DANIEL S. NEWMAN, etc. v. MAYER BROWN, LLP , 252 So. 3d 755 ( 2018 )

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
DANIEL S. NEWMAN, etc., et al.,
Petitioners,
v.
MAYER BROWN, LLP, et al.,
Respondents.
No. 4D17-3416
[July 25, 2018]
Petition of writ of certiorari to the Circuit Court for the Seventeenth
Judicial Circuit, Broward County; Joseph Murphy, Judge; L.T. Case No.
10-49061.
Leo B. Reus, Scot C. Stirling and Robert O. Stirling of Beus Gilbert
PLLC, Phoenix, and Stuart Z. Grossman and Rachel W. Furst of Grossman
Roth Yaffa Cohen, P.A., Coral Gables, for petitioners.
Eugene K. Pettis and Debra P. Klauber of Haliczer, Pettis & Schwamm,
Fort Lauderdale, for respondents.
FORST, J.
Petitioner Daniel Newman (“the Receiver”) seeks certiorari review of a
non-final order that granted Respondent Mayer Brown, LLP’s motion to
compel discovery with respect to thirty-eight nonparties. Below, Newman
was appointed as a receiver for these thirty-eight investor entities and
individuals (“Assignors”), which all contractually assigned their claims
against Mayer Brown to the Receiver. The latter is the plaintiff, and Mayer
Brown is one of the defendants in the underlying action. 1 During
discovery, Mayer Brown moved to compel the Receiver to produce
documents and comply with deposition requests concerning the Assignors.
The trial court granted the motion and the Receiver filed the instant
petition for writ of certiorari, arguing that the trial court erred in
compelling discovery because the Assignors were nonparties and thus
could not take part in discovery without a subpoena. As set forth below,
1Ernst & Young was also a defendant in the case, but the instant petition does
not involve it.
we deny the petition.
Background
In May 2009, Newman was appointed by the United States District
Court for the Middle District of Florida as a receiver for claims of securities
fraud filed by four hedge funds (“Founding Partners”) and for the Founding
Partners Capital Management Co. (“FPMC”). 2 The federal court order
appointing the Receiver gave him authority to assert claims “for the benefit
and on behalf of” the four funds and “their investors and other creditors,”
i.e., the Assignors. 3 Newman filed suit against Mayer Brown, a law firm,
which allegedly facilitated the fraud. 4 The suit was filed by Newman both
in his capacity as Receiver for the funds and as the “Assignee” of claims
belonging to thirty-eight individual or entity investors in the funds.
Both parties filed discovery requests. At issue is Mayer Brown’s request
for the production of privilege logs by the nonparty Assignors and its
request that the Assignors appear for deposition. The Receiver refused to
comply with these discovery requests, arguing that he did not represent
the Assignors and that they are not parties to this action. He further
claimed he was not in custody, possession or control of the Assignors’
documents and could not force the Assignors to produce documents or
appear for depositions.
Mayer Brown filed a motion to compel compliance with its discovery
requests, arguing at the subsequent hearing that “a defendant who is sued
on an assigned claim may not be subjected to a greater discovery burden
than if the claim had not been assigned.” The assignment agreements
entered into by the Receiver with each of the thirty-eight Assignors are
central to Mayer Brown’s contention that the assignments provide benefits
to the Assignors, as each assignment states that “any recoveries made on
[the Receiver’s] Claims [related to the individual assignor’s investment in
the funds] shall benefit all creditors and investors . . . to the extent
determined appropriate by the Receiver or directed by the Court . . . .”
2 The four hedge funds are (1) Founding Partners Stable-Value Fund, L.P.; (2)
Founding Partners Stable-Value Fund II, L.P.; (3) Founding Partners Hybrid-
Value Fund, L.P.; and (4) Founding Partners Global Fund, Ltd.
3 The Assignors are individuals, IRAs, trusts, LLCs, partnerships, and other
entities.
4 The complaint contends Mayer Brown is guilty of (1) professional malpractice;
(2) aiding and abetting breaches of fiduciary duty; (3) aiding and abetting fraud;
(4) aiding and abetting breaches of statutory duties; (5) negligent
misrepresentation; and (6) fraud.
2
Mayer Brown furthermore noted that the Assignors “agree[d] to provide
reasonable cooperation and assistance to the Receivers’ (sic) legal counsel
and/or the Receiver in connection with the Claims” and set forth details of
this cooperation and assistance, including an agreement to appear for
deposition and “delivering a sworn or written statement of facts known to
Assignor.”
