The judge presiding over Preston Hollow Capital LLC’s lawsuit accusing Nuveen of bully tactics to damage its business is expected later this month to make public transcripts of bank recordings that so far have been kept from public view.
Dallas-based Preston Hollow filed the motion May 21 asking to lift the confidentiality veil on the telephonic conversations and their transcripts obtained from subpoenas served on various banks seeking information related to Preston Hollow, Nuveen or Nuveen’s head of municipals, John Miller.
Chicago-based Nuveen fought the effort. The tussle marks the latest salvo in the private lender’s complaint filed earlier this year accusing Nuveen of defamation and anti-trust violations of New York’s Donnelly Act to protect its high-yield market share.
During a telephonic hearing Monday, Delaware Chancery Court Vice Chancellor Sam Glasscock III said he is inclined to lift the confidentiality designation on most information in the transcripts. Glasscock agreed to give Nuveen 10 days during which it may seek to redact some information.
“It does not appear to me that the material that is contained in these transcripts qualifies for confidentiality under the rule,” Glasscock said, according to a transcript of the hearing.
“If I were going to rule on this today, I would say that other than the names of individuals, which is the kind of information I think there's some justification” to keep “from the public view, the rest of the material doesn't look to me as though it is properly designated confidential,” he said.
Market participants are watching the litigation because it raises issues of price fairness, investment competition, broker-dealer complicity, and clout. It also puts the reputations of both firms on the line.
The lack of public information makes the looming disclosure of transcripts all the more riveting for market participants tracking the case as it would dramatically expand what has so far been a limited view into the high-stakes, high-yield marketplace and the relationships between investors, banks and broker-dealers.
The two sides remained in contention during the oral arguments hearing Monday over just what should be shielded from public view. While Preston Hollow initiated the efforts, it was still seeking to keep alleged defamatory statements against its own firm under wraps.
Nuveen lawyer Peter Walsh, of Potter, Anderson & Corroon LLP, countered that if the confidentiality seal is lifted “Preston Hollow should not be permitted to selectively choose what it wants to maintain under seal.”
But Nuveen remains against lifting the seal. “I want to be very clear in saying that Nuveen has requested that all of that remain under seal,” Walsh said.
Preston Hollow attorney David Wollmuth, of Wollmuth Maher & Deutsch LLP, countered that his client had believed “it might be in both parties' interests not to have those [alleged defamatory statements against Preston Hollow] republished.”
Glasscock shot down Wollmuth. “As far as the publication of allegedly defamatory material, you can't, Mr. Wollmuth, prosecute a defamation case without referring to the defamatory matter. It's the nature of the beast,” he said.
The court made clear its belief that with the exception of bank employee names, all material in the transcripts should be made public.
Preston Hollow objected to the 10-day delay saying that Nuveen has had the information for “a considerable period of time” so only a day or two delay was warranted.
The court told Nuveen’s Walsh to submit its confidentiality designations within 10 calendar days to Preston Hollow’s Wollmuth and if there “is still disagreement, notify me, and I will rule promptly.”
Many filings, including the subpoenaed information, are currently tagged as confidential and so are protected from public scrutiny. Many other documents made public are heavily redacted.
Confidentiality Arguments
Preston Hollow had argued in filings that evidence it’s gathered from subpoenas to date supports its accusations that Nuveen sought to “stamp out” its business model.
“Among other things, the recordings demonstrate that Nuveen was not just pressuring broker dealers to supply Nuveen with bonds rather than doing business with Preston Hollow. Nuveen was trying to choke off Preston Hollow’s liquidity from [a funding source whose name is redacted] and any other sources of liquidity that Nuveen could identify,” Preston Hollow argues in a May 30 filing seeking to unseal the recordings.
The firm contends most of the information in the transcripts fails to meet the definition of “confidential” as required in that the material does not “contains nonpublic, confidential, proprietary, or commercially sensitive information.”
