U.S. Commodity Futures Trading Commission v. Parnon Energy Inc.

13-4206(L), 13-4263(L)
CFTC v. Parnon Energy Inc., Ardizzone v. Castleton Commodities International LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING
A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall Courthouse, 40 Foley Square, in the City of New York, on the 25th day of
November, two thousand fourteen.
Present:
ROBERT A. KATZMANN,
Chief Judge,
PETER W. HALL,
SUSAN L. CARNEY,
Circuit Judges.
________________________________________________
U.S. COMMODITY FUTURES TRADING
COMMISSION,
Plaintiff-Appellee,
v. Nos. 13-4206(L), 13-4323(con)
PARNON ENERGY INC., ARCADIA PETROLEUM
LTD., ARCADIA ENERGY (SUISSE) SA, NICHOLAS
J. WILDGOOSE, JAMES T. DYER,
Defendants-Appellees.
v.
CASTLETON COMMODITIES INTERNATIONAL LLC,
VITOL, INC., VITOL CAPITAL MANAGEMENT LTD.,
PLAINS ALL AMERICAN PIPELINE, LP, MORGAN
STANLEY CAPITAL GROUP, INC., SHELL OIL
COMPANY,
Appellants.
________________________________________________
STEPHEN E. ARDIZZONE, ADAM HABER, SMW
TRADING CO., EDWARD BERNSTEIN, CHRISTOPHER
T. COURTIOL, AKA CHRISTOPHER R. COURTIOL,
ADAMS AFFILIATES, INC., TODD KRAMER, JOSEPH
G. LOZA, JOHN J. LOSORDO, JR., DAVID SEIDNER,
FTC CAPITAL GMBH, CERVINO CAPITAL
MANAGEMENT LLC, ANNAMARIA STEARDO,
GREGORY GALAN, AIS FUTURES FUND II L.P., AIS
FUTURES FUND III L.P., AIS FUTURES FUND IV L.P.,
AIS FUTURES FUND L.P. (3X-6X), AIS FUTURES
MANAGEMENT, LLC, DCM ENERGY LLC, ON BEHALF
OF THEMSELVES AND ALL OTHERS SIMILARLY
SITUATED,
Plaintiffs-Appellees,
v. Nos. 13-4263(L), 13-4447(con)
PARNON ENERGY INC., ARCADIA PETROLEUM
LTD., ARCADIA ENERGY (SUISSE) SA, NICHOLAS
J. WILDGOOSE, JAMES T. DYER,
Defendants-Appellees,
v.
CASTLETON COMMODITIES INTERNATIONAL LLC,
VITOL, INC., VITOL CAPITAL MANAGEMENT LTD.,
PLAINS ALL AMERICAN PIPELINE, LP, MORGAN
STANLEY CAPITAL GROUP, INC., SHELL OIL
COMPANY,
Objectors-Appellants.*
________________________________________________
*
The clerk is directed to amend the caption as set forth above.
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For Appellant Castleton Commodities
International LLC: Peter Ligh, Sutherland Asbill & Brennan LLP,
New York, NY.
For Appellants Vitol, Inc. and Vitol
Capital Management Ltd.: KEITH J. BARNETT (David P. Langlois, on the
brief), Sutherland Asbill & Brennan LLP, New
York, NY, and Atlanta, GA.
For Appellant Plains All American
Pipeline, LP: HILARY L. PRESTON (Armita S. Cohen and Eric
A. White, on the brief), Vinson & Elkins LLP,
New York, NY, and Washington, DC.
For Appellants Morgan Stanley Capital
Group, Inc. and Shell Oil Company: Anthony M. Mansfield and Joshua L. Shapiro,
Cadwalader, Wickersham & Taft LLP, New
York, NY, and Washington, DC.
For Plaintiff-Appellee U.S. Commodity
Futures Trading Commission: MELISSA CHIANG (Jonathan L. Marcus, General
Counsel, and Robert A. Schwartz, Deputy
General Counsel, on the brief), Commodity
Futures Trading Commission, Washington, DC.
For Plaintiffs-Appellees Stephen E.
Ardizzone et al.: WARREN T. BURNS, Susman Godfrey LLP,
Dallas, TX (Christopher Lovell, Lovell Stewart
Halebian Jacobson LLP, New York, NY, on the
brief).
For Defendants-Appellees: ELIZABETH M. BRADSHAW (Timothy J. Carey,
on the brief), Winston & Strawn LLP, Chicago,
IL.
Appeals from the United States District Court for the Southern District of New York
(Pauley, J.).
ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and
DECREED that the orders of the district court are AFFIRMED.
