McNeill Authors Article Discussing Walrath's Decision in Soffe
In “Judge Requires Successor Agent to Produce Documents in Possession of Predecessor,'” an article published in Delaware Business Court Insider, associate Steve McNeill weighs in on U.S. Bankruptcy Judge Mary Walrath's recent decision in Soffe that requires a successor agent to produce documents in possession of predecessor agent.
In her June 23 oral ruling in Wilmington Savings Fund Society FSB v. M.J. Soffe, Adv. No. 16-50364 (Soffe), U.S. Bankruptcy Judge Mary Walrath of the District of Delaware followed a growing line of precedent in ordering Wilmington Savings Fund Society FSB (WSFS), as successor collateral and administrative agent under a term loan facility with TSA Stores Inc. and certain of its affiliates (the debtors), to produce documents in the possession of its predecessor agent, Bank of America N.A. (BOA). In so ruling, Walrath joined courts in New York, Tennessee, Idaho and Nevada in requiring assignee plaintiffs to produce documents held by their assignors. Moreover, this obligation exists regardless of the assignee's ability to obtain such documents from its predecessor.
The seminal case on this subject is JPMorgan Chase v. Winnick, 228 F.R.D. 505 (S.D.N.Y. 2005). In Winnick, JPMorgan, in its capacity as administrative agent under a credit agreement sued officers, directors and employees of its borrower in connection with loans under a credit agreement. The defendants served discovery on JPMorgan, seeking documents in the lender banks' possession, custody or control. JPMorgan asserted, among other things: that the documents sought were not in its custody, possession or control; that it did not have the right to demand such documents under its agency agreement; that the lender banks were not parties to the case; and that defendants were in a better position than JPMorgan to enforce disputed discovery from any unwilling bank. The court found that "viewed from any angle, [JPMorgan]'s position cannot be correct."
In the decade following Winnick, several courts have followed, and in some cases expanded, its rationale. See, e.g., Royal Park Investments Sa/NV v. Deutsche Bank National Trust, 314 F.R.D. 341 (S.D.N.Y. 2016) (ordering the plaintiff assignee to "produce otherwise-discoverable documents and things (including electronically stored information) held by BNP Paribas to the same extent it is required to produce documents from its own files"); In re Skelaxin (Metaxalone) Antitrust Litigation (E.D. Tenn. Jan. 10, 2014) ("It would be wholly unfair for the plaintiffs to step into the shoes of the assignors for the purposes of bringing their claims and not also assume a claimant's attendant discovery obligations."); Travelers Indemnity Company of America v. Kendrick Brothers Roofing, (D. Idaho Dec. 18, 2013) ("As the assignee of Okland's claims, Travelers therefore steps into Okland's shoes—where it takes on both the potential benefits and obligations of an allegedly wronged party bringing a lawsuit."); JPMorgan Chase Bank v. KB Home, (D. Nev. May 18, 2010) ("It would be unfair to allow JPMorgan and the current debt holders to stand in the shoes of the original lenders in order to pursue this action without requiring them to produce discovery that the original lenders would be required to produce if they had brought the action themselves."). See also 7 Moore's Federal Practice, Section 34.14[c], at 34-86 (Matthew Bender 3d ed. 2016) ("The assignee of a claim in litigation has a duty to obtain and produce the same documents and information to which the opposing parties would have been entitled had the assignors brought the claim themselves.").
WSFS, like other plaintiffs in cases following Winnick, argued that Winnick and its progeny was distinguishable. First, WSFS insisted that BOA, despite not being a party to the adversary proceeding, had submitted itself to the jurisdiction of the court, making third-party discovery much easier than in Winnick and the other cited cases. Second, WSFS argued that BOA was not its assignor; rather, BOA's resignation resulted in WSFS's appointment as successor agent. Third, WSFS argued that even if BOA was its assignor, the claims at issue only arose after WSFS's appointment as successor agent. Finally, WSFS asserted that Winnick only applies to the relationship between an agent and its lenders, not the relationship between a predecessor agent and its successor. Walrath rejected each of these arguments following oral argument.
Regardless of how WSFS obtained the role of successor agent, it was BOA's assignee for purposes of the court's analysis. More importantly, Walrath found that the claims at issue arose well before the assignment occurred. Ultimately, while Walrath avoided the question of whether WSFS must collect documents from BOA in its capacity as a term loan lender, she found that WSFS must produce documents from BOA in its role as administrative agent under the debtors' term loan facility. Moreover, consistent with KB Home, Walrath found that any practical difficulties arising from the collection of those documents should be borne by WSFS, who could have dealt with those issues at the time of the assignment. The fact that BOA had arguably submitted to jurisdiction and that the defendant could have served BOA with a subpoena seeking the same documents was irrelevant.
Walrath's decision in Soffe serves as a reminder to successor administrative agents, and their counsel, to ensure that they negotiate rights to access any documents, including ESI, related to any potential claims that may be pursued by the successor agent. This decision is no outlier; indeed, it represents a continuation of a recent trend in treating documents held by an assignor to be in the possession, custody or control of its assignee. While these cases have thus far been limited to situations involving claims asserted by an assignee as plaintiff, the notions of fundamental fairness relied upon in these cases could also be expanded to apply to any situation involving the possibility of separating a litigation right, including any affirmative defenses, from related litigation obligations.
This article was originally published in the Delaware Business Court Insider.