:

Defendant Paul Iooss asserts the defense of reliance on counsel with respect to the limited subjects of the Board's decision to retroactively charge the Scherers, for years 2009 through 2012, for the difference between what they should have paid and actually did pay in assessments, and to charge interest on that amount, the legality of charging 18% interest, and the rejection of so called construction "plans" or drawings in 2012 and early 2013, prior to filing of the Complaint. It is alleged that the Board's reliance on the advice of POA counsel Robert Dungan with respect to these subject matters was reasonable and made in good faith, and warrants a limited waiver of the attorney client privilege in these discrete areas.

(Ex. C to Def. Iooss's Mot. Amend at p. 35-6.) Defendant Steel Creek filed a similar motion and also attached a proposed amended answer. Defendant Steel Creek's proposed amended answer contained the following language:

The Steel Creek Property Owners Association asserts the defense of Reliance on Counsel with respect to the limited subjects of the Board's decisions in early 2013 (January through March) to: (1) retroactively charge the Scherers, for years 2009 through 2012, for the difference between what they should have paid and actually did pay in assessments, and to charge interest on that amount, and (2) the legality of charging 18% interest on that past due balance. Additionally, the defense is raised with respect to the rejection of so called construction "plans" or drawings in 2012 and early 2013, prior to filing of the Complaint. It is alleged that the Board's reliance on the advice of POA counsel ...

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