Weinman v. Cable

United States Court of Appeals
For the First Circuit

No. 05-1690

IN RE: PUBLIC OFFERING PLE ANTITRUST LITIGATION.

________________________

JEFFREY A. WEINMAN, AS TRUSTEE FOR WESTERN PACIFIC AIRLINES;
EQUALNET COMMUNICATIONS CORPORATION,

Appellants,

v.

STUART CABLE,

Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Howard, Circuit Judge.

Roger W. Kirby with whom David Kovel, Andrew C. Griesinger,
Kirby McInerney & Squire LLP and Griesinger, Tighe & Maffei, LLP
were on brief for appellants.
Christopher T. Holding with whom Henry S. Dinger and Goodwin
Procter LLP were on brief for appellee.

October 20, 2005
 COFFIN, Senior Circuit Judge. This is an appeal of an order

of the United States District Court for the District of

Massachusetts granting a motion to quash a discovery subpoena of a

nonparty witness. It is ancillary to an antitrust action brought

in the Southern District of New York by two formerly publicly

traded companies against some twenty-eight investment banks

alleging a conspiracy to fix fees for underwriting services related

to initial public offerings of stock (IPOs).1 Plaintiffs-

appellants sought both documents and testimony from a Boston

attorney, appellee Stuart Cable. For reasons we explain below, we

vacate the district court’s ruling and remand the case for further

consideration.

I. Factual Background

The stimulus of appellants' efforts was an article in 2001 in

the IPO Journal, largely quoting Cable's comments concerning his

law firm, his IPO experience (representing nine companies issuing

IPOs and three investment bank-underwriters), and his "Top Ten"

tips for corporate chief executives contemplating an IPO process.

His second "tip," labeled "Cutting the Economic Deal Among your

Bankers," asserted: "The deal between you and the bankers is non-

negotiable (7% of the gross)." In the same paragraph, he continues

with the advice to "[m]ake certain that the economics among

1
We are informed that class certification papers are soon to be
submitted.

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underwriters [i.e., lead underwriter vs. others involved] are

negotiated up-front . . . ." (emphasis in original). The eighth

tip, entitled "Pricing Your Deal," states in part, "You will not

have a meaningful opportunity to negotiate . . . . [T]he managing

underwriter (without dissent from his co-managers) will present you

with the results of their order book -- a fait accompli as to

pricing . . . ."

Appellants, on February 25, 2005, served a subpoena on Cable

asking him to testify in a deposition on March 17, 2005, and to

produce non-privileged documents "that form the basis for your

assertions in the IPO Journal" that an issuer of common stock pays

a non-negotiable, fixed price of seven percent of gross. The

subpoena also called for documents relating to a subsequent article

in another publication, not at issue here, and documents relating

to any testimony or interviews he may have given, as well as

articles or lectures by him concerning the pricing of underwriting

fees.

Appellee Cable moved to quash the subpoena, averring by

affidavit that he had not been involved in any of appellants' IPOs,

that his views in the articles cited had been shaped by his twenty-

five years of dealing with IPOs, and that identifying any pertinent

documents would require him to canvass the files of these years and

perhaps to consult with clients.

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 On March 17, the scheduled date for deposition, a magistrate

judge held a telephone conference with counsel. The transcript of

that conference reveals the exchange between the parties. Appellee

based his motion to quash on Fed. R. Civ. P. 45(c)(3)(B)(ii), which

allows suppression of a subpoena seeking an "unretained expert's

opinion . . . resulting from the expert's study made not at the

request of any party." Appellants' counsel rejoined that they were

not seeking Cable's opinion or expertise, but "his observation of

an event that happened." In a brief order issued the same day, the

magistrate judge reported that appellants had come forth with no

evidence that Cable had any factual information about the specific

transactions at issue, only the argument that it was likely that,

given his experience representing both sides in many IPOs, he had

some non-privileged factual information. The magistrate judge

rested her conclusion on her perception that appellants were

seeking an unretained expert's opinion, contrary to the safeguards

of Fed. R. Civ. P. 45(c)(3)(B)(ii). The motion to quash was

granted without prejudice.

