Ciuffitelli et al v. Deloitte & Touche LLP et al

Filing 213

OPINION AND ORDER: The Moving Defendants' motions (ECF Nos. 160 , 171 , and 175 ) for protective order are GRANTED IN PART and DENIED IN PART. Signed on 2/21/2017 by Magistrate Judge John V. Acosta. (kms)

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION

LAWREN CE P. CIUFFITELLI, for himself
and as Trustee of CIUFFITELLI REVOCABLE
TRUST; GREG and ANGELA JULIEN;
JAMES and SUSAN MACDONALD, as CoTrustees of the MACDONALD FAMILY
TRUST; R.F. MACDONALD CO.; ANDREW
NOWAK, for himself and as Trustee of the
ANDREW NOWAK REVOCABLE LIVING
TRUST U/A 2/20/2002; WILLIAM
RAMSTEIN; and GREG WARRICK, for
himself and, with SUSAN WARRICK, as CoTrustees of the WARRICK FAMILY TRUST,
individually and on behalf of all others
similarly situated,
Plaintiffs,
v.
DELOITTE & TOUCHE LLP,
EISNERAMPER LLP; SIDLEY AUSTIN
LLP; TONKON TORP LLP; TD
AMERITRADE, INC.; and INTEGRITY
BANK & TRUST,
Defendants.

ACOSTA, Magistrate Judge:

Page 1 - OPINION AND ORDER

Case No. 3:16-cv-0580-AC
OPINION AND ORDER

Introduction

Defendants Sidley AustinLLP ("Sidley"), TD Ameritrade, Inc. ("Ameritrade"), and Integrity
Bank & Trnst ("Integrity") (collectively, "Moving Defendants") each move for a protective order
against Plaintiffs' Requests for Production, asking the court to stay discovery in whole or in pmi
until the co mi decides the seven pending motions to dismiss the named defendants collectively filed.
Defendants also assert that Plaintiffs' Requests for Production are overbroad and burdensome, and
are not proportional to the needs of the case. Finally, Sidley asserts its response to Plaintiffs'
production request should be deferred because the Plaintiffs' request potentially encompasses
documents subject to an attorney-client privilege claim by three former executives of the Aequitas
compames.
For the reasons that follow, the comi GRANTS IN PART and DENIES IN PART each
motion for protective order. 1
Background

L

The Lawsuit.
Plaintiffs filed this securities fraud lawsuit against an international accounting film and an

international law firm, a national accounting firm, an Oregon law firm, a national stock trading firm,
and a bank, alleging that each of them pmiicipated in and aided the Aequitas group of companies
("Aequitas") sale of a group of securities (the "Disputed Securities") through material
misrepresentations and omissions. (ECF No. 1 (Complaint), at if 1; ECF No. 57 (First Amended

1

The protective order motions are atECF No. 160 (Sidley), ECF No. 171 (Ameritrade), and
ECF No. 175 (Integrity). Each of the Moving Defendants requested oral argument on its motion.
The court finds oral argument unnecessary to help it resolve these motions. See Local Rule 7-1 (d)(l)
(comi has discretion to determine whether oral argument is necessmy).
Page 2 - OPINION AND ORDER

Complaint), at if 1.) Although Plaintiffs assert only a single claim for relief for violation of Oregon
securities law (ECF No. 57, at 'lf'lf 189-194), they present their claim in a 52-page complaint that
contains lengthy and detailed factual allegations; asserts scores of alleged failures to disclose,
misrepresentations, and omissions; and includes a request for class certification. Plaintiffs contend
that Defendants' alleged misrepresentations were "extensive and pervasive" and that Defendants "are
jointly and severally liable to return to all Aequitas investors the money they paid for the securities,
plus interest at the rate stated in the security or 9 percent, whichever is greater." (ECFNo. 57, at 'lf'lf
1, 2.) Plaintiffs assert their damages from Defendants' alleged actions exceed 13 million dollars
(ECFNo. 57, at'lf'lf 8-14) and they seek class certification of their claims (ECFNo. 57, at'lf'lf 181-188)
which, if granted, likely will increase the Defendants' potential liability many times greater than the
named Plaintiffs' specifically alleged damages.
Collectively, the Defendants in this case have filed seven motions to dismiss (ECF Nos. 74,
78, 80, 81, 85, 95, and 113), asserting multiple reasons to support their respective contentions that
Plaintiffs have failed to state a claim against them. The motions to dismiss asseit Plaintiffs'
complaint should be dismissed for legal and factual deficiencies. If granted based on some of the
claimed legal deficiencies, Plaintiffs' claims against one or more of the Defendants could be
dismissed with prejudice, but Plaintiffs likely would be allowed to attempt to cure factual
deficiencies tlu·ough an amended complaint. 2
On November 28, 2016, the comt issued its Opinion and Order (ECF No. 174; see also
Ciujjitelli, eta I. v. Deloitte & Touche LLP, eta!., 3:16-cv-0580-AC, 2016 WL 6963039 (D. Or. Nov.

