Commercial Law Corporation, P.C. v. Federal Deposit Insurance Corporation

Filing 115

ORDER OVERULING re 100 Objection filed by Commercial Law Corporation, P.C. Signed by District Judge Sean F. Cox. (JHer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Commercial Law Corporation, P.C.,
Plaintiff,

Case No. 10-13275

v.

Hon. Sean F. Cox

Federal Deposit Insurance Corporation,
as Receiver for Home Federal Savings
Bank,
Defendants.
________________________________/
OPINION & ORDER OVERRULING PLAINTIFF’S
OBJECTIONS TO THE MAGISTRATE JUDGE’S JANUARY 18, 2012 OPINION & ORDER
Plaintiff Commercial Law Corporation, P.C. brought this action against Defendant
Federal Deposit Insurance Corporation, as Receiver for Home Federal Savings Bank (“HFSB”).1
Plaintiff seeks to recover attorney fees for services rendered as Home Federal Savings Bank’s
general counsel prior to the appointment of Defendant as Receiver for HSFB. The matter is
currently before the Court on Plaintiff’s objections to Magistrate Judge Whalen’s January 18,
2012 Opinion and Order denying in part and granting in part Defendant’s Second Motion to
Compel and for Sanctions. The parties have fully briefed the issues and the Court declines to
hold oral argument pursuant to Local Rule 7.1(f)(2). For the following reasons, the Court shall
OVERRULE Plaintiff’s objections.

1

The FDIC, as receiver, is a separate and distinct entity from the FDIC in its corporate
capacity.
1

BACKGROUND
In this case, Plaintiff2 has continuously asserted that it holds valid liens on two properties
belonging to branches of HFSB (the Seven Mile branch and the Woodward branch), and that the
documents relating to these liens were executed on November 1, 2009 – five days prior to the
commencement of the FDIC’s receivership of HFSB. Although Plaintiff is not under any
obligation to record the liens (see M.C.L § 565.25(2)(c)), the liens were not recorded until
January 26, 2010.
On January 18, 2010, Plaintiff sent an email to one of HFSB’s former board of directors,
Helen Coleman. Plaintiff also copied other HFSB board members to the email sent to Ms.
Coleman. One of these board members was Karl Haiser, who produced the email in response to
Defendant’s subpoena duces tecum. In the email, Plaintiff states, “Attached are the documents
were [sic] discussed for your execution and my last invoice. Please contact me with questions or
comments.” (Def’s Mtn., Ex. 1). The email also includes attachments titled, “ATTORNEY
LIEN - Seven Mile” and “ATTORNEY LIEN - Woodward.” (Id.). The lien documents attached
to the email were blank and not signed by Plaintiff or a representative of HFSB.
On August 29, 2011, Defendant filed a Second Motion to Compel Production of
Documents and Things and for Sanctions. (D.E. No. 72). In its motion, Defendant sought
dismissal of Plaintiff’s complaint as a sanction, pursuant to Fed. R. Civ. P. 37. Alternatively,
Defendant sought to compel Plaintiff to produce an exact copy of Plaintiff’s computer drives in
order to determine the date, time, and location of the creation of lien documents prepared by

2

Attorney L. Fallasha Erwin is the sole owner and officer of Plaintiff Commercial Law
Corporation, P.C..
2

Plaintiff and signed by the Director of HFSB. Specifically, Defendant seeks to obtain a mirror
image of Plaintiff’s hard drives that contain the metadata of the original lien documents.
Defendant contends that it has reason to believe that the lien documents were prepared in
January of 2011, after the FDIC became the receiver for HFSB. First, Defendant notes that
Plaintiff did not attach copies and made no mention of its liens on HFSB’s properties when it
filed its “Proof of Claim” to the FDIC in December of 2009. Second, Defendant contends that
the January 18, 2010 email may establish that Plaintiff’s lien claims are without merit, and even
fraudulent, because the liens may have been executed in January of 2010, but were backdated to
reflect that they were executed on November 1, 2009.
Plaintiff filed a response to Defendant’s motion on November 26, 2011, asserting that it
has already produced hard copies of the documents sought by Defendant in their electronic form,
and that Defendant’s requests are merely an excuse to fish through Plaintiff’s computer.
The Court referred this motion to Magistrate Judge R. Steven Whalen for a hearing and
determination pursuant to 28 U.S.C. § 636(b)(1)(A).
Magistrate Judge Whalen issued an Opinion and Order on January 18, 2012, granting in
part and denying in part Defendant’s motion. (D.E. No. 97). Magistrate Judge Whalen denied
Defendant’s motion to the extent that Defendant sought dismissal of Plaintiff’s complaint as a
sanction for failing to produce a mirror image of its computer drives. (1/18/12 Opinion at 3).
Magistrate Judge Whalen explained:
[G]iven that as framed, the requests to produce involved the mirror
imaging of an attorney’s computer – a computer that would almost
certainly contain privileged material – Mr. Erwin was justified in
lodging an objection. Therefore, I will DENY the Draconian
sanction of dismissal. I also DENY Defendant’s request for costs and
attorney fees associated with this motion.
3

