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In re CFS-Related Securities Fraud Litigation

United States District Court, N.D. Oklahoma
Jul 31, 2003
Case Nos. 99-CV-825-K(J), Consolidated with 00-CV-111-K(J), 99-CV-874-K(J), Consolidated with 00-CV-110-K(J), 99-CV-889-K(J), 00-CV-847-K(J), 02-CV-961-K(J) (N.D. Okla. Jul. 31, 2003)

Opinion

Case Nos. 99-CV-825-K(J), Consolidated with 00-CV-111-K(J), 99-CV-874-K(J), Consolidated with 00-CV-110-K(J), 99-CV-889-K(J), 00-CV-847-K(J), 02-CV-961-K(J)

July 31, 2003


ORDER


The Court heard oral argument on pending discovery motions in the "In re CFS-Related Securities Fraud Litigation" cases on July 14, 2003. The "AUSA Plaintiffs" have requested a protective order to prevent the discovery of information of a confidential settlement agreement with a third-party that is not a named Defendant in the above-captioned lawsuits. Defendants contend the settlement agreement is relevant to credibility assessments of witnesses and the apportionment of liability.

The "AUSA Plaintiffs" are the Plaintiffs in the following actions: Case Nos. 99-CV-825, 99-CV-874, 99-CV-889. 00-CV-847, 02-CV-961.

The Court has reviewed the briefs filed by the parties, the cases relied upon by the parties, and considered the arguments of counsel. The Court concludes that the settlement agreement is relevant to the claims and defenses of the defendants and is discoverable. Plaintiffs' motion for a protective order is denied. [Case No. 99-CV-825, Docket No. 579-1; Case No. 99- CV-874, Docket No. 441-1; Case No. 99-CV-889, Docket No. 417-1; Case No. 00-847, Docket No. 344-1; Case No. 02-961, Docket No. 78-1].

The Court cautions the parties to double-check the case numbers on filed pleadings. Plaintiffs filed their pleading in the five above-listed cases. Defendant's response brief contains only two correct case numbers. Defendant's response omits one case number, and contains the wrong "prefix" number for two of the cases. Because of the errors on Defendant's pleading, no response by Defendant was filed in Case No. 99-CV-889. Responses were filed in the two case numbers which were incorrectly numbered by Defendant, but only due to the alert actions of the Court Clerk's office. Defendant filed briefs in two cases (99-CV-847, and 99-CV-961) which are in no way related to the pending CFS-Related Securities Fraud cases.

The scope of discovery is governed by Fed.R.Civ.Pro. 26(b), which provides that "[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party. . . ." Fed. F. Civ. Pro. 26(b)(1). The Rule additionally provides that "[f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action."

The settlement agreement in question involves entities which are not parties to the above-captioned litigation. However, the entities involved have been represented to the Court as serving as a trustee for some of the securitizations at issue, loaning money to CFS, and serving as an underwriter. The proposed deposition lists of the parties, submitted as Exhibits A and B to the Deposition Procedures Protocol which was entered by the Court on January 29, 2003, lists seven individuals from the settling entities. Two of the individuals listed for deposition are current employees of the settling entities.

The testimony of the current and former employees of the settling party is relevant to the claims or defenses of the defendants. In fact Plaintiffs do not dispute the relevance of the depositions. Plaintiffs assert only that the settlement agreements are not relevant. Therefore, the remaining question for the Court is whether the fact that the entity which employed the deponents has settled is relevant to the bias or credibility of the prospective testimony of the deponents.

The Defendants assert that the existence of the settlement agreement is relevant to the credibility and possible bias of the witnesses who are current or former employees of the settling entity. The Court agrees. The fact that an employer was an unnamed but potential co-defendant in an action and has settled with the plaintiff in the action could color the testimony of the current and former employees with regard to the other named defendants. The actual amount of the settlement can impact witness credibility. For example, a settlement for much less than a perceived "reasonable" settlement amount could be construed as "buying" favorable testimony. Counsel for the Defendants have a right to discover the details of the settlement and to evaluate the degree to which those details impact the credibility of each witness. In addition, the settlement agreement contains covenants which insure the Plaintiffs' cooperation with the settling entity to minimize the settling parties liability on contribution claims. Counsel for Defendants has a tight to evaluate these provisions in the settlement agreement and ascertain the impact on witness bias or prejudice.

