Fort Worth Employees' Retirement Fund v. JP Morgan Chase & Co. et al

Filing 242

MEMORANDUM AND ORDER: For the reasons discussed, the plaintiffs' motion is granted in part and denied in part as set forth above. (Signed by Magistrate Judge James C. Francis on 12/16/2013) Copies Mailed By Chambers. (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
FORT WORTH EMPLOYEES’ RETIREMENT
: 09 Civ. 3701 (JPO) (JCF)
FUND, et al.,
:
:
MEMORANDUM
:
AND ORDER
Plaintiffs,
:
:
- against :
:
J.P. MORGAN CHASE & CO., et al.,
:
:
Defendants.
:
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE
This is a securities action brought on behalf of a class of
purchasers of mortgage-backed securities issued by J.P. Morgan
Acceptance Corporation I.

The plaintiffs move to compel discovery

of various categories of documents and of electronically stored
information (ESI) under modified search parameters.

For the

reasons that follow, the plaintiffs’ motion is granted in part and
denied in part.
Background
The factual and procedural background of this action is set
forth in prior opinions. See Fort Worth Employees’ Retirement Fund
v. J.P. Morgan Chase & Co., 862 F. Supp. 2d 322 (S.D.N.Y. 2012);
Employees’ Retirement System of the Government of the Virgin
Islands v. J.P. Morgan Chase & Co., 804 F. Supp. 2d 141 (S.D.N.Y.
2011), amended by Order dated Jan. 4, 2013.
1

I will address

additional relevant facts to the extent they are pertinent to the
legal analysis.
Non-expert fact discovery is scheduled for completion by
November 14, 2014. (Amended Scheduling Order dated June 21, 2013).
Defendants J.P. Morgan Securities, Inc. and J.P. Morgan Acceptance
Corporation I (collectively “J.P. Morgan”)1 have begun running
searches for ESI and reviewing the output; they have turned over
roughly

100,000

documents

thus

far

and

“anticipate

millions of additional pages of responsive documents.”

producing
(Letter of

Dorothy J. Spenner dated Oct. 25, 2013 (“Spenner 10/25/13 Letter”)
at 3, 12).

After discussions regarding the appropriate scope of

this document discovery reached an impasse, the plaintiffs moved to
compel expanded production from the defendants.

(Letter of Susan

G. Taylor dated Oct. 8, 2013 (“Taylor 10/8/13 Letter”) at 3 & n.3;
Spenner 10/25/13 Letter at 19).
areas of dispute.

There are three overarching

First, the plaintiffs challenge the defendants’

search parameters for discovery of ESI, alleging that the terms,
custodians, and timeframe being used are too narrow and will not
produce all relevant documents and communications. (Taylor 10/8/13

1

The defendants in this case now comprise these two J.P.
Morgan Chase & Co. subsidiary entities and a handful of
individually named defendant employees. J.P. Morgan Securities,
Inc. is now known as J.P. Morgan Securities LLC.
(Plaintiffs’
Memorandum of Law in Support of Motion for Class Certification
dated Sept. 27, 2013 (“Class Cert. Motion”), at 1 n.2).
2

Letter at 2-7; Letter of Darryl J. Alvarado dated Nov. 8, 2013
(“Alvarado 11/8/13 Letter”) at 7 n.2). Second, the plaintiffs move
to compel discovery of certain categories of documents that the
defendants claim are not relevant or are unduly burdensome to
produce,

including

documents

that

serve

as

a

basis

for

J.P.

Morgan’s anticipated defenses; submissions and communications made
during the course of government investigations; transcripts of
testimony in prior civil and regulatory proceedings; and documents
pertaining to warehouse financing, other loan disputes, and the
defendants’ shorting activities.

(Taylor 10/8/13 Letter at 7-12;

Spenner 10/25/13 Letter at 11-19). Finally, the plaintiffs request
an

interim

discovery

deadline

of

December

13,

2013

for

the

completion of document production, which the defendants argue is
unreasonable.

(Taylor 10/8/13 Letter at 12-13; Spenner 10/25/13

Letter at 19-20).
Standard
Parties

are

entitled

to

discovery

of

documents

in

the

“possession, custody or control” of other parties, Fed. R. Civ. P.
34(a)(1), so long as they are “relevant to any party’s claim or
defense,” Fed. R. Civ. P. 26(b)(1).
relevance,
concept.”

for

purposes

of

discovery,

“Although not unlimited,
is

an

extremely

broad

Condit v. Dunne, 225 F.R.D. 100, 105 (S.D.N.Y. 2004);

see also Nunez v. City of New York, No. 11 Civ. 5845, 2013 WL

3

2149869, at *2 (S.D.N.Y. May 17, 2013).

To be relevant, the

requested documents must at least “appear[] reasonably calculated
to lead to the discovery of admissible evidence.”
26(b)(1).

Fed. R. Civ. P.

The burden of demonstrating relevance is on the party

seeking discovery.

Trilegiant Corp. v. Sitel Corp., 272 F.R.D.

360, 363 (S.D.N.Y. 2010); Mandell v. Maxon Co., No. 06 Civ. 460,
2007 WL 3022552, at *1 (S.D.N.Y. Oct. 16, 2007).
“Once relevance has been shown, it is up to the responding
party to justify curtailing discovery.”

Fireman’s Fund Insurance

Co. v. Great American Insurance Co. of New York, 284 F.R.D. 132,
135 (S.D.N.Y. 2012) (internal quotation marks omitted).

Even if

the sought-after documents are relevant, the court must limit
discovery

if

the

request

is

“unreasonably

cumulative

or

duplicative,” the requesting party has had “ample opportunity to
obtain the information by discovery,” or the “burden or expense of
the proposed discovery outweighs its likely benefit” considering
the needs of the case and importance of the documents.

Fed. R.

Civ. P. 26(b)(2)(C). However, “[g]eneral and conclusory objections
as to relevance, overbreadth, or burden are insufficient to exclude
discovery of requested information.”

Melendez v. Greiner, No. 01

Civ. 7888, 2003 WL 22434101, at *1 (S.D.N.Y. Oct. 23, 2003).
Rather, “[a] party resisting discovery has the burden of showing
‘specifically how, despite the broad and liberal construction

4

afforded the federal discovery rules, each interrogatory is not
relevant or how each question is overly broad, burdensome or
oppressive, . . . submitting affidavits or offering evidence
revealing

the

nature

of

the

burden.’”

Vidal

v.

Metro–North

Commuter Railroad Co., No. 3:12 CV 248, 2013 WL 1310504, at *1 (D.
Conn. March 28, 2013) (alteration in original) (quoting Compagnie
Francaise

d’Assurance

Pour

le

Commerce

Exterieur

v.

Phillips

Petroleum Co., 105 F.R.D. 16, 42 (S.D.N.Y. 1984)).
Discussion
The plaintiffs repeatedly assert that “documents do not need
to be specifically related to the loans and offerings at issue in
this case to be relevant,” citing the Order of the Honorable John
G. Koeltl, U.S.D.J., March 30, 2011 (“3/30/11 Order”).

(Taylor

10/8/13 Letter at 3, 9, 10; Alvarado 11/8/13 Letter at 5, 6, 19,
21).

