CitiMortgage, Inc. v. Chicago Bancorp, Inc. et al

Filing 138

MEMORANDUM AND ORDER...IT IS HEREBY ORDERED that the motion to compel filed by Defendants The Federal Savings Bank, National Bancorp Holdings, Inc., Stephen Calk, and John Calk is GRANTED in part and DENIED in part, as set forth above. (Doc. No. [1 09].) No later than fourteen (14) days from the date of this Order, Plaintiff CitiMortgage, Inc. shall amend its interrogatory responses so that they comply with Federal Rules of Civil Procedure 33(b)(3) and (5), and shall supplement its responses to Interrogatories 16 and 17 to comply with Federal Rule of Civil Procedure 33(d). Signed by District Judge Audrey G. Fleissig on 11/4/2015. (NEB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

CITIMORTGAGE, INC.,
Plaintiff,
v.
CHICAGO BANCORP, INC., et al.,
Defendants.

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Case No. 4:14CV01278 AGF

MEMORANDUM AND ORDER
This matter is before the Court on the motion (Doc. No. 109) of Defendants The
Federal Savings Bank (“FSB”), National Bancorp Holdings, Inc. (“NBH”), Stephen Calk,
and John Calk (collectively, the “FSB Defendants”) to compel discovery from Plaintiff
CitiMortgage, Inc. (“CMI”). For the following reasons, the motion to compel shall be
granted in part and denied in part.
BACKGROUND
In this lawsuit, CMI asserts a breach of contract claim against Defendant Chicago
Bancorp, Inc and several vicarious liability claims against the FSB Defendants. The
lawsuit arises out of a contract between CMI and Chicago Bancorp, under which CMI
purchased residential mortgage loans from Chicago Bancorp and required Chicago
Bancorp to repurchase any loans that CMI determined were improper. CMI claims that
Chicago Bancorp breached this contract by refusing to purchase certain loans.

