GMO Gamecenter USA, Inc. v. Whinstone US, Inc.

USDC SDNY UNITED STATES DISTRICT COURT DOCUMENT ELECTRONICALLY FILED SOUTHERN DISTRICT OF NEW YORK DOC #: □□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□ DATE FILED: 8/14/2024 GMO GAMECENTER USA, INC. and GMO INTERNET, INC., Plaintiffs, 22-CV-5974 (JPC) (KHP) -againstOPINION & ORDER ON REQUEST TO VACATE LETTERS ROGATORY WHINSTONE US, CORPORATION, Defendant. ~----------------------------------------------------------------X Katharine H. Parker, United States Magistrate Judge: This action, brought by GMO Gamecenter USA, Inc. and GMO Internet Group, Inc. (collectively, “GMO”) against Whinstone US, Inc. (“Whinstone”), arises out of a contract pursuant to which Whinstone provided space and services for GMO’s cryptocurrency mining operations and an alleged breach of that agreement. That agreement is referred to by the parties as a colocation agreement. Currently before the Court is non-party Northern Data AG’s (“Northern Data”) Motion to Vacate the Court’s Order on Motion for Issuance of Letters Rogatory. (ECF No. 150.) Rule 60 provides for relieve from a judgement or order to correct clerical mistakes, oversights or omissions. Fed. R. Civ. P. 60(a). However, the motion filed by Northern Data does not invoke Rule 60 — instead it invokes Rules 26, 30, 31, and 34 and is more in the nature of a motion for a protective order. Thus, the Court construes this as a motion for a protective order under Rule 26(c), which allows “any person from whom discovery is sought” to obtain relief to guard against “annoyance, embarrassment, oppression or undue burden or expense.” Fed. R. Civ. P. 26(c)(1). BACKGROUND GMO is a global company that offers various services including internet infrastructure, online adver�sing and media, internet finance, cryptocurrency mining and trading, and game development. Whinstone operates data centers intended for large-scale cryptocurrency mining and high-speed video rendering, including North America’s largest bitcoin mining and hos�ng facility in Texas. Whinstone is owned by Riot Blockchain, Inc. (“Riot”), a publicly-traded bitcoin mining and hos�ng company. In 2021, a�er the events at issue in this li�ga�on, Riot acquired Whinstone from non-party Northern Data, a German company that develops and operates high-performance compu�ng infrastructure solu�ons. Aroosh Thillainathan, CEO of Northern Data, was President of Whinstone at the �me GMO and Whinstone entered into the coloca�on agreement at issue. In November 2018, Whinstone and GMO entered into the W Coloca�on Services Agreement (the “Louisiana Agreement”), pursuant to which Whinstone agreed to construct a data center in Louisiana that would begin opera�ons in January 2019. GMO paid $5.8 million as an ini�al deposit and, once it began using the data center, paid a fee for space in the data center, power to operate its mining machines, internet connec�on, networking and cooling services, a license to use certain IP addresses, and various other services related to security and maintenance of equipment. The Louisiana data center opened in March 2019 – later than expected – and with a smaller capacity than an�cipated and insufficient power to operate the bitcoin mining machines. In July 2019, the Louisiana data center had to suspend opera�ons because of insufficient power. As a result, GMO demanded a return of its ini�al deposit and other damages flowing from the breach of the agreement. At the �me of the breach of the Louisiana Agreement, Whinstone was building a new data center in Texas. It offered GMO favorable terms for a new coloca�on agreement at its facility in Texas, which GMO accepted (the “Texas Agreement”). The Texas Agreement contained provisions intended to resolve disputes stemming from the Louisiana Agreement and provisions for providing power and services for GMO’s bitcoin mining machines going forward, which would be relocated to Texas. GMO paid a fee to Whinstone under the Texas Agreement and also provided a $33.6 million loan to fund construc�on at the Texas data center. Whinstone agreed to indemnify GMO the amount of $2,029,402.56 for a por�on of its lost profits arising out of the power shortages in Louisiana and to lower its ini�al hos�ng fee in Texas for a period of �me to be agreed upon by the par�es. The par�es contemplated a good faith nego�a�on of the hos�ng fees in Texas