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Bank of America, N.A. v. First Mutual Bancorp of Illinois

June 14, 2010

BANK OF AMERICA, N.A., SUCCESSOR TO LASALLE BANK NATIONAL ASSOC., PLAINTIFF/COUNTERDEFENDANT,
v.
FIRST MUTUAL BANCORP OF ILLINOIS, PETHINAIDU VELCUHAMY, DEFENDANTS/COUNTERPLAINTIFFS.
BANK OF AMERICA, N.A., SUCCESSOR TO LASALLE BANK NATIONAL ASSOC., PLAINTIFF/COUNTERDEFENDANT,
v.
PETHINAIDU VELUCHAMY AND PARAMESWARI VELUCHAMY, DEFENDANTS/COUNTERPLAINTIFFS.



The opinion of the court was delivered by: Magistrate Judge Geraldine Soat Brown

Judge David Coar

MEMORANDUM OPINION AND ORDER

Plaintiff Bank of America ("BOA") filed two actions (09 C 5108 and 09 C 5109) seeking to collect unpaid amounts on loans BOA made either to Pethinaidu Veluchamy and Parameswari Veluchamy ("the Veluchamys") or to First Mutual Bancorp of Illinois ("FMBI") and personally guaranteed by Mr. Veluchamy. [09 C 5108, dkt 1; 09 C 5109 dkt 1.]*fn1 Following the assertion of the Fifth Amendment privilege by the Veluchamys and FMBI's officers and directors, and the taking of FMBI's Rule 30(b)(6) deposition, BOA filed the present Motion for Discovery Sanctions, a Protective Order, and Other Relief. (BOA's Mot. [dkt128]; BOA's Mem. [dkt 130].) FMBI and the Veluchamys (collectively, "counterplaintiffs") have responded in opposition [dkt 140], and BOA has filed a reply. [Dkt 142.] Upon this court's order, counterplaintiffs also filed a statement as to why they should be allowed to take additional discovery (Counterpls.' Disc. Stmt. [dkt 145]), and BOA has responded in opposition to that statement. (BOA's Resp. to Disc. Stmt. [dkt 146].) BOA's motion was granted in part and denied in part. [Dkt 148.] This opinion sets out the basis for that ruling.

BACKGROUND

1. Factual Background

In August 2009, BOA filed two complaints: one alleging that BOA was due money on unpaid loans it had made to FMBI that had been personally guaranteed by Mr. Veluchamy, the other alleging that BOA was due money on unpaid loans it had made to the Veluchamys for which the Veluchamys are jointly and severally liable. (09 C 5108 Compl.; 09 C 5109 Compl.) Given the related nature of the cases, they have proceeded together. [Dkt 21.]

In response to each complaint, counterplaintiffs admit their indebtedness on the loansbut assert a number of affirmative defenses and counterclaims, alleging basically fraud and breach of fiduciary duty. (09 C 5108 Ans. and Counterclaims [dkt 13]; 09 C 5109 Ans. and Counterclaims [dkt 14].) In essence, counterplaintiffs allege that BOA is not entitled to collect on the loans because the loan proceeds were misused or misappropriated by others, including a former director of FMBI, that BOA knew about the misuse and breach of fiduciary duty, but that BOA nevertheless had allowed FMBI to continue to borrow and had encouraged the Veluchamys to guarantee the debt personally. Counterplaintiffs allege, inter alia, that they reasonably relied on BOA to obtain and communicate information, and that BOA failed to reveal information to the Veluchamys. (Id. Counterclaims ¶¶ 30, 36.) Three of the affirmative defenses to BOA's complaints simply incorporate counterplaintiffs' counterclaims. (Id. Aff. Defenses at 6-7.)

After the Veluchamys' request for a stay of discovery directed to them was rejected [see dkt 53 and 126], the Veluchamys asserted their Fifth Amendment privilege against self-incrimination in response to virtually all of BOA's written and oral discovery. The Veluchamys' son, Arun Veluchamy, likewise asserted the Fifth Amendment privilege in response to virtually all questions presented to him at his deposition, including questions regarding his educational background and whether he had ever been the president of FMBI. (BOA's Mem., Ex. 11, Dep. of Arun Veluchamy at 12-13.)*fn2

On February 25, 2010, BOA issued a Rule 30(b)(6) notice to FMBI seeking deposition testimony about the factual allegations contained in FMBI's answer, affirmative defenses and counterclaims, and about FMBI's answers to BOA's first set of interrogatories. (BOA's Mem., Ex. 14.) When counterplaintiffs complained that the deposition notice was too broad, BOA provided a list of 18 specific categories it intended to address through the deposition. (Id., Ex. 15.) FMBI continued its objections and filed a motion seeking, among other things, to compel BOA to provide more specificity in the notice. [Dkt 94.] BOA opposed the motion and filed a cross-motion to compel the 30(b)(6) deposition. [Dkt 104.]

