Securities and Exchange Commission v. Champion-Cain ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 3:19-cv-1628-LAB-AHG 12 COMMISSION, Plaintiff, ORDER: 13 v. (1) APPROVING THE 14 GINA CHAMPION-CAIN AND ANI RECEIVER’S REPOSITORY AND DEVELOPMENT, LLC, PROPOSED ALLOCATION OF 15 Defendants, and PRODUCTION-RELATED COSTS; 16 and 17 AMERICAN NATIONAL (2) GRANTING JOINT MOTION INVESTMENTS, INC., 18 FOR ENTRY OF PROTECTIVE ORDER REGARDING THE 19 REPOSITORY Relief Defendant. 20 [ECF No. 326] 21 22 On June 9, 2020, the parties to this action—Plaintiff the Securities and 23 Exchange Commission (the “Commission”), Defendant Gina Champion-Cain, and 24 Krista L. Freitag (“Receiver”), the Court-appointed permanent receiver for Defendant 25 ANI Development, LLC, Relief Defendant American National Investments, Inc., and 26 their respective subsidiaries and affiliates (“Receivership Entities”)—along with 27 several interested non-parties, including Chicago Title Company, Brant Benun, 28 individually and on behalf of Alina Inc. d/b/a Symphony Finance 401k Profit Sharing 1 Plan, et al., Ovation Finance Holdings 2 LLC, Banc of Califo rnia, CalPrivate Bank, 2 Marc Shular, Blake E. Allred, Melissa M. Allred, and the proposed class in the related 3 Allred action,1 Kim Funding, LLC, Kim H. Peterson, Joseph J. Cohen, ABC Funding 4 Strategies, LLC, and Mark Atherton, et al., (collectively, the “Moving Parties”), filed 5 a Joint Motion for (1) Entry of Protective Order and (2) Approval of Receiver’s Data 6 Repository and Allocation of Related Costs (the “Joint Motion”). ECF No. 326. 7 In the Joint Motion, the Moving Parties request that the Court enter a Protective 8 Order (“Order”) to govern the treatment of documents and information (“Materials”) 9 that the Receiver will produce as part of a database of documents and information 10 (“Repository”) relevant to the ANI liquor license lending program underlying this 11 action. The Moving Parties also request that the Court approve the Receiver’s use of 12 the Repository in lieu of other document discovery methods, as well as their proposed 13 cost allocation for production of materials to the Repository. 14 As proposed, the Receiver’s Repository will operate as a centralized database 15 that will allow the Materials to be uploaded and disseminated to: (1) all interested 16 parties whose funds were deposited into escrow with Chicago Title, or otherwise 17 invested in connection with, or loaned to, the Receivership Entities or Defendant 18 Champion-Cain, as part of the ANI liquor license lending program (“Interested 19 Parties”); (2) the Commission; and (3) Chicago Title Company, subject to the terms 20 of the parties’ proposed stipulated Protective Order. ECF No. 326 at 7. Because 21 Defendant Champion-Cain has asserted that certain communications within the 22 Materials are protected by the attorney-client privilege, her counsel will conduct a 23 privilege review and provide a privilege log for those communications that her counsel 24 identifies and removes. The Receiver will then provide a hard drive with the remaining 25 Materials to the proposed recipients listed above. Id. at 7-8. 26 The Materials will take up approximately 800 gigabytes of data, to be produced 27 28 1 Allred, et al. v. Chicago Title Company, et al., Case No. 3:19-cv-2129-LAB-AHG. 1 in a bates-stamped, fully searchable format in the Repos itory. Based on her 2 consultation with several vendors, the Receiver estimates that the total cost to 3 complete this process will be approximately $105,000. Id. at 8. The Receiver proposes 4 allocating this cost in three equal shares among (1) the receivership estate, (2) Chicago 5 Title, and (3) the Interested Parties. Id. Additionally, if the Receiver obtains or locates 6 additional documents or information related to the liquor license program, the 7 Receiver proposes to meet and confer with the recipients regarding whether to produce 8 such materials through the Repository, and an equitable allocation of costs in 9 connection with such production. Id. at 9. 10 Upon thorough review of the Moving Parties’ proposed cost allocation and the 11 supporting case law, the Court agrees that the parties’ cost-shifting proposal is 12 appropriate under Rule 26(c)(1)(B) of the Federal Rules of Civil Procedure. That 13 provision permits the Court, for good cause shown, to issue an order protecting a party 14 from “undue burden or expense,” including by “specifying terms, including . . . the 15 allocation of expenses, for the disclosure or discovery at issue.” Fed. R. Civ. P. 16 26(c)(1)(B). “[T]he presumption is that the responding party must bear the expense of 17 complying with discovery requests, but he may invoke the district court’s discretion 18 under Rule 26(c) to grant orders protecting him from ‘undue burden or expense’ in 19 doing so, including orders conditioning discovery on the requesting party’s payment 20 of the costs of discovery.