Blockchain Innovation, LLC v. Franklin Resources, Inc.

Background

Blockchain Innovation, LLC moved to compel Jennifer Johnson and Roger Bayston to provide discovery about their net worth. Interrogatory 25 asked each defendant to identify their current net worth and identify documents, such as financial statements, sufficient to corroborate it. Request for Production 134 sought the documents requested in Interrogatory 25 or relied on in answering it.

Blockchain stated, without contradiction, that Franklin Resources, Inc., FT Fintech Holdings, LLC, and Franklin Templeton Companies, LLC had provided the requested information, while Johnson and Bayston had declined to do so. Blockchain argued that the information was relevant to its claims for punitive damages. The second amended complaint sought punitive damages against Bayston for alleged breach of fiduciary duty and against Johnson for alleged aiding and abetting of breach of fiduciary duty.

Arguments and analysis

The court recognized that a defendant’s wealth is relevant to punitive damages. Johnson and Bayston argued that the discovery was premature, relying on decisions in which courts postponed similar discovery until later in the case or until a plaintiff showed a substantial probability of recovering punitive damages.

The court rejected those arguments. It noted that the motion was filed on the last day allowed for motions to compel under the scheduling order, which set May 31, 2024 as the close of fact discovery and June 7, 2024 as the deadline for motions to compel. The court also stated that the Federal Rules of Civil Procedure do not require a plaintiff to prevail, or to show that it is likely to prevail, on liability or punitive damages before obtaining discovery relevant to punitive damages. The court found that postponing the discovery was inconsistent with the case schedule.

The defendants also argued that Blockchain had violated a protective order by revealing Bayston’s compensation during Monica Fonesca’s deposition. The court observed that the defendants had waited more than three months to raise that issue with the court and concluded that it was not a logical reason to deny the discovery. The court also rejected Johnson’s argument that her deposition testimony and Franklin Resources’ Securities and Exchange Commission filings provided sufficient information. The court stated that Blockchain did not have to accept Johnson’s testimony at face value, and that company filings might show compensation but would not show her net worth.

Ruling

The court granted Blockchain’s motion to compel. The order required Johnson and Bayston to provide the discovery concerning their net worth sought through Interrogatory 25 and Request for Production 134. Judge Thomas S. Hixson entered the order on June 26, 2024.