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United States Commodity Futures Trading Commission v. Newell

United States District Court, N.D. Illinois, Eastern Division

August 25, 2014




This case alleging fraud in commodity trades was referred to this court for the resolution of discovery disputes. [Dkt 16.] The present motion raises issues under Fed.R.Civ.P. 26(b)(4)(B) and (C) concerning work-product protection for expert report drafts and lawyer-expert communications. The plaintiff, the United States Commodity Futures Trading Commission ("CFTC"), alleges that defendants' attorneys "commandeered" the drafting of two of defendants' expert reports, and moves to compel production of draft reports and communications between defendants, their attorneys, and their experts. (Pl.'s Mot.) [Dkt 96.] The CFTC filed a memorandum with exhibits in support of its motion. (Pl.'s Mem.) [Dkt 97.] Defendants have responded (Def.'s Resp.) [dkt 116], and CFTC has replied (Pl.'s Reply) [dkt 127]. For the reasons set out below, the motion is granted in part and denied in part.


Defendant Quiddity, Inc. ("Quiddity") is a registered Commodity Trading Advisor and Commodity Pool Operator owned and controlled by defendant Donald Newell. (Compl. ΒΆ 1.) [Dkt. 1.] The CFTC alleges that Quiddity and Mr. Newell violated federal commodities trading regulations. Defendants deny the CFTC's claims.

In November 2012, the District Judge scheduled initial discovery deadlines and referred supervision of discovery disputes to this court. (Order, Nov. 15, 2012.) [Dkt 16.] Expert discovery closed in March 2014. [Dkt 76, 82.] During expert discovery, defendants produced reports by three experts: John Burnside, John Parkes, and Margaret Wiermanski. Only the reports of Mr. Burnside and Mr. Parkes, produced in October and November 2013, are at issue in the CFTC's motion. (Pl.'s Mem. at 2 n. 1; Ex. 3, Rep. of John Parkes; Ex. 5-6, Reps. of John Burnside.)[1]

As the CFTC describes it, "During the discovery phase, the CFTC propounded on defendants requests for production that broadly sought all communications between defendants and their experts...." (Pl.'s Mem. at 2.) In November 2013, in response to a production request by the CFTC, defendants turned over some drafts and notes related to defendants' expert reports, including two drafts of Mr. Burnside's report, emails between defense counsel and Mr. Parkes, and 16 pages of Mr. Parkes's handwritten notes. ( Id. )

The CFTC maintains that the documents produced raised suspicions about the role of defendants' attorney, Nicholas Iavarone, in drafting the reports. For example, one of the drafts of Mr. Burnside's report, which the parties refer to as "version 7, " purportedly shows multiple paragraphs of the report as being "inserted" by Mr. Iavarone. (Pl.'s Mem., Ex. 1.) It also shows a few words and phrases as being added by Mr. Newell. ( Id. ) Further, according to the CFTC, the production related to Mr. Parkes contain less work product than one would expect to see regarding the substance of the reports. (Pl.'s Mem. at 2.)

In December 2013, the parties' attorneys met to confer about this matter, and according to the CTFC's attorneys' notes from that meeting, defendants' counsel agreed to produce Mr. Parkes's emails in native format, to conduct a search of their own emails for additional relevant material and to have Mr. Newell do the same. (Pl.'s Mem., Ex. 9.) Defendants' counsel maintained, however, that no additional emails existed relating to Mr. Burnside. ( Id. )

The CFTC deposed Mr. Burnside and Mr. Parkes in February and March, 2014, and questioned them both about Mr. Iavarone's contributions to their reports. Mr. Burnside testified that he discussed changes to his report with Mr. Iavarone, Mr. Iavarone typed the changes, and Mr. Burnside simply clicked "accept changes" to include Mr. Iavarone's additions. (Pl.'s Mem., Ex. 11, Dep. of John Burnside at 308, 487-90.) Mr. Burnside was sure there were additional parts of the report that Mr. Iavarone wrote and he accepted, but he could not recall which parts specifically. ( Id. at 497-98.)[2] Similarly, Mr. Parkes testified that he and Mr. Iavarone passed drafts of the report back and forth and that "Mr. Iavarone was involved in the process of developing the opinions, the whole report." (Pl.'s Mem., Ex. 4, Dep. of John Parkes, at 494, 538-39.) Mr. Parkes also admitted that he incorporated portions of analysis from Mr. Burnside and other unknown sources into his report without independently assessing the accuracy of that analysis. ( Id. at 405-06.)

The day before the CFTC filed its motion to compel, defendants turned over portions of a draft of Mr. Parkes's report from September 2013 that Mr. Burnside had recently found. (Pl.'s Mem., Ex. 16.) According to Mr. Iavarone, Mr. Newell sent the pages to Mr. Burnside after Mr. Burnside told Mr. Newell that it would be helpful to see examples of other expert reports, and Mr. Burnside had just re-discovered them in a box in his possession. ( Id. ) Mr. Iavarone said that defendants' counsel was previously unaware that Mr. Parkes's report had been provided to Mr. Burnside.[3]

Based on this information, the CFTC moved under Fed.R.Civ.P. 37(a) to compel production of documents it alleges were improperly withheld during expert discovery. The agency specifically requests two types of documents: (1) all drafts of the reports from Mr. Burnside and Mr. Parkes; and (2) communications between defense counsel, Mr. Newell, and defendants' experts that contain facts, data, or assumptions supplied by counsel. (Pl.'s Mem. at 1.) Defendants asserted protection over these documents under Rule 26(b)(4), but the CFTC challenges that assertion on two grounds, arguing first, that the work-product protection afforded by the rule does not apply because portions of the expert reports were likely drafted by Mr. Iavarone, and second, that the drafts and communications are discoverable under Fed.R.Civ.P. 26(b)(4)(C) because they contains facts, data, or assumptions that defendants' counsel provided and the experts relied on in forming their opinions. ( Id. ) In response, defendants defend the role Mr. Iavarone played in preparing the expert reports, contest the CFTC's interpretation of Rule 26(b)(4)(C), and argue that the CFTC's request for additional documents is unnecessary because it had ample opportunity to question the experts at issue during their depositions. (Def.'s Resp. at 4-14.)[4]


"Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)." Fed.R.Civ.P. 26(b)(3)(A).

In 2010, an amendment to Rule 26 expressly extended that protection to drafts of expert reports and communications between a party's attorney and an expert ...

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