Merida Capital Partners III LP v. Fernane

Background

Merida Capital Partners III LP sued Jacob Fernane, Liqueous LP, and Pacific Lion LLC over an alleged scheme involving a stock repurchase agreement. According to Merida’s complaint, Pacific Lion temporarily purchased 415,000 shares of Green Thumb Industries Inc. from Merida, and Merida later paid to repurchase the shares. Merida alleges that Fernane instead directed the shares to an account in Liqueous’s name and did not return them after Merida made the repurchase payment. Merida asserts claims for securities fraud, common-law fraud, and fraudulent inducement, and alleges that Liqueous and Pacific Lion were Fernane’s alter egos—that is, entities he controlled and used as instruments of the alleged scheme.

The agreement contains a disputed provision that the defendants say requires disputes to be resolved through binding arbitration in Fort Lauderdale, Florida. The defendants had filed a motion asking the court to require arbitration, dismiss the case, or transfer it to the Southern District of Florida. While that motion was pending, the defendants moved to stay discovery. They also moved to quash, or cancel, ten subpoenas directed to financial institutions. The subpoenas sought records and communications concerning Fernane, Pacific Lion, and Liqueous from January 1, 2023, onward, including account information, transaction histories, stock orders, and account statements.

Motion to Stay Discovery

The court held that a partial stay was warranted while the arbitration motion was pending. A discovery stay pauses the exchange of information during litigation. The court explained that staying party discovery could prevent duplicative and expensive litigation if the arbitration motion were granted. It also noted that the case was in its early stages and that the discovery could be extensive.

The court rejected a complete stay because Merida alleged that it had been defrauded and that the defendants had taken steps to dissipate funds and prevent recovery of the property. The court also found no burden to the defendants from allowing discovery directed to nonparties to continue. It therefore adopted the middle-ground approach proposed by Merida: discovery from the parties would be stayed, while Merida could continue seeking discovery from third parties during the pending arbitration motion.

Motion to Quash the Subpoenas

The court denied the motion to quash the third-party subpoenas. Under Federal Rule of Civil Procedure 45, a party that did not receive a subpoena generally cannot challenge it, but a party may object when the subpoena implicates that party’s personal rights, real interests, or privileges. The court found that the defendants had standing—the legal ability to bring the challenge—because the subpoenas sought their private financial information.

The court nevertheless concluded that the motion failed on the merits. The defendants could not challenge the subpoenas solely by asserting that they were irrelevant or burdensome. Because their standing rested on privacy interests, they had to show the strength of those interests so the court could weigh them against the value of the requested information. The court found that the defendants offered only a general assertion that the records were private and did not explain whether they had accounts at the subpoenaed institutions, how many accounts were involved, or why the information was particularly sensitive.

By contrast, the court found that the requested records were relevant to Merida’s allegations that Fernane transferred funds, commingled personal and company assets, and used Liqueous and Pacific Lion as alter egos. The court also found the subpoenas sufficiently limited because they identified the relevant people and entities and covered a defined period, even though they used terms such as “any” and “all.” The court therefore found no reason to quash the subpoenas or issue a protective order.

Disposition

Judge Vargas ordered that the Motion to Stay Discovery was GRANTED IN PART AND DENIED IN PART, and that the Motion to Quash the Third Party Subpoenas was DENIED. The court also denied the defendants’ request for a protective order and directed the clerk to terminate the two motions.