IN RE: SUBPOENAS TO PLAINS ALL AMERICAN PIPELINE, L.P., et al.
PARNON ENERGY INC., et al., No. 1:11-CV-03543-WHP (S.D.N.Y.) U.S. COMMODITY FUTURES TRADING COMMISSION IN RE: CRUDE OIL COMMODITY FUTURES LITIGATION, CASE No. 1:11-CV-03600-WHP (S.D.N.Y.)
MEMORANDUM OPINION & ORDER
GRAY H. MILLER, District Judge.
In this consolidated action, four motions are pending before the court: (1) a motion for reconsideration of the court's order quashing the U.S. Commodity Futures Trading Commission's ("CFTC") deposition subpoenas served on Plains All American Pipeline, L.P. ("Plains All American"), Thomas Coiner, Keith Jalbert, John vonBerg, and Hugo Zagaria (collectively, "Plains"), Dkt. 2; (2) a motion for reconsideration of the court's order quashing the Class Plaintiffs' deposition subpoenas served on Plains, Dkt. 17; (3) the CFTC's motion to compel Plains All American to produce documents requested in the November 8, 2013 subpoena, Dkt. 11; and (4) a motion to quash the Defendants' deposition subpoenas served on John vonBerg and Hugo Zagaria. Dkt. 13.
All of the subpoenas seek potentially discoverable information for the enforcement and class actions currently pending in the Southern District of New York before Judge William Pauley. In both cases, the plaintiffs allege that the Defendants unlawfully manipulated spread prices for West Texas Intermediate ("WTI") crude oil futures contracts traded on the New York Mercantile Exchange ("NYMEX") in the spring of 2008. Dkt. 5, Ex. E ¶¶ 5; Dkt. 17, Ex. A ¶ 2. The subpoenas requested documents and depositions before January 31, 2014, when discovery is set to close in the enforcement action. Given this rapidly approaching deadline, the court has expedited its consideration of the four motions, responses, replies, record, and applicable law.
After reviewing the motions for reconsideration, the court finds that the deposition subpoenas should not have been quashed without the benefit of a response from the CFTC and the Class Plaintiffs. Accordingly, the motions for reconsideration are GRANTED, and the court's December 23, 2013 orders are VACATED. For the reasons explained below, Plains's motions to quash (Dkts. 1, 13, and 15) are DENIED, and the CFTC's motion to compel (Dkt. 11) is GRANTED.
In late 2007 and early 2008, the CFTC alleges that the Defendants used a dominant position in the WTI crude oil physical market at Cushing, Oklahoma to manipulate price spreads in the separate NYMEX WTI crude oil futures market. Dkt. 5, Ex. E (CFTC complaint) at ¶¶ 3-5; see also CFTC v. Parnon Energy Inc., 875 F.Supp.2d 233, 236-38 (S.D.N.Y. 2012) (" Parnon I "). This complex scheme purportedly took advantage of tight WTI oil supplies at Cushing and artificially increased the price of crude oil in the physical and derivative markets throughout the United States between January and April 2008. Parnon I, 875 F.Supp.2d at 239-40.
The scheme likely would have continued for a longer period, according to the CFTC, but on or about April 17, 2008, Defendants received an administrative subpoena and learned that their trading activities were under investigation. Dkt. 5, Ex. E ¶ 51. The CFTC's investigation extended to multiple non-parties in the national crude oil market, and the CFTC obtained millions of documents from these companies, including Plains All American, both voluntarily and pursuant to administrative subpoenas. Dkt. 17 at 2. The CFTC also obtained testimony in August 2010 from market participants, including Messrs. vonBerg and Zagaria. Dkt. 1, Ex. A (Prout Declaration) ¶ 11.
Three years after the first subpoena was issued, the CFTC filed the enforcement action against Defendants in May 2011, alleging that their actions violated Sections 6(c), 6(d), and 9(a)(2) of the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 6(c), 6(d), and 13(a)(2). Dkt. 5, Ex. E ¶ 5. These sections proscribe actual or attempted manipulations of the market price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, including any contract market such as NYMEX. Id. ¶ 54. The CFTC alleges that Defendants amassed tens of millions of dollars in illicit profits through their trading activities. Id. ¶ 52. The class action followed soon after the enforcement action's filing, with the Class Plaintiffs alleging that the scheme violated both the CEA and section 2 of the Sherman Act. Dkt. 17 at 1-2.
