UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
Adam S. Levy, et al.
v. Civil No. 14-cv-443-JL Opinion No. 2019 DNH 059 Thomas Gutierrez, et al.
MEMORANDUM ORDER
In this putative securities law class action, defendant
Apple, Inc. has moved to compel GT Advanced Technologies, Inc.
(“GTAT”), a non-party, to produce certain documents regarding
GTAT’s sapphire production capacities, as well as a privilege
log.1 In the underlying complaint, class plaintiffs allege GTAT,
its former directors, and Apple materially misled GTAT’s
investors about GTAT’s ability to produce sapphire materials for
Apple. Apple seeks the requested sapphire production data from
GTAT to rebut plaintiffs’ claim.
GTAT opposes Apple’s request, arguing that Apple’s
requested searches are disproportionate to the needs of this
case and unduly burdensome. GTAT filed for Chapter 11
bankruptcy three days before class plaintiffs began filing
complaints and was released thereafter of all liability arising
from this action. In addition, GTAT has produced over 250,000
1 Def.’s Mot. to Compel (doc. no. 212). documents to the parties, already has incurred more than $64,000
in costs responding to Apple’s subpoena, and estimates that it
will incur about $200,000 more in costs if ordered to comply
with Apple’s requested keyword and custodian searches.
After considering Apple and GTAT’s arguments and the
evidence submitted in support thereof, the court grants Apple’s
motion to compel and orders GTAT to produce documents responsive
to Apple’s outstanding document requests with a privilege log
within 21 days of this Order. In addition, the court grants
GTAT’s request that Apple cover part of GTAT’s future expenses
for reviewing and producing these documents, including the
creation of a privilege log, as required by Fed. R. Civ.
P. 45(d)(2)(B)(ii)’s mandatory cost-shifting provision.
Accordingly, Apple and GTAT shall meet and confer no later
than Tuesday, April 2, 2019 to negotiate the further keyword and
custodian searches to be performed, as well as how to fairly
apportion costs. The cost-shifting negotiations should take
into consideration GTAT’s central role in the underlying facts
of this case, but also GTAT’s post-bankruptcy resources. Apple
shall not be responsible for any costs incurred by GTAT in
opposing Apple’s motion to compel or from further negotiations
relating to its compliance with Apple’s subpoena. If Apple and
GTAT cannot reach an agreement, they may schedule a telephone
conference with the court to receive further guidance.
2 Background
The court draws the following background from Apple and
GTAT’s briefing for the present motion:
In this putative class action, plaintiffs allege that GTAT,
GTAT’s former directors, and Apple made materially false and
misleading statements in connection with the offer and sale of
securities issued in 2013 and 2014 by New Hampshire-based GTAT.
The putative class consists of individual and institutional
entities who acquired GTAT securities between November 5, 2013 —
the day after GTAT executives announced a purportedly lucrative
agreement with Apple — and October 6, 2014, when GTAT filed for
Chapter 11 bankruptcy. Broadly speaking, plaintiffs assert that
GTAT executives knew from the start that the agreement was
doomed to fail and that those executives reaped substantial
profits while investors lost millions of dollars.
In March 2016, GTAT emerged from bankruptcy as a
restructured entity. As part of GTAT’s bankruptcy plan, the
bankruptcy court deemed all claims against GTAT prior to
March 2016, including claims arising in this action, to be
satisfied, discharged, and released in full. Since then, GTAT
has become a privately-owned company with a workforce downsized
from approximately 1,000 employees pre-bankruptcy to about 100
current employees. GTAT maintains that its resources are
3 limited, and that the proper management of such resources are
critical for the company to succeed post-bankruptcy.
