King County, Washington v. IKB Deutsche Industriebank AG et al
Filing
281
OPINION AND ORDER. For the foregoing reasons, defendants' request is denied at this time. (Signed by Judge Shira A. Scheindlin on 8/17/2012) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------
)(
KING COUNTY, WASHINGTON,
and IOWA STUDENT LOAN
LIQUIDITY CORPORATION,
OPINION AND ORDER
Plaintiffs,
09 Civ. 8387 (SAS)
- againstIKB DEUTSCHE INDUSTRIEBANK
AG,IKB CREDIT ASSET
MANAGEMENT, GmbH, MOODY'S
INVESTORS SERVICE, INC.,
MOODY'S INVESTORS SERVICE
LIMITED, THE McGRAW HILL
COMPANIES, INC. (d/b/a STANDARD
& POOR'S RATINGS SERVICES),
FITCH, INC., MORGAN STANLEY &
CO. INCORPORATED, and MORGAN
STANLEY & CO. INTERNATIONAL
LIMITED,
Defendants .
._-------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
The McGraw-Hill Companies, Inc. and other defendants in this action
seek to compel the production of a settlement agreement between plaintiffs and
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former defendants IKB Deutsche Industriebank, AG, IKB Credit Asset
Management, GmbH, Cheyne Capital Management Ltd., Cheyne Capital
Management (UK) LLP, and/or Cheyne Capital International Ltd. For the
following reasons, defendants’ request is denied.
II.
BACKGROUND1
Institutional investors King County, Washington and Iowa Student
Loan Liquidity Corporation bring this action to recover losses stemming from the
October 2007 collapse of Rhinebridge, a structured investment vehicle. Plaintiffs’
Second Amended Complaint included claims of common law fraud, negligent
misrepresentation, negligence, beach of fiduciary duty, and aiding and abetting
against two individuals (who have since been dismissed from the action) and
several corporate entities (collectively, “defendants”): IKB Deutsche
Industriebank AG and IKB Credit Asset Management, GmbH; The McGraw Hill
Companies, Inc. (d/b/a Standard & Poor’s Rating Services); Moody’s Investors
Service, Inc. and Moody’s Investors Service Ltd.; Fitch, Inc.; Morgan Stanley &
Co. Incorporated and Morgan Stanley & Co. International Limited.
On June 25, 2012, plaintiffs entered into a Settlement Agreement and
Mutual Release (“Agreement”) with IKB Deutsche Industriebank AG and IKB
1
This Opinion assumes familiarity with the facts discussed in this
Court’s previous opinions in this case.
-2-
Credit Asset Management CmbH.2 The non-settling defendants now seek to
compel the production of the Agreement. A conference was held on this request
on June 22, 2012.
III.
LEGAL STANDARD
A.
General Standard for Discovery
Pursuant to Rule 26(b)(1), “[p]arties may obtain discovery regarding
any non[-]privileged matter that is relevant to any party’s claim or defense. . . . For
good cause, the court may order discovery of any matter relevant to the subject
matter involved in the action.” In particular, admissibility at trial is not a constraint
“if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.”3 The burden of establishing relevance rests with the party
seeking to compel discovery.4 However, “[a] district court has wide latitude to
determine the scope of discovery . . . .”5
2
See Settlement Agreement and Mutual Release (“Agreement”), Jan.
25, 2012.
3
Fed. R. Civ. P. 26(b)(1). Accord Levick v. Maimonides Med. Ctr., No.
08 Civ. 03814, 2011 WL 1673782, at *2 (E.D.N.Y. May 3, 2011).
4
See Small v. Nobel Biocare USA, Inc., 808 F. Supp. 2d 584, 587
(S.D.N.Y. 2011).
5
In re Agent Orange Prod. Liab. Litig., 517 F.3d 76, 103 (2d Cir.
2008).
-3-
B.
Discovery of Settlement Agreements
While settlement agreements are often excluded at trial out of concern
for prejudice and the public interest in fostering compromise,6 inadmissibility is no
bar to discovery.7 While courts in this Circuit disagree as to the standard that
applies to the discovery of settlement agreements,8 the majority hold that the
required showing of relevance is no higher for settlements than it is for the
discovery of other kinds of information.9 Nonetheless, courts routinely refuse to
afford defendants access to settlement agreements that they deem irrelevant.10
6
See Levick, 2011 WL 1673782, at *2.
7
See id. (citing Salgado v. Club Quarters, Inc., No. 96 Civ. 383, 1997
WL 269509, at *1 (S.D.N.Y. May 20, 1997)).
