Payment Logistics Limited v. Lighthouse Network, LLC et al
Filing
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ORDER Granting in Part Plaintiff's Motion for Discovery (ECF No. 26 ). Signed by Magistrate Judge Clinton Averitte on 8/14/2018. (lrf)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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PAYMENT LOGISTICS LIMITED,
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Case No.: 18-cv-0786-L-AGS
Plaintiff,
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v.
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ORDER GRANTING IN PART AND
PLAINTIFF’S MOTION FOR
DISCOVERY (ECF No. 26)
LIGHTHOUSE NETWORK, LLC, et al.,
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Defendants.
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On July 23, 2018, the Court held a hearing on plaintiff’s motion for expedited
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discovery. (CD# AGS 7/23/18 4:03:50-5:25:20.) Plaintiff requests leave to conduct
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discovery to support its motion for a preliminary injunction that seeks to freeze a merger
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between defendants. Having fully considered the parties’ briefing and arguments, the
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plaintiff’s motion for expedited discovery (ECF No. 26) is granted in part and denied in
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part as set out below.
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BACKGROUND
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The parties in this litigation are all involved in “payment processing interfaces and
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merchant account services used in point-of-sale systems for mid-to-large table-service
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restaurants.” (Compl., ECF No. 1, at 6 (alterations omitted).) In sum, the parties offer
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services that aid restaurants in processing electronic payments, such as credit and debit
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cards. Plaintiff brought this action alleging that defendants are “usurping control over the
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. . . payment processing market” in violation of antitrust laws. (ECF No. 1, at 13.)
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As explained by the parties at the hearing, when a guest is at a restaurant, the waiter
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inputs the order into a computer called the point-of-sale (POS) system. The POS system
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has customized software and applications installed to track orders, process payments, and
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fulfill other related functions for the restaurant. When the guest pays the bill with a credit
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or debit card, the server swipes the card then a payment interface reads the card and
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transmits the data to a merchant account service. The payment interface may be on the POS
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system itself or on a separate machine similar to one a card user might recognize from
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having to enter their PIN for a debit card transaction. Once the merchant account service
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receives the payment information it seeks authorization from the relevant financial
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institution to charge the card. If the transaction is approved, the authorization is transmitted
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back through the merchant account service, payment interface, and POS system to the
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waiter who then prints out the bill for the guest to sign. (See generally CD# AGS 7/23/18
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4:06:00-4:08:40. See also ECF No. 1, at 7-12.)
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This payment-processing arrangement involves hardware, software, and services
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provided by several entities, each of which charge various fees and prices for their products.
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Plaintiff is a payment processing company that provides payment interfaces and merchant
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account services. (ECF No. 25-1, at 6.) Defendant Lighthouse Networks, LLC, is also a
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payment interface and merchant account service provider. Recently, Lighthouse began
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acquiring and merging with other entities involved in the payment-interfacing process.
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(See generally id. at 13-16.) The “tipping point” that has allegedly enabled Lighthouse to
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being eliminating other payment-interface competitors is the complained-of merger with
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Shift4 Corporation, resulting in Shift4 Payments, LLC. (Id. at 14.) If the merger is
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completed, plaintiff contends that Shift4 Payments will be able to control which payment
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interfaces restaurants and merchants will be able to offer. (Id. at 15.) Thus, plaintiff seeks
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a preliminary injunction to stop the merger between Lighthouse and Shift4 Corp, and seeks
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limited expedited discovery to support its application.
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DISCUSSION
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The court may grant expedited discovery if the movant shows good cause by
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demonstrating that the need for the discovery outweighs the prejudice to the other party.
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Semitool, Inc. v. Tokyo Electron America, Inc., 208 F.R.D. 273, 276 (N.D. Cal. 2002).
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Generally, good cause exists where the requested discovery is reasonable in light of the
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circumstances. Am. LegalNet, Inc. v. Davis, 673 F. Supp. 2d 1063, 1067 (C.D. Cal. 2009)
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(citation omitted). In the Ninth Circuit, “[f]actors commonly considered in determining the
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reasonableness of expedited discovery include, but are not limited to: (1) whether a
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preliminary injunction is pending; (2) the breadth of the discovery requests; (3) the purpose
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for requesting the expedited discovery; (4) the burden on the defendants to comply with
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the requests; and (5) how far in advance of the typical discovery process the request was
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made.” Id. (alterations and citations omitted).
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The central issue of contention between the parties is the breadth of the discovery
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requests and the burden compliance would impose. Plaintiff filed a motion for preliminary
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injunction on June 29, 2019, concurrently with this request for expedited discovery (See
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ECF Nos. 25 & 26.) The complaint alleges violations of Section 7 of the Clayton Act,
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which “prohibits mergers whose effect ‘may be substantially to lessen competition, or to
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tend to create a monopoly.’” Fed. Trade Comm’n v. Warner Communications Inc, 742 F.2d
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1156, 1160 (9th Cir. 1984) (quoting 15 U.S.C. § 18). To show a likelihood of success on
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the merits, plaintiff proposes serving five requests for production and conducting five
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depositions “to obtain further evidence about the transaction’s impact on competition[.]”
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(ECF No. 26-1, at 2.)
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A.
