Securities and Exchange Commission v. Ripple Labs Inc. et al.

Filing 469

ORDER denying #439 Letter Motion for Local Rule 37.2 Conference. Defendants' motion to strike Dr. Metz's supplemental report is DENIED. Expert discovery is reopened until May 13, 2022, to re-depose Dr. Metz as to the analysis in his supplemental report and to permit the filing of any supplemental report by Defendants responding to Dr. Metz's report. The SEC is ordered to pay Defendants for reasonable expenses incurred in filing their motion to strike and re-deposing Dr. Metz. The parties are ordered to meet and confer and reach agreement on a reasonable fee award. If the parties cannot reach agreement, Defendants may accept 10 hours at the average hourly rate for counsel who worked on this motion after removing the highest and lowest hourly rate, plus four hours for Dr. Metz's deposition. In the alternative, any motion for attorneys' fees shall be filed by May 13, 2022. The Clerk of Court is respectfully directed to deny the motion at ECF No. 439. (Signed by Magistrate Judge Sarah Netburn on 4/19/2022) (ras)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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4/19/2022

SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

20-CV-10832 (AT)(SN)
ORDER

-againstRIPPLE LABS, INC., et al.,
Defendants.
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SARAH NETBURN, United States Magistrate Judge:

By letter motion, Defendants move to strike a supplemental report filed by one of the
SEC’s experts. See ECF No. 439. Defendants’ motion is denied.
The SEC brings claims against the Defendants under Section 5 of the Securities Act of
1933 for the offer for sale of unregistered securities. The SEC alleges that the Defendants’
transactions in XRP were investment contracts under SEC v. W.J. Howey Co., 328 U.S. 293
(1946). Discovery in this case has proceeded at pace and volume. All expert discovery was
originally slated to end on August 16, 2021. ECF No. 48. That deadline was extended to January
14, 2022, ECF No. 396, then to February 28, 2022, ECF No. 411. The Court-issued discovery
schedule contemplated opening and rebuttal expert reports but did not discuss supplemental
reports.
On February 28, 2022, the last day of expert discovery, the SEC served Defendants with
a new, supplemental expert report by one of its experts, Dr. Albert Metz. See ECF No. 439-1.
The report was served months after opening and rebuttal expert reports had been served.
Defendants assert, and the SEC does not dispute, that Dr. Metz’s supplemental report does not

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cite information previously unknown or unavailable to him and does not correct either his
opening or rebuttal report. In fact, as the SEC explains, the supplemental report was prepared
explicitly in response to the reports of two of Defendant Ripple’s rebuttal experts: it provides a
new empirical analysis (of previously compiled data) that Ripple’s experts claimed was missing
from his initial report.
Defendants argue that Dr. Metz’s supplemental report does not meet the requirements of
Rule 26(e) of the Federal Rules of Civil Procedure, and that it is therefore not a legitimate
supplemental report and should be excluded pursuant to Rule 37(c)(1). The SEC retorts that
Defendants’ motion is actually a motion to exclude expert testimony that must be brought before
Judge Torres, and that even under Rule 37, striking the report would be inappropriate. Instead,
the SEC suggests that expert discovery be briefly reopened to allow for additional deposition
questioning of Dr. Metz and/or the issuance of additional reports by Ripple’s rebuttal experts.
As an initial matter, the SEC is wrong that Defendants should have brought their motion
before Judge Torres. Judges in this District regularly resolve similar motions under the broad
umbrella of Rules 26 and 37. 1 See, e.g., In re Bear Stearns Cos., Inc. Sec., Derivative, & ERISA
Litig., 263 F. Supp. 3d 446, 451-53 (S.D.N.Y. 2017); Cedar Petrochemicals, Inc. v. Dongbu
Hannong Chem. Co., 769 F. Supp. 2d 269, 278-79 (S.D.N.Y. 2011). As such, the Court
considers this motion pursuant to its supervision over pretrial matters.
“[E]xperts are not free to continually bolster, strengthen, or improve their reports by
endlessly researching the issues they already opined upon, or to continually supplement their
opinions.” Sandata Techs., Inc. v. Infocrossing, Inc., Nos. 05-cv-9546, 06-cv-1896
(LMM)(THK), 2007 WL 4157163, at *6 (S.D.N.Y. Nov. 16, 2007). If an expert’s report “does
The Court takes no position on the reliability or eventual admissibility of Dr. Metz’s supplemental
report.