Because the Court concludes that the settlement agreement is relevant to the bias and credibility of witnesses who are testifying with respect to the claims or defenses of the parties, the Court concludes that there is no need to establish "good cause" to obtain testimony that is "relevant to the subject matter."

The parties additionally refer to Fed.R.Civ.Pro. 408. Fed.R.Civ.Pro. 408 provides that evidence of accepting a compromise of a claim "Is not admissible to prove liability for or invalidity of the claim or its amount." Fed.R.Civ.Pro. 408. the Court concludes that this Rule has no application to the issue of witness bias and credibility. Defendants seek to obtain the information to evaluate and test the credibility of the witnesses, not to establish or prove liability.

The cases relied upon by Plaintiffs to support Plaintiffs' position that the settlement agreements are not discoverable are distinguishable. In Bottaro v. Rattan Associates, 96 F.R.D. 158 (E.D.N.Y. 1982). the New York Court addressed whether discovery of the terms of a settlement agreement should be permitted "based solely on the hope that it will somehow lead to admissible evidence on the question of damages." Unlike the present action, the Bottaro Court never addressed the issue of witness credibility or bias, but limited their inquiry to the evaluation of damages. The Court concluded that for the better rule is to require some particularized showing of a likelihood that admissible evidence will be generated by the dissemination at the terms of a settlement agreement." Id. at 160. Arguably, the Bottaro "better rule" could be met by the Defendants' witness bias and credibility arguments. Bottaro is also distinguishable because the parties in Bottaro knew the entity which had entered the settlement agreement. In contrast, in this action, Plaintiffs seek to prevent Defendants from discovering the name of the settling entity.

In ABF Capital Management v. Akin Capital, 2000 WL 191698 (S.D.N.Y. Feb. 10, 2000), relied upon by Plaintiffs, the court recognized that "no heightened showing of relevance need be made in order to justify the disclosure of a settlement agreement." 2000 WL 191698 at *1. The court also recognized that courts have "routinely afforded non-settling defendants access to confidential settlement materials where those defendants have asserted the potential relevance of settlement materials, or information ultimately derived therefrom, to the settling parties' bias, interest, or prejudice." Id. at *2. The court observed that the party seeking discovery had asserted that they did not plan to call any of the individuals from the settling party as witnesses at trial. Id. at *3. The court denied the motion to produce the settlement agreement. This case contrasts sharply with the current proceeding. Defendants have made no representations to this Court that the witnesses of the settling entity will not be presented at the trial of this action.

Plaintiffs additionally refer to Doe v. Aramark Educational, Resources, Inc., 206 F.R.D. 459 (M.D. Tenn. 2002). In that case, the Magistrate Judge found that the settlement agreement should be produced, and that decision was overruled by the District Court. The District Court based its decision on Fed.R.Civ.Pro. 408.

It is clear to this Court that Plaintiffs' sole interest in discovering the Towery Settlement Agreements and the Ohio agreement is to offer this evidence at trial as proof of AER's liability in those settled cases and by inference in this case. While Rule 408 provided for the admission of settlement evidence under certain circumstances, the rule clearly prohibits the admission of settlement evidence offered to prove liability.
Id. at 462. Based on the arguments of the parties, the Doe court concluded that the party pursuing discovery of the settlement agreement was interested in discovery for the purpose of establishing an inference of liability. Such an inference is not permissible under the Rules, and the court concluded that discovery was therefore impermissible. The court did, however, recognize that discovery for the purpose of witness bias or credibility is permissible. The court specifically noted that:

The rule . . . does not require exclusion when the evidence is offered for another purpose [other than to prove liability or for either validity or amount of a claim], such as proving bias or prejudice of a witness, negativing a contention of undue delay or proving an effort to obstruct a criminal investigation or prosecution.
Doe 206 F.R.D. at 462 (emphasis added, citations omitted).

