Securities and Exchange Commission v. Contrarian Press, LLC

Background

The court reviewed two objections by the defendants to discovery orders issued by Magistrate Judge Debra Freeman. The first order granted the Securities and Exchange Commission’s request for a protective order barring a deposition of an SEC representative designated under Federal Rule of Civil Procedure 30(b)(6). The second order allowed the SEC to serve a modified subpoena for documents on K&L Gates LLP, which served as the defendants’ counsel in the case.

Standard of Review

Because the challenged discovery orders were nondispositive, the district court could set them aside only if they were clearly erroneous or contrary to law. A ruling is contrary to law if it fails to apply or misapplies relevant law, statutes, or procedural rules. A ruling is clearly erroneous if the reviewing court has a firm conviction that a mistake was made. The court described this as a highly deferential standard and noted that new evidence and arguments generally could not be raised for the first time in objections to a magistrate judge’s discovery order.

Deposition of an SEC Representative

The defendants’ deposition notice identified nine topics and thirty-four subtopics, chiefly concerning the facts and evidence supporting the SEC’s claims and the individuals identified in the amended complaint. The SEC argued that the deposition would be burdensome and would risk revealing attorney work product or attorney-client privileged information.

Judge Freeman had barred the deposition but required the SEC to supplement certain interrogatory answers, clarify which portions of denied allegations were admitted, identify witnesses or documents supporting particular factual contentions, supplement its initial disclosures, and conduct a reasonable search for documents from a separate but related investigation.

Judge Broderick upheld that ruling. He concluded that the proposed deposition did not primarily seek general information about the SEC’s organization or practices. Instead, it sought specific information about the SEC’s investigation and the evidence supporting its claims. The court found that the topics resembled requests for admissions and risked revealing the SEC’s mental processes, litigation strategy, and attorney work product.

The court also rejected the defendants’ argument that written discovery was an inadequate substitute. A deposition could also produce evasive or inadequate answers, while the magistrate judge’s order required the SEC to improve its written responses. Judge Broderick stated that the defendants could request permission to reopen discovery if the supplemented responses remained inadequate, but he expressly stated that this was not a ruling on the substance of any future motion.

Subpoena to K&L Gates

The SEC sought documents concerning alleged connections and communications involving Joe Cheung, Scott S. Fraser, New Kaiser, and a subscription agreement. The SEC initially served a broader subpoena on K&L Gates. After Magistrate Judge Freeman found it overly broad, the SEC proposed a modified subpoena. Judge Freeman allowed the SEC to serve that subpoena after striking one request, limiting another request to a six-month period, and requiring K&L Gates to provide a privilege log, which could be organized by categories rather than listing every document individually.

The parties agreed that the Second Circuit’s flexible approach to discovery directed to opposing counsel would govern. The court considered the need for the discovery, K&L Gates’ role in the relevant matters, the risk of privilege and work-product problems, and the extent of discovery already completed.

The court found that the SEC had shown a sufficient need. The SEC had tried to obtain the information from Fraser, Empowered Products, Inc., and through interrogatories. Fraser denied having a meaningful professional relationship with Cheung, and the SEC represented that it could not locate Cheung. The court found that the SEC had exhausted other available options.

K&L Gates’ role weighed against the subpoena because it represented the defendants in the current litigation and had represented Empowered Products in the earlier transaction. The court also recognized that significant discovery had already occurred, which likewise weighed against allowing discovery from opposing counsel. But the court found that the risk of disclosure was relatively low because the modified subpoena focused on non-privileged information, the SEC said it was not seeking privileged communications, and the privilege-log requirement provided a protection against disclosure of protected material.

Disposition

Judge Broderick concluded that the analysis was close but that Magistrate Judge Freeman’s order allowing the limited, modified subpoena was neither clearly erroneous nor contrary to law. The court overruled the defendants’ discovery objections. It directed the parties to meet and confer about a protective order addressing privileged materials, including procedures for recovering inadvertently produced privileged material and challenging privilege-log entries. The clerk was directed to terminate the open objections at Documents 130 and 139.