Opinion
24-MC-66 (GHW) (RWL)
03-12-2024
BLST NORTHSTAR, LLC, and BLST RECEIVABLES & SERVICING, LLC, Petitioners, v. ATALAYA CAPTIAL MANAGEMENT LP, and BB ALLIUM LLC, Respondents.
REPORT AND RECOMMENDATION: MOTION TO ENFORCE SUBPOENA
Courts within this Circuit are not of a single mind on whether a motion to compel or quash a subpoena served in aid of discovery for an action in another district is “dispositive,” for which a report and recommendation is required, or “non-dispositive,” for which it is not. Compare In re Hulley Enterprises, Ltd., 358 F.Supp.3d 331, 341 (S.D.N.Y. 2019) (“where a proceeding is commenced in a district court under Fed.R.Civ.P. 45 to quash a subpoena issued by another district court[, s]uch matters are routinely decided by Magistrate Judges as ‘non-dispositive' matters even though the ruling completely ‘disposes' of the special proceeding before the district court”), aff'd, 400 F.Supp.3d 62 (S.D.N.Y. 2019), with In re Rule 45 Subpoena Issued to Cablevision Systems Corp. Regarding IP Address 69.120.35.31, 08-MC-347, 2010 WL 2219343, at *1 n. 1 (E.D.N.Y. Feb. 5, 2010) (“Although applications to compel or quash subpoenas are ordinarily viewed as pretrial discovery matters within the general pretrial reference authority of magistrate judges pursuant to 28 U.S.C. § 636(b)(1)(A), motions to quash a subpoena brought in a proceeding before a court other than the one determining the action are typically treated as dispositive matters under 28 U.S.C. § 636(b)(1)(B) and Federal Rule of Civil Procedure 72(b)”), R. & R. adopted in part, 2010 WL 1686811 (E.D.N.Y. Apr. 26, 2010). See also Arista Records, LLC v. Doe 3, 604 F.3d 110, 116 (2d Cir. 2010) (addressing a different issue but stating that “[a] motion to quash a subpoena in an action seeking relief other than production of the subpoenaed information is not normally a dispositive motion”). Given the lack of clarity on this issue, the Court issues its decision as a Report and Recommendation.
ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE
Petitioners BLST Northstar, LLC and BLST Receivables & Servicing, LLC (collectively, “Petitioners” or “Bluestem”) bring this action pursuant to Federal Rule of Civil Procedure 45(d) to compel Respondents Atalaya Capital Management LP (“Atalaya Capital”) and BB Allium LLC (“BB Allium”) (collectively, “Respondents” or “Atalaya”) to fully comply with document subpoenas (the “Subpoenas”) served on them in connection with an action in Minnesota, BLST Northstar, LLC et al v. Santander Consumer USA, Inc., Case No. 0:22-CV-2210 (WMW/DJF) (D. Minn.) (the “Minnesota Action”). Respondents already have produced thousands of documents and have agreed to provide a deposition witness. At issue are approximately 200 documents that Respondents have withheld on the asserted basis that they are irrelevant to the Minnesota Action and comprise competitively sensitive material. For the following reasons, the motion to comply should be granted in part and denied in part.
Background
A. The Minnesota Action
Bluestem operates a consumer financing program that allows Bluestem's customers to purchase, on credit, products sold by certain companies (the “Program”) and thereby generates accounts receivable (the “Program Receivables” or “Receivables”). (AC ¶¶ 3, 4, 19.) Pursuant to a contract with Santander Consumer USA, Inc. (“Santander”), Bluestem sold its Receivables to Santander effectively making Santander the ultimate source of liquidity that funded Bluestem's consumer credit business. (AC ¶¶ 4, 21.) Bluestem and Santander's contract provided Bluestem with a right of first refusal to repurchase the Receivables in the event the contract was not renewed. (AC ¶¶ 6, 24-26.) The right of first refusal was of particular import to Bluestem as it would allow Bluestem to retain its consumer credit program in the event that Santander exited its financing role. (AC ¶ 27.) The contract also included an antiassignment provision requiring Bluestem's prior written consent. (AC ¶¶ 40-42.)
“AC” refers to the Amended Complaint in the Minnesota Action, dated Nov. 3, 2023, at Dkt. 5-1. “Dkt.” refers to the docket entries in the instant case, not the Minnesota Action.
