Choi v. Tower Research Capital LLC

Background

Myun-Uk Choi, Jin-Ho Jung, Sung-Hun Jung, Sung-Hee Lee, and Kyung Sub Lee sued Tower Research Capital LLC and Mark Gorton individually and on behalf of a proposed class. Plaintiffs alleged that Defendants used fictitious trades and other deceptive techniques to manipulate prices for certain Korean futures contracts traded on the Chicago Mercantile Exchange Globex Platform, a platform used by the Korean securities exchange. Plaintiffs asserted claims under the Commodity Exchange Act and state law.

The opinion addressed only a discovery dispute. Plaintiffs noticed Gorton’s deposition. Defendants sought a protective order preventing the deposition, and Gorton submitted a sworn declaration stating that he had no involvement in or knowledge of the trading alleged in the complaint and was not involved in any Tower trading team’s activity.

Proceedings Before the Magistrate Judge

The case had been referred to Magistrate Judge Gabriel Gorenstein for general pretrial and dispositive-motion purposes. At a hearing, Judge Gorenstein directed plaintiffs to take depositions under Federal Rule of Civil Procedure 30(b)(6), which allows a party to question an organization through designated representatives. He indicated that plaintiffs could return if those depositions gave them reason to believe Gorton had information related to a claim or defense.

Plaintiffs later took two Rule 30(b)(6) depositions, one for each trading team at issue, and renewed their request to depose Gorton. After additional written submissions, Judge Gorenstein issued an August 28, 2019 order granting Defendants’ request for a protective order and preventing Gorton’s deposition. Plaintiffs objected under Rule 72(a), which permits a district judge to set aside a magistrate judge’s non-dispositive order only when it is clearly erroneous or contrary to law.

District Court’s Analysis

The court explained that barring a deposition is an extraordinary remedy. Ordinarily, the party seeking to prevent a deposition must show that the proposed witness has nothing to contribute. Senior corporate executives receive additional protection under principles often called the “apex doctrine.” Those principles reflect Federal Rule of Civil Procedure 26(b)(2), which limits discovery that is unreasonably cumulative or duplicative or that could be obtained from a more convenient, less burdensome, or less expensive source.

The court also recognized that an executive’s simple assertion that he lacks relevant knowledge does not automatically justify blocking a deposition. Here, however, Judge Gorenstein had not relied only on Gorton’s declaration. He had considered two rounds of letter briefing, held a hearing, and directed plaintiffs to take the company depositions. He ultimately found that plaintiffs had not provided evidence that Gorton knew about any claim or defense or possessed information that could not easily be obtained through other discovery.

The court rejected plaintiffs’ argument that Judge Gorenstein improperly placed the burden on them to produce evidence of Gorton’s relevant knowledge. It stated that the order did not clearly depend on a formal allocation of the burden and could instead be read as an assessment of what plaintiffs had presented.

The court also rejected plaintiffs’ arguments that the order lacked a required finding of “good cause” and that the apex doctrine could not apply because Gorton was a named defendant. The court stated that good cause was inherent in applying the apex doctrine and that excluding named defendants from the doctrine would likely conflict with its purpose of preventing harassment. The lack of much precedent applying the doctrine to named defendants did not establish the exception plaintiffs proposed.

Disposition

The court held that Judge Gorenstein’s order was not clearly erroneous or contrary to law and affirmed the August 28, 2019 order preventing Gorton’s deposition. The opinion did not decide the merits of plaintiffs’ allegations concerning the futures trading.