Pegaso Development Inc. v. Moriah Education Management LP

Background

A judgment had been entered for Pegaso Development Inc. and against Moriah Education Management LP and Moriah Education Management LLC, which the opinion calls the “Debtors,” on Count I of the complaint. The judgment found the Debtors jointly and severally liable for $2,758,567.13, plus interest accruing after March 17, 2020.

To enforce the judgment, Pegaso served a subpoena on third-party JPMorgan under Federal Rule of Civil Procedure 69 and New York procedures. The subpoena sought records from January 1, 2016, through production, including bank-account records, investment and asset information, loan records, financial statements, and communications involving the judgment debtors, Black Dolphin, or Greg Zilberstein.

The Motion and Arguments

Moriah Education Management LLC moved under Federal Rule of Civil Procedure 69 and New York Civil Practice Law and Rules § 5240 to quash the subpoena. It argued that it had standing to object, that the requests were overbroad and irrelevant to current judgment enforcement, and that the records could reveal confidential trade-secret information concerning its investors. It alternatively requested a protective order requiring documents to be produced to it first so it could make redactions.

Pegaso opposed the motion. It argued that the movant lacked standing to challenge a subpoena served on a nonparty based on relevance, overbreadth, or a corporate privacy interest. Pegaso also argued that the subpoena sought permissible post-judgment discovery, including historical records that could help verify the movant’s financial responses and investigate possible asset transfers or concealment. Pegaso disputed that the investor identities were trade secrets but stated that it would accept a protective order preserving their confidentiality if one were required.

The movant replied that it could object based on trade-secret protection and that the court could control discovery even if standing were absent. It characterized the subpoena as a fishing expedition and maintained that the investor identities were protectable confidential information.

Legal Standard

Rule 69(a)(2) allows a judgment creditor to obtain discovery from any person, including a judgment debtor, to aid enforcement of a judgment. The court explained that broad post-judgment discovery, including asset discovery from banks, is generally permitted. It also stated that a party ordinarily lacks standing to object to a subpoena served on a nonparty unless the party asserts a privilege or another personal right in the subpoenaed material. A party generally cannot challenge a nonparty subpoena based only on relevance or undue burden.

Under Rule 45(d)(3), a court must quash or modify a subpoena in specified circumstances, such as when it requires disclosure of privileged or protected material or imposes an undue burden. The court may also quash or modify a subpoena to protect trade secrets or other confidential commercial information. The party seeking to quash a subpoena or obtain a protective order bears the burden of persuasion.

Ruling

Magistrate Judge Kevin Nathaniel Fox found that the movant did not assert a privilege or privacy right as the basis for standing. Although the movant argued that the subpoena threatened protectable trade secrets involving investor identities, it cited no binding authority identifying the source of that right or recognizing it as a basis for standing to challenge a subpoena directed to JPMorgan.

The court therefore found that the movant lacked standing to object to the subpoena. The court denied the motion to quash, Docket Entry No. 64, for lack of standing.