Bluestem alleges that instead of honoring Bluestem's right of first refusal, Santander breached the parties' contract by selling and assigning the Receivables, having a par value of more than a billion dollars - to a third party - BB Allium, then owned by Castlelake L.P. (“Castlelake”), on March 16, 2021 (the “March 2021 Transaction”). (AC ¶¶ 35-39, 44.) Further, Bluestem asserts, Santander disclosed Bluestem's trade secrets, also in violation of their contract, to BB Allium to effectuate the March 21 Transaction. Such information included profit and loss projections, financial performance data, future business plans, and the like. (AC ¶¶ 10, 45-49.) Although not mentioned in the Amended Complaint, Atalaya funded BB Allium's purchase of the Program Receivables. (Roberts Decl. Exs. 7-8.) In August 2021, Atalaya began evaluating a purchase of the Program Receivables outright, and ultimately acquired them and BB Allium itself by agreement with Castlelake entered into on December 6, 2021 (the “December 2021 Transaction”). (See Tharp Decl. Exs. 20; Resp. Mem. at 6.)
“Roberts Decl.” refers to the Declaration of Owen Roberts, filed Feb. 13, 2024, at Dkt. 5.
“Tharp Decl.” refers to the Declaration of Matthew Tharp, filed Feb. 20, 2024, at Dkt. 14. “Resp. Mem.” refers to Respondents' Memorandum Of Law In Opposition To Petitioners' Motion To Compel, filed Feb. 20, 2024, at Dkt. 15.
On March 18, 2022, Bluestem's owner, Cerberus Capital Management (“Cerberus”), sent Atalaya a term sheet proposing a transaction in which Bluestem would purchase the Program Receivables from Atalaya. (Tharp Decl. Exs. 17-18.) Atalaya responded with interest, but offered to sell the Receivables back to Bluestem at a substantial premium of approximately $400 million, explaining that it had analyzed Bluestem's internal financial performance metrics, which, Atalaya said, justified the premium. (AC ¶ 48; Tharp Decl. Ex. 19.) Bluestem did not engage in further discussions with Atalaya.
Bluestem filed the Minnesota Action against Santander on September 9, 2022. (Tharp Decl. Ex. 1 at 6 ¶ 10.) The Amended Complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and theft of trade secrets under the Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (“DTSA”). Among other damages and harm, Bluestem alleges that Santander's conduct forced Bluestem to discontinue its Program and start a new one, thereby causing extensive disruption in service, millions of dollars in out-of-pocket costs, and damage to the value of Bluestem's brands and receivables. (AC ¶ 52.) Additionally, Bluestem alleges, it lost hundreds of millions of dollars in value and revenue when Santander refused to sell the Program Receivables to it. (AC ¶ 53.)
Cerberus acquired Bluestem after it filed for bankruptcy in 2020. (AC ¶ 1; Tharp Decl. Ex. 21.) Cerberus and Atalaya are competitors who often negotiate against each other for potential transactions. (Tharp Decl. ¶ 20.)
B. The Subpoenas
Knowing that Santander had provided Bluestem's confidential information to Atalaya (via BB Allium), Bluestem issued the Subpoenas, among others, to Atalaya Capital and BB Allium seeking information about what information Atalaya received from Santander and what it did with that information. As suggested in the Amended Complaint, Atalaya had purportedly used that information to value and purchase the Program Receivables from Santander, and then used the information to value and offer them back to Bluestem at a substantial premium. The Subpoenas thus seek, among other material, all documents relating to disclosures of information about Bluestem's business and documents relating to the value of the Program Receivables, such as profit and loss projections, projected cash flows, and other metrics. (Roberts Decl. Exs. 2-3.) Bluestem served the Subpoenas on February 6, 2023. (Roberts Decl. Exs. 2 at 3, 3 at 3.)
C. Atalaya's Response And The Instant Motion
Atalaya produced more than 5,820 documents in response to the Subpoenas but refused to produce certain documents that Atalaya characterizes as containing competitively sensitive material. (Alexander Decl. ¶¶ 4, 19.) Atalaya declined to do so even though Bluestem agreed that any such material could be designated “Attorney's Eyes Only” under the two-tier protective order for confidential information governing the Minnesota Action (the “Protective Order”). (Alexander Decl. ¶ 10; Roberts Decl. Ex. 4.) The Attorney's Eyes Only designation restricts disclosure to outside counsel only. (Alexander Decl. ¶ 10.) Bluestem also expressed its willingness to consider any reasonable modification of the Protective Order to address Atalaya's concerns. (Id.) Atalaya declined to offer any such modifications. (Id.)
