United States District Court, D. South Dakota, Southern Division
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO
E. SCHREIER, UNITED STATES DISTRICT JUDGE.
Sovereign Holdings, Inc., moves to compel defendant Paul W.
Deck, Jr., to produce documents associated with Deck's
representation of Sovereign during previous litigation.
Docket 42. Deck opposes the motion, arguing that the
documents are privileged because they contain confidential
communications between Deck and Mary Ellen Kisting, the
former president and 75% owner of Sovereign, when Mark Nylen,
the current owner of Sovereign, was adverse to Sovereign.
Docket 56. Following a telephonic hearing on the motion
(Docket 70), Deck produced the documents identified in his
privilege logs to the court for an in-camera review. On May
1, 2018, the court held an evidentiary hearing on the merits
of Sovereign's motion to compel. Docket 81. The court
permitted Sovereign, Deck, and Kisting, an interested party,
to submit supplemental briefing following the hearing.
See Dockets 89, 92, 94, 95, 97. For the reasons that
follow, the court grants Sovereign's motion in part and
denies Sovereign's motion in part.
Holdings was incorporated as a South Dakota corporation in
2007 by Mary Ellen Kisting, formerly Mary Ellen
Nylen. Docket 57-1, Docket 81 at 20. Kisting
created Sovereign from the assets of a previous company she
owned, and she ran the business with her husband at the time,
Mark Nylen. Docket 81 at 20-21. Kisting was a 75%
shareholder, president, and treasurer of Sovereign until June
21, 2017. Id. at 23. Nylen was vice president and
secretary of Sovereign until March 2015, and, as trustee for
two family trusts, was a 25% shareholder until June 21, 2017.
Id.; Docket 57-2.
primary assets consisted of transportation equipment, such as
an airplane,  semi-trucks, tankers, and some processing
equipment. Docket 81 at 21. Kisting and Nylen also started
Hepar BioScience, LLC,  which was a company that bought and
sold animal by-products. Id. at 22. Sovereign leased
its transportation equipment and airplane to Hepar BioScience
to transport Hepar BioScience's by-products. Id.
Sovereign employed two truck drivers as its only employees
and did not lease its equipment to any company other than
Hepar BioScience. Id. at 22-23.
December 2011, January 2012, and May 2013, Sovereign
guaranteed Hepar BioScience loans from Northwest Bank,
formerly known as First National Bank. Docket 57-7. The
guaranties were signed by Mark Nylen as vice president and
secretary of Sovereign. Id. Kisting testified she
“found out afterwards, ” sometime in 2011 or 2012
that Sovereign had guaranteed a loan of Hepar BioScience.
Docket 81 at 24-25. Nylen also personally guaranteed the
Hepar BioScience loans, but Kisting did not. Docket 57-5;
Docket 81 at 26.
January 1, 2014, Nylen filed for divorce from Kisting. Docket
81 at 24. In May 2014, Nylen sent Kisting a letter notifying
her that Hepar BioScience was discontinuing its lease of the
equipment from Sovereign and would no longer do business with
Sovereign. Docket 57-6. As a result, Sovereign no longer
received income and did not have the money to maintain the
transportation equipment. Docket 81 at 34. Kisting testified
that Nylen, as part of the dissolution proceeding, proposed
selling the Sovereign assets. Id. at 34-35. But
because Northwest Bank used Sovereign's assets to
guarantee its loan, Kisting was worried that Northwest Bank
would come after the proceeds of the assets once Sovereign
sold them. Id. at 35. The bank represented that it
agreed to the sale and waived any interest it may have in the
proceeds, so Kisting agreed to sell the airplane and other
equipment. Id. at 104-05.
proceeds of the airplane and other transportation equipment,
which totaled approximately $10 million, were ultimately
placed in a marital escrow account. Docket 81 at 38-39. At
some point the dissolution court ordered the proceeds to be
transferred back to Sovereign's account. Id. at
39-40. Kisting contested the transfer through
“both” her divorce attorneys and Deck.
Id. at 40.
Q. When you say “both, ” what do you mean?
A. I contacted Mr. Deck. Because he was the one that was
involved, too, with getting the release from the bank to not
get those proceeds. So it was - no, he did not appear in
front of Judge Jensen, but I contacted him, and I contacted
my attorneys who appeared before Judge Jensen.
Q. So you spoke to both your personal divorce attorneys and
spoke to Mr. Deck who was still representing Sovereign at
Id. at 40:10-20.
testified that as general counsel for Sovereign, he advised
on whether Northwest Bank waived its claim to the proceeds of
Sovereign's airplane sale. Id. at 97. He also
advised that he believed the bank waived its claim when the
bank agreed to the transfer of the proceeds out of the
Sovereign account to the marital escrow account. Id.
Deck believed his communications with Kisting, as president
of Sovereign, were privileged because:
[a]t the time I didn't know whether or not [Kisting] was
going to retain - what the divorce court was going to do. But
it was obvious that if the divorce court gave the company to
her former husband, given the animosity that was between the
two, that it was a very hostile relationship, and a severing
of that relationship, that my communications with her would
have to be privileged.
Id. at 98:17-24.
the proceeds were transferred to Sovereign's account,
Northwest Bank tried “to seize that account.”
Id. at 40:21-24. Northwest Bank sued Sovereign, Hepar
LLC, and Kisting for the outstanding debt as provided in the
loan guarantees. See Northwest Bank v. Sovereign
Holdings, Inc. et al., CV 15-4066. Kisting retained Paul
Deck and Scott Hindman to represent Sovereign in the lawsuit
brought by the bank. Docket 81 at 41.
