Bradshaw v. Maiden

Bradshaw v. Maiden, 

.


STATE OF NORTH CAROLINA               IN THE GENERAL COURT OF JUSTICE
                                          SUPERIOR COURT DIVISION
MECKLENBURG COUNTY                              14 CVS 14445

JAMES W. BRADSHAW; CARLA O.
BRADSHAW; RESORT RETAIL
ASSOCIATES, INC.; E.C.
BROADFOOT; CHRISTINA DUNN
CHANDRA; JAMES DOYLE;
THOMAS F. EGAN; CHARLES
EGGERT; MARK P. GARSIDE; DR.
JAMES J. GREEN, JR.; ROBERT K.
GRUNEWALD; RONALD HOLMES;
DAVID LAUCK; CURT W.
LEMKAU, JR.; EVAN
MIDDLETON; JOSHUA M.
NELSON; CHRISTIAN C. NUGENT;
PETER B. PAKRADOONI; FORD
PERRY; MARCELLO G. PORCELLI;
ADAN RENDON; RICHARD H.
STEVENSON; PAUL STOKES;
LAWRENCE J. THEIL; R.
MITCHELL WICKHAM; WILLIAM
H. WILLIAMSON, III; WILLIAM K.             ORDER AND OPINION ON
WRIGHT, JR.; ALEX M. WOLF;
CHAFFIN FAMILY LIMITED                   BCR 10.9 DISCOVERY DISPUTE
PARTNERSHIP; and SOLARIS
CAPITAL LLC,

             Plaintiffs,

v.

STEPHEN E. MAIDEN; MAIDEN
CAPITAL, LLC; and SS&C
TECHNOLOGIES, INC., successor
by merger to SS&C FUND
ADMINISTRATION SERVICES,
LLC (a/k/a SS&C FUND
SERVICES),

             Defendants.


SS&C TECHNOLOGIES, INC.,
successor by merger to SS&C FUND
ADMINISTRATION SERVICES,
LLC,

             Third-Party Plaintiff,
v.
 MAIDEN CAPITAL OPPORTUNITY
 FUND, LP,

                Third-Party Defendant.

   1.     THIS MATTER is before the Court pursuant to North Carolina Business

Court Rule (“BCR”) 10.9 in the above-captioned case.

        Lewis & Roberts, PLLC, by Gary V. Mauney and James A. Roberts, III,
        for Plaintiffs James W. Bradshaw, Carla O. Bradshaw, Resort Retail
        Associates, Inc., E.C. Broadfoot, Christina Dunn Chandra, James Doyle,
        Thomas F. Egan, Charles Eggert, Mark P. Garside, Dr. James J. Green,
        Jr., Robert K. Grunewald, Ronald Holmes, David Lauck, Curt W.
        Lemkau, Jr., Evan Middleton, Joshua M. Nelson, Christian C. Nugent,
        Peter B. Pakradooni, Ford Perry, Marcello G. Porcelli, Adan Rendon,
        Richard H. Stevenson, Paul Stokes, Lawrence J. Theil, R. Mitchell
        Wickham, William H. Williamson, III, William K. Wright, Jr., Alex M.
        Wolf, Chaffin Family Limited Partnership, and Solaris Capital LLC.
        Alston & Bird, LLP, by Michael A. Kaeding, Ryan P. Ethridge, and
        Jessica P. Corley (pro hac vice), for Defendant SS&C Technologies, Inc.

Bledsoe, Judge.

                                          I.

                  PROCEDURAL AND FACTUAL BACKGROUND

   2.     Plaintiffs initiated this litigation on August 7, 2014 and filed an Amended

Complaint on November 25, 2014. The parties are currently engaged in discovery,

and the fact discovery deadline is April 28, 2017.

   3.     SS&C Technologies, Inc. (“SS&C”) initiated this matter on March 9, 2017 by

e-mailing the Court a request for a telephone conference pursuant to BCR 10.9(b)(1)

so that the Court could address a discovery dispute between the parties.

   4.     As stated in its email request, SS&C seeks an order from the Court

prohibiting Plaintiffs’ counsel from deposing SS&C’s President and Chief Operating

Officer (“COO”), Normand A. Boulanger (“Boulanger”). Plaintiffs timely e-mailed the
Court their response opposing SS&C’s request in accordance with BCR 10.9(b)(1), and

the Court held a telephone conference to discuss the dispute on March 27, 2017.