The defendants invoke language from a recent ruling by the

Honorable

Sarah

Netburn,

U.S.M.J.,

that

the

plaintiffs

in

a

securities case were “not entitled to everything that’s ever been
produced that has anything to do with residential mortgage backed
securities.”

(Spenner 10/25/13 Letter at 2, 7, 12 (quoting

Transcript of Civil Cause for Conference dated Aug. 12, 2013, In re
Morgan Stanley Mortgage Pass-Through Certificates Litigation, No.
09 Civ. 2137 (S.D.N.Y.) (“Morgan Stanley Tr.”) at 16)).

The

parties use these respective statements, each taken out of context,

5

to argue for extreme results; unsurprisingly, the appropriate
discovery boundaries in this case lie somewhere in between.
A.

ESI Document Search Protocol
1.

Search Terms

J.P. Morgan has already conducted a search for ESI that
yielded some 875,000 document hits, which are currently being
reviewed prior to production. (Spenner 10/25/13 Letter at 3). The
defendants used roughly 80,000 search terms (Spenner 10/25/13
Letter at 1), consisting of the names of the 9 securities offerings
at issue, CUSIP numbers for the 341 underlying certificates, names
and

dates

of

whole

loan

transactions,

loan

numbers

for

the

approximately 35,000 loans that comprised the offerings, and names
of the lead plaintiffs and their advisors (Spenner 10/25/13 Letter
at 3; Declaration of David L. Breau dated Oct. 25, 2013 (“Breau
Decl.”),

Exhs.

A-E),

as

well

as

multiple

variations

on

and

abbreviations of each of these terms to ensure that the search
captured all relevant files and e-mail communications where the
actual terms may have been modified or truncated (Spenner 10/25/13
Letter at 3-4).

Based on their knowledge of the “various naming

conventions for files and folders in the relevant shared drives”
and standard e-mail practices, the defendants argue that these
search terms will yield the appropriate universe of relevant
documents in this case.

(Spenner 10/25/13 Letter at 4).

6

The plaintiffs believe that the search terms currently being
used by J.P. Morgan are “woefully deficient.”
Letter at 2-3).

(Taylor 10/8/13

First, they argue that the search framework

currently being applied will not yield documents related to the
disputed loans and offerings if they do not specifically mention
the loan number or offering name.
6).

(Alvarado 11/8/13 Letter at 4-

The defendants may be using 80,000 terms, but these consist

largely of variations on names and numbers and encompass just a few
specific, narrow categories of information.

(Alvarado 11/8/13

Letter at 8). Searching only for documents containing these pieces
of information would fail to capture informal e-mail communications
that did not include such numbers or names (Taylor 10/8/13 Letter
at 3; Alvarado 11/8/13 Letter at 4), and may exclude documents
created before CUSIP numbers and offering names were assigned,
which

the

plaintiffs

allege

occurs

fairly

late

in

the

securitization process (Alvarado 11/8/13 Letter at 4; Declaration
of Scott C. Calahan dated Nov. 8, 2013, attached to Alvarado
11/8/13 Letter, at 2). Second, the plaintiffs allege that limiting
the search to these terms will leave out broad categories of
documents that do not specifically reference “a particular loan,
loan pool or securitization in the text of the document or e-mail”
but

instead

address

general

practices

or

concerns,

such

as

“widespread abandonment of underwriting guidelines,” which they

7

argue are relevant and discoverable.
4; 3/30/11 Order at 21-22).
the

defendants’

(Taylor 10/8/13 Letter at 3-

Finally, the plaintiffs disagree with

characterization

of

their

search

results

as

substantial, arguing both that the quality of output is more
important than the quantity, and that even the quantity -- as many
as 875,000 responsive ESI documents -- is “actually minimal” for a
case of this size.

(Alvarado 11/8/13 Letter at 3, 10-11 (citing

Assured Guaranty Municipal Corp. v. UBS Real Estate Securities
Inc., No. 12 Civ. 1579, 2012 WL 5927379, at *2 (S.D.N.Y. Nov. 21,
2012)(“[T]he

total

particularly

compelling

nothing

about

the

number

of

documents

statistic

possible

by

‘harvested’

itself,

significance

is

because

of

the

not

it

a

says

documents

. . . .”))).
The plaintiffs propose another search protocol, to be run in
addition to the one already conducted by the defendants, that
includes

assorted

combinations

of

terms

aimed

relevant documents that are not loan specific.
10/8/13

Letter

(“Pl.

Search

Protocol”),

at

discovering

(Exh. 7 to Taylor

“Search

B”).

These

supplemental terms include the names of loan originators, due
diligence

firms,

rating

agencies,

and

“descriptors”

(such

as

“awful” and “toxic”). (Pl. Search Protocol). Each of these groups
of terms would be searched for within 20 or 35 words of what the
plaintiffs designate as “Relevant Terms” specific to each group,

8

for example “delinquent” or “underperform.” (Pl. Search Protocol).
The plaintiffs believe that this proposal, modeled on the search
framework agreed to by the parties in In re Morgan Stanley, would
ensure the discovery of all documents and communications regarding
the specific loans at issue here as well as those concerning
“systemic non-compliance with underwriting guidelines” and other
broader RMBS issues at J.P. Morgan. (Alvarado 11/8/13 Letter at 68, Exh. 1).
The defendants object to the plaintiffs’ proposed search
framework, challenging the use of weak connectors and generic words
not tailored to the issues in this case and anticipating that it
would “capture nothing less than each and every document concerning
any RMBS.”

(Spenner 10/25/13 Letter at 6).

They believe that the

plaintiffs have an “overly broad view of relevance” and that any
“documents that relate to offerings, securities, or loans that are
not at issue in this case are irrelevant.”
Letter at 2).

(Spenner 10/25/13

They also argue that adopting the plaintiffs’

proposed 116,000 additional search term combinations would be
unduly burdensome.
Exh. G).
plaintiffs’

(Spenner 10/25/13 Letter at 7; Breau Decl.,

After conducting a search on a small sample of the
proposed

terms,

the

defendants

estimate

that

the

expanded search framework would yield an unreviewable pool of over
11 million additional documents.

(Spenner 10/25/13 Letter at 7).

9

The

plaintiffs

dispute

that

their

proposal

would

create

an

unreasonable burden and reject the defendants’ attempt to sample
and extrapolate the impact of the additional terms, arguing that
overlap and de-duplication would eliminate a substantial number of
the anticipated responsive documents.

(Alvarado 11/8/13 Letter at

2-3, 9-10).
The plaintiffs incorrectly suggest that J.P. Morgan must
“establish that plaintiffs’ requested search protocol will yield
irrelevant documents.”

(Alvarado 11/8/13 Letter at 3).

The

plaintiffs bear the burden of demonstrating relevance to justify
expanding the discovery of ESI in this case, and the defendants
must

establish

irrelevance,

redundancy,

or

burden

limitations on otherwise permissible discovery.
extent, both parties have met their burdens.

to

justify

Here, to some

The plaintiffs have

provided sufficient justification for expanding search terms beyond
numbers and names to ensure that the ESI search captures all of the
relevant documents pertaining to the loans and offerings at issue.
They have also highlighted both general categories and concrete
examples of documents concerning non-loan-specific practices and
problems

at

J.P.

