Tradewinds Airlines Inc. v. Soros et al
Filing
86
MEMORANDUM OPINION AND ORDER: Defendants are hereby ordered to produce, within sixty days of the entry of this Memorandum Opinion and Order, documents responsive to Plaintiffs' requests, as limited herein. Additionally, the parties must confer a nd produce a reasonable confidentiality order within ten days of the entry of this Memorandum Opinion and Order. Hereafter, all discovery issues in these cases are to be referred to Magistrate Judge Andrew Peck. (Signed by Judge John F. Keenan on 10/18/2011) (lmb)
UNITED STATES DISTRICT COURT
Case 1:09-md-02013-PAC Document 57 Filed 09/30/10 Page 1 of 45
SOUTHERN DISTRICT OF NEW YORK
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TRADEWINDS AIRLINES, INC.,
:
USDC SDNY
:
DOCUMENT
Plaintiff,
:
ELECTRONICALLY FILED
:
DOC #: _________________
-against:
DATE FILED: Oct. 18, 2011
UNITED STATES DISTRICT COURT
:
SOUTHERN DISTRICT OF NEW
GEORGE SOROS and PURNENDU YORK
:
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CHATTERJEE,
:
In re FANNIE MAE 2008 SECURITIES
::
08 Civ. 7831 (PAC) (JFK)
08 Civ. 5901
LITIGATION
::
09 MD 2013 (PAC) (JFK)
Defendants.
10 Civ. 8175
:
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::
OPINION & ORDER
COREOLIS HOLDINGS, INC., et al.,
MEMORANDUM OPINION
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:
AND ORDER
Plaintiffs,
:
:
-against:
:
HONORABLE PAUL A. CROTTY, United States District Judge:
GEORGE SOROS and PURNENDU
:
CHATTERJEE,
:
:
BACKGROUND1
Defendants.
:
-----------------------------------X home financing which was fueled, among
The early years of this decade saw a boom in
JOHN F. KEENAN, interest rates and lax credit conditions. New lending instruments, such as
other things, by low United States District Judge:
In mortgages (high credit risk actions, plaintiffs TradeWinds
subprimethese consolidated loans) and Alt-A mortgages (low-documentation loans)
Airlines, Inc. (“TradeWinds”), role too; they took on unmanageable risks on the
kept the boom going. Borrowers played a Coreolis Holdings, Inc.
(“Coreolis”), and TradeWinds Holdings, Inc. (“TW Holdings”)
assumption that the market would continue to rise and that refinancing options would always be
(collectively, “Plaintiffs”) seek to pierce the corporate veil
available in the future. Lending discipline was lacking in the system. Mortgage originators did
of C-S Aviation, Inc. (“C-S Aviation”) and hold defendants
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
George Soros and Purnendu Chatterjee (“Defendants”) liable for a
originators sold their loans into the secondary mortgage market, often as securitized packages
judgment entered against C-S Aviation by the Superior Court of
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
the State of North Carolina for Guillford County (“North
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
Carolina Superior Court”). Plaintiffs move to compel the
and home prices began to fall. In light of the changing housing market, banks modified their
production of certain documents in advance of depositions of
lending practices and became unwilling to refinance home mortgages without refinancing.
1
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Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
Soros and former C-S Aviation employees Bharat Bhise, James
Walsh, Thomas Seery, and Gary Kincaid.
For the reasons
discussed below, Plaintiffs’ motion to compel is granted in part
and denied in part.
I.
Background
TradeWinds commenced the first of these consolidated
actions in 2008, to enforce a default judgment entered by the
North Carolina Superior Court against C-S Aviation.
In February
2009, due to ongoing litigation before the North Carolina
Superior Court between Plaintiffs and C-S Aviation, this Court
granted Defendants’ request for a stay pending the resolution of
that litigation. See Tradewinds Airlines, Inc. v. Soros, No. 08
Civ. 5901 (JFK), 2009 WL 435298, at *3–4 (S.D.N.Y. Feb. 23,
2009).
On July 26, 2010, the North Carolina Superior Court
amended, but did not vacate, the judgment, and C-S Aviation
moved to vacate the amended judgment.