In September 2018, Apple served GTAT with a subpoena to
produce additional documents. The subpoena included proposed
search terms for each document request. Thereafter, Apple and
GTAT met and conferred on multiple occasions to narrow Apple’s
requests but were unable to reach an agreement for several
requests, including Request 13. Instead, GTAT proposed a
limited production using a narrower set of search terms, from
which Apple could review the resulting production before
determining whether additional searches were necessary. GTAT
did not serve formal objections until November 2018.2 At the end
of December 2018, GTAT produced approximately 8,000 documents,
incurring approximately $23,700 in contract attorney fees and
$41,000 fees from Akin Gump in December.3
Apple subsequently notified GTAT that it believed GTAT’s
production was deficient and requested that GTAT complete
additional keyword searches for documents responsive to Request
13 for the period leading up to the Apple-GTAT agreement across
2 During their negotiations, Apple and GTAT agreed to extend GTAT’s response deadline to November 2018. They now dispute to what extent they agreed to extend GTAT’s deadline for objecting to Apple’s requests. See Def.’s Mot. to Compel Mem. (doc. no. 212-1) at 11-12; GTAT’s Opp. Mem. (doc. no. 225-1) at 10. 3 Diaz Decl. (doc. no. 225-2) ¶¶ 12-14.
4 at least 23 custodians. GTAT estimates that compliance with
Apple’s requests will require it to review more than 100,000
documents, incurring more than $148,000 in additional contract
attorney fees and over $50,000 in additional fees to Akin Gump.4
Apple maintains that it should not pay any portion of GTAT’s
review or production costs.
Applicable legal standard
Under Federal Rule of Civil Procedure 26(b)(1):
Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.
Apple, as “[t]he party seeking information in discovery over an
adversary’s objection[,] has the burden of showing its
relevance.” Caouette v. OfficeMax, Inc., 352 F. Supp. 2d 134,
136 (D.N.H. 2005) (DiClerico, J.).
“Although discovery is by definition invasive, parties to a
law suit must accept its travails as a natural concomitant of
modern civil litigation.” Cusumano v. Microsoft Corp., 162 F.3d
4 Diaz Decl. (doc. no. 225-2) ¶ 21.
5 708, 717 (1st Cir. 1998). Non-parties have a different set of
expectations. See id. Where, as is the case here, a party
seeks discovery from a non-party, the party seeking discovery
“must take reasonable steps to avoid imposing undue burden or
expense on a person subject to the subpoena.” Fed. R. Civ.
P. 45(d)(1). Furthermore, when discovery is ordered against a
non-party, the court must take steps to “protect a person who is
neither a party nor a party’s officer from significant expense
resulting from compliance.” Id. 45(d)(2)(B)(ii). This may
include ordering the party seeking discovery to share at least
enough of the cost of compliance to render the remainder “non-
significant.” See Linder v. Calero-Portocarrero, 251 F.3d 178,
182 (D.C. Cir. 2001).
Analysis
Apple maintains that a core aspect of plaintiffs’ claims is
that GTAT (and its executives) knew from the moment Apple and
GTAT signed their agreement that GTAT was unable to perform as
required, but fraudulently concealed this fact from investors.5
Accordingly, Apple believes information about what GTAT (and its
employees) knew when GTAT made statements to investors is vital
to Apple’s defense.6 Apple asserts that GTAT did not share such
5 See Def.’s Mot. to Compel Mem. (doc. no. 212-1) at 5. 6 See id.
6 information during the two companies’ business relationship and
did not produce such information in its prior productions to the
parties.7 This information includes documents from before
October 31, 2013 — the date GTAT signed its agreements with
Apple, as well as documents from key GTAT personnel previously
not included as custodians in GTAT’s document productions.
GTAT opposes Apple’s requested searches, characterizing
them as disproportionate to the needs of the case and unduly
burdensome.8 GTAT estimates that Apple’s requested searches,
which employ terms common to GTAT’s business including “kg” and
“boule”, will require GTAT to review more than 100,000 documents
in addition to the 20,000 documents GTAT has already reviewed
for Apple.9 GTAT estimates that this further review will cost
GTAT approximately $200,000, in addition to approximately
$64,000 GTAT spent responding to Apple’s other subpoena requests
and costs GTAT incurred producing 250,000 documents in response
to plaintiffs’ March 2018 subpoena.10 GTAT also briefly
questions the relevance of discovery created before October 31,
7 See id. at 5-8. 8 See GTAT’s Opp. Mem. (doc. no. 225-1) at 7-10. 9 See id. at 8. 10See Diaz Decl. (doc. no. 225-2) ¶¶ 12-15, 20-21. Most of this production included documents previously produced to the Securities and Exchange Commission. See GTAT’s Opp. Mem. (doc. no. 225-1) at 3.
