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United States of America v. Capital Tax Corporation

February 10, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CAPITAL TAX CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Young B. Kim

MEMORANDUM OPINION and ORDER

In this civil action brought pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675, the United States of America seeks to recover the costs of an environmental cleanup it conducted at a property allegedly owned by the defendants. The district court allowed the government to add one of the current defendants, Marvin Dukatt, after CERCLA's three-year statute of limitations had expired, based on the government's theory that Dukatt should be equitably estopped from asserting a statute of limitations defense. Currently before the court is Dukatt's Motion to Compel Plaintiff to Respond to Discovery Concerning Plaintiff's Equitable Estoppel Claim. Dukatt seeks an order requiring the United States to respond to his interrogatories and requests for the production of documents regarding the government's equitable estoppel position. The United States argues that the information Dukatt seeks is irrelevant and protected by privileges. For the following reasons, the motion to compel is denied:

Background

In June 2004 the United States brought its initial complaint in this case against Capital Tax Corporation, Stephen Pedi, and William Lerch, seeking to recover civil penalties, punitive damages, and the costs it incurred in removing hazardous substances from seven parcels of property in Chicago known as the "National Paint and Lacquer Site" ("the Site").

(R. 1.) In its answer, Capital Tax admitted that it owned five of the seven parcels (the other two were held by a land trust owned by Pedi). (R. 3 ¶ 4.)The district judge referred the case to the magistrate judge for discovery supervision, (R. 8), and in January 2006 the United States deposed Dukatt, who had represented himself as an "agent" of Capital Tax. Dukatt testified that Capital Tax had offered to sell him property at the Site, but said that he had "passed" on the offer. (R. 154-5, Dukatt Dep. at 34:3-36:9.) By the close of discovery, neither Capital Tax nor Dukatt had produced any documents providing evidence that Capital Tax and Dukatt had agreed to a sale of the subject property.

In April 2006 the United States moved for summary judgment on liability, and in response, Capital Tax asserted for the first time a "secured creditor defense," arguing that Capital Tax was Dukatt's secured creditor based on an oral agreement with Dukatt to purchase property at the Site. (R. 154 at 7-9.) In support of its defense Capital Tax presented a $15,000 check evidencing Dukatt's partial payment for property at the Site. (R. 154-5, Ex. 1A.) The check's existence came as news to the United States because a Capital Tax shareholder had testified in his deposition that he had been unable to locate any check from Dukatt in connection with a sale of property at the Site. (R. 323-2, Smith Dep 16:21-17:4.) The district court rejected Capital Tax's secured creditor defense and granted in part the United States's motion for summary judgment. (R. 175.)The defendants appealed.

In September 2008 the Seventh Circuit vacated the district court's decision and remanded with instructions for the district court "to give fresh and full consideration to the question whether Capital Tax had an enforceable land sales contract" with Dukatt "and whether the doctrine of equitable conversion applies in this case." See United States v. Capital Tax Corp., 545 F.3d 525, 534 (7th Cir. 2008). The Seventh Circuit noted that Capital Tax had presented some evidence that Dukatt had given partial payment for property at the Site, had taken possession of the property, and had made valuable improvements. Id. The court stated that it was unable to determine whether Capital Tax had a valid and enforceable contract for the sale of the property, and instructed the district court to consider "whether the facts show that Dukatt was, in fact, a bona fide buyer." Id.

Following the remand the district court re-opened discovery in January 2009 to allow the parties to flesh out the facts surrounding the equitable conversion question. In the course of this second round of discovery Capital Tax produced evidence that Dukatt had entered into an oral agreement with a Capital Tax shareholder to purchase portions of the Site. Contradicting his January 2006 deposition testimony, Dukatt testified in an affidavit that he had reached such an agreement with Capital Tax. (R. 283-8 ¶ 4), and at a second deposition in August 2009, he admitted that he disavowed ownership once the EPA got involved and he learned of the potential clean-up liability, (R. 238-4, Dukatt Dep. at 68:1-13).As Dukatt colorfully explained, "if you and I are drowning and there's one log, I'm going to punch you in the nose and grab the log." (Id. at 69:2-4.)

Based on Dukatt's new testimony, the district court entered an order in March 2010 permitting the United States to add Dukatt as a defendant. (R. 307.) Shortly thereafter, Dukatt moved to dismiss the complaint on the basis that CERCLA's three-year statute of limitations had expired. (R. 315-2, at 2.) In response, the United States argued that under the principle of equitable estoppel, Dukatt cannot benefit from his misrepresentations by invoking the statute of limitations defense. The district court denied Dukatt's motion to dismiss, stating that:[a]s the United States paints the picture, during the time that Dukatt was afraid he might be on the hook for the clean-up costs, Dukatt testified that he had never agreed to purchase the land; once the statute of limitations had run, he was willing to testify that he had agreed to purchase the land, which testimony might allow his friends at Capital Tax also to be off the hook for clean-up costs. This is just the situation that equitable estoppel is designed to disallow.

(R. 326 at 2.) The district court emphasized that the United States had "asserted sufficient facts to survive a motion to dismiss on statute of limitations grounds." (Id.)

In October 2010, Dukatt served on the United States interrogatories and requests for the production of documents seeking information regarding the government's decision not to sue Dukatt in 2006. (R. 368, Exs. 1 & 2.) Specifically, Dukatt sought information regarding who decided that he would not be named as a defendant in the original action,when they decided it, and on what basis. (Id. at Ex. 1 at 11-17.) The United States objected to five of the interrogatories (Interrogatories 7 through 11) and two of the document requests (Requests *3 and 7), asserting that the information is privileged and irrelevant in light of the district court's decisions allowing the government to add Dukatt as a defendant and later denying his motion to dismiss. (Id.) In response, Dukatt filed the current motion to compel the United States to produce the requested information and to pay the expenses he incurred in filing the motion. (R. 368 at 13.)

Analysis

Pursuant to Federal Rule of Civil Procedure 26(b)(1), "[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense" or that "appears reasonably calculated to lead to the discovery of admissible evidence." This court has broad discretion in resolving disputes related to discovery. See Spiegla v. Hull, 371 F.3d 928, 944 (7th Cir. 2004). The current motion requires this court to resolve three points of contention: (1) whether the district court's decision at the motion to dismiss stage establishes the law of the case with respect to the question of equitable estoppel; (2) whether the United States has waived any privilege to the requested information by putting at issue ...


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