Nikola Corporation v. Milton

1 WO — 2 — — 3 — — 4 — — 5 — 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA — 8 — 9 Nikola Corporation, No. CV-24-00563-PHX-DJH 10 Plaintiff, ORDER 11 v. 12 Trevor R Milton, 13 Defendant. — 14 — 15 In accordance with the Court’s April 25, 2024, Order (Doc. 40), Plaintiff Nikola 16 Corporation (“Nikola”) and Defendant Trevor R. Milton (“Milton”) have filed a Joint 17 Notice of Discovery Dispute (Doc. 42) regarding the scope of a protective order.1 While 18 the parties agree to a number of terms that should govern, they disagree on how materials 19 designated as “Confidential” or “Confidential–Attorneys’ Eyes Only” (“AEO”) should be 20 handled. (Id. at 2–3). Upon review of the parties’ respective proposed orders (Docs. 42-1 21 (Nikola’s proposed order); 42-2 (Milton’s proposed order)), the Court will issue a 22 protective order that includes the Court’s discovery dispute protocol, combines the 23 language from both parties’ proposed subparagraph 1(b), and otherwise adopts the 24 language from Milton’s proposed order. The Court will also order Milton to respond to 25 Nikola’s Request for Productions (“RFPs”) Nos. 1–8 (see Doc. 29 at 17), as his response 26 deadlines were made contingent on issuance of a protective order (see Docs. 40; 43). 27 / / / 28 1 The parties agree that entry of a protective order is necessary to govern expedited discovery in this matter. (See Docs. 29; 40; 43) 1 I. Legal Standard 2 Parties seeking discovery are entitled to “any nonprivileged matter that is relevant 3 to [the] party’s claim or defense and proportional to the needs of the case.” Fed. R. Civ. P. 4 26(b)(1). Federal Rule of Procedure 26 permits a district court, for good cause, to issue an 5 order that inter alia “specif[ies] terms. . . for the disclosure or discovery;” “limit[s] the 6 scope of disclosure or discovery to certain matters;” and/or “require[s] that a trade secret 7 or other confidential research, development, or commercial information not be revealed or 8 be revealed only in a specified way. . . .” Fed. R. Civ. P. 26(c)(1). For good cause to exist, 9 “the party seeking a protective order must show specific prejudice or harm will result if no 10 protective order is granted.” Phillips ex rel. Estates of Byrd v. General Motors Corp., 307 11 F.3d 1206 , 1210–11 (9th Cir. 2002). “Broad allegations of harm, unsubstantiated by 12 specific examples or articulated reasoning, do not satisfy the Rule 26(c) test.” 2 Beckman 13 Indus., Inc. v. Int’l Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992) (internal citation omitted). 14 Rather, the party seeking protection must make a “particularized showing of good cause 15 with respect to [each] individual document.” Hodge v. Shulkin, 2018 WL 11337163 , *1 16 (D. Ariz. Oct. 18, 2018) (quoting San Jose Mercury News, Inc. v. United States Dist. Court 17 - N. Dist., 187 F.3d 1096 (9th Cir. 1999) (“It is well-established that the fruits of pretrial 18 discovery are, in the absence of a court order to the contrary, presumptively public. 19 Rule 26(c) authorizes a district court to override this presumption where ‘good cause’ is 20 shown.”)). 21 II. Discussion 22 In this dispute, the parties are attempting to reach an agreement on a protective order 23 to govern expedited discovery of Milton’s confidential, personal financial information. 24 The parties’ proposed orders establish two levels of designated protected materials: 25 Confidential and AEO. (See Docs. 42-1 at ¶ 1; 42-2 at ¶ 1). The parties appear to agree 26 that material should be designated as Confidential at the first level when, “in the good faith 27 belief of such Party and his or its counsel, the disclosure of such information could be 28 2 Unless where otherwise noted, all Rule references are to the Federal Rules of Civil Procedure. 