In re Lifetrade Litigation

Background

Plaintiffs, who invested in three Lifetrade funds, brought a shareholder derivative claim against the Wells Fargo Defendants. They alleged that the Wells Fargo Defendants aided and abetted Roy Smith and other fund fiduciaries in breaching their fiduciary duties. The alleged breach centered on an August 14, 2012 settlement under which the Lifetrade Funds transferred all their assets to Wells Fargo to extinguish a debt. Plaintiffs alleged that the assets were worth more than the debt.

After filing the case, Plaintiffs’ counsel sought information from HBM Management N.V. (“HBM”), which was not a defendant but had executed the Wells Fargo settlement agreement for Lifetrade Fund, B.V. and Lifetrade Asset Management, N.V. Plaintiffs agreed not to sue HBM in exchange for access to certain documents. Plaintiffs’ counsel reviewed those documents, selected some for use in the litigation, and produced the collected HBM documents and the agreement not to sue HBM to the Defendants.

Motion to Compel

The Wells Fargo Defendants and Robert A. Ruppenthal, as administrator of the Smith Estate, moved to compel Plaintiffs’ counsel to produce communications with HBM concerning the agreement not to sue HBM and the scope of the document review. Defendants argued that the communications were relevant to evaluating the completeness and fairness of Plaintiffs’ document collection. Plaintiffs characterized the communications as attorney work product, meaning materials prepared in connection with litigation.

Court’s Analysis

Federal Rule of Civil Procedure 26(b)(1) permits discovery of information relevant to a party’s claim or defense and proportional to the needs of the case. Proportionality considers the issues, the amount in dispute, the parties’ access to information and resources, the importance of the discovery, and its likely burden or expense.

The court held that Defendants’ request failed on relevance. Communications between Plaintiffs’ counsel and HBM years after the events at issue did not relate to the claims or defenses. The relevant materials were HBM’s communications with Wells Fargo and the Lifetrade fiduciaries about the debt and its settlement—materials Plaintiffs had sought and produced. Plaintiffs were not withholding documents they had obtained from HBM or the agreement not to sue HBM.

The court also held that the request was not proportional, even assuming the communications were relevant. The information was not important to resolving the claims, neither side had better access to HBM’s documents, and Wells Fargo had sufficient resources to seek additional relevant documents directly from HBM.

Because the communications were not relevant and, in any event, were not proportional, the court did not decide Plaintiffs’ work-product argument. The court described that argument as doubtful and noted that the communications were similar to requests made in a subpoena, which generally must be disclosed to an adversary.

Disposition

Magistrate Judge Katharine H. Parker denied Defendants’ motion to compel at ECF No. 784. The court stated that Defendants could seek additional relevant documents from HBM during discovery.