Metropolitan News-Enterprise


Friday, April 12, 2013


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Court Upholds Order to Preserve Transcript in Long-Settled Case

Panel Says Motion to Modify Protective Order Remains Timely After Lawsuit Dies




A district court may hear a motion related to a protective order in a case that has been concluded, the Ninth U.S Circuit Court of Appeals ruled yesterday.

The panel affirmed a district judge’s order to preserve a deposition transcript in a long-settled suit by pioneering Internet retailer Scott Blum.

Blum founded the E-commerce portal in the 1990s. According to news accounts, his shares were briefly worth more than $1 billion after he took the company public in 2000, but the value tumbled and he wound up buying the 63 percent of the company that he didn’t already own for about $15 million and taking it private in 2001.

The company was sold to the Japanese Rakuten Group in 2010 for a reported $250 million.

Merrill Lynch Suit

In 2003, Blum sued Merrill, Lynch, Pierce, Fenner & Smith, Inc. and managing director Thomas Mazzucco, claiming that he would have sold his shares in 1999 for $500 million if they hadn’t misadvised him to hold on.

In 2004, a blanket protective order requiring destruction of all confidential documents, including the transcript of Blum’s deposition, was granted. When the case settled the following year, it was agreed that the protective order would remain in effect, Blum alleged in opposing subsequent disclosure.

In 2009, Blum sued KPMG in Los Angeles Superior Court, alleging that he would have sold out in 1998 for $400 million if the defendant had not misadvised him. During discovery, Blum acknowledged that he had been deposed in the prior lawsuit, but cited the protective order and confidential settlement as grounds for refusing to provide the transcript to KPMG’s lawyers.

One of those attorneys obtained a copy from the court reporters, however, allegedly through inadvertence. Counsel notified the discovery master in the lawsuit and the plaintiff’s counsel that the transcript had been received.

Motion to Reopen

Blum’s lawyers moved to have the U.S. District Court for the Central District of California reopen the Merrill Lynch suit and enforce the protective order. KPMG moved for leave to intervene in order to seek a modification of the protective order that would allow it to use the transcript in its defense in Superior Court.

U.S. District Judge James V. Selna ordered the Merrill Lynch case reopened, allowed KPMG to intervene, and declined to order destruction of the transcript pending a determination by the state court whether it was discoverable. After the discovery master found that the transcript was relevant to KPMG’s defense, Blum dismissed the KPMG action.

Selna, however, unaware of the dismissal, ruled that enforcement of the protective order would be contrary to public policy and modified it to permit use of the transcript in the state action. He subsequently ordered that in light of the dismissal, the transcript should be deposited in escrow or submitted to the court for in camera inspection.

Visiting Judge’s Opinion

On appeal, visiting District Judge Robert Holmes Bell of the Western District of Michigan authored the opinion of the Ninth Circuit. He concluded that Selna did not abuse his discretion by treating the motion to intervene as timely, by modifying the protective order, or by ordering the transcript preserved after the dismissal of the state action.

“[M]otions to intervene for the purpose of seeking modification of a protective order in long-concluded litigation are not untimely,” he said.

Bell rejected the argument that Blum would be prejudiced as a result of the intervention. Any such prejudice, he said, could be cured by ordering that KPMG keep the transcript confidential.

Bell also agreed with the district judge that “in the present context enforced destruction of a transcript relevant to pending litigation would contravene public policy and would amount to Court-sanctioned destruction of evidence” and that the transcript should be preserved because there was no guarantee that Blum would not revive the state action.

Judges Stephen Reinhardt and Kim McLane Wardlaw joined in the opinion.

The case is Blum v. Merrill, Lynch, Pierce, Fenner & Smith Inc., 11-55635.


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