GAIN Capital gets Court’s permission to access certain info related to KPMG audits

Magistrate Judge Viginia K. Demarchi of the the California Northern District Court has stepped in to resolve an evidence dispute between US online trading major GAIN Capital Group, LLC and TIBCO Software Inc over what information must be provided from KPMG in relation to a lawsuit involving GAIN and TIBCO.

Whereas GAIN had sent subpoena to KPMG LLP asking for detailed information about the audits conducted for TIBCO, TIBCO Software had sought a protective order barring GAIN from obtaining certain discovery from KPMG.

Let’s recall that, in this lawsuit, TIBCO alleges that it licensed certain software to GAIN during a limited term, but that GAIN deployed the TIBCO software outside that term in violation of its license agreements with TIBCO. TIBCO sues GAIN for breach of contract, breach of the covenant of good faith and fair dealing, and copyright infringement. TIBCO’s allegations of over-deployment and unauthorized use of the software by GAIN are based in large part on an audit conducted in 2016 at TIBCO’s request by KPMG.

GAIN denies TIBCO’s allegations, and counterclaims against TIBCO for fraud in the inducement, negligent misrepresentation, unfair competition, rescission based on unilateral mistake, and rescission based on mutual mistake. According to GAIN, KPMG did not perform the audit correctly, and TIBCO intentionally gave KPMG incorrect instructions on how to conduct the audit so that KPMG was certain to conclude that GAIN had exceeded the permissible scope of its licenses for TIBCO software.

On June 13, 2018, GAIN served a subpoena seeking document and deposition discovery from KPMG. The broker requests (inter alia) documents showing the number of audits TIBCO instructed KPMG to perform on TIBCO’s customers regarding TIBCO’s customers’ deployment of TIBCO software and the identity of the TIBCO customers audited, as well as all communications for June 1, 2013 to the present between KPMG and TIBCO regarding audits that TIBCO instructed KPMG to perform Regarding deployment of TIBCO software. GAIN also seeks the documents showing the methods and results of all audits that KPMG has performed since June 1, 2013 regarding deployment of TIBCO software.

TIBCO, however, has moved for a protective order on the grounds that the discovery GAIN seeks is not relevant to any claim or defense in the case, and that it violates TIBCO’s and its customers’ rights to privacy and confidentiality.

KPMG has written separately to advise the Court that it takes no position on the pending dispute, except to say that it does object to the discovery GAIN seeks and would like to preserve the ability to raise its own objections in the future.

In its order, issued last Friday, the Judge finds that GAIN is correct that some discovery of KPMG is relevant to its defenses and counterclaims in this case, particularly as it relates to the methodology used by KPMG to conduct the audit and the instructions provided by TIBCO to KPMG. For instance, whether KPMG used a different methodology to audit GAIN’s deployment of TIBCO software than it used to audit other customers’ use of the same software is relevant to GAIN’s claim that TIBCO deliberately instructed KPMG to use a methodology that would incorrectly yield findings of unauthorized use by GAIN.

On the other hand, some of the discovery GAIN seeks is not relevant to its defenses and counterclaims, nor is it proportionate to the needs of the case, the Judge said. For example, whether KPMG used a particular methodology to audit other customers’ use of different software has little or no relevance to any issue in the case, according to the Judge.

TIBCO argues that none of the disputed discovery should be permitted because it implicates the privacy and confidentiality interests of TIBCO and its other customers. The Court is not persuaded that the discovery GAIN seeks implicates any constitutional right of privacy of TIBCO or its customers, nor has TIBCO identified any matters protected from disclosure by a constitutional right of privacy. But GAIN’s subpoena likely does seek discovery of confidential business information of TIBCO, KPMG, and/or TIBCO’s customers.

The Court ruled that GAIN may obtain discovery of documents sufficient to show the methodology used by KPMG to conduct audits of one or more of the TIBCO software products at issue in this case, including documents showing the results of audits using that methodology. This discovery is limited to audits conducted beginning January 1, 2013 to the present.

GAIN is also allowed to obtain discovery of all communications between TIBCO and KPMG regarding instructions for conducting the audit, the actual conduct of the audit, the methodology to be used to conduct the audit, and the methodology actually used to conduct the audit for all audits of one or more of the TIBCO software products at issue in this case. This discovery is limited to audits conducted beginning January 1, 2013 to the present.

Finally, GAIN may obtain discovery of documents sufficient to show the complete engagement or business arrangement between TIBCO and KPMG pursuant to which KPMG conducted the 2016 audit of GAIN.

GAIN, however, may not obtain discovery of audits or the results of audits regarding other TIBCO customers’ use of other TIBCO software that is not at issue in the case, or of communications between KPMG and TIBCO regarding such audits or the results of such audits. GAIN also may not obtain discovery of TIBCO and KPMG’s engagement agreements or business arrangements that have nothing to do, directly or indirectly, with KPMG’s work on the 2016 audit of GAIN.

The case is captioned TIBCO Software Inc., v. Gain Capital Group, LLC (5:17-cv-03313).