2

The motions to dismiss were fully briefed and oral argument on the motions occurred on
December 21, 2016. The motions to dismiss currently are under advisement.
Page 3 - OPINION AND ORDER

28, 2016) (hereinafter "November 2016 Opinion and Order"), in which it granted in part and denied
in part defendant Deloitte & Touche LLP's and defendant EisnerAmper's (the "Accounting Firms")
respective motions for protective order. 2016 WL 6963039, at* 1. Both motions sought a protective
order for reasons mostly identical to the reasons asserted in the Moving Defendants' respective
motions for protective order which the November 16, 2016 Opinion and Order resolves.
Accordingly, in this Opinion and Order the court will refer to and incorporate relevant sections of
its November 16, 2016 Opinion and Order, as appropriate.
II.

The Requested Discovery.
Plaintiffs served requests for production on each of the Moving Defendants under Federal

Rule of Civil Procedure ("Rule") 26, the request documents each exceeding 30 pages in length and
setting out at least 24 and at most 36 numbered paragraphs. (Deel. of Zachary M. Briers in Support
of Defendant Sidley Austin LLP's Motion for Protective Order ("Briers Deel."), ECF No. 161, Ex.
l; Declaration of Nicholas T. Christakos in Support of Defendant TD Ameritrade's Motion for
Protective Order ("Christakos Deel."), ECF No. 173, Ex. 1; Declaration of Milo Petranovich in
Support of Motion for Protective Order oflntegrity Bank & Trust ("Petranovich Deel."), ECF No.
176, Ex. 1.) Each of the three request documents contain 16 pages of virtually identical definitions
and instructions, differing only by the particular defendant's name and the specific Aequitas entities
which Plaintiffs allege the particular defendant materially aided. 3

3

Both Sidley and Ameritrade filed as exhibits to their respective motions the request for
production document each received from Plaintiffs. Integrity filed as an exhibit only its response
to the request document, which does not include the definitions and instructions (but does include
the individual paragraphs of the request). Based on the close similarity between the Sidley and
Ameritrade request documents, the court presumes the Integrity request document itself is similar
in form and content to the Sidley and Ameritrade request documents.
Page 4 - OPINION AND ORDER

Many of the paragraphs call for documents and information pertaining to and "any Aequitas
company," the definition of which encompasses at least 60 separate limited liability companies and
other entities, as well as their present and fonner subsidiaries, predecessors, and successors in
interest. The paragraphs' scope includes "any of the Aequitas securities" issued by each of eight
Aequitas companies. Paragraphs call production of "communications," which is defined as any
document containing "the transmittal of information [] in the fonn of facts, ideas, inquiries, or
otherwise[]", relating to any Aequitas company and security. In sum, the requests for production
served on each of the three Moving Defendants are as broad in scope as the requests for production
which were the subject of the court's November 2016 Opinion and Order.
III.

The Pmiies' Positions.
The Plaintiffs and the Moving Defendants disagree whether discovery should occur prior to

the comi's ruling on the pending motions to dismiss. (Joint Report of Pmiies' F.R.C.P. 16(f)
Conference, ECF No. 94, at 2-9.) In their respective motions, each of the Moving Defendants
primarily argue they should not be required to undertake the expensive, burdensome, and timeconsuming discove1y Plaintiffs request until after the court decides whether Plaintiffs have pleaded
a viable claim for relief against them. Each of the Moving Defendants also m·gues that discove1y
should not occur because a discovery stay has been entered in Securities and Exchange Commission
v. Aequitas Management, LLC, et al., Case No. 3: l 6-cv-00438-PK ("SEC case"), which stay enjoins