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not rely [on] any information that was previously unknown or unavailable to him,” it is not an
appropriate supplemental report under Rule 26. Lidle v. Cirrus Design Corp., No. 08-cv-1253
(BSJ)(HBP), 2009 WL 4907201, at *6 (S.D.N.Y. Dec. 18, 2009). However, “preclusion of an
expert report can be a harsh sanction.” Sandata Techs., Inc., 2007 WL 4157163, at *7. “In
determining whether preclusion is appropriate, courts must consider: (1) the reasons for the delay
in providing the evidence; (2) the importance of the evidence precluded; (3) the prejudice to the
opposing party from having to address the new evidence; and (4) the possibility of a
continuance” (the Softel factors). Cedar Petrochemicals, Inc., 769 F. Supp. 2d at 278 (citing
Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc., 118 F.3d 955, 961 (2d Cir. 1997)). “Before
the extreme sanction of preclusion may be used by the district court, a judge should inquire more
fully into the actual difficulties which the violation causes, and must consider less drastic
responses.” Outley v. City of New York, 837 F.2d 587, 591 (2d Cir. 1988).
The Softel factors yield mixed results. The first factor, the SEC’s stated reason for the
delay in serving Defendants with Dr. Metz’s supplemental report, supports striking the report.
The SEC claims that Dr. Metz “could not have anticipated” Ripple’s rebuttal experts’ criticism
and completed his additional analysis after he learned of the experts’ argument. The SEC’s
explanation does not address why Dr. Metz could not have anticipated such a critique, or the
SEC’s failure to give Defendants notice that its expert planned to prepare a supplemental report.
The second factor, the importance of Dr. Metz’s testimony, supports allowing the report. I take
no position on the report’s evidentiary value but credit the SEC’s claim that it is important to the
case. The third factor, the prejudice to Defendants from having to address the report, does not
lean strongly in either party’s favor. Defendants are correct that some courts in this Circuit have
found reopening discovery to constitute prejudice sufficient to preclude a report. See, e.g.,

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Morritt v. Stryker Corp., No. 07-cv-2319 (RRM)(RER), 2011 WL 3876960, at *7 (E.D.N.Y.
Sept. 1, 2011). But given that discovery in this case has proceeded relatively rapidly and that no
deadline has been set for dispositive motions (let alone a trial date), Defendants have not
demonstrated that re-deposing Dr. Metz on his additional analysis and potentially filing their
own supplemental reports would constitute, as they put it, “overwhelming” prejudice. Cf.
Sandata Techs., Inc., 2007 WL 4157163, at *8 (precluding supplemental report in part because
the court “explicitly” prohibited reply expert reports). For similar reasons, the fourth factor, the
possibility of a continuance, does not lean in either party’s favor.
Overall, given the harshness of preclusion, I decline to strike Dr. Metz’s supplemental
report. Instead, expert discovery is reopened until May 13, 2022, for the limited purpose of: (1)
re-deposing Dr. Metz regarding the analysis in his supplemental report, limited to four hours, and
(2) at Defendants’ discretion, filing a supplemental report responding to the new analysis.
However, the SEC has conducted itself improperly by serving an unauthorized supplemental
report on the last day of discovery. Accordingly, pursuant to Rule 37 and the Court’s inherent
powers, the SEC is ordered to pay Defendants’ reasonable expenses in filing their motion to
strike and re-deposing Dr. Metz. The parties’ prior agreement that each side shall cover the costs
of their own expert’s time shall control; accordingly, the SEC shall also cover the costs of Dr.
Metz’s time.
CONCLUSION
Defendants’ motion to strike Dr. Metz’s supplemental report is DENIED. Expert
discovery is reopened until May 13, 2022, to re-depose Dr. Metz as to the analysis in his
supplemental report and to permit the filing of any supplemental report by Defendants

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responding to Dr. Metz’s report. The SEC is ordered to pay Defendants for reasonable expenses
incurred in filing their motion to strike and re-deposing Dr. Metz.
The parties are ordered to meet and confer and reach agreement on a reasonable fee
award. If the parties cannot reach agreement, Defendants may accept 10 hours at the average
hourly rate for counsel who worked on this motion after removing the highest and lowest hourly
rate, plus four hours for Dr. Metz’s deposition. In the alternative, any motion for attorneys’ fees
shall be filed by May 13, 2022.
The Clerk of Court is respectfully directed to deny the motion at ECF No. 439.
SO ORDERED.

DATED:

April 19, 2022
New York, New York

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