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In re Peregrine Financial Group Customer Litigation

United States District Court, Northern District of Illinois, Eastern Division

March 20, 2015


District Judge Sara L. Ellis.



Plaintiffs brought this class action concerning the July 2012 collapse of Peregrine Financial Group, Inc. (“PFG”), one of the country’s largest futures commission merchants. PFG declared bankruptcy after its founder Russell Wasendorf, Sr. admitted to diverting over $200, 000, 000 in customer money from accounts at institutions that included Defendant U.S. Bank, N.A. (“the Bank” or “Defendant”). Wasendorf pled guilty to fraud and embezzlement, and is currently serving a 50-year sentence in federal prison. Plaintiffs also sued JPMorgan Chase Bank, N.A. because PFG maintained numerous accounts with that institution. On January 27, 2015, the District Court dismissed claims against JPMorgan Chase pursuant to an agreed settlement with the Plaintiffs. U.S. Bank promptly appealed the District Court’s ruling to the Seventh Circuit.

Meanwhile, the remaining parties have proceeded through the discovery process before this Court. The Bank and Movants Mark Alexander, Robert Evans III, Marcus Ibrahim, Joe Martano, J.D. Sailer, together with Plaintiffs Patricia Benvenuto, Kirk Houghton, Brian Pannkuk, Guravaneet Randhawa, and Jordan Robinson, (collectively “Plaintiffs”) have filed five discovery motions. The Trustee of PFG’s Chapter 7 Bankruptcy Estate (“Trustee”) has also filed his own brief. The motions include 28 briefs that extend to over 1, 200 pages. That is not unreasonable in this case, which involves complex allegations whose scope encompasses an exceptionally large number of documents. Indeed, the discovery disputes would be more numerous were it not for the professionalism that counsel for all parties have shown throughout the case. The Court has carefully reviewed the submissions and considered the parties’ positions in full. To expedite matters, however, the Court outlines the parties’ disputes only to the extent necessary to explain the basis of the Court’s decision.


Parties are entitled to conduct discovery on any matter that is “relevant to any party’s claim or defense.” Fed.R.Civ.P. 26(b)(1). Relevant information does not have to be admissible to be discoverable. It only needs to be “reasonably calculated to lead to the discovery of admissible evidence.” Nw. Mem’l Hosp. v. Ashcroft, 362 F.3d 923, 930 (7th Cir. 2004) (quoting Fed.R.Civ.P. 26(b)(1)). The party opposing discovery bears the burden of showing why discovery should be disallowed. Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 132 F.R.D. 204, 207 (N.D. Ind. 1990). Discovery is ordinarily allowed even “[i]f there is a possibility that [it] may lead to information relevant to the subject matter of the action.” In re IKB Deutsche Industriebank AG, 2010 WL 1526070, at *5 (N.D. Ill. April 8, 2010) (emphasis added).


A. U.S. Bank’s Motion to Compel Answers to Interrogatories

The Bank asks the Court to require Plaintiffs to respond more fully to its Interrogatory No. 7 and Interrogatory No. 9. Interrogatory No. 7 demands the following:

Identify all transactions that you claim constituted a violation of the Illinois Fiduciary Obligations Act [“FOA”] . . . by U.S. Bank and identify all documents (including but not limited to correspondence, cancelled checks, and/or statements of account) related to or reflecting said transactions.

Interrogatory No. 9 asks:

For each transaction you identified in your answer to Interrogatory No. 7, describe with particularity all facts and circumstances that you contend give rise to a violation of the [FOA] . . . by U.S. Bank.

Plaintiffs responded with a routine set of boilerplate objections, including a claim that the requests were unduly burdensome. They also restated a number of the allegations that were set out earlier in their pleadings. Plaintiffs later submitted a limited set of documents in response to Interrogatory No. 7 that identify some, but not, all of the transactions at issue. (Def.’s Mot. At Ex. E). The Bank claims that this only amounts to $33.7 million of the alleged $200 million that Plaintiffs seek to recover.

Plaintiffs’ Second Amended Class Complaint alleges that the Bank violated its fiduciary duties under the FOA by permitting PFG to improperly deposit checks into an account ending in “1845" (“the 1845 Account”). Plaintiffs allege that these checks were made payable to PFG itself, thereby disregarding the fact that the 1845 Account was designed to hold other funds. Plaintiffs claim that the Bank acted in bad faith because (1) it had actual knowledge of PFG’s improper acts, or (2) it “disregarded and refused to learn facts readily available to it that PFG was breaching its fiduciary duty and misappropriating customer funds.” (Dckt. 169 at ¶¶ 334-41).

