BMO HARRIS BANK N.A. v. MTR FARMS LLC et al

Filing 61

ORDER - Plaintiff's Notice of Motion and Motion for Order Limiting Scope of Discovery, Dkt. No. 47 , is GRANTED. Pursuant to Fed. R. Civ. P. 30(d)(3)(B), the suspended depositions of Laureen K. Mueller and Jason Krueger are ordered te rminated. Pursuant to Fed. R. Civ. P. 26(c)(2)(D), the Robinson Defendants' inquiry into facts pre-dating the Forbearance Agreement and the Daugherty Defendants' inquiry into BMO's origination and processing of the Robin son Defendants' loans, its policies and practices for loan origination and processing, its non-competition agreement with Mr. Mattick, and its objection to Mr. Mattick's involvement in the Robinson Defendants' refinanci ng efforts is forbidden. BMO need not comply with the Robinson Defendants' [Second] Request for Production to BMO Harris Bank, Dkt. No. 48 -3. Defendant MTR Farms LLC's Motion to Set Hearing on Objection to Protective Order, Dkt. No. 51 is DENIED (SEE ORDER). Signed by Judge Larry J. McKinney on 6/5/2017. (DW)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF INDIANA,
TERRE HAUTE DIVISION
BMO Harris Bank, N. A.,
Plaintiff,
vs.

CAUSE NO. 2:16-cv-133-LJM-DKL

MTR FARMS, L.L.C., et al.,
Defendants.
ORDER ON PLAINTIFF’S NOTICE OF MOTION &
MOTION FOR ORDER LIMITING SCOPE OF DISCOVERY
Plaintiff BMO Harris Bank, N.A. (“BMO”), seeks a protective order under Fed. R.
Civ. P. 26(c) and an order under 30(d)(3) barring certain discovery by both sets of
defendants. Dkt. No. 47. For the reasons explained below, its motion is GRANTED.
I. BACKGROUND
In brief, BMO alleges that, in September and October, 2013, it made loans to
defendants MTR Farms, L.L.C. (“MTR”), and Robinson Land Holdings, L.L.C. (“RLH”)
(collectively, the “Borrowers”), which were documented by a promissory note and an
agricultural loan agreement (both by MTR), and by a mortgage note (by RLH)
(collectively, the “Notes”). BMO’s interests were secured by an agricultural security
agreement (by MTR), a mortgage (by RLH), and an assignment agreement (by RLH), all
of which were filed and recorded. In addition, the only two members of both MTR and
RLH, defendants Byron T. Robinson and Michael Robinson, gave to BMO their
unconditional personal guarantees for the Notes (Byron T. Robinson for MTR’s
obligations and Michael Robinson for RLH’s obligations).

MTR defaulted when its

promissory note fully matured in April, 2015. Since BMO gave formal notice of default in

May, 2015, neither MTR nor the guarantors have cured the default. Amended Complaint,
¶¶ 12-22.
On September 22, 2015, BMO, the Borrowers, and the guarantors executed a
Forbearance Agreement whereby BMO agreed to forbear, up to December 31, 2015, from
taking action to collect the Borrower’s obligations in return for the Borrowers’ and the
guarantors’ agreements, in part, to grant additional security to BMO by amending the
mortgage to pledge the real property as collateral for all of the obligations and
indebtedness of the Borrowers. The Forbearance Agreement also provides that the
Notes, guarantees, security agreements, mortgage, and other loan documents are each
cross-defaulted and cross-collateralized, with the effect that defaults under MTR’s
promissory note and the Forbearance Agreement constitute defaults under each of the
other loan documents. The effect of the Forbearance Agreement is that each of the Notes
is due and payable to BMO, which is entitled to possess and sell all of the pledged
collateral to secure its interests.
After the forbearance date of December 31, 2015, and despite BMO’s demands,
the Borrowers and guarantors have failed to pay what is owed under the loan documents.
Amended Complaint, ¶¶ 23-27, 29.
In return for BMO’s forbearance, the Robinson Defendants also agreed in the
Forbearance Agreement to release BMO from “any and all actions, obligations, costs,
damages, losses, claims, liabilities and demands of whatever kind and nature which any
of the Obligors has had, now has or hereafter may have, arising from or by reason of or
in any way connected with any transaction, matter, event or circumstance which occurred
or existed prior to the date hereof.”

