CURRENT MONTH (May 2022)
Subpoenaed Third Party Can Recover Cost of Its Attorneys’ Review
Broad discovery requests demanding production of voluminous and potentially sensitive records are commonly at issue in significant bankruptcy cases, and targets of such requests often feel unfairly burdened with the expense of production. Although Rule 45 of the Federal Rules of Civil Procedure provides protection for third party targets of subpoenas and uses language that sounds mandatory, not all courts construing the rule have treated it that way. Recently, in a letter ruling, Judge Goldblatt of the U.S. Bankruptcy Court, District of Delaware, addressed Rule 45 in this context. In Mesabi Metallics Company v. Cleveland-Cliffs, Adv. Proc. No. 17-51210 (Bankr. D. Del. May 23, 2022), the debtor sued for breach of contract, antitrust violations, and other claims. During the proceedings, the debtor served a subpoena on U.S. Steel, a non-party, seeking documents relating to its antitrust and business tort claims. U.S. Steel moved for a protective order, and the debtor moved to compel. Noting that Rule 45 states, in relevant part, that “If an objection is made . . . (ii) These acts may be required . . . , and the order must protect a person who is neither a party nor a party’s officer from significant expense resulting from compliance,” and that the Third Circuit has read this language as mandatory, Judge Goldblatt went on to determine that the expense imposed on U.S. Steel would be “significant” and that U.S. Steel was entitled to protection. But did that protection include the recovery of U.S. Steel’s attorneys’ fees incurred in reviewing the production to be made pursuant to the subpoena? The debtor argued that the attorney review would be an expense incurred by U.S. Steel for its own protection, to avoid turning over privileged documents or proprietary information, and that U.S. Steel could be protected by a straightforward agreement that turnover of privileged information would not be deemed a waiver and that sensitive information could not be used for any purpose outside of the litigation, rather than by paying for its lawyers to perform a review. Judge Goldblatt had “little trouble” concluding that it was reasonable for U.S. Steel to have the documents reviewed prior to production. U.S. Steel is in the same industry as the debtor, and “[t]he notion that a party in its position, behaving in a manner that is reasonable, would turn over its internal documents to [the debtor] without so much as reviewing them to know what kind of information they contain simply blinks commercial reality.” Judge Goldblatt reserved to the debtor its rights to object to the reasonableness of the fees incurred by U.S. Steel in its review. As with most discovery disputes, the context matters for considering the likelihood that a court will shift the cost for a requesting party, but the decision in Mesabi Metallics provides some color to the analysis of whether a subpoenaed third party is entitled to protection under Rule 45(d)(2)(B)(ii), and, if so, the nature and scope of that protection.