"all discovery directed to the Receiver and the Receivership Entity" and thus applies to all Aequitas
companies and its affiliates. (See ECF No. 156, filed April 14, 2016.) Sidley additionally argues
that its motion should be granted because three individual defendants in the SEC case ("Individual
Defendants") have intervened in this case and filed a motion (ECF No. 196) for protective order to
Page 5 - OPINION AND ORDER

prevent disclosure of any documents or information containing attorney-client privileged
communications between any of them and Sidley.
Plaintiffs oppose the motions for a protective order. They contend that the pending motions
to dismiss will not end their case against any of the Moving Defendants and at most will result a
rep leading of their allegations. Thus, Plaintiffs conclude, there is no reason or purpose to delay the
discove1y they seek. Plaintiffs also observe that the discove1y stay entered in the SEC case applies
only to the Aequitas entities and thus is irrelevant to whether Plaintiffs are entitled to discove1y of
documents in possession of the Moving defendants in this case. Additionally, Plaintiffs point out
that even if the Moving Defendants were not patiies in this lawsuit, they still would be non-paiiy
witnesses from which Plaintiffs could obtain the same documents. Finally, as to Sidley's reliance
on the Individual Defendants' motion for protective order, Plaintiffs assert the motion is not a reason
to stay discove1y because they offered to "defer the production of email until after the these limited
privilege issues are resolved." (ECF No. 168, at 2.)
Each Moving Defendant proposed a discovery compromise to Plaintiffs while its motion for
protective order was pending. Sidley, noting that it prepared the offering documents for only one
Aequitas entity, Aequitas Capital Opportunity Fund ("ACOF") - a representation that parallels
Plaintiffs' allegation that Sidley's liability is based on its patiicipation in the ACOF offering offered to produce all transaction documents for the ACOF securities offering. Those documents
included "offering memorandum, subscription agreements, atiicles of incorporation, and bylaws,"
and also "all documents establishing exemptions from registration for the ACOF offering." (ECF
No. 160, at 3.) Ameritrade offered to provide "Aequitas purchase confirmations[,] Aequitas Notes[,]
and account statements, all relating to Aequitas investments for the named Plaintiffs who were TD
Page 6 - OPINION AND ORDER

Ameritrade customers." (ECF No. 171, at 4.) Integrity proposed giving Plaintiffs "Integrity's file
for the named plaintiffs who were Integrity customers, Greg Warrick and Greg and Susan Wanwick
as co-trustees for the WaITick Family Trust." (ECF No. 175, at 3.) Plaintiffs rejected each Moving
Defendant's proposed compromise and instead served on each Moving Defendant the requests for
production that prompted the filing of the pending protective order motions.

Legal Standard
Rule 26 governs discovery in federal civil cases, the scope of which includes "any
nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs
of the case." FED. R. CIV. P. 26(b)(l) (italics added). A court may issue a protective order "to
protect a party or person from annoyance, embatTassment, oppression, or undue burden or expense"
upon a showing of good cause. FED. R. CIV. P. 26( c)(1 ). The party seeking the protective order must
establish "specific harm or prejudice will result if no protective order is granted." Foltz v. State

Farm Mui. Auto Ins. Co., 331F.3d1122, 1130 (9th Cir. 2003)(citing Phillips ex rel. Estates ofByrd
v. Gen. Motors Corp., 307 F.3d 1206, 1210-11 (9th Cir. 2002). Good cause is generally a "heavy
burden." Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975). The court has "broad
discretion ... to decide when a protective order is appropriate and what degree of protection is
required." Phillips, 307 F.3d at 1211 (citing Seattle Times Co. v. Rhinehardt, 467 U.S. 20, 36
(1984)).

Analysis

L.

Preliminmy Matters.

A.

The Purpose of the Moving Defendants' Motions.

As did the Accounting Firms through their motions for protective order, the Moving
Page 7 - OPINION AND ORDER

Defendants here seek a stay of discovery because they believe their pending motions to dismiss will
dispose of Plaintiffs' claim. See November 2016 Opinion and Order, 2016 WL 6963039, at *4.

B.

Discovery Stay Standards.

The standard the court explained in its November 2016 Opinion and Order, 2016 WL
6963039, at *4-*5, is applicable here to the Moving Defendants' respective motions for protective
order.
C.

Proportionality.

The proportionality standard derived from the 2015 amendment to the Federal Rules of Civil
Procedure 26(b)(l) and described in the court's November 2016 Opinion and Order, 2016 WL
6963039, at *5, applies to the discovery which is the subject of the Moving Defendants' respective
motions for protective order.
II.

The Skellerup Factors.
In its November 2016 Opinion and Order, the comi examined in detail and applied each of

the seven Skellerup factors to the Accounting Firms' respective motions for protective order. 2016
WL 6963039, at* 5-*9. Each of the considerations making appropriate the application the Skellerup
factors to the Accounting Finns' respective motions is present and applicable to the Moving
Defendants' respective motions here. Accordingly, staying all discovery until the court resolves the
pending motions to dismiss is not wan·anted, and limited, focused merits discovery should proceed.
III.

Ruling.
The Moving Defendants' motions for protective order are GRANTED IN PART and

DENIED IN PART, and they are to provide to Plaintiffs the following discovery:
A.