During the pendency of the motion to vacate the amended
judgment before the North Carolina Superior Court, Defendants
moved to continue the stay pending resolution of that motion and
any appeal from the resolution of that motion. (Notice of Motion
1, Aug. 20, 2010.)
Thereafter, Coreolis and TW Holdings
commenced the second of these consolidated actions, and the
parties agreed that this Court’s ruling on Defendants’ motion to
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continue the stay would apply equally to both actions.
(Stipulated Order Concerning Stay ¶ 2, Nov. 16, 2010.)
The Court granted Defendants’ motion to continue the stay
on February 1, 2011. See TradeWinds Airlines, Inc., Nos. 08 Civ.
5901 (JFK), 10 Civ. 8175 (JFK), 2011 WL 309636 (S.D.N.Y. Feb. 1,
2011).
However, in order to avoid prejudice to Plaintiffs from
a potentially lengthy stay, the Court agreed to permit Plaintffs
to depose Bharat Bhise, James Walsh, Thomas Seery, Gary Kincaid,
and George Soros. Id. at *4.
The Court also permitted
Plaintiffs to request “documents authored by or directed to the
attention of the persons that will be deposed.” (Endorsed Letter
2, Feb. 7, 2011.)
Plaintiffs served demands for document
production on March 28, 2011, and Defendants objected to parts
of these demands for document production.
By a letter dated
June 15, 2011, the Plaintiffs requested that the Court compel
production of three categories of documents:
(1) withheld
documents created after June 30, 2008; (2) documents concerning
other veil piercing litigation brought against Defendants; and
(3) documents concerning any court finding that Defendants had
engaged in fraud or illegal conduct.
Plaintiffs also demanded
that Defendants produce these documents without entering into
any confidentiality agreement.
Subsequently, the Court received
letters from Plaintiffs dated June 22 and August 11, 2011, and
letters from Defendants dated June 23 and August 8.
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These
letters set forth the parties’ positions on the four discovery
issues identified in Plaintiff’s June 15 letter.
II.
Discussion
Because the Court has imposed a stay of these actions with
only a limited exception for preservation discovery by
Plaintiffs, the scope of permissible discovery at this stage of
the litigation is defined by the Court’s Memorandum Opinion and
Order dated February 1, 2011 and by the Court’s subsequent
clarification on February 7.
Plaintiffs are entitled to compel
the production of documents that are necessary to examine Bharat
Bhise, James Walsh, Thomas Seery, Gary Kincaid, and George
Soros.
In other words, Plaintiffs may request documents
authored by or directed to the attention of the persons
Plaintiffs seek to depose, so long as those documents relate to
a “nonprivileged matter that is relevant to any party’s claim or
defense,” Fed. R. Civ. P. 26(b)(1), and are necessary for an
effective examination.
This Memorandum Opinion and Order is concerned only with
the narrow issue of what discovery is available to Plaintiffs at
this stage of the litigation, and does not restrict the scope of
discovery available to either party if and when the general stay
of this action is lifted.
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A.
Documents Created After June 30, 2008
Plaintiffs allege that Defendants are withholding documents
created after TradeWinds filed the first of these consolidated
actions on June 30, 2008.
Defendants claim that they should not
be compelled to produce documents created after the filing of
the TradeWinds action, with the admitted exception of documents
related to two discrete issues:
(1) who paid fees due to the
State of Delaware in order to bring C-S Aviation back into good
corporate standing; and (2) who is paying for the cost of the
ongoing litigation in the North Carolina state courts.
In this case, Plaintiffs allege that Defendants “abused the
corporate form by creating an elaborate shell game to profit
themselves while defrauding creditors.” (TradeWinds Second
Amended Compl. ¶ 23.)
The two veil-piercing theories proposed
by Plaintiffs are that Defendants are “responsible for the
misconduct of C-S which gave rise to the judgment against that
corporation,” and that Defendants “engaged in myriad
improprieties in connection with reviving C-S Aviation.” (Id.
¶¶ 8, 17.)
Regardless of the merits of the Plaintiffs’
allegations, only those documents relating to one of these
theories are likely to be relevant to these consolidated
actions.
Defendants’ proposal to limit discovery of documents
created after June 30, 2008 to documents relating to the payment
of fees due to the State of Delaware in order to bring C-S
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Aviation back into good corporate standing or the payment for
the cost of the ongoing litigation in the North Carolina state
courts is reasonable at this stage of the litigation.
