UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

Size: px

Start display at page:

Download "UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA"

Ginger Hodges
5 years ago
Views:

1 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 1 of 15 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA R.J. Zayed, in his Capacity as Court-Appointed Receiver for Trevor G. Cook et al., Petitioner, v. Case No: 11-cv SRN/FLN David Buysse, Steven and Pamela Cheney, Walter Defiel, John Dzik, Terry Frahm, Steven and Jenene Fredell, William Harris, Michael and Jennifer Heise, Michael and Cynthia Hillesheim, Larry Hopfenspirger, Steven Kautzman, James McIntosh, George and Karen Morrisset, Reynold Sundstrom, and Dot Anderson, Respondents. RECEIVER S RESPONSE TO ANDERSON S OBJECTIONS TO THE PROTECTIVE ORDER Respondent Anderson stipulated that she would seek the information in her Rule 30(b)(6) topics through interrogatories rather than a deposition. In exchange, the Receiver agreed to extend the discovery deadline and answer additional interrogatories. Anderson took full advantage of the Stipulation, serving additional written discovery that otherwise would have been time-barred. The Receiver fulfilled his part of the Stipulation in good faith, providing detailed responses to all of Anderson s requests. Anderson never said the Receiver s answers were insufficient or even asked to meet and confer about them. Instead, after amassing extensive additional discovery, Anderson simply re-served her

2 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 2 of 15 30(b)(6) notice without any discussion whatsoever. It was not until the Receiver filed a motion for a protective order that Anderson complained that she cannot cross-examine an interrogatory. In granting the Receiver s motion for Protective Order under Rules 26(b)(2)(C)(ii) and (iii), the Court correctly found that Anderson has had every opportunity for full and fair discovery, including the information she now seeks in her re-asserted 30(b)(6) notice, and that the burden of such a deposition would outweigh its benefit. Because the Protective Order is proper under Rule 26, as well as the other grounds advanced by the Receiver, it is neither clearly erroneous nor contrary to law and should be affirmed. I. BACKGROUND A. The Transfer to Anderson Dot Anderson invested $102,000 in this Ponzi scheme through her grandson, Grant Gryzbowski, who worked for Trevor Cook. In July 2009, Anderson read in the Star Tribune that Cook and his companies had been accused of fraud and mismanagement in a lawsuit filed by a group of investors who had tried without success to close their accounts. (Docket at 45:1-8.) The article prompted Anderson to call her grandson, Gryzbowski, to see if he could get her money out. (Id. at 44:10-25; 45:14-20.) Gryzbowski submitted his grandmother s request to Cook, who in turn directed a $102,000 transfer to Anderson s TCF account on July 15, (Docket at ) Other investors had read the same Star Tribune articles and were also clamoring to get 2

3 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 3 of 15 their money out of the fraud. Documents produced to Anderson show that of all the investors trying to close their accounts in July 2009, she was the only one who Cook let through. 1 B. This Action On November 23, 2009, the SEC and CFTC brought a lawsuit against Cook and others for running a $190 million Ponzi scheme. Chief Judge Michael J. Davis appointed the Receiver to recover assets from the fraud including investor funds that were transferred to third parties on behalf of Cook s victims. (Docket 162 at 2.) Among other things, Chief Judge Davis granted the Receiver the power to sue to recover the stolen assets. (Id.) On July 23, 2010, the Receiver brought this summary proceeding against Anderson and others to recover over $6 million in fraudulent transfers that Cook made as his Ponzi scheme was collapsing in the summer of (Id.) As part of the Order authorizing this action, Chief Judge Davis limited discovery to the following two issues: (i) (ii) The amount and/or value of Receivership funds or assets received; and Any statutory or common law defenses the third [party] recipient of Receivership assets may wish to raise. (Docket 162 at 8.) 1 Anderson is wrong in asserting that [t]he Phillips received a $52,500 distribution from the Receivership Entities on July 8, (Docket 174 at 4.) As Sharon Phillips testified in a deposition with Anderson s counsel participating, the last disbursement the Phillips received was made in early June of

