Null et al v. National Association of Certified Home Inspectors et al

Filing 38

ORDER denying 33 Motion to Sequence Discovery. By Magistrate Judge Kristen L. Mix on 11/16/2012. (klyon, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 12-cv-00311-MSK-KLM
FRED NULL, and
ZALE GAYLEN,
Plaintiffs,
v.
NATIONAL ASSOCIATION OF CERTIFIED HOME INSPECTORS, a Colorado limited
liability company aka NACHI Management, LLC,
INTERNATIONAL ASSOCIATION OF CERTIFIED HOME INSPECTORS, a Colorado
nonprofit corporation,
NICKIFOR GROMICKO, and
REPORTS, INC., a Delaware corporation,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX
This matter is before the Court on Defendants’1 Motion to Sequence Discovery
[Docket No. 33; Filed November 5, 2012] (the “Motion”). Plaintiffs have filed a Response
to Motion to Sequence Discovery [Docket No. 36; Filed November 15, 2012] (the
“Response”). The Court did not permit a reply. See Minute Order [#35].
A.

BACKGROUND
Plaintiffs initiated this action on February 6, 2012. Complaint [#1]. They allege that

they obtained a default judgment for $454,333.00 against Defendant National Association

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Default was entered against Defendant National Association of Certified Home
Inspectors, a Colorado limited liability company aka NACHI Management, LLC, on July 9, 2012.
[#22]. Attorney Mark Cohen represents the remaining three Defendants, International
Association of Certified Home Inspectors (“IACHI”), Nickifor Gromicko, and Reports, Inc.

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of Certified Home Inspectors (“NACHI”) in 2008 in the Superior Court of California, County
of Napa. [#1] at 5. Plaintiffs allege that as a result of this and another judgment against
NACHI issued in the United States District Court for the Middle District of Florida, NACHI
transferred its assets, income stream, members and goodwill to IACHI. Id. They allege
that NACHI and Defendant Gromicko made these transfers with the intent to defraud
NACHI’s creditors. Id. at 6. They also allege that before and after the transfers to IACHI,
Gromicko, NACHI and IACHI repeatedly transferred substantial parts of their revenue to
Defendant Reports, Inc., which then transferred funds to Gromicko and his family members
Id. at 8. For their claims for relief, Plaintiffs first allege that the transfers from NACHI to
IACHI, along with the transfers from NACHI and IACHI to Reports, Inc., Gromicko, and his
family members, were fraudulent transfers as defined in the Colorado Uniform Fraudulent
Transfer Act. Id. at 8-9. Second, Plaintiffs alleged that the Defendants conspired to
defraud NACHI’s creditors, including Plaintiffs.
B.

ARGUMENT AND ANALYSIS
Defendants argue in the Motion that absent any proof that NACHI’s assets were

fraudulently transferred, the private financial information Plaintiffs are seeking in their
discovery requests is not relevant. [#33] at 3. They contend that Plaintiffs do not have a
judgment against Gromicko, IACHI, Reports, Inc. or any of Gromicko’s family members and
thus their financial information is not discoverable unless Plaintiffs can show evidence of
fraudulent transfers. Id. Defendants further argue that allowing discovery of such financial
information would “violate their expectations of privacy and result in an unnecessary and
costly discovery effort” based on “flimsy” allegations of a scheme to fraudulently transfer
NACHI’s assets. Id. at 3-4. Therefore, Defendants ask the Court to limit discovery at this
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time to: 1) the relationship between NACHI and the other Defendants; 2) the transactions,
if any between NACHI and the other Defendants; and 3) NACHI’s past and present assets
and their value, if any. Id. at 8.
In the Response, Plaintiffs present a history of the relationship between NACHI and
IACHI along with other facts that they contend support their causes of action. [#36] at 1-10.
For example, they attach a summary of tax return information showing that in 2007,
NACHI’s revenue was $1,344,510.00 while IACHI’s revenue was $0. Id. at 6-7 (citing #3614). By 2009, NACHI reported no income while IACHI’s revenue was $1,531,989.00. Id.
Plaintiffs argue that the information in the tax returns must have a source and that they are
entitled to see the bank records and other business documents that would explain the
numbers in the tax returns. Id. at 13.
Plaintiffs argue that Defendants’ request to bifurcate discovery is impractical and an
unjust resolution to Defendants’ refusal to produce the discovery requested. Id. at 16.
Plaintiffs contend that in order for their expert to determine what was transferred to IACHI,
“he must have the financial information to evaluate the income stream, the amounts
necessarily expended to run the operation, and the amounts transferred to its owner as
‘profit.’” Id. at 16-17. They argue that contrary to Defendants’ argument, they should not
have to first prove their claim of fraudulent transfers before they are entitled to the very
financial records that they contend would establish their claim. Id. at 17.
Although presented as a motion to bifurcate discovery, the underlying issue here is
whether Defendants should be required to respond to Plaintiff’s discovery requests for
financial information. Generally, the test for allowing discovery of information or documents
is whether the information “is relevant to any party’s claim or defense.” Fed. R. Civ. P.
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26(b)(1). This is a deliberately broad standard which is meant to allow the parties to
discover the information necessary to prove or disprove their cases. Gomez v. Martin
Marietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995); Simpson v. Univ. of Colo., 220 F.R.D.
354, 356 (D. Colo. 2004); Cardenas v. Dorel Juvenile Group, Inc., 232 F.R.D. 377, 382 (D.
Kan. 2005) (“Relevancy is broadly construed, and a request for discovery should be
considered relevant if there is ‘any possibility’ that the information sought may be relevant
to the claim or defense of any party.” (citations omitted)). If the material sought is relevant
to the case and may lead to admissible evidence, it should generally be produced. See
Fed. R. Civ. P. 26(b)(1). However, where the burden of producing relevant discovery
outweighs the likely benefit, the Court has discretion to limit the discovery requested. Fed.
R. Civ. P. 26(b)(2)(C); see Qwest Commc’ns Int’l v. Worldquest Networks, Inc., 213 F.R.D.
418, 419 (D. Colo. 2003). The objecting party bears the burden to show why a discovery
request is objectionable, and that burden cannot be sustained merely by asserting
“boilerplate claims that the requested discovery is oppressive, burdensome or harassing.”
Klesch & Co. v. Liberty Media Corp., 217 F.R.D. 517, 524 (D. Colo. 2003).
While the Court recognizes, as Defendants argue, that it has the discretion to
determine the “timing, sequence and volume of discovery,” Qwest Communications Intern.,
Inc. V. WorldQuest, 213 F.R.D. 418, 419 (D.Colo. 2003), it finds no basis to alter the
sequence of discovery here. Defendants offer no legal authority to support their argument
that Plaintiffs must first show that assets were fraudulently transferred before Defendants
can be required to disclose their financial information. Moreover, the limited information
that Defendants have disclosed thus far, including the information in the tax returns, raises
sufficient questions to warrant discovery of Defendants’ financial information. Thus,
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Defendants’ contention that their financial information is not relevant at this time because
Plaintiffs have not shown evidence of fraudulent transfers is without merit. The Court finds
that the requests for Defendants’ financial information are relevant to Plaintiffs’ fraudulent
transfer and conspiracy claims and that Plaintiffs may proceed with discovery of such
information.2 The Court having found no basis to alter the sequence of discovery in this
case,
IT IS HEREBY ORDERED that the Motion [#33] is DENIED.
Dated: November 16, 2012

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The parties shall use this Court’s telephonic discovery dispute procedure if other
disputes arise pertaining to Plaintiffs’ discovery requests.

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