because they did not agree on the amount of the alleged loss of profit from the power shortage in Louisiana. There were delays in construc�ng and commencing full opera�ons at the Texas data facility and, thus, delays to GMO being able to operate its bitcoin mining machines there. GMO atributes these delays to Whinstone’s project mismanagement and lack of budget control. GMO also claims Whinstone gave priority to other customers, offering them more favorable terms than offered to Whinstone. Addi�onally, there were problems supplying sufficient power in Texas. Under the Texas Agreement, Whinstone was to provide 40 megawats (“MW”) of power as of February 29, 2020, 80 MW of power as of April 30, 2020, and 120 MW of power as of May 31, 2020; however, as of June 2, 2020, Whinstone was only able to supply GMO with 60 MW of power. GMO alleges that Whinstone chose to provide power to other customers whose business was more profitable to Whinstone and in breach of the Texas Agreement. On July 1, 2020, Whinstone paid GMO approximately $7.9 million in respect of the ini�al deposit and the Loss of Profit by Power Suspension stemming from its breach of the Louisiana Agreement. At that point, it s�ll owed GMO damages from the Loss of Profit by Power Shortage, which it was paying off by offering lower hos�ng fees at the Texas data center. The par�es atempted to resolve their dispute about the remaining amount due, which GMO asserts was in excess of $35 million, by nego�a�ng a further reduced hos�ng fee at the Texas data center. These nego�a�ons did not result in any new agreement. GMO contends the nego�a�ons stopped upon Riot’s acquisi�on of Whinstone in May 2021. This suit ensued because GMO contends that Whinstone failed to nego�ate new terms for lower hos�ng fees and to make GMO whole for lost profits it suffered a�er June 2, 2020 as a result of Whinstone’s con�nuing breaches (i.e., failure to provide sufficient power so that GMO’s mining machines could operate produc�vely). In February 2021, Texas experienced extreme weather that resulted in prolonged freezing temperatures and a power shortage that impacted the whole state. Thus, the state of Texas asked Whinstone to stop supplying power to its customers and sell back power it had purchased from Texas so that Texas could supply its residents with sufficient power. Whinstone agreed, which resulted in a cessa�on of power to GMO and cessa�on of GMO’s bitcoin mining ac�vity. GMO asserts that Whinstone failed to obtain its consent to power down its mining machines in advance of the power shutdown associated with the winter storm and that the Texas Agreement requires Whinstone to share the profits it received from the sale of power back to Texas with it. Finally, GMO alleges that Whinstone commited other breaches of the Texas Agreement including improperly removing some of GMO’s mining machines from a data center, causing GMO to lose $16,000/day in profits; and improperly invoicing GMO more for power when the agreement provides that there would be no increase price for power for 10 years. Whinstone has asserted a counterclaim against GMO contending that GMO failed to reasonably nego�ate the amount and repayment of its alleged loss of profit from power shortage under the Louisiana agreement and by failing to nego�ate in good faith for a new coloca�on agreement in Texas based on the standard hos�ng agreement being offered by Whinstone to other customers. Whinstone also claims that GMO has never provided sufficient evidence of its losses to substan�ate its nego�a�ng posi�on. As a result, Whinstone asserts it has been providing services to GMO at or below costs, resul�ng in losses and in contraven�on of the Texas Agreement. Whinstone also asserts that GMO has failed to u�lize its allowed power in breach of its obliga�ons under the Agreement, causing further losses to Whinstone. One of the reasons for this, according to Whinstone, is that GMO has not updated its mining machines which are inefficient and not able to u�lize the power nego�ated for under the agreement. As a result, Whinstone also ques�ons the amount of profits that GMO actually lost, contending that Whinstone’s machines were not capable of genera�ng the profit GMO says it would have realized but for insufficient power and services. Whinstone also contends that GMO breached the Texas Agreement by failing to pay increased