JPMorgan Chase Bank, N.A. v. Winget et al

Filing 321

MEMORANDUM and ORDER denying 267 Defendants'/Counter-Plaintiffs' Motion to Compel Discovery on Counts II and III. Signed by District Judge Avern Cohn. (JOwe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

JP MORGAN CHASE BANK, N.A.,
Plaintiff/Counter-Defendant,
v.

Case No. 08-13845

LARRY WINGET and the LARRY WINGET
LIVING TRUST,

HON. AVERN COHN

Defendants/Counter-Plaintiffs.
___________________________________/
MEMORANDUM AND ORDER DENYING DEFENDANT/COUNTER-PLAINTIFFS’
MOTION TO COMPEL DISCOVERY ON COUNTS II AND III (Doc. 267)
I. Introduction
This is a commercial finance dispute. Plaintiff/Counter-Defendant JPMorgan
Chase Bank, N.A. (Chase) is the Administrative Agent for a group of lenders that
extended credit to Venture Holdings Company, LLC (Venture) under a Credit
Agreement.1 Chase is suing defendants/counter-plaintiffs Larry Winget (Winget) and
the Larry Winget Living Trust (Winget Trust) to enforce a guaranty and two pledge
agreements entered into by Winget and the Winget Trust in 2002 in which they
guaranteed the obligations of Venture, a company owned and controlled by Winget
and/or the Winget Trust. Chase makes three claims, as follows:
Count I

Enforcement of Guaranty Against the Winget Trust

Count II

Enforcement of Guaranty Against Winget

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Bank One, NA, was the Administrative Agent for the lenders. It merged with JP
Morgan in 2004 to form JP Morgan Chase Bank, N.A.

Count III

Enforcement of Pledge Agreements Against Winget and the Winget
Trust

As to Count I, Winget and the Winget Trust have filed a counterclaim seeking
reformation of the Guaranty. A bench trial on the counterclaim is scheduled to begin on
Monday, August 6, 2012.
Before the Court is Winget and the Winget Trust’s motion to compel discovery on
Counts II and III. For the reasons that follow, the motion is DENIED.
II. Discussion
A. Background
On January 21, 2009, the Court stayed proceedings on Counts II and III on the
grounds that proceedings on Count I may moot Counts II and III. (Doc. 19). The parties
then engaged in discovery on Count I, which resulted in several matters referred to a
magistrate judge for resolution. (See Docs. 84, 85, 139, 158,164, 175).
Following the denial of Chase’s motion for summary judgment on Count I (Docs. 211,
214), the Court lifted the stay on Counts II and III. (Doc. 213).
On December 19, 2011, the Court entered a Pretrial Order (Doc. 217) which
states in part:
1.
...
7.

8.

Discovery and related matters are completed except as described in
Paragraph 7 below. No motions are pending.
Defendant may have limited discovery in the form of deposing the
employee of the Agent most knowledgeable regarding the reasonable
efforts of the Agent to collect on the other collateral as described in
paragraph 5.2 of the Pledge Agreements. Such deposition shall be taken
by January 31, 2012. As a preliminary to the deposition, defendants shall
advise the Agent of such documents the employee shall familiarize
himself/herself with. Defendant following the deposition shall have the right
to request enlargement of the discovery on cause shown.
Any objections or modification request to this order shall be filed within five
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business days.
On January 3, 2012, the Court issued a modification to the pretrial order (Doc.
220) which states in part:
1.
Plaintiff shall make available by January 9, 2012, for inspection and
copying by defendants, the full Credit File relating to the Venture loan which is
the subject matter of this case.
On April 2, 2012, following Winget and the Winget Trust’s motion for expansion
of discovery the Court entered an order which, inter alia, granted the motion and
reserved Chase’s right to move to limit discovery on Counts II and III. (Doc. 251). The
Court also set a close for discovery of September 30, 2012 as to Counts II and III.
Thereafter, Winget and the Winget Trust sought to obtain electronaically stored
information (ESI) which it says were responsive to Defendants’ December 4, 2008
Requests for Production of Documents related to Counts II and III; and/or production of
any ESI previously extracted.
Chase objected on the ground that “the Pledge Agreements are unambiguous,
and the only relevant discovery is to identify ‘other collateral’ that has not yet been
collected on…None of the discovery requested in the Letters is relevant to this issue.”
(Ex. 6 to Defendants’ Motion, May 14, 2012 Letter.) In a subsequent letter, Chase
confirmed that it would “not agree to any discovery of any sort as to documents created
or events that occurred prior to May 3, 2005 [the date of closing for Venture bankruptcy
sale],” asserting that res judicata bars defenses based on pre-bankruptcy sale activities.
(Ex. 7 to Defendants’ Motion.).
Winget and the Winget Trust raised the discovery issue with the Court following
the hearing on Chase’s Daubert motion relating to the issues in the August 6, 2012 trial
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on May 21, 2012. An informal discussion with the Court and counsel for the parties
followed; the parties were unable to reach agreement. Winget and the Winget Trust
then filed the instant motion to compel.
B. Counts II and III
Count II seeks a judgment on Chase’s rights under the Winget Guaranty. The
last paragraph of §3 of the Winget Guaranty provides:
Notwithstanding anything herein or elsewhere to the contrary, no action will be
brought for the repayment of the Guaranteed Obligations under this Guaranty
and no judgment therefor will be obtained or enforced against Larry Winget other
than with respect to the Pledged Stock in accordance with the provisions of the
related pledge agreements.
The Guaranty requires that Chase satisfy certain conditions precedent prior to
enforcement of its rights under the Winget Guaranty.
The pledge agreement—which is the subject of Count III of Chase’s
Complaint—is Winget and the Winget Trust’s pledge of stock in P.I.M. Management
Company, L.L.C. (PIM). Each pledge agreement has a “Last Resort” provision under
paragraph 5.2 which states in relevant part:
Notwithstanding anything herein or elsewhere to the contrary, the
Agent shall not exercise any rights or remedies under this Pledge
Agreement until all reasonable efforts shall have been made by it
to collect the Guaranteed Obligations from other collateral held by
the Agent (other than the stock of [P.I.M. Management Company],
Venture Asia Pacific (Pty) Ltd., Venture Holdings B.V. or Venco
#1, L.L.C.), it being intended that the Collateral provided by this
Pledge Agreement [. . .] shall be realized upon by the Agent only
as a last resort.
(Emphasis in original).
In order to establish its right to enforce either the Winget Guaranty or Winget’s