Newman responded that the Assignors were not parties and Mayer
Brown should therefore use subpoenas and “discovery devices that are
appropriate for non-parties.”
The trial court granted Mayer Brown’s motion to compel. The order
states that the Assignors “shall be treated as parties to the case for
discovery purposes in producing documents and appearing for deposition
. . . with the same protections and obligations applying to the Assignors as
apply to [the] parties.” (emphasis added). The Receiver filed the instant
petition seeking certiorari review of the order.
Analysis
“[R]eview by certiorari is appropriate when a discovery order departs
from the essential requirements of law, causing material injury to a
petitioner throughout the remainder of the proceedings below and
effectively leaving no adequate remedy on appeal.” Allstate Ins. Co. v.
Langston, 655 So. 2d 91, 94 (Fla. 1995). The critical inquiry for
jurisdictional purposes is whether the order “creates material harm
irreparable by postjudgment appeal.” Bared & Co. v. McGuire, 670 So. 2d
153, 156-57 (Fla. 4th DCA 1996) (quoting Parkway Bank v. Fort Myers
Armature Works, Inc., 658 So. 2d 646, 649 (Fla. 2d DCA 1995)).
The Receiver makes several arguments in his petition, the main one
being that because the Assignors are nonparties, the trial court departed
from the essential requirements of the law by compelling them to respond
to discovery requests without notice. He contends that Florida Rule of
Civil Procedure 1.351 mandates that only a subpoena can compel
discovery of nonparties. 5 The Receiver cites to Parker v. James, 997 So.
2d 1225 (Fla. 2d DCA 2008), and Graham v. Dacheikh, 991 So. 2d 932
5 Rule 1.351 states in relevant part that “[a] party may seek inspection and
copying of any documents or things within the scope of rule 1.350(a) from a
person who is not a party by issuance of a subpoena directing the production of
the documents or things when the requesting party does not seek to depose the
custodian or other person in possession of the documents or things.” Fla. R. Civ.
P. 1.351(a).
3
(Fla. 2d DCA 2008), among others, to assert the general proposition that
an order requiring production of nonparties without notice “departs from
the essential requirements of the law and causes irreparable injury to the
privacy rights of nonparties who have been given no notice and no
opportunity to be heard in this proceeding.” Graham, 991 So. 2d at 933.
Mayer Brown answers that the cases relied upon by the Receiver involve
traditional nonparties who lack a direct stake in the litigation. The
assignors in the instant case, by contrast, retain a financial interest.
We agree that the cases cited by the Receiver are distinguishable. First,
the Assignors are not traditional “nonparties” under Rule 1.351. As noted
above, the Receiver entered into a contractual agreement with each of the
thirty-eight Assignors, in which the Receiver agreed that any recovery in
litigation brought by the Receiver “shall benefit all creditors and investors
. . . to the extent determined appropriate by the Receiver or directed by the
Court.” As the Receiver’s attorney admitted at the hearing on the motion
to compel, the Assignors stand to gain “something in the hundreds of
millions of dollars” should the Receiver prevail in the underlying action.
Though we can find no Florida case on point, various federal courts
have held, under the similarly-worded Federal Rules of Civil Procedure,6
that because assignors retained substantial, financial interests in their
assigned claims, they could be treated as de facto parties for purposes of
discovery “when to do otherwise would frustrate discovery, regardless of
whether this frustration is intentional or not.” In re Infant Formula
Antitrust Litig., No. MDL 878, 1992 WL 503465, at *9 (N.D. Fla. Jan. 13,
1992) (citing Natta v. Hogan, 392 F.2d 686, 691 (10th Cir. 1968)). See also
Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co., No. 14-CV-4394,
2016 WL 4613390, at *3 (S.D.N.Y. Aug. 31, 2016) (holding that “an
assignee, pressing the rights of its assignors . . . must also assume the
discovery obligations of those assignors.”); JPMorgan Chase Bank v.
Winnick, 228 F.R.D. 505, 506 (S.D.N.Y. 2005) (“It is both logically
inconsistent and unfair to allow the right to sue to be transferred to
assignees . . . free of the obligations that go with litigating a claim.”); Bank
of N.Y. v. Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135, 148 (S.D.N.Y.