   5.    Plaintiffs’ claims in this action arise out of an alleged multi-million dollar

fraudulent “Ponzi scheme” that Defendant Stephen A. Maiden (“Maiden”)

purportedly operated through a hedge fund managed by Defendant Maiden Capital,

LLC.    Maiden’s fund was a limited partnership named the Maiden Capital

Opportunity Fund, LP (“Fund”). SS&C served as the Fund’s administrator from

approximately 2007 until the Fund’s collapse in 2013.         Plaintiffs were limited

partners and investors in the Fund. The Court has more fully discussed Plaintiffs’

allegations and claims in its earlier opinion, Bradshaw v. Maiden, 

 (N.C. Super. Ct. Aug. 10, 2015).

   6.    SS&C’s duties as the Fund’s administrator arose from an Administrative

Services Agreement (the “ASA” or “Agreement”) entered into by SS&C and the Fund

on September 1, 2006. Boulanger signed the ASA on behalf of SS&C.

   7.    Among the obligations imposed by the ASA, SS&C agreed that it would

“keep at its premises books, records and statements as may be reasonably necessary

to document the transactions recorded by us on behalf of the Fund.” Nevertheless,

Plaintiffs have elicited testimony suggesting that SS&C’s accountants did not

independently document the existence of “restricted investments” in the Fund,

instead relying on e-mails from Maiden stating that the Fund owned these

investments, which ultimately proved to be fraudulent or nonexistent.          SS&C’s
accountant stated that merely relying on Maiden’s e-mail satisfied SS&C’s duties of

sufficient documentation.

   8.    Based on this evidence, Plaintiffs contend that they must be able to depose

Boulanger, who signed the ASA, to determine: (i) what “instructions, policies, or

training” were provided to the SS&C employees charged with carrying out SS&C’s

duties under the contract; (ii) what actions SS&C took to “make sure that SS&C’s

accountants complied with the ‘reasonable documentation’ duties imposed by the

contract;” and (iii) what SS&C did to fulfill its “duties of care that sprang from the

[ASA].” As a result, Plaintiffs contend that the Court should permit Plaintiffs to

depose Boulanger in this action.

   9.    SS&C argues, on the other hand, that: (i) Boulanger has no unique or special

knowledge of the facts at issue in this case; (ii) Boulanger had no involvement with

the negotiation or implementation of the ASA; (iii) none of the “thousands of emails

or other documents produced by the parties” reveal “any communication between

[Boulanger] and [Maiden] regarding the negotiation or interpretation of the terms of

the ASA, or any other facts in issue in this case;” (iv) none of the thousands of

documents produced by the parties show any communications between Boulanger

and any of the Plaintiffs; (v) Boulanger’s only involvement with the matters in dispute

was to sign the ASA on behalf of SS&C, which SS&C asserts Boulanger did as a

routine matter “in accordance with SS&C’s standing signature policy and practice;”

(vi) scheduling and preparing for Boulanger’s deposition would be particularly

burdensome for SS&C and Boulanger, especially in light of Boulanger’s many
extensive responsibilities and obligations as SS&C’s President and COO and the

heavy deposition schedule in this case over the next 30 days; and (vii) Plaintiffs have

not attempted or found inadequate less burdensome means to secure the information

sought from Boulanger.

   10.   As a result, SS&C argues that the burden of deposing Boulanger

substantially outweighs any marginal relevance Boulanger’s potential testimony may

have, and thus SS&C seeks an order prohibiting Boulanger’s deposition under Rule

26 of the North Carolina Rules of Civil Procedure.

   11.   Having considered the parties’ written summaries of the dispute, the

evidence of record, and the arguments of counsel at the telephone conference, the

Court, for the reasons set forth below, and in the exercise of its discretion, concludes

and orders that Plaintiffs shall not be permitted to depose Boulanger at this time,

without prejudice to Plaintiffs’ right to renew their request for good cause shown upon

the completion of further discovery or in the event of other changed circumstances.

                                           II.

                                  LEGAL ANALYSIS

   12.   Rule 26 establishes a liberal scope of discovery; parties can seek discovery

“regarding any matter, not privileged, which is relevant to the subject matter

involved in the pending action,” even if the information sought will be inadmissible

at trial or the examining party already has knowledge of the information sought. N.C.

