1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 Case No.: 15-cv-2324-GPC-KSC In re BofI HOLDING, INC. SECURITIES
12 LITIGATION ORDER REGARDING DISCOVERY 13 DISPUTE
17 18 Before the Court is the parties’ most recent discovery dispute, in which plaintiff 19 seeks an order compelling defendants to respond to plaintiff’s Interrogatories No. 1 through 20 5 and Requests for Production (“RFPs” or “document requests”) No. 63 through 66. The 21 Court heard argument from the parties regarding this dispute on August 3, 2021 during a 22 telephonic discovery conference, which was recorded. At the Court’s request, the parties 23 lodged the subject discovery requests and responses, and their agreed-upon search terms, 24 directly with chambers. The Court has considered the arguments of counsel, the materials 25 lodged by the parties, and the applicable law. For the reasons stated below, plaintiff’s 26 request is GRANTED IN PART and DENIED IN PART. 27 /// 28 /// 1 I. BACKGROUND 2 Plaintiff alleges in the Third Amended Complaint (“TAC”) that during the Class 3 Period, B of I (the “Bank”) and certain of its officers and directors misled investors by 4 falsely representing the strength of the Bank’s underwriting standards, internal controls and 5 compliance infrastructure. See generally Doc. No. 136. As an example of purportedly 6 “lax” internal controls, plaintiff alleges that the Bank hired a convicted felon as a Senior 7 Vice President in the lending department, in violation of the law. See id. at ¶¶ 97-99. 8 Plaintiff further alleges that defendants retaliated against employees who called out 9 allegedly improper practices at the Bank – including by pursuing legal action against them 10 – thereby fostering a “culture of fear and unethical conduct.” See id. at ¶¶ 106-121. 11 As discovery progressed, plaintiff served interrogatories requesting that defendants 12 identify criminal investigations and prosecutions of, and civil lawsuits involving, the Bank 13 and its employees, as follows: 14 Interrogatory No. 1: Identify and describe each criminal investigation of BofI from the beginning of the Relevant Period1 to the present, including but 15 not limited to the subject of the investigation, the investigating agency, and 16 the time period of investigation. 17 Interrogatory No. 2: Identify and describe each criminal investigation or prosecution of any current or former BofI employee from the beginning of the 18 Relevant Period to the present, including but not limited to the subject of the 19 investigation or prosecution, the investigating or prosecuting agency, the identity of the employee(s) under investigation or prosecution, and the time 20 period of investigation or prosecution. 21 Interrogatory No. 3: Identify and describe each civil action commenced by 22 BofI against any current or former BofI employee from the beginning of the Relevant Period to the present, including but not limited to the case name and 23 number, the presiding court, the parties to the litigation, the date the litigation 24 commenced, and the subject of the litigation. Interrogatory No. 4: Identify and describe each civil action commenced by 25 any current or former BofI employee against BofI or any of its directors or 26 officers (including any of the Individual Defendants) from the beginning of 27 28 1 the Relevant Period to the present, including but not limited to the case name and number, the presiding court, the parties to the litigation, the date the 2 litigation commenced, and the subject of the litigation. 3 Interrogatory No. 5: Identify and describe each civil litigation commenced 4 by any BofI director or officer (including any of the Individual Defendants), in their personal capacity, against any current or former BofI employee from 5 the beginning of the Relevant Period to the present, including but not limited 6 to the case name and number, the presiding court, the parties to the litigation, the date the litigation commenced, and the subject of the litigation. 7 8 Defendants objected to these Interrogatories as seeking irrelevant information, and 9 for being overbroad and unduly burdensome. Defendants also asserted that the information 10 sought was confidential, proprietary, and/or protected by the attorney client privilege and 11 work product doctrine. Defendants further objected that the information requested in 12 Interrogatories 3 through 5 was equally available to plaintiff. 