Iowa Public Employees' Retirement System v. Bank of America Corporation

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

IOWA PUBLIC EMPLOYEES’ RETIREMENT

SYSTEM, et al.,

Plaintiffs,

17 Civ. 6221 (KPF)

-v.-

MERRILL LYNCH, PIERCE, FENNER & ORDER

SMITH INC., et al.,

Defendants.

KATHERINE POLK FAILLA, District Judge:

On October 1, 2019, non-parties SL-x IP S.À.R.L., SL-x Trading Europe

Limited, SL-x Technology UK Limited, SL-x USA Trading LLC, and SL-x

Technology USA (collectively, “SL-x”) sought leave to file a motion to shift the

cost of compliance with Defendants’ subpoenas. (Dkt. #209). Defendants filed

a letter in opposition on October 4, 2019. (Dkt. #211). The Court granted SL-

x’s application to file the motion on October 9, 2019, and set a briefing

schedule. (Dkt. #214).

SL-x filed their motion and supporting papers on October 30, 2019.

(Dkt. #229, 230, 231, 232). Defendants filed their opposition papers on

November 20, 2019. (Dkt. #243, 244). The motion was fully briefed when SL-x

filed its reply papers on November 27, 2019. (Dkt. #249, 250, 251). For the

reasons discussed below, SL-x’s motion is granted in part: Defendants shall

bear the reasonable expenses of SL-x’s compliance with Defendants’ third-party

subpoenas, with two caveats: (i) should the motion to dismiss be denied in SL-

x’s suits against Defendants, SL-x IP S.A.R.L. v. Bank of America Corporation et

al., No. 18 Civ. 10179 (RJS), and SL-x Trading Europe Limited et al., v. Bank of

America Corporation et al., No. 19 Civ. 4885 (RJS) (collectively, the “SL-x

Actions”), SL-x must repay Defendants for any discovery costs advanced in this

litigation; and (ii) if it comes to light that SL-x has a monetary interest in the

outcome of this litigation, the Court will reconsider this Order.

A. Procedural History

Plaintiffs filed this action on August 16, 2017, alleging that Defendants

had conspired to boycott new market entrants — specifically, AQS, SL-x, and

Data Explorers — in order to maintain their monopoly grip as prime broker

intermediaries, and, by extension, to charge excessive fees under the cover of

price opacity. (Dkt. #1; see also Dkt. #123). Certain Defendants filed a motion

to dismiss on January 26, 2018 (Dkt. #73), which motion the Court denied on

September 27, 2018 (Dkt. #123). Just over one month later, on November 1,

2018, SL-x commenced its own lawsuit against Defendants, raising

substantially similar allegations to those raised by Plaintiffs here.1

B. Motions to Shift Costs Under Rule 45

Federal Rule of Civil Procedure 45 states, in relevant part:

(B) Objections. A person commanded to produce

documents or tangible things or to permit inspection

may serve on the party or attorney designated in the

subpoena a written objection to inspecting, copying,

testing or sampling any or all of the materials or to

inspecting the premises — or to producing electronically

stored information in the form or forms requested. The

objection must be served before the earlier of the time

specified for compliance or 14 days after the subpoena

1 That action, SL-x IP S.A.R.L. v. Bank of America Corporation et al., No. 18 Civ. 10179

(RJS), was later consolidated with a second action, SL-x Trading Europe Limited et al., v.

Bank of America Corporation et al., No. 19 Civ. 4885 (RJS).

is served. If an objection is made, the following rules

apply:

(i) At any time, on notice to the commanded person, the

serving party may move the court for the district where

compliance is required for an order compelling

production or inspection.

(ii) These acts may be required only as directed in the

order, and the order must protect a person who is

neither a party nor a party’s officer from significant

expense resulting from compliance.