Morgan

that

are

relevant

but

discovered by the current, loan-specific search.
Letter at 4-5; Alvarado 11/8/13 Letter at 5-6).

would

not

be

(Taylor 10/8/13
Despite J.P.

Morgan’s protests to the contrary, documents need not specifically

10

relate or refer to the loans or offerings at issue here to be
discoverable.

That said, the defendants have substantiated their

concerns that the plaintiffs’ proposed search terms go too far in
the other direction, requiring the defendants to sift through
voluminous irrelevant documents added to the search results and
thus creating an unreasonable burden of production.
Given the nature of this request and the complexities of
crafting a search protocol, a court-ordered middle ground is
impractical and inappropriate.

The resolution of the categorical

document requests discussed below may alter the parties’ positions
on the scope of ESI discovery.

(See, e.g., Morgan Stanley Tr. at

17 (“if defense counsel is going to insist on exceedingly narrow
terms for [ESI] production then [the] plaintiffs start to have a
better argument” regarding production of transcripts and other
document categories)). I will also enter an order pursuant to Rule
502(d) of the Federal Rules of Evidence, as I have in previous
cases with significant document discovery, in order to alleviate
the defendants’ burden concerns by “preclud[ing] the disclosure of
privileged documents in this case from constituting a waiver of
privilege or of work product protection.” Fleisher v. Phoenix Life
Insurance Co., No. 11 Civ. 8405, 2012 WL 6732905, at *4 (S.D.N.Y.
Dec. 27, 2012).

With these considerations and the forgoing

discussion in mind, I urge the parties to reexamine their positions

11

and work together in good faith to create a mutually acceptable ESI
search regime.

If discussions between the parties do not yield a

compromise by January 10, 2014, I will appoint a special master
with expertise in the field of electronic discovery to review this
order and the parties’ positions and recommend a search protocol.
The parties would share the cost of the special master.
2.

Custodians

The defendants are currently searching the documents and emails of 42 custodians “who were selected based on their roles with
respect to securitization, their appearance on a significant number
of working group lists for the offerings at issue,” and the
defendants’ own assessment of who was most closely involved in the
securities

at

issue.

(Spenner

10/25/13

Letter

at

8).

The

plaintiffs seek to expand that number by including an additional 30
individuals.2 (Alvarado 11/8/13 Letter at 12; Plaintiffs’ Proposed
Custodians Rejected by Defendants (“Pl. Custodian List”), attached
as Exh. 2 to Alvarado 11/8/13 Letter).

The defendants have agreed

to accept one additional custodian who was a due diligence manager

2

The plaintiffs’ original request for 36 additional
custodians (Taylor 10/8/13 Letter, Exh. 9) was reduced to 30 after
the defendants pointed out that six of the proposed individuals -Ish Masud, Thomas Scudese, Robert Shugrue, Frank Chiarulli, Robert
LaBarbera, and Tatyana Berlyand -- were relevant only with respect
to two offerings that the plaintiffs dropped from this case in
their class certification motion (Spenner 10/25/13 Letter at 9 &
n.23; Alvarado 11/8/13 Letter at 12 & n.3).
12

for

loan

transactions.3

(Spenner

10/25/13

Letter

at

8;

Pl.

Custodian List). But they object to the remaining 29, arguing that
the plaintiffs added “each and every person listed on a working
group list or mentioned in a document or deposition” regardless of
their role in the disputed securities. (Spenner 10/25/13 Letter at
8; Exh. R to Spenner 10/25/13 Letter (“Def. Custodian Response”)).
Of these 29 proposed custodians, the defendants concede that
15 were members of working group lists associated with the relevant
offerings4

and

are

silent

as

to

another

identified by the plaintiffs as list members.5

three

individuals

(Spenner 10/25/13

Letter at 9-10 & n.22; Def. Custodian Response; Pl. Custodian
List). The defendants argue that the appearance of an individual’s
name on a working group list is insufficient to establish their
relevance as a custodian, citing testimony demonstrating that the
lists are “overbroad” and not “reflect[ive] [of] who actually
worked on an offering.”
Custodian Response).

(Spenner 10/25/13 Letter at 8-9; Def.

They also claim that many of the proposed

individuals who appear on the working group lists are duplicative
of current custodians.
3

(Spenner 10/25/13 Letter at 9-10 & nn. 25-

Pavit Randhawa.

4

Poomarintr Sasinin, Abide Kakou, Cristina Rosales, Nandita
Jhajharia, Gregory Boester, Ruslan L. Margolin, Osmin Rivera, Sean
P. Reed, Haroon Jawadi, Melissa Traylor, Stanley Labanowski,
Danielle Stiles, Jamie Gordon, Vicky Weaver, and Kenneth Robertson.
5

Alissa Smith, Matt Cherwin, and Ralph A. Lenzi III.
13

30; Def. Custodian Response).
The defendants invoke In re Morgan Stanley to support their
position that the plaintiffs have not demonstrated the necessity
for the proposed custodians on the working lists who may be
duplicative of existing custodians. (Spenner 10/25/13 Letter at 10
(citing In re Morgan Stanley, 2013 WL 4838796, at *2 (S.D.N.Y.
Sept. 11, 2013) (“[T]he fact that a rejected custodian’s role was
immaterially different than a designated custodian’s role is not a
legitimate basis to justify expanding the list of custodians.”))).
But in that same case, Judge Netburn ruled that individuals who
appeared

on

custodians.

working
In

re

group
Morgan

lists
Stanley,

were
2013

properly
WL

considered

4838796,

at

*2

(“inclusion on the working group lists suggests [that a proposed
custodian] does [have relevant information]”).

Furthermore, J.P.

Morgan itself relies on the working group lists as a basis for
their determination of who should be considered a custodian, and as
a reason to reject any proposed custodians who do not appear on the
lists.

(Spenner 10/25/13 Letter at 8; Def. Custodian Response).

The presence of these proposed custodians on the working group
lists is sufficient to establish that their inclusion in ESI
searches is reasonably calculated to lead to relevant evidence that
might not be captured if they were excluded.

The defendants shall

therefore add these additional 18 custodians to their search

14

regime.6

Because there is likely to be some overlap in the

discoverable information possessed by the individuals on these
lists,

the

defendants

may

continue

to

utilize

procedures

to

eliminate duplicative search output from their production.
The remaining 11 proposed custodians do not appear to be on
any working group lists for the offerings at issue here.7

(Pl.

Custodian

Def.

List;

Spenner

Custodian Response).

10/25/13

Letter

at

9

&

n.

24;

Rather, the plaintiffs rely on the proposed

individuals’ titles or roles at J.P. Morgan and on references made
during J.P. Morgan’s Rule 30(b)(6) deposition testimony to support
their inclusion as relevant custodians.