13 Concurrent with the Interrogatories, plaintiff served document requests seeking 14 documents related to the investigations, prosecutions and lawsuits, as follows: 15 DOCUMENTS REQUESTED 16 63. All Documents and Communications relating to any criminal investigation 17 of BofI from the beginning of the Relevant Period through the present. 18 64. All Documents and Communications relating to any criminal investigation or prosecution of any current or former BofI employee, including but not 19 limited to Kristi Procopio, from the beginning of the Relevant Period through 20 the present. 21 65. All Documents and Communications relating to any civil litigation commenced or threatened by BofI against any current or former BofI 22 employee from the beginning of the Relevant Period through the present. 23 66. All Documents and Communications relating to any civil litigation 24 commenced or threatened by any BofI director or officer (including any of the Individual Defendants), in their personal capacity, against any current or 25 former BofI employee from the beginning of the Relevant Period through the 26 present. 27 As before, defendants objected on the bases of relevance, overbreadth, burden, 28 plaintiff’s equal access to the information, and privacy and privilege concerns. 1 II. LEGAL STANDARD 2 Rule 26 provides that “parties may obtain discovery regarding any non-privileged 3 matter that is relevant to any party’s claim or defense and proportional to the needs of the 4 case, considering the importance of the issues at stake in the action, the amount in 5 controversy, the parties’ relative access to relevant information, the parties’ resources, the 6 importance of the discovery in resolving the issues and whether the burden or expense of 7 the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Although 8 broad, “the scope of discovery is not unlimited.” Cabell v. Zorro Prods., 294 F.R.D. 604, 9 607 (W.D. Wash. 2013). The Court “must limit” irrelevant, overly broad, unduly 10 burdensome, cumulative or disproportional discovery. Fed. R. Civ. P. 26(b)(2)(C). 11 Whether to permit or deny discovery is left to the Court’s discretion. See Hallett v. 12 Morgan, 296 F.3d 732, 751 (9th Cir. 2002). 13 III. DISCUSSION 14 As an initial matter, the Court finds that plaintiff’s discovery requests, as written, are 15 facially overbroad. The Interrogatories and RFPs are not narrowly tailored to seek only 16 such information as would be relevant in this case, but instead seek a wide swath of 17 information about all legal matters involving any current or former employee, for a period 18 of more than eight years, regardless of whether those matters relate in any way to the 19 underlying allegations of securities fraud. Rule 26’s broad scope does not entitle plaintiff 20 “‘to engage in an unwieldy, burdensome and speculative fishing expedition.’” See U.S. ex 21 rel. Carter v. Bridgepoint Educ., Inc., 305 F.R.D. 225, 237 (S.D. Cal. 2015) (citation 22 omitted). While a subset of the information sought may be relevant to the issues of falsity 23 and scienter – the purported purpose of the discovery – plaintiff’s requests sweep far too 24 broadly.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 Case No.: 15-cv-2324-GPC-KSC In re BofI HOLDING, INC. SECURITIES
12 LITIGATION ORDER REGARDING DISCOVERY 13 DISPUTE
17 18 Before the Court is the parties’ most recent discovery dispute, in which plaintiff 19 seeks an order compelling defendants to respond to plaintiff’s Interrogatories No. 1 through 20 5 and Requests for Production (“RFPs” or “document requests”) No. 63 through 66. The 21 Court heard argument from the parties regarding this dispute on August 3, 2021 during a 22 telephonic discovery conference, which was recorded. At the Court’s request, the parties 23 lodged the subject discovery requests and responses, and their agreed-upon search terms, 24 directly with chambers. The Court has considered the arguments of counsel, the materials 25 lodged by the parties, and the applicable law. For the reasons stated below, plaintiff’s 26 request is GRANTED IN PART and DENIED IN PART. 27 /// 28 /// 1 I. BACKGROUND 2 Plaintiff alleges in the Third Amended Complaint (“TAC”) that during the Class 3 Period, B of I (the “Bank”) and certain of its officers and directors misled investors by 4 falsely representing the strength of the Bank’s underwriting standards, internal controls and 5 compliance infrastructure. See generally Doc. No. 136. As an example of purportedly 6 “lax” internal controls, plaintiff alleges that the Bank hired a convicted felon as a Senior 7 Vice President in the lending department, in violation of the law. See id. at ¶¶ 97-99. 