8
See General Elec. Co. v. DR Sys., Inc., No. 06 Civ. 5581, 2007 WL
1791677, at *1 (E.D.N.Y. June 20, 2007) (reviewing split in authority in this
Circuit).
9
See ABF Capital Mgmt. v. Askin Capital, Nos. 96 Civ. 2978, 95 Civ.
8905, 97 Civ. 1856, 97 Civ. 4335, 98 Civ. 6178, 98 Civ. 7494, 2000 WL 191698,
at *1 (S.D.N.Y. Feb. 10, 2000) (“[N]o heightened showing of relevance need be
made in order to justify the disclosure of a settlement agreement.”).
10
See Valiante v. VCA Animal Hosps., Inc., No. 09 Civ. 2115, 2011 WL
219672, at *2 (D. Conn. Jan. 20, 2011) (“Nothing in the agreement would provide
[d]efendant with information regarding . . . [p]laintiff’s injuries and ability to pay
for medical procedures undertaken. The settlement agreement itself provides no
details regarding the injuries the settlement intended to redress, a breakdown of the
settlement amount or the intended allocation of the monies paid to [p]laintiff.”);
Highland Capital Mgmt., L.P. v. Schneider, No. 02 Civ. 8089, 2007 U.S. Dist.
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1.
Relevance to Damages
Courts routinely hold that settlement agreements may be withheld
until after trial.11 In order to be discoverable earlier, there must be a “particularized
showing of a likelihood that admissible evidence will be generated by the
dissemination of the terms of a settlement agreement.”12
The apportionment of damages in common law fraud suits is governed
by New York’s General Obligation Law (“G.O.L.”).13 Under section 15-108 of the
G.O.L., when plaintiffs settle with some (but not all) defendants, the settlement
reduces the amount that a plaintiff may recover for the same tort from the nonsettling defendants.14 Specifically, that amount will be offset
LEXIS 97453, at *4-5, 9 (S.D.N.Y. Sept. 28, 2007) (denying discovery of the
settlement agreement “[b]ecause there ha[d] been no showing that the settlement
agreement or any of the documents related to the settlement agreement [we]re
relevant at the . . . time”).
11
See Highland Capital, 2007 U.S. Dist. LEXIS 97453, at *8-9 (“[T]he
Schneiders argue that the settlement amount paid to RBC will reduce RBC’s
damages claim against them. Cases considering such an argument have typically
determined that the settlement amount should be disclosed only following
trial . . . .”); Bottaro v. Hatton Assocs., 96 F.R.D. 158, 160 (E.D.N.Y. 1982)
(holding that the amount of the settlement was irrelevant to whether former codefendant was liable to remaining defendants for contribution as full liability of all
defendants would not be known until after judgment).
12
Bottaro, 96 F.R.D. at 160.
13
See Schipani v. McLeod, 541 F.3d 158, 159 (2d Cir. 2008).
14
See N.Y. Gen. Olig. Law § 15-108 (McKinney 2007).
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to the extent of any amount stipulated by the release or the
covenant, or in the amount of the consideration paid for it, or in
the amount of the released tortfeasor’s equitable share of the
damages under article fourteen of the civil practice law and rules,
whichever is the greatest.15
“[A]s an affirmative defense, [section 15-108] must be pled by a
tortfeasor seeking its protection.”16 However, “the defendant . . . forfeits [his] right
to a setoff in the amount of the settling defendant’s equitable share [(the statute’s
third prong)] if it does not seek apportionment until after summary judgment is
entered against it on the issue of liability.”17 Thus, once a court finds a defendant
liable in a summary decision, that defendant is only allowed to amend its original
answer to request an offset by the amount paid or agreed to by any settling
defendants.18
15
Id. (emphasis added).
16
Schipani, 541 F.3d at 161 (quotation marks omitted).
17
Id. at 159-60, 161-62 (since “apportionment of fault is a component of
the liability determination . . . while the first two reductions [(the stipulated and
paid amounts)] are available at any point before final judgment is entered, the third
is lost where a defendant fails to seek apportionment of liability until after a jury’s
liability verdict”). Accord Bonnot v. Fishman, 88 A.D.2d 650, 651 (2d Dep’t
1982) (“[Defendant], of course, has waived his right to prove the hospital’s
equitable share of the damages . . . (and to have the judgment against him reduced
accordingly) . . . .”).
18
See Schipani, 541 F.3d at 161 (“By failing to seek apportionment
against [plaintiff], [defendant] foreclosed any possibility of the jury determining
[his] equitable share of the fault, and in that respect foreclosed use of that prong of
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However, a defendant can raise a section 15-108 defense without
knowing the settlement amount or its contents.