Forbearance Agreement, Dkt. No. 37-7, § 11

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(“Releases”). The Robinson Defendants also agreed and acknowledged “that each has
no offsets, defenses, claims, or counterclaims against [BMO] with respect to the
Obligations, any obligations related thereto, or otherwise and that if each Obligor now has
or ever had any such offsets, defenses, claims, or counterclaims against [BMO], whether
known or unknown, at law or in equity, from the beginning of the world through this date
and through the time of the execution of this Agreement, all of them are expressly
WAIVED, and each of the Obligors hereby RELEASES [BMO] from any liability therefore
[sic].” Id.

The Robinson Defendants were represented during the negotiation of the

Forbearance Agreement by the same attorney that represents them in the present action.
Affidavit of Erin West, Dkt. No. 48, ¶ 8. Any claims and defenses released by the
Robinson Defendants by the Forbearance Agreement are collectively referred to herein
as the “Released Claims.”
The Daugherty Defendants (Larry Joe Daugherty and Phyllis Daugherty) contend
that they lent money to one, some, or all of the Robinson Defendants (it is not clear),
which loan is secured by a mortgage on “the property at issue in this proceeding.” Larry
Joe Daugherty and Phyllis M. Daugherty’s Objection to BMO Harris Bank, N.A.’s Motion
for Order Limiting Scope of Discovery, Dkt. No. 53 (“Daugherty Response”), at 2. BMO
alleges the mortgage attaches to RLH’s real property that also serves as secured
collateral for BMO’s loans. Amended Complaint, ¶ 30. The Daughertys’ mortgage was
executed and recorded on September 14, 2015 (before execution of the Forbearance
Agreement). Daugherty Response, at 2; Amended Complaint, ¶ 30. BMO alleges that
the Daughertys’ mortgage is subsequent, subordinate, and junior to its own mortgage on
the RLH property. Amended Complaint, ¶ 31.

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On March 29, 2017, the Robinson Defendants deposed two of BMO’s employees,
Laureen K. Mueller, a vice president and senior relationship manager, and Jason L.
Krueger, whose position is not explained on the present motion.

The Dougherty

Defendants also attended the depositions and questioned the deponents.

The

defendants asked a series of questions of Ms. Mueller regarding subjects relating to, inter
alia, the origination of the Notes; T. J. Mattick, BMO’s loan officer, or “relations manager,”
who originated the Notes; BMO’s loan application and approval process; and BMO’s
knowledge of and reliance on certain information and forms in originating and approving
the Notes. Interpreting these questions and subjects as relating to the Released Claims,
which predate the execution of the Forbearance Agreement, BMO’s counsel objected and
instructed Ms. Mueller not to answer. The defendants’ counsel then described a series
of additional questions that he intended to pose to the deponents and BMO’s counsel
indicated that he would make the same objection and deliver the same instruction in
response. Counsel contacted the Court and BMO requested, and the Court granted,
leave to file a Rule 30(d)(3) motion.

