IN RE: APPLICATION OF KINGSTOWN PARTNERS MASTER LTD
No. 21-MC-691-LTS
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
April 8, 2022
Before the Court is the Petition of Kingstown Partners Master Ltd (“Kingstown” or “Petitioner“) seeking permission to conduct discovery, pursuant to
BACKGROUND
This case arises out of an appraisal proceeding which is currently pending in the Grand Court of the Cayman Islands, Financial Services Division, the purpose of which is to determine the fair value of the shares of FGL Holdings (“FGL“) as of May 29, 2020, the date before FGL was merged into and became a subsidiary of Fidelity National Financial Inc. (“FNF“) in an approximately $2.7 billion merger (the “Merger“). Kingstown is one of five affiliated entities (together, the “Dissenters“) who owned shares of FGL and invoked their statutory right under Cayman law to dissent from the Merger and to have the fair value of their shares determined in accordance with section 238 of the Cayman Islands Companies Act, triggering the commencement of the appraisal proceedings (the “FGL Appraisal“).
Respondents are New York entities with connections to FGL, FNF, and/or the Merger. Blackstone, through certain subsidiaries and affiliates, “served as [FGL‘s] investment manager and collectively owned approximately 20.4% of FGL‘s stock prior to the Merger,” as well as “all of [FGL‘s] Series A preferential shares” (docket entry no. 10 (“Dilliway-Parry Decl.“) ¶ 7(a)); Blackstone also considered, or was approached about, a potential acquisition of FGL by Blackstone. (Id. ¶ 21.)1 MVB served as a sub-advisor to a Blackstone entity and received fees through Blackstone‘s investment advisory agreements with FGL both before and after the Merger. (Id. ¶ 7(b).) CCCP “served as a ‘transaction advisor’ to FGL‘s Special Committee of the board of directors in relation to the Merger and received a $3.75 million fee for its services.” (Id. ¶ 7(c).) CCCM was a shareholder of FGL, and CCCM‘s employees were “appointed by the FGL Special Committee to act as advisors to the FGL Special Committee and to assist the FGL Special Committee regarding its review of the proposal received by FNF as well as other potential strategic alternatives available to FGL.” (Id. ¶ 7(d).)
A few individuals had connections to several of these entities. Chunh E. Chu, who had previously spent twenty-five years at Blackstone in senior leadership roles, served as Co-Executive Chairman of FGL since 2016, founded and controlled CCCP and CCCM, owned 50% of MVB, and held 6.7% of the ordinary shares of FGL prior to the Merger. (Dilliway-Parry Decl. ¶¶ 7, 13.) William Foley, who founded FNF and served as its Chairman or Executive Chairman since 1984, also served as Co-Executive Chairman of FGL and owned 50% of MVB, and (directly or through an entity controlled by him) also held 6.7% of FGL‘s ordinary shares
Respondents or their affiliates also entered into voting agreements with FGL and/or FNF pursuant to which they agreed to vote in favor of the Merger. As summarized by Kingstown‘s counsel, “[t]hese voting agreements, combined with the fact that Company insiders—including Blackstone, CCCM, Mr. Chu, Mr. Foley, and [FGL‘s] other directors and officers—together with FNF collectively controlled in excess of 40% of [FGL‘s] common shares, made a vote in favor of the Merger by common shareholders highly likely,” especially given that Blackstone and FNF (as holders of certain preferred shares) each had “the ability to block any alternative acquisition transaction.” (Dilliway-Parry Decl. ¶¶ 35, 36.)
The FGL Appraisal
The Merger was agreed upon on February 7, 2020, and became effective on June 1, 2020; the FGL Appraisal proceedings commenced on August 17, 2020, before the Honorable Justice Raj Parker. In those proceedings, Justice Parker has issued two pretrial decisions of particular relevance to the discovery application pending before this Court.
First, on December 18, 2020, Justice Parker delivered a Judgment (docket entry no. 40 (“Ferrone Decl.“) Ex. 9 (the “Judgment“)) concerning, among other things, the discovery obligations of Kingstown and the other Dissenters. Justice Parker explained that “dissenters are not the main focus of the discovery exercise in [section] 238 cases as they will not hold the lion‘s share of relevant material,” although they must still “give discovery of documents that are relevant to the exercise of determining [the] fair value [of their shares].” (Judgment ¶ 46.) Justice Parker concluded that the Dissenters were “not obliged to disclose documents relating to
In another order dated December 18, 2020 (Dillway-Parry Decl. Ex. 4 (the “Directions Order“)), Justice Parker approved a much broader scope of discovery to be produced by FGL. Justice Parker directed FGL to produce “all Documents in its possession, custody, or power and which are relevant to the determination of the fair value of the shares in the Merged Company,” including, “without limitation, the categories of documents in Appendix 1.” (Id. ¶ 6(a).) Appendix 1 referenced, as relevant here:
Communications and documents passing between the Merged Company and any third parties regarding a potential sale of the Merged Company, including but not limited to all documents and communications concerning solicitation of bids and/or negotiation of consideration for the Merged Company.
