Dandong et al v. Pinnacle Performance Limited et al
Filing
103
MEMORANDUM & ORDER: For the reasons specified above, we respectfully REVERSE the portion of the Order compelling discovery of Plaintiffs' mediation communications regarding their basis for investment and the materials on which they relied. A protective order is granted for that material. We ADOPT the remainder of the Order. SO ORDERED. (Signed by Judge Leonard B. Sand on 10/07/2012) (ama)
U~ITED
STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
GE DANDONG, et a1.,
Plaintiffs,
10 Civ. 8086 (LBS)
MEMORANDUM
& ORDER
v.
PINJ'\ACLE PERFORlV1ANCE LIMITED, et al.,
Defendants.
SAND,1.
In the recent case, In re Teligent, Inc., 640 F.3d 53 (2d Cir. May 5, 2011), the Second
Circuit announced a test that applies when a party wants access to confidential mediation
material. The In re Teligem test requires, among other things, that a party seeking confidential
mediation documents show a "special need." This case calls for us to determine whether a
magistrate judge's ruling that the "special need" prong was satisfied \vas contrary to law.
Plaintiffs are Singaporean investors who allege they were defrauded regarding certain
notes created by Defendants! and sold through middlemen known as "distributors." Prior to the
commencement of this action, some investors, including some of the Plaintiffs, entered into
confidential mediation in Singapore with distributors before the Financial Industry Disputes
Resolution Centre Ltd. ("FIDReC"). In this action, Plaintiffs moved for a protective order to
keep FIDReC documents from being discovered by Defendants. On July 16, Magistrate Judge
Gabriel W. Gorenstein granted Plaintiffs' motion for a protective order in part and denied it in
1 Defendants note that named defendant Pinnacle Performance Limited did not join tbe document request or oppose
Plaintiffs' objection because it "has not entered a general appearance in this action and continues to assert that it is
not subject to personal jurisdiction in the Southern District of :"Jew York." Defs.' Resp. Pis.' Objections I 11.1. In
this memorandum. "Defendants" does not include Pinnacle Performance Limited following this footnote call.
part. PlaintifTs filed an objection on July 31,2 objecting to part of Magistrate Judge Gorenstein's
denial.
Plaintiffs object to discovery of their mediation communications regarding their reliance
because, they argue, Magistrate Judge Gorenstein misapplied the three-part test announced in In
re Teligent. We agree with Magistrate Judge Gorenstein that In re Teligent applies to
Defendants' attempt to discover Plaintiffs' FIDReC communications. But we disagree about
how special the need must be to pass the In re Teligent test. Because the "special need" required
by the 111 re Teligent test is like the compelling need required to modify a protective order and
that Defendants could not show such a need, the portion of Magistrate Judge Gorenstein's order
("the Order") to which the PlaintifTs objected is contrary to law and must be reversed.
I. Background
Plaintiffs are Singaporean investors who allege they were defrauded by celiain notes
created by Defendants and sold through middlemen known as distributors. See Dandong v.
Pinnacle Pe~formance Ltd., No. 10 Civ. 8086, 2011 WL 5170293, at *1
(S.D.N.Y. Oct. 31,
2011), for more factual background. Prior to the commencement of this action, some investors,
including some of the Plaintiffs, entered confidential mediation with distributors before FIDReC.
Defendants sent a discovery request to Plaintiffs that documents and communications that
Plaintiffs thought would include confidential mediation documents. See Pis.' Mem Law Supp.
Mot. Protective Order 3-4.
2 Technically PlaintitTs' objection is not timely under Federal Rule of Civil Procedure 72(a). Fed. R. Civ. P. 72(a)
("A party may serve and file objections to the [non-dispositive] order within 14 days after being served with a
copy."). However, Plaintiffs first filed their objection on time on July 30. Because Plaintiffs filed it electronically
as a "Brief." instead of as an "Objection," the electronic docketing service required Plaintiffs to re-file it. They did
so the next day. Such electronic docketing difficulties cannot cause parties to lose "any
because of a
nonwillful failure to comply," Fed R. Civ. P. 83(a); see also Transportes Navieros & Terrestres SA. de C. V. v.