CMI seeks to hold the FSB Defendants vicariously liable for Chicago Bancorp’s
breach. In its claims against the FSB Defendants, CMI asserts that Defendants Stephen
and John Calk, brothers and owners of Chicago Bancorp, unlawfully stripped Chicago
Bancorp of its assets and transferred the assets to their other companies, NBH and its
subsidiary, FSB, for the purpose of avoiding any judgment awarded to CMI. Thus, CMI
asserts fraudulent transfer, alter ego, and successor liability claims against the FSB
Defendants.
In connection with these claims, the FSB Defendants have asserted numerous
defenses, including equitable defenses of unclean hands and laches. The FSB Defendants
assert that CMI’s claims against them, and the corresponding defenses, are governed by
Illinois law.
The FSB Defendants have filed a motion to compel seeking documents and
interrogatory responses related to CMI’s loan programs, which the FSB Defendants assert
support their equitable defenses. The parties dispute the scope of the equitable defenses
and, likewise, the scope of discovery relevant to these defenses. CMI asserts that the
defenses must be limited to the transactions at issue in this case—namely, either the loans
and repurchase decisions at issue in CMI’s breach of contract claim against Chicago
Bancorp or the transfer of assets at issue in CMI’s veil-piercing claims against the FSB
Defendants.
The FSB Defendants’ theory of their equitable defenses is much broader. The
FSB Defendants argue that because CMI may use its veil-piercing allegations to bring
future claims and lawsuits against the FSB Defendants, the FSB Defendants may defend
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against CMI’s claims by asserting that CMI had unclean hands and acted otherwise
inequitably not just with respect to the transactions at issue in this case but with respect to
CMI’s loan programs as a whole. Thus, the FSB Defendants assert that they are entitled
to discovery regarding CMI’s conduct in the residential home mortgage market generally.
In addition to this discovery, the FSB Defendants move to compel discovery that
is more closely related to the loans at issue in this case. The FSB Defendants served two
interrogatories (Interrogatories 16 and 17) asking CMI to state, for each loan set forth in
CMI’s complaint, the date on which CMI first learned that the loan was defective and the
date on which the secondary purchaser to whom CMI sold the loan demanded repurchase.
The FSB Defendants assert that this discovery is relevant to their laches defense because
it will show that CMI unreasonably delayed bringing suit.
CMI objected to this discovery, too, as irrelevant. Notwithstanding its objection,
CMI stated that it would produce documents from which the FSB Defendants could
determine the requested information. Specifically, CMI states that it is producing, or has
produced, loan files as they are kept in the ordinary course of business. The FSB
Defendants assert that these loan files consist of 28,000 pages of documents, from which
the relevant dates cannot be easily ascertained. The FSB Defendants assert CMI should
be compelled to provide complete responses Interrogatories 16 and 17.
Finally, the FSB Defendants also assert that CMI failed to verify its interrogatory
responses and, instead, only CMI’s counsel signed the interrogatories. The FSB
Defendants assert that CMI’s failure to comply with verification requirements under the
Federal Rules of Civil Procedure should result in CMI’s objections being waived. CMI
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responds that the interrogatories do not require verification because its answers were
based on analysis by counsel and did not require factual investigation or input from
employees of CMI.
DISCUSSION
As an initial matter, the Court concludes that the FSB Defendants’ equitable
defenses, such as unclean hands, are limited to the transactions that are the subject matter
of this litigation. Intercon Solutions, Inc. v. Basel Action Network, 969 F. Supp. 2d 1026,
1064 (N.D. Ill. 2013) (“Under Illinois law, the doctrine of unclean hands prevents a party
from obtaining equitable relief if that party has itself has engaged in misconduct in
connection with the subject matter of the litigation.”). “General impropriety and
misconduct that is not directed at the other party or that is tangential to the transaction at
issue is insufficient to give rise to a defense under the doctrine of unclean hands.” Id.
aff’d, 791 F.3d 729 (7th Cir. 2015).
Upon review of the discovery requests at issue in the FSB Defendants’ motion to
compel, the Court concludes that the majority seek information far beyond the scope of
the transactions that are the subject matter of this litigation. The requests seek
information concerning CMI’s handling of any and all loans purchased from any party
under any loan correspondent agreement, information concerning all of CMI’s stated
income and stated asset mortgage products, and information concerning CMI’s
settlements with government and quasi-government agencies related to the sale of any
financial product involving mortgages. The requests do not limit the requests to
information concerning the transactions at issue in this case.
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As CMI correctly notes, several judges within this District have denied motions to
compel similar discovery requests, in cases involving loan repurchase claims nearly
identical to this one, because such requests were beyond the scope of discovery. See,
e.g., CitiMortgage, Inc. v. Allied Mortg. Grp., Inc., No. 4:10CV01863 JAR, 2012 WL
1554908, at *4-5 (E.D. Mo. May 1, 2012); CitiMortgage, Inc. v. First Calif. Mortg. Co.,
No. 4:10CV01498 RWS, Doc. No. 70 (E.D. Mo. Nov. 29, 2011); CitiMortgage, Inc. v.
Just Mortg., Inc., No. 4:09 CV 1909 DDN, 2011 WL 1626584, at *4 (E.D. Mo. Apr. 28,
2011). The FSB Defendants attempt to distinguish these cases by arguing that the
discovery sought in these cases was directed to defenses against contractual repurchase
claims only (i.e., defenses similar to the ones that Chicago Bancorp may assert in this
case), and not veil-piercing claims like the ones asserted against the FSB Defendants
here. It is true that the subject matter of this litigation extends beyond CMI’s traditional
loan repurchase claims. As a result, available defenses may relate not only to the loans
and repurchase decisions at issue in CMI’s contract claims, but also to the alleged
stripping of assets at issue in CMI’s veil-piercing claims. But the FSB Defendants do not
allege that the disputed discovery requests relate to either subject. The requests should be
limited to information regarding how CMI conducted itself with respect either to the
loans at issue in this case or to the purported stripping of assets at issue in this case.
Because the FSB Defendants’ requests are, for the most part, not so confined, the motion
to compel will be largely denied.
However, the Court will grant the motion to compel in two respects. First, the
Court concludes that CMI’s interrogatory responses must be verified. Under Federal
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Rule of Civil Procedure 33, “interrogatories must be answered . . . by the party to whom
they are directed.” Fed. R. Civ. P. 33(b)(1)(A). Further, “[e]ach interrogatory must, to
the extent it is not objected to, be answered separately and fully in writing under oath.”
Fed. R. Civ. P. 33(b)(3). Finally, Rule 33(b)(5) requires that “[t]he person who makes
the answers must sign them, and the attorney who objects must sign any objections.”
Fed. R. Civ. P. 33(b)(5).
Notwithstanding its extensive objections, CMI answered the interrogatories in
part. The interrogatories were directed to CMI, not counsel, and although counsel may
assert objections, CMI must answer the interrogatories, under oath, to the extent that
counsel has not objected. CMI offers no authority for the proposition that Rule 33’s
verification requirements can be thwarted simply by having counsel analyze and answer
interrogatories. Rather, courts have enforced Rule 33’s verification requirements strictly.
See Johnson v. Derhaag Motor Sports, Inc., No. 13-CV-2311 SRN/FLN, 2014 WL
5817004, at *8 (D. Minn. Nov. 10, 2014) (ordering that a responding party must amend
his answers to interrogatories to comply with the signature and verification requirements
of Rules 33(b)(3) and (5)); Impact, LLC v. United Rentals, Inc., No. 4:08CV00430 JLH,
2009 WL 413713, at *14 (E.D. Ark. Feb. 18, 2009) (holding same, where interrogatories
were signed only by an attorney and not under oath). Although the Court does not find
that CMI’s failure to verify its interrogatory responses renders its objections waived, the
Court does find that CMI must amend its interrogatory responses so that they comply
with Rules 33(b)(3) and (5).