Minute Entry for March 29, 2017, Discovery

Conference, Dkt. No. 46. The depositions were then suspended, pending a ruling on
BMO’s motion.
Following the suspension of the depositions, the Robinson Defendants served
requests for production on BMO seeking documents that BMO contends relate to the
same subject matters to which it objected during the depositions. Robinson Defendants’
Request for Production to BMO Harris Bank, Dkt. No. 48-3 (“Requests”). In brief, for the
time period from January 1, 2013, to the date of response, the Requests ask for all
documents (1) that BMO relied upon, referred to, or that relate to MTR’s and RLH’s loan

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accounts with BMO; (2) that BMO possesses that could be considered to constitute part
of MTR’s and RLH’s loan accounts; (3) that constitute the personnel file of T. J. Mattick;
(4) that constitute any non-competition or restrictive contract applicable to T. J. Mattick;
(5) that describe the compensation formula used for or offered to T. J. Mattick; (6) that
describe agricultural lending policies of BMO; and (7) that are the agricultural loans closed
by T. J. Mattick.
BMO argues that information about the origination of the Notes, BMO’s loan
policies, T. J. Mattick (the originating loan officer), and all other matters pre-dating the
Forbearance Agreement are irrelevant and undiscoverable because the releases therein
have rendered them so. They contend that the requested discovery can be relevant to
only the Released Claims and, therefore, is outside the permissible scope of Rule 26.
The Robinson Defendants argue that the information they seek is discoverable for
several reasons. First, the releases in the Forbearance Agreement did not waive their
rights to plead affirmative defenses or to obtain discovery. Second, the Forbearance
Agreement did not establish September 22, 2015, as a discovery cut-off date. Third, it
was not until about a year after execution of the Forbearance Agreement that the general
public and the Robinson Defendants learned of the “broader banking industry’s use of
questionable practices,” including high pressure sales tactics, and it was not until the
deposition of the Robinson Defendants’ bookkeeper in March, 2017, that information
surfaced in this case that indicated that BMO’s loan officer, Mr. Mattick, encouraged the
Robinson Defendants to “incur debt beyond their capacity to service.” Objection to Motion
for Order Limiting Discovery, Dkt. No. 50 (“Robinsons’ Response”), at 2-3. Fourth, the
information sought is relevant to the subject matter of the case and good cause exists to

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permit its discovery. Fifth, the public, the “broader society,” has an interest in discovering
the information.
The Daugherty Defendants also want to discover information that was requested
and refused during the depositions. They want information “concerning the relationship
which led to the financing extended to the Robinson Defendants, and the actions by BMO
which prevented the refinancing of the same once the Robinson Defendants were unable
to stay current on the obligation to BMO.” Daugherty’s Response, at 3. They first argue
that they “have an interest in exploring the events and circumstances concerning the loan
which is claimed to be a priority, the conduct and good faith of BMO in making the same,
and the circumstances which led to this proceedings,” because such information “may
lead to admissible evidence concerning the priority of their mortgage dated prior to the
Forbearance Agreement.” Id., at 2. They point out that the Forbearance Agreement does
not bar this area of inquiry because they did not sign the Agreement and, thus, did not
release any of their claims, defenses, or other rights pertaining to the pre-Agreement
period. Id. Second, they argue that they have an interest in discovering BMO’s role in
preventing the Robinson Defendants from refinancing the loan, which caused their
default. According to the Daugherty Defendants, the Robinson Defendants attempted to
refinance MTR’s loan through Mr. Mattick, who had left BMO and was working for a new
lender at that time, but BMO interposed an objection based on its non-competition
agreement with him.

That objection ended the refinancing effort and caused the

Robinson Defendants to default on the loan and guarantees. The Daugherty Defendants
argue that, “[t]o the extent BMO acted to the detriment of the Daughertys, the noncompete should be discoverable.” Id., at 3.

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II. DISCUSSION
“Parties may obtain discovery regarding any nonprivileged matter that is relevant
to any party’s claim or defense and proportional to the needs of the case . . . .” Fed. R.
Civ. P. 26(b)(1). Although, in 2000, relevance to the subject matter of a case was
removed from the text of the rule as a legitimate subject of discovery, courts still retain
the authority to permit discovery of “any matter relevant to the subject matter involved in
the action for good cause.” Fed. R. Civ. P. 26(b)(1) Advisory Committee Note to 2000
amendment.