Fairmount Heal,) Trallsp. N.
572 F.3d 96, 99-100 (2d Cif. 2009) (applying the rule to find a late brief timely
under similar circumstances), and so we treat Plaintiffs' objection as timely both for Rule 72(a) purposes and with
regards to Magistrate Judge Gorenstein's stay, discussed below, ensuring they lose no rights.
v.,
2
On May 29, Plaintiffs moved for a protective order to prevent Defendants from
questioning Plaintiffs at any depositions conceming their mediation or discovering any
"documents created or produced in furtherance of' mediation. !d. at I.
After receiving papers from both sides, Magistrate Judge Gorenstein held oral argument
on July 6. At the conclusion of oral argument, Magistrate Judge Gorenstein told Plaintiffs to
him "every page" for in camera review "[u]nless you think it's something that the
defendants already have," in which case it should go to Defendants. Tr.
36:8~19,
July 6, 2012,
ECF No. 94.
On July 16, Magistrate Judge Gorenstein announced his decision. Magistrate Judge
Gorenstein found the In re Teligent test controlling. See Tr. 4: 1
17, July 16, 2012,
No. 92.
Under that test, Magistrate Judge Gorenstein granted Plaintiffs a protective order for everything
related to mediation except for three types of information: (1) settlement amounts and release
language in final settlement agreements, (2) Plaintiffs' own statements about their basis for
investing in the notes and the material on which they relied, id. 4:14-5:9, and (3) any documents
in the mediation files that existed independently of the mediation. 3
Plaintiffs ultimately objected to the second category and therefore we describe Magistrate
Judge Gorenstein's reasoning about that category in more detail. Magistrate Judge Gorenstein
required production of Plaintiffs' "actual statements" in the mediation that describe "what the
plaintiffs said with respect to the basis on which they [in]vested in or purchased the Pinnacle
notes and, more specifically, what they relied on as part of that decision making process." Id.
4:24-5:9. Magistrate Judge Gorenstein said that "normally, ... discovery for impeachment
This third category-"any materials that existed independent of the mediation process and regardless of the fact
that they happened to have been included in someone's file or in a letter or whatever, an attachment that was
generated as part of the mediation process"-was the material that Magistrate Judge Gorenstein had intended
PlaintitTs to turn overto the Defendants after the J LIly 6 hearing. Tr. 19: 19-20:3. July 16, 2012.
3
3
material is not ... a special need," but made a distinction between "extrinsic" and "intrinsic"
impeachment materiaL Id.
3:25~4:4.
"Extrinsic impeachment material would be finding out ...
bad things people have done in their lives or other occasions," but Plaintiffs' statements
regarding their basis and reliance were "intrinsic" because they "relate[] to the very issue that's
going on here." Id.
4:5~1O.
YIagistrate Judge Gorenstein rejected Plaintiffs' contention that Defendants had no need
to discover Plaintiffs' statements in mediation about reliance because Defendants could discover
facts about Plaintiffs' reliance in depositions. YIagistrate Judge Gorenstein explained that
Plaintiffs "had a very different incentive in the mediation process in Singapore as to who to
identify the culprit as it were than they do here." Id. 3: 17-24.
Plaintiffs noted that they might object to the Order. Id. 28:4-6. To give Plaintiffs time to
object, Magistrate Judge Gorenstein did not require production for two weeks. Id. 29:15-17
Magistrate Judge Gorenstein formalized his conclusion in a short order granting the
protective order in part and denying it in part "[f]or the reasons stated on the record" at the
conference. Order, July 16,2012, ECF No. 90. On July 23, 2012, Magistrate Judge Gorenstein
stayed his order provided objections were filed by July 30. Endorsed Letter, July 23,2012, ECF
No. 91.