1997) (holding that it would be “anomalous” for an assignor bank that had
a “substantial interest” in the underlying case, to assign its claims and “to
frustrate [the defendant’s] right to discover documents in [the assignor’s]
possession.”).
6 Federal Rule of Civil Procedure 34 requires, just like Rule 1.351, that a court
first issue a subpoena before compelling certain discovery of nonparties. FED. R.
CIV. P. 34.
4
These federal cases recognize, as do we, that it would be patently unfair
to allow assignors to use the assignment contract as both a shield and a
sword, allowing them on the one hand to evade good faith discovery
requests by adverse parties, and on the other ultimately reap the benefits
of any damages awarded to them by way of their assigned actions. See,
e.g., JPMorgan Chase Bank, 228 F.R.D. at 506 (“If the plaintiff’s theory
carried the day, the assignor would be able to assign a claim more valuable
than it could ever have, because its claim, if pursued by the assignor,
would entail certain obligations that, when assigned, would magically
disappear.”). See also In re Skelaxin (Metaxalone) Antitrust Litig., No. 1:12-
md-2343, 2014 WL 129814, at *2 (E.D. Tenn. Jan. 10, 2014) (holding that
“it would be wholly unfair for Plaintiffs to step into the shoes of the
assignors for the purposes of bringing their claims and not also assume a
claimant’s attendant discovery obligations.”).
Not only do the Assignors in this case have a financial interest in the
litigation, but they also agreed in the assignment contracts entered into
with the Receiver to contribute to discovery matters during the course of
litigation, including “delivering . . . sworn or written statements of facts
known to Assignor,” reviewing documents, “answering questions and
providing information dealing with Assignor and the claims,” and
appearing for depositions. By agreeing to submit themselves to discovery,
the Assignors have essentially waived their Rule 1.351 argument, thereby
failing to establish that the trial court’s discovery order departed from the
essential requirements of the law and/or caused irreparable harm. In fact,
for the most part, the order that is challenged in this petition did little
more than compel the Assignors to do what they previously agreed to do
in their agreements with the Receiver, and the order expressly states that
the Assignors have the “same protections obligations” that apply to parties.
As a final point, there is no evidence in the record or in the briefs filed
in this action indicating that Mayer Brown has failed to accommodate any
genuine issues presented by the Receiver or any of the Assignees with
respect to discovery requests. “Procedural due process requires both fair
notice and a real opportunity to be heard.” Keys Citizens for Responsible
Gov’t, Inc. v. Fla. Keys Aqueduct Auth., 795 So. 2d 940, 948 (Fla. 2001).
Here, the record evidence demonstrates that the Receiver is in an adequate
position to reasonably apprise the Assignors of any impending discovery
requests, and that it has done so. The fact that the Assignors entered into
an assignment contract, in which they explicitly agreed to comply with any
discovery requests sent to them by the Receiver, further obviates any
notice concerns.
5
Conclusion
Because the trial court’s discovery order did not depart from the
essential requirements of the law, and because the Receiver and the
Assignors have failed to show the order to compel will cause material injury
or irreparable harm, we deny the petition. The assignment contract
requires the Assignors to assist in discovery, and so Rule 1.351 is
inapplicable to the facts of this case. Furthermore, there are no notice or
due process violations here. The record shows that the Receiver can
adequately contact the Assignors to produce discovery, and has in fact
already done so. Accordingly, Mayer Brown is entitled to discovery from
the Assignors, just as if the Assignors had brought this action themselves
on their own claims.
Petition denied.
GERBER, C.J., concurs.
WARNER, J., dissents with opinion.
WARNER, J., dissenting.
I would grant the petition, as the trial court departed from the essential
requirements of law in asserting jurisdiction over persons who were not
brought before the court in accordance with the rules or statutes.
However, based upon the agreement between the non-parties who
assigned their claims in this litigation to the Receiver, the trial court can
compel the Receiver to produce the assignors, the failure of which could
result in the striking of the recalcitrant assignor’s claim.
As noted in the majority, in the proceedings, Mayer Brown sought
discovery from the Assignors. Specifically, it propounded to Receiver
requests to produce documents of assignors and also attempted to
schedule their depositions without the necessity of subpoenas. Receiver
argued the Assignors were non-parties. Therefore, Mayer Brown was
required to comply with the Rules of Civil Procedure for the production of
documents or depositions from non-parties. Mayer Brown moved to
compel the Receiver to produce the documents and to arrange for
depositions of the individual assignors. Should the Receiver fail to do so,
Mayer Brown requested that Receiver not be allowed to pursue the
assignors’ claims. Only the Receiver was served with notice of the motion
and hearing on it.