Communications and documents in relation to the go shop process for the Merged Company.
Communications and documents relating to Blackstone‘s (or its related entities or affiliates) interests and incentives in the mergers and any potential or actual conflicts of interest, both directly and through related or affiliated entities.
Communications and documents relating to the interests and incentives of all directors and executive officers of the Merged Company and/or FNF
(including members of either of the Special Committees) in relation to the mergers . . . and any potential or actual conflicts of interest, both directly and through related or affiliated entities. Communications and documents relating to the interests and incentives of advisors appointed by either of the Special Committees and any potential or actual conflicts of interest, both directly and through related or affiliated entities.
Any communications and documents between the Merged Company and its shareholders in relation to the merger transaction, including in relation to the shareholders’ interests and incentives, including, without limitation, any communications in relation to the exercise of shareholders’ voting rights or voting agreements.
(Directions Order App‘x 1 ¶¶ T, U, Z, AA, BB, GG (cleaned up).) So far, FGL has produced at least 228,974 documents responsive to the categories of documents the Cayman court deemed relevant to its fair value determination. (Ferrone Decl. Ex. 8.) According to FGL‘s counsel, 99,684 of those documents (including their family members) discuss or were directed to or from Blackstone (id.), 41,777 discussed or were directed to or from CCCM or CCCP, and 2,577 reference MVB. (Docket entry no. 48 (“Weeks Decl.“) Ex. 2.)
The Directions Order also provided that applications (if any) for third party discovery should “be made no later than 6 weeks prior to the [October 18, 2021] date of exchange of expert reports“—i.e., September 6, 2021. (Dilliway-Parry Decl. ¶¶ 50, 66, 72 & Directions Order ¶ 19; see also Dilliway-Parry Decl. Ex. 5.)2
On August 31, 2021, Kingstown filed this miscellaneous case seeking third party discovery from Respondents. At a high level, Kingstown seeks documents from between June 30, 2019, and April 27, 2020, concerning topics including the fair value of FGL and its shares, agreements (such as investment management agreements and shareholder voting agreements)
As of the date of this Memorandum Order, the parties have submitted their respective expert and supplemental expert reports in the FGL Appraisal. Trial is set to begin on May 23, 2022. (Docket entry no. 56.)
DISCUSSION
Under
“If the statutory preconditions are met, district courts exercise discretion to determine whether and to what extent the requested discovery should be permitted, guided by a set of factors outlined by the Supreme Court in” Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) (“Intel“). In Re Guo, 965 F.3d 96, 102 (2d Cir. 2020), as amended (July 9, 2020). The Intel factors to be considered are:
(1) whether “the person from whom discovery is sought is a participant in the foreign proceeding“; (2) “the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance“; (3) “whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States“; and (4) whether the request is “unduly intrusive or burdensome.”
Fund for Prot. of Inv. Rts. in Foreign States, 5 F.4th at 230 (citations omitted).
“Congress planned for district courts to exercise broad discretion over the issuance of discovery orders pursuant to § 1782(a)—both over whether to grant a discovery order and, if so, what limits to place on that discovery.” In re Edelman, 295 F.3d 171, 181 (2d Cir. 2002). Courts exercise that discretion “in light of the twin aims of the statute: providing efficient means of assistance to participants in international litigation in our federal courts and
“The party seeking discovery need not establish that the information sought would be discoverable under the foreign court‘s law or that the U.S. would permit the discovery in an analogous domestic proceeding.” Matter of Makhpal Karibzhanova, No. 21-MC-442-KPF, 2021 WL 2435453, at *2 (S.D.N.Y. June 15, 2021). The Court may consider, however, “the familiar standards of Rule 26 of the Federal Rules of Civil Procedure,” Mees, 793 F.3d at 302, including that Rule‘s proportionality factors, which include “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Matter of Degens, No. 20-MC-237-JGK-RWL, 2020 WL 4252725, at *5 n.5 (S.D.N.Y. July 24, 2020) (quoting
Respondents concede that Kingstown‘s application satisfies two of the three statutory prerequisites to section 1782 discovery—since Respondents reside or are found in New York, and Kingstown is a party with an interest in the FGL Appraisal—but dispute that Kingstown‘s application seeks discovery “for use” in that appraisal proceeding. Respondents argue that the discovery sought is not “for use” in that proceeding because, although trial is scheduled to begin on May 23, 2022, the deadline has already passed for the parties to submit expert reports on issues of valuation—the ”primary vehicle through which parties present evidence to the Cayman Court.” (Docket entry no. 39 (“Blackstone Opp.“) at 17 (emphasis added).) Moreover, Respondents argue, the discovery requested cannot be “for use” in the FGL