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 21 (1978). 22 As the Moving Parties discuss in their motion, courts have frequently employed 23 this provision to order similar cost allocations in other complex cases involving costly 24 productions of large amounts of discovery material. See, e.g., In re Two Appeals 25 Arising Out of San Juan Dupont Plaza Hotel Fire Litig., 994 F.2d 956, 965 (1st Cir. 26 1993) (“In this multidistrict litigation, involving upward of 2000 parties and raising a 27 googol of issues, [the trial judge’s] power to mandate contributions to, inter alia, a 28 central discovery depository can scarcely be doubted.”); In re Air Crash Disaster at 1 Stapleton Int’l Airport, Denver, Colo., on Nov. 15, 1987, No. MDL 751, 1988 WL 2 243502, at *10 (D. Colo. Apr. 18, 1988) (“The plaintiffs, as a group, and each 3 defendant will provide a pro rata share of the costs of establishing the document 4 depository. Defendants named in this litigation hereafter shall be required to pay a 5 similar pro rata share unless the court, upon review, orders otherwise.”). 6 Such cost-shifting measures for production are not limited to multidistrict 7 litigation. See Hagemeyer N. Am., Inc. v. Gateway Data Scis. Corp., 222 F.R.D. 594, 8 601 (E.D. Wis. 2004) (“A number of district courts have recognized the unique burden 9 of producing documents stored on backup tapes and, by invoking Rule 26(c) to fashion 10 orders to protect parties from undue burden or expense, have conditioned production 11 on payment by the requesting party.”) (collecting cases); U.S. ex rel. Carter v. 12 Bridgepoint Educ., Inc., 305 F.R.D. 225, 239-40 (S.D. Cal. 2015) (collecting cases 13 regarding shifting the cost of production to the requesting party where the “expenditure 14 of resources required to access the contents [of electronically stored information] is 15 itself unreasonable”). 16 Here, the Court finds the Moving Parties have shown good cause to approve the 17 Receiver’s Repository and their proposed allocation of costs associated with the 18 Receiver’s production of the Materials into the Repository. In particular, the Moving 19 Parties point to the considerable costs of production, the Receiver’s efforts to conserve 20 the limited resources of the receivership estate for the benefit of all creditors, the lack 21 of availability of most of the Materials from other sources, and the benefits that the 22 recipients will derive from obtaining the information through a streamlined process. 23 ECF No. 326 at 14. These considerations align with the seven factors set forth in the 24 two seminal cases on the issue of cost-shifting under Rule 26, Zubulake v. UBS 25 Warburg LLC, et al., 217 F.R.D. 309, 318 (S.D.N.Y. 2003) (“Zubulake I”) and 26 Zubulake v. UBS Warburg LLC, et al., 216 F.R.D. 280, 284 (S.D.N.Y. 2003) 27 (“Zubulake II”). These factors include: 28 1 1. The extent to which the request is specifically tail ored to discover 2 relevant information; 2. The availability of such information from other sources; 3 3. The total cost of production, compared to the amount in controversy; 4 4. The total cost of production, compared to the resources available to each party; 5 5. The relative ability of each party to control costs and its incentive to do 6 so; 6. The importance of the issues at stake in the litigation; and 7 7. The relative benefits to the parties of obtaining the information. 8 Zubulake II, 216 F.R.D. at 284. See also OpenTV v. Liberate Techs., 219 F.R.D. 474, 9 476 (N.D. Cal. 2003) (considering the seven Zubulake factors to determine whether 10 cost-shifting is appropriate for the discovery of “inaccessible” data). 11 The Court agrees that, applying the relevant factors, the parties’ proposed cost 12 allocation should be approved. Accordingly, the Court GRANTS the motion to 13 approve the Receiver’s Repository and the proposed allocation of production-related 14 costs. 15 Further, having reviewed the parties’ proposed Stipulated Protective Order 16 (ECF No. 326 at 20-29), the Court grants the Joint Motion for the entry of the 17 Protective Order, except to the extent the proposed order did not fully comply with 18 chambers rules governing discovery disputes and stipulated protective orders. The 19 Court has added its required provisions in more explicit terms in Paragraphs 6, 15, and 20 23 herein, but otherwise enters the following Stipulated Protective Order exactly as 21 submitted by the parties: 22 The Court recognizes that some of the Materials to be produced as part of the 23 Repository are, for current competitive and/or privacy reasons, normally kept 24 confidential. 