Securities and Exchange Commission v. Kovzan

Filing 171

MEMORANDUM AND ORDER denying 143 Motion to Quash; granting 165 Motion for Leave to File Surreply. Within the next fourteen (14) days, the parties shall confer about a mutually agreeable time, date, and place for the Rule 30(b)(6) deposition of the SEC. Signed by Magistrate Judge K. Gary Sebelius on 2/21/2013.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
STEPHEN M. KOVZAN,
Defendant.

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Case No. 11-2017-JWL

MEMORANDUM AND ORDER
This matter comes before the court upon the Securities and Exchange Commission’s
Motion to Quash Defendant Stephen M. Kovzan’s Rule 30(b)(6) Notice (ECF No. 143). The
SEC requests that the court issue a protective order prohibiting the Fed. R. Civ. P. 36(b)(6)
deposition of its representative. The court agrees that while the deposition topics are in some
cases broad and perhaps seek information similar to what was sought through written discovery,
the SEC has not carried its burden of making a specific showing justifying the entry of a
protective order prohibiting its deposition. Therefore, the court denies the SEC’s motion.1
I.

Background

This is a civil enforcement action brought by the SEC against Mr. Kovzan under the
Securities Act of 1933, 15 U.S.C. § 77a, et seq., and the Securities Exchange Act of 1934, 15
U.S.C. § 78a, et seq. Highly summarized, the SEC alleges that Mr. Kovzan was involved with
the preparation and signing of public SEC filings for his employer, NIC, Inc., from 2002 to 2006
that were materially false and misleading because they failed to disclose as income the NIC chief
executive officer’s perquisites.
1

The request for oral argument is also denied.

On December 18, 2012, Mr. Kovzan served on the SEC his Rule 30(b)(6) Notice of the
SEC’s Deposition. The notice lists twenty-six deposition topics that fall into one of three general
categories.2 Several topics concern the factual basis for the SEC’s contentions and theories of
this case and the related case, SEC v. NIC, Inc., 11-2016-EFM. 3 Other topics concern the steps
the SEC took to obtain and produce discovery documents in this case and the reasons for the
SEC’s objections to certain discovery requests.4 The remainder of the topics concern the
interpretation and meaning of certain regulatory terms and guidance and any confusion regarding
those terms and guidance.5 The SEC has now moved for a protective order barring the
deposition.
II.

Discussion

Fed. R. Civ. P. 26(c) governs protective orders. The rule states, “The court may, for good
cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or
undue burden or expense[.]”6 The district court has broad discretion to fashion the scope of a
protective order.7 Despite this substantial latitude, “a protective order is only warranted when the
movant demonstrates that protection is necessary under a specific category set out in Rule
26(c).”8 The party seeking a protective order bears the burden of establishing good cause for it.9

2

The final topic asks the deponent to be prepared to testify about the steps taken to prepare answers for the
deposition.
3

See Def. Stephen M. Kovzan’s Am. Notice of Dep. Pursuant to Fed. R. Civ. P. 26 and 30(b)(6) Directed to Pl.
Securities and Exchange Commission, Topics Nos. 1, 12, 14, 15, 16, 17, 19, 20, and 21, ECF No. 145-1.
4

Id. at Topic Nos. 13, 22, 23, 24, and 25.

5

Id. at Topic Nos. 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 18.

6

Fed. R. Civ. P. 26(c)(1).

7

Layne Christensen Co. v. Purolite Co., 271 F.R.D. 240, 244 (D. Kan. 2010).

2

To do this, the movant must make “a particular and specific demonstration of fact, as
distinguished from stereotyped and conculsory statements.”10
The SEC argues a protective order is warranted because Mr. Kovzan is essentially
seeking the deposition of opposing counsel and because other more efficient means exist to
obtain the information sought through the deposition. As discussed below, the court agrees that
questions on some topics could venture into privileged or protected information and that in some
cases, written discovery may prove a more efficient way for Mr. Kovzan to discover the
information he seeks. The notice does not itself seek the deposition of opposing counsel, and the
SEC would be able to assert privilege and work-product objections to specific questions during
the deposition. As to the burden of the deposition, the SEC has failed to come forward with a
particular and specific demonstration of fact that would allow the court to conclude that the
deposition would result in an undue burden or expense, justifying the entry of a protective order.
Fed. R. Civ. P. 30(b)(6) expressly allows for the deposition of a governmental agency. In
this type of deposition, there is no distinction between the deponent and the agency.11 The notice
of the deposition “must describe with reasonable particularity the matters for examination.”12
The agency must then produce a deponent or deponents to testify on the agency’s behalf.13 The

