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Executive Management Services, Inc. v. Fifth Third Bank

United States District Court, Southern District of Indiana, Indianapolis Division

November 3, 2014

EXECUTIVE MANAGEMENT SERVICES, INC., EMS FLORIDA, INC., D&B VENTURES, LLC, AIR GULF II, LLC, Plaintiffs,
v.
FIFTH THIRD BANK, Defendant.

ORDER ON PLAINTIFFS’ MOTION TO COMPEL

Mark J. Dinsmore United States, Judge

This matter comes before the Court on Plaintiffs’ Motion to Compel. [Dkt. 126.] For the following reasons, the Court GRANTS IN PART AND DENIES IN PART Plaintiffs’ motion.

I. Background

On April 8, 2013, Executive Management Services, EMS Florida, D&B Ventures, and Air Golf II (“EMS” or “Plaintiffs”) filed suit against Fifth Third Bank (“Defendant” or “Fifth Third”), alleging, inter alia, 1) breach of the implied duty of good faith and fair dealing; and 2) breach of fiduciary duty. [See Dkt. 1; see also Dkt. 127 at 1.]

The claims arose from a series of transactions beginning in September 2004, when EMS entered into a trust indenture in which The Bank of New York Mellon (“BNYM”) was authorized to issue up to ten million dollars in variable rate demand notes (“VRDNs”) to EMS. [Dkt. 74 at 2.] Fifth Third issued a letter of credit as security for the bonds, [Dkt. 1 at 4; Dkt. 74 at 2], which carried a variable interest rate periodically calculated by Fifth Third’s affiliate, Fifth Third Securities. [Dkt. 1 at 4.]

EMS became dissatisfied with the variable structure of the debt. [Id. at 5.] In 2006, however, Fifth Third allegedly approached EMS and recommended “interest rate swaps as a mechanism for EMS to hedge against interest rate volatility.” [Id. at 6.] In such “swaps, ” the parties select a “notational amount.” One party then agrees to pay a fixed rate of interest on that amount to the other, while the second party agrees to pay a floating interest rate derived from a well-recognized index such as a London Interbank Offered Rate (“LIBOR”). At the end of each period in the swap agreement, the parties calculate the difference between the fixed and floating rates. If the floating rate exceeds the fixed rate, then the party who agreed to pay the floating rate pays the difference between the rates, and vice versa. This allows the first party to “swap” its variable rate for a fixed payment. [Dkt. 1 at 5; Dkt. 74 at 2 n.1.]

EMS alleges that Fifth Third made potentially misleading representations to EMS about interest-rate swaps. [Dkt. 1 at 6.] The parties then allegedly entered swap agreements in which EMS would pay Fifth Third a fixed rate of interest, while Fifth Third would pay EMS the LIBOR Tolerate 3750 rate of interest. [Id.]

The LIBOR rate, however, fell sharply during the 2008 economic recession. [Dkt. 1 at 10; Dkt. 74 at 3.] EMS alleges that various banks manipulated LIBOR to “keep it artificially low” and alleges that to the extent Fifth Third knew of such manipulation, Fifth Third should have disclosed the information to EMS. [Dkt. 1 at 10.] EMS further alleges that as the LIBOR rate fell, EMS paid much more than anticipated under the swap agreements. [Id. at 11.] EMS states that it requested information about the swap agreements during this time, but alleges that instead of providing information, Fifth Third unilaterally terminated the swap agreements. [Dkt.1 at 12.] EMS claims this termination costs it hundreds of thousands of dollars in early termination fees, which it paid in 2011. [Id.]

EMS then filed the current lawsuit. Defendant moved for judgment on the pleadings on August 23, 2013. [Dkt. 37.] The Court granted that motion in part, [Dkt. 74], leaving only Plaintiffs’ claims for 1) breach of the duty of good faith and fair dealing; and 2) breach of fiduciary duty. [Id. at 8-14.] These claims were based on Fifth Third’s alleged termination of the swap agreement and alleged failure to disclose a wide range of internal information, such as the risk associated with using the LIBOR rate defined in the agreement and the risk of EMS’s liability for early termination fees. [Dkt. 1 at 7.]