4 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 4 of 15 C. Anderson s Discovery Discovery began in this case in November (Docket 162 at 2.) Anderson took full advantage of written discovery as well as depositions during the discovery period. (Docket 170 at 2-6.) In response to her document requests, the Receiver produced the entirety of his seized files, including over sixty hard drives and approximately 150 boxes of documents, by making them available for Anderson s counsel to inspect. 2 (Docket 162 at 3.) The Receiver also produced copies of 25,000 pages of documents to Anderson, including complete transcripts of previous interviews of Cook and all other documents from the Receiver s investigative files that reference or relate to this lawsuit. (Id.) In addition, Magistrate Judge Noel recently ordered the Receiver to provide Anderson s counsel with his own copies of all the Receiver s seized files, as well as information that the Receiver has gathered in his independent investigation of other investors. (Docket 178.) Anderson also served numerous interrogatories and requests for admission. (See Docket 170 at 3-4.) The Receiver provided detailed responses to this discovery, as well, and supplemented those responses as additional information was discovered. (Id.) Anderson also conducted or participated in the depositions of numerous fact witnesses. Among the people who have been deposed in this case are Trevor 2 The hard copy documents were later scanned and available electronically, as well. 4

5 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 5 of 15 Cook, two of his employees, the Receiver s investigators, and two investors who had tried to get their money out in the summer of 2009 but were unable to do so. (Docket 170 at 4-5.) On July 8, 2010, counsel for other Respondents advised the Receiver of their intent to serve a notice of deposition on the Receiver under Rule 30(b)(6). (Docket 113 at 2.) Anderson later followed suit, serving a 30(b)(6) notice on July 14, (Docket ) Given the unique circumstances of this case, including that the Receiver has no personal knowledge of the facts at issue, and moreover, is trial counsel in his matter, the Receiver suggested Respondents obtain the information they sought by contention interrogatories. (Docket 113 at 2.) Respondents including Anderson agreed. On July 21, 2010, the parties filed a Stipulation to extend the discovery schedule to allow Anderson and other Respondents to serve written discovery directed toward the information they hoped to obtain through a deposition of the Receiver. (Id.) Anderson proceeded to serve two additional sets of interrogatories, as well as additional document requests and requests for admission. (Docket 170 at 2-4.) The Receiver dedicated significant time and expense to provide complete and detailed responses to Anderson s new discovery. (See, e.g. Docket ; Docket ) The Receiver also supplemented his responses to Anderson s first set of interrogatories, which contained questions regarding, for example, the facts the Receiver relies upon in contending that the transfer to Anderson was fraudulent, that she did not take the funds in good faith, and that she did not 5

6 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 6 of 15 provide reasonably equivalent value for the transfer. (Docket ) Anderson never asserted that the Receiver s response to a single contention interrogatory was inadequate, nor did she ever ask to meet and confer on those responses. (Docket 162 at 6.) Instead, six calendar days before fact discovery was to close, and without any discussion whatsoever, she served a new 30(b)(6) notice which mirrored the previous notice and added two new topics. (Docket ) In response, the Receiver asked to meet and confer and expressly asked Anderson s counsel to articulate what, if anything, was missing from the Receiver s interrogatory responses on those same topics. Anderson refused to engage in that discussion. Instead, and for the first time, she asserted that no written discovery would obviate my request for [a deposition.] (Docket , ) D. Magistrate Judge Noel s Order The Receiver then moved for a Protective Order. (Docket 126, 127.) Based on the extensive written record before him, and lengthy oral argument by the parties, the Court correctly determined that Anderson had ample opportunity to obtain the information [she] seek[s] through interrogatories and that the burden of such a deposition outweighs its likely benefit. (Docket 162 at 7-8.) Accordingly, he granted the Receiver s motion under Rule 26(b)(2)(C)(ii) and (iii). II. STANDARD OF REVIEW The standard of review applicable to an appeal of a magistrate judge's 6