Appellants objected and moved for reconsideration of the

order. They argued first that the magistrate judge had erred in

placing the burden on them to produce relevant evidence since Fed.

R. Civ. P. 26(b)(1) sets the standard as producing evidence

"reasonably calculated to lead to the discovery of admissible

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evidence."2 In any event, they asserted that they had met any

burden, since appellee’s statements in the IPO Journal article were

"factual assertions" and they were seeking the "factual

underpinnings" for those assertions. They noted that any evidence

implicating any defendants in a broad-ranging conspiracy would

impact the case of the named plaintiffs, even in the absence of

class certification, and pointed out that Cable had represented six

issuers between 1995 and 1997 in IPOs within the ranges specified

in the complaint ($20 to $80 million), where the underwriting fee

was seven percent.

A second subpoena was soon served seeking the witness’s

testimony and documents relating only to the IPO Journal piece.

Appellee Cable moved again to quash, supplying an affidavit that he

could not recall considering any documents, and had no files, and

that his statements were based on his twenty-five years of

practice. Appellee's memorandum supporting his motion made two

arguments: (1) that, given his lack of any information concerning

the appellants' own IPOs, the only conceivable reason for seeking

2
Rule 26(b)(1) states in part:

Parties may obtain discovery regarding any matter, not
privileged, that is relevant to the claim or defense of
any party . . . . For good cause, the court may order
discovery of any matter relevant to the subject matter
involved in the action. Relevant information need not be
admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of
admissible evidence.

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his deposition was to obtain opinion evidence concerning general

industry practice; and (2) the subpoena would subject Cable to an

"undue burden," barred by Fed. R. Civ. P. 45(c)(3)(A)(iv). Not

only would appellee face the burdensome task of trying to identify

specific incidents and considering what is privileged information,

but his status as a nonparty was entitled to special weight.

Appellants opposed the motion by filing an affidavit of one of

their attorneys, making more specific the information concerning

Cable's representation of issuers of IPOs between 1995 and 1997.

Of the deals noted in the article, six were in the target range of

$20 to 80 million, all at seven percent. Five of the six

underwriters were defendants in the instant case.

On May 3, 2005, the district court allowed the motion to quash

without opinion.

II. Issues Presented

In reviewing a district court’s discretionary judgment, the

underlying issue is, of course, whether the court abused its

discretion by overlooking a relevant factor, improperly giving

weight to an improper factor or committing “a palpable error of

judgment in calibrating the decisional scales," Texas Puerto Rico,

Inc. v. Dep’t of Consumer Affairs, 60 F.3d 867, 883 (lst Cir.

1995). See Bogosian v. Woloohojian Realty Corp., 323 F.3d 55, 64

n.7 (1st Cir. 2003) (trial-court discovery rulings reviewed for

abuse of discretion). In discovery matters, the bar is high.

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There must be a "clear showing" that the court's order was “plainly

wrong and resulted in substantial prejudice to the aggrieved

party." Heidelberg Americas v. Tokyo Kikai Seisakusho, Ltd., 333

F.3d 38, 41 (1st Cir. 2003) (quoting Mack v. Great Atl. & Pac. Tea

Co., 871 F.2d 179, 186 (1st Cir. 1989)).

Despite this demanding standard of review, the existence of

unanswered questions presented by the record makes us reluctant to

affirm without the benefit of the district court's informed and

particularized assessment. We explain.

We have traced the proceedings to surface the variety of

issues presented. Although the magistrate judge identified the

basis of her ruling, i.e., that impermissible "unretained expert"

testimony was being sought, we are reviewing the decision of the

district court. Since the court did not set forth its reasoning,

we may affirm based on any dispositive issue that is both readily

evident and sufficiently supported by the record. See Reich v.

Simpson, Gumpertz & Heger, Inc., 3 F.3d 1, 4 (lst Cir. 1993).

Hence our search for such an issue.

