Great American Insurance Company v. Architectural Materials Inc et al
Filing
46
OPINION AND ORDER granting 39 Motion to Compel; denying 41 Motion for Hearing. The Brenans are ORDERED to pay the costs and expenses incurred in filing the Motion to Compel. GAIC is DIRECTED to file an affidavit setting forth its fees and expenses within 14 days of the date of this Order. See Order for more details. Signed by Magistrate Judge Andrew P Rodovich on 10/03/2011. (ksp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
LAFAYETTE DIVISION
GREAT AMERICAN INSURANCE
COMPANY, an Ohio Insurance
Company,
Plaintiff
v.
ARCHITECTURAL MATERIALS, INC.;
PEREGRINE CO., INC.; JOHN
BRENAN; MARLA BRENAN,
Defendants
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CIVIL NO. 4:11 cv 20
OPINION AND ORDER
This matter is before the court on the Motion to Compel
Compliance with Stipulated Order and/or for an Order to Show
Cause Why John Brenan and Marla Brenan Should Not be Held in
Contempt [DE 39], and the Motion for Oral Argument on its Motion
to Compel [DE 41] filed by the plaintiff, Great American Insurance Company, on June 28, 2011.
For the following reasons, the
Motion to Compel [DE 39] is GRANTED, and the Motion for Oral
Argument [DE 41] is DENIED.
Background
The plaintiff, Great American Insurance Company, filed a
complaint on April 4, 2011, alleging
that the defendants,
Architectural Materials, Inc., Peregrine Co., Inc., John Brenan,
and Marla Brenan, unilaterally and materially breached their
contractual duties under several indemnity agreements the parties
entered. GAIC complains that the defendants failed to indemnify
and hold GAIC harmless from potential liability on several bonds
from construction projects that the defendants abandoned and
refused to perform. GAIC is seeking exoneration and specific
performance of the indemnity agreements.
On April 13, 2011, GAIC filed a motion for a temporary
restraining order or preliminary injunction fearing that the
Brenans would transfer or deplete their assets. On May 5, 2011,
the parties informed the court that they reached an agreement on
the issues raised in GAIC’s motion for injunctive relief and
would file an agreed order setting forth the terms of their
agreement.
The court entered the stipulated order on May 9,
2011.
The stipulated order set forth specific information that the
defendants were to provide GAIC and imposed a deadline of May 11,
2011.
GAIC contends that despite repeated written and oral
demands, John and Marla Brenan have failed to comply with the
terms of the order, specifically paragraphs 4B, 4D, 4G, 4H, and
4L.
GAIC also contends that the information currently before it
strongly indicates that the Brenans have not disclosed all of
their assets and corporate ownership as instructed by the order.
The Brenans argue that they have complied with the court order by
2
providing suitable information.
GAIC now moves to compel compli-
ance with the stipulated order of the court.
Discussion
A party may "obtain discovery regarding any matter, not
privileged, that is relevant to the claim or defense of any
party, including the existence, description, nature, custody,
condition and location of any books, documents, or other tangible
things."
Federal Rule of Civil Procedure 26(b)(1).
For discov-
ery purposes, relevancy is construed broadly to encompass "any
matter that bears on, or that reasonably could lead to other
matter[s] that could bear on, any issue that is or may be in the
case."
Chavez v. DaimlerChrysler Corp., 206 F.R.D. 615, 619
(S.D. Ind. 2002)(quoting Oppenheimer Fund, Inc. v. Sanders, 437
U.S. 340, 351, 98 S.Ct. 2380, 2389, 57 L.Ed.2d 253 (1978)).
Even
when information is not directly related to the claims or defenses identified in the pleadings, the information still may be
relevant to the broader subject matter at hand and meet the
rule’s good cause standard. Borom v. Town of Merrillville, 2009
WL 1617085, *1 (N.D. Ind. June 8, 2009) (citing Sanyo Laser
Prods., Inc. v. Arista Records, Inc., 214 F.R.D. 496, 502 (S.D.
Ind. 2003)).
See also Adams v. Target, 2001 WL 987853, *1 (S.D.