At the hearing on the motions, the court found the 30(b)(6) topics relevant to counterplaintiffs' affirmative claims and sufficiently specific. BOA's motion was granted in substantial part, FMBI's objections were overruled and its motion denied, and FMBI was ordered to produce a deponent to testify on its behalf about each of the 18 topics that BOA had identified. (Order, March 17, 2010.) [Dkt 106.] During the hearing, counterplaintiffs stated that Mr. Veluchamy would not serve as the 30(b)(6) deponent, and that they likely would designate Jeffery Horwitz, an attorney who had done work for FMBI, for the deposition. (Counterpls.' Resp., Ex. I, Tr. March 17, 2010 at 17-19.) BOA expressed doubt during the hearing about whether Mr. Horwitz would be able to testify as to all 18 topics. (Id. at 10, 19.) The court said "The person designated must testify about information known or reasonably available to the organization," and noted that each of the topics about which BOA sought to obtain testimony related only to counterplaintiffs' affirmative claims. (Id. at 14-15, 21.) While acknowledging that it was FMBI's prerogative to select its 30(b)(6) deponents, the court reminded the parties that FMBI would be bound by the testimony given at the deposition, and that if Mr. Horwitz testified that he knew nothing more than what is in the documents, FMBI would be stuck with those limited answers. (Id. at 21.)

Counterplaintiffs filed objections to the March 17 order, but the District Judge overruled the objections, stating, "[T]he fact that Bank of America is simply trying to defend against Counterplaintiffs' nine-count counterclaim is especially relevant; it is only fair that First Mutual provide a 30(b)(6) representative capable of testifying about the factual bases of its own claims against Bank of America." (Mem. Op. & Order April 26, 2010 at 11.) [Dkt 127.]

After this court's ruling and while counterplaintiffs' objections were pending, FMBI designated Mr. Horwitz as its sole 30(b)(6) deponent and informed BOA that his testimony would be limited to matters about which he had personal knowledge, information contained in documents he personally sent or received, and information that could be gleaned from Mutual Bank Board of Directors Loan Committee minutes. (BOA's Mem., Ex. 16.) Despite BOA's protestations, counterplaintiffs insisted that Mr. Horwitz had consented to testify only about those limited topics. (Id., Ex. 18.)

FMBI's Rule 30(b)(6) deposition was taken on April 16, 2010. (BOA's Mem., Ex. 19, Dep. of Jeffery Horwitz as FMBI's 30(b)(6) Deponent.) According to FMBI, no officer or director could be identified to provide 30(b)(6) testimony on its behalf because they all had asserted the Fifth Amendment privilege against self-incrimination. (Counterpls.' Resp., Ex. F.) Thus, FMBI produced Mr. Horwitz as its only 30(b)(6) deponent. As counterplaintiffs were aware, however, Mr. Horwitz was unable to testify about a number of the topics covered by BOA's notice and was able to testify only about certain limited portions of the remaining noticed topics. (BOA's Mem., Ex. 16.)

To prepare for the deposition, Mr. Horwitz only spoke with counterplaintiffs' counsel and reviewed documents that he testified "purport to be" Mutual Bank's Board of Directors minutes and Loan Committee minutes. (Horwitz Dep. at 7-8, 153-54.) He was unable to authenticate any of the documents. (Id. at 11-13, 161-63.) Indeed, Mr. Horwitz made it clear that his testimony was limited to what he could read in meeting minutes or other documents; he could not and did not testify as to whether those documents reported true facts. (Id.)

Fact discovery closes in these cases on June 25, 2010. (Order, Dec. 2, 2009.) [Dkt 32.] The parties' attorneys have informed the court that the only remaining fact discovery anticipated by any party relates to the counterclaims. Indeed, in light of the Veluchamys' broad assertion of the Fifth Amendment privilege, BOA does not seek any additional discovery (other than some possible issues regarding documents produced by the FDIC). The counterplaintiffs, however, propose three additional depositions of current and former BOA employees. (Counterpls.' Disc. Stmt. at 1-2.)

2. BOA's Motion

BOA brings its motion under Fed. R. Civ. P. 37(b)(2), which ...


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