The U.S. District Court for the Southern District of New York ruled against the Securities and Exchange Commission on several discovery disputes arising in connection with the SEC’s civil action against the CEO of a public company for violations of the federal securities laws. Specifically, the defendant sought an order directing the SEC to (i) identify responsive materials in the SEC’s document production pursuant to the defendant’s document request, (ii) perform a more expansive search for internal emails and documents relating to the allegations of the complaint, and (iii) produce documents the SEC asserted were protected by the deliberative process privilege.
The court first held that the SEC was obligated under Federal Rule of Civil Procedure 34 to identify responsive documents rather than “dump” millions of pages on the defendant. Under Rule 34, a party may produce documents “as they are kept in the usual course of business or must organize and label them to correspond to the categories in the request.” After discussing the legislative history and meaning of the word “business” as it is used in the rule, the court held that a government investigation is “by its very nature not routine or repetitive,” and as such is not covered in the “usual course of business.” Instead, the SEC is required under Rule 34 to “organize and label them to correspond to the categories in the request.”
The court next ruled on the SEC’s refusal to produce certain internal documents because of undue burden. Despite the defendant’s efforts to establish a search protocol that would balance production against its strain on agency resources, the SEC unilaterally limited its searches to compilations that returned no responsive results. The court held that the SEC’s refusal was “patently unreasonable,” and directed the parties to confer in order to develop a workable protocol as originally suggested by the defendant’s counsel.
Finally, the court held that the SEC’s refusal to produce certain documents on the basis of the deliberative process privilege was unfounded. Specifically, the court stated the SEC’s privilege log was “deficient,” and that the SEC’s vague assertion of the privilege amounted to it asking the court “simply to take its word” that the documents were protected. Instead, the court directed the SEC to produce the documents for an in camera review, along with short memoranda explaining why each document is privileged. (SEC v. Collins & Aikman Corp., 2009 WL 94311 (S.D.N.Y. Jan. 13, 2009))