Buy.com Founder’s Old Testimony Faces Light

(CN) - Decade-old deposition testimony that an executive gave in a now settled lawsuit may be relevant to his ongoing action against an accounting firm, the 9th Circuit ruled Thursday.

Scott Blum, who founded Buy.com in the 1990s, sued Merrill Lynch, Pierce Fenner & Smith Inc., and Thomas Mazzucco in 2003 over the company's failed initial public offering.

Buy.com's stock prices took a dive after it went public in 1999. A few years later, Blum bought back the company at a discount and took it private again. The Japanese company Rakuten purchased Buy.com in 2010 and renamed the site Rakuten.com Shopping.

Blum claimed in his 2003 federal action that he would have sold his shares of Buy.com for $500 million in 1999 if he hadn't relied on bad advice from Merrill Lynch and the others.

In 2004, the Central District of California issued a blanket protective order with "an obligation for the parties to destroy all confidential documents, including Blum's deposition transcript," and the parties settled a year later.

Blum waited another four years to sue the accounting firm KPMG in Los Angeles Superior Court, alleging that this firm's bad advice caused him to turn down selling his shares of Buy.com in 1998 for $400 million. As the case advanced to discovery, Blum refused to produce the transcript of deposition testimony he gave in the Merrill Lynch case. KPMG's lawyers got a hold of it anyway, "allegedly inadvertently," the 9th Circuit noted Thursday.

This led Blum to try and reopen the Merrill Lynch action and destroy the transcript as recommended in the 2004 protective order.

U.S. District Judge James Selna, in Santa Ana, reopened the case and let KPMG intervene, but he refused to destroy the transcript before the discovery master in the state court case ruled on its relevance to that action.

After the master found that the transcript was indeed relevant, Blum pulled his action against KPMG out of state court and re-filed in U.S. District Court. Selna later ruled that destruction of the transcript would likely violate public policy and modified the protective order to have it held in escrow.

Blum appealed to the 9th Circuit, arguing that KPMG's motion to intervene had come too late and that the District Court should not have modified the protective order. The federal appeals court in Pasadena rejected these arguments Thursday.

Generally, "motions to intervene for the purpose of seeking modification of a protective order in long-concluded litigation are not untimely," according to the 13-page ruling.

While the three-judge panel did not consider whether KPMG should be allowed to use the transcript to defend itself in the current case, it found that the District Court had properly saved it from destruction.

"Blum did not advance any argument before the district court that specific harm or prejudice would result from modification of the protective order to hold the transcript in escrow," wrote U.S. District Judge Robert Holmes Bell, sitting on the panel by designation from the Western District of Michigan. "Nor has he pointed to any particular portion of the transcript that remains confidential information that should be withheld from KPMG. Thus, because Blum bore the burden of establishing this specific harm or prejudice (i.e. a countervailing reliance interest), the District Court was within its discretion to order the transcript held in escrow based on its finding of relevance." (Parentheses in original.)

Bell added that, "if KPMG wishes to use the transcript in future litigation, it must apply to the District Court for relief."

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