LG Capital Funding, LLC v. Exeled Holdings Inc.

Filing 167

OPINION AND ORDER re: 164 LETTER MOTION for Discovery addressed to Judge Lewis J. Liman from Gene W. Rosen, Esq. dated June 8, 2023. filed by Daniel Gellman, Joseph Lerman, LG Capital Funding, LLC, Boruch Greenberg. Accordingly, the motion to quash is denied. The Clerk of Court is respectfully directed to close Dkt. No. 164. SO ORDERED. (Signed by Judge Lewis J. Liman on 6/14/2023) (kv)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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LG CAPITAL FUNDING, LLC,
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Plaintiff,
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EXELED HOLDINGS INC.,
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Defendant.
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06/14/2023

17-cv-4006 (LJL)
OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:
Plaintiff and counterclaim defendant LG Capital Funding, LLC (“LG”) and counterclaim
defendants Joseph Lerman (“Lerman”), Boruch Greenberg (“Greenberg”), and Daniel Gellman
(“Gellman,” and collectively “Movants”) move, pursuant to Federal Rule of Civil Procedure
45(d)(3)(A), to quash a subpoena (the “Subpoena”) requested by Defendant and CounterclaimPlaintiff ExeLED Holdings, Inc. f/k/a Energie Holdings, Inc. (“ExeLED”), and intended to be
served on non-party, the United States Securities and Exchange Commission (“SEC”). Dkt. No.
164. Familiarity with the prior proceedings in this matter is assumed. The motion to quash is
denied.
The Subpoena, which has not yet been served, seeks the following categories of
documents in the SEC’s possession: (1) documents relating to any Issuer Loans, including but
not limited to copies of convertible promissory notes and conversion notices; (2) documents
relating to LG’s brokerage account statements as it relates to transactions in ExeLED securities;
(3) documents relating to LG’s brokerage account statements as it relates to transactions in Issuer

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securities; and (4) any documents relating to the Conversion Right, including but not limited to
internal projections, analyses, and/or valuations. Dkt. No. 164-1 at ECF p. 13. The term “Issuer
Loans” is defined to refer to “any financing arrangement whereby LG is the lender, an Issuer is
the borrower, and LG reserved itself a Conversion Right to satisfy, either in whole or in part, the
debt owed to LG under such financing arrangement.” Id. at 10. “Issuer” is defined to refer “to
any entity that develops and sells securities to finance their operations and who entered into an
Issuer Loan with Plaintiff that provided Plaintiff with a Conversion Right, including but not
limited to” twelve specifically identified companies. Id. The “Conversion Right” is defined to
mean the “right granted to LG pursuant to an Issuer Loan to convert debt owed under such
transaction into discounted, newly-issued shares of an Issuer’s common stock.” Id. at p. 9.
Movants argue that the requested documents contain “confidential and commercially
sensitive information” which “implicates the privacy interests of LG and others [and] which
outweigh the probative value of the information sought.” Dkt. No. 164 at 1. Movants also argue
that the Subpoena is “overly broad and seeks documents and information that is not relevant to
this action.” Id.
“The burden of persuasion in a motion to quash a subpoena . . . is borne by the movant.”
Pegoraro v. Marrero, 2012 WL 1948887, at *4 (S.D.N.Y. May 29, 2012) (quoting Jones v.
Hirschfeld, 219 F.R.D. 71, 74–75 (S.D.N.Y. 2003)). Federal Rule of Civil Procedure
45(d)(3)(A) provides that the court must quash a subpoena when it “(i) fails to allow a reasonable
time to comply; (ii) requires a person to comply beyond the geographical limits specified in Rule
45(c); (iii) requires disclosure of privileged or other protected matter, if no exception or waiver
applies; or (iv) subjects a person to undue burden.” Fed. R. Civ. P. 45(d)(3)(A). Although “any
motion to quash or modify generally must be brought by the nonparty,” a party has standing to