Fed. R. Civ. P. 45(d)(2)(B). While the parties dispute the degree of discretion

inherent in subsection (ii) (compare Dkt. #229 at 5-8, with Dkt. #243 at 6-9),

the Court aligns itself with those Courts of Appeals to have considered the

issue, and finds that the plain text obligates, and not merely empowers, the

Court to protect third parties from significant expenses resulting from

compliance with subpoenas. See Legal Voice v. Stormans Inc., 738 F.3d 1178,

1184 (9th Cir. 2013) (“This language leaves no room for doubt that the rule is

mandatory.” (internal quotation marks omitted)); Linder v. Calero-Portocarrero,

251 F.3d 178, 182 (D.C. Cir. 2001) (same).

C. Observations

Central to the Court’s analysis is the existence of parallel litigation

brought by SL-x against Defendants in this District. And while SL-x is a third

party to this action, it has a clear (and quite possibly pecuniary) interest in its

progress. Shortly after the complaint in this action survived a motion to

dismiss — a decision that suggested the potential viability of Plaintiffs’

claims — SL-x initiated their own cases, premised upon substantially similar

allegations. The SL-x Actions were consolidated and assigned to Judge

Sullivan. Discovery in those actions has been stayed, over SL-x’s objection,

pending the resolution of a motion to dismiss both suits.

Given the relative postures of the proceedings here and before Judge

Sullivan, one could argue that the instant discovery dispute is animated by

ulterior motives on both sides. Defendants seek to require SL-x to produce in

this proceeding essentially the same materials that they would have to produce

in the SL-x Actions, had discovery in those actions not been stayed. More to

the point, procuring discovery from SL-x here, while reciprocal discovery is

stayed in the SL-x Actions, could be construed as both an end-run around

Judge Sullivan’s stay order and a means of gaining the upper hand in that

litigation. On the other hand, SL-x’s efforts to shift onto Defendants the costs

of discovery that they would otherwise have to produce in the SL-x Actions

could be construed as an effort to have Defendants underwrite SL-x’s future

discovery obligations.

From the record before it, the Court understands that SL-x does not have

any direct pecuniary interest in this action and is instead a third party to it.

SL-x has further demonstrated that complying with Defendants’ third-party

subpoenas would cause it to incur significant expense, as defined by Rule 45

and as further explained by those Courts of Appeals to have considered the

issue. Even by Defendants’ estimation, SL-x could incur more than $100,000

in e-discovery vendor costs. This would be a significant expense to most

entities, but is particularly significant to SL-x, given its representations that it

has no annual revenue and has not had customers or clients for many years.

(See Dkt. #230 at 1, 11).

D. Resolution

The Court concludes on this record that (i) SL-x is a third party to this

litigation and (ii) compliance with Defendants’ subpoenas would require

significant expense. Thus, the Court grants SL-x’s motion to shift costs, with

two caveats outlined in the next two paragraphs. In so doing, the Court

understands that the parties have significantly narrowed the scope of

discoverable materials and expects that SL-x’s discovery costs will be reduced

accordingly. The Court also expects that Defendants and SL-x will engage in

further good-faith negotiations concerning the appropriate limits for discovery,

and reasonable fees for complying with that discovery. The Court will resolve

all discovery fee disputes as they arise. Similarly, if the parties cannot agree to

reasonable attorneys’ fees after they have been incurred, the Court will

determine reasonable attorneys’ fees on motion practice.

The first caveat to the grant of SL-x’s cost-shifting motion is, perhaps,

the most significant. The Court understands that Judge Sullivan may well

deny the pending motion to dismiss the SL-x Actions, in which case those

matters will proceed to discovery. If this does happen, this Court will order SL-

x to repay Defendants any discovery costs advanced up until that point in time.

That is because if SL-x is permitted to proceed to discovery in the actions that

it initiated, it will no doubt be required to produce to Defendants the same

discoverable materials that have been requested from it here. In that event, the

costs of complying with third-party discovery in this action will no longer be

significant, because SL-x would have been required to incur those same costs

in furtherance of its own litigation. ?

Second, if, after the parties engage in further discovery, it comes to light

that SL-x does have a monetary interest in the outcome of this suit that is

unrelated to its own pending SL-x Actions, the Court will reconsider this Order.

The Clerk of Court is directed to terminate the motion pending at docket

entry 229.

SO ORDERED.

Dated: December 27, 2019 Kittens fal. ful

New York, New York

KATHERINE POLK FAILLA

United States District Judge

2 In demonstrating the significance of the expenses it might have to bear in complying

with Defendants’ subpoenas, SL-x raised significant concerns regarding its ability to

pay for discovery costs in this action. The Court encourages SL-x to keep this in mind

as it discharges its third-party discovery obligations, and to refrain from excessive

expenditures, which it may have to be repay to Defendants in the near future.