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Houston Municipal Employees Pension System v. Bofi Holding, Inc.

United States District Court, S.D. California

March 23, 2017

HOUSTON MUNICIPAL EMPLOYEES PENSION SYSTEM, Individually and On Behalf Of All Others Similarly Situated, Plaintiff,
v.
BOFI HOLDING, INC., GREGORY GARRABRANTS, ANDREW J. MICHELETTI, PAUL J. GRINBERG, NICHOLAS A. MOSICH, AND JAMES S. ARGALAS, Defendants.

          ORDER REGARDING JOINT MOTION FOR DETERMINATION OF DISCOVERY DISPUTE DOC. NO. 90

          Hon. Karen S. Crawford United States Magistrate Judge

         Before the Court is the parties' Joint Motion for Determination of Discovery Dispute No. 2. [Doc. No. 90.] Therein, plaintiff seeks an order permitting it to review and use documents provided by a former employee of defendant, Bof I Holding, Inc. ("Bof I")[1], subject to the proposed Protective Order submitted with this Motion and defendants' privilege review. [Doc. No. 90, at pp. 2, 29.] Defendants seek an order for plaintiff to return documents that they claim are "stolen" and to destroy any copies of such documents in its possession (or in the possession of its agents and affiliates). [Doc. No. 90, at pp. 25, 30.]

         The Court finds the Joint Motion for Determination of Discovery Dispute No. 2 is appropriate for resolution without oral argument and submits it on the papers under Civil Local Rule 7.1(d)(1).

         For the reasons outlined more fully below, the Court DENIES plaintiffs request for an order permitting it to review and use documents provided by a former employee of defendant subject to a Protective Order and defendants' privilege review. The Court GRANTS defendants' request for a Court Order requiring plaintiff to return the documents provided by a former employee of Bof I and to destroy any copies in its possession.

         BACKGROUND

         The operative Second Amended Complaint ("SAC") in this case was filed on November 25, 2016, alleging violations of federal securities laws by defendants. [Doc. No. 79.] On December 23, 2016, defendants filed a Motion to Dismiss the SAC, which is currently pending before the District Court. [Doc. No. 88.] Here, because the pleadings remain unsettled (i.e., a Motion to Dismiss is pending) and no answer has been filed, the Court has not scheduled an Early Neutral Evaluation Conference, a Case Management Conference, or a Rule 26(f) conference.

         The current dispute arises out of plaintiffs informal investigations into the facts, when a former employee of Bof I provided 1, 189 pages of documents (hereinafter "Documents") to an investigator employed by counsel for lead plaintiff ("Lead Counsel"). [Doc. No. 90, at pp. 6, 12.] Defendants contend that the Documents contain a variety of confidential and non-public banking documents, sensitive customer financial information, and internal documents of Bof I. Id. at 13. Specifically, defendants assert nearly 150 pages of the Documents include portions of private third party financial information such as identifying information, social security numbers, tax forms, account numbers, financial information and balances, and tenant information. Id. at 21-22. Defendants further assert that the Documents include some of Bof I internal emails and loan policies, Bofl's Code of Conduct, and various internal lending guidelines marked "Confidential - Internal Use Only."/J. at 13.

         Plaintiff contends that once received, the Documents were reviewed by a single contract attorney working with Lead Counsel to ascertain whether any of the Documents included privileged or otherwise protected information. Id. at 7. Once privilege concerns were positively determined, the Documents were quarantined, the contract attorney was ethically screened, and the Documents were shipped to plaintiffs outside legal ethics counsel ("Outside Ethics Counsel"). Id. The Documents were not reviewed by any other member of plaintiff s Lead Counsel's firm and the sole copy remains with Outside Ethics Counsel. Id.

         On October 20, 2016, plaintiffs Outside Ethics Counsel contacted defendants' counsel requesting a privilege review of the Documents and a privilege log of any documents they believed should be withheld or redacted. Id. On October 28, 2016, defendants' counsel responded, objecting to the release of any of the Documents and seeking their immediate return. Id. at 13. On November 4, 2016, plaintiffs Lead Counsel responded that the Documents should not be destroyed and that the Documents would remain with Outside Ethics Counsel pending the resolution of the dispute. Id. at 8.

         On December 1, 2016, after receiving no response, plaintiffs Lead Counsel proposed a telephonic meet and confer. Id. at 8, 14. On December 5 and 8, 2016, the parties met and conferred in an effort to resolve the current issue but reached an impasse. Id. at 2.[2]

         DISCUSSION

         Federal Rule of Civil Procedure 26(d) provides "[a] party may not seek discovery from any source before the parties have conferred as required by Rule 26(f)." As already noted, the Court knows of no authority that would permit it to enter a Rule 26(c) protective order before discovery has begun. [Doc. No. 80, at p. 7.] Notably, plaintiff cited to no such authority in seeking a protective order herein.

         Rule 26(c) is entitled "Duty to Disclose; General Provisions Governing Discovery." Fed.R.Civ.P. 26. Rule 26(c) addresses "Protective Orders" and states that "[a] party or any person from whom discovery is sought may move for a protective order in the court where the action is pending ....*' Fed.R.Civ.P. 26(c). The plain language of Rule 26(c) does not provide authority for a protective order over prediscovery, informal investigations. Plaintiff argues herein that its Lead Counsel may review and use Documents provided by a former Bof I employee subject to a protective order. [Doc. No. 90, at p. 3.] However, plaintiff cites no authority for its position. Accordingly, the Court DENIES plaintiffs request for an order permitting it to review and use Documents provided by a former employee of defendant subject to a Protective Order and defendants' privilege review.

         The Court further concludes that plaintiffs position, to the extent it is based on In re: JDS Uniphase Corp. Sec. Litig.,238 F.Supp.2d 1127 (N.D. Cal. 2002) and Brado v. Vocera ...


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