8 Plaintiff further alleges that defendants retaliated against employees who called out 9 allegedly improper practices at the Bank – including by pursuing legal action against them 10 – thereby fostering a “culture of fear and unethical conduct.” See id. at ¶¶ 106-121. 11 As discovery progressed, plaintiff served interrogatories requesting that defendants 12 identify criminal investigations and prosecutions of, and civil lawsuits involving, the Bank 13 and its employees, as follows: 14 Interrogatory No. 1: Identify and describe each criminal investigation of BofI from the beginning of the Relevant Period1 to the present, including but 15 not limited to the subject of the investigation, the investigating agency, and 16 the time period of investigation. 17 Interrogatory No. 2: Identify and describe each criminal investigation or prosecution of any current or former BofI employee from the beginning of the 18 Relevant Period to the present, including but not limited to the subject of the 19 investigation or prosecution, the investigating or prosecuting agency, the identity of the employee(s) under investigation or prosecution, and the time 20 period of investigation or prosecution. 21 Interrogatory No. 3: Identify and describe each civil action commenced by 22 BofI against any current or former BofI employee from the beginning of the Relevant Period to the present, including but not limited to the case name and 23 number, the presiding court, the parties to the litigation, the date the litigation 24 commenced, and the subject of the litigation. Interrogatory No. 4: Identify and describe each civil action commenced by 25 any current or former BofI employee against BofI or any of its directors or 26 officers (including any of the Individual Defendants) from the beginning of 27 28 1 the Relevant Period to the present, including but not limited to the case name and number, the presiding court, the parties to the litigation, the date the 2 litigation commenced, and the subject of the litigation. 3 Interrogatory No. 5: Identify and describe each civil litigation commenced 4 by any BofI director or officer (including any of the Individual Defendants), in their personal capacity, against any current or former BofI employee from 5 the beginning of the Relevant Period to the present, including but not limited 6 to the case name and number, the presiding court, the parties to the litigation, the date the litigation commenced, and the subject of the litigation. 7 8 Defendants objected to these Interrogatories as seeking irrelevant information, and 9 for being overbroad and unduly burdensome. Defendants also asserted that the information 10 sought was confidential, proprietary, and/or protected by the attorney client privilege and 11 work product doctrine. Defendants further objected that the information requested in 12 Interrogatories 3 through 5 was equally available to plaintiff. 13 Concurrent with the Interrogatories, plaintiff served document requests seeking 14 documents related to the investigations, prosecutions and lawsuits, as follows: 15 DOCUMENTS REQUESTED 16 63. All Documents and Communications relating to any criminal investigation 17 of BofI from the beginning of the Relevant Period through the present. 18 64. All Documents and Communications relating to any criminal investigation or prosecution of any current or former BofI employee, including but not 19 limited to Kristi Procopio, from the beginning of the Relevant Period through 20 the present. 21 65. All Documents and Communications relating to any civil litigation commenced or threatened by BofI against any current or former BofI 22 employee from the beginning of the Relevant Period through the present. 23 66. All Documents and Communications relating to any civil litigation 24 commenced or threatened by any BofI director or officer (including any of the Individual Defendants), in their personal capacity, against any current or 25 former BofI employee from the beginning of the Relevant Period through the 26 present. 27 As before, defendants objected on the bases of relevance, overbreadth, burden, 28 plaintiff’s equal access to the information, and privacy and privilege concerns. 