(Pl. Custodian List;

Letter of Darryl J. Alvarado dated Nov. 27, 2013 (“Alvarado
6

Two of these individuals, Vicky Weaver and Kenneth
Robertson, were employed not by the defendant entities, but by a
related company, Chase Home Finance LLC (Spenner 10/25/13 Letter at
11; Pl. Custodian List). But the defendants do not contend that
they lack the practical ability to obtain documents from these
persons. See Motorola Credit Corp. v. Uzan, No. 02 Civ. 666, 2013
WL 6098388 (S.D.N.Y. Nov. 20, 2013) (obligation to produce
documents turns on pragmatic understanding of “control”); Chevron
Corp. v. Salazar, 275 F.R.D. 437, 450 (S.D.N.Y. 2011) (finding that
whether corporate entity has possession, custody, or control of
documents may depend on whether it has ability in ordinary course
of business to obtain them from related entity); Bank of New York
v. Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135, 146 (S.D.N.Y.
1997) (control includes practical ability to obtain documents).
Nor have they argued that to do so would involve an undue burden.
7

Patrik Edsparr, Alison Malkin, Alayne Fleischmann, Tanya
Dooley, Teresa Bowlin, Paul Hennessy, Kenneth Spindel, Jeanne Faye,
Tom Tomeo, and Don Mayszak. Daniel Lonski was listed as a member
of working group lists for offerings that were eliminated in the
motion for class certification. (Alvarado 11/8/13 Letter at Exh.
2).
15

11/27/13 Letter”)). The defendants note that these individuals are
absent from the working group lists, though this carries little
weight considering they have already agreed to add one custodian,
Pavit Randhawa, who does not appear to have been on any of the
lists either. (Spenner 10/25/13 Letter at 8; Pl. Custodian List).
They further state that some of these proposed custodians are
duplicative of existing custodians, and others were culled from
testimony or exhibits but have “no connection to the issues or
allegations in this action.” (Spenner 10/25/13 Letter at 10 & n.30;
Def. Custodian Response).
the

plaintiffs’

interest

These concerns must be weighed against
in

obtaining

relevant,

discoverable

documents and the evidence they marshal in support of their request
for each of the 11 individuals.
First, the plaintiffs highlight deposition testimony to the
effect that proposed custodians Fleischmann, Dooley, and Bowlin
served as “deal managers” within a subgroup of the “transaction
management group.”

(Transcript of Videotaped Deposition of Seth

M. Fenton dated Sept. 12, 2013 (“Fenton Dep.”), attached as Exh. 13
to Alvarado 11/27/13 Letter, at 169-70).

The deal management

subgroup is represented by two current custodians, the head of the
subgroup and one other deal manager.
Spenner 10/25/13 Letter at 10 & n.27).

(Fenton Dep. at 169-70;
The plaintiffs do not

attempt to distinguish these currently designated custodians from

16

their proposed custodians nor suggest what unique information the
proposed custodians might possess.
As noted above, the requesting party generally bears the
burden of showing the relevance of the documents sought, while the
resisting party bears the burden of justifying limiting discovery
of

relevant

documents.

Here,

the

plaintiffs

claim

to

have

“provided extensive evidence demonstrating the relevance of each of
the requested custodians,” and charge the defendants with relying
on

“their

own

ipse

dixit

assertions,”

having

“give[n]

no

explanation” nor any evidentiary support for their position that
the proposed custodians are duplicative.

(Alvarado 11/8/13 Letter

at 13). The plaintiffs state, without support, that “the fact that
a

custodian

worked

in

the

same

business

unit

as

certain

of

defendants’ custodians does not demonstrate that the custodian
would be duplicative.”

(Alvarado 11/8/13 Letter at 13).

While

this may be true, it misconstrues the nature of the plaintiffs’
burden here -- as the defendants have already included custodians
from certain business units in their ESI search protocol, the
plaintiffs

must

demonstrate

that

the

additional

requested

custodians would provide unique relevant information not already
obtained.

They have failed to do so here, providing no evidence

that there are unique responsive documents being missed in the
current

search

scheme

that

would

17

justify

the

inclusion

of

additional custodians from this subgroup.

The request to add

proposed custodians Fleischmann, Dooley, and Bowlin is denied.
Next, the plaintiffs cite deposition testimony that proposed
custodians Faye, Tomeo, and Maysyak were key persons “in [the]
securitized product sales force that had more interaction or
responsibility as it related to [RMBS],” and also note that Ms.
Faye appears on a J.P. Morgan organizational chart as selling whole
loan acquisitions. (Pl. Custodian List; Securitized Products Group
Organization Chart, attached as Exh. 8 to Alvarado 11/27/13 Letter;
Fenton Dep. at 192).

The mere fact that these individuals were in

charge of selling the securities at issue does not justify their
inclusion as custodians in this dispute.

If documents produced

during discovery indicate that they were in close communication
with

the

current

custodians

about

the

offerings’

alleged

shortcomings, or were otherwise involved in any wrongdoing, they
may be added at a later time.8
Proposed custodian Lonski was on working group lists for
offerings JPMMT 2007-A5 and 2007-A6, which are no longer at issue
in this case.

(Pl. Custodian List; Class Cert. Taylor 10/8/13

8

The defendants should note that if the plaintiffs are
subsequently able to establish that any of the rejected individuals
are in fact proper custodians, complaints regarding the burden of
running new searches for ESI will fall on deaf ears.

18

Letter at 1 n.1).
sheet

for

one

The plaintiffs claim that he appears on a term
of

the

documentation of this.
Letter at 2).

relevant

offerings,

but

provide

no

(Pl. Custodian List; Alvarado 11/27/13

He is also listed on an organizational chart as a

member of the RMBS trading group, along with current custodians
Boester, Horner, Margolin, Norquist, Simpson, Byrnes, and Panagis
(Banking Professionals Dedicated to Mortgage ABS, attached as Exh.
10 to Alvarado 11/27/13 Letter), many of whom are included on the
relevant working group lists (JPALT2007-A2 Working Party List,
attached as Exh. 4 to Alvarado 11/27/13 Letter; Spenner 10/25/13
Letter at 10 n.26).

The plaintiffs have not established that Mr.

Lonski would be a non-duplicative custodian, and the request to
include him is therefore denied.
The evidence offered to support the addition of proposed
custodians Edsparr, Hennessy, and Spindel is also unpersuasive. To
the extent that these individuals corresponded by e-mail regarding
how to hedge J.P. Morgan’s losses from its RMBS practice, this
limited

communication

is

more

appropriately

the

target

specific discovery request rather than as searchable ESI.

of

a

(Pl.

Custodian List; Confidential Deposition of Robert Miller dated Feb.
1, 2013, in Dexia v. Bear Stearns and Co., No. 12 Civ. 4761
(S.D.N.Y.), attached as Exh. 14 to Alvarado 11/27/13 Letter, at
215-229; E-mail of Paul Hennessy dated Oct. 13, 2006, attached as

19

Exh. 15 to Alvarado 11/27/13 Letter; E-mail of Paul Hennessy dated
Dec. 11, 2006, attached as Exh. 16 to Alvarado 11/27/13 Letter).
The only other evidence provided is testimony that Mr. Hennessy
approved the due diligence processes established by William Buell;
to the extent that sought-after relevant documents would not be
produced as a result of Mr. Buell’s current custodial status, this
is again more appropriately dealt with through a limited discovery
request rather than including Mr. Hennessy as a custodian.
(Videotaped Deposition of William Buell dated Jan. 29, 2013, in
Dexia v. Bear Stearns and Co., No. 12 Civ. 4761, attached as Exh.
21 to Alvarado 11/27/13 Letter, at 269-271).
The plaintiffs offer stronger support for proposed custodian
Alison Malkin, who was the head of the risk management subgroup
within the transaction management team.
Fenton Dep. at 174).

