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Firefighters' Retirement System v. Citco Group Limited

United States District Court, M.D. Louisiana

March 9, 2018




         Before the court is a Motion to Compel Discovery from Citco Fund Services (Cayman Islands) Limited Regarding Ernst & Young (the “Motion to Compel”)[1] filed by plaintiffs, Firefighters' Retirement System (“FRS”), Municipal Employees' Retirement System of Louisiana (“MERS”), and New Orleans Firefighters' Pension & Relief Fund (“NOFF”) (collectively, “Plaintiffs”). Defendants, Citco Technology Management, Inc. (“CTM”), Citco Banking Corporation N.V. (“Citco Banking”), Citco Fund Services (Cayman Islands) Limited (“CFS Cayman”), and The Citco Group Limited (“Citco Group”) (collectively, the “Citco Defendants”) have filed an Opposition.[2] Plaintiffs were granted leave to file the Motion to Compel during a February 8, 2018 status conference, and the Motion to Compel was discussed during a March 6, 2018 status conference. For the reasons set forth herein, Plaintiffs' Motion to Compel is GRANTED IN PART.

         I. Background

         On March 1, 2013, Plaintiffs filed suit against 23 defendants, including the Citco Defendants, asserting claims under the Louisiana Securities Act and Louisiana Unfair Trade Practices Act, as well as third party beneficiary, unjust enrichment, breach of contract, negligent misrepresentation, and general tort claims.[3] Plaintiffs' claims arise from a $100 million investment loss. In April of 2008, the Louisiana Funds purchased 100, 000 Series N Shares offered and issued by FIA Leveraged Fund (“Leveraged”) for $100 million.[4] After a series of investment transactions initiated by Leveraged, in March of 2011, Plaintiffs sought to redeem their Series N shares.[5]Ultimately, the shares went unredeemed and Plaintiffs determined that the investment was illiquid and, thus, the N shares, for which there was no market, were valueless.[6]

         In their Petition, Plaintiffs assert that CFS Cayman served as administrator of Leveraged and, inter alia, assisted in computing the Net Asset Value of the funds' shares.[7] As a defense to Plaintiffs' claim that CFS Cayman was required to value the assets held in the Fletcher funds and failed to adequately do so, the Citco Defendants assert, inter alia, that a draft “Project Ladder” report prepared by Ernst & Young (“E&Y”) on behalf of Plaintiffs in 2011 “identified several parties involved in the valuation process, but said nothing about Citco in that regard” and explain that in light of the 2011 Project Ladder draft report, the Citco Defendants have asked Plaintiffs' witnesses during depositions “to confirm…that the EY report makes no mention whatsoever of Citco with respect to asset valuation.”[8]

         Plaintiffs contend that because the Citco Defendants' rely on the draft Project Ladder report to support a defense, E&Y's past work for Citco has been placed at issue. Plaintiffs explain that prior to Plaintiffs' retention of E&Y in 2011, E&Y “was also an auditor and consultant for CFS Cayman on the very issues which are the subject of the lawsuit and may be biased in its testimony because of the amount of fees that Citco pays E&Y.”[9] In addition to potential bias, Plaintiffs seek to compel discovery responses “for the purpose of seeing whether [E&Y] criticized Citco internal controls and techniques on valuation of assets of funds held by companies of which [Citco] serve as administrator.”[10] Per their Motion to Compel, Plaintiffs assert that the following, broadly worded, discovery requests are at issue:

Interrogatory 17: Please describe any services that EY performed for You between January 1, 2007 and September 1, 2010.[11]
Request for Production 125: Please produce any reports prepared in connection with any services that EY performed for You between January 1, 2007 and September 1, 2010.[12]
Request for Production 126: Please produce any documents that identify, describe, or relate to any services that EY performed for You between January 1, 2007 and September 1, 2010.[13]

         However, Plaintiffs' briefing focuses on compelling production of “Statement on Accounting Standards 70” (“SAS 70”) reports, [14] and during the March 6, 2018 status conference, counsel for Plaintiffs confirmed that they are only seeking to compel production of the SAS 70 reports.

         In opposition to the Motion to Compel, the Citco Defendants argue that compelling discovery of “wide-ranging documents and information related to run-of-the-mill auditing work a division of the international accounting firm Ernst & Young…performed between 2007 and 2010 for a nonparty Citco entity, Citco Fund Services (Holdings) Limited (‘CFS Holdings')” would be irrelevant and disproportional.[15] With respect to relevancy, the Citco Defendants contend that “the forensic work of the EY team Plaintiffs retained in 2011 has nothing to do with the audit work an entirely different group of EY personnel did for CFS Cayman's parent company CFS Holdings from 2007 to 2010” and that there is no evidence that “one team knew about the other…and no conceivable basis for concluding that the EY forensic team skewed the results of its report for Plaintiffs in light of an entirely separate relationship with CFS Holdings.”[16] With respect to proportionality, the Citco Defendants argue that documents already produced establish that CFS Holdings was a client of E&Y and that “to the extent any such EY reports and communications mention Fletcher or Leveraged or any related matters, they would already have been produced.”[17]

         II. Law and Analysis

         “Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed.R.Civ.P. 26(b)(1). “‘For purposes of discovery, relevancy is construed broadly to encompass ‘any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue related to the claim or defense of any party.'” Tadlock v. Arctic Cat Sales, Inc., Civil Action No. 15-766, 2017 WL 1032516, at * 3 (M.D. La. March 17, 2017) (quoting Fraiche v. Sonitrol of Baton Rouge, Civil Action No. 08-392, 2010 WL 4809328, at *1 (M.D. La. Nov. 19, 2010) (quoting Coughlin v. Lee, 946 F.2d 1152, 1159 (5th Cir. 1991); Fed.R.Civ.P. 26(b)(1)). A determination of relevancy is tied to applicable substantive law and then weighed against the six proportionality factors. Any information sought that is not relevant to a party's claim or defense is not discoverable, regardless of proportionality. The court must additionally limit the frequency or extent of discovery if it determines that: “(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).” Fed.R.Civ.P. 26(b)(2)(C).

         “For a motion to compel, ‘[t]he moving party bears the burden of showing that the materials and information sought are relevant to the action or will lead to the discovery of admissible evidence.'” Mirror Worlds Technologies, LLC v. Apple Inc., No. 6:13-cv-419, 2016 WL 4265758, at *1 (E.D. Tex. Mar. 17, 2016) (quoting SSL Servs., LLC v. Citrix Sys., Inc., No. 2-08-cv-158, 2010 WL 547478, at *2 (E.D. Tex. Feb. 10, 2010)). “Once the moving party establishes that the materials requested are within the scope of permissible discovery, the burden shifts to the party resisting discovery to show why the discovery is irrelevant, overly broad or unduly burdensome or oppressive, and thus should not be permitted.” Mirror Worlds Technologies, LLC, 2016 WL 4265758 at *1. See also, Wymore v. Nail, No. 5:14-cv-3493, 2016 WL 1452437, at *1 (W.D. La. April 13, 2016) (“Once a party moving to compel discovery establishes that the materials and information it seeks are relevant or will lead to the discovery of admissible evidence, the burden rests upon the party resisting discovery to substantiate its ...

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