Bradshaw v. Maiden, 2017 NCBC 29.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 14 CVS 14445
JAMES W. BRADSHAW; CARLA O. BRADSHAW; RESORT RETAIL ASSOCIATES, INC.; E.C. BROADFOOT; CHRISTINA DUNN CHANDRA; JAMES DOYLE; THOMAS F. EGAN; CHARLES EGGERT; MARK P. GARSIDE; DR. JAMES J. GREEN, JR.; ROBERT K. GRUNEWALD; RONALD HOLMES; DAVID LAUCK; CURT W. LEMKAU, JR.; EVAN MIDDLETON; JOSHUA M. NELSON; CHRISTIAN C. NUGENT; PETER B. PAKRADOONI; FORD PERRY; MARCELLO G. PORCELLI; ADAN RENDON; RICHARD H. STEVENSON; PAUL STOKES; LAWRENCE J. THEIL; R. MITCHELL WICKHAM; WILLIAM H. WILLIAMSON, III; WILLIAM K. ORDER AND OPINION ON WRIGHT, JR.; ALEX M. WOLF; CHAFFIN FAMILY LIMITED BCR 10.9 DISCOVERY DISPUTE PARTNERSHIP; and SOLARIS CAPITAL LLC,
Plaintiffs,
v.
STEPHEN E. MAIDEN; MAIDEN CAPITAL, LLC; and SS&C TECHNOLOGIES, INC., successor by merger to SS&C FUND ADMINISTRATION SERVICES, LLC (a/k/a SS&C FUND SERVICES),
Defendants.
SS&C TECHNOLOGIES, INC., successor by merger to SS&C FUND ADMINISTRATION SERVICES, LLC,
Third-Party Plaintiff, v. MAIDEN CAPITAL OPPORTUNITY FUND, LP,
Third-Party Defendant.
1. THIS MATTER is before the Court pursuant to North Carolina Business
Court Rule (“BCR”) 10.9 in the above-captioned case.
Lewis & Roberts, PLLC, by Gary V. Mauney and James A. Roberts, III, for Plaintiffs James W. Bradshaw, Carla O. Bradshaw, Resort Retail Associates, Inc., E.C. Broadfoot, Christina Dunn Chandra, James Doyle, Thomas F. Egan, Charles Eggert, Mark P. Garside, Dr. James J. Green, Jr., Robert K. Grunewald, Ronald Holmes, David Lauck, Curt W. Lemkau, Jr., Evan Middleton, Joshua M. Nelson, Christian C. Nugent, Peter B. Pakradooni, Ford Perry, Marcello G. Porcelli, Adan Rendon, Richard H. Stevenson, Paul Stokes, Lawrence J. Theil, R. Mitchell Wickham, William H. Williamson, III, William K. Wright, Jr., Alex M. Wolf, Chaffin Family Limited Partnership, and Solaris Capital LLC. Alston & Bird, LLP, by Michael A. Kaeding, Ryan P. Ethridge, and Jessica P. Corley (pro hac vice), for Defendant SS&C Technologies, Inc.
Bledsoe, Judge.
I.
PROCEDURAL AND FACTUAL BACKGROUND
2. Plaintiffs initiated this litigation on August 7, 2014 and filed an Amended
Complaint on November 25, 2014. The parties are currently engaged in discovery,
and the fact discovery deadline is April 28, 2017.
3. SS&C Technologies, Inc. (“SS&C”) initiated this matter on March 9, 2017 by
e-mailing the Court a request for a telephone conference pursuant to BCR 10.9(b)(1)
so that the Court could address a discovery dispute between the parties.
4. As stated in its email request, SS&C seeks an order from the Court
prohibiting Plaintiffs’ counsel from deposing SS&C’s President and Chief Operating
Officer (“COO”), Normand A. Boulanger (“Boulanger”). Plaintiffs timely e-mailed the Court their response opposing SS&C’s request in accordance with BCR 10.9(b)(1), and
the Court held a telephone conference to discuss the dispute on March 27, 2017.