7 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 7 of 15 order on a nondispositive issue is extremely deferential. Escamilla v. SMS Holdings Corp., 2011 U.S. Dist. LEXIS , at *9 (D. Minn. Oct. 21, 2011). The district court must affirm a decision by a magistrate unless it is clearly erroneous or is contrary to law. Fed. R. Civ. P. 72(a). In considering a party's objections to a magistrate judge's order, "[t]he District Court may also reconsider any matter sua sponte." L.R. 72.2(a). Thus, the order may be affirmed on any appropriate grounds. See Stepnes v. Ritschel, 2010 U.S. Dist. LEXIS , at *4-5 (D. Minn. June 16, 2010). III. ARGUMENT The Protective Order is neither clearly erroneous nor contrary to law. Under the Federal Rules, the Court must limit discovery if there has already been ample opportunity to obtain it or the burden or expense of the proposed discovery outweighs its potential benefit. Fed. R. Civ. P. 26(b)(2)(C)(ii)-(iii). The Protective Order also is proper on the other grounds submitted by the Receiver. A. The Court Correctly Found That Anderson Had Ample Opportunity to Obtain All of the Information She Later Sought By 30(b)(6). 1. Anderson Stipulated to Proceed With Interrogatories And Never Asserted That They Were An Insufficient Means To Obtain The Information She Sought. Anderson s assertion that the discovery she seeks cannot be supplied by a contention interrogatory response is belied by the fact that she entered a Stipulation expressly agreeing to seek discovery via contention interrogatories instead of deposition. (Docket 174 at 9; Docket 113.) Anderson knew when she 7

8 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 8 of 15 signed the Stipulation that she would not be able to cross examine an interrogatory response. (Docket 174 at 1.) Moreover, at no point before re-serving her 30(b)(6) notice did Anderson ever state or even suggest that the Receiver s interrogatory responses were insufficient or ask to meet and confer on that discovery. Instead, Anderson took advantage of the Stipulation to obtain extensive additional discovery, and without any advance notice or discussion, then simply served a new 30(b)(6) request. Having entered into the Stipulation to proceed with interrogatories, and having failed to assert any shortcomings in the Receiver s responses, her 30(b)(b) request was properly denied under Rule 26. Anderson s protestations that she could not serve more interrogatories to address [the issues in her deposition notice] because she had already served the allotted 25 interrogatories ring hollow. Anderson had ten interrogatories remaining when she entered the Stipulation on July 21, If she felt that she could not judiciously use those remaining interrogatories to obtain the information she needed, she could have asked for more. Instead, she waited until the Receiver answered all of her interrogatories to her apparent satisfaction and then, just before fact discovery closed, re-noticed her deposition anyway. To the extent there are additional topics served by Anderson not covered by interrogatories it is only because of Anderson s choice not to cover those areas not a lack of opportunity to cover them. 8

9 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 9 of The Receiver Provided Detailed Responses To Every Interrogatory Anderson Served. Magistrate Judge Noel correctly recognized that Anderson did not identify any deficiencies in the Receiver s Interrogatory responses. (Docket 162 at 6.) It was not until her response to the Receiver s motion for a Protective Order that Anderson for the first time and in violation of the Local Rules purported to identify deficiencies in responses to her Interrogatory Nos. 9 and 12. Anderson had never requested to meet and confer with the Receiver about these interrogatories nor has she ever moved the Court to compel further responses to those requests. Setting aside that neither of these issues has ever been properly presented to the Court at any point in time, it is noteworthy that both of these interrogatories have been fully answered. Interrogatory No. 9 sought the facts relating to the transfer of the $102,000 to Anderson. (Docket at 14.) The Receiver provided a six-page response to that interrogatory, detailing all facts uncovered by the Receiver. In addition to his narrative response, the Receiver provided pin cites to deposition transcripts and other documents. (Id. at 8-12, ) The Receiver has not uncovered any information beyond what is disclosed in his response; a 30(b)(6) deposition would not provide any additional information to Anderson. Interrogatory No. 12 asked the Receiver to substantiate his contention that Anderson did not provide reasonably equivalent value in exchange for the 9

