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Firefighters' Retirement System v. Citco Group Limited

United States District Court, M.D. Louisiana

May 10, 2018

FIREFIGHTERS' RETIREMENT SYSTEM, ET AL.
v.
CITCO GROUP LIMITED, ET AL.

         RULING ON: (1) MOTION TO COMPEL DEPOSITION RESPONSES FROM THE 30(B)(6) REPRESENTATIVE OF CITCO FUND SERVICES (CAYMAN ISLANDS) LIMITED, WIEKERT WEBER; AND (2) MOTION TO COMPEL DEPOSITION RESPONSES FROM THE 30(B)(6) REPRESENTATIVE OF THE CITCO GROUP LIMITED

          ERIN WILDER-DOOMES, UNITED STATES MAGISTRATE JUDGE

         Before the court are two motions seeking to compel additional deposition testimony from certain of defendants' corporate representatives: (1) Motion to Compel Deposition Responses from the 30(b)(6) Representative of Citco Fund Services (Cayman Islands), Limited, Wiekert Weber (the “Motion to Compel CFS Deposition”);[1] and (2) Motion to Compel Deposition Responses from the 30(b)(6) Representative of the Citco Group Limited (the “Motion to Compel Citco Group Deposition”).[2] Both Motions were 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 to each Motion.[3]

         For the reasons set forth herein, both Motions[4] are DENIED.

         I. Background

         On March 1, 2013, Plaintiffs filed this 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.[5] 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.[6] After a series of investment transactions initiated by Leveraged, in March of 2011, Plaintiffs sought to redeem their Series N shares.[7]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.[8]

         Relevant to the instant Motions, Plaintiffs assert that “affiliates of CFS Cayman, all ultimately owned by Citco Group, received $50 million of the Offering Proceeds from the Series N Offering of Leveraged at the time CFS Cayman was serving as the administrator of the Leveraged Fund….”[9] Plaintiffs argue that they are entitled to obtain deposition testimony from representatives of CFS Cayman and Citco Group “to determine whether the Citco Group, Administrator, and the entities owned by the Citco Group (Citco Trading, Citco Trust, CFS Cayman, Citco Funds) breached its own internal policies in accepting these payments without disclosure to the Louisiana Funds.”[10]

         II. Law and Analysis

         Pursuant to Fed.R.Civ.P. 37(a)(3)(B)(i), a party seeking discovery may move to compel an answer where “a deponent fails to answer a question asked under Rule 30….” For purposes of this rule, “an evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer, or respond.”[11]

         A. Plaintiffs' Motion to Compel CFS Deposition is Denied

         Plaintiffs complain that Wiekert Weber (“Weber”), who was deposed individually and as the 30(b)(6) corporate representative of CFS Cayman, “failed to respond to questions asked about Citco's conflict of interest policy and whether it was in accordance with the policy for Citco affiliates to receive compensation from the proceeds of a fund's offering where CFS Cayman also serves as the independent administrator and not disclose the amount of funds Citco received to the purchaser of the securities.”[12] Plaintiffs contend that Weber was “evasive and non-responsive” when asked questions regarding conflicts of interest[13] and that they are “entitled to receive a direct response from the 30(b)(6) corporate representative of CFS Cayman as to whether a conflict of interest existed….”[14] Plaintiffs ask that the court require Weber to sit for an additional hour-long deposition at defendants' cost.[15]

         Plaintiffs specifically complain that despite Mr. Weber's position as Compliance and Operations Manager of the Administrator, he refused “to respond to questions asked about the Administrator's conflict of interest policy and whether it violated the Administrator's policy for Citco affiliates to receive compensation from the proceeds….”[16] In opposition to the Motion, the Citco Defendants contend that while Plaintiffs' deposition notice set forth topics related to CFS Cayman's conflict of interest policies, Plaintiffs' counsel never asked any questions regarding the policies themselves and instead asked confusing questions without laying the necessary foundation regarding hypothetical situations.[17] The Citco Defendants further contend that despite the confusing questions, Weber “actually answered the very questions concerning conflict of interest Plaintiffs now falsely claim he ‘refused' to answer or to which he supposedly provided nonresponsive answers.”[18]