25 Upon entry of this Order, the Receiver will be permitted to produce these 26 confidential Materials to the Repository. As provided in and subject to the cost- 27 allocation terms discussed in the Joint Motion, all interested parties and interested non- 28 1 parties whose funds were deposited into escrow with the Chic ago Title Company or 2 Chicago Title Insurance Company (collectively, “Chicago Title”), or otherwise 3 invested in connection with, or loaned to, the Receivership Entities and/or Gina 4 Champion-Cain (collectively, the “Parties,” and individually, a “Party”), as part of the 5 alleged scheme that is the subject of the above-captioned Securities and Exchange 6 Commission enforcement action, will be granted access to the Repository, along with 7 those parties identified below in Paragraph 2. The Parties, through their counsel, have 8 agreed to be bound by the terms of this Order and, accordingly, will be able to access, 9 review, and use the Materials contained within the Repository, subject to the terms 10 and conditions set forth herein. 11 The Receiver obtained the Materials principally from the following sources, 12 pursuant to the authority conveyed upon her by virtue of the receivership appointment 13 order (ECF No. 6): (a) electronic data, documents, and information stored by the 14 Receivership Entities using remote cloud storage as well as computers, a server and 15 hard drives located at the Receivership Entities’ offices; (b) hard-copy documents and 16 information retrieved by the Receiver and her staff from the Receivership Entities’ 17 offices and operating or storage locations; and (c) data, documents, and information 18 obtained by the Receiver in response to subpoenas served upon third-parties. 19 The Materials may contain confidential and/or personal private information, 20 trade secrets or other confidential information, as contemplated by Federal Rule of 21 Civil Procedure 26(c)(1)(G). The purpose of this Order is to protect the confidentiality 22 of any such information in the Materials as much as practical in connection with the 23 instant action and any current or potential future legal action(s) relating to the ANI 24 liquor license lending program. As used herein, the term “Confidential Information” 25 shall mean all information and data contained or disclosed in any of the Materials, 26 except as provided in Paragraph 14 below, including documents, portions of 27 documents, and data, summaries, and compilations derived therefrom, whether or not 28 1 previously designated as “CONFIDENTIAL,” that include s or constitutes the 2 following: (1) Social Security numbers; (2) dates of birth; (3) home addresses, except 3 for city and state; (4) driver’s license numbers; (5) bank account and routing numbers, 4 except for the last four digits; and (6) trade secrets as defined in California Civil Code 5 section 3426.1(d). The Receiver believes, in good faith, that the disclosure of 6 Confidential Information could be potentially prejudicial to the commercial or 7 personal interests of the original custodian(s). 8 GENERAL RULES 9 1. All Confidential Information produced by the Receiver to, and contained 10 within, the Repository will be considered “CONFIDENTIAL,” and shall be treated as 11 such pursuant to the terms of this Order, whether or not the Materials are specifically 12 designated as “CONFIDENTIAL.” 13 2. Confidential Information shall be handled in the manner set forth below 14 and, in any event, shall not be used for any purpose other than in connection with this 15 litigation and any current or potential future legal action(s) relating to the ANI liquor 16 license lending program (collectively, “Related Actions”), unless and until such 17 disclosure is approved in writing either by Chicago Title with respect to its Materials, 18 the Receiver with respect to the Receivership Entities’ Materials, or by order of this 19 Court. Persons and entities who are granted access to the Repository shall, subject to 20 the provisions of this Protective Order and any order approving the Joint Motion, 21 include: (1) the Parties; (2) a Party’s counsel in connection with Related Actions; 22 (3) the Commission, including personnel employed by the Commission; (4) the 23 Receiver and her staff, consultants, and counsel; and (5) Chicago Title and its counsel 24 in connection with Related Actions (together with (1)-(4), the “Repository Parties”). 