10 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 10 of 15 fraudulent funds that were transferred to her. (Docket at 18.) She alleged that the Receiver s response, that Anderson s money was stolen by Cook and his co-conspirators the moment they received it, is contradicted by documents illustrating that Anderson s money stayed in an account at Associated Bank. (Docket 174 at ) But bank documents plainly show that after Anderson s funds were deposited at Associated Bank, Cook used money from that same account for other purposes. (Docket at 5-8.) The Receiver provided these facts in his narrative response to Anderson s Interrogatory No. 6, complete with pin cites to documents that had been produced to Anderson. In short, there is no inaccurate response to Anderson s Interrogatory No. 12 and thus no reason to explore the basis for it in a deposition. Anderson s brief also mentions a motion to compel that she did not file until October 17, 2011, two weeks after the Receiver s motion for a Protective Order had been fully briefed and argued before the Court. That motion raised a single interrogatory (Interrogatory 2 from her Third Set) that does not relate to any of the 30(b)(6) topics that Anderson now seeks. (Compare Docket at 4-5 with Docket at 3-5.) What is more, the Court granted Anderson s motion to compel a further response to that interrogatory, as well as additional documents. Any argument based on that motion to compel is not only inapposite, it is moot. (Docket 178.) The facts discussed above make the issue before the Court entirely different from that in the In re Douglas Asphalt Co. case cited in Anderson s brief. (Docket 10

11 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 11 of at ) Unlike the parties in that case, Anderson stipulated to the fact that contention interrogatories were an appropriate way to get the information she sought. In addition, unlike the party in In re Douglas Asphalt Co., the Receiver has shown good cause to preclude the deposition under Rule 26(b)(2)(C)(ii): Anderson had ample opportunity to obtain all of the information through other discovery. To the extent she (improperly) identifies other discovery in her brief, it has been provided and therefore cannot justify the deposition she now seeks. B. The Court Correctly Found that the Burden of a 30(b)(6) Deposition In The Circumstances Of This Case Outweighs Any Potential Benefit. Contrary to Anderson s argument, the Receiver has submitted a particular and specific demonstration of fact showing that the unique burdens the Receiver would face in preparing sitting for a 30(b)(6) deposition outweigh any potential benefit to Anderson. As an initial matter, none of the Receiver Estates that Anderson would like to depose under Rule 30(b)(6) were legitimate businesses. They were tools in a $190 million Ponzi scheme, used to perpetrate the fraud at every turn. These entities produced false account statements showing money that was not there and profits that were never made. (Docket at 9-10.) Corporate records are replete with forgeries. (E.g. id. at 11.) Even the names of the Receiver Estates were designed to create a false association with legitimate financial institutions. For his part, when asked to submit to a lie detector test about how he used the Receiver Estates to perpetrate the fraud and hide funds, Cook failed twice. As to 11

12 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 12 of 15 his colleagues, one has pleaded guilty to the fraud and three others have been criminally charged for their roles in the scheme and are currently awaiting trial. (Docket 127 at 5-6.) Other employees do not fill the void. Reminded of their Court ordered duty to cooperate, they have simply pleaded ignorance. If the Receiver were required to designate someone as a representative for this deposition, it would require hiring someone completely new and educating him or her with all of the facts in the case. Given the breadth of Anderson s topics and the massive amount of discovery that has been produced, this would require an extraordinary amount of time and expense. On the other side of the equation, as Magistrate Judge Noel found, a 30(b)(6) deposition would not provide Anderson with any new information; she already has the full extent of the facts the Receiver has uncovered. And she has all of the records from which the Receiver gleaned the facts related to this case. In addition to the extensive discovery Anderson obtained from the Receiver, Anderson also deposed witnesses with firsthand knowledge of the relevant facts. In this circumstance, the only thing Anderson stands to gain from a deposition is testimony that calls for the mental impressions, conclusions, and legal theories of the Receiver and his counsel. Indeed, Anderson acknowledges as much, noting her intent to ask the Receiver whether [he] considered other facts or issues and to explore with [him] the effect other facts would have on [his] answer. (Docket 174 at 1.) 12