1 harmful to the business or personal affairs of such Party.” (Docs. 42-1 at ¶ 1(a); 42-2 2 at ¶ 1(a)). However, the parties’ respective drafts differ on the following points: (1) what 3 information merits AEO protection at the second level (compare Doc. 42-1 at ¶ 1(b) with 4 Doc. 42-2 at ¶ 1(b)); (2) who should have access to AEO materials (compare Doc. 42-1 at 5 ¶¶ 3, 7 with Doc. 42-2 at ¶¶ 3, 7); and (3) the scope in which all protected materials should 6 be used (compare Doc. 42-1 at ¶ 15 with Doc. 42-2 at ¶ 15). The Court will address each 7 issue in turn. 8 A. Designation of AEO Materials 9 First, the parties’ proposed orders include different standards to determine what 10 information merits AEO designation. Nikola proposes a harm assessment should govern 11 AEO designation in its proposed subparagraph 1(b): — 12 — A designation of “CONFIDENTIAL – ATTORNEYS’ EYES ONLY” may 13 be made by any Producing Party only after such Party has made a good faith determination that the information or documents include or constitute 14 confidential and proprietary information which, if disclosed to the other 15 Party, rather than to his or its counsel, could result in injury or harm to the Producing Party’s interests, including but not limited to documents or 16 information containing or referring to trade secrets or other confidential 17 and/or proprietary information, technical research, design documents and business or financial information. — 18 — 19 (Doc. 42-1 at ¶ 1(b) (emphasis added)). Milton argues, without citing to any supporting 20 authority, that a harm assessment is “unnecessary and impracticable[.]” (Doc. 42 at 3). 21 Milton omits such language from his proposed subparagraph 1(b) and puts forth a more 22 lenient standard: 23 Designation of “CONFIDENTIAL – ATTORNEYS’ EYES ONLY”: Any 24 party may designate information as “CONFIDENTIAL – ATTORNEYS’ EYES ONLY” if, in the good faith belief of such party and its counsel, the 25 information is among that considered to be most sensitive by the party, including but not limited to trade secret or other confidential research, — 26 — development, financial, customer related data or other commercial 27 information. — 28 — (Doc. 42-2 ¶ 1(b) (emphasis added)). 1 The Court finds that Nikola’s proposed harm assessment requirement better aligns 2 with the policies underlying Rule 26 because it requires a particularized showing of harm 3 in order for material to be designated as AEO. See Hodge, 2018 WL 11337163 at *1. 4 Without more, Milton’s proposed standard—i.e., that material considered to be “most 5 sensitive” should be AEO protected—is too broad to satisfy the Rule 26(c) test. 6 See Beckman, 966 F.2d at 476 . Nonetheless, the Court finds that AEO material at level 7 two should still be described as “most sensitive” to further distinguish it from materials 8 protected as Confidential at level one. Therefore, the Court will issue a protective order 9 that combines both parties’ subparagraph 1(b). (See Docs. 42-1 at ¶ 1(b); 42-2 at ¶ 1(b)). 10 B. Access to AEO Materials 11 The parties also disagree about who should be able to access AEO materials. The 12 parties appear to agree that Nikola’s outside counsel, and those working with them, should 13 have access. (Docs. 42-1 ¶¶ 3, 7; 42-2 ¶¶ 3, 7). Nikola additionally proposes that all 14 witnesses, deponents, and Nikola’s in-house counsel should have access to AEO 15 designated materials. (Docs. 42-1 ¶¶ 3, 7). Milton argues that allowing any and all 16 witnesses and deponents access to AEO material would defeat the inherent purpose of the 17 protection. (Doc. 42 at 3). Milton further asserts that, “[e]xpanding access to in-house 18 counsel is unworkable here because Nikola’s primary in-house counsel (Britton Worthen 19 [“Worthen”]) is the same individual who verified Nikola’s complaint in this action” and 20 “is a co-defendant (along with Mr. Milton and other Nikola executives) in pending 21 shareholder litigation.” (Id.). The Court agrees with Milton in both respects. 