5. Plaintiffs’ claims in this action arise out of an alleged multi-million dollar
fraudulent “Ponzi scheme” that Defendant Stephen A. Maiden (“Maiden”)
purportedly operated through a hedge fund managed by Defendant Maiden Capital,
LLC. Maiden’s fund was a limited partnership named the Maiden Capital
Opportunity Fund, LP (“Fund”). SS&C served as the Fund’s administrator from
approximately 2007 until the Fund’s collapse in 2013. Plaintiffs were limited
partners and investors in the Fund. The Court has more fully discussed Plaintiffs’
allegations and claims in its earlier opinion, Bradshaw v. Maiden, 2015 NCBC LEXIS
80 (N.C. Super. Ct. Aug. 10, 2015).
6. SS&C’s duties as the Fund’s administrator arose from an Administrative
Services Agreement (the “ASA” or “Agreement”) entered into by SS&C and the Fund
on September 1, 2006. Boulanger signed the ASA on behalf of SS&C.
7. Among the obligations imposed by the ASA, SS&C agreed that it would
“keep at its premises books, records and statements as may be reasonably necessary
to document the transactions recorded by us on behalf of the Fund.” Nevertheless,
Plaintiffs have elicited testimony suggesting that SS&C’s accountants did not
independently document the existence of “restricted investments” in the Fund,
instead relying on e-mails from Maiden stating that the Fund owned these
investments, which ultimately proved to be fraudulent or nonexistent. SS&C’s accountant stated that merely relying on Maiden’s e-mail satisfied SS&C’s duties of
sufficient documentation.
8. Based on this evidence, Plaintiffs contend that they must be able to depose
Boulanger, who signed the ASA, to determine: (i) what “instructions, policies, or
training” were provided to the SS&C employees charged with carrying out SS&C’s
duties under the contract; (ii) what actions SS&C took to “make sure that SS&C’s
accountants complied with the ‘reasonable documentation’ duties imposed by the
contract;” and (iii) what SS&C did to fulfill its “duties of care that sprang from the
[ASA].” As a result, Plaintiffs contend that the Court should permit Plaintiffs to
depose Boulanger in this action.
9. SS&C argues, on the other hand, that: (i) Boulanger has no unique or special
knowledge of the facts at issue in this case; (ii) Boulanger had no involvement with
the negotiation or implementation of the ASA; (iii) none of the “thousands of emails
or other documents produced by the parties” reveal “any communication between
[Boulanger] and [Maiden] regarding the negotiation or interpretation of the terms of
the ASA, or any other facts in issue in this case;” (iv) none of the thousands of
documents produced by the parties show any communications between Boulanger
and any of the Plaintiffs; (v) Boulanger’s only involvement with the matters in dispute
was to sign the ASA on behalf of SS&C, which SS&C asserts Boulanger did as a
routine matter “in accordance with SS&C’s standing signature policy and practice;”
(vi) scheduling and preparing for Boulanger’s deposition would be particularly
burdensome for SS&C and Boulanger, especially in light of Boulanger’s many extensive responsibilities and obligations as SS&C’s President and COO and the
heavy deposition schedule in this case over the next 30 days; and (vii) Plaintiffs have
not attempted or found inadequate less burdensome means to secure the information
sought from Boulanger.
10. As a result, SS&C argues that the burden of deposing Boulanger
substantially outweighs any marginal relevance Boulanger’s potential testimony may
have, and thus SS&C seeks an order prohibiting Boulanger’s deposition under Rule
26 of the North Carolina Rules of Civil Procedure.
11. Having considered the parties’ written summaries of the dispute, the
evidence of record, and the arguments of counsel at the telephone conference, the
Court, for the reasons set forth below, and in the exercise of its discretion, concludes
and orders that Plaintiffs shall not be permitted to depose Boulanger at this time,
without prejudice to Plaintiffs’ right to renew their request for good cause shown upon
the completion of further discovery or in the event of other changed circumstances.
II.
LEGAL ANALYSIS
12. Rule 26 establishes a liberal scope of discovery; parties can seek discovery
“regarding any matter, not privileged, which is relevant to the subject matter
involved in the pending action,” even if the information sought will be inadmissible
at trial or the examining party already has knowledge of the information sought. N.C.
R. Civ. P. 26(b)(1). The Court may, however, on its own initiative or upon request of
a party, limit discovery if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought; or (iii) the discovery is unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties’ resources, and the importance of the issues at stake in the litigation.
