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Morrill v. Scott Financial Corp.

United States District Court, D. Arizona

September 30, 2014

K. LAYNE MORRILL; and MORRILL & ARONSON, P.L.C., an Arizona professional limited liability company, Plaintiffs,
v.
SCOTT FINANCIAL CORP., et al., Defendants.

ORDER MOTIONS TO DISMISS

H. RUSSEL HOLLAND, District Judge.

Defendants move to dismiss plaintiffs' complaint.[1] These motions are opposed.[2] Oral argument was requested but is not deemed necessary.

Background

Plaintiffs are K. Layne Morrill and Morrill & Aronson, P.L.C. Defendants are Scott Financial Corporation; Bradley J. Scott; Kemp, Jones & Coulthard, LLP; Harrison, Kemp & Jones, Chartered; and J. Randall Jones.

Mr. Morrill is a resident of Arizona, and Morrill & Aronson is an Arizona professional liability company.[3] Scott Financial Corporation (SFC) is a North Dakota corporation, and Mr. Scott, who is a resident of North Dakota, is alleged to be "the sole officer, director and shareholder of SFC."[4] Kemp, Jones & Coulthard, LLP is a Nevada limited liability partnership.[5] Harrison, Kemp, & Jones, Chartered is a Nevada professional corporation.[6] Mr. Jones is alleged to be a citizen of Nevada.[7]

In December 2008, plaintiffs were retained to represent Gary Tharaldson, Club Vista Financial Services, L.L.C., and Tharaldson Motels, II, Inc. (collectively referred to herein as the Tharaldson entities) in connection with a failed Las Vegas, Nevada condominium project, the ManhattanWest project.[8] In January 2009, the Tharaldson entities filed suit in Nevada against Mr. Scott, SFC, and others for claims arising out of the failed ManhattanWest project.[9] Mr. Morrill was admitted pro hac vice in Nevada to appear in the Tharaldson case.[10] The Jones defendants represented Mr. Scott and SFC in the Tharaldson case.[11] Plaintiffs alleged that at all relevant times, defendants knew that "[p]laintiffs maintained their law practice in Phoenix, Arizona...."[12]

During discovery in the Tharaldson case more than one million pages of documents were produced, forty fact witnesses were deposed, and six experts were deposed.[13] In addition, Mr. Morrill avers that during the two 1/2 years plaintiffs were involved in the Tharaldson case, approximately 480 documents, either pleadings or discovery documents, "were prepared by the Kemp Jones firm from its location in Las Vegas, Nevada and from there sent to the attorneys at Morrill & Aronson, PLC, in Arizona, by mail, courier, or email[.]"[14] Mr. Morrill also avers that "our various attorneys received a great number of phone calls that attorneys at Kemp Jones in Las Vegas, Nevada initiated to the attorneys of Morrill & Aronson, PLC in Arizona" and that he "would estimate that Kemp Jones attorneys in Las Vegas, Nevada sent to attorneys at Morrill & Aronson, PLC in Phoenix, Arizona at least 1, 625 emails...."[15]

Discovery in the Tharaldson case was to close on November 15, 2010.[16] Shortly before the close of discovery, defendants informed plaintiffs that they wanted to take the depositions of Mr. Morrill and Martin Aronson, the other named partner of plaintiff Morrill and Aronson.[17] Defendants contend that they did so because Mr. Morrill consistently listed himself as a witness[18] and because plaintiffs' clients testified that they did not know the factual basis of their claims but rather that they had relied on plaintiffs' investigation.[19] Plaintiffs allege that defendants sought to take Mr. Morrill's and Mr. Aronson's depositions as part of a "campaign to harm [p]laintiffs and drive a wedge between [p]laintiffs and their clients..., which [d]efendants hoped, would cause the Tharaldson Entities to either settle or make a last-minute change of counsel before trial of the complex" Tharaldson case.[20]

Defendants filed applications in Nevada state court for the issuance of subpoenas outside the state of Nevada.[21] The applications were granted and a case was opened in Arizona so that an Arizona court could issue the subpoenas, which were served on Mr. Morrill and Mr. Aronson in Arizona.[22] Mr. Morrill and Mr. Aronson filed a motion in Arizona to quash the subpoenas, in which they argued that they

were not involved in the underlying loan transactions; that they were not percipient witnesses to any of the relevant events leading up to the Tharaldson Proceeding; and that their knowledge of facts in the case was obtained solely through their investigations in anticipation of and during the litigation and from information obtained from their clients.[23]

Mr. Morrill and Mr. Aronson also argued that "[d]efendants' true purpose in taking the depositions of attorneys Morrill and Aronson was to pry into what [they] had learned about the case and to obtain privileged information and to attempt to drive a wedge between [p]laintiffs and their clients, ... for [d]efendants' perceived tactical advantage."[24]

A hearing on the motion to quash was held in Maricopa County Superior Court on November 19, 2010, at which defendant Jones appeared.[25] The court granted the motion to quash, [26] but stated that it "want[ed] the minute entry to reflect that this Court does not intend in any way to suggest to Floyd A. Hale, Special Master [for the Tharaldson case in Nevada], what he ought to rule with regard to matters which will finally be briefed by him on December 3rd, 2010."[27]

Defendants filed the motion to quash and their response thereto with the Special Master assigned to the Tharaldson case in Nevada.[28] The Special Master recommended that Mr. Morrill and Mr. Aronson be deposed and the district court affirmed the recommendation and "allowed the depositions to delve into factual issues going to the basis of the [Tharaldson] case...."[29] The Tharaldson entities filed a Petition for Writ with the Nevada Supreme Court, which heard argument on the petition on December 6, 2011.[30] On May 17, 2012, the Nevada Supreme Court

held that [Mr.] Morrill could be deposed only if [d]efendants prove that: "(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and non-privileged; and (3) the ...

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