Plaintiffs' objection, which we treat as though it were filed on July 30, only objected to
denial of the protective order regarding the second category of documents: Plaintiffs' own
statements as to their basis for investing and reliance. See PIs.' Objections 6 (explaining that
those statements were "[a]t issue here"). We now review the Order.
u.
Standard of Review
4
When a party objects to a non-dispositive pretrial matter, we may only reconsider parts of
that matter where a party has made a showing of clear en·or. 28 U.S.c. § 636(b)( 1)(A) ("A judge
of the court may reconsider any pretrial matter under this subparagraph (A) where it has been
shown that the magistrate judge's order is clearly erroneous or contrary to law."); see also Lee v.
Butts, No. 11 Civ. 2358, 2012 WL 32077, at * 1 (S.D.N.Y. Jan. 3, 2012) ("When a party files a
timely objection to a magistrate judge's order on a non-dispositive matter, the district judge to
whom the case is assigned shall modify or set aside any portion of the order that is clearly
erroneous or contrary to law. Discovery issues are, for the most part, considered non
dispositive." (citation omitted) (citing Fed. R. Civ. P. 72(a) and Thomas E. Hoar. Inc. v. Sara
Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990»). "An order is 'contrary to law' when it 'fails to
apply or misapplies relevant statutes, case law or rules of procedure. '" WestLB A G v. BA C Fla.
Bank, No. 11 Civ. 5398,2012 WL 3135773, at *3 (S.D.N.Y. Aug. 2, 2012) (quoting Callens v.
City ofN. Y, 222 F.R.D. 249,251 (S.D.N.Y. 2004». We now review the order to determine
whether any part of it was shown to be clearly erroneous or contrary to law.
III. Discussion
A. The Order 'Vas Contrary to Law When It Found the Desire for Intrinsic
Impeachment Material 'Vas a Special Need
Plaintiffs argue they should not be required to disclose their mediation statements on
reliance and their basis for investment because Magistrate Judge Gorenstein misapplied the
three-paJ1 test in /n re Teligent. In re Teligent held that:
A party seeking disclosure of confidential mediation communications
must demonstrate (1) a special need for the confidential material, (2)
resulting unfaimess from a lack of discovery, and (3) that the need for
the evidence outweighs the interest in maintaining confidentiality ....
All three factors are necessary to warrant disclosure of otherwise non
discoverable documents.
5
640 F.3d at 58.
Before we determine whether the desire for intrinsic impeachment material is a special
need we must determine whether the III re Teligent test protects the confidentiality of mediations
in which the confidentiality order is purely private. We agree with Magistrate Judge Gorenstein
that it does, In re Teligent's facts concern a mediation in which a mediation order that "included
certain provisions relating to the confidentiality of the mediation process" was entered by the
Bankruptcy Court in the Southern District of New York. In re Teligent, Inc" 417 B,R, 197,202
03 (Bankr. S,D.N.Y. 2009), Given the language of the Second Circuit's opinion in III re Teligent
and that its policy rationale applies with equal force to mediations in which confidentiality is
stipulated by private parties, we agree with Magistrate Judge Gorenstein that the test applies to
mediation material agreed to be kept confidential by the parties, such as the material created in
the FIDReC proceeding,
Next, because the In re Teligent test is virtually the same as the test for modifying a
protective order, the "special need" required by the In re Tel(gent test must be like the
"compelling need" required to modify a protective order. Magistrate Judge Gorenstein held that
Defendants' interest in impeachment material directly relating to elements of the claim-what he
termed "intrinsic" impeachment-constituted a special need, In their briefs responding to
plaintiffs objection, Defendants argued that this is a speeialneed, but could only point to cases
holding that such impeachment is a "particularized" need, Because the desire for impeachment
information is only particularized and not compelling, we reverse and therefore need not
consider how the other parts of the In re Teligellt test apply to these facts,
1.