N.C. R. Civ. P. 26(b)(1a). The Court may also limit discovery upon a party’s motion
“to protect a party or person from unreasonable annoyance, embarrassment,
oppression, or undue burden or expense.” N.C. R. Civ. P. 26(c).
13. Under Federal Rule of Civil Procedure 26, federal courts have developed the
“apex doctrine” to address the precise fact scenario presented in this discovery
dispute. “In its stronger form, the doctrine holds that, before a plaintiff may depose
a defendant corporation’s high-ranking (“apex”) officer, that plaintiff must show that
‘(1) the executive has unique or special knowledge of the facts at issue and (2) other
less burdensome avenues for obtaining the information sought have been exhausted.’”
Performance Sales & Mktg. LLC v. Lowe’s Cos., Inc., No. 5:07-CV-00140-RLV-DLH,
2012 U.S. Dist. LEXIS 131394, at *16–17 (W.D.N.C. Sept. 14, 2012) (citation omitted).
“Simply stated, the apex doctrine applies when those at the top of the company, i.e.
men and women at the ‘apex,’ really don’t have personal knowledge about what is
going on with the product, or its marketing, or its financing or really anything else
that might be of interest to the plaintiffs, or the attorneys, or the jury, or the court.”
In Re Tylenol (Acetaminophen) Mktg., Sales Practices & Prods. Liab. Litig ., No. 14-
mc-00072, 2014 U.S. Dist. LEXIS 89981, at *8 (E.D. Pa. July 1, 2014). 14. The federal courts applying the apex doctrine have recognized the
“tremendous potential for abuse or harassment” presented by depositions of an
official at the “highest level or ‘apex’ of corporate management,” In re Lipitor
Atorvastatin Calcium Mktg., No. 2:14-mn-02502-RMG, 2014 U.S. Dist. LEXIS
194852, at *5 (D.S.C. Nov. 13, 2014), and have embraced the doctrine to “ensur[e]
that the liberal rules of procedure for depositions are used only for their intended
purpose and not as a litigation tactic to create undue leverage by harassing the
opposition or inflating its discovery costs,” Performance Sales & Mktg., 2012 U.S.
Dist. LEXIS 131394, at *16. Nevertheless, federal courts have consistently
recognized that “[t]he ‘apex’ doctrine exists in tension with the otherwise broad
allowance for discovery of party witnesses under the federal rules.” Apple Inc. v.
Samsung Electronics Co., Ltd, 282 F.R.D. 259, 263 (N.D. Cal. 2012).
15. The apex doctrine stands out in many federal jurisdictions because the
doctrine shifts the burden of proof to the proponent of the deposition. See, e.g., Sun
Capital Partners, Inc. v. Twin City Fire Ins. Co., 310 F.R.D. 523, 527 (S.D. Fla. 2015)
(“The party seeking the deposition of the high-ranking official has the burden to show
that the deposition is necessary.”); Performance Sales & Mktg., 2012 U.S. Dist.
LEXIS 131394, at *19–20 (“Put simply, the apex doctrine is the application of the
rebuttable presumption that the deposition of a high-ranking corporate executive [is
inappropriate under Rule 26].”). Nevertheless, some jurisdictions reject the apex
doctrine altogether on this ground, while others follow a version of the apex doctrine
that maintains the traditional burden of proof under Rule 26. See, e.g., Crest Infiniti II, LP v. Swinton, 174 P.3d 996, 1004 (Okla. 2007) (“We decline to adopt a form of the
apex doctrine that shifts a burden to the party seeking discovery.”); Scott v. Chipotle
Mexican Grill, Inc., 306 F.R.D. 120, 122 (S.D.N.Y. 2015) (stating that even in apex
doctrine scenarios the plaintiff bears no burden to show that the deponent has special
knowledge).
16. North Carolina state courts have not explicitly adopted the apex doctrine,
but this Court has found federal decisions interpreting the apex doctrine to be useful
in applying the balancing factors set forth in our state’s Rule 26. See Next Advisor
Continued, Inc. v. LendingTree, Inc., 2016 NCBC LEXIS 72, at *6–10 (N.C. Super.
Ct. Sept. 16, 2016) (discussing the apex doctrine and concluding that “an assessment
and balancing of the factors contained in Rules 26(b) and 26(c)” controlled the court’s
decision); see also, e.g., Willis v. Duke Power Co., 291 N.C. 19, 34, 229 S.E.2d 191,
200 (1976) (“One party’s need for information must be balanced against the likelihood
of an undue burden imposed upon the other.”).