hos�ng fees resul�ng from increases to the cost of electricity in Texas. The par�es fiercely dispute the meaning of several provisions in the Texas Agreement and facts surrounding the alleged breaches of the agreement by each other. Discovery is ongoing. To date, the par�es have exchanged document requests and responses and some documents. However, some disputes have arisen regarding the completeness of the document produc�on and, in par�cular, the scope of Whinstone’s produc�on. The also have engaged in some third-party discovery. Deposi�ons have yet to be taken. Both par�es seek certain informa�on from non-par�es Northern Data and Thillainathan, its CEO. GMO served a mo�on for issuance of leters rogatory to obtain documents and both par�es seek issuance of an LOR to obtain Thillainathan’s deposi�on tes�mony on certain subjects. The Court issued the leters rogatory at both par�es’ request. Northern Data and Thillainathan objected to the leters rogatory and sought to have them vacated or modified on the grounds they seek informa�on and tes�mony beyond what is permited under Federal Rule of Civil Procedure 26(b)(1), that is, informa�on that is not relevant and unduly burdensome for Northern Data and Thillainathan to provide. Both asserted they are willing to produce informa�on in response to properly tailored writen ques�ons but that the par�es should be required to exhaust other methods of discovery before seeking informa�on from non-par�es. A�er reviewing the submissions of the par�es in response to Northern Data’s and Thillainathan’s mo�on, the Court directed the par�es to narrow their respec�ve documents requests and deposi�on ques�ons. The par�es have done so. Northern Data and Thillainathan filed a response sta�ng they are willing to provide the more narrowly-tailored deposi�on ques�ons requested by Whinstone by providing writen answers to ques�ons in lieu of live deposi�on tes�mony. Northern Data and Thillainathan objected to GMO’s more narrowlytailored document requests on the grounds that they are s�ll overbroad and burdensome and also objected to any deposi�on of Thillainathan on the ground that he is a CEO and that his deposi�on should not be allowed under the so-called apex doctrine. At a conference on August 7, 2024, the Court discussed Northern Data and Thillainathan’s con�nued concerns over the phrasing of the deposi�on ques�ons and document requests and gave GMO addi�onal �me to submit further narrowed requests. GMO submited those narrowed requests on August 9, 2024. LEGAL STANDARD Deposi�ons of third par�es may be taken in a foreign country under Rule 28. Fed. R. Civ. P. 28(b). See also 28 U.S.C. 1781(b)(2) (authorizes the State Department to accept leters rogatory issued by foreign tribunals, allows for “the transmital of a leter rogatory or request directly from a tribunal in the United States to the foreign or interna�onal tribunal, officer, or agency to whom it is addressed and its return in the same manner.”). The issuance of leters rogatory (also called leters of request) (“LOR”) under the Hague Conven�on, of which both the United States and Germany are signatories, is one method for seeking such a deposi�on.1 Blagman v. Apple, Inc., No. 12 CIV. 5453 ALC JCF, 2014 WL 1285496 , at *3 (S.D.N.Y. Mar. 31, 2014) (ci�ng Société Nationale Industrielle Aérospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522 , 530-531 (1987)); Villella, 2018 WL 2958361 , at *2; Joseph v. Gnutti Carlo S.p.A., No. 15-CV-8910 (AJN), 2016 WL 4083433 , at *1 (S.D.N.Y. July 25, 2016). Documents also may be 1 Other methods include “on no�ce, before a person authorized to administer oaths either by federal law or by the law in the place of examina�on” or “before a person commissioned by the court to administer any necessary oath and take tes�mony.” Fed. R. Civ. P. 28(b)(1). The term “leters rogatory” is used interchangeably with “leters of request.” sought through an LOR. Lantheus Medical Imaging, Inc. v. Zurich American Ins. Co., 841 F. Supp.2d 769, 775-76 (S.D.N.Y. 2012); Netherby Ltd. v. Jones Apparel Group, Inc., 04 Civ. 7028, 2005 WL 1214345 (S.D.N.Y. May 18, 2005). The decision whether to issue an LOR is within the discre�on of the court. Villella, 2018 WL 2958361 , at *2; Blagman, 2014 WL 1285496 , at *4. “Where U.S. courts issue and then transmit leters rogatory directly to foreign courts for enforcement, courts