Gazian et al v. Wells Fargo Bank NA et al

Filing 221

ORDER granting in part and denying in part 213 Motion to Continue; granting 213 Motion for Extension of Time to Complete Discovery; denying 213 Motion for Sanctions. Telephonic hearing 6/5/2015 at 4:00 PM. Status conference set foro 9/4/2015 at 3:30 PM. Signed by Judge David G Campbell on 5/29/2015.(DGC, nvo)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Ken Gazian, et al., No. CV-13-01312-PHX-DGC Plaintiffs, 10 11 v. 12 ORDER Wells Fargo Bank NA, 13 Defendant. 14 15 16 Two days before the final pretrial conference, Plaintiffs filed a motion asking the 17 Court to reopen discovery and to sanction Defendant Wells Fargo. Doc. 213. Plaintiffs 18 base their motion on emails that Wells Fargo recently produced. They argue that the 19 emails are key evidence in support of their claim that Wells Fargo committed fraud, and 20 that the emails should have been produced earlier. After reviewing the parties’ briefing 21 on this issue, the Court will allow limited additional discovery as set forth below. 22 I. Background. 23 Plaintiffs in this case are Ken Gazian, Pierre Investments, Inc., and Aragadz 24 Foods, Inc., d/b/a Devanche Jewelers. Gazian is a Texas resident and both Pierre and 25 Devanche are Texas corporations wholly owned by Gazian. Plaintiffs originally brought 26 this action against Wells Fargo, Kelly & Kelly PC, and Hubert Kelly based on an 27 allegedly fraudulent scheme perpetrated by the Kelly Defendants. Plaintiffs allege that 28 $80,000 was transferred to the Kelly Defendants’ Wells Fargo account for the “purchase 1 of securities allegedly posted on the London Stock Exchange.” Doc. 101, ¶ 10. The 2 securities transaction was represented “as having a total value in excess of $45,000,000,” 3 and Plaintiffs were to receive “a return of $280,000.” Id. 4 Plaintiffs allege that they “sought assurance from Wells Fargo” that the Kelly 5 Defendants were legitimate business people and were in the process of putting together a 6 large securities transaction. Id. Wells Fargo employees from a branch in Mesa, Arizona 7 allegedly represented to Plaintiffs “on multiple occasions that there was a transaction 8 being put together for the purchase of the securities, that funds were present for the 9 purchase of securities, and that Wells Fargo had undertaken numerous successful 10 transactions” with the Kelly Defendants. Id., ¶ 11. 11 Plaintiffs assert that they were convinced by the Kelly Defendants in October 2011 12 to reinvest $250,000 of the promised $280,000 to “fund a $5,000,000 loan to purchase 13 and renovate the Park Plaza Tower,” an office building in Dallas. Id., ¶ 16. Plaintiffs 14 also agreed to pay an additional $50,000 to fund the transaction. Id. Plaintiffs assert that 15 on November 29, 2011, when they attempted to withdraw $30,000 and transfer $250,000 16 to the Kelly Defendants as agreed, they “were informed by Wells Fargo that the accounts 17 had been emptied and that Wells Fargo would not transfer any amount to Plaintiffs 18 pursuant to the Irrevocable Commitment.” Id., ¶ 21. 19 The Court dismissed the Kelly Defendants from this case pursuant to stipulation. 20 Docs. 58, 151. The primary claims that remain are Plaintiffs’ claims that Wells Fargo 21 knowingly or negligently made false representations to Plaintiffs that the Kelly 22 Defendants were “reputable businessmen” and that their transactions were “legitimate.” 23 Doc. 101, ¶¶ 30-63. 24 III. Relevancy of the Email. 25 On February 10, 2015, more than eight months after the close of discovery, Wells 26 Fargo disclosed to Plaintiffs a set of emails. Plaintiffs argue that one of these emails, 27 from Patrick Brown, strongly supports their claim that Wells Fargo committed fraud by 28 failing to inform them that transactions with the Kelly Defendants were suspect. The -2- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 email states: From: BROWN, Patrick [Wells Fargo] Sent: Tue 8/2/2011 5:36:42 PM Re: HSBC Bank Guarantee Registration Number BH5843[.] I have conducted a review on the signor, Craig Cason, for this account, [redacted]7443 – Increase Capital Investments LLC and found several items of concern . . .  This individual has been investigated by the SEC for securities violations and accusations of fraud.  The address on the account is a virtual office that can be rented for $50/month, used frequently by shell companies to give the appearance of legitimacy even though no actual business is conducted there.  The client has filed multiple bankruptcies and has several outstanding judgments (some in excess of $100K), which is not consistent with someone purporting to have $250mil in assets. Please do not process the receipt of this security. We will be restricting the account and referring the matter to our Security Fraud group. Additionally, please DO NOT disclose this information to the client or the outcome of our review. Please advise the client that we cannot assist him with his request. 15 16 Doc. 213-3 at 2. The parties disagree on the relevance of this email. Plaintiffs argue that 17 the Brown email proves Wells Fargo knew the securities transaction underlying 18 Plaintiffs’ deal with the Kelly Defendants was fraudulent. Wells Fargo argues that the 19 email concerns a securities transaction different from the transaction that formed the basis 20 for Plaintiffs’ deal with the Kelly Defendants, and that Wells Fargo produced the email 21 only out of an abundance of caution. 