Summary
affirming bankruptcy court order quashing subpoena to former senior managing director at non-party partnership, which "would be cumulative and would subject [non-party partnership] to undue burden."
Summary of this case from Rodriguez v. SLM Corp.Opinion
No. 04 Civ. 7757 (NRB).
June 30, 2005
Kenneth Oestreicher, Esq., Gary S. Posner, Esq., Brent C. Strickland, Esq., Whiteford, Taylor Preston L.L.P., Baltimore, MD, Counsel for Appellant.
Robert J. Bodian, Esq., Dominic J. Picca, Esq., Mintz Levin Cohn Ferris, Glovsky and Popeo, P.C., New York, NY, Counsel for Appellee.
Sandra E. Mayerson, Esq., Barbra R. Parlin, Esq., Holland Knight, LLP, New York, NY, Jerry D. Bernstein, Esq., Blank Rome LLP, New York, NY, Counsel for Borden Inc.
MEMORANDUM and ORDER
Arnold Weiner, Litigation Trustee for IHDG Litigation Trust ("Appellant"), appeals from a ruling of the United States Bankruptcy Court (Blackshear, J.) for this District granting two motions to quash subpoenas filed by non-party Blackstone Partners LP ("Blackstone") on behalf of itself and its current and former employees, David Foley and Anthony Grillo. For the reasons discussed below, the Bankruptcy Court's decision is affirmed.
BACKGROUND
On March 13, 1998, Imperial Home Décor Group, Inc. ("IHDG") was created by a leveraged buyout that combined Borden Decorative Products Holdings, Inc. ("BDPH"), formerly owned by defendants Borden, Inc. and its affiliates (collectively, "Borden"), with Imperial Wallcoverings, Inc. and substantially all the assets and liabilities of Imperial Wallcoverings (Canada), Inc. (collectively, "Imperial"), both of which were formerly owned by Collins Aikman Corporation ("CA"). As part of the transaction, Borden was paid $314 million for its equity interests in BDPH. Blackstone was the architect of the deal, and obtained an 89% equity interest in IHDG through its $84.6 million investment.
In January of 2000, IHDG filed for Chapter 11 reorganization in Delaware. IHDG confirmed a Plan of Reorganization and created the Litigation Trust in March of 2001. In November of 2001, the Litigation Trustee filed the adversary proceeding in Delaware to avoid the transfer of funds to Borden as a fraudulent transfer and to recover the funds for the Trust.
In connection with the adversary proceeding, the Trustee served Blackstone in January of 2003 with a subpoena pursuant to Rule 30(b)(6), and Blackstone designated David Blitzer, a Blackstone principal and a member of the "Deal Team" involved in the transaction — as its 30(b)(6) witness. The deposition of Mr. Blitzer produced roughly one thousand pages of testimony. In April of 2003, the Trustee issued a subpoena for David Stockman, the senior Blackstone partner on the "Deal Team," and later deposed him as well. The Trustee also took four days of deposition from William Fenstermaker, an employee of CA and later IHDG, who worked on due diligence for the transaction.
In early 2004, after deposing Stockman and Blitzer, the Trustee served subpoenas on two Blackstone employees, David Foley and Anthony Grillo, in the Southern District of New York. Mr. Foley was a principal at Blackstone and was a member of the Deal Team. Mr. Grillo was a former Senior Managing Director at Blackstone and was also a member of the Deal Team. Blackstone moved to quash the subpoenas on the grounds that they were unduly burdensome.
Following an April 28, 2004 hearing, the Bankruptcy Court issued an opinion on May 7 granting the motions to quash in part by limiting the Trustee to a deposition of either Foley or Grillo and requiring the Trustee to obtain Bankruptcy Court approval before further depositions of current or former Blackstone employees. The Trustee moved for reargument. On July 2, 2004, Judge Blackshear denied the Trustee's motion requesting that he withdraw his May 7 opinion and deny Blackstone's motion. Instead, Judge Blackshear altered his earlier order by granting both motions to quash in full. July 2 opinion at 9. Judge Blackstone also reiterated his holding that the Trustee was required to seek his permission by a motion filed in the Southern District of New York to issue any other subpoenas to Blackstone and its current and former employees. Id. The Trustee appealed Judge Blackshear's order.