All the
alleged misconduct relating to the operation of C-S Aviation
took place prior to 2008, and Plaintiffs have not demonstrated
that other documents created after June 30, 2008 would be
relevant to its allegation that Defendants improperly revived
C-S Aviation.
However, in accordance with the Court’s prior
rulings, Defendants must produce actual documents if those
documents were authored by or directed to the attention of the
persons being deposed, even if the documents post-date June 30,
2008.
Defendants may not substitute summaries of information
for the discoverable documents.
B.
Documents Concerning Other Veil Piercing Litigation Brought
Against Defendants
Plaintiffs urge the Court to compel the production of
“nonprivileged documents concerning other veil piercing actions
brought against” Defendants or certain business entities with
which they are associated, specifically Soros Fund Management,
the Quantum Fund, Chatterjee Management Company, and the Winston
Funds.
The Court agrees with Defendants that this request is
overly broad, especially considering the limited purpose of the
exception to the stay of these actions.
Therefore, the Court
will limit the scope of Plaintiffs’ request.
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To the extent that
documents are not subject to privilege or a protective order
preventing their production, Defendants must produce documents
relating to:
(1) any finding by a court that a veil piercing
remedy was appropriate with respect to any of the business
entities set forth above in this paragraph, or the Defendants in
connection with those entities; or (2) any veil piercing
litigation brought against Defendants or the above-named
entities as a result of the operation of C-S Aviation.
C.
Documents Concerning Litigation in which a Finding of
Fraudulent or Illegal Conduct on the Part of Defendants Was
Made
Plaintiffs contend that Defendants have wrongfully failed
to produce documents relating to litigation in which a Court
found that Defendants had acted fraudulently or illegally.
In
responding to Plaintiffs’ letter, Defendants represent that they
“are aware of only one case that would be responsive to this
request,” and argue that the case, concerning “an offense under
the French insider trading laws,” is not relevant to any of the
issues in this case.
Defendants also argue that discovery of
every document related to this insider trading case would be
unreasonably expensive because the documents authored by or
directed to the attention of Soros that are relevant to the
insider trading case are mostly privileged and could date as far
back as 1988.
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For purposes of deciding this motion to compel, the Court
accepts Defendants’ representation that the French insidertrading case is the only case that they are aware of in which a
court found Soros or Chatterjee acted fraudulently or illegally.
The Court agrees that production of all documents relating to
the French insider trading case would impose an unnecessary cost
at this stage of the litigation, especially in light of the
publicly available information allegations leveled against Soros
in the French insider trading case. See Fed. R. Civ. P.
26(b)(2)(C)(iii) (requiring a court to “limit the frequency or
extent of discovery” when it “determines that . . . 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”).
D.
Protective Order Dispute
Defendants have objected to the production of any documents
without the entry of a protective order.
In their letter dated
August 9, 2011, Plaintiffs indicated that they would be “willing
to abide by [the Court’s] ruling on confidentiality as to all
documents produced.” (Pls.’ Aug. 9, 2011 Ltr. 2.)
The Court finds that such a protective order would be
reasonable in this case, especially given the one-sided nature
of the discovery taking place at this stage of the litigation.
If discovery were proceeding in the normal course of litigation,
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both parties would have similar incentives to enter into a
protective
order.
litigation,
Court's
Given the limited nature of the stay of this
and with the consent of
ruling on this issue,
negotiate the terms
Plaintiffs to abide by the
the Court orders the parties to
of a protective order in good faith and
submit a stipulation to the
Court
within ten days of the entry
of this Memorandum Opinion and Order.
III.
Conclusion
Defendants are hereby ordered to produce,
within sixty days
of the entry of this Memorandum Opinion and Order,
documents
responsive to
Plaintiffs' requests,
as limited herein.
Additionally,
the parties must confer and produce a reasonable
confidentiality order within ten days of the entry of this
Memorandum
Opinion and
Hereafter,
Order.
all discovery issues in these cases are to be
referred to Magistrate Judge Andrew
Peck.
SO ORDERED.
Dated:
New
York,
New
October 18,
York
2011
John
United
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F.
States
Keenan
District Judge
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