22 Although the Court cannot conclude at this stage that the email from Patrick 23 Brown concerned the securities transaction underlying Plaintiffs’ deal with the Kelly 24 Defendants, the email is relevant to Plaintiffs’ claims. Wells Fargo employee Randy 25 Lucero was a recipient of the Brown email. Lucero was also the person who talked with 26 Plaintiffs about their concerns regarding the propriety of transactions with the Kelly 27 Defendants. The email suggests that an affiliate of the Kelly Defendants in a securities 28 transaction (Cason) may be a shady character. -3- Lucero’s knowledge of this fact is 1 relevant to whether he should, as Plaintiffs allege, have assured them that the Kelly 2 Defendants were engaged in a legitimate transaction. In addition, a separate email sent 3 by the Kelly Defendants to Lucero uses the same HSBC Bank registration number 4 mentioned in the Brown email, suggesting that the Brown email may in fact have been 5 addressing the same transaction that formed the basis for Plaintiffs’ deal with the Kelly 6 Defendants. Doc. 213-4 at 8. 7 The email is probative of Plaintiffs’ claim that Wells Fargo knew the Kelly 8 Defendants’ business dealings were not legitimate. The email and related documents 9 should have been disclosed by Wells Fargo during discovery in this case. The email is 10 responsive to Plaintiffs’ Requests for Production No. 4 (“All documents evidencing your 11 relationship with Kelly & Kelly, Kelly, or Miko Wady, including all documents 12 identified by you in your response to Plaintiff Ken Gazian’s interrogatory No. 5-7”), and 13 No. 18 (“All documents evidencing any investigations, background checks . . . or due 14 diligence you performed on Hubert Kelly, Kelly & Kelly . . . or anyone else involved in 15 the Transactions[.]”). Doc. 213 at 11. In addition, interrogatories requested a description 16 the Kelly Defendants’ transaction history with Wells Fargo and included a request to 17 identify all employees and documents involved in these transactions. Doc. 213-8 at 6. 18 IV. Remedy. 19 Plaintiffs ask the Court to reopen discovery so that they may depose the recipients 20 of this email about its contents. Alternatively or additionally, Plaintiffs ask the Court to 21 admit the relevant emails into evidence over Defendant’s objections and to sanction 22 Wells Fargo by striking its agency defense. 23 A motion to reopen discovery is a motion to modify the discovery deadline set in 24 the Court’s scheduling order. Rule 16(b)(4) permits a scheduling order to be modified 25 only on a showing of good cause. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 26 604, 609 (9th Cir. 1992). Plaintiffs have shown good cause for reopening discovery. 27 Defendants did not disclose a relevant piece of evidence until February 10, 2015, more 28 -4- 1 than eight months after the close of discovery.1 2 The Court finds that a limited reopening of discovery is appropriate. The Court 3 will permit Plaintiffs to conduct up to 5 additional depositions totaling no more than 20 4 hours of deposition time. These may include a further deposition is Randy Lucero if 5 Plaintiffs elect to re-depose him. Wells Fargo shall cooperate with Plaintiffs in arranging 6 these depositions, including contacting witnesses and arranging for their appearances, if 7 necessary. 8 production requests (including subparts) and 10 additional interrogatories (including 9 subparts). These additional written discovery requests shall be served within 14 days of 10 this order. The additional depositions and written discovery may inquire into the steps 11 Wells Fargo took to preserve emails sent to and from Lucero. The Court will also permit Plaintiffs to serve 10 additional document 12 This additional discovery shall be completed, including all Wells Fargo responses 13 to the additional written discovery, by August 28, 2015. The parties shall place a joint 14 conference call to the Court on June 5, 2015, at 4:00 p.m., to set a firm trial date. The 15 Court plans to complete the trial of this case before the end of 2015. The Court will hold 16 a status conference on September 4, 2015, at 3:30 p.m., to discuss any further issues that 17 must be resolved before trial. 18 The Court concludes that Plaintiffs have not made the showing necessary for the 19 harsh sanction of striking Wells Fargo’s agency defense. Plaintiffs have not shown the 20 connection between the alleged senior officers, the transaction at issue in this case, and 21 Wells Fargo itself. Nor have Plaintiffs shown that Wells Fargo’s late disclosure of the 22 email was willful. The Court will not order that the newly disclosed documents are 23 admissible, although Plaintiffs may certainly assert their admissibility at trial. 24 25 26 27 1 28 Wells Fargo argues that Plaintiffs failed to depose Bill Gilligan when afforded the opportunity, but Plaintiffs did not know the information contained in the laterdisclosed email – information that would have made Gilligan’s deposition more relevant. -5- 1 2 3 IT IS ORDERED that Plaintiffs’ motion to re-open discovery and for sanctions (Doc. 213) is granted in part and denied in part as set forth above. Dated this 29th day of May, 2015. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6-

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