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Michael J. Goodman, et al v. Genworth Financial Wealth Management

January 24, 2012


The opinion of the court was delivered by: Brown, Magistrate Judge:


Before the Court are issues arising from the depositions of three non-party witnesses, Timothy McMullan, James Cook and Timothy McFadden (the "TJT witnesses") and the objections by defendants (collectively "Genworth") to certain questions based upon an injunction issued by the United States District Court for the District of Connecticut in a parallel litigation brought by Genworth against the TJT witnesses. See Memorandum of Decision and Order in Genworth v. McMullan, et al., 09-CV-1521 (D. Ct. June 10, 2010) (the "Injunction").*fn1

In an application dated December 19, 2011, plaintiffs seek a ruling that the Injunction does not prevent the TJT witnesses from testifying in depositions in this case. See Docket Entry ("DE") [83]. Genworth disputes this, arguing that (1) the injunction prohibits the TJT witnesses from testifying at deposition, and (2) prior decisions in this matter bar further consideration of this issue and (3) this Court lacks the authority to determine otherwise. See DE [85].

For the reasons set forth herein, I find, inter alia, that the Injunction, by its terms, does not bar deposition testimony in this matter. Therefore, plaintiffs' motion [83] is granted in part, defendants' objections are overruled, and the depositions should be continued so as to allow the witnesses to answer plaintiffs' questions, reasonable follow-up questions, and provide a reasonable opportunity for inquiry by defendants. Furthermore, for the reasons contained herein, the depositions will not commence for 30 days to allow Genworth, as appropriate, to identify specific questions to which it contends the Injunction should apply and/or to appeal this Order to the district judge.


Allegations in the Complaint

The complaint was originally filed on December 22, 2009 as a potential class action by clients of defendant Genworth who invested in that firm's BJ Group Services Portfolios (the "Portfolio") during the time period from December 22, 2003 to December 22, 2009. Compl. ¶1, DE [1]. An Amended Complaint filed on May 24, 2010 is substantially identical, but includes additional factual allegations including references to information obtained in the "parallel action" in Connecticut. See Am. Compl. ¶¶ 40-42, DE [16].

The Amended Complaint purports to state a cause of action for violations of Section 10(b) and of the Exchange Act and Rule 10 b-5 of the SEC. Plaintiffs allege that defendants perpetrated a fraudulent scheme in which they recklessly and/or intentionally misled investors regarding the Portfolio "and its 'exclusive' management agreement with Robert 'Bob' Brinker." Am. Compl. ¶1. Plaintiffs claim that defendants mislead investors by representing that they were implementing investment recommendations and strategies from Brinker, the author of the Marketimer newsletter and the host of a national radio show called Moneytalk. Id. ¶¶ 2, 28. According to plaintiffs, defendants aggressively marketed their product by reference to their relationship with Brinker. For example, the "Account Application" sent to prospective clients "expressly identifies the Portfolio as the 'BJ Group (Brinker) Services' portfolios." Id. ¶23.

Plaintiffs assert that in practice, however, fewer than 50% of the Funds purchased for the Portfolio were selected or recommended by Brinker, id. ¶32, and that the non-Brinker selected Funds underperformed the Funds recommended by Brinker. Id. ¶35. It is further alleged that the non-Brinker selected Funds were chosen because those Funds paid extra administrative and service fees to defendants. Id. ¶¶33, 37. Plaintiffs conclude that the putative class has "suffered millions of dollars in damages as a result of Defendants' blatant misrepresentations regarding the Portfolio, as well as Defendants' scheme to purchase Funds that generated higher fees for the Defendants." Id. ¶43.

Procedural History

This matter has a multifaceted procedural history, involving litigation both before this Court and the Connecticut court. The Connecticut litigation was filed by Genworth against the TJT witnesses on or about September 25, 2009. That case, in sum and substance, alleges that the TJT witnesses, former Genworth employees, misappropriated proprietary information from Genworth in order to assist with their efforts to establish a competing company and lure Genworth clients to that enterprise. In the Connecticut litigation, Genworth further alleges that as part of their effort to discredit Genworth and attract its clients, the TJT witnesses used confidential client information and disseminated proprietary (and in some cases inaccurate) information to those clients. Further, it alleges that the TJT witnesses leaked confidential information to class counsel in this action.*fn2 See Injunction at 2-5. On February 25, 2010, Genworth filed a motion in the Connecticut litigation seeking preliminary relief designed to prevent further dissemination of its confidential data.

The Injunction

On June 10, 2011, the Connecticut court issued the Injunction, based on Genworth's motion for a preliminary restraining order to prevent the TJT witnesses "from unlawfully using confidential, proprietary and trade secret-protected Genworth information . . ." in a manner that would cause "irreparable harm to [Genworth's] business and reputation." Injunction at 2. Following a preliminary hearing, the Connecticut court found that the TJT defendants had engaged in inappropriate conduct, including improperly copying Genworth's confidential information, contacting Genworth clients with disparaging information, failing to comply with discovery demands in the Connecticut action, and disclosing confidential information to class action counsel herein. Id. at 4-6, 10-15. The district court also found that there was evidence that confidential information "pervades the class action complaint." Id. at 15. The district court described these efforts as an "unabashed attempt to destroy Genworth's goodwill and customer relations," id. at 16-17, and as such, ruled that Genworth had satisfied its burden to demonstrate irreparable harm, because of the "threatened loss of goodwill and customers" posed by such actions, id. at 16.

After a careful and detailed analysis, the Connecticut court imposed a number of restrictions on the TJT witnesses designed to prevent further dissemination of Genworth's proprietary data, including, as most relevant herein, the following:

The Defendants shall not use any of Genworth's proprietary information for their own advantage or on the behalf, or for the benefit of, a third party, including without limitation to providing context for the pending class action proceeding.

Id. at 20.

Following issuance of the Injunction, plaintiffs sought the depositions of the TJT witnesses, which led to motion practice in both this Court and the Connecticut court. In this Court, plaintiffs moved to compel testimony by the TJT witnesses. Magistrate Judge Arlene Lindsay issued an order dated June 6, 2011, which granted that motion, stating:

Before the court is the plaintiffs' request for an order compelling non-party witnesses Timothy McMullan, James Cook and Timothy McFadden to appear for depositions and the defendants' opposition to that motion. Upon review of the papers, the court grants the plaintiffs' application. The non-parties are directed to appear at a mutually convenient time. At the depositions, the non-parties may be instructed not to answer questions that would violate that injunction issued by the Connecticut court. The parties may seek further judicial intervention only upon completion of the depositions.

DE [35]. With respect to this procedure, Magistrate Lindsay later advised the parties: until there is a record against which the Court can make a ruling, it's really impossible to make any rulings with respect to what the witnesses -- what you're looking for, whether or not it is, in fact, governed by the injunction and what the witnesses can answer. I can't do that in a vacuum . . .

Tr. of 11/4/11 Proceedings at 7-8, DE [71]. Shortly after this proceeding, the matter was ...

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