The In Re Teligent Test Applies to Mediations }.fade COf?fidential by the Parties
6
First, we find that Magistrate Judge Gorenstein was correct to apply the In re Teligent
test. Although In re Teligent is about a mediation confidentiality order entered by a federal
bankruptcy court, 640 F.3d at 56, nothing in the opinion limits the test to mediations ordered to
be kept confidential by a court or government agency. By its own terms, the test applies to all
situations in which a "party seek[s] disclosure of confidential mediation communications." !d. at
58.
The Second Circuit's policy basis for the test applies with as much force to private
mediations as it does to court-sponsored mediations: "Confidentiality is an important feature of
the mediation and other alternative dispute resolution processes. Promising participants
confidentiality in these proceedings 'promotes the free flow of information that may result in the
settlement of a dispute,' and protecting the integrity of alternative dispute resolution generally."
Id. at 57-58 (quoting In re Grand Jury Subpoena Dated Dec. 17, 1996, 148 F.3d 487,492 (5th
Cir.l998)). Additionally, the Second Circuit used sources that referred to both public and private
mediation. To support its policy argument, the Second Circuit cited at least two cases that were
about pri vate mediations, Sheldone v. PennsJ:lvania Turnpike Commission, 104 F. Supp. 2d 511
(\V.D. Pa. 2000), and Fields-D 'Arpino v. Restaurant Associates, Inc., 39 F. Supp. 2d 412
(S.D.N.V. 1999). To support its test, the Second Circuit also relied on the Uniform Mediation
Act, which applies to private mediation. See In re Teligent, 640 F.3d. at 58-59 (citing Uniform
:Mediation Act); Uniform Mediation Act § 3.
Because In re Teligent applies by its terms to all mediations, is based on policy
considerations that have equal force in private mediations, and relies on sourees that are about or
include private mediation, we agree that the In re Teligent test applies to these confidential
mediation communications.
7
2. The "Special Need" in the In Re Teligent Test Is Like the "COlnpel/ing Need" in the Test
To
Mod~f)'
a Protective Order and Therefore Defendants' Desirefor Intrinsic Impeachment
Evidence Is Not "Special" Enough
Plaintiff,,' main objection is that Defendants' need is not "special" enough to pass the In
re Teligent test. Magistrate Judge Gorenstein accepted that Defendants' need to find out what
Plaintiffs said in mediation regarding their reliance was a special need. Magistrate Judge
Gorenstein called the reliance material "intrinsic impeachment material." Tr. 3: 1
:6, July 16,
2012. The desire for impeachment material is a particularized need, but not a compelling or
special one, and therefore Magistrate Judge Gorenstein's conclusion that Defendants passed the
In re Teligent test is contrary to law.
In In re Teiigenl, the Second Circuit created the governing test, discussed above. It
derived the In re Teligent test from the test for modifying a protective order. See 640 F.3d at 58
(supporting the three-part In re Teligent test with two cases describing the legal standard for
modifying a protective order and the Fourth Circuit case relied on by the district court); id. at 59
(arguing that other possible standards were "consistent with the standard governing modification
of protective orders entered under Federal Rule of Civil Procedure 26( c)"). Under the protective
order modification test, the movant must show "improvidence in the grant of the order or some
extraordinary circumstance or compelling need." !d. at 59 (quoting SEC v. TheStreet.com,
F.3d 222, 229 (2d Cir. 2001). In addition to relying on a test calling for a "compelling need,"
the opinion's policy rationale is the promotion of the confidentiality of mediation. That rationale
favors a high threshold to overturn a presumption of confidentiality. The Second Circuit's
analogy to the compelling need standard and its policy basis shows that a special need is like a
compelling need.
8
A compelling need is a very high bar to overcome. When courts in our circuit detennine
that a party has relied on a protective order, it is very difficult for movants to modify that order.
4
The Second Circuit acknowledged that its protective order modification test has, as its default, a
"strong presumption against the modification of a protective order," In re Teligent, 640 F.3d at
59 (quoting SEC v. TheStreet.com, 273 F.3d at 229); see also A1ed. Diagnostic Imaging, PLLC v.
Carecore Nat 'I, LLC, Nos. 06 Civ. 7764 and 06 Civ. 13,516,2009 WL 2135294, at *1 (S.D.KY.
