In re Lifetrade Litigation

District Court, S.D. New York·Decided May 4, 2023·No. 1:17-cv-02987·Unknown

Opinion

DOCUMENT ELECTRONICALLY FILED UNITED STATES DISTRICT COURT | DOC #: SOUTHERN DISTRICT OF NEW YORK DATE FILED:5/4/2023 OPINION AND ORDER ON MOTION IN RE LIFETRADE LITIGATION: FOR PROTECTIVE ORDER 17-CV-2987 (JPO)(KHP)

+--+ ----X KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE Defendants Wells Fargo Bank, N.A., Wells Fargo Bank Northwest, N.A. (n/k/a Wells Fargo Trust Company, N.A.) (“Wells Fargo Utah”), Wells Fargo Delaware Trust Company, N.A. (“Wells Fargo Delaware”), and ATC Realty Fifteen, Inc. (“ATC,” and together, the “Wells Fargo Defendants”) have moved for a protective order pursuant to Federal Rule of Civil Procedure 26(c) to limit the scope of certain 30(b)(6) deposition topics proposed by Plaintiffs. For the reasons set forth below, the motion is granted in part and denied in part. FACTUAL BACKGROUND The Court assumes familiarity with the facts and does not repeat them here except as necessary for context. Plaintiffs are investors in three funds (the “Lifetrade Funds”). The funds invested in life insurance policies issued by United States citizens but later taken up by third-party settlement providers, which paid the insured a lump sum during their lifetime less than the value of the policy and then continued to pay the premium with the right to collect the full value of the policy upon the insured’s death. The funds closed in 2012 because of alleged mismanagement by Roy Smith, Lifetrade’s founder and CEO, and John Marcum, a consultant.

In the years before Lifetrade’s closure, the funds did not have sufficient cash to satisfy investors’ requests to redeem shares, so Lifetrade entered into a loan agreement with Defendant

Wells Fargo’s predecessor for a $500 million credit line with a repayment date of June 15, 2012. By 2012, Lifetrade had an outstanding debt of $205 million while Wells Fargo valued its portfolio of life insurance policies at $302 million. Lifetrade represented to investors that the portfolio was

worth $450 million. In March 2012, Lifetrade suspended redemptions and called a shareholder meeting to discuss the pending repayment date and expiring credit line. The Investors chose to seek long-term financing in lieu of transferring Lifetrade’s insurance policies to Wells Fargo. When Lifetrade was unable to secure the long-term financing, Wells Fargo announced it would foreclose on the debt. However, in August 2012, Wells Fargo and Lifetrade negotiated a settlement with two Lifetrade executives, Roy G. Smith and John Marcum, where Wells Fargo would acquire

Lifetrade Funds’ assets. Plaintiffs contend the settlement was unconscionable because the life insurance policies transferred under the agreement were allegedly worth more at that time than the amount of the debt extinguished. Plaintiffs also allege that the Wells Fargo Defendants aided and abetted

Smith’s and Marcum’s breaches of fiduciary duty by “playing to [Smith and Marcum’s] personal vulnerabilities . . . and orchestrating a Settlement Agreement.” 30(b)(6) DEPOSITION NOTICE

Plaintiffs served identical 30(b)(6) deposition notices on each of various Wells Fargo entities. The notices include 32 topics. The parties met and conferred on the topics but are at an impasse as to certain topics. The parties provided a helpful chart of the proposed topics and counter-proposed topics, which the Court includes as Addenda to this Opinion. The Court will utilize the Plaintiffs’ Topic Numbers and Defendants’ Counter-Proposed Topic Letters as set forth in the Addenda in this decision. DISCUSSION 1. Legal Standard Protective Orders District courts have “broad discretion to manage the manner in which discovery

proceeds.” Diamond v. 500 SLD LLC, 2022 WL 956262, at *2 (S.D.N.Y. Mar. 30, 2022) (quoting In re Subpoena Issued to Dennis Friedman, 350 F.3d 65, 69 (2d Cir. 2003)). A court may issue a protective order to safeguard a party or person “from annoyance, embarrassment, oppression, or undue burden or expense,” Fed. R. Civ. P. 26(c), “but the moving party bears the burden of establishing good cause for such a protective order.” Rekor Sys., Inc. v. Loughlin, 2022 WL 488941, at *1 (S.D.N.Y. Feb. 17, 2022) (quoting Qube Films Ltd. v. Padell, 2015 WL 109628, at *2 (S.D.N.Y.

Jan. 5, 2015)). “Ordinarily, good cause exists when a party shows that disclosure will result in a clearly defined, specific and serious injury.” In re Terrorist Attacks on Sept. 11, 2001, 454 F. Supp. 2d 220, 222 (S.D.N.Y. 2006) (internal quotation marks omitted). Ultimately, “[t]he grant and nature of protection is singularly within the discretion of the district court.” Dove v. Atl. Cap. Corp., 963 F.2d 15, 19 (2d Cir. 1992). 2. Legal Standard Rule 30(b)(6) Depositions

All 30(b)(6) deposition topics are constrained by Rule 26(b)(3)—meaning that they must seek information relevant to the claims and defenses that is proportional to the needs of the case. Further, the party seeking the deposition must describe the deposition topics with “reasonable particularity.” Fed. R. Civ. P. 30(b)(6). “Reasonable particularity” requires the topics listed to be specific as to subject area and to have discernible boundaries. Winfield v. City of New York, 2018 WL 840085, *5 (S.D.N.Y. Feb. 12, 2018).

Courts must scrutinize Rule 30(b)(6) deposition topics to ensure they are not a tool for abuse of the discovery process. Provided the topics listed in the notice meet the above criteria, the corporate defendant must produce someone familiar with the topics listed and, if one person cannot address all the topics, produce persons able to give complete, knowledgeable and binding answers on its behalf. Reilly v. NatWest Mkts. Grp. Inc., 181 F.3d 253, 268-69 (2d Cir. 1999),

superseded by statute on other grounds as recognized by Hernandez v. Jrpac Inc., 2016 WL 328493, at *35 (S.D.N.Y. June 9, 2016). If a corporation genuinely cannot provide an appropriate designee because it does not have the information, cannot reasonably obtain it from other sources, and still lacks sufficient knowledge after reviewing all available information, then its obligations under Rule 30(b)(6) cease. See, e.g., Klorczyk v. Sears, Roebuck & Co., 2015 WL 1600299, at *5 (D. Conn. Apr. 9, 2015) (quoting QBE Ins. Corp. v. Jorda Enter., Inc., 277 F.R.D. 676,

690 (S.D. Fla. 2012)); Calzaturficio S.C.A.R.P.A. s.p.a. v. Fabiano Shoe Co., Inc., 201 F.R.D. 33, 38-39 (D. Mass. 2001) (citing Fed. R. Civ. P. 30(b)(6) (requiring testimony only as to “matters known or reasonably available to the organization”) (emphasis added)). As this Court has previously recognized, the Rule challenges the propounding party to be specific so that the receiving entity can adequately prepare for a deposition. The Rule challenges the receiving company to identify people – sometimes multiple people – to answer specific topics,

and the burden of preparing for these depositions can be onerous. Because Rule 26(b)(3) restricts discovery to that which is proportional to the needs of the case, proportionality can be an important principle in limiting the burden of 30(b)(6) depositions while still providing the propounding party with information needed.

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