Requests for Production
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Plaintiff’s draft requests for production seek documents that: (1) “discuss, consider,
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propose, analyze, recommend, or approve the Merger” to defendants’ boards of directors;
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(2) show market shares of POS systems or (3) payment interfaces in the relevant market
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for 12 months before and after the merger; (4) identify competitors in the market for 12
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months before and after the merger; and (5) support any efficiency defense defendants may
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raise. (See ECF No. 28-11, at 3-9.) Plaintiff contends that the document requests are
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narrowly tailored and modeled after information sought by the federal antitrust agencies
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prior to a merger, referencing the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
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(ECF No. 26-1, at 2.) The Hart-Scott-Rodino Act requires entities in a merger to file
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“documentary material and information relevant to a proposed acquisition as is necessary
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and appropriate to enable the Federal Trade Commission and the Assistant Attorney
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General to determine whether such acquisition may, if consummated, violate the antitrust
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laws.” 15 U.S.C. § 18a(a) & (d). The defendants didn’t make a Hart-Scott-Rodino filing,
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and, as a result, the information is not otherwise publicly available.1 But plaintiff assumes
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“[t]he information is likely already compiled in some form, as required for closing the
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acquisition.” (ECF No. 26-1, at 7.)
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Defendants call the requests “sweeping” and argue that plaintiff has “not made any
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attempt to limit its document production requests . . . [or] address the fact that its requests
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potentially include a large number of documents, many of which may contain confidential
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information that would require redaction.” (ECF No. 28, at 11-12 (alterations and citations
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omitted).) But plaintiff indicated in both its briefing and at oral argument that defendants
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“refused to meet and confer to narrow the document requests[.]” (ECF No. 29, at 2.) In any
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event, the Court has broad discretion to tailor discovery. Crawford-El v. Britton, 532 U.S.
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574, 598 (1998) (“Rule 26 vests the trial judge with broad discretion to tailor discovery
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narrowly[.]” (citation omitted)).
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Defendants’ arguments about the burden the requests appear to pose overlook a
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fundamental principle: a party need only produce information in its “possession, custody,
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or control” “as they are kept in the usual course of business[.]” Fed. R. Civ. P. 34(a) &
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(b)(2)(E). And “a party need not provide discovery of electronically stored information
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The parties debate whether the merger reached the threshold that would trigger
Hart-Scott-Rodino reporting requirements. (See, e.g., ECF No. 25-1, at 8 n.6.)
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from sources that the party identifies as not reasonably accessible because of undue burden
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or cost.” Fed. R. Civ. P. 26(b)(2)(B). Defendants need not recruit experts, create any
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information they do not already have, or make painstaking efforts to extract ESI from a
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broad range of custodians to respond to the requests.
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Consequently, the Court will permit plaintiff to serve some requests for production
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and will provide defendant a longer period to respond than the 14 days proposed by
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plaintiffs. By August 31, 2018, defendants must produce documents responsive to Draft
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Request for Production No. 1 (see ECF No. 28-11, at 9.) In addition, they must produce
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any documents, communications, or electronically stored information available to them
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after reasonable inquiry that relate to the market share for (a) point of sale systems or
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(b) payment interfaces for mid-to-large table service restaurants, from August 2017 to the
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present. If defendants determined they weren’t subject to the Hart-Scott-Rodino Act, some
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relevant information about this determination should be on hand and available.
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Alternatively, due diligence inquiries are vital to merger and acquisition transactions, and
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it can be presumed that some information gathered for this purpose is responsive and
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readily available.
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B.
Depositions
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Plaintiffs also seek to depose five individuals who “have knowledge of the
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circumstances, strategies, and motives surrounding the decisions to combine Lighthouse
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and Shift4 Corp,” and who can authentic any documents produced. (ECF No. 26-1, at 6.)
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However, the five individuals are defendants’ company executives and “[p]reparing and
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producing the high-level company officers . . . would be unreasonably intrusive and
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burdensome to Defendants and would be detrimental to their operations.” (ECF No. 28, at
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5.) Indeed, the time, money, and effort that would be expended by the deponents, the
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parties, and their counsel is not commensurate with plaintiffs’ need for the proposed
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discovery. Plaintiff’s counsel fails to show how the individuals’ strategies or motives are
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relevant to succeeding on a Clayton Act, Section 7 claim, and fails to show why such
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deposition discovery, if discoverable, should be expedited. Thus, the Court denies, at this
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time, plaintiff’s request for leave to take any depositions.
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CONCLUSION
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The Court finds that permitting limited discovery on an expedited basis is
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appropriate to aid plaintiff in its motion for preliminary injunction. In antitrust matters
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challenging mergers, a plaintiff’s fate often rests on the outcome of a motion for
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preliminary injunction. See United States v. BNS Inc., 858 F.2d 456, 461-66 (9th Cir. 1988)
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(The public interest “could be harmed irreparably by permitting a merger to become a fait
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accompli . . . [because] the unwinding of a completed merger would present mammoth
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obstacles.”); Fed. Trade Comm’n v. Staples, Inc., 970 F. Supp. 1066, 1091 (D.C. Cir. 1997)
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(“‘Unscrambling the eggs’ after the fact in not a realistic option in [some] case[s].”). The
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Court authorizes the following limited discovery, which must be responded to by
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August 31, 2018:
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(1) Defendants must produce documents responsive to plaintiff’s first request for
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production. (see ECF No. 28-11, at 9.)
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(2) Defendants must produce any documents, communications, or electronically
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stored information available to them after reasonable inquiry that relate to the market
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share for (a) POS systems or (b) payment interfaces for mid-to-large table service
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restaurants, from August 2017 to the present.
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(3) Defendants must produce documents gathered in anticipation of being filed as
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required by the Hart-Scott-Rodino Act, if such a group of documents exist. This does
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not require defendants to create a package of documents. Instead, it only requires
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them to produce any documents that were part of a previously existing package
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which defendants would have submitted to regulatory authorities but for the fact that
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defendants determined the threshold had not been met.
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IT IS SO ORDERED.
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Dated: August 14, 2018
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