Assignee Of Noteholders Suing Trustee Must Produce Assignorsâ„¢ Documents In Litigation

November 3, 2016

By: David Rabinowitz

It has become common in situations where groups of noteholders desire to pursue claims against their indenture trustee or others with respect to defaulted securities, for the noteholders to assign their claims to a litigation trust or similar vehicle.   It is important for the plaintiff-assignee in that situation to keep in mind that it is responsible to produce the assignors' documents in the litigation as if they were in the assignee's own files. This obligation is not excused, even if the assignee's diligent efforts to get the documents from the assignors are "soundly rebuffed" and the assignee does not have the "practical ability" to produce the documents.

In Royal Park Investments SA/NV v. Deutsche Bank Trust Company, a federal magistrate judge refused to revisit or modify a prior ruling requiring the plaintiff assignee of noteholders’ claims to produce its assignors’ documents.  The assignee had returned to the Court seeking a modification of the prior ruling because the assignee had been unable to obtain the documents required from its assignees.  The Court said, “It is both logically inconsistent and unfair to allow the right to sue to be transferred to assignees free of the obligations that go with litigating a claim.”  The Court held, in substance, that the assignee had the duty of “acquiring potentially discoverable documents from its assignors.”

Practice Points:  The Court was not asked to and did not impose sanctions or penalties on the assignee for failure to produce.  Under the Federal Rules of Civil Procedure, a wide variety of penalties can be imposed on a plaintiff for failure to produce documents, including dismissal of the case. 

Defense counsel should be diligent in pursuing discovery from a plaintiff pursuing assigned claims of materials that should or might be in the files of the original holders who assigned their claims. 

Conversely, counsel representing an assignee, before undertaking litigation on assigned claims, should obtain originals or copies of all documents in the possession of the assignors that might be relevant to the litigation and, because it is difficult to anticipate everything that might be deemed relevant, a comprehensive undertaking from each assignee to cooperate in the prosecution of the assigned claims.   

Royal Park Investments SA/NV v. Deutsche Bank Trust Company, 2016 WL 4613390
(S.D.N.Y. August 31, 2016)

PDF File View as PDF