Pham -v- ComUnity Lending Inc.,, No. 5:2008cv00201 - Document 215 (N.D. Cal. 2011)

Court Description: CONDITIONAL ORDER granting 137 plaintiffs' motion to compel discovery; ALTERNATE REPORT AND RECOMMENDATIONS RE Evidentiary Sanctions. Objections due by 5/23/2011. Signed by Magistrate Judge Howard R. Lloyd on 5/9/2011. (hrllc2, COURT STAFF) (Filed on 5/9/2011)
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Pham -v- ComUnity Lending Inc., Doc. 215 1 2 *E-FILED 05-09-2011* 3 4 5 6 NOT FOR CITATION 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 For the Northern District of California United States District Court 7 No. C08-00201 JW (HRL) IN RE COMUNITY LENDING, INCORPORATED, 12 Debtor 13 14 / CONDITIONAL ORDER GRANTING PLAINTIFFS’ MOTION TO COMPEL DISCOVERY CHRISTINA PHAM, et al. 15 ALTERNATIVE REPORT AND RECOMMENDATION RE EVIDENTIARY SANCTIONS Plaintiffs, v. 16 COMUNITY LENDING INCORPORATED [Re: Docket No. 137] 17 Defendant. 18 19 / AND RELATED CROSS-ACTIONS / 20 Plaintiffs move to compel the production of documents and interrogatory answers. 21 22 Trustee John Richardson opposes the motion. Upon consideration of the moving and 23 responding papers,1 as well as the arguments of counsel, this court conditionally grants 24 plaintiffs’ motion to compel and issues an alternative report and recommendation as to 25 evidentiary sanctions that they might request. 26 27 28 This court overrules the Trustee’s objection to deposition testimony submitted by plaintiffs in connection with their reply papers. The deposition in question did not take place until after the instant motion was filed. In any event, the court finds that the testimony fairly was submitted in rebuttal to the arguments made in the Trustee’s opposition papers. 1 Dockets.Justia.com 1 Plaintiffs propose wide-ranging discovery concerning ComUnity’s financial condition 2 during the relevant time period because they believe that the company’s claimed insolvency is a 3 crucial issue in the case. In essence, plaintiffs say that the documents the Trustee has yet to 4 produce boil down to: 5 • communications with third parties, such as lenders, creditors, and investors; 6 • documents concerning ComUnity’s decision to pay millions of dollars to GMAC and Countrywide in September and October 2007, despite personal guarantees on those loans by ComUnity’s officers; • documents pertaining to insider transactions, including the forgiveness of loans to insiders (such as CEO Darryl Fry and his relatives) during the very period when the company claimed it was insolvent; • communications related to ComUnity’s financial condition between or involving or Diablo Management Group (DMG); • documents relating to ComUnity’s valuation of its assets and liabilities, including portfolio and repurchase requests; and • emails to, from, and among ComUnity’s “Leadership Group” between August and October 2007 about the company’s financial condition and alleged insolvency, repurchase requests, and insider transactions including loan forgiveness, reorganization, or restructuring. 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 Plaintiffs also say that the Trustee has not provided sufficient answers to interrogatories about 17 the company’s financial condition, including those asking for the identification of debts that 18 became due during the time period in question. 19 The theme of the Trustee’s opposition is that plaintiffs’ requests are overbroad and that 20 the process of locating and producing responsive information would be prohibitively expensive. 21 Here, the Trustee says that he has a wealth of ComUnity information and materials in his 22 possession, custody, and control, including: up to 7.7 terabytes (or 346 million pages) of 23 documents on 35 backup tapes; 600 banker boxes of hard copy documents stored at DMG’s 24 warehouse in Tracy, California; and over 10,000 banker boxes (likely containing loan files) 25 stored at an Iron Mountain facility. According to the Trustee, compliance with plaintiffs’ 26 requests would drain the $2 million or so remaining in the bankruptcy estate. He further 27 contends that the burden of producing responsive discovery outweighs the likely benefit. 28 2 1 In describing his search for responsive information, the Trustee appeared to this court to 2 skirt the issue. To be sure, the Trustee says that he has searched for and produced some 3 responsive information, including a search of emails from former ComUnity employees (see 4 Ahmadian Decl. Exs. 1-2). The Trustee says that he has also conducted some searches of the 5 so-called “football”—i.e., a backup copy (said to be less comprehensive than the 35 backup 6 tapes) of shared drive and virpak data from ComUnity when it was an ongoing business. 