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California Earthquake Authority v. Metropolitan West Securities

November 21, 2012

CALIFORNIA EARTHQUAKE AUTHORITY, PLAINTIFF,
v.
METROPOLITAN WEST SECURITIES, LLC ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge

ORDER

Presently before the court is plaintiff California Earthquake Authority's ("CEA") motion to compel the production of documents from non-party witnesses Wells Capitol Management, Inc. and Wells Fargo Funds Management, LLC (successor by merger to Evergreen Investment Management Company, LLC)("Evergreen"). Dkt. 104. The discovery cut-off is set for December 3, 2012. Dkt. 46 at 2. The parties filed a joint statement of their dispute. Id. This matter was heard before the undersigned on November 14, 2012.

Appearing for plaintiff was Patricia Pei and Fredric Woocher. Appearing on behalf of non-party witness Evergreen was David Reidy. Upon consideration of the briefs submitted and oral argument, the court issues the following order.

BACKGROUND

This discovery dispute arises from litigation between CEA and defendants Metropolitan West Securities, LLC ("MetWest") and Wells Fargo Bank, N.A., successor by merger to Wachovia Bank, N.A. ("Wachovia") (collectively, "defendants"), seeking recovery of the majority of MetWest's approximately $62 million investment of CEA funds into Mainsail, a structured investment vehicle holding residential mortgage-backed securities.*fn1 Shortly after the August 2007 purchase of the Mainsail investment, the fund encountered severe liquidity issues which resulted in its assets being frozen. More than a year later, after Mainsail went into a receivership and underwent a restructuring process, CEA recovered some of its principle investment but ultimately lost over $47 million of its original purchase.

The precise nature of the relationship between MetWest and Evergreen is disputed, but the court discerns the following from the arguments of the parties to this dispute. At the time of the Mainsail purchase, both Evergreen and MetWest were wholly-owned subsidiaries of Wachovia Bank, N.A.*fn2 Though separate legal entities, CEA contends that the two shared information - including credit research and analysis - and MetWest may have ignored information from Evergreen that indicated Mainsail was not a safe investment months before MetWest made that purchase. Evergreen maintains that the two entities kept separate credit research departments and credit committees. It further posits that internal risk assessments were not shared with MetWest and there is no evidence showing that this information could have been accessed by MetWest. At hearing, MetWest represented that no official arrangement existed between the two entities prior to the Mainsail transaction, though CEA points to various documents indicating that the parties may have shared or had access to each other's investment information beyond the direct communications between the parties which have already been produced. See infra pp5-6.

A third-party subpoena was served on Evergreen by CEA on October 18, 2012. Dkt. 105-1 at 4-8. The subpoena contained four requests for production - the same four that were also previously served on MetWest*fn3 - and the three at issue are as follows:

(11) All documents dated or created between June 6, 2006 and June 5, 2008, that were in the possession, custody, or control of Evergreen during the same period, and that contain one or more of the following keywords:

1. Mainsail

2. Solent

3. CEA

4. Earthquake Authority

5. *@calquake.com

6. ...


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