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ADL, LLC v. Tirakian

June 26, 2007

ADL, LLC, A FLORIDA LIMITED LIABILITY COMPANY, AS ASSIGNEE OF STRAUB INVESTMENTS, LTD., PLAINTIFF,
v.
KHAJAK "JOHN" TIRAKIAN, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Marilyn D. GO United States Magistrate Judge

ORDER

Plaintiff ADL, LLC ("ADL") moves to compel responses to document requests from defendants John C. Searfoss and Fabio Berkowicz (the "Auditors"). The Auditors oppose ADL's application and request the Court to quash substantially identical subpoenas served on non-parties McGladrey & Pullen, LLP ("McGladrey") and its affiliate RSM McGladrey, Inc.

In the complaint, ADL alleges that the Auditors negligently misrepresented facts regarding the finances of, and fraudulently induced Straub Investments, Ltd. ("Straub") to invest in, a jewelry business comprised of an affiliated group of companies. Specifically, ADL alleges that while Straub was evaluating its potential investment in the jewelry business, it relied on audited financial statements for the year ending 1999 and oral representations made by the Auditors about the jewelry business' financial condition and value. At that time, Searfoss was an employee and Berkowicz a partner in the accounting firm Edward Isaacs & Company, LLP, which was acquired by McGladrey later in 2000. Searfoss is currently a partner in McGladrey, while Berkowicz, who had been a partner there, is no longer affiliated with the firm.

As discussed on the record at a hearing held on June 22, 2007, the motion to compel is granted only in part.

DISCUSSION

Plaintiff's Motion to Compel

Rule 26(b)(1) of the Federal Rules of Civil Procedure permits parties "to obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party" and, upon a showing of "good cause," to have a "court order discovery of any matter relevant to the subject matter involved in the action." Fed. R. Civ. P. 26(b)(1). Information is relevant and discoverable so long as the discovery "appears reasonably calculated to lead to the discovery of admissible evidence." Id. When broader discovery is sought, the Court should determine the scope "according to the reasonable needs of the action, ... depending on the circumstances of the case, the nature of the claims and defenses, and the scope of the discovery requested." Fed. R. Civ. P. 26(b)(1) advisory committee's note (2000 amendment).

Plaintiff argues that the documents requested are relevant to "the role and responsibilities of [the Auditors] as accountants/partners at Edward Isaacs, the reason behind and arrangements of the buyout [of Edward Isaacs] by McGladrey [and] the eventual separation/termination of Berkowicz from the practice." See ct. doc. 57 at 1.

Berkowicz and Searfoss Document Requests No. 22 Plaintiff requests a copy of the McGladrey partnership agreements. Although these agreements may be too attenuated from the claims raised in this case, the Auditors must submit the 2000 McGladrey partnership agreement to the Court for in camera review.

Berkowicz Document Requests Nos. 28, 29 and 30

Plaintiff requests all documents, agreements, and correspondence exchanged between McGladrey and Berkowicz or Berkowicz's representative/attorney relating to his separation/termination prior to entering into any agreement with McGladrey. These requests are limited to all documents pertaining to Berkowicz's separation/termination from McGladrey, which may be relevant to plaintiff's claims of negligent misrepresentation and fraud.

Berkowicz Document Requests Nos. 31 and 32 and Searfoss Document Request No. 28 Plaintiff requests all documents executed between Berkowicz and RSM McGladrey, Inc. or H & R Block from 2000 through September 2006 and all agreements between McGladrey and Berkowicz from 2000 through December 2004. Likewise, plaintiff requests all documents executed between Searfoss and RSM McGladrey, Inc. or H&R Block from 2000 through September 2006. Plaintiff's requests are extremely broad and, as formulated, are not likely to lead to the discovery of admissible evidence. Therefore, these requests must also be limited to documents relating to Berkowicz's termination/resignation.

Searfoss Document Request No. 29 and Berkowicz Document Request No. 35

Plaintiff requests Searfoss' and Berkowicz's employment and personnel files, including reviews of performance, termination or resignation information. The Auditors argue that such highly confidential and personal information should not be produced. Given the claims in this action of negligent misrepresentation and fraud, the Auditors' job performance is undeniably relevant. Moreover, evidence of other wrongs or acts are admissible to prove intent, absence of mistake or accident. See Hynes v. Coughlin, 79 F.3d 285, 290-91 (2d Cir. 1996); Fed. R. Evid. 404(b). Therefore, the Auditors must produce any information contained in the employment and personnel files that relate to performance reviews, complaints, evaluations, training and termination/resignation. However, ...


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