“Alexander Decl.” refers to the Declaration of Jordan E. Alexander, filed Feb. 14, 2024, at Dkt. 6.
Bluestem filed the instant motion to compel Atalaya's full compliance with the Subpoenas on February 13, 2024. Two days later, Atalaya produced a log listing approximately 220 documents that Atalaya identified as responsive but containing competitively sensitive material. (Tharp Decl. ¶ 13, Ex. 6.) The material at issue consists of Atalaya's investment committee materials and drafts, related models, and communications regarding the same. (Id. ¶ 9.) On February 19, 2024, Atalaya produced two documents listed on the log: redacted copies of the final investment committee memoranda for the March 2021 Transaction and the December 2021 Transaction. (Id. ¶ 17, Exs. 8-9.) Atalaya objects to producing any other documents from the log on the basis of lack of relevance, confidentiality, and burden.
Atalaya has agreed, however, to provide a corporate representative for a deposition and answer questions on numerous subjects, including Atalaya's knowledge and understanding of information relevant to an assessment of value of the Program Receivables; any information Atalaya received from Santander, Castlelake or anyone else relating to Bluestem's business; and the manner in which Atalaya used any information that Santander received from Bluestem under the Receivables Program. (Tharp Decl. Ex. 16.)
Bluestem's motion to compel has been referred to me. (Dkt. 9.) The motion has been fully briefed, and the Court held oral argument on March 7, 2024.
Legal Standards
A party who has properly served a subpoena “may move the court for the district where compliance is required for an order compelling production or inspection.” Fed.R.Civ.P. 45(d)(2)(B)(i). Here, Atalaya is headquartered in the Southern District of New York, where the Subpoenas call for Atalaya's compliance. (Pet. Mem. at 7.) Accordingly, the instant motion is properly before the Court.
“Pet. Mem.” refers to Petitioners' Memorandum Of Law In Support Of Petitioners' Motion To Compel, filed Feb. 13, 2024, at Dkt. 4. Although the statement about the location of Atalaya's headquarters appears in Bluestem's brief, Atalaya has not contested the assertion; nor has it contested the Court's jurisdiction.
“Motions to compel compliance with Rule 45 subpoenas are governed by the relevancy and proportionality guidelines of Rule 26.” Delta Air Lines, Inc. v. Lighthouse Group, LLC, No. 21-MC-374, 2021 WL 2117247, *2 (S.D.N.Y. May 24, 2021); see also Ambac Assurance Corp. v. U.S. Bank National Association, No. 17-CV-2614, 2020 WL 526404, *2 (S.D.N.Y. Feb. 3, 2020) (Rule 45 “permits parties to obtain discovery from non-parties” but “[t]he information requested in the subpoena must be consistent with Rule 26(b)(1), meaning that the information must be relevant to the claims and defenses and proportional to the needs of the case”). Parties thus may obtain discovery of “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Fed.R.Civ.P. 26(b)(1).
“The party issuing the subpoena bears the initial burden of showing that the discovery sought falls within the scope of Rule 26(b)(1).” Joint Stock Company Channel One Russia Worldwide v. Infomir LLC, No. 16-CV-1318, 2018 WL 6712769, *5 (S.D.N.Y. Nov. 30, 2018); see also Citizens Union of City of New York v. Attorney General of New York, 269 F.Supp.3d 124, 139 (S.D.N.Y. Sept. 1, 2017) (“The party seeking discovery bears the initial burden of proving the discovery is relevant”). The party opposing enforcement of the subpoena then bears the burden of establishing that “one of the grounds for quashing a subpoena applies.” Malibu Media, LLC v. Doe, No. 15-CV-3147, 2016 WL 5478433, *2 (S.D.N.Y. Sept. 29, 2016); see also In re Terrorist Attacks on September 11, 2001, 523 F.Supp.3d 478, 489 (S.D.N.Y. 2021) (“If the party issuing the subpoena establishes the relevance of the materials sought, the burden then shifts to the movant to demonstrate an undue burden”).