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move to quash or modify if the party claims “a personal right or privilege regarding the
production nor testimony sought” by the subpoena. 9 Moore’s Federal Practice 45.50[3] (2020);
see also Hughes v. Twenty-First Century Fox, Inc., 327 F.R.D. 55, 57 (S.D.N.Y. April 24, 2018)
(listing examples of personal rights). “In order for a party to have standing to challenge a
subpoena served on a non-party, there must be more than ‘a conclusory assertion that the
subpoenas seek documents that are private, confidential, and commercially sensitive.’” Refco
Grp. Ltd., LLC v. Cantor Fitzgerald, L.P., 2014 WL 5420225, at *4 (S.D.N.Y. Oct. 24, 2014)
(quoting Universitas Educ., LLC v. Nova Grp., Inc., 2013 WL 57892, at *5 (S.D.N.Y. Jan. 4,
2013)). “Courts should consider ‘whether the information itself is private, confidential,
privileged, or highly sensitive, and not the form the records take.’” Id. (quoting Solow v.
Conseco, Inc., 2008 WL 190340, at *4 (S.D.N.Y. Jan. 18, 2008)). For example, it has been held
that corporations have a privacy interest in their bank records and financial records. See
Silverstone Holding Grp., LLC v. Zhongtie Dacheng (Zhuhai) Inv. Mgmt. Co., 2023 WL 163256,
at *1 (S.D.N.Y. Jan. 12, 2023).
Movants have established at best a tenuous privacy interest in the records reflected. One
set of the records requested is limited to agreements with third parties. Those agreements, by
definition, have been shared with others. Although that fact does not per se deprive Movants of
a privacy interest in the records, Movants have not articulated any particular basis for deeming
the agreements to be confidential. The records with respect to securities transactions, by
contrast, do implicate privacy interests. See MG Freesites Ltd. v. Scorpcast, LLC, 2023 WL
2822272, at *2-3 (S.D.N.Y. Apr. 7, 2023) (corporation has a privacy interest in its banking
records and financial information).

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Even if Movants have standing, however, ExeLED has demonstrated relevance. Id. at *3
(burden of demonstrating relevant is on the party seeking discovery). Relevance is construed
broadly. See SEC v. Rayat, 2022 WL 1423300, at *2 (S.D.N.Y. May 5, 2022). The federal rules
favor “full and complete discovery.” Ratliff v. Davis Polk & Wardwell, 354 F.3d 165, 170 (2d
Cir. 2003).
Movants argue broadly that ExeLED should be limited to documents pertaining to
transactions between LG and itself and that documents regarding transactions with other parties
“may not have any bearing on anything at issue in this case, let alone have probative value such
that would override Movants’ privacy interests.” Dkt. No. 164 at 2. However, the New York
Court of Appeals has held that in determining whether a particular loan is usurious, it is relevant
to consider the performance of other similarly structured loans. See Adar Bays, LLC v. GeneSYS
ID, Inc., 179 N.E.3d 612 (N.Y. 2021). It has explained, for example, that “a track record of
grossly excessive returns” in connection with similarly structured loans could provide evidence
that a loan was usurious. Id. at 341 n.10.
The Subpoena here is limited to requests that pertain either to the particular transaction
between LG and ExeLED or to similarly structured loans. In particular, the definition of Issuer
Loan is limited to loans with a Conversion Right made by LG. It thus maps onto the transaction
challenged as usurious by ExeLED in this case. Movants have not identified any countervailing
factors demonstrating “why discovery should not be had.” A.I.A. Holdings S.A. v. Lehman Bros.,
2000 WL 763848, at *3 (S.D.N.Y. June 12, 2000). The requested documents may not support
ExeLED’s claim, but that is not the test for discovery. The documents need only be relevant.
Fed. R. Civ. P. 26(b)(1).

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Accordingly, the motion to quash is denied. The Clerk of Court is respectfully directed
to close Dkt. No. 164.
SO ORDERED.
Dated: June 14, 2023
New York, New York

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LEWIS J. LIMAN
United States District Judge

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