in the receiving country enforce the leters rogatory pursuant to domes�c statute or common law, or through bilateral trea�es with the United States.” Lantheus Medical Imaging, Inc., 841 F. Supp.2d at 777 ; see generally Restatement (Third) of the Foreign Rela�ons Law of the United States (1987) (“Restatement”) § 473 Reporters' Note 1. “Both the issuance and enforcement of leters rogatory by U.S. and foreign courts ‘rest en�rely upon the comity of courts toward each other, and customarily embody a promise of reciprocity.’” Lantheus Medical Imaging, Inc., 841 F. Supp.2d at 777 (quo�ng 22 C.F.R. § 92.54 .). “The request for assistance from one court to another is made and ‘usually granted, by reason of the comity exis�ng between na�ons in ordinary peaceful �mes.’” Lantheus Medical Imaging, Inc., 841 F. Supp.2d at 777 (cleaned up). The Court may issue an LOR “(A) on appropriate terms a�er an applica�on and no�ce of it; and (B) without a showing that taking the deposi�on in another manner is imprac�cable or inconvenient.” Fed. R. Civ. P. 28(b)(2). When determining whether to issue an LOR, courts apply the relevance and propor�onality principles of Rule 26. Villella, 2018 WL 2958361 , at *3 (ci�ng Joseph, 2016 WL 4083433 , at *1); Blagman, 2014 WL 1285496 , at *4 (ci�ng Lantheus, 841 F.Supp.2d at 776 ). Though the Federal Rules of Civil Procedure are controlling, courts should be mindful of the possible burden placed on foreign judiciary by the issuance of leters rogatory under the Hague Conven�on. See Lantheus, 841 F. Supp. 2d at 777-78 ; Metso Minerals Inc. v. Powerscreen Int'l Distribution Ltd., No. CV 06-1446 ADS ETB, 2007 WL 1875560 , at *1 (E.D.N.Y. June 25, 2007) (ci�ng Aérospatiale, 482 U.S. at 546, 107 S.Ct. 2542 ). Under Rule 26, par�es may seek discovery as to “any nonprivileged mater that is relevant to any party's claim or defense and propor�onal to the needs of the case.” Fed. R. Civ. P. 26(b)(1). Relevance under Rule 26 “is an extremely broad concept.” Joseph, 2016 WL 4083433 , at *1 (quo�ng Chen–Oster v. Goldman, Sachs & Co., 293 F.R.D. 557, 561 (S.D.N.Y.2013)). The party seeking discovery has the burden, but it is not heavy. Villella, 2018 WL 2958361 , at *3 (ci�ng Joseph, 2016 WL 4083433 , at *1). The court must limit discovery when the informa�on sought would be “unreasonably cumula�ve or duplica�ve” or when “the burden or expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(2)(C); Blagman, 2014 WL 1285496 , at *4. Once the reques�ng party has met its burden, the opposing party must “jus�fy any restric�ons on discovery.” Id. (cita�on omited); accord Joseph, 2016 WL 4083433 , at *1. A party may obtain a protec�ve order precluding discovery under Rule 26(c) upon a showing of good cause. Fed. R. Civ. P. 26(c)(1). DISCUSSION 1. Deposi�on of Thillainathan Although Federal Rule 30(a) specifies that a party may depose “any person” without leave of court or compel a deposi�on by subpoena under Rule 45 and does not have a specific carve out for top execu�ves, courts nevertheless have developed the so-called apex doctrine when evalua�ng objec�ons to the deposi�on of a senior corporate execu�ve. This doctrine supplies “an addi�onal layer of protec�on for senior corporate execu�ves subject to deposi�ons.” Iowa Pub. Emps.' Ret. Sys. v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 17 Civ. 6221, 2020 WL 6273396 , at *1 (S.D.N.Y. Aug. 28, 2020) (quo�ng Scott v. Chipotle Mexican Grill Inc., 306 F.R.D. 120, 122 (S.D.N.Y. 2015)). A ra�onale for this doctrine is propor�onality, which evaluates, among other things, the burden on the no�ced or subpoenaed party. Fed. R. Civ. . 26(b)(1). Under this doctrine, absent a showing that the execu�ve sought to be deposed “has unique evidence, personal knowledge of the claims at issue,” and “other witnesses incapable of providing tes�mony about the conduct alleged,” the execu�ve is generally safeguarded from being deposed. Id; see Harapeti v. CBS Television Stations Inc., 21 Misc. 680 , 2021 WL 3932424 (S.D.N.Y. Sept. 2, 2021) (collec�ng cases). S�ll, high-level execu�ves are not immune from being deposed. Six West Retail Acquisition, Inc. v. Sony Theatre Management Corp., 203 F.R.D. 98, 102 (S.D.N.Y. 2001)(gran�ng deposi�ons of high-ranking corporate officers). Courts will grant apex deposi�ons when the execu�ve has first-hand knowledge of important facts and/or