(Id.).
Magistrate Judge Whalen held a hearing on this matter on January 12, 2012. (Transcript
of 1/12/2012 hrng., D. E. No. 98). Magistrate Judge Whalen granted Defendant’s motion to the
extent that Defendant sought to compel Plaintiff to produce a mirror image if its computer
drives. (Id.). In the Opinion and Order, Magistrate Judge Whalen set forth detailed instructions
on how the parties were to proceed with obtaining a mirror image of Plaintiff’s computer drives
such that Plaintiff’s privileged materials would be protected. (See Id. at 5-7).
On February 1, 2012, Plaintiff filed objections to the Magistrate Judge’s January 18,
2012 Opinion and Order. (Objections, D.E. No. 100). Defendant filed a response to Plaintiff’s
objections on February 15, 2012. (Def’s Resp., D. E. No. 103).
ANALYSIS
Plaintiff makes the following objections to Magistrate Judge Whalen’s January 18, 2012
Opinion and Order:
(1) Magistrate Whalen improperly granted Defendant's Second
Motion to Compel for the appointment of a forensic computer expert
on an allegation of fraud that has basis in nothing more than a
suspicion that liens documents were backdated.
(2) Magistrate Whalen failed to properly follow the law and Court
Rules on the discovery of electronically stored information by
allowing the appointment of a forensic computer expert without a
showing that extraordinary circumstances warranted the appointment.
(3) Magistrate Whalen improperly concluded the effect of an
inspection [of] CLC's computers without considering all the facts
surrounding the security interest granted by Home Federal Savings
Bank to CLC.
(Objections at 1).

4

Plaintiff’s first asserts that Magistrate Judge Whalen did not have a proper basis for
determining that a forensic analysis of Plaintiff’s computer drives was necessary under the
circumstances. Plaintiff asserts that the January 18, 2010 email was sent by Plaintiff for
informational purposes, and Defendant’s theory of fraud is based on speculation and is not
supported by evidence. Defendant further contends that the a court must find actual proof of an
alleged fraud before granting a party’s request for a forensic search of another party’s computer.
The Court disagrees with Plaintiff and finds that the Magistrate Judge did not err in
ordering that Plaintiff’s computer drives be examined by an expert. If the Court had before it
“actual proof of an alleged fraud,” as Plaintiff contends is required for the Court to grant the
computer inspection, the forensic search of Plaintiff’s computer would serve no purpose.
Contrary to Plaintiff’s position, Magistrate Judge Whalen did, in fact, find that extraordinary
circumstances warranted the inspection of Plaintiff’s computers.
First, under Fed. R. Civ. P. 26(b)(1), “Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party's claim or defense.” FED. R. CIV. P. 26(b)(1).
Additionally, Fed. R. Civ. P. 34 permits parties to “inspect, copy, test, or sample” “any
designated documents or electronically stored information – including writings, drawings,
graphs, charts, photographs, sound recordings, images, and other data or data compilations,” so
long as the data is within the scope of Rule 26(b). FED. R. CIV. P. 26(a)(1). The date Plaintiff
executed the security lien is clearly relevant to a defense against Plaintiff’s attorney lien claim.
Furthermore, in accordance with Rule 26's limitation on the discovery of nonpriveleged material,
Magistrate Judge Whalen ordered the parties to follow a strict and detailed plan to ensure that
Plaintiff’s privileged information is protected.