Defendants point to General Obligations Law (“GOL”) [section]
15-108 which . . . reduces the verdict by the settlement amount .
. . . Defendants contend that disclosure of the settlement
agreements is material and necessary in order to recalculate their
maximum exposure should an unfavorable verdict be reached . .
. . [H]owever, these arguments amount to nothing more than trial
strategy. Although trial strategy is important to any party in
litigation, defendants’ “need” to obtain the settlement information
arises not out of materiality or necessity but, rather, desirability.
As much as defendants believe that obtaining this information
now will better protect them at the time of trial, or assist them in
assessing their risk of trial versus settlement, these are neither
recognized nor accepted reasons for denying plaintiffs’ motion
and disclosing the terms of the settlement agreements.19
2.
Relevance to Witness Bias
Some courts have compelled the disclosure of settlement agreements
that could lead to evidence of bias, interest, or prejudice of trial witnesses.20 Those
are cases where the settlement includes, for instance, an agreement to testify on the
plaintiff’s behalf. In those cases, settlements are relevant for the impeachment of
the statute’s benefits.”).
19
In re New York Cnty. Data Entry Worker Prod. Liab. Litig., 616
N.Y.S.2d 424, 426 (Sup. Ct. N.Y. Co. 1994), aff’d, 635 N.Y.S.2d 641 (1st Dep’t
1995) (emphasis added).
20
See ABF Capital, 2000 WL 191698, at *2; Santrayll v. Burrell, No. 91
Civ. 3166, 1998 WL 24375, at *2 (S.D.N.Y. Jan. 22, 1998); Tribune Co. v.
Purcigliotti, No. 93 Civ. 7222, 1996 WL 337277, at *2 (S.D.N.Y. June 19, 1996).
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settling and testifying co-defendants.
IV.
DISCUSSION
A.
The Relevance of the Agreement to Damages
Defendants request that the Agreement be produced. Plaintiffs agree
to do so but not until after trial. The issue is whether to compel the disclosure at
this time. I have conducted an in camera review of the Agreement.
First, defendants argue that the settlement amount may be so large that
should defendants win partial summary judgment on their loss causation
arguments, there will be no damages left and the case could be dismissed.
According to them, whether the settlement is large enough to make this a realistic
possibility will inform whether defendants make the strategic decision to focus on
loss causation in their memoranda of law. In defendants’ view, this entitles them
to the Agreement. The cases defendants cite, however, are inapposite.21 At this
time, the Court is not in a position to determine whether the amount of the
settlement is or is not close to the total damages at issue and will revisit the issue
21
See Conopco v. Wein, No. 05 Civ. 9899, 2007 WL 10406076, at *5
(S.D.N.Y. Apr. 7, 2007) (finding a settlement agreement relevant due to a “strong
likelihood that it c[ould] be used for purposes of impeachment”); Small, 808 F.
Supp. 2d at 590 (finding a settlement agreement relevant to estimating damages in
a patent case, but inapposite here because damages in patent cases are based on the
court’s estimation of what reasonable royalty the parties would have agreed to ex
ante and the amount that certain parties settled for can help the court make that
determination).
-8-
after the computation of damages is produced and after summary judgment is
decided with particular attention to loss causation.
Alternatively, defendants insist that unless they obtain the Settlement
Agreement now, they cannot raise a section 15-108 defense. Plaintiffs maintain,
however, that under section 15-108 the apportionment of damages will be a mere
“mathematical computation” conducted by the court after trial.22 While defendants
must assert a section 15-108 defense now, they do not need to know the settlement
amount in order to do so. While fault apportionment certainly will be an issue at
trial, the amount for which defendants settled is not probative of fault. In fact, fault
apportionment is an issue that should not be affected by knowledge of the amounts
that the settling defendants agreed to pay. Only after the jury has apportioned
liability will the court compare the settling defendants’ equitable shares with the
settlement amount and determine which should be used as a set-off against the
damage award.
Defendants do not need the Agreement in order to brief the issues on
summary judgment. Undoubtedly, defendants will argue that plaintiffs cannot
prove loss causation. It is also likely that they will argue that if plaintiffs do prove
22
6/11/12 Letter from Daniel Drosman, Counsel for Plaintiffs, to
Defense Counsel, Ex. B to 6/14/12 Letter to the Court from Dean Ringel, Counsel
for The McGraw-Hill Companies, Inc. (“Def. Mem.”) .