By Sidley:

Page 8 - OPINION AND ORDER

1.

All transaction documents for the ACOF offering, including offering
memoranda, subscription agreements, articles of incorporation, bylaws, and
LLC agreements.

2.

All documents relevant to whether the ACOF offering was or was not exempt
from registration.

3.

All retention and engagement letters between Sidley and any Aequitas
company regarding Sidley's provision of legal services, including services
related to the ACOF offering.

4.

All documents Sidley sent to and received from any Aequitas company
pertaining to the ACOF offering.

5.

All documents Sidley sent to and received from the General Partner of the
ACOF fund, including documents regarding the preparation of the ACOF
PPM.

6.

All documents Sidley sent to and received from the Investment Advisor to the
ACOF fund, including documents regarding the preparation of the ACOF
PPM.

7.

All documents Sidley sent to and received from the Securities and Exchange
Commission, the Consumer Financial Protection Bureau, the Department of
Justice, and any state and federal regulatory and law enforcement agency
relating to any inquiry or investigation of any Aequitas company.

8.

All documents Sidley sent to and received from any purchaser or prospective
purchaser of the ACOF securities.

Page 9 - OPINION AND ORDER

9.

The names, job titles, and designated primaty office location of the attorneys
and paralegals/legal assistants who provided legal services to any Aequitas
company in connection with the ACOF offering. For any attorney and
paralegal/legal assistant no longer employed by Sidley, also provide the title
of the last job held and the designated primary office location at the time the
attorney and paralegal/legal assistant separated from the company.

Sidley may defer production of email as part of the above-ordered discove1y until after the
court resolves the attorney-client privilege issues raised in the Individual Defendants' pending
motion (ECF No. 196) for protective order.
B.

By Ameritrade:

I.

Aequitas purchase confirmations, Aequitas Notes, and account statements,
all relating to Aequitas investments for any named plaintiff who was an
Ameritrade customer.

2.

All documents Ameritrade sent to and received from any Aequitas company
regarding securities issued by or proposed to be issued by any Aequitas
company.

3.

All documents Ameritrade sent to and received from any registered
investment advisers, registered dealer-brokers, and purchasers or prospective
purchasers regarding any Aequitas company.

4.

All promotional materials distributed by and presentations made by
Ameritrade regarding any Aequitas company security.

5.

All documents Ameritrade sent to and received from the Securities and

Page 10 - OPINION AND ORDER

Exchange Commission, the Consumer Financial Protection Bureau, the
Department of Justice, and any state and federal regulatory and law
enforcement agency relating to any inquiry or investigation of any Aequitas
company.
6.

The names, job titles, and designated pnmary office location of the
employees who provided services for any named plaintiff who was an
Ameritrade customer and who bought any Aequitas security. For any
employee no longer employed by Ameritrade, also provide the title of the last
job held and the designated primary office location at the time the employee
separated from the company.

C.

By Integrity:
1.

Integrity's file for any named plaintiff who was an Integrity customer,
including transaction-level documents.

2.

All documents Integrity sent or received regarding the ACF Notes.

3.

All documents Integrity sent or received regarding the AIOF-II Notes.

4.

All promotional materials distributed by and presentations made by Integrity
regarding any Aequitas company security.

5.

All documents Integrity sent to and received from any Aequitas company
regarding securities issued by or proposed to be issued by any Aequitas
company.

6.

All documents Ameritrade sent to and received from the Securities and
Exchange Commission, the Consumer Financial Protection Bureau, the

Page 11 - OPINION AND ORDER

Department of Justice, and any state and federal regulatory and law
enforcement agency relating to any inquiry or investigation of any Aequitas
company.
7.

The names, job titles, and designated primary office location of the
employees who provided services to any named plaintiff who was an Integrity
customer and bought any Aequitas security. For any employee no longer
employed by Integrity, also provide the title of the last job held and the
designated primary office location at the time employee separated from the
company.

Except as described above, Sidley, Ameritrade, and Integrity need not respond to remainder
of Plaintiffs' requests for production pending the corut's ruling on the Moving Defendants'
respective motions to dismiss.
The information described above must be provided within forty-five (45) days of date of
entry of this Order, or within such other time as the parties agree or the court fmther orders.
Conclusion

For the reasons described above, the Moving Defendants' motions (ECFNos. 160, 171, and
175) for protective order are GRANTED IN PART and DENIED IN PART.
IT IS SO ORDERED.

-;d- of February, 2017.
day

DATED thisq

'----::71,

a~

HNV.ACOSTA
d States Magistrate Judge
Page 12 - OPINION AND ORDER