17. This Court did not adopt the apex doctrine in Next Advisor and does not do
so in this Order and Opinion. Because Rules 26(b) and (c) clearly set forth the
grounds on which discovery may appropriately be limited, and our rules make clear
that the party opposing discovery bears the burden of proof, the Court concludes, as
it did in Next Advisor, that adoption of the apex doctrine is not necessary and that
Rule 26 is entirely adequate to resolve disputes of this nature. See Next Advisor,
2016 NCBC LEXIS 72, at *9. Nonetheless, the Court finds federal and state court
decisions applying the apex doctrine useful in discerning the unique factual considerations that arise when a party seeks to depose a high-ranking corporate
executive.
18. Plaintiffs admit that they seek to depose SS&C’s President and COO
primarily, if not solely, because he signed the ASA on behalf of SS&C. A federal
district court in the Northern District of California faced a nearly identical set of facts
in M.H. v. Cnty. of Alameda, No. 11-cv-02868-JST, 2013 U.S. Dist. LEXIS 146166, at
*7 (N.D. Cal. Oct. 3, 2013). In that case, the plaintiffs argued that because a CEO
signed a contract on behalf of the corporate defendant, the CEO was “the best person
to testify about the obligations [the corporate defendant] undertook under that
contract.” Id. In applying the apex doctrine to bar the deposition, the court held that
“[t]he mere fact of [the CEO’s] signature on a contract to which [the corporate
defendant] is a party does not establish that [the CEO] ‘has unique first-hand,
non-repetitive knowledge of the facts at issue’ regarding the obligations under that
contract, or how they were performed.” Id. Based on this conclusion, and the court’s
finding that the plaintiffs “have [not] exhausted their alternatives for obtaining the
information using ‘less intrusive discovery methods,’” including by a Rule 30(b)(6)
deposition, the court denied the motion to take the CEO’s deposition.
19. Similar considerations are present here. Plaintiffs contend that Boulanger
must be deposed because he, and he alone, can testify to any “instructions, policies,
or training” SS&C issued to its employees and accountants concerning the meaning
and interpretation of the ASA and SS&C’s obligations under the contract. However,
despite engaging in rigorous discovery for over eighteen months, Plaintiffs have not shown that Boulanger had any involvement in this dispute other than as the
corporate officer who executed the ASA on behalf of SS&C. Plaintiffs have not offered
or forecasted evidence that Boulanger was involved in, or had personal responsibility
for, the negotiation, implementation, or interpretation of the ASA at any level, or that
Boulanger instructed or directed any SS&C employees, accountants, or agents in how
to perform SS&C’s duties under the ASA. Indeed, other than affixing his signature
to the ASA, which SS&C contends was simply an exercise of SS&C’s standard
signature policy and practice, there is no evidence before the Court that Boulanger
was a party to any communication with Maiden, a Plaintiff, or an SS&C employee or
agent about any facts that are at issue in this litigation, including concerning SS&C’s
interpretation of, and duties and compliance efforts under, the ASA.
20. In addition, Plaintiffs have failed to show that the information Plaintiffs
seek, even if known to Boulanger, is information that is unique and special to him or,
given the paucity of evidence tying Boulanger to the ASA, that he is the best person
within the company to testify about the Agreement. To the contrary, the information
sought concerns SS&C’s corporate policies, practices, and actions, which a corporate
representative or others within the company with appropriate authority should be
able to identify and explain, at least—based on this record—more fully than
Boulanger.
21. Finally, Plaintiffs have also failed to show that the information sought
cannot be obtained “from some other source that is more convenient, less burdensome,
or less expensive.” N. C. R. Civ. P. 26(b)(1a). As stated during the Rule 10.9 telephone conference, Plaintiffs have deposed at least four SS&C witnesses with operational
responsibility concerning the ASA, but Plaintiffs have not offered evidence from any
of these witnesses or from other sources that these SS&C witnesses were unable to
provide information concerning the meaning, interpretation, and implementation of
the Agreement. Likewise, there is no evidence before the Court that Plaintiffs have
attempted to obtain this information through a Rule 30(b)(6) deposition of SS&C or
made any showing that Boulanger has particular knowledge of the information
sought that could not be obtained through a 30(b)(6) deposition or other appropriate,
less intrusive, discovery methods.