22 As the party seeking a protective order that limits the information he must produce, 23 Milton bears the burden of showing that witnesses, deponents, and Nikola’s in-house 24 counsel should not have access to the AEO documents. See Phillips, 307 F.3d at 1210–11; 25 see also Barnes and Noble, Inc. v. LSI Corp., 2012 WL 601806 , at *1 (N.D. Cal. Feb. 23, 26 2012) (“The party seeking a protective order has the burden of showing that the protection 27 is warranted.”) (citing Fed. R. Civ. P. 26(c)). To start, the Court agrees with Milton that to 28 allow all witnesses and deponents access to AEO designated material would defeat the 1 very purposes of the provision. As to Nikola’s in-house counsel, the issue is whether 2 Worthen should be considered a Nikola attorney or a Nikola corporate representative such 3 that Worthen’s and other in-house counsel’s access to AEO designated material would 4 result in prejudice or harm to Milton. 5 Nikola contends no basis exists to preclude in-house counsel from access because 6 this is not a litigation involving protected intellectual property or risk of competitive harm, 7 and precluding such access “would prevent Nikola’s outside counsel from meaningfully 8 conferring with its client regarding the prosecution of this action.” (Doc. 42 at 2). It cites 9 to U.S. Steel v. U.S. Int’l Trade Comm’n for the proposition that “ ‘status as in-house 10 counsel cannot alone create [the] probability of serious risk to confidentiality and cannot 11 therefore serve as the sole basis for denial of access’ to confidential information.” 12 (Id. (quoting 730 F.2d 1465, 1469 (Fed. Cir. 1984)).3 However, U.S. Steel went on to hold 13 that “the factual circumstances surrounding each individual counsel’s activities, 14 association, and relationship with a party, whether counsel be in-house or retained, must 15 govern any concern for inadvertent or accidental disclosure.” 730 F.2d at 1468 . 16 Here, the Court agrees that Worthen’s role as Nikola’s in-house counsel is blurred 17 due to the nature of his participation in this action and his role as a co-defendant in other 18 Nikola shareholder actions. Indeed, Worthen verified the Complaint (Doc. 1) in this matter 19 as follows: — 20 — I, Britton Worthen, . . . am Chief Legal Officer of Nikola Corporation []. I 21 am authorized by Nikola to execute this Verification. . . . I have read the foregoing Verified Complaint and know its contents, and I certify under 22 penalty of perjury and pursuant to the laws of the State of Arizona that the 23 preceding is true and correct to the best of my knowledge and belief. — 24 — (Doc. 1 at 12). Worthen’s verification of factual allegations in this action demonstrates he — 25 — is functioning as a corporate representative of Nikola, which is more akin to a client than — 26 — an attorney. Moreover, Milton’s representation that Worthen is a co-defendant in pending — 27 — 3 The Ninth Circuit has referred to U.S Steel as “the leading authority on protective orders 28 distinguishing between outside and in-house counsel.” Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992). 1 Nikola shareholder litigation raises a risk that Worthen will have in interest in the protected 2 information beyond the current litigation. So, the Court finds Milton has satisfied the 3 Rule 26(c) test in showing prejudice or harm will result if Nikola’s in-house counsel is 4 allowed access to AEO designated material. See Phillips, 307 F.3d at 1210–11. The Court 5 will therefore adopt Milton’s proposed paragraphs 3 and 7 in the protective order to limit 6 access to AEO designated material to Nikola’s outside counsel. (See Doc. 42-2 at ¶¶ 3, 7). 