Ind. July 30, 2001)("For good cause, the court may order discovery of any matter relevant to the subject matter involved in the
3
action."); Shapo v. Engle, 2001 WL 629303, *2 (N.D. Ill. May 25,
2001)("Discovery is a search for the truth.").
A party may seek an order to compel discovery when an
opposing party fails to respond to discovery requests or has
provided evasive or incomplete responses.
Procedure 37(a)(2)-(3).
Federal Rule of Civil
The burden "rests upon the objecting
party to show why a particular discovery request is improper."
Gregg v. Local 305 IBEW, 2009 WL 1325103, *8 (N.D. Ind. May 13,
2009)(citing Kodish v. Oakbrook Terrace Fire Protection Dist.,
235 F.R.D. 447, 449-50 (N.D. Ill. 2006)); McGrath v. Everest Nat.
Ins. Co., 2009 WL 1325405, *3 (N.D. Ind. May 13, 2009)(internal
citations omitted); Carlson Restaurants Worldwide, Inc. v.
Hammond Professional Cleaning Services, 2009 WL 692224, *5 (N.D.
Ind. March 12, 2009)(internal citations omitted).
The objecting
party must show with specificity that the request is improper.
Cunningham v. Smithkline Beecham, 255 F.R.D. 474, 478 (N.D. Ind.
2009)(citing Graham v. Casey’s General Stores, 206 F.R.D. 253,
254 (S.D. Ind. 2002)).
That 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."
Cunning-
ham, 255 F.R.D. at 478 (citing Burkybile v. Mitsubishi Motors
4
Corp., 2006 WL 2325506, *6 (N.D. Ill. Aug. 2, 2006))(internal
quotations and citations omitted).
Rather, the court, under its
broad discretion, considers "the totality of the circumstances,
weighing the value of material sought against the burden of
providing it, and taking into account society’s interest in
furthering the truth-seeking function in the particular case
before the court."
Berning v. UAW Local 2209, 242 F.R.D. 510,
512 (N.D. Ind. 2007)(examining Patterson v. Avery Dennison Corp.,
281 F.3d 676, 681 (7th Cir. 2002))(internal quotations and citations omitted).
GAIC is seeking compliance with the stipulated order the
court entered May 9, 2011. GAIC specifically points to paragraphs
4B, 4D, 4G, 4H, 4L, and information about assets and corporate
ownership interests that the Brenans have not disclosed.
Paragraph 4B of the stipulated order states that the Brenans
are required to produce sworn and notarized financial statements
of all assets in which they have or claim an interest, whether
located in the United States or in a foreign country. Each
financial statement is required to include information sufficient
to identify the assets, including such details as the name,
address, and account number.
The Brenans initially provided a
joint financial statement which was not sworn or notarized and
did not set forth sufficient information to identify the ac-
5
counts.
GAIC then requested, and the Brenans subsequently
provided, a sworn addendum.
GAIC complains that the addendum
does not comply with Indiana’s notary requirements and does not
identify the assets sufficiently.
Indiana Code §33-42-3-1 states that "[a] person commissioned
as a notary public by the state shall append a true statement of
the date of the expiration of the notary's commission as a notary
public to any certificate of acknowledgment of a deed, mortgage,
or other instrument or any jurat or other official document at
the time the document is signed."
The Brenans’ sworn financial
statement does not bear the date.
It is assumed the parties, in
reaching the agreement, intended for the statement to be submitted in compliance with Indiana’s notary law. The Brenans are
ORDERED to produce a sworn financial statement complying with
Indiana’s notarization requirements.
GAIC also points to specific documents the Brenans did not
provide that related to the assets and liabilities referenced in
their financial statement.
Specifically, the Brenans did not
provide any information with respect to the following assets and
liabilities: accounts and loans receivable, other assets, retirement assets, life insurances, other notes, IRS back taxes, personal, legal fees, mortgage on their primary residence, and other
notes payable. The defendants' short response, in essence,
6
recognizes these shortcomings but purports that the information
they provided was "suitable enough."
