Kendall State Bank v. West Point Underwriters, LLC

Filing 159

MEMORANDUM AND ORDER granting 130 Second Motion to Compel. Defendant shall admit or deny the Requests for Admissions at issue, without objection, on or before October 30, 2012. Signed by Magistrate Judge Kenneth G. Gale on 10/16/2012. (df)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
KENDALL STATE BANK,

)
)
Plaintiff,
)
)
vs.
)
)
WEST POINT UNDERWRITERS, LLC, )
)
Defendant.
)
___________________________________ )

Case No. 10-2319-JTM/KGG

MEMORANDUM AND ORDER
Before the Court is the Second Motion to Compel and supporting
memorandum filed by Plaintiff Kendall State Bank. (Docs. 130, 131.) After
discussions between the parties, Plaintiff now seeks an Order requiring Defendant
to respond to certain of the Requests contained in Plaintiff’s Third Requests for
Admissions. (Doc. 131-3.) Having reviewed the submissions and exhibits
presented by the parties, the Court GRANTS Plaintiff’s motion (Doc. 130).
BACKGROUND
Plaintiff’s claims result from a commercial loan (“Loan 4922" or “the
Loan”) made by Brooke Credit Corporation (l/k/a Aleritas Capital Corporation) to
Defendant West Point Underwriters (Defendant). (Doc. 76, Second Amended
Complaint, at ¶ 8.) Aleritas is alleged to have sold participations in the Loan to

Plaintiff Kendal State Bank (Plaintiff) and other banks. (Id., at ¶ 14.) Other
relevant facts are summarized in this Court’s prior Order of January 11, 2012, and
are incorporated herein by reference. (Doc. 97, at 2-4.)
For purposes of this motion, it is undisputed that Defendant and Aleritas
were parties to an arbitration held before the American Arbitration Association
(“AAA”). It is further undisputed that the loan agreement between Defendant and
Aleritas required such arbitration of any disputes or claims by Defendant. (See
Doc. 112, at 2.)
At the initial Pretrial Conference, the undersigned Magistrate Judge
addressed Defendant’s request, and Plaintiff’s objection, to include in the Pretrial
Order “defenses and contentions related to an arbitration award allegedly received
by the Defendant against a third party within the last 30 days.” (Doc. 105, at 1.)
After allowing Defendant to plead the issue, the Court granted Plaintiff’s request to
re-open discovery “to determine facts related to the alleged arbitration and award.”
(Id.) Plaintiff was subsequently allowed leave to amend its Complaint as a result.
(See Doc. 109.)
Plaintiff alleges that the relevant participation agreements state that “any
failure by Aleritas to comply with its obligations under those agreements, or any
act of insolvency by Aleritas authorizes the Participants to remove Aleritas as the
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administrator of the Loan and transfer its powers to one of the Participants.” (Id.,
at § 20.) Plaintiff contends that in August 2008, Aleritas was removed as the
administrator of the Loan and the administration of the Loan was transferred to
Plaintiff. (Id., at §§ 21, 22.)
Plaintiff claims it is representing the interests of all the Participants in this
lawsuit. (See Doc. 48-1, at 5.) Plaintiff alleges that Defendant materially breached
the underlying loan agreement by causing one or more events of default. (See
generally, Doc. 76.) Plaintiff also contends that Defendant has not fully performed
its obligations under the loan agreement and has not retracted its repudiation of its
remaining obligations. (Id.) Finally, Plaintiff seeks a declaratory judgment stating
that it is entitled to enforce the loan agreement against Defendant, on which
Plaintiff contends Defendant owes approximately $1.8 million. (Id.)
Plaintiff filed the present motion to compel in regard to various objections
raised by Defendant in response to Plaintiff’s Fourth Interrogatories and Requests
for Production and to Plaintiff’s Third Requests for Admissions. (Docs. 131-1,
131-2, and 131-3.) The Court has been advised by counsel, however, that
Defendant has withdrawn its objections to all but Requests for Admission 27 and
39.
DISCUSSION
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Fed.R.Civ.P. 26(b) states that “[p]arties may obtain discovery regarding any
matter, not privileged, that is relevant to the claim or defense of any party . . .
Relevant information need not be admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of admissible evidence.” As such,
the requested information must be both nonprivileged and relevant to be
discoverable.
“‘Discovery relevance is minimal relevance,’ which means it is possible and
reasonably calculated that the request will lead to the discovery of admissible
evidence.” Teichgraeber v. Memorial Union Corp. of Emporia State University,
932 F.Supp. 1263, 1265 (D. Kan. 1996) (internal citation omitted). “Relevance is
broadly construed at the discovery stage of the litigation and a request for
discovery should be considered relevant if there is any possibility the information
sought may be relevant to the subject matter of the action.” Smith v. MCI
Telecommunications Corp., 137 F.R.D. 25, 27 (D.Kan.1991). Stated another way,
“discovery should ordinarily be allowed unless it is clear that the information
sought can have no possible bearing on the subject matter of the action.” Snowden
By and Through Victor v. Connaught Lab., 137 F.R.D. 325, 341 (D.Kan.1991),
appeal denied, 1991 WL 60514 (D.Kan. Mar. 29, 1991).