Bank dismissed the claims against Hepar LLC and Kisting, but
continued with its claim against Sovereign. See CV
15-4066 Docket 38. In February 2016, the court granted
Northwest Bank's motion for partial summary judgment
against Sovereign on a claim for breach of contract. CV
15-4066 Dockets 59, 61.
has known Kisting and Nylen since 2012 or 2013 when he began
representing Hepar BioScience in corporate filing matters.
Docket 81 at 92. He represented Kisting personally in a
guardianship matter in late 2013 and aided her with a will at
some later date. Id. at 92-93. He also represented
Nylen personally, jointly with Kisting, regarding a real
estate matter, and other miscellaneous property disputes or
small matters. Id. at 93-94.
never represented Kisting in the divorce proceedings.
Id. at 95. Deck was general counsel for Sovereign
from 2012 or 2013 until 2017. Id. at 95. While he
initially represented the other companies, he disassociated
himself with Nylen and Hepar BioScience after the divorce
proceedings began. Id. at 96. Deck, aware that
Sovereign was deemed a marital asset by the dissolution
court, testified that “[w]hat was done in the divorce
court affected Sovereign Holdings corporate, so I had to deal
with those issues.” Id. at 97:6-8.
gave her divorce attorneys permission to contact Deck to
discuss issues involving both Sovereign and the divorce
“[b]ecause Sovereign Holdings was a marital asset in
the divorce.” Docket 81 at 42:22-23. Under Kisting,
Sovereign's position was to keep the money in
Sovereign's account rather than allow Northwest Bank to
reduce Hepar BioScience's debt. Id. at 43.
Q. So you were trying to keep that money from the bank?
A. I was trying to keep from Mark Nylen having the bank seize
Q. Why would Mark Nylen want the bank to seize the money?
A. To reduce down the loan for the Hepar BioScience loan.
Q. Did you feel Mr. Nylen's interests with regard to that
money that was sitting in the Sovereign Holdings' bank
was adverse to Sovereign Holdings' interests?
Id. at 43:14-25.
A: Basically we were trying to figure out a way so the bank
couldn't get the $5 million.
Q: Did you think that was consistent with the interests of
A: It would have been consistent with the interests of those
that owned Sovereign Holdings.
Q: And Sovereign Holdings itself?
A: Sovereign Holdings itself.
Id. at 109:4-11.
also communicated with Kisting and her divorce attorneys
about Sovereign's defense to the Northwest Bank lawsuit.
Id. He believed such communication was necessary
because Sovereign was a marital asset and “Judge Jensen
ultimately was doing things in the divorce that I needed to
be kept abreast of and apprised of.” Id. at
110:1-3. When asked if he viewed Sovereign's interests in
the bank litigation as adverse to Nylen's interests, Deck
responded “[a]bsolutely.” Id. at 110:9.
as the president of Sovereign, approached Deck for the
purpose of seeking legal advice. Docket 81 at 53. See
also Id. at 112 (Deck testifying that he provided legal
advice to Kisting as president of Sovereign). Kisting
believed her conversations with Deck, as president of
Sovereign, were confidential. Id. at 44. She
communicated with Deck to obtain legal advice in her role as
president of Sovereign. Id. at 45.
Q. And as far as personal legal advice related to your
divorce, you would contact your own divorce attorneys. Is
Q. So as far as the advice you were seeking from Mr. Deck,
that was advice you were seeking wearing your hat as
President of Sovereign Holdings. Is that true?
Q. Again, if you needed advice related to the divorce, you
would go to your divorce attorneys?
Id. at 53:8-18.
testimony was largely similar to Kisting's testimony.
While Kisting was still the 75% shareholder of Sovereign, he
did not represent Kisting personally, but “[a]s it
turned out, her personal interests, as an officer of
Sovereign, merged with the interests of the company as it
went forward.” Id. at 130:12-14. Additionally,
A: Right. But did I ever represent [Kisting] personally? No.
In that regard, no.
Q: As to her personal interest in Sovereign, there was no
personal representation by you of [Kisting]. Correct?
A: I think I've already answered that question.
Q: And you said that you agreed with that. You didn't get
involved on her behalf personally. Correct? You represented
A: I represented the company, and her as an officer of the
Q: In her role as a majority owner, president, and board
A: Yes, and her personal interests in the company was [sic]
left to the divorce attorneys.
Id. at 131:1-15.
only disclosed her conversations with Deck to her attorneys
and her accountant. Id. at 44. And she believed her
personal interest aligned with Sovereign's
interest-namely, keep the bank from acquiring the money-
“[b]ecause it was going to go to Mark Nylen personally
to bring down the debt of Hepar BioScience” and reduce
his personal guaranty obligations. Id. at 44:20-21.
She kept Deck informed of events occurring in the divorce
related to the corporations and the corporations' assets
so Deck could adequately represent Sovereign. Id. at
46. She believed it was “necessary” for Deck to
“have knowledge of the divorce proceedings related to
Sovereign” because Sovereign was a marital asset.
Id. at 50-51. And when asked if her communications
with Deck “concern[ed] matters with regard to the
general affairs of Sovereign Holdings[, ]” Kisting said
yes. Id. at 54:25-55:3. In addition, Deck's
testimony indicated that his communications with
Kisting's divorce attorneys were related to his work for
Sovereign. Id. at 132.
Deck's attorney's fees, Kisting testified:
Q. Who paid Mr. Deck's ...