1 II. LEGAL STANDARD 2 Rule 26 provides that “parties may obtain discovery regarding any non-privileged 3 matter that is relevant to any party’s claim or defense and proportional to the needs of the 4 case, considering the importance of the issues at stake in the action, the amount in 5 controversy, the parties’ relative access to relevant information, the parties’ resources, the 6 importance of the discovery in resolving the issues and whether the burden or expense of 7 the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). Although 8 broad, “the scope of discovery is not unlimited.” Cabell v. Zorro Prods., 294 F.R.D. 604, 9 607 (W.D. Wash. 2013). The Court “must limit” irrelevant, overly broad, unduly 10 burdensome, cumulative or disproportional discovery. Fed. R. Civ. P. 26(b)(2)(C). 11 Whether to permit or deny discovery is left to the Court’s discretion. See Hallett v. 12 Morgan, 296 F.3d 732, 751 (9th Cir. 2002). 13 III. DISCUSSION 14 As an initial matter, the Court finds that plaintiff’s discovery requests, as written, are 15 facially overbroad. The Interrogatories and RFPs are not narrowly tailored to seek only 16 such information as would be relevant in this case, but instead seek a wide swath of 17 information about all legal matters involving any current or former employee, for a period 18 of more than eight years, regardless of whether those matters relate in any way to the 19 underlying allegations of securities fraud. Rule 26’s broad scope does not entitle plaintiff 20 “‘to engage in an unwieldy, burdensome and speculative fishing expedition.’” See U.S. ex 21 rel. Carter v. Bridgepoint Educ., Inc., 305 F.R.D. 225, 237 (S.D. Cal. 2015) (citation 22 omitted). While a subset of the information sought may be relevant to the issues of falsity 23 and scienter – the purported purpose of the discovery – plaintiff’s requests sweep far too 24 broadly. The Court can easily imagine any number of lawsuits, investigations, or 25 prosecutions that would be responsive to plaintiff’s discovery as written: tax audits, small 26 claims suits, litigation over pay and benefits, and accusations of physical harm or damage 27 to property. These are but a few hypothetical examples to illustrate that information and 28 documents responsive to plaintiff’s discovery may be wholly unrelated to plaintiff’s 1 allegations of wrongdoing and defendants’ contemporaneous awareness of that 2 wrongdoing – and thus well outside the bounds of Rule 26. Plaintiff’s counsel conceded 3 as much at the hearing, stating that plaintiff would not be interested in, for example, 4 discovery related to a sexual harassment suit. Yet, such information is plainly called for 5 by the discovery requests as drafted. The Court reminds counsel and the parties of their 6 “obligation to narrowly tailor their discovery requests” to seek only such information as 7 may be relevant to a party’s claims or defenses. Cheng v. AIM Sports, Inc., No. CV 10– 8 3814–PSG (PLAx), 2011 WL 13196557, at *6 (C.D. Cal. Mar. 30, 2011). 9 The Court further finds that the discovery sought is unreasonably burdensome and 10 not proportional to the needs of the case. Plaintiff’s wide-ranging requests would require 11 defendants to interview dozens (if not hundreds) of current and former bank employees to 12 determine whether they were under investigation or otherwise involved in legal 13 proceedings at any time since 2013, based on nothing more than plaintiff’s speculation that 14 there could be some there there. Plaintiff has not persuaded the Court that these efforts are 15 necessary – particularly as to civil lawsuits, which are a matter of public record that plaintiff 16 is equally capable of researching. The Court finds that the marginal (if any) relevance of 17 the discovery sought is significantly outweighed by the effort that defendants would need 18 to expend to produce it – not to mention the unnecessary intrusion into nonparties’ legal 19 affairs. See In re Ex Parte Application of Qualcomm Inc., 162 F. Supp. 3d 1029, 1043 20 (N.D. Cal. 2016) (noting that overbroad discovery requests for “confidential information” 21 that seek “irrelevant information” are “unduly intrusive and burdensome”). 