Plaintiffs also rely upon Centillion Data Systems, Inc. v. Ameritech Corp., 193 F.R.D. 550 (S.D. Ind. 1999), which cites Bottaro with approval, in denying discovery of a settlement agreement. The purpose asserted for discovery in Centillion was "to determine better the merits of Plaintiff's case and assess the feasibility of settling the lawsuit at an early stage." Id. at 552. The Centillion court did not examine the issues of witness credibility or bias.

The clear majority of the cases relied upon by the parties hold that settlement agreements are discoverable with regard to the issues of witness bias and credibility. See e.g., White v. Kenneth Warren Son, Ltd., 203 F.R.D. 364 (N.D. Ill. 2001) (permitting discovery of settlement agreement to allow parties to ascertain the extent of their liability and to explore issues related to witness bias and liability, and citing three unpublished cases which permitted discovery to evaluate witness bias and credibility); City of Wichita v. Aero Holdings, Inc., 192 F.R.D. 300 (D. Kan, 2000); Simmons Food, Inc. v. Willis, 2001 WL 204270 (D. Kan. 2000) (terms of the settlement agreement are essential to existence and extent of witness bias); Burda Media, Inc. v. Blumenberg, 1999 WL 413469. at *3 (S.D.N.Y. June 21, 1999) ("Prevailing authority within this Circuit holds that settlement-related information is governed by the same rule, and is discoverable without any heightened showing of relevance."); Westside-Marrero Jeep Eagle, Inc. v. Chrysler Corp., 1998 WL 186705, at *3 (E.D. La. 1998) ("Chrysler is seeking evidence of any settlement agreements not for the purposes of proving liability for or invalidity of the claims in this case but for other purposes, including, for example, to evaluate Stevens' possible bias, interest and credibility when he testifies. Discovery of settlement agreement is routinely permitted for such purposes."); Bank Brussels Lambert v. Chase Manhattan Bank. N.A., 1996 WL 71507, at *2 (S.D.N.Y. Feb. 20, 1996) ("[A]dmission of settlement matter is not allowed on the issues of liability and damages. Admission is specifically provided for other purposes, including the showing of bias and prejudice."). Even the cases relied upon by Plaintiffs recognize that settlement agreements are discoverable to determine the credibility and bias of witnesses.

The discovery sought by Plaintiff is relevant to the claims and defenses in the lawsuit. Plaintiff is ordered to produce the settlement agreement to the Defendants.

The First Amended Confidentiality Order, filed January 27, 2003, in this litigation, provides for a classification of documents as "CONFIDENTIAL — ATTORNEYS' EYES ONLY." The Court recognizes that the parties to the settlement agreement determined that the terms should remain "confidential," and that generally settlement agreements and information related to negotiations are not widely disseminated by parties. The Court concludes that the settlement agreement, when produced by Plaintiffs, should be classified as "CONFIDENTIAL — ATTORNEYS' EYES ONLY" pursuant to the terms of the First Amended Confidentiality Order, and should be treated by the parties as subject to the First Amended Confidentiality Order.

IT IS SO ORDERED.


Summaries of

In re CFS-Related Securities Fraud Litigation

United States District Court, N.D. Oklahoma
Jul 31, 2003
Case Nos. 99-CV-825-K(J), Consolidated with 00-CV-111-K(J), 99-CV-874-K(J), Consolidated with 00-CV-110-K(J), 99-CV-889-K(J), 00-CV-847-K(J), 02-CV-961-K(J) (N.D. Okla. Jul. 31, 2003)
Case details for

In re CFS-Related Securities Fraud Litigation

Case Details

Full title:IN RE: CFS-RELATED SECURITIES FRAUD LITIGATION

Court:United States District Court, N.D. Oklahoma

Date published: Jul 31, 2003

Citations

Case Nos. 99-CV-825-K(J), Consolidated with 00-CV-111-K(J), 99-CV-874-K(J), Consolidated with 00-CV-110-K(J), 99-CV-889-K(J), 00-CV-847-K(J), 02-CV-961-K(J) (N.D. Okla. Jul. 31, 2003)

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