7 C. Use of Protected Materials 8 Last, the parties’ proposed orders differ as to the scope in which protected materials 9 may be used. Nikola seeks preemptive permission to disclose protected information in 10 other related actions while Milton argues such material should be limited to use in this 11 action only. (Compare Doc. 42-1 at ¶ 15 with Doc. 42-2 at ¶ 15). Nikola argues that, 12 because “the current matter was brought in connection with Nikola’s action to confirm an 13 arbitration award against Milton,” “Nikola should be able to use any discovery produced 14 in this case in that action as well.” (Doc. 42 at 2). Milton objects that “Nikola’s proposed 15 order allows the use of confidential information (i) in any ‘related action’ without 16 restriction and without identifying what those actions are, and (ii) by experts and 17 consultants engaged by Nikola’s counsel but without limitation to this action.” (Id. at 3). 18 The Court agrees with Milton that the information he must produce in this action 19 should be limited to the current litigation. “Protective orders usually include provisions 20 indicating that specific confidential information may be used only for purposes of current 21 litigation. . . . as an effective way of protecting sensitive information while granting trial 22 counsel limited access to it for purposes of the litigation.” Smith v. Legacy Partners Inc., — 23 — 2022 WL 1136787 , at *2 (W.D. Wash. Apr. 18, 2022) (citing In re Deutsche Bank Trust 24 Co. Ams., 605 F.3d 1373, 1378 (Fed. Cir. 2010)). The Court acknowledges that Nikola has 25 filed a petition to confirm an arbitration award it obtained against Milton by way of a 26 separate action that is also pending before this Court. See Nikola Corporation v. Milton, 27 2:23-cv-02635-DJH, ECF No. 1 (D. Ariz. Dec. 18, 2023). However, at this juncture, 28 Nikola has not sufficiently articulated how Milton’s confidential, personal financial 1 information that is relevant to its claim under the Arizona Uniform Fraudulent Transfer 2 Act, A.R.S. § 44-1101, in the current litigation is also relevant to Nikola’s petition for 3 confirmation of an arbitration award in another litigation. In the event that this Court—or 4 any other court—rules that material protected in this case should be allowed in another 5 case, Nikola may seek a modification of the protective order at the appropriate time. See 6 Smith, 2022 WL 1136787, at *4 (citing Foltz v. State Farm Mut. Automobile Ins. Co., 331 7 F.3d 1122 , 1132–33 (9th Cir. 2003) (“collateral litigant must demonstrate the relevance of 8 the protected discovery to the collateral proceedings and its general discoverability 9 therein”)). The Court will therefore adopt Milton’s proposed paragraphs 15 in the 10 protective order. (See Doc. 42-2 at ¶ 15). 11 III. Conclusion 12 By separate, concurrent Order, the Court will issue a protective order that includes 13 Nikola’s harm assessment standard for AEO designations (Doc. 42-1 at ¶ 1(b)) but 14 otherwise adopts Milton’s proposed language (Doc. 42-2). The protective order will also 15 include the Court’s discovery dispute protocol. 16 Accordingly, and because the Court has made Milton’s responses to Nikola’s RFP 17 1–8 contingent on the Court’s issuance of a protective order (see Docs. 40; 43), 18 IT IS ORDERED that Milton shall produce documents responsive to Nikola’s RFP 19 Nos. 1–6 within seven (7) days of the issuance of this Order. 20 IT IS FURTHER ORDERED that, in accordance with the Court’s April 30, 2024 21 Order (Doc. 43), Milton shall produce documents responsive to Nikola’s RFP No. 7 within 22 24 hours of the issuance of this Order. 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / 28 / / / 1 IT IS FINALLY ORDERED that, in accordance with the Court’s April 30, 2024 2|| Order (Doc. 43), Milton shall respond to Nikola’s RFP No. 8 as follows: Milton shall || produce information showing the beginning and ending amounts of his bank balances on a monthly basis from November 17, 2023 to March 27, 2024 within 24 hours of the 5 || issuance of this Order; and Milton shall produce any additional information required to || show the entire extent of his assets and liabilities within twenty-one (21) days of the □□ issuance of this Order. 8 Dated this 2nd day of May, 2024. — 9 — 10 oC. . fo □ norable'Diang4. Huretewa 2 United States District Fudge — 13 — — 14 — — 15 — — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 28 — -8-