Appellants Castleton Commodities International LLC, Vitol, Inc., Vitol Capital
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Management Ltd., Plains All American Pipeline, LP, Morgan Stanley Capital Group, Inc., and
Shell Oil Company appeal from two orders entered on October 25, 2013 by the U.S. District
Court for the Southern District of New York (Pauley, J.). The orders were entered in two parallel
suits against Defendants-Appellees Parnon Energy Inc., Arcadia Petroleum Ltd., Arcadia Energy
(Suisse) SA, Nicholas J. Wildgoose, and James T. Dyer, one an enforcement action filed by
Plaintiff-Appellee the U.S. Commodity Futures Trading Commission (the “CFTC”), and the
other a class action filed by Plaintiff-Appellee Stephen E. Ardizzone and others (the “Class
Plaintiffs”). Both suits allege that the Defendants engaged in an unlawful scheme to manipulate
the price of light sweet crude oil futures in late 2007 and early 2008. In the orders under review,
the district court allowed the Defendants to produce to the Class Plaintiffs large numbers of
confidential business documents that the Appellants had previously produced to the CFTC as
part of a nationwide investigation into possible manipulation of crude oil prices, and that the
CFTC in turn had produced to the Defendants in the enforcement action. The court conditioned
its discovery orders on the parties’ entry of modified protective orders making more stringent the
safeguards governing the parties’ review of the documents. The Appellants challenge these
discovery orders on grounds of relevance and confidentiality. We assume the parties’ familiarity
with the underlying facts, procedural history, and issues presented for review.
Before turning to the merits, we must first address our jurisdiction to review these pretrial
discovery orders, which were not final when the notices of appeal were filed. See 28 U.S.C.
§ 1291; Fed. R. Civ. P. 54(b). Generally, “[a] party that seeks to present an objection to a
discovery order immediately to a court of appeals must refuse compliance, be held in contempt,
and then appeal the contempt order.” Church of Scientology of California v. United States, 506
4
U.S. 9, 18 n.11 (1992). “[U]nder the so-called Perlman doctrine,” however, “a discovery order
directed at a disinterested third party is treated as an immediately appealable final order because
the third party presumably lacks a sufficient stake in the proceeding to risk contempt by refusing
compliance.” Id. (citing Perlman v. United States, 247 U.S. 7 (1918)). Here, the district court’s
orders are directed not to the Appellants but to the Defendants, who, although parties to the
litigation, have no interest in risking contempt on the Appellants’ behalf and in fact have already
turned over the documents in question to the Class Plaintiffs. The district court’s orders are
therefore final and appealable under the Perlman doctrine.
With regard to the appeal from the order in the CFTC action, we note that we also have
appellate jurisdiction under ordinary finality principles. On August 4, 2014, the district court
entered a final consent order in the CFTC action, and although the clerk has not entered final
judgment, the order leaves no doubt that all claims and defenses have been fully and finally
resolved and that all prior decisions in the case are now final. See Bankers Trust Co. v. Mallis,
435 U.S. 381, 387 (1978) (per curiam). In addition, while the notices of appeal were filed before
the discovery order was rendered final, “‘[i]n the absence of prejudice to the nonappealing party,
this Court . . . has declined to dismiss premature notices of appeal where subsequent actions of
the district court have imbued the order appealed from with finality.’” Smith ex rel. Smith v. Half
Hollow Hills Cent. Sch. Dist., 298 F.3d 168, 172 (2d Cir. 2002) (per curiam) (ellipsis in original)
(quoting Leonhard v. United States, 633 F.2d 599, 611 (2d Cir. 1980)).
We must also address the suggestions by the Class Plaintiffs and the CFTC that these
appeals are moot. A dispute is moot when, by virtue of an intervening event, a court of appeals
cannot grant any effectual relief whatever in favor of the appellant.” Calderon v. Moore, 518
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U.S. 149, 150 (1996) (internal quotation marks omitted). Here, the Class Plaintiffs point out that
both they and the Defendants already possess the documents in question and have begun
reviewing them. But these changed circumstances do not prevent us from ordering meaningful
relief. As the Appellants point out, we may order the return of any irrelevant or unreviewed
documents, or limit their use in court, for example. For its part, the CFTC argues that because
the CFTC action has now settled, any order that might be entered in that action would be of no
effect. But under the terms of the amended protective order entered in the CFTC action
following the settlement, the Defendants remain in possession of the Appellants’ documents.
Were we to conclude that the Defendants hold those documents in violation of the Appellants’
rights to protect their confidential information, we could grant the Appellants at least partial
relief by ordering the Defendants to return or destroy the documents, see Church of Scientology,
506 U.S. at 12 (“Even though it is now too late to prevent, or to provide a fully satisfactory
remedy for, the invasion of privacy that occurred when the IRS obtained the information on the
tapes, a court does have the power to effectuate a partial remedy by ordering the Government to
destroy or return any and all copies it may have in its possession.”). We accordingly conclude
that neither appeal is moot.
