Patel

Background

This is a consolidated shareholder derivative action pending in the Northern District of California. Plaintiffs assert claims for violations of the securities laws, breach of fiduciary duty, and insider trading against nominal defendant Block, Inc. and its current and former officers and directors. Plaintiffs allege that defendants intentionally failed to implement adequate internal controls on the Cash App platform — specifically failing to verify customer identities, ignoring and failing to report suspicious activity, and underfunding compliance efforts — causing Cash App to become a preferred tool for fraudsters and money launderers. Plaintiffs further allege that individual defendants misled shareholders about Block's regulatory compliance and user growth while causing Block to repurchase shares at artificially inflated prices, and that some individual defendants sold Block shares while knowing the compliance program was deficient.

The Discovery Dispute

The dispute arose from plaintiffs' Requests for Production (RFPs) 2-4, which sought all documents produced or received in connection with seven government investigations that defendants identified in an interrogatory answer: (1) the Consumer Financial Protection Bureau (CFPB), (2) the New York Department of Financial Services (NYDFS), (3) Multi-State Money Transmission Regulators, (4) the Securities and Exchange Commission (SEC), (5) the Department of Justice (DOJ), (6) the Financial Crimes Enforcement Network (FinCEN), and (7) State Attorneys General. Defendants resisted wholesale reproduction of their government-investigation productions; plaintiffs argued such reproductions are commonplace in similar actions.

The court held a hearing on August 4, 2026, and directed the parties to exchange additional information and file a joint status report, which was later corrected.

Legal Standard

The court applied Federal Rule of Civil Procedure 26(b)(1), under which a party may obtain discovery of any nonprivileged matter relevant to a claim or defense that is proportional to the needs of the case. Proportionality factors include the importance of the issues at stake, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense outweighs the likely benefit.

Analysis

The court found that five of the seven investigations overlap at least in part with the subject matter of the litigation:

- NYDFS — Block's customer identification procedures and anti-money laundering compliance for Cash App. - DOJ — allegations in the March 2023 Hindenburg report, on which plaintiffs' complaint also relies. - SEC — the same Hindenburg report allegations. - CFPB — Block's responses to fraud complaints regarding Cash App transactions. - State Attorneys General — Block's fraud-prevention efforts on Cash App, including compliance programs.

The remaining investigations (FinCEN, Multi-State Money Transmission Regulators, and specifically the Washington Attorney General investigation) were found to concern subject matter unrelated to or only marginally related to this action.

The court further found that the DOJ collection substantially subsumes the smaller productions made to the SEC, the NYDFS, and the Washington Attorney General, and that the DOJ collection overlaps substantially with the subject matter of this action. A substantial number of unique documents from the DOJ investigation had not yet been produced in this case. The court relied on authority supporting the principle that where there is significant overlap between a government investigation and the subject matter of litigation, documents produced to investigators are likely to contain relevant information.

Burden and Privilege Issues

Defendants argued that reviewing the DOJ collection for privileged Suspicious Activity Report (SAR) material and Confidential Supervisory Information (CSI) — categories of regulatory information that carry statutory or regulatory confidentiality protections — would be unduly burdensome. At the August 4 hearing, Block's counsel explained that while the DOJ does not have its own CSI privilege with respect to Block, the collection contains CSI material belonging to other regulators, and that Block had received only limited waivers to produce that CSI to the DOJ that do not extend to this litigation.

The court was not persuaded that reproduction of the DOJ collection is disproportionately burdensome given the relevance of the documents.

The Parties' Competing Proposals

- Plaintiffs proposed production of the entire DOJ collection, minus transaction-level customer data. - Defendants proposed limiting production to documents within the DOJ collection hitting on the parties' agreed-upon search terms for the period January 1, 2020 through June 30, 2025, also excluding transaction-level customer data.

The court adopted plaintiffs' proposal.

Ruling

The court ordered defendants to produce all nonprivileged documents in the DOJ collection to plaintiffs, with the following conditions:

The court also granted plaintiffs' motion to seal portions of the discovery letter, as narrowed by Block, applying the "good cause" standard applicable to discovery-related sealing motions. The court found no basis to seal the contents of its order.

The court declined to enter an order extending proceedings on this dispute or dictating the scope of discovery in the related securities class action, Gonsalves v. Block, Inc., No. 5:25-cv-00642-NW, in response to a statement of interest filed by NYC Funds.