There is, first of all, the issue dealt with by the magistrate

judge – whether appellants seek unretained expert testimony or

whether, as they argue, they seek not opinion but "factual

underpinnings" of Cable's IPO Journal statements. The nature of

the testimony sought from appellee – observations from years of

practice – raises the question whether the information sought is of

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the nature described by Fed. R. Civ. P. 45(c)(3)(B)(ii), i.e.,

does it result from Cable's "study made not at the request of any

party"?

Associated with this is the threshold of relevance to which

the evidence sought should rise. Need it be reasonably calculated

to lead to evidence directly connected with the transactions

involving the appellants, or is it enough if it is likely to lead

to proof of a general conspiracy that inevitably would impact

appellants?

Moreover, even if what is sought is factual and, if

admissible, relevant, how likely is it that Cable’s testimony could

survive claims of privilege? Presumably Cable could not, in the

absence of a waiver of privilege, breach confidences entrusted to

him by either issuer or underwriter clients. At oral argument,

appellants sketched two different scenarios. Were Cable to testify

to representations or communications of a third party in the course

of representing either an issuer or an underwriter, such would not

violate the attorney-client privilege. Similarly, had Cable been

instructed to tell something to a third party, the privilege would

not survive.

Since data already exists of the widespread prevalence of

parallel pricing, another question that must be addressed is

whether inquiries into these scenarios would be calculated to

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produce non-cumulative evidence pointing to a traditional

conspiracy.

Finally, there remains the question not addressed below:

whether appellants' discovery requests pose such an "undue burden"

on appellee Cable that, under Rules 26©) and 45(c)(3)(a)(iv),

quashing the subpoena is warranted even though relevant materials

or testimony is sought. Although the subpoena at issue requested

documents that were considered in the preparation of the IPO

Journal article, appellants now say in their brief that, since

appellee claims to have no such documents, the only remaining

question is whether appellants may examine him. Appellants cite

Moore’s Federal Practice for the proposition that “quashing a

subpoena ad testificandum is very rare because until the witness is

asked specific questions, usually there is nothing on which to base

a motion to quash.” 9 James Wm. Moore et al., Moore’s Federal

Practice, § 45.04[3][a] (3d ed. 2005).

Even with appellants’ reduced request, the evaluation of

benefit to appellants versus burden on appellee is a demanding and

sensitive one. On the one hand, appellee is a nonparty to the

underlying litigation. This fact is entitled to special weight in

evaluating the balance of competing needs. Cusumano v. Microsoft

Corp., 162 F.3d 708, 717 (1st Cir. 1998). On the other hand,

appellee’s participation in the production of the IPO Journal

article highlighted his breadth of experience representing both

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sides in IPOs; his extensive work in the field enabled him to make

unqualified assertions concerning the lack of any meaningful

negotiation in arriving at underwriting fees. Even appellee admits

that his information is “not wholly irrelevant to plaintiffs’

claims.”

III. Conclusion

While findings of fact and conclusions of law are not required

by Fed. R. Civ. P. 52(a) for granting or denying such a motion as

that before us, and we ordinarily may assume that the district

court weighed all appropriate factors, Microfinancial, Inc. v.

Premier Holidays Int’l, Inc., 385 F.3d 72, 76-77 (lst Cir. 2004),

we cannot say here with confidence that "the record permits a clear

understanding of why the district court ruled as it did," id. at 77

n.2.

The underlying antitrust litigation in another circuit is not

trivial. Prompt appeal of this ancillary matter is afforded in

this circuit and, despite the additional burden on our resources,

such a proceeding must be and be seen to be meaningful. Because of

the variety of issues to which we have alluded and particularly

because of the requirement for the sensitive balancing of interests

that we have described, and that has hitherto not been addressed,

we conclude that we need the benefit of the district court's

reasoning.

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 We therefore vacate the judgment and remand the case to allow

the district court to consider the issues we have identified and

set forth its conclusions.

Vacated and remanded. All parties to bear their own costs.

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