22. At the same time, SS&C has persuasively argued that Boulanger has
substantial, extensive, and time-sensitive duties and obligations in his role of
President and COO of SS&C that weigh in favor of prohibiting his deposition in light
of Plaintiffs’ failure to show that he possesses any unique or special knowledge that
is relevant to this case. This is particularly true considering the time and expense
involved in scheduling and preparing Boulanger for deposition before the April 28
discovery deadline and the twenty-plus fact depositions the parties have noticed to
occur by that same date.
23. Plaintiffs rely upon this Court’s Next Advisor decision, but that case is
readily distinguishable. In that case, the dispute arose out of a failed corporate
acquisition, and the evidence of record suggested that the CEO had an active role in
the negotiations, the failure of the negotiations, and the resulting conduct that
prompted the plaintiff corporation to bring suit. Next Advisor, 2016 NCBC LEXIS 72, at *11–12. Based on these facts, this court concluded that the CEO had “unique,
personal knowledge relevant to the issues in dispute in this litigation,” and, in
particular, “unique, personal knowledge” concerning “his role and participation in the
origins of the current dispute between [the plaintiff] and [the defendant].”
Recognizing the frequently applied principle that “if a prospective deponent has
relevant knowledge, the mere fact that the prospective deponent is a CEO or is busy
does not constitute a showing of good cause for a protective order,” the court allowed
the plaintiffs to depose the defendant’s CEO. Id. The contrast between the defendant
CEO’s active participation in the facts at issue in Next Advisor and the lack of any
comparable evidence of Boulanger’s active participation in the facts underlying this
case, apart from signing the ASA on behalf of SS&C, is stark.
24. Accordingly, for the reasons set forth above, the Court concludes, in the
exercise of its discretion, that the deposition of Boulanger should not be permitted at
this time under the balancing test set forth in North Carolina Rules of Civil Procedure
26(b)(1a) and (c). See, e.g., Analog Devices, Inc. v. Michalski, 2006 NCBC LEXIS 16,
at *32–38 (N.C. Super. Ct. Nov. 1, 2006) (discussing discovery standards, including
the “relative burdens and benefits of [discovery] as contemplated by the balancing
test of [Rule 26]”). See also, e.g., Blue Cross Blue Shield v. Wells Fargo Bank, N.A.,
No. 11-2529, 2012 U.S. Dist. LEXIS 161041, at *7 (D. Minn. Nov. 9, 2012) (disallowing
executive’s deposition because he “did not have relevant knowledge”); Baine v. Gen.
Motors Corp., 141 F.R.D. 332, 335 (M.D. Ala. 1991) (disallowing vice-president’s
deposition because “it ha[d] not been established that the information necessary [could not] be had from [other witnesses],” including via Rule 30(b)(6), “which could
satisfy some of plaintiffs’ needs”).
25. The Court’s ruling, however, is without prejudice to Plaintiffs’ right to renew
their request to depose Boulanger should further discovery or other circumstances
establish good cause for Boulanger’s deposition to proceed. See, e.g., Salter v. Upjohn
Co., 593 F.2d 649, 651 (5th Cir. 1979) (affirming disallowance of president’s
deposition until plaintiff first deposed, and established the inadequacy of depositions
of, defendant’s 30(b)(6) corporate representative and lower-ranking company
officials); Bank of the Ozarks v. Capital Mortg. Corp., No. 4:12-mc-00021, 2012 U.S.
Dist. LEXIS 99506, at *6–8 (E.D. Ark. July 18, 2012) (disallowing CEO’s deposition
until defendants pursued and demonstrated as inadequate “less burdensome avenues
for obtaining the information sought,” including through Rule 30(b)(6) and corporate
employee depositions).
III.
CONCLUSION
26. WHEREFORE, the Court, in the exercise of its discretion, hereby ORDERS
that Plaintiffs shall not be permitted to depose SS&C’s President and COO, Normand
A. Boulanger, in this action, without prejudice to Plaintiffs’ right to renew their
request for good cause shown upon the completion of further discovery or in the event
of other changed circumstances. SO ORDERED, this the 31st day of March, 2017.
/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Special Superior Court Judge for Complex Business Cases