7 2013 — the date of the Apple-GTAT agreement – as the statements
at issue in this case occurred after the agreement was
finalized.11
Because parties only are entitled to discovery that is
relevant and proportional, the court first examines the scope of
Apple’s requested searches before addressing what costs Apple
should bear for GTAT’s subpoena compliance.
A. Relevance and proportionality of Apple’s requests
Apple’s requests largely seek relevant information and do
not impose disproportionate burdens on GTAT, despite GTAT’s
posture as a non-party in this litigation. Apple seeks data
regarding GTAT’s sapphire operations to rebut plaintiffs’
contention that GTAT and the defendants fraudulently concealed
GTAT’s inability to perform from the moment the Apple-GTAT
agreement was signed. The court agrees that information about
what GTAT knew and believed before GTAT began making statements
about the agreement to the SEC and investors is relevant to
Apple’s defenses. Although GTAT raises some well-taken concerns
about whether Apple’s requests sweepingly pursue material
through generic search terms and a time period beginning well
before the first allegedly misleading statement, see Concord
Boat Corp. v. Brunswick Corp., 169 F.R.D. 44, 48 (S.D.N.Y. 1996)
11 See GTAT’s Opp. Mem. (doc. no. 225-1) at 8, 9 n.7,
8 (“To the extent a subpoena sweepingly pursues material with
little apparent or likely relevance to the subject matter it
runs the greater risk of being found overbroad and
unreasonable.”), the court believes that shifting the costs of
production sufficiently ameliorate these burden concerns.
B. GTAT’s cost-shifting request
GTAT requests that, if this court compels GTAT to comply
with Apple’s subpoena requests, it also orders Apple to pay
GTAT’s significant discovery expenses resulting from compliance.
Apple opposes this request, arguing that GTAT waived its right
to seek cost-shifting because GTAT did not timely object within
fourteen days of service of Apple’s subpoena. In addition,
Apple argues that GTAT has not met its burden for seeking cost-
shifting — which Apple maintains is an exception, not the rule,
for discovery issued to a non-party. The court finds that GTAT
may seek cost-shifting from Apple and grants that request, as
explained below.
1. GTAT may seek cost-shifting from Apple, despite GTAT’s delay in objecting
Federal Rule of Civil Procedure 45(d)(2)(B) provides that
an “objection must be served before the earlier of the time
specified for compliance or 14 days after the subpoena is
served.” Failure to serve timely objections may waive the right
to object. See Berndt v. Snyder, No. 13-CV-368, 2014 WL
9 6977848, at *5 (D.N.H. Dec. 9, 2014) (Johnstone, Mag. J.). But
“the failure to act timely will not bar consideration of
objections in unusual circumstances and for good cause shown.”
Concord Boat, 169 F.R.D. at 48; Krewson v. City of Quincy, 120
F.R.D. 6, 7 (D. Mass. 1988) (Collings, Mag. J.) (refusing to
compel compliance even though no timely objection made where
request far exceeded bounds of fair discovery). District courts
from other circuits have found such circumstances where:
(1) “the subpoena is overbroad on its face and exceeds the
bounds of fair discovery,” (2) “the subpoenaed witness is a non-
party acting in good faith,” and where (3) “counsel for the
nonparty and for the subpoenaing party were in contact with
respect to the nonparty’s compliance prior to the time the
nonparty challenged the subpoena.” See, e.g., Concord Boat, 169
F.R.D. at 48 (collecting cases). Further, “when an act may or
must be done within a specified time, the court may, for good
cause, extend the time . . . after the time has expired if the
party failed to act because of excusable neglect.” Fed. R. Civ.
P. 6(b)(1)(B).
Apple served its subpoena on GTAT on September 17, 2018,
with a compliance date of October 8, 2018. Counsel for GTAT
waited until October 5, 2018 — four days after Rule 45’s 14-day
window, but three days before the subpoena’s compliance date —
to contact opposing counsel. As part of that conversation,
10 Apple and GTAT agreed to “adjourn GTAT’s time to respond” to the
subpoena.12 Thereafter, Apple and GTAT tried to negotiate GTAT’s
response to Apple’s subpoena during at least four telephone
conferences. GTAT finally served formal objections and
responses to Apple on November 15, 2018 — the agreed upon
extension date. That same day, GTAT began a rolling production.
