Hedgeye Risk Management, LLC v. Dale

Background

Hedgeye Risk Management, LLC alleged that Darius Dale, Steven Lamar, 42 Macro LLC, Nadine Terman, and Solstein Capital, LLC misappropriated Hedgeye’s trade secrets. This order addressed two discovery issues that District Judge Andrew L. Carter had returned for reconsideration after affirming most of the earlier discovery rulings.

Longbow subpoena

Hedgeye subpoenaed nonparty Longbow Trade Signals LLC for documents and a corporate-representative deposition. The earlier ruling quashed the subpoena because its requests and deposition topics were exceedingly broad and disproportionate. On reconsideration, Judge Lehrburger again found the subpoena overbroad, burdensome, and insufficiently proportional under Federal Rule of Civil Procedure 26(b)(1), which limits discovery to nonprivileged information relevant to a claim or defense and proportional to the case’s needs.

The subpoena contained 19 document requests and 20 deposition topics. Many requests sought “all documents” or “all communications,” including broad requests concerning people’s roles in forming or operating Longbow, documents about Darius Dale, and data or content received from other defendants or entities. The court also found that some requests that appeared narrower were still too broad because they sought all documents sufficient to show particular facts.

The court agreed that some discovery directly from Longbow could be appropriate. Instead of quashing the subpoena entirely, it ordered the parties to meet and confer to narrow the requests. Longbow must comply with the subpoena as narrowed, and its deposition may occur remotely and may last no more than three hours.

Questions about settlement discussions

Hedgeye’s counsel asked Lamar during his deposition about statements he made during settlement discussions, including whether he had told the truth. Defense counsel objected and directed Lamar not to answer. Hedgeye moved to compel answers, arguing that no settlement privilege or other rule barred discovery of the communications. The defendants argued that Federal Rule of Evidence 408 would prevent use of the statements as evidence, that the questions were unlikely to lead to admissible evidence, and that the questioning was harassing.

Judge Lehrburger applied Rule 26(b)(1)’s relevance-and-proportionality standard. He explained that the 2015 amendment to that rule removed the phrase allowing discovery “reasonably calculated to lead to the discovery of admissible evidence” and emphasized proportionality. The court stated that it had not recognized a settlement privilege and was not deciding the ultimate admissibility of Lamar’s answers.

The court reasoned that Hedgeye already possessed Lamar’s written settlement communications and had participated in the oral discussions. It also found that Rule 408 generally bars using settlement communications to prove or disprove a disputed claim or to impeach a prior inconsistent statement, while recognizing exceptions for other purposes such as proving bias or prejudice or undue delay. Hedgeye had not identified one of those exceptions. These considerations reduced the likely benefit of the proposed discovery.

Because Hedgeye offered to limit the discovery to either written questions or a one-hour video deposition, the court found the reduced burden proportional to the likely benefit. The court therefore granted Hedgeye’s motion to compel Lamar to answer questions about statements he made during settlement discussions. Lamar may choose between written questions and a one-hour video deposition. The admissibility of any resulting testimony will be decided later, if necessary.

Disposition

The parties were ordered to meet and confer and work toward completing the discovery authorized by the order within 30 days. The order resolved discovery matters only; it did not decide the merits of Hedgeye’s trade-secret claims.