Federal Deposit Insurance Corporation v. Patel

Filing 110

ORDER Signed by the Honorable Robert M. Dow, Jr on 5/6/2022. For the reasons stated below, Defendant's objections 98 to Magistrate Judge Valdez's January 14, 2022, order 95 are overruled. Emailed notice(cdh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for the
NATIONAL REPUBLIC BANK
of CHICAGO,
v.

Plaintiff,

HIREN PATEL,
Defendant.

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Case No. 19-cv-6917
Judge Robert M. Dow, Jr.

ORDER
For the reasons stated below, Defendant’s objections [98] to Magistrate Judge Valdez’s
January 14, 2022, order [95] are overruled.
DISCUSSION
On September 20, 2021, Magistrate Judge Valdez entered an order [78] granting Plaintiff’s
motion for a protective order quashing subpoenas served by Defendant on certain non-parties
through which Defendant sought the production of documents regarding the history of certain
loans. Defendant filed timely objections [78] to Judge Valdez’s order and Plaintiff filed a response
[81] to those objections. Before this Court was able to issue a ruling, Defendant filed a motion
[82] seeking leave to supplement his objections with the declaration of a former national bank
examiner whom Defendant has retained to prepare an expert report. In view of this new
information, this Court issued an order [90] overruling Defendant’s prior objections without
prejudice and returning the matter to Magistrate Judge Valdez to reassess the parties’ arguments
in light of the additional declaration.
Judge Valdez took additional briefing on the matter [92, 93] and issued an order [95]
reaffirming her prior ruling, which granted Plaintiff’s motion for a protective order as to the nonparty subpoenas. Defendant has renewed his objections [98], and the matter has again been fully
briefed [100, 103].
Magistrate judges have “extremely broad discretion in controlling discovery” when matters
are referred to them for discovery supervision. Weeks v. Samsung Heavy Indus. Co., Ltd., 126
F.3d 926, 943 (7th Cir. 1997). Federal Rule of Civil Procedure 72(a) permits parties to object to
a magistrate judge’s resolution of non-dispositive motions—including discovery motions, see 28
U.S.C. § 636(b)(1)(A)—within fourteen days after being served with the order. This Court “must
consider timely objections and modify or set aside any part of the order that is clearly erroneous
or is contrary to law.” Fed. R. Civ. P. 72(a). An order is “clearly erroneous” only when “the

district court is left with the definite and firm conviction that a mistake has been made.” Weeks,
126 F.3d at 943. If “there are two permissible views, the reviewing court should not overturn the
decision solely because it would have chosen the other view.” Ball v. Kotter, 2009 WL 3824709,
at *3 (N.D. Ill. Nov. 12, 2009) (internal quotation marks and citation omitted).
As Defendant correctly notes, information sought in discovery need not be admissible.
Nevertheless, the 2015 Amendments to Rule 26 delete both “the former provision authorizing the
court, for good cause, to order discovery of any matter relevant to the subject matter involved in
the action” and the “former provision for discovery of relevant but inadmissible information that
appears ‘reasonably calculated to lead to the discovery of admissible evidence.’” Advisory
Committee Note to 2015 Amendments. The 2015 Amendments also include the requirement that
discovery be “proportional to the needs of the case,” taking into account “the importance of the
issues at stake in the action, the amount in controversy, the parties’ relative access to relevant
information, the parties’ resources, the importance of the discovery in resolving the issues, and
whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed. R.
Civ. P. 26(b)(1).
In applying terms like “relevance” and “proportional to the needs of the case,” courts
necessarily must exercise discretion and make judgment calls on where to draw lines. In so doing,
judges engage in art, not science. The standard of review for discovery orders takes that into
account. If reasonable jurists could go either way on the issue in dispute, the Magistrate Judge’s
ruling will stand.
That is the case here. With the third-party subpoenas at issue, Defendant seeks to obtain
historic loan files from “six non-parties who evaluated the loans in 2014 and purchased the loans
and related loan files in 2014 and 2015.” [98, at 1.] Judge Valdez recognized that “discovery
indicating that the loans were in fact not impaired in 2012 and 2013 would certainly be relevant in
this matter.” [95, at 5.] No one seems to disagree with that proposition. And that timeline makes
sense, because the dividend decisions at the heart of this litigation were made in October 2012 and
February 2013.
Plaintiff responds with both a factual and a legal contention. As to the facts, Plaintiff says
that Defendant already has received in discovery the “complete loan files for the target loans
existing at NRB on the date Plaintiff took over NRB.” [100, at 2.] It appears that Plaintiff closed
NRB in October 2014 and both sold the loans and transferred the records to various buyers between
October 2014 and February 2015. If this is accurate—and Defendant does not appear to dispute
that he has that production—then what more is to be gained by any obtaining in discovery
additional materials that may have been added to the files two or more years after the dividend
were paid? Not much, says Plaintiff turning to its legal point: hindsight is irrelevant to breach of
fiduciary duty claims and business judgment rule defenses. [Id. at 4-5.]
Defendant rightly points out that the issues at stake and the amount in controversy are
substantial, as he denies the allegations and seeks to defend his reputation as well as his assets.
[103, at 6.] But neither his own nor his proposed expert’s contentions about the potential value of
the additional information are sufficiently compelling to have persuaded Judge Valdez to reverse
course on her order quashing the subpoenas. Nor do those arguments leave this Court with a
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“definite and firm conviction that a mistake has been made.” Defendant observes that he left the
bank about three months before the FDIC took over, so he “lacks information about the condition
of the loan files and other bank files when the FDIC took over.” [Id.] He also questions whether
the loan files produced by Defendant “are exact duplicates of the historical loan information in the
non-parties’ possession.” [Id.] And he cites a case decided well before the 2015 Amendments to
Rule 26 holding that “overlap or duplication in discovery was not undue in patent case alleging
misleading patent application.” [Id. at 7 (citing aaiPharma, Inc. v. Kremers Urb. Dev. Co., 361 F.
Supp. 2d 770, 778 (N.D. Ill. 2005)).] However, neither Plaintiff nor his proposed expert identify
any irregularities based on their review to date of the historical files – for example, departures from
the ordinary recordkeeping routine or documents missing that one would expect to find. Absent a
basis for suspicions of that nature, the suggestion of discrepancies between the files produced by
Defendant and the files that would be turned over by the third-parties in response to the subpoenas
is speculative. Furthermore, accepting for the moment Defendant’s assertions that the third-party
files might contain some documents from late 2014, early 2015, or even later, that could shed light
on the whether the loans were impaired when the dividends were issued, the files that Defendant
already has would contain a two-year record looking back at the key events. The likelihood of
post-dividend documents providing insight into what the relevant actors knew or thought in 201213, as opposed to what they understood with the benefit of hindsight, surely diminishes over time.
So, Defendant likely already has most, if not all, of what is likely to be relevant, and Judge Valdez
did not err in thinking that the additional discovery sought through the third-party subpoenas is not
“proportional to the needs of the case.”
In sum, the record provides no basis from which this Court can conclude that Magistrate
Judge Valdez order [95] is either clearly erroneous or contrary to law. Defendant’s objections [98]
therefore are overruled.
__________________________
Robert M. Dow, Jr.
United States District Judge

Dated: May 6, 2022

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