“While some portions of the recordings do contain discussions of confidential material, there is no question that the remainder of the recordings should not be designated as confidential,” Preston Hollow argues. “It is in the public interest that this evidence to those material allegations be available without any restriction on public access.
That some of the material may be “embarrassing” to Nuveen is not a legal basis for confidential treatment, Preston Hollow argues.
Nuveen’s latest challenge to the motion argues that good cause does exist to maintain confidentiality as the transcripts disclose some of its policies.
The filings also argue that Preston Hollow has failed to show the public requires access to understand the case.
“Plaintiff’s true motivation in filing its motion, laid bare by its unnecessary and slanted recitation of the underlying ‘facts’ of the case, which it has repeated in every brief to date, regardless of relevance, is to attempt to embarrass and harass Nuveen,” the firm argues.
“Plaintiff’s attempt to use this court’s discovery procedures and confidentiality rules as a platform to score points in the press both wastes judicial resources and betrays plaintiff’s true motivation in prosecuting this lawsuit,” Nuveen continued.
Preston Hollow has also failed to identify its intended use of the transcripts if confidential treatment is vacated and has now show a need related to the litigation, Nuveen argues.
Preston Hollow’s efforts to keep some portions of the tapes under seal like the alleged defamatory statements is an attempt “to portray a skewed version of the evidence, presumably in the hope of persuading the court of public opinion,” the Nuveen filing read.
Background
The case pits Preston Hollow, which describes itself as a well-capitalized, non-bank finance company specializing in high-yield municipal specialty direct placement financings with more $1.8 billion in assets and $1.3 billion in equity capital, against a firm that is a top high-yield manager with $930 billion of assets under management including $154 billion in municipals.
Preston Hollow sued Nuveen on Feb. 28. It accused the firm and Miller and his staff of a concerted effort to damage its business through “threatening, anti-competitive and defamatory communications” to top broker-dealers and Preston Hollow’s primary lender. Firms were warned to steer clear of Preston Hollow or risk losing Nuveen’s business.
Nuveen has fired back in its defense that there’s nothing illegal about the tactics it was accused of using.
Glasscock previously dismissed one claim on tortious interference and allowed two others to move forward including one on tortious interference with prospective business relations and the other on a violation of New York’s Donnelly Antitrust Act. He asked for an additional briefing before deciding on whether to allow the defamation claim to proceed.
Nuveen recently submitted additional briefs outlining its argument as to why that claim should be dismissed.
The case being heard in the Delaware Chancery Court is in the discovery process ahead of a trial set for July 29 and 30.
Subpoenas
A series of fresh subpoenas have been served in recent weeks. Preston Hollow attorneys are seeking communications from RBC Capital Markets LLC in a subpoena posted to the docket on June 5.
A new set also broaden the reach, representing a court summons to give oral testimony. They were filed June 3 against Morgan Stanley & Co., Piper Jaffray Co., The Bank of America Corp., and JPMorgan. The other subpoenas so far filed in the case demanded the production of evidence.
JPMorgan filed a motion to quash the subpoena on June 6. Estrada Hinojosa & Co., Inc. also received a subpoena seeking evidence on May 31.
The previous subpoenas were issued against Bank of America, Deutsche Bank Americas Holding Corp., The Goldman Sachs Group Inc., Morgan Stanley & Co. and JPMorgan. They had sought communications between bank employees and Nuveen representatives related to Preston Hollow.
Mesirow was also served with a Nuveen subpoena seeking communications related to Preston Hollow that drag a former Mesirow employee who now works for Preston Hollow into the mix.
In addition to communications with Nuveen involving Preston Hollow, the Deutsche Bank subpoena seeks “all documents and communications” between the bank and Nuveen relating to changes or revisions to the bank’s tender option bonds and/or funding arrangements with Nuveen. Preston Hollow believes the tender option program was used as a means to influence broker-dealers.
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