Sec. & Exch. Comm'n v. Yorkville Advisors, LLC

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Decision Date27 May 2014
Docket Number12 Civ. 7728 (GBD)(HBP)
PartiesSECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. YORKVILLE ADVISORS, LLC, MARK ANGELO & EDWARD SCHINIK, Defendants.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
YORKVILLE ADVISORS, LLC, MARK ANGELO & EDWARD SCHINIK, Defendants.

12 Civ. 7728 (GBD)(HBP)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Dated: May 27, 2014


OPINION
AND ORDER

PITMAN, United States Magistrate Judge:

I. Introduction

By notice of motion dated January 27, 2014 (Docket Item 61), defendants Yorkville Advisors, LLC, Mark Angelo and Edward Schinik (collectively, "defendants") move for an Order compelling the Securities and Exchange Commission (the "SEC" or "plaintiff") to produce the documents scheduled in plaintiff's privilege logs, dated January 25, 2013 and February 15, 2013.

For the reasons set forth below, defendants' motion is granted in part and denied in part.

II. Facts

The SEC commenced this lawsuit on October 17, 2012 alleging, among other things, that defendants had (1) "engaged in

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a fraudulent scheme pursuant to which they reported false and inflated values for certain convertible debentures, convertible preferred stock . . ., and promissory note investments held by the hedge funds managed by Yorkville" Advisors, LLC ("Yorkville") and (2) made other "materially false and misleading statements to investors and potential investors about" Yorkville (Complaint, dated October 17, 2012 (Docket Item 1) ¶¶ 1-2). On October 31, 2012, this case was designated for inclusion in the Pilot Project Regarding Case Management Techniques for Complex Civil Cases in the Southern District of New York (the "Pilot Project") (Docket Item 2).

Defendants served their First Request for the Production of Documents ("RFP") on December 18, 2012 (Defendants' First Request for the Production of Documents to the Securities and Exchange Commission, annexed as Exhibit A to the Declaration of Nicolas Morgan in Support of Defendants' Motion to Compel Production of Documents Referenced in Plaintiff's January 25, 2013 and February 15, 2013 Privilege Logs, dated January 27, 2014 ("Morgan Decl.") (Docket Item 65)). On January 17, 2013, the SEC objected to certain requests in the RFP on the basis of privilege (Plaintiff Securities and Exchange Commission's Response to Defendants' First Request for the Production of Documents, annexed as Exhibit B to Morgan Decl.). The SEC subsequently produced a privilege

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log on January 25, 2013 ("January 25 Privilege Log") and supplemented that log with a second privilege log on February 15, 2013 ("February 15 Privilege Log;" collectively, the "Privilege Logs") (Plaintiff Securities and Exchange Commission's Privilege Log in Response to Defendants' First Request for the Production of Documents, dated January 25, 2013, annexed as Exhibit C to Morgan Decl.; Plaintiff Securities and Exchange Commission's Privilege Log in Response to Defendants' First Request for the Production of Documents, dated February 15, 2013, annexed as Exhibit D to Morgan Decl.). The SEC asserted the following privilege claims in its Privilege Logs: (1) legal work-product doctrine; (2) law enforcement-investigative privilege; (3) intergovernmental investigative privilege; (4) deliberative process privilege; (5) attorney-client privilege and (6) informant privilege (Morgan Decl., Exs. C, D).

By letter to the SEC, dated October 21, 2013, defendants asserted that the descriptions of the documents in the Privilege Logs were inadequate and requested that the SEC amend and supplement the descriptions; specifically, defendants complained that the Privilege Logs were so lacking in information that defendants were unable to determine whether the privileges asserted had been validly invoked (Letter from Nicolas Morgan, Esq., counsel for defendants, dated October 21, 2013, to Todd

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Brody, Esq. and Stephen B. Holden, Esq., counsel for plaintiff, at 6, annexed as Exhibit E to Morgan Decl.). In response, the SEC wrote: "We believe that our privilege logs are sufficient under the Federal Rules, the Local Rules for the S.D.N.Y. and the Standing Order in this case, and we will not be amending them" (Letter from Todd Brody, Esq. and Stephen B. Holden, Esq., counsel for plaintiff, dated October 28, 2013, to Nicolas Morgan, Esq., counsel for defendants, annexed as Exhibit F to Morgan Decl.).