(Pl. Custodian List;

They point out that the defendants are

“already [] searching the shared drives used by Alison Malkin’s
group.”

(Alvarado 11/8/13 Letter at 14 (quoting Spenner 10/25/13

Letter at 17)).

They also cite deposition testimony that Ms.

Malkin was responsible for “looking for breaches of reps and
warranties

and

potential

fraud

in

the

loans.”

(Videotaped

Deposition of Arpanraj M. Kothari dated June 4, 2013, in Federal
Housing Finance Agency v. J.P. Morgan Chase & Co., No. 11 Civ. 6188
(S.D.N.Y.), attached as Exh. 4 to Alvarado 11/8/13 Letter, at 159).

20

This evidence overcomes the defendants’ objection that Ms. Malkin
is duplicative of other current custodians in her subgroup or lacks
connection to the disputed offerings.

(Spenner 10/25/13 Letter at

10 & nn.27, 30; Def. Custodian Response). The defendants shall add
Ms. Malkin as a custodian.
3.

Temporal Scope

In a battle of footnotes, the parties dispute the appropriate
temporal scope of the ESI discovery.

(Spenner 10/25/13 Letter at

3 n.4, 6 n.16; Alvarado 11/8/13 Letter at 7 n.2).

The plaintiffs’

proposal calls for an ESI search based on the defendants’ terms
from July 29, 2004 through December 31, 2010, and for their own
search terms to be run for the period from July 29, 2004 through
September 30, 2009.

(Pl. Search Protocol).

The defendants are

currently searching a more limited timeframe, examining shared
drives for the three-year period from July 29, 2004 through August
26, 2007, which is “60 days before the earliest relevant whole loan
purchase transaction through 30 days after the latest closing date
of the remaining offerings.”

(E-mail of David Breau dated Oct. 4,

2013 (“Breau E-mail”), attached as Exh. X to Breau Decl.; Spenner
10/25/13 Letter at 3 n.4).

As to the e-mails and files of

particular custodians, the search periods are based on the roles
and involvement of each individual and are limited to shorter
timeframes within that three-year span.

21

(Breau E-mail).

The

defendants reject a date range that extends significantly past the
date of the offerings or the date of the proposed class period.
(Spenner 10/25/13 Letter at 6 n.16).
Given the possibility that post-closing and post-class period
documents and communications might provide retrospective insight
into the performance of the offerings at issue here, they may be
relevant at the discovery stage.

See, e.g., Assured Guaranty

Municipal Corp., 2012 WL 5927379, at *2 (“Documents that post-date
the transactions may nevertheless relate back to the state of
affairs as it existed at the crucial time.”); see also In re
Weatherford International Securities Litigation, No. 11 Civ. 1646,
2013 WL 5788687, at *2-3 (S.D.N.Y. Oct. 28, 2013) (holding that
documents related to events occurring after the class period has
closed may be relevant for discovery purposes); In re Morgan
Stanley, 2013 WL 4838796, at *3 (“Like other courts, I conclude
that the post-closing period can prove to be fertile ground for
relevant discovery.”).

But without greater explanation from the

parties as to why the search periods they propose should be
implemented, I do not have a sufficient basis for selecting one
over the other.

The parties agree as to the start date of the

search period, and I am inclined to believe that a middle ground is
appropriate as to the end date -- more than 30 days after closing,
but not a full three years later.

22

See, e.g., In re Morgan Stanley,

2013 WL 4838796, at *3 (extending the search period for eighteen
months after closing and noting that a longer post-closing period
is less likely to produce false hits where most of the search terms
focus on specific loans or offerings). I urge the parties to reach
such a compromise as they discuss additional search terms; if they
remain at an impasse, this issue will also be submitted to the
special master for determination.
B.

Specific Document Requests
1.

The

Documents Relating to the Defendants’ Contentions
and Defenses

plaintiffs

have

requested

production

of

“concerning [the] defendants’ contentions or defenses.”

documents
(Taylor

10/8/13 Letter at 7; Lead Plaintiffs’ Second Request for Production
of Documents to All Defendants (“Second Request”), attached as Exh.
5 to Taylor 10/8/13 Letter, at 9).

In their answer to the Second

Amended Complaint, the defendants raised forty-one affirmative
defenses, arguing among other things that they had no duty to
verify or review the offering documents’ content, that they “acted
with reasonable care and due diligence” regarding statements made
in the offerings, that they reasonably relied in good faith on “the
opinions of professionals and experts” and other third parties in
making the statements contained in the offerings, that they “did
not know, and in reasonable diligence could not have known, that
the

Offering

Documents

contained
23

material

representations

or

omissions,” and that the claims are barred because of certain
provisions in the offering documents.

(Defendants’ Answer to the

Second Amended Complaint at 28-31).
The

defendants

“do

not

dispute”

the

relevance

discoverability of documents related to their defenses.

and

(Spenner

10/25/13 Letter at 11). However, they do not believe that they are
required to search specifically for such documents, and argue that
the request is duplicative because they anticipate turning them
over in response to the plaintiffs’ other discovery requests.
(Spenner 10/25/13 Letter at 12).

The defendants also believe that

this request is “premature” and that contentions and defenses need
not be disclosed until the end of the discovery period.

(Spenner

10/25/13 Letter at 11).
Plaintiffs are generally not in a position to know what
information the opposing party might rely on to meet its burden of
proof for affirmative defenses. Rule 26(a) of the Federal Rules of
Civil Procedure addresses this problem by providing that even
absent a discovery request, any party must produce documents that
it “may use to support its claims or defenses . . . .”
Civ. P. 26(a)(1)(A)(ii) (emphasis added).

Fed. R.

That obligation is

ongoing, and “a party must supplement its initial disclosures when
additional information supporting its claims or defenses comes to
its attention.”

Pentair Water Treatment (OH) Co. v. Continental

24

Insurance Co., No. 08 Civ. 304, 2009 WL 3817600, at *2 (S.D.N.Y.
Nov. 16, 2009).

The defendants are clearly obligated to turn over

documents supporting their defenses; the questions are when and how
such documents should be searched for and disclosed.
If J.P. Morgan is confident that its current search efforts
will yield all the documents it requires to support affirmative
defenses, it need not search for them specifically. The defendants
should keep in mind, of course, that failure to turn over any of
these documents at the appropriate time during discovery may
preclude their introduction at trial or result in sanctions.

See

Fed. R. Civ. P. 37(c)(1); see also Schiller v. City of New York,
Nos. 04 Civ. 7922, 04 Civ. 7921, 2008 WL 4525341, at *3-4 (S.D.N.Y.
Oct. 9, 2008).
Under Rule 26(b)(2)(C)(iii) of the Federal Rules of Civil
Procedure, J.P. Morgan need not turn over any documents in response
to this request that are duplicative of those produced in response
to other requests.

The plaintiffs are concerned that these

documents will end up buried among the millions that the parties
anticipate

being

produced.

(Spenner

Alvarado 11/8/13 Letter at 16).

10/25/13

Letter

at

12;

However, the defendants are

required to produce documents either “as they are kept in the usual
course of business” or “organize[d] and label[ed] [] to correspond
to the categories in the request.” Fed. R. Civ. P. 34(b)(2)(E)(i);

25

see also SEC v. Collins & Aikman Corp., 256 F.R.D. 403, 409-10
(S.D.N.Y. 2009).