A subpoena may be quashed (or motion to compel denied) because, among other grounds, it imposes undue burden, Fed.R.Civ.P. 45(d)(1) and (3)(A)(iv), or because it requires disclosure of “confidential research, development, or commercial information,” Fed.R.Civ.P. 45(d)(3)(B)(i). “Whether a subpoena imposes an undue burden depends upon such factors as relevance, the need of the party for the documents, the breadth of the documents, the time period covered by it, the particularity with which the documents are described and the burden imposed.” In re Terrorist Attacks, 523 F.Supp.3d at 489 (citing Night Hawk Ltd. v. Briarpatch Ltd., No. 03-CV-1382, 2003 WL 23018833, at *8 (S.D.N.Y. Dec. 23, 2003)). A non-party resisting discovery based on confidentiality must establish both that the information is confidential and that disclosure would be harmful to it. American Home Assurance Co. v. Merck & Co., No. 03-CV-3850, 2004 WL 2222148, at *2 (S.D.N.Y. Oct. 4, 2004) (internal quotation marks omitted). Ultimately, “the court must weigh the need for the information against the harm that would result from disclosure.” Id.
The Court “has wide latitude to determine the scope of discovery.” Broidy Capital Management LLC v. Benomar, 944 F.3d 436, 446 (2d Cir. 2019) (internal quotation marks omitted). Accordingly, “[m]otions to compel and motions to quash a subpoena are both ‘entrusted to the sound discretion of the district court.'” In re Fitch, Inc., 330 F.3d 104, 108 (2d Cir. 2003) (quoting United States v. Sanders, 211 F.3d 711, 720 (2d Cir. 2000)); see also In re Terrorist Attacks, 523 F.Supp.3d at 489 (“The trial court has broad discretion to determine whether a subpoena imposes an undue burden”).
Discussion
The court addresses the issues in the following order: relevance, confidentiality, and then burden.
A. Relevance
The documents sought are relevant to Bluestem's action against Santander. To be sure, Bluestem's claims stem from Santander's alleged misconduct. One of those claims is directed at Santander's breach of its obligation to provide Bluestem with a right of first refusal to purchase the Program Receivables. Another claim asserts that Santander disclosed Bluestem's trade secrets in violation of both the parties' contract and the DTSA. The information sought by Bluestem is materially relevant to those claims.
In particular, what Atalaya did with the information provided by Santander is relevant to proving that the information allegedly improperly disclosed by Santander was used by Atalaya to Bluestem's detriment and caused it damage. Atalaya is not a typical non-party who has marginal involvement in the events at issue. Rather, Atalaya financed BB Allium's acquisition of the Program Receivables; acquired BB Allium and the Program Receivables; and, allegedly, used Bluestem's trade secrets and confidential information to value the Program Receivables for purposes of both acquiring them and offering to sell them back to Bluestem. As Bluestem puts it, “Atalaya is knee deep in the events that give rise to Bluestem's claims.“ (Pet. Mem. at 9.) Atalaya's effort to distance itself and its use of Bluestem's secret information for purposes of avoiding discovery is not persuasive.
In contesting relevance in its opposition brief, Atalaya relied primarily on arguments that Bluestem's assertions regarding Atalaya's receipt and use of Bluestem's confidential information were (i) conclusory and speculative, (ii) based on alleged harm that did not come to fruition, and (iii) grounded in disclosure that post-dated the December 2021 Transaction. (See Resp. Mem. at 14-19.) Atalaya's arguments were thoroughly defused in Bluestem's reply (Dkt. 21), and with Atalaya's production of its own investment committee memoranda. For instance, both memoranda contain various tables and descriptions of financial analyses and projections that appear to have been cut and pasted from Bluestem's internal trade secret documents. (Compare Roberts Reply Decl. Ex. 9 at 091 with Ex. 11 at 711, 713, 716.) Additionally, the memoranda expressly state that “Atalaya has not had a chance to diligence Bluestem or its management team directly and has had to rely upon materials provided by [Santander].” (Id. Ex. 9 at 086, Ex. 10 at 112). One of the memoranda even refers to Bluestem's right of first refusal, Santander's “bypass” of that right, and the result that “all parties are incentivized to move quickly.” (Id. Ex. 9 at 073, 074.)
“Roberts Reply Decl.” refers to the Declaration Of Owen Roberts In Support Of Petitioners' Reply, filed Feb. 22, 2024, at Dkt. 22.
The relevancy of the information sought is further demonstrated by Atalaya's own actions in response to the Subpoena. Atalaya responded to the Subpoena served on it, produced over 5,800 documents, conceded that the withheld documents are responsive to the Subpoena by so informing Bluestem and identifying them on a log, and, produced the two final investment committee memoranda. The withheld documents consist essentially of the grist that went into formulating those memoranda and thus are relevant to how the information at issue was used. Put another way, both the sausage and the way the sausage was made are relevant.