The parties begin by seeking to draw this Court into deciding how the substantive provisions of the Illinois FOA should be construed. The Bank claims that Plaintiffs must demonstrate that it acted in bad faith when it processed each specific transaction that adds up to the $200, 000, 000 at issue in the case. Unhelpfully, the Bank’s motion fails to cite a single Illinois case on this topic. It also fails to argue that Illinois courts would construe the FOA in the manner shown by the out-of-jurisdiction cases the Bank relies on. Plaintiffs claim that they will not carry such a burden at trial. Relying on Crawford Supply Group, Inc. v. Bank of America, N.A., 829 F.Supp.2d 636 (N.D. Ill. 2011), they contend that the FOA does not require them to show that the Bank acted with knowledge concerning each transaction. See id. at 649 (“[B]ad faith can be shown where the bank suspects that the fiduciary is acting improperly and deliberately refrains from investigating in order . . . to avoid knowledge that the fiduciary is acting improperly.”) (internal quotes and citation omitted). “In essence, the Act provides a defense for banks when a fiduciary misappropriates his principal’s funds, unless the bank had actual knowledge of the fiduciary’s misappropriation or knowledge of sufficient facts that its action in paying checks amounted to bad faith.” Geimer v. Bank of America, N.A., 784 F.Supp.2d 926, 932 (N.D. Ill. 2011) (internal quotes and citation omitted). The FOA defines “good faith, ” but does not address what is meant by “bad faith.” 760 ILCS 65/1(2).

The Court respectfully disagrees with both parties’ approach to this dispute. A motion to compel is not a proper vehicle for dragging this Court into deciding how the Illinois FOA should be construed. Discovery is never limited to the narrow scope of a legal claim. See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (“[D]iscovery is not limited to issues raised by the pleadings, for discovery itself is designed to help define and clarify the issues.”). Plaintiffs’ allegations are important to the scope of discovery. However, they do not necessarily define the boundaries that separate what is appropriate from what is too far afield for discovery purposes. The more important issue is how the parties themselves have carried out their burdens of showing what those boundaries ought to be. The Bank has the initial responsibility for explaining why Plaintiffs’ responses are inadequate. MSTG, Inc. v. AT&T Mobility, LLC, 2011 WL 221771, at *6 (N.D. Ill. Jan. 20, 2011). That has been met here. The party opposing discovery always carries the burden of showing why the requested discovery is improper. Kodish v. Oakbrook Terrace Fire Protection Dist., 235 F.R.D. 447, 449-50 (N.D. Ill. 2006); Golden Valley Microwave, 132 F.R.D. at 207; Stimeling v. Bd. of Educ. Peoria Public Schools Dist. 150, 2010 WL 375337, at *2 (C.D. Ill. Jan 26, 2010).

The key issue therefore is the objections that Plaintiffs raise in their formal answer to the interrogatories. The parties’ dispute over how the FOA should be construed is essentially an argument over whether answers to Interrogatories Nos. 7 and 9 would be relevant to the statute’s requirements. Surprisingly, Plaintiffs do not raise a relevancy objection in their specific discovery answers. The Federal Rules are very clear that “[a]ny ground not stated in a timely objection is waived unless the court, for good cause, excuses the failure.” Fed.R.Civ.P. 33(b)(4). Courts in this Circuit construe that to apply to document production as well. Whitlow v. Martin, 259 F.R.D. 349, 354 (C.D. Ill. 2009). Plaintiffs have not offered any explanation for not specifically objecting to Interrogatories Nos. 7 and 9 based on relevance.

That leaves Plaintiffs with the three objections stated in their answers. First, Plaintiffs attempt to incorporate their general objections. One of those objections does involve relevance. Plaintiffs fail to realize, however, that such broad objections are unavailing. Rule 33(b)(4) states that “the grounds for objecting to an interrogatory must be stated with specificity.” (emphasis added). Courts have expressed serious reservations on the efficacy of incorporating generalized objections to a specific request merely by referencing such broad claims. See, e.g., Avanta Intl. Tech., Inc. v. Hart Inercivic, Inc., 2008 WL 2074093, at *3 (S.D. Ill. May 14, 2008) (“Making general objections is a dangerous practice, as the party who offers such general objections runs the risk of having them summarily denied.”). This Court has previously rejected such broad objections outright. Cusic v. Glass Mountain Capital, LLC, 2013 WL 10209048, at *1 (N.D. Ill. June 26, 2013) (citing Buonauro v. City of Berwyn, 2011 WL 2110133, at *1-2 (N.D. Ill. May 25, 2011)).

The Court reaches the same conclusion here. Plaintiffs’ general objections include relevance together with other boilerplate claims that the requests are “vague, ambiguous, confusing, overly broad, vexatious, oppressive, calculated to harass, or unduly burdensome; or do not describe the information requested with reasonable particularity.” (Pls.’ Resp. at Ex. B, p. 4). It is well-established that such generalized boilerplate objections have no effect. Courts have repeatedly warned litigants who oppose discovery that their “burden cannot be met by a reflexive invocation of the same baseless, often abused litany that the requested discovery is vague, ambiguous, overly broad, unduly burdensome or that it is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.” Burkybile v. Mitshubishi Motors Corp., 2006 WL 2325506, at *6 (N.D. Ill. Aug. 2, 2006) (citing extensive cases); United Auto. Ins. v. Veluchamy, 2010 WL 749980, at *5 (N.D. Ill. March 4, 2010) (citing cases). Thus Plaintiffs have waived relevance and all other general objections that are not stated in response to Interrogatories Nos. 7 and 9.