13 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 13 of 15 Courts faced with similar situations have denied 30(b)(6) depositions. For example, in SEC v. Rosenfeld, 1997 U.S. Dist. LEXIS 13996, at *5, (S.D.N.Y. Sept. 12, 1997), the court issued a protective order precluding the defendant from taking a Rule 30(b)(6) deposition of the SEC. The court concluded that the topics of the noticed 30(b)(6) deposition which related to the allegations in the SEC s complaint clearly call[ed] for the revealing of information gathered by the SEC attorneys in anticipation of bringing the instant enforcement proceedings. See also SEC v. Buntrock et al., 217 F.R.D. 441, 444 (N.D. Ill. 2003) (barring a 30(b)(6) deposition seeking the results of the SEC s investigation because it was intended to ascertain how the SEC intends to marshal its facts, documents, and testimonial evidence, and to discover the inferences the SEC believes can be drawn from that evidence ); SEC v. Morelli, 143 F.R.D. 42, 47 (S.D.N.Y. 1992) (forbidding a 30(b)(6) deposition because it constitutes an impermissible attempt by defendant to inquire into the mental processes and strategies of the SEC ). The facts before the Court are not analogous to those in SEC v. Kramer, 778 F. Supp. 2d 1320 (M.D. Fla. 2011), a case in which the court granted a 30(b)(6) deposition of the SEC. In Kramer, unlike this case, no contention interrogatories or requests for production had been served indeed no information had been provided to the defendant regarding the facts underlying the claim against him. Id. at The Kramer court acknowledged that the SEC may have avoided the deposition had it otherwise produce[d] the documents and information collected in the Commission's investigation and if the opposing party 13

14 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 14 of 15 may obtain additional, non-privileged information by other, less intrusive means. Id. at n.7. In sum, Anderson already has all of the discoverable factual information that the Receiver has. Magistrate Judge Noel s finding that the burden of a 30(b)(6) deposition to the Receiver outweighs its benefit to Anderson is not clearly erroneous or contrary to law. C. There Are Other Compelling Reasons for Prohibiting a 30(b)(6) Deposition of the Receiver. Although the Court cited Rules 26(b)(2)(C)(ii) & (iii) in issuing the Protective Order, the Receiver provided additional grounds that the Order must be granted. For one, Anderson s noticed deposition improperly seeks disclosure of attorney work product and privileged information. The Receiver and his staff are attorneys and trial counsel. The Eighth Circuit s Shelton test precludes their deposition. Shelton v. Am. Motors Corp., 805 F. 2d 1323, 1327 (8th Cir. 1986); see also Docket 127 at As the Court recognized in SEC v. Buntrock, where an investigation is conducted by attorneys and employees working under the direction of attorneys, a 30(b)(6) notice is the practical equivalent of deposing opposing counsel and is improper. 217 F.R.D. 441, 444 (N.D. Ill 2003); see also Resolution Trust Corp. v. Kazimour, 1993 W.S , at *3 (N.D. Ia. 1993). Another independent reason for affirming Magistrate Judge Noel s Protective Order is that Federal Rule of Civil Procedure 26(b)(2)(C)(i) prohibits discovery that is unreasonably cumulative or duplicative. As discussed above in 14

15 CASE 0:11-cv SRN-FLN Document 180 Filed 11/16/11 Page 15 of 15 the context of the negligible benefit of a deposition to Anderson, the discoverable facts Anderson now seeks could have been and have already been obtained through the Receiver s written discovery responses, produced documents, and third party depositions. IV. CONCLUSION For the foregoing reasons, the Receiver respectfully requests that the Court affirm the Protective Order as to Respondent Anderson s Request to Depose the Receiver or a Person Designated by Him under Federal Rule of Civil Procedure 30(b)(6) entered by Magistrate Judge Noel. Dated: November 16, 2011 Respectfully submitted, s/ Tara C. Norgard R.J. Zayed (MN Bar No. 309,849) Tara C. Norgard (MN Bar No. 307,683) Russell J. Rigby (MN Bar No. 323,652) Marlee A. Jansen (MN Bar. No. 389,428) Peter M. Kohlhepp (MN Bar No. 390,454) Carlson, Caspers, Vandenburgh & Lindquist 225 S. 6 th Street, Suite 3200 Minneapolis, MN Telephone: (612) Facsimile: (612) tnorgard@ccvl.com 15

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

CASE 0:11-cv-01042-SRN-FLN Document 179 Filed 11/16/11 Page 1 of 14 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA R.J. Zayed, in his Capacity as Court-Appointed Receiver for Trevor G. Cook et al.,