R. Civ. P. 26(b)(1). The Court may, however, on its own initiative or upon request of

a party, limit discovery if it determines that:
         (i) the discovery sought is unreasonably cumulative or duplicative, or is
         obtainable from some other source that is more convenient, less
         burdensome, or less expensive; (ii) the party seeking discovery has had
         ample opportunity by discovery in the action to obtain the information
         sought; or (iii) the discovery is unduly burdensome or expensive, taking
         into account the needs of the case, the amount in controversy,
         limitations on the parties’ resources, and the importance of the issues at
         stake in the litigation.

N.C. R. Civ. P. 26(b)(1a). The Court may also limit discovery upon a party’s motion

“to protect a party or person from unreasonable annoyance, embarrassment,

oppression, or undue burden or expense.” N.C. R. Civ. P. 26(c).

   13.     Under Federal Rule of Civil Procedure 26, federal courts have developed the

“apex doctrine” to address the precise fact scenario presented in this discovery

dispute. “In its stronger form, the doctrine holds that, before a plaintiff may depose

a defendant corporation’s high-ranking (“apex”) officer, that plaintiff must show that

‘(1) the executive has unique or special knowledge of the facts at issue and (2) other

less burdensome avenues for obtaining the information sought have been exhausted.’”

Performance Sales & Mktg. LLC v. Lowe’s Cos., Inc., No. 5:07-CV-00140-RLV-DLH,

, at *16–17 (W.D.N.C. Sept. 14, 2012) (citation omitted).

“Simply stated, the apex doctrine applies when those at the top of the company, i.e.

men and women at the ‘apex,’ really don’t have personal knowledge about what is

going on with the product, or its marketing, or its financing or really anything else

that might be of interest to the plaintiffs, or the attorneys, or the jury, or the court.”

In Re Tylenol (Acetaminophen) Mktg., Sales Practices & Prods. Liab. Litig ., No. 14-

mc-00072, 

, at *8 (E.D. Pa. July 1, 2014).
   14.   The federal courts applying the apex doctrine have recognized the

“tremendous potential for abuse or harassment” presented by depositions of an

official at the “highest level or ‘apex’ of corporate management,” In re Lipitor

Atorvastatin Calcium Mktg., No. 2:14-mn-02502-RMG, 

, at *5 (D.S.C. Nov. 13, 2014), and have embraced the doctrine to “ensur[e]

that the liberal rules of procedure for depositions are used only for their intended

purpose and not as a litigation tactic to create undue leverage by harassing the

opposition or inflating its discovery costs,” Performance Sales & Mktg., 

, at *16.        Nevertheless, federal courts have consistently

recognized that “[t]he ‘apex’ doctrine exists in tension with the otherwise broad

allowance for discovery of party witnesses under the federal rules.” Apple Inc. v.

Samsung Electronics Co., Ltd, 

 (N.D. Cal. 2012).

   15.   The apex doctrine stands out in many federal jurisdictions because the

doctrine shifts the burden of proof to the proponent of the deposition. See, e.g., Sun

Capital Partners, Inc. v. Twin City Fire Ins. Co., 

 (S.D. Fla. 2015)

(“The party seeking the deposition of the high-ranking official has the burden to show

that the deposition is necessary.”); Performance Sales & Mktg., 

, at *19–20 (“Put simply, the apex doctrine is the application of the

rebuttable presumption that the deposition of a high-ranking corporate executive [is

inappropriate under Rule 26].”). Nevertheless, some jurisdictions reject the apex

doctrine altogether on this ground, while others follow a version of the apex doctrine

that maintains the traditional burden of proof under Rule 26. See, e.g., Crest Infiniti
II, LP v. Swinton, 

 (Okla. 2007) (“We decline to adopt a form of the

apex doctrine that shifts a burden to the party seeking discovery.”); Scott v. Chipotle

Mexican Grill, Inc., 

 (S.D.N.Y. 2015) (stating that even in apex

doctrine scenarios the plaintiff bears no burden to show that the deponent has special

knowledge).

   16.   North Carolina state courts have not explicitly adopted the apex doctrine,

but this Court has found federal decisions interpreting the apex doctrine to be useful

in applying the balancing factors set forth in our state’s Rule 26. See Next Advisor

Continued, Inc. v. LendingTree, Inc., 

, at *6–10 (N.C. Super.