While the motion for judgment on the pleadings was pending, discovery commenced, and on November 27, 2013, EMS served on Fifth Third its First Set of Interrogatories and its First Request for Production. [Dkt. 127 at 3.] On June 10, 2014, EMS served its Second Request for Production. [Id. at 4.] Fifth Third objected to most of these requests and interrogatories with the same rote objection contending the requests were “overly broad, ” “unduly burdensome, ” and “not relevant to the subject matter of this action.” [See Dkts. 128-1, 128-2 & 128-3.]

On May 13, 2014, Plaintiffs’ counsel sent to Defendant’s counsel a proposed Rule 30(b)(6) deposition notice with a list of topics for Fifth Third’s Rule 30(b)(6) representative. [Dkt. 127 at 4.] On June 4, 2014, Fifth Third’s counsel objected to and requested clarification of the proposed topics. [Id.] EMS responded by letter on June 25, 2014, but never served a notice of deposition on Fifth Third. [Id.; see also Dkt. 128-5.]

On June 10, 2014, EMS served Fifth Third’s liability expert, John D. Van Slooten, with a Subpoena and Non-Party Request for Documents. [Dkt. 127 at 4.] EMS received a response on June 26, but believed the response was incomplete. [Id. at 4.]

The parties conferred among themselves, and with the Magistrate Judge on August 4, 2014, but could not resolve the disputes resulting from Defendant’s responses. [Dkt. 127 at 4.] The Court then authorized Plaintiffs to file a motion to compel if necessary. [Dkt. 118.] Following the August 4 conference, Fifth Third produced several hundred pages of documents, but this production did not remedy Plaintiffs’ concerns. [Dkt. 127 at 4-5.] Plaintiffs thus filed the current motion to compel on October 13, 2014. [Dkt. 126.]

Plaintiffs’ motion asks the Court to compel production responsive to Request Nos. 3-9, 11-17, 19-20, 25-29, and 45 of Plaintiffs’ First Request for Production; Request Nos. 1, 2, 5, and 7 of Plaintiffs’ Second Request for Production; and Interrogatory No. 2 of Plaintiffs’ First Set of Interrogatories. [See Dkt 127.] Plaintiffs’ motion also asks for an order compelling Fifth Third to 1) comply with its obligations regarding destroyed documents [Dkt. 127 at 17]; 2) comply with the 30(b)(6) deposition in the form EMS proposed; and 3) produce all documents responsive to Plaintiffs’ Subpoena and Non-Party Request served on John Van Slooten. [Dkt. 127 at 19.]

The Court conducted a hearing on October 30, 2014. During the hearing, Defendant withdrew its objections to Requests Nos. 7-9, 11, 13, 14, 17, 20, and 25-28 of Plaintiffs’ First Request for Production and Requests Nos. 1, 2, and 5 of Plaintiffs’ Second Request for Production, and those objections are hereby ordered to be WITHDRAWN. Plaintiffs withdrew from their motion Request No. 7 of their Second Request for Production and their request for an order compelling Defendant to comply with obligations regarding destroyed documents.

II. Legal Standard

Under Rule 26, “[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party.” Fed.R.Civ.P. 26(b)(1). Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence, and relevancy is “construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.” Chavez v. DaimlerChrysler Corp., 206 F.R.D. 615, 619 (S.D. Ind. 2002) (citations omitted); accord Med. Assur. Co. v. Weinberger, 295 F.R.D. 176, 181 (N.D. Ind. 2013) (citing Fed.R.Civ.P. 26(b)(1) and defining material as “relevant to the claim or defense of any party” if the material “bears on” or “reasonably could lead to other matter[s] that could bear on, any issue that is or may be in the case”).

Rule 37(a) allows a party to “move for an order compelling disclosure or discovery.” Fed.R.Civ.P. 37(a)(1). In ruling on such motions, courts have “broad discretion” and have “consistently adopted a liberal interpretation of the discovery rules” in order to “aid the search for truth.” Kodish v. Oakbrook Terrace Fire Prot. Dist., 235 F.R.D. 447, 450 (N.D. Ill. 2006). The scope of discovery, however, has limits, and a court may deny a motion to compel to “protect a party from oppression or undue burden.” Chavez, 206 F.R.D. at 619.

