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In re Term Commodities Cotton Futures Litigation

United States District Court, Second Circuit

May 8, 2013

IN RE: TERM COMMODITIES COTTON FUTURES LITIGATION

MEMORANDUM AND ORDER

KEVIN NATHANIEL FOX, Magistrate Judge.

The plaintiffs in this consolidated putative class action allege that the defendants: (1) violated the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 1-27f, by intentionally manipulating and artificially inflating the prices of the Intercontinental Exchange ("ICE") Cotton No. 2 futures contracts expiring in May 2011 ("May 2011 Contract") and July 2011 ("July 2011 Contract"); (2) aided and abetted violations of CEA; (3) violated the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, by fixing and inflating, artificially, prices for the May 2011 Contract and July 2011 Contract; and (4) became unjustly enriched by their unlawful acts. On November 28, 2012, the defendants filed a motion to dismiss the consolidated amended complaint. Before the Court are: (1) the plaintiffs' motion, pursuant to Rules 26(c) and 37(a) of the Federal Rules of Civil Procedure, to compel the defendants to produce documents produced previously to the Commodity Futures Trading Commission ("CFTC"); and (2) the defendants' motion, pursuant to Rule 26(c) of the Federal Rules of Civil Procedure, to stay discovery.

Plaintiffs' Contentions

On December 24, 2012, the plaintiffs served their first request for production of documents, which included Document Request No. 3, the subject of the plaintiffs' motion to compel, seeking: "All documents or other information produced by Defendants to the CFTC, and all sworn statements or testimony provided by Defendants to the CFTC, in connection with any investigation of Cotton Contracts relating to the May 2011 Contract and/or July 2011 Contract." The defendants made general objections, including that the plaintiff's first request for production of documents is "premature in light of Defendants' pending motion to dismiss, which seeks dismissal of the action based on legal deficiencies in the Amended Consolidated Complaint." They also made specific objections, contending that Document Request No. 3 is:

(i) overly broad, unduly burdensome, and vague and ambiguous; (ii) to the extent that it seeks information that is neither relevant to the claims or defenses asserted by the parties in this litigation, nor reasonably calculated to lead to the discovery of admissible evidence, or whose relevance is outweighed by the burden Defendants would bear in attempting to review and produce such materials; (iii) to the extent that it seeks documents and information that constitute attorney work product; and (iv) to the extent that it seeks documents and information that are confidential pursuant to applicable regulatory requirements or otherwise protected from disclosure pursuant to applicable law. In particular, Defendants object to the use of the undefined terms "documents or other information." Defendants will interpret this request as seeking documents. Defendants further object to the use of the undefined terms "sworn statements or testimony." Defendants will interpret this request as seeking sworn written statements made by Defendants or their employees, or written transcriptions in Defendants' possession of sworn testimony given by Defendants or their employees to the CFTC.

The plaintiffs contend that their Document Request No. 3 seeks relevant, non-privileged documents and is narrowly-tailored because it "seeks only documents produced by Defendants to the CFTC (which have been previously identified and gathered) relating solely to the May 2011 Contract and/or the July 2011 Contract.'" They maintain that the defendants' general objection that the discovery is premature should be overruled, because neither the CEA nor the Sherman Antitrust Act provides an automatic stay of discovery pending a decision on a motion to dismiss. According to the plaintiffs, Document Request No. 3 is not overbroad or unduly burdensome, since no search burden is involved, as the documents requested have already been searched for, gathered and produced previously, and they relate solely to the May 11 Contract and July 2011 Contract. The plaintiffs contend that during the meet and confer process the parties resolved the defendants' "vague and ambiguous" objection concerning the phrase "documents and other information, " by agreeing that phrase will "be interpreted to mean documents' (as defined by Local Civil Rule 26.3) reflecting sworn statements or sworn testimony made by Defendants or their employees to the CTC." The plaintiffs assert that Document Request No. 3 is relevant because the complaint alleges that the defendants manipulated and conspired to manipulate the prices of the May 2011 Contract and the July 2011 Contract and it seeks documents that were produced by the defendants to the CFTC in connection with its investigation into price manipulation respecting those contracts.

The plaintiffs contend that the defendants waived any privilege objection by failing to comply with Rule 26(b)(5) and Local Civil Rule 26.2(a) and (b) of this court, because, at the time they responded to Document Request No. 3, they did not provide the information required by those rules. Moreover, even if some requested documents are privileged, the privilege had been waived by the previous production of the privileged materials to a third party, the CFTC. With respect to the defendants' objection on the ground of confidentiality, the plaintiffs assert that the defendants failed to articulate any applicable regulatory requirement or law that would prevent production of the requested documents, and any concerns related to confidentiality may be alleviated by a confidentiality order in this action. The plaintiffs request that the Court: (a) overrule the defendants' objections to Document Request No. 3 and order the defendants to produce the responsive documents within 30 days from the date of the order; and (b) find that the defendants waived any privilege objections or, alternatively, order the defendants to prepare a privilege log within 30 days from the date of the order, in accordance with Local Civil Rule 26.2.

