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Milliner v. Mutual Securities, Inc.

United States District Court, N.D. California

March 24, 2017

CHARLOTTE B. MILLINER, et al., Plaintiffs,
v.
MUTUAL SECURITIES, INC., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO COMPEL

          THELTON E. HENDERSON United States District Judge.

         On February 8, 2017, the Defendant Mutual Securities, Inc. (“MSI”) filed a Motion to Compel Plaintiffs' Production of Documents. ECF No. 81 (“Mot.”). Plaintiffs timely opposed the motion, ECF No. 83 (“Opp'n”), and Defendant timely replied, ECF No. 86 (“Reply”). The Court heard oral arguments on the motion on March 20, 2017. After carefully considering the parties' written and oral arguments, the Court GRANTS IN PART AND DENIES IN PART Defendant's motion for the reasons set forth below.

         I. BACKGROUND

         As the parties are familiar with the factual background of this case, the Court provides only a brief summary of the facts.

         This class action is related to another class action separately filed in this Court: Milliner v. Bock Evans Financial Counsel, Ltd., No. 15-cv-1763 TEH (the “Bock Evans Class Action”).[1] The Bock Evans Class Action was brought by the same Plaintiffs as the present class action, to challenge the “‘one size fits all' investment approach implemented by their investment advisor, Defendant Bock Evans Financial Counsel, Ltd. (‘BEFC').” Compl. ¶ 1 (EFC No. 1). Plaintiffs brought the present class action against MSI because of MSI's relationship with BEFC. Specifically, BEFC required that clients hire MSI as their broker-dealer. Id. ¶ 9. Plaintiffs allege one reason BEFC required clients to use MSI is because Thomas Bock (“Bock”) and Mary Evans (“Evans”), the principal executive officers of BEFC, were registered representatives of MSI. Id. ¶ 9. In other words, Bock and Evans were “dually registered as registered representatives and commissioned brokers of MSI and as investment advisors and principals of BEFC.” ECF No. 32, at 1:27-2:1. Plaintiffs allege BEFC “plac[ed] 100% or nearly 100% of their assets in high risk and highly speculative foreign mining stocks, including over-the counter and penny stocks” resulting in the value of BEFC's portfolios going “from $60 million to $4.17 million in just a few years, a drop of roughly $55.83 million, or 93%.” Compl. ¶¶ 1-2.

         Through prior orders, the Court has established: “MSI owed Plaintiffs a contractual duty to ‘determine the suitability of any investment recommendations and advice' in accordance with the express terms of their Brokerage Agreement, ” ECF No. 38, 4:27-5:3; MSI had a duty to supervise the outside advisory investment activities of Bock and Evans pursuant to FINRA rules, ECF No. 52, at 12; and MSI breached its duty under FINRA rules to determine suitability, ECF No. 87 at 8:23-24.

         Presently before the Court is MSI's Motion to Compel Plaintiffs' Production of Documents. MSI alleges that the Plaintiffs have not produced any documents in response to its Requests for Production and seeks an order from the Court compelling Plaintiffs to do so.

         II. LEGAL STANDARD

         A party may bring a motion to compel discovery when another party has failed to respond adequately to a discovery request. Fed.R.Civ.P. 37(a)(3). A party “may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed.R.Civ.P. 26(b). As the moving party, MSI must inform the court which discovery requests are the subject of the motion to compel, why Plaintiffs' objections are not justified or why the response provided is deficient, and how proportionality and the other requirements of Federal Rule of Civil Procedure 26(b)(2) are met. See Civil L.R. 37-2. “A district court has wide latitude in controlling discovery . . . .” Lane v. Dep't of Interior, 523 F.3d 1128, 1134 (9th Cir. 2008) (citation and internal quotation marks omitted).

         III. DISCUSSION

         a. Scope of Relief

         In its motion, MSI specifically asks the Court to order the Plaintiffs to produce documents in response to MSI's Requests for Production Nos. 1-78. Mot. at 1:7-10. However, in its reply, MSI asks the Court to “order Plaintiffs to produce the documents responsive to MSI's narrow 18 categories of requests.” Reply at 12:2-4.[2] Because MSI voluntarily narrowed its requests in good faith before the motion to compel and because MSI's reply only asks for an order relating to these 18 categories, the Court only considers these 18 categories for purposes of the motion.

         b. Requests for Productions Regarding Plaintiffs' Non-MSI Accounts, Tax Returns, and Financial Statements are Relevant.

         Federal Rule of Civil Procedure 26(b)(1) allows parties to obtain discovery on “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Here, Plaintiffs object to MSI's requests for the production of Plaintiffs' non-MSI accounts, tax returns, and financial statements on the basis that these records are not relevant to case. Opp'n at 7:14-16, 8:11. Notably, however, while Plaintiffs' objections focused on arguing that these requests are not relevant to suitability - Plaintiffs failed to refute MSI's suggestion that the requests are relevant to issues of class certification (e.g., typicality of claims and Plaintiffs' adequacy to represent the class). Because the Plaintiffs' financial profiles and investment experience could raise unique defenses for MSI against Plaintiffs' specific claims, see, ...


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