If J.P. Morgan produces documents organized by

request, it must either turn over duplicate copies or make note of
which already-produced documents are responsive to this request.
If instead the defendants wish to turn over documents as kept in
the ordinary course of business, they must provide sufficient
context to enable the plaintiffs to efficiently locate the specific
information related to their requests. See Schrom v. Guardian Life
Insurance Co. of America, No. 11 Civ. 1680, 2012 WL 28138, at *6
(S.D.N.Y. Jan. 5, 2012) (“Where massive numbers of documents are
involved, it may be necessary for the producing party to provide a
complete explanation of its information management structure if it
wishes to produce these documents in the manner that they are
ordinarily stored.”).
As for timing, the defendants must provide these documents
now, not at the end of discovery.

It is true that under Local Rule

33.3(c), contention interrogatories “should generally not be served
during the early stages of discovery and . . . [need] not be
answered

until

other

(Spenner

10/25/13

discovery

Letter

at

is
11

substantially
(quoting

completed.”

Tribune

Co.

v.

Purcigliotti, No. 93 Civ. 7222, 1997 WL 540810 (S.D.N.Y. Sept. 3,
1997))); see Local Rule 33.3(c) (“At the conclusion of other
discovery, and at least 30 days prior to the discovery cut-off

26

date, interrogatories seeking the claims and contentions of the
opposing

party

otherwise.”).

may

be

served

unless

the

Court

has

ordered

Such contention interrogatories help the parties

focus their arguments after discovery is complete and trial is near
by asking them to identify each claim or defense clearly and point
to the facts, witnesses, or documents that support them.

See,

e.g., Kyoei Fire & Marine Insurance Co. v. M/V Maritime Antalya,
248 F.R.D. 126, 142-43 (S.D.N.Y. 2007).

But the plaintiffs’

request is not a contention interrogatory.

They are merely asking

for what Rule 26 requires: that the defendants meet their ongoing
obligation to produce documents that serve as a basis for the
defenses they have asserted in their Answer to the Second Amended
Complaint.

Contention interrogatories may prove helpful near the

end of discovery in this case, but their availability does not
obviate the clear command of Rule 26 that documents supporting
claims

and

defenses

interrogatory.

The

be

disclosed,

defendants

even

must

absent

produce

a

request

such

or

documents

forthwith.
2.
The

Documents Relating to Government Investigations

plaintiffs

next

request

“any

communication

with

or

documents provided to any government body or agency in connection
with an investigation” of J.P. Morgan’s RMBS business, underwriting
of

the

certificates

and

offerings

27

at

issue,

and

any

of

the

originators from whom the loans were purchased.
Letter at 8; Second Request at 9).

(Taylor 10/8/13

They argue such documents are

relevant even if not connected to the loans or offerings in this
case, as they address the same “processes and procedures . . .
common across securitizations” and the same culpable conduct of the
defendants during these similar transactions.
Letter at 8-9).

(Taylor 10/8/13

Indeed, they fear that “restrictive, offering-

specific search terms” are failing to yield such broadly relevant
documents.
that

the

(Taylor 10/8/13 Letter at 8).
request

expedition”

not

is

an

relevant

overly
to

broad

the

and

offerings

J.P. Morgan responds
burdensome
at

issue,

“fishing
and

the

defendant cites a number of cases rejecting attempts to “piggyback”
discovery on government investigations.

(Spenner 10/25/13 Letter

at 12-13).
The plaintiffs claim to have “limited their request only to
documents related to mortgage-backed securities offered by J.P.
Morgan,” though it is harder to imagine a more expansive request
within the boundaries of this case.

(Taylor 10/8/13 Letter at 9).

They are not entitled to all documents relating to RMBS that the
defendants have turned over to “any government body or agency”
pursuant to subpoena. While the scope of discoverable material may
extend beyond the particular transactions in this case, that fact
in and of itself does not mean that every document produced in

28

response to any government subpoena related to RMBS is relevant.
Instead, the plaintiffs should be provided with copies of
those responses that are relevant to this case and which conform to
the limits of Rule 26(b).
at *2.

See In re Weatherford, 2013 WL 5788687,

Of course, this includes any investigations involving the

specific transactions and offerings at issue in this case.

But it

also encompasses investigations of broader practices or issues that
are not explicitly tied to loans in this case but are nevertheless
pertinent.

For example, discoverable documents include those

turned over to the government in an investigation of J.P. Morgan’s
assessment of the underwriting practices of a loan originator
involved in the loans at issue here, even if that investigation
focused entirely on other loans, provided that such documents apply
equally

to

both

those

loans

and

the

loans

here.

Documents

regarding common due diligence procedures that J.P. Morgan applies
to all RMBS offerings are also discoverable, regardless of whether
those documents are specifically tied to one of the loans or
offerings in question, as they are relevant to how those procedures
were

or

should

have

been

applied

in

this

case.

These

two

categories of documents are reasonably calculated to lead to
admissible

evidence,

and

such

responses

to

government

investigations should therefore be produced.
Additionally, to help guide this disclosure, J.P. Morgan shall

29

provide the plaintiffs with copies of any government subpoenas that
it has received relating to RMBS for the period from July 29, 2004
to present.

If the plaintiffs identify government requests for

documents that are not covered by the two categories above, they
may make additional requests.
So far the discussion has been limited to government subpoenas
and

J.P.

Morgan

responses,

but

the

plaintiffs

also

request

“communications with” any government body or agency regarding
formal or informal RMBS investigations.
8; Second Request at 9).

(Taylor 10/8/13 Letter at

“That the subject matter of [government]

subpoenas is relevant may explain why documents produced to [any
agency]

are

discoverable,

but

not

why

disclosure

of

.

communications . . . related to those subpoenas is warranted.”
re Weatherford, 2013 WL 5788687, at *3.

.

.
In

The plaintiffs have not

shown that communications beyond the government requests and J.P.
Morgan’s answers are relevant, and this order is thus limited to
the government’s subpoenas and any of the defendants’ relevant
responses.9

9

Responses to this request may overlap with other discovery
requests, as such attempts to “piggyback” on government
investigations can lead to “plainly cumulative and unnecessarily
burdensome” discovery. In re Weatherford, 2013 WL 5788687, at *4.
J.P. Morgan need not turn over any responsive documents that are
duplicative of material it has already produced to the plaintiffs.
30

3.

Transcripts of Testimony or Interviews

In addition to documents produced pursuant to government
subpoenas, the plaintiffs also seek “transcripts of interviews or
depositions

provided

investigation
business

or

in

regulatory

generally

and

the

originators at issue here.
Request at 9).

other

civil

litigation,

government

proceedings”

concerning

the

RMBS

certificates,

offerings,

and

loan

(Taylor 10/8/13 Letter at 9; Second

They again argue that this information is helpful

to establishing “basic guidelines and procedures” and “widespread
practices.”

(Taylor 10/8/13 Letter at 9-10).

The defendants

believe that this discovery should be limited only to testimony in
prior civil actions that was given by one of the custodians in this
case and related to one of the offerings at issue in this case.
(Spenner 10/25/13 Letter at 14).