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Pledge of PIM, Chase must prove, at a minimum, that it first undertook “all reasonable
efforts” to collect the debt from “other collateral.”
C. Winget and the Winget Trust’s Argument
Winget and the Winget Trust say that a comparison of Chase’s pre-trial witness
list for Counts II and III with Chase’s witness list for Count I shows that the proofs
relevant to Counts II and III require different witnesses from those who will be called to
testify as to Count I, many of whom have never been deposed or even been previously
disclosed, and none of whom have been examined with regard to the claims and
defenses relevant to Counts II and III. Winget and the Winget Trust also say that their
defense to Counts II and III is that Chase failed to satisfy the condition precedent of
“reasonable efforts,” and is thus barred from enforcement of the Winget Guaranty
and/or the related Pledge Agreements. As such, Winget and the Winget Trust says
they need information relating to any efforts Chase made to collect from other collateral.
D. Chase’s Argument
Chase agrees that discovery on Counts II and III is appropriate, specifically as to
whether, under the Last Resort provisions of the pledge agreements Chase has made
all reasonable efforts to collect on other collateral before enforcing the pledges.
However, Chase says that Winget and the Winget Trust have requested discovery that
goes far beyond this narrow issue.
Chase previously raised two objections to the discovery in letters to defendants
and in its response to the motion to compel:
1. [T]he Pledge Agreements are unambiguous, and the only
relevant discovery is to identify “other collateral” that has not yet
been collected on. None of the discovery requested in the Letters
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is relevant to this issue. Instead, the requested discovery appears
targeted at the parties’ “intent” in agreeing to the Pledge
Agreements. Such parol evidence is irrelevant because the
Agreements are unambiguous. (Ex. C (May 14, 2012, Letter from
Melville W. Washburn to John E. Anding).)
2. Judge Cohn has previously ruled, and the Sixth Circuit has
affirmed, that you are barred by res judicata from re-litigating
issues that your client should have raised in the Venture and
Deluxe Bankruptcy Proceedings. . . . Thus the reasonableness of
the Agent’s efforts to collect on collateral during the Bankruptcy
Proceedings is not open to review in this proceeding. Based on
these prior rulings . . . events that occurred prior to the § 363 Sale
are not subject to discovery under Counts II and III. Such events
are irrelevant to the plain meaning of the Defendants’ Pledge
Agreements, and litigation regarding actions under the aegis of the
bankruptcy court is barred by res judicata.
Chase again says that the requested discovery is extremely broad. For example,
Winget and the Winget Trust requested ESI (i) generated from October 1, 2002, through
October 28, 2005, the same period as for Count I discovery; (ii) from two more
custodians than was requested for Count I discovery; and (iii) based on broad search
terms that would likely return not only every reference to the Pledge Agreements but a
substantial amount of unrelated material as well. Chase also says that Winget and the
Winget Trust have requested new responses to several prior interrogatories and
document requests, including regarding Chase’s protocols and procedures for retrieving
documents, the identity of the Ernst & Young Corporate Finance (EYCF) personnel with
whom Chase worked to retrieve EYCF documents, and any written joint defense
agreements executed by the Chase. EYCF documents predate the Venture bankruptcy
sale. Chase says it is not in possession of any written joint defense agreements, nor
are such agreements relevant to Counts II and III.