7 Additionally, the Trustee says that he has made the 600 boxes of documents at DMG’s 8 warehouse available for plaintiffs’ inspection. plaintiffs’ discovery requests, the Trustee repeatedly referred to the expense of accessing data 11 For the Northern District of California Nevertheless, in describing the claimed undue burden that would be imposed by 10 United States District Court 9 from the 35 backup tapes, rather than the effort that might be required to conduct a complete 12 search of the “football,” which might be considered a more readily available source of 13 information. The entire “football” has not yet been searched. And, Trustee’s counsel 14 acknowledged that there is more that the Trustee can do that would not involve accessing the 35 15 backup tapes. Additionally, the Trustee suggests that plaintiffs’ discovery requests would 16 require him to search the entire contents of all 35 backup tapes, but there has been no 17 satisfactory explanation why that is the case—unless the 35 tapes contain random information 18 in no particular order and it would be impossible to target documents from the few months in 19 2007 that plaintiffs seek. Nor has there been a showing that the contents of all 600 boxes at 20 DMG’s warehouse must be examined by human eyes in order to locate responsive documents 21 from the relatively short time period in question. Further, plaintiffs say that bankruptcy records 22 indicate that the documents they seek have already been pulled and reviewed by defense 23 counsel. 24 In sum, this court is unpersuaded that the Trustee has lived up to his discovery 25 obligations to search for and produce relevant, responsive, non-privileged documents and 26 information in a reasonable and workmanlike fashion. 27 28 Accordingly, this court finds that plaintiffs’ motion to compel should be granted as follows: Since the Trustee offered to provide all of his electronically stored information (ESI) 3 1 to plaintiffs (subject to an appropriate clawback provision for any privileged information), he is 2 ordered to either (1) turn over to plaintiffs mirror images of the ESI in his possession, custody, 3 or control; or (2) run plaintiffs’ choice of up to 15 search terms on all ESI except the backup 4 tapes and produce the results to plaintiffs. If there are obvious gaps in the results of those 5 searches, plaintiffs’ and defense experts shall meet in person and devise a protocol and cost for 6 examining the backup tapes for responsive documents from the relevant time period. The costs 7 shall be shared by the parties as follows: 2/3 of the costs shall be borne by the Trustee and 1/3 8 shall be borne by plaintiffs. The Trustee shall also serve answers to the interrogatories at issue. 9 If the Trustee believes that he appropriately may produce records in lieu of an answer, then he shall (a) specify the records that must be reviewed, in sufficient detail to enable plaintiffs to 11 For the Northern District of California United States District Court 10 locate them as readily as the Trustee could; and (b) produce the records or give plaintiffs a 12 reasonable opportunity to examine and audit the records and make copies, compilations, 13 abstracts, or summaries of them. FED. R. CIV. P. 33(d). 14 This foregoing order, however, is conditioned on the presiding judge’s determination 15 that the period for fact discovery and expert disclosures should be re-opened to permit plaintiffs 16 an opportunity to complete the discovery in question and to prepare expert disclosures that take 17 that discovery into account. Additionally, this court recommends that a special master be 18 appointed to address any further discovery disputes that may arise. 19 At oral argument, plaintiffs stated that, given the current posture of this case, they 20 believe that evidentiary sanctions are the more appropriate remedy at this time. As discussed 21 above, this court finds the Trustee’s claims as to undue burden to be exaggerated. Although 22 Fed. R. Civ. P. 37(a) generally requires a court order before evidentiary sanctions may be 23 imposed, the period for discovery and expert disclosures has passed and trial is set to begin in a 24 few weeks. As such, there has been prejudice to plaintiffs. Therefore, if the presiding judge 25 decides that modification of the scheduling order to allow additional time for discovery and 26 expert disclosures is not warranted, then this court recommends that he consider imposing the 27 evidentiary sanctions which might be requested by plaintiffs, including a presumption that 28 4 1 ComUnity was not insolvent at the time when it said it was. 2 Dated: May 9, 2011 3 4 HOWARD R. LLOYD 5 UNITED STATES MAGISTRATE JUDGE 6 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 5:08-cv-00201-JW Notice has been electronically mailed to: 2 Hong-Nhung Thi Le 3 Jeffrey L. Fillerup nle@luce.com nle@luce.com, aworthing@luce.com jfillerup@luce.com, aazarmi@luce.com, aleverton@luce.com, 4 Jesse Landis Hill JLBHill@aol.com, JLBHill@aol.com 5 John Walshe Murray jwmurray@murraylaw.com 6 Jonas Noah Hagey hagey@braunhagey.com 7 8 Matthew Brooks Borden borden@braunhagey.com, cross@braunhagey.com, lindstedt@braunhagey.com 9 Robert Anthony Franklin Ronald Scott Kravitz RKravitz@LinerLaw.com, jchau@linerlaw.com, jwong@linerlaw.com, mreyes@linerlaw.com 11 Suzanne L. Decker For the Northern District of California United States District Court 10 rfranklin@murraylaw.com, bobF_94303@yahoo.com suzannedecker@sbcglobal.net 12 13 Counsel are responsible for distributing copies of this document to co-counsel who have not registered for e-filing under the court’s CM/ECF program. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6