22 Plaintiff offered at the hearing to limit the scope of the discovery to information and 23 documents related to the wrongdoing alleged in the TAC. Even with this limitation, 24 however, the Court finds that the document requests are unreasonably cumulative. Plaintiff 25 has already requested documents related to communications “with any governmental 26 agency” regarding the allegations of the Erhart action or this Action specifically, and, 27 separately, documents and communications “referring or relating to any investigation by” 28 /// 1 several enumerated government entities. More generally, plaintiff has requested 2 documents and communications related to the Bank’s internal controls, compliance and 3 compliance infrastructure, lending practices, risks and risk management issues, assessment 4 and response to fraud risks, whistleblower program, and hiring and termination practices.3 5 The parties’ negotiated search terms corresponding to these requests indicate that 6 defendants have searched for documents related to government and agency reviews, 7 investigations, inquiries and interviews concerning underwriting, credit quality, and 8 internal controls, and investigations and inquiries by the enumerated government entities 9 regardless of subject matter. There are also searches for documents concerning the alleged 10 fraud itself, including broadly-worded searches related to risk, risk management, internal 11 controls, compliance, financial reporting, and internal audits. Given these comprehensive 12 search terms, the Court finds that documents responsive to RFPs No. 63 through 66, 13 appropriately limited to the subject matter of the lawsuit, are within the scope of plaintiff’s 14 existing discovery requests and the searches already undertaken for documents responsive 15 to those requests. The Court will therefore not require defendants to renegotiate search 16 terms or to start the ESI collection process anew to respond to plaintiff’s RFPs. 17 Notwithstanding the foregoing, the Court finds information concerning the Bank’s 18 or its executives’ knowledge of, or involvement in, criminal or civil proceedings related to 19 the wrongdoing alleged in the TAC may be relevant to the issues of falsity and scienter. 20 For example, legal action (including investigations) in which the Bank or its highest- 21 ranking executives were named parties (or the subject of the investigation) would be 22 relevant to these issues – if the action related to the alleged wrongdoing. Presumably, the 23 Bank’s legal department would have been made aware of legal action related to the Bank 24
25 26 2 These are RFPs No. 5 and 6. The enumerated entities are the Securities and Exchange Commission, the Departments of Justice and the Treasury, the Office of the Comptroller of the Currency, the Federal 27 Reserve, the Consumer Financial Protection Bureau, and the Financial Industry Regulatory Authority. 28 3 These are RFPs No. 12 through 17, 22, 27, and 29. 1 itself, or to the executives’ conduct at the Bank. Furthermore, the Court has already found 2 “the appropriate time period for discovery in this matter is April 1, 2013 to June 30, 3 2016,” and plaintiff has not persuaded the Court that a broader time period should apply 4 See Doc. No. 182 at 3. In other words, the universe of relevant information is 5 ||considerably narrower than the discovery plaintiff propounded. As a rule, it is not up to 6 ||the Court to “rewrite” overbroad discovery “to obtain the optimum result for □□□□□ 7 ||[propounding] party.” See Kellgren v. Petco Animal Supplies, Inc., No. 3:13-cv-644- 8 || L(KSC), 2017 WL 979045, at *4 (S.D. Cal. Mar. 13, 2017) (citation and internal quotations 9 || omitted). However, in the interest of expediting discovery, the Court has done so here. 10 ORDER 11 For the foregoing reasons, plaintiff's request to compel defendants to respond to 12 || Interrogatories No. | through 5 and RFPs No. 63 through 66 is GRANTED IN PART and 13 ||}DENIED IN PART. Within 10 business days of the date of this Order, defendants shall 14 ||respond to Interrogatories No. | through 5 as follows: For the period April 1, 2013 through 15 || June 30, 2016, defendants shall identify (1) any investigation, prosecution or civil lawsuit 16 || to which the Bank or any of its officers or directors was a party or subject of investigation, 17 || to the extent the defendants or the Bank’s legal department were made aware of such legal 18 || action; (2) the subject of the investigation, prosecution or civil lawsuit as it relates to the 19 || allegations in the TAC; (3) the date of the investigation, prosecution, or civil lawsuit; (4) 20 || for criminal or regulatory matters, the investigating or prosecuting entity; and (5) for civil 21 lawsuits, the named parties, case number and jurisdiction. Defendants need not otherwise 22 ||respond to Interrogatories No. | through 5, and are not required to respond to RFPs No. 63 23 || through 66. 24 IT IS SO ORDERED. 25 ||Dated: August 10, 2021 La.) 26 Mfficae 7 Hori. Karen S. Crawford United States Magistrate Judge