Defendants subsequently submitted a letter to the court on November 19, 2013, requesting leave to file a motion to compel the SEC to produce more detailed privilege logs (Letter from Nicolas Morgan, Esq., dated November 19, 2013, to the Honorable George B. Daniels, United States District Judge, annexed as Exhibit G to Morgan Decl.). The SEC opposed defendants' request on the ground that the SEC had fully complied with the relevant rules (Letter from Stephen B. Holden, Esq. and Todd Brody, Esq., dated November 22, 2013, to the Honorable George B. Daniels, United States District Judge, annexed as Exhibit H to Morgan Decl.).

I held a discovery conference with the parties on December 19, 2013 at which defendants reiterated their argument that the SEC Privilege Logs were inadequate (Tr. of Discovery

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Conference, dated December 19, 2013, at 74-80, the relevant portions of which are annexed as Exhibit I to the Morgan Decl.). After reviewing the Privilege Logs, I noted:

The Court: I don't think these descriptions are sufficient. I mean [they don't] allow for an intelligent assessment as to whether or not the privilege is validly asserted. . . . I'm looking at the first one on the January 25th index. For all I know, that's an email from one paralegal to another paralegal saying, "Attached is a copy of the complaint we filed in SEC v. Yorkville," which clearly would not be a privileged communication.

(Morgan Decl., Ex. I at 75-76). In response to the SEC's argument that it was unable to reveal additional information due to "various statutes and treaties" (Morgan Decl., Ex. I at 76), I stated:

The Court: No, but you know, you can have something like . . . analysis of legal issues under the 34 Act, analysis of legal issues under the 33 Act, or analysis of Yorkville's compliance with the 33 Act.
* * *
The Court: That doesn't disclose to [defendants] anything more than what's already in the complaint and it allows for an intelligent assessment of whether or not the document is privileged. And . . . the individuals who are authors and recipients needs to be provided.

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(Morgan Decl., Ex. I at 77). In response, the SEC stated that it would be happy to add the names of the authors and recipients, but requested further briefing "with respect to the [deficient] subject matter" descriptions of the documents (Morgan Decl., Ex. I at 79). I granted defendants permission to file a motion concerning the adequacy of the SEC's Privilege Logs (Morgan Decl., Ex. I at 79).

Defendants subsequently filed the present motion, arguing that: (1) the Privilege Logs do not comply with the requirements of Fed.R.Civ.P. 26(b)(5), Local Rule 26.2(a)(2) and the rules governing the Pilot Project because they fail to set forth adequately the subject matter and author/recipient of the withheld documents; (2) the SEC has failed to establish its entitlement to the privileges it asserts, several of their privileges that are simultaneously asserted are in conflict with each other and at least one has not been recognized by any court; and (3) the foregoing deficiencies constitute a waiver of the SEC's privileges concerning the withheld documents (Memorandum of Law in Support of Defendants Yorkville Advisors, LLC, Mark Angelo, and Edward Schinik's Motion to Compel Production of Documents Referenced in Plaintiff's January 25, 2013 and February 15, 2013 Privilege Logs, dated January 27, 2014 (Docket Item 62) at 9-18).

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On February 10, 2014, in conjunction with its opposition to defendants' motion, the SEC produced yet a third privilege log, revising the January 25 and February 15 Privilege Logs (Plaintiff Securities and Exchange Commission's Revised Privilege Log in Response to Defendants' First Request for the Production of Documents, dated February 10, 2014 ("Revised Privilege Log"), at 1-2, annexed as Exhibit K to the Declaration of Stephen B. Holden in Opposition to Defendants Yorkville Advisor LLC's, Mark Angelo's and Edward Schinik's Motion to Compel Production of Documents Reference[d] in the Securities and Exchange Commission's January 25, 2013 and February 15, 2013 Privileg[e] Logs, dated February 10, 2014 ("Holden Decl.") (Docket Item 64)). The SEC also submitted a declaration from Lynn Powalski, Deputy Secretary of the SEC, who asserts deliberative process privilege over three emails in the Revised Privilege Log (Declaration of Lynn Powalski, dated February 10, 2014 ("Powalski Decl."), annexed as Exhibit M to the Holden Decl.). Powalski declares that "[o]n February 10, 2014, the Commission, through its Associate General Counsel, to whom it has delegated the authority and who has given personal consideration to the matter, determined to assert a claim of deliberative process privilege over portions of [] documents in the Commission's files relating to the Investigation" (Powalski Decl. ¶ 4).

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Relying on the Revised Privilege Log and the Powalski declaration, the SEC opposes defendants' motion on the following grounds: (1) defendants failed to meet and confer with the SEC regarding the names of the individual authors and recipients of the withheld documents; (2) the Revised Privilege Log contains additional information...

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