U.S. District Judge Paul Engelmayer. Photo: Diego M. Radzinschi/ALM

Loeb & Loeb must comply with a subpoena in a Delaware bankruptcy proceeding, but would not have to foot the entire bill for producing a trove of records related to work it did on behalf of an ex-client, a Manhattan federal judge has ruled.

Judge Paul Engelmayer of the U.S. District Court for the Southern District of New York said Tuesday that, should they choose to pursue the subpoena, brothers Aaron and Eric Goodwin would have to pay all of Los Angeles-based Loeb's costs, including the bulk of the firm's fees for reviewing an estimated 25,000 documents responsive to the subpoena.

The order ended a stalemate between Loeb and the Goodwins, who served the firm with a subpoena in March for information regarding a $20 million loan that Loeb's former client, XIII Capital, made to finance Decade SAC's 2016 purchase of two sports agencies the Goodwins owned.

According to court filings, the documents were central to a dispute in Decade's Chapter 7 bankruptcy case in Delaware over whether shares in the Goodwins' companies were validly transferred to Decade, and thus part of its estate. The Goodwins have countered that the transfer was the product of fraud.

Loeb, however, had resisted the subpoena in part because the firm had represented XIII Capital in its civil suit stemming from Decade's failure to repay the loan. The firm was replaced as XIII's counsel in May 2018, and the case remains ongoing.

In addition to being overly broad, Loeb said most of the documents the Goodwins sought were protected by attorney-client privilege and could not be turned over. Compliance, the firm also argued, would be unduly burdensome when the firm was not even a party to the bankruptcy dispute. According to Loeb, each document would have to be reviewed for privilege, a task it estimated would take about 50-attorney days to complete.

On Tuesday, Engelmayer said the documents were “plainly relevant” to the Delaware case, but also acknowledged that Loeb's burden for producing the records was “substantial.” The issue in the bankruptcy proceeding, he said, was “purely a private matter,” and would present an opportunity cost for Loeb if it used its own employees to conduct the search, review and production of responsive documents.

“An order requiring the Goodwins to bear costs and fees associated with the production and review of the documents at issue will incent them to tightly focus the subpoena's demands and to consider maximally efficient means of document review. It will further encourage the Goodwins to judge, at the threshold, whether Loeb likely possesses enough non-privileged documents of consequence to the Adversary Proceeding to justify undertaking extensive … discovery,” Engelmayer wrote in the 12-page opinion.

Under the fee-shifting arrangement, Engelmayer said the Goodwins would reimburse Loeb at $150 per hour for attorneys and $75 per hour for nonlawyer personnel, after the first 25 hours of work that each group put into the project.

It was not clear on Wednesday afternoon if the Goodwins would proceed with the subpoena. Attorneys for both sides were not immediately available to comment.

Loeb was represented by Evan Farber, a partner in the firm's New York office. The Goodwins were represented by Keith William Miller, Adam Ross Mandelsberg and Gary Frederick Eisenberg of Perkins Coie in New York.

The case was captioned In Re Subpoena to Loeb & Loeb.