Plaintiffs also state that the Bank’s interrogatories are improper because the Bank already has control over the information that it seeks. That is without merit. Such a response basically claims that the opposing party should be responsible for identifying the sources of its alleged wrongdoing. The Bank is not obligated to sift through the documents and information related to the 1845 Account to determine what Plaintiffs may rely on to substantiate their allegations.

Plaintiffs further claim that the Bank’s interrogatories are overly burdensome. Their answer states that Plaintiffs would be required to consider “many thousands” of transactions, together with the documents associated with them. Plaintiffs expand on this to some degree in their response brief, stating that it could require a discovery response that would be hundreds or thousands of pages long. (Resp. at 9).

Unfortunately for Plaintiffs, this is inadequate. Federal Rule of Civil Procedure 26(b)(2)(C)(iii) allows a court to restrict the scope of discovery if the expense involved outweighs the likely benefit of production. Courts apply a proportionality test to determine whether discovery should be restricted. That standard considers “the needs of the case, the amount in controversy, the resources of the parties, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues.” In re IKB Deutsche, 2010 WL 1526070, at *5.

The Bank anticipates this argument in its motion. Puzzlingly, Plaintiffs never address the issue in meaningful detail in their response. Claims of undue burdensomeness require a specific showing of what is involved. Rawat v. Navistar Intl. Corp., 2011 WL 3876957, at *11 (N.D. Ill. Sept. 1, 2011); Ameritox, Ltd. v. Millennium Labs., Inc., 2012 WL 6568226, at *2 (N.D. Ill.Dec. 14, 2012) (denying the objection in the absence of a particularized demonstration). “The mere fact that [a party] will be required to expend a considerable amount of time, effort, or expense in answering the [request] is not a sufficient reason to preclude discovery.” Schaap v. Executive Inds., Inc., 130 F.R.D. 384, 387 (N.D. Ill. 1990) (internal citation omitted). This Court does not set aside claims of undue burdensomeness lightly. Without a particularized showing, however, it has no choice but to find that Plaintiffs have not explained why discovery should be denied, or even modified, on this ground.

Plaintiffs further claim that the Bank has propounded premature contention interrogatories. The Bank concedes that both of its requests are contention interrogatories. However, an interrogatory is not immune from being answered simply because it is a contention interrogatory. “The general policy is to defer contention interrogatories until discovery is near an end, in order to promote efficiency and fairness.” Ziemack v. Centel Corp., 1995 WL 729295, at *2 (N.D. Ill.Dec. 7, 1995). Courts have discretion to allow such interrogatories before discovery is complete. Id. The critical questions are whether compelling an answer would require multiple supplemental answers, or if it would prematurely commit a party to a position. Id. Contention interrogatories are permitted when answering them could contribute to clarifying the issues. Fellowes, Inc. v. Aurora Corp. of Am., 2009 WL 1097063, at *1 (N.D. Ill. April 1, 2009) (citation omitted).

Neither party has addressed this issue adequately. Both parties discuss the matter in terms of whether or not the interrogatories should be answered at all. The more pressing question for a contention interrogatory is whether it should be answered now or later. Plaintiffs do not address why answering Interrogatories Nos. 7 and 9 would unduly limit issues or prematurely commit them to a position. Instead, they rely on their brief claims concerning burdensomeness. This improperly conflates two separate issues. The Court is particularly concerned by Plaintiffs’ failure to respond to the Bank’s argument that these interrogatories do not just address liability; they also concern damages. See generally United States ex rel. Tyson v. Amerigroup Ill., Inc., 230 F.R.D. 538, 543-45 (N.D. Ill. 2005) (discussing contention interrogatories related to damages).

For its part, the Bank has not discussed why the interrogatory should be answered in full now. The Bank only addresses the issue in general terms. That is insufficient. “Any generalizations about the appropriate use and timing of contention interrogatories . . . cannot substitute for the specific analysis of the propriety of their use here and now[.]” In re Arlington Heights Funds, 1989 WL 81965, at *1 (N.D. Ill. July 7, 1989); Ziemack, 1995 WL 729295, at *2; United States v. Educ. Mgt. LLC, 2013 WL 3854458, at *20 (W.D. Pa. May 14, 2013) (“The party advocating for an early response to contention interrogatories bears the burden of justifying the request[.]”).

The Court therefore reaches a middle ground. Plaintiffs have already provided a partial response to Interrogatory No. 7. This waives any objection related to this limited set of discovery answers. The Court can see no reason why Plaintiffs’ objections to Interrogatory No. 9, which are identical to those asserted in Interrogatory No. 7, should prevent a similar result. Plaintiffs are directed to answer Interrogatory No. 9 for each of the transactions they identified in response to Interrogatory No. 7. They shall do so within 45 days of the issuance of this order. This does not mean that Plaintiffs will not be required to answer both interrogatories in their entirety at a later date. The Court ...

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