B. Confidentiality
Atalaya claims that the information it is withholding is so competitively sensitive it should not be produced even subject to the Protective Order. (Resp. Mem. at 21-22.) There are two weaknesses in Atalaya's argument. First, Atalaya has done nothing to support its assertions of confidentiality and risk of harm. It has not submitted any affidavit, declaration, or other sworn statements from anyone attesting to what the information withheld contains, why it is competitively sensitive, to what extent Atalaya has kept the information secret, and what harm it could cause if disclosed. From an evidentiary viewpoint, Atalaya thus has not satisfied its burden of establishing that the information is confidential and that disclosure would be harmful to it. See Securities and Exchange Commission v. Laura, 18-CV-5075, 2020 WL 5152873, at *7 (E.D.N.Y. Aug. 31, 2020) (“Movants also argue that the PAI records, if disclosed, would reveal a trade secret or other confidential research, development, or commercial information. ... The Court overrules this objection as made because Movants fail to articulate their argument with any specificity or supporting proof, as is their burden”) (internal quotation marks and citation omitted); Quotron Systems, Inc. v. Automatic Data Processing, Inc., 141 F.R.D. 37, 40-41 (S.D.N.Y. 1992) (denying motion to quash subpoena and stating that “a party asserting that discovery will cause competitive injury because of the revelation of trade secrets ... cannot generally rely upon conclusory statements, but must present evidence of specific damage likely to result from disclosure”) (internal quotation marks omitted).
Second, even accepting Atalaya's unsupported assertions, protective orders - like the one in the Minnesota Action - often are put in place precisely so that confidential information will be produced. “[C]ourts commonly require parties to produce confidential documents; the confidentiality of those documents is protected not by denying access to them, but by entering a protective order to cover them.” Doe v. Benjamin Zaremski, M.D., No. 21-CV-3187, 2022 WL 2966041, at *10 (S.D.N.Y. 27, 2022). The same is true with respect to trade secrets. “The disclosure of confidential information on an ‘attorneys' eyes only' basis is a routine feature of civil litigation involving trade secrets. ... The purpose of this form of limited disclosure is to prevent a party from viewing the sensitive information while nevertheless allowing the party's lawyers to litigate on the basis of that information.” In re The City of New York, 607 F.3d 923, 935-36 (2d Cir. 2010) (emphases omitted). Here, the Protective Order's second tier “attorney's eyes only” designation accomplishes precisely that.
That said, the Court recognizes that even two-tier protective orders are not fullproof. For instance, under the Protective Order, and as Atalaya's counsel mentioned at argument, Bluestem and Santander's experts would be permitted to view Atalaya's information under either tier of protection. (Protective Order ¶ 6(b).) While those experts are obligated to abide by the Protective Order, they too conceivably could be in a competitive position to Atalaya (although nothing in the record before the Court suggests that will be the case). But the Protective Order addresses that scenario as well. The Protective Order expressly prohibits disclosure to an expert who is or has been within the last five years an employee of a competitor or has been discussing employment with a competitor. (Id. ¶ 6(c).) To be sure, that prohibition too is not full-proof; it does not appear to forestall disclosure to an expert who is neither employed by a competitor nor currently in discussions for employment but happens to enter into such discussions at some point in the future. Nor is it clear whether “employee” encompasses persons who have been retained as a consultant to, but not an employee of, a competitor. There also is the possibility that the Minnesota court may require the information to be publicly disclosed in the event the case goes to trial. As a non-party, Atalaya has less control over what may happen to its confidential information in the litigation than it would were it a party.
For such reasons, courts do not consider a counsel-eyes-only protective order carte blanche for requiring disclosure of confidential information by non-parties. See, e.g., Grand River Enterprises Six Nations, Ltd. v. King, No. 02-CV-5068, 2009 WL 222160, at *3 (S.D.N.Y. Jan. 30, 2009) (noting that “it is understandable that [the producing party] does not even want to risk disclosure of [sensitive] information, despite the existence of a protective order” and declining to require disclosure to experts and attorneys) (internal quotation marks omitted). Notwithstanding such hypothetical scenarios, however, the Protective Order supplies a robust degree of protection for highly confidential material that is competitively sensitive.