This record does not justify a strict application of Rule
45(d)(2)(B)’s timing requirements given the good faith efforts
by GTAT’s counsel to meet, confer, and negotiate a discovery
agreement within the subpoena’s compliance period. See, e.g.,
R.B. v. Hollibaugh, No. 16-CV-01075, 2017 WL 1196507, at *2
(M.D. Pa. Mar. 31, 2017) (finding no waiver where the non-
party’s counsel frequently corresponded with the seeking party’s
counsel regarding scope and compliance); Concord Boat, 169
F.R.D. at 52 (finding a non-party had not waived its right to
request cost-shifting where the subpoena was overbroad on its
face, the subpoena requested voluminous documents from a non-
party, and the non-party’s counsel was in frequent contact with
the request party’s counsel regarding compliance). Accordingly,
the court considers GTAT’s request for cost-shifting.
12Def.’s Mot. to Compel (doc. no. 212-9) at 1-2. Counsel for Apple followed up one week later, memorializing a subsequent agreement to “extend the compliance date” from October 9 to November 15, 2018. Id. (emphasis added).
11 2. Avoiding significant expense as to GTAT
Federal Rule of Civil Procedure 45(d)(2)(B)(ii) provides
that an order compelling a non-party to produce documents “must
protect” a non-party “from significant expense resulting from
compliance.” In its motion, Apple, relying on Dahl v. Bain
Capital Partners, LLC, 655 F. Supp. 2d 146, 148 (D. Mass. 2009)
(Harrington, J.), and Fed. R. Civ. P. 26’s 2015 advisory
committee notes, argues that cost-shifting is the exception, not
the rule, and thus is inappropriate here. Apple’s cited
authority is inapposite to the present case. In Dahl, the court
focused on whether cost-shifting was appropriate between
litigating parties, not between a party and non-party as is the
case here. Likewise, the advisory committee’s note regarding
cost-shifting again speaks to cost-shifting norms among parties.
The First Circuit Court of Appeals has not yet opined on
whether Rule 45’s fee-shifting provision is mandatory. The four
federal appellate courts that have opined on the question,
however, all agree that Rule 45 mandates cost-shifting where a
non-party’s compliance with a court order would result in
significant expense. See In re Modern Plastics Corp., 890 F.3d
244, 253 n.6 (6th Cir. 2018) (Looking to equitable factors as
part of a discretionally consideration of shifting costs “would
be inconsistent with the language of the current rule.”); Legal
Voice v. Stormans Inc., 738 F.3d 1178, 1184 (9th Cir. 2013)
12 (“[W]hen discovery is ordered against a non-party, the only
question before the court in considering whether to shift costs
is whether the subpoena imposes significant expense on the non-
party.”); Linder, 251 F.3d at 182 (quoting 1991 amendment
advisory committee note) (“[T]he 1991 changes were intended ‘to
enlarge the protections afforded persons who are required to
assist the court.’”); see also R.J. Reynolds Tobacco v. Phillip
Morris, Inc., 29 Fed. Appx. 880, 882 (3d Cir. 2002). Moreover,
the vast majority of district courts that have considered the
impact of Rule 45’s 1991 amendments agree with the D.C., Sixth,
and Ninth Circuit Courts of Appeals that cost-shifting is
mandatory when a non-party is ordered to comply with a discovery
request and will incur significant costs. See, e.g., Valcor
Eng’g Corp. v. Parker Hannifin Corp., No. 816CV00909JVSKESX,
2018 WL 3956732, at *2 (C.D. Cal. July 12, 2018); In re Aggrenox
Antitrust Litig., No. 3:14-MD-02516, 2017 WL 4679228, at *1 (D.
Conn. Oct. 18, 2017).
Given this overwhelming authority holding that cost-
shifting is mandatory, Rule 45 requires the court to consider
only whether Apple’s subpoena imposes significant expense on
GTAT and if so, to order Apple to bear some part of GTAT’s
compliance costs to make such costs “non-significant.” See
Linder, 251 F.3d at 182. And in light of Rule 45’s silence, the
13 court is afforded broad discretion to determine what constitutes
a “significant” expense, which is a case specific inquiry.