The defendants also contend that

they have already provided transcripts and deposition witnesses
relating to the broader “basic guidelines and procedures” evidence
the plaintiffs seek through this request. (Spenner 10/25/13 Letter
at 15; Taylor 10/8/13 Letter at 9).
The same reasoning that guided discovery of subpoena responses
applies here as well.
from

other

cases

The plaintiffs are entitled to transcripts

dealing

with

some

or

all

of

the

platforms, loans, and certificates” at issue here.

“offering
(Alvarado

11/8/13 Letter at 19; see also Morgan Stanley Tr. at 64 (“the

31

defendants [shall] produce the transcripts . . . [in] all civil
litigation and government investigations that concern the relevant
offerings,

mortgage

loans,

certificates,

et.

cetera”)).

Additionally, any transcripts containing information on broader
underlying issues such as the “basic guidelines and procedures for
acquiring, securitizing or selling residential mortgage loans,
which

apply

across

the

business

and

are

not

limited

to

the

securities in this case,” shall also be disclosed, provided they
are not duplicative of other discovery production. (Taylor 10/8/13
Letter at 9).

Finally, the defendants shall disclose transcripts

of depositions in other RMBS cases where the deposed individual is
a custodian in this case.

To the extent that the defendants

withhold transcripts they consider to be duplicative or nonresponsive, they shall provide the plaintiffs with a list of such
transcripts. (Alvarado 11/8/13 Letter at 20; Morgan Stanley Tr. at
64-65).
4.

Documents Relating to Warehouse Financing

Next, the plaintiffs request “communication with, or documents
received from, originators concerning warehouse financing that
[the] defendants provided to originators.”
at 10; Second Request at 11).

(Taylor 10/8/13 Letter

They believe that J.P. Morgan may

32

have provided warehouse financing10 for some loans in the relevant
offerings and seek information about the due diligence that was
conducted during that process.

(Taylor 10/8/13 Letter at 10-11).

The defendants suggest that warehouse financing may not have been
used in any of the loans at issue here.

(Spenner 10/25/13 Letter

at 15 (neither admitting nor denying that such financing took
place)).

If it was in fact used, they nevertheless object to

disclosure on relevance grounds, arguing that any due diligence
conducted

by

warehouse

securitization in mind.

financing

teams

was

not

done

(Spenner 10/25/13 Letter at 15-16).

with
In

reply, the plaintiffs argue that J.P. Morgan’s warehouse financing
team

was

“extensively

originators
entities.

of

loans

involved”
eventually

in

scrutinizing

purchased

(Alvarado 11/8/13 Letter at 20).

by

the

the

loan

defendant

They also allege that

the interplay between the provision of warehouse financing and

10

“Warehouse financing” describes the process by which a
financial institution such as J.P. Morgan provides a short-term
line of credit to a mortgage loan originator so that the originator
can pursue a property buyer’s application for a mortgage loan.
After the loan closes, it is typically sold to a permanent
investor, and the proceeds of that sale are used to repay the
warehouse lender. See, e.g., HSA Residential Mortgage Services of
Texas v. Casuccio, 350 F. Supp. 2d 352, 355 (E.D.N.Y. 2003); In re
AppOnline.com, Inc., 315 B.R. 259, 268 (Bankr. E.D.N.Y. 2004). The
ultimate purchaser of the mortgage loan may be the warehouse lender
or one of its sister or subsidiary entities, or be an unrelated
investor. See, e.g., Indymac Mortgage Holdings, Inc. v. Reyad, 167
F. Supp. 2d 222, 229 (D. Conn. 2001).

33

securitization -- whether J.P. Morgan decided to buy the loans, and
whether it purchased them itself or merely packaged and sold them
to others -- is indicative of the defendants’ conscious choice to
pass what they viewed as unreasonably risky sub-standard loans onto
third parties via securitization. (Alvarado 11/8/13 Letter at 20).
Whether or not the plaintiffs’ suspicions ultimately bear
fruit, they have sufficiently articulated how these documents are
reasonably calculated to lead to the discovery of admissible
evidence.

If

any

loans

acquired

by

J.P.

Morgan

from

the

originators at issue in this case were in fact subject to warehouse
financing, the defendants must provide any documents related to due
diligence and review of the originators when those loans were
vetted, as well as any documents relating to the defendants’
consideration of whether to provide warehouse financing and whether
to

ultimately

securitization.

designate

the

Documents

financed

that

are

loans
merely

for

purchase

or

transactional

or

otherwise unrelated to J.P. Morgan’s assessment of the relevant
loans or originators need not be disclosed.

As with the previous

categories, disclosure shall include warehouse financing documents
related to the loans at issue in this case, as well as documents
pertaining to the originators generally that apply to one of the
loans in this matter, even though the documents discuss other loans
or, indeed, no specific loan.

34

5.

Disputes Concerning the Subject Loans, Offerings, or
Originators

The plaintiffs seek “documents and communications concerning
any dispute relating to the offerings, the certificates, the
subject loans, the originators or any of the allegations in the
complaint.”

(Taylor 10/8/13 Letter at 11; Second Request at 12).

The target of this request appears to be threatened or actual
litigation regarding the underlying loans, including, for example,
early payment default claims.

(Taylor 10/8/13 Letter at 11).

The

defendants object that the scope of this request is overbroad,
particularly

as

to

disputes

involving

originators

unrelated to the loans involved in this case.
Letter at 16).

that

are

(Spenner 10/25/13

They also complain that it would be unreasonably

burdensome to produce such material because there is “no obvious
way” to search for it.

(Spenner 10/25/13 Letter at 16).

The plaintiffs are entitled to documents and communications
regarding disputes, threatened litigation, and actual litigation
over RMBS loans.

Once again, this discovery is limited to the

loans contained in the offerings at issue in this case or any
disputes

about

broader

matters

that

relate

specifically identify, the loans at issue here.

to,

but

do

not

The plaintiffs

have not shown that disputes arising from other loans provided by
the originators would be relevant; absent the presence of an issue
that applies both to loans inside and outside the scope of this
35

litigation, such external disputes are not discoverable.
6.

Defendants’ Shorting Activities

The final disputed request seeks documents pertaining to the
defendants’ shorting positions and trading history for both the
certificates, offerings, or loans at issue here as well as the RMBS
market generally.

(Taylor 10/8/13 Letter at 11; Second Request at

13).

The plaintiffs claim that such information is indicative of

J.P.

Morgan’s

knowledge

that

its

offerings

were

below

the

represented standard and that it had failed to conduct adequate due
diligence as alleged in its answer.

(Taylor 10/8/13 Letter at 11-

12; Alvarado 11/8/13 Letter at 23; Answer to Second Amended
Complaint at 28-29 (“[J.P. Morgan] did not know, and in the
exercise of reasonable diligence could not have known, that the
Offering

Documents

contained

material

misrepresentations

or

omissions.”)). The defendants contend that decisions to short RMBS
offerings are based on a variety of market factors and are not
necessarily indicative of the quality of the offerings or their
underlying documents nor of any concerns by J.P. Morgan about due
diligence or misstatements.

(Spenner 10/25/13 Letter at 18).

In

support of this position they cite Judge Netburn’s recent rejection
of a similar request for shorting documents.