Concern for maintaining protection for Atalaya's competitively sensitive information is heightened in the instant case as Atalaya and Bluestem (and Cerberus) are competitors that are not unfrequently on opposite sides of a transaction or seeking to bid on the same assets. Indeed, according to Atalaya, it and Bluestem periodically renegotiate various servicing agreements related to the Program Receivables. See, e.g., Trellian PTY, LTD v. adMarketplace, Inc., No. 19-CV-5939, 2021 WL 363965, at *4 (S.D.N.Y. Feb. 3, 2021) (denying in relevant part motion to compel unredaction of documents where, among other reasons, the parties were not only competitors generally but also had been in competition with respect to the subject of the lawsuit); Solow v. Conseco Inc., No. 06-CV-5988, 2008 WL 190340, at *4-5 (S.D.N.Y. Jan. 18, 2008) (quashing subpoena that sought financial information about non-party competitor who owned building that plaintiff sought to purchase).
At the same time, the information to be produced relates to specific transactions that occurred in 2021. At argument, Atalaya counsel pointed out that some of the documents nevertheless contained future projections. That is to be expected; in considering whether to finance and acquire the Program Receivables, Atalaya would have projected future performance of the receivables. But even those projections are based on years-old data. The information is dated and “stale,” considerably reducing its competitive sensitivity. See Caremark, L.L.C. v. New York Cancer & Blood Specialists, No. 23-CV-8508, 2023 WL 8280972, at *2 (S.D.N.Y. Nov. 30, 2023) (denying motion to seal on the grounds of competitive secrecy in part because many of the documents that petitioners want redacted contained information that was up to seven years old); In re Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, No. 14-MD-2542, 2023 WL 196134, at *8 (S.D.N.Y. Jan. 17, 2023) (denying request to redact records “related to the McClane's K-Cup sales to Walmart from 2012 to 2015, with some projections for 2016” as they contained “stale and deal-specific information”). Finally, Atalaya's emphasis on the parties' competitive position and risk of disclosure of confidential information to some extent strengthens the basis for ordering disclosure given that the purpose of the Subpoena is to determine the extent to which Atalaya made use of Bluestem's competitively sensitive information.
C. Undue Burden
“Whether a subpoena imposes an undue burden depends upon such factors as relevance, the need of the party for the documents, the breadth of the document request, the time period covered by it, the particularity with which the documents are described and the burden imposed.” Breaking Media, Inc. v. Jowers, No. 21-MC-194, 2021 WL 1299108, at *5 (S.D.N.Y. 2023) (internal quotation marks omitted); Wultz v. Bank of China, Ltd., 298 F.R.D. 91, 98 (S.D.N.Y. 2014) (same). Atalaya has not offered anything to credibly support that producing the documents at issue would be burdensome, let alone unduly so. After all, there are only 220 such documents (in comparison to the over 5,800 already produced by Atalaya); the documents are segregated; and information about them has been logged. Producing them would pose no material inconvenience or expense. The documents are relevant (as explained above), identified with precision, and are relatively few in number. The Court finds that production of the documents at issue poses no undue burden.
In a footnote, Atalaya asserts that producing drafts of the investment committee materials will require “significant cost and effort applying the same narrow redacts that were applied to the final investment committee memorandums it previously produced.” (Resp. Mem. at 22 n.7.) Beyond that conclusory statement, Atalaya has not provided any information about what cost or effort actually would be expended. In any event, as discussed below, the issue is beside the point because the Court recommends that Atalaya undo its redactions.
D. All Factors Considered
On one scale of the balance, the material sought by Bluestem is relevant and poses no undue burden for Atalaya to produce thus warranting production of the materials at issue. On the other scale, Atalaya's confidentiality concerns carry some weight, although as noted above, they are unsupported by any actual evidence. In any event, those concerns can be addressed in large measure by the Protective Order already in place in the Minnesota Action and restriction of the material to outside counsel eyes only. Accordingly, Bluestem's motion should be granted - with one exception.
At oral argument, Atalaya's counsel expressed particular concern about Atalaya's financial models, which it claims are particularly sensitive. Atalaya's counsel further represented that certain documents using Atalaya's financial models do not contain any of the information that Bluestem asserts was improperly disclosed. Rather, those documents reveal Atalaya's financial modeling using information that it was permitted to use - namely, loan tape data comprised of detailed information about each receivable. At argument, Bluestem counsel acknowledged that Atalaya was permitted to use the loan tape data. There is considerably less relevance to modeling that processed only the loan tape data or other “permitted” information.