25 3. Subject to the provisions of this Protective Order, Confidential 26 Information may be disclosed to: a Party, staff and employees of a Party or Party’s 27 counsel; any person who actually was involved in the preparation of the document or 28 1 who appears on the face of the document as the author, addres see, or other recipient 2 or currently is affiliated with the party that originally produced or appears to have 3 prepared said document; mediators or arbitrators and their staff in Related Actions; 4 witnesses, deponents and court reporters in Related Actions; and juries and court 5 personnel in Related Actions. In addition, Confidential Information may be disclosed 6 to expert witnesses, investigators, vendors, and consultants engaged or retained by a 7 Party or a Party’s counsel in this matter or in Related Actions, once they have executed 8 the form attached hereto as Exhibit A. 9 4. Whenever a deposition taken in the instant action or a Related Action 10 involves a disclosure of Confidential Information: 11 a. that portion of the deposition shall be designated as containing 12 Confidential Information subject to the provisions of this Order; such 13 designation shall be made on the record whenever possible, but a party to 14 the proceeding at issue may designate portions of depositions as 15 containing Confidential Information after transcription of the 16 proceedings; a party to the proceeding at issue will have until twenty-one 17 (21) days after receipt of the deposition transcript to inform the other party 18 or parties to the action of the portions of the transcript to be designated 19 “CONFIDENTIAL.” 20 b. the disclosing party will be obligated to exclude from attendance at the 21 deposition, during such time as the Confidential Information is to be 22 disclosed, any person other than the deponent, counsel (including their 23 staff and associates), the court reporter, videographer and the person(s) 24 agreed upon pursuant to Paragraphs 2 and 3 above; and 25 c. those portions of original deposition transcripts containing Confidential 26 Information, and all copies of the deposition transcripts, shall bear the 27 legend “CONFIDENTIAL,” as appropriate, and the original or any copy 28 1 of a deposition transcript which contains Con fidential Information 2 ultimately presented to a court for filing shall not be filed unless it can be 3 accomplished under seal, identified as being subject to this Order, and 4 protected from being opened except by order of this Court or the judge 5 presiding over the Related Action. 6 5. All of the Confidential Information produced by the Receiver to, and 7 contained within, the Repository, and any and all reproductions of the Confidential 8 Information, must be retained in the custody of the counsel for the Repository Parties 9 identified in Paragraph 2, above, except that the Receiver and her staff may retain 10 custody of copies as necessary. 11 6. Before any Confidential Information is filed with this Court or any court 12 in connection with any Related Action(s), for any purpose, the party seeking to file 13 such material shall seek permission of this Court, or the court presiding over the 14 Related Action, to file the applicable Material(s) under seal. No document shall be 15 filed under seal unless counsel secures a court order allowing the filing of a document, 16 or portion thereof, under seal. An application to file a document under seal shall be 17 served on opposing counsel, and on the person or entity that has custody and control 18 of the document, if different from opposing counsel. If opposing counsel, or the person 19 or entity who has custody and control of the document, wishes to oppose the 20 application, they must contact the chambers of the judge who will rule on the 21 application to notify the Court that an opposition to the application will be filed. 22 7. All Confidential Information shall be maintained as confidential by those 23 inspecting or receiving it, and shall be used only for purposes of the Related Actions. 24 Counsel for each Repository Party, and each person or entity receiving Confidential 25 Information, shall take reasonable precautions to prevent the unauthorized or 26 inadvertent disclosure of such information. If Confidential Information is disclosed to 27 any person not authorized by this Order, the Repository Party responsible for the 28 1 unauthorized disclosure shall immediately bring all pertinen t facts relating to the 2 unauthorized disclosure to the attention of the Receiver and, without prejudice to any 3 rights and remedies of the Receiver and/or the original custodian(s) of the Material(s), 4 shall make every reasonable effort to prevent further disclosure including, but not 5 limited to, requesting the person(s) or entities that received the unauthorized disclosure 6 to destroy the Confidential Information immediately. 