Ct. Sept. 16, 2016) (discussing the apex doctrine and concluding that “an assessment

and balancing of the factors contained in Rules 26(b) and 26(c)” controlled the court’s

decision); see also, e.g., Willis v. Duke Power Co., 

, 

 (1976) (“One party’s need for information must be balanced against the likelihood

of an undue burden imposed upon the other.”).

   17.   This Court did not adopt the apex doctrine in Next Advisor and does not do

so in this Order and Opinion. Because Rules 26(b) and (c) clearly set forth the

grounds on which discovery may appropriately be limited, and our rules make clear

that the party opposing discovery bears the burden of proof, the Court concludes, as

it did in Next Advisor, that adoption of the apex doctrine is not necessary and that

Rule 26 is entirely adequate to resolve disputes of this nature. See Next Advisor,

, at *9. Nonetheless, the Court finds federal and state court

decisions applying the apex doctrine useful in discerning the unique factual
considerations that arise when a party seeks to depose a high-ranking corporate

executive.

   18.   Plaintiffs admit that they seek to depose SS&C’s President and COO

primarily, if not solely, because he signed the ASA on behalf of SS&C. A federal

district court in the Northern District of California faced a nearly identical set of facts

in M.H. v. Cnty. of Alameda, No. 11-cv-02868-JST, 

, at

*7 (N.D. Cal. Oct. 3, 2013). In that case, the plaintiffs argued that because a CEO

signed a contract on behalf of the corporate defendant, the CEO was “the best person

to testify about the obligations [the corporate defendant] undertook under that

contract.” 

 In applying the apex doctrine to bar the deposition, the court held that

“[t]he mere fact of [the CEO’s] signature on a contract to which [the corporate

defendant] is a party does not establish that [the CEO] ‘has unique first-hand,

non-repetitive knowledge of the facts at issue’ regarding the obligations under that

contract, or how they were performed.” 

 Based on this conclusion, and the court’s

finding that the plaintiffs “have [not] exhausted their alternatives for obtaining the

information using ‘less intrusive discovery methods,’” including by a Rule 30(b)(6)

deposition, the court denied the motion to take the CEO’s deposition.

   19.   Similar considerations are present here. Plaintiffs contend that Boulanger

must be deposed because he, and he alone, can testify to any “instructions, policies,

or training” SS&C issued to its employees and accountants concerning the meaning

and interpretation of the ASA and SS&C’s obligations under the contract. However,

despite engaging in rigorous discovery for over eighteen months, Plaintiffs have not
shown that Boulanger had any involvement in this dispute other than as the

corporate officer who executed the ASA on behalf of SS&C. Plaintiffs have not offered

or forecasted evidence that Boulanger was involved in, or had personal responsibility

for, the negotiation, implementation, or interpretation of the ASA at any level, or that

Boulanger instructed or directed any SS&C employees, accountants, or agents in how

to perform SS&C’s duties under the ASA. Indeed, other than affixing his signature

to the ASA, which SS&C contends was simply an exercise of SS&C’s standard

signature policy and practice, there is no evidence before the Court that Boulanger

was a party to any communication with Maiden, a Plaintiff, or an SS&C employee or

agent about any facts that are at issue in this litigation, including concerning SS&C’s

interpretation of, and duties and compliance efforts under, the ASA.

   20.   In addition, Plaintiffs have failed to show that the information Plaintiffs

seek, even if known to Boulanger, is information that is unique and special to him or,

given the paucity of evidence tying Boulanger to the ASA, that he is the best person

within the company to testify about the Agreement. To the contrary, the information

sought concerns SS&C’s corporate policies, practices, and actions, which a corporate

representative or others within the company with appropriate authority should be

able to identify and explain, at least—based on this record—more fully than

Boulanger.

   21.   Finally, Plaintiffs have also failed to show that the information sought

cannot be obtained “from some other source that is more convenient, less burdensome,

or less expensive.” N. C. R. Civ. P. 26(b)(1a). As stated during the Rule 10.9 telephone
conference, Plaintiffs have deposed at least four SS&C witnesses with operational

responsibility concerning the ASA, but Plaintiffs have not offered evidence from any

of these witnesses or from other sources that these SS&C witnesses were unable to

provide information concerning the meaning, interpretation, and implementation of

the Agreement. Likewise, there is no evidence before the Court that Plaintiffs have

attempted to obtain this information through a Rule 30(b)(6) deposition of SS&C or

made any showing that Boulanger has particular knowledge of the information

sought that could not be obtained through a 30(b)(6) deposition or other appropriate,

less intrusive, discovery methods.