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The scope of discovery is broad, but not unlimited. If the proponent has
failed to specify how the information is relevant, the Court will not require the
respondent to produce the evidence. Gheesling v. Chater, 162 F.R.D. 649 (D.
Kan. 1995).
Request for Admission No. 27 asks Defendant to “[a]dmit that in the
Arbitration WPU did not notify the Arbitrator about the terms of the agreements
that are attached to Kendall State Bank’s Third Amended Complaint in this action
as Exhibit C.” (Doc. 131-3, at 8.) Exhibit C is comprised of the various
Participation Agreements. (Doc. 109-3.)
In response to Request No. 27, Defendant objected that the request is “vague
as to which agreement terms are being referenced.” Defendant also objected that
the request is not reasonably calculated to lead to the discovery of admissible
evidence because “the Arbitration Award is not the subject of a collateral attack or
a matter in dispute under any issues framed by the pleadings.” (Id.)
During the meet and confer process, Plaintiff provided Defendant with
additional explanation that the terms implicated are
the terms of the identified agreements collectively, but
particularly the terms stating that Kendall State Bank and
other lenders purchased interests in WPU’s loans
‘without recourse’ to Aleritas, including interests in ‘all
notes an other instruments’ relating to WPU’s debt and
‘all security interests’ in the collateral for that debt,
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becoming ‘for all purposes the legal and equitable
owner[s]’ of those interests, and that the lenders acquired
the right to assume the administration of the Loan if any
of several specified events occurred.
(Doc. 131-4, at 3.) Defendant now complains that this clarification “made it
worse” by specifying particular terms. (Doc. 135, at 18.) The Court does not
agree. Plaintiff contends – and the Court agrees – that it has identified the
agreements at issue, identifying a particular exhibit filed in this case. (Doc. 131, at
17.) Considering that the participation agreements have been at the heart of this
litigation – and that this litigation has been on-going since 2010 – the Court fails to
see how Plaintiff could have been more clear. Defendant’s objection that the
request is “vague” is hereby overruled.
Defendant also objects that the request is not reasonably calculated to lead to
the discovery of admissible evidence because “the Arbitration Award is not the
subject of a collateral attack or a matter in dispute under any issues framed by the
pleadings.” (Doc. 131-3, at 8.) This is also the only objection Defendant raised in
response to Request for Production No. 39. (Id., at 11.) Request No. 39 asks
Defendant to “[a]dmit that WPU did not notify the Arbitrator that WPU has made
payments on the Loan to Kendall State Bank since about September 11, 2008.”
(Doc. 131-3, at 11.)

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Even assuming Defendant’s assertion regarding the absence of a collateral
attack to be correct, the Court does not find this to be dispositive of whether the
information at issue is reasonably calculated to lead to the discovery of admissible
evidence. As noted above, discovery in this matter was reopened after the initial
Pretrial Conference, wherein the undersigned Magistrate Judge granted Plaintiff’s
request to re-open discovery “to determine facts related to the alleged arbitration
and award.” (Doc. 105.) This was done in response to Defendant’s request – over
Plaintiff’s objection – to include in the Pretrial Order “defenses and contentions
related to an arbitration award allegedly received by the Defendant against a third
party within the last 30 days.” (Doc. 105, at 1.)
Given the liberal interpretation of relevance during the discovery phase,
MCI Telecommunications Corp., 137 F.R.D. at 27, the Court finds the
information sought by Requests for Admission Nos. 27 and 39 to be relevant to the
claims and defenses in this case or, at a minimum, to potentially lead to the
discovery of admissible evidence. This objection is, therefore, overruled.
Plaintiff’s motion is GRANTED in regard to Request for Admission No. 27.

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For the reasons set forth above, Defendant’s objections are overruled and
Plaintiff’s Second Motion to Compel (Doc. 130) is GRANTED. Defendant is
given until October 30, 2012, to admit or deny the requests, without objection.
IT IS SO ORDERED.
Dated at Wichita, Kansas, on this 16th day of October, 2012.
S/ KENNETH G. GALE

Kenneth G. Gale
United States Magistrate Judge

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