7 8. The Materials may be used, subject to the terms of this Order, in any 8 Related Action, and may be shared with the parties to such Related Action who agree 9 to the terms of this Order and the cost-sharing provisions. All Repository Parties shall, 10 upon the request of any other Repository Party, stipulate to the entry of a protective 11 order with at least the protections in this Order in any Related Action. 12 9. Nothing in this Order will bar counsel from rendering advice to their 13 clients with respect to any Related Action and, in the course thereof, relying upon any 14 information designated as Confidential Information, provided that the contents of the 15 Confidential Information shall not be disclosed. 16 10. The existence of this Order shall not be used by any person or entity as a 17 basis for discovery that is otherwise improper under the Federal Rules of Civil 18 Procedure. 19 11. Nothing within this Order shall be construed to prevent disclosure of 20 Confidential Information if such disclosure is required by law or by court order. 21 12. This Order shall not prevent the Commission from complying with its 22 obligations under law concerning disclosure of documents including, but not limited 23 to, its published Routine Uses of Information in Forms 1661 and 1662, the Freedom 24 of Information Act, and any other statutes or rules applicable to the Commission, or 25 interfere with the Commission’s use of information for law enforcement activities and 26 to otherwise regulate, administer, and enforce the federal securities laws. 27 13. Upon the final discharge of the Receiver or termination of the instant 28 1 case, whichever is later, counsel for each Repository Party sha ll, upon the request of 2 the Receiver, use all reasonable efforts to destroy all Materials, including any copies 3 or excerpts of such Materials, including from all machine-readable media on which it 4 resides. “Reasonable efforts” shall not require the return or destruction of Materials 5 that (i) are stored on backup storage media made in accordance with regular data 6 backup procedures for disaster recovery purposes, (ii) are located in the email archive 7 system or archived electronic files of departed employees, or (iii) are subject to legal 8 hold obligations. If Materials are subject to a legal hold obligation at the time the 9 Receiver makes a request for destruction, counsel for the Repository Party that is 10 subject to such hold obligation shall promptly provide the Receiver with reasonable 11 written proof thereof. Backup storage media will not be restored for purposes of 12 returning or certifying destruction of Materials, but such retained information shall 13 continue to be treated in accordance with the Order. Notwithstanding the foregoing, in 14 the event that any Repository Party is involved in a Related Action that terminates 15 after the discharge of the Receiver or the termination of the above-captioned action, 16 such Repository Party will promptly destroy all Materials, including any copies, 17 excerpts, and summaries of such Materials, including from all machine-readable media 18 on which it resides, upon the termination of the related legal action(s). Counsel for 19 each Repository Party may retain all correspondence, transcripts, written discovery, 20 pleadings, briefs, memoranda, motions, and other documents filed with this Court or 21 any court in connection with a Related Action that refers to or incorporates 22 Confidential Information, and will continue to be bound by this Order with respect to 23 all such retained Confidential Information. Further, attorney work-product materials 24 that contain Confidential Information need not be destroyed, but, if they are not 25 destroyed, the person in possession of the attorney work product shall continue to be 26 bound by this Order with respect to all such retained information. 27 14. The restrictions and obligations set forth within this Order do not apply 28 1 to any information that: (a) the Repository Parties agree, or a court determines, is 2 already public knowledge; (b) the Repository Parties agree, or a court determines, has 3 become public knowledge other than as a result of disclosure by a Repository Party, 4 its employees, or its agents in violation of this Order; or (c) a Party or Party’s counsel 5 already possesses or obtains from a separate source by which the information was not 6 designated as confidential. 7 15. To the extent a Repository Party determines, in good faith, that any 8 portion of the Materials includes or constitutes trade secrets as defined in California 9 Civil Code section 3426.1(d), that Repository Party (a “Designating Party”) may 10 designate such materials as Confidential Information by written notice to all other 11 Repository Parties. Any Repository Party may object to the designation of 12 Confidential Information on the ground that such information does not constitute 13 Confidential Information by serving written notice upon counsel for the Designating 14 Party at any time, specifying the item(s) in question and the grounds for the objection. 