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Quantlab Group, LP v. Dempster

United States District Court, S.D. Texas, Houston Division

January 15, 2020



          Dena Hanovice Palermo United States Magistrate Judge

         Plaintiffs Quantlab Group, LP and Quantlab Financial, LLC (collectively “Plaintiffs” or “Quantlab”) brought this breach of fiduciary duty and malpractice action against Defendant Allen Herman Dempster (“Dempster”), an attorney and accountant, and his firm, Dempster & Dietler, LLP (collectively “Defendants”). ECF No. 81. Plaintiffs allege that Defendants, who served for many years as Plaintiffs' attorney, prepared partnership agreements and a Voting Trust Agreement that enabled two of Quantlab Group's minority partners, Bruce P. Eames (“Eames”) and Andrey Omeltchenko (“Omeltchenko”), to attempt to take control of Quantlab and its related companies. Id.

         On June 20, 2019, Plaintiffs filed a motion to compel production of Defendants' privilege log and underlying documents, which consist of Dempster's communications with Eames, Omeltchenko, and their separate counsel. ECF No. 57; ECF No. 64 at 11. Non-parties Eames, Omeltchenko, and their affiliated business entities submitted a letter requesting a conference to discuss their position on the motion. ECF No. 66. On August 17, 2019, this Court denied the request for conference and granted in part Plaintiffs' motion to compel, finding that the attorney-client and work-product privileges belong to Quantlab and that Dempster had only provided Eames and Omeltchenko with advice in their roles as officers and managers of Quantlab. ECF No. 86 at 6, 8. Eames and Omeltchenko filed objections to the Order, ECF No. 87, which the District Judge overruled, ECF No. 99.[1]

         Pending before the Court is Eames and Omeltchenko's (“Intervenors”) motion to intervene, [2] filed to obtain a protective order and prevent discovery of the same communications between Eames, Omeltchenko, and Dempster that were subject to this Court's previous Order on August 17, 2019. ECF No. 88. Intervenors argue they are entitled to intervene as of right under Federal Rule of Civil Procedure 24(a), or in the alternative, that the Court should allow permissive intervention under Rule 24(b). Id. at 1. Based on a review of the record and applicable authorities, the motion to intervene is DENIED.


         Rule 24(a) provides for intervention of right by any person who timely files a motion and claims an interest in the action that will be impeded by its disposal, “unless existing parties adequately represent that interest.” Fed.R.Civ.P. 24(a)(2). The Fifth Circuit has established a four-prong test for evaluating intervention as of right:

(1) the application must be timely; (2) the applicant must have an interest relating to the property or transaction which is the subject of the action; (3) the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede his ability to protect that interest; (4) the applicant's interest must be inadequately represented by the existing parties to the suit.

Wal-Mart Stores, Inc. v. Tex. Alcoholic Beverage Comm'n, 834 F.3d 562, 565 (5th Cir. 2016) (quotations and alterations omitted). “‘Failure to satisfy any one requirement precludes intervention of right.'” Miniex v. Houston Hous. Auth., No. 17-CV-624, 2019 WL 2371959, at *2 (S.D. Tex. June 5, 2019) (quoting Edwards v. City of Houston, 78 F.3d 983, 999 (5th Cir. 1996)).

         Here, Intervenors are not entitled to intervene as of right because they fail to satisfy three of the four prongs of the Fifth Circuit's test. First, their application is not timely. Courts look to a four-factor framework in evaluating timeliness for a motion to intervene:

(1) The length of time during which the would-be intervenor actually knew or reasonably should have known of its interest in the case before it petitioned for leave to intervene; (2) the extent of the prejudice that the existing parties to the litigation may suffer as a result of the would-be intervenor's failure to apply for intervention as soon as it knew or reasonably should have known of its interest in the case; (3) the extent of the prejudice that the would-be intervenor may suffer if intervention is denied; and (4) the existence of unusual circumstances militating either for or against a determination that the application is timely.

St. Bernard Par. v. Lafarge N. Am., Inc., 914 F.3d 969, 974 (5th Cir. 2019) (quotations omitted). “Timeliness is assessed from the totality of the circumstances, in which no one factor is dispositive or exhaustive.” Uniloc 2017 LLC v. AT&T Mobility LLC, No. 18-CV-514, 2019 WL 1773117, at *2 (E.D. Tex. Apr. 23, 2019).

         Intervenors argue that the timeliness clock starts to run when an intervenor becomes aware that “‘its interests would no longer be protected by the original parties, '” and they first became aware their interests would not be protected by Defendants on July 12, 2019, when Dempster filed an affidavit stating he had represented Intervenors in their capacities as officers of Quantlab. ECF No. 88 at 8 (quoting Sierra Club v. Espy, 18 F.3d 1202, 1206 (5th Cir. 1994)). Quantlab argues the clock starts at the point an intervenor “‘knew that he had an interest in the case, '” “‘not when [he] knew or should have known that his interests would be adversely affected.'” ECF No. 92 at 12 (quoting St. Bernard Par., 914 F.3d at 974).

         Either starting point can be used to calculate timeliness. Edwards, 78 F.3d at 1000 (“The timeliness clock runs either from the time the applicant knew or reasonably should have known of his interest or from the time he became aware that his interest would no longer be protected by the existing parties to the lawsuit.”) (citation omitted). However, even if the Court considers the relevant starting point to be when Intervenors became aware of their adverse interests, as Intervenors propose, their motion is untimely. Intervenors admit they knew about the discovery dispute over their communications with Dempster on February 19, 2019, when Defendants told Intervenors they may not be able to protect Intervenors' interests. ECF No. 88 at 3. At that point, Dempster had already filed an affidavit stating he had performed work for Intervenors “in their roles as officers and managers of the Quantlab entities.” ECF No. 32 ¶ 12 (filed Oct. 9, 2018); see also ECF No. 31 at 11, 14, 16 n. 46 (filed Oct. 9, 2018) (Dempster's brief arguing he performed work for Intervenors as representatives of Quantlab). Intervenors cannot claim the affidavit filed on July 12, 2019 was the first time they learned of Dempster's position.

         The relevant starting time is, at the latest, February 19, 2019. Over six months elapsed before Intervenors filed their motion on August 30, 2019, during which time the parties briefed, and the court decided, the issue Intervenors seek to intervene to protect. Their failure to intervene in a timely manner would prejudice original parties because Intervenors would attempt to relitigate the attorney-client issue this Court has already decided-further delaying the litigation. See, e.g., Mohammad v. Toyota Motor Corp., No. 11-CV-3257, 2012 WL 12884573, at *2 (N.D. Tex. Oct. 22, 2012). Intervenors themselves would not be prejudiced by denial of their motion to intervene because they have already asserted their position to this Court. Without filing a motion to intervene, Intervenors attempted to inject themselves into the dispute, and they even filed objections to this Court's Report and Recommendation, which the District Judge considered in making her ruling. See ECF No. 87; ECF No. 99. In addition, Intervenors would not be prejudiced because they do not have sufficient interest in this action. Finally, Intervenors have not pointed to any special circumstances that would affect the timeliness analysis. Therefore, the Court finds Intervenors' application to be untimely. See, e.g., Mohammad, 2012 WL 12884573, at *2 (finding motion to intervene untimely when intervenors waited seven months to file their motion, during which time ...

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