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Kenneth Segal, et al v. Strausser Enterprises

March 1, 2011


The opinion of the court was delivered by: Henry S. Perkin United States Magistrate Judge


This matter is before the Court on plaintiffs' letter motion dated December 1, 2010. See Docket No. 195. The letter motion seeks an order compelling third-party Gross McGinley LLP to produce certain documents identified on an Expanded Privilege Log which have been withheld at the direction of the Strausser defendants pursuant to attorney-client privilege and attorney work product. *fn1 The letter response of the Strausser Defendants was provided to this Court on December 13, 2010. See Docket No. 196. On December 22, 2010, the undersigned directed that copies of the withheld documents be filed and provided to this Court for in camera review. See Docket Nos. 188 and 197. Having reviewed and considered the contentions of the parties, as well as the documents at issue, the Court is prepared to rule on this matter. *fn2


This action is properly before this court based on diversity jurisdiction pursuant to 28 U.S.C. § 1332. All plaintiffs are citizens of the State of New Jersey, and all defendants are citizens of the Commonwealth of Pennsylvania. The amount in controversy is in excess of $75,000.


Venue is proper pursuant to 28 U.S.C. § 1391(a)(2) because the events giving rise to plaintiffs' claims allegedly occurred within this judicial district.

FACTUAL AND PROCEDURAL HISTORY Plaintiffs, Kenneth Segal ("Segal"), Adam Segal, as trustee for and on behalf of the Karen and Kenneth Segal Descendents Trust ("Trust"), and Segal and Morel, Inc. ("S&M") initiated this action on November 5, 2007 by filing a four-count civil Complaint against Strausser Enterprises, Inc. ("SEI"), Gary Strausser ("Strausser") and SEI's attorney, Leonard Mellon ("Mellon"). The Complaint alleges four state-law claims: tortious interference with contract (Count I), tortious interference with prospective contractual relations (Count II), malicious prosecution under the Dragonetti Act, 42 Pa.C.S.A. §§ 8351-8354 (Count III), and abuse of process (Count IV).

According to the Complaint, this action arises from purchase agreements whereby plaintiff S&M contracted to purchase several parcels of land from defendant SEI. SEI retained certain limited rights of first refusal to repurchase some of the parcels under specific contractually defined circumstances. *fn3

S&M subsequently assigned all rights and obligations arising under the purchase agreements and subsequent amendments to several limited liability companies (the "S&M LLCs") of which plaintiff Segal and the Trust are the only members. Plaintiffs allege that on December 21, 2005, Segal and the Trust (collectively the "Segal sellers") contracted to sell their interests in the S&M LLCs to K. Hovnanian Pennsylvania Acquisitions, LLC ("Hovnanian"), by way of a sales agreement that took several months to negotiate and finalize ("the Hovnanian agreement").

Plaintiffs allege that the Segal sellers attempted to meet with defendants SEI and Strausser to discuss the sale of memberships in the S&M LLCs to Hovnanian, but that, in an attempt to interfere with the sale to Hovnanian and to gain leverage by which to gain monetary concessions from the Segal sellers, Strausser and other SEI representatives refused to meet with the Segal sellers. The Complaint further alleges that on February 13, 2006, just two days prior to closing on the Hovnanian agreement, SEI, through its attorney, defendant Mellon, filed a lawsuit in the Court of Common Pleas of Northampton County, Pennsylvania to stop the transfer of the properties based on a right of first refusal, as well as a notice of entry of lis pendens against the property.

As a result of the lis pendens , plaintiffs allege that Hovnanian refused to proceed with the closing. Plaintiffs aver that SEI and Strausser refused to withdraw the lis pendens , and Hovnanian terminated the Hovnanian agreement because the Segal sellers were unable to provide good title to the properties.

The Complaint alleges that the filing of the Northampton County lawsuit was frivolous and in bad faith because defendants SEI, Strausser and Mellon all knew that the purchase agreements had binding arbitration clauses; the transaction with Hovnanian did not trigger the right of first refusal clauses; and SEI and Strausser lacked the financial ability to exercise the rights of first refusal, even if properly triggered. In response to these allegations, the Strausser defendants *fn4 have asserted an "advice of counsel" defense and acknowledge that they have waived any privilege protection that may have existed with respect to documents and information concerning the advice relied upon in filing the Northampton County lawsuit regarding rights of first refusal and the filing of the lis pendens. *fn5


According to the United States Court of Appeals for the Third Circuit, "[t]he attorney-client privilege is waived for any relevant communication if the client asserts as a material issue in a proceeding that . . . the client acted upon the advice of a lawyer or that the advice was otherwise relevant to the legal significance of the client's conduct." Livingstone v. North Belle Vernon Borough, 91 F.3d 515, 537 (3d Cir. 1996). When a party asserts an advice of counsel defense, it waives the attorney-client privilege with respect to "all communication to and from counsel concerning the transaction for which counsel's advice was sought." Applied Telematics, Inc. v. Sprint Corp., No. 94-4603, 1995 U.S. Dist. LEXIS 14061, at *3 (E.D. Pa. Sept. 21, 1995) (citations omitted). A party, however, waives the privilege only with respect to the subject of the advice upon which the party intends to rely on as a defense. Id. (citing ...

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