Opinion
M8-85 (56R).
April 2, 2010
MEMORANDUM OPINION AND ORDER
The plaintiffs in this certified class action pending in the United States District Court for the Central District of California allege that Countrywide Financial Corporation's ("Countrywide") financial statements overstated the value of Countrywide's assets, thereby inflating the value of Countrywide stock in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and section 11 of the Securities Act of 1933. On January 11, 2008, non-party Bank of America Corporation ("Bank of America") announced that it had entered into a merger agreement to acquire Countrywide. Bank of America offered 0.1822 Bank of America shares for each Countrywide share, less than the 0.2353 exchange rate Bank of America was initially willing to offer prior to completing due diligence.
On January 8, 2010, the plaintiffs served a subpoena on Bank of America requesting, among other documents, (a) documents prepared by Bank of America between December 1, 2007 and March 31, 2008 concerning the value of Countrywide, its assets, or the proposed or actual exchange ratio; and (b) minutes of meetings of the Bank of America Board of Directors held between December 1, 2007 and March 31, 2008 relating to the merger, Countrywide and its assets, and the exchange ratio. Bank of America has not produced the documents and the plaintiffs move to compel production pursuant to Federal Rule of Civil Procedure 45. Bank of America opposes, arguing that the plaintiffs could obtain any relevant documents from Countrywide, that the documents are not relevant, and that the subpoena is an attempt to require Bank of America to serve as a non-party unretained expert.
Motions 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) (internal citation omitted). Under the Federal Rules of Civil Procedure, a party is entitled to discovery "regarding any nonprivileged matter that is relevant to any party's claim or defense." Fed.R.Civ.P. 26(b)(1). The plaintiffs have made a sufficient showing of relevance to require the production of at least some of the documents. It is plain that documents concerning Countrywide for due diligence purposes, as well as matters discussed by the Bank of America Board of Directors concerning the valuation of Countrywide, are relevant to the plaintiff's claim that Countrywide's public statements about its assets were misleading.
There are, of course, reasonable limits on the scope of a subpoena. Rule 45(c)(3)(A)(iv) provides that the issuing court "must quash or modify a subpoena" that "subjects a person to undue burden." Moreover, Bank of America has cited the limitations on discovery in Rule 26(b)(2)(C) that provide that the Court must limit the extent of discovery if it determines that "(i) the discovery sought . . . can be obtained from some other source that is more convenient, less burdensome, or less expensive; [or] (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action." Bank of America does not rely upon, but the Court is well aware of, the requirement in Rule 26(b)(2)(C) that the Court limit discovery if it determines that "(iii) the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues."
Bank of America argued that the subpoena should be quashed because the plaintiffs could have obtained the same documents from Countrywide because Countrywide would have provided its documents to Bank of America for Bank of America to analyze. In response to this concern, the plaintiffs explicitly limited the subpoena to exclude documents provided by Countrywide and therefore this objection is not persuasive.
Bank of America did not specifically argue that the subpoena was unduly burdensome in view of the costs of compliance, a matter that Bank of America made clear at the argument of the motion. Moreover, perhaps in light of the huge nature of the underlying litigation, Bank of America did not argue that the discovery was disproportionate. Nevertheless, to limit the burden of discovery, in response to the Court's inquiries, the plaintiffs further limited their request for due diligence documents to documents prepared from December 28, 2007 to January 11, 2008. This production of this limited group of documents should not be unduly burdensome or disproportionate under Rule 26(b)(2)(C)(iii) and would be very relevant to the issues in the case because the documents would reflect a contemporaneous analysis of the value of Countrywide by the party that eventually acquired Countrywide.
Bank of America does argue that the plaintiffs cannot compel Bank of America to act as an unretained expert. Cf. Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 814 (9th Cir. 2003) (noting subpoena seeking general information on art market and art consumer characteristics appeared to be seeking expert testimony). Unlike Mattel, the plaintiffs in this case are seeking specific factual information regarding the value of Countrywide stock that was created contemporaneously by a participant in a transaction that directly concerned the value of Countrywide stock.
The plaintiffs' motion to compel is granted in accordance with the limits specified in the plaintiffs' submission and at oral argument, as explained above.
SO ORDERED.