Bluestem's response at argument was that it should not have to take at face value an unsubstantiated statement by counsel that certain documents do not make use of Bluestem's secret information. The Court agrees to a limited extent. There is no sworn statement or other evidence before the Court that any of the withheld material falls within the parameters of revealing Atalaya's financial modeling but not any of the information Bluestem alleges was improperly disclosed and used. Bluestem also contended that even if there are financial analyses using only the loan tape data, that information was still relevant to determining whether access to Bluestem's secret information, as distinct from Atalaya's use of other information, was a cause of its harm. That may be, but Bluestem did not elaborate, and the Court is not persuaded that the other materials already produced and yet to be produced by Atalaya will not be sufficient to determine what Atalaya relied on in financing, pursuing, and acquiring the Program Receivables, and what causal relationship that had to any damages incurred by Bluestem.
The Court finds that the interest in protecting the confidentiality of documents revealing purportedly proprietary financial modeling, to the extent it does not make use of the information Bluestem alleges was improperly disclosed and used, outweighs their relevance and the protection offered by the Protective Order. As such, the Court should not require those documents to be produced. But to the extent there are such documents, Atalaya should be required to first provide a sworn statement from someone with personal knowledge who can attest that the documents withheld both reveal Atalaya's proprietary financial modeling and do not contain any of the information Bluestem alleges was improperly disclosed and used, whether as data input into the model or built into the model. If Atalaya cannot provide the requisite attestation, then even those documents should be produced.
E. Redactions
Bluestem challenges not only the withholding of entire documents, but also redactions to documents that have been produced. (Pet. Reply at 3.) For example, even the two final investment committee memoranda produced by Atalaya have had material redacted, including information that appears quite relevant (such as a final valuation number or contemplated price points).
“Pet. Reply” refers to Petitioners' Reply Memorandum Of Law In Support Of Petitioners' Motion To Compel, filed Feb. 22, 2024, at Dkt. 21.
Redactions “are normally impermissible unless based on a legal privilege.” Coventry Capital U.S. LLC v. EEA Life Settlements Inc., No. 17-CV-7417, 2020 WL 7383940, at *9 (S.D.N.Y. Dec. 16, 2020). “Moreover, redactions are particularly impermissible where a confidentiality stipulation and order is in place.” Id. Even so, the considerations with respect to Atalaya's redactions are no different than with respect to the entire documents has declined to produce - both forms of withholding information turn on Atalaya's claim that the information is competitively sensitive and would pose harm if disclosed, particularly to a competitor. Cf. Trellian PTY, 2021 WL 363965, at *4 (upholding redactions by non-party of competitively sensitive business information with no relevance to the underlying action).
Accordingly, for all the same reasons discussed above, Atayala should be required to produce its documents in unredacted form, except for portions, if any, that fall within the narrow exception carved out above for proprietary financial modeling that does not make use of Bluestem's confidential information disclosed by Santander.
F. Fees and Costs
Each party asked for fees and costs in connection with the instant motion. Bluestem, however, withdrew its request at argument, recognizing that even if successful, it would not have a basis to obtain fees. Although Atalaya did not withdraw its request, the Court largely has not ruled in its favor. Accordingly, fees and costs should not be awarded to either party.
Conclusion
To the extent not discussed above, the Court has considered the parties' arguments and found them to be either moot or without merit. Accordingly, I recommend granting Bluestem's motion to compel except that Atalaya need not produce documents that both reveal Atalaya's proprietary financial modeling and do not contain any of the information Bluestem alleges was improperly disclosed and used, provided that Atalaya first provides a sworn statement confirming that the materials being withheld meet those requirements. Further, the requisite attestation should be required to be provided within seven days of adoption of this Report and Recommendation. If Atalaya fails to provide the requisite attestation, then all remaining documents at issue should be produced.
Procedure For Filing Objections
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report and Recommendation. Any party shall have fourteen (14) days to file a written response to the other party's objections. Any such objections and responses shall be filed with the Clerk of Court, with courtesy copies delivered to the Chambers of the Honorable Gregory H. Woods, United States Courthouse, 500 Pearl Street, New York,
New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Any request for an extension of time for filing objections must be addressed to Judge Woods. Failure to file timely objections will result in a waiver of the right to object and will preclude appellate review.