8

Herrera v. Easygates, LLC, No. 11-2558-EFM-GLR, 2012 WL 5289663, at *2 (D. Kan. Oct. 23, 2012) (citing
Aikins v. Delux Fin. Svs., Inc., 217 F.R.D. 533, 534 (D. Kan. 2003)).
9

Layne Christensen Co., 271 F.R.D. at 244.

10

Aikins, 217 F.R.D. at 534 (quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, n.16 (1981).

11

See Sprint Comm’ns Co., L.P. v. Theglobe.com, Inc., 236 F.R.D. 524, 526 (D. Kan. 2006).

12

Fed. R. Civ. P. 30(b)(6).

13

Id.

3

designee or designees must be prepared to testify about the information known or reasonably
available to the organization.14
A. Deposition of Opposing Counsel
On its face, the deposition notice does not seek the deposition of opposing counsel. The
SEC, however, argues that a number of topics seek the judgment and assessments of the SEC’s
attorneys in responding to discovery and articulating the factual basis for the SEC’s clams in this
case. The SEC argues that other topics essentially require the SEC to articulate and explain the
law, and the SEC has cited several cases in which courts have prohibited the depositions of
governmental agencies. First, there is no blanket rule prohibiting the deposition of a
governmental agency in an action such as this one. The court acknowledges that some judges, in
their discretion, have found it appropriate to prohibit Rule 30(b)(6) depositions of governmental
agencies lacking any first-hand knowledge of the facts at issue. This line of cases, however, does
not relieve the SEC of its obligation to come forward with a particular and specific
demonstration of fact that would justify the entry of a protective order—particularly when Rule
30(b)(6) expressly allows for the depositions of governmental agencies.
Second, Rule 30(b)(6) deponents need not have independent personal knowledge of the
deposition topics. The rule requires deponents “to testify about information known or reasonably
available to the organization.”15 “In other words, personal knowledge of the designated subject
matter by the selected deponent is of no consequence.”16 Thus, a party is not permitted to

14

Id.

15

Id.

16

Sprint Comm’ns Co., 236 F.R.D. at 528.

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undermine the rule by suggesting it has no available witnesses with direct knowledge of the
deposition topics.17
Here, the deposition notice does not itself seek the deposition of opposing counsel. The
SEC may designate a deponent or deponents of its choice, and it is under no obligation to
produce one of its attorneys for the deposition. That SEC attorneys may be involved in preparing
a witness to testify is not itself a reason to prohibit the deposition. Moreover, the court would not
necessarily expect SEC counsel in this action to have any special knowledge concerning the
interpretation and meaning of certain regulatory terms and guidance or confusion regarding the
same. Therefore, it is difficult to see how the inclusion of these topics would lead the SEC to
believe it may only produce counsel appearing in this action. Because the court finds Mr.
Kovzan is not seeking to take the deposition of opposing counsel, it need not address the SEC’s
argument that Mr. Kovzan has not met the heightened showing required for deposing opposing
counsel.
B. Privilege and Work Product
The SEC raises concerns about privilege and work-product protection in the context of its
argument that Mr. Kovzan cannot meet the heightened showing required to depose opposing
counsel. Because privilege and work-product concerns could conceivably arise during the
deposition—and because the SEC attempts in its reply brief to assert this as a separate basis for
prohibiting the deposition—the court will briefly address these topics. Courts have generally
declined to uphold privilege or work-product objections to Rule 30(b)(6) deposition notices
unless the deposition topics, on their face, call for testimony that would be protected from

17

Id.