The party resisting a motion to compel bears the burden to show why a particular discovery request is improper. Cunningham v. Smithkline Beecham, 255 F.R.D. 474, 478 (N.D. Ind. 2009). “The objecting party must show with specificity that the request is improper.” Id. “[G]eneral assertions” of hardship will not suffice, Schaap v. Executive Indus., Inc., 130 F.R.D. 384, 387 (N.D. Ill. 1990), nor will “reflexive invocation” of the “often abused litany that the requested discovery is vague, ambiguous, overly broad, unduly burdensome or [irrelevant.]” Cunningham, 255 F.R.D. at 478 (citation omitted).

III. Discussion

Defendant objects to each of Plaintiffs’ remaining requests and interrogatories at issue in this motion on the grounds that they are “not relevant to the subject matter of this action, ” are “unduly burdensome, ” and are “overly broad.” Defendant elaborates on each these three objections in its response to Plaintiffs’ motion. The Court will address Defendant’s general arguments and then rule on each of Plaintiffs’ remaining requests.

A. Relevance of Requested Information

Throughout its brief, Defendant argues that transactions and information unrelated to EMS are irrelevant to the current action. [See, e.g., Dkt. 134 at 9-12.] Defendant asserts that because the only remaining claims in this case are for breach of the implied duty of good faith and fair dealing and breach of fiduciary duty, the “only relevant inquiry is whether Plaintiffs . . . reposed some unusual degree of trust in Fifth Third, or whether Fifth Third assumed some unusual control over Plaintiffs’ business.” [Id.] Thus, Defendant hopes to limit discovery to “its dealings with Plaintiffs, ” [id. at 10 (emphasis original)], and asserts that requests seeking information about other interest rate swaps, other variable rate bonds, or the 2008 recession in general are not relevant. [Id. at 11.]

Plaintiffs, in contrast, argue that all information it has requested—even that unrelated to the transactions specifically between EMS and Fifth Third—is relevant. [Dkt. 136 at 1.] Plaintiffs argue that Defendant is improperly trying to limit discovery to the single issue Defendant plans to explore at trial, while denying Plaintiffs the opportunity to collect information they will need to prove their case. [Id. at 5.]

Plaintiffs’ first remaining claim is for breach of the implied duty of good faith and fair dealing. [See Id. at 4.] Under New York law, which governs this case, [Dkt. 134 at 9], such a duty arises “where 1) a party has superior knowledge of certain information; 2) that information is not readily available to the other party; and 3) the first party knows that the second party is acting on the basis of mistaken knowledge.” Procter & Gamble Co. v. Bankers Trust Co., 925 F.Supp. 1270, 1290 (S.D. Ohio 1996) (citing Banque Arabe et Internationale D'Investissement v. Maryland National Bank, 57 F.3d 146 (2d Cir.1995)).

Based on this explanation of the duty of good faith and fair dealing, transactions and information unrelated to EMS are plainly relevant. EMS, for instance, has requested all documents relating to “Fifth Third’s marketing of interest rate swap agreements as a means to hedge variable interest rate risk, ” including internal information relating to use of LIBOR as a hedging mechanism. [Dkt. 128-1 at 3.] This request does not relate specifically to Fifth Third’s dealings with EMS, but Fifth Third’s internal knowledge of interest rate swaps and LIBOR are relevant to whether it had “superior knowledge, ” Proctor & Gamble, 925 F.Supp. at 1290, of the subject matter of the transactions with EMS.

Likewise, Plaintiffs have requested all “documents relating to Fifth Third’s recommendation of LIBOR as a hedging mechanism, ” including internal research, memoranda, and communications on the topic. [Dkt. 128-1 at 3.] Again, this request is not limited to Fifth Third’s recommendations specifically to Plaintiffs, but internal memoranda describing Fifth Third’s understanding of interest rate swaps and LIBOR could demonstrate Fifth Third’s “superior knowledge.” Hence, even without a connection to the particular transactions with EMS, the information EMS requests could help establish Fifth Third’s duty of ...


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