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III. Conclusion
Fed. R. Civ. P. 26(b)(1) provides that “[p]arties may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or defense” “[T]he party
seeking the information bears the burden of showing its relevance.” Hennigan v. Gen.
Elec. Co., 2010 WL 4189033, at *3 (E.D. Mich. Aug. 3, 2010). Furthermore, the
information sought must be relevant to a legally viable claim or defense; i.e., if the
information is only relevant to a claim that fails as a matter of law, the information is not
relevant for Rule 26(b) purposes.
Chase’s position is well-taken. The only disputed issue relating to Counts II and
III is whether Chase has satisfied the Last Resort provision of the pledge agreements.
This is Winget and the Winget Trust’s defense to enforcement. The issue for discovery
is whether there is any more “other collateral” that Chase has not yet made reasonable
efforts to collect on which remains unliquidated before seeking to enforce the pledge
agreements against Winget and the Winget Trust.
To this end, it is notable that despite being afforded discovery targeted to this
very issue, see Doc. 217, Winget and the Winget Trust have not been able to identify
any of the “other collateral” that is the subject of the pledge agreements. According to
Chase, almost all information about any remaining “other collateral” is a matter of public
record in the Venture and Deluxe bankruptcies, in which Winget and the Winget Trust
actively participated as the beneficial owners of the “other collateral.”
Winget and the Winget Trust offer two theories to justify more discovery: (1) that
Chase’s actions during the Venture and Deluxe bankruptcy proceedings violated the
Last Resort provision; (2) that the parties intended the pledge agreements
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satisfied once certain other pledges were executed, and the pledge agreements are
ambiguous. Neither of these theories justify a broad discovery request beyond what
already has been ordered.
As to the first theory, Winget and the Winget Trust say that Chase did not make
“all reasonable efforts” because it decided “not later than June 2003 to eschew
collection of the debt from its collateral under the 8th Amendment in favor of pursuing
$150 Million in assets that were not part of its collateral, namely Winget’s assets in
South Africa and Australia.” (Doc. 243 at 14, 18.) In other words, Winget and the
Winget Trust contend that in June 2003—three months after Venture voluntarily filed a
Chapter 11 petition—Chase unreasonably chose to negotiate with Winget and the
Winget Trust and other interested parties to reorganize Venture, rather than move to
terminate the Chapter 11 proceeding and immediately liquidate all of the collateral. This
was unreasonable, they say, because a sale in June 2003 might have fetched a higher
price for most of the collateral than the bankruptcy sale yielded two years later. This is
the same allegation of a “scheme” that Winget and the Winget Trust raised in its 2006
complaint, which the Court dismissed and the Sixth Circuit affirmed. Winget v.
JPMorgan Chase Bank, N.A., 537 F.3d 565, 570–71 (6th Cir. 2008) (describing the
claim brought in that case and in the bankruptcy case). In the 2006 case, the Court and
the Sixth Circuit both held that res judicata bars such a claim. Id. at 572, 577–81;
Winget v. JPMorgan Chase Bank, N.A., 2007 WL 715342, at *3–4, 7–10 (E.D. Mich.
Mar. 7, 2007). The same result applies here. Events prior to May 2, 2005, the date the
Venture bankruptcy sale closed, are not relevant to the issue which is the subject of
Counts II and III. Winget and the Winget Trust are not entitled to discovery related to
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that time frame.
The Sixth Circuit, in affirming the Court’s dismissal of the 2006 case, framed the
scope of Winget and the Winget Trust’s challenge to Counts II and III:
. . . to the extent that Winget’s claims challenge [Chase’s] compliance with the
Last Resort Conditions, such claims are premature. These claims are premature
because [Chase has] not yet enforced the Guaranty Documents; when they do
so, Winget may then bring a claim that [Chase’s] actions violated the Last Resort
Conditions.
Winget, 537 F.3d at 581. Whether Chase has complied with the Last Resort conditions
is the only issue which is properly the scope of discovery for Counts II and III. Chase
does not disagree. As the Court already ruled, information relative to this issue is
discoverable.
SO ORDERED.

S/Avern Cohn
AVERN COHN
UNITED STATES DISTRICT JUDGE

Dated: August 1, 2012

I hereby certify that a copy of the foregoing document was mailed to the attorneys of
record on this date, August 1, 2012, by electronic and/or ordinary mail.

S/Julie Owens
Case Manager, [phone]

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