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disclosure.18 The first two categories of topics—the factual basis for the SEC’s contentions and
theories in this case and the SEC’s actions in discovery—do not, on their face, implicate the
attorney-client privilege or the work-product doctrine. These topics indicate that Mr. Kovzan is
seeking the facts that support the theories and information about how the SEC has gone about
identifying responsive information in discovery. The SEC even suggests that many of these
topics would be more appropriately discovered through interrogatories. But the fact that
discovery is sought through another vehicle—in this case a Rule 30(b)(6) deposition—does not
transform discoverable material into protected material.
As for the third category of topics—those concerning the interpretation and meaning of
certain regulatory terms and guidance and any confusion regarding the same—certain questions
could conceivably call for information protected by the deliberative-process privilege. Mr.
Kovzan may not obtain through deposition privileged information contained in documents he
could not obtain through written discovery. Again, however, it would be speculative to prohibit
the deposition on this basis. For example, the SEC has also set forth public guidance and
communicated with third parties about these topics. This information would not be privileged
and would likely form the basis for at least some of the deponent’s answers. The SEC is free to
raise privilege and work-product objections to specific questions during the deposition. Counsel
may then explore background facts concerning the objection, and the deponent can substantiate
the objection.19
C. Efficiency & Undue Burden

18

McBride v. Medicalodges, Inc., 250 F.R.D. 581, 587 (D. Kan. 2008)

19

Miller v. Union Pacific R.R. Co., No. 06-2399-JAR-DJW, 2008 WL 4724471, at *6 (D. Kan. Oct. 24, 2008)
(explaining that the more appropriate procedure is to raise privilege and work-product objections during the
deposition).

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The SEC also argues the Rule 30(b)(6) deposition would be highly inefficient because the
deposition topics are “extraordinarily broad and encompassing,” making it impossible to prepare
any witness or witnesses to meaningfully respond to follow-up questions. The SEC also argues it
would be manifestly unfair to bind the SEC to answers to follow-up questions that cannot be
researched, studied, and addressed beforehand as a result of the breadth of the topics.
Again, the SEC has failed to come forward with a specific demonstration of fact that
would justify the entry of a protective order. In the section of its memorandum addressing
inefficiency and undue burden, the SEC does not state which deposition topics it believes are
impermissibly broad. Moreover, the SEC has only speculated about the time and effort it would
take for a Rule 30(b)(6) deponent to prepare. The declaration submitted by SEC counsel states
that the deponent would have to review voluminous record evidence, totaling “tens of thousands
of pages” and “thousands of pages of investigative and deposition testimony as well as
interpretive regulatory history[.]”20 The deposition topics pertaining to this case, however, are
arguably more narrow—the basis for certain allegations and theories of the case and information
about the SEC’s actions in discovery. It is difficult to see how these topics would require this
level of preparation. It could conceivably take longer for a deponent to become familiar with the
regulatory history. However, the SEC does not provide an estimate of how long this process
would take other than to say it would certainly “consume an extraordinary amount of time and
resources” and would “amount to an extraordinary burden.”21 Without a more precise number of
documents the deponent would need to review and an estimate regarding the amount of time it

20

Decl. of David Williams in Supp. of Mot. for Protective Order at ¶ 8, ECF No. 145.

21

Id.

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would take for the deponent to prepare, the court is left with no specific information to evaluate
whether the deposition would truly pose an undue burden to the SEC.
The court does, however, acknowledge that in some instances, judges in this district have
entered protective orders when discovery could be obtained through more efficient methods.22
Generally, however, parties are free to “choose the manner and method in which they conduct
discovery,” and the court will not interfere with that choice.23 Here, there is a compelling
argument that the deposition topics pertaining to the SEC’s factual allegations, legal theories,
and conduct during discovery could be obtained through interrogatories, eliminating the need for
the SEC to prepare a deponent to testify about these topics. Indeed, Mr. Kovzan states that the
offer remains open that he drop nearly a third of the deposition topics and serve additional
interrogatories so long as the SEC provides sufficient interrogatory responses.24 This seems like
a reasonable compromise, and the court encourages the parties to confer in an attempt to reach an
agreement to proceed in this manner. The court will not, however, bar the SEC’s deposition on
this basis. As Mr. Kovzan notes, the undersigned has now twice compelled the SEC to fully and
completely answer Mr. Kovzan’s Interrogatory No. 1, which the court has ruled is a permissible
contention interrogatory. Given the history of this case, Mr. Kovzan has articulated a wellfounded concern that interrogatories may not be the most efficient way for Mr. Kovzan to obtain
the information he seeks.

