The opinion of the court was delivered by: Honorable Candy W. Dale Chief United States Magistrate Judge
MEMORANDUM DECISION AND ORDER
Before the Court is the Motion for Protective Order filed by Defendants BBT Holdings, LLC, and the Larsens (collectively, "BBT"), on January 27, 2011. BBT filed the motion in response to a subpoena served upon Home Federal Bank (the "Bank"), the lender that financed BBT's purchase of the A-1 Storage and Car Wash from Plaintiff.
Pursuant to an expedited briefing schedule ordered by the Court, Plaintiff Golden West Holdings, LLC, ("Golden West"), filed its opposition to the protective order on February 7, 2011.
The Court conducted a hearing on March 7, 2011, and requested the parties provide supplemental briefing regarding the relevance of the documents Golden West seeks from the Bank to the claims and defenses presented in this action. The parties provided their supplemental briefs on March 16 and 23, 2011. (Dkt. 74, 75.) Upon reviewing the parties' memoranda, the Court determined an in camera review of the Bank's file was necessary, and issued an order requiring BBT to submit the records that are the subject of the present dispute to the Court. BBT complied, and the Court received the Bank's loan file on April 8, 2011.
The Court has completed its review of the Bank's loan file, and issues the following decision requiring BBT to permit the Bank to disclose certain documents relevant to the claims and defenses in this lawsuit from its file, as explained below.
This lawsuit arises from BBT's purchase from Golden West in or about July of 2006 of a storage facility and car wash business (the "Property"), known as the A-1 Storage and Car Wash, located in McCall, Idaho.*fn1 Defendant Ted Larson, the managing member of BBT, submitted an offer to purchase the Property that Donna Jarman, the principal of Golden West, accepted on July 10, 2006. Golden West agreed to finance a portion of the purchase price in the amount of $607,500.00 pursuant to a Promissory Note secured by a second deed of trust. BBT secured the balance of the purchase price via a loan obtained from Home Federal Bank (the "Bank"), which loan also was secured by the Property.
As a condition of the sale, BBT was to perform a "personal due-diligence" inspection of Golden West's financial records. Defendant Larson, on behalf of BBT, reviewed the documentation Golden West provided, and elected to proceed with the transaction. The parties agreed to close on or before November 15, 2006.
On November 15, 2006, BBT, together with the other named defendants, executed a Promissory Note in the original principal amount of $607,500.00, in favor of Golden West for the purchase of the Property, which Note is secured against the Property pursuant to a Deed of Trust recorded in Valley County, Idaho. The Golden West Note and Deed of Trust were recorded subsequent to, and therefore subordinate to, a first Deed of Trust held by the Bank in the original principal amount of $2,835,000.00.
Beginning in December of 2009, BBT ceased paying the monthly installments due and owing under the Golden West Note. The parties tried unsuccessfully to negotiate a solution until Golden West filed this lawsuit on June 9, 2010. The Complaint alleges BBT breached the terms of the Note by failing to make the monthly payments. (Dkt. 1.)
BBT asserted two counterclaims, the first requesting rescission of the contract based upon mutual mistake, and the second asserting damages for fraud. BBT contends Golden West misrepresented the amount of income generated by the storage facility and car wash business for the three years prior to BBT's purchase, and had BBT known the true facts, BBT would not have purchased the Property. Golden West denies BBT's claims, contending the downturn in the economy is to blame for BBT's financial woes.
In support of its motion for protective order, BBT represents that it defaulted on the Note with the Bank and, in 2009 entered into negotiations with the Bank to modify the terms of its mortgage. Ultimately, BBT secured a loan modification agreement in November of 2010. Golden West has requested information both from BBT and from the Bank regarding the loan modification, arguing that such information is relevant to BBT's purported damages. Specifically, Golden West served a Subpoena upon the Bank seeking "any and all documents and/or information in [the Bank's] possession relating to the purchase, sale and financing of [the Property] . . ." In addition, Golden West's Request for Production No. 15 and 16 requests a copy of the Loan Modification Agreement between BBT and the Bank, and "all documents relevant to the Loan Modification Agreement," including, but not limited to, the Bank's appraisal of the Property.
BBT seeks a protective order limiting the scope of production to the Bank's loan file with regard to the 2006 loan application and documentation relating to the Bank's perfection of its security interest, and the final copy of the Loan Modification Agreement. BBT argues that none of BBT's financial information, or its members' financial information, is relevant to the claims in this lawsuit. In addition, BBT contends that the notes, correspondence, and negotiations that occurred between BBT and the Bank prior to execution of the Loan Modification Agreement are privileged communications under Fed. R. Evid. 408 and constitute attorney work product. BBT produced a ...