As discovery commenced in both actions, Defendants requested that the CFTC produce the documents it had obtained from non-parties as part of its administrative investigation. Id. at 2. The CFTC did so, producing certain documents from Plains All-American and others, which were subject to the protective order issued in the enforcement action. Id. The Class Plaintiffs responded to this production by seeking the same documents for use in the class action. Id. However, before Defendants' produced any third-party documents, Judge Pauley permitted affected non-parties to brief and argue their objections to such production. Id. at 2-3. On October 25, 2013, Judge Pauley overruled the non-parties' objections, finding that the documents were relevant and discoverable. Dkt. 17, Ex. B; U.S. Commodity Futures Trading Comm'n v. Parnon Energy Inc., Nos. 1:11-cv-3543-WHP, 1:11-cv-3600-WHP, 2013 WL 5882921, at *4 (S.D.N.Y. Oct. 25, 2013) (" Parnon II "). To address the renewed confidentiality concerns, Judge Pauley ordered the parties to submit a modified protective order, strengthening document protections. Id. The non-parties, including Plains All American, immediately appealed Judge Pauley's order to the Second Circuit Court of Appeals, and they also requested that Judge Pauley stay his order pending appeal. Dkt. 17 at 4. On November 8, 2013, Judge Pauley denied the stay request. Dkt. 17, Ex. D.
Immediately following Judge Pauley's stay denial, the CFTC issued two subpoenas, for depositions and documents, to Plains All American on November 8. See Dkt. 1, Ex. 2; Dkt. 11, Ex. A. Plains served the CFTC with its objections to the documents subpoena on November 22, 2013. Dkt. 11, Ex. C. On December 3, 2013, the Class Plaintiffs issued a deposition subpoena to Plains All American, which was substantively identical to the CFTC's subpoena. Dkt. 15, Ex. 2. On December 13, six more subpoenas were issued, by the CFTC and Defendants, to Messrs. Coiner, Jalbert, vonBerg, and Zagaria for their testimony related to trading activities in the relevant markets. Dkt. 1, Ex. 3 (CFTC's subpoena to Coiner); Dkt. 1, Ex. 4 (CFTC's subpoena to Jalbert); Dkt. 1, Ex. 5 (CFTC's subpoena to vonBerg); Dkt. 1, Ex. 6 (CFTC's subpoena to Zagaria); Dkt. 13, Ex. B (Defendants' subpoena to vonBerg); and Dkt. 13, Ex. C (Defendants' subpoena to Zagaria). Finally, on December 18, the Class Plaintiffs subpoenaed the traders' testimony for use in the class action. See Dkt. 15, Ex. 3 (Coiner); Dkt. 15, Ex. 4 (Jalbert); Dkt. 15, Ex. 5 (vonBerg); and Dkt. 15, Ex. 6 (Zagaria). In total, thirteen subpoenas are at issue, including two identical subpoenas for Plains All American's testimony by a corporate representative, one subpoena for Plains All American's documents, and ten subpoenas for the four traders' testimony.
Then, after the subpoena flurry concluded, the challenges began. On December 20, 2013, Plains moved to quash the deposition subpoenas issued by the CFTC and Class Plaintiffs, Dkts. 1, 15, and the court granted the motions on December 23, 2013. Dkts. 2, 16. On January 3, 2014, the CFTC moved for reconsideration of the court's order, and the Class Plaintiffs filed a similar motion for reconsideration on January 13. Dkts. 5, 17. As to the documents subpoena, the CFTC moved to compel on January 7, 2014. Dkt. 11. Finally, on January 14, Plains All American, Zagaria, and vonBerg moved to quash the Defendants' subpoenas of vonBerg and Zagaria's testimony. Dkt. 13. After an expedited briefing schedule, the issues are ripe for decision.
II. GOVERNING LAW
Under Rule 26 of the Federal Rules of Civil Procedure, the scope of civil discovery is broad, but not unlimited: "[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). Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. Id. The breadth of this rule, however, is mitigated by certain protections against disclosure found in Rule 45 governing the scope of subpoenas issued to litigation non-parties. Rule 45 contains multiple grounds for quashing or modifying a subpoena, some of which are mandatory while others are permissive. The subsection relevant to quashing or modifying a subpoena states as follows:
(A) When Required. On timely motion, the court for the district where compliance is required must quash or modify a subpoena that:
(i) fails to allow a reasonable time to comply;
(ii) requires a person to comply beyond the geographical limits ...