In conducting this analysis, many district courts,
including those in the First Circuit, continue to look to three
equitable factors considered before the 1991 amendment. See
High Rock Westminster St., LLC v. Bank of Am., N.A., No. CV 13-
500S, 2014 WL 12782611, at *1 (D.R.I. June 17, 2014) (Almond,
Mag. J.); Behrend v. Comcast Corp., 248 F.R.D. 84, 87 (D. Mass.
2008) (Alexander, J.); see also In Re Exxon Valdez, 142 F.R.D.
380, 383 (D.D.C. 1992) (stating that “there is no indication
that [the drafters of new Rule 45] also intended to overrule
prior Rule 45 case law, under which a non-party can be required
to bear some or all of its expenses where the equities of a
particular case demand it.”). These factors are whether the
(1) “nonparty has an interest in the outcome of the case;”
(2) “nonparty can more readily bear its costs than the
requesting party;” and (3) “litigation is of public importance.”
E.g., Behrend, 248 F.R.D. at 86.
GTAT seeks cost-shifting for approximately $200,000 in
estimated compliance costs. Taking the financial
representations in GTAT’s briefing on their face, this amount is
significant. But this does not mean that Apple must bear the
entire cost of compliance. See Linder, 251 F.3d at 182. With
respect to the first equitable factor, there is no denying that
14 GTAT’s conduct is at the core of plaintiffs’ class allegations.
See Behrend, 248 F.R.D. at 87 (D. Mass. 2008); Tutor–Saliba
Corp. v. United States, 32 Fed. Cl. 609, 610 n.5 (1995) (noting
that nonparty “was substantially involved in the underlying
transaction and could have anticipated that the contract . . .
might . . . reasonably spawn some litigation, and discovery of
[non-party]”). The allegedly misleading statements identified
in plaintiffs’ consolidated class complaint were made in GTAT’s
SEC regulatory filings and GTAT’s public statements to
investors. GTAT’s argument that it has no interest in this
case’s outcome because of its post-bankruptcy posture and change
in corporate leadership ignores the facts that (i) the products
and technologies at issue in this case remain important to GTAT
today, and (ii) GTAT may face business consequences in present
and future endeavors should a jury find that the company
recently engaged in fraudulent or dishonest acts.
The second equitable factor — GTAT’s ability to bear costs,
in contrast, weighs in GTAT’s favor, given GTAT’s recent
bankruptcy and limited financial resources. The court, however,
does not read this factor as requiring Apple to pay a higher
share because of its financial success, as suggested by GTAT.13
13See GTAT’s Opp. Mem. (doc. no. 225-1) at 14 (citing no legal support).
15 Finally, the third factor — public importance — is not
applicable to the present inquiry.
After considering these factors, the court grants GTAT’s
request for cost-shifting and orders Apple and GTAT to meet and
confer by Tuesday, April 2, 2019, to negotiate further keyword
and custodian searches to be performed, as well as how to fairly
apportion costs. These negotiations should take into
consideration the court’s equitable analysis above, but should
not consider any costs incurred by GTAT for its prior
productions or in opposing Apple’s motion to compel. If Apple
and GTAT cannot reach an agreement, they may schedule a
telephone conference with the court for further guidance.
Conclusion
For the reasons discussed above, the court GRANTS Apple’s
motion to compel14 and GTAT’s request for cost-shifting.15 Though
the parameters suggested in Apple’s Appendix B16 appear
reasonable to the court, Apple and GTAT may negotiate further or
other keyword and custodian searches in light of this order.
Apple and GTAT shall meet and confer no later than Tuesday,
April 2, 2019, to negotiate further searches, as well as how to
14 Def.’s Mot. to Compel (doc. no. 212). 15 GTAT’s Opp. Mem. (doc. no. 225-1) at 10-15. 16 Def.’s Mot. to Compel, App. B (doc. no. 212-3).
16 fairly apportion costs. If Apple and GTAT cannot reach an
agreement, they may schedule a telephone conference with the
court for further guidance.
SO ORDERED.
Joseph N. Laplante United States District Judge
Dated: March 28, 2019
cc: All counsel of record