July 16, 20(9) (calling the modification of a protective order test "stringent"); SA Richard L.
Marcus, Federal Practice and Procedure § 2044.1 (3d ed. Westlaw 2012) (asserting that, in the
progenitor of the current protective order modification test, the Second Circuit "embraced a very
restrictive attitude toward modification of protective orders"). The Second Circuit's analogy to
this presumption shows that they wanted a strong standard.
The result that "special need" is a very high bar is also consistent with the two cases that
have applied the In re Teligent test so far. Both Avocent Redmond Corp. v. Raritan Americas,
Inc., 10 Civ. 6100, 2011 WL 4790545 (S.D.N.Y. Sept. 26,2011), which applied In re Teligent as
an approximation of Federal Circuit law, and In re Teligent itself found movants could not show
a special need.
By contrast, when Defendants assert that their need was "special," they cite cases that
show only that impeachment is a "particularized" need. See Dennis v. United States, 384 U.S.
855,870 (1966) (quoting United States v. Proctor & Gamble Co., 356 U.S. 677, 683 (1958)
Because this prcsumption is so strong, the easiest way to modify the protective order is to find one of at least three
exceptions whcre the strong presumption
access to material covered by a protective order does not apply.
"First,. . a protective order can be modified if it was improvidently granted .... A second exception ... exists for
'judicial documents.' ... Third, [the presumption] does not apply when 'protective orders that are on their face
temporary or limited [do] not justify reliance by the parties. '" Iridium India Telecom Ltd. v. Motorola, Inc., 165 F.
App'x 878. 880-81 (2d Cif. 2005) (quoting Gambale v. Deutsche Bank AG, 377 F.3d 133, 142 n. 7 (2d Cir.2004)).
Presumably these exceptions would apply with
to confidential mediation communications where appropriate
and analogous.
9
(finding that using a grand jury transcript to impeach a witness is a "particularized need");
Tribul1e Co. v. Purcigliotti,
~o.
93 Civ. 7222,1996 WL 337277, at
*1~2 (S.D.~.Y.
June 19,
1996) (finding that impeachment met the minority "particularized showing" standard within our
Circuit for disclosure of settlement information); cf Contship Containeriines, Ltd. v. PPG Indus..
Inc.,
~o.
00 Civ. 194,2003 WL 1948807, at *2 (S.D.N.Y. Apr. 23, 2003) (requiring disclosure
of arbitration materials that were assumed arguendo to be confidential as implied by British law
if "( I ) the documents are relevant and (2) disclosure is necessary for disposing fairly of the cause
or matter or for saving costs" (quoting Caringai v. Karteria Shipping, Ltd., No. 99 Civ. 3159,
2001 WL 874705, at *1 (E.D. La. Jan. 24, 20(1) (internal quotation marks omitted)).
Defendants' need is certainly particularized or specific, but it is not special or
compelling. It is not an extraordinary case when plaintiffs enter mediation against some of all
possible defendants, and the remaining defendants want to use material from that mediation to
impeach plaintiffs. So finding would discourage plaintiffs from entering into mediation with any
defendants when they do not want to enter into mediation with all defendants.
Because Defendants cannot show a "special need" under In re Teligent with regards to
Plaintiffs' confidential mediation communications about reliance, denial of Plaintiffs' protective
order for those materials is contralY to law and must be reversed.
B. The Remainder of the Order \Vas Not in Clear Error
Regarding the remainder of the order, neither Plaintiffs nor Defendants have made a
showing of clear error. We see none, and therefore adopt the remainder of the Order.
IV. Conclusion
For the reasons specified above, we respectfully REVERSE the portion of the Order
compelling discovery of Plaintiffs' mediation communications regarding their basis for
10
investment and the materials on which they relied. A protective order is granted for that
materiaL We ADOPT the remainder of the Order.
SO ORDERED.
~cJ/,j 5~
L,
October
2012
New York, N.Y.
V.S.DJ.
11
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