Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-04211/USCOURTS-cand-3_03-cv-04211-4/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

JOHN M MCKENZIE, et al,

Plaintiffs,

v

FRESENIUS MEDICAL CARE AG, et al, 

Defendants.

 /

No C 03-4211 VRW

ORDER

Pursuant to FRCP 53(a)-(b), and per the stipulation of

the parties, the court appointed Hon Alfred G Chiantelli as special

discovery master in this matter on January 31, 2006. Doc #99. On

March 14, 2006, Judge Chiantelli issued his report and

recommendations regarding (1) plaintiffs’ motion to compel further

responses to discovery requests and (2) allocation of the special

master’s fee among the parties. Pursuant to FRCP 53(g), the court

afforded the parties an opportunity to object to Judge Chiantelli’s

report and recommendations. Doc #115. The court is in receipt of

plaintiffs’ objections and defendant’s letter brief in reply to

Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 1 of 6
United States District Court

For the Northern District of California

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plaintiffs’ objections. Doc ##116, 119. 

Plaintiffs object to Judge Chiantelli’s recommendation

that its motion to compel responses to plaintiffs’ requests for

production numbered 10, 16, 20 and 21. As the court writes

principally for the parties, the court finds it unnecessary for

present purposes to discuss the factual allegations in the

complaint, with which the parties are no doubt intimately familiar.

FRCP 53(g)(5) provides that “[u]nless the order of

appointment establishes a different standard of review, the court

may set aside a master’s ruling on a procedural matter only for an

abuse of discretion.” The order appointing Judge Chiantelli did

not specify an applicable standard of review to be employed by the

court. See Doc #99. Accordingly, because the discovery disputes

referred to Judge Chiantelli are a matter of procedural discretion,

the court reviews for abuse of discretion. 

I

Number 10 requests all documents relating to “an analysis

or discussion, if any, of the cost and/or feasibility and/or

viability of [Fresenius] ‘start[ing] up an [end stage renal disease

(ESRD)] lab separately [and in lieu of acquiring Spectra],’ as

testified by Dr Ben J Lipps on March 25, 2005.” Doc #102, Ex D at

7. (Dr Lepps was, at all relevant times, president and CEO of

Fresenius. Compl ¶17.) Judge Chiantelli recommended that this

request be denied:

The level of Fresenius’ need to acquire Spectra is

not relevant to plaintiff’s fraud claim. In an

arm’s length transaction one cannot reasonably

conclude that a company in desperate need of making

an acquisition might be more likely to mislead a

Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 2 of 6
United States District Court

For the Northern District of California

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party in order to close a deal. Corporate survival

instincts do not automatically engender acts of

fraud. Plaintiff is not entitled to discovery of

information based on the remote possibility that a

party who runs out of options has a motive to lie

and/or deceive.

Doc #120 (Rept & Recs) at 2.

According to plaintiffs, the evidence at trial will show

that (1) plaintiffs originally demanded $100 million for Spectra,

(2) the Fresenius board of directors was strongly opposed to paying

more than $75 million and (3) the combined earn out and employee

bonus plan was designed to bridge the gap between these two

numbers. Doc #116 at 7. “Under these circumstances,” plaintiffs

argue, “a trier of fact would be more likely to conclude that

Defendants made misrepresentations regarding the earn out and bonus

plan, and that they intended Plaintiffs to rely on them, if

Defendants could not walk away from the acquisition without

seriously jeopardizing their financial well-being, than they would

if Defendants had other viable options” to the Spectra acquisition. 

Id. 

The court agrees with Judge Chiantelli’s assessment of

the exceedingly speculative probative value of the discovery

requested in number 10. The court concludes that Judge

Chiantelli’s finding on this issue was not an abuse of discretion. 

Plaintiff’s objection is accordingly OVERRULED and Judge

Chiantelli’s recommendation on this issue is hereby ADOPTED.