when there are not other, less intrusive means to obtain the informa�on. Generally, where a party seeks to avoid an apex deposi�on, it bears the burden of showing good cause for why the deposi�on should not be allowed. Fed. R. Civ. P. 26 (c). In this case, the par�es seek the live deposi�on tes�mony of Thillainathan because he signed the relevant Texas Agreement and was directly involved in nego�a�ng it. At the recent case management conference, both par�es confirmed that emails show Thillainathan was involved in the back and forth of nego�a�ng and had input into revisions of the agreement. Thus, he has direct personal knowledge of the facts. Thillainathan has not provided an affidavit or declara�on explaining why it would be burdensome to provide live tes�mony or iden�fying others who were more involved than he was in the nego�a�on and finalizing of the agreement. Nor has he provided authority for the proposi�on that he should be relieved from providing live tes�mony, which is generally a more efficient way to obtain informa�on. Writen answers to ques�ons are o�en prepared by counsel and may not provide complete answers, whereas par�es can ask follow-up and clarifying ques�ons during a deposi�on to obtain clear and complete answers. The Court rejects the argument that the par�es should first depose all the other deponents before seeking Thillainathan’s deposi�on because there is a lengthy process to scheduling his deposi�on and wai�ng any longer will further prolong discovery. Further, it is clear Thillainathan’s deposi�on tes�mony will be necessary regardless of the tes�mony of others given his direct involvement in the nego�a�ons of the Texas Agreement. Accordingly, the Court denies the mo�on to the extent it asks that the Court vacate its prior order permi�ng Thillainathan’s deposi�on. Because Thillainathan does not object to the substance of Whinstone’s ques�ons, he shall answer those ques�ons and any related follow-up ques�ons. The Court has reviewed GMO’s narrowed deposi�on ques�ons submited on August 9, 2024 (ECF No. 174-1) and finds that they are relevant to the claims and defenses in this ac�on and propor�onal to the needs of the case; provided, however, for avoidance of doubt, Thillainathan shall not be required to describe communica�ons protected by the atorney-client privilege in response to ques�on 6(a). Thillainathan shall be required to answer these ques�ons and any related follow-up ques�ons. 2. Document Requests At the recent case management conference, the par�es informed the Court that based on discovery thus far, they know that Thillainathan u�lized Whistone, Northern Data and possibly personal email accounts to communicate about GMO and the Texas Agreement. Whinstone also informed the Court that at the �me of Riot’s acquisi�on of Whinstone, Northern Data retained control of one of the servers that contained Thillainathan’s emails such that Whinstone cannot access or produce all of Thillainathan’s relevant emails. Rather, it can only search for those emails by looking at the emails of internal Whinstone custodians with whom Thillainathan may have communicated. Based on this informa�on, it is clear that documents requests are properly directed to Northern Data and Thillainathan because some relevant emails cannot be obtained through party discovery. Addi�onally, at the Court’s direc�on in response to the instant mo�on, GMO has narrowed its document requests. The Court has reviewed the narrowed requests, which seek only communica�ons that include the term “GMO” and are limited in �me and limited to one custodian – Thillainathan. Therefore, the Court finds that this request is narrow and finds that it seeks informa�on relevant to the claims and defenses and propor�onal to the needs of the case. CONCLUSION The mo�on to vacate and/or for a protec�ve order is granted insofar as the Court hereby narrows the informa�on that can be sought through LORs as set forth herein but is otherwise denied. The par�es shall submit a revised Request for Interna�onal Judicial Assistance Pursuant to the Hague Conven�on consistent with this Order for the Court’ signature within 14 days of this Opinion and Order. The Clerk of Court is respectfully directed to terminate the motion at ECF No. 150. SO ORDERED. New York, New York ’ ake, August 14, 2024 Kethaue Hf fete Katharine H. Parker United States Magistrate Judge