LG Capital Funding, LLC v. Exeled Holdings Inc.
- Lewis Liman
- 1:17-cv-04006
- U.S. District Court · Southern District of New York
- 5
In LG Capital Funding v. ExeLED Holdings, Judge Liman denied a motion to quash an SEC subpoena seeking potentially relevant loan and securities records.
The ruling affects LG Capital Funding, LLC, Joseph Lerman, Boruch Greenberg, and Daniel Gellman, who sought to block ExeLED Holdings Inc.’s subpoena to the Securities and Exchange Commission, and ExeLED’s effort to obtain the requested records.
What happened
In LG Capital Funding, LLC v. ExeLED Holdings Inc., ExeLED sought documents from the Securities and Exchange Commission about LG’s loans, securities transactions, and conversion rights. The subpoena had not yet been served. LG and three counterclaim defendants—Joseph Lerman, Boruch Greenberg, and Daniel Gellman—asked the court to block it, arguing that the records were private, commercially sensitive, overly broad, and irrelevant.
The court recognized that securities-transaction records could involve privacy interests, but found that the Movants had shown only a weak privacy interest in the other requested records. The court also found the subpoena relevant because ExeLED challenges its transaction with LG as usurious, and New York law permits consideration of similarly structured loans when evaluating that issue. The documents did not have to prove ExeLED’s claim; they only had to be relevant to discovery.
Judge Lewis J. Liman denied the motion to quash and directed the Clerk of Court to close the motion docket entry. The opinion did not decide whether ExeLED’s usury claim would succeed or whether the subpoenaed documents would ultimately support it.
The detailed version
- LG Capital Funding, LLC v. Exeled Holdings Inc. · No. 1:17-cv-04006
- Lewis Liman
- June 14, 2023
Background
LG Capital Funding, LLC, the plaintiff and a counterclaim defendant, and Joseph Lerman, Boruch Greenberg, and Daniel Gellman, the other counterclaim defendants, moved under Federal Rule of Civil Procedure 45(d)(3)(A) to quash a subpoena requested by ExeLED Holdings Inc., formerly Energie Holdings Inc. The subpoena was directed to the Securities and Exchange Commission, which was not a party to the case, and had not yet been served.
The subpoena sought four categories of SEC documents: records concerning financing arrangements in which LG loaned money to an issuer and received a right to convert debt into discounted newly issued shares; LG brokerage-account records concerning transactions in ExeLED securities; LG brokerage-account records concerning transactions in securities of other issuers; and documents concerning LG’s conversion rights, including projections, analyses, and valuations.
Arguments and governing standards
The Movants argued that the requested records contained confidential and commercially sensitive information, implicated their privacy interests, and were overly broad and irrelevant. Under Rule 45, a court must quash a subpoena in specified circumstances, including when it requires disclosure of protected material or subjects a person to an undue burden. Although a nonparty generally brings a motion to quash a subpoena served on it, a party may challenge the subpoena by claiming a personal right or privilege concerning the requested information. A general assertion that records are private or confidential is not enough to establish that right.
The court also explained that discovery relevance is broad and that the Federal Rules favor full and complete discovery. The party seeking discovery bears the burden of showing relevance.
Court’s analysis
The court found that the Movants had established, at most, a tenuous privacy interest in some of the requested records. The agreements concerning third parties had been shared with others, and the Movants had not identified a particular reason those agreements should be treated as confidential. The court concluded that securities-transaction records did implicate privacy interests, but that conclusion did not end the analysis.
The court found that ExeLED had shown relevance. The New York Court of Appeals has held that evidence about the performance of other similarly structured loans may be relevant when deciding whether a loan is usurious. The subpoena was limited to the transaction between LG and ExeLED or to similarly structured loans made by LG that included a conversion right. The court therefore rejected the Movants’ request to limit discovery to transactions between LG and ExeLED.
The court stated that the requested documents did not need to support ExeLED’s claim; they only needed to be relevant under Federal Rule of Civil Procedure 26(b)(1). The Movants did not identify countervailing factors showing why the discovery should not occur.
Ruling
The court denied the motion to quash. It directed the Clerk of Court to close Docket No. 164. The opinion did not decide the merits of ExeLED’s usury claim, and it did not determine whether the requested documents would ultimately support that claim.
Read the full 5-page opinion on CourtListener, the free public archive maintained by the Free Law Project.