22

See, e.g., In re Indep. Svs. Orgs. Antitrust Litig., 168 F.R.D. 651, 654-55 (D. Kan. 1996) (finding that a Rule
30(b)(6) deposition notice containing topics such as was overbroad, burdensome, and a highly inefficient method
through which to obtain facts supporting denials and affirmative defenses in a pleading).
23

White v. Union Pac. R.R. Co., No. 09-1407-EFM-KGG, 2011 WL 721550, at *2 (D. Kan. Feb. 22, 2011).

24

Mem. of Law in Supp. of Stephen M. Kovzan’s Opp’n to Pl.’s Mot. to Quash at 35, ECF No. 157.

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Finally, the SEC has noted that several of the deposition topics overlap with previous
discovery requests. Again, this alone does not demonstrate that the deposition would result in an
undue burden. It is not uncommon for counsel to question deponents about documents produced
through discovery.25 In fact, “[b]y its very nature, the discovery process entails asking witnesses
questions about matters that have been the subject of other discovery.”26 For these reasons, the
court denies the SEC’s motion for a protective order.
D. Other Matters
In a footnote in its reply brief, the SEC now states it will no longer pursue its argument
that the statute of limitations was tolled based on the discovery rule. The SEC goes on to state
that because of this, Topic Nos. 12-17 “are now moot,” which the court construes to mean the
SEC believes they are no longer relevant in this case.27 Mr. Kovzan has sought leave to file a
surreply addressing why these topics are still relevant. Quite simply, the SEC’s conclusory
statement in a footnote in a reply brief regarding “mootness” is not a sufficient basis for the court
to prohibit or limit the SEC’s deposition. The court encourages the parties to confer to discuss
the discovery implications of the SEC’s abandonment of this legal theory. The court also
encourages the parties to continue to discuss Mr. Kovzan’s offer of using interrogatories to
obtain some of the information he seeks through the Rule 30(b)(6) deposition.
Finally, this case has been the subject of a number of discovery disputes resulting in
motion practice with lengthy briefing. Some of these motions involve disputes that the parties
should have been capable of resolving without judicial intervention. The parties’ inability to
25

White, 2011 WL 721550, at *7.

26

Id. (quoting Tri-State Hosp. Supply Corp. v. United States, 226 F.R.D. 118, 126 (D.D.C. 2005)).

27

The SEC’s Reply Mem. in Supp. of its Mot. to Quash Def. Stephen Kovzan’s Rule 30(b)(6) Dep. Notice at 5 n.1,
ECF No. 162.

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reach agreements on these issues has delayed this case and taken up a significant amount of the
court’s time. The parties are put on notice that from this point on, any additional motions seeking
resolution of discovery disputes must outline in very specific detail the steps the parties took to
resolve the issue prior to seeking relief from the court. If the parties have not meaningfully
conferred, the court will deny the motion without prejudice and order that they do so.28
Accordingly,
IT IS THEREFORE ORDERED that Securities and Exchange Commission’s Motion
to Quash Defendant Stephen M. Kovzan’s Rule 30(b)(6) Notice (ECF No. 143) is denied. Within
the next fourteen (14) days, the parties shall confer about a mutually agreeable time, date, and
place for the Rule 30(b)(6) deposition of the SEC.
IT IS FURTHER ORDERED that Defendant Stephen M. Kovzan’s Motion for Leave
to File a Sur-Reply in Opposition to Plaintiff’s Motion to Quash (ECF No. 165) is granted. The
court has considered the brief in making its ruling.
IT IS SO ORDERED.
Dated this 21st day of February, 2013, at Topeka, Kansas.

s/ K. Gary Sebelius
K. Gary Sebelius
U.S. Magistrate Judge

28

See Cotracom Commodity Trading Co. v. Seaboard Corp., 189 F.R.D. 456, 459 (D. Kan. 1999) (outlining the
conference requirements imposed by the Federal Rules of Civil Procedure and by this district’s local rules).

10