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Bank of America v. Veluchamy

April 26, 2010

BANK OF AMERICA, PLAINTIFF,
v.
PARAMESWARNI VELUCHAMY AND PETHINAIDU VELUCHAMY DEFENDANTS.



The opinion of the court was delivered by: David H. Coar United States District Judge

JUDGE DAVID H. COAR

MEMORANDUM OPINION AND ORDER

On February 3, 2010, Defendants-Counterplaintiffs First Mutual Bancorp of Illinois, Inc. ("First Mutual"), Pethinaidu Veluchamy, and Parameswari Veluchamy (collectively "the Veluchamys") filed an objection to Magistrate Judge Brown's denial of their motion to partially stay discovery. In the alternative, Counterplaintiffs move to stay all discovery in this case. On February 17, 2010, Defendants-Counterplaintiffs filed an additional objection challenging the portion of Magistrate Judge Brown's February 3, 2010 Order compelling the deposition of Arun Veluchamy, the Veluchamy's son and president of Defendant-Counterplaintiff First Mutual. On March 25, 2010, Counterplaintiffs filed an objection to Magistrate Judge Brown's ruling on the parties' cross-motions regarding Bank of America's Rule 30(b)(6) deposition of First Mutual. For the reasons stated below, Counterplaintiffs' objections to Magistrate Judge Brown's rulings are OVERRULED, and their alternative motion to stay all discovery is DENIED.

BACKGROUND

Plaintiff Bank of America brings this action against the Veluchamys and First Mutual (collectively "Defendants-Counterplaintiffs" or "Counterplaintiffs") seeking to recover over $40 million, which Counterplaintiffs allegedly borrowed from Bank of America and failed to pay back. In turn, the Veluchamys and First Mutual bring a nine-count counterclaim against Bank of America, alleging that Bank of America participated in a large-scale fraud that involved inducing Counterplaintiffs to take out the loans at issue, wrongfully disbursing the proceeds of these loans, and ostensibly, aiding Counterplaintiffs' business partners in a scheme to defraud Counterplaintiffs. The Veluchamys, the principal owners of First Mutual, which in turn owned Mutual Bank, blame this alleged scheme for the collapse of Mutual Bank.

Key to the objections at issue, the downfall of Mutual Bank led to a federal criminal investigation. According to Counterplaintiffs, there is no indication yet that they are specific targets of this investigation, but the investigation is not yet at a point where "no target" letters can be issued. In any event, on January 14, 2010, Counterplaintiffs filed a motion to partially stay discovery in order to avoid placing Counterclaimants in the difficult position of choosing between asserting and waiving their Fifth Amendment privilege against self-incrimination. In that motion, Counterplaintiffs sought to stay discovery as to themselves until May 1, 2010 "or until such time that it is clear that they are not targets of any criminal investigation." (Feb. 3 Objection, Dkt. 59, Ex. A at 2.) Counterplaintiffs do not explain the particular significance of the date, May 1, 2010.

On January 20, 2010, Magistrate Judge Brown issued a ruling from the bench denying Counterplaintiffs' motion. (Dkt. 53.) Judge Brown's primary reasons for her ruling are as follows:

(1) Counterplaintiffs were aware of the Fifth Amendment issue and should have addressed this issue before agreeing to this Court's scheduling order;

(2) A partial stay would disrupt this Court's discovery schedule and prejudice Plaintiff-Counterdefendant by thwarting its ability to defend against Counterplaintiffs' counterclaim;

(3) The key case on which Counterplaintiffs rely, Evans v. City of Chicago, 513 F.3d 735 (7th Cir. 2008), is distinguishable for two reasons: (a) The defendants there were not also pursuing a counterclaim, unlike Defendants-Counterplaintiffs here; and (b) In Evans, the government investigation was well-publicized and presented a serious risk that the defendants would indeed be prosecuted, unlike the speculative situation here.

After Judge Brown issued her ruling, Counterplaintiffs asked for a stay of the order pending appeal, which she also denied. Under Fed. R. Civ. P. 72, Counterplaintiffs had 14 days to object to Magistrate Judge Brown's ruling, and on the fourteenth day, February 3, 2010, they filed the instant Rule 72 objection.

On March 11, 2010, Bank of America moved for leave to file supplemental authorities in support of their opposition to Counterplaintiffs' objection. This Court granted Bank of America's motion on March 16, 2010. (Dkt. 90.) Bank of America's supplemental authorities include March 4 and March 11 opinions and orders of Magistrate Judge Cole in United Auto Ins. v. Veluchamy (No. 09 C 5487). In that case, Veluchamy advanced some of the same Fifth Amendment arguments he and the other counterplaintiffs make here, and Magistrate Judge Cole rejected these arguments.*fn1 Counterplaintiffs responded by pointing out that Magistrate Judge Cole is currently entertaining a motion to reconsider his March 4 opinion rejecting Veluchamy's Fifth Amendment arguments.

LEGAL STANDARD

Under Fed. R. Civ. P. 72(a), when a party objects to a magistrate judge's ruling on a nondispositive matter, the district judge assigned to the case "must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law." Fed. R. Civ. P. 72(a); see also Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 760 (7th Cir. 2009).

DISCUSSION

I. Counterplaintiffs' February 3 Objection

Counterplaintiffs argue that Magistrate Judge Brown's ruling below was clearly erroneous. At the outset, Counterplaintiffs correctly note that courts may exercise their discretion by staying civil proceedings to avoid placing defendants in the difficult position of choosing whether to assert or waive their Fifth Amendment rights. According to Counterplaintiffs, when determining whether they should exercise such discretion, courts entertain a variety of considerations, all of which are encompassed by three factors: (a) the interests of the parties, (b) the interests of the Court, and (c) the interests of the public. Counterplaintiffs challenge Judge Brown's ruling because they believe that she failed to balance these interests. They also take issue with the specific reasons offered by Judge Brown in support of her ruling.

First, Counterplaintiffs contest Judge Brown's assertion that a partial (and one-sided) stay would unfairly prevent Bank of America from pursuing discovery to defend against their counterclaim. According to Counterplaintiffs, Bank of America could prepare its defense by obtaining information from third parties, such as the FDIC, and from other individuals identified in their Rule 26(a)(1) statement.

Next, Counterplaintiffs challenge Judge Brown's contention that they should have addressed their Fifth Amendment concerns in this Court before agreeing to the discovery schedule established in December 2009. Counterplaintiffs claim that no rule supports this contention and explain that, because of the stigma associated with the assertion of the Fifth Amendment privilege, they intended to delay addressing their Fifth Amendment concern until absolutely necessary. Counterplaintiffs cite Emsak v. United States, 349 U.S. 190 (1955), a McCarthy-era case that discusses the stigma that may attach when a party asserts the Fifth Amendment. Finally, Counterplaintiffs argue ...


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