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Second, CMI must supplement its responses to Interrogatories 16 and 17. These
interrogatories are appropriately tailored to the subject matter of this litigation and simply
ask when CMI first learned of the defects in the loans at issue in this case. Federal Rule
of Civil Procedure 33(d) allows parties to respond to interrogatories by producing
business records “if the burden of deriving or ascertaining the answer will be
substantially the same for either party.” Fed. R. Civ. P. 33(d). However, in doing so, the
party must specify the records in sufficient detail to enable the interrogating party to
locate and identify the necessary information. Id.
“[T]he option afforded by Rule 33(d) is not a procedural device for avoiding the
duty to give information.” Handi-Craft Co. v. Action Trading, S.A., No. 4:02 CV 1731
LMB, 2004 WL 6043510, at *5 (E.D. Mo. May 21, 2004). “Further, the responding
party may not avoid answers by imposing on the interrogating party a mass of business
records from which the answers cannot be ascertained by a person unfamiliar with them.”
Id. “Rather, the responding party has a duty to specify by category and location the
records from which he knows the answers to the interrogatories can be found.” Id. It
does not appear that CMI has complied with Rule 33(d) in responding to Interrogatories
16 and 17, and CMI must therefore supplement these responses.
CONCLUSION
For the reasons set forth above, the FSB Defendants’ motion to compel will be
granted in part and denied in part. The Court notes that this is the third of four discovery
motions that have been filed by the parties in this case. Requiring the Court to rule on the
pending motions has ultimately afforded the parties less time within which to complete
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the bulk of the discovery the motions have sought. Discovery closes in two months. The
Court strongly urges the parties to use that time to work in good faith to focus discovery
on the issues necessary to resolve this litigation, rather than expending any additional
resources on motion practice.
Accordingly,
IT IS HEREBY ORDERED that the motion to compel filed by Defendants The
Federal Savings Bank, National Bancorp Holdings, Inc., Stephen Calk, and John Calk is
GRANTED in part and DENIED in part, as set forth above. (Doc. No. 109.) No later
than fourteen (14) days from the date of this Order, Plaintiff CitiMortgage, Inc. shall
amend its interrogatory responses so that they comply with Federal Rules of Civil
Procedure 33(b)(3) and (5), and shall supplement its responses to Interrogatories 16 and
17 to comply with Federal Rule of Civil Procedure 33(d).

_______________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 4th day of November, 2015.

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