Weisburgh v. NH Savings BankCorp

Opinion

Weisburgh v. NH Savings BankCorp CV-90-227-B 04/27/93

UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

Jeffrey M. Weisburgh

v. Civil No. 90-227-B

New Hampshire Savings BankCorp, et al.

O R D E R

Defendants seek an order compelling plaintiff to produce

information concerning his transactions in securities during the

five years preceding the commencement of this action. Plaintiff

argues that the motion should be denied pursuant to Rule 26(b) (1)

of the Federal Rules of Civil Procedure because his trading

records are not relevant and because it would be unduly intrusive

to reguire him to produce the records.

I. DISCUSSION

Rule 26(b)(1) sets forth a broad test of relevancy which

ordinarily will allow discovery of any unprivileged matter that

may bear on any issue in the case. Santiago v. Fenton, 891 F.2d

373, 379 (1st Cir. 1989). However, relevant information still

may be withheld from a party seeking discovery if its production would be "unduly burdensome, 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." Fed. R. Civ. P. 26(b)(1). Applying these standards

here, I grant defendants' motion because it seeks relevant

information that would not be unduly burdensome for the plaintiff

to produce.

A. Relevance

Defendants in this fraud-on-the-market case make the

following argument in support of their claim that the plaintiff's

trading records are relevant to the issue of class certification:

(1) plaintiff's trading records will reveal a pattern of trading

based upon factors other than the integrity of the market price;

(2) this pattern of trading in other stocks will demonstrate that

the plaintiff did not rely on the integrity of the market price

in purchasing the stock at issue in this case; (3) since reliance

is an element of the plaintiff's claims, proof of nonreliance

will defeat plaintiff's claim on the merits; and (4) because the

records will give the defendants a unigue nonreliance defense

with respect to the only named representative of the purported

class, the records will establish that the plaintiff will not be

able to satisfy the tests of adeguacy and typicality which are

2 prerequisites to class certification.

Plaintiff argues that the court may not consider matters

such as reliance during the class certification process because

such matters relate to the merits of plaintiff's claims.1

Accordingly, plaintiff contends that his trading records in other

stocks would not be relevant at this stage of the proceedings

even if they tended to prove nonreliance. Plaintiff bases this

claim primarily upon Eisen v. Carlisle & Jacguelin, 417 U.S. 156

(1974), where the Supreme Court held that it was improper in a

class action for a court to consider the merits of a claim in

determining whether the defendant should be required to pay the

costs of notifying prospective class members of the action. 417

U.S. at 177. Plaintiff also relies upon several decisions in

1Plaintiff also argues that the presumption of reliance in fraud-on-the-market cases which the Supreme Court recognized in Basic, Inc. v. Levenson, 485 U.S. 224, 225 (1988) somehow bars discovery on the subject of individual reliance. I reject this argument because reliance remains an element of a Rule 10b-5 claim after Basic. Accordingly, discovery on matters which bear on reliance will ordinarily be allowed in the absence of a viable claim of privilege.

Finally, plaintiff contends that records of his other trades are so remote to the matters at issue in this litigation that they could not possibly prove the point for which defendants seek to use them. Although I agree that there is only a small chance that the records will ultimately prove useful, I am directing that the records be produced because even a small likelihood that the requested documents are relevant warrants their production in the absence of a credible claim of a significant hardship.

3 other jurisdictions which support his argument that reliance

should not be considered in determining whether to certify a

class action. See also 4 Herbert Newbery & Albert Conti, Newbury

on Class Actions, § 22.57 at 22-246 (3d ed. 1992) ("the

prevailing view is that differences in individual guestions of

reliance and amount of damages are not grounds for refusing to

permit an action to proceed as a class action").

I cannot accept the plaintiff's argument because I do not

agree that Eisen bars all inguiries into the subject of reliance

at the class certification stage of a Rule 10b-5 action. It is

not necessary to rule on the merits to determine whether

defendants may have a nonreliance defense that is unigue to the

only named class representative. McGuinness v. Parnes, 1988 WL

66214 at *2 (D.D.C. June 17, 1988). Accordingly, I am not

prepared to conclude at this stage of the proceedings that the

reguested documents cannot possibly be relevant to the class

certification determination.

B. The Burden of Production

Plaintiff argues that defendants' discovery reguest should

be denied because of its intrusiveness even if it seeks relevant

information. While I acknowledge that the compelled disclosure

of trading records may be somewhat intrusive, the plaintiff has

4 not demonstrated that the production of the records in question

would be exceedingly difficult or expensive. Nor does he claim

that the records contain information of an especially sensitive

nature. Accordingly, I conclude that defendants' legitimate

interest in obtaining the records outweighs any harm to the

plaintiff that will result from their production.

Although the defendants are entitled to the records they

seek, there are limits as to how far I will permit them to travel

down this path. I expect the defendants to abandon this inquiry

on their own if it becomes apparent that the likelihood of

obtaining valuable information has diminished to the point that

the burdens of production outweigh the benefits of perseverance.

If this issue is raised again under different circumstances, I

will not hesitate to reconsider this decision.

II. CONCLUSION

Defendants' Motion to Compel Discovery Directed to Class

Issues (document no. 107) is granted.

SO ORDERED.

Paul Barbadoro United States District Judge April 27, 1993

5 cc: John T. Broderick, Jr., Esq. Thomas J. Dougherty, Esq. Christopher P. Reid, Esq. Stephen A. Whinston, Esq. Dennis J. Johnson, Esq. Kenneth G. Bouchard, Esq.