6
The trial court granted Mayer Brown’s motion, but it vastly expanded
it to hold that Assignors were “parties” to the proceeding for discovery
purposes. The court ordered:
Assignors shall be treated as parties to the case for discovery
purposes in producing documents and appearing for
deposition, and shall respond to notices of deposition and
document requests directed to the Assignors as if the
Assignors were parties to the case, with the same protections
and obligations applying to the Assignors as apply to parties.
Receiver filed this petition for certiorari contending that the court had
departed from the essential requirements of law, causing irreparable harm
not remediable on appeal, as the assignors were never brought before the
court before being declared parties to the proceeding for discovery.
I would hold that the trial court departed from the essential
requirements of law. Assignors were never brought before the court by
subpoena and had no notice of the motion to compel. As such, without
notice or opportunity to be heard, they have been subject to the
jurisdiction of the Florida courts. This is a denial of due process. See
Dep’t of Children & Families v. T.S., 154 So. 3d 1223, 1226 (Fla. 4th DCA
2015) (“Notice and an opportunity to be heard are the hallmarks of due
process.”)
The Rules of Civil Procedure provide for the production of documents
and depositions of non-parties. See generally Fla. R. Civ. P. 1.310, 1.350.
Depositions of non-parties require the service of a subpoena. See Fla. R.
Civ. P. 1.410. A non-party who disobeys a subpoena can be held in
contempt. See Fla. R. Civ. P. 1.410(f). A subpoenaed non-party can also
be liable for costs and attorney’s fees for failing to comply with discovery.
See Fla. R. Civ. P. 1.380(a)(4). However, there is no provision in the rules
to make non-parties subject to the jurisdiction of the court, and thus, its
authority to sanction, without some service of process or subpoena.
The trial court relied on federal cases which have treated assignors as
parties so as not to frustrate discovery. See Natta v. Hogan, 392 F.2d 686,
691 (10th Cir. 1968); see In re Infant Formula Antitrust Litig., No. MDL 878,
1992 WL 503465, at *9 (N.D. Fla. Jan. 13, 1992); see Compagnie Francaise
D'Assurance Pour le Commerce Exterieur v. Phillips Petroleum Co., 105
F.R.D. 16, 34 (S.D.N.Y. 1984). These cases all allowed discovery because
the courts found that the assignors were the real parties in interest in the
litigation.
7
There is no statute or rule in Florida which permits the trial court to
deem real parties in interest, not joined as actual parties in an action, as
subject to the jurisdiction of the court for purposes discovery. In North
Ridge Medical Plaza v. Tenet Healthcare Corporation, 719 So. 2d 1014,
1015 (Fla. 4th DCA 1998), we held that a beneficial owner of property or a
real party in interest must be subpoenaed for deposition. The trial court’s
ruling is directly contrary to North Ridge.
We are not at liberty to change our rules and statutes to achieve a
desired result. Therefore, the trial court’s order deeming these assignors
as subject to the court’s jurisdiction departs from the essential
requirements of law.
The court would have been within its jurisdiction to grant the relief that
Mayer Brown requested in its motion. Each assignor had agreed in its
assignment to cooperate with the Receiver with respect to discovery,
including production of documents and appearing at a deposition and
trial. Thus, there was a contractual relationship between the Receiver and
Assignor with respect to discovery in the case. Mayer Brown sought to
compel the Receiver to produce documents from the assignors and to
depose the assignors. Given the Receiver’s obligation to provide discovery
as a party and the assignor’s contractual obligation with the Receiver, the
trial court could compel the Receiver to produce documents or the assignor
for deposition, and if the Receiver failed to do so, the assignor’s claim may
be dismissed from the suit. This would be consistent with the rules and
with due process. The assignor would not be personally subject to
sanctions, costs, or attorney’s fees without due process of law, yet Mayer
Brown would have a method to enforce discovery obligations against the
Receiver.
For the foregoing reasons, I dissent from the denial of the petition for
writ of certiorari.
* * *
Not final until disposition of timely filed motion for rehearing.
8