However, the sufficiency of
the information provided is not the Brenans’ judgment call.
The
Brenans have provided no explanation why they believe they complied, why the additional information GAIC requests is shielded
from discovery, or why the information is not subject to the
order.
Because the order mandates that the Brenans must produce
information sufficient to identify their assets, it appears that
the information GAIC now requests falls squarely within the
ambits of the stipulated order.
Absent a demonstration to the
contrary, the court GRANTS GAIC’s motion with respect to the
information requested in compliance with Paragraph 4B.
Paragraph 4D of the stipulated order states that the Brenans
must provide sworn and notarized statements of all transfers of
assets since October of 2008 over which the Brenans had an
interest, with information sufficient to identify each transfer.
The Brenans again failed to provide a sworn or notarized statement, and then provided an addendum that fell short of Indiana’s
notary requirements.
For the reasons set forth above, the
Brenans are ORDERED to provide a notarized statement that complies with Indiana Code §33-42-3-1.
GAIC also points to deficiencies in the content of the
information the Brenans provided.
7
Specifically, the Brenans did
not provide any information sufficient to identify over one
million dollars worth of cash transfers from their checking,
savings, and Charles Schwab accounts.
The Brenans' only response
was that "they provided any information as to any assets transferred as referenced by 4D."
However, the Brenans do not point
to any specific information they provided referencing the cash
transfers that GAIC claims are lacking documentation.
In light
of the stipulated order mandating the Brenans to turn over
information sufficient to identify what occurred to any assets
they may have transferred, the court finds that the Brenans must
produce documentation explaining where the money liquidated from
their checking, savings, and Charles Schwab account was transferred.
Paragraph 4G of the stipulated order requires the Brenans to
produce copies of all documents that evidence, reference, or
relate to any transfers of assets by or on their behalf to any
entity or person since October of 2008.
As explained above, the
Brenans failed to provide documents explaining what occurred to
the cash liquidated from their savings, checking, and Charles
Schwab accounts.
Additionally, the Brenans have acknowledged
that they transferred their interest in the Abby Manor Apartment
in August 2010, but they only produced the first page of the
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settlement statement regarding the transfer.1
The Brenans did
not address their failure to provide the information required by
paragraph 4G of the stipulated order, and any arguments in
opposition are considered waived.
See Hernandez v. Cook County
Sheriff’s Office, 634 F.3d 906, 913 (7th Cir. 2011) (explaining
that arguments not raised in response to a motion are considered
waived); Palmer v. Marion County, 327 F.3d 588, 597-98 (7th Cir.
2003) (same).
Because the settlement statement relates to the
transfer of the Brenans' assets, it is subject to Paragraph 4G of
the stipulated order in its entirety.
The court GRANTS GAIC’s
motion with respect to this issue.
Paragraph 4H of the stipulated order requires the Brenans to
produce all documents that evidence, reference and/or relate to
any corporations or other legal entities, whether located in the
United States or in a foreign country, in which they have or
claim any interest. The Brenans provided certificates of incorporation for AMI and Peregrine, but the certificates fail to
provide any information regarding the ownership of the companies
and how the Brenans obtained their interest.
Given the broad
language of the stipulated order encompassing all documents that
relate to any corporation in which the Brenans have an interest,
1
The statement also reveals that the name of the seller is BH2, LLC, a
corporation in which John D. Brenan appears to have an undisclosed ownership
interest.
9
the Brenans were required to provide all information regarding
their ownership interest and how it was obtained.
The Brenans
responded that they provided information concerning Architectural
Materials, Inc., and Peregrine, disclosed their ownership interests, and explained that the parties agreed that GAIC would
contact the defendants’ Nevada attorney to obtain the information.
Because the stipulated order encompasses all information
pertaining to the Brenans' interest in AMI and Peregrine, the
Brenans are required to make this information available, either
by turning it over to GAIC directly or through their Nevada
attorney, as they explain it previously was made available.
Furthermore, GAIC has significant information and documentation indicating that the Brenans have not disclosed all of their
assets and corporate ownership interests.