Turning to the merits, district courts “enjoy[] wide discretion in [their] handling of pre-
trial discovery,” and “[w]e will reverse a district court’s discovery ruling only upon a clear
showing of an abuse of discretion.” Wills v. Amerada Hess Corp., 379 F.3d 32, 51 (2d Cir.
2004). “A district court ‘abuses’ or ‘exceeds’ the discretion accorded to it when (1) its decision
rests on an error of law (such as application of the wrong legal principle) or a clearly erroneous
factual finding, or (2) its decision—though not necessarily the product of a legal error or a
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clearly erroneous factual finding—cannot be located within the range of permissible decisions.”
Zervos v. Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir. 2001) (footnotes omitted).
The Appellants first argue that the documents in question have not been shown to be
relevant. Under Federal Rule of Civil Procedure 26, “[p]arties may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or defense.” Fed. R. Civ. P.
26(b)(1). In addition, “[f]or good cause, the court may order discovery of any matter relevant to
the subject matter involved in the action.” Id. “Relevant information need not be admissible at
the trial if the discovery appears reasonably calculated to lead to the discovery of admissible
evidence.” Id. Relevance to the subject matter under Rule 26 is “construed broadly to encompass
any matter that bears on, or that reasonably could lead to other matter that could bear on, any
issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351
(1978).
In this case, the Defendants served requests on the CFTC seeking documents referring or
relating to the Defendants, and the CFTC, based on its limited resources, conducted a relevance
review using sampling techniques and date ranges to identify responsive records. The district
court then found that the documents the CFTC produced were relevant to the class action, even
where they included the Defendants’ internal communications and financial reports, records
from outside the period of the Defendants’ alleged scheme, and documents regarding other
grades of oil. The court reasoned that such documents could shed light on the perceptions and
reactions of other market participants to the alleged manipulation, provide a benchmark for the
behavior of a non-manipulated market, and inform an analysis of the scope of the pertinent
market. We see no abuse of discretion in these determinations. In addition, while the Appellants
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fault the CFTC, the Class Plaintiffs, and the district court for failing to conduct a more
particularized relevance analysis, the Appellants cite no authority requiring particularized
relevance determinations, and the text of Rule 26 is to the contrary. See Fed. R. Civ. P. 26(b)(1)
(requiring only that discovery be “reasonably calculated to lead to the discovery of admissible
evidence” (emphasis added)).
In the alternative, the Appellants argue that any relevance the documents may have had is
outweighed by the Appellants’ strong interest in maintaining the privacy of their confidential
business records. Under Rule 26(c), a district court “may, for good cause, issue an order to
protect a party or person from annoyance, embarrassment, oppression, or undue burden or
expense,” including by “requiring that a trade secret or other confidential research, development,
or commercial information not be revealed or be revealed only in a specified way.” Fed. R. Civ.
P. 26(c)(1), (c)(1)(G). This rule “confers broad discretion on the trial court to decide when a
protective order is appropriate and what degree of protection is required.” Seattle Times Co. v.
Rhinehart, 467 U.S. 20, 36 (1984).
The district court here carefully considered the Appellants’ interest in confidentiality, and
in fact strengthened the already stringent requirements of the protective orders in both cases in
response to the Appellants’ concerns. We find no abuse of discretion in the district court’s
determination that the strengthened protective orders—which closely limit the individuals who
can view highly confidential documents—adequately protect the Appellants’ confidentiality.
The Appellants also raise broader policy concerns regarding the district court’s orders,
contending that they will chill third parties like the Appellants from cooperating with
government investigations. But the CFTC here provided notice when it first sought the
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Appellants’ documents that whatever the Appellants turned over would be subject to “routine
uses,” including use in litigation and disclosure in response to a subpoena. Br. for CFTC, add. at
2–3. Moreover, the Appellants’ policy concerns were considered and rejected not only by the
district court but also by the CFTC, both of whom are better situated than we are to weigh
concerns about cooperation with future government investigations against other relevant
considerations. Again, we see no abuse of discretion.**
We have considered all of the Appellants’ remaining arguments and find them to be
without merit. Accordingly, for the foregoing reasons, the orders of the district court are
AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
**
Nevertheless, we note that agencies like the CFTC would be well advised to provide
advance notice to third parties like the Appellants whose documents the agency intends to
disclose in response to a discovery request. Advance notice will enable parties and district courts
to address any issues attendant to production on the front end, before third-party documents are
disclosed outside the agency. Indeed, although the Appellants do not raise the issue, advance
notice is statutorily required where the agency discloses information in response to a subpoena or
summons. See 7 U.S.C. § 12(f) (providing that the CFTC “shall disclose information in its
possession pursuant to a subpoena or summons only if,” at least fourteen days before disclosure,
the agency mails a copy of the subpoena or summons “to the last known home or business
address of the person who submitted the information” or “provides other appropriate notice of
the subpoena or summons to such person”).
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