Defendants' Contentions

The defendants contend that their motion to dismiss raises substantial grounds for dismissal, warranting a stay of discovery. The complaint alleges unlawful manipulation of the May 2011 and July 2011 cotton future contracts "by means of a manipulative short squeeze" and also that cotton was "very freely available" in the physical market. According to the defendants, the plaintiffs' own allegations preclude their manipulation claim as a matter of law, because "[i]f cotton is freely available, then a responsible [seller] who plans ahead can simply purchase the available cotton and deliver it in satisfaction of its obligations in the futures market." Furthermore, the plaintiffs' claims are premised on legal theories that are not viable. For example, the complaint alleges an antitrust conspiracy under Section 1 of the Sherman Act, but fails to identify any conspirators, beyond the named defendants, who are all part of the same corporate family and are alleged to have acted on behalf of each other. Similarly, the complaint fails to allege a claim under Section 2 of the Sherman Act, because it does not identify any actionable anticompetitive conduct. Moreover, the plaintiffs' unjust enrichment claim fails "because, by Plaintiffs' own admission, futures are express contracts." According to the defendants, these errors are "pure questions of law, " warranting "a stay of discovery until these legal issues are decided." The defendants contend that the requested production would be burdensome, and the plaintiffs identify no prejudice they would suffer from a short delay, awaiting the adjudication of the motion to dismiss.

The defendants maintain that, as part of its response to a regulatory inquiry, defendant Louis Dreyfus Commodities LLC ("LDC LLC") produced to the CFTC over 90, 000 pages of documents. "Given the breadth of materials typically sought by the government in an investigation, many of the requested documents may have no bearing on the issues in this litigation, " and the plaintiffs' request for "all documents, " in connection with the May 2011 Contract and July 2011 Contract, is overbroad. The defendants contend that reviewing over 90, 000 pages of materials for responsiveness will impose a significant burden on them. Moreover, the materials "produced to the CFTC include commercially sensitive agreements, trading data, correspondence with customers and suppliers, and internal communications regarding strategies and market values." According to the defendants, "LDC LLC made this production pursuant to well-established legal procedures the CFTC has created for handling confidential and sensitive business information, " and "[b]y following these procedures, LDC LLC was able to comply with a regulatory inquiry, while protecting the confidentiality of sensitive commercial information." Since the plaintiffs are trading competitors who could use the confidential information to the detriment of the defendants in the marketplace, the defendants objected to the plaintiffs' Document Request No. 3 "to the extent that it purports to seek information" that is confidential. Furthermore, negotiating a confidentiality order "could result in a considerable burden on the Defendants." The defendants maintain that "[i]dentifying sensitive material and taking appropriate steps to protect it would be time-consuming and costly, " and they did not waive any privilege when "LDC LLC made productions to the CFTC in the spirit of cooperation, and provided materials that Defendants created to assist the CFTC with its investigation."

The defendants contend that the plaintiffs seek discovery for an improper purpose, namely, as they indicated in their December 14, 2012 letter to the Court, to replead their claims "with the benefit of the CFTC documents." The defendants ask that the plaintiffs' motion to compel be denied and their motion to stay discovery granted.

Plaintiffs' Response to the Defendants' Motion

The plaintiffs contend that the defendants conceded they have no search burden, and they failed to provide any specific facts that constitute good cause for a protective order. For example, the defendants did not address: (a) whether they created an index to and detailed outline of their previous production of documents to the CFTC; (b) whether documents produced to the CFTC are searchable electronically or, if not, are easily converted into an electronically searchable format; or (c) the estimated time and costs of an optional "re-review." According to the plaintiffs, "90, 000 pages is a small fraction of the documents in other cases." The plaintiffs contend that the defendants did not assert any attorney-client privilege and they waived the work-product doctrine protection with respect to the requested documents. Furthermore, the defendants failed to obtain a non-waiver agreement with the CFTC and have not asserted that they share a common interest with the CFTC. The plaintiffs are willing to agree that the production will be for attorney's eyes only and to return any documents that should not have been produced.

The plaintiffs contend that the defendants failed in their attempt to show that their motion is a "pure legal motion, " since their motion "depends heavily on Defendants' characterization of the plausibility of Plaintiffs' allegations, " and they did not show that their motion is likely to succeed or it is "inevitable" that the plaintiffs' claims lack merit. Moreover, delaying production of the requested documents will prejudice the plaintiffs with respect to the availability of documents from the non-parties who dealt with the defendants, the passage of a two-year statute of limitations as to the John Doe defendants and the quality of witnesses' memories. The stay would also delay the plaintiffs' ability to issue document preservation subpoenas to non-parties who dealt with the defendants and those ...


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