Hedgeye Risk Management, LLC v. Dale

Background

Hedgeye brought claims against former employee Darius Dale under the Defend Trade Secrets Act, along with claims for misappropriation, breach of contract, interference with contract, and unfair competition. Hedgeye later added Nadine Terman, Solstein Capital, LLC, Steven Lamar, and 42 Macro LLC as defendants. The opinion concerns Hedgeye’s objections to several discovery orders issued by Magistrate Judge Robert W. Lehrburger.

Under Federal Rule of Civil Procedure 72(a), a district judge may change a magistrate judge’s discovery order if it is clearly erroneous or contrary to law. The court explained that magistrate judges have broad discretion to manage discovery, so the party challenging an order carries a heavy burden.

Motions to Seal

The parties asked the court to seal portions of briefs, exhibits, and a deposition transcript. The court held that the parties had not overcome the presumption that judicial documents should be publicly accessible. Defendants had not adequately explained why their proposed redactions were necessary, and Hedgeye relied primarily on a confidentiality agreement and protective order. The court therefore DENIED the parties’ motions to seal and directed the Clerk of Court to unseal the specified filings.

July 1 Orders: Dale’s Deposition

Judge Lehrburger allowed Hedgeye an additional four hours to depose Dale: two hours on topics previously identified by the court and two hours concerning documents and related subjects produced after Dale’s earlier deposition. He barred Hedgeye from repeating questions asked at the earlier deposition.

The court held that these limits were neither clearly erroneous nor contrary to law. Hedgeye had already taken a seven-hour deposition of Dale, and Judge Lehrburger had reasonably considered whether further questioning would be cumulative, whether Hedgeye had other opportunities to obtain the information, and whether the burden outweighed the potential benefit. The court also found the limits sufficiently clear. It therefore AFFIRMED the July 1 Orders and overruled Hedgeye’s objections.

July 8 Order: 42 Macro’s Deposition

Judge Lehrburger ruled that some proposed topics for 42 Macro’s deposition were too broad or burdensome, while allowing other topics. He also allowed 42 Macro to designate prior deposition testimony by Dale or Lamar as binding on 42 Macro and prohibited Hedgeye from covering the same topics independently with a 42 Macro witness.

The court held that the order did not eliminate Hedgeye’s deposition of 42 Macro. Instead, it allowed a deposition on specified topics while avoiding duplicative questioning. The court found no abuse of discretion or legal error and AFFIRMED the July 8 Order, overruling Hedgeye’s objections.

First December 14 Order and December 20 Order

Judge Lehrburger extended the discovery deadline to February 28, 2023, for discovery related to the Terman Defendants’ counterclaims. He declined to sanction Hedgeye but found that Hedgeye’s failure to make a witness available because of unspecified travel and personal commitments was unreasonable. The December 20 Order clarified that the extension did not apply to discovery between Hedgeye and the Dale Defendants.

The court held that Judge Lehrburger acted within his discretion in evaluating the discovery history, declining to impose sanctions, and setting the limited extension. It AFFIRMED the First December 14 Order and the December 20 Order and overruled Hedgeye’s objections.

Second December 14 Order: Settlement Communications

Judge Lehrburger had denied Hedgeye’s motion to compel Lamar’s deposition testimony about communications during settlement negotiations, relying substantially on arguments in the defendants’ opposition letter. Hedgeye argued that this improperly created a settlement privilege.

The court explained that Federal Rule of Evidence 408 generally limits the use of settlement communications to prove or disprove the validity or amount of a disputed claim, but it does not automatically make those communications outside the scope of discovery. Under Federal Rule of Civil Procedure 26(b)(1), relevant nonprivileged information may be discoverable even if it would not be admissible at trial. Because Judge Lehrburger did not state an independent reason for denying the motion, the court could not determine whether the ruling rested on an incorrect discovery standard.

The court excused Hedgeye’s failure to meet and confer before filing the motion to compel because further discussions appeared futile in the circumstances. It SUSTAINED Hedgeye’s objection, SET ASIDE the issue, and REFERRED it to Judge Lehrburger for reconsideration under the correct Rule 26(b)(1) standard.

December 15 Order: Longbow Subpoena

Judge Lehrburger had granted the defendants’ motion to quash Hedgeye’s proposed subpoena to Longbow, finding that the requests were exceedingly broad and disproportionate and noting that Dale had never joined Longbow. Hedgeye argued that the ruling improperly relied on that factual statement and contended that Longbow was a partnership involving Dale, Lamar, and Terman and a competing business based on Hedgeye’s trade secrets.

The court stated that the decision appeared to rest primarily on the breadth and proportionality of the requests, rather than on whether Dale joined Longbow. But because the opinion identified an apparent factual dispute about Dale’s connection to Longbow, the court SUSTAINED Hedgeye’s objection, SET ASIDE the issue, and REFERRED it to Judge Lehrburger for reconsideration.

Disposition

The court AFFIRMED Judge Lehrburger’s orders in substantial part. It also denied the parties’ motions to seal, sustained Hedgeye’s two specified objections, and sent the settlement-communications discovery issue and the Longbow subpoena back to Judge Lehrburger for reconsideration. The order did not decide Hedgeye’s underlying trade-secrets, contract, or related claims.