GAIC explained that it
found six companies that have significant links to the Brenans,
including: Arete LLC, an Indiana company whose entity and registered agent address is the Brenans’ primary residence and John
Brenan is the registered agent; BH2 LLC, an Indiana company whose
entity and registered agent address is the Brenans’ primary
residence, John Brenan is the registered agent and a partner in
the company, and Marla Brenan is listed as the president of the
company; Bencyn Lubricants, Inc., an Indiana corporation that
merged with a Michigan corporation of the same name, whose plan
10
of merger was signed by John Brenan as president; Brenodge
Properties, LLC, an Indiana company whose entity and registered
agent address is the Brenans’ primary residence, John Brenan is
also the registered agent, and he organized the company, having
signed all the paperwork; Brenodge Properties, LLC, a company
registered in the United States Virgin Islands, which was organized by John Brenan, who signed the Acknowledgment in Indiana;
and Orion Minerals LLC, an Indiana company whose entity and
registered address is the Brenans’ primary residence and John
Brenan is listed as president.
The Brenans deny any interest in
any of these businesses, yet fail to explain the significant
connections tying them to these businesses.
It is difficult for the court to understand how the Brenans
deny any interest in the companies, specifically BH2.
GAIC
presented evidence that John Brenan signed a purchase agreement
on behalf of BH2 as its member.
A member is defined as someone
with an ownership interest, and Indiana treats such an interest
as personal property of the member.
Ind. Code §23-18-6-2 ("The
interest of a member in a limited liability company is personal
property"); Glentel, Inc. v. Wireless Ventures, LLC, 362
F.Supp.2d 992, 1005, n.24 (N.D. Ind. 2005) (noting that members
of limited liability corporations are the equivalent of stockholders in corporations).
This evidence clearly reflects that
11
John Brenan had an ownership interest in BH2 at one time that was
either not reported as an ownership interest as required by
Paragraph 4H or a transfer of interest as the Brenans were
obligated to disclose in response to Paragraph 4G.
In light of the myriad of evidence linking the Brenans to
the six companies GAIC identified, and the Brenans’ absence of
explanation addressing this evidence, the court GRANTS GAIC’s
motion on this issue.
The Brenans are ORDERED to produce to GAIC
all business, financial, and all other records, books and other
documents that in any way evidence, reference or relate to the
ownership and membership of Arete, LLC, BH2, LLC, Bencyn Lubricants, Inc., Brenodge Properties, LLC, an Indiana limited liability company, Brenodge Properties, LLC, a limited liability company registered in the U.S. Virgin Islands, Orion Minerals, LLC,
and any other entities in which the Brenans have an interest.
In Paragraph 4L of the stipulated order the parties agreed
that the Brenans would execute all documents GAIC requested to
perfect a security interest in the Brenans’ real property.
GAIC
granted the Brenans an extensive amount of time to provide the
executed mortgages, yet the Brenans have failed to provide the
mortgages in a recordable form.
The Brenans responded that they
are ready to execute the mortgages on the real estate in Indiana
and Wyoming, but they will not agree to provide the warranties
12
and representations GAIC requested.
GAIC contends that the
mortgage the Brenans are prepared to execute does not give GAIC
an immediate right in the property and fails to comply with
Paragraph J of the stipulated order which grants GAIC the immediate right to collateral in the form of money, property, liens, or
mortgages. The Brenans did not explain why they refused to comply
with GAIC’s request.
Because the language of the stipulated order provides that
the Brenans will execute all documents "requested" by GAIC to
perfect a security interest in real property, the Brenans are
obligated to comply with GAIC’s request.
The Brenans must
produce the mortgage documents as requested so that GAIC can
perfect its interest.
The Brenans have not demonstrated good
cause to deviate from the court’s order, nor have they requested
or shown that the stipulated order should be amended.
Because
the plain language of the order demands that the Brenans produce
the documents GAIC requests to perfect its security interest, the
court GRANTS GAIC’s motion with respect to this issue.