DISCUSSION
In reviewing the decision of a bankruptcy court, we "accept its factual findings unless clearly erroneous but review its conclusions of law de novo." DG Acquisition Corp. (In re DG Acquisition Corp.), 151 F.3d 75, 79 (2d Cir. 1998) (citing In re McLean Industries, Inc., 30 F.3d 385, 387 (2d Cir. 1994). Furthermore, a "court enjoys wide discretion in its handling of pre-trial discovery, and its rulings with regard to discovery are reversed only upon a clear showing of an abuse of discretion."Id. (quoting Cruden v. Bank of New York, 957 F.2d 961, 972 (2d Cir. 1992)). See also In re Integrated Resources, Inc., 147 B.R. 650, 664 (S.D.N.Y. 1992) ("The standard of review of a bankruptcy court determination concerning the scope of discovery . . . is whether the bankruptcy court abused its discretion.").In the present motion, appellant challenges the bankruptcy judge's decision to quash subpoenas. Although "parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party," Fed.R.Civ.P. 26(b) (1), there are limitations on pre-trial discovery. A bankruptcy judge has authority to grant a motion to quash a subpoena pursuant to Fed R. Civ. P. 45(c) (3) (A) (iv), made applicable to bankruptcy cases through Fed.R.Bankr.P. 9016, if a subpoena "subjects a person to undue burden." The determination of whether a subpoena subjects a witness to "undue burden" is "committed to the sound discretion of the trial court," Concord Boat Corp. v. Brunswick Corp., 169 F.R.D. 44, 49 (S.D.N.Y. 1996) (citations omitted), and "depends upon such factors as relevance . . . and the burden imposed.'"Kirschner v. Klemons, No. 99 Civ. 4828, 2005 WL 1214330, at *2 (S.D.N.Y. May 20, 2005) (quoting Concord Boat, 169 F.R.D. at 48) (quotation marks omitted). Furthermore, the "status of a witness as a non-party to the underlying litigation `entitles [the witness] to consideration regarding expense and inconvenience.'" Concord Boat, 169 F.R.D. at 49 (quoting Fed.R.Civ.P. 45(c)(2)(B)).
The burden of persuasion on a motion to quash a subpoena is borne by the movant, Concord Boat, 169 F.R.D. at 48, who therefore "cannot merely assert that compliance with the subpoena would be burdensome without setting forth the manner and extent of the burden and the probable negative consequences of insisting on compliance." Kirschner, 2005 WL 1214330, at *2. However, a "subpoena that `pursues material with little apparent or likely relevance to the subject matter'" is "likely to be quashed as unreasonable even where the burden of compliance would not be onerous." Id. (quoting Concord Boat, 169 F.R.D. at 50).
In addition to the court's specific power to quash under Rule 45, in ruling on a motion to quash, "the court applies its general power to limit discovery under Rule 26(b)(2)," 7 Moore's Federal Practice § 30.50 (Matthew Bender 3d ed. 2005), made applicable to bankruptcy cases through Fed R. Bankr. P. 7026. Rule 26 (b) (2) allows the court to limit discovery it determines is unreasonably duplicative or whose "burden or expense outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues." Fed.R.Civ.P. 26(b)(2).
Furthermore, Rule 30(a)(2)(B), made applicable to bankruptcy proceedings by Fed.R.Bankr.P. 7030, requires a party to obtain leave of the court before deposing a witness who has already been deposed in the case. See Bonnie Co. Fashions, Inc. v. Bankers Trust Co., 945 F. Supp. 693 (S.D.N.Y. 1996) (upholding denial of motion to take second deposition of nonparty); see also Ameristar Jet Charter, Inc. v. Signal Composites, 244 F.3d 189 (1st Cir. 2001) (upholding quashing of second 30(b)(6) subpoena).
Here, Judge Blackshear's opinion relied in part on his view that Foley and Grillo are "extensions of Blackstone by virtue of their relationship with the company" and that it is therefore "Blackstone that is subject to the subpoena." May 7 opinion at 10-11. Judge Blackshear noted statements by counsel to the Litigation Trustee that he had assembled a strong case that "Blackstone's projections were not reasonable and that Blackstone's theory of the transaction was fatally flawed" based on the different responses by Blitzer, Stockman, and other witnesses. May 7 Opinion at 11. The intent of the Trustee in deposing the members of the Deal Team was to challenge the actions of Blackstone, and their testimony would be irrelevant if not binding on the company. Judge Blackshear was therefore correct to view the proposed depositions of Foley and Grillo as further depositions of Blackstone.
Judge Blackshear also found that the depositions of Foley and Grillo would likely be "duplicative and cumulative since the Trustee has acquired sufficient relevant facts from key players" such as Blitzer and Stockman. May 7 opinion at 10. The Trustee had already taken several depositions of witnesses knowledgeable about Blackstone's work on the transaction, and had given the Bankruptcy Court no explanation of what additional information it hoped to obtain from further depositions of members of the Deal Team other than to suggest that their testimony might contain minor inconsistencies with that of Blitzer and Stockman. Accordingly, we conclude that Judge Blackshear did not abuse his discretion in concluding that the depositions of Foley and Grillo would be cumulative and would subject Blackstone to undue burden.
In light of our discussion above, the Bankruptcy Court's ruling granting Blackstone's motions to quash the Trustee's subpoenas on Grillo and Foley and requiring the Trustee to obtain Bankruptcy Court approval before further depositions of current or former Blackstone employees is affirmed. The Clerk of the Court is respectfully requested to close this matter on this Court's docket.
IT IS SO ORDERED.