15 If a Repository Party objects to the designation of any materials as Confidential 16 Information, the Repository Party challenging the designation shall arrange for a meet 17 and confer conference under Local Civil Rule 26.1(a), which shall occur within ten 18 (10) calendar days of service of the notice. If the parties cannot resolve the matter, 19 before engaging in motion practice, the Repository Party challenging the designation 20 must bring the dispute to the Court’s attention by complying with Magistrate Judge 21 Allison H. Goddard’s Chambers Rules governing discovery disputes.2 The party 22 challenging the designation must raise the issue with the magistrate judge within ten 23 (10) calendar days of the Local Civil Rule 26.1 conference, and may include the 24 material at issue for the Court’s in camera review. The Designating Party shall bear 25 the burden of establishing that the document is entitled to protection. Any contested 26 27 2 Judge Goddard’s Chambers Rules are available at https://www.casd.uscourts.gov/judges/goddard/docs/Goddard%20Civil%20Pretrial% 28 20Procedures.pdf. 1 information shall continue to be treated as Confidential Infor mation subject to this 2 Protective Order until the Court issues a ruling on the dispute. 3 16. This Order does not prohibit discussion of any Confidential Information 4 with anyone if that person already has or obtains legitimate possession of the relevant 5 Confidential Information. 6 17. Transmission by email or some other currently utilized method of 7 transmission is acceptable for all notification purposes within this Order. 8 18. This Order may be modified by agreement of the Repository Parties, 9 subject to approval by the Court. 10 19. The terms and conditions of this Order apply with full force and effect to 11 any and all Related Action(s). The terms and conditions of this Order, as applied to 12 any Related Action, may be enforced by this Court. The Repository Parties consent 13 and submit to the jurisdiction of this Court with respect to enforcement of the Order, 14 including the imposition of any sanction(s) by the Court for violation thereof. 15 20. In the event that the Receiver obtains additional data, documents, or 16 information after entry of this Order relating to the ANI liquor license lending 17 program, the Repository Parties shall meet and confer regarding the necessity, 18 appropriateness and manner of the Receiver producing the additional data, documents, 19 or information, the treatment of such data, documents, or information, and the 20 parameters of any cost-sharing allocation, if necessary and appropriate. 21 21. Nothing contained herein waives or prejudices any Repository Party’s 22 rights regarding the demand for, access to, or production of any of the Materials, or 23 any documents, information, or data related to the subjects of the above-captioned 24 action. 25 22. Nothing contained herein constitutes an implied waiver of any rights 26 regarding potential cost-sharing consistent with the Federal Rules of Civil Procedure, 27 and the Receiver requests an allocation of costs associated with the production of the 28 1 | Materials to the Repository, as set forth in the Motion. 2 23. The Court may modify the protective order sua sponte in the interests of 3 justice or for public policy reasons. : IT IS SO ORDERED. 6 | Dated: June 26, 2020 . Mion H. Kyler Honorable Allison H. Goddard 8 United States Magistrate Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 EXHIBIT A 2 3 4 5 I, _____________________________________, DECLARE: 6 I have read in its entirety and understand the Protective Order (the “Order”) 7 entered by the Court in this Action and have been provided with a copy of the Order. 8 1. I agree to be bound by the terms of the Order. I will use the Materials 9 only for the purposes of this litigation and related legal actions, pursuant to the terms 10 of the Order. I will hold such Materials in confidence and not disclose to any person 11 or entity not qualified under the Order to receive it. 12 2. I will destroy all Materials in my possession, custody, and/or control in 13 accordance with the terms of the Order. 14 3. I understand that violation of the terms of the Order will subject me to 15 sanctions or penalties for contempt of the Order. I consent and submit to the 16 jurisdiction of this Court for the purpose of enforcing the Order. 17 I declare under penalty of perjury under the laws of the United States of America 18 and the State of California that the foregoing is true and correct. 19 Dated: _______________, 20__ 20 21 22 23 24 25 26 27 28