5

Second, Defendant’s request for a mirror image of Plaintiff’s computers are based on
more than a mere “hunch,” as Plaintiff contends. The Magistrate Judge considered a number of
factors in determining that Defendant had sufficient cause for concern regarding the legitimacy
of the lien documents. Magistrate Judge Whalen stated:
I do find that what is being requested – and what is being
requested is pretty narrow. It's pretty narrow. It's the attorney lien
documents. And I believe you indicated there were two such
documents that purport to have been signed and notarized on
November 1, 2009.
I'm satisfied – and again, I'm not making the ultimate
credibility determination or the ultimate determination of the merits
of this case. But the FDIC has made a sufficient showing that would
call into question the legitimacy of those documents and would call
into question whether in fact they were created at a later date and
then back dated.
Specifically, you know, you have the e-mails that were sent
to – on Ms. Coleman on January 18th of 2010, the blank documents,
"Please sign these.”
You have, at best, ambiguous testimony from the Notary.
You have the fact that the liens weren't filed until January. And I
don't say that's dispositive. You know, there's no legal obligation that
he files those liens. But I think it's at least circumstantial evidence
that makes the defendant's request for the metadata relevant certainly
under Rule 26.
And in any event, you know the defendant is not bound by the
credibility of any of plaintiff's witnesses, be it a notary or be anybody
else. So the information is relevant. It's discoverable.
(Transcript of 1/12/12 hrng. at 38-39).
The Courts finds that the circumstantial evidence presented by Defendant is sufficient to
warrant a forensic search of Plaintiff’s computer. Accordingly, the Court finds that Plaintiff’s
first objection lacks merit.
Plaintiff’s second objection is that Magistrate Judge Whalen erred by granting
Defendant’s request to conduct a forensic search of Plaintiff’s computer despite Defendant’s

6

failure to request metadata and specify the format of documents in its first discovery request.
Based upon the circumstances of this case, the Court agrees that the best way to obtain the
relevant metadata is through a neutral, third-party expert. See Capital Records, Inc. v. Alaujan,
2009 WL 1292977 at *2 (D. Mass., May 6, 2009). It is clear from the parties’ pleadings that
Defendant’s concern regarding the legitimacy of the lien documents intensified during the course
of discovery. Specifically, Defendant did not obtain the January 18, 2010 email until it deposed
Karl Haiser in August of 2011, well after it submitted its first discovery requests to Plaintiff.
Thus, the Court finds that Magistrate Judge Whalen did not err by permitting Defendant to
obtain the metadata of relevant documents via an expert’s forensic search of Plaintiff’s
computer.
In Plaintiff’s third objection, Plaintiff suggests impartiality on the part of Magistrate
Judge Whalen. During the January 12, 2012 hearing, Magistrate Judge Whalen emphasized that
he was not making any findings as to the merits of Defendant’s fraud claim. Instead, he merely
held that the information that Defendant seeks through an inspection of Plaintiff’s computer is
relevant and discoverable. In fact, the record reflects that Magistrate Judge Whalen’s greatest
concern was implementing a process that protected the rights and privileged materials of
Plaintiff. Plaintiff’s claims of bias are unfounded and not supported by the record.
Finally, Plaintiff raises additional issues regarding the intent of Plaintiff and HFSB to
enter into a lien agreement. Plaintiff contends that, even if the lien agreements are defective,
they may be enforced by the Court through an equitable mortgage theory. These are issues that
the Court need not consider at this time. In any event, these are issues that do not make the date
the lien agreements were executed any more or less relevant to a defense against Plaintiff’s lien

7

claim. Plaintiff’s and HFSB’s intent to enter into a lien agreement does not change the fact that,
if true, Plaintiff knowingly and intentionally submitted fraudulent lien documents to Defendant.
The Court finds that Plaintiff’s second and third objections are also without merit.
CONCLUSION
For the reasons stated above, IT IS ORDERED that Plaintiff’s objections (D.E. No. 98)
to Magistrate Judge Whalen’s January 18, 2012 Opinion and Order (D.E. No. 97) are
OVERRULED.
IT IS SO ORDERED.
S/Sean F. Cox
Sean F. Cox
United States District Judge
Dated: April 12, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record on
April 12, 2012, by electronic and/or ordinary mail.
S/Jennifer Hernandez
Case Manager

8