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Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 3 of 6
United States District Court

For the Northern District of California

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II

Number 16 requests “ANY DOCUMENT that RELATES TO the

TOTAL HOMECARE BUSINESS for the years 1994 through 2002, including

without limitation, budgets, forecasts, projections, business

plans, analysis, organizational charts, intercompany memoranda, and

emails (was well as any drafts of any of the foregoing).” Doc

#102, Ex D at 8. Judge Chiantelli concluded that plaintiffs’

motion to compel discovery responsive to this request should be

denied: “Plaintiff[s’] request for documents relating to the TOTAL

HOMECARE BUSINESS 1994-2002 goes beyond any part of the business

from which contingent payments right[s] would be calculated. Such

information had nothing to do with the renal homecare business that

was to provide Plaintiff[s’] Earn Out.” Rept & Recs at 3. Judge

Chiantelli did, however, conclude that defendants should respond to

plaintiffs’ request (number 15) for documents relating the “MERGER

HOMECARE BUSINESS,” defined as “Homecare Business” in Appendix A to

the agreement out of which this dispute arises. Id; see also Doc

#117, Ex 1.

By plaintiffs’ own admission, “[i]n order to establish

damages * * *, Plaintiffs’ experts will have to reconstruct * * *

the likely performance (in EBITDA terms) of the ‘Homecare Business’

[as defined in Appendix A] had it been kept and operated using best

efforts.” Doc #116 at 3 (emphasis added). Plaintiffs have not

demonstrated that the broad discovery requested in number 16 (to

the extent such discovery is not the subject of request number 15)

is necessary for this purpose. Judge Chiantelli’s finding

therefore did not constitute an abuse of discretion. Plaintiffs’

objection is accordingly OVERRULED and Judge Chiantelli’s finding

Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 4 of 6
United States District Court

For the Northern District of California

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on this issue is hereby ADOPTED.

III

Numbers 20 and 21 request financial statements and

underlying accounting documentation regarding the financial

performance of “MERGER HOMECARE BUSINESS and/or the TOTAL HOMECARE

BUSINESS for the years 1994 through present.” Doc #102, Ex D at 9. 

Judge Chiantelli did not rule on these requests on the ground that

plaintiffs had withdrawn their motion to compel. Rept & Recs at 3. 

According to plaintiffs, they withdrew their motion to compel

responses to these requests based on their understanding that Judge

Chiantelli intended to grant their motion to compel responses to

number 16. Doc #117 (Prescott Decl) ¶4. Because there appears to

have been a misunderstanding between plaintiffs and Judge

Chiantelli, the court concludes that plaintiffs should be allowed

to renew their motion to compel responses to numbers 20 and 21. 

Assuming plaintiffs choose to pursue this matter further,

the court, pursuant to FRCP 53(g)(1), resubmits the matter to Judge

Chiantelli for further proceedings in connection with plaintiffs’

motion to compel discovery responsive to numbers 20 and 21. 

Whether, as defendants suggest, Doc #119 at 2, plaintiffs’ requests

are obviated by further discovery requests recently propounded by

plaintiffs is a matter for Judge Chiantelli to address in the first

instance. Unless Judge Chiantelli recommends otherwise, the

parties shall bear equally the costs of any further proceedings

before Judge Chiantelli.

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Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 5 of 6
United States District Court

For the Northern District of California

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IV

In sum, plaintiffs’ objections to Judge Chiantelli’s

findings with respect to plaintiffs’ motion to compel discovery

responsive to request numbers 10 and 16 are OVERRULED and Judge

Chiantelli’s recommendations on these issues are ADOPTED. The

matter is RESUBMITTED to Judge Chiantelli for further proceedings

related to plaintiffs’ discovery request numbers 20 and 21. Judge

Chiantelli’s recommendations regarding all other issues, including

allocation of the special master’s fee, are ADOPTED.

SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

Case 3:03-cv-04211-VRW Document 121 Filed 04/17/06 Page 6 of 6