However, the removal of subject-matter relevance from the text was

intended to focus parties and courts on the claims and defenses and to signal that courts
have the authority to “confine discovery to the claims and defenses asserted in the
pleadings, and signals to the parties that they have no entitlement to discovery to develop
new claims or defenses that are not already identified in the pleadings.” Id.
Robinson Defendants. The Court first notes that the Robinson Defendants do
not suggest any defense against the releases in the Forbearance Agreement. The
closest they come is their assertions that allegations and evidence of abusive industrywide loan practices and BMO’s own abusive practices did not emerge until well after the
Robinson Defendants executed their releases. However, the Robinson Defendants were
represented by present counsel in the Forbearance Agreement negotiations and they do
not assert that their agreements were obtained by duress or were otherwise not voluntary.
As quoted above, the release is broad: each of the Robinson Defendants released any
and all actions, obligations, costs, damages, losses, claims, liabilities, and demands it
“has had, now has, or hereafter may have,” and waived any offsets, defenses, claims, or
counterclaims against BMO, “whether known or unknown.” In the circumstances as pled

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and asserted, and in the face of this clear language, the Robinson Defendants’ later
discovery of possible defenses, offsets, or counterclaims against the MTR loan does not
impugn the validity of their releases. In addition, although the release language does not
mention “affirmative defenses” by specific label, it releases “offsets, defenses, claims, or
counterclaims,” which encompasses affirmative defenses.
Therefore, as to the Robinson Defendants, matters relating to the origination of the
Notes, BMO’s practices or policies that predate the Forbearance Agreement, or any
incidents occurring before the Forbearance Agreement are irrelevant to the claims and
defenses in this action. 1
The Robinson Defendants also argue that the information they seek is relevant to
the subject matter involved in this case, but they neither identify the subject matter nor
attempt to show the required good cause to permit discovery of it.

Rather, they

confusingly argue only that “[t]he party ‘resisting the discovery has the burden to establish
the lack of relevance by demonstrating that the requested discovery is of such marginal
relevance that the potential harm occasioned by discovery would outweigh the ordinary
presumption in favor of broad disclosure’” Robinsons’ Response, at 4 (quoting Beach v.
City of Olathe Kansas, 203 F.R.D. 489, 496 (D. Kan. 2001)); and that BMO “has failed to
allege any specific harm occasioned by permitting the discovery to occur.” Id. But the
Robinson Defendants misquote the passage from Beach and, thus, mistake its meaning.
The full and accurate quotation is: “When the discovery sought appears relevant, the

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The Robinson Defendants did not argue that any of their questions or requests
are relevant to claims and/or defenses that they did not release by the Forbearance
Agreement, by being either “directly pertinent to the incident in suit” or indirectly relevant,
e.g., impeachment material. See Fed. R. Civ. P. 26(b)(1) Advisory Committee Note to
2000 Amendment.
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party resisting the discovery has the burden to establish the lack of relevance by
demonstrating that the requested discovery (1) does not come within the broad scope of
relevance as defined under Fed.R.Civ.P. 26(b)(1), or (2) is of such marginal relevance
that the potential harm occasioned by discovery would outweigh the ordinary presumption
in favor of broad disclosure.” Beach, 203 F.3d at 496. BMO has shown that the objectedto discovery does not appear to be relevant and, by not identifying the subject matter to
which they assert the discovery is relevant, or presenting a supporting legal argument,
the Robinson Defendants have not shown that their discovery is relevant. Thus, BMO
did not have the burden to show prejudice or lack of proportionality.
The Robinson Defendants next argue that the discovery should be allowed
because a court must “tak[e] into account society’s interest in furthering ‘the truthseeking
function’ in the particular case before the court,” Patterson v. Avery Dennison Corp., 281
F.3d 676, 681 (7th Cir. 2002); and the “broader society” is interested in discovering
whether BMO employed questionable sales tactics.

