Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-03210/USCOURTS-cand-5_04-cv-03210-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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ORDER DENYING NON PARTYERNST&YOUNGLLP'SOBJECTIONSTOMAGISTRATEJUDGE'SAUGUST 4, 2005 ORDER

DENYING MOTION FOR PROTECTIVE ORDER— C-04-03210 RMW

E-FILED on 10/31/05

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

THOMAS FALLON, et al.

Plaintiffs,

v.

LOCKE, LIDDELL & SAPP, LLP, et al.,

Defendants.

No. C-04-03210 RMW

ORDER DENYING NON PARTY ERNST &

YOUNG LLP'S OBJECTIONS TO

MAGISTRATE JUDGE'S ORDER DENYING

MOTION FOR PROTECTIVE ORDER

[Re Docket No. 51]

Third party witness Ernst & Young, LLP, ("E&Y") moved for a protective order or to modify the

subpoena duces tecum and associated subpoena (collectively "subpoena") issued by plaintiffs Tom Fallon,

Robert Puette, Carl Redfield, and Rick Timmins. The motion was heard before Magistrate Judge Seeborg,

who denied the motion for a protective order and granted the motion to modify subpoena. E&Y filed the

present objection to Judge Seeborg's ruling. The court ordered briefing on the matter, and, after considering

the parties' papers, overrules E&Y's objection.

Federal Rule of Civil Procedure 72(a) allows an aggrieved party to file a timely objection to a

non-dispositive ruling of a magistrate judge. Such objections, however, may not be sustained unless the

magistrate's order is "found to be clearly erroneous or contrary to law." Fed. R. Civ. P. 72(a). This highly

deferential standard applies to the magistrate's factual determinations and discretionary decisions. Concrete

Case 5:04-cv-03210-RMW Document 64 Filed 10/31/05 Page 1 of 4
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ORDER DENYING NON PARTYERNST&YOUNGLLP'SOBJECTIONSTOMAGISTRATEJUDGE'SAUGUST 4, 2005 ORDER

DENYING MOTION FOR PROTECTIVE ORDER— C-04-03210 RMW

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Pipe & Prods. v. Constr. Laborers Pension Trust, 508 U.S. 602, 623 (1993) ("[R]eview under the 'clearly

erroneous'standard is significantly deferential, requiring a definite and firm conviction that a mistake has been

committed.") (citation omitted). Under the "clearly erroneous" standard, "the district court can overturn the

magistrate judge's ruling only if the district court is left with the definite and firm conviction that a mistake has

been made." Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980, 983 (S.D. Cal.

1999). The "contrary to law" standard permits independent review of purely legal determinations by the

magistrate judge. Id.; Haines v. Liggett Group, Inc., 975 F.2d 81, 91 (3d Cir.1992) ("The phrase 'contrary

to law' indicates plenary review as to matters of law.").

Inits objection, E&Y assertsthat the Magistrate Judge erred inconcluding that a discoveryprohibition

inEngagement Agreements betweenplaintiffs and E&Y does not apply to the instant case to which E&Y is not

aparty. Judge Seeborg considered In re Daisytek, 323 B.R. 180 (N.D. Tex. 2005), inwhichthe district court

of Northern District of Texas held that the same arbitration clause in another E&Y engagement agreement

applied to discovery sought before the initiation of an action against E&Y as a party. While E&Y contends

that the principles in Daisytek should be applied in this case to cover non-party discovery, Judge Seeborg

correctly pointed out that no circuit court has decided on whethersucha clause appliesto a third-partydispute

that is arguably related to the agreement betweenthe parties. He also determined that Daisytek, in which the

parties to the agreement were parties to the lawsuit, presented the issue in a very different context from that

presented here. Judge Seeborg's ruling that the information requested by plaintiffs is permitted by Rule 26 is

neither clearly erroneous nor contrary to law. The court overrules E&Y's objection. 

In the alternative, E&Y asks that plaintiffs bear the cost of conducting the non-party discovery if is

allowed. E&Y submits an affidavit asserting that it would cost an estimated $320,000 to review the estimated

100,000 documents to respond to the subpoena. Flood Aff. in Supp. of Nonparty Objection, at 2. E&Y

argues that its status as a third party witness justifies the imposition of discovery cost on plaintiffs. Obj. to

Magistrate Judge's Order at 10. Plaintiffs oppose the costs request, arguing that (1) it was not raised and

considered bythe Magistrate Judge; and (2) E&Y, as one ofthe world'slargest accounting firms withover $10

billion revenue, is better situated to bear the cost than plaintiffs, who have paid E&Y substantial amounts for

the CDS which may cost them millions in IRS penalties and fees. Opp'n to E&Y's Objection, at 7. Plaintiffs

also question the purported cost of the discovery stating that E&Y hasreviewed and produced documents to

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ORDER DENYING NON PARTYERNST&YOUNGLLP'SOBJECTIONSTOMAGISTRATEJUDGE'SAUGUST 4, 2005 ORDER

DENYING MOTION FOR PROTECTIVE ORDER— C-04-03210 RMW

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the IRS and the United StatesSenateSub-CommitteeinvestigatingCDS. Id. at 6. Alternatively, plaintiffs urge

that the decision on costs be deferred pending further hearing. Id. at 7-8.

AlthoughE&Y did not clearly raise the issue of allocating the costs of productionto plaintiffs,E&Y did

strenuously argue before Judge Seeborg that the costs to it of production made production pursuant to the

plaintiffs' subpoena unreasonable. The court finds that E&Y, who is not a party, should not have to bear the

reasonable costs of production exceeding $500.00. 

III. ORDER

The court overrules E&Y's objections to Judge Seeborg's order. E&Y shall make the production

required by Judge Seeborg's order. However, plaintiffs shall bear all reasonable costs of that production

exceeding $500.00.

DATED: 10/31/05 /s/ Ronald M. Whyte

RONALD M. WHYTE

United States District Judge

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ORDER DENYING NON PARTYERNST&YOUNGLLP'SOBJECTIONSTOMAGISTRATEJUDGE'SAUGUST 4, 2005 ORDER

DENYING MOTION FOR PROTECTIVE ORDER— C-04-03210 RMW

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Notice of this document has been electronically sent to:

Counsel for E&Y:

Ashley Marie Bauer ashley.bauer@lw.com 

Dana N. Linker dana.linker@lw.com 

Randall Thomas Kim randall.kim@lw.com

Counsel for Plaintiff(s):

Anthony B. Gordon law@anthonybgordon.com

David Lefkowitz dl@wplawgroup.com

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Date: 10/31/05 /s/ MAG

Chambers of Judge Whyte

Case 5:04-cv-03210-RMW Document 64 Filed 10/31/05 Page 4 of 4