GAIC similarly demonstrated that the Brenans failed to
execute documents that would give GAIC a lien on all motor
vehicles the Brenans own or claim an interest in, as was required
in Paragraph O of the stipulated order.
The Brenans did not
respond to this argument, and any opposition is considered
13
waived.
See Hernandez, 634 F.3d at 913 (explaining that argu-
ments not raised in response to a motion are considered waived);
Palmer, 327 F.3d at 597-98 (same).
In accordance with Paragraph
4L, the Brenans are ORDERED to provide the information GAIC
requests to perfect the lien on the Brenans' motorized vehicles.
Based on the foregoing, GAIC’s motion to compel is GRANTED.
IT IS ORDERED that within three days of entry of this order, John
D. Brenan and Marla R. Brenan are to send to GAIC via overnight
mail, executed original copies of the mortgages GAIC submitted to
the Brenans in connection with the Brenans' property located in
Indiana and Wyoming.
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan must file documents with the Indiana Bureau of Motor Vehicles sufficient to
grant GAIC unconditional liens on all motor vehicles, motorcycles, boats and recreational vehicles the Brenans own or in which
they claim an interest, to include, but not limited to, the
motorized vehicles identified in the information and documents
the Brenans provided to GAIC pursuant to the stipulated order.
The Brenans are to provide copies of the documents evidencing the
granting and filing of such liens to counsel for GAIC upon
request.
14
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan and their employees, agents, representatives, and all persons or legal entities
working on their behalf or for their benefit, must produce to
GAIC all business, financial and all other records, books and
other documents that in any way evidence, reference or relate to
the following legal entities:
1.
Arete LLC, an Indiana limited liability
company;
2.
BH2, LLC, an Indiana limited liability
company;
3.
Bencyn Lubricants, Inc., an Indiana
corporation;
4.
Brenodge Properties LLC, an Indiana
limited liability company;
5.
Brenodge Properties LLC, a limited liability company registered in the United
States Virgin Islands;
6.
Orion Minerals, LLC, an Indiana limited
liability company.
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan and their employees, agents, representatives, and all persons or legal entities
working on their behalf or for their benefit, must produce to
GAIC all business, financial and all other records, books, and
other documents that in any way evidence, reference, or relate to
15
any legal entities in which the Brenans claim or have an ownership interest.
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan and their employees, agents, representatives, and all persons or legal entities
working on their behalf or for their benefit must produce to GAIC
all business, financial, and all other records, books and other
documents that in any way evidence, reference or relate to
personal and real property, and all other property and assets of
any nature in which the Brenans may have or claim an interest
that is located in the United States or outside the contiguous
United States.
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan and their employees, agents, representatives, and all persons or legal entities
working on their behalf or for their benefit must produce to GAIC
all records, books, and documents that in any way evidence,
reference, or relate to the transfers of cash, assets, and other
interests from the Brenans' savings and checking accounts at
Lafayette Bank & Trust, NA and account(s) with Charles Schwab.
The documents produced must provide information sufficient to
determine (1) who authorized the transfer of the cash, asset or
other interest; (2) to what person or legal entity the cash,
16
asset or other interest was transferred; and (3) contact and
account information for the person or legal entity to whom and
where the cash, asset or other interest was transferred.
IT IS FURTHER ORDERED that within seven days of entry of
this order, John D. Brenan and Marla R. Brenan and their employees, agents, representatives, and all persons or legal entities
working on their behalf or for their benefit must produce to GAIC
all records, books and documents that in any way evidence, reference, or relate to the assets and liabilities referenced in
statements the Brenans provided to GAIC pursuant to the terms of
the stipulated order, to include, but not limited to: (1) accounts and loans receivable; (2) "other assets"; (3) retirement
assets; (4) life insurance; (5) other notes; (6) IRS back taxes,
personal; (7) legal fees; (8) mortgage on their primary residence; (9) "other notes payable", including any loans by and
between the Brenans and their relatives; and (10) the sale of
Abby Manor Apartment.
GAIC also requests for the court to hold the Brenans in
contempt for their failure to comply with the stipulated order
and for deceiving GAIC and the court of their interests in the
six companies GAIC independently discovered the Brenans have
significant ties and possibly an ownership interest in.