   22.   At the same time, SS&C has persuasively argued that Boulanger has

substantial, extensive, and time-sensitive duties and obligations in his role of

President and COO of SS&C that weigh in favor of prohibiting his deposition in light

of Plaintiffs’ failure to show that he possesses any unique or special knowledge that

is relevant to this case. This is particularly true considering the time and expense

involved in scheduling and preparing Boulanger for deposition before the April 28

discovery deadline and the twenty-plus fact depositions the parties have noticed to

occur by that same date.

   23.   Plaintiffs rely upon this Court’s Next Advisor decision, but that case is

readily distinguishable. In that case, the dispute arose out of a failed corporate

acquisition, and the evidence of record suggested that the CEO had an active role in

the negotiations, the failure of the negotiations, and the resulting conduct that

prompted the plaintiff corporation to bring suit. Next Advisor, 

, at *11–12. Based on these facts, this court concluded that the CEO had “unique,

personal knowledge relevant to the issues in dispute in this litigation,” and, in

particular, “unique, personal knowledge” concerning “his role and participation in the

origins of the current dispute between [the plaintiff] and [the defendant].”

Recognizing the frequently applied principle that “if a prospective deponent has

relevant knowledge, the mere fact that the prospective deponent is a CEO or is busy

does not constitute a showing of good cause for a protective order,” the court allowed

the plaintiffs to depose the defendant’s CEO. 

 The contrast between the defendant

CEO’s active participation in the facts at issue in Next Advisor and the lack of any

comparable evidence of Boulanger’s active participation in the facts underlying this

case, apart from signing the ASA on behalf of SS&C, is stark.

   24.   Accordingly, for the reasons set forth above, the Court concludes, in the

exercise of its discretion, that the deposition of Boulanger should not be permitted at

this time under the balancing test set forth in North Carolina Rules of Civil Procedure

26(b)(1a) and (c). See, e.g., Analog Devices, Inc. v. Michalski, 

,

at *32–38 (N.C. Super. Ct. Nov. 1, 2006) (discussing discovery standards, including

the “relative burdens and benefits of [discovery] as contemplated by the balancing

test of [Rule 26]”). See also, e.g., Blue Cross Blue Shield v. Wells Fargo Bank, N.A.,

No. 11-2529, 

, at *7 (D. Minn. Nov. 9, 2012) (disallowing

executive’s deposition because he “did not have relevant knowledge”); Baine v. Gen.

Motors Corp., 

 (M.D. Ala. 1991) (disallowing vice-president’s

deposition because “it ha[d] not been established that the information necessary
[could not] be had from [other witnesses],” including via Rule 30(b)(6), “which could

satisfy some of plaintiffs’ needs”).

   25.   The Court’s ruling, however, is without prejudice to Plaintiffs’ right to renew

their request to depose Boulanger should further discovery or other circumstances

establish good cause for Boulanger’s deposition to proceed. See, e.g., Salter v. Upjohn

Co., 

 (5th Cir. 1979) (affirming disallowance of president’s

deposition until plaintiff first deposed, and established the inadequacy of depositions

of, defendant’s 30(b)(6) corporate representative and lower-ranking company

officials); Bank of the Ozarks v. Capital Mortg. Corp., No. 4:12-mc-00021, 

, at *6–8 (E.D. Ark. July 18, 2012) (disallowing CEO’s deposition

until defendants pursued and demonstrated as inadequate “less burdensome avenues

for obtaining the information sought,” including through Rule 30(b)(6) and corporate

employee depositions).

                                          III.

                                       CONCLUSION

   26.   WHEREFORE, the Court, in the exercise of its discretion, hereby ORDERS

that Plaintiffs shall not be permitted to depose SS&C’s President and COO, Normand

A. Boulanger, in this action, without prejudice to Plaintiffs’ right to renew their

request for good cause shown upon the completion of further discovery or in the event

of other changed circumstances.
SO ORDERED, this the 31st day of March, 2017.


                             /s/ Louis A. Bledsoe, III
                             Louis A. Bledsoe, III
                             Special Superior Court Judge
                               for Complex Business Cases