The Court concludes that Kingstown seeks discovery “for use” in the FGL Appraisal. The term “for use” is afforded “a broad interpretation,” Leontiev, 2018 WL 3536083, at *3, and that requirement may be satisfied so long as the materials sought are “to be used at some stage of a foreign proceeding.” In re Accent Delight, 869 F.3d at 132 (quoting Mees, 793 F.3d at 301). “[T]here is no statutory basis for” any requirement that the discovery sought be actually admissible in the foreign proceeding. Brandi-Dohrn v. IKB Deutsche Industriebank AG, 673 F.3d 76, 82 (2d Cir. 2012). Kingstown‘s proffered uses of the discovery sought here “in connection with preparation for trial and/or as documentary submissions” (see docket entry no. 49 ¶¶ 33-34)—uses Respondents do not contend are per se prohibited under Cayman law—are therefore sufficient to satisfy section 1782‘s “for use” statutory threshold. See Sampedro v. Silver Point Cap., L.P., 818 F. App‘x 14, 17 (2d Cir. 2020), as amended (June 5, 2020) (district court did not abuse its discretion by finding that a petitioner sought discovery “for use” in a foreign proceeding where the petitioner intended to use the discovery sought to “prepare witnesses, craft questions, and present his case” in a foreign litigation); IPCom GMBH & Co. KG v. Apple Inc., 61 F. Supp. 3d 919, 924 (N.D. Cal. 2014) (permitting discovery for use in a German proceeding even where the German litigation was on appeal, despite the respondent‘s argument that the “odds” that the German appeals court would reverse and consider the issue as to which discovery was sought were “vanishingly small“).4 Similarly, Respondents’ objection as
The statutory preconditions for Kingstown‘s discovery motion are therefore met. The Court now turns to its application of the discretionary Intel factors and concludes, for the reasons that follow, that those factors weigh in favor of granting Kingstown‘s motion, with certain limitations.
The first Intel factor looks to whether “the person from whom discovery is sought is a participant in the foreign proceeding,” since in those circumstances, “the need for § 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad.” Intel, 542 U.S. at 264. In this case, Respondents are not participants to the foreign proceeding, and this factor weighs in favor of granting Kingstown‘s application.
The second Intel factor directs the Court to “take into account the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance.” Intel, 542 U.S. at 264. Here, Respondents do not dispute that courts in the Cayman Islands are generally receptive to considering discovery sought and obtained in the United States through section 1782. (See Blackstone Opp. at 16; see also Dillaway-Parry Decl. ¶¶ 61-66; docket entry no. 40-1 (“Lowe Decl.“) ¶ 32.) Accord In re Kuwait Ports Auth., No. 1:20-MC-00046-ALC, 2021 WL 5909999, at *10 (S.D.N.Y. Dec. 13, 2021) (“the weight of authority reflects that
The third Intel factor considers “whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States[.]” Fund for Prot. of Inv. Rts. in Foreign States, 5 F.4th at 230 (citing Intel, 542 U.S. at 265). This factor does not require the Court to bar discovery on the ground that it may not be discoverable or ultimately admissible under the laws of a foreign jurisdiction, id. at
The fourth Intel factor considers whether the discovery requested is “unduly intrusive or burdensome,” Fund for Prot. of Inv. Rts. in Foreign States, 5 F.4th at 230, considering the “familiar standards” of Rule 26. Id. at 232 n.70. In light of the other Intel factors, the Court has considered the substantial amount in controversy in the FGL Appraisal, Respondents’ access to information relevant to that proceeding, and the parties’ resources, as well as the parties’ other proffers in this regard, and concludes that Kingstown‘s written discovery requests, as narrowed through its counsel‘s proposed de-duplication procedures and negotiations with counsel for CCCP, CCCM, and MVB (see docket entry nos. 53-2 & 53-3), seek discovery relevant and proportional to the needs of the FGL Appraisal.6
With the same considerations in mind, however, the Court concludes that Kingstown has not shown that the incremental benefit of additional information which might be
Having determined that Kingstown‘s discovery application should be granted in large part, the Court must address two remaining issues: whether Kingstown should bear any of the expenses of Respondents’ production of discovery, and in what time frame Respondents should produce that discovery.
Finally, in light of the approaching May 23, 2022, trial date in the FGL Appraisal, the Court directs the parties to comply with the following schedule to effectuate a timely production of documents from Respondents to Kingstown. Kingstown and Blackstone are directed to promptly meet and confer in order to develop a framework for Blackstone‘s production of documents comparable to that developed by the other Respondents (at docket entry no. 53-2), and Kingstown is directed to meet and confer with all Respondents as to search terms
CONCLUSION
For the reasons set forth above, Kingstown‘s motion for discovery pursuant to
This Memorandum Order resolves docket entry nos. 7 and 8. The Clerk of Court is respectfully directed to terminate this miscellaneous case, over which the Court will retain jurisdiction for the purpose of enforcing the terms of this Memorandum Order.
SO ORDERED.
Dated: New York, New York
April 8, 2022
LAURA TAYLOR SWAIN
Chief United States District Judge