(Spenner 10/25/13

Letter at 18 (citing In re Morgan Stanley, 2013 WL 4838796, at *4
(“A trader’s decision whether to short an offering might depend on

36

market factors entirely unrelated to the accuracy of material
included in the offering document . . . .”))).
However, Judge Netburn distinguished the dispute before her
from a hypothetical case where “one of the custodians involved in
the Offerings at issue was in contact with [the defendants’]
traders regarding the nature or adequacy of the due diligence
process.”

In re Morgan Stanley, 2013 WL 4838796, at *4; (Alvarado

11/8/13 Letter at 23-24).

In the latter situation, there would be

a sufficient connection between the shorting of RMBS and knowledge
of their inferior quality to warrant discovery.

And that is

apparently

allege

the

case

here,

where

the

plaintiffs

that

“individuals at J.P. Morgan [who] shorted RMBS had access to nonpublic information” relating to the underlying loans.
11/8/13 Letter at 23).

(Alvarado

Specifically, the plaintiffs note that at

least one custodian in this case, Robert Miller, was involved in
the due diligence done at the creation of the offerings and later
worked on the trading desk, where he executed short positions on
the offerings.

(Alvarado 11/8/13 Letter at 24; Deposition of

Robert Miller dated Feb. 1, 2013, attached as Exh. 6 to Alvarado
11/8/13 Letter, at 202).
The plaintiffs’ request for documents relating to shorting
positions for “the U.S. residential housing market” is too broad;
production

shall

instead

be

limited

37

to

the

certificates

or

offerings at issue in this case.

If traders making shorting

decisions had access to information from the due diligence process
during the creation of the offerings, either through communication
or because they were involved at both stages, then there is a
reasonable possibility that shorting decisions reflected insider
knowledge of the deficient quality of the securities, undermining
J.P. Morgan’s affirmative due diligence defense.

The plaintiffs

are entitled to documents and communications regarding shorting
positions in which Mr. Miller was involved.

The defendants shall

also turn over any documents pertaining to shorting activities of
other individuals who were either involved in both the creation of
the offerings and the decision to short the offerings or the
execution thereof, or who worked on the offerings and communicated
with someone in the trading teams regarding shorting decisions and
the due diligence process.
As to the scope of this production, the defendants claim that
they did not short RMBS at a certificate or offering level, but
rather at a portfolio level.

(Spenner 10/25/13 Letter at 18).

If

that is the case, J.P. Morgan must turn over any documents relating
to the shorting of portfolios in which the loans and offerings in
dispute were a component, subject to the limitations described
above.
The plaintiffs also seek to compel disclosure of “[the]

38

defendants’

net

aggregate

proprietary

positions

for

the

U.S.

housing market” on a monthly basis and the annual salaries for
persons working in the RMBS business for 2005-2007.
10/8/13 Letter at 11-12; Second Request at 13).

(Taylor

But they offer no

argument as to how this information is relevant, focusing only on
the short positions.

(Alvarado 11/8/13 Letter at 24 (“Thus, [the]

plaintiffs are entitled to shorting evidence.”)).

As is the case

with shorting, there may be any number of reasons why J.P. Morgan’s
proprietary trading of RMBS or its employees’ compensation levels
would fluctuate over a given period, and the plaintiffs have not
made any effort to tie those actions with the wrongdoing alleged
here.

These requests are therefore denied.
C.

Production Schedule

The plaintiffs are concerned that J.P. Morgan has not been
producing documents at a fast enough pace.

They ask that an

interim deadline be imposed for completion of document discovery
well in advance of the close of fact discovery on November 14,
2014, so that they have ample time to review the documents that are
produced prior to conducting depositions.

(Taylor 10/8/13 Letter

at 12-13; Amended Scheduling Order dated June 21, 2013 (Docket No.
210))).

The defendants reject the plaintiffs’ proposed interim

deadline of December 13, 2013, and point to the numerous responsive
documents they have produced thus far as evidence of reasonable

39

(Spenner 10/25/13 Letter 19-20) .

efforts.

An interim deadline for the document and electronic discovery
discussed above is appropriate,
plaintiffs have adequate

time

conduct depositions with a
Mutual

Insurance

Co.

v.

and will

help ensure that

to make additional

solid factual basis.

National

Union

Fire

the

requests

and

See Arkwright

Insurance

Co.

of

Pittsburgh, No. 90 Civ. 7811, 1995 WL 66405, at *1 (S.D.N.Y. Feb.
15 f

1995)

discovery) .

(noting the value of interim deadlines in structured
Such a deadline is also consistent with the current

scheduling

order

Scheduling

Order).

guiding
The

discovery
parties

in

shall

this

case.

continue

to

(Amended
turn

over

responsive materials as they become available and complete their
document production by May 14, 2014.
Conclusion
For the reasons discussed, the plaintiffs' motion is granted
in part and denied in part as set forth above.

SO ORDERED.

"
STATES MAGISTRATE JUDGE
Dated: New York, New York
December 16, 2013

40

Copies mailed this date to:
Arthur C. Leahy, Esq.
Jonah H. Goldstein, Esq.
Matthew I. Alpert, Esq.
Nathan R. Lindell, Esq.
Scott H. Saham, Esq.
Susan G. Taylor, Esq.
Thomas E. Egler, Esq.
Angel P. Lau, Esq.
L. Dana Martindale, Esq.

Ashley M. Robinson, Esq.

Caroline M. Robert, Esq.

Daniel S. Drosman, Esq.

Darryl J. Alvarado, Esq.

Hillary B. Stakem, Esq.

Robbins Geller Rudman & Dowd LLP

655 West Broadway

Suite 1900

San Diego, CA 92101

Luke O. Brooks, Esq.

Robbins Geller Rudman & Dowd LLP

One Montgomery Street, Suite 1800

San Francisco, CA 94104

Carolina C. Torres, Esq.

David A. Rosenfeld, Esq.

Samuel H. Rudman, Esq.

Robbins Geller Rudman & Dowd LLP

58 South Service Rd.

Suite 200

Melville, NY 11747

Joseph P. Guglielmo, Esq.

Thomas L. Laughlin, IV, Esq.

Scott + Scott, L.L.P.

405 Lexington Ave.

40th Floor

New York, NY 10174

Geoffrey M. Johnson, Esq.

Scott + Scott, L.L.P.

12434 Cedar Rd., Suite 12

Cleveland Heights, OH 44106

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Alfred R. Pietrzak, Esq.

Dorothy J. Spenner, Esq.

Owen H. Smith, Esq.

David L. Breau, Esq.

Daniel A. McLaughlin, Esq.

Danny C. Moxl ,Esq.

Sidley Austin LLP

787 Seventh Ave.

New York, NY 10019

Alison L. MacGregor, Esq.

Kelley Drye & Warren, LLP

101 Park Ave.

New York, NY 10178

Darrell S. Cafasso, Esq.

Sullivan & Cromwell, LLP

125 Broad St.

New York, NY 10004

Robert A. Sacks. Esq.

Sullivan & Cromwell, LLP

1888 Century Park East, Suite 2100

Los Angeles, CA 90067

Richard F. Lubarsky, Esq.

Levi Lubarsky & Feigenbaum LLP

1185 Avenue of the Americas, 17th Floor

New York, NY 10036

Rebecca L. Butcher

Landis Rath & Cobb LLP

919 Market Street, Suite 1800

Wilmington, DE 19801

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