PRCM Advisers LLC v. Two Harbors Investment Corp.

Background

PRCM Advisers LLC, Pine River Capital Management L.P., and Pine River Domestic Management L.P. (collectively, Pine River) served as the external manager and investment adviser for Two Harbors Investment Corp. under a management agreement from October 28, 2009, until Two Harbors terminated the agreement on August 14, 2020, and began managing itself. Pine River alleged that the termination breached the agreement and that Two Harbors improperly hired its employees and continued using its intellectual property. Pine River asserted ten claims.

Two Harbors asserted twelve counterclaims, alleging that Pine River breached contractual and fiduciary duties, including by encouraging Two Harbors executives to prevent or delay a change in management or a move to self-management. Two Harbors also alleged that Pine River concealed information from Two Harbors’s independent directors and asserted claims concerning the parties’ intellectual property and payments under the management agreement.

Discovery dispute

Two Harbors’s original document requests did not seek documents dated after August 14, 2020. During later negotiations, however, Two Harbors proposed expanded search terms, custodians, and date ranges that extended to the present for some categories and had no date limitation for others. The proposal also contemplated using technology-assisted review to review electronic documents, including material in the Global Relay archive.

Pine River objected to the proposal’s breadth but later stated that it agreed to the proposal in principle, subject to conditions that did not address the proposed date ranges. Pine River subsequently said it was moving forward with the proposal, reported that it had begun the review, and confirmed that it had agreed to Two Harbors’s search terms with only minor modifications.

After fact discovery closed, Two Harbors learned through a subpoena to Stout Risius Ross, LLC, that Stout had documents concerning its 2021 valuation of Pine River and communications with Pine River. Pine River acknowledged that most of its production did not include documents created after August 14, 2020. Two Harbors then moved to compel Pine River to search for and produce otherwise responsive post-termination documents.

Parties’ positions

Two Harbors argued that Pine River had agreed to search through the present and had confirmed that agreement several times. Pine River argued that the original requests defined the scope of production, that its May 20 correspondence preserved the original date limits, that post-termination documents were not responsive, and that Two Harbors had not shown good cause to reopen discovery. Pine River also argued that the documents were generally irrelevant or privileged and that another search would be burdensome.

Court’s analysis

The court held that Pine River had made and repeatedly confirmed an agreement to use Two Harbors’s May 13 proposal, including its extended date ranges, to collect, review, and produce electronic documents. The court found that Pine River’s May 20 footnote did not preserve the original limits because Two Harbors later demanded agreement to the proposal in its entirety, and Pine River accepted it subject only to modifications unrelated to the date ranges.

The court treated Two Harbors’s application as a motion to compel discovery that should have been provided earlier under Federal Rule of Civil Procedure 37(a), rather than as a request to reopen discovery requiring a showing of good cause under Rule 16(b)(4). The court explained that negotiated discovery agreements should generally be enforced.

The court also rejected Pine River’s relevance and burden arguments. The Stout communications showed that at least some post-termination documents were relevant to the parties’ claims and defenses. The court stated that such documents could shed light on Pine River’s damages and on relevant events before termination. Although searching, reviewing, and producing the documents would impose some burden, the court noted that Two Harbors had performed comparable searches for Pine River’s benefit. The court also noted that the parties’ discovery protocol limited certain privilege-log obligations for litigation-related documents created or exchanged on or after August 15, 2020.

Disposition

The court granted Two Harbors’s letter-motion to the extent that Pine River must promptly collect, review, and produce responsive documents dated after August 14, 2020, in accordance with the May 13, 2022 proposal, including documents in the Global Relay archive.

The court found it premature to grant Two Harbors unfettered permission to reopen depositions of witnesses it had already deposed. Instead, the parties were directed to meet and confer about the timing of Pine River’s additional production and whether additional deposition sessions were appropriate.