Court Erred in Quashing Subpoena Given Broad Scope of Discovery

On February 5, 2021, the Fourth Department issued a decision in M&T Bank Corp. v. Moody's Invs. Servs., Inc., 2021 NY Slip Op. 00706, holding that a court erred in quashing a subpoena given the broad scope of discovery, explaining:

We conclude that plaintiff, in moving to quash the nonparty subpoena, failed to meet its burden of establishing either that the discovery sought is utterly irrelevant to the actions or that the futility of the process to uncover anything legitimate is inevitable or obvious. As noted, plaintiff has alleged that defendant knew in 2006 and 2007 that the credit risks of certain non-prime RMBS tranches—which included RMBS containing Alt-A loans—were increasing, yet failed to account for such increased credit risks in its ratings for CDOs collateralized by RMBS, and that plaintiff justifiably relied on those credit ratings because it had neither the access to the same data as the rating agencies nor the capacity or analytical ability to assess the securities it was purchasing. It is well established that where a sophisticated business person or entity claims to have been taken in, the justifiable reliance rule serves to rid the court of cases in which the claim of reliance is likely to be hypocritical. Thus, as a general matter, plaintiff's own underwriting practices and the feedback it received thereon—specifically with respect to the origination of higher risk non-prime Alt-A loans that plaintiff knew or should have known would be packaged into RMBS by investment banks upon their sale—are relevant to plaintiff's alleged justifiable reliance on defendant's credit ratings of the CDOs that were collateralized in part by RMBS.

More particularly with respect to the nonparty, we agree with defendant that plaintiff has not shown that the nonparty's testimony would be utterly irrelevant or that it was inevitable or obvious that taking the nonparty's deposition would be futile to uncovering anything legitimate. Although plaintiff, relying on the affidavit of the nonparty's former supervisor, contends that the nonparty does not have the extensive knowledge that defendant claims, the former supervisor confirmed that the nonparty had some mortgage underwriting authority with respect to non-agency Alt-A loans and that underwriting those loans comprised nearly one-tenth of the nonparty's work. Thus, plaintiff's own submissions suggest that the nonparty has at least some knowledge of plaintiff's underwriting practices with respect to the non-prime loans at issue here, and thus it cannot be said on this record that taking the nonparty's deposition would be futile or that the testimony would be utterly irrelevant. We note in any event that even a witness's sworn denial of any relevant knowledge, would be insufficient, standing alone, to establish that the discovery sought is utterly irrelevant to the action or that the subpoena, if honored, would obviously and inevitably fail to turn up relevant evidence. We therefore conclude that the court erred in granting that part of plaintiff's motion seeking to quash the nonparty subpoena.

(Internal quotations and citations omitted).

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called "discovery"). As this decisions shows, the scope of discovery in New York is broad. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).