"A
litigant may be held in contempt if his adversary shows by clear
17
and convincing evidence that 'he violate[d] a definite and
specific order of the court requiring him to perform or refrain
from performing a particular act or acts with knowledge of the
court's order.'"
N.L.R.B. v. Cincinnati Bronze, Inc., 829 F.2d
585, 590 (6th Cir. 1987); Goluba v. School Dist. of Ripon, 45
F.3d 1035, 1037 (7th Cir. 1995).
"The district court 'must be
able to point to a decree from the court 'which sets forth in
specific detail an unequivocal command' which the party in
contempt violated.'" Goluba, 45 F.3d at 1037.
The burden then
shifts and the party opposing the motion must demonstrate why he
is unable to comply with the order.
United States v. Rylander,
460 U.S. 752, 757, 103 S.Ct. 1548, 75 L.Ed.2d 521 (1983).
The
court should not take the authority to hold a party in contempt
lightly and should only do so when it is necessary to induce
performance of a court order.
Electrical Workers Pension Trust
Fund of Local Union #58 v. Gary’s Electrical Service Co., 340
F.3d 373, 378 (6th Cir. 2003) (citing Gompers v. Buck’s Stove &
Range Co., 221 U.S. 418, 450, 31 S.Ct. 492, 55 L.Ed. 797 (1911).
GAIC demonstrated that the Brenans failed to comply with the
substance and time constraints imposed by the stipulated order.
The Brenans did not provide accurate and descriptive financial
statements, statements regarding transfers of assets, or evidence
of corporate ownership interests.
18
Nor did the Brenans produce
documents necessary for GAIC to secure its interest in the
Brenans' assets within the time constraint stated in the stipulated order.
GAIC made an effort to communicate and allow the
Brenans to comply with the order, even extending deadlines to
allow the Brenans to provide correct and complete information.
The Brenans not only failed to comply, but insisted in a short,
ambiguous response that they provided sufficient information to
comply with the stipulated order without explaining the efforts
they took to comply.
What is more alarming is the Brenans' persistence that they
do not have any interest in the six companies GAIC discovered the
Brenans have significant ties to.
The Brenans continue to re-
present to the court and GAIC that they do not have any interest
in any of the companies, however, they have not explained any of
the evidence linking them to the six entities.
Most peculiar is
John Brenans’ signature as a member of BH2, LLC.
His status as a
member of the limited liability corporation renders him an owner
of the entity.
If it is true that the Brenans have an interest
in any of the entities, the Brenans have not only been uncooperative in complying with the court order, but also have attempted
to deceive the court.
Although the court acknowledges the Brenans' failure to
comply with the court order, the court also must consider the
19
broad terms and general nature of the discovery requests.
The
stipulated order does not spell out specifically which documents
and information the Brenans must produce.
Rather, it was written
broadly to encompass an array of documents and information.
Because the court may hold a party in contempt only for failure
to comply with specific orders, the court will refrain from
issuing such a harsh sanction at this time.
The Brenans now are
apprised of their obligation to produce specific documents, and
any further noncompliance may result in the Brenans being incarcerated until they produce the required information.
The Brenans' uncooperativeness and failure to comply cannot
be completely forgiven.
The Brenans are ORDERED to pay the costs
and expenses GAIC incurred in filing this motion.
GAIC is
DIRECTED to file an affidavit setting forth its fees and expenses
within 14 days of this order.
_______________
Based on the foregoing reasons, the Motion to Compel Compliance with Stipulated Order and/or for an Order to Show Cause Why
John Brenan and Marla Brenan Should Not be Held in Contempt [DE
39] filed by the plaintiff, Great American Insurance Company, on
June 28, 2011, is GRANTED.
In light of the court’s ruling, an
oral argument is unnecessary and GAIC’s Motion for Oral Argument
[DE 41] is DENIED.
20
ENTERED this 3rd day of October, 2011
s/ ANDREW P. RODOVICH
United States Magistrate Judge
21
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