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loss causation, their damages are limited. If the Court agrees with defendants’
assessment of damages, it is free to grant summary judgment on the ground that the
settlement exceeds any potential damage award. Therefore, defendants have no
need to obtain the Settlement Agreement at this time.
B.
The Relevance of the Agreement to Witness Bias
Defendants additionally claim that regardless of whether the
Agreement contains explicit cooperation provisions, its terms could inform
questions of witness bias.23 Plaintiffs concede that the Agreement contains
confidentiality provisions but maintain that it does not contain any promises of
future cooperation or testimony nor any general admissions.24 This Court’s in
camera review confirms that representation. As such, the Agreement is not
relevant to cross-examining witnesses at trial.
Because the Agreement is not relevant to either damages or witness
bias at this time, defendants are not entitled to it now. While defendants will
eventually obtain the Agreement for section 15-108 purposes, defendants’ request
to compel the disclosure of the Agreement now is denied.
23
See Def. Mem. at 3.
24
See 6/19/12 Letter to the Court from Luke Brooks, Counsel for
Plaintiffs at 2.
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V.
CONCLUSION
For the foregoing reasons, defendants' request is denied at this time.
SO ORDERED:
Dated:
New York, New York
August 17, 2012
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- Appearances -
For Plaintiffs King County, Washington and Iowa Student Loan Liquidity
Corporation:
Daniel S. Drosman, Esq.
Jessica T. Shinnefield, Esq.
Darryl J. Alvarado, Esq.
Anne L. Box, Esq.
James A. Caputo, Esq.
Patrick J. Coughlin, Esq.
Nathan R. Lindell, Esq.
David C. Walton, Esq.
X Jay Alvarez, Esq.
Christina A. Royce, Esq.
Robbins Geller Rudman & Dowd LLP
655 West Broadway, Suite 1900
San Diego, California 92101
(619) 231-1058
Luke O. Brooks, Esq.
Jason C. Davis, Esq.
Robbins Geller Rudman & Dowd LLP
Post Montgomery Center
1 Montgomery Street, Suite 1800
San Francisco, California 94104
(415) 288-4545
Samuel H. Rudman, Esq.
Jarrett S. Charo, Esq.
David A. Rosenfeld, Esq.
Robert M. Rothman, Esq.
Robbins Geller Rudman & Dowd LLP
58 South Service Road, Suite 200
Melville, New York 11747
(631) 367-7100
For Defendants Morgan Stanley & Co., Inc. and Morgan Stanley & Co.
International Limited:
James P. Rouhandeh, Esq.
Antonio Jorge Perez-Marques, Esq.
William Ross Miller, Jr. Esq.
Christopher Joseph Roche, Esq.
Andrew Dickens Schlichter, Esq.
Jessica Lynn Freese, Esq.
Davis Polk & Wardwell L.L.P.
450 Lexington Avenue
New York, NY 10017
(212) 450-4559
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For Defendants IKB Deutsche
Industriebank AG and IKB Credit
Asset Management, GmbH:
For Defendants Moody’s Investors
Service Limited and Moody’s
Investors Service, Inc.
John D. McFerrin-Clancy, Esq.
Zachary D. Rosenbaum, Esq.
Lowenstein Sandler PC
1251 Avenue of The Americas
New York, New York 11020
(212) 262-6700
Mario Aieta, Esq.
James J. Coster, Esq.
Dai Wai Chin Fenman, Esq.
Joshua M. Rubins, Esq.
Justin E. Klein, Esq.
James J. Regan, Esq.
Joshua M. Rubins, Esq.
Aaron M. Zeisler, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, New York 10169
(212) 818-9200
Thomas E. Redburn, Jr., Esq.
Jennifer Jane McGruther, Esq.
Michael James Hampson, Esq.
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
(973) 597-2456
For Defendant The McGraw Hill
Companies, Inc. d/b/a Standard &
Poor’s Rating Services
Dean I. Ringel, Esq.
Andrea R. Butler, Esq.
Floyd Abrams, Esq.
Jason M. Hall, Esq.
Brian T. Markley, Esq.
Tammy L. Roy, Esq.
Adam N. Zurofsky, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000
For Defendant Fitch, Inc.
Andrew J. Ehrlich, Esq.
Martin Flumenbaum, Esq.
Donna M. Ioffredo, Esq.
Roberta A. Kaplan, Esq.
Mark S. Silver, Esq.
Tobias J. Stern, Esq.
Julia Tarver-Mason Wood, Esq.
Paul, Weiss, Rifkind, Wharton &
Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3166
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