         The undersigned has reviewed the portions of Mr. Weber's deposition cited by the parties.[19]Based on that review, the court separates the questions posed to Mr. Weber into two categories. First, Plaintiffs' counsel asked Mr. Weber factual questions regarding CFS Cayman's duties as the administrator. Second, Plaintiffs' counsel asked Mr. Weber hypothetical questions seeking Mr. Weber's opinion as to whether a proposed set of assumptions would constitute a conflict of interest. With respect to the first category of questions, it does not appear that Plaintiffs' counsel attempted to clarify Mr. Weber's responses or otherwise explain to Mr. Weber that his responses were inadequate. With respect to the second category of questions, the court finds that such hypothetical questions were inappropriately directed to Mr. Weber in the first instance.

         i. Factual Questions

         As noted above, certain questions posed to Mr. Weber during the deposition sought factual information regarding CFS Cayman's duties. The questions and responses which fall into this category and which Plaintiffs challenge are as follows:

Q: And would you agree with me that an independent administrator would mean that you're independent of any conflicts? Isn't that correct?
A: As fund administrator in our duty to perform the fund accounting, yes.
Q: Would you agree with me that an independent administrator would have to disclose to investors any conflict of interest that he may have?
A: I think that you pointed out yourself that [sic] offering memorandum mentions that the voting shares are held with Millennium (Cayman Islands) Foundation, which is an affiliate of the administrator. I think that is the disclosure you were referring to.
Q: Well, no. I mean, my question is a little more broader than that. Would you agree with me that an independent administrator would have to disclose to investors any conflicts of interest that it may have? Do you agree with that?
A: No, to the extent that I already mentioned to you on the voting shares.
Q: And why do you believe that an independent administrator would not have to disclose any conflicts of interest that it may have?
A: Because it's not a conflict of interest.[20]
***
Q: Do you know what a conflict of interest is?
A: I - I have an idea what it is.
Q: What would you say?
A: So that we would, for example, provide investment advisory services and be the administrator to the Fund.
Q: Or that you may be the administrator of the Funds and receive a substantial benefit from the offering proceeds; isn't that correct?
A: I have no idea what you're -[21]

         The undersigned considers the thrust of the above line of questions to be to explore Mr. Weber's understanding of what a conflict of is and what CFS Cayman's role as administrator of the Funds was. With regard to these questions, the undersigned does not consider certain of Mr. Weber's answers to be non-responsive. For example, Mr. Weber did provide a direct answer to the first question in the above exchange, and provided an example of what he understood a conflict of interest to be.[22] However, with regard to other questions in this exchange, the undersigned finds Mr. Weber's answers to be confusing and, at least based on the portion of the deposition transcript provided to the court, seemingly non-responsive.[23] Specifically, Mr. Weber's references to voting shares and his insistence that the issues regarding the voting shares were not a conflict of interest does not seem to directly answer Plaintiffs' counsel's questions. However, to the extent Plaintiffs' counsel believed Mr. Weber's responses to be inadequate, Plaintiffs' counsel had a responsibility to ask follow-up or clarifying questions. Especially in light of the parties' obligation to meet and confer regarding discovery disputes and the fact that the Citco Defendants' counsel attempted to explain that Plaintiffs' counsel and Mr. Weber did not seem to be talking about the same thing, the undersigned finds that Plaintiffs' counsel had an obligation, to the extent counsel believed Mr. Weber's responses to be confusing, non-responsive, or otherwise inadequate, to ask clarifying questions.[24] Rather than doing so, it appears that Plaintiffs' counsel moved on to what the court considers the second category of questions, those asking Mr. Weber to provide a conclusion as to whether a particular proposed scenario would constitute a conflict of interest.

         ii. Hypothetical Questions/Questions Regarding Whether There Is A Conflict of Interest

          The remainder of the questions to which Plaintiffs assert Mr. Weber provided non-responsive answers fall within the second category of questions, i.e., those seeking Mr. Weber's opinion as to whether a proposed set of assumptions would constitute a conflict of interest. The following exchanges fall within this second category:

Q: Would the fact that you're receiving substantial compensation out of the offering and also serving as the administrator be a conflict of interest?
A: I beg to differ because our fees, as in our administration agreement, are industry norm. There was nothing out of the ordinary….[25]
***
Q: Would the fact that you're receiving substantial compensation other than fees out of the offering and also serving as administrator be a conflict of interest?
A: No. sir.
[Counsel for Mr. Weber]: ...

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