Deutsche Bank Securities Inc. v. Kingate Global Fund Ltd

Background

Deutsche Bank Securities Inc. (DBSI) sued Kingate Global Fund Ltd. and Kingate Euro Fund Ltd. (the Funds) over an alleged breach of an agreement concerning the sale of the Funds’ claims connected to the liquidation of Bernard L. Madoff Investment Securities LLC. The opinion addresses two discovery motions; it does not decide whether the agreement was binding or whether either side ultimately prevailed on the contract claims.

The Funds had invested approximately $1.6 billion in Madoff Investment Securities accounts. After the firm’s collapse, the Funds asserted customer and remission claims in related proceedings. In 2011, DBSI and the Funds signed a Confirmation Letter under which the Funds were to sell DBSI those claims after they became allowed, subject to negotiating and signing a purchase and sale agreement. The parties never signed that later agreement. The Funds later settled with the Madoff trustee, and the claims became allowed. The Funds then took the position that the Confirmation Letter was not binding, leading DBSI to bring this action.

DBSI’s Motion Concerning the British Virgin Islands Filings

DBSI sought filings the Funds had made in their liquidation proceedings before the British Virgin Islands court, including filings concerning the claims, the Confirmation Letter, related litigation, settlement efforts, and a bankruptcy proceeding. The Funds withheld the filings based on sealing orders, attorney-client privilege, and work-product protection. They provided a categorical privilege log covering 67 filings dated from December 15, 2011, through November 20, 2019.

The court ruled that the categorical log did not provide enough information for DBSI to evaluate the privilege claims. The descriptions covered broad subjects and a nine-year period, and the log did not identify the roles of non-lawyer participants. The court also found that DBSI had explained why it needed a document-by-document log and that preparing such a log for 67 documents would not impose the type of burden that justifies grouping the documents into categories.

The court did not decide whether the British Virgin Islands sealing orders controlled under the international-comity factors. Instead, it directed the Funds to instruct the joint liquidators to ask the British Virgin Islands court for permission to produce a document-by-document index of the 67 privileged filings. The Funds were also directed to seek permission to provide a list of responsive filings that were not privileged. Any resulting index or list would be available only to the court and DBSI’s United States counsel. If the British Virgin Islands court denied the requests, DBSI could ask the court to reconsider the issue.

The court separately ordered the Funds to produce responsive communications held by their British Virgin Islands law firm, Mourant. If Mourant claimed that any such communications were sealed or privileged, they had to be logged. The court rejected the Funds’ argument that the law firm’s usual practice of copying the Funds or other counsel eliminated the need to search Mourant’s files.

Funds’ Motion Concerning Common-Interest Privilege

The Funds sought communications between DBSI and certain downstream investors. The investors had withheld or redacted at least 64 documents based on the common-interest privilege, and DBSI had withheld 84 documents it shared with the investors on the same basis.

The court applied New York privilege law and held that the common-interest privilege did not protect the documents. That privilege can protect communications shared by parties who separately have lawyers and share a common legal interest in pending or reasonably anticipated litigation. The court found that DBSI and the investors did not have that type of shared legal interest. The investors were not parties to, or beneficiaries of, the Confirmation Letter, had no rights or obligations under it, and could not sue the Funds for breaching it. Their interests arose from separate downstream agreements with DBSI.

The court distinguished a shared legal interest from a shared financial or commercial interest in the outcome. It concluded that the investors’ contingent financial interest in the outcome of DBSI’s lawsuit was not enough under New York law. The court therefore held that the common-interest privilege did not shield either the 84 documents DBSI shared with the investors or the 64 documents the investors withheld or redacted.

Disposition

The court denied in part and granted in part DBSI’s motion to compel. It granted the Funds’ motion to compel. The order resolved the discovery disputes and did not resolve the underlying contract claims.