But the Robinson Defendants’

citations do not support the notion that a court should consider the public’s general
interest in learning information divorced from its relevance to the case before it. Rather,
the Court should consider the public’s interest in the truthseeking function operating within
the parameters of the case before the Court. If information sought is not relevant to a
claim or defense in the case, or to its subject matter, then the Court may not permit
discovery simply because it believes that there might be a benefit to the public from
disclosure of the information.
The Robinson Defendants have not shown that the information they seek is
relevant to a claim or defense in the case and they have not shown that it is relevant to a

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subject matter involved in this case, or that good cause justifies permitting subject-matter
discovery.
Daugherty Defendants.

The Daugherty Defendants assert that information

regarding the origination of the Robinson Defendants’ defaulted note is relevant to the
priorities of their and BMO’s security interests but they offer no legal explanation
supporting that assertion and the Court will not construct one for them.
Similarly, the Daugherty Defendants only assert that BMO might have acted to
their detriment by “blocking” the Robinson Defendants’ refinancing efforts with Mr.
Mattick, but they offer no legal explanation how, if true, that circumstance supports either
a defense against BMO’s priority claims or a counterclaim against BMO. Further, they
offer no support for the proposition that BMO’s objection to Mr. Mattick’s involvement in
the refinancing efforts was legally and factually unreasonable, in bad faith, or otherwise
improper or actionable. 2 Again, the Court will not construct their arguments for them.
Moreover, the Daugherty Defendants admit that they seek this discovery in order
to determine whether a defense or claim arises from BMO’s objection to Mr. Mattick’s
refinancing involvement. But the 2000 amendment to Rule 26(b)(1) “signals to the court
that it has the authority to confine discovery to the claims and defenses asserted in the
pleadings, and signals to the parties that they have no entitlement to discovery to develop
new claims or defenses that are not already identified in the pleadings.” Rule 26(b)(1)
Advisory Committee Note to 2000 amendment. Because the Daugherty Defendants have
not pled any explicit claim or defense based on BMO’s non-competition objection, and

2

The Daugherty Defendants also did not show that BMO owed a duty of good faith
and fair dealing to them in relation to its non-competition agreement with Mr. Mattick or
to its involvement in the Robinson Defendants’ refinancing efforts.
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have not explained how a claim or defense is encompassed within the existing pleadings,
they have not shown the relevance of their requested discovery.
Because BMO has reasonably challenged the relevance of the information sought
by the Daugherty Defendants’ deposition questions and they have not shown their
relevance, BMO’s motion will be granted as to them.
III. CONCLUSION
Plaintiff’s Notice of Motion and Motion for Order Limiting Scope of Discovery, Dkt.
No. 47, is GRANTED. Pursuant to Fed. R. Civ. P. 30(d)(3)(B), the defendants’ suspended
depositions of Laureen K. Mueller and Jason Krueger are ordered terminated. Pursuant
to Fed. R. Civ. P. 26(c)(2)(D), the Robinson Defendants’ inquiry into facts pre-dating the
Forbearance Agreement and the Daugherty Defendants’ inquiry into BMO’s origination
and processing of the Robinson Defendants’ loans, its policies and practices for loan
origination and processing, its non-competition agreement with Mr. Mattick, and its
objection to Mr. Mattick’s involvement in the Robinson Defendants’ refinancing efforts is
forbidden. BMO need not comply with the Robinson Defendants’ [Second] Request for
Production to BMO Harris Bank, Dkt. No. 48-3. Defendant MTR Farms LLC’s Motion to
Set Hearing on Objection to Protective Order, Dkt. No. 51 is DENIED.
IT IS SO ORDERED this 5th day of June, 2017.

________________________________
